Nigerians growing poorer for first time since 1999

Nigerians are growing poorer for the first time since the return to democracy in 1999 as an economic slowdown combines with still high population growth rates to curb income per capita.

Average incomes in Nigeria will fall by about 18 percent in 2015 to $2,550 per annum, from over $3,000 in 2014, according to World Bank and IMF estimates.

Growth in Africa’s largest economy has been slowing as oil prices fell by more than 50 percent between 2014 and 2015.

Meanwhile, the country’s population growth rate of 3 percent, combined with the sub-par economic growth at the 2 percent – 3 percent range, implies negative per-capita income growth.

“The statistics office just released data showing that Nigerian unemployment jumped from 8.2 percent in 2Q15 to 9.9 percent in 3 Q15 – due in part to massive 2 million (2.5%) rise quarter on quarter, in the labour force. The working age population is rising faster than GDP,” Charles Robertson, Renaissance Capital’s global chief economist, said in a Nov 23 note to investors.

“We should assume continued declines in per capita GDP”.

Nigeria’s economy where growth had averaged 8 percent per annum between 1999 and 2014 saw growth slowing to 2.84 percent year-on-year in the third quarter of 2015; lower than the 6.23 percent achieved in the corresponding period of 2014.

The negative per-capita income growth is acting as a drag on the consumption, with attendant negative implications for the wider economy, according to analysts.

The GDP per capita contraction highlights the reform urgency for the new Nigerian government to remove structural impediments to higher growth rates in an economy with potential growth in the double digits range.

“The current slump of the economy was predictable and largely avoidable. Just as it happened in 1981-85, the economy has been on a tailspin. There is now about 4 percent growth shortfall, relative to past trend, and this cannot be explained by fall in oil prices alone,” Chukwuma Soludo, a former Nigerian Central Bank Governor and economist, said in a speech made last week in Lagos.

“For the first time since 1990s, per capita growth rate (on annualised basis) is now negative, implying that poverty is also escalating; the capital market has lost trillions, inflation and unemployment are on the rise.”

Nigeria’s benchmark stock index has lost 20 percent year to date, as investors fear the worsening macro – environment would impact negatively on earnings.

The slide in oil prices has meant lower revenues for the Nigerian government which uses proceeds from the sale of the commodity to fund 80 percent of its budget.

There is a sense of déjà vu for investors that the current difficulties for the Nigerian economy are similar to economic problems of the 1980’s when a collapse in oil prices, wrong policy responses and an overvalued currency put a halt to growth, even as the population exploded.

After adjusting for currency depreciation the size of the Nigerian economy, measured by nominal GDP, fell by 38 percent to $46.3 billion in 1999 from $64.2 billion in 1980 despite a near doubling in population, according to World Bank data.

Today, with the benefit of hindsight, the government can avoid mistakes of the past, say analysts.

Reforms such as the removal of subsidy on petroleum products, railways privatisation, continued momentum on agriculture and a freeing up of the oil and gas sector for further private sector investments should help push growth rates higher while improving government finances.

“There have been no new oil round licsences since 2008 and Nigerian reserves are stagnant due to a lack of drilling activity,” said Douglas Rowlings, a corporate finance analyst for rating agency, Moody’s.

“More investments and growth can be created in the Nigerian economy if FX restrictions are removed. There are opportunities in the non-oil and oil sectors.”