In September 2018, The Governor of the Central Bank, Godwin Emefiele declared that the Nigerian Economy in 2019 is likely to face a recession. He pointed to the lower than expected growth rate which saw 1.9% & 1.52% in successive quarters as opposed to the 1.95% growth rate forecast. As head of the Monetary Policy Committee (MPC), he saw the need to alert the country especially the Government to the danger that loomed as divined by the economic indices. One needs only look to 2015 for evidence of his prophetic ability and astute reading of economic data. Then, he had similarly as Chairman of the MPC and Governor of the Central Bank stated that Nigeria was likely to see a recession in 2016 and had given several suggestions as to how to avert that possibility. However, his advice was not heeded owing to the fact that 2015 was an election year and Politics often takes precedence over economic prudence at such times. So it was that by 2016, we had a recession; the worst (at the time) we had seen in 27 years.
What is a Recession?
A recession is a period of temporary economic decline generally identified by a fall in Gross Domestic Product (GDP) in two successive quarters. At its basic form, it is an instance of withdrawal, a period of reduced economic activity which can be said to be owed to the weak economic state prevailing in the country.
Why is there likely to be a Recession in 2019?
The reason we are likely to have a Recession in 2019 despite the forewarning of the Governor of the Central Bank is multifaceted but ultimately can be summarized in one word; ‘Politics’.
In the years preceding election, Governments (especially in this part of the world) spend in fiscally irresponsible ways. In a bid to please the people or in a bid to show progress of some sort, they overextend the national treasury to the detriment of economic stability. It is a fact that in the three and half years that President Buhari has been in power, his government has had (comparatively) the highest rate of borrowing both (externally and domestically) of any other regime from 1999 till date. It is also very clear that this period has witnessed the worst devaluation of the currency in history. Thus, under pressure to show dividends, the government is likely to throw sound economic advice out the window and proceed with programs with populist appeal such as Trader Moni, N-Power and P-YES instead of shoring up the national treasury in anticipation of the economic shock.
Asides from the imprudent expenditure by government, investor confidence is often low in election years and this is as a result of the fear of potential instability that can be caused by a violent election or a change of government with its attendant change in policies. This can potentially see the exfiltration of capital from the country and further destabilization of the economy, especially the capital markets.
The last reason why a recession is likely this year is as a result of Global economic headwinds. Many economists are predicting a potential global economic downturn. Seeing as 2018 for many Western economies saw the highest growth of their stock markets, coupled with the fact that this growth boom has been sustained for close to a decade now, many market watchers believe that an economic shock is on the horizon. The resultant effect of this belief is increasingly more conservative investments, lower foreign direct investment and greater likelihood of withdrawal of operations from volatile developing/emerging markets.
Thus, with these 3 facts -imprudent expenditure, lowering investor confidence and global economic headwinds- feeding into the underlying problem which is politics and the heated polity, it is very clear that the advice of the monetary policy committee and the Governor of the Central Bank that a recession imminent is set to come to pass.
When recession looms, especially in an election year, those seeking political office must prepare for very harsh economic realities. Seeing as there is likely to be less revenue available for governance due to lower commodity prices (if a global economic shock occurs) or lower tax-based revenues due to the economic downturn. Thus, you have to prepare for that eventuality by moderating the revenue expectation and formulating a plan to seek alternative revenue streams for government, lest it suffer short falls in its recurrent expenditure leading to late or nonpayment of salaries and other undesirable consequences.
To the average Nigerian who is employed -such a person fortunate to not be among the 23.1% of the population who’re unemployed is not truly average anyways-needs to be fiscally prudent, saving as much as possible, minimizing debt, maximizing the acquisition of appreciable assets especially those that are robust against inflation e.g. acquiring land, real estate, gold etc. these are assets that stay valuable despite inflation because they rise in tandem with it. Refrain from investing in depreciating assets e.g. cars. Assets that cannot easily be converted into cash might be a problem as well.
To an unemployed Nigerian, there is little to nothing you can do except pray and vote. Pray that your employed relatives don’t get laid off and vote for whoever has any modicum of economic expertise because it is going to be of crucial importance in deciding the way the rest of the year pans out.
A RECESSION COMETH! WE ALL BETTER BE PREPARED FOR IT.