Niger’s Economic Crisis: Causes, Consequences, and Prospects

Niger, a landlocked country in West Africa, is facing a severe economic crisis due to its inability to repay its external debt, which amounts to more than $500 million. The country, which is one of the poorest and least developed in the world, has been struggling with low growth, high poverty, political instability, and security challenges for decades. The recent coup d’état that ousted the democratically elected president Mohamed Bazoum and the subsequent sanctions imposed by the regional bloc ECOWAS have further worsened the situation. This article will examine the causes, consequences, and prospects of Niger’s economic crisis, and suggest some possible solutions.

Causes of the Crisis

Niger’s economic crisis has multiple and interrelated causes, which can be broadly categorized into three groups: structural, cyclical, and external.

Structural Causes

Niger’s economy suffers from structural weaknesses that limit its potential and resilience. Some of these weaknesses include:

• Low diversification and productivity: Niger’s economy is heavily dependent on agriculture, which accounts for about 40% of its GDP and employs 87% of its labor force. However, the sector is characterized by low productivity, vulnerability to climatic shocks, and limited access to markets and inputs. Niger also relies on the export of raw commodities, such as uranium, livestock, and onions, which are subject to price fluctuations and external demand. The country has a very small industrial base and a weak service sector, which offer few opportunities for value addition and job creation.

• High population growth and poverty: Niger has one of the highest population growth rates in the world, at 3.8% per year, which puts pressure on its scarce natural resources and social services. The country also has a very young population, with more than 50% under the age of 15, which poses a challenge for education, health, and employment. Niger ranks 189th out of 189 countries in the Human Development Index, with a per capita income of $614 and a poverty rate of 44.5%. The country faces high levels of malnutrition, illiteracy, maternal and child mortality, and gender inequality.

• Weak institutions and governance: Niger has a history of political instability and military coups, which have undermined its democratic development and institutional capacity. The country suffers from corruption, inefficiency, and lack of transparency in the public sector, which affect the delivery of public goods and services and the management of public finances. Niger also faces security threats from armed groups and terrorist organizations, such as Boko Haram, Islamic State in the Greater Sahara, and Al-Qaeda in the Islamic Maghreb, which operate in the region and often target Niger’s territory and population.

Cyclical Causes

Niger’s economic crisis has also been exacerbated by cyclical factors that have affected its macroeconomic performance and fiscal position. Some of these factors include:

• Low growth and inflation: Niger’s real GDP growth has been volatile and below its potential, averaging 4.7% between 2010 and 2020, compared to 6.1% for Sub-Saharan Africa. The growth has been mainly driven by public investment, especially in infrastructure and security, and by the expansion of the agricultural sector. However, the growth has not been inclusive or sustainable, as it has not translated into significant poverty reduction or diversification of the economy. Niger has also experienced high inflation, which reached 2.7% in 2018, eroding the purchasing power of the population and affecting the competitiveness of the economy.

• High fiscal deficit and debt: Niger’s fiscal deficit has widened in recent years, reaching 5.5% of GDP in 2017, due to increased spending on security, social sectors, and infrastructure, and reduced revenues from uranium exports and taxes. The fiscal deficit has been financed mainly by external borrowing, which has increased Niger’s public debt from 29.8% of GDP in 2010 to 46.8% of GDP in 2017. The debt service has also increased, absorbing about 20% of the government’s revenues in 2017. Niger has been facing difficulties in repaying its debt obligations, especially to China, which is its largest creditor and holds about 40% of its external debt. In 2023, Niger failed to repay $500 million of its debt to China, which triggered a default and a downgrade of its credit rating.

• Low external reserves and exchange rate pressures: Niger’s external reserves have declined in recent years, reaching $1.1 billion in 2017, equivalent to 3.7 months of imports, below the recommended level of 4 months. The reserves have been affected by the deterioration of the current account balance, which recorded a deficit of 16.4% of GDP in 2017, due to the decline in exports and the increase in imports. The current account deficit has been financed mainly by foreign direct investment, especially in the oil and mining sectors, and by official development assistance, which are subject to volatility and uncertainty. Niger’s exchange rate, which is pegged to the euro through the West African CFA franc, has also faced pressures from the depreciation of the euro against the US dollar and other major currencies, which has reduced Niger’s competitiveness and increased the cost of its imports and debt service.

External Causes

Niger’s economic crisis has also been influenced by external shocks and events that have affected its trade, aid, and security. Some of these shocks and events include:

• Global and regional economic slowdown: Niger’s economy has been affected by the slowdown of the global and regional economic activity, which has reduced the demand and prices for its exports, especially uranium, oil, and livestock. The COVID-19 pandemic, which started in 2020, has also had a negative impact on Niger’s economy, as it has disrupted the supply chains, trade flows, and remittances, and increased the health and social costs. The pandemic has also reduced the availability and effectiveness of the international assistance, as the donor countries have diverted their resources and attention to their own domestic challenges. The regional economic integration, which is led by the Economic Community of West African States (ECOWAS), has also been hampered by the political and security crises in some of its member countries, such as Mali, Burkina Faso, and Nigeria, which have affected the trade and investment opportunities and the free movement of people and goods.

