Could this be light at the end of the tunnel for Nigeria? Is this a signal to growing her tax base? Is the worst over with Nigeria’s economic nightmare?
The above questions and more are potential questions on the lips of many especially the worst hit during this economy downtime as the Nigeria Bureau of Statistics a few hours ago reported that the country’s economy exited recession in the fourth quarter of 2020.
This report portends the country’s first growth in three quarters as lockdown implemented to curb the Covid-19 pandemic was lifted across the country to enhance day-to-day economic activities. Gross Domestic Product (GDP) grew by 0.11 percent between October and December 2020.
The NBS’ take
The NBS has opined that although the growth was weak, it reflects the gradual return of economic activities following the easing of restricted movements and limited local and international commercial activities in the preceding quarters.
“As a result, while the Q4 2020 growth rate was lower than growth rate recorded the previous year by –2.44% points, it was higher by 3.74% points compared to Q3 2020,” the NBS said.
A quick flashback
Recall that the economy slipped into recession in the third quarter of 2020 with a decline of 3.6 percent, having contracted 6.1 percent in the second quarter, leading to Nigeria’s second recession in five years.
For the full year 2020, the economy contracted by 1.92 percent, better than the International Monetary Fund’s projection.
On a quarter-on-quarter basis, real GDP growth was 9.68% indicating a second positive consecutive quarter-on-quarter real growth rate in 2020 after two negative quarters.
However, overall in 2020, the annual growth of real GDP was estimated at –1.92%, a decline of –4.20% points when compared to the 2.27% recorded in 2019.
Inflation soared at 15.75 percent in December, its highest level in 32 months, with the 0.86 percent month-on-month increase marking the 16th consecutive month inflation would increase in Nigeria.
Earlier in November, it touched 14.89 percent.
Contributor’s to growth
It is pertinent to note that the current Nigerian economy is divided into the oil and non-oil sector.
In the fourth quarter of 2020, average daily oil production of 1.56 million barrels per day (mbd) was recorded. This was lower than the daily average production of 2.00mbpd recorded in the same quarter of 2019 by -0.44mbpd, and the third quarter of 2020 by –0.11mbpd.
The non-oil sector on its part grew by 1.69% in real terms in Q4 2020, the NBS said.
This is slower than the 2.26% recorded in the corresponding quarter of 2019 but better than the –2.51% growth rate recorded in the preceding quarter.
For the full year of 2020 however, the non-oil sector grew –1.25% compared to 2.06% in 2019, the report said.
Recession and tax revenue
Technically during a recession, workers lose their jobs and businesses run losses. Taxes on personal income and even company income becomes volatile to the economic crises. Recall that In May 2019 among other grim stats, the Minister of Labour and Employment, Chris Ngige said the federal government forecast an unemployment rate of 33.5% by 2020. This means that fewer people will remit Personal Income tax to the tax regime among other tax implications.