Country Report Nigeria December 2017

______

Country Report

Nigeria

Generated on December 7th 2017

Economist Intelligence Unit 20 Cabot Square London E14 4QW United Kingdom

______The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York The Economist Intelligence Unit The Economist Intelligence Unit 20 Cabot Square The Economist Group London 750 Third Avenue E14 4QW 5th Floor United Kingdom New York, NY 10017, US Tel: +44 (0) 20 7576 8181 Tel: +1 212 541 0500 Fax: +44 (0) 20 7576 8476 Fax: +1 212 586 0248 E-mail: [email protected] E-mail: [email protected]

Hong Kong Geneva The Economist Intelligence Unit The Economist Intelligence Unit 1301 Cityplaza Four Rue de l’Athénée 32 12 Taikoo Wan Road 1206 Geneva Taikoo Shing Switzerland Hong Kong Tel: +852 2585 3888 Tel: +41 22 566 24 70 Fax: +852 2802 7638 Fax: +41 22 346 93 47 E-mail: [email protected] E-mail: [email protected]

This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by contacting a local sales representative. The whole report may be viewed in PDF format, or can be navigated section-by-section by using the HTML links. In addition, the full archive of previous reports can be accessed in HTML or PDF format, and our search engine can be used to find content of interest quickly. Our automatic alerting service will send a notification via e-mail when new reports become available.

© 2017 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 2047-5462

Symbols for tables "0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable Nigeria 1

Nigeria

Summary 2 Briefing sheet

Outlook for 2018-22 5 Political stability 6 Election watch 6 International relations 7 Policy trends 7 Fiscal policy 7 Monetary policy 8 International assumptions 9 Economic growth 9 Inflation 10 Exchange rates 10 External sector 11 Forecast summary

Data and charts 12 Annual data and forecast 13 Quarterly data 14 Monthly data 15 Annual trends charts 16 Monthly trends charts 17 Comparative economic indicators

Summary 17 Basic data 19 Political structure

Recent analysis Politics 21 Forecast updates Economy 25 Forecast updates 30 Analysis

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 2

Briefing sheet Editor: Philip Walker Forecast Closing Date: November 17, 2017 Political and economic outlook Ongoing uncertainty over the president's health, violent unrest in many parts of the country and severe economic difficulties will remain sources of serious instability throughout 2018-22, but instability will probably peak around the 2019 elections. Nigeria's democracy is expected to prove sufficiently robust to survive the instability, but there are small risks of parts of the country becoming ungovernable or elements of the army attempting a coup. Policy reform will be slow as efforts to introduce market-oriented reforms and diversify the economy away from oil come up against vested interests, ideological opposition and bureaucratic inefficiency. Real GDP growth will be slow to recover from the recession of 2016, given an ongoing period of historically low oil prices and the weak policy response from the authorities, which will sap confidence in the economy more generally. Although inflation will come down from the highs seen in early 2017, price pressures from election spending and a weak currency will persist. Prospects for the current account will remain largely tied to prevailing oil prices; a slightly higher surplus equivalent to 2.3% of GDP in 2018 falling back with oil prices to 1.2% of GDP in 2020, before recovering to 1.7% of GDP at the end of the forecast period.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 3

Key indicators 2017a 2018b 2019b 2020b 2021b 2022b Real GDP growth (%) 0.7 2.2 1.7 2.3 2.8 3.1 Consumer price inflation (av; %) 16.5 14.2 14.4 11.6 11.3 9.8 Government balance (% of GDP) -2.3 -2.4 -2.5 -2.3 -2.1 -2.0 Current-account balance (% of GDP) 2.3 2.3 2.0 1.2 1.4 1.6 Money market rate (av; %) 13.5 13.0 13.8 11.0 11.0 9.8 Exchange rate N:US$ (av) 305.1 345.0 379.5 402.3 410.3 426.7 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Key changes since October 23rd The president has been seen in public more often, lessening doubts about his imminent demise due to ill-health. But although the likelihood of Muhammadu Buhari staying in power during 2018 has risen, we still think he will step down after his term ends in 2019. We have moderately increased our oil price forecasts for 2018-22. Although prices are still low compared with the previous five years, the upward revision has prompted us to edge up our current-account surplus forecast. Higher oil prices will also give the authorities more ammunition to defend the naira's dollar peg and so we now expect the naira to fall at a slower pace than previously forecast in 2018-22. We have raised the level of external borrowing that we expect the country to undertake in 2018- 22 by 5-10% a year. This reflects both government efforts to rebalance away from more costly domestic debt and robust private-sector external borrowing. The month ahead November 20th and 21st—Monetary policy committee meetings: The Central Bank of Nigeria remains in a difficult position, under pressure from many in the political establishment to spur growth with looser policy while at the same time attempting to rein in inflation. November 22nd—Real GDP (Q3; by output): Nigeria formally escaped recession in the second quarter, but only just. The third-quarter data looks likely to show slightly stronger growth, in part owing to higher oil production, but a major rebound is unlikely. Major risks to our forecast

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 4 Scenarios, Q3 2017 Probability Impact Intensity Nigeria posts negative real GDP growth Moderate High 12 The banking sector undergoes another crisis Moderate High 12 Muhammadu Buhari suddenly leaves office, creating a dangerous power Moderate Moderate 9 vacuum Peace returns quickly to north-eastern Nigeria Low High 8 Growing Biafran separatism sees a return to civil war Low High 8 Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. Risk intensity is a product of probability and impact, on a 25-point scale. Source: The Economist Intelligence Unit.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 5 Outlook for 2018-22 Political stability During the next five years The Economist Intelligence Unit expects Nigeria to face the biggest challenges to its constitutional democracy since the return to civilian rule in 1999. Slow progress on tackling numerous security and societal challenges at a time of economic difficulty means that we forecast ongoing severe outbreaks of instability. Risks in 2018 19 are heightened by what we expect to be acrimonious preparations for a change of the presidency. The incumbent, Muhammadu Buhari, spent much of the first half of 2017 in the UK receiving treatment for an undeclared but presumably serious medical ailment. Although he is now back in Nigeria and appears to be performing his duties, there remains a notable prospect of Mr Buhari leaving office before the official end of his current term in 2019. Under such a scenario, we expect him to be replaced by his vice-president, Yemi Osinbajo, who would serve the remainder of the term as stipulated in the constitution. Such a power transfer has happened before, in 2010, when the then president died after lengthy illness, but would lead to a period of tension as lines of patronage are broken and re-established, not least because of the move from a northern president to a southern one—an important and often fraught geopolitical divide in Nigeria. Even assuming Mr Buhari is able to remain in power until 2019, there is far from universal support within his party, the All Progressives Congress (APC), for him to stand for re-election after a largely ineffectual first term. Manoeuvring to succeed him will therefore increase in 2018 19 regardless of whether the president attempts to seek a second term in office. Amid political instability and weak economic conditions, it will prove impossible to bring a permanent peace to large parts of Nigeria hit variously by Islamist insurgency in the north, ethno- nationalism in the main oil-producing region and secessionism in the Biafra region, as well as inter-religious tensions and disputes over land access across the centre of the country. The challenge facing the government remains that of building a more effective security apparatus while also developing infrastructure and creating economic opportunities for local populations; poverty lies at the root of much of the instability. However, there are also political factors at play, with various individuals and groups seeking to expand their influence by manipulating the various flashpoints. As Nigerian politicians position themselves for the 2019 elections, these communal and political conflicts will probably become further entwined in what is likely to be a fierce battle for power. Our central forecast is that the 2019 elections will be completed without a widespread breakdown in stability—Nigeria's democracy proving once again to be robust enough to endure —and that political tensions will then ease, but we also expect unrest to continue to simmer in 2020 22 as comprehensive solutions prove too complex and costly to implement in a mediumterm timeframe. Given the severe threats to stability, international and local speculation over the threat of a military coup or a civil war is likely to surface periodically. The fact that these issues are part of the popular discourse highlights the seriousness of the challenges Nigeria faces, but we consider such a severe breakdown of security to be unlikely. The military is more professional and less politically involved than it was during the 1970s and 1980s. Meanwhile, there is little appetite outside the more extremist agitators for a return to civil war, given memories of how disastrous the 1967-70 conflict was for the country. Nevertheless, as the country's leadership struggles to shift Nigeria onto a more sustainable and robust path of economic development, the risks to stability will intensify as more and more Nigerians question what they have to lose from pushing for violent change.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 6 Election watch The next national elections are due in 2019. The ruling APC—an awkward amalgamation of former opposition parties—will enter the election period riven by factional in fighting. We expect the party to remain just about intact for the elections, given that access to power is a strong unifying factor, but a split ahead of the polls is a distinct risk, especially in view of the potential competition to replace Mr Buhari as the party's flagbearer at the presidential election. The former ruling party, the People's Democratic Party (PDP), also suffers from serious internal ructions and will struggle to be a unified force in 2019. Nevertheless, the PDP still has strong grass-roots support and experienced campaigners. The outcome of the 2019 elections will depend largely on which of the main parties can present the most united front, with a close result likely. In view of the relatively fresh memory of the largely ineffective period of PDP rule, voters will probably be just about prepared to give Mr Buhari, or his replacement, and the APC another term, but this is far from certain.

