Country Report August 2003 Nigeria Nigeria at a glance: 2003-04 OVERVIEW Nigeria’s re-elected president, Olusegun Obasanjo, faces a daunting task if he is to steer his disoriented country onto a path of long-term political and economic development during his second and final term in office. As a former military ruler with a strong sense of his own place in history, Mr Obasanjo may pursue controversial reforms to shake up Nigeria’s inefficient political system and stalled economy, but he is likely to come up against stiff resistance from vested interests opposed to change in this corruption-ridden, violence- prone society which is marked by deep ethnic and religious divisions, endemic poverty and growing political disillusionment. On top of this, the president may have to contend with uncertainties generated by legal challenges to his authority from opposition parties who allege that April’s presidential poll was rigged. However, assuming that the president is able to navigate Nigeria’s turbulent political waters and achieve some progress with reform, and particularly if he can harness his party’s overwhelming majority in the National Assembly, the Economist Intelligence Unit forecasts real GDP growth of 3.2% in 2003, rising to 4% in 2004. Key changes from last month Political outlook • The US president, George Bush, stopped in Nigeria as part of his tour of Africa in July. Although there is a strong basis for Nigeria to build stronger relations with the US, this also carries an element of risk for Mr Obasanjo domestically, who has already been accused of merely being a US puppet. Economic policy outlook • A compromise has been reached between the government and the Nigeria Labour Congress over the proposed increases in domestic fuel prices. The violence that accompanied the nationwide strike opposing the increases and the fact that prices will probably have to be raised again highlights the difficulty of achieving economic reform in Nigeria and the fact that any progress with reform is likely to be slow and subject to setbacks. Economic forecast • Although the 12-month rate of inflation has not moved into single digits, it has continued to trend down in 2003, reaching 10% in May. Owing to rising food and fuel prices, against a background of relatively loose fiscal and monetary policy, inflation should move up in late 2003 to average 12.9% for the year. August 2003 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. 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Nigeria 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2003-04 7 Political outlook 8 Economic policy outlook 10 Economic forecast 12 The political scene 20 Economic policy 25 The domestic economy 25 Economic trends 26 Oil and gas 29 Manufacturing 30 Financial markets 30 Infrastructure 31 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 22 Federal government finances 25 Real gross domestic product by sector 28 Performance of refineries 29 Export composition 32 Balance of payments 34 Foreign-exchange reserves List of figures 12 Gross domestic product 12 Consumer price inflation 19 Nigerian oil exports to the US 24 Good governance and anti-corruption survey results 26 Monthly oil production Country Report August 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 Nigeria 3 Summary August 2003 Outlook for 2003-04 Nigeria’s re-elected president, Olusegun Obasanjo, faces a daunting task if he is to steer his disoriented country onto a path of long-term political and economic development during his second and final term in office. As a former military ruler with a strong sense of his own place in history, Mr Obasanjo may pursue controversial reforms to shake up Nigeria’s inefficient political system and stalled economy, but he is likely to come up against stiff resistance from vested interests opposed to change in this corruption-ridden, violence-prone society which is marked by deep ethnic and religious divisions, endemic poverty and growing political disillusionment. The president may also have to contend with uncertainties generated by legal challenges to his authority from opposition parties who allege that April’s presidential poll was rigged. However, assuming that the president is able to navigate Nigeria’s turbulent political waters and achieve some progress with reform, and particularly if he can harness his party’s overwhelming majority in the National Assembly, the Economist Intelligence Unit forecasts real GDP growth of 3.2% in 2003 rising to 4% in 2004. The political scene Mr Obasanjo has been sworn in for a second term amid tight security following calls for protest by defeated opposition politicians seeking to stop his inauguration. The president has nominated a new cabinet made up mainly of new faces and high-profile technocrats. The government has set up a committee to review the role of Nigeria’s inefficient local government system. The government has said that it will dispatch two battalions to join a regional peacekeeping force going to war-torn Liberia. The US president, George Bush, visited Nigeria as part of his five-nation tour of Africa in early July. Economic policy Mr Obasanjo’s administration has started its second term in office by announcing a rash of reforms to reduce financial waste and mismanagement of limited public resources. Its decision to deregulate domestic petroleum product pricing and raise fuel prices triggered a general strike and violent protests which forced the government to cut back some of the price increases. Meanwhile, the government has been operating without a budget, raising concerns about transparency in one of Africa’s most corrupt countries. The domestic economy According to the Central Bank of Nigeria (CBN), real GDP growth in 2002 was only 3.3%, owing mainly to lower crude oil production. Nigeria’s oil production has increased as oil companies recovered losses incurred in March/April because of ethnic unrest in the oil-producing Niger Delta. The government has signed a US$3.6bn agreement with Solgas for the rehabilitation and operation of the controversial and unfinished state-owned Ajaokuta steel complex. Foreign trade and payments The CBN estimates that Nigeria’s current-account deficit narrowed to 2.9% of GDP in 2002 despite falling oil exports. The World Bank has estimated that Nigeria’s external debt was US$31.1bn at the end of 2001, virtually unchanged from the stock at the end of 2000 as a result of limited new lending. Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: August 1st 2003 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report August 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 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 to serve a four-year term National elections The legislative