Nigeria - Time to keep eggs in different basket

Africa’s biggest economy and oil producer Nigeria is facing severe economic crises due to sharp decline in oil prices since the third quarter of 2014. It has made a costly mistake by becoming a mono product economy depending fully on oil and is currently facing a volatile situation and is standing on the verge of Recession after four month’s delay in national budget. Inflation in this country has accelerated to 13.7% in April which is six years high and economy is contracting sharply creating horrible conditions and the postponed budget added fuel to it. Approximately 35% drop in oil prices and 25% drop in value of Nigeria’s currency Naira has reduced Nigeria’s GDP from 6.3% in 2014 to 2.7% last year. This is a big economical problem for the Africa’s giant and the question arises that Nigeria can regain its growth rate back and can stay out of this possible upcoming recession? Is Nigeria prepared enough to diversify its economy can save its crown of being biggest economy of Africa? Most importantly, Is Nigeria being pushed on the verge of social unrest?

In 2014, Nigeria pushed South Africa on second position and became continent’s largest economy because of rebased GDP and now it is struggling to manage its collapsing economy as it is facing a shortfall of $11 Billion in its 2016 budget. The foreign exchange reserves fell 2.7% in a month to $26.56 Billion and fell 10.7% from a year ago. Central Bank of Nigeria (CBN) is trying to apply brake on shrinking reserves by imposing a ban on the sale of forex by importers on 41 items.

A series of attacks on oil infrastructure and evacuation and closing of facilities by energy companies has contributed to put intense pressure on Nigeria’s finances as its crude output has pushed to 22 year low. The violence has reduced the oil production to around 1.69 million barrel in May which is lowest since 2007, IEA data shows.  According to a report by OPEC, Angola has dethroned the Nigeria and has become top oil producer of the continent.  

Nigerian government recently came up with their 6.1 trillion Naira ($30.6 Billion) budget which is around 20% up by 2015 budget and the government is looking forward to come out of this slowdown and to diversify its economy. Now it will be interesting to see how the Nigerian government will deal with this biggest issue and how it will distribute its eggs in different baskets.