Nigeria Economic Update
Nigeria’s Bonny light price increased by 6.1 percent from $44.17 per barrel on May 6, 2016 to $46.86 per barrel on May 13, 20161. The increase can be attributed to the ongoing production outage in Canada and supply disruption in Nigeria2. The fall in Nigeria’s supply was due to the attack on Shell oil pipeline which caused it to declare force majeure on Nigeria’s Bonny Light export, leading to a reduction in supply by an estimated 400,000 barrel per day3. In effect, the potential benefit of the Nigerian economy from the slight oil price increase has been engrossed by this shortage in supply, hence, it is imperative for the Nigerian government to address the problem of pipeline vandalism to save the economy from further loss in revenue.
The All-Share Index (ASI) and Market Capitalization appreciated by 2.88 percent and 2.92 percent respectively, between May 6, 2016 and May 13, 20164. Specifically, the ASI appreciated from 25,701.60 points to close at 26,441.03 points while Market Capitalization also appreciated from N8.84 trillion to finish at N9.099 trillion at the end of the trading week. All sectoral indices finished higher with the exception of NSE Industrial Goods Index, which declined by 1.15 percent. The appreciation seem to be associated with the passage of the 2016 National Budget and the deregulation of the downstream oil sector, which may have led to increase in the demand for oil and gas stocks5. The government needs to commence the implementation of the budget in earnest, to sustain the increased investors’ confidence.
Foreign Reserve and Foreign Exchange
The Nigerian Naira depreciated by 11.5 percent in the parallel market but remained officially stable at N197/$ in the week under review6. Precisely, the Naira depreciated from N323/$ on May 6, 2016 to N360 on May 13, 2016. The depreciation may have been triggered by the removal of fuel subsidy which led to the increase in demand for dollar, as importers of petroleum are now to source for dollar autonomously7. Foreign Reserve declined by $136 million within the week under review8. The decline in foreign reserve is consequent upon the decrease in Nigeria’s crude oil export by an estimated 400,000 barrels per day, which was due to pipeline leakages from vandalism within the period. To prevent further depreciation of the Naira, particularly in the face of dwindling foreign reserves, the monetary authority needs to ensure compliance with its various forex demand of management policies in order to reduce market speculations, especially in relation to the fuel subsidy removal.
Power sector analysis shows a decline in power generated by 15.07 percent from a peak of 3,424 mw to 2,908 mw between May 8, 2016 and May 15, 20169. The declining power supply is attributable to vandalism of pipelines and gas shortages, which has a debilitating effect on power generation. As part of the efforts by the Federal Government to improve power supply in the country, the Bank of Industry (BoI) is currently funding intervention projects to provide alternative source of energy (solar) in rural areas across the country10. Since the major problem facing power generation in the country is gas shortages, the government should make concerted efforts to combat vandalism.