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| Abuja, capital city of Nigeria. |
GDP shrank by 2.06% in the second quarter of 2016, following on from a 0.36% shrinking in the first quarter of the year, according to data released by the country's National Bureau of Statistics (NBS) on Wednesday.
Those two consecutive quarters of economic shrinkage mean that the country is now in its first recession in more than 20 years.
Recession in Nigeria may be an unwelcome development, but it is not unexpected. Earlier in the year, Godwin Emefiele, the governor of the Central Bank of Nigeria warned that "recession was imminent," the Financial Times reports.
"We have long warned of a slow-burning crisis in Nigeria," Capital Economics' Africa economist John Ashbourne said in May. "It now seems that this view was too optimistic: the country is headed into a full-blown economic crisis."
The International Monetary Fund has also warned on the state of the country's economy, forecasting that growth will shrink by 1.8% over the course of 2016.
The big driver of the slump in the Nigerian economy, which was one of Africa's great success stories until recently, has largely been the persistently low price of oil over the past two and a half years. Nigeria relies heavily on oil and is the largest producer of the commodity on the continent, producing roughly 2.4 million barrels per day. Given that oil's price has slumped from more than $100 per barrel in 2014 to roughly $48 now, it is perhaps unsurprising that the country has struggled for economic growth.
The Nigerian oil industry's problems have been made even worse by a series of major disruptions in the oil-rich Niger Delta area, largely caused by a militant group calling themselves the Niger Delta Avengers. Most notably, the group attacked a Chevron offshore facility in May and the underwater Forcados export pipeline operated by Shell in late March. The production disruptions caused by these attacks and others have wreaked havoc with the already stricken industry.
Dr. Yemi Kale, the CEO of the NBS tweeted to illustrate just how badly oil revenues in the country have been hit:
38. Oil GDP contracted by -17.48% in Q2 2016 (due to substantial disruptions in oil production); -1.89% in Q1 2016 and -6.79% in Q2 2016.
— Dr Yemi Kale (@sgyemikale) 31 August 2016
Growth in non-oil sectors of the country's economy has also been badly hit, as Business Insider's Elena Holodny wrote in May, with manufacturing taking the biggest hit. Non-oil GDP contracted by 0.38% in Q2, according to a tweet by Kale. The country's decision to unpeg the naira against the dollar does not appear to have led to a hoped-for influx of dollar-investment. Instead, the government is now dealing with inflation.
"This is very bad news for Nigeria's government, which has justified the current FX system as a method of promoting non-oil industries," Ashbourne said. "It is now clear that these policies have — as we'd long argued — made a bad situation worse."
While things look pretty bleak for the economy, research from Barclays circulated to clients on Wednesday argues that the very worst of Nigeria's crisis may be over. Economic activity in Q3 16 continues to be hampered by security concerns in the Niger Delta, ongoing FX shortages, rising inflation and significantly tighter monetary policy. That said, the decision by militants to stop attacks, the implementation of the 2016 budget and better availability of FX, despite it remaining a massive constraint, suggests a marginally better outlook for H2.
"Economic activity in Q3 16 continues to be hampered by security concerns in the Niger Delta, ongoing FX shortages, rising inflation and significantly tighter monetary policy. That said, the decision by militants to stop attacks, the implementation of the 2016 budget and better availability of FX, despite it remaining a massive constraint, suggests a marginally better outlook for H2," Ridle Markus argued in Barclays' Sub-Saharan Africa Daily note.
Markus did note, however that "for the year as a whole, we fear that the economy is set to contract, which will be the first full-year recession since 1991."
Growth in non-oil sectors of the country's economy has also been badly hit, as Business Insider's Elena Holodny wrote in May, with manufacturing taking the biggest hit. Non-oil GDP contracted by 0.38% in Q2, according to a tweet by Kale. The country's decision to unpeg the naira against the dollar does not appear to have led to a hoped-for influx of dollar-investment. Instead, the government is now dealing with inflation.
"This is very bad news for Nigeria's government, which has justified the current FX system as a method of promoting non-oil industries," Ashbourne said. "It is now clear that these policies have — as we'd long argued — made a bad situation worse."
While things look pretty bleak for the economy, research from Barclays circulated to clients on Wednesday argues that the very worst of Nigeria's crisis may be over. Economic activity in Q3 16 continues to be hampered by security concerns in the Niger Delta, ongoing FX shortages, rising inflation and significantly tighter monetary policy. That said, the decision by militants to stop attacks, the implementation of the 2016 budget and better availability of FX, despite it remaining a massive constraint, suggests a marginally better outlook for H2.
"Economic activity in Q3 16 continues to be hampered by security concerns in the Niger Delta, ongoing FX shortages, rising inflation and significantly tighter monetary policy. That said, the decision by militants to stop attacks, the implementation of the 2016 budget and better availability of FX, despite it remaining a massive constraint, suggests a marginally better outlook for H2," Ridle Markus argued in Barclays' Sub-Saharan Africa Daily note.
Markus did note, however that "for the year as a whole, we fear that the economy is set to contract, which will be the first full-year recession since 1991."
Business Insider
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