The Booming Economy of Nigeria Now Facing Deep Recession


An exchange rate crisis in Nigeria was triggered by the dip in the oil prices, causing significant impact on Nigeria’s economy.

Nigeria’s economy is highly dependent on crude oil. In fact, it is the county in the world most dependent on oil to balance out its budgets. The dive in oil prices plus lockdowns threatens to tip Nigeria’s economy into the deepest recession seen in four decades.

The fall in the oil prices blew a hole in Nigeria’s budget; increased pressures on the rise in Nigeria’s exchange rate; and led to speculations wether the devalued Naira reflected its actual value.


The Central Bank of Nigeria weakened the Naira, in response to external lender pressure.

The Naira had already been killed back in 2016 and now pushed even lower against the greenback, trading at N380 and higher. Nigeria’s economy barely got to recover from the oil price collapse in 2014-2015 before the pandemic hit it.

When half of the federal revenues and almost all of Nigeria’s foreign exchange is accounted for by oil; tiny swings in oil prices can mean large swings for the economy.

The continuous pressures will most likely further push the currency further into a rut, triggering additional devaluations in 2021.

According to the report of two Bank of Africa’s analysts Andrew MacFarlane and Rukayat Yusuf: “the Naira’s fair value is estimated at N451/$, which has an implied overvaluation of 15% from the present values”.

The Consumer Price Index (CPI) inflation was accelerating to 12.8% year over year in July from 11.2% in 2019; this has been the highest level in more than two years. The baseline is for a 13.2% inflation, 3.5% recession, and a 3.9% current account deficit in the GDP in 2019.

The Central Bank of Nigeria is to remain on hold with a deficit of 6% covered by domestic issuance and foreign loans’.

After the devaluation in July 2020, confusion was sowed amongst traders as the president Buhari’s administration pledged to unify the rates to gain credits from international financial institutions to cover the wide gap in the balance of payments and the dive in oil prices.

Despite the unification, the Naira traded over N470/$ on the black market, which caused the Naira’s value to continue dropping. Analysts at Goldman Sachs estimated in September that the Naira would continue to dip to N500/$.

The Central Bank of Nigeria continues to impose bans on offshore trading, pushing the demand on the parallel markets with high rates. Imposed Import restrictions and border closures as Nigeria expected to brace for one of its worst recession decades.

There is a deepening gap between the informal and official rates, which could decrease shortages in foreign exchange, which is why the Central Bank of Nigeria is trying to curb it with multiple policies.

In march 2020 the Central Bank of Nigeria halted the sale of the dollars to the Bureau De Change in Nigeria, the Nigerian National Petroleum Commission by oil companies, and the International Oil Companies within Nigeria.

This move was to stop the sale of dollars in line with its commitment to improving the Nigerian economy’s foreign exchange supply. Deposit money banks restricted foreign currency amount on any international purchase from the Naira MasterCard; the amount was limited to $100-$3000 in any given month.

The Bank of America anticipates that the Central Bank of Nigeria will be able to maintain a 12.5% CPI for the rest of the year balancing weak economic activity with foreign exchange and inflation.

In early contractions Defensive Sectors, Consumer Staples and Utilities tend to outperform the market – while in late contraction it is Financials and Consumer Cyclicals.

With the current climate we don’t see the Nigerian market being in the late phase yet.

Boarder closings and a suffering exchange rate impacted exports and production, while weak consumer purchasing power impeded sales for most Fast Moving Consumer Goods (FMCG) companies.

Basic food supplies have on the other hand seen an increase in demand. Flour companies have done well, along particularly interesting company Nascon Allied Industries (NSE: $NASCON).

Nascon is servicing the national market with basic food goods such as salt, vegetable oil, tomato paste and seasoning – all very sought after products.

Basic goods see a surge in demand in recessions when other consumer goods turn redundant.


Any risks for bankruptcy are minimised as the company is backed by the Dangote Group.

The stock has been on a run lately, following the latest earnings report, appreciating more than 45% over the last 3-months.

Given the current circumstances in the county along with the surging of the second COVID-19 wave, it is likely that the up-warding trend will continue. A 3-6 months play, with +20% upside potential from today’s date (if we get to pass the N15.73 resistance).