International relations Many of Nigeria's militant groups operate across borders, and international co operation will therefore be needed to tackle the threat they pose. Stretched resources, vast territories and porous borders will prevent complete military victories. The West will provide some assistance, but will remain wary given concerns over human rights abuses perpetrated by the Nigerian armed forces. Relations with the US will be mixed; the administration of that country's president, Donald Trump, is more willing than its predecessor to sell Nigeria military hardware, but the US's clampdown on immigration, including efforts to crack down on people with overstayed visas (of which Nigerians are among the most common offenders), could strain bilateral relations. India will remain important as the largest market for Nigerian oil and will become a bigger source of foreign investment. China will remain an important source of investment, but actual inflows will be a small share of the headline-grabbing pledges made, given the extremely challenging local business environment and financial constraints of the Nigerian government. Nigeria will remain an important player on the Sub-Saharan African stage given its size, but its domestic challenges will tend to keep policymakers inwardly focused. Relations with South Africa, meanwhile, will remain strained. Africa's two largest economies will continue to compete for political, economic and cultural influence.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 7 Policy trends The policy agenda will remain trapped between the pressing need for liberalising reforms to boost economic growth and political considerations. State management of scarce resources enables politicians and other members of the political elite to direct the flow of these resources to favour specific geoethnic and political constituencies (as well as for illicit personal gain). Policy makers also fear that market reforms will push up consumer prices, thereby stoking wider unrest at a time when the government is already struggling to maintain political stability. Meanwhile, members of the middle classes, whose living standards are dependent on government-subsidised goods, such as petrol and electricity, often oppose reforms; and sections of the private sector that rely on state handouts and protectionist policies are also not keen on structural reform. In addition, policy development and implementation will continue to suffer from a lack of co ordination and poor relations between the various tiers of government. On balance, fundamental structural reforms are unlikely during the forecast period—including of trade and foreignexchange restrictions, land ownership or pricing in the energy sector—but more modest improvements in less controversial areas could be made. For example, gains are likely in certain aspects of doing business, particularly in terms of reducing bureaucracy. The restructuring of the oil sector will remain on the policy agenda but, like most policy reform in Nigeria, will move slowly. Opacity in the management of the state-owned Nigerian National Petroleum Corporation (NNPC) will not be tackled quickly given that a powerful patronage network has been built over decades around the control of oil resources and revenue. There are many other contentious issues in the wider oil sector to be resolved, including fiscal terms and revenue management. The oil companies, workers and local politicians (not to mention the various militant groups) will all pull in different directions.

Fiscal policy Fiscal policy will centre on attempting to diversify the sources of revenue away from oil while directing more expenditure to propoor activities and infra structure investment. However, the results of these endeavours will be mixed. Efforts to raise non-oil revenue, by widening tax coverage and moving to collect overdue taxes, will yield some improvements, but from a low base, and the weak economic backdrop will further hinder progress. Therefore, although the federal government's retained revenue/GDP ratio will increase during the forecast period it will reach just 3.8% in 2022. Meanwhile, efforts to ramp up spending in the priority areas will come up against long-running problems of capacity constraints and an inefficient bureaucracy. In addition, spending pressures around the 2019 election period will probably see funds diverted to meet political aims rather than more prudent spending priorities. Overall, although we expect the fiscal deficit to remain in the 2 3% of GDP range during the forecast period, longer-term public debt sustainability will remain in doubt. Although public debt is below 20% of GDP, debt servicing already takes up close to one-quarter of federal government spending. With only limited success expected in the government's efforts to widen the tax base, that proportion will increase. A federal government default on its domestic or external liabilities is unlikely during 2018 22, but repayment difficulties are possible at state level, where revenue collection is even weaker.

Monetary policy Monetary policy will concentrate on attempts to bolster economic recovery while limiting inflation and supporting the flagging currency. However, this will yield contradictory pressures in the early part of the forecast period, with the private sector desperate for cheaper credit to spur growth, but inflation running high and monetary tightening in the US putting pressure on emerging-world currencies. On balance, interest rates will not move much in 2018 19, but will dip in 2020, as the US and wider global economy slows and monetary authorities attempt to stimulate activity, with Nigeria following suit, before stabilising in 2021-22 as economic activity picks up.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 8 International assumptions 2017 2018 2019 2020 2021 2022 Economic growth (%) US GDP 2.2 2.2 2.2 0.8 1.8 1.9 OECD GDP 2.3 2.0 2.0 1.3 1.9 1.9 World GDP 2.9 2.7 2.8 2.3 2.7 2.5 World trade 4.6 3.5 3.6 2.6 3.6 3.6 Inflation indicators (% unless otherwise indicated) US CPI 2.1 2.2 2.3 1.3 1.8 1.9 OECD CPI 2.1 1.9 2.0 1.7 1.8 1.9 Manufactures (measured in US$) 3.3 4.0 4.1 3.0 4.0 3.3 Oil (Brent; US$/b) 54.9 59.0 57.5 54.5 58.0 62.0 Non-oil commodities (measured in US$) 7.4 1.4 0.9 -2.1 2.2 1.4 Financial variables US$ 3-month commercial paper rate (av; %) 1.1 1.7 2.1 2.2 1.7 1.9 N:US$ (av) 305.1 345.0 379.5 402.3 410.3 426.7

