The depletion in foreign exchange liquidity has been a major issue for Nigeria which has held back economic growth. Regulators from the country decided to intervene in the foreign exchange market as they believed that the devaluation of the naira was responsible for dampening economic growth of the country.
However, their stance is proving counterproductive as the lack of foreign exchange is pummeling the naira in the parallel market, and is also stopping the inflow of overseas money needed desperately to fund infrastructure projects.
Apart from the efforts to increase the flow of foreign exchange, which we saw in the previous article of this series, the government is undertaking several efforts to improve the country’s economic fundamentals.
Measures for a stronger Nigeria
In conversation with The Wall Street Journal, Nigeria’s Finance Minister Kemi Adeosun highlighted the following areas in which the government is working to enhance its economic appeal:
- Increase domestic fuel-refining capacity
- Deepen the stock market by incentivizing companies to list
- Reduce imports, especially of those agriculture products which can be produced at home
- Encourage governors of states to reduce their dependence on government support and take measure to increase their exports.
The role of oil
Crude oil plays a key role in the Nigerian economy. According to Organization of the Petroleum Exporting Countries (OPEC), oil and gas exports form over 90% of Nigeria’s (NGE) total exports by value while also accounting for half of fiscal revenues. Ratings major S&P Global had affirmed its credit rating and outlook on the country earlier this year because they expected increasing crude oil production to support the nation’s economy until 2020.
However, this makes Nigeria and its economic fortunes too dependent on one commodity. Furthermore, the days of sharing revenues generated by exports of the commodity may be behind the country. Adeosun told the Journal that the government now intends to take the revenue from crude oil exports and employ it into ‘productive assets’ which should, in turn, generate money, and pump up the economy.
The government believes that its economy will get back on track because of the aforementioned initiatives and not because of oil. Let’s look at this aspect closely in the next article.