Nigeria was poorly prepared to weather the economic impact of the global oil price decline of mid-2014. In 2016, global oil prices hit a 13-year low of approximately USD 27 per barrel. This phenomenon combined with shortfalls in anticipated oil production amid a resurgence of violence in the oil-producing Niger Delta region, operational issues, weak transparency mechanisms and the mismanagement of long-term savings, meant that windfall revenues from the period of oil prices hovering around USD 100 per barrel had not been adequately ring-fenced. The oil-dependent country experienced its first full-year recession in 25 years with a negative growth of 1.5 percent in 2016. Lower foreign exchange earnings from oil exports had spill over effects on non-oil sectors. A currency crisis and dollar shortages contributed to rising inflation every month for over a year. But halfway through 2017, what is the outlook for the economy?
Early indications of a recovery
National Bureau of Statistics’ (NBS) data indicates oil production levels have reached 1.8 million barrels per day (bpd), the highest level of production since the first quarter of 2016. Although it remains short of the government’s target of 2.2 million bpd—on which the 2017 budget is predicated—the restart of one of Nigeria’s largest crude oil terminals, Forcados, on 6 June is expected to boost production in the coming months. The Forcados terminal was shut for most of 2016 following an attack and has a production capacity of 400,000 bpd.
Increased revenue from oil has had a positive impact on foreign exchange reserves. Central Bank of Nigeria (CBN) data from 28 June shows the foreign exchange reserves stood at USD 30.25bn. Although it is down 0.36 percent from a month prior, current reserves reflect a 14.8 percent rise from June 2016 when the reserves stood at USD 26.34bn. Nigeria has added USD 4.2bn to its reserves since the start of 2017, which is largely attributable to the increase in global oil prices and production amid ongoing peace talks between the government and Niger Delta militant groups.
Data Source: Central Bank of Nigeria
Gross domestic product (GDP) shrank by 0.52 percent year-on-year in the first quarter of 2017, according to the NBS quarterly GDP report released on 23 May. This represents the fifth consecutive quarter of contraction since the country entered into recession. Nonetheless, the decline is significantly less than the negative growth of 1.73 percent recorded in the fourth quarter of 2016—indicating a reduced pace in the downturn.
Data Source: National Bureau of Statistics
Inflation also appears to be easing, as the prices of most goods—with the exception of food—fall. NBS figures from the Consumer Price Index (CPI) report released on 15 June shows that inflation slowed to 16.25 percent in May, from 17.2 percent in April, representing the fourth consecutive decrease since January and the lowest inflation rate in a year. It however remains in excess of the government’s target of 6-9 percent, and food prices increased 19.3 percent year-on-year sustaining the upward trend in food inflation in 2017.
Nigeria is expected to return to positive economic growth in 2017. The International Monetary Fund predicts the economy will grow by 0.8 percent in 2017 and 2.3 in 2018. Nigeria’s exemption from the OPEC production cut deal was in May renewed until March 2018. Over the next year, the recovery in oil production and inward investments will positively impact economic growth. The government will continue to pursue efforts to broaden the tax base while investing in infrastructure projects as a means of creating jobs and stimulating the economy.