Economic recession is one of the most used words of the minister of finance, Zainab Shamsuna regarding the Nigerian economic situation. Lately, she made a statement that Nigeria is entering her worst recession in thirty-one (31) years. Most of all, we do not understand what she meant. Some see it as a form of economic stagnation or devastation. But is economic recession all about economic devastation and stagnation? In this article, I will be unfolding the true meaning of economic recession and the effect of the economic recession in Nigeria. Firstly, let’s look at the Nigerian economy.
The Nigerian economy
Nigeria practices a mixed economy system that is characterized by an emerging market.
And also expanding construction, manufacturing, service, communication, and technology and entertainment sectors.
Nigeria is said to have the largest economy in Africa.
In terms of nominal GDP, Nigeria is mention 27th in the world.
While in terms of purchasing power, Nigeria is rank the 22nd largest in the world.
Nigeria’s economy is 70% dependent on crude oil which has been the major source of revenue to her.
The Nigeria economy is mention as a “lower-middle-income” economy.
What happens in a recession?
Firstly, recession can defined as a significant decline in economic activity in the country, as consumers and businesses spend less money.
The next questions are what happens in a recession?
Will it affect the citizens badly?
Will it affect their standard of living?
And will it result in stagnation in the whole country?
Also, will the government be affected?
These and many more are worth pondering on when trying to understand the happenings in a country during economic recession.
During an economic recession, there will be:
1. Increase in national debts:
Recession lowers the economic activities in the country.
This results in increased spending on the side of the government to help stabilize the situation.
As a result of low GDP caused by lowered economic activity, the government may have no choice than to borrow to sustain their countries.
2. The layoff of workers:
During a recession, many workers are being laid off, especially in the construction and banking sectors, while the remaining workers get their salaries slashed down.
3. Increased in prices of commodities:
During a recession, the prices of commodities shoot up.
The country experiences an increase in the inflation rate, which leads to a high cost of living.
4. A decline in the value of investments:
Due to the high inflation rate in the economy, investments in the country will lose value in the international sphere.
This will also chase away investors.
5. Reduction in business revenue:
Economic recession leads to fewer gains or losses among business owners.
Characteristics of a recession
Recession, as regarded as the general downturn of a country, can be characterized by:
1. Reduction of Real GDP:
During a Recession, the Gross Domestic Product (GDP) is lowered as a result of the decline in the production of commodities and generation of internal revenue.
2. Economic stagnation:
Recession leads to stagnation and closure of industries and manufacturing companies.
The value of the manufactured goods deteriorates, coupled with the lowered purchasing power of the consumers.
3. Increase in the rate of unemployment:
This can be seen during the great depression, where a lot of persons became jobless.
Also, the early months of the year 2020 had experienced great layoff of workers, as about 800 workers have been laid off in the banking sector.
4. High Inflation rate:
Recession leads to a hike in the prices of commodities.
This reduces the purchasing power of consumers.
Only a few, mostly the rich, can afford to buy commodities during a recession.
5. Increase in poverty rate:
Inflation coupled with unemployment and slashed salaries of workers make poverty inevitable.
More people tend to fall below the poverty line.
More people become dependents as a result of their incapability to fend for their basic needs.
6. Difficulty in accessing credit facilities:
During a recession, banks tend to give fewer loans to prevent internal damage and to maintain equilibrium.
As the recession intensifies, banks keep reducing available loans.
Effect of economic recession in Nigeria
The economic recession has been devastating in Nigeria due to the fact that Nigeria is still yet a developed nation, with about 82.9 million Nigerians living below the poverty line, as calculated by The National Bureau of Statistics (NBS).
Firstly, let’s look at the effect of the economic recession in the construction economy before going to other aspects of Nigeria.
The construction economy
The construction economy is an investment-led sector where the government shows much interest.
Governments give contracts to the construction companies to develop infrastructural facilities and social amenities like schools, hospitals, roads, pipe-borne water, and so many more.
