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Nigeria’s economy is collapsing!



A recent Capital Importation report by the Nigeria Bureau of Statistics (NBS) confirms this. Last year, Nigeria’s recorded total inflow of capital into the economy stood at $9.6 billion —a 53% drop from the previous year and the lowest recorded total since 2011.

A National Bureau of Statistics report dated 2nd February, 2016, and obtained by Elombah.com states that the total value of Capital imported into Nigeria in the Third Quarter of 2015 was $2,748.10 million, up 3.07% from the preceding quarter. 

This was followed by a total of $1,556.95 million in the fourth quarter, a decline of 43.34% from levels recorded in the previous quarter. 

The total for 2015 was recorded at $9,643.01 million. This represents a 53.53% fall on the previous year, when the total was $20,750.76 million. Each consecutive quarter of 2015 saw a larger annual fall than the previous; but in the third and fourth quarter, Capital inflows were respectively 58.00% and 65.40% lower than in the same quarters of 2014.

While incidental economic factors have largely contributed to Nigeria’s floundering economy, the country’s government has also come in for criticism for not managing the crisis effectively. President Buhari’s handling of the economy has been questioned with the Central Bank of Nigeria instituting strict monetary controls in response to commodity prices and a currency slide. These controls, which inevitably strained citizens and hardly had the desired effect, have been described as unorthodox.

The data on Capital Importation used in the report which was obtained from the Central Bank of Nigeria (CBN), gives a historical perspective, and shows that the level of Capital imported between 2012 and 2014 was markedly higher than in preceding years. This may have been a result of external factors, such as the inclusion of Nigeria in the JPMorgan EM Bond index.

The drop in 2015 may be partly a result of these factors unwinding, as well as the tougher economic environment in Nigeria resulting from the effect the lower oil price Capital Importation Data has had on export earnings. 

In the final quarter of 2015, Portfolio Investment fell by 5.61% between the third and final quarters, Other Investment also fell by 52.87% and Foreign Direct investment also fell by 82.84%.

The above data emerged amidst reports that Cote d’Ivoire has moved ahead of Nigeria to top investor destination in Africa, according to a new Nielsen report which provides a ranking of business prospects for leading markets in Sub Saharan Africa.

Whilst Nigeria topped the inaugural list in Q1, 2015, in the latest ranking it drops to a more moderate 4th position, driven primarily by deteriorating macro-economic indicators as a result of a slump in commodity prices, in particular oil. In addition, the Consumer indicators and overall confidence levels have followed suit.  

As Buhari closes in on his first year in office, many Nigerians will be hoping that in his second year, the focus will be on triggering an economic rebound in Africa’s biggest economy following slowed growth.

The National Bureau of Statistics February report, said the inflation rate in February rose by 11.4 per cent compared to the 9.6 per cent in January.

The Foreign reserves are currently $27bn. This is still considered low and Elombah.com does not expect CBN to increase FX supply until the reserves improve significantly. This means the market demand though reduced, will still not be met hence, more pressure.

The Foreign Direct Investment has dropped and is still dropping as foreign investors still anticipate a devaluation no matter what the President says.

True, Mr Buhari’s administration was dealt the worst of all possible hands. The price of oil, on which Nigeria is woefully dependent, has plummeted. The previous administration spent more effort on siphoning off money during the good years than in preparing Nigeria for the rainy days that are now upon it. That has left it short of firepower in terms of reserves and budgetary flexibility.

Mr Buhari has also inherited an unworkable foreign exchange regime, under which the central bank provides foreign exchange to the markets at an unrealistic fixed rate. Starved of funds, businesses have gone to the parallel market, where the naira is trading at roughly 320 to the dollar versus an official exchange rate of 197.

The situation is unsustainable. Foreigners have withdrawn money and significant new inflows are unlikely until investors are convinced the naira has found a realistic level. Mr Buhari is leery of market solutions, believing that a devaluation would damage the poor by fuelling inflation. But in resisting a more market-driven exchange rate, he risks forcing the economy into a deep recession that is likely to harm ordinary people even more.


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