IT IS OFFICIAL: Nigeria Now In Recession

After two bruising quarters marked by attacks on oil pipelines in the

Niger delta and ballooning inflation, Nigeria is expected on Wednesday to
announce it is officially in recession.

The news shouldn’t come as a surprise. Sales of oil at a high price had
made Nigeria the biggest economy in Africa.

But when the price of crude crashed from more than $100 a barrel in June
2014 to below $50 today, Nigeria’s fortunes followed.

Reacting to the dramatic decline in state revenue, Nigerian President
Muhammadu Buhari ended costly fuel subsidies and finally devalued the
naira in June after upholding a controversial currency peg for months.

But Buhari’s policies have yet to inspire any real confidence at a time
when inflation is hovering around 16.5 percent and getting dollars is
still a throbbing headache.

One dollar is now worth over 400 naira on the parallel market, up from 340
in January. “We can’t get dollars,” one black market seller complained,
“we’re even accepting bills from 2003”.

The shortage keeps investors away and makes life tough for local businesses.

“You don’t have to be an economist to know that any system that allows you
to sit in your garden, and with a telephone call make one billion naira
without investing a kobo, that system is wrong,” said Emir of Kano
Muhammadu Sanusi, who served as Nigeria’s central bank governor under the
previous administration.

Buhari’s refusal to devalue the naira for months kept “foreign investors
waiting on the sidelines”, Daniel Richards, West Africa analyst for BMI
Research, told AFP.

“The uncertainty that has surrounded monetary policy in Nigeria over the
past 18 months has been the biggest constraint on growth after lower oil
prices.”

Nigeria’s economy will likely show a decline of 1.6 percent in the three
months through June, estimated Bloomberg News, following a 0.4 percent
year-on-year contraction in the first quarter.

This year gross domestic product could contract by 1.8 per cent, according
to the International Monetary Fund.

– ‘Execution risk’ –

Buhari has been frank in his assessment of the beleaguered Nigerian economy.

In his May speech commemorating his one-year anniversary in office, the
president said he inherited “decrepit” infrastructure and the oil
refineries in a “state of disrepair”.

His plan to kickstart the economy has two priorities: one is to tackle
endemic corruption, the other is to diversify the economy.

Buhari’s anti-corruption drive has been largely met with applause. The
Economic and Financial Crimes Commission is doggedly persuing top
politicians who allegedly looted millions from state coffers.
Yet the response to his expansionary budget designed to wean Nigeria off
oil has been tepid.

“It projects a very large increase in non-oil revenue of 70 per cent”,
said Moody’s Investors Service in April, adding that “the government’s
objectives are extremely ambitious.”

In reality, said Moody’s, “since 2012, non-oil tax revenue has gradually
grown but at a much lower pace.”

Razia Khan, Africa economist at Standard Chartered Bank, has similar
concerns.

“A very ambitious budget was outlined, but we know from the past that
Nigeria doesn’t have a good record in delivering on time,” Khan said.

“In the longer term the execution risk is all about revenue mobilisation.
Is Nigeria going to be able to sustain this spending without amassing
great debt?”

– Power barrier –

The sluggish growth could go on for “another two years”, said Dawn Dimowo,
an analyst at consultancy firm Africa Practice.

Even if the oil price rebounds and rebels stop sabotaging oil production,
Nigeria has to address its decrepit infrastructure and revamp its
refineries.

“There is a critical need for massive investments in infrastructure and
import replacement, which will take years to come through,” Dimowo said.

“Power is a major barrier, that sector needs to be a priority”, she said.

Electricity production, which already was faltering before the crisis,
barely reached 2500 megawatts for its 170 million inhabitants.

By contrast, South Africa — with a population less than a third of
Nigeria’s — has a power capacity of 40,000 megawatts.

Without power, growth may improve but diversifying the economy will be
near impossible, explained Richards.

“If import substitution is to be realised and the manufacturing sector
bolstered, then more headway must be made in improving power supply.”

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