On June 15, Nigeria’s central bank announced it would abandon its currency’s dollar peg. Since then, the naira has fallen 61 percent against the U.S. dollar, generating difficulties for both foreign and domestic businesses in Africa’s most populous country. Nestle Nigeria, for instance, saw a 94 percent drop in profits as the currency depreciated. The currency’s move also led to Nigeria losing its title as Africa’s largest economy — a symbolic downgrade that succinctly summarizes the many challenges facing the country.
As oil prices fell from more than $100 a barrel in June 2014 to under $50 today, government revenues plunged, leaving Nigeria with a $7 billion budget deficit.
Perhaps, the most disruptive development in the Nigerian economy over the past five years has been the drop in the price of oil, which accounts for 70 percent of government revenue and 95 percent of export income. As oil prices fell from more than $100 a barrel in June 2014 to under $50 today, government revenues plunged, leaving Nigeria with a $7 billion budget deficit.
Amidst the decline in oil revenue, the government’s prolonged peg of the currency to the dollar led to foreign exchange shortfalls and import barriers on items such as margarine, private jets, wooden doors and even toothpicks, significantly hurting both local and multinational businesses.
These measures drove United Airlines and Iberia Airlines to cut off routes to Nigeria. The measures also left domestic operators with painful fuel shortages. Business in other industries suffered as well, with companies like Nestle’s Nigerian operation struggling to access foreign exchange and the Africa president of Unilever calling the maintenance of the policies “very insane.”
Meanwhile, militants known as the Niger Delta Avengers have blown up pipelines, contributing to Nigeria’s loss of its title as Africa’s largest oil producer. Sabotage has cost the country 700,000 barrels per day, sending the country’s output down to its lowest level in almost three decades. Shell’s production in Nigeria dropped 24 percent between the first and second quarters of this year alone. The government has engaged the militants in peace talks (as well as paying them stipends), but analysts are not optimistic that peace is imminent.
Given this backdrop, it shouldn’t be a surprise that the economy is in tatters.
In the north, the military continues to battle Boko Haram terrorists, whose violence has displaced 2.2 million people. At the same time, regional tensions have erupted elsewhere in the country, and land disputes have killed more people this year than Boko Haram.
Given this backdrop, it shouldn’t be a surprise that the economy is in tatters. Growth slowed from 6.3 percent in 2014 to 2.8 percent last year, and the IMF says the economy could shrink by 1.8 percent in 2016. In June, inflation rose to an 11-year high of 16.5 percent, while business confidence has hit all-time lows. The unemployment rate is over 12 percent, and major electricity companies are threatening to cut off power if the government does not pay them the hundreds of millions of dollars it owes.
.PBS News