Nigeria, which vies with South Africa for the title of Africa’s largest economy, has now experienced two consecutive quarters of declining growth. Two consecutive quarters of decline mean Nigeria is now officially in recession.
Nigeria is heavily reliant on crude oil sales. Oil accounts for 90% of the country’s foreign exchange income and 70% of government income. Nigeria’s oil industry has been hit hard by weak prices.
The price of oil has fallen from highs of over $100 per barrel in 2014 to below $50 at the moment. Oil prices have dipped as low as less than $30 in 2016. However, oil has recovered from February’s low of just over $26 per barrel but the current price of about $46 is still less than half what producers were getting just two years ago.
Given Nigeria’s huge reliance on oil, weak oil prices have affected the currency, the naira. The naira was allowed to float in June and has since depreciated by close to 60%. Critics argue the float should have been done earlier.
The slump in oil prices has drained Nigeria’s foreign currency reserves. To stem the outflow of cash from the country, the government introduced strict restrictions on importing goods that it said could be produced locally. However, that decision has reduced the flow of raw materials to the country’s manufacturers.
Nigeria is facing high import prices following the devaluation of the naira and so is battling an inflation rate at an 11-year high of 17.1% in July.
However, the government says there has been strong growth in other sectors. In fact, the government has found some positive news in the figures.
“There was growth in the agricultural and solid minerals sectors … the areas in which the federal government has placed particular priority,” said Presidential Economic Adviser Adeyemi Dipeolu.
Tony Elumelu, Chairman of Heirs Holdings and the United Bank for Africa, said in an interview with CNBC Tuesday that following the fall in the price of commodities, “the government in Nigeria and across Africa … need to diversify their economies.” However, he warned that this process was a gradual one, as “you don’t diversify an economy overnight.”
Reflecting Nigeria’s potential for this diversification, Facebook Founder & CEO Mark Zuckerberg is currently in Nigeria, meeting with technology start-ups and visiting a coding summer camp for children.
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