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Oil, Boko Haram fuel Nigeria economic recession

09 November 2015, 18:10

Abuja - An executive in the banking industry has projected the weakening oil prices and the Boko Haram crisis as factors that would influence an economic recession in 2016.

Roberts Orya is Managing Director and Chief Executive Officer of the Nigerian Export – Import Bank, was corroborating forecasts by the recent forecasts by Central Bank of Nigeria (CBN).

He said the most crucial factor is oil price.

“If the price of oil falls below $40 a barrel for a stretch of time in the coming months, we would have a very serious economic crisis,” said Orya.

He highlighted critics might differ as the economy was as diversified as the rebased Gross Domestic Product (GDP) showed in 2013.

“Therein lies the unfinished work of the diversification of the Nigerian economy,” Orya said.

Also read: Regional leaders meet to discuss new Boko Haram force

“The diversification we have achieved so far is from the standpoint of a wider base of production, with some new sectors admitted into the GDP calculus for the first time in 2013. From the standpoint of government revenue, however, oil still accounts for 70 percent of total receipts and over 90 percent of external earnings.”

He said the price of oil still wields an outsized influence on overall economic fortunes of the country.

At this stage of Nigeria's economic development, low oil price will definitely depress asset values, non-oil sectors' performance and overall production.

The expert said a sharp decline in oil price will generally sap business confidence in Nigeria.

“The subsisting dependency, under our worst case scenario, would also erode liquidity and consumption. In fact, these are not just conjectures; they have been at play in recent months of lower oil prices.”

The second determining factor is located in the fact that the current weak price outlook of oil is in a loop involving weaker growth in China and weaknesses in economic data from the matured markets.

Orya said another factor was insurgency.

The insurgency, he said, might have all along been underrated because of its unconventional tactics and the need to project national security.

Therefore, the value in the resolve of President Muhammadu Buhari to end this was as possible is well-considered.

“So, defence will continue to receive a sizeable chunk of the budget until Boko Haram is thoroughly degraded. Until we achieve this success, some growth-spurring infrastructure would be alternatives forgone with high defence budgets.”

- CAJ News


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