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 9 Economic growth Although we do not expect Nigeria to return to recession in the forecast period, the pick-up of the economy from the nadir of 2016 and early 2017 will not be rapid. Political instability and ongoing policy uncertainty will slow or prevent reforms and fiscal constraints will hinder much-needed infrastructure development. Meanwhile, investors will remain perturbed by the authorities' management of the naira. An additional factor hitting local confidence in 2020 will be an expected business-cycle-related economic slowdown in the US, which will dent global confidence and demand. Oil exports will pick up moderately as the forecast period progresses as some previously shut-in production is brought back on line. However, we do not expect the government to be able to permanently end rebel activity (in early November one of the main militant groups ended its ceasefire), and lower-level disruption will continue. Import demand will be curtailed for much of the forecast period by weaker local demand and the major devaluation of the naira carried out in recent years. In terms of GDP by industry, decent but unspectacular growth in agriculture is expected. Although boosting food production is a key government objective, weak infrastructure and (sometimes violent) competition for access to land will hinder progress. Industrial production will largely track the muted prospects for the oil sector, and manufacturing will continue to struggle against cheap imports, despite the authorities' ongoing efforts to enforce import bans. Services sector growth will pick up a little, driven largely by the information and communication subsector. Nigeria will remain a regional hub for technology and entertainment entrepreneurs. Overall, we expect real GDP growth to average 2.1% a year in 2018-20, reflecting the likely economic disruption from a contentious domestic election period in 2019 and a US-led global slowdown in 2020. We forecast slightly stronger growth in 2021 22, of 2.9% a year on average, as local and global markets strengthen, but even this rate remains below potential because of the long-term political, policy and business environment constraints Nigeria suffers from. Economic growth % 2017a 2018b 2019b 2020b 2021b 2022b GDP 0.7 2.2 1.7 2.3 2.8 3.1 Private consumption -0.5 1.3 0.8 2.0 2.4 2.8 Government consumption 4.0 4.4 5.0 3.7 3.2 2.8 Gross fixed investment 1.8 4.1 3.1 3.8 4.8 4.5 Exports of goods & services 1.9 2.6 2.3 1.9 2.9 3.3 Imports of goods & services -1.4 2.0 1.9 2.6 4.7 4.5 Domestic demand 0.2 2.0 1.5 2.5 2.9 3.1 Agriculture 3.0 3.3 3.0 3.1 3.2 3.4 Industry 1.0 2.7 1.0 0.9 2.1 2.3 Services -0.4 1.5 1.4 2.6 2.9 3.3 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Inflation Inflation will be slow to come down from the multi-year highs witnessed in early 2017, given the lingering effects of currency devaluation and high local food prices (itself part owing to government efforts to replace food imports with often costlier local production). Pre-election spending and further falls in the naira will add to inflationary pressures in 2018 19, although weak domestic demand and ongoing relatively tight monetary policy will offset this. Overall, from an annual average of 16.5% in 2017 (the highest level in over a decade), inflation will ease only a little, to an average of 14.3%, in 2018-19. We expect a slightly sharper drop, to 11.6%, in 2020 amid weaker global prospects (which will bring down commodity prices), but inflation will then remain around 10% in 2021 22 as local and global demand growth improves modestly.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 10 Exchange rates We expect the multiple-exchange-rate system to persist throughout 2018-22, with a notable differential between the official rate used for government business and the market-determined rate applicable to investors and exporters (with various other rates in between). Such a system allows the government to subsidise certain sectors of the economy that it regards as important for economic or political reasons. Oil prices, and with them the level of hard-currency earnings, will in large part dictate where the authorities are able to hold the official rate and what the premium is between the official and the market rates. Political events (for example the magnitude of instability that accompanies the 2019 election period) will also have an impact on these variables. A moderate increase in our oil price forecast means that we now expect that the official naira rate will remain stable for more of 2018 than we previously did, but that one or two downward readjustments will be permitted to release pressure on the currency owing to growing political instability as the elections approach. Muted oil prices, coupled with global jitters on the back of Chinese and US slowdowns (and also the uncertainty created by elections in Nigeria), will lead to further falls in the naira during 2019 20. Greater stability is likely in 2021 22, amid better local and global economic performance. By 2022 we expect the naira to be trading around N425:US$1 at the official rate and N460:US$1 at the market rate. Forecasting the naira Although The Economist Intelligence Unit forecasts both the official and the secondary market rates, it is the official rate that appears in most of our data presentations as it is the longest- running and best-tracked variable. For example, the current market-determined rate, known as the Nigerian Autonomous Foreign Exchange Rate Fixing (Nafex), has only been in full operation since April 2017, making historical calculations challenging. However, variables that are converted into dollars at the official rate are essentially overvalued.

External sector Although oil prices during the forecast period will be higher than their lows during 2016, they will still be well below the averages recorded in the preceding years. The net effect is a current account posting small surpluses in 2018 22—a stark contrast to the enormous surpluses recorded during the last commodity boom. There will be little progress in terms of diversifying the country's hydrocarbonsdominated export base. Import growth will pick up in line with subdued—albeit improving—economic prospects, but the import bill in 2022 will still be about 15% below the average value recorded in 2011 14, when the oil boom and a stronger naira allowed a spending splurge. Trade-related services imports and profit repatriation (including some delayed from 2016 by dollar scarcity) will pick up but—as with goods imports—will remain below the peaks witnessed during the last oil boom. Meanwhile, workers' remittances will remain an important source of hard currency, dipping in 2020 as a proportion of GDP as growth in the US (home to a large Nigerian diaspora) falters. Overall, we expect the current-account surplus to narrow from 2.3% of GDP in 2018 to 2% of GDP in 2019 and 1.2% of GDP in 2019 20, amid worsening global conditions and a renewed dip in oil prices. The surplus will then pick up a little to 1.6% of GDP in 2022 as global economic health improves (bringing up oil prices with it), although it will be tempered by slowly recovering import demand.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 11 Forecast summary Forecast summary (% unless otherwise indicated) 2017a 2018b 2019b 2020b 2021b 2022b Real GDP growth 0.7 2.2 1.7 2.3 2.8 3.1 Industrial production growth 2.0 3.7 2.0 1.9 3.1 3.3 Petroleum production ('000 b/d) 1,555.0 1,695.0 1,735.0 1,755.0 1,820.0 1,886.0 Gross agricultural production growth 3.0 3.3 3.0 3.1 3.2 3.4 Consumer price inflation (av) 16.5 14.2 14.4 11.6 11.3 9.8 Consumer price inflation (end-period) 24.9 14.3 12.9 11.4 11.5 10.6 Commercial lending rate 17.5 16.8 17.0 15.7 15.5 14.5 Government balance (% of GDP) -2.3 -2.4 -2.5 -2.3 -2.1 -2.0 Exports of goods fob (US$ bn) 42.9 48.3 48.2 46.8 51.3 56.2 Imports of goods fob (US$ bn) 35.5 39.3 40.7 42.5 45.7 48.5 Current-account balance (US$ bn) 8.8 9.2 8.0 5.1 6.8 8.6 Current-account balance (% of GDP) 2.3 2.3 2.0 1.2 1.4 1.6 External debt (end-period; US$ bn) 37.6 42.5 44.8 49.5 54.1 59.2 Exchange rate N:US$ (av) 305.1 345.0 379.5 402.3 410.3 426.7 Exchange rate N:US$ (end-period) 337.1 352.3 390.9 406.3 418.5 434.9 Exchange rate N:¥100 (av) 273.1 316.9 355.7 386.8 410.3 425.9 Exchange rate N:€ (endperiod) 399.4 410.4 457.3 485.5 510.6 543.7 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 12 Data and charts Annual data and forecast

