Dr. Olayiwola Oladapo November 20, 2016©

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Poverty And Recession Are

Not Destiny and They Don’t

Have To be!

Policy Synopsis & Brief:

Nigeria’s Economic Recession and How

to Get Nigeria out Of Jail: Part 1

Dr. Olayiwola Oladapo November 20, 2016©

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Table of Contents

Context Setting ................................................................................................................ 2

How Bad Is Nigeria‟s Recession? ................................................................................... 2

7 Key Headliner Impacts of “Hurricane E de ku Recession” on Nigeria‟s Economy ........ 2

Conclusion ...................................................................................................................... 2

Dr. Olayiwola Oladapo November 20, 2016©

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2016 has been a very memorable year for Nigeria. One all Nigerians from all social and

demographic groupings will not forget in a jiffy. The common denominating theme

across the length and breadth of the nation is the popular word that has dominated our

economic lexicon; Recession. Whether it is Technical or not, or whether it is termed as

stagflation, Nigerians regardless of party affiliations, ethnic identities, religious

persuasion or social status are for once in undisputed agreement that Nigeria‟s

economy growth in the last 18 months has stagnated or even worse declined.

Since the Yoruba‟s are fond of inventing a signature and bespoke greeting for anything

and everything, you certainly would have been welcomed by a Yoruba speaker seeing

you at this season with the greeting “E De Ku recession o”. For the purpose of this

piece, I seek your indulgence to call Nigeria‟s current recession “Hurricane E De Ku

Recession”.

The title of this piece sounds quite familiar

with the lingo common with motivational

speakers or some of our more charismatic

clergymen and women. Whilst the title can

perfectly represent the topic of a hot and

bestselling sermon, the motivation for the

topic is largely from a developmental economics and nation building point of view.

Preponderant evidence abounds to dispel the school of thought that believes poverty

and recession are actually pre-determined and terminal outcomes. The countless

nations and even individuals who seized wealth and development from the jaws of

absolute deprivation and underdevelopment and who also turned abject economic

recession conditions into miraculous stories of economic transformation are compelling

witnesses that Poverty and Recession are not destiny. I am quoting from the works

of Justin Yifu Lin, the founding director and Professor at the Centre for Economic

Research at Perking University who was the first non-westerner who became the Chief

economist of the World Bank. He debunked the concept of poverty as being terminal

and therefore a product of destiny when he said;

Context Setting

Dr. Olayiwola Oladapo November 20, 2016©

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Poverty is not a destiny. African countries can grow as dynamically as any

successful countries in East Asia and other parts of the world, if they have an

enabling government to facilitate private firms to capture the window of

opportunity of industrialization from the pending relocation of light manufacturing

due to rising wages in China and other emerging market economies. A change in

mindset is key for success: Africa should look at what Africa can do well based

on what Africa has now, instead of looking at what Africa does not have or

cannot do well based on what the high income countries have and can do well1.

He further reiterated this theme in his book “The Quest For Prosperity: How

Developing Economics Can Take Off” where he laid out the framework for economic

development in underdeveloped and emerging economics not based on the blue prints

of the Bretton woods institutions or the templates created based on the adopted and

assumptive contexts of the experiences of developed and matured economies. I am

fortunate to have a copy of this book per courtesy of the gracious benevolence of Mr.

Segun Awolowo, the CEO of Export Promotion Council and to whom and I owe a world

of endless appreciation for the gift of the book. The message for Nigeria and Nigerians

is that poverty and recession are not destiny and don‟t have to be for Nigeria.

Having completed our preamble let us quickly touch on “Hurricane E De Ku

Recession”, which is the trending issue in our land and how Nigeria can get out of Jail

as we begin the countdown to the end of 2016 and await the outlook for Nigeria in 2017.

Nigeria is officially experiencing economic recession. That is no longer the news.

