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Nigeria Country Risk Report Q1 2017

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

Core Views

Nigeria will return to growth in 2017 as oil prices rise and production picks up once more, but the recovery will be weaker than we previously anticipated. Negative investor sentiment and delays to government-supported infrastructure will keep real GDP growth far from pre-2014 levels over the course of our 10-year forecast period. We see little prospect of the NGN6.7trn budget shown to parliament by President Muhammadu Buhari in October being realised in 2017, despite the likeliness of the deficit remaining quite wide, at 2.7% of GDP according to our forecasts.

As such, the hoped-for boost to economic growth (in both the near and long term) will not be realised to the extent envisaged by the government. Nigeria's current account deficit will be equivalent to 4.2% of GDP in 2017, marking an improvement on the 6.2% we project in 2016. This will be driven by a pick-up in the oil sector, both in terms of global prices and production.

Nevertheless, this is still far from the surpluses recorded over the decade to 2013, which averaged 9.3% of GDP. We expect that pressure on the naira will be much reduced in 2017 following a projected devaluation to NGN350/USD, but the weak inward flows of foreign capital will continue to exert downward pressure on the currency, albeit to a far lesser degree than seen in 2016. Our core view remains that the Central Bank of Nigeria will enact a 200 basis points (bps) hike to the monetary policy rate at its November 2016 meeting, before improving macroeconomic conditions will enable a 200bps cut in the second half of 2017. That said, with monetary policy having been highly erratic over the past 12 months, we cannot rule out that policymakers are tempted to begin an easing cycle even earlier than we currently anticipate, with negative ramifications for Nigeria's already-weak growth.

Table Of Contents

Nigeria Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Oil-Driven Recovery Will Be Muted 8
Nigeria will return to growth in 2017 as oil prices rise and production picks up once more, but recovery will be weaker than we previously
anticipated Negative investor sentiment and delays to government -supported infrastructure will keep real GDP growth far from pre-
2014 levels over the course of our 10-year forecast period
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS 10
TABLE: PRIVATE CONSUMPTION FORECASTS 10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook11
Ambitious Spending Plans Will Not Be Realised 11
The Nigerian government will fail to fully implement a planned expansionary budget for the second year running in 2017, as we expect
that revenues will remain constrained by low oil prices while planned fund- raising will fall short of its ambitious target That said, we
believe that Nigeria's low debt profile will continue to entice investors despite the country's current economic travails
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES13
External Trade And Investment Outlook 14
Stronger Oil Sector Will Drive Current Account Recovery 14
Nigeria's current account deficit will narrow in 2017, owing primarily to a recovery in both oil prices and production Imports will be
limited by weak growth rather than import substitution, although further ahead the Dangote refinery promises to boost domestic
production
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
TABLE: TOP 5 GOODS EXPORTS 16
TABLE: TOP 5 GOODS IMPORTS16
Monetary Policy 17
Three Scenarios For Monetary Policy 17
Our core view remains that the Central Bank of Nigeria will enact a 200bps)hike to the monetary policy rate at its November 2016
meeting, before improving macroeconomic conditions will enable a 200bps cut in the second half of 2017 That said, with monetary
policy having been highly erratic over the past 12 months, we cannot rule out that policymakers are tempted to begin an easing cycle
even earlier than we currently anticipate, with negative ramifications for Nigeria's already-weak growth
Monetary Policy Framework 19
Currency Forecast 20
NGN: Further Devaluation By Year-End 20
There will be a further devaluation to the naira before the close of 2016, taking the year-end exchange rate to NGN350/USD Conditions
set by multilateral lenders will add to the existing downside pressure from declining oil revenues and a drop-off in foreign investment,
although we do not expect that the currency will sell-off to anywhere near the parallel exchange rate
TABLE: BMI CURRENCY FORECAST 20
Contents
Chapter 2: 10-Year Forecast 23
The Nigerian Economy To 2025 23
Power Sector Key For Long-Term Productivity 23
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 FORECASTS 23
Chapter 3: Political Outlook 29
SWOT Analysis 29
BMI Political Risk Index29
Domestic Politics30
Waning Support Will Limit President Buhari's Effectiveness 30
Falling popularity and increasing criticism from influential figures and close allies will limit President Muhammadu Buhari's ability to
enact the hard policy decisions needed to take Nigeria out of its present macroeconomic morass Perceived weakness could also limit
his hand in tackling the country's security problems, in both the north and the south of the country
TABLE: POLITICAL OVERVIEW 30
Long-Term Political Outlook 31
Inequality, Corruption And Militancy Pose Long-Term Challenges 31
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 35
Operational Risk 35
TABLE: OPERATIONAL RISK 35
Business Crime 36
TABLE: BUSINESS RESPONSE TO RISK 38
Government Intervention 40
TABLE: BUSINESS TAXES 40
TABLE: PERSONAL INCOME TAX 41
Chapter 5: BMI Global Macro Outlook45
Global Macro Outlook 45
Austerity Has Peaked, But Populism Is Not Yet Policy 45
TABLE: GLOBAL ASSUMPTIONS45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 47
TABLE: MACROECONOMIC DATA and FORECASTS 49

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