It has only been a month since I last wrote about Nigeria possibly slipping into a recession, but I decided to revisit the country because of all the negative news emanating from there. The question I had asked in my earlier article was whether Nigeria was heading into an economic recession. The question has now been answered, and it is a resounding yes!
News website TheCable published an article titled, “Nigeria’s economic recession may be long and deep, says Peterside.” The article states that Atedo Peterside, vice chairman of the Nigerian Economic Summit Group, believes the recession may be due to “low investor confidence.” As with most countries that have relied heavily on one commodity, in this case oil, when creating their budgets they did so based on oil priced at $100 per barrel. But those numbers have never been adjusted, and consequently at $40 a barrel they find themselves struggling.
The Nigerian website Vanguard shows an article titled, “Guild of Editors calls for diversification of Nigeria’s economy.” The author quotes the group as saying that there is an urgent need to diversify the economy and suggests that agriculture could be a viable option. As an aside, “The guild also lamented the decline in the quality of journalism practice and non-adherence to the ethics of the profession and called on editors to make efforts to redress the situation in their organisations.” Surely this problem doesn’t exist solely in Nigeria.
Recently the Nigerian Finance Minister admitted that the country was technically in a recession, but didn’t want to sound the alarm bells. The IMF made some dire predictions stating that in 2016 GDP growth would come in at a -1.8%, but this was after the esteemed body, in April of this year, had indicated that the Nigerian economy would expand by 2.3%.
The turn of events, the IMF said, “economic activity is now projected to contract as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence.” As if all this wasn’t bad enough, MSCI has recently suggested that they may exclude the Nigerian index from the frontier market index when they convene in September. If they do, then the exclusion would take effect in November.
Additionally, the currency, the Naira, was pegged to the U.S. dollar dating back to January 2015 and was trading at an artificially low rate of 200 to the USD. At the end of June 2016, the Naira was permitted to fully float and immediately devalued dramatically to where it is now trading at nearly 400 to the dollar. To make matters even worse, the Central Bank raised its benchmark interest rate 200 bps to 14%.
So none of the economic news coming out of Nigeria is positive right now and I don’t believe it will be for quite some time. Even though agriculture may be a good diversifier, it will take time to implement. In my opinion, stay clear of Nigeria to at least the end of the year when some of the dust will have settled and we will have a better idea of the country’s future growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
http://www.nasdaq.com/article/frontier-markets-nigerian-economy-on-the-edge-cm665836#ixzz4HV8TG7XA
News website TheCable published an article titled, “Nigeria’s economic recession may be long and deep, says Peterside.” The article states that Atedo Peterside, vice chairman of the Nigerian Economic Summit Group, believes the recession may be due to “low investor confidence.” As with most countries that have relied heavily on one commodity, in this case oil, when creating their budgets they did so based on oil priced at $100 per barrel. But those numbers have never been adjusted, and consequently at $40 a barrel they find themselves struggling.
The Nigerian website Vanguard shows an article titled, “Guild of Editors calls for diversification of Nigeria’s economy.” The author quotes the group as saying that there is an urgent need to diversify the economy and suggests that agriculture could be a viable option. As an aside, “The guild also lamented the decline in the quality of journalism practice and non-adherence to the ethics of the profession and called on editors to make efforts to redress the situation in their organisations.” Surely this problem doesn’t exist solely in Nigeria.
Recently the Nigerian Finance Minister admitted that the country was technically in a recession, but didn’t want to sound the alarm bells. The IMF made some dire predictions stating that in 2016 GDP growth would come in at a -1.8%, but this was after the esteemed body, in April of this year, had indicated that the Nigerian economy would expand by 2.3%.
The turn of events, the IMF said, “economic activity is now projected to contract as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence.” As if all this wasn’t bad enough, MSCI has recently suggested that they may exclude the Nigerian index from the frontier market index when they convene in September. If they do, then the exclusion would take effect in November.
Additionally, the currency, the Naira, was pegged to the U.S. dollar dating back to January 2015 and was trading at an artificially low rate of 200 to the USD. At the end of June 2016, the Naira was permitted to fully float and immediately devalued dramatically to where it is now trading at nearly 400 to the dollar. To make matters even worse, the Central Bank raised its benchmark interest rate 200 bps to 14%.
So none of the economic news coming out of Nigeria is positive right now and I don’t believe it will be for quite some time. Even though agriculture may be a good diversifier, it will take time to implement. In my opinion, stay clear of Nigeria to at least the end of the year when some of the dust will have settled and we will have a better idea of the country’s future growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
http://www.nasdaq.com/article/frontier-markets-nigerian-economy-on-the-edge-cm665836#ixzz4HV8TG7XA
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