Recession in Nigeria: Professor Adesina-Uthman proffers solutions

Professor Ganiyat Adesina-Uthman speaks with Andy Asemota of ThisNigeria on the recession in Nigeria, the looming danger of fast rising debt trap in the nation and the lessons to be learnt from last recession.

A new concern is growing that Nigeria has slipped into recession. As an economist, can you tell us the implications of the recession for the country and her citizens?

Recession is not a new thing; it has been happening across the globe, and in Nigeria, if you look at the 1970-73 crisis in the US, then the 1980-83 recession, which was quite global, and almost 10 years after, we had 1990-93 recession, as well as 2007 recession in US, which again went contagious in some countries.

The implications of the current recession are largely due to the effect of COVID-19 because the pandemic posed two kinds of shocks: demand shock and supply shock. Usually, when you look at recession, it can come in the form of demand shock or supply shock, but this current recession is coming with both demand and supply shocks and oil shock. In fact, the three shocks are combined.

“Recession in Nigeria

Usually, when you look at recession, it can come in the form of demand shock or supply shock,but this current recession is coming with both demand and supply shocks and oil shock”

One would expect that Nigeria will actually go into recession after COVID-19, especially with the shock in economy after locking down the country. If the lock down had been well managed, especially the shutdown of the economy during the period, may be the impact we are seeing now won’t have been so much.

When you look at the report from the National Bureau of Statistics (NBS), it showed that for the second time in the second quarter of this year, even the West African GDP dropped by 3.6%. It dropped in June and in September. Already, the West African countries are in recession and Nigeria belongs to West African countries, and usually it is called the giant of Africa. So, there is no way we will not be the first to feel the pang of the recession in West Africa. By extension, what this means is that there is going to be, or already there is, low money supply in circulation and that actually started as far back as March – April, this year, when people stayed back at home. Consumption may be affected but not so much because people just have to consume. One would have expected that the Nigerian government would have at that period granted a kind of bailout that would increase money in circulation.

“Recession in Nigeria

One would have expected that the Nigerian government would have at that period granted a kind of bailout that would increase money in circulation. Unfortunately, what was done was to increase VAT and increase Stamp Duty and increase tariffs on some services thereby cutting down the consumption power of the economy”

Unfortunately, what was done was to increase VAT and increase Stamp Duty and increase tariffs on some services thereby cutting down the consumption power of the economy. I just pray that this recession will not be as severe as that of 2007-2009, or that of 1980-83. The crisis of 2007 was worse than that of 1980-83. When you reduce the consumption power of people when you are supposed to increase it, that means you will not have the right effect on the economy.

During that COVID-19 lockdown, people lost their jobs. We are still not out of COVID-19 period; there is no doubt about that. Some people are still going to lose their jobs and some are losing their jobs. The Adesina-Uthman pandemic affected many households’ contribution to productivity in the manufacturing or any other sector. If you look at what happened in Germany, the country gave support to small scale enterprises that are the drivers of the economy and the employers of labour.

If the small scale enterprises are unable to produce because consumption is reducing, they will be forced to lay off workers because they want to maximize their profits.

So, the common man, by the implication, just has to brace up for another set of austerity measures, you know. Many will have to cut down on what their families are used to. If they always take normal flour bread for breakfast, they will have to go for maize meal which is equally very expensive now. It is a chain effect. For instance, the price of eggs has gone up following the increase in the cost of maize as farmers are unable to get enough maize to feed their birds. When the birds are not well fed, they can’t lay enough eggs that have been the main source of protein in many households who are already unable to afford balanced diet as inflation goes up to about 17%. So, we should just brace up for, what can I call, harder days ahead.

Can you proffer solutions to the current recession in Nigeria?

 The solution is, first, government should be transparent in the implementation of any palliative measure or bailout to any sector. During COVID-19, about N1.3 trillion was paid to pharmaceutical companies. What one would expect is that the money should go into production in Nigeria and not importation of finished products because that will be helping the economies where such imports originated.

