Nigeria: oil-rich, yet recession-hit
The economy of Nigeria (NGE) fell into recession in 2016, its first in over 2 decades, much attributable to:
- The steep decline in oil prices since mid-2014 which severely affected government revenues for this oil-rich nation
- The decline in oil production on account of militant attacks on energy facilities in the Niger Delta region.
- The economy has also been weighed down by Boko Haram militants since 2009.
The importance of oil for the Nigerian economy cannot be underestimated. Oil sales command over 90% of the country’s foreign exchange earnings and contribute about 2/3rd of government revenues.
In its recent report, the IMF has advised this African (EZA) frontier market (FRN) (FM) to make policy changes relating to its foreign-exchange curbs, multiple exchange rates, and its overvalued naira.
The successful implementation of immediate and adequate reforms could help the recession-hit Nigerian economy secure a $1 billion loan from the IMF and a $400 million from the African Development Bank.
The recent Economic Recovery & Growth Plan or ERGP launched by President Muhammadu Buhari aims to restore growth, invest in the Nigerian people, and to make Nigeria globally competitive. Among other things, the ERGP aims to:
- Boost GDP rate to 2.19% in 2017, and 7% by 2020.
- Reduce inflation to a single digit by 2020.
- Boost oil production from 1.4 million barrels per day in 2016 to 2.2 million barrels by 2017 and 2.5 million barrels by 2020
- Privatize selected public enterprises/asset
- Reduce petroleum product imports by 60% by 2018
In the words of Charlie Robertson, chief economist at Renaissance Capital, “It’s good to have a sensible framework in place, but investors want to see implementation…Nigeria is often long on plans, but short on implementation. The latter will decide whether or not investors return to Nigeria. This is the year markets need to see change before the political cycle begins next year ahead of 2019 election.”