If any economy could be described as resilient, that economy is Nigerian. In more ways than one, the Nigerian economy has reached the brinks but never imploded and the experiences even before the third quarter of 2016 when the economy entered recession up until the second quarter of 2017 when the country exited from recession were enough to land a weak economy into depression.
For this economy, it has been a very shaky and bumpy path to growth, but the good news to tell is that in spite of everything, including the action and inaction of the managers of the economy, the path to growth is sure and the future looks promising.
The economy was hard hit by a sharp drop in oil price by mid-2014 and that undermined government revenue, leaving little room for policy holders to execute capital projects that could have driven economic growth. This caused a severe dollar shortage that paralyzed economic activities as manufacturers couldn’t get access to the desired foreign currency for the purpose of importing plant and equipment.
The economic downturn called for urgent actions, and the central bank responded by banning 41 items from its foreign exchange window, while maintaining capital controls in order to curb inflation and stop the external reserve from continued bleeding.
That policy exacerbated the already anaemic position of investors to jettisoned Naira assets for fret that a sudden devaluation could lead to loss of significant investment.
By July 2016, inflation was at an 11-year high of 17.10 percent as consumer wallets were squeezed.
The gap between the parallel and official markets continued to widen as exchange rate was N495/$ at the black market while the official rate was N197/$.
Manufacturers and businesses were forced to buy dollars at the inaccessible black market rate as it was difficult to get foreign currency at the official rates, consequently forcing manufactures and businesses to trim workforce while some closed shops.
Manufacturers Association of Nigeria (MAN) disclosed no fewer than 226 companies closed shop or downsized between 2015 and 2016, the statistics from the National Bureau of Statistics (NBS) further showed that about 4.85million jobs were lost within the same period.
The resumption of attacks on oil facilities in the Niger Delta region was also a great blow on the Nigerian economy.
“Nigeria lost as much as $100 billion in revenue in 2016 to attacks by militants in the oil-rich Niger Delta. Production fell by 1 million barrels a day to 1.2 million a day at the peak of the attacks”, Emmanuel Kachikwu, minister of state for petroleum, revealed.
Consequently, Nigeria’s economy shrank for a fourth consecutive quarter in the three months through December and contracted for the whole year, the first of such move since 1991.
“Gross domestic product in Africa’s most-populous country declined 1.3 percent in the quarter from a year earlier, after shrinking 2.2 percent in the previous three months”, the National Bureau of Statistics said in an e-mailed statement Tuesday. GDP contracted 1.5 percent for all of 2016. It was the first full-year drop in 25 years, according to International Monetary Fund data.
The Nigerian economy recorded a total decline of $2.1 billion in investment inflow in the first 12 months of the administration of President Muhammadu Buhari.
In June 2016, the central bank announced the adoption of the flexible exchange rate regime that allowed the market forces of demand and supply determine the exchange rate.
In April 2017, the central bank opened a special foreign exchange window for investors and exporters. Tagged: “Investors’ & Exporters’ FX Window”, CBN’s Director in charge of Financial Markets, Alvan Ikoku, said the new window would boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.
The liberalization of the foreign exchange market and the relative peace in the Niger Delta region marked the turning point for the economy as the policy eased liquidity in the foreign exchange market.
In the second quarter of 2017, the nation’s Gross Domestic Product (GDP) grew by 0.55 percent (year-on-year) in real terms, indicating the emergence of the economy from recession after five consecutive quarters of contraction since Q1 2016.
This recovery was driven by improvements in the oil sector (8.8% of GDP), which expanded for the first time in seven years, bringing about renewed confidence in the economy. This renewed confidence has resulted in a rebound in foreign investments with Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) up 49% and N 128% respectively in Q2’2017 as compared to the same period in the prior year.
Similarly, investor appetite for equities has increased with the Nigerian Stock Exchange All Share Index (NSEASI) 24.4% higher between January and June 2017, recovering from a 6.2 percent contraction between January and December 2016.
Nigeria’s external reserves rose to $33 billion as at September 14, 2017, riding on the back of increased oil earnings, according to the central bank.
BALA AUGIE
