Let’s get it out of the way: 2016 is going to be rough for Nigeria from an economic perspective. There! We’ve said it. So let us now ask, or wonder, why.
The indicators are not favourable. Our government has over the course of the last sixteen years, failed to diversify its sources of revenue, and failed to grant more freedom to the states to pursue independent economic paths. Oil, that cursed liquid, still accounts for more than 90 percent of our government’s revenue, and because so much of what happens in Nigeria depends on the federal government, that lack of flexibility in income, affects just about everything else.
This week we found that our 2016 National Budget will be pegged on the assumption that oil will sell for $38 a barrel over the course of 2016. The Budget also assumes that we will be able to meet up with a production target of 2.2 million barrels of oil a day for the entire year.
Fair enough, but we must remember that next year, Iran, which has a production capacity of 6.4 million barrels per day, will be joining the global crude market. While, I am not very sure, all the indicators point to sometime in Q1 or Q2. This entry will without a doubt drive down oil prices.
All of this brings questions about how our regulator, the Central Bank, and other government agencies can cope with the coming financial pressures, and how our states can survive. A recent report indicated that as many as 26 states are in serious financial trouble and may well be insolvent already. This, coupled with the fact that quite a few governors have already made it clear that they can no longer cope with the N18,000 ($90) minimum wage, sets up 2016 nicely as a year of industrial dispute.
Next year, the CBN will have to make tough choices regarding currency devaluation. Last week, we had the biggest gap in two decades between the official exchange rate and the parallel market rate. That the CBN failed to shut down the parallel market despite all their best efforts in 2015 speaks volumes in itself, and truthfully, at some point, the reality of shoring up an artificial value of the Naira with scarce foreign reserves will begin to bite. Other decisions that will have to be taken by the CBN will affect issues such as lending rates and capital controls. The decisions taken will have effects on how small businesses manage to cover their operating costs. A decision to continue the current currency controls will put the economy in slow motion, and will have adverse effects on the job market, a job market which will swell by a million people in Q1 as another batch of Nigerian graduates finished the compulsory one-year national service.