2013a 2014a 2015a 2016a 2017b 2018c 2019c GDP Nominal GDP (US$ bn) 515.0 568.5 493.8 405.4 389.5 395.0 405.8 Nominal GDP (N bn) 81,010 90,137 95,178 102,575 118,862 136,280 153,986 Real GDP growth (%) 5.4 6.3 2.7 -1.6 0.7 2.2 1.7 Expenditure on GDP (% real change) Private consumption 21.1 0.6 1.5 -5.7 -0.5 1.3 0.8 Government consumption -10.3 -7.0 -11.9 -15.1 4.0 4.4 5.0 Gross fixed investment 7.9 13.4 -1.3 -5.0 1.8 4.1 3.1 Exports of goods & services -21.7 24.1 0.1 11.5 1.9 2.6 2.3 Imports of goods & services 12.2 6.0 -25.7 -10.4 -1.4 2.0 1.9 Origin of GDP (% real change) Agriculture 2.9 4.3 3.7 4.1 3.0 3.3 3.0 Industry 2.2 6.8 -2.2 -8.9 1.0 2.7 1.0 Services 8.4 6.8 4.8 -0.8 -0.4 1.5 1.4 Population and income Population (m) 171.8 176.5 181.2 186.0 190.9 195.9 201.0 GDP per head (US$ at PPP) 5,670 5,975 6,038 5,861b 5,856 5,969 6,007 Fiscal indicators (% of GDP) Public-sector revenue 5.0 4.1 3.7 3.0 3.3 3.5 3.6 Public-sector expenditure 6.4 5.0 4.8 5.7 5.7 5.8 6.1 Public-sector balance -1.4 -0.9 -1.1 -2.8 -2.3 -2.4 -2.5 Net public debt 10.4 10.5 11.5 14.2 15.4 16.5 17.8 Prices and financial indicators Exchange rate N:US$ (av) 157.31 158.55 192.73 253.00 305.13 345.00 379.50 Exchange rate N:US$ (end-period) 157.26 169.68 196.50 304.50 337.07 352.25 390.89 Consumer prices (av, %) 8.5 8.0 9.0 15.7 16.5 14.2 14.4 Stock of money M1 (% change) -5.2 -11.1 37.1 33.1 4.0 10.4 7.3 Stock of money M2 (% change) 1.3 7.2 19.1 18.4 3.5 7.3 6.6 Lending interest rate (av; %) 16.7 16.5 16.8 16.9 17.5 16.8 17.0 Current account (US$ m) Trade balance 43,767 20,992 -6,447 -536 7,363 8,976 7,525 Goods: exports fob 95,118 82,586 45,888 34,704 42,898 48,263 48,215 Goods: imports fob -51,351 -61,594 -52,335 -35,240 -35,535 -39,286 -40,690 Services balance -20,109 -22,466 -16,453 -8,015 -9,301 -10,171 -10,757 Primary income balance -25,730 -19,166 -12,708 -8,616 -10,300 -10,935 -10,716 Secondary income balance 22,220 21,918 20,169 19,889 21,057 21,353 21,934 Current-account balance 20,148 1,279 -15,439 2,722 8,819 9,222 7,986 External debt (US$ m) Debt stock 21,144 24,756 28,943 31,151 37,556 42,520 44,849 Debt service paid 495 4,546 1,464 2,503 2,739 4,035 3,845 Principal repayments 226 4,278 1,111 1,837 2,008 3,092 2,693 Interest 270 268 353 666 731 943 1,152 International reserves (US$ m) Total international reserves 42,847 34,469 29,070 25,844 34,180 38,060 37,324 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. Source: IMF, International Financial Statistics.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 13 Quarterly data 2015 2016 2017 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Consumer prices (2005=100) 178.6 185.8 197.7 206.2 211.5 219.1 230.3 239.2 Consumer prices (% change, year on year) 9.4 11.3 15.3 17.5 18.5 17.9 16.5 16.0 Financial indicators Exchange rate N:US$ (av) 196.5 196.5 208.1 302.7 304.7 305.1 305.3 305.3 Exchange rate N:US$ (end-period) 196.5 196.5 282.5 304.8 304.5 305.9 305.4 305.3 Lending rate (av; %) 16.9 16.7 16.6 17.1 17.1 17.2 17.5 n/a Deposit rate (av; %) 7.5 6.8 6.9 7.7 8.6 9.0 9.3 n/a Money market rate (av; %) 6.4 4.9 7.9 13.8 14.0 13.8 13.5 n/a M1 (end-period; N bn) 8,572 9,041 9,519 9,83011,40510,23510,19010,064 M1 (% change, year on year) 37.1 29.5 45.5 37.5 33.1 13.2 7.1 2.4 M2 (end-period; N bn) 20,03020,47022,07822,01423,72522,30421,98121,954 M2 (% change, year on year) 19.1 7.0 17.4 17.6 18.4 9.0 -0.4 -0.3 Stockmarket index (NSE all share; end-period; Jan 28,64225,30629,59828,33526,87525,51633,11735,440 3rd 1984=100) Stockmarket index (% change, year on year) -17.4 -20.3 -11.5 -9.2 -6.2 0.8 11.9 25.1 Sectoral trends Crude oil production (m barrels/day)a 1.82 1.76 1.50 1.41 1.45 1.39 1.49 n/a Crude oil production (% change, year on year) -3.0 -2.8 -15.9 -21.7 -20.3 -21.0 -0.4 n/a Foreign trade (US$ m) Exports fob 10,249 7,602 9,264 7,924 9,914 9,96410,807 n/a Oil 8,285 5,871 7,158 6,470 7,857 7,784 7,945 n/a Imports cif 12,307 9,27612,014 8,620 8,331 8,352 9,349 n/a Trade balance -2,058 -1,674 -2,750 -696 1,583 1,612 1,458 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 29,07027,86526,36324,53125,84430,29830,28832,491 a Excluding condensates. Sources: Central Bank of Nigeria; Nigeria National Bureau of Statistics; IMF, International Financial Statistics, Direction of Trade Statistics; International Energy Agency, Oil Market Report; Energy Intelligence Group, Oil Market Intelligence; Bloomberg.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 14 Monthly data Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Exchange rate N:US$ (av) 2015 169.68 178.15 196.57 196.50 196.50 196.42 196.47 196.50 196.50 196.49 196.49 196.49 2016 196.55 196.50 196.50 196.50 196.50 231.26 294.07 309.23 304.72 304.71 304.68 304.72 2017 304.70 304.81 305.90 305.55 305.04 305.21 305.36 305.17 305.39 305.12 n/a n/a Exchange rate N:US$ (end-period) 2015 169.68 197.50 196.50 196.50 196.50 196.45 196.50 196.50 196.45 196.50 196.50 196.50 2016 196.50 196.50 196.50 196.50 196.50 282.50 312.50 305.50 304.75 304.50 304.50 304.50 2017 304.75 305.00 305.85 305.35 304.90 305.40 305.15 305.35 305.25 305.30 n/a n/a Real effective exchange rate (2000=100; CPI-based) 2015 56.71 57.84 51.11 51.17 50.64 51.16 51.86 52.83 53.45 53.47 54.92 55.66 2016 56.87 57.62 58.05 57.88 59.20 51.15 41.20 39.27 40.28 41.23 42.15 43.12 2017 43.21 43.38 43.76 44.12 44.22 44.54 44.59 45.11 45.64 n/a n/a n/a M1 (% change, year on year) 2015 -6.2 -10.4 0.8 0.4 -4.6 -4.2 -7.4 3.6 4.2 -1.0 4.5 37.1 2016 29.7 50.1 29.5 27.2 45.5 45.5 48.1 36.8 37.5 48.4 49.5 33.1 2017 33.1 10.9 13.2 7.4 5.7 7.1 7.7 3.7 2.4 n/a n/a n/a M2 (% change, year on year) 2015 8.4 7.2 21.6 22.2 18.8 16.3 10.5 12.9 11.3 9.9 10.0 19.1 2016 17.8 24.7 7.0 5.7 9.6 17.4 22.3 19.3 17.6 21.8 21.9 18.4 2017 16.7 7.7 9.0 5.0 4.8 -0.4 -1.5 -0.9 -0.3 n/a n/a n/a Deposit rate (%) 2015 9.6 9.5 9.0 8.7 8.9 10.3 10.3 10.3 10.6 9.1 6.5 6.9 2016 6.7 6.8 6.9 6.8 7.0 6.9 7.4 8.0 7.7 8.3 8.6 8.8 2017 8.9 9.1 9.1 9.5 9.4 9.0 9.7 n/a n/a n/a n/a n/a Lending rate (%) 2015 16.9 16.8 16.9 16.0 16.1 17.2 17.3 17.3 17.0 16.8 17.0 17.0 2016 16.5 16.7 16.8 16.8 16.1 16.8 17.1 17.2 17.1 17.1 17.1 17.1 2017 16.9 17.1 17.4 17.4 17.6 17.6 17.7 n/a n/a n/a n/a n/a Monetary policy rate (%) 2015 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 11.0 11.0 2016 11.0 11.0 12.0 12.0 12.0 12.0 14.0 14.0 14.0 14.0 14.0 14.0 2017 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 n/a n/a Stockmarket index (NSE all share; end-period; Jan 3rd 1984=100) 2015 29,562 30,104 31,745 34,708 34,310 33,457 30,180 29,685 31,218 29,178 27,386 28,642 2016 23,916 24,571 25,306 25,062 27,663 29,598 28,010 27,599 28,335 27,220 25,242 26,875 2017 26,036 25,329 25,516 25,759 29,498 33,117 35,844 35,505 35,440 36,680 n/a n/a Consumer prices (% change, year on year; av) 2015 8.2 8.4 8.5 8.7 9.0 9.2 9.2 9.3 9.4 9.3 9.4 9.6 2016 9.6 11.4 12.8 13.7 15.6 16.5 17.1 17.6 17.9 18.3 18.5 18.5 2017 18.7 17.8 17.3 17.2 16.3 16.1 16.1 16.0 16.0 n/a n/a n/a Foreign-exchange reserves excl gold (LCU/US$ m) 2015 34,281 31,356 29,790 29,528 29,595 29,000 31,460 31,322 30,344 30,192 29,917 29,070 2016 28,162 27,824 27,865 27,090 26,387 26,363 26,196 25,417 24,531 23,953 24,772 25,844 2017 28,174 29,647 30,298 30,865 30,330 30,288 30,843 31,826 32,491 33,825 n/a n/a Sources: IMF, International Financial Statistics; Haver Analytics.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 15 Annual trends charts

