Economic recession is a consequence of macroeconomic policy’s failure to curb inflation, increasing savings without commensurate increase in investment by business firms and decrease in aggregate expenditure.
The first major economic crisis Nigeria has encountered since independence was the economic recession that hit her in the 1980s. This recession was mainly caused by the inability of the nation to manage its oil boom which occurred in the 1970s. It led many SMEs into extinction and made a good number of the populace jobless. It is also on recorded that this recession prompted the intervention of the federal government which made it to introduce Structural Adjustment Programme (SAP) in 1986 as a policy tool.
According to figures released by Nigeria Bureau of Statistics last week, Nigeria has slipped into a third recession after its gross domestic product contracted for the second consecutive quarter. Nigeria, considered as Africa’s biggest economy, went into a second recession since independence in 2016. The recession four years ago was its first in a generation, and the country emerged from it the following year.
The 2020 recession is attributable basically to falling oil prices and the effect of COVID 19 on the already fragile national economy. The continent’s top oil producer and exporter relies on crude sales for 90 percent of foreign exchange earnings. Nigeria normally accounts for an average output of two million barrels per day. But the effects of the pandemic and low oil prices have cut production to approximately 1.4 million barrels.
The effect of economic recession on the economy is multifaceted: it cripples the financial institutions making them unable to carry out their credit obligation to manufacturing which is one of the most important sectors in any modern economy; a challenging investment climate for the SMEs sector with its attendants consequences; high cost of production, lack of capital, poor infrastructures etc.
The SME sector is the centre of productivity as it relates to export expansion, creation of foreign exchange earnings, import substitution, employment creation, and promotion of investments and development of other sectors. This implies that government agencies have a vital role to play in reviving a depressed economy.
Investment climate are the conditions necessary for domestic business and SMEs to operate or the conditions that facilitate international trade and private investment into a country. These include: a country’s business regulations and legal/regulatory framework to public infrastructure (Power and Transportation, Information and Communication Technology (ICT)), Education and Health, and a broad concept of good governance, security and rule of law.
To overcome the current recession with the desired urgency and precision, the Federal in collaboration with the States, Local Government and the Private sector should improve on the investment climate of SMEs by addressing the issue of insecurity so that farmers and SMEs operators can go about their businesses freely, accelerate SMEs access to finance without politicizing it (the Covid 19 support to SMEs and households and the SMEs survival fund by CBN was/ and still being distributed through the political system instead of the private sector system) and review the privatization policy of the power sector especially the ownership and operations of Discos so as to address power sector challenges.
The cry for good governance should be look into, Government at all levels should review the cost of governance to minimal levels. Finally, with the discovery of the COVID 19 vaccines by Pfizer and Moderna, the Federal Government should quickly explore the possible options to access them for review and use by our citizens.
This will eliminate restrictions and open up the economy, both locally and internationally.
· Aikyor is a PhD scholar in Strategic Management at the Nasarawa State University, Keffi.
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