Nigeria posts first annual contraction in 25 years

Nigeria’s economy suffered its first annual contraction in 25 years as growth in Africa’s top oil producer shrank for the fourth consecutive quarter of 2016.

The west Africa nation fell into a technical recession in the first half of the year as its finances were hit by low oil prices and declining crude output following militant attacks on pipelines in the Niger Delta.

The national statistics bureau said yesterday that the economy contracted by 1.5 per cent in 2016, which compares with growth of 2.8 per cent the previous year and underlines the depth of the economic crisis. In the three months to the end of December it shrank by 1.3 per cent year on year.

“This contraction reflects a difficult year for Nigeria, which included weaker inflation-induced consumption demand, an increase in [oil] pipeline vandalism, significantly reduced foreign reserves and a concomitantly weaker currency,” the bureau said.

The oil sector shrank by nearly 14 per cent last year, as production fell from 2.13m barrels per day in 2015 to 1.833m b/d last year, the bureau said.

Nigeria depends on petrodollars for 70 per cent of state revenues and 90 per cent of export earnings. The economic woes have been exacerbated by a severe foreign currency shortage, which has hit the non-oil economy as manufacturers struggle to get dollars to pay for imports, forcing them to lay off tens of thousands of workers.

Business executives and analysts complain that the government reacted too slowly to the crisis and has pursued policies that have deepened the turmoil, particularly its management of the naira.

The central bank said in June it was moving to a “purely market-driven” currency system. But it continues to restrict access to dollars for importers of items such as rice and toothpicks that it considers non-essential. This has driven up demand for dollars in the black market, where the greenback trades at about a 30 per cent premium.

The central bank last week said it would allow Nigerians to access dollars for school and medical fees at 20 per cent above the official rate, a decision some analysts interpreted as a step towards devaluation.

But it is still not clear if Abuja is ready to adopt the market-driven currency system it pledged.

President Muhammadu Buhari has been out of the country on extended medical leave for five weeks, and his deputy, Yemi Osinbajo, appears to be moving more quickly to introduce economic reforms.

However, officials say one issue he may not be able to touch is the devaluation of the naira, as Mr Buhari has repeatedly stated his view that a weaker currency would hurt poorer Nigerians.