Whether all Nigerians are in recession is another cup of tea. Quoting a very good friend,

brother and professional colleague “Nigeria is the entity in Recession, Nigerians are

not in recession”. That claim carries some validity as a significant number of Nigerians

are probably recession-proof going by how their expenditure profiles and lifestyles did

not experience a decline but significantly grew despite pervading harsh living conditions

in Nigeria. Big parties are still being thrown all over the big cities, monies are still being

sprayed at parties, countless people are on the road and in the gym trying to burn off

unhealthy fat, luxury items are still being purchased from the many big shopping malls

Dr. Olayiwola Oladapo November 20, 2016©

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and supermarkets, mansions are still being built and expensive automobiles are still

being bought. So who said Nigeria is in recession?

But many Nigerians, and most likely the majority will disagree with that claim as their

experiences have been directly at polar variance with the folks who you may describe

as being recession-proof. Ask many who lost their jobs, or many whose jobs are on the

line to be chopped under the legitimate guise of business restructuring or employee

right sizing or go to Apapa port and ask importers and clearing agents how the year has

gone, or many households who have had to restructure their personal finances, or

countless workers across the length and breadth of Nigeria who are been owed many

months of salaries or army of workers who had to forcefully take salary cuts and the

consensus would be that Nigeria is in recession. So whilst some Nigerians may have

smiled to the bank, many with accounts in debit cried because they had no business

even going to the banks. The Bottom Line is that there are overwhelming facts to show

that Nigeria‟s economy is in recession and relatively significant population size are

experiencing the deleterious impact of recession.

An economy is said to be in recession if it had negative growth in the GDP for 2

consecutive quarters. On July 21st 2016, Mrs Kemi Adeosun Nigeria‟s Honourable

Minister of Finance officially described the current economic plight that Nigeria was

journeying through as “Technical

Recession”. This revelation came

days after the National Bureau of

Statistics had reported that the

second quarter of 2016 GDP growth

rate declined further from -0.36 % in

the first quarter to -2.06 % year-on-

year.

How Bad Is Nigeria’s Recession?

It's a recession when

your neighbor loses his

job; it's a depression

when you lose yours.

Harry S Truman

Dr. Olayiwola Oladapo November 20, 2016©

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Having established that Nigeria‟s GDP growth had gone south for two consecutive

quarters, she also presented a chunky and inspiring silver lining in the thick cloud of

recession by declaring that “the worst is over”2 Where exactly does one place her

declaration; a prophetic statement and prayer, a policy statement or a statement of

reality? I am sure you will decide what to term her declarations at the end of this piece.

It is instructive that her declaration was made

just 2 days after IMF had released a report

that revised down the growth projections for

Nigeria and Mrs Adeosun comments that the

„worst is over” literally debunked this IMF

position. Mrs Adeosun must have taken a cue

from the CBN Governor who days earlier had

also declared that “the worst is over”3!

I honestly was not in concurrence with Mrs Adeosun and the CBN Governor (both

senior officials of the President Buhari‟s Administration) on their evaluatory remarks on

the “worst being over” concerning Nigeria‟s economic recession when the statements

were made and even now .

My non concurrence was premised

on the compelling evidence and a

number of overwhelming social

economic indicators that suggested

otherwise that rather than the storm

being over or put in the words of

the Honourable Minister‟ the worst

being over” for Nigeria as it plots

its way out of economic recession,

the economic recession storm may

just have begun to strengthen and heady-windy days may still lie ahead of Nigeria. This

prognosis is not a product of psychic science or spiritual mysticism. It is based on

incontrovertible facts. The purpose of this piece is to empirically debunk the statements

Dr. Olayiwola Oladapo November 20, 2016©

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that the „worst is over‟ and correctly situate Nigeria‟s economic problems within the

context of factual continuum, so that we all can start working at recovering Nigeria‟s

economy from its current state of decline. This is not by any means glorifying our

present predicament or an attempt at relishing in the cesspool of pessimism about

Nigeria‟s ability to weather the storm of current economic recession. The aim is to

highlight the key headline impacts of the recession on Nigeria and present “fact

checked‟ reasons why “the worst is not yet truly over” to enable us recalibrate and better

manage our expectations in addition to rec-crafting our strategies to effectively and

sustainably deal with the deep seated economic challenges of Nigeria.

