Nigeria at a Glance: 2001-02

COUNTRY REPORT

Nigeria At a glance: 2001-02

OVERVIEW Nigeria’s fragile new democracy will be strained by a series of unrelenting problems, including corruption and deep-rooted ethnic and religious tension. The government faces a difficult challenge in promoting national unity among a people disenchanted with the slow pace of national progress. The economy will continue to be driven by the oil sector, with the real economy still weighed down by corruption, poor infrastructure, low productivity and insufficient investment. The EIU forecasts that the rate of real GDP growth will rise gradually from 3.8% in 2000 to 4.8% in 2002. Strong oil prices should lead to large current-account surpluses in 2000 and 2001, but rising imports and lower oil prices will result in a deficit in 2002. Inflation will remain low, but gradually increase from 5% in 2000 to 9% in 2002. Key changes from last month Political outlook • There have been new outbreaks of ethnic and religious unrest. • The government has banned the Oodua People’s Congress (OPC) and other militant ethnic groups. Economic policy outlook • The government has launched a handbook entitled Obasanjo’s Economic Direction, 1999-2003. • The government has outlined its 2001 budget, based on higher oil revenue. Economic forecast • The naira is expected to slip towards the end of the year as a premium opens up between the official and parallel markets.

November 2000

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ISSN 0269-4204

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2001-02 7 Political outlook 8 Economic policy outlook 9 Economic forecast

12 The political scene

19 Economic policy

23 The domestic economy 23 Economic trends 27 Oil and gas 30 Industry 31 Agriculture 32 Financial services 33 Infrastructure and other services

33 Foreign trade and payments

List of tables

9 International assumptions summary 10 Forecast summary 25 Nigerian interbank offer rate, 2000 25 Foreign direct investment

List of figures

11 Gross domestic product 11 Naira real exchange rates 24 Interbank & parallel exchange rates, 2000 27 Nigeria’s OPEC quota 29 NNPC costs & revenue 32 Nigerian Stock Exchange, 2000

Summary

November 2000

Outlook for 2001-02 Nigeria’s fragile new democracy will be strained by a series of unrelenting problems, including corruption and deep-rooted ethnic and religious tensions. The government faces a difficult challenge in promoting national unity among a people disenchanted with the slow pace of national progress. The economy will continue to be driven by the oil sector, with the real economy still weighed down by corruption, poor infrastructure, low productivity and insufficient investment. The EIU forecasts that the rate of real GDP growth will rise gradually from 3.8% in 2000 to 4.8% in 2002. Strong oil prices should lead to large current-account surpluses in 2000 and 2001, but rising imports and lower oil prices will result in a deficit in 2002. Inflation will remain low, but gradually increase from 5% in 2000 to 9% in 2002.

The political scene More than 100 people have been killed in renewed ethnic fighting between Nigeria’s two largest ethnic groups. The introduction of sharia (Islamic law) in some northern states continues to fuel religious tension in the country, with political leaders in the predominantly Christian southern states demanding greater regional autonomy and control of economic resources. The House of Representatives has begun investigations into corruption within government agencies, but has resisted popular demand for it to investigate itself.

Economic policy The government has reiterated its commitment to economic reforms, with the reduction of poverty its top priority. It has also outlined plans to stimulate economic growth outside the energy sector, although these have not been well received. The wide-ranging privatisation programme is behind schedule, but the government is committed to pushing ahead with it.

The domestic economy Inflation has continued to fall. The naira has been relatively stable, although there has been worrying growth in the gap between exchange rates in the interbank and parallel markets. The Central Bank cut its minimum rediscount rate to lower bank lending rates. Despite an increase in its OPEC quota, Nigeria is struggling to raise oil output, partly because of continuing community unrest in the Niger Delta and underfunding of the oil sector, although the government plans to boost the budget allocation to joint-venture oil companies to US$3.5bn in 2001 from US$2.5bn in 2000.

Foreign trade and President Obasanjo has continued to press for substantial external debt relief. payments Foreign reserves are reported to have risen to US$7.27bn in June.

Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: November 1st 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

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 elected by universal suffrage to serve a four-year term

National elections February 1999 (legislative and presidential); next elections (legislative and presidential) due in February 2003; municipal elections due in 2002

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 People’s Party (APP); Alliance for Democracy (AD)

President & commander-in-chief of the armed forces Olusegun Obasanjo Vice-president Atiku Abubakar

Agriculture & rural development Hassan Adamu Aviation Kema Chikwe Commerce in Africa Mustapha Bello Communications Mohammed Arzika Culture & tourism Tonye Graham-Douglas Defence Lieutenant-General (rtd) Theophilus Yakubu Danjuma Education Tunde Adeniran Environment Sani Zango Daura FCT administration Ibrahim Bunu Finance Adamu Ciroma Foreign affairs Sule Lamido Health Tim Menakaya Industries Steven Akiga Information Jerry Gana Internal affairs Sunday Afolabi Attorney general of the federation & justice Bola Ige Labour & productivity Musa Gwadabe Police affairs Major-General (rtd) David Jemibewon Power & steel Segun Agagu Science & technology Ebitimi Banigo Solid minerals Kanu Godwin Agabi Sports Damishi Sango Transport Ojo Maduekwe Water resources Mohammadu Bello Kaliel Works & housing Tony Anenih

Central Bank governor Joseph Sanusi

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Nigeria 5

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (N bn) 2,823.9 3,233.9 3,639.1 3,978.1 a 4,317.6 GDP (US$ bn) 34.9 38.7 42.7 43.1a 41.7 Real GDP growth (%) 4.3 3.6 1.8 2.5 3.8 Consumer price inflation (av; %) 29.3 8.2 10.3 6.7 5.0 Population (m)b 101.4 103.9 106.4 109.0 111.6 Exports of goods fob (US$ m) 16,117 15,207 8,971 12,876 22,192 Imports of goods fob (US$ m) 6,438 9,501 9,211 8,588 10,692 Current-account balance (US$ m) 3,508 550 –4,244 506 6,646 Foreign-exchange reserves excl gold (US$ m) 4,076 7,222a 7,221a 5,501a 7,500 Total external debt (US$ bn) 31.4 28.5 30.3 30.1a 30.7 Debt-service ratio, paid (%) 14.2 8.0 11.6 9.5 a 6.9 Exchange rate (av) N:US$c 81.00 83.50 85.25 92.34 103.47

October 30th 2000, N109.2:US$1

Origins of gross domestic product 1997 % of total Components of gross domestic product 1998 % of total Agriculture 26.7 Private consumption 77.5 Livestock 6.1 Government consumption 10.7 Crude petroleum & gas 36.5 Gross fixed capital formation 20.0 Manufacturing 5.5 Exports of goods & services 23.3 Wholesale & retail trade 16.6 Imports of goods & services –31.7 Finance & insurance 1.3 GDP at market prices 100.0 GDP at factor cost incl others 100.0

Principal exports 1997 US$ m Principal imports 1997 US$ m Crude petroleum 14,521 Machinery & transport 2,431 Cocoa 108 Manufactured goods 2,957 Rubber 50 Chemicals 2,299 Urea-ammonia 8 Food & live animals 1,205

Main destinations of exports 1998d % of total Main origins of imports 1998d % of total US 35.3 UK 12.7 Spain 10.5 US 12.0 India 8.7 Germany 10.1 France 5.7 France 8.8 a EIU estimates. b Series based on the official census held in November 1991; the UN estimated the population in mid-1997 at 120.5m. c Autonomous rate; the official rate, applicable to selected government transactions and fixed at N21.9:US$1 in January 1995, was abolished in January 1999. d Derived from partners’ trade returns; subject to a wide margin of error.

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Output Industrial production index (1995=100) 102.5 106.5 102.7 104.5 102.1 101.3 99.3 101.5 % change, year on year –3.8 0.8 –5.0 –3.5 –4.0 –2.0 –3.3 –2.9 Prices Consumer pricesa (1995=100) 159.9 159.6 165.3 168.8 163.7 160.4 162.2 n/a % change, year on year 11.0 14.5 14.0 10.4 2.4 0.5 –1.9 n/a Petroleum spot price Bonny Light 37° (US$/barrel) 12.7 11.2 11.4 15.8 20.8 24.3 27.2 30.1 Financial indicators Exchange rateb N:US$ (av) 21.886 21.886 85.934 92.990 94.406 96.022 99.575 100.451 N:US$ (end-period) 21.886 21.886 89.550 94.406 94.406 97.950 100.120 101.700 Discount rate (end-period) 13.5 13.5 19.0 20.0 20.0 18.0 n/a n/a M1 (end-period; N bn) 322.47 333.08 467.47 449.84 437.96 400.83 487.95 n/a % change, year on year 22.1 20.4 60.8 48.3 35.8 20.3 4.4 n/a M2 (end-period; N bn) 540.43 531.42 698.08 708.18 732.97 699.73 795.53 n/a % change, year on year 23.9 23.2 46.0 42.8 35.6 31.7 14.0 n/a Stockmarket index (NSE all-share; end-period; Jan 3rd 1984=100) 5,698 5,673 5,456 5,978 4,891 5,240 5,998 6,467 % change,year on year –13.1 –11.8 –13.4 1.5 –14.2 –7.6 9.9 8.2 Sectoral trends Crude oil productionc (m barrels/day) 2.02 1.96 2.01 2.01 1.88 1.95 1.95 2.01 Foreign trade (US$ m) Exports fob 2,153 2,220 1,986 2,678 n/a n/a n/a n/a Imports cif –2,533 –2,326 –2,392 –2,979 n/a n/a n/a n/a Trade balance –380 –106 –406 –300 n/a n/a n/a n/a Foreign reservesd (US$ m) Reserves excl gold (end-period) 6,060 7,220 3,988 4,350 4,650 5,500 n/a n/a a The Nigerian government uses 12-month moving averages as its official measure of inflation. b Official exchange rate up to 4 Qtr 1998. From 1 Qtr 1999 autonomous foreign-exchange market. c Excluding condensates. d Official/EIU estimates.

