Nigeria’s economic crisis deepens

President Muhammadu Buhari

Nigeria’s economic slump sharpened in the third quarter as rebels bombed oil pipelines in the restive south and businesses struggled to access foreign exchange, official data showed Monday.

The third quarterly contraction in a row comes as the West African nation reels from a crash in global oil prices, which have collapsed from over $100 a barrel in 2014 to currently around half that.

A recession appeared inevitable when militants renewed attacks on the country’s oil infrastructure early this year, strangling production that accounts for around 70 percent of government revenue and the bulk of Nigeria’s export earnings.

The relentless sabotage has put the Nigerian government under pressure as economists increasingly question whether President Muhammadu Buhari can pull the country out of recession.

“The nation’s gross domestic product (GDP) contracted by -2.24 percent year-on-year in real terms,” the country’s National Bureau of Statistics said in a report.

This meant that third-quarter growth in Africa’s most populous country was 0.18 percentage points weaker than that recorded in the second quarter, and 5.1 points down from third quarter growth in 2015.

“During the period under review, oil production averaged at 1.63 million barrels per day (bpd),” the statistics agency said.

That is a 22-percent drop from the same period in 2015, when Nigeria was producing 2.17 million bpd.

“Not only do the attacks have an instant impact on output, and cause major damage to infrastructure, but continued unrest will only further discourage international oil companies from investing in oil projects,” Rhidoy Rashid, oil analyst at Energy Aspects, said in a recent note.

“There seems to be no quick fix for uniting a heavily divided region, so for now we expect further attacks and subsequent volatility in Nigerian crude output.”

– Naira nightmare –

Manufacturing has also taken a big hit, shrinking by 2.9 percent in the third quarter in the wake of a devalued naira and currency controls that have curbed trade.

“This is partly due to the continued fall in the exchange rate, which makes imported inputs more expensive, thereby increasing business costs,” the statistics agency said.

“This is greatly a result of the continued fall in (the) naira to dollar rate which translates to much higher cost of business operations.”

Buhari had vowed not to “kill the naira” by letting it fall in value, in opposition to depreciations by fellow major oil exporters Angola and Russia.

His government tried to prop up the naira for months, but that drained foreign currency reserves and it eventually abandoned the currency peg in June.

But a dollar shortage still persists, with black market rates hovering around 440 naira to the dollar this month, compared to the official bank rate of approximately 320 naira to the dollar.

The economic troubles look to last, with peace talks between the Nigerian government and oil rebels falling apart this month — the Niger Delta Avengers claimed they bombed three pipelines last week — and foreign investors steering clear until they see a more coherent economic policy.

– ‘Erratic policymaking’ –

“The risk is that positive momentum will not necessarily emerge on auto-pilot,” Razia Khan, Africa economist at Standard Chartered Bank, said.

“Actual reforms will be required in order to drive it – and so far, these have been elusive.”

Economists cautioned that it was too early to say if the worst of the crisis had passed.

“With oil output likely to fall yet again in the fourth quarter, it is too early to call the bottom of Nigeria’s economic downturn,” John Ashbourne, Africa economist at research firm Capital Economics, said in a note.

“The bigger picture is that today’s figures suggest that the downtown continued into the third quarter unabated,” Ashbourne added.

“Despite government efforts to boost domestic production, the contraction of the manufacturing sector worsened,” he said, adding “erratic policymaking continues to pose a key risk to the economy”.

Nigeria overtook South Africa to become the continent’s largest economy in 2014 after revising its GDP statistics, yet it faces severe infrastructure challenges and suffers from chronic power shortages, poor roads and high unemployment.

The International Monetary Fund has forecast the West African nation’s gross domestic product will shrink by 1.7 percent this year, the first full-year contraction in more than two decades.