CNBC, an American based news network threw shades
at Nigeria in an article published on their website. According to them, our
economy look as sick as our ailing president. Read their article below
"Who's running
Nigeria?" blared a headline in this week's The Economist, aptly
summarizing the state of affairs in beleaguered Nigeria — a major oil producer
and African economic powerhouse whose economy appears to be as stricken as its
ailing leader.
With Nigerian President Muhammadu Buhari in absentia suffering from an
undisclosed illness, the country's National Bureau of Statistics reported this
week that the economy contracted 1.5 percent last year for the first time in
nearly 25 years. Although Vice President Yemi Osinbajo is handling day-to-day
management of the country, analysts say Nigeria's mounting woes require steady
leadership.
Like most OPEC member states, the former emerging market standout has
found itself on the wrong side of oil prices that remain far too low to bolster
an economy heavily reliant upon crude production.
The troubles of Africa's largest economy have been exacerbated by a
debilitating currency shortage. The International Monetary Fund forecasts
Nigeria will only see "modest growth" of less than 1 percent this
year, and inflation is running in the double digits. It all suggests relief for
the beleaguered country appears far off.
"Shortage of foreign exchange is very severe," explained Win
Thin, global head of emerging market currency research at Brown Brothers
Harriman. "Foreign investors today face very long delays in repatriating
funds out of Nigeria."
The shortages were first caused by lower oil prices, but policymakers
ultimately made the situation worse by pegging the Nigerian naira [its official
currency] at a rate analysts say was overvalued. "As such, markets are not
clearing and there are shortages of FX," he added.
Meanwhile, the scarcity and overinflated value of Nigeria's currency is
creating liquidity pressures in the financial system. Recently, the Central
Bank of Nigeria took measures to ease the situation.
Oil, which has frequently rescued Nigeria from economic decline and
provided a buffer in tough times, may not be enough to salvage the country's
economy this time. Brent crude has traded around $55 — a far cry from levels
above $100 that once kept OPEC members flush with revenue.
Nigeria, which produces 1.8 million barrels a day of crude, was excluded
from a recent deal between cartel members that restricts output in order to
boost sagging oil prices. Analysts don't see that exemption helping in the near
term.
"Exhibiting 'Dutch disease' type symptoms, Nigeria's economy has
been buoyed by oil-related inflows during the oil price boom," Phyllis
Papadavid, an analyst with the Overseas Development Institute, wrote in a
recent report.
"Subsequent naira strength has coincided with a stagnant non-oil
sector, which has been at the expense of a largely undiversified manufacturing
sector. Looking ahead, CBN naira support at the current rate is consistent with
overvaluation," she said, adding that Nigeria needs to diversify its
economy and allow its currency to float freely.
"I think Nigeria can manage with oil around $50-55, but the key is
getting actual output up to capacity," said BBH's Thin, adding that
Nigeria may need to act on stabilizing its currency before seeing any relief.
"The situation is unsustainable, in my view, and Nigeria will
likely eventually float the naira," said Thin. "Egypt faced a similar
situation last year and eventually floated its official currency, the Egyptian
pound."
The new central bank policy should help increase availability of FX on
the retail side of the market; it remains to be seen to what extent this will
ease the backlog.
"The authorities do not seem keen to bite the bullet and let the
naira find its own level as driven by market forces, and we see this continuing
to put a damper on [foreign investment] and inward portfolio flows," said
Frank Kahumba, a Johannesburg-based senior analyst with Momentum SP Reid
Securities, in a research note last month.
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