1. NIGERIA IS STRESSED FUNDING ITS 2016 BUDGET

We can‟t fund every project in 2016

budget – Mrs Kemi Adeosun4

The Secretary to the Government of the

Federation (SGF), Babachir David

Lawal, on July 14, 2016 declared that the Federal Government cannot fully

implement the N6.06 trillion 2016 budget as passed by the National Assembly.

Lawal told a joint Senate committee on Appropriations, Finance and Ethics,

Privileges and Public Petitions that the revenues of the government had dropped by

50 to 60 per cent contrary to projections5.

The Minister of State for Budget and National Planning, Zainab Ahmed on Oct 26

2018 placed the implementation of capital expenditure in the Federal Government‟s

2016 Budget at 50%6

2. NIGERIA’S DEBT PROFILE IS FRIGHTENINGLY ON A RISE

Dateline Oct 25, 2016

According to the Director-General, Debt Management Office (DMO), Abraham

Nwankwo;

8 Key Headliner Impacts of “Hurricane E

de ku Recession” on Nigeria’s Economy

Dr. Olayiwola Oladapo November 20, 2016©

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“for Nigeria to pull the economy out of recession, government must

seriously embrace “conventional public borrowing” to fund critical projects.

Mr. Nwankwo said long before the drop in

global crude oil prices in mid-2014, it was

clear Nigeria needed to invest about $25

billion per annum for 7 to 10 years to cover its

huge infrastructure deficit. With the drastic

drop in oil revenues, he said the country faced

additional challenge in financing gap in public

revenues estimated at about $20 billion per

annum. “This means Nigeria’s total

investment deficit is not $25 billion per annum,

but $45 billion per annum.7

Dateline August 18, 2016

The Federal Government and Sub National tiers of Government still owes local

contractors unpaid obligations to the tune of N2.4 trillion with the FG having a lion

share of N1.97 trillion. (The National Contractors Association8)

Dateline September 21 2016

Nigeria‟s debt profile has risen to N16.29tn, according to the Debt Management. The

total debt liability had risen to N16.29tn as of June 30, 2016. As of June 2015, the

country‟s total debt stood at N12.12tn (DEBT MANAGEMENT OFFICE9)

Dateline Nov 2016

The African Development Bank (AfDB) will

support Nigeria with the sum of $1 billion to

help address the N2.2 trillion deficits in the

2016 budget. AfDB President, Akinwunmi

Adesina, said the facility would attract a 1.2

per cent interest. He further revealed that the

bank has a portfolio of $4.1 billion dollars to

support Nigeria‟s new lending operations

Dr. Olayiwola Oladapo November 20, 2016©

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from 2016 to 2017 which the bank intend to a portfolio of $10 billion dollars in

201910.

President Buhari is seeking the legislative approval of the parliament to take $30.54

billion (about N9.61 trillion) loan.

Dateline Nov 16, 2016

The Nigerian National Petroleum Corporation (NNPC‟s) under-funding cash calls hit

2.5 billion dollars in 2016 (Group Managing Director Dr Maikanti Baru11):

3. FISCAL & MONETARY POLICIES ARE ANTI ECONOMIC GROWTH

Exchange Rate of Naira to Dollar

suffered more depreciation

o From $1 to N199 in Jan 2016, the rate

is one dollar to N304 in Nov 2016. This

is 53% depreciation in the value of

Naira within a year. In the light of

anticipated strengthening of the United

States Dollar against all other

currencies as a result of Donald‟s

Trump election as the next President of

United States of America and his make

America great again campaign, the

depreciation of the Naira against key

foreign currencies and especially against the US Dollar may worsen.

