RECESSION: THE WAY OUT

There is an opportune time to do things, a right time for everything on the earth – Message Version. (Ecclesiastes 3:1)

 

DEFINITION OF A RECESSION:

In economics, a recession is a business cycle contraction, which results in a general slowdown in economic activity. Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. It is defined as a negative economic growth for two consecutive quarters.

 

Types Of Recession:  Can be V-shaped, U-Shaped, W-Shaped (Double-Dip) and L-Shaped

 

This may be triggered by various events, such as a financial crisis, an external trade shock, or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

 

CAUSES OF A RECESSION

 Normal Economic Cycle

A recession should be taken as part of a normal economic cycle and should be planned for once you are part of the global economy where shocks are be externally induced. Plans must be in place to forestall it and to minimise its impact when it occurs so that growth can be restored as soon as possible.

 

The causes are highly dependent on the structure of the economy as what causes growth in one country can cause recession in another.

• Drastic Fall in National Income
• Increase in cost base of the economy ie energy cost, finance cost, corruption limiting investment,
• Fiscal and Monetary policies with impact on asset prices

 

SIGNS AND IMPACT OF A RECESSION

Distressed Economic Environment

Economic distress is an economy experiencing economic decline, which manifests in a general slowdown of economic activities. It portrays a general feeling of unhappiness or pain and can manifest in experiencing financial trouble by the generality of the population. Economic Depression often leads to recession and an economy can be out of recession but remain depressed.

 

Retrenchment by Companies with increase in unemployment

When companies decide to keep their job openings vacant instead of hiring new staff, this is a sign that a recession has afflicted the economy. People are thrown out of jobs as companies’ lay-off workers. Those remaining in employment would have to multitask to retain their positions.

 

Reduced Consumer Purchasing Power 

Goods and services are difficult to be sold as the purchasing power of the people comes down. People will only concentrate on what they consider as necessities of life.

 

Reduced Asset values – Reduction in Networth

When repossessed homes and stock prices come down in value, but nobody has the funds to buy them, then it can be truly said that the economy has been hit by a recession.

Investment suffers as investors become more cautious. The industrial production is badly affected as investors avoid investing in companies that might suffer losses during recession.

Many families depend on the value of their homes as part of their retirement plan and rental income as part of their pension. During a recession, however, real estate values fall drastically and foreclosures/defaults increase. Real estate can no longer be viewed as a safe investment during an economic downturn where liquidity is at a premium.

 

Stress and Lifestyle changes

The stress of not finding work, and a loss of income, can lead to damaging inter-family relationships that can take years to mend. Sometimes families must borrow money from relatives or friends, which can result in tense situations.

Reduced income leads to reduced entertainment, dining, and extracurricular activity expenses. People cut back on extras during a recession, so many families must make drastic changes to their pre-recession lifestyle.

 

Missed Business Opportunities

Entrepreneurs may have a lack of funds available for borrowing or starting new companies during a recession. Innovation often comes from the small business segment, but a lack of funding, coupled with a downturn in spending, may make small business owners nervous and unwilling to take big risks.

 

WAY OUT OF A RECESSION – government should lead

Reduce Cost of Doing Business – Massive Infrastructure Spending

In a country where we are spending less than 30% of our income on capital expenditure and more than 70% on recurrent expenditure, getting out of recession will hardly be quick. The executive, judiciary and the legislature must be ready to make sacrifice.

 

Sell Assets, Draw down Savings or Borrow

Despite increase in our debt profile, it is still believed that Nigeria can borrow from the International financial institutions and use it to reflate the economy.  Borrowed monies should be channelled towards essential infrastructural development.

 

Diversification of Income – Development of Other Sectors of the Economy

Diversification of Nigeria economy at this point should no longer be a slogan as it used to be. Rather all our energies should be concentrated on how to improve on diversifying our economy. We have abundant mineral resources untapped all over the country in commercial quantities and most importantly our laws and policies need to be reviewed to attract investors in our solid minerals sector in particular.

More still needs to be done to encourage our existing farmers and make farming more attractive to young graduates. We have the ability and capability to feed ourselves at a reduced cost but the government has to play more in providing road infrastructure. Government should put some palliative measures in place in this area.

 

Revisit the Tax Laws – Reduce general tax to improve disposable income

We need to look inward to generate more revenue by widening our tax nets. In this kind of economy, people should not be over-taxed but there are still spaces where we can improve on our tax revenue. Reduce income tax but widen Vat to channel consumption in a particular direction.

 

SURVIVING A RECESSION

Galatians 6:9-10a

So, Let us not allow ourselves to get fatigued doing good. At the right time, we will harvest a good crop if we do not give up, or quit. Right now, therefore, every time we get a chance let us work for the benefit of all.

 

Do not worry or Panic  – Opportunities are created

Most business entrepreneurs, professionals are too much worried. We have to pass through those situations however reluctant we are.

 

Most successful companies of today might have catered to a different business when they started off. When they faced hard times they took advantage of the new opportunities by tuning their business to suit the new needs. It is pertinent to find such new niche markets

 

Gain the Trust of Employees and Stake Holders

It is pertinent to make them understand the present economic situation by educating them completely about the financial crisis the world is facing. Also walking the talk.

 

Marketing Tactics – Leverage on core competencies and recognise growth areas

Focusing on customer satisfaction and being financially prudent are quite important. But  we need to strengthen or to increase with full vigour  our MARKETING efforts. We have to be innovative in using the most appropriate marketing channel. Marketing is what drives customers to our businesses.

 

Conclusion

This recession creates an opportunity to restructure and reset our values. Our own recession was self- induced and a reflection of wrong choices.

 

Abimbola Olashore

12th March 2017