Sources: IMF, International Financial Statistics; International Energy Agency, Monthly Oil Market Report; Energy Intelligence Group, Oil Market Intelligence.

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Outlook for 2001-02

Political outlook

Domestic politics Renewed ethnic fighting in October highlights the precariousness of Nigeria’s unity. With no obvious long-term solution to the underlying causes of ethnic and religious tension, the country’s fragile new democracy will remain susceptible to eruptions of sectarian unrest. The military, still unpopular and deflated, is not expected to return to power in the short term. However, if the pattern of sectarian violence that has so far marked the Fourth Republic continues, democracy’s chances of survival will be undermined in the outlook period. The president, Olusegun Obasanjo, will continue to be firmly opposed to the break-up of the republic, and will promote an inclusive style of administration without effectively addressing the divisive issues which are unlikely to be satisfactorily resolved before the next election.

During the rest of 2000 and into 2001-02, the government will need to decide how best to confront the two main causes of political tension (especially as the elections approach in 2002). One cause is the apparent insistence of some northern states on pushing ahead with the introduction of sharia (Islamic law). The other cause, and an issue which is linked to the decision of the northern states to impose sharia, is dissatisfaction with the current constitution. To date the president has sought to address the sharia issue with behind-the-scenes diplomacy, but in June 2000 the governor of Kano, Nigeria’s most populous state, announced that the state would introduce sharia in November (despite an earlier agreement that it would not do so), illustrating the failure of this approach. The president will remain unwilling to tackle the issue head on, but the Kano state example has already been followed by more northern states and the situation is now only likely to be resolved if the government takes a firm stand on the issue. Moreover, this crisis has emerged in conjunction with agitation by southern ethnic groups, who are calling for a much looser federation with local control of economic resources, and the National Assembly demanding that it lead a constitutional review. None of the mainstream political groups openly seeks the break-up of Nigeria, but there has been a distinct raising of the stakes over this issue in recent months. Though the president will maintain his opposition to any restructuring of Nigeria, he will require all his political skill if he is to forge a political compromise.

Recent disclosures of corruption among the leaders of the National Assembly are likely to diminish further the already low public confidence in elected civilian officials, and to reduce the credibility of the new civilian administration. However, the corruption scandal, and the decision to impeach the Senate president, has strengthened President Obasanjo’s reputation as “Mr Clean” and rebuild public faith in the new political system. But because corruption is so widespread in Nigeria, major changes will be required––including promoting greater openness in government, paying public servants enough to reduce the temptation to seek bribes, and generally loosening the state’s grip on the economy––to solve the problem.

Election watch The president has argued that, after 15 years of military rule, it will take time for genuine democratic institutions to emerge, and that politicians face a sharp learning curve. However, there are few indications that much learning is taking place or that democratic values are central to the party process. The weakness of the political parties—and their vulnerability to corruption and influence- peddling—augurs ill for the next electoral cycle, in 2002-03. It is possible that the parties will be able to patch-up their internal problems to contest the elections, but it is more likely that there will be a realignment of political forces, signs of which have emerged. Given the prevailing culture of indisci- pline, there is every likelihood that politicians will resort to fraud and vote- rigging to ensure they are re-elected. This may increase tension and discredit the election system, though it is not clear whether the military has the capacity, internal unity, or even the desire to intervene once more in domestic politics.

International relations Despite a pressing domestic agenda, Mr Obasanjo has spent much of his first year in office travelling abroad, and foreign relations will retain a high profile. The government is keen to play a more active role in African economic and political issues outside those related to West Africa. So far this has included leading the African campaign for debt relief, and seeking a role as a mediator in the war in the Democratic Republic of Congo and in the current problems in Zimbabwe.

Economic policy outlook

Policy trends Despite the recently agreed IMF stand-by credit of US$1bn, the administration is not expected to alter its current economic policy of cautiously liberalising Nigeria’s state-dominated economy. But the reforms recommended by the Fund will continue to shape economic policy, although even the simplest of proposals for change may easily become mired in political infighting.

Moreover, with world oil prices remaining strong, the Nigerian government is unlikely to draw on the IMF stand-by facility. Instead, its main benefit to the government is that Nigeria will now be able to work towards reaching a debt- rescheduling agreement with the Paris Club of donors. However, this is likely to be tough: Nigeria expects significant levels of debt forgiveness; whereas creditors will prefer to concentrate on debt rescheduling. Although donors will continue their pressure on the government to maintain and deepen market reforms, President Obasanjo’s enthusiasm for pushing through change will be tested as the next round of elections approaches and politicians from all parties take populist positions on controversial issues, such as the privatisation of major state enterprises, state subsidies and the rationalisation of the civil service. In the meantime, the political volatility in the country, exemplified by mounting ethnic and religious conflicts and by poverty-driven social unrest, will affect the capacity of the political system to implement tough reforms.

Fiscal policy Following the delays in passing the 2000 budget, the government is keen that the 2001 budget is much more quickly approved by the National Assembly to help kick-start the slumbering economy (outside the oil and gas sectors). This will mean pushing ahead with plans to increase government wages and increase expenditure on the social services and poverty alleviation projects.

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Despite the increase in expenditure, because of the strength of oil revenue, the deficit will fall from an estimated 7.2% of GDP in 1999 to only 0.3% of GDP in 2000. The overall thrust of fiscal policy is unlikely to change into 2001, with the deficit remaining at 0.8% of GDP, although it is forecast to expand to 2.5% of GDP in 2002 as a result of the lower oil prices and difficulties in cutting back expenditure. The government will finance the deficit mainly through the issuance of domestic Treasury bills.

Monetary policy As a result of the sharp fall in inflation in 1999, the Central Bank of Nigeria began to loosen monetary policy in the first half of 2000. By June the impact of the changes was beginning to be felt, and with the government injecting a large amount of funds into the financial system—having passed the budget—a situation of excess liquidity drastically pushed down the interbank interest rates and led to a drop in the exchange rate. By August monetary policy had been tightened again and the exchange rate had recovered, but the rest of 2000 and early 2001 will prove to be a testing time for the Central Bank, which will need to maintain a tight policy in order to establish its credibility and ensure that inflation does not pick up quickly in 2001-02, while contending with growing domestic criticism of high interest rates.

Economic forecast

International assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.5 4.9 4.2 4.1 OECD 2.9 4.1 3.1 2.7 EU 2.3 3.4 3.0 2.6 Exchange rates (av) ¥:US$ 113.9 106.7 104.0 102.0 US$:¤ 1.07 0.93 0.95 1.05 US$:SDR 1.37 1.30 1.29 1.35 Financial indicators ¥ 2-month private bill rate 0.27 0.23 0.43 0.98 US$ 3-month commercial paper rate 5.18 6.40 6.55 5.25 Commodity prices Oil (Brent; US$/b) 17.9 29.1 25.4 19.1 Gold (US$/troy oz) 278.8 283.2 275.0 270.0 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 4.2 10.1 Industrial raw materials (% change in US$ terms) –4.3 14.9 8.7 2.3

Note. Regional aggregate GDP growth rates weighted using purchasing power parity (PPP) rates.

International assumptions The world economy is in increasingly good shape; US growth is holding up well, growth in Europe is starting to pick up, and growth in Asia is moving ahead rapidly. World GDP growth is estimated at 4.2% in 2000 (at market exchange rates), but is forecast to drop to 3.4% in 2001 as US growth falls back—although the pick-up in other regions will help to offset this decline.

OPEC’s success in curbing oil supply growth in late 1999 and early 2000 combined with the upturn in the world economy, which increased demand while stocks have remained low, pushed oil prices sharply higher in 2000: the price of Brent crude is now forecast to average US$29.1/barrel. However, OPEC’s recent agreement to boost supply should help to ease prices, which are forecast to fall to an average of US$25.4/b in 2001 and US$19.1/b in 2002.

Forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 2.5 3.8 4.0 4.8 Gross agricultural growth 4.8 4.0 3.5 4.5 Consumer price inflation Average 6.7 5.0 7.5 9.0 Year-end 5.8 6.3 8.3 9.0 Short-term interbank rate 20.3 16.0 18.5 20.0 Government balance (% of GDP) –7.2 –0.3 –0.8 –2.5 Exports of goods fob (US$ bn) 12.9 22.2 20.6 17.2 Imports of goods fob (US$ bn) 8.6 10.7 13.2 14.3 Current-account balance (US$ bn) 0.5 6.6 3.0 –1.4 % of GDP 1.2 15.9 7.4 –3.3 External debt (year-end; US$ bn) 30.1b 30.7 31.2 31.6 Exchange rates N:US$ (av) 92.34 103.47 121.33 133.50 N:¥100 (av) 81.06 97.03 117.31 132.35 N:¤ (year-end) 98.40 95.23 127.26 152.60 N:SDR (year-end) 134.44 133.96 167.76 192.88

a Actual. b EIU estimates. c EIU forecasts.

Economic growth Real GDP growth in Nigeria in 1999 was 2.5%, compared with only 1.8% in 1998, and this upward trend will be maintained in the outlook period, with real GDP growth forecast to reach 3.8% in 2000, 4% in 2001 and 4.8% in 2002. The pick-up in growth will be led by a turnaround in the industrial sector, which in turn reflects the improvement in the energy sector. Initially, the improved industrial performance will be the result of increased gas production and exports from the new liquefied natural gas export terminal at Bonny Island, but from 2000 offshore oil production will increasingly drive investment and economic growth. In addition, buoyant government oil and gas revenue will lead in 2000-01 to a steady increase in private consumption— especially following increases in government wages—and government consumption. This will be supported by steady growth in agricultural output, led by food crop production.

Real GDP growth rates of 4-5% a year are reasonable for a developing country, but this will not lead to a marked rise in GDP per head while the population is growing at 2-3%. Growth in Nigeria will be driven mainly by developments in the energy and government sectors, and therefore will not reach rates high enough to create jobs or reduce poverty significantly, the two most pressing issues that the government needs to address. This would require real GDP growth of 8-10%, driven by a similar rate of increase in the agricultural sector.

