Nigeria is battling its first full-year negative growth in 25 years
Nigeria’s economy shrank 1.3 per cent in the fourth quarter from a year earlier after shrinking 2.2 per cent in the previous three months, according to the National Bureau of Statistics.
Nigeria fell into a technical recession, defined as two consecutive quarters of economic contraction, in the first half of last year as the plunge in oil prices hammered Africa’s top oil producer. The economy contracted by 1.5 per cent in 2016, the first full-year fall in GDP in 25 years.
The oil sector fell by nearly 14 per cent in 2016 as oil production averaged 1.833 million barrels a day, down from 2.13 million b/d in 2015. The sector declined 12.4 per cent in the fourth quarter from the same quarter a year earlier. Oil production averaged 1.9 million b/d in the three months through December, compared with 1.6 million b/d in the previous quarter. Oil accounts for 90 per cent of export earnings and 70 per cent of state revenues.
Lower crude output and a prolonged period of depressed oil prices have reduced foreign currency available for importers. The non-oil economy has been hit hard as manufacturers unable to import raw materials have been forced to reduce output and lay off workers or shut down. The unemployment rate stands at 14 per cent, the highest level since 2010.
The non-oil sector fell 0.3 per cent in the fourth quarter, and contracted by 0.2 per cent in 2016 as a whole, compared with 3.75 per cent growth in 2015.
Nigeria is highly dependent on imports, which need dollars, pounds or euros to pay their invoices. The supply of dollars began dwindling when the price of oil collapsed in 2014. The central bank removed the currency peg of 197-199 naira to the dollar in June 2016, but keeps the naira around 315 per dollar on the official market, restricting access to dollars for importers. A shortage of foreign currency combined with high demand for dollars has sent the Nigerian currency to 455 to the dollar in the black market, which represents the naira’s worth more accurately. The central bank said last week that it would increase the supply of dollars to private individuals to pay foreign school fees and medical bills at 20 per cent above the official rate.
A weakening naira has pushed up inflation to the highest level in more than a decade, prompting the central bank to raise its main interest rate to 14 per cent.
President Muhammadu Buhari is on an extended medical leave in the UK receiving treatment for an undisclosed illness. His six-week absence has raised concerns about his ability to lead the country. If he leaves office before his first term ends, Yemi Osinbajo, the vice-president who is in charge as the acting president and is more market-friendly than Mr Buhari, will take over until elections are held.
Mr Buhari was elected in 2015 on a promise to tackle corruption, reform the oil sector, which is riddled with patronage, and defeat Boko Haram, the jihadist group that has waged a campaign of terror in the north-east. He opposes the central bank to move to full liberalisation of the foreign exchange market, a stance that has deepened the country’s economic slump. Attacks by rebels on oil pipelines in the oil-producing, under-developed Niger Delta have crippled the oil industry, damaging Mr Buhari’s infrastructure spending plans to boost the economy (Niger Delta rebels want more local control of resources).
The International Monetary Fund forecasts that the economy would grow 0.8 per cent this year, well below population growth of 2.6 per cent. The government predicts that higher oil prices and stability in the Niger Delta region would boost the economy.
Nigeria sold 1 billion dollars of Eurobonds at the yield of 7.875 per cent last month to finance its budget deficit and implement planned infrastructure spending. The issue of Eurobonds was almost eight times oversubscribed.
Photo: Clara Sanchiz/RNW CC BY-SA 2.0