In the lead up to the 2015 elections, candidates made lofty promises. And Nigerians were hopeful. A few months later, the energy markets crashed. Oil lost nearly 60% of its pre-crisis value in less than a year. The next seven years would be characterized by twin recessions, both spurred by external shocks over which Nigeria had little control. While external in nature, the impact on Nigerians and the Nigerian economy was substantial. Fast forward seven years later, political candidates are gearing up for new elections. And the world seems headed towards another recession. How soon? It’s hard to say. However, the prognosis is hardly encouraging.

The Covid-19 pandemic, which spurred Nigeria’s second recession under the current administration, has morphed into an endemic virus with continued mutation and occasional above-average virulence rate. Combined with China’s zero-covid strategy, the virus continues to negatively impact China’s economic recovery, with negative consequences for global supply chain resilience and commodities demand from China. The former creates price inflation across key global markets, including the US and Europe. The latter threatens the economic recovery prospects for key commodities-exporting countries, especially in Africa.

Beyond China, the American economy continues to reel from record-breaking hikes in consumer prices. In a bid to cushion the effect of the pandemic, the US Fed drove rates to zero and pumped hundreds of billions into the economy. Simultaneously, the US government implemented one of the largest cash palliative programs in the world. The result? The economic impact of the pandemic on Americans was cushioned, and the economy was saved from a full-blown recession. However, the same messianic action (combined with continued supply chain difficulties) now threatens to drag the US economy into a full recession. As the Fed fights to stave off inflation through aggressive interest rate hikes, there's an increasing likelihood of a Fed-spurred recession. Recent estimates put the probability at above 30%.

Then there’s the war in Ukraine. What looked like a walk in the park for Russia has morphed into a protracted battle, with disastrous humanitarian and economic consequences. The Ukrainian economy is expected to contract by 45%. Eastern Europe, which plays host to more than 8 million refugees from Ukraine, is at risk of recession. The rest of Europe is increasingly impacted, thanks to increased defense spending, high energy costs and a general slowdown in regional trade, especially in the black sea region. This is in addition to the already high inflation rate which the European Central Bank is expected to aggressively attack.

So, should we be worried?

The short answer, yes. As the above section shows, the world’s main economic drivers (China, the US and the EU) aren’t having the best of times at the moment. Any recession from these key economic centers could easily spiral across the globe, with consequences for the Nigerian economy. While the recent hike in prices as a result of the war helped shore up our energy revenues, increased cost of fuel subsidy and low oil production negatively impacted our oil windfall. Secondly, key commodities such as wheat, which remains in high demand at home, are expected to experience significant price hikes, thanks to the war. Thus, we remain critically susceptible to possible recessions in the above economies. Just as in 2015, the key determinant of our experience in the next eight years might not be who wins the presidential election. It might be whether (or not) the global economy ends up in a recession.

However, notwithstanding the dire situation we face and our seeming helplessness at dealing with the aforementioned challenges, there is an argument to be made for good leadership. Part of our vulnerability stems from Nigeria’s near-sole commodity dependence (especially as a source of foreign exchange and government revenue). A deliberate action aimed at tackling this and creating the right environment for the private sector to take the lead on diversification is critical. A more diversified economy (especially the export base) and revenue base would help decrease the country’s vulnerability to external shocks. 

Furthermore, there is the need to tackle Nigeria’s burgeoning debt level. By every pragmatic measure (especially debt-service to revenue), Nigeria’s debt binging addiction is unhealthy. A deliberate step towards fiscal discipline is critical. Considering the negative picture painted in the above paragraphs, any major shock to Nigeria’s revenues at a time when our debt-to-government-revenue ratio is 90-92% would be disastrous.

Just as in 2015, the key determinant of our experience in the next eight years might not be who wins the presidential election. It might be whether (or not) the global economy ends up in a recession.

In conclusion, talks on possible recession might be overblown. Uncertainties remain on how aggressive the Fed would be willing to go in light of recent data on possible recession. The next turn of events in Ukraine also remains uncertain. Finally, in light of recent protests across Shanghai, how long China would be willing to continue its zero-covid strategy remains an open question. The world might recover fully without a recession. But it might not. We need to be prepared.