• Climate change and environmental degradation: Niger’s economy and livelihoods have been affected by the adverse effects of climate change and environmental degradation, which have increased the frequency and intensity of droughts, floods, desertification, and land degradation. These phenomena have reduced the agricultural productivity and the availability of water and pasture, and increased the food insecurity and the vulnerability of the population. Niger is also exposed to the risk of locust infestations, which can destroy large areas of crops and vegetation, and cause severe economic and social losses. Niger has limited capacity and resources to cope with and adapt to these environmental challenges, and depends largely on the international support and cooperation.

• Coup d’état and regional sanctions: Niger’s economy and political stability have been severely affected by the coup d’état that took place on July 26, 2023, when a group of soldiers from the presidential guard arrested the president Mohamed Bazoum and dissolved the government and the parliament. The coup leaders, who called themselves the National Committee for the Restoration of Democracy and the Rule of Law, claimed that they acted to prevent further economic and security problems, and promised to organize a transition and a return to constitutional order. However, the coup was widely condemned by the international community, especially by ECOWAS, which demanded the immediate and unconditional release of the president and the restoration of the democratic institutions. ECOWAS also imposed financial and trade sanctions on Niger and the coup leaders, and threatened to use force if necessary. The sanctions have isolated Niger from its main economic and political partners, and have disrupted its trade and financial flows, as well as its access to the regional market and the common currency.

Consequences of the Crisis

Niger’s economic crisis has had serious and lasting consequences for its development and well-being. Some of these consequences include:

• Reduced growth and increased poverty: Niger’s economic crisis has reduced its growth prospects and increased its poverty levels. According to the World Bank, Niger’s real GDP growth is expected to fall to 2.3% in 2023, compared to 6.9% projected before the coup. The per capita income is also expected to decline by 1.5%, which will increase the number of extremely poor people by 700,000, bringing the total to 12 million. The crisis has also affected the sectors that are vital for the economy and the livelihoods, such as agriculture, mining, oil, and trade, and has reduced the opportunities for employment and income generation. The crisis has also increased the inequality and the social exclusion, especially for the women, the youth, and the rural population, who face multiple barriers and disadvantages.

• Deteriorated fiscal and external balances: Niger’s economic crisis has deteriorated its fiscal and external balances, and increased its debt burden and vulnerability. According to the World Bank, Niger’s fiscal deficit is expected to widen to 7.8% of GDP in 2023, compared to 5.5% projected before the coup. The public debt is also expected to increase to 54.2% of GDP in 2023, compared to 46.8% in 2017. The debt service is also expected to rise, absorbing about 25% of the government’s revenues in 2023. The external reserves are expected to decline to $0.8 billion in 2023, equivalent to 2.7 months of imports, below the critical level of 3 months. 

• Instable internal security: The economic crisis has also undermined Niger’s stability and security, which are already threatened by the presence of armed groups and terrorist organizations in the region, such as Boko Haram, Islamic State in the Greater Sahara, and Al Qaeda in the Islamic Maghreb. These groups have exploited the weak governance, poverty, and marginalization of the population, especially in the border areas with Nigeria, Mali, Burkina Faso, and Libya. They have carried out attacks on civilians, security forces, and humanitarian workers, as well as kidnappings, extortions, and trafficking. According to the Armed Conflict Location and Event Data Project, Niger recorded 1,062 violent events and 1,366 fatalities in 2020, the highest numbers since 1997.

Prospects for the crisis

The prospects for Niger’s economic recovery and development depend largely on the resolution of the political and security crisis, as well as the implementation of reforms and policies to address the structural challenges and vulnerabilities of the country. The international community, especially the African Union, ECOWAS, and the United Nations, has been mediating and facilitating dialogue between the military junta and the political parties, civil society, and other stakeholders, to restore constitutional order and democracy in Niger. The junta has announced a transition period of 18 months, during which it plans to organize a national dialogue, a constitutional referendum, and general elections.

The international community has also been providing humanitarian and development assistance to Niger, to alleviate the suffering of the affected population and support the provision of basic services and social protection. However, the assistance has been insufficient and constrained by the sanctions and the insecurity. According to the United Nations, the humanitarian response plan for Niger in 2021 requires $523.2 million, but only 11% has been funded as of February 2021.

Niger also needs to resume its cooperation and dialogue with its regional and international partners, especially the WAEMU, ECOWAS, the World Bank, and the International Monetary Fund, to restore its access to the regional and global financial markets and institutions, and to benefit from debt relief and restructuring mechanisms, such as the Heavily Indebted Poor Countries Initiative and the G20 Debt Service Suspension Initiative. Niger also needs to diversify its economy, improve its governance and institutions, enhance its human capital and social inclusion, and strengthen its resilience and adaptation to climate change and shocks.

Niger’s economic crisis is a complex and multidimensional challenge that requires a comprehensive and coordinated response from all stakeholders, at the national, regional, and international levels. Niger has the potential and the opportunity to overcome its crisis and achieve its development goals, if it can restore peace, stability, and democracy, and implement the necessary reforms and policies, with the support and solidarity of its partners.

Thanks for Reading 🙏

Connect with Author on LinkedIn 

Follow FinGlimpse on Twitter, Instagram, LinkedIn, Flipboard, WhatsApp, Telegram