Nigeria pays dearly for its addiction to oil

Africa under the threat of a violent economic crisis (4). The continent’s leading economy is suffocated by the spectacular fall in crude oil prices in the midst of the coronavirus crisis.

Recession is imminent. The first in twenty-five years for sub-Saharan Africa. The second in four years for Nigeria. The West African giant quickly adopted drastic measures to contain the spread of the coronavirus, which, according to official data, has contaminated 1,932 people and caused 58 deaths as of Friday, May 1.

While a gradual deconfinement is due to start on Monday in the country, with the exception of Kano, the large northern city hit by a mysterious wave of deaths apparently unrelated to Covid-19, it is another disaster that threatens the continent’s leading economic power. According to Nigerian Finance Minister Zainab Ahmed, the country has entered a new phase of “economic crisis”. And this one is conjugated in the plural. In addition to the consequences caused by the global health crisis is the spectacular fall in the price of a barrel of crude oil, of which Nigeria is the leading producer in sub-Saharan Africa.

Dark prospects

On April 28, the International Monetary Fund (IMF) approved $3.4 billion (3.1 billion euros) in emergency assistance for Nigeria, or 0.8 percent of its gross domestic product (GDP). A life-saving but insufficient loan. “Additional assistance from other partners will be needed to support the government’s efforts,” the Fund said. Nigeria has expressed its desire to borrow $7 billion, in particular to complete a state budget threatened by the fall in oil prices. Thus, at the beginning of April, it approached the World Bank as well as the African Development Bank (ADB). And this, after having devalued its currency, the naira which continues its inexorable depreciation.

According to the Bretton Woods institutions, the post-Coronavirus era is expected to result in a contraction of Nigeria’s GDP by 6 to 7 percent and thus plunge the country into recession this year after growing by 2.2 percent in 2019. “This comes as no surprise to the Nigerian government, which has prepared itself and its citizens to accept painful but necessary measures,” says analyst Bismarck Rewane. For this member of the economic advisory council set up by President Muhammadu Buhari, “the government is technically and mentally ready to face a recession which, according to his estimates, should last between twelve and eighteen months.

Despite a willingness to diversify its economy, Nigeria is today suffering the consequences of its dependence on the price of black gold, which provides more than 90% of the state’s export revenues and more than half of its public revenue. Voted in December 2019, its 2020 budget of 35 billion dollars expected a daily production of a little more than 2 million barrels at 57 dollars each. In March, it was cut by nearly $5 billion when the price of oil dropped below $30 a barrel. A price that continues to plummet and a world production reduced by the Organization of the Petroleum Exporting Countries (OPEC) which provides, from May 1, a limitation for Nigeria to 1.4 million barrels per day.

“The cost of production [about $22 per barrel] has become higher than the selling price. This bodes ill for the bleak economic outlook, says Malte Liewerscheidt, vice-president of the British consulting firm Teneo. This crisis may put pressure on policymakers to implement their reform plans. However, they may not have the funds to do so. »

The economic stimulus package presented by the Nigerian Central Bank includes $2.7 billion in aid, a significant portion of which is earmarked for health and industry, “to stimulate local manufacturing and thus reduce dependence on imports,” according to its governor.

The plan, which amounts to only 0.7 per cent of GDP in 2019, may not be enough to counter the fallout of the coronavirus pandemic combined with the collapse of oil prices, the erosion of foreign exchange reserves, a weak currency and expensive debt. Austerity will be inevitable in the near future,” said economist Nonso Obikili, director of the Abuja-based Turgot Research Center. The country is becoming dependent on external sources of finance, which will increase the debt, whose servicing costs are already very high [65% of government revenues]. The government’s room for maneuver is therefore very limited. »

Food crisis in perspective

Economically, Nigeria seems to be suffocated and forced to borrow again and again. However, it is already considered as the West African country “whose situation appears to be the most worrying in terms of debt sustainability”, note analysts of the rating agency Moody’s in a report dated February. Since then, Covid-19 has worsened the situation and the Nigerian government must find funds to fight the virus and provide support to its most vulnerable inhabitants.

There are those for whom confinement in urban centers has been a particularly painful ordeal. But also Nigerians living in conflict zones, such as in the northeast of the country where the jihadists of Boko Haram have no interest in the UN’s call for a ceasefire. In the oil-producing areas of the southeast, misery, pollution and the feeling of unfair distribution of the black gold rent are fuelling the anger of the inhabitants and armed “militant” groups. The latter have already demonstrated their ability to destabilize the economy by attacking pipelines and tankers, which helped plunge Nigeria into recession in 2016.

As the most populous country in Africa, Nigeria must also fight against the extreme poverty in which nearly 45% of its 200 million inhabitants live on less than $2 a day.

“In the short term, the recession and the indirect consequences of the coronavirus will have a devastating impact on their livelihoods, fears researcher Elizabeth Donnelly of the British think tank Chatham House. At least 7 million people are in need of food aid and the closure of borders has caused food prices to rise. This situation will only get worse. “The World Bank has already warned of the risk of a food crisis on the African continent.

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