NIGERIAN stocks dropped, overtaking Zimbabwe as Africa’s worst performer this year, as sliding oil prices weaken the nation’s ability to defend its currency at a record low.

The Nigerian Stock Exchange’s (NSE’s) all share index fell for a 10th day on Wednesday, bringing losses this year to 13.1%, the most of 14 African gauges monitored by Bloomberg. Zimbabwe’s benchmark gauge is down 11.7%. The currency of Africa’s largest producer of oil declined a fourth day as Brent crude headed for its lowest level in five years.

Nigeria, which relies on the commodity for 80% of government revenue, has run foreign-exchange reserves to a three-month low in a bid to defend the naira, avoid raising interest rates or devaluing the currency before elections in February next year.

The NSE all share index’s 50-day moving average fell below the 200-day moving average on October 31, a technical indicator that may be bearish for the gauge.

Nigeria’s central bank "remains intent on managing the exchange-rate situation without needing to hike rates or devalue the currency", Gareth Brickman and Catherine Bennett, analysts at Johannesburg-based ETM Analytics, said. "Current trends still show the outlook to be pressuring away its room for manoeuvre."

A falling currency deters foreign investors from holding Nigerian assets, while boosting the cost of imports and threatens support for the party of President Goodluck Jonathan, who is already under pressure for failing to stem deadly attacks by Islamist militants.

The NSE all share index slid 2.3% to 35,899.05 on Wednesday, the lowest since last September, as 50 stocks retreated, four rose and 141 were unchanged.

The gauge is the world’s fifth-worst performer this year after benchmarks in Russia, Portugal, Greece and Austria. The naira fell 0.8% to 167.24/$.

"As we move forward over the coming months and oil prices move downwards or remain stable there will be a significant impact potentially on wider macro economics," Tim Newbold, regional director for West Africa at africapractice, a consultancy, said.

The central bank may eventually have to devalue the naira, "depending on the rate of the fall of the oil price", he said.

Oil has slumped into a bear market as the largest producers in the Organisation of Petroleum Exporting Countries resisted calls to cut output. Global supplies are rising, with the US pumping at the fastest pace in more than 30 years.

Nigeria is set to grow 7.2% next year, outstripping Kenya at 5.8% and SA with 2.5%, Standard Chartered forecasts.

The NSE’s main index is trading at 10.1 times future earnings, compared with 15.2 for SA’s FTSE-JSE Africa all share index and 12.5 for Kenya’s Nairobi Securities Exchange all share index. The Nigerian gauge’s 14-relative strength index is trading below the 30 level seen by some traders as overbought for a seventh day.

Nigeria is one of "the most exciting long-term structural growth stories on the continent with a population of 170-million people, and strong growth in the middle class," said Joseph Rohm, who helps manage Investec Asset Management’s Africa funds.

"As we move through the election next year, the sentiment around Nigeria will improve."