Nigeria slumps into worst recession in 33 years blamed on COVID-19 and crude oil prices

Nigeria has slipped into a recession for the second time in the last five years after its gross domestic product contracted for the second consecutive quarter due to the impact of the COVID-19 pandemic and a fall in crude oil prices.

Africa’s largest economy was last in recession in 2016, its first in a generation, and emerged the following year albeit slowly. The pandemic has hit the economy hard for a country that relies on crude sales for 90% of foreign exchange earnings.

As Nigeria’s crude oil production fell to a four-year low, gross domestic product contracted by 3.6% in the three months through September, after shrinking by 6.1% in the previous quarter, according to official data released on Saturday.

“Q3 2020 Real GDP contracted for second consecutive quarter by -3.62%,” Yemi Kale, the statistician general, said on Twitter. “Cumulative GDP for the first 9 months of 2020 therefore stood at -2.48%,” he added.

Two consecutive quarters of economic contraction means that Africa’s biggest crude producer has officially fallen into recession. It had barely begun to recover from the recession that followed the 2015 oil price crash.

The oil sector contracted by 13.89% in the third quarter against growth of 6.49% in the same period a year earlier, according to data cited by Kale, while the non-oil sector shrunk by 2.51% in the three-months to September.

The International Monetary Fund (IMF) has forecast that the Nigerian economy will contract by 4.3% this year, which would be the largest contraction in nearly 40 years.

Yvonne Mhango, sub-Saharan Africa economist for Renaissance capital said it was encouraging that the non-oil sector’s decline was 2.5% year-on-year during the quarter, compared to around 6% in the second quarter.

 “As this sector makes up over 90% of the economy, it is positive that the worst of the crisis seems to have passed in the second quarter of 2020,” she said.

But the economic picture is dire.

More than 60% of Nigerians are unemployed or underemployed and inflation and food prices are soaring by the day. The Central Bank will begin its two-day monetary policy meeting on Monday, following a surprise 100 basis point cut in September aimed at bolstering the faltering economy.

Lockdowns haven’t helped as well. After Nigeria confirmed its first COVID-19 case in later February, lockdowns were imposed from late March until early May in the main cities including the commercial hub Lagos and the capital Abuja. Some states imposed lockdowns too while a ban was placed on inter-state travel.

“The performance of the economy in Q3 2020 reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic,” the statistics office said in a report published on Saturday.

“As these restrictions were lifted, businesses re-opened and international travel and trading activities resumed, some economic activities have returned to positive growth,” it said.

The government had previously said it expected the economy to contract by as much as 8.9% this year in a worst-case scenario without stimulus.

Nigeria’s private sector that depends on imports for nearly all of its raw materials is also facing a chronic dollar shortage.

The financial recession has revived memories of 2016, when critics accused President Muhammadu Buhari’s government of exacerbating an economic slump spurred by the oil crash through policies such as maintaining multiple exchange rates.

This time round the government is carefully managing the situation.

It has taken steps towards enacting a series of key reforms that have long been seen as essential for promoting sustainable growth. These include fast tracking key oil industry reforms that have been in the works for two decades, dropping an expensive fuel subsidy that costs the government billions every year, raising VAT and revamping the tariff for electricity that had rendered the power sector uneconomical.

The Central Bank has also taken further steps this year to unify its exchange rates and devalued the local currency – naira, by 20%, moves the World Bank, the IMF and many economists had long encouraged.

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