Country Report Nigeria Nigeria at a glance: 2007-08 OVERVIEW Following his election victory in April 2007, the Economist Intelligence Unit expects the country!s new president, Umaru Yar!Adua, to move to consolidate his position in power and to try to heal the divisions within his ruling People!s Democratic Party (PDP). Whether he is successful in this respect and manages to build a working relationship with the National Assembly in the coming six months will, in turn, determine the success of his first term in office. Despite the controversy over the conduct of the April elections, we expect that the opposition will achieve little in terms of challenging the result in the courts, and enthusiasm among the general population for mass protests in favour of a rerun of the polls appears to be limited. Although oil production will continue to be depressed by the ongoing political unrest in the Delta in 2007, which will depress real GDP growth to an average of 5.5% for the year, we expect oil production to pick up strongly in 2008, led by rising offshore production. Coupled with strong non-oil sector growth, this will push real GDP growth up to 7.8% in 2008. Although inflation has continued to fall sharply in early 2007, we expect that, with the high levels of liquidity in the economy owing to high world oil prices, the Central Bank of Nigeria will struggle to reduce inflation significantly and that it will average 7.2% in 2007 and 8.7% in 2008. Key changes from last month Political outlook • Mr Yar!Adua has named his cabinet and, like his predecessor, has decided to keep the vitally important energy portfolio under his own control. Economic policy outlook • A respected technocrat and former deputy governor of the Central Bank, Shamsudeen Usman, has been appointed as minister of finance, implying that the government will push ahead with a programme of economic reform broadly similar to that of the previous administration. Economic forecast • The forecast for oil prices has been subject to upward revisions. This has had a far-reaching impact on our economic forecast, including a further increase in the current-account surplus, which is now expected to reach 11.4% of GDP in 2007 (previously 9.7% of GDP) and 14.2% of GDP in 2008 (previously 10.8% of GDP). August 2007 The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. 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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 2007-08 7 Political outlook 8 Economic policy outlook 10 Economic forecast 13 The political scene 20 Economic policy 23 The domestic economy 23 Economic trends 24 Oil and gas 27 Manufacturing 28 Financial and other services 29 Infrastructure 31 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 25 Oil production 31 Balance of payments List of figures 12 Gross domestic product 12 Consumer price inflation Country Report August 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 Nigeria 3 Nigeria August 2007 Summary Outlook for 2007-08 The Economist Intelligence Unit expects the new president, Umaru Yar!Adua, to continue to consolidate his position in power. The extent to which he will be successful in this respect and able to build a working relationship with the National Assembly in the coming year will influence the success of his first term in office. With oil production continuing to be depressed by the unrest in the Delta, we expect real GDP growth of only 5.5% for 2007. However, oil production is expected to pick up strongly in 2008, led by rising offshore production. Coupled with strong non-oil sector growth, this will push real GDP growth up to 7.8% in 2008. Excess liquidity will make it difficult for the government and the Central Bank of Nigeria to control inflation, which is forecast to average 7.2% in 2007 and 8.7% in 2008. High oil prices will ensure that the current account continues to post a strong surplus, equivalent to 11.4% of GDP in 2007 and 14.2% of GDP in 2008. The political scene Mr Yar!Adua, who was elected in April!s civilian-conducted elections, was sworn in as president on May 29th. The formation of a new cabinet took almost two months as Mr Yar!Adua struggled to accommodate competing interests. The opposition parties were divided over Mr Yar!Adua!s offer to join the government. In spite of his reconciliation efforts, Mr Yar!Adua still faces legal challenges to his election victory. National strike action has forced Mr Yar!Adua to reverse a number of decisions made by the outgoing administration, including fuel price and tax increases. Kidnapping and violence has continued in the Niger Delta, despite government efforts to improve the situation. Five former state governors have been arrested for corruption. Economic policy Mr Yar!Adua has said that turning around Nigeria!s ailing economy is the priority of his administration. Shamsudeen Usman, a respected technocrat, has been appointed minister of finance, indicating a continuation of market-led reforms. The government has started to extend land property rights. The domestic economy The Central Bank has reduced the Monetary Policy Rate to 8%, from 10%, after expressing satisfaction with the macroeconomic performance in the first five months of 2007. The sale of two of Nigeria!s oil refineries has fallen through amid controversy over the deal. Oil production has fallen to its lowest level in more than four years, owing to outages caused by violence in the Niger Delta. Mr Yar!Adua has emphasised the need to solve the ongoing power crisis. Foreign trade and payments Mr Yar!Adua has said that his administration will try to resist taking on new foreign loans, in order to prevent the country from sliding back into a debt trap. The balance of payments has remained positive owing to strong oil exports. Editors: Philip Walker (editor); Pratibha Thaker (consulting editor) Editorial closing date: August 2nd 2007 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report August 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 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 and presidential election, April 21st 2007; Umaru Yar!Adua was elected to the presidency, and his party, the People!s Democratic Party, won a majority of seats in both houses of the National Assembly; he will be sworn in on May 29th 2007; state governor elections were held on April 14th; next national elections are scheduled for April 2011 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 July 26th 2007 Main political parties People!s Democratic Party (PDP); Action Congress