Inflation Rate on an uncontrollable Ascent

o Consumer Price Index (CPI) increased to 18.3% (year-on-year) in October from

17.9 per cent recorded in September. (National Bureau of Statistics-NBS12)

CBN Raised Monetary Policy Rate- Interest Rate To Banks

CBN Raised the Monetary Policy Rate (MPR) from 12% to 14%, the highest rate in a

decade. The MPR is the anchor rate at which the CBN, in performing its role as

lender of last resort, lends to Deposit Money Banks to boost the level of liquidity in

Dr. Olayiwola Oladapo November 20, 2016©

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the banking system. This has jerked up commercial bank lending rate to as high as

30%. Contrast commercial lending rate of 4.4% in China and 10.5% in South Africa

and the impact on private sector business growth and overall economic

development13.

4. THE FINANCIAL SERVICE SECTOR IS GASPING FOR BREATH

Commercial Banks Non Performing

Loans Went Up In 2016

As at June 2016, Nigeria Bank‟s Non-

Performing Loans (NPLs) rose by 158 per

cent from N649.63 billion as at December

31, 2015 to N1.679 trillion as at the end of

June 2016. Industry wide NPL ratio rose to

11.7 per cent from 5.3 per cent, thus

exceeding the prudential limit of 5.0 per

cent. At end-June 2016, loans to the oil and

gas sector constituted 28.77 per cent of the

gross loan portfolio of the banking system

as credit to that sector grew to N4, 511.34 billion, compared with N3, 307.87 billion

at end-December 2015.

Loans to state governments rose to N1, 386.61 billion from N1, 053.97 billion at end-

December 2015, as declining revenues continued to constrain payment of salary by

some states, funding of key services and execution of developmental projects. The

report also disclosed that:

“The total exposure to the top 50

obligors stood at N5.23 trillion

(33.4%) of total industry credit

exposure of N15.68 trillion. Credit

exposure to the dominant sectors

as follows: 28.77% to oil and gas

sector; 12.95% to manufacturing;

Dr. Olayiwola Oladapo November 20, 2016©

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8.84% to governments; and 8.69% to general commerce.” Perhaps, more

significantly, the report predicted: “Credit risk is expected to trend higher

into the second half of 2016 owing to increased loan impairments resulting

from the depreciation of the naira, inability of obligors to service foreign

currency denominated loans, as well as bank exposures to the oil and gas

sector. (CBN Financial Stability Report14)

CBN Granted One Off Forbearance to write off Fully Provided For NPLs

In view of the current macro-economic challenges, however, the CBN hereby

grant a one-off forbearance this year 2016 to banks, to write-off fully provided for

NPLs without waiting for the mandatory one year,” she wrote in the circular

addressed to all banks 15.

5. THE NON-OIL SECTOR EXPERIENCED SIGNIFICANT DECLINE

The Non-Oil sector, which is meant to serve as the buffer for the Oil sector and the

target of the diversification drive of the Federal Government suffered a debilitating

decline in revenue from $10.53 billion in 2014 to $4.39 billion in 2015. It is very

unlikely though not impossible that 2016 non-oil export performance will significantly

outperform 2015 results ( CBN16)

6. THE OIL AND GAS SECTOR IS COMATOSE AND ON LIFE SUPPORT

The Global and Nigeria Oil & Gas

sector economically has been

comatose, clearly evidenced by

the retrogressive trend of events in

the sector in the last few years as

the following statistics show.

From a Rig Count of 22, Nigeria

has only 5 Rigs

From 2.7 Million Barrels Per day in

August 2012, Nigeria now

produces an average of 1.44mbp in August 2016 though production amongst OPEC

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oil production among the 14 member states rose by 120 000 barrels a day in August

2016. Prices in 2012 hovered around $97-99 per barrel contrasted with $43-45 in

Nov 15 201617.

7. MANY COMPANIES SHUT DOWN AND OTHERS LEFT NIGERIA

The harsh and stormy operating

environment unleashed on Nigerian

and even non Nigerian businesses led

to massive shut downs and exits from

Nigeria of organizations. Many of them

have divested their investments from

Nigeria and relocated them to

neighbouring West African nations. The

roll call of organizations that shut down

their operations or left Nigeria is rather

distressing in the light of the ripple

effect on Nigerian economy. The list

includes the following;

o In 2015, Brunel a Dutch Human

Resourcing multinational left

Nigeria18

o Lagos – Houston route United

Airlines operated the last flight on the

30th of June 201619.

o In 2016, About 272 firms had been

forced out of business, 50 of which

were manufacturing companies.

