Economic downturn

Nigeria’s Gross Domestic Product (GDP) growth rate dropped to 2.31 percent in Q1 2023 from 3.52 percent in Q4 2022, according to the…

Nigeria’s Gross Domestic Product (GDP) growth rate dropped to 2.31 percent in Q1 2023 from 3.52 percent in Q4 2022, according to the National Bureau of Statistics (NBS). Nigeria’s manufacturing sector growth slowed to its lowest in three years. The trade sector also slowed to 1.31 percent in Q1 from 4.54 percent in the previous quarter and 6.54 percent in Q1 2022. The decline was attributed to the adverse effects of the cash crunch policy. In a related development, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate for the third time this year by 50 basis points to 18.5 percent — the highest in 22 years.

Nigeria’s economy has been stuttering along for years. Two recessions in eight years under President Buhari, a colossal debt burden, poor revenue generation and the unavailability of foreign exchange have been vital ingredients in a toxic mix that has unleashed hardship on Nigerians, caused capital to flee and plunged large segments of the population into poverty. Very few people are surprised about the slowdown in the GDP growth rate in Q1 of 2023. The bungled cash policy and the uncertainties surrounding elections held much off, and it shows in the manufacturing and trade sectors that were mainly affected, which depend on the availability of cash to facilitate transactions in much of the informal market. The inflation in the country is cost-push, not demand-pull, which begs the question of why the CBN continues to raise interest rates to record levels when this only ends up squeezing finance to the manufacturing and trade sectors, which the GDP numbers show are already struggling. The CBN should reverse the contractionary-type monetary policy and pursue one that eases access to finance for these sectors to drive economic growth. We hope that the change in government will lead to more market-oriented policies, but in the short term, expect inflation to climb. In the long term, such policies should encourage capital investment and economic growth. Additionally, Nigeria desperately needs to spur spending and investment without boosting inflation rates and credit purchase systems that allow consumers to purchase groceries and other household items on credit. These programmes exist for some electronic goods, but they need to be shaped to let bank account owners shop for groceries in bulk so that manufacturers can make more trade to satisfy the 200 million people in the country. It would have to happen with the supermarket chains, and the banks would have to help with the formalisation and standardisation of Nigeria’s market system, which has advantages. Sachetisation is common in Nigeria, but it always makes the average unit cost of goods much more expensive, which hurts the producers and the consumers. Wealthier countries are built on credit purchase systems that guarantee a certain level of consumption, inspiring a certain level of investment and employment and deepening the marketplace and economy. If used responsibly, credit purchase systems can be a helpful tool for stimulating the Nigerian economy.