Nigerian Economy Shrinks in Third Quarter

Nigerian economic expansion contracted to 2.84 percent in the third quarter, a stark contrast from 6.23-percent seen from a year before, according to Reuters. Crude prices dropped roughly 60 percent since June 2014, affecting Nigeria’s oil-based economy. The West African nation relies on oil for 70 percent of its state revenue.

Nigerian economic expansion contracted to 2.84 percent in the third quarter, a stark contrast from 6.23-percent seen from a year before, according to Reuters. Crude prices dropped roughly 60 percent since June 2014, affecting Nigeria’s oil-based economy. The West African nation relies on oil for 70 percent of its state revenue.

Nigeria is Africa’s largest economy and one of the most prominent emerging markets, which is why the nation’s struggle not only hurts people within the country but the world market as a whole. However, a new economic team may turn things around, but they face an uphill battle. The confirmation of new finance minister Kemi Adeosun and other cabinet members came this month, and many consider her a credible person who can improve the economy.

Nigeria is not only shrinking economically but also contends with rising unemployment and a weak currency, combined with diminished purchasing power. Moreover, the economy suffers from civil strife, as the government battles terrorist group Boko Haram, which has weakened the northeast economy.

President Muhammadu Buhari is under immense pressure because he promised reform and Boko Haram’s defeat. Buhari is a year into his term, with little results to display thus far. He defeated predecessor Goodluck Jonathan, a president who received criticism for failing to effectively fight Boko Haram and fix the economy. With that, Buhari did not get off to a good start, having gone over five months without an economic plan and a finance minister.

This instilled a sense of uncertainty among investors, and the government will need the help of domestic and international investors to improve infrastructure, reduce power outages and lower the unemployment rate. The Lagos Chamber of Commerce suggested that Adeosun and her team meet with investors regarding the state of the economy, including the government’s rising debt at the domestic and national levels.

In addition, the new team has to make certain assurances over government fines and regulations. For instance, MTN Group Ltd. received a fine of $5.2 billion by Nigeria’s telecommunications department for not disconnecting unregistered phone cards. Such a massive fine comprises over 20 percent of the firm’s market value, notes Bloomberg Business. The government also imposed fines on various banks, fueling allegations that officials use hefty fines to compensate for losses in the fledgling oil sector.

Regardless of the intentions behind the fines, this is something the government will have to address sooner rather than later to satisfy nervous investors. Investor confidence has already dropped in 2015, and overregulation and harsh policies will be a further detriment to Nigerian progress.