Oil, power, fragile infrastructure pressing economic problems as handover date draws near

A head of the inauguration of the president-elect, the new government is faced with the task of fixing the economy of Africa’s largest economy as power, oil, and fragile infrastructure remains the most pressing economic problems the country is facing.

Nigeria is Africa’s biggest oil producer and its largest economy, but fails to feel the benefit with nearly half of its population living below the poverty line.

Nigerians are facing darkness amid a dramatic decline in power supply across country in recent weeks. The ministry of power blamed the cut on vandalism of gas pipelines.

Most of the country’s thermal and hydropower plants are dependent on gas for optimum performance to meet the demands of power supply across the country.

According to a wire report, Nigerian Gas Company (NGC) a subsidiary of the Nigerian National Petroleum Corporation (NNPC) said the nation had lost a minimum of N8 billion ($40.4 million) due to persistent vandalism of the country’s pipeline network of the Nigerian gas.

Since the privatisation of the power sector, the amount of power produced has stagnated at around half total capacity. It has not topped a 2012 peak of 4,500 MW as the grid battles gas constraints, plant outages and tripped circuits, according to the transmission company’s report, which just showed just 3,346 MW were sent out to consumers on March 23.

The second pressing economic problem is the oil sector. Oil and gas account for more than 90 percent of export revenues and the government relies on them for 70 percent of fiscal revenues. These have roughly halved in the past six to eight months. The 45 percent fall in the price of Brent Crude since last June has wreaked havoc on Nigeria’s financial health.

“The economy remains heavily reliant on the oil sector, which is not likely to change postelection,” said Angus Downie, head of economic research at pan-African banking conglomerate Ecobank in an interview with IB Times.

Downie explained that Nigeria needs serious structural reforms to diversify the sources of government revenue. But this won’t come easy.

“There are various obstacles that would likely prevent them from being successfully implemented,” he said, noting that these range from weak economic policies to bottlenecks in infrastructure.

Nigeria’s foreign exchange reserves fell 22.6 percent year-on-year (y/y) to $29.5billion by April 28, from $38.14 billion. Data from the CBN also shows external reserves was $34.49 billion at the beginning of the year has now dropped by over $4.9 billion year to date.

The Central bank has used its forex reserves to support the naira in the wake of falling oil prices.

The dollar has gained 17.2 percent against the naira in the past year, making it the third-worst performer in Africa. This is pushing up the price of imports, stoking inflation and hurting businesses across board.

The international standard for healthy reserves is six months import cover, which for Nigeria should be about $48 billion. Before the oil price plunge Nigeria external reserve had crossed the $60billion mark, indicating over eight month cover.

According to the latest economic data, the economy has significantly underperformed in the first quarter of 2015.

The International Monetary Fund recently downgraded Nigeria’s economic growth forecast for 2015, predicting its GDP will increase by just 4.8 percent, down from 6.1 percent in 2014.

Nigeria\’s inflation rate rose for the fourth consecutive month to 8.5 percent in February, from 8.4 percent the previous month, partly driven by increases in prices of imported food items, National Bureau of Statistics (NBS) states in its report.

Nigeria, Africa’s largest economy, needs $33 billion to bride its infrastructural gap which emphasis must be placed on quality human capital development to build a strong population that can drive the economy.

“Government must provide infrastructure; households must invest in housing, and firms should invest in factories,” said Paul Collier, keynote speaker and professor of economics and public policy in the Blavatnik School of Government at the University of Oxford.

“What the three investments will do is to bring about the triple miracle of productivity. When households invest in housing, they provide liveable density. When you have a liveable density, you provide a lot of opportunities for small businesses,” Collier added.

He explained that when government provides good infrastructure that will enable firms and people to cluster, people and skills are brought close to jobs, while the government will have the opportunity to levy taxes and raise sufficient revenue.

JOSEPHINE OKOJIE