ECONOMIC RECESSION AND THE WAY OUT

INTRODUCTION

There is not official definition of recession but there is general recognition that the term refers to a period of decline in economic activities. Very short periods of decline are not considered recessions. Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country’s real (Inflation adjusted) gross domestic product (GDP) – The value of all goods and service a country produces. Although this definition is a useful rule of thumb, it has drawn back. A focus on GDP alone is narrow, and it is often better to consider a wider set of measures of economic activity to determine whether a country is suffering a recession. Using other indicators can also provide a more timely gauge of the state of the economy.

Some recession, including the current one are rooted in financial market problems. Sharp increases in asset prices and a speedy expansion of credit often coincide with rapid accumulation of debt. As corporations and households get over extended and face difficulties in meeting their obligations, they reduce investment and consumption, which in turn leads to a decrease in economic activity. Not all such credit booms end up in recessions, but when they do, these recessions are often more costlier than others. Recessions can be the result of a decline in external demand, especially in countries with strong export sectors. Adverse effects of recessions in large countries – such as Germany, Japan and the United states are rapidly felt by their regional trading partners, especially during globally synchronized recessions.

Because recessions have many potential causes, it’s a challenge to predict them. The behavioural patterns of numerous economic variables – including credit volume, asset prices, and the unemployment rate – around recessions have been documented, but although this might be the cause of recessions, they could also be the cause of recessions. Even though economists use a large set of variables to forecast the future behaviour of economic activity, none has proven a reliable predictor of whether a recession is going to take place. Changes in some variables – such as asset prices, the unemployment rate, certain interest rates, and consumer confidence – appear to be useful in predicting recessions, but economists still fall short of accurately forecasting a significant fraction of recessions, let alone predicting their severity in terms of duration and amplitude

DEPRESSION

There is no formal definition of depression, but most analysts consider a depression to be an extremely severe recession in which the decline in GDP exceeds 10 percent. There have been only a handful of depression episodes in advanced economies since 1960 in the United States of America which lasted for ten years.

During a phase of economic depression, firms are facing excess capacity because consumer spending is low and people have less disposable income to sustain consumption, thereby lowering the production and the profitability of firms. More workers are laid off due to downsizing. Furthermore, investment activity future is low, and the market is pessimistic about the future. The intensity of these effects increases as the economy sink into deeper depression.

At the top of it all, economic depression occurs when consumers and investors activities is low, unemployment is high, and demand for goods and services decreases.

NIGERIAN STATE

It has been widely documented that the profile of the post-colonial state in Nigeria and indeed most underdeveloped nations of Africa, Asia and Latin America is disheartenly one of the political and economic disequilibria. Specifically, the political environ in Nigeria has been described as a theatre of conflict and war for primitive accumulation through the power process, amongst dominant forces with the inevitable consequence of, not only political underdevelopment but socio-economic crises.

As a result, the country has rare opportunity to reform itself, produce dedicated masses and in turn influence the course of development positively. This is because the old images and structures were maintained. Most especially, the nature of leadership and their respective socio-economic and political policies.

Nigeria political elites are hydra-headed group lacking cohesion, who are a decisive factor in the exacerbating political and economic crises (ala collapse of civil rule, coups and counter-coups, political repression and violence, huge foreign debt, mass poverty, terrorism e.t.c) in Nigeria. It is the light of this relationship that I seek to explain the nature of the Nigerian state, the global financial crises and its linkage with the variously experienced socio-economic and political crises which are the results of the abnormalities (Recession)

 

POSSIBLE WAY OUT OF NIGERIA RECESSION

“The essence of the second Professor Ode Emmanuel Colloquium held today the 11th February 2017 here at Edexcel University Benin Republic is to identify the way out of the Nigeria recession.”

After blaming this economic re  cession on the structure of economy that is nearly totally dependent on the export of single commodity oil, for over 90% of its revenue. Any adverse shift in the international price of that commodity is bound to have negative impact on the economy. The almost total dependence of the economy on the importation of foreign manufactures undermined its employment capacity, rendering millions of our youths to a lifetime of unemployment, underemployment and penury. This was made worse by the failure of the managers of the economy to save for the rainy days so when the inevitable price crash came, there was no cushion to absorb the shock. Further challenges to the economy in the form of militant agitation and sabotage of oil assets in the oil producing region of the Niger Delta.

The problem of corruption and indiscipline in the management of National resources by successive government is a serious problem. Others are; degeneration of the nation’s socio-economic status, the level of insecurity, corruption and divisive partnership in the polity, treasury single account (TSA); high interest rates, restrictive foreign exchange regime; sale of government asset to short-up foreign exchange reserves; the need for cabinet reshuffle; government restructuring; etc.

CONCLUSION

In order to effectively come out of recession, Nigerian state shall:

  • Restricted monetary policies led to cash liquidity crunch in banks and in circulation.
  • The restrictions on foreign exchange deposing and transactions sent wrong signals to investors (Local and Foreign) and caused massive withdrawal of Dollars from the banks and collapse of the economic and business activities in the country.
  • Prosper placement and assignment of ministers based on their areas of professional competence and expertise as this could facilitate proper coordination and efficient service delivery and good governance.
  • The methods adopted in the operation of the agencies charged with the anti-corruption drive should be such that would not bring the image of the country into disrepute and scare both local and foreign investors.
  • Introduction of immediate economic stimuli; reduction in banks interests rates; incentives on foreign direct investments;
  • Ban on importation of agricultural produce and textile materials. Cancellation of multiple taxation policies and regimes amongst the federal states and local governments.
  • Borrowing to stimulate manufacturing and increase export drive for foreign exchange
  • Adequate funding of the 2017 appropriation and release of funds to local contractors;
  • Review of the minimum wage to empower low income earners; and dialogue with Niger Delta Militants to generate higher oil revenues and economic activities to thrive.
  • Diversification of the economy away from oil into areas of agricultural development for food sufficiency and exportation
  • Local manufacturing for import substitution export and foreign exchange earnings; solid mineral extractions and processing; and, investment science, technology, arts, culture and tourism development.
  • Re-constitution of Board memberships of various government agencies and quest for a stronger and more inclusive economic management for proper advice and coordination of economic policies and restoration of confidence in the conduct of government business.
  • Restructuring of government to diffuse more socio-economic powers to states and local governments for grass roots development rather than dependence of these tiers of governance on monthly handouts form the federal government.
  • Development of critical infrastructure such a roads construction and maintenance, improvement on electricity generation and distribution and adequate funding for higher education to curb loss of foreign exchange occasioned by massive exodus of Nigerians abroad for studies and transformation of the health sector to check medical tourism.
  • Institute adequate legislative framework including amendment of the constitution to aid governance and economic structure and strengthen proactive fight against corruption.
  • It is too expensive to run two legislative houses. We should either use the house of representative or senate in order to curb the huge spending. Urgent intervention of legislative is required to jointly work with the executive to find concrete and sustainable solutions to the current recession.

I am confident that every crisis represents an opportunity for change and progress, in view of this, government should chart a new direction for the national economy through diversification, away from total dependence on oil revenues, rebuilding our national infrastructure to enhance our national economic independence and sustained prosperity.

Thank you very much

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