Commodity, Currency Slump Expose Frailties Of Nigeria’s Economy | Independent Newspapers Limited
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Commodity, Currency Slump Expose Frailties Of Nigeria’s Economy

Posted: Mar 17, 2016 at 1:00 am   /   by   /   comments (0)

Kirk Leigh with Agency report

Sinking commodity prices and depreciating naira along with the country’s appetite for imported goods have conspired to expose the country’s economic frailty, according to a report cited by Arab News.

Other African countries with similar economic profile like South Africa are experiencing similar economic symptoms including rising inflation.

Inflation in Nigeria, which fell from close to 14 percent in 2010 to below 8 percent in 2014, has been gathering pace and hit 9.6 percent in January. The National Bureau of Statistics said on Tuesday that inflation rate for the month of February 2016 stands at 11.4 percent, the highest rate of inflation since 2012.

The economic malaise once again highlights the need for African economies to diversify and adopt strategies for industrialization to reduce their reliance on imports, say economists.

But they acknowledge this will be difficult in the current environment as investment is hindered by rising inflation and interest rates, as well as the power shortages that plague many areas.

“For commodities producers the situation is very clear and very negative,” said Francois Conradie, head of research at NKC African Economics.

Inflation, which many African economies had contained in recent years, is picking up pace as currencies crumble, driving up the prices of the goods they don’t produce and so need to import — the vast majority of manufactured products.

Even where central banks have introduced additional measures in an attempt to maintain stability, such as in Africa’s biggest economy Nigeria, which has introduced capital controls, inflation is picking up.

“In Nigeria’s case, a lot of importers cannot get dollars from official channels, so they get their dollars at the black-market rate which can be almost double the official rate. Their sales price reflects that,” said Conradie.

Even South Africa, the continent’s most industrialized economy which saw its rand currency lose over 30 percent in 2015, has failed to translate currency weakness into an export boon.

A fall in the value of its exports pushed its current account deficit to 5.1 percent of gross domestic product in the fourth quarter of 2015, from 4.3 percent in the third.

In Mozambique — which has vast natural gas deposits — inflation was 12.18 percent in January, the third straight month of double-digit price increases, fueled by a 30 percent depreciation in its metical currency the past 12 months.

Regional economies are in no position to use their weakening currencies to their trade advantage because they have few exports beyond their natural resources.

The hardship for households has been compounded by rising prices for food — one commodity that has defied the price fall due to drought in southern Africa.

The economic problems are growing in countries from South Africa, a major producer of minerals and precious metals, to nascent natural gas producer Mozambique and Nigeria, the continent’s top exporter of crude oil.

Angola, Africa’s third-largest economy and second-biggest crude producer, is almost completely dependent on oil, which accounts for over 90 percent of foreign exchange revenues.

It saw inflation rise to 17.34 percent in January from 14.27 percent in December. Its kwanza currency fell more than 30 percent last year.

President Jose Eduardo dos Santos last week urged “entrepreneurs” to lift domestic production of goods and food.

But it may be a case of too little, too late in a country where analysts say there has been no serious attempt at industrialization, with billions of dollars squandered on “industrial parks” where almost nothing is produced.