Nigeria may escape recession-bound if borders are open -Financial experts
Nigeria may escape a second wave of economic recession in five years or even have enough buffers to face the economic downturn if the country can open its borders without delay, according to analysts.
Financial analysts and stakeholders, who spoke to correspondence at the weekend, said the continued closure of Nigeria’s land borders as well as food inflation had been responsible for the dwindling performance in the economic space.
As at the second quarter of 2020, Nigeria’s gross domestic products (GDP) decreased by -6.10% (year-on-year) in real terms, ending the three-year trend of low but positive real growth rates recorded since the 2016/17 recession.
With the deficit financing of the revised N10.509 trillion 2020 budget rising from N1.847 trillion to N4.563 trillion, Minister of Finance, Budget and National Planning, Zainab Ahmed, has warned that the economy might be heading for another recession.
It has been projected that Nigeria will slip into another round of recession by the end of the third quarter of the year. The long-awaited inflation figure is being expected from the Nigerian Bureau of Statistics (NBS).
Recall that the projected revenue for the Nigeria Customs Service was pruned from N1.5 trillion to N950 billion, FIRS’ stamp duty income of N463 billion went down to N200 billion, while the N1.222 trillion earmarked for NNPC’s federally funded projects was cut to N484 billion.
In August 2019, Nigeria partially closed its land borders, and since October 2019, it has halted all trade via land borders. This was triggered by Nigerian authorities’ frustration with the smuggling in of rice and illicit exports of locally subsidised petrol to neighbouring countries.
Lukman Otunuga, a senior research analyst at FXTM, said the path to Nigeria’s second recession is closer than Nigerians think. He added, though, that the combination of food inflation and continued border closure would continue to spell doom for the country.
He said: “Food inflation and persistent border closure are the major drivers of higher inflation which resulted in economic doom. If you look at Nigeria’s inflation figures since 2015, you will see that it has been above the CBN target.
“When the monetary policy rate was cut by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to 11.5 percent in their last meeting, many analysts and Nigerians in general did not see it as a surprise.”
He added that Nigeria needs to address its infrastructure deficit without any hesitation.
“There must be concerted efforts at diversifying the economy and providing infrastructure because these will ensure growth,” Otunuga noted.
Stephen Iloba, a Lagos-based analyst, said the issue of food inflation had assumed another dimension lately as prices of foodstuff had gotten to the rooftop in the last few weeks.
“I think it is high time the Federal Government took another look at the border closure and see if we need to allow some food items to be brought into the country for a period of time while we intensify efforts at ensuring we have food security.
“Except we are deceiving ourselves, the Boko Haram crisis and herdsmen problem have been responsible for low food production in the last five years.
“Although the efforts of the Federal Government and the CBN on rice are significant, developments have shown that most homes cannot afford the prices of the locally made rice,” Iloba stated.
In the midst of the border closure, Nigeria, last week, ratified the free trade agreement which will now come into effect on January 1, 2021. It’s a key move for the ambitions of the African Continental Free Trade Area (AfCFTA), given Nigeria’s status not just as one of the continent’s largest economies but also as its most populous country.
When it comes into effect, the AfCFTA aims to create a single market for goods and services in Africa. By 2030, the market size across the continent is expected to include 1.7 billion people with over $6.7 trillion of cumulative consumer and business spending—if all African countries join the agreement.
Yet, despite these prospects, and Nigeria’s positive outward stance, the country still poses a major red flag to hopes for free trade across the continent.
For over a year, Nigeria’s land borders with Benin, Niger, and Cameroon have been closed as the government aims to stop the smuggling of food items which, it said, undermines local agricultural businesses. It’s a protectionist move that’s in line with previous policies under the current Buhari administration despite little evidence of efficacy.
Cyril Ampka, another analyst, said one of the most straightforward ways to combat smuggling would be to agree on a common external tariff, which could help make re-exporting less profitable.
But this incident between Nigeria and Benin highlights some of the other non-tariff trade barriers that could still provide incentives for re-exporting.