Country Report Nigeria Nigeria at a glance: 2005-06 OVERVIEW The president, Olusegun Obasanjo, and his team face a daunting task in their efforts to push through long-term, sustainable economic reforms in the coming two years. However, the recent crackdown on high-level corruption seems to point to the president!s determination to use his final years in power to shake up Nigeria!s political system and this should help the reform process. Given the background of ethnic and religious divisions, widespread poverty, and powerful groups with vested interests in maintaining the current status quo, there is a risk that the reform drive, if not properly managed, could destabilise the country. Strong growth in the oil and agricultural sectors will ensure that real GDP growth remains reasonably high, at about 4%, in 2005 and 2006, but the real challenge will be improving performance in the non-oil sector, which will be a crucial part of any real attempt to reduce poverty in the country. Key changes from last month Political outlook • There have been no major changes to the Economist Intelligence Unit!s political outlook. Economic policy outlook • There have been no major changes to our economic policy outlook. Economic forecast • New external debt data for 2003 show that the proportion of Nigeria!s debt denominated in euros was much higher than previously estimated. Owing to the weakness of the US dollar against the euro since 2003, this has pushed up Nigeria!s debt stock substantially, to US$35bn at the end of 2003. Despite limited new lending, mainly from multilateral lenders, we estimate that further currency revaluations and the addition of interest arrears to the short-term debt stock will push total external debt up to US$39.5bn by the end of 2006. • We have revised our oil price forecast upwards to an average of US$46/barrel in 2005, falling back to US$40/b in 2005. As a result, we now expect that Nigeria will run a current-account surplus of 6.9% of GDP in 2005, falling to 2.3% of GDP in 2006 as export earnings fall back and imports continue to grow. Foreign-exchange reserves should also continue to be built up in 2005, to reach US$25.6bn, or nearly nine months of import cover. May 2005 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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Nigeria 1 Contents Nigeria 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2005-06 7 Political outlook 9 Economic policy outlook 10 Economic forecast 13 The political scene 21 Economic policy 25 The domestic economy 25 Economic trends 26 Oil and gas 30 Manufacturing 31 Financial and other services 32 Infrastructure 34 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 21 Government revenue 26 Inflation 27 Nigerian National Petroleum Corporation joint ventures 28 Oil-sector investment and profit repatriation 29 Government payments to Nigeria’s oil producing joint-venture companies 34 Foreign-exchange reserves 35 External debt stock List of figures 13 Gross domestic product 13 Consumer price inflation 21 Budget benchmark oil price 32 Performance of the NSE Country Report May 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005 Nigeria 3 Nigeria May 2005 Summary Outlook for 2005-06 The president, Olusegun Obasanjo, and his team face a daunting task in their efforts to push through long-term, sustainable economic reforms in the coming two years. However, the recent crackdown on high-level corruption seems to point to the president!s determination to use his final years in power to shake up Nigeria!s political system, which should help the reform process. Given the background of ethnic and religious divisions, widespread poverty, and powerful groups with vested interests in maintaining the current status quo, there is a risk that the reform drive, if not properly managed, could destabilise the country. Strong growth in oil and agriculture will ensure that real GDP growth remains reasonably high, at about 4%, in 2005 and 2006, but the real challenge will be improving performance in the non-oil sector, which will be a crucial part of any real attempt to reduce poverty in the country. The political scene Two cabinet ministers, the president of the Senate and six other legislators, as well as the former head of the police force, have been charged in a major crackdown on corruption. The state-organised National Political Reform Conference has met to discuss possible constitutional reform, but has already been beset by a number of controversies. Tensions in Delta region have remained high in the wake of a new army crackdown. Economic policy After much delay, the 2005 budget has finally been signed by the president. The government has raised domestic fuel prices without precipitating a nationwide strike; this may have been because of the new labour law which outlaws sympathy strikes. Although a new privatisation programme has been published, further delays are highly likely. The domestic economy The confusion over the real GDP growth rate in 2004 has continued. The House of Representatives has been considering a proposal to raise the tax rate on profits from deepwater offshore oilfields from 50% to 85%. The Central Bank of Nigeria has announced plans to write-off 80% of the debts owed to it by banks. The long-awaited Power Sector Reform Bill, needed for the privatisation of the energy sector, has finally been enacted Foreign trade and payments Because revenue has been boosted by high oil prices, the Central Bank has continued to build up foreign-exchange reserves; they reached US$21.5bn in March 2005. Senior Nigerian politicians have stepped up their campaign for external debt relief, while the threat of a potential default has increased. Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: May 13th 2005 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report May 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005 4 Nigeria Political structure Official name Federal Republic of Nigeria Form of state Federal republic, comprising 36 states and the Federal Capital Territory (FCT, Abuja) Legal system Based on English common law National legislature National Assembly, comprising the 109-seat Senate and the 360-seat House of Representatives; both are elected by universal suffrage for four-year terms National elections Most recent legislative election, April 12th 2003, most recent presidential election, April 19th 2003; Olusegun Obasanjo was re-elected to the presidency, while his party, the PDP, won a majority of seats in both houses of the National Assembly; he was sworn in on May 29th 2003; next national elections scheduled for 2007 Head of state President, elected by universal suffrage to serve a four-year term State government State governors and state houses of assembly National government The Federal Executive Council, which is chaired by the president; appointed June 30th 1999 Main political parties People!s Democratic Party (PDP); All Nigeria People!s Party (ANPP); Alliance for Democracy (AD); All Progressive Grand Alliance (APGA); National Democratic Party (NDP); United Nigeria People!s