Africa’s leading economy saw only $647 million (579 million euros) direct foreign investment, a dramatic 76 percent fall when compared to the second quarter of 2015.
Nigeria, slid into a recession in the second quarter. A drop in investment and oil prices, currency weakness and a hike in inflation are adding to the country’s woes.
Nigeria’s National Bureau of Statistics has reported a slowdown across many sectors of Africa’s largest economy. The recession has been underscored by a slump in foreign investment. Inflation is hovering around 16.5 percent.
Economic output ran at minus 2.06 percent in the second quarter through to the end of June, the bureau reported on Wednesday. Compared to 2015’s second quarter, that represented a 4.4 percent slump.
Estimated oil production at 1.69 million barrels-per-day (BPD) was down by 0.42 million BPD from this year’s first quarter, the bureau added.
So-called “capital importation” at $647 million (579 million euros) represented a dramatic 76 percent fall when compared to the second quarter of 2015. Foreign investors have become wary over Nigeria’s currency peg, the bureau said.
President Muhammadu Buhari’s economic adviser Adeyemi Dipeolu blamed the bleak data mostly on “a sharp contraction” in the oil sector, “resulting from vandalism and sabotage.”
Buhari’s government, which for months had upheld the currency peg, finally devalued the naira in June.
The US dollar bought 313 naira on Wednesday while on the black market traders said the rate was 400 naira. Back in January it was 340 naira.
“We can’t get dollars,” said one trader in Lagos said.
Government sees hope
But the Buhari administration expects better economic outlook for 2nd half of 2016, saying that the just released GDP figures for the 2016 second quarter by the National Bureau of Statistics while confirming a temporary decline, has also indicated an hopeful expectation in the country’s economic trajectory.
In a statement made by the Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu on the latest NBS report, the persidency said that besides the growth recorded in the agriculture and solid mineral sectors, the Nigerian economy in response to the policies of the Buhari presidency is also doing better than what the IMF had estimated with clear indications that the second half of the year would be even much better.
“The Buhari presidency will continue to work diligently on the economy and engage with all stakeholders to ensure that beneficial policy initiatives are actively pursued and the dividends delivered to the Nigerian people,” Mr Dipeolu said.
He added that “The just recently released data from the National Bureau of Statistics showed that Gross Domestic Product declined by -2.06% in the second quarter of 2016 on a year-on-year basis.
“”A close look at the data shows that this outcome was mostly due to a sharp contraction in the oil sector due to huge losses of crude oil production as a result of vandalisation and sabotage.
“However, the rest of the Q2 data is beginning to tell a different story.”
Analysts however said the indicators pointed to an economy troubled by deeper structural issues than just low crude-oil prices or attacks by rebels on oil-production facilities in Nigeria’s south.
“Nigeria is very dependent on foreign investment to improve the infrastructure and [to] get the economy back on track we need investor confidence,” said John Ashbourne, Africa economist at Capital Economics in London.
BMI research analyst Daniel Richards said uncertain monetary policy over the past 18 months had been the “biggest constraint on growth after lower oil prices.”
“You don’t have to be an economist to know that any system that allows you to sit in your garden, and with a telephone call make one billion naira without investing a kobo, that system is wrong,” said former central bank governor Muhammadu Sanusi.
In May, Buhari (pictured above launching a new Lagos-Kaduna train link) said when elected last year he had inherited a “decrepit” infrastructure and oil refineries were in a “state of disrepair.”
In response, Buhari announced plans to diversify the economy and tackle endemic corruption. He accused the previous government of failing to make savings when oil cost more.
Last week, Nigeria’s Senate said it had begun an investigation into allegations that food aid had been stolen by officials. The aid had been intended for starving children who had escaped Boko Haram’s Islamist insurgency in the nation’s northeast.
Dawn Dimowo, an analyst for the consultancy Africa Practice, said Nigeria’s sluggishness would continue for “another two years.”
Another clamp on investment was Nigeria’s faltering electricity production, she said.
Nigeria had to make much “more headway in improving power supply,” said BMI analyst Richards. Without added electricity, Nigerian diversification would be near impossible.