Abuja (AFP) – Nigeria’s economy nosedived into a recession, official data showed Wednesday, with oil production hammered by militant attacks on pipelines and foreign investment at a “record” low.
Output in the three months to the end of June was -2.1 percent with the oil sector reporting a double-digit decline following a wave of attacks by rebels in the oil-producing south.
The slowdown was recorded across many sectors in a sign that Africa’s economic giant is wrestling with deeper structural issues than just the low price of crude.
During the oil boom, sales of oil at high prices 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 economy collapsed.
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
The crisis was compounded by President Muhammadu Buhari’s unorthodox decision to prop up the naira at 197-199 to the dollar causing foreign currency reserves to tank.
International investors, wary of the controversial currency peg, avoided putting money into the country, leading to a “record” decline in capital importation, reported Nigeria’s National Bureau of Statistics.
The $647 million worth of capital imported into Nigeria in the second quarter represented a “fall of 76 percent” compared to 2015.
“This provisional figure would be the lowest level of capital imported into the economy on record, and would also represent the largest year on year decrease,” said the statistics agency.
“There was considerable uncertainty surrounding future exchange rate policy which may have deterred investors,” it added.
Reacting to a spike in inflation and growing discontentment, Buhari’s government finally devalued the naira in June.
But Nigeria’s policies have yet to inspire any real confidence at a time when inflation is hovering around 17 percent and there is still a dollar shortage.
Nigeria, Africa’s top economy, has been battered by low oil prices hammering government revenues
The country’s oil sector — which accounts for the majority of Nigeria’s government revenues — is still under seige by militants in the Niger delta, who are attacking pipelines in a bid for greater control of the resource and more political autonomy.
“It’s really, really grim,” John Ashbourne, Africa economist at research firm Capital Economics, told AFP.
“Investors want to see some direction from Buhari, there is a sense that the policies they have implemented so far aren’t working,” said Ashbourne, in a telephone interview from London.
“Nigeria is very dependant on foreign investment to improve the infrastructure and get the economy back on track, we need investor confidence,” he said.
“People are staying away because they don’t have any faith that things are turning around.”
Nigerian officials are under pressure to deliver as economists increasingly write off what they view as Buhari’s scattershot efforts to kickstart a recovery.
“We are looking at a likely low point,” said Razia Khan, Africa economist at Standard Chartered Bank.
One benefit of abandoning the currency curbs is that for every dollar earned from oil exports, it makes for more naira to spend in Buhari’s expansionary budget.
“A lot of the recovery momentum has been stored up for the second half of the year,” said Khan.
Yet, even if the oil price rebounds and rebels stop sabotaging oil production, Nigeria has to revamp its decrepit infrastructure and start producing more electricity to diversify its economy and embark on a path of sustainable growth.
“Though there are advantages to the liberalisation that we’ve seen so far, it’s no panacea”, Khan said, “the question now is how drawn out will the recovery be?”
The Nigerian government is optimistic. “It is likely the second half will be better than the first half of 2016,” said presidential economic advisor Adeyemi Dipeolu in a statement.
“As the emphasis on capital expenditure begins to yield results… the growth rate of the Nigerian economy is likely to improve further.”
Nigeria’s gross domestic product could contract by 1.8 percent in 2016, reported the International Monetary Fund, in what would be the country’s first full-year contraction since 1991, according to Bloomberg News.
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