Nigeria Falls into Recession as Price of Oil Shrinks the Economy

Nigeria, Africa’s largest economy, has officially entered a recession for only the first time in over 20 years as its statistics office made an announcement of more contraction during the just ended second quarter of 2016.

The Nigerian Bureau of Statistics or NBS said that the gross domestic product had shrunk 2.06% following a shrinkage of more than 0.35% during the first three months of 2016.

The NBS said that the non-oil sector dropped due to weak currency and lower oil prices pulled down that sector.

Lower crude oil prices, the mainstay of Nigeria, have hammered its public finances as well as the value of its naira currency. That in turn has caused chronic shortages in dollars. Crude sales represent close to 70% of the revenues the government receives.

Adding to the impact of oil prices being low, militant attacks on gas and oil facilities across the southern Niger hub since the beginning of 2016 has cut the production of crude by close to 700,000 barrels per a day to a current 1.55 million per day.

The budget for the government in 2016 assumed a per day barrel rate of more than 2.2 million. On Wednesday, the NBS said the annual inflation had surpassed 17.1% during July compared to June’s 16.5%, a high of over 10 years. Food inflation was up from 15.3% to 15.8%.

Sovereign dollar bonds in Nigeria fell to their lowest in over two weeks following the release of economic data by the NBS on Wednesday.

The figures released by the NBS showed that Nigeria had attracted only $647.1 million in capital during the quarter, a fall of 76% compared to the same period one year ago and down 9% from the first three months of the year.

The economy in Nigeria was in recession the last time in 1991 for less than one year. It also went through an extended recession for two years between 1982 and 1984.

The vice president’s office, which oversees the economic policy, said through a prepared statement that it expected a better outlook for the economy for the second six months of 2016 due to many challenges that the country is now facing either having eased or no longer existing.

The Niger Delta Avengers is the group that has claimed responsibility for the majority of attacks within the region that produces oil. It said Monday that hostilities had ceased.

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