Lagos (AFP) – After two bruising quarters marked by attacks on oil pipelines in the Niger delta and ballooning inflation, Nigeria is expected on Wednesday to announce it is officially in recession.
The news shouldn’t come as a surprise. Sales of oil at a high price had made Nigeria the biggest economy in Africa.
But when the price of crude crashed from more than $100 a barrel in June 2014 to below $50 today, Nigeria’s fortunes followed.
Reacting to the dramatic decline in state revenue, Nigerian President Muhammadu Buhari ended costly fuel subsidies and finally devalued the naira in June after upholding a controversial currency peg for months.
But Buhari’s policies have yet to inspire any real confidence at a time when inflation is hovering around 16.5 percent and getting dollars is still a throbbing headache.
One dollar is now worth over 400 naira on the parallel market, up from 340 in January. “We can’t get dollars,” one black market seller complained, “we’re even accepting bills from 2003”.
The shortage keeps investors away and makes life tough for local businesses.
“You don’t have to be an economist to know that any system that allows you to sit in your garden, and with a telephone call make one billion naira without investing a kobo, that system is wrong,” said Emir of Kano Muhammadu Sanusi, who served as Nigeria’s central bank governor under the previous administration.
Nigerian President Muhammadu Buhari’s policies have yet to inspire any real confidence at a time when inflation is hovering around 16.5 percent
Buhari’s refusal to devalue the naira for months kept “foreign investors waiting on the sidelines”, Daniel Richards, West Africa analyst for BMI Research, told AFP.
“The uncertainty that has surrounded monetary policy in Nigeria over the past 18 months has been the biggest constraint on growth after lower oil prices.”
Nigeria’s economy will likely show a decline of 1.6 percent in the three months through June, estimated Bloomberg News, following a 0.4 percent year-on-year contraction in the first quarter.
This year gross domestic product could contract by 1.8 per cent, according to the International Monetary Fund.
Buhari has been frank in his assessment of the beleaguered Nigerian economy.
In his May speech commemorating his one-year anniversary in office, the president said he inherited “decrepit” infrastructure and the oil refineries in a “state of disrepair”.
His plan to kickstart the economy has two priorities: one is to tackle endemic corruption, the other is to diversify the economy.
Buhari’s anti-corruption drive has been largely met with applause. The Economic and Financial Crimes Commission is doggedly persuing top politicians who allegedly looted millions from state coffers.
Yet the response to his expansionary budget designed to wean Nigeria off oil has been tepid.
“It projects a very large increase in non-oil revenue of 70 per cent”, said Moody’s Investors Service in April, adding that “the government’s objectives are extremely ambitious.”
In reality, said Moody’s, “since 2012, non-oil tax revenue has gradually grown but at a much lower pace.”
“A very ambitious budget was outlined, but we know from the past that Nigeria doesn’t have a good record in delivering on time,” Khan said.
“In the longer term the execution risk is all about revenue mobilisation. Is Nigeria going to be able to sustain this spending without amassing great debt?”
The sluggish growth could go on for “another two years”, said Dawn Dimowo, an analyst at consultancy firm Africa Practice.
Even if the oil price rebounds and rebels stop sabotaging oil production, Nigeria has to address its decrepit infrastructure and revamp its refineries.
A man walks past a generator that supplies electricity to the business centre in Lagos, where electricity infrastructure is lacking
“There is a critical need for massive investments in infrastructure and import replacement, which will take years to come through,” Dimowo said.
“Power is a major barrier, that sector needs to be a priority”, she said.
Electricity production, which already was faltering before the crisis, barely reached 2500 megawatts for its 170 million inhabitants.
By contrast, South Africa — with a population less than a third of Nigeria’s — has a power capacity of 40,000 megawatts.
Without power, growth may improve but diversifying the economy will be near impossible, explained Richards.
“If import substitution is to be realised and the manufacturing sector bolstered, then more headway must be made in improving power supply.”
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