Another thing we can do as a nation is to increase lending to SMEs, which means banks should review their credit operations and be able to give out more loans to investors because going into investment may not be encouraging. If you reduce SMR, that will increase the amount of funds available for credit operations in the economy.

When we look at different recessions that had occurred, there are different lessons to be learnt from them. I know that during the last one that occurred in 2017, the Federal Government came up with Economic Recovery Growth Plan, and when I looked at it, I said if the plan could be followed religiously without diversion of such funds, the nation will see its impact on the economy. One of the programmes in that economic growth plan is School Feeding System. We heard it continued even during COVID-19 and they fed school children with billions of naira during lock- down. That was not rational.

“Recession in Nigeria

There are different lessons to be learnt from them. I know that during the last one that occurred in 2017, the Federal Government came up with an Economic Recovery Growth Plan, and when I looked at it, I said if the plan could be followed religiously without diversion of such funds, the nation will see its impact on the economy”

If government can strategize and come up with recovery growth plan as it did in 2017 and ensure its transparent implementation, it’s a welcome development. Government can also alleviate this recession as they had planned during 2017 recession in the area of transportation by purchasing mass transit buses. What does it take for government to get the transportation system in Abuja and Lagos well organized as in developed capital cities? In Kuala Lumpur (Malaysia), for instance, Public Private Partnership is working in the transportation sector and Nigeria can have a similar programme.

Many are worried about the weight of about 54.2 billion dollars’ debt of Nigeria as at June, this year. What do you say on this?

 People are worried that the nation is eating up the productivity of our future generations and we are making them indebted because as we borrow more, the per capital income of every Nigerian is reducing. If you have N1,000 per person as per capital income, if you continue to borrow and you are indebted, it will continue to reduce and before you know it what will be left for the future generation? I hope they will not go into negativity.

The problem people have with politicians is that when they borrow, there is tendency for diversion and there is likelihood of corruption. Of course, the present government is borrowing and you can see the results of the borrowings, may be, on transportation.

Some critics say federal government is even helping some states to borrow about 750 million dollars. How do you see this?

It’s so unfortunate and it is so sad. If we say we are practicing true federalism, states should be autonomous because there are a lot they can do. Look at EndSARS protests, what do you think culminated into that? It is because there are teeming able-bodied men and women in the society that are not employed. They are graduates and they are fit but their energy is not being converted into productive use.

I gave a lecture on 28th of last month and I asked: What is wrong with us? If you look at Oyo State, for instance, I am from Oyo State, in fact there is no state in the country that is not blessed with something but what is our government doing to explore the resources of their states? If they want to explore the resources, we have teeming youths. and that is a great strength to run the Nigerian economy.

 The bulk of Nigerian loans is from China and there is growing fear that China will take over the assets funded with its loans if Nigeria fails in its repayment plan. What is your take on this?

That is not a new thing in borrowing; it’s always a clause in any loan contract that if you are borrowing and you have a collateral, when you default, what happens? That was Enron’s case, 2006, when capitalism failed. When you borrow and spend it on physical as- sets like cars and other materials that can be seized, of course, they will be taken over to recover part of the loan.

Nobody wants to give you loan and say when you fail in your contractual obligations then you can still enjoy some of the physical property that you used as the money to acquire, No. I know the National Assembly cried foul over the Chinese loans, but when we are going into borrowing, we should be careful; the cost is always there. If you use the money wisely for the purpose it was meant, fine.

I think there are some borrowings that are going into transportation, it’s okay, but what does it cost us to start and catch up with developed nations? The China that is giving the money and doing some construction here are giving us 20th Century coaches when there are jet rails, when there are mono rails in Malaysia, Dubai, US, UK, Germany, China and many countries of the world. We have not been able to boast of mono rail in Nigeria.

On the large amount of money, we are borrowing, I am still not happy over it and I don’t think that paying back that debt will be easy with the way they’re going about it. Look at the Kaduna-Abuja rail, if you want to obtain the ticket that is going for about N1,000, you may get it for N3,000 because some people are profiting from it.

