Niger River delta con­flict hurts econ­omy

The Star Early Edition - - BUSINESS REPORT | INTERNATIONAL - David Mal­ingha Doya

NIGE­RIA’S econ­omy may strug­gle to re­bound from its worst slump in 25 years un­less Pres­i­dent Muham­madu Buhari can end an armed con­flict in the na­tion’s oil-pro­duc­ing re­gion and fix a cur­rency pol­icy that’s blocked in­vest­ment.

Pipe­line at­tacks in the Niger River delta cut oil pro­duc­tion by a third last year, slash­ing gov­ern­ment rev­enue, while cen­tral bank in­ter­ven­tion and trad­ing re­stric­tions that prop up the value of the naira have stymied trade and in­vest­ment.

A more favourable oil and for­eign-cur­rency en­vi­ron­ment could help the econ­omy ex­pand, an­a­lysts say.

GDP con­tracted

The In­ter­na­tional Mon­e­tary Fund es­ti­mates gross do­mes­tic prod­uct con­tracted 1.5 per­cent in 2016. “It’s oil prices and pro­duc­tion from the delta that will de­ter­mine growth,” Ogho Ok­iti, chief ex­ec­u­tive of Time Eco­nom­ics, said on Wed­nes­day.

“When mon­e­tary au­thor­i­ties floated the naira, they ex­pected fis­cal poli­cies that at­tract in­vest­ment and boost ac­tiv­ity. But that didn’t hap­pen, and as a re­sult no one has con­fi­dence in the float,” he said.

Lower oil out­put and global crude prices, and a short­age of for­eign cur­rency needed to im­port ev­ery­thing from food to fac­tory in­puts sent the econ­omy into its deep­est slump in more than two decades last year. The cen­tral bank, bat­tling in­fla­tion at an 11-year high, has re­buffed fi­nance min­istry calls to cut record-high in­ter­est rates to boost the econ­omy and has pledged to con­tinue mea­sures to man­age the cur­rency.

While the cen­tral bank scrapped a naira peg of 197 to 199 to the dol­lar in June, it has in­ter­vened to hold the cur­rency at around 315 naira since Au­gust. That com­pares with a rate on the par­al­lel mar­ket of al­most 500 naira to the dol­lar. The cen­tral bank has also blocked im­porters of se­lected items from the in­ter­bank for­eign-cur­rency mar­ket.

Nige­ria pro­duced an aver­age 1.45 mil­lion bar­rels of oil a day in De­cem­ber.

“We ex­pect the econ­omy to re­cover, in part be­cause oil­price falls and oil-pro­duc­tion de­clines are be­hind us,” Stu­art Cul­ver­house, chief econ­o­mist at Ex­otix Part­ners LLP in Lon­don, said.

A short­age of dol­lars needed to repa­tri­ate prof­its forced some air­lines to re­duce flights to Nige­rian des­ti­na­tions, while in man­u­fac­tur­ing, in­vestors in­clud­ing Africa’s rich­est man, Aliko Dan­gote, have held back ex­pand­ing some of their busi­nesses.

While an agree­ment by Opec to cut pro­duc­tion has helped in­crease oil prices, God­win Eme­fiele, the cen­tral bank gov­er­nor, warned the boost may be short-lived, and its ef­fect is di­luted by lower out­put. Nige­ria pro­duced an aver­age 1.45 mil­lion bar­rels a day in De­cem­ber af­ter mil­i­tant groups sab­o­taged pipe­lines, com­pared with ca­pac­ity of 2.2 mil­lion bar­rels, ac­cord­ing to data com­piled by Bloomberg.

Brent crude oil for March set­tle­ment gained as much as 55 cents, or 1 per­cent, to $55.63 a bar­rel on the Lon­don-based ICE Fu­tures Europe ex­change. The price has jumped 75 per­cent over the past year.

Any re­peat of last year’s five-month de­lay in im­ple­ment­ing the bud­get would also likely scup­per a re­bound. Buhari has pro­posed boost­ing in­vest­ment in power, rail, roads and ports to tar­get a 2.5 per­cent growth. – Bloomberg

PHOTO: REUTERS

Peo­ple crowd a street in the cen­tral busi­ness dis­trict in Nige­ria’s com­mer­cial cap­i­tal La­gos, but the coun­try’s econ­omy is strug­gling to re­bound from its worst slump in 25 years.

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