So the construction economy is a key force of economic growth in Nigeria.
The major construction companies in Nigeria, includes Julius Berger Nigeria PLC, Dantata & Sawoe Construction Company limited, Reynold Construction Company, and a few others.
The effect of the economic recession on the construction economy can be very devastating:
- It leads to a reduction in investment, either by the government or private individuals.
- The construction economy may experience stagnation, or its growth process slowed down. This will lead to the sacking of workers, while the others get their salaries slash.
- It will lead to bankruptcy in construction companies.
- Reduction in mortgage lending rate
- Abandonment of construction projects due to increasing overhead cost.
Other effects of Economic recession in Nigeria include:
1. Fall of social living structure:
The upshot of inflations increases the cost of living, which makes it difficult for the poor to cope.
Nigeria is a low-middle economy.
It means we have more people in the lower and middle level than the upper level.
Let’s look at this illustration now; a bag of rice which used to be N14 000 is now N23 000 in the market.
Garri, which used to be the food of the common man, is now suddenly expensive.
The bag which was formerly N16 000 is now N21 000.
So how will a man that earns N60 000 per month and still having four children to cater for, cope in this situation?
This is the situation that stares many homes in the face in Nigeria.
This will lead to hunger in many families. Some families may resort to cooking cheap and less nutritional food in order to survive.
Children will pulled out of schools because of inflated school fees.
Access to health facilities will become difficult, as medical fees too will be inflated.
2. Increase in the rate of poverty:
The NBS in their ratings stated that 40.1% Nigerians live below the poverty line, amounting to 82.9 million people.
So if an economic recession comes fully in Nigeria, more people at the middle level or just below the poverty line will pushed down.
This will be as a result of the inability of the middle level to cope with the unreasonably inflated prices of goods.
The individual below the poverty line will now move further into abject poverty.
3. Reduction in the price of crude oil:
Nigeria is well known to be 70% dependent on crude oil for her revenue.
The economic recession has the ability to lower the price of crude oil in the international market.
Presently, crude oil is being sold for $65 per barrel, against $68 per barrel in 2019.
Now that the value of the product Nigeria depends on has fallen, then what will happen to the Nigeria economy?
This will result in more accumulation of national debts, and this takes me to my next point.
4. Rise in national debt:
Presently, Nigeria’s national debts had hit the sum of N33 trillion, and this made the Senate worried.
This was made known by the Nigeria Debt Management Office.
So, imagine if the economic recession intensifies, what will happen to the Nigerian economy?
How will she stand in the international sphere despite her huge debts?
These calls for re-strategizing in the part of the Nigerian government.
5. Increase in unemployment:
The reduced economic activity which is sprouted up by the recession will lead to a high layoff of workers.
And especially in the construction and banking sector.
This will lead to an increase in criminal activities in the country.
6. Increase in criminal activities:
Due to the absence of social palliatives to sustain the effect of economic recession on the social lives of the people.
More people will induce to go into criminal activities like robbery and kidnapping to get money to survive.
Loss of confidence in the Government: Economic recession in Nigeria will lead to the loss of confidence in the government by the citizens.
With the worsening social conditions imposed by the economic recession, the majority of the citizens will move into abject poverty.
The intervention of the government to lessen the social torture of her citizens will be minimal or of no effect.
This is because Nigeria does not have an accurate database of her citizens.
So social welfare palliatives cannot be adequately distribute when the dire need arises.
This will make people lose confidence in the government.
Let’s take this COVID-19 case as an example.
Formerly, the government, through the ministry of finance, promised the citizens palliatives during the lockdown period.
All hopes went high, but what happened next?
Nothing happened, and the citizens were left on their own to struggle.
The effect of economic recession in Nigeria summary:
Reduction in corrupt practices and diversification of the economy can go a long way in avoiding or softening the effect of the economic recession in Nigeria.
This calls for re-planning and re-strategizing not only on the part of the government but also on trade unions, agencies, individuals, and other potential stakeholders.