Nigerians feel squeeze as economy slides towards recession

President calls for patience as factories, markets and government offices are hit by downturn

Nigeria's economy is expected to contract this year for the first time in more than two decades © Bloomberg

Sani Garba, a Nigerian artisan, has not had an order to build a metal gate or door, the mainstay of his one-man business, for six months.
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He still turns up at his small, tin-roofed workshop each morning, hoping for the best. But with Nigeria in the grip of its worst economic crisis in decades, he understands the reality of the market.

“No one is building anything these days,” he says, sitting waiting for business with friends outside his shop in the northern town of Daura, birthplace of Muhammadu Buhari, Nigeria’s president.


His bleak comments are backed up at a steel rolling mill in the nearby city of Katsina, which is operating at about a quarter of its capacity because of low demand, says a manager who did not want to be named. “The government has not released funds from the budget and no one is spending money,” he says.

As oil-dependent Nigeria slides towards recession for the first time in more than two decades, the effects of the downturn are being felt across the country — in local markets, factories, government offices and among informal traders.

The International Monetary Fund last month sharply slashed its growth forecast for Africa’s largest economy, saying it would contract by 1.8 per cent this year, down from its estimate in April of 2.3 per cent growth for the year.

The slowdown was triggered by tumbling crude prices and is heaping pressure on the government of Mr Buhari, who took office 15 months ago amid huge expectations following the first democratic transition of power to an opposition candidate in Nigeria’s history.

Finance officials told his cabinet late last month that revenue for the first half of the year in Africa’s top oil producer had come in at about half the government’s projection. The shortfall suggests the government’s plan to boost the economy through increased spending on infrastructure will struggle to take off this year.

Kemi Adeosun, Nigeria’s finance minister, said that infrastructure projects would go ahead in the fourth quarter of 2016, once the country secured funding from abroad to plug the $11bn budget deficit.

The west African nation, which had been one of the continent’s star performers during the oil boom, depends on petrodollars for about 70 per cent of revenue and 90 per cent of export earnings.

“We need to put more money in the system and it needs to flow round to the critical sectors in order for things to start stabilising,” said one minister.

But he added that recent policy changes — including easing the naira’s peg to the dollar — would not yield results for at least six months.


A former government official from Katsina says that in the northern state civil servants’ salaries had consistently been paid on time since the country made the transition from military to civilian rule in 1999. But this year, in Katsina and many of the country’s other 35 states, local administrations have been delaying monthly wages.

“These are uncertain times,” the former official adds.

Foreign investors steadily lost confidence in the government’s ability to manage the declining economy during Mr Buhari’s first year in office, partly because the president backed the central bank’s insistence on maintaining the currency peg and its decision to implement foreign exchange controls that exacerbated a dollar shortage.

The central bank finally decided to allow for a more flexible exchange rate in June as it bowed to pressure from markets and investors.

But analysts and bankers continue to question the functioning of the market. The exchange rate hovered at just below N280 to the dollar for the first four weeks of the new system, but it then fell in late July and sat at N322 at the end of last week.

Analysts say that a truly free float would involve the exchange rate weakening even further for a time as the market clears pent-up demand for several billion dollars.

For now, liquidity remains thin, and manufacturers are complaining about dollar access for imports of raw materials.

Yvonne Mhango, Africa economist at Renaissance Capital, sees the apparent reluctance by the monetary authorities to move to full liberalisation as a big reason for a poor macroeconomic outlook.

“Even if they allowed the exchange rate to float, it will be a while before the sectors that are attractive for investors become appealing once again,” she adds.


A senior Nigerian banker who accompanied central bank governor Godwin Emefiele to meetings in Britain and the US to convince investors to return to the country, said: “Investors are still smarting and were not shy to say so.”

Mr Buhari has urged citizens to be patient, but that message offers little comfort to most people.

Official unemployment increased 70 per cent in the first quarter of 2016 compared with the same period the previous year, reaching 12.1 per cent.

At the same time, prices of food and other goods are soaring, with inflation reaching 16.5 per cent in June, its highest level in more than a decade.

“The difficulty is that income has dropped,” says Abdullahi, 25, who manages his family’s perfume shop in Daura. “People have less spending money. Their concern is getting food, and prices are rising.”

 The Financial Times Limited