Nigeria enters recession on low production

06 September 2016, Week 35, Issue 655

Nigeria has officially gone into recession with its economy shrinking by 2.06% year on year in the first quarter, following a reduction of 0.34% in the first quarter, according to data from the National Bureau of Statistics (NBS). Low oil prices and reduced production – largely as a result of militant activity – played a major role in this reduction. 

“The contraction in the economy was expected, albeit worse than our expectations of -1.5%” year on year, a note from Standard Bank said on August 31. The reduction, it continued, may be enough for the entire year to have negative growth. 

The oil sector performed particularly badly, shrinking by 17.48% year on year, the NBS report said. As a result, it fell to just 8.26% of total GDP, down by 1.54% year on year. Production in the quarter was put at 1.69 million bpd, from 2.11 million bpd in the first quarter and 2.05 million bpd in the second quarter of 2015. The non-oil sector also declined, but only by 0.38% year on year, the NBS said. 

According to Nigerian National Petroleum Corp. (NNPC), militancy in the Niger Delta has cut production by around 700,000 bpd. Furthermore, attacks on pipelines have also had an impact on gas supplies, which were down by around 50% in May, leading to a reduction in power generation of more than 1,500 MW. 

Inflation, meanwhile, increased to reach 17.1% in July, up from 16.5% in June, Standard Bank said. It went on to restate its prediction that headline inflation would reach 18.5% the end of the third quarter and 20% by the end of the year. This would be driven by “higher food prices, a weaker naira and higher petrol and utility prices”, the bank said. 


Bank freeze

In related news, NNPC reported nine banks to the presidency in late August for failing to remit cash from the company and Nigeria LNG (NLNG) to the Treasury Single Account (TSA). The amount involved is said to be US$2.33 billion. 

The Central Bank of Nigeria (CBN) responded by forbidding the nine banks from participating in foreign exchange transactions. The banks were: United Bank for Africa (UBA), First Bank of Nigeria (FBN), Diamond Bank, Sterling Bank, Skye Bank, Fidelity Bank, Keystone Bank, First City Monument Bank (FCMB) and Heritage Bank. The banks denied they were at fault, blaming instead a lack of dollars. 

UBA took swift action, opting to set the government’s debt to it against the amount it owed. As a result, the CBN approved the bank to return to the forex market on August 25. The CBN went on to lift the ban on the other eight on August 31.