After 25 years: Nigeria's economy shrinks for the first time for 2 MAIN reasons ~ Zeniths Blog

After 25 years: Nigeria's economy shrinks for the first time for 2 MAIN reasons

The Nigerian economy shrunk by 1.5 percent in 2016 for the first time in 25 years according to the National Bureau of Statistics on Tuesday, February 28, which is its first annual contraction in quarter of a century.

Infographic of Nigeria’s GDP

Below are two reasons for the shrinking of the economy:

1. Lower oil revenues

A major slump in price of crude oil battered the naira currency, and since crude oil sales make up two-thirds of the Nigerian government revenue, it is easy to see why the economy received a massive blow.

According to the statistics office: “This contraction reflects a difficult year for Nigeria, which included weaker inflation-induced consumption demand, an increase in pipeline vandalism, significantly reduced foreign reserves and a concomitantly weaker currency.”

Since oil production, is the main source of Nigeria revenue and production fell to 1.833 million barrels a day last year after 2.13 million bpd in 2015, partly due to militant attacks in the Niger Delta, it is easy to deduce the cause of the problem.

READ ALSO: Naira weakens to N458 per dollar at parallel market

2. Naira-Dollar exchange rate

The Nigerian economy has been running short of dollars as a result of lower foreign exchange earnings, which has weakened the local currency on the black market, where it trades far lower than the official interbank rate of 305 naira.

Although the central bank has increased dollar supply in recent days after effectively devaluing the Naira for private individuals, the currency still trades at a more-than 30 percent premium on the black market.

Meanwhile, British weekly magazine, the Economist, took a jibe at President Muhammadu Buhari’s administration, while commending Acting President Osinbajo’s action in his few weeks in office.

As President Muhammadu Buhari continues his medical vacation in the United Kingdom, there has been several reactions to how Acting President Osinbajo is handling the economy and if the Acting President might be able to get the country out of recession.

The Economist, an English-language weekly magazine-format newspaper owned by the Economist Group and edited in London, thinks President Buhari is better off on medical vacation as the country economy has seen positive changes since Osinbajo took over power.

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