It is not a gainsaying that Nigeria has slipped into recession for the second time in five years with the growth figures showing the economy contracted 2.06% between April and June of that year.
As parts of our vision at Techeconomy.ng to analyse and write in-depth reports about Nigerian economy and businesses, in this article, we will be relaying differences between the current and past economic recessions.
Our data, metrics, and figures will be in accordance with the National Bureau of Statistics (NBS) and our previous reports.
NBS’ latest report released on Saturday, November 21, indicated that Nigeria had slipped into recession due to the country’s gross domestic product (GDP) decreased by –3.62% (year-on-year) in the third quarter of 2020 while this represents an improvement of 2.48% points over the –6.10% growth rate recorded in the preceding quarter (Q2 2020).
Recall that the National Bureau reported that the 2016 economic recession was a full year recession, making it worst in the country’s history since 1987.
According to the report, the fourth quarter of 2016, the nation’s Gross Domestic Product (GDP) contracted by -1.30% (year-on-year) in real terms, from N18,533.75 billion in Q4 2015 to N18,292.95 billion in Q4 2016.
Happy reading as we unveil the five reasons for Nigeria’s economic recession of 2020 differs from 2016 below:
1. COVID-19 pandemic
The number one reason that has caused the Nigerian economic recession of 2020 and different from the one of 2020 is COVID-19 pandemic.
The COVID-19 pandemic outbreak caused by the transmission of severe acute respiratory syndrome was identified in December 2019 in Wuhan, China.
The pandemic that has spread like wildfire all over the world including the African Continent has claimed millions of lives.
Nigeria confirmed her first case of the pandemic on Thursday, February 27, making it the third African country to record the deadly disease at that time.
The pandemic which is one of the reasons for the country’s economic meltdown lasted for about eight months. During this period, the economy was totally shutdown.
2. #EnDSARS protests
The second development that would have caused the 2020 economic recession in Nigeria were #EndSARS protests turned violence.
Recall that Nigerian youths recently took to the streets to demand that the country’s leaders disband the Special Anti-Robbery Squad (SARS) and reform the nation’s police force.
Barely two weeks after the peaceful protests began Nigerian economists and business managers spoke on the economic effect of the #ENDSARS protests across the country.
The financial experts disclosed that the businesses in the country lost at least N10 billion daily since the commencement of the protests.
However, the loss incurred by the country during the protests that lasted for about two weeks are believed to have been a minute of what was lost during the violence and aftermath.
3. Drop in oil prices
Initially, Nigeria’s economy was already weak due to the pandemic. The reason being that Nigeria is one of the oil producing countries in the world and fifth in Africa.
In 2006, Nigeria was regarded as an oil dominated economy as it generated over 70% of its income from the sale of crude oil proceeds.
And the highest highest crude oil export destinations from Nigeria according to reports from the NNPC are India, U.S., Canada, China, France, Italy, Indonesia, South Africa, Spain United Kingdom.
However, due to the COVID-19 as one of the reasons for Nigeria’s economic recession, the country’s average daily oil production recorded in the third quarter of 2020 stood at 1.67 million barrels per day (mbpd), or 0.37mbpd lower than the average production recorded in the same quarter of 2019 and 0.14mbpd lower than production volume recorded in the second quarter of 2020.
The real growth for the oil sector was –13.89% (year-on-year) in Q3 2020, indicating a sharp contraction of –20.38% points relative to the rate recorded in the corresponding quarter of 2019.
On the other hands for the full year 2016, oil production was estimated to be 1.833mb/day, compared to 2.13mb/day in 2015. This reduction has largely been attributed to vandalism in the Niger Delta region. As a result, the sector contracted by -13.65%; a more significant decline than that in 2015 of -5.45%. This reduced the oil sectors share of real GDP to 8.42% in 2016, compared to 9.61% in 2015.
4. Drop in gas and electricity supply
Nigeria’s gas supply to neighbouring West African Countries might have suffered another setback following the damage caused by a fire incident on the Escravos-Lagos Pipeline System which supplies gas from Escravos in the Niger Delta area to Lagos state.
The Nigerian National Petroleum Corporation (NNPC) recently reported that Escarvos to Lagos Pipeline was ruptured by an explosion along Egbokodo-Omadino, in Warri South Local Government Area of Delta State.
The incident came four days after the resumption of gas supply through the pipeline after the completion of repair work following a fire incident on it last week.
Reports have it that Ghana use to get about 25% of its power supply through gas from Nigeria, which flows through the pipeline via Benin, and Togo also received 120 million standard cubic feet of gas daily from Nigeria.
However, NBS in its report about Nigeria’s gas and electricity in 2016 and 2020 respectively, said the Electricity, Gas, Steam and Air conditioning Supply sector recorded a year on year growth of –0.01% in the third quarter of 2020.
This was –12.84% points lower than the 12.83% growth rate recorded in the corresponding quarter of 2019, and –8.65% points lower than the growth rate of 8.64% recorded in the quarter before. Quarter on quarter, the sector recorded a growth rate of –13.77% in Q3 2020.
And for the 2016, the National Bureau said the sector declined by 5.16% in 2016 fourth quarter, which was 6.36% points lower than the corresponding period in 2015, and 1.51% points higher than in the third quarter of 2016, when the growth rate was –6.68%. Quarter-on-Quarter, the sector grew by 54.13%.
The contribution of Electricity, Gas, Steam and Air Conditioning Supply to real GDP in the fourth quarter of 2016 recorded as 0.49% minimally lower than the fourth quarter of 2015 at 0.5t1%, but higher than rate of 0.33% contributed in the third quarter of 2016.
In the third quarter of 2020, the sector contracted by –35.06% in nominal terms (year on year) as it sought to gradually recover from the restricted movements of passenger and goods.
5. Drop in Tax Remittance to the government
The businesses in Nigeria in year 2020 due to a lot of circumstances changed their orientation from profit making to survival of their capital.
They are parts of revenue generation the pulse of the government but because of the economic meltdown little did they do.
The NBS reported that the sector’s contribution to the overall nominal GDP was 2.46% in Q3 2020, higher than the 2.40% it represented a year prior, but lower than the contribution of 3.76 % it made in the preceding quarter.
In real terms, growth in this sector was estimated at 3.21% during Q3 2020, or 2.14% points from the rate recorded in the third quarter, though down by –15.29% points from the rate recorded in the preceding quarter. Quarter on quarter growth in real terms stood at –25.24%.
According to the report, the growth of the sector in real terms was 2.68%, lower by 3.73% points from the rate recorded in the fourth quarter of 2015, and higher by 0.04% points from the rate recorded in the preceding quarter.