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 16 Monthly trends charts

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 17 Comparative economic indicators

Basic data Land area 923,773 sq km Population 193.4m (2016 National Bureau of Statistics estimate)

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 18 Main towns Population in millions (2012 World Gazetteer estimates) Lagos: 10.4 (a) Ibadan: 5.5 Benin: 2.6 Kano: 2.4 Port Harcourt: 2.3 Abuja: 1.6 (a) There are large variations in estimates of the size of Lagos and other cities in Nigeria, reflecting the weakness of population statistics in general and failure to agree over city boundaries Climate Tropical; with a long wet season in the south, particularly the south-east, and a shorter wet season in the north Weather in Lagos (altitude 3 metres) Hottest month, March, 2632°C; coolest month, August, 2328°C; driest month, December, 25 mm average rainfall; wettest month, June, 460 mm average rainfall Languages English (official), Hausa, Yoruba and Ibo; many other local languages are widely spoken Measures Metric system Currency Naira (N) = 100 kobo; N253:US$1 (2016 average) Time One hour ahead of GMT Public holidays New Year's Day; Good Friday; Easter Monday; Worker's Day (May 1st); Democracy Day (May 29th); Eid al-Fitr; Eid al-Adha; Independence Day (October 1st); Mawlid al-Nabi; Christmas

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 19

Political structure Official name Federal Republic of Nigeria Form of state Federal republic, comprising 36 states and the Federal Capital Territory (FCT, Abuja) Legal system Based on English common law National legislature National Assembly, comprising the 109-seat Senate and the 360-seat House of Representatives; both are elected by universal suffrage for four-year terms National elections Most recent legislative and presidential elections were held in March 2015; the opposition candidate, Muhammadu Buhari, was elected to the presidency, and his party, the All Progressives Congress, took control of the National Assembly; next national elections are scheduled for 2019 Head of state President, elected by universal suffrage to serve a four-year term State government State governors and state houses of assembly

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 20 National government Federal Executive Council, which is chaired by the president Main political parties The All Progressives Congress (APC), a merger between the All Nigeria People's Party (ANPP), the All Progressives Grand Alliance (APGA) and the Congress for Progressive Change (CPC); the People's Democratic Party, which ruled from 1999 until its defeat by the APC in 2015 Key ministers President & petroleum: Muhammadu Buhari Vice-president: Yemi Osinbajo Agriculture & rural development: Audu Ogbeh Budget & national planning: Udo Udoma Defence: Manir Dan-Ali Education: Adamu Adamu Environment: Amina Mohammed Finance: Kemi Adeosun Foreign affairs: Gregory Onyeama Health: Isaac Adewole Information: Lai Mohammed Interior: Abdulrahman Dambazau Justice: Abubakar Malami Labour & employment: Chris Ngige Niger Delta: Usani Uguru Power, works & housing: Babatunde Fashola Solid minerals: Kayode Fayemi Trade, investment & industry: Okechukwu Enelamah Transport: Rotimi Amaechi Youth & sports: Solomon Dalong Central bank governor Godwin Emefiele

