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Nigeria Country Risk Report Q4 2016

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

Core Views


Nigeria will endure an economic contraction in 2016 as externaland domestic challenges, exacerbated by a series of controversialmonetary and fiscal policy developments, have led to a fall in manufacturingactivity, declining oil production, a delayed implementationof an expansionary budget and reduced inflows of investment. Webelieve that the economy bottomed out in the second quarter ofthe year. However, despite some limited improvement ahead, anypositive growth over the next two quarters will not be sufficien t tooffset the poor H1, and we forecast a 0.8% real contraction thisyear as a result.In 2016, Nigeria’s current account deficit will be the widest recordedsince 1998 according to our forecasts, as the country struggleswith a slump in global oil prices exacerbated by plunging oil output.Continued pipeline attacks by the Niger Delta Avengers have ledour Oil & Gas team to sharply reduce its oil production forecasts,such that they now anticipate output of 1.70mn barrels per day (b/d)in 2016, down from our original target of 2.30mn b/d.The Central Bank of Nigeria will enact a further 200 basis pointsof hikes over the next six months in a bid to encourage a returnininternational investment. High structurally driven inflation will keepreal interest rates negative, but the tighter monetary policy will be astrong signal to investors.The next Nigerian presidential elections are not due for another threeyears, but we already find it increasingly unlikely that incumbentpresident Muhammadu Buhari will serve a second term. Whether heruns and is defeated by the candidate for a re-invigorated People’sDemocratic Party, is pushed out of the running by other membersof his All Progressives Progress over concerns over his viability asa presidential candidate, or, as rumours are already suggesting,will simply choose to not contend for the presidency once more, wedo not expect that Buhari will remain president following the 2019elections. His popularity has faded rapidly since coming to power,with an April poll putting his approval rating at just 31.7%, down fromover 60% when the poll began in December 2015.

Table Of Contents

Nigeria Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Recession-Bound In 2016...8
Nigeria will endure an economic contraction in 2016. Despite some improvement in the second half of the year, declining oil production
and manufacturing will weigh heavily on the headline growth figure.
GDP By Expenditure Outlook.. 10
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS...11
TABLE: FIXED INVESTMENT FORECASTS..11
TABLE: NET EXPORTS FORECASTS11
Structural Fiscal Position 11
Oil Price Collapse Necessitates Broader Tax Base...11
The oil price collapse means that Nigeria must broaden the tax base as it will need other sources of income if it is to maintain
expenditure without hiking up its debt burden in the coming years.
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.12
External Trade And Investment Outlook 13
Delta Attacks Will Exacerbate External Account Woes.13
Nigeria's current account deficit will bottom out in 2016 before improving only modestly in 2017. Reliance on oil exports will remain a
major structural weakness, but the launch of the Dangote refinery will see a more significant improvement in the external position from
2018 onwards.
Outlook On External Position.. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.14
TABLE: TOP 5 GOODS EXPORTS IN 2014...15
TABLE: TOP 5 GOODS IMPORTS IN 201415
Monetary Policy 16
Further Rate Hikes Will Target Return In Investment16
The Central Bank of Nigeria will enact a further 200 basis points of hikes over the next six months in a bid to encourage a return in
international investment. High structurally driven inflation will keep real interest rates negative, but the tighter monetary policy will be a
strong signal to investors.
Monetary Policy Framework 17
Currency Forecast 18
NGN: Currency Depreciation Will Resume With Limited Respite.18
The naira is poised for a sharp depreciation in the months ahead following the central bank's relaxation of monetary policy on June 20.
There will be some improvement before the year-end, but the general trend will remain on a downward trajectory given our expectation
of continued poor balance of payments dynamics.
TABLE: BMI CURRENCY FORECAST18
Chapter 2: 10-Year Forecast... 21
The Nigerian Economy To 2025.. 21
Power Sector Key For Long-Term Productivity..21
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. While we expect
some progress, we believe the authorities will not implement these reforms at the speed necessary to prevent a notable moderation in
growth over the next 10 years.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.21
Chapter 3: Political Outlook... 27
SWOT Analysis. 27
BMI Political Risk Index... 27
Domestic Politics. 28
No 2019 Victory For Buhari..28
President Muhammadu Buhari is unlikely to serve a second term following 2019 presidential elections. Battered by circumstance,
President Muhammadu Buhari's forced concessions over naira devaluation and dialogue with terrorists have weakened his position and
will have also weakened his resolve.
TABLE: POLITICAL OVERVIEW.28
Long-Term Political Outlook... 29
Inequality, Corruption And Militancy Pose Long-Term Challenges.29
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 betwe en 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
Market Size and Utilities.. 35
TABLE: SUB-SAHARAN AFRICA - MARKET SIZE AND UTILITIES RISK.36
Labour Costs 40
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE... 41
Chapter 5: BMI Global Macro Outlook... 45
Global Macro Outlook.. 45
Brexit To Hit Global Growth.45
TABLE: GLOBAL ASSUMPTIONS..45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %... 47
TABLE: MACROECONOMIC DATA and FORECASTS..49

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