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Inflation Helped by stable food prices, the government will manage to keep inflation in single digits in 2000 and come close to meeting its stated target of 5.1%—we are forecasting a rate of 5%. Although inflation was on a downward trend in the first five months of 2000, in June there was a sharp rise in the year-on-year rate, to 5.9%, and we expect it to increase in the second half of the year and into 2001-02, as a result of the recent loosening of monetary policy and the fact that the government appears set to increase its spending, which will significantly boost domestic demand. The increase in domestic demand should also push up imports which, combined with a fall in the exchange rate, will exert further upward pressure on prices.

Exchange rates The government and monetary authorities have stated that they are aiming for a stable exchange rate and, unlike past regimes, the present government seems prepared to allow the naira to depreciate. However, there are strong vested interests in Nigeria opposed to a fall in the value of the naira, and this may delay the move to a fully floating rate for some time. The naira has already slipped in 2000, especially in July when it fell to a closing low of N114.6:US$1, but it has since recovered and we expect it to average N103.5:US$1 for the year and end the year at N110.5:US$1. A significant gap, of around 10%, had opened up between the interbank foreign-exchange market and the parallel market rates by September 2000, which the Central Bank is concerned about. With the market likely to be further opened up to a wider range of participants in early 2001, and foreign-exchange inflow rates falling because of lower oil prices, we are forecasting that the naira will fall to an average of N121.3:US$1 in 2001 and N133.50:US$1 in 2002.

External sector The recovery of oil prices in the second half of 1999, combined with the start of gas exports, led to a sharp improvement in export earnings during the year. This occurred against a background of political change and a slowdown in government expenditure which depressed imports. As a result, recent current- account data from the IMF show that Nigeria ran a current-account surplus of US$506m in 1999, or 1.2% of GDP. Although imports are expected to pick up substantially in 2000, the increase will not be as rapid as that in exports, which are forecast to rise from US$12.9bn in 1999 to US$22.2bn in 2000 on the back of the strong oil price. This will push the current account into a large surplus,

estimated at 15.9% of GDP. However, in 2001, with oil exports falling back marginally and imports continuing to grow, the surplus will fall to 7.4% of GDP. With this trend picking up in 2002, the current account is then forecast to move into a small deficit of 3.3% of GDP.

Changes in the current account are largely driven by developments in the trade account, so it takes a sharp rise in oil and gas exports, such as occurred in 2000, to offset the perennial deficits in Nigeria’s services and income account. With rising oil prices and production, the large debit on the income account tends to increase as oil company earnings increase. There has been a modest increase in the flow of official multilateral and bilateral credit and aid into Nigeria following the return of civilian rule, but we expect the levels of assistance to remain relatively low until donors are confident that reforms will be implemented.

The political scene

Independence anniversary On October 1st Nigeria marked its 40th anniversary of independence, with the marked in pensive mood nation more divided and uncertain about its future than it was when Britain relinquished control in 1960. After eight military regimes, two civilian republics and a short-lived interim government, Nigerians are still unsure whether their third attempt at democracy will last and produce the political stability and material prosperity that has eluded them since independence. In his Independence Day broadcast, President Olusegun Obasanjo painted a bleak picture of the general situation in Africa’s most populous nation and expressed a disappointment shared by most Nigerians about the failure to realise the country’s immense potential. “I foresaw Nigeria as a great industrial giant,” he said, but he lamented that instead the country exports little besides crude oil and had “turned into a paradise for smugglers, commission agents and dream markets for manufacturers of junk and fake goods from overseas”. Moreover, it was perceived as the most corrupt country on earth––a nation that conjures up images of “chaos and confusion, military coups and instability, corruption … violation of human rights, drug-trafficking, and business frauds”.

Mr Obasanjo, a commander in the federal forces during the 1967-70 civil war, stressed the importance of maintaining Nigeria’s threatened union and vowed his readiness to fight once again for national unity. However, the difficulty facing the country in mending the deep rifts between its competing ethnic regions was illustrated by the conspicuous absence of former heads of state from northern Nigeria at the official Independence Day celebration in Abuja, which were attended by many dignitaries, including Mr Obasanjo’s Yoruba kinsman and former interim head of state, Ernest Shonekan, as well as several African presidents. Newspapers speculated that the northern ex-leaders boycotted the Independence Day celebration in protest at provocative comments made by some Yoruba leaders, that voters should be compelled to carry national identity cards in the next elections to combat vote-rigging in the north. Northern leaders have also been bitter at what they see as the systematic marginalisation of the north by President Obasanjo, who owes his presidential

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election victory to the backing of the northern ruling class which has traditionally dominated government in Nigeria.

More than 100 are killed in The animosity between Yorubas and Hausa-Fulanis, the dominant ethnic group ethnic clashes in Lagos in the north, exploded in Nigeria’s commercial capital, Lagos, in October in a resurgence of ferocious clashes between members of Nigeria’s two largest ethnic groups. More than 100 people, mostly Hausa-Fulanis, were killed in the fighting, which began on October 15th when members of the Yoruba nationalist extremist group, Oodua People’s Congress (OPC), pursuing suspected criminals attacked a settlement populated by Hausa-Fulanis. Thousands of Hausa-Fulanis fled their homes and sought refuge at police and army barracks in predominantly Yoruba Lagos. It took the deployment of the army on to the streets of Lagos to end three days of violence. The bloodbath in Lagos stirred increased ethnic tensions in the country, particularly in northern Nigeria where people braced themselves for retaliatory attacks against Yorubas or southerners in general. The authorities in Minna, capital of Niger state, imposed a dusk-to-dawn curfew after an outbreak of rioting on October 19th. The mayhem in Lagos, the latest of a series of clashes between Yorubas and Hausa-Fulanis in the south-western region, highlighted the fragility of Nigeria’s unity. “The nation is no doubt sliding fast into a state of anarchy,” said a front- page editorial on October 19th in the majority-state-owned Daily Times. The paper called on the government to “wake up from its slumber” and move decisively against violent militia groups. On the same day, the Senate unanimously passed a resolution empowering President Obasanjo to declare a state of emergency in Lagos.

The government bans militant ethnic groups

On October 18th the government announced a ban on the Oodua People’s Congress (OPC) and other similar militant ethnic groups. Hundreds of suspected members of the OPC were arrested, including the group’s leader Frederick Fasheun, who was charged with murder. This was not the first time that President Obasanjo has banned militant ethnic groups and ordered a clampdown against them, but earlier proscriptions had little effect against groups that have openly challenged the authority of Nigeria’s weak state. The OPC, formed in 1995 to defend the interests of the Yoruba people, has been blamed for a large number of gruesome vigilante killings of suspected robbers in Lagos and other crime-infested urban areas in the south-west, where it has assumed the role of the police. The OPC and other militant ethnic groups, including the Bakassi Boys in the south-east, Egbesu in the Niger Delta and the Arewa People’s Congress (APC) in the north, are popular among ordinary people who see them as the protectors of ethnic and regional interests. The Obasanjo administration’s attempt to curb their activities has also been undermined by the support given to the groups by mainstream politicians and organisations.

Row over sharia continues Alongside, and related to, the ethnic troubles, has been the religious tension to fuel religious tension generated by the introduction of sharia (Islamic law) in predominantly Muslim northern Nigeria (August 2000, page 13). In early September, at least 10 people were killed in clashes between Muslims and Christians in Gombe state over

proposals to introduce sharia there. However, in what was seen as a concession to Christian opposition, in early October the governor of Kaduna state, Ahmed Makarfi, announced a modified version of the Islamic legal code to operate alongside customary courts, with no system favoured by the state. Hundreds of people died in religious and ethnic fighting in Kaduna in February and May over plans to adopt sharia in the state, which has a large Christian minority. The dispute over sharia, which has cost well over 1,000 lives in one year, has proved problematic for President Obasanjo, himself a practising Christian. Both sides of the divide claim the moral high-ground: Christians contend that sharia, which prescribes the amputation of limbs and flogging for offenders, violates Nigeria’s secular constitution and decent behaviour, while Muslims defend their religious right to uphold the Koran-based law. Christian leaders say that non-Muslims living in sharia-practising states have been negatively affected by the introduction of the Islamic code, contrary to the assurances of state governments that the changes would not affect non-Muslims. The adoption of sharia has been accompanied by local laws that impose strict constraints on citizens, including the prohibition of alcohol, prostitution and gambling as well as the separation of the sexes, which has accentuated the cultural divide between Nigeria’s north and south. Though the federal constitution is supposedly secular, it permits Islamic courts for personal matters, an ambiguity which is exploited by the advocates of sharia. In mid- September the Catholic Bishops Conference of Nigeria asked the government to make the constitution truly secular by removing this provision.

Politicians assume Religious tension in Nigeria is potentially destabilising not simply because of a regional stance religious differences, but mainly because of the ethnic and regional divisions behind them. National politics is largely shaped by the pursuit of sectional interests, with few strong voices pushing a national agenda. In the north, the Arewa Consultative Forum, which includes prominent northern politicians, continues to complain of the growing marginalisation of their states following the shift of power to the south in May 1999. It has also been reported that senior politicians and opinion leaders from the 19 northern states under the aegis of the Northern Forum, led by a former head of state, General Yakubu Gowon, have began moves to form a political party to fight the ruling People’s Democratic Party (PDP) in the 2003 presidential election.

Rising fears of a restoration of northern political domination has worried southerners, and on October 10th the elected governors of Nigeria’s 17 southern states met in Lagos for the first time as a group to discuss issues of common interest. They agreed jointly to fight for a new revenue allocation arrangement that would increase the control of resources by the constituent units of the federation and their autonomy, and stated a common opposition to the adoption of sharia by some northern states. The governors of Nigeria’s six southern oil-producing states had, in a separate meeting, demanded that states assume control of natural resources in their areas and only contribute tax to the federal government. The north, Nigeria’s least developed region, is unlikely to agree to such devolution of control over economic resources.

