– Crude oil drops to 77 per barrel
– Naira crashes to 177 to $1
– Stock market loses over N2 trillion
– Foreign investors exit
– Bread winners lament rising cost of living
NIGERIAN economy is crumbling with key indicators of growth assuming glaringly negative dimensions.
From disturbing falling oil prices to declining national revenue, rapid depletion of foreign reserves, the hopeless crash of naira against major currencies, bloody insurgency, imminent crash of the stock market and capital flight occasioned by uncertainty over 2015 general elections, Nigeria is in danger!
The drastic fall in oil price is hitting hard on Nigeria whose dependence in oil is legendary. From the era of oil boom to the current slump in global oil prices, Nigeria is now suffering from her unwillingness to diversify its investment in the multi- billion dollar sector.
With prices far below the $78 per barrel benchmark for the 2014 budget, the Federal Government has since adjusted to $73 per barrel, amidst fears that the measure wouldn’t save the nation from impending economic crisis. In fact, economists are suggesting oil price be pegged at about $60 per barrel, while pointing at its gloomy implication to Nigeria.
For instance, Mr. Bismarck Rewane, Chief Executive Officer, Financial Derivatives Company Limited, notes that a $73 benchmark is too close considering the recent happenings in the international oil market.
“A six per cent reduction in the 2015 budget benchmark oil price to $73 pb at a time when oil prices are trading between $77- $78 pb is cutting it too close; it is also under the assumption that oil prices may not fall below $70pb in 2014.
“Not only have oil prices fallen below the 2014 benchmark of $75 pb but there is a high possibility that they would fall further, below the proposed 2015 target of $73 pb. If this happens, Nigeria has no savings. In addition, government might require a supplementary budget for 2014 if revenues decline sharply.
“However, a blend of fiscal, structural and monetary policy adjustments is required to effectively mitigate the dire effects on the Nigerian macro-economy. Whether the austerity dose is adequate or not, the acceptance of the need for fiscal therapy in the face of a sharp decline in oil prices is a great achievement. In macro-economic lexicon, it is said that the mental adjustment of acceptance is more difficult than the fiscal or monetary measures that you eventually adopt. This is good news for Nigeria as she seeks to become insulated from shocks and economically competitive.”
The free fall of Naira also has serious implication on the economy. Nigeria’s currency slid as much as 1.9 per cent to a record low of 177.25 per US; 275 per Euro and 215 per British Pounds on Monday, November 24, 2014 ahead of a crucial Central Bank of Nigeria (CBN) meeting this week, where the onus is on policy makers to come up with something decisive to quell rising concerns of a devaluation.
The CBN has periodically intervened in the currency market during the past three weeks to prevent the weakness from deepening into a rout, but so far with little success and at the cost of depleting its financial backstop.
Foreign currency reserves slipped to about $37.6bn at the end of last week, with further declines expected this week.
Local and international analysts are speculating that Nigeria will eventually be forced to devalue, and non-deliverable forwards contracts that allow investors to bet on future currency movements imply that fund managers expect the currency to fall to N201.5 to the dollar in 12 months.
“The pressure on the naira poses a significant problem for policy makers, and the timing, ahead of February’s presidential election, could not be worse,” Stuart Culverhouse, Chief Economist at Exotix, wrote in a report.
Mr. Culverhouse said the Central Bank of Nigeria should introduce a 10-per cent devaluation and lift interest rates 2 percentage points to buttress the naira.
“Both measures would signal a bolder policy response, and complement each other. We think the market is consensus too. Not doing either risks further damage to market sentiment.”
This is why pessimists predict the naira might fall to a record N200 per dollar and above N300 against the Euro and British Pounds in 2015.
Also worrisome is the depleting Foreign Reserves which currently stands at a little above $35 billion! It was as high as $47billion when President Goodluck Jonathan assumed power. Nigerian External Reserves even climbed to an all time high of $68 billion before the economic meltdown in 2008. Now Nigeria’s economic fortunes are hopelessly declining as reserves dip further, the danger is that the economy will lose its major fiscal support system if the trend is not arrested.
The capital market is finally crumbling as investors lose over N2 trillion in two weeks. From divestment over uncertainty hovering over the nation ahead general elections in February 2015, the downturn in the market is also being blamed on growing insurgency in the Northern part of the country which has further affected the economy in terms of local and foreign investment. Sadly, when the world was celebrating the recovery of the capital market badly battered in 2009, the bears have now marched in to destabilize the market.
Expectedly, the crumbling economy may not affect economic saboteurs, the rich and the political class who are the biggest spenders and ultimate beneficiaries of its dividends. Despite the Austerity Measures the Minister of Finance and Coordinating Minister of the Economy Dr. Ngozi Okonjo-Iweala announced last week, the pains accruing from it are certainly going to fall on the masses whose per capital income is not realistic with the bogus pictures of Africa’s biggest economy which the minister and the Presidency have been flaunting without let.
Truth is that breadwinners now find it difficult to cater for their family even as the pangs of the worsening economy bites harder.
“Nigerians may not yet be feeding from the dustbin but many now live below the global $1 per day poverty benchmark in a land with some of the richest in the world,” Mr. Great Imo Jonathan, a Public Affairs Analyst claimed.
Not a few Nigerians are also bitter with government in the light of the bad condition of living.
But despite the barrage of criticism trailing President Jonathan’s handling of the nation’s economy, his government has given itself a pass mark on its performance score sheet, saying it has done very well in the last three years with over 40 million Nigerians now empowered to afford cars and earn decent living.
In fact, Dr. Ngozi Okonjo-Iweala, said at a recent Presidential Public Affairs Forum organised by the Office of the Senior Special Assistant to the President on Public Affairs in Abuja that Nigeria’s economy has improved so well that the country will soon have one of the biggest economies in the world.
The minister also revealed that in the last three years, the federal government has raised over N2.4 trillion from multilateral agencies with long gestation repayment period and zero percent interest charges and used the money to execute key projects in the country.
Dr Okonjo-Iweala equally claimed that government is now very careful with expenditure finance and borrowing, arguing there are now increased effort to expand sources of revenue to sectors outside the crude oil industry.
According to her, the president’s transformation agenda has encouraged local and international companies to invest more in Nigeria. But just weeks after leaving in denial of the true state of the Nigerian worsening economy the one time World Bank Vice President reeled out austerity measures to Nigeria from imminent economic crisis.
– UCHE OLEHI