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Nigeria Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views Real GDP growth in Nigeria will be weak in 2016 – we forecast a 3.1% expansion – as the naira peg and capital controls will continue to weigh on economic activity through the course of the year, exacerbating the global oil price slump's effects on the Nigerian economy. While 3.1% growth would mark an acceleration on the 2.8% recorded in 2015, it is nevertheless a downward revision from our previous forecast of 3.6%. This revision is due to delays to the planned expansionary budget and a recent data release, which has shown the extent to which businesses are being hampered by capital controls. The Nigerian government's move to secure USD6bn in loans from China signals two things: strengthening relations with the Asian giant and a reluctance to comply with the stipulations on economic policy which would likely have accompanied an loan from the IMF.

Relatedly, Nigeria will be able to further delay any devaluation to the naira, which has been controversially pegged at NGN197–199/USD since February 2015. Nigeria's current account deficit will narrow slightly in 2016 thanks to declining imports rather than any macroeconomic improvement or boost in exports. It will remain wide in 2017, but the launch of a new domestic oil refinery in 2018 will help narrow in the deficit henceforth. A surprise reversal in monetary policy by the Central Bank of Nigeria will spook rather than reassure investors. While central bank governor Godwin Emefiele has laid the blame for a slowdown in economic growth at the door of everyone but the bank, we do not expect any significant turnaround until there is some relaxation of the exchange rate peg and capital controls.

Table Of Contents

Nigeria Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Naira Peg Will Exacerbate Low Oil Impact On Growth8
The impact of low oil prices on Nigeria's economy will be exacerbated by the currency peg and delays to fiscal stimulus measures
Growth will accelerate in 2017 as oil prices pick up, capital controls are relaxed and the expansionary budget is implemented
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
China Deal Not A Silver Bullet For Macro Woes11
The Nigerian government's move to secure USD6bn in loans from China signals two things: strengthening relations with the Asian
giant and a reluctance to comply with the stipulations on economic policy which would likely have accompanied an IMF loan Relatedly,
Nigeria will be able to further delay any devaluation to the naira, which has been controversially pegged at NGN197-199/USD since
February 2015
Structural Fiscal Position 13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES13
External Trade And Investment Outlook 14
Flailing Economy, Not Exports Boost, Will Reduce Current Account Deficit 14
Nigeria's current account deficit will narrow slightly in 2016 thanks to declining imports rather than any macroeconomic improvement or
boost in exports
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE16
TABLE: TOP 5 GOODS EXPORTS IN 201416
TABLE: TOP 5 GOODS IMPORTS IN 201416
Monetary Policy 17
Policy Reversal Insufficient As Peg Still Stands17
A surprise reversal in monetary policy by the Central Bank of Nigeria will spook rather than reassure investors While central bank
governor Godwin Emefiele has laid the blame for a slowdown in economic growth at the door of everyone but the bank, we do not
expect any significant turnaround until there is some relaxation of the exchange rate peg and capital controls
Monetary Policy Framework 19
Chapter 2: 10-Year Forecast 21
The Nigerian Economy To 2025 21
Power Sector
Key For Long-Term Productivity21
The Nigerian economy faces a challenging decade ahead as it adjusts to an era of lower oil prices With a dearth of domestic productive
capacity, reforms to the power, infrastructure and oil and gas sectors in particular will be necessary if the country is to transform its
economy from an elite-driven consumption model to one driven by investment and more broad-based consumption
TABLE: LONG-TERM MACROECONOMIC FORECASTS21
Chapter 3: Political Outlook 27
SWOT Analysis 27
BMI Political Risk Index 27
Domestic Politics 28
Controversial Buhari Policies Will Weigh On Growth28
Despite his waning popularity, we do not expect any major deviation in President Muhammadu Buhari's policies over the next six
months, some of which will have negative effects on the economy
TABLE: POLITICAL OVERVIEW28
Long-Term Political Outlook 29
Inequality, Corruption And Militancy Pose Long-Term Challenges29
Muhammadu Buhari's presidential election victory in March 2015 represents a significant maturing of the country's democratic political
system Even so, stability will continue to be undermined by competition for political and economic power between various ethnic,
political and geographical groups
Chapter 4: Operational Risk 33
SWOT Analysis 33
Operational Risk Index 33
Operational Risk 34
TABLE: OPERATIONAL RISK 34
Economic Openness 35
TABLE: TOP FIVE IMPORT PRODUCTS and IMPORT PARTNERS, 2010-2014, USDMN 37
TABLE: FREE TRADE AGREEMENTS38
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES 39
Availability Of Labour 40
TABLE: SUB-SAHARAN AFRICA - AVAILABILITY OF LABOUR RISK41
TABLE: TOP 10 SOURCE COUNTRIES FOR MIGRANT WORKERS43
Chapter 5: BMI Global Macro Outlook 45
Global Macro Outlook 45
Tentative Stability, But New Risks Emerging45
TABLE: GLOBAL ASSUMPTIONS45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %47
TABLE: MACROECONOMIC DATA and FORECASTS49

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