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Political violence is rising There is concern in certain circles that, as civilian politics becomes increasingly fractious and uncompromising, as happened during past democracies, politicians will employ vigilante groups as private armies. In mid-September, the former inspector-general of Police, Ibrahim Coomassie, warned state governments against using vigilante groups, saying that they could become tools for oppressing opponents during political campaigns. There have already been signs that political violence may increase as Nigeria approaches new elections in 2002-03. In early September, several people were arrested in Zamfara state after clashes between supporters of the All People’s Party (APP), the ruling party in the state, and the national ruling People’s Democratic Party, which required paramilitary police to patrol the streets of Gusau, the state capital. In mid-September at least five people died and several were wounded when rival groups in the PDP clashed in Ekiti state, in the south-west. News- papers reported that guns, machetes and other weapons were used in fighting which was triggered by a contest for the leadership of the party in the state.

Relations are tense between The process of government remains constrained by the poor relations between president and parliament the federal executive and legislature, both PDP controlled. In mid-August President Obasanjo accused the National Assembly of failing to perform its lawmaking role and spending too much time in awarding contracts. This criticism, in a speech at the opening of a House of Representatives’ seminar on ways to improve the relationship between the executive and the legislature, did little to bring the two arms of government together and appeared to set President Obasanjo in conflict with the new Senate president, Pius Anyim. The latter told Mr Obasanjo to stop ridiculing the legislature, but some observers saw Mr Anyim’s rebuff as designed to dispel the notion that he was a stooge of the executive, which was believed to have backed him to replace for Chuba Okadigbo who had been at loggerheads with the president. Despite Mr Obasanjo’s denials, many legislators believe the president was behind the fall of Mr Okadigbo and was also gunning for the speaker of the House of Representatives, Ghali Umar Na’Abba. Legislators have also accused the president, a former military ruler, of being arrogant and dictatorial, as well as seeking a rubber-stamp parliament and failing to consult lawmakers and his party on key issues.

Parliamentarians refuse to Some parliamentarians have used the rivalry between the executive and the be questioned by the police legislature to try to obscure official efforts to investigate and expose corruption and abuse of power in parliament. In October both the Senate and the House of Representatives declined a police invitation to their leadership to answer questions about corruption in the National Assembly. The police sought to question more than 60 senior legislators, including Mr Okadigbo, Mr Anyim and Mr Na’Abba, following a petition from a senator, Arthur Nzeribe, for the police to investigate those indicted in the Senate contracts investigation. The embattled speaker of the lower house, Mr Na’Abba, who was accused by the Senate panel of corruption and abuse of office, has also resisted calls for a full internal investigation of the House. However, such an investigation may be forced upon him: in late October the Nigeria Labour Congress and the National Association of Nigerian Students separately warned the House of

Representative to carry out its own investigation or submit itself to police investigation or face organised mass protest.

Legislators counter-accuse In what was widely seen as a counter-offensive against the executive, legislators the government have made accusations against the government. In late August the House of Representatives began to investigate an alleged extra-budgetary allocation of N2.9bn (US$28.4m) for the purchase of residential houses for ministers and members of the executive. An explanation by the minister of state for finance, Jubril Martins Kuye, that the money though approved was not released, did not stop the house setting up an investigating committee. In early September the House formed another committee to investigate the import and export of oil and petroleum products by the Nigerian National Petroleum Corporation (NNPC). Members of the House accused the executive of subjecting the oil sector to the same lack of transparency and accountability as past military governments. Oil industry experts believe that an investigation of Nigeria’s notoriously shady state oil sector will unearth damaging allegations which could bring down a number of politicians.

On September 6th, in a further attempt to shift public attention to the government’s finances, the House of Representatives adopted a motion calling on the finance minister to release money to the cash-strapped office of the auditor-general to enable him begin an audit of the government’s accounts–– legislators accused the administration of deliberately starving the auditor- general of funds. However, government ministers argued that the administration was not afraid to have its finances scrutinised, saying that it was no secret that Nigerian government accounts had been in a poor state for many years. On October 5th the vice-president, Atiku Abubakar, said that Nigeria’s accounts had not been audited for 20 years. “Financial accountability is completely absent in the public sector,” he told a meeting of the Institute of Chartered Accounts of Nigeria, adding that the present administration was trying to put in place a system of public-sector accountability.

Nigeria is ranked as the President Obasanjo’s administration may have seemed unshaken by the moves most corrupt country of the legislature, but it was certainly embarrassed by the latest annual report of the Berlin-based Transparency International (TI) which ranked Nigeria as the most corrupt country in the world. The survey, based on the perception of business people and analysts, ranked Nigeria bottom of 90 countries covered, compared with 98th out of 99 nations in last year’s survey. The lower ranking, and fall in Nigeria’s score, from 1.6 to 1.2, suggested a deterioration of conditions in the country despite the transition from military rule to democracy, although TI did note that President Obasanjo, a co-founder of the organisation, had taken significant steps to combat corruption in Nigeria.

The apparent lack of success of the administration’s anti-corruption campaign is partly due to the slow pace of implementing reform. President Obasanjo inaugurated the anti-corruption commission, which is meant to spearhead its drive against corruption, only in late September. The 10-member commission, headed by a retired judge, Mustapha Akanbi, will implement the Anti- Corruption Practices and Other Related Offences Act of 2000, which wassigned into law last June, a year after the president submitted the bill to the National

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Assembly. The commission has sweeping powers to investigate individuals and organisations suspected of corrupt practices, but non-government anti- corruption groups doubt whether the government has the will to apply the new law to influential senior officials who live beyond their legitimate means. The administration’s anti-corruption crusade has been most evident in high- profile efforts to retrieve hundreds of millions of dollars siphoned off into foreign banks by the reviled late military ruler, General Sani Abacha, and in its legal prosecution of members of his family. But human rights activists accused Mr Obasanjo of concentrating on easy targets while leaving untouched other past leaders who are widely believed to have been as corrupt as Abacha.

London banks implicated In late October the government was reported to have accused London banks of in Abacha’s corruption involvement in money laundering by General Abacha. Private investigators employed by President Obasanjo were said to have named 15 London banks that handled some of the estimated US$4bn looted from Nigeria during General Abacha’s four-and-a-half-year rule. The UK government was asked to help trace the money deposited in London, but failed to respond more than four months after the request was made. This was in contrast to the co- operation received from some other Western countries, including Switzerland, Luxembourg and Liechtenstein, which have frozen accounts connected with General Abacha and his family. The regulator of the UK’s financial markets, the Financial Services Authority, announced on October 24th that it was investigating the role played by London banks in handling money for Abacha to determine whether they complied with money-laundering controls and whether they took sufficient steps to identify the origin of the funds.

The air force retires Although Nigeria’s coup-prone military seems at ease with the country’s new antidemocratic officers democracy after relinquishing power last year, there remains concern in civil society that ambitious soldiers might decide to exploit the instability in the republic to stage a comeback. On September 13th the chief of air staff, Isaac Alpha, announced that 10 air force officers had recently been retired because of disloyalty, sabotage, misappropriation and other acts contrary to democratic ideals. It was unclear what the officers had done, but reports of the forced retirements fuelled public anxiety about the future of Nigeria’s fragile democracy. In late August the Nigeria Labour Congress (NLC) urged the military to stay in barracks and not attempt to use the Senate corruption scandal as a pretext for intervention, adding that workers were prepared to defend democracy despite its flaws. President Obasanjo has also stressed that his differences with the legislature are a normal feature of democracy and should not be used by anyone to destabilise democracy.

Nigeria and India differ over Nigeria has remained a key player in efforts to maintain peace and stability in peacekeeping in Sierra Leone West Africa. However, a row between Nigeria’s contingent to the United Nations peacekeeping force in Sierra Leone (Unamsil) and its Indian commander, Major-General Vijay Jetley, threatened to undermine international efforts to end the civil war there. The row led to an announcement by India in October that it was withdrawing its contingent from Unamsil. Nigeria, with the largest contingent in Unamsil, had campaigned for General Jetley’s removal, accusing him of incompetence, and

sought his replacement by a Nigerian general. In a leaked confidential UN report, supposedly written by General Jetley, Nigerian officials were accused of plotting to force him out as the UN commander and of undermining the peace effort in order to prolong their illegal trading in diamonds from rebel-held areas of Sierra Leone. The report alleged that Nigerian officers maintained close contacts with the rebel Revolutionary United Front.

The Nigerian military denied the accusations. On September 10th, Nigeria’s chief of army staff, Major-General Victor Malu, said his army could no longer serve under General Jetley and demanded his immediate replacement. Infuriated Nigerian officials pointed out that their country had done more than any other to defend democracy in Sierra Leone, having sent soldiers to that country in 1997, later restoring the ousted president, Ahmad Tejan Kabbah, to power and carrying out costly action to keep him there. On October 31st the UN appointed Lieutenant-General Daniel Ishmael Opande of Kenya to head Unamsil. A new Nigerian officer will replace the force’s deputy commander, Brigadier-General Mohammed Garba, although as of November 1st he had not been named. However, many foreign diplomats were unsurprised by the allegation that some Nigerian officials have been profiteering from the conflict in Sierra Leone, after similar allegations were made against Nigerian peacekeepers during their intervention in Liberia.

Nigeria has offered at least five battalions, of 600 or more troops each, for service in Unamsil. On September 23rd the first batch of 14 US military trainers arrived in Nigeria to begin training troops that would form the Nigerian battalion. A total of 200 or more US soldiers are expected to arrive to train some 3,000 Nigerians and also some Ghanaian troops, for deployment in Unamsil under a US$20m US package.