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 21 Recent analysis

Generated on December 7th 2017 The following articles were published on our website in the period between our previous forecast and this one, and serve here as a review of the developments that shaped our outlook. Politics Forecast updates Compensation judgement agreed for civil war victims November 1, 2017: Political stability Event A regional court issued a consent judgement on October 30th under which Nigeria is to pay N88bn (US$288m) in damages to victims of the 1967 70 civil war for failing to clear the land of mines and other explosives after the end of the conflict. Analysis A consent judgement is an agreement reached between two sides outside the legal process that is then adopted by the court, in this case the Economic Community of West African States (ECOWAS) Court of Justice. The timing of this settlement is pertinent. It comes at a time when the government is facing a growing secessionist movement in the south-east, spearheaded by an ethnic Igbo separatist group, the Indigenous People of Biafra (IPOB), which is trying to resurrect the Biafran rebellion that was an important factor in the civil war. With the wounds of the brutal conflict evidently still unhealed and many ordinary people in the south-east still complaining of the political marginalisation of their ethnic group, the IPOB has sought to capitalise on resentment to push its separatist agenda. The original compensation suit was filed in 2012, so by reaching a deal now the government may well be hoping to head off the secessionist surge seen in recent months. The judgement will see the Nigerian federal government pay N50bn to compensate war victims in 11 states and use a further N38bn towards the evacuation of abandoned bombs and other lethal weapons, as well as the construction of schools, courts, churches and mosques in the affected areas. However, it is unclear how Nigeria's cash-strapped administration will implement the judgement. Furthermore, how effectively the money is distributed will also be important. For example, previous government attempts to placate local communities in the oil-producing Niger Delta often saw money ending up in the pockets of unscrupulous local political figures or militant leaders rather than the planned recipients. Impact on the forecast Despite small-scale conciliatory efforts, we maintain that the government will continue to prove unable to bring a lasting peace to the many areas of the country affected by militancy or social unrest. This will drive political instability throughout the 2018 22 outlook period, as per the current forecast.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 22

Niger Delta militants end their ceasefire November 6, 2017: Political stability Event On November 3rd a militant group, the Niger Delta Avengers (NDA), announced an immediate end to their ceasefire in the oil-producing Niger Delta region, saying that the federal government had not been sincere with its peace talks and promises. Analysis Recent events tally with our view that the government—which also faces challenges to its authority from Islamist terrorists in the northeast and ethnic separatists in the southeast—has a near impossible task to persuade the NDA and other resource nationalists in the delta to give up their rebellions. The administration lacks the financial resources and arguably also the political will to implement any major redistribution of the nation's oil wealth that would appease disgruntled local communities but anger politically powerful constituents of Nigeria's strained federation. Unrest is therefore set to continue; the more immediate question is over the size of the impact it will have on oil production. The NDA emerged in early 2016 and became the main driver of disruption to Nigeria's oil production. The wave of attacks on energy pipelines in 2016 reduced Nigeria's crude output by as much a 700,000 barrels/day, to its lowest level in almost three decades. The loss compounded the slump in global oil prices and played an important role in Nigeria's recent economic recession. The NDA announced a ceasefire in August 2016 and there has been no major attack by any group in the delta since January 2017. The easing of tension enabled the recovery in oil production that helped to restore the economy to growth in the second quarter of 2017. A resurgence of unrest would jeopardise the government's already frail finances and undermine the country's growth prospects. In the past the state has been able to mollify some of the insurgents with material incentives, but the resulting peace has proved temporary as new sets of militants have risen to continue the struggle against the government and the oil industry. This latest announcement by the NDA is probably part of this well-established narrative; the government will attempt to placate them with new inducements only for the cycle to continue in the coming years. Impact on the forecast We maintain our forecast that it will prove impossible for the administration to bring permanent peace to the Niger Delta. Ongoing outbreaks of instability will continue to hinder the oil sector and as a result play a role in the subdued rates of economic growth we forecast for our 2018 22 outlook period.

Major suicide bombing highlights security shortcomings November 22, 2017: Political stability Event A suicide bomber killed at least 50 people at a mosque in north-eastern Nigeria on November 21st. Event No group has claimed responsibility for the mass killing carried out by an apparently teenage bomber at a mosque in the town of Mubi in Adamawa state. However, the attack bore the hallmarks of the jihadi group Boko Haram, factions of which target civilians using suicide bombers. This dreadful incident, the latest and deadliest of several suicide bombings in the north- east this year, supports our view that claims made by the government that Boko Haram is nearly defeated are premature. Although the Nigerian military has over the past two years largely succeeded in driving out Boko Haram from its main bases in the Sambisa Forest and weakened its capacity to capture territory, Islamist extremists are clearly still able to orchestrate acts of random violence, especially suicide bombings, that seem designed to instil fear in the population and undermine confidence in the state. As with governments elsewhere in the world that are contending with terrorist violence, the Nigerian administration has a very difficult job to prevent the kind of atrocity that occurred in Mubi. The challenge is perhaps even harder in less-developed countries where, as in Nigeria's remote north-east region, there is inadequate infrastructure and local law enforcement agencies are poorly trained and equipped. The government is hoping that its efforts to tackle poverty in the north-east will help to end the unrest in the region. The president, Muhammadu Buhari, said in his budget speech on November 7th that the North-East Development Commission Bill that he recently signed into law will consolidate the administration's efforts to combat the insurgency, reintegrate internally displaced persons and rebuild communities devastated by the insurgency. Although government efforts to tackle poverty in the north-east, including the reconstruction of roads, homes and business premises destroyed by insurgents is important, the containment of terrorism also requires substantial investment in increasing the surveillance and intelligence- gathering capacities of local security agencies. This has been a slow process. Impact on the forecast We maintain our view that Nigeria will remain subject to acts of terrorism throughout the 2018 22 forecast period.

Former vice-president quits ruling party November 27, 2017: Political stability Event The former vice-president, Atiku Abubakar, has quit the ruling All Progressives Congress (APC) party. Analysis Mr Abubakar said in a statement on November 24th that the party has failed the country and instituted "a draconian clampdown on all forms of democracy within the party and the government it's produced". His departure from the APC is a setback for a party that was formed in 2013 from opposition parties that merged to contest the 2015 elections to unseat the People's Democratic Party (PDP), which had governed the country since the restoration of democracy in 1999. Mr Abubakar is reputed to be one of Nigeria's richest politicians, with strong ambition to be president. While Nigeria's vice-president (1999-2007) he left the PDP in 2006 after his attempts to win its presidential ticket were thwarted. After unsuccessfully contesting the 2007 presidential election for an opposition party, he rejoined the PDP in 2010 but failed in his bid for its presidential ticket for the 2011 election. Then, in 2014, he was one of several senior members of the PDP, including state governors and legislators, who jumped ship to join the APC. There had been speculation that Mr Abubakar would ditch the APC if the president, Muhammadu Buhari, sought the party's ticket for a second term in office. The 74-year-old ruler spent several months this year in the UK receiving medical treatment for an undisclosed ailment and it looked unlikely then that he would be fit enough to serve his full first term, let alone contest a second. However, in recent weeks the president's allies have begun manoeuvring to push for him to serve a second term. In quitting the APC Mr Abubakar did not say which party he intends to join. However, the PDP seems the most likely destination. In a statement on November 23rd, the PDP Unity Forum, a group in the party, appealed to Mr Abubakar and other ex-PDP members in the APC to return to the party. With both the APC and PDP struggling to maintain their unity, an increase of allegiance switching is likely in 2018, which will add tension ahead of what is likely to be a fiercely fought contest for power in 2019. Impact on the forecast We maintain our view that manoeuvring ahead of the 2019 elections will raise tensions—leading to outbreaks of instability in some circumstances—and distract policymakers from muchneeded economic reform.

