Recession – Nigeria is not Venezuela

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Nigeria is not Venezuela
With the preponderance of chronic power outages, spiraling inflation, depreciation of the local currency, crumbling infrastructure and severe uptick in the prices of basic goods, Nigeria currently finds itself in somewhat similar circumstances like the oil-rich South American country.

However, the recession in Nigeria has not led to a situation where the army and police are deployed to guard food supplies because of attacks by people against food distribution trucks and warehouses. The incidence of hyperinflation in Venezuela is so severe that people have to carry backpacks stuffed with cash to the local market. The economy of the country is in the worst shape since the Second World War.

Like Nigeria where oil exports accounted for 90% of export earnings, 95% of Venezuela’s export earnings is generated from oil exports. Both economies have plunged into recession as a result of plummeting world oil prices. The economy in Venezuela has virtually collapsed.

The IMF expects the rate of inflation to exceed 700% this year. In fact, recently the President was compelled to make a controversial decision by raising prices of fuel by a whopping 6000%. Payment and shipping challenges have plagued the importation of fuel to cover collapsing local oil production activities. Minimum wage has been raised three times this year alone in a bid to keep it up with inflationary trends.

The following comparative figures indicate that the debt threshold for Nigeria is relatively low as measured by the relationship of debt to “rebased” GDP.  The argument that Nigeria could borrow out of the current recession is plausible.

However, with the high corruption index, the effective utilization of the money so borrowed is another matter. Unless the country is headed for an imminent economic collapse, the need to resort to the sale of public assets does not arise.