Boundary disputes come Nigerian newspapers reported in late October that paramilitary police from into the spotlight Cameroon had attacked Nigerian villages in Cross River State, in the south-east of the country. The reports said an unspecified number of people were killed in the raids. The two nations have often clashed over disputed territory along their border, especially the oil-rich Bakassi peninsula. The International Court of Justice in The Hague is adjudicating on the border dispute. Nigeria has made progress towards settling oil-related border disagreements with some of its smaller neighbours. In early September Nigeria and Equatorial Guinea signed an agreement delineating their maritime boundaries, resolving a decade-old boundary disagreement. According to Nigerian officials, the agreement, reached after a weekend bilateral meeting in Abuja, covers wide-ranging issues, especially the oil deposits in the disputed area. Finally, in late August Nigeria and São Tomé and Príncipe agreed to explore jointly for oil in maritime areas where it has not been possible to reach a demarcation agreement after years of failed negotiations. After lengthy negotiations in São Tomé, President Obasanjo and President Miguel Trovoada agreed to establish a joint exploration zone which will be managed by a joint exploration commission. The demarcation of the maritime boundary between the two countries is still to be resolved.

The US president visits The US president, Bill Clinton, paid a three-day state visit to Nigeria in late Nigeria August, marking the improvement in relations between the US and Nigeria

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since the death of General Abacha. Nigeria made elaborate preparations for the visit, hoping that the occasion would showcase the country’s new democracy to the world and lead to increased Western investment. During the visit American and Nigerians officials signed a number of bilateral agreements, in areas including military co-operation, transport and curbing the spread HIV/AIDS. President Obasanjo told a press conference after President Clinton left Abuja that the visit was significant for Nigeria, which now stood to gain substantial economic benefits from the US. However, many observers saw the visit, coming at the end of Mr Clinton’s term of office, as more symbolic than providing a solid basis for future Nigeria-US relations.

Economic policy

The government affirms its In several official documents the government has repeated its commitment to commitment to reform developing a liberal economy, driven by the private sector and with the support, where needed, of the public sector. On August 23rd the president, Olusegun Obasanjo, launched a handbook entitled Obasanjo’s Economic Direction: 1999-2003, which sets out the administration’s objectives during its first term in office. The main aim of policy, as outlined in the document, is to create “a national economy that is highly competitive, responsive to incentives, private sector-led, broad-based, diversified, market-oriented and open, but based on internal momentum for its growth”. It sets out various ambitious targets to be achieved by 2003, including:

• a real GDP growth rate of 6-10% per year; • a reduction in poverty by at least 50% from the current level; and • manufacturing’s contribution to national output to rise from 5.86% to 12%.

The document also outlines the steps to be taken to attain these ambitious goals, which are broadly consistent with the administration’s commitment to running a liberal economy, including the maintenance of a market-determined exchange rate, fiscal prudence, trade liberalisation, deregulation and privatisation. The government gives its top priority as the reduction of poverty through measures that would also accelerate economic growth. The strategy includes creating jobs and encouraging agricultural production, as well as providing social amenities and infrastructure for the poor.

But the overall commitment of the government to reform is far from clear. At present the government seems confident that its economic management is on the right track. “In terms of economic indices and the parameters by which the performance of the economy is judged, the economy has been jump-started, and although the movement may be slow, it is moving in the right direction,” a presidential statement said on October 11th. But it is also clear that improvements in some key economic indicators, including the lower inflation rate, increased external reserves and exchange-rate stability, have largely been the consequences of improved revenue due to high world oil prices. In addition, so

far the pace of structural reform, including tackling serious deficiencies in the provision of power, telecommunications and fuel, has been slow.

Opposition to the economic The slow pace of reform is the result of a number of factors, including political reform agenda infighting and a lack of real commitment to reform amongst most rank and file politicians. This lack of commitment is reinforced while the price of oil remains high and by the opposition to change coming from trade unions and civil rights groups. For instance, in early October the Academic Staff Union of Universities (ASSU) legally challenged the government’s right to privatise major state enterprises. The university teachers’ union also asked the high court to declare that interference by the IMF and World Bank in the management of Nigeria’s economy was unconstitutional. Though the case is unlikely to go far, it highlights the range of political constraints facing President Obasanjo when making unpopular reforms.

Fuel subsidies will remain A key test of the government’s commitment to reform was always likely to be whether it would reduce fuel subsidies, and this now looks unlikely to be implemented in the next few years (which does not bode well for its ability to implement other difficult changes). Despite earlier proclaiming its commitment to the policy, it has already been forced to back down once this year (August 2000, page 19). Moreover, in the memorandum on economic and financial policies, which outlines Nigeria’s economic reform programme for July 2000-June 2001, and has been agreed with the IMF, the administration says it plans to retain the fuel subsidy, even though it has long been criticised by the Bretton Woods institutions. In fact, in a memorandum to the organised private sector, quoted in the press in early October, President Obasanjo told businesses that his administration would not raise the prices of petroleum products until its anti-poverty programme had made a positive impact. With the government allocating some 300,000 barrels/day for domestic consumption, the loss in potential state revenue is substantial. Besides, without full deregulation of the downstream oil sector the government may face difficulties privatising Nigeria’s four refineries next year.

There is no commitment to Another sign of the government’s lack of real commitment to reform can be public-sector reform seen in the fact that the IMF-backed programme does not include the rationalisation of Nigeria’s bloated public sector, which has long been suggested by creditor agencies both to reduce the government’s wages bill and to boost the efficiency of the civil service, although there is a commitment to eliminate ghost workers. In the programme, the government will contain its wages bill to N173bn (US$1.67bn; 4.9% of GDP) in 2000, compared with federal government capital expenditure of N200bn. In May the minimum monthly wage for public employees was raised from N3,500 (US$34) to N7,500 (US$73). A long delay in paying the new rate led to press speculation that the government was finding it difficult to meet its new wages bill. In late September the administration released N67.4bn (US$655m) to clear the arrears of pay owed its workers. However, in mid-October the government was reported to have admitted that the new minimum wage had created a shortfall in its financial projections, and that it had used funds from the account for excess crude oil sales.

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Privatisation is behind Nigeria’s three-stage privatisation programme has also started to run behind schedule schedule, and the delays are likely to grow (for details of the stages see 4th quarter 1999, page 25). The first phase, involving the sale of state holdings in 14 firms in the banking, cement and petroleum marketing sectors already quoted in the stock exchange, which had a June completion deadline was still not completed in October. On October 10th, Nasir El-Rufai, head of the Bureau of Public Enterprises (BPE), Nigeria’s privatisation agency, told a news conference in Lagos that core investors had been chosen for five firms––all but one of them being the cement companies. Another five either had substantial stakes already sold to investors, or were listed for public offers, while the remaining four companies were yet to have any of their holdings divested. Mr El-Rufai said that the government expected to raise at least N20bn from the sale of the 14 companies. BPE officials said it was unlikely that the agency would meet the end of 2000 deadline to complete the second phase of the divestment programme, involving the sale of 39 state-owned hotels, insurance firms, vehicle assembly plants, paper mills and other enterprises.

In its memorandum to the IMF, the government said it planned to bring the national telecommunications companies, Nitel and M-Tel, to the point of sale by end-March 2001 under the third phase of the privatisation programme, adding that Nigeria’s four state-owned refineries would be brought to the point of sale by end-October 2001. It also intends to restructure the mammoth national power company NEPA into a number of separate companies by June 2001 ahead of their privatisation. As these are major privatisations, whether they go ahead by the scheduled dates will be a test of the government’s commitment to the policy. Moreover the government is well aware that if it does not complete the sales before the end of 2001, it will quickly find itself trying to sell them at a time when election campaigning is picking up and large sections of both the public and politicians are not fully committed to the idea of privatisation.

The aim is to raise US$5bn In August Mr El-Rufai said the government aimed to raise US$5bn in 2001 from privatisation in 2001 from sales under the third phase. He explained that in setting the sale price of these enterprises, the BPE would not rely on the asset valuation of these firms, many of which are in poor shape with rundown or scanty facilities. The attraction of the privatisation exercise to investors, he explained, would be the huge size of the Nigerian market and the access it gives to the even larger West African market, arguing “we are not selling assets in Nitel and NEPA. We are selling market opportunities. Nigeria has 120m people with only 400,000 lines. The market for telecommunications in Nigeria is bigger, more valuable than the assets of Nitel”. Although the potential size of the Nigerian market is undoubtedly an attraction, the government seems overoptimistic about what its enterprises are likely to fetch. Perhaps an illustration of this is the difference between what the government has asked for its paper mills and what investors seem ready to pay. In early October the Lagos-based Nigeria Economy News Online quoted a senior manager at Thomas Wyatt Nigeria as saying that his company was seeking to buy three state-owned paper mills marked for privatisation for a total of N3bn (US$29m), while the government was looking for about N3bn for each of them.

The government plans to On October 12th President Obasanjo presented his administration’s 2001 spend more in 2001 budget to the National Assembly, which projected increased spending, largely based on expectations of improved oil earnings. Key features outlined so far include the following.

• Total government spending of N873bn (US$7bn) is proposed, which does not include revenue allocations to Nigeria’s 36 states.

• Capital expenditure increases by 52% to N473bn, while recurrent expenditure is put at N400bn, an increase of 17%.

• Total projected revenue is N1.44trn (US$12bn) in 2001, compared with N1.25trn in the 2000 budget.

• Crude oil earnings are projected at US$14bn, compared with US$11.4bn in the current year. The budget is based on an oil price of US$22/barrel (US$20/b in the current budget) and an exchange rate of N100:US$1.

• The government has said that any oil sales in excess of US$22/b would be transferred into a special account.

• Debt servicing remains pegged at US$1.5bn.

The government was hopeful that it had submitted its budget proposals to the legislature earlier enough to avoid the delays that held up the 2000 budget. However, the chairman of the House of Representatives Committee on Information warned that having submitted the budget only 11 weeks before the end of the year, when it is usually announced, there was likely to be another delay––it took the legislature more than six months to process the 2000 budget.

