Nigerian economy contracts in 2016
First full-year drop in 25 years
NIGERIA’S economy shrank for the fourth consecutive quarter in the three months to December and contracted for the whole year, the first such move since 1991.
Gross domestic product (GDP) in Africa’s most populous country declined by 1.3 percent in the quarter from a year earlier, after shrinking 2.2 percent in the previous three months, the National Bureau of Statistics said in a statement yesterday.
The median of estimates by 10 economists compiled by Bloomberg was for the economy to shrink by 1.4 percent.
GDP contracted 1.5 percent for 2016, the first full-year drop in 25 years, according to International Monetary Fund (IMF) data.
Lower prices and oil output, Nigeria’s biggest export, cut government revenue by about half and reduced the foreign currency available to import refined fuel and factory inputs.
A weakening naira contributed to inflation accelerating to the highest level in more than a decade, prompting the central bank to increase its key lending rate to a record 14 percent.
Nigeria’s economic woes were further exacerbated by a five-month delay in approving spending plans for 2016 needed to stimulate business activity.
Oil prices
GDP has been hit as a result of a collapse in oil prices, Renaissance Capital economists Charles Robertson, Yvonne Mhango and Vikram Lopez said in a note before the data was released.
The government said improving crude prices and the restoration of stability in the Niger River delta – where militants blew up pipelines, cutting crude production to almost three-decade lows in 2016 – will help the economy to rebound this year.
The IMF forecasts the economy will grow 0.8 percent this year.
Fourth-quarter GDP increased 4.1 percent from the preceding three months, the statistics agency said.
Output by the oil sector in 2016 contracted 14 percent from a year earlier, and shrank 12 percent in the fourth quarter from the same period in 2015, the agency added.
“Investors ignored Nigeria in 2016 due to exchange-rate difficulties,” Renaissance Capital said. “But rising oil prices and production suggest that some opportunities may emerge in 2017.”
Foreign currency
The Central Bank of Nigeria said last week it would increase the supply of foreign currency for Nigerians to pay school and medical fees at an exchange rate not more than 20 percent above the interbank market price.
While the regulator removed a currency peg in June, it continues to block importers of items it deems non-essential from the official foreign-exchange market, forcing them to buy dollars on the black market, where the currency is about 30 percent more expensive.
Nigeria wasn’t “ready to embrace a liberalised exchange rate or depreciation that would prove highly attractive to portfolio investors”, and the spread between the naira’s black market and official rates will probably remain wide, JPMorgan analysts Sonja Keller and Yvette Babb wrote in a note to clients before the data was released.
The 7.3 trillion naira (R301.9bn) budget has a deficit of 2.36 trillion naira (R94bn). – Bloomberg