Country Report Nigeria Nigeria at a glance: 2005-06 OVERVIEW The president, Olusegun Obasanjo, and his administration face the tough task of unifying a nation divided by years of incessant ethnic-religious conflicts, rampant corruption, unrelenting poverty and political disenchantment. However, the administration has a 12-month window of opportunity to push through far-reaching reforms before campaigning for the 2007 elections paralyses the National Assembly. The success of the reform programme will depend on the president!s ability to garner political support for reforms which threaten powerful groups with vested interests in maintaining the current status quo. Meanwhile, the macroeconomic outlook for Nigeria will remain broadly positive. Thanks to rising oil production and a reasonably high oil price throughout the forecast period, the Economist Intelligence Unit is forecasting real GDP growth of around 4%. However, owing to the high price of oil, especially in 2005, high levels of government spending and relatively loose monetary policy, we expect inflation to remain in double digits throughout the outlook period. Key changes from last month Political outlook • There has been no major change to our political outlook. Economic policy outlook • The Central Bank of Nigeria has made a number of important revisions to its monetary policy. It will now actively intervene in the market to limit fluctuations in the exchange rate within a 3% band, although it has still to announce the central rate at which the band will be set. It has also announced that it will consider changes to its key minimum discount rate on a quarterly basis, in the light of trends in seasonally adjusted inflation, having left it unchanged since August 2003. Economic forecast • Provisional current-account data for 2004 indicate that growth in imports and services and income debts has been much higher than we previously forecast. We now estimate that Nigeria ran a current-account surplus equivalent to 3.6% of GDP in 2004. This will fall to 2.3% of GDP in 2005 as import growth continues, but more moderately, before moving into a deficit of 4.7% of GDP in 2006 as export earnings fall as the price of oil falls back. February 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 19 Economic policy 23 The domestic economy 23 Economic trends 26 Oil and gas 30 Manufacturing 30 Mining 31 Financial and other services 31 Infrastructure 33 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 24 GDP growth rates 25 Nigerian inflation, 2004 25 Average value of the naira 29 Natural gas production 33 Balance of payments 35 Foreign-exchange reserves List of figures 12 Gross domestic product 12 Consumer price inflation 23 Consumer price inflation and interest rates 26 Nigerian oil production in 2004 Country Report February 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005 Nigeria 3 Nigeria February 2005 Summary Outlook for 2005-06 The president, Olusegun Obasanjo, and his administration face the tough task of unifying a nation divided by years of incessant ethnic-religious conflicts, rampant corruption, unrelenting poverty and political disenchantment. The administration has a 12-month window of opportunity to push through far- reaching reforms before campaigning for the 2007 elections paralyses the National Assembly. The success of the reform programme will depend on the president’s ability to garner political support for reforms which threaten powerful groups with vested interests in maintaining the status quo. Meanwhile, the macroeconomic outlook for Nigeria will remain broadly positive. Thanks to rising oil production and a reasonably high oil price throughout the forecast period, the Economist Intelligence Unit forecasts real GDP growth of around 4%. The political scene The chairman of the ruling People’s Democratic Party, Audu Ogbeh, has resigned after disagreeing with Mr Obasanjo over his handling of the crisis in Anambra State. The suspended governor of Plateau State has been reinstated following the expiry of a six-month state of emergency in the state. The Court of Appeal has upheld Mr Obasanjo!s 2003 election victory, although it confirmed some allegations of ballot rigging. The government has announced plans to convene a national conference on political reform. Nigeria!s police chief has resigned amid corruption investigations. Economic policy The government has continued its high-profile campaign aimed at highlighting the progress that it has made with economic reform. A legal challenge has been mounted to the government’s attempts to limit the distribution of oil windfall earnings to individual states. The Central Bank of Nigeria has announced a more active monetary policy; it will review interest rates quarterly and plans to limit the movement of the naira within a 3% band in 2005. The domestic economy Estimates of real GDP growth for 2004 differ, but most acknowledge that non- oil growth has been robust. Oil production in the last few months of 2004 was affected by community unrest in the Delta region. A new gas project is being planned. The wave of bank mergers started in 2004 has continued in response to the increase in minimum capital requirements. Foreign trade and payments Differing data on the size of Nigeria’s current-account surplus in 2004 have brought the issue of poor statistics back into the spotlight. The government has continued with its high-profile campaign for external debt relief. Owing to high oil prices, foreign-exchange reserves had risen to US$16.9bn at the end of 2004. Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: February 11th 2005 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report February 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