The National Bureau of Statistics (NBS) was reported to have declared that Nigeria has finally gone into a recession. This is to make it official but most informed observers of the Nigerian economy know that we have been inching heedlessly towards a recession for most of the past several months, going by household spending and other aggregate variables. They know that the country was going to hit that sad threshold but it was a matter of time. Everything that needed happen for an economy to go into recession has happened in the past few months.
From the delayed appointment of ministers that left executive agencies headless for a long time, to the delayed budget due mainly to a botched padding attempt that was to prepare grounds for the next round of looting. Then came the consequences of the anti-corruption fight that scared the opaque rich and put private spending virtually on hold. While most people had no money to spend, those who had it were afraid to spend, lest something irregular got traced to them. It became evident that much of the cash spent on the streets of Abuja and Lagos were actually part of Nigeria’s missing billions as spending slowed with the plugging of some treasury holes. Expectedly, aggregate spending, which is bedrock of economic growth began to recede. It was therefore a matter of time before we hit the requisite economic indicators to proceed on a recession.
The business cycle is a natural consequence of every capitalist system, as the pursuit of economic growth turns out winners and losers along the way. Consequently, aggregate demand, which is the sum total of all our spending in the economy, does not grow smoothly. It fluctuates. There are times of rapid growth and times of sluggish growth. Indeed, there are times of outright fall in output. However, short run fluctuations in growth are usually averaged out leaving a trend path of output growth that is smooth. Nigeria is currently working the path of fluctuations and hence the current recession. A business cycle is the short-term fluctuation of total output of an economy around its trend path. When output is growing below the trend path or actually falling, we experience a recession. Naturally, when economies enter recession they keep going deeper until it bottoms out to resume growth. How long it takes to get the turnaround is a matter for conjecture and depends on policy choices.
Many economic agents fall victim in a recessive economy. The goal of policy should therefore be to minimize the damage to these entities as the economy works for a rebound. The most vulnerable groups – households and small businesses – must be protected by policy action to enable them survive in a recession. These agents are pervasive in the economy. Micro, Small and Medium Enterprises (MSMEs) constitute about 90 percent of the business entities in Nigeria and indeed most countries. They are responsible for about 80 percent of the jobs, and support more households than any other enterprise group. This is why the survival and growth of MSMEs is critical to every economy. It also explains the extensive emphasis being placed on the sector in most countries.
Moreover, the world is once again moving towards the small business model as against big business. The idea that the small enterprise is beautiful is once again on the resurgence. Some world acclaimed international hotel chains, led by the Marriott group, have begun to consider and indeed experiment with what they call micro hotels. This is one of the new ways of democratising the luxury hotel brands’ services to locations that may not ordinarily accommodate huge hotel facilities. So small remains beautiful and getting even more attractive. It is therefore very important for us to protect this category of businesses even as we officially step into the dreaded evil called economic recession. So what are the options to keep small businesses afloat this time?
There are lots of options available to policy makers and governments. The tragedy of this particular recession is that it was preceded by a deadly decline in public revenues. As a result, we are witnessing the ascendancy of Internally Generated Revenue (IGR) as the key instrument of economic survival of the permanently insolvent and forever profligate states of Nigeria. In the search for ways out, the conventional wisdom seems to coalesce around one key advice: that state governors should leave Abuja and return home to seek and find their own cash cows in the form of IGR. This has resulted in all kinds of inefficient tax drives that have worsened the plight of the MSMEs. As the recession proceeds, this hostile tax behaviour is not likely to abate but could get worse and worsen the recession.
The mostly ill-conceived IGR drives have set the states running amok. They are using multiple-taxation, in a penny-wise, pound-foolish manner, to destroy the MSMEs that sustain their domestic economies. This is ironical. The wise ones among them know that low taxation of a large number of enterprises is better than high taxation on very few companies, especially when there is credible evidence that the tax revenue is not judiciously utilized. This is why the army of the unemployed is growing.
There is this erroneous belief that every state in Nigeria has the resources to survive without the federal government. Well perhaps, but not under this utterly flamboyant and unaccountable system of government that makes corrupt emperors out of public offices at both federal and state levels. There is too much money within the control of uncontrolled public officers. These funds must find their way back to the economy to enhance aggregate demand. Government must focus on ways of motivating private entrepreneurs to help create jobs and improve domestic spending. We still call attention to the need for common services for MSMEs in productive activities – water, light, security and such- to free their limited resources. And finally, removal of the recent meaningless Service Charge introduced by banks with the connivance of the CBN. Many are still wondering how a central bank in a depressed economy can add such a cost to poor citizens at a time the banks are making scandalous profits.
Emeka Osuji
