Nigeria is a country that is immensely rich in oil. Despite this, the poverty rate in Nigeria is very high and Nigerian economy recession has lasted for far too long mainly due to a number of challenges. What do you know about the history of economic recession in Nigeria? See how it began and why it has continued to gain traction throughout Nigerian history.
In 2014, Nigeria, the leading oil producer in Africa, became the largest African economy, surpassing South Africa in terms of GDP. It sounds very promising. So, how did Nigeria manage to slip into recession? Keep reading to learn all the answers.
What is the history of economic recession in Nigeria?
For a long time, the country suffered from political instability, corruption, undeveloped infrastructure, and poor management of the economy. The former military rulers of Nigeria could not diversify the economy in order to get rid of the country's complete dependence on the oil sector. Oil provided 95% of foreign exchange earnings and 80% of the revenues of the state budget. In recent years, the government has begun to implement market reforms, privatization of largest oil refineries and abolished regulation of prices for petroleum products. The government is now encouraging the private sector to develop infrastructure.
Oil – Nigeria economy backbone
It is clear that the oil industry is the backbone of Nigeria's economy. Nigeria is the 1st in Africa and the world's 8th exporter of oil. Daily production of oil is 2.1 million barrels.
Nigeria economy today has declined to its lowest for the first time since 1987. Can you imagine this? In the 1st quarter of 2016, the National Bureau of Statistics reported the economy shrank by 0.36% to hit its lowest point in the last 29 years. Ascording to the World Bank data, the last time the country had such instance of drastic economic decline was under the regime of Ibrahim Babangida. At that time the Nigerian economy recorded consecutive decline of 0.51% and 0.82% in first and second quarters of 1987. However, world economists see light at the end of the tunnel. IMF predicts that the economy of Nigeria will grow by 0.8% by the end of 2017. Though, we still need to wait and see.
The economy of Nigeria has been declining for the fourth consecutive quarter.
So, what is happening to Nigeria economy?
According to the National Bureau of Statistics, GDP in Nigeria - the economy of the most populous country in Africa declined by 1.5% at the end of the 2016 year.
The agency states that the decline in the Nigerian economy was facilitated by the fall in oil prices and reduction in the production of "black gold" because of insurgents attacks on oil infrastructure facilities. As a result of this, the exchange rate of the local currency, which is an indication of inflation reached their maximum for more than a decade. To tackle this, the Central Bank of Nigeria had to raise the key rate to 14%. In addition, Nigerian economic problems were aggravated by a five-month delay in approving spending plans for 2016. It was done in order to stimulate business activity.
The Nigerian government, however, believes that thanks to higher oil prices and rehabilitation and stability in the Niger Delta, the situation will change for the better through an increase in the level of oil production.
Oil prices fluctuations
Also, oil prices have experienced some negative changes - $112 for a barrel in 2014 to $50 for a barrel now.
The entral Bank of Nigeria announced an increase in the supply of foreign exchange for Nigerians, so that they can pay off schools and medical expenses at an exchange rate no more than 20% higher than the interbank rate.
Importation of goods that are considered unimportant for the official currency market has been restricted, thus the marketers have been forced to buy dollars at the black market, where the currency is approximately 30% more expensive.
The budget of N 7.3 trillion ($ 23.2 billion) has a deficit of N 2.36 trillion. The government plans to cover half of this deficit by borrowing from external sources.
What is forecasted Nigeria growth rate?
The actual annual growth rate is now about -0.52%. According to the forecasts, by 2020, it is going to reach 3.5%. Also, the Nigeria GDP growth rate is now -12.92% and by 2020 it will be approximately 2%.
So, now you know the main reasons for Nigerian economic problems and in particular, Nigerian economy recession. What facilitated these kinds of market fluctuations and what are the further estimates and forecasts. When do you think Nigerian economy recession will end? Only time will tell.