Nigerian Economy Still Treading Water Thanks to Oil Sector
The Nigerian economy contracted in 2016 for the first time in over 20 years, and, prior to 2015, the country had recorded a decade of growth of 6% or more. The contraction in 2016 was largely due to attacks by militants on oil production, which weighed heavily on an economy that was already suffering the impact of low oil prices.
Nigeria is expected to return growth in 2017, albeit at a meagre 0.9% increase, as higher oil output and positive dynamics in the agricultural sector are helping the economy exit recession, and analysts project that growth will increase further next year. Nevertheless, Nigeria experts don’t see growth even coming close to the hay days (such as in 2014 when GDP was 6.2%), at least not before 2022.
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While encouraging signs are emerging throughout the economy, the recovery is likely to be fragile and is at risk of being derailed by a military conflict in the oil-rich Niger Delta region. Tensions between militants and the government remain high, and a number of analysts speculate that violence could flare up ahead of the 2019 elections.
In the early 2000’s, Nigeria outperformed both its regional peers and the global economy, but the end of the commodities super cycle and low oil prices coupled with reduced output subsequently took a heavy toll on the country.
Now analysts are wondering, can Nigeria sustain positive growth within the context of lower oil prices or will the country manage to diversify away from oil?
Our panel of analysts is has become less optimistic over time, with the Consensus now at just 2.6% growth for 2018. The most pessimistic panellist is Frontier Strategy Group with a forecast of 1.6%, while the most optimistic institutions are Standard Chartered and FSDH Merchant Bank who project 3.5% growth.
Attacks by militants on Nigeria’s oil supply constitute a major risk factor, and many analysts foresee another attack in the near future, although the government claims to have made good progress in talks lately, causing production to rise somewhat. The current Consensus Forecast for oil production in Nigeria foresees it rising to reach former levels in 2018 after two years of notably reduced output. Nevertheless, prices will remain below half of the 2012 peak—when Brent averaged 111.7 USD per barrel—at least through 2021.
Inflation was steady at August’s 16.0% in September. Inflation is likely to remain stubbornly high in the quarters ahead, moderating only slightly, and although it is down markedly since the start of the year, it is still far above the Central Bank’s 6.0%–9.0% target range, where it has been since surging in the middle of last year as a result of utility price hikes and a weak naira. Our analysts expect inflation to average 12.4% in 2018. For 2019, panelists forecast an inflation rate of 9.8%.
Date: November 22, 2017
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