From banks and companies to schools and police force, Titi Adeyemi, a Nigerian graduate, has searched for jobs since she finished school six years ago but is still unemployed.
“They keep telling me the course I studied is not what they want or other times it is that I don’t have experience,” said Adeyemi, 28, who studied Zoology.
“I now sell bags and shoes but I cannot seem to understand why the prices are increasing every day and it is affecting my business,” she said.
With Nigeria in its second recession in five years, millions still looking for jobs, coupled with the recent spike in inflation – these are signals that the economy might be experiencing a bad economic condition: stagflation.
What is stagflation?
Stagflation is an extreme economic situation which occurs when prices of goods are rising, the currency is losing value and no real growth is occurring to create jobs.
These are a few of the problems the Nigerian economy is currently grappling with.
Headline inflation has been rising for 16 straight months to hit 15.75 percent in December quickened by rising food prices, crushing the purchasing power of an average citizen.
Rising prices put even more of a squeeze on the people who have no jobs.
The number of jobless Nigerians rose to 27.1 percent in the second quarter of 2020, up from 23.1 percent in the third quarter of 2018, of which a large number are youths.
The problem of unemployment would not end soon except quick actions are taken to tackle it.
According to a recent report by the International Monetary Fund (IMF), Nigeria would have 54 million new entrants in the labour force over the next decade.
The lender also said the Nigerian economy will need to create at least 5 million new jobs each year for the next 10 years to bridge the unemployment gap.
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As the unemployment rate rises along with prices, consumer spending slows and business revenues decline, which means companies also suffer as well.
Nigeria’s economy slipped into its worst recession in nearly three decades as GDP plunged 6.1 percent and 3.62 percent in the second and third quarters of 2020, respectively.
The World Bank has predicted that the economy would only grow by 1.1 percent in 2021. IMF and Renaissance Capital also forecast a 1.5 percent and 1.0 percent growth rate, respectively, for Nigeria this year.
This is a slow growth rate especially compared to peers such as Kenya, South Africa and Ghana that have been tipped to grow by an average of 5.2 percent, 3.05 percent and 3.0 percent, respectively, in the same period.
The naira also keeps losing value as the local unit was devalued twice last year by 24 percent to N381/$ from N360/$ at the beginning of the year.
The IMF has recommended that the naira be devalued further in 2021 to ease external imbalances.
Economists say stagflation is an unnatural situation because inflation should not occur in a weak economy.
Why stagflation is an unnatural situation
When there is weak growth, it implies that there are minimal economic activities and therefore consumer demand drops enough to keep prices from rising.
However, in the case of stagflation, weak growth is accompanied by high inflation and worsened by unemployment, making it difficult to solve.
Economists have said the solution for poor economic performance is to boost government spending. However, bumping up spending can increase inflation.
The Central Bank generally controls inflation by raising interest rates, but that can reduce spending and weaken the economy.
The typical levers for spurring growth increase inflation and the levers for reducing inflation can cause the economy to shrink.
This makes it incredibly challenging to get out of stagflation since solving one problem makes the other worse.
Way forward for Nigeria
Experts say investment-led growth will play a major role in lifting the economy out of recession and achieving a sustained growth.
The Nigerian Economic Summit Group (NESG) in a recent report advised the Federal Government to focus on four issues which it noted as priorities for enhanced growth of the nation’s economy.
The four issues according to the Group are macroeconomic stability, policy and regulatory consistency, sectoral reforms, and human capital development.
“The government will also need to implement reforms that will attract significant investments into sectors that meet certain criteria,” NESG noted.
The report said the Federal Government should focus on sectors such as manufacturing, construction, trade, professional services, education and health which are major sectors with strong backward and forward linkages and sectors which could create jobs and spur growth.
Doyin Salami, CEO, Kainos Edge Consulting, in a presentation themed “Economic Outlook: Implications for Businesses in Nigeria for 2021”, said Nigeria must look toward resolving the uncertainty around FX and also the convergence of the exchange rates around market reflective rates.
He also explained that there is a need to boost household income and increase their purchasing power.
“This could be achieved through employment creation contingent on recovery in capacity utilization and a boost to capital investment,” Salami noted.
Andrew Nevin, a senior economist at PWC, also says Nigeria needs to make its dead assets, including real estate, come alive.
