The fall in oil prices in 2014 shook markets around the world, but few have been hit as hard by the decline as Nigeria.
At the time, Africa’s most populous country had been enjoying several years of steady growth, with GDP expanding by around 5% annually in the five years prior. A GDP rebasing in 2013 had calculated the economy’s size at roughly twice the previous estimates, which bumped its valuation up to more than $500bn – making it the largest market on the continent.
A promising privatisation plan for the legendarily dysfunctional power sector had recently kicked off, while the country’s banks had just put the finishing touches to a clean-up programme that, among other things, brought their non-performing loan ratio down from more than 25% to less than 4%.
But the drop in barrel prices, from over $100 to under $50, highlighted just how shaky the foundations of that progress were.
The result was a prolonged recession – the country’s first in more than two decades – and a currency crisis that led to a spike in inflation. Companies, from manufacturers to airlines, were starved of foreign currency, resulting in slowing production and cancelled services, while households struggled with the sharp increase in pricing for imported staples.
However, after more than five quarters of contraction, the economy is now on the path to recovery.
The second quarter of 2017 saw it inch into positive territory, while an aggressive move to float the currency helped stablilise foreign currency reserves. Crude production, which also slowed last year, surpassed the 2m-barrel-per-day mark, the highest level since 2015.
There are a number of other signs that suggest the country’s return to growth is sustainable. Animal spirits have pushed the stock exchange’s All Share Index up by more than 40% in the 12 months to November, for example. Power reforms have opened up the domestic market of some 193m people to direct sale for cash-rich wholesale customers. And increases in staple crop production have paved the way for potential exports – a big turnaround for what was once the world’s largest importer of rice.
But you don’t have to take my word for it.
The first ever Oxford Business Group (OBG) Business Barometer: Nigeria CEO survey, which measured sentiment among more than 100 chief executives and chairpersons during the course of 2017, highlights the high degree of confidence the country’s corporates have in the current recovery.
More than four-fifths of survey respondents, for example, were positive or very positive about local business conditions for the coming year.
Equally importantly, much of that bullishness could be translated into new jobs and spending. The businesses surveyed collectively employ more than 40,000 people, with nearly three-quarters of them likely or very likely to make a significant capital investment in the coming year.
That being said, there are still plenty of hurdles to navigate. Some 75% of businesses had a low or very low level of satisfaction with local suppliers and service providers.
Of greater relevance is the fact that more than 50% of respondents said access to finance was very difficult; an additional 38% characterised it as difficult, while fewer than 10% said it was easy or very easy. This is a common obstacle across Africa, but in a market like Nigeria’s, where interest rates are in the double digits and credit to the private sector has stagnated, the ramifications are significant.
Clearly, there are still plenty of issues to tackle if Nigeria is to stoke growth to pre-2014 levels, or indeed higher.
However, the results of the inaugural OBG Business Barometer for the country point to a renewed enthusiasm among corporate decision-makers, suggesting the economy is, finally, on the first steps towards its long-overdue recovery.
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