Against the backdrop of adverse Gross Domestic Product, GDP figures reported for the second quarter of 2020, Q2’20, many industry leaders have painted a gloomy picture of the implications.
GDP Report of the Nigeria Bureau of Statistics (NBS) released on Monday showed the economic downturn of -6.1%. The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) said the report reflected total economic closure in the quarter while Nigeria Employers’ Consultative Association (NECA) warned that the economy is sliding towards pre-2016 recession.
Speaking to Vanguard, Director-General, NACCIMA, Amb. Ayo Olukanni, said: “This index reflects the near-total closure of the Nigerian economy for the months of April to June 2020. The COVID-19 pandemic during the period, led to workforce depletion, either through Coronavirus infection or the mitigation policies of social distancing and isolation to stop the exponential spread.
“The pandemic also affected the global price of crude oil and consequently a negative impact on government revenue and foreign exchange reserves.
“We project that by the end of the year, Nigeria would “officially” be in the state of economic recession with the speed of recovery (as always) depending on government policies.
“We counsel that government at all levels resist the urge to tax or place an economic burden on the citizenry, as this will stifle economic activity and persist the cycle of recession. Rather, we counsel that the government at all levels adopt policies that mitigate workforce depletion (i.e. encourage production processes that reduce corona-virus infection, emphasize early detection with adequate facilities for isolation and treatment) and stimulate economic activity by creating a regulatory environment that ensures that citizens take on productive activities.
“In our opinion, this approach, combined with a shift in focus from lump-sum taxation to consumption and/or sales taxes will create the appropriate environment for a quick recovery from economic recession.”
Economy sliding towards pre-2016 recession — NECA
Director-General, NECA, Dr. Timothy Olawale, said: “The economic data released by NBS is a call to urgent action. The economic contraction, leaving GDP growth rate at -6.10% is not only alarming but also worrisome. While it was expected that the COVID-19 pandemic would create economic shock and disrupt business activities, recent releases have shown that the level of shock and disruption was highly underestimated.
“It is highly worrisome that the economy is facing unusual times, similar to the pre-2016 recession. A period of increasing inflation, unprecedented high youth unemployment and underemployment rate, the dwindling value of the Naira occasioned by limited access to foreign exchange, and a negative growth rate. This season calls for a re-appraisal of monetary and fiscal policies to stabilize the economy in order to reduce the social-economic consequences of a major recession.”
Proposing a way out of the downward slide, Olawale urged the government to “take a bold step in stopping the slide by refocusing monetary and fiscal policies to support economic sectors that have potential for large scale production and employment as a means to kick-start the economy and arrest the negative growth; foreign exchange should be channeled to the real and productive sectors to increase capacity utilization and pull other sectors in the value chain along with it; total deregulation of the downstream oil sector and a more deliberate effort at curbing wastage and leakages in government”.
Insurance always first casualty — Operators
Managing Director, Continental Reinsurance Plc, Dr. Femi Oyetunji, said that the first casualty in a major economic downturn in the insurance sector.
Oyetunji said: “When there a major downturn in the economy, the first casualty is insurance because there is low activity, less profitability and everybody is looking for where to minimize their expenses, so insurance suffers. It also affects the value of assets being insured because when businesses in manufacturing companies are not functioning to full capacity, it obviously reduces insurable assets.”
Also speaking, Managing Director, FBN Insurance, Mr. Val Ojumah said that once the economy of the country is affected, it will affect insurance.
Ojumah said: “The implication of a decline in GDP is that there will be less money to do several things including capital and recurrent expenditure. With the decline in GDP, government expenditure will drop significantly or have dropped and what it means is that the government won’t have money to carry out several capital expenditures that are supposed to be carried out, which also means job losses. All of these are all negative to all sectors of the economy including insurance.”
Recession expected in Q3— David Adonri
Reacting to the fall in GDP, Executive Vice-Chairman, High Cap Securities Limited, Mr. David Adonri said: “According to NBS, GDP contracted by -6.10% and simultaneously, the inflation rate rose to 12.82% in Q2’2020. That GDP growth rate will be negative in Q3, heralding a recession, is a foregone conclusion. IMF’s forecast for GDP growth rate at year-end is -5.4%.
“Inflation rate has risen in Nigeria for ten straight months, moving steadily from 11.02% in August 2019 to 12.82% in June 2020. It is expected to reach 15% in December 2020 according to the forecast made in the recent Nigeria Economic Sustainability Plan (NESP).
“This is the second time in five years and under the same administration that Nigeria’s economy is falling into stagflation. Signs of weakness in the economy were apparent in Nigeria before the onset of COVID-19 in February 2020. As a result of its fragility, early in January 2020, Moody’s & Fitch had downgraded Nigeria’s economy from stable to negative. The widespread devastation of the pandemic whose intensity surpasses the 2008 global financial crisis, only worsened the country’s steadily deteriorating economy.
A lasting solution is the reversal of Nigeria’s economic structure away from primary products export and manufactured goods import dependence. Additionally, the socio-political environment hampered by the effects of population explosion, lack of unity in diversity, and pretentious federalism must be addressed to foster the social harmony necessary for peace and economic progress.”
Not much impact on the stock market — Omorodion
Also reacting, Analyst and Chief Operating Officer, InvestData Limited, Ambrose Omorodion said: “The struggling economy since the last recession in 2016 has been on one step forward and two backward, due to policy somersaults, insecurity and lack of coordination among government agencies, monetary and fiscal authorities.
The coronavirus outbreak has finally exposed the weak economic reforms and propelled the worse contraction since 2004 as Q2 GDP returned to the negative territory by -6.1% from the Q1 position of 1.87%. “The stock market Q2 performance was positive and there was a great disconnection from the economic downturn for that period, as traditional sectors like oil and gas, consumer goods, banking, and services suffered a setback as reflected in the corporate earnings from these industries.
“The negative GDP will not have much effect on the market because it’s a historical data and the economy is likely to look up at end of Q3 with all these CBN moves to restart the economy again.”