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Recession in Nigeria and How to Mitigate It

1. What is recession?

According to Wikepedia a recession is a business cycle contraction which


results in a general slowdown in economic activity. Macroeconomic indicators
such as GDP (gross domestic product), investment spending, capacity
utilization, household income, business profits, and inflation fall, while
bankruptcies and the unemployment rate rise. A recession is when the
economy declines significantly for at least six months (Amadeo, 2017). That
means there's a drop in the following five economic indicators: real GDP,
income, employment, manufacturing and retail sales.

1.1 Cause of recession in Nigeria

It is common knowledge that one major issue that led to the recession in the
country is the fall in both volume and price on sale of crude oil as the US
stepped up shale production leading to a glut in the market. This has further
been exacerbated by restiveness in the Niger-Delta from militants. The
government needs to adopt both short term and long-term strategies to come
out of recession.

1.2 Solutions

In the short term, government needs to put in place structures, which would
ensure all eligible taxes are collected. That is, the need to widen its tax base
and cut taxes to encourage investment and boost consumer spending. Tax
breaks should be given where there is certainty that the extra funds will be
spent/re-invested leading to increment in productivity

Government needs to adopt an expansionary fiscal policy. The government


needs to spell out the exact course of actions it wants to embark upon to
reflate the economy. For example, repeated referrals are made to capital
projects as a way of getting out of the recession.

Capital projects are vague. The process of operating the TSA needs to be
efficient. Salaries need to be paid to civil servants as and when due. Projects
need to be funded as and when due. Contractors need to be paid as and when
due to enable them to meet contractual and funding obligations.

The combined effort of government spelling out exact policy decisions, and
implementing them would influence the system to spend. Right now, people
are not spending. No one is sure what the government is going to do and the
government is seen not to be spending. About N3trillion was recovered
through the TSA but there has not been clarity on the re-injection of these
funds to the system. The government needs to boost confidence both by its
actions and by spending. Naturally markets are data driven but sentiments
also play some role. The government must be seen to be speaking with one
voice, across all its organs.

If banks are the medium of transmission of funds in the economy, policy


actions should be directed towards supporting the transmission by banks.
Banks do not have public sector funds to lend and of the available private
sector funds, over 50 percent is locked up either in government securities and
CRR. This limits the available deposit to actually lend to the real sector of the
economy. This should be reviewed. Government needs to itemise specific
actions and drive performance. The ability of the populace to identify with
such would enhance confidence to re-initiate growth and investment.

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