Nigeria may avert a recession: as crude price records exponential growth in months
- A 10% rise in the full year’s average crude price above the company’s current forecast of $35 per barrel would improve Nigeria’s current-account deficit by about 1.5% of gross domestic product
- Yields on Nigerian bonds maturing in 2047 fell from an all-time high of 13.2% on March 19 to 8.6% on Friday, a sign that investor concern has eased.
- The manufacturing PMI compiled by Lagos-based FBNQuest Capital fell to 43.3 in May from 45.8
- Oil accounts for over 90% of exports, a third of banking sector credit, and half of government revenues
Nigeria, like the rest of the world, has been hit by the Global Pandemic, COVID-19.
A recent IMF report expects Nigeria's GDP to drop below zero by 3.4 percentage points this year, with the country holding up to 50 million barrels of unsold crude oil by May.
While the negative impact of the coronavirus pandemic on consumers and business activity became clearer. The government was considering deep cuts given the oil glut.
A recent reportage eschews the gloomy outlook in the oil sector, as Nigeria’s oil price rebounded to the highest level in two months. The addendum highlights that Crude prices have doubled since hitting a two-decade low in April, climbing past $40 a barrel after OPEC+ cuts started taking excess supplies from the market.
What’s the impact on Nigeria’s economy?
With oil bringing in 90% of foreign exchange revenue for the continent’s largest producer, this will boost government income and dollar liquidity.
Ironically, Nigeria is among the countries accused by the production group of not fully complying with the reductions that helped push up prices in the last month.
This envisages that the activities in the oil sector fall in line with NNPC’s goal which is; stability of the national economy, stability in the crude oil market, and averting an economic meltdown.
As always, the driving force of our OPEC policy is first the stability of our national economy as well as the stability of the global economy which is heavily dependent on OPEC and its strategic partners, popularly referred to as OPEC+. Nigeria, like the rest of the world, has been hit by the Global Pandemic, COVID-19, and is prepared to join the rest of the world in making the necessary sacrifices needed to stabilize the crude oil market; and to prevent what is likely to be a major global economic meltdown. - Timipre Sylva, Honorable Minister of State for Petroleum Resources
Mahmoud Harb, a director at Fitch Ratings gives credence to an economic growth triggered by Oil Rebound in the sector.
If oil prices stabilize close to the current levels until the end of the year, it would add modest upside risks to forecasts for economic growth, public finances and international reserves, said Mahmoud Harb, a director at Fitch Ratings.
A 10% rise in the full year’s average crude price above the company’s current forecast of $35 per barrel would improve Nigeria’s current-account deficit by about 1.5% of gross domestic product.
Nigeria’s economy will shrink in the second quarter.
Yields on Nigerian bonds maturing in 2047 fell from an all-time high of 13.2% on March 19 to 8.6% on Friday, a sign that investor concern has eased. Although the West African nation has ruled out going to international bond markets this year, the cost of raising new debt will be relatively lower now if it chooses to.
Although the purchasing managers index of Stanbic IBTC Bank and IHS Markit’ rose last month, it remained below 50, suggesting the economy of Africa’s largest crude producer will shrink in the second quarter.
The central bank said last week Nigeria may avert a recession and that the drop in GDP could be less than the 3.4% projected by the International Monetary Fund but the manufacturing PMI compiled by Lagos-based FBNQuest Capital fell to 43.3 in May from 45.8 depicting a contrast of major stocks.
What is the reality on the ground?
As the country grapples to mitigate the spread of covid19, Nigeran consumers are feeling the impact of the disruption in economic activities, data released Friday by the statistics agency shows. At least 79% of respondents in a survey said their incomes have decreased since mid-March when restrictions were imposed to curb the spread of the pandemic.
More than 42% who were working before the pandemic now say they no longer do and 51% of households were forced to buy less food due to higher costs.
“The recession this year will be smaller than in advanced and many peer economies because of the limits to Nigeria’s integration within the global economy,” analysts at investment banking firm, FBNQuest wrote in a note on Friday. “For the same reason, its U-shaped recovery in 2021 is likely to disappoint. Household demand remains squeezed.”