The words recession and GDP have become common parts of our lexicon. This is understandable in view of the fact that the country just experienced it’s first major recession since 1986.
Everywhere you go, from BRT buses to beer joints; from boardrooms to Aso rock villa, you cannot escape the inevitable discussions about GDP, recession and the worsening quality of life of the Nigerian people.
But the question is: do you really understand what these terms mean and the relationship between them?
In this article, we will be elucidating on these terms and their inter-relationship.
GROSS DOMESTIC PRODUCT (GDP)
GDP is the total value of everything produced by all the people and companies in a country. It is one of the primary indicators used to gauge the health of a country’s economy.
GDP can be measured in three ways: [Source]
Output measure: This is the value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government
Expenditure measure: This is the value of the goods and services purchased by households and by government, investment in machinery and buildings. It also includes the value of exports minus imports
Income measure: The value of the income generated mostly in terms of profits and wages.
Whatever approach is used, the number should be the same.
GDP Growth in Nigeria Since Independence
As can be seen from the graph above, Nigerian G.D.P at the time of independence was $4.196 Billion. This grew to $64.2 Billion in 1980. However, the 1980s oil glut and the subsequent collapse of oil price in 1986 led to the plummeting of Nigeria GDP which by to $20.72 Billion in 1986. The rest of the eighties and the following decade of the nineties were none better as Nigeria continued to record lackluster GDP growth.
However, since 1999 economic growth in Nigeria has risen substantially, with annual average of 7.4 per cent in the last decade. The Gross Domestic Product (GDP) in Nigeria was worth 405.10 billion US dollars in 2016. The GDP value of Nigeria represents 0.65 percent of the world economy. GDP in Nigeria averaged 92.65 USD Billion from 1960 until 2016, reaching an all time high of 568.50 USD Billion in 2014 and a record low of 4.20 USD Billion in 1960. [Source]
Recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. It is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the real estate market.
Recessions are primarily caused by a fall in aggregate demand. The blame for a recession generally falls on the federal leadership, often either the president himself, the head of the Central Bank, or the entire administration.
In 2016, Nigeria recorded its first recession almost 30 years.
Quality of Life
Human Development Index is a comparative measure of life expectancy, literacy, education, and standards of living for countries worldwide. It is a standard means of measuring well-being. It is used to distinguish whether the country is a developed, developing, or underdeveloped country, and also to measure the impact of economic policies on quality of life. [Source]
The HDI data for 2016 ranked Nigeria 152 of 188 countries.
This put the country in the low human development category.
The Nigeria Situation
From the foregoing, we can see that essentially, a country’s economic development is related to its human development, which encompasses, among other things, health and education. These factors are, however, closely related to economic growth so that development and growth often go together.
Successive governments in Nigeria have since independence in 1960, pursued the goal of structural changes without much success. The growth dynamics have been propelled by the existence and exploitation of natural resources and primary products. Initially, the agricultural sector, driven by the demand for food and cash crops production was at the centre of the growth process, contributing 54.7 per cent to the GDP during the 1960s. The second decade of independence saw the emergence of the oil industry as the main driver of growth. Since then, the economy has mainly gyrated with the boom-burst cycles of the oil industry. Government expenditure outlays that are dependent on oil revenues have more or less dictated the pace of growth of the economy. [Source]