Targets for developing Like past administrations the present government wants to diversify Nigeria’s agriculture and industry economy away from its unhealthy reliance on the oil sector. President Obasanjo, who as military ruler launched the accelerated food production programme Operation Feed the Nation in 1976, is a strong believer in the importance of agriculture in economic development; and the government’s 1999-03 plan sets out ambitious targets for the development of the sector. It also sets similarly ambitious targets for manufacturing, such as raising capacity utilisation from 30% to 65% by 2003, increasing its contribution to national output from 5.86% in 1999 to 12% by 2003 and 24% in 2010, and raising its contribution to total employment to 10% by 2003 and 30% by 2010.

Although the current administration has probably published more policy statements than any previous one, it has not convinced the private sector that it has a firm grasp of the real constraints to growth in Nigeria or has the ability to implement difficult reforms. There is also a belief that government policies are poorly articulated, and often little more than a regurgitation of policies announced by previous governments but never properly implemented. Thus general confidence in the government’s capacity to achieve the desired economic turnaround remains low and investor confidence remains low.

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The domestic economy

Economic trends

Government shows a fiscal The federal government recorded an overall deficit of N59.9bn (US$582m) in deficit in first-half 2000 the first half of 2000, according to an economic report from the Central Bank of Nigeria (CBN), quoted in Vanguard newspaper. The bank said there was a general lull in economic activity, and the economy was sustained mainly by the fortunes of the international oil market. Although the government recorded a deficit, its expenditure was significantly below the level in the same period of 1999, owing to the delay in the release of the 2000 budget. The federal government’s retained earnings in the first half 2000 were N214.88bn, 22.8% below the proportionate budget projection for the period, while government expenditure was N274.82bn, 15.8% lower than the proportionate budget estimate for the period. In addition:

• external debt stood at US$27.062bn at the end of June 2000; • the government spent about US$1.21bn in the first six months of 2000 servicing external debt; while N250m (US$2.45bn) went to settle domestic debts leaving government still owing domestic creditors N794.6bn; and

• foreign reserves rose from US$5.44bn in December 1999 to US$7.27bn at the end of June 2000 (representing 5.7 months of import cover).

Inflation continues to fall According to the Federal Office of Statistics, inflation (using the official 12- month moving average favoured by the Central Bank) dropped to 0.9% in June, from 1.1% in May––it actually turned negative in April at –1.8% before rising in May. However, the EIU still expects prices to rise following the payment of increased public-sector wages, the rise in government spending after the 2000 budget was passed and the decline in the exchange rate.

The naira is stable in the After the Central Bank intervened in the middle of July to shore up a interbank market depreciating naira, helping it to rise from a closing rate of N114.6:US$1 on July 13th to US$103.9:US$1 on July 26th, the currency remained relatively stable for a while––it traded in a narrow range of N103-N106:US$1 on the Interbank Foreign Exchange Market (IFEM) from the end of July until mid-September. This stability was largely a result of active intervention in the market by the CBN which has used the sale of Treasury bills to reduce liquidity in the system in order to support the naira.

Another feature of the exchange rate was that up until the fall of the currency in mid-July the gap between the interbank rate and the parallel market rate had been fairly stable at around 3-5%. Although this ratio was broadly maintained—both the interbank and parallel market rates fell at a similar rate in July, supported by the intervention by the Central Bank—the recovery was much stronger in the interbank rate in the second half of the month than in the parallel rate. This led to a sharp increase in the gap between them––it was about 15% by mid-September. With the CBN increasingly concerned about the size of this differential––which is enough to encourage arbitrage between the

two, a practice that has undermined currency stability in Nigeria in the past––it seems that the CBN has been keen to allow the naira to fall to reduce the gap. By October 23rd the official closing rate was N108.4:US$1, while the parallel rate was N120:US$1, a gap of 10.7%. Although the EIU expects the interbank rate to fall further in 2000, the parallel rate should also strengthen, returning the differential to around 4-5% by the end of the year.

Central Bank reduces the In mid-August the CBN reduced the minimum rediscount rate from 17% to minimum rediscount rate 16% to encourage banks to lower their lending rates to help stimulate economic growth. It was the third reduction in a year, following cuts from 20% to 18% in November 1999 and to 17% in April. However, banks have been slow to lower their lending rates, which were still above 20% at the end of October. On August 30th in a further move to push down interest rates, the CBN reduced the cash reserve requirement for commercial banks from 11.5% to 10%. These measures by the CBN and the disbursement of federal funds to pay public-sector salary arrears in September helped reduce interbank interest rates. The benchmark Nigerian interbank offer rate (Nibor) for seven-day money dropped from 17.2% on August 16th to 12.9% on September 6th, before climbing to 17.3% on September 18th and falling again to 8.8% on October 11th after the release of federal funds had increased liquidity in the system.

Lending rates to the public have remained too high for cash-starved operators in the real economy. The president, Olusagun Obasanjo, has repeatedly urged bankers to lower the cost of borrowing to help boost growth in the non-oil sectors of the economy. “If you are a farmer, unless you are growing cocaine, how can you make it borrowing at 25-35%?” the president asked bankers at the Nigerian Economic Summit in October. Industrialists believe high lending rates are due largely to banks concentrating their business on short-term transactions, especially foreign-exchange sales. Low savings deposit rates offered by banks, which have been as little as 5.2%, compared with lending rates as high as 27%, have also limited the flow of funds into banks.

Nigerian interbank offer rate, 2000 (%) 7-day 30-day 60-day 90-day Jul 31st 12.1323 15.1044 15.9561 16.7192 Aug 14th 14.5368 16.6351 17.0914 17.4255 Aug 16th 17.2215 18.3291 18.7151 18.9241 Aug 21st 16.9160 18.0875 18.3778 18.4703 Aug 23rd 14.3981 16.3671 16.9481 17.1833 Aug 28th 15.9808 17.2834 17.6025 17.8889 Aug 30th 15.8674 17.1520 17.6978 17.9561 Sep 4th 13.7410 15.8528 16.4105 16.6323 Sep 6th 12.9447 15.1285 15.7846 15.9676 Sep 11th 13.4675 15.9421 16.6208 17.0481 Sep 13th 15.5662 17.1592 17.6376 18.0723 Sep 18th 17.2546 18.1477 18.4748 18.6629 Sep 20th 16.7024 17.6073 17.8887 18.1531 Sep 25th 16.7191 17.7106 18.0621 18.4625 Oct 2nd 13.5601 15.5969 16.3162 16.6403 Oct 9th 12.2540 14.8115 15.5626 15.8162 Oct 11th 8.8290 12.8825 14.0635 14.8215 Source: Money Market Association of Nigeria.

The government has Since coming to power in May 1999, President Obasanjo has made numerous pushed hard for FDI visits abroad to drum up investment and debt relief for Nigeria. With little to show for the trips, Mr Obasanjo has been criticised in the press for the frequency of his foreign tours, with commentators saying his time would be better spent staying at home to sort out the difficult political and economic conditions that makes investing in Nigeria risky and expensive. Some Nigerian officials evidently have unrealistic notions of how much financial dividend democracy has, or is likely to bring. In early October a presidential spokesman, Doyin Okupe, quoted in the press, claimed that Nigeria had attracted some US$20bn in FDI into the oil and gas sector since May 1999 and the government expected another US$100bn would come in the next 12 months into power supply, transport, infrastructure development, primary industries, banking and finance, and agriculture.

Foreign direct investment (US$ m) 1994 1995 1996 1997 1998 1999a Inflows 1,959 1,079 1,593 1,539 1,051 1,400 Excl reinvested earnings by oil companies 357 796 81 139 418 358 Outflows 179 104 42 58 107 92

a Estimates. Source: UNCTAD, World Investment Report 2000.

FDI remains dominated by Mr Okupe’s claims are little more than wishful thinking. Although Nigeria has oil and gas remained the second most import destination for foreign direct investment

(FDI) in Sub-Saharan Africa (after South Africa), as new data by published by UNCTAD shows it has remained steady at around US$1.5bn, of which the overwhelming majority goes into the oil and gas sector.

Obstacles to investment in Not surprisingly business groups in Nigeria have been disappointed by the other sectors continued low level of foreign direct investment in the country despite the transition to democracy. Rufus Giwa, the president of the Manufacturers’ Association of Nigeria (MAN), argued in early October that FDI inflows to Nigeria remain far below their potential. He sought to highlight the factors cited by foreign investors as deterring investment, including depleted infrastructure, high utility costs, excessive red tape, the slow pace of privatisation, macroeconomic instability, poor corporate governance and disturbing international media images of communal conflicts. However, he noted that President Obasanjo’s administration was committed to liberalisation and had introduced policies to restore business confidence and create an investment-friendly environment.

The IMF revises its forecasts In the October edition of its World Economic Outlook, the IMF revised its for Nigeria projections for the Nigerian economy.

• The Fund now considers that the rate of real GDP growth will increase from 1.1% in 1999 to 3.5% in 2000 and 3.6% in 2001, compared with its forecast in April of 3.9% in 2000 and 4.5% in 2001.

• The Fund’s forecast for inflation has also changed: consumer price inflation is now expected to fall from 6.6% in 1999 to 5.1% in 2000 before rising to 6.9% in 2001. In April it forecast 5.8% inflation in 2000 and 7.3% inflation in 2001.

• The IMF’s latest report projects a more favourable current-account position for Nigeria, with the current account moving from a deficit of 11% of GDP in 1999 to a surplus of 2.4% of GDP in 2000 before reverting to a deficit of 3% of GDP in 2001. In April the Fund forecast a current-account deficit of 1.9% of GDP in 2001 widening to 6.7% of GDP in 2001.

The IMF’s latest report also noted that Nigeria had benefited from higher oil prices, producing significant improvements in its fiscal and external balances. The Obasanjo government, it said, was making progress in curbing corruption, restoring macroeconomic stability and improving relations with creditors, but it noted that “limited institutional capacity” might make further structural and governance reforms difficult. The Fund advised that sharply increased fiscal revenue be used productively, in particular for poverty reduction programmes, and a significant portion of the extra revenue should be saved. This should help avert a real currency appreciation and provide a cushion for when lower oil prices undermine revenue.

