Niger River delta conflict hurts economy
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.
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
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.