The central bank responded last month by devaluing the naira and raising interest rates... Read More
At one of Nigeria’s busiest markets, Ndubuisi Benjamin Nweke complains about the toughest business environment Africa’s biggest economy has faced in years.
“Customers
are not coming the way they’re supposed to,” said the 46-year-old,
whose trade in Chinese-made fabrics at the Idumota market in the
commercial capital, Lagos, like many Nigerian importers, is being
squeezed by a plunge in the naira. “Everyone is crying for money.”
Nigeria
is being hammered on two fronts as it heads toward general elections in
February. In the face of plummeting crude prices, the central bank
devalued the naira and the government proposed budget cuts. At the same
time, Islamist militants of the Boko Haram group have stepped up attacks
in their five-year insurgency, and the security forces in Africa’s top
crude producer are struggling to stop them.
Northern Nigeria is
faring even worse than the south. Cosmetics seller Madu Masa Fantami has
witnessed a drop in business after suicide bombers killed dozens at the
Monday Market in the northeastern city of Maiduguri last month.
“Before
these two attacks we have been making a lot of sales but now the
situation worsens, sometimes we make very little,” Fantami, 35, said by
phone from Maiduguri. “People don’t come like before for fear of being
attacked by Boko Haram.”
Photographer: Spencer Platt/Getty Images
President Goodluck Jonathan's ruling People's Democratic Party will face an opposition... Read More
Election Violence
The violence will probably
intensify, with the elections in February expected to be disputed,
Brussels-based International Crisis Group said in report last month.
President
Goodluck Jonathan’s ruling People’s Democratic Party will face an
opposition led by former military dictator Muhammadu Buhari in the
tightest contest since the PDP came to power at the end of military rule
in 1999. Both Jonathan and Buhari have pledged to stop the Islamist
rebellion that’s killed more than 13,000 since 2009.
“There will
be some form of struggle for quite a number of businesses,” Adedayo
Idowu, an economist at Lagos-based Vetiva Capital Management Ltd., said
by phone. “Between the security crisis and the severe austerity going on
in the economy, because it’s not just the exchange rate, it’s also the
austerity, the sense is this is just the beginning of it.”
Finance
Minister Ngozi Okonjo-Iweala proposed an eight percent spending cut in
next year’s budget in reaction to the 45 percent decline in oil prices
this year. Nigeria, which gets about 70 percent of government revenue
and almost all of its export earnings from crude, is expecting prices to
stabilize at about $65 to $70 a barrel next year, from $60.75
currently.
Capital Outflows
The central bank responded
with the devaluation and by raising interest rates to a record 13
percent. The actions were a bid to stem capital outflows and stabilize
the currency, which has retreated 9 percent this quarter against the
dollar, the worst performer in Africa after Malawi’s kwacha.
“The
devaluation of the official exchange rate and depreciation pressures
will quickly push up import prices and lift headline inflation into
double digits in early 2015,” David Faulkner, a Johannesburg-based
sub-Saharan Africa economist at HSBC Holdings Plc, wrote in a Dec. 18
report. The inflation rate was 7.9 percent in November.
The
currency’s plunge has forced Iheoma Obibi to raise the cost of her sex
toys. Obibi, 49, increased prices this month by 9 percent to 15,300
naira ($84) for one of her best-selling vibrators sold via her Intimate
Pleasures Desires of the Heart website.
“People tell me ‘Madam,
it’s expensive, I really have to think about that,’” said Obibi, who set
up her business in 2010 after returning from the U.K. to Lagos. “The
dollar is not the same today as it will be tomorrow,” she said in an
interview at her home where a small pile of Leloi AB sex-toy boxes was
stacked next to her dining table.
‘Tight Situation’
Conditions
are similar at the opposite end of the country in northern Nigeria’s
largest city, Kano, according to Bature Abdulaziz, the head of the
Northern Businessmen Association.
“We are in a tight situation
due to Nigeria currency devaluation,” Abdulaziz, a 64-year-old textile
trader, said in an interview. “If you sell the goods at the same price
you used to sell; you are going to lose and if you increase the prices
people don’t buy.”
Next year isn’t looking any rosier for
Nigeria’s businesses. The International Monetary Fund cut it’s 2015
growth estimate for the country to 5 percent. That’s compared to an
expansion of 6.9 percent the Washington-based lender estimated for this
year, according to its most recent outlook published in October.
‘Buffers’ Low
The
country’s fiscal and external “buffers” are low and need to be rebuilt,
with the West African nation’s oil savings, the Excess Crude Account,
depleted to $3 billion from $21 billion in 2008, the IMF’s country
representative Gene Leon said a Dec. 19 statement. Nigeria also faces
domestic risks including security before the elections, he said.
Even
in the southern coastal hub of Lagos, Nweke’s fabric business is
feeling the strain of the country’s security challenges. Goods that used
to take three to four days to clear the port can now be held up by
about three weeks as authorities search for shipments bringing in
weapons and ammunition, he said.
“Things are hard,” Nweke said. “We’re still hoping that after the elections in 2015, things will be better.”
To contact the reporters on this story: Yinka Ibukun in Lagos at yibukun@bloomberg.net; Mustapha Muhammad in Kano at mmuhammad10@bloomberg.net; Chris Kay in Lagos at ckay5@bloomberg.net
To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Karl Maier, Vernon Wessels, Dulue Mbachu