Oil and gas

OPEC agrees a further At its meeting on September 10th, OPEC agreed to raise its crude oil output by increase in quota 800,000 barrels/day from October 1st. The increase in production was OPEC’s third this year, aimed at restoring oil prices to more moderate levels. OPEC’s secretary-general, Rilwanu Lukman, who is also President Obasanjo’s oil adviser, said in early October that OPEC would increase its output further if its crude basket remained over US$28/barrel for 20 days.

Nigeria’s quota was raised to 2.16m b/d from 2.091m b/d fixed in June. Although Nigeria’s production capacity is 2.3m b/d (plus an additional 250,000 b/d of condensate, which is not counted by OPEC) its actual production has fallen short of its quota in recent months. According to the International Energy Agency, the country’s output was 2.07m b/d in July, 2.01m b/d in August and 2.01m b/d in September. Although this may seem surprising for a country struggling to pay debt and meet internal investment needs, and with a reputation for exceeding quota, Nigerian production capacity has been hampered by frequent upstream communal disturbances and inadequate state funding of its joint-venture projects. Officials of the Nigerian National Petroleum Corporation (NNPC) have expressed confidence that Nigeria will meet its new quota. The government aims to boost crude production capacity to 3m b/d by 2003 and to 4m b/d by 2010, and reserves from 27bn barrels to 30bn barrels by 2003 and 40bn barrels by 2010.

Government agrees a new In its 1999-2003 policy document, the government outlined a number of deal for oil joint ventures measures to help it achieve its output goals, including enhancing incentives to encourage private investment and exploring alternative funding sources to lessen government’s financial commitment and encourage more indigenous participation in the oil industry. The government has signed a new memorandum of understanding (MOU) with the six major multinationals in joint ventures with the NNPC. It was reported in early August that the new MOU raised both the production cost margins for the multinationals to US$4/barrel from US$3.5/b and the guaranteed profit margin from US$2.5/b to US$2.7/b on investments with production costs of up to US$2/b (if outlays exceed this benchmark, the guaranteed margin reverts to the old US$2.5/b). The government said in its memorandum to the IMF that the new MOU, which became effective on January 1st, 2000 incorporates a cost control mechanism which penalises excessive operating costs by means of a tax inversion mechanism. The government has also discontinued the reserve addition bonus, a tax credit for joint-venture companies for adding to oil reserves.

Government plans a 40% In its 2001 budget proposal the government has earmarked US$3.5bn for its oil rise in the 2001 oil budget joint-venture operations, up from US$2.5bn approved for 2000. About US$500m of the proposed oil budget will go towards settling outstanding cash call arrears owed to NNPC’s partners in the joint ventures, in which the state has an average 57% equity. The multinational oil companies, responsible for over 95% of Nigeria’s oil output, are owed some US$1.5bn in arrears since 1998. With the 43% contribution of multinationals to operation costs, the joint-venture companies’ budgets should total just over US$5bn. Though this is

an improvement on past amounts, it still falls short of the average US$8bn investment that the government said in October was needed annually in the oil industry over the next five years.

The government has stated that it does not plan to sell part of its average 57% stake in the joint ventures as suggested by oil companies and creditors to enable Nigeria raise funds and pay its debts. In mid-September President Obasanjo’s economic adviser, Philip Asiodu, said that there was no need for such divestment. The government plans to bridge the funding gap in the oil investment requirement through alternative funding arrangements, such as production sharing contracts, under which operators fully fund exploration costs and investment until production begins.

NNPC and Agip sign a On October 12th the Nigerian Petroleum Development Company (NPDC), a service contract NNPC subsidiary, and Agip Energy and Natural Resources (AENR) signed a service contract for the development of two offshore NNPC-owned fields, which hold recoverable reserves of some 1.4bn barrels. Under the deal, Agip will spend about US$150m to develop the field, which were first discovered in the 1980s. An NNPC statement said that, with the agreement, the corporation had taken a major step towards realising the federal government’s directive that it should fund its direct upstream operations. The development of Okono and Okpoho fields in Oil Prospecting Lease 91 will be jointly managed by NPDC and AENR, with NPDC taking full control after five years. Oil production from the fields is expected to begin in 2001. The NNPC’s managing director, Jackson Gaius-Obaseki, said the arrangement would enhance his corporation’s effort at capacity building and enable it reach the level of other successful national oil companies. Lack of funds and expertise has prevented the NNPC from developing it own oil production operation outside the joint- venture companies.

Community hostility Multinational oil companies have continued to experience problems in parts of remains a problem the Niger Delta affected by community unrest, which is fuelled by poverty and political alienation. Shell, the biggest and most visible producer in the region, has suffered most disruption. In late September militant youths kidnapped and held hostage 12 Shell workers for two days in southern Delta state. The youths demanded that Shell pay US$1.5m compensation for an oil spillage in 1989. In early August 165 Shell workers in Bayelsa were held hostage for several days by armed youths demanding cash and jobs. In late August placard-carrying youths briefly seized a local Shell office in Delta state to protest against the alleged monopoly of jobs held by members of a rival community at the company’s Odidi Associated Gas Gathering Project.

Nigerian government oil facilities have also been under attack, especially by thieves who vandalise oil pipelines to steal fuel to sell on the black market. In early September the government threatened to use troops to counter attacks on its oil facilities. A government spokesman, Chris Mamman, told reporters on September 4th that there had been 400 pipeline leakages due to sabotage so far this year, costing the state some US$43m. Human rights organisations deplored the idea of using soldiers, who have a reputation for heavy handedness. The Civil Liberties Organisation said the problem would be better dealt with if the

government tackled the underlying causes of the troubles in the Niger Delta, including economic deprivation, marginalisation and the neglect of communities in the region.

Despite promises made by President Obasanjo on coming to power to introduce measures to end decades of neglect in the Niger Delta, the people of the region have seen little or no change on the ground. The implementation of the Niger Delta Development Commission (NDCC) Act has been delayed by disagreement between the president and the legislature over some of its provisions. However, in mid-October, President Obasanjo sent the names of members of the commission to the Senate for approval, bringing closer the eventual take-off of the agency that is to execute a grand development plan for Niger Delta. The government has also increased the allocation of oil revenue to oil-producing areas from 3% to 13%. Although this should increase the funds available to the oil-producing states, local politicians and militant groups have demanded an even bigger share of Nigeria’s oil revenue. On September 13th thousands of youths marched to the state House of Assembly in Yenagoa, capital of Bayelsa state, to demand that states assume full control of their natural resources, echoing the demand of the governors of the oil-producing states. Since the bulk of federal government income comes from oil, this demand poses a serious challenge for President Obasanjo, in a country where all regions have impoverished and neglected communities.

NNPC publishes details of The administration’s effort to improve the transparency of key government its operations departments and agencies was evident in the NNPC’s decision to start publishing regular detailed accounts of its operations. In August the NNPC released its Report on Operations: January-June 2000, the second such account after the first-quarter report was released in April 2000. The latest report put the corporation’s revenue in the first half 2000 at N132.98bn. Meanwhile its total costs were N138.62bn, 264% higher than budgeted owing to the higher cost of importing petroleum products for domestic consumption due to higher world oil prices.

The refineries are still The persistent poor performance of NNPC’s four oil refineries, which have a dogged by problems combined capacity of 445,000 b/d, has meant that Nigeria has had to continu- ously import fuel and often suffers crippling fuel shortages. According to the NNPC’s report, the refineries produced 2m tonnes of products between January and June 2000, compared with 3.86m tonnes produced in January-June 1999. The NNPC said it purchased 53.08m barrels of crude oil from the government at US$9.5/b; of which 18.01m barrels, or 34%, was refined locally, while the balance of 35.06m barrels was exported, and the sale proceeds used to pay for imported products. The difference in the cost of products imported and the revenue from the local sale, resulted in a total subsidy on imported products of N58.94bn. However, in October NNPC officials said that only the two refineries in Port Harcourt, with a combined capacity of 210,000 b/d, were currently operating, at 85% capacity, although they expected the refinery in Kaduna to resume production in November followed by the Warri plant by January. The poor maintenance of Nigeria’s refineries causes frequent breakdowns.

Progress made in gas In September the government said it had reached an agreement with oil utilisation project companies for gas flaring to end by 2004, instead of 2008 as previously agreed. Currently most of Nigeria’s associated gas production is flared because of lack of capacity to utilise it. Nigeria’s US$3.8bn joint-venture liquefied natural gas (LNG) project has continued to make good progress, and in early October a spokesman of Nigeria LNG (NLNG) said the company had completed gas deliveries to long-term buyers in European ahead of schedule in its Build-Up Period 1. NLNG’s managing director, Andrew Jamieson, told Vanguard newspaper in September that Nigeria was expected to earn US$700m-800m from LNG sales in 2000 and that the income could top US$1bn when the third liquefaction train goes into production in 2002 (the EIU feels that these are conservative estimates).

Industry

Local manufacturers Industrial production has continued to be effected by the country’s continue to face hard times deteriorating physical infrastructure, including an erratic electric power supply, fuel scarcity, a poor water supply and high transport costs. Industrialists consider that apparent improvements in macroeconomic indicators had not been matched by improvements in the production environment. The Nigerian Economic Summit (NES) said in October that industrial capacity utilisation had not improved and could deteriorate further this year––to 32% from 34%–– while unemployment remained unchanged at 50% of the labour force. In August the press reported a wave of job losses in manufacturing. Post Express newspaper said that over 3,000 workers in the textile industry had lost their jobs over the past six months, adding that many other firms, including some conglomerates, were in the process of staff rationalisation as a result of the difficult operating environment. Industrialists had expected the restoration of democracy to bring marked improvements, but many now believe that conditions in the real economy have either not changed or have worsened. They also said that the government should do more to remove obstacles to wealth creation if it was to achieve its goal of raising industrial capacity utilisation to 65% by 2003 and boost manufacturing’s contribution to total employment to 10% by 2003 and 30% by 2010. However the administration does not share this bleak view of the prevailing economic climate. Disagreeing with the NES’s assessment of capacity utilisation, President Obasanjo told the group that manufacturers he had spoken to in recent days had told him that things were picking up.

