Get your economics thinking hats onInternational forces driving domestic policy in Nigeria
Nigeria Prepares For Drastic Economic Changes
Nigeria is Africa's largest economy. Reuters correspondent Alexis Akwagyiram explains why President Muhammadu Buhari wants to stop pegging the country's currency to the U.S. dollar.
MICHEL MARTIN, HOST: Now some important economic news from Africa. Last week, Nigeria's President Muhammadu Buhari took the unusual step of publishing a piece in The Wall Street Journal to explain why he was taking some drastic steps to restore economic growth to his country, Africa's largest economy, which has been rocked by low oil prices and terrorist attacks.
One of President Buhari's most attention-getting steps was his decision to stop pegging the country's currency, the naira, to the U.S. dollar and to allow it to be traded on the open markets. That begins tomorrow. Over the past year, the decision to hold the currency at an artificial level has had a serious effect on Nigeria's relations with the international economy. For example, United Airlines stopped flying to Nigeria because it was too hard to collect money from ticket sales.
MARTIN: How are these steps being received?
AKWAGYIRAM: More than anything, there's a lot of shock, frankly, because Buhari has really dug his heels in on this…
[And] it's been welcomed all around, simply as being a commonsense solution to the problems that have been experienced in this country because Nigeria is going through its deepest economic crisis for decades. Beyond that, there has been a spike in attacks in the Niger Delta where the vast majority of oil in Nigeria is produced. So that's nearly halved all production in the last few months. So where's the money going to come from?
MARTIN: What do you think changed his mind?
AKWAGYIRAM: I think… the biggest thing is that he needed to fund the budget. Now, his spending plan is very ambitious. It's an expansion budget whereby he aims to stimulate other sectors - stimulate manufacturing so that he can switch Nigeria and make it more of an exporting country rather than an importing country.
Now, in order to fund that budget, the country needs to borrow. And investors were very, very wary of that peg. So investors were actually moving out - en masse out of Nigeria. As well as that, just the reliance on oil. Nigeria relies on oil for 70 percent of its national income. Now, obviously we've seen the price of oil go from about a hundred dollars per barrel in 2014 to around $40 per barrel. So already, there's a problem…
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