Some of the affected manufacturers

have relocated to neighbouring

countries. At least 222 small-scale

businesses have closed shops,

Dr. Olayiwola Oladapo November 20, 2016©

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leading to 180,000 job losses. (Manufacturers Association of Nigeria20)

o Over 3,000 Oil workers were right sized in 2016 and some multinational oil

companies like Trans Ocean have totally shut down operations in Nigeria21

o Nov 2016, Erisco Food shuts down $150m Tomato plant and company in

Nigeria. Relocates to China. The estimated job Losses was put at 1,500 22.

o The ranks of the unemployed obviously swelled and the unemployment rate

obviously witnessed a spike as, there were a total of 26.06 million persons in the

Nigerian labour force in Q2 2016, that were either unemployed or underemployed

compared to compared to 24.5 million in Q1 2016 according to NBS

8. MANY NIGERIAN STATES ARE CLOSER TO ECONOMIC INSOLVENCY

Fifteen states in Nigeria are facing extreme funding constraints as their Internally

Generated Revenues (IGRs) are far below 10% of their Federation Account

Allocations. The IGR of Lagos state is higher than that of 32 states combined

together 23.

From these few key statistics x-raying the

performance of the key sectors of the Nigerian

economy and impacts of “Hurricane E De Ku

Recession”, the statements credited to the

Honourable Minister of Finance and the CBN

Governor earlier in the year that the “Worst is

Over” is at best a prophetic prayer for Nigeria

and one to which all patriotic Nigerians should

shout Amen to.

It must be noted that without the current

commendable efforts of President Buhari‟s

Conclusion

Dr. Olayiwola Oladapo November 20, 2016©

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administration in the head long fight against corruption and minimization of leakages in

Government‟s revenue sources, the situation would definitely have been direr than it is

currently. But that said Nigeria needs a more radical and unconventional economic

development blue print to resuscitate the Nigerian economy from the comatose position

to which it has slide into.

The journey into borrowing loans to offset our endemic economic mismanagement and

development recklessness is worrisome. We must remember that there are no free

lunches anywhere in the world, surprisingly even in Freetown! Every loan comes with its

set of conditionality and responsibilities. A lot of times, such conditionality are

counterproductive as they are many times directly and deliberately inimical to the long

term strategic socio economic development goals for which the loans were taken,

especially when the objective is to help the debtor nations develop sustainable local

economic capacity and eliminate dependency on the creditor nations or institutions.

And one also wonders how we intend to pay them back in the light of the revenue

declining strait we have found ourselves. What also becomes of the next generation of

Nigerians who will bear the burden of these loans? Are we not encumbering and

mortgaging the future of the next generations, having already squandered the economic

assets that should have given them a head start. Debts and borrowing to address

problems created by mismanagement of our commonwealth and failure of leadership

may become a bottomless pit if care is not taken.

I will end this first part of the series with a Yoruba Proverb “Eyan meji ko padanu iro,

bi won ba tan e je, ma tan ra re je”

Literarily translated into English, it means “The deceived and deceiver cannot be

both victims of deception. Even if you were deceived, stop deceiving yourself”.

The Worst definitely will be over some day but it is not yet over as we speak! The road

ahead is still a bit long and arduous.

The responsibility for the challenges of Nigeria especially the current economic

recession the nation is facing can be laid on the doorsteps of all the previous

administrations we have had the fortune or misfortune of having to govern us. It also

Dr. Olayiwola Oladapo November 20, 2016©

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squarely lies on all of us for bad followership that never held our leaders accountable for

the delivery of their service mandate. The problems of Nigeria have always rested on

the failure of leadership and responsible followership. In this regard there are no saints

in Nigeria who you can exempt from the blame for the rot we have found ourselves as a

nation.

The present administration of President Buhari’s cannot therefore be held

responsible and accountable for our current economic recession. It was an

unfortunate economic misfortune that was bequeathed to the administration.

