A new article from The Economist covers the state of Nigeria’s economy after their recent presidential election. The country is currently facing big problems because of its heavy reliance on oil as a source of income: the government receives two-thirds of its revenues from oil and 95 percent of foreign earnings come from the resource. This has created a bad situation for the country since oil prices have fallen significantly since June. This has led to a series of other bad side effects.
One is that Nigeria’s currency has fallen 18 percent against the dollar since October. This is exceptionally damaging since the country relies heavily on imports. In response, the central bank increased interest rates to 13 percent, which is significant because it is the highest rate the country has ever seen and the chairman promised to lower interest rates just last year. This move has been criticized because of Nigeria’s high inflation rate: it is over 8 percent now and some projections see it reaching 15 percent by December.
This has also compelled foreign investors to reduce their activity in the country, which was further exacerbated by the political uncertainty due to elections. The prospect of overturned government policies reduced investor’s trust in the country’s institutions. And the country’s credit rating was recently downgraded to a B+, which likely sparked more anxiety. Another interesting point that the article brought up was that politicians may have unintentionally devalued the country’s currency: supposedly, politicians converted a lot of the local currency into dollars since it would take up less space and be less taxing to transport while on the campaign trail where they would ‘buy’ votes.
The article closes by looking at the country’s future, it will be forced to borrow more in order to compensate for lost oil revenues. Improvements to government infrastructure will also likely be halted; specifically the country’s weak electrical facilities won’t see much improvement if any. And lastly, the new president will also have to spend money on a campaign against Boko Haram that he promised before the election.