JPMorgan Chase & Co. has announced that it will fully remove Nigeria from its local currency emerging markets bond index by the end of October. Nigeria is both Africa’s largest economy and largest country by population.

 

Analysts and economists alike were bullish on Nigeria’s development throughout the last decade. In that time span, Nigeria’s economy has grown at an average pace of 6.5 percent per year. The west African country’s economic surge has been fueled by growth in agriculture, telecommunications, and oil and natural gas exports. Nigeria’s fiscal outlook has been helped by a political landscape which has become much more stable since military rule ended in 1999. Corruption is still a huge government problem; however, Nigeria is in the midst of the longest period of civilian rule in its history.

 

Nigeria economy

Nigeria’s economy had been booming but has since become more stagnant. (bloomberg.com)

The drop in global oil prices over the last two years and recent government restrictions on foreign currency trading and imports have caused concern among investors. Brent crude oil prices have dropped from over $100 a barrel in 2013 to $48.14 a barrel today. A recent report from Goldman Sachs claims that oil price could drop all the way into the $20 range. The OPEC countries, of which Nigeria is a member, have agreed not to drop oil production to ensure they hold onto their global market share. Now that economic sanctions are being lifted from Iran, even more oil will flood into the already oversupplied market. The oil and gas industry accounts for approximately 35 percent of Nigeria’s gross domestic product.

 

JP Morgan Chase cited concerns over liquidity as the primary reason for dropping Nigeria from the index. The Naira, Nigeria’s local currency, fell in value to a record low — $206 Naira to the dollar in February. The Nigerian government responded to the depreciation of their currency by restricting currency trading and imports.

 

Removal from the emerging markets bond index will have serious consequences for an economy which is already under fire. JP Morgan’s decision will cause a significant amount of foreign investment to be pulled from Nigeria.

 

Will Nigeria overcome investor skepticism? Will the new administration be able to overcome the difficult economic environment? Feel free to leave a comment or find me on Twitter @Andrew_Morse4.