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Nigeria Faces ‘Lost Decade’ as Economic Growth Stagnates

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  • Nigeria Faces ‘Lost Decade’ as Economic Growth Stagnates

Promises by Nigerian presidential candidates to fix an economy that vies with South Africa’s to be the continent’s largest could be unfulfilled unless the country is weaned off its oil dependence.

President Muhammadu Buhari, 76, a former military ruler running for a second four-year term in this week’s vote, has struggled to jump-start the economy and far from lifting growth to the annual 10 percent he promised before the previous election, gross domestic product contracted in 2016. His main rival is former Vice President Atiku Abubakar, a successful businessman who has been accused of corruption.

The winner of the Feb. 16 election will face the task of diversifying the economy of Africa’s top oil producer, easing stubbornly high inflation and improving the living conditions of a rapidly growing, young population struggling to find jobs.

Falling oil prices and output triggered the first economic contraction in 25 years in 2016. Africa’s top oil producer is heavily reliant on crude, with the fuel accounting for 90 percent of foreign-currency earnings and two-thirds of government income. Without reforms to reduce its oil addiction, Nigeria risks “a lost decade” of flat economic growth, according to a January report by the Brookings Institution.

“Whoever becomes president has to make sure that these non-oil sectors of the economy that are performing well also become globally competitive so that they make up a bigger share of the export basket,” said Phumelele Mbiyo, an economist with Standard Bank Group Ltd.

A spike in food prices and pre-election spending have stoked inflation. That caused the central bank to raise its benchmark rate to a record and keep it there despite earlier calls from government to help boost economic growth by loosening policy.

Although Nigeria’s public-debt levels are among the lowest worldwide at about 21 percent of gross domestic product, according to the CIA World Factbook, weak tax collection could compromise its ability to repay future obligations.

Rising debt levels along with tighter financing conditions have lifted Nigerian bond yields, crowding out credit to private businesses as banks have bought government debt instead of giving out loans, the International Monetary Fund said in March.

Authorities have tried to shift away from domestic government borrowing by issuing almost $10 billion in Eurobonds in the last two years. However, the government needs to diversify its economy to bolster revenue in order to unlock private credit and improve corporate performance, the IMF said.

A slow recovery with little job creation has hindered poverty-reduction efforts in Nigeria, which has the world’s highest number of people living in extreme hardship, according to a separate June report by the Brookings Institution.

Jobless growth has “heightened risks of social unrest or discontent” in Nigeria, the African Development Bank said in its 2018 outlook for the continent. The country has a population of almost 200 million people.

“Unemployment will remain an issue even when the economy begins to boom, simply because of the rapid rate of population growth,” which exceeds GDP expansion, said Michael Famoroti, an economist with Lagos-based consultancy, Stears Business.

Nigeria, which the IMF expects to be the world’s third most-populous country by 2050, needs “faster growth to improve per-capita incomes and significantly reduce high unemployment and poverty,” the lender said.

In a bid to attract foreign investment, Abubakar pledged to scrap a system of multiple exchange rates introduced under Buhari, a setup which the IMF said creates distortions in the economy. But central bank Governor Godwin Emefiele, whom Abubakar says he would replace, believes a naira free float would cause capital flight.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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