Recession bogey in Nigeria and South Africa

Technical recession occurs when an economy suffers two consecutive quarters of negative economic performance. It refers to shrinking economic output, sometimes also known as negative economic growth or economic decline.

As Nigeria is still smarting from its recession mode after more than 10 months, the current story that South Africa has slipped into recession should be very disturbing about Africa and poor leadership. The two countries (Nigeria and South Africa) are generally regarded as the topmost economies in the continent.


South Africa, easily the strongest with solid infrastructure for growth, has been rocked by a recent disclosure that it has slipped into a recession after its gross domestic product (GDP) declined 0.7 per cent during the first quarter of 2017 after contracting by 0.3 per cent in the fourth quarter of 2016.


Technical recession occurs when an economy suffers two consecutive quarters of negative economic performance. It refers to shrinking economic output, sometimes also known as negative economic growth or economic decline. This simply implies that the economic activity of a country is declining.


This is a bad news item. In South Africa’s case, it is particularly serious because the country needs strong economic growth to make inroads into unemployment, which currently stands at more than 27 per cent. Nigeria’s case is not particularly different. Nigeria, touted in 2014 as Africa’s largest economy following a rebasing went into recession in August 2016 when the growth figures were showing that the economy contracted 2.06 per cent between April and June that year (2016). This was after the country had then seen two consecutive quarters of declining growth, the usual definition of recession. And this followed a report then that its vital oil industry had been hit by weaker global prices according to the Nigerian Bureau of Statistics (NBS). Crude oil sales account for about 70 per cent of government’s income.

In the same vein, reports have suggested that South Africa, the only country in Africa that is a member of the G-20 and an elite club of emerging markets comprising Brazil, Russia, India, China and South Africa (BRICS), desperately needs a strong economy for other reasons too. The first is that the living standards of its citizens cannot improve without economic growth. The second is that the economy needs to grow for the government to be able to increase revenue to meet its growing social welfare budget.


South Africa’s economy showed marginal positive growth for 2016, although it then contracted in the fourth quarter of the year. And so with similar contraction in the first quarter of 2017, the country fell flat to a technical recession.


If the economy shows positive growth for the remaining three quarters of this year, South Africa will avert a recession for the calendar year 2017. When Nigeria will get out of recession remains uncertain even as the presidency keeps assuring that the economy would soon bounce back.


In South Africa, economic activity contracted over a wide range of sectors, including construction, manufacturing and transport. Only mining and agriculture made a positive contribution to output growth. All other sectors markedly contracted. This development reflects subdued demand throughout the South African economy. The data on the first quarter confirms what many small and medium business owners have been witnessing since the beginning of 2017 – that demand is down and that business conditions have been tough.


The important discussion point at the moment is whether the recession in South Africa will continue in the second quarter – April to June, or whether there will be a turn-around to economic growth. It is pretty difficult to identify who is to blame, in this regard. But it must be noted that recessions are rare events, as policies are generally aimed at economic growth. This is the second recession experienced in the post 1994 South Africa.


Rapid economic growth depends on investment, which in turn is dependent on confidence and positive expectations of the country’s future. At the core of this contraction in Nigeria, South Africa and indeed Africa is pervasive poor leadership in the continent. President Jacob Zuma’s administration doesn’t instill confidence. Nigeria is currently experiencing absentee leadership and near absence of governance system. This partly explains subdued investment in the two countries.


The recent credit risk downgraded into sub-investment grade has made South Africa a less attractive investment destination. Nigeria has never been a strong investment destination, especially for foreign direct investment (FDI), no thanks to absence of critical infrastructure. The lack of confidence is also reflected in suppressed demand, which in turn results in contractions in economic output.

Investment is required to get South Africa out of its depressed economic conditions. Investment will boost demand in the economy, with positive spill-over effects into a number of sectors. This is also true of Nigeria and other African countries that may already be catching cold as Nigeria and South Africa have sneezed.


South Africa and Nigeria are, therefore, not alone as they are only joining a growing list of countries, which have slipped into technical recessions in global context too. These include Ecuador, Equatorial Guinea and Venezuela. It is no longer at ease in the counties that are experiencing recession now.


Citizens always agitate for improvements, in this regard. It’s important to remember that a country’s status can change from quarter to quarter depending on its growth rate. This means that an assessment of economic growth or recession status needs to be made based on the most recent data. Whichever way the wind of time blows in the case of Nigeria and South Africa, citizens of the fallen giants of Africa need to clamour for good and exemplary leadership. The real trouble with the two countries though which the world assesses progress in Africa is simply and squarely a failure of leadership.


And the governing parties and leaders in these two countries should note this and take responsibilities for the consequences of their actions and inactions. They need to inspire “hope of a better tomorrow,” which an African writer, Ngugi Wa Thiong’o once noted, “is the only comfort we can give to a weeping child.” But as some experts have noted, “hope is not a strategy” that can improve conditions. Mo Ibrahim’s leadership foundation through its annual award that is hardly won, for instance, has shown glaringly that there is intolerable absence of good governance system in Africa. And that is why recession has become the new bogeyman – that is threatening peace, stability and growth in the continent that is supposed to be rising at this time in global contextual projection.