Nigeria Battles First Full-Year Negative Growth in 25 years

The Nigerian economy shrunk by 1.5% in 2016 for the first time in 25 years according to the National Bureau of Statistics, the first annual contraction in quarter of a century.

A major slump in price of crude oil battered the naira currency, and since crude oil sales make up two-thirds of the Nigerian government revenue, it is easy to see why the economy received a massive blow, Naij.com reported.

According to the statistics office: “This contraction reflects a difficult year for Nigeria, which included weaker inflation-induced consumption demand, an increase in pipeline vandalism, significantly reduced foreign reserves and a concomitantly weaker currency.”

Since oil production, is the main source of Nigeria’s revenue and production fell to 1.833 million barrels a day last year after 2.13 million bpd in 2015, partly due to militant attacks in the Niger Delta, it is easy to deduce the cause of the problem.

The Nigerian economy has been running short of dollars as a result of lower foreign exchange earnings, which has weakened the local currency on the black market, where it trades far lower than the official interbank rate of 305 naira.

Although the central bank has increased dollar supply in recent days after effectively devaluing the naira for private individuals, the currency still trades at a more than 30% premium on the black market.

The non-oil sector fell 0.3% in the fourth quarter, and contracted by 0.2% in 2016 as a whole, compared with 3.75% growth in 2015.

Nigeria is highly dependent on imports, which need dollars, pounds or euros to pay their invoices. The supply of dollars began dwindling when the price of oil collapsed in 2014. The central bank removed the currency peg of 197-199 naira to the dollar in June 2016, but keeps the naira around 315 per dollar on the official market, restricting access to dollars for importers.

A shortage of foreign currency combined with high demand for dollars has sent the Nigerian currency to 455 to the dollar in the black market, which represents the naira’s worth more accurately. The central bank said last week that it would increase the supply of dollars to private individuals to pay foreign school fees and medical bills at 20% above the official rate.