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Nigeria’s Economy Shrinks For The First Time In 12 Years

Nigeria’s Economy Shrinks For The First Time In 12 Years

Nigeria’s economy, Africa’s largest, shrunk for the first time in over 12 years as low global oil prices hurt revenue for the the West African nation and affected other key sectors including manufacturing, financials and real estate.

The 0.36 percent growth contraction in the first three months of this year, compared to a 2.11 percent rise in the same period last year, has pushed the Nigerian economy closer to recession, Bloomberg reported.

The last time the country’s economy shrunk was in  2004.

Economists who were expecting the country to grow by 1.8 percent year-over-year, according to the Bloomberg consensus, are re-evaluating their projections for the year, which is likely to be the worst in more than a decade.

“It now seems that this view was too optimistic: the country is headed into a full-blown economic crisis,” said John Ashbourne, economist for Capital Economics, according to Business Insider.

African Development Bank (AfDB) has however projected a real GDP growth rate of 3.8 percent for Nigeria by the end of this year and further expects it to grow by 5 percent ion 2017, manly due to “expansionary” reforms instituted by the federal government.

The AfDB made the projections in its Africa Economic Outlook report launched during it annual meeting that opened in Lusaka, Zambia on Monday.

It said the Nigerian economy had been adversely affected by external shocks, in particular a fall in the global price of crude oil, which are slowly improving in 2016.

“Nigeria has had sluggish economic growth since the end of 2015 with the rate dropping to an estimated three per cent in December 2015, leading the authorities to adopt an expansionary 2016 budget that aims to stimulate the economy,” the bank said.

The West African nation has been facing tough financial times since last year after oil prices, its main export commodity, dropped on the international market. Export of the commodity accounts for over 70 percent of the country’s budget.

FDI Plunge

Earlier in May, Capital Economics Africa said foreign direct investment to the country had plunged 74 percent in the first quarter of this year due to foreign exchange restrictions that have made it difficult for investors to repatriate their earnings from the West African nation.

President Muhammadu Buhari has resisted suggestion, including by the International Monetary Fund, to devalue the country currency, the naira.

Nigeria is also struggling with a deteriorating security situation with frequent attacks on civilians by Islamic group Boko Haram and recently there has been a flare up of attacks in the South Eastern state of Enugu, carried out by Fulani Pastoralists from the North.

“I expect the second quarter to be even worse,” Pabina Yinkere, an analyst at Vetiva Capital Management Ltd., told Bloomberg.