The government can make the ticket available online. What does it cost the government to give me a card that I can pre-load and utilize it when I want to travel? I don’t have to go through a third party to get ticket with the difference going into private accounts. What does it take to construct a toll gate on newly constructed roads and recoup the money spent on their construction? That is what Malaysia has been doing.

When you borrow money to construct a road and motorists pay for the use of the roads but the money does not go into private accounts, within a short while, the money expanded is recovered and the toll gates are dismantled because they are no longer necessary once the government and investors have achieved what they wanted.

 The Minister of Finance, during year 2021 budget defence meeting of the ministry with Senate Committee on Local and Foreign Loans, indicated that a huge proportion of Nigerian debt can only be repaid through loans in order to meet government’s obligation to contractors. How do you see this?

Through loans?

Yes.

You are using loans to pay debts, we are running into bankruptcy, that is just that. If the loans were well utilized, at the first instance, why would you go and take another loan to repay it? Why not cut down on recurrent expenditures?

“Recession in Nigeria

You are using loans to pay debts, we are running into bankruptcy, that is just that. If the loans were well utilized, at the first instance, why would you go and take another loan to repay it? Why not cut down on recurrent expenditures?”

They should look at EndSARS recommendations, particularly items from number 19 to 15 which talk about reduction in state governors’ packages, reduction in National Assembly packages in fact about five reductions in all. Let them go back and let everybody be on normal pay. Work for this country if want you to work for it; be patriotic if you want to be or go and sit down somewhere and work for yourself.

 Still talking about debts, available records show that about N3.1 trillion has been proposed for debts servicing in 2021 in the proposed N13 trillion budget proposals but there is a huge difference between the amount approved and the funds released for debts service this year 2020. Does it mean we may not be able to meet our debts obligation going forward?

 Well, anyway, there is a sign of that going by what is happening this year; there is a sign of that. If we are spending trillions of naira on debt servicing, I think government needs to have a rethink where it’s going to, it’s extent of borrowing and how to repay it. The arrangement between Nigeria and China is a good one, it reduces pressure on our foreign exchange rate, but how transparent and efficient are the borrowings?

Do you share some of the concerns of critics about the loans from China?

 It is cheaper to borrow from China, but we should tread with caution because when you look at trends of Chinese loans granted to some African countries, especially what is happening in Kenya, in fact the Kenyan government is afraid that China may likely take over the country because of its debts, but the nation is developing.

In fact, you can’t compare Nairobi and Abuja. I was in Nairobi this year, what I saw was amazing, but they’re afraid.

If we continue to borrow and we are not utilizing it well or diverting part of it, there is no way China will not take over this country at the end of the day. They may take over critical projects that are supposed to serve public interest, if Nigeria is not careful.

 What is your reading of the state of the Nigerian economy?

The Nigerian economy is not robust; it’s not efficient, because when you look at a lot of factors, even before the recession, you know, what is called financial system is a system that actually operates in different units, and it wants every single unit to be functional. When is electricity going to be stable in Nigeria? Many things: Education, Health and Transportation, and others must be stable.

The mono rail that drives itself and stop automatically in 23 stations within Kuala Lumpur in Malaysia is automated. If we have stable supply in Nigeria, it will take care of a lot of things and for sure, there is going to be increase in productivity, there will be reduction in unemployment and people will have more consumption power, money will circulate and the economy will be robust. I think, for now, we are far from being an efficient economy.

“Recession in Nigeria

If we have stable supply in Nigeria, it will take care of a lot of things and for sure, there is going to be increase in productivity, there will be reduction in unemployment and people will have more consumption power, money will circulate and the economy will be robust. I think, for now, we are far from being an efficient economy.”

We noticed you belong to a lot of professional associations and you are a fellow to different institutes, can you tell us more about yourself?

Professor Ganiyat Adesina-Uthman is a 48- year- old woman married to Professor Ibrahim Olatunde Uthman, and we are blessed with children. I have gone through a lot of training due to my involvement as Dean of Social Sciences and head of Economics department. I have won a number of grants from the Nigerian government and outside the country, particularly in the US. I am a fellow to about five institutes and a senior member of Hong Kong-based International Economic Development and Research Centre