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 25 Economy Forecast updates President presents ambitious 2018 budget November 8, 2017: Fiscal policy outlook Event Nigeria's president, Muhammadu Buhari, has presented to the National Assembly a N8.6trn (US$28.24bn) budget for 2018. Analysis Mr Buhari told federal lawmakers on November 7th that his administration's proposed spending plan is 16% higher than the 2017 budget, and aims to achieve a diversified, sustainable and inclusive economy. The budget is based on projected oil output of 2.3m barrels/day at a price of US$45/barrel and assumes an exchange rate of N305:US$1. We expect slightly lower oil production in part reflecting increased militancy, but a higher average price and weaker exchange rate (which boosts the naira value of oil exports), making the budget's oil revenue target of N2.44trn feasible. Much less feasible is the projection of non-oil revenue equivalent to N4.17bn. Mr Buhari boasted that the 2018 budget shows Nigeria has entered a new era, as its old ways of overdependence on oil revenue is disappearing. This is almost certainly wishful thinking. Given that the country's economic growth is likely to remain sluggish (the budget projects real GDP growth of 3.5%; we expect 2.2%), the administration will probably continue to fall short of its highly ambitious tax collection projections. Widening the tax base, in particular, will remain highly challenging. As of end-September actual non-oil tax revenue was about 30% below the 2017 budget target. Nonetheless, there are signs in the budget that the administration may pursue more radical strategies to boost revenue. Mr Buhari said the government plans to privatise non-oil assets to the value of N306bn to help fund the deficit. This could mean the revival of the administration's privatisation programme, which has made little headway in recent years. Furthermore, the president said his administration aims to raise N710bn as proceeds from the restructuring of government's equity in joint-venture projects in the country's oil sector. However, any sell-off of oil assets will be contentious and likely to move slowly. With a revenue undershoot likely, the 2018 budget's ambitious spending plans will probably come under strain, much as in 2017, when revenue shortfalls triggered cutbacks in capital spending. However, with the 2019 elections looming the government will not want to restrain spending too much. Therefore we think the budgeted deficit of N2trn (roughly 1.5% of GDP), will be exceeded with the eventual deficit around 2.5% of GDP. Impact on the forecast We maintain our fiscal deficit forecast for 2018, expecting notable undershoots on budgeted non- oil revenue in particular.

Senate clears MTN over foreign-exchange transfers November 10, 2017: Policy trends Event Nigeria's Senate has exonerated the Nigerian unit of a South African telecoms company, MTN, of the charge that it illegally repatriated nearly US$14bn. Analysis The Senate had ordered an investigation in September 2016 following an allegation that MTN unlawfully repatriated US$13.92bn from Nigeria, the firm's most lucrative market, between 2006 and 2016. On November 8th the Senate, the upper chamber of parliament, approved the report by its committee that investigated the allegation. The report concluded that there was no proof of collusion to contravene Nigeria's foreign-exchange laws, saying: "There was evidence of massive capital outflow but that alone is not conclusive that a crime has been committed." However, the report asked the Central Bank of Nigeria to sanction one of the banks that transferred the funds, Stanbic IBTC Nigeria, for improper documentation regarding repatriation and loan repayments on behalf of MTN. MTN has endured a challenging period in Nigeria. In addition to facing the repatriation investigation, during 2016 the company paid the telecoms regulator, the Nigerian Communications Commission, a fine of N330bn (US$1.1bn), reduced from N1.04trn, for not complying with a deadline to disconnect unregistered sim cards. Therefore it was of little surprise that the news of the Senate decision to drop the potentially damaging repatriation case triggered gains for MTN shares in Johannesburg. There are wide investment implications from the case as well. Given that the Senate investigation took place against a background of acute foreign-exchange shortages in Nigeria, investors are likely to be reassured that the probe appears not to be a prelude to the imposition of restrictions on the ability of foreign companies operating in Nigeria to legitimately repatriate their profits. Ultimately this will prove to be good news for a country in dire need of new investment amid an economic slump. The government is prioritising business friendly reforms and a commitment to due process and the rule of law is important in that. Impact on the forecast Although we maintain that Nigeria will remain a challenging environment to do business in, we also continue to expect foreign direct investment to trend upwards during the 2018 22 forecast period (apart from an election-uncertainty-related dip in 2019) as business-friendly reforms are slowly implemented.

Annual inflation continues to slow November 16, 2017: Inflation Event The annual inflation rate in Nigeria eased for the ninth consecutive month in October to 15.91%, the National Bureau of Statistics (NBS) reported in its latest Consumer Price Index published on November 15th. Analysis Government officials will be pleased with the continued moderation in the year-on-year inflation rate, which in January 2017 was at an 11 year peak of 18.72%. The administration of the president, Muhammadu Buhari, which came to power in May 2015 when inflation was 9%, had faced public criticisms for soaring consumer prices amid a collapse of economic growth. The government is hoping that the moderation in headline inflation will continue in the medium term and the rate average 12.4% in 2018, which is probably a slightly ambitious target. (Our forecast is for inflation averaging above 14% in 2018.) Nonetheless, the general outlook of lower inflation in the coming months is likely to increase pressure on the Central Bank of Nigeria (CBN) from private-sector organisations that want to see a cut in the benchmark interest rate after holding at a record high of 14% since July 2016. Businesses contend that the bank needs to relax its tight monetary stance to enable acceleration of the recovery of the economy, which came out of recession in the second quarter of this year. However, members of the CBN monetary policy committee that meets on November 20th 21st are likely to remain concerned that, although headline inflation has moderated significantly this year, there has been sustained pressure on food prices. The NBS food price index showed that the year-on-year food inflation rate fell in October to 20.31%, but only fractionally from 20.32% in September, the highest level in more than a decade. Persistently high food prices is worrying in a country where widespread poverty is a major factor in the lingering social and ethnic tensions threatening unity and stability. Government officials maintain that the administration's drive towards self-sufficiency in food production, partly to conserve foreign exchange used to pay for imports and to boost local agricultural output, is making progress. However, the big gap between core inflation at 12.14% in October and food inflation at 20.31% suggests that overall supplies of food items in the country may not be keeping pace with its fast-growing population. Impact on the forecast The latest data support our existing inflation forecast for a slow moderation in 2018. High food prices will prevent a more rapid decline.

A further rise in public debt November 20, 2017: Policy trends Event Nigeria's total public debt stock rose to N20.37trn (US$66.63bn) by end September 2017 from N16.88trn a year earlier, according to data published by the Debt Management Office on November 14th. Analysis Borrowing by federal and state governments has risen sharply over the past two years (from N12.36trn in September 2015) mainly due to the collapse of oil income following the crash in global petroleum prices in mid 2014. The nation's debt stock is liable to keep growing at a considerable pace in the medium term as national and state governments struggle to expand non oil revenue. The federal government, responsible for the bulk of the debt stock, is seeking to rebalance future borrowings away from the relatively more expensive domestic capital markets, which currently make up most of the overall debt. On November 14th the Senate approved the administration's request to borrow US$5.5bn from international capital markets. Of this amount, US$2.5bn is intended to fund stalled capital projects from the 2017 budget while the remaining US$3bn will be used to refinance maturing domestic debts. The finance minister, Kemi Adeosun, has said that refinancing of the short-term treasury bills is expected to save the government N91.65bn per year in debt-service costs. With Nigeria's debttoGDP ratio currently low by international standards—less than 20% of GDP —The Economist Intelligence Unit does not expect the additional borrowing planned by the government to push the country to unsustainable debt levels in the short to medium term. However, the main debt issue facing the country is the high and increasing cost of servicing debt relative to its income. During the first seven months of this year, debt-servicing made up 57% of the federal government retained revenue, according to National Bureau of Statistics data. While it is the case that foreign loans are cheaper to maintain than domestic obligations, government plans to issue more eurobonds will increase its foreign debt servicing commitment. Commercial bonds made up 21.5% of Nigeria's US$15.35bn foreign debt portfolio in September and 53% of interest payments in the third quarter. Impact on the forecast Recent debt trends and government policy pronouncements fit with our existing forecast for an ongoing build up in public debt. However, we will slightly rebalance this debt build up more towards the external component, meaning that the external debt forecast will be increased.