However President Buhari’s administration will be held responsible and

accountable for succeeding or failing to take Nigeria out of this present economic

quagmire. This therefore places an imperative on this present administration to conjure

a sustainable winning, recession proof economic framework for Nigeria.

The concluding part will focus on what Nigeria needs to do from an economic policy

point of view beyond some of the high sounding, highly politicized, largely verbose,

mainly academic, ultra ethicized and sophisticated rhetoric that pervades most

conversations around recovering Nigeria‟s economy. So watch this space in the next

two weeks.

May God strengthen President Buhari and his team for the task ahead. May God bless

them with strategic wisdom and know how to bring us out of recession into the land

flowing with economic milk and honey. God bless Nigeria!

Dr.Olayiwola Oladapo is the Managing partner of Sweat Your Asset Derivative Limited.

He can be contacted at olayi72@gmail.com. You can also visit his page on

https://about.me/DrolayiwolaOladapo or through his tweeter handle @Drolayioladapo

Dr. Olayiwola Oladapo November 20, 2016©

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Key References

1. 1. Justin Yifu Lin-How to Jumpstart Industrialization and Economic Transformation in Africa

and the Author of the Quest for Prosperity

2. http://www.vanguardngr.com/2016/07/recession-worst-adeosun/.

https://www.youtube.com/watch?v=WfyQYztduoM

3. http://www.vanguardngr.com/2016/09/recession-worst-cbn-gov/).It

4. http://www.vanguardngr.com/2016/05/cant-fund-every-project-2016-budget-adeosun/

5. http://sunnewsonline.com/we-cant-implement-budget-fg/)

6. http://breaking.com.ng/nigeria/2016-budget-fg-achieves-fifty-percent-capital-expenditure-

implementation/

7. http://www.premiumtimesng.com/news/headlines/213778-taking-huge-n9-61-trillion-loan-

nigerian-government.html

8. http://allafrica.com/stories/201608181016.html

9. http://punchng.com/nigerias-debt-rises-n4-17tn-one-year/

10. http://www.premiumtimesng.com/business/business-news/211359-african-development-

bank-offers-nigeria-4-1-billion-loan.html

11. http://www.vanguardngr.com/2016/11/funding-jv-cash-calls-now-2-5bn-baru/

12. http://www.vanguardngr.com/2016/11/nigerias-inflation-rate-hits-18-3-october-nbs/

13. http://www.vanguardngr.com/2016/07/mpc-raises-mpr-14-cbn-battles-inflation-stimulate-

growth/

14. http://www.financialwatchngr.com/2016/10/11/non-performing-loans-surge-nigerian-banks-

struggle-survive/

15. http://www.thisdaylive.com/index.php/2016/08/10/cbn-grants-forbearance-to-banks-to-write-

off-2016-npls/

16. http://www.vanguardngr.com/2016/03/revenue-from-non-oil-exports-down-by-58-to-4-3bn-

cbn/

17. http://www.nnpcgroup.com/PublicRelations/NNPCinthenews/tabid/92/articleType/ArticleView

/articleId/380/Nigerian-Crude-Oil-Production-Hits-27-Million-Barrels-As-NNPC-Benue-

Pledge-to-Resuscitate-Makurdi-Depot.aspx

18. http://www.dw.com/en/nigeria-corruption-scares-off-companies/a-18710146

19. https://www.bellanaija.com/2016/05/another-major-airline-exits-nigeria-united-says-goodbye-

to-lagos-houston-route/

20. http://punchng.com/272-firms-shut-one-year-man/

21. http://www.premiumtimesng.com/news/headlines/213738-mass-sack-nigerias-oil-industry-

3000-affected.html

22. http://sunnewsonline.com/erisco-foods-shuts-down-nigerias-factory-relocates-to-china/

23. http://www.vanguardngr.com/2016/06/red-alert-15-states-may-go-bankrupt-report/

Dr. Olayiwola Oladapo November 20, 2016©

17 24. http://www.vanguardngr.com/2016/06/red-alert-15-states-may-go-bankrupt-