The government seeks to The government is taking steps to revitalise some of its largest state industrial revitalise steel industries enterprises, whose failure symbolises Nigeria’s own economic failure. A US$1.2m contract for the technical evaluation of the Ajaokuta steel plant has been awarded to Russia’s Tiajprom Export. Nigeria’s transport minister Ojo Maduekwe said in August that the assessment would help the government in deciding on what to do about the uncompleted steel complex, which has absorbed billions of dollars since work began on it in 1979. President Obasanjo plans to privatise the steel complex in the hope that it will achieve its original purpose of being a foundation for Nigeria’s industrialisation.

The government also plans to privatise the Aluminium Smelter Company of Nigeria (Alscon). Mr El-Rufai, head of the privatisation agency BPE, was quoted in September as saying that approximately 51% of the government’s 70% equity holding in Alscon would be sold to a strategic investor in 2001, with the remaining 19% stake going to Nigerian investors. Alcoa (formerly Reynolds), which holds a 10% stake in the 193,000 tonnes/year Alscon plant, has shown interest in buying the government’s shares. However, asset evaluation of the plant may prove problematic, as over 40% of its staggering US$2.5bn cost stems from the provision of infrastructure for the plant in the remote Ikot Abasi in south-eastern Nigeria. The plant, opened in October 1997, but has not operated since June 1998 owing to a lack of working capital.

Agriculture

The government strives to The government has stated that it will commit US$500m to the agricultural boost credit to growers sector in order to boost food production, create jobs and stimulate economic activity in Nigeria’s neglected rural areas. The government also wants to expand crop cultivation in order to reduce food imports by half by 2003. In late August Shamsudeen Usman, a deputy-governor of the Central Bank of Nigeria, said the money would go towards financing agricultural projects over a five-year period, by extending credit facilities to agricultural enterprises. Agriculture has generally outperformed manufacturing, nevertheless it faces severe constraints including low technology and deteriorating soil conditions. According to the environment minister Sanni Zango Daura, quoted in the press in August, food production in northern Nigeria has been hampered by desertification, which is growing at a rate of 0.6 km per year, and the resulting poor yields are causing food shortages.

The main cocoa season The main cocoa season, which usually opens at the start of October, began late starts late this year. In early October growers in Nigeria’s main cocoa region in the south- west, said harvesting activities would not begin until the second half of October and probably extend through to February. They blamed the late arrival of rains for the slow development of the crop. However, cocoa traders forecast Nigeria’s 2000/01 cocoa production at 170,000-180,000 tonnes, up from 165,000 tonnes in 1999/2001 mainly owing to improvements in pod development.

The government aims to boost cocoa production, Nigeria’s biggest non-oil export earner, though its contribution is tiny compared with oil. The National Cocoa Development Committee (NCDC) has said the first phase of its programme to raise Nigeria’s cocoa output in the short term to 320,000 tonnes was running late because of a dispute over the price of seedlings between state government officials and the Cocoa Research Institute, which developed the seedlings to be used by NCDC in the rehabilitation of 16,574 ha of cocoa farmland in 2000/01. The government has approved N1.6bn (US$15.7m) for a six-year cocoa development programme, mainly for revolving credit to farmers. The sharp drop in world cocoa prices could undermine efforts to raise the export profile of cocoa. Reflecting movements in world prices, Nigerian growers’ prices fell from N125,000/tonne (US$1,225/tonne) in early 1999 to

about N65,000/tonne (US$637.3/tonne) in August, with the result that local farmers complain that they are unable to recoup their production costs.

Financial services

The stockmarket maintains Nigeria’s stock exchange has maintained its earlier gains. The all-share index its recovery climbed from 7,045 on August 1st to 7,445 on September 1st before dipping to 7,200 on October 9th. It then recovered marginally to reach 7,423 on October 30th. Market capitalisation rose from N403.12bn on August 1st to N426.25bn on October 30th. Though shares have gained since the restoration of civilian rule in May 1999 when the index was below 5,000, they are still far from the highs of above 8,800 reached in 1997. Market operators attributed the slower than expected pace of the recovery to the continued cautiousness of investors and the very slow pace of the government’s privatisation programme. The delayed release of the 2000 budget, squabbling between the presidency and the legislature and seemingly intractable ethnic-religious conflicts in the country have eroded some of the market optimism generated by the restoration of civilian rule.

New bourse opens in Abuja On October 2nd Nigeria’s long-awaited new stock exchange was opened in Abuja (the Abuja Stock Exchange or ASE). A deputy governor of the Central Bank, Oluwale Oduyemi, declared at the commissioning that the new exchange would enhance the currently low participation of indigenous enterprises in the capital market. Actual trading did not commence at the bourse, as it did not have any listed companies and was still awaiting approval from the Securities and Exchange Commission for the dual listing of stocks on the Lagos and Abuja exchanges. Controversy had dogged plans to start a separate exchange in Abuja: critics saw it as an attempt to undermine the economic position of Lagos. In August the managing director of the ASE, Yusuf Abdurrahim, claimed that his exchange would quickly outperform the 40-year- old Lagos bourse, estimating that the new bourse would hit 4,000 trades a day from its initial stages, compared with between 1,000 and 1,500 trades daily in Lagos. He said the ASE would seek to tap rural investors. It is not clear how it plans to do this in a country where a stockmarket culture barely exists.

Infrastructure and other services

The state still struggles to The biggest infrastructure challenge facing the government is to improve the improve power supplies poor electricity supply. Households and businesses without back-up diesel for private generators continue to suffer losses as a result of the frequent power cuts by the state-owned National Electric Power Authority (NEPA), whose gross inefficiency over the decades has epitomised the failure of state management in Nigeria. The authority currently generates 1,600-2,000 mw, well below its installed capacity of 6,000 mw. The government aims to increase supplies by increasing capacity to 2,000 mw by end-2001, through the rehabilitation of NEPA’s decaying facilities and by using private-sector emergency power providers. A new regulatory body for the power sector is to be established by end-March 2001, and the government also intends to adjust the tariff structure to remove the electricity subsidy in urban areas within three years.

Nitel gets a boost The government has approved a N1trn, four-year development plan to boost the operations of state-owned Nigerian Telecommunications (Nitel). The information minister, Jerry Gana, told reporters after a cabinet meeting in Abuja that the plan was divided into two phases. The short-term plan for 2000-02 includes the rehabilitation of Nitel’s deteriorating underground cables, provision of 30,000 digital lines to seven state capitals and 42,000 digital lines to 13 analogue primary centres. The medium-term plan, running from 2002-04, includes the completion of the proposed national fibre optic backbone transmission links and an upgrade of existing digital links. Mr Gana said Nitel would raise N625.9bn of the N1trn needed, while the remainder would be sourced from core investors and bank credit. Nitel currently has just over 710,000 installed lines out of which only some 410,000 are connected for a population of 120m, putting Nigeria at a distinct disadvantage in developing the communications-dependent new economy. The government aims to increase the number of installed fixed lines to 2m and mobile lines to 1.2m by 2003. Nitel and Mobile Telecommunications (M-Tel) are to be privatised in 2001, with at least a 40% stake being sold to a strategic investor, almost certainly a foreign telecommunications company.

Foreign trade and payments

The government presses for In talks with the Paris Club of official creditors, the government has continued external debt relief to press for a substantial debt write-off, claiming that current debt servicing levels prevent much-needed investment in poverty reduction. During a three- day visit to the UK in mid-September, President Obasanjo pushed the case for debt relief and investment in talks with officials. The president’s economic adviser, Philip Asiodu, said that Nigeria wanted creditors to forgive 80% of its debt. Nigerian officials also believe debt forgiveness should be granted as a democracy dividend and in appreciation of the US$10bn spent by Nigeria in peacekeeping operations in Liberia and Sierra Leone. Nigeria owes some US$20.4bn to the Paris Club of official creditors, of which US$16.6bn is interest arrears, and another US$4.2bn to multilateral agencies. The government claims

© The Economist Intelligence Unit Limited 2000 EIU Country Report November 2000 it paid over US$1.9bn in debt service in 1999, including a carry-over of an unused budgetary provision in 1998 of US$400m. Of the total, US$700m went to Paris Club creditors, reducing arrears on post cut-off-date debt. The government proposes to retain the US$1.5bn cap on debt servicing in its 2001 budget.

Nigeria names debt advisers Apart from South Africa, Côte d’Ivoire and Nigeria are the only Sub-Saharan African countries to have significant levels of private-sector external debt; both of them have converted this debt into Brady bonds. The government has appointed the US investment bank Salomon Smith Barney to advise it on the restructuring of its commercial debt, and at present wants to exchange its outstanding Brady bonds and promissory notes for a single relatively liquid new debt instrument (with a face value of approximately US$4bn). This bond will be at a substantial discount to the existing Brady bonds and, if successful, will leave private creditors considerably worse off, which has led to considerable opposition to the move by commercial banks. Although Nigeria has built up large arrears on its Paris Club debt, it has maintained payments on US$2bn of par bonds and US$1.6bn of promissory notes. If the government is to maintain the US$1.5bn limit on debt servicing and increase debt payment to Paris Club creditors under a new deal, it will need to convince private creditors to share the burden of any restructuring. Mr Asiodu said in September that Nigeria should reach an accord with the Paris Club before talking to the London Club of private bank creditors.

Trade financing accords Trade relations between Nigeria and the US got a boost in August when senior signed with US agencies officials of the US Export-Import Bank (Ex-Im Bank) and the US Trade and Development Agency (TDA) signed export accords with Nigerian organisations. The accords, valued by US officials at over US$1bn, were signed during President Clinton’s visit to Nigeria. They included the Project Incentive Agreement, which will underpin increased financing for infrastructure projects in Nigeria. Ex-Im Bank signed separate agreements involving six leading Nigerian banks and a regional government. During his visit, President Clinton announced that Nigeria had qualified for the generalised system of preferences (GSP), under which goods exported to the US are exempted from duties.