Economy continues weak recovery November 22, 2017: Economic growth Event Nigeria's economy grew by 1.4% year on year in the third quarter of 2017, according to the National Bureau of Statistics latest quarterly GDP report published on November 20th. Analysis This is the second quarter of consecutive growth since the economy exited recession and shows an improvement on the revised 0.71% (year-on-year) growth attained during April-June. The expansion in the third quarter was largely due to increased oil production, which rose to 2.03m barrels/day (b/d) from 1.87m b/d in the second quarter, revised from 1.84m b/d. Nigeria is consolidating its recovery from its first recession in 25 years and appears on track to achieve positive growth for 2017 as a whole. As at the third quarter year-to-date growth was 0.43%. But the breakdown of the growth data indicate that there has been little rebound outside of the country's oil and gas enclave. While the oil sector grew by 25.89% year on year in the third quarter, the non-oil sector contracted by 0.76%. Oil accounted for 10.04% of the overall economy in July-September, up from 8.09% in the third quarter of 2016. The manufacturing sector contracted by 2.85% in the third quarter while services shrunk by 2.66%. Agriculture has continued to expand, growing at 3.06% in July-September, but this was at a slower pace than achieved during the five quarters of recession. The government faces the challenge of implementing reforms that can help to spur greater economic activity outside the oil sector to enable the economy to return to its earlier period of robust growth that was driven by the non-oil sector. The administration says that it is working to diversify the economy and enable greater job creation, but we think that it has made insufficient progress in tackling the deep-rooted structural problems that constrain growth, including an inefficient energy sector and low public infrastructure investment. Impact on the forecast The latest data support our existing forecast for positive, but relatively subdued, real GDP growth in 2018. We also maintain our view that, beyond this, growth will remain constrained around 3% by a turbulent political scene, social instability and a lack of structural economic reforms.

Capital inflows continue to recover November 30, 2017: External sector Event Capital importation into Nigeria totalled US$4.15bn in July-September, which was more than double the US$1.8bn imported in the previous quarter and the US$1.82bn received in the third quarter of 2016, according to the National Bureau of Statistics (NBS). Analysis The data in the NBS's Nigerian Capital Importation report, published on November 27th, show that inflows of physical and financial capital reached the highest level since early 2015, driven by growth in portfolio and other investments. Foreign portfolio investment (FPI) rose to US$2.77bn in the third quarter from US$770.5m in the second quarter and US$920.3m in the third quarter of 2016. Equities accounted for the bulk of the growth, responsible for 70% of total FPI inflows in July- September. The rise in portfolio investment largely reflects an increase in investor confidence following the decision of the Central Bank of Nigeria (CBN) in mid 2017 to open a special foreign- exchange window for investors and exporters to trade currencies at market rates. This partial easing of capital tightening imposed by the CBN in response to the collapse of Nigeria's oil earnings in 2014 has helped to boost foreign-currency liquidity, at least for eligible businesses. Indeed, the easing of currency restrictions in effect allowed a stealth devaluation making local assets cheaper for investors. On November 27th the NAFEX rate, which applies to the investors' and exporters' window, closed at N360.3:US$1, compared with the official rate of N305.8:US1. Although FPI has risen significantly in recent months, foreign direct investment (FDI) remains meagre for an economy of Nigeria's size. Indeed, FDI inflows dropped to US$117.6m in July- September from US$274.4m in the previous quarter and US$340.6m a year earlier. This is worrying for an economy that exited recession in the second quarter and is striving to boost a weak recovery to return to the robust growth it enjoyed prior to the oil crash. The low level of FDI indicates that investors interested in committing to long-term production-related activities remain wary of a country where producers continue to struggle with an array of problems, including poor infrastructure and remaining restrictions in the foreign-exchange system. Impact on the forecast The latest data fit with our existing forecast of an upward trend in the import of physical and financial capital into the country during 2018. However, we also still expect a slowdown in financial investment inflows (portfolio and FDI) in 2019, amid election-related political uncertainty, before further growth in the remainder of the 2018 22 forecast period.

Analysis Progress made with reforms, but not enough November 6, 2017 The Nigerian administration has made some good progress with its stated objective of easing the burden of doing business in the country. However, these moves fall far short of unshackling the economy and shifting to a higher pace of growth and job creation. That will take bolder initiatives, but with a president and wider administration looking towards their re-election, time is not on their side with a national vote under 18 months away. Indeed, political and fiscal considerations will likely prevent more rapid progress in jump starting the economy. Nigeria was among the ten economies that showed most notable improvement in the World Bank's Doing Business 2018 report published on October 31st. The country climbed 24 places to 145th in the index. The government has welcomed the report, which said the Abuja administration had carried out reforms in five of the ten areas monitored by the annual review. The president, Muhammadu Buhari, described the progress made by Nigeria in the report as a landmark achievement that symbolises the success of his administration's ease of doing business reforms. He said on Twitter that the goal of the government is to make it easy for people, Nigerians and

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 31 foreigners, to invest and do business in Nigeria. Progress on multiple fronts The report, based on data current up to June 1st 2017, noted that Nigeria had made progress in the areas of starting a business, dealing with construction permits, registering property, getting credit and paying taxes. Overall the country scored 52.03 and ranked 145th for ease of doing business out of the 190 countries, compared with a score of 44.63 and ranking of 169th in the 2017 report. The vice-president, Yemi Osinbajo, who chairs the Presidential Enabling Business Environment Council established in 2016 to lead the ease of doing business reform drive, said in a separate statement that Nigeria's rise in the 2018 ranking exceeded the government's target to move up 20 places. Yet major hindrances remain Under its programme to remove bottlenecks and bureaucratic hurdles hindering business activities in Nigeria, part of a medium term Economic Recovery and Growth Plan, the government aims to elevate the economy to a place in the top 100 in the World Bank rankings by 2020. It is understandable that Nigeria's progress in the 2018 report has thrilled a government that has faced criticism for its economic management and been partly blamed for the decline of the economy in 2016, when Nigeria suffered its first recession in 25 years. Nonetheless, although the recession has ended, the country remains mired in sluggish growth and is far from reaching its medium-term goal to be a globally competitive place to invest and carry out business. To achieve this, much deeper reforms are needed, including trade and foreign-exchange liberalisation, as well as dealing with the country's huge infrastructure deficit. Fresh impetus needed ahead of next elections The same day as the World Bank survey was published, Mr Buhari announced that he plans to enlarge his cabinet. The president told the National Executive Council of the ruling party, the All Progressives Congress (APC), on October 31st that he wants to bring in more people with fresh ideas to inject into the government. He gave no further details, such as when new ministers will be appointed and whether the exercise will involve a reshuffle of existing ministers. However, the move looks likely to have a political undercurrent. There has been much local media speculation that Mr Buhari's plan to enlarge the cabinet is a move in preparation for his re-election bid in 2019. The 74-year-old ruler, who spent several months this year in the UK receiving medical treatment for an undisclosed ailment, has not said