Russia-Ukraine War Impacts Severely on Nigeria’s Economy
With Russia’s invasion of Ukraine in its seventh month, Nigerians are feeling a harder punch with the scarcity of energy sources, wheat and fertilizer, as well as a worsening foreign exchange scarcity.
While oil and gas exports account for 90% of Nigeria’s foreign exchange earnings, falling oil output and demographic growth mean that production is spread increasingly thinly across the population. At the same time, the West African country spends a worrying proportion of its hard currency on fuel imports, although a huge new industrial project could stem the outflows, benefitting the entire financial system. To make matters worse, the inflation rate is rising, as well as a stretch in the over N41.6 trillion debt servicing, which has exceeded revenue generation.
Nigeria, being an import-dependent country, is heavily reliant on the import of commodities priced in dollars and the recent surge in dollar’s value comes at the expense of other currencies, including Nigeria’s naira. The Russia-Ukraine war has also affected the importation of raw materials for fertilizer and other agricultural commodities, which experts said may be threatening the food security of Nigeria and other countries. The Nigeria Sovereign Investment Authority (NSIA) negotiates imports of raw fertilizer materials like potash as part of the Nigerian government’s program to develop its capacity to produce blended fertilizer.
Abuja blames current economic problems on the war in Ukraine and the pandemic, and these undoubtedly play a significant role. According to the World Bank’s report, Nigeria faces “an elevated risk of recession over the next two years, reflecting the greater potential for the geopolitical tumult, stubbornly high inflation that reduces households’ real disposable income, and central banks’ intense focus on fighting inflation first, which raises the risk of financial accidents on top of the sharp tightening of financial conditions already seen.”