Inflationary pressure made economic growth shine in 2021 | The Guardian Nigeria News
Emerging from the ashes of COVID-19 last year, the economy started on a bumpy ride. There was so much uncertainty about the never-ending pandemic and the sustainability of the fragile global recovery.
Domestically, Nigeria was in one of its worst recessions in decades. The economy in 2020 contracted by -6.1% in the second quarter (Q2) and by -3.62 in the third (Q3) following. With declining incomes, there was little the government could do to instill confidence in an economy that was losing more jobs than it was creating.
Indeed, there was consensus that the recession would be short-lived but marked disagreement on the speed of the recovery – a convoluted U or V recovery? It was feared that a prolonged shock could trigger a deeper collapse or depression. But luckily, as some experts predicted, the economy was out of recession earlier than expected. This was confirmed by the gross domestic product (GDP) data for the fourth quarter (Q4) 2020.
Amid concerns over mounting fiscal risks, the country’s output in the second quarter broke a six-year record, jumping 5.01% year-on-year to consolidate the fragile growth that began in the fourth quarter of 2020. La growth was about double. as high as any previous quarterly performance in the life of the current administration.
The surge performance came two quarters after the country emerged from one of the deepest recessions in its history. The economy had yielded -6.1% and -3.62% respectively in the second and third quarters of 2020 to confirm the second recession since President Muhammadu Buhari took over the political leadership of the country.
The recession ended with positive growth close to zero – 0.11% yoy (YoY). The growth figure for the first quarter of 2021 was also positive, but only enough to pull it out of stagnation. The value of output added 0.51 percent in real terms year on year. But there was a significant jump in Q2 2020 data even as some economists dismissed the expansion as a broken window fallacy.
Growth was mainly influenced by the base effect of the deep hole in the second quarter of 2020 when the economy was completely redundant due to the restriction of movements. The transport sector has underlined the fallacy of growth. Coming from a complete halt in the comparative quarter of 2020 in which it posted -49% growth, it jumped almost 77% in the second quarter of 2021.
In absolute numbers, composite growth has failed to bring critical sectors of the economy back to the pre-COVID era. The manufacturing sector, for example, was still on the verge of total collapse despite the announced growth. For example, the value of the sector’s output fell from just N1.4 trillion in the second quarter of 2020 to N1.45 trillion in the second quarter of 2021 and played a disappointing role in reducing the unemployment rate. growing rapidly.
In the third quarter (Q3), growth moderated to 4.03%. While fourth quarter data has yet to be released, the International Monetary Fund (IMF) has estimated annual growth at 2.6 percent, roughly matching the average population growth rate of the past decade. An economics professor at the University of Ibadan, Adeola Adenikinju, said the country must aspire to develop its economy at a much faster rate in order to experience true economic development.
Unemployment, a ticking time bomb
Rising unemployment is one of the social consequences of stagnant or negative growth. There is no up-to-date data on the state of human capital utilization, but the National Bureau of Statistics (NBS) Q4 2020 survey released towards the end of the first quarter of 2021 showed that the rate of Unemployment has reached its highest level in more than a decade. According to the data, the unemployment rate fell from 27.1% in the second quarter of 2020 to 33.3% in six months, making the country a place on the list of countries with the scariest employment data.
The report said 23.2 million of the 69.7 million Nigerians in the labor market were unemployed. Perhaps the worst aspect of the data was the youth employment rate. Unemployment in Nigeria was worst among young people between the ages of 24 and 35, according to data, where 7.5 million or 37 percent of the number of group members were unemployed.
Unemployment for women was higher at 35.2 percent while that for men was 31.8 percent. The trend was different in the case of underemployment with 24.2 percent reported against 21.8 percent for men.
In addition, the unemployment rate among rural dwellers is 34.5% while that of city dwellers was 31.3%. In the case of underemployment, rural dwellers reported 26.9 percent while the rate among city dwellers was 16.2 percent. While large numbers of Nigerians were out of work, the cost of living triggered by rapid inflation also sent shockwaves, making the country’s poverty index worse.
Inflation “decelerating” in Nigeria
Headline inflation hit a five-year high of 18.17% in March, more than 100% above the Central Bank of Nigeria (CBN) target. It had never been so serious since January 2017. The inflation crisis began more than two years ago after the land borders were closed, but worsened last year, with food inflation reaching nearly 23% in March before a gradual decline.
The year opened with an inflation rate of 16.47 percent, which appeared to accelerate monthly throughout the year. But NBS data indicates moderation began after March, paving the way for a steady seven-month deceleration through November. The figure closed at 15.4 percent, but many experts objected to the official statement.
As monthly NBS figures indicated a slowdown in inflation, Nigerians moaned under the astronomical rise in commodity prices. An independent survey by The Guardian suggested that the prices of essentials rose 50 to 150% during the year. In addition, a Lagos Business School report also estimated the average year-over-year change in consumer goods prices at 94.7% – from December 2020 to December 2021.
Controversy ignored, official figures released by NBS last year were the worst inflation figures in more than a decade. The last time the country’s food inflation hit 20 percent was in February 2009. But last year it exceeded that bar by nearly three percentage points. It was also worrying that states considered to be the nation’s food baskets consistently led the food inflation numbers.
The large gap between core inflation and food inflation has also raised concerns about worsening income inequalities as well as the deterioration of the efficiency of the transport system. In November, for example, the gap was over seven percentage points. Some economists have suggested that the growing gap between core inflation and food inflation underscored the severity of the pressure on poor households last year.
Endless currency crisis
Historically, inflation in Nigeria has been an increasing function of the exchange rate of the naira. The heavy dependent nature of the economy is one possible explanation. Last year, Nigerians had a full “dose” of the double challenge of currency crises and essential commodity prices.
The year opened at N475 / $ on the parallel market but closed at N565 / $, implying that the naira was trading against the dollar at a 19% haircut on the black market. At the official Investor and Exporter (I&E) window, the local currency has been discounted by more than six percent. It started the year at N410 / $ and closed last week at N435 / $.
It was also a turbulent year politically. First, the umbrella bank replaced what was previously called the official CBN rate, which was used for government transactions, with an I&E window, otherwise known as the Nigerian Autonomous Exchange Window (NAFEX). This follows an extensive reform of the remittance administration and payment process, which began in 2020.
In addition, weekly funding of Bureau de Change (BDC) operations and remittance of dollar sales of business / personal travel allowances (B / PTAs) to commercial banks. Despite the rejigging, the forex market crisis continued into the new year.
Rising debt burden
Nigeria has sunk deeper into the quagmire of over-indebtedness, raising questions about the sustainability, appropriateness and use of the borrowed money. Despite the huge outstanding debt, the government said the country had no alternative to continuing borrowing. Nigeria’s public debt stock stood at 32.9 trillion naira at the end of 2020, but increased by 5.1 trillion naira in nine months to reach its current 38 trillion naira. The profile increased 15.5 percent in three quarters.
But last year’s debate was more about sustainability than the size of the national debt. In the first quarter of last year, the country’s debt-to-revenue ratio was around 73 percent, which African Development Bank (AfDB) President Dr Akinwumi Adesina says needs to be corrected to make grow the economy.
Of course, there is no breaking away from the challenges as the country begins another year. But some experts have said that rare fiscal discipline, unprecedented in the National Economic Team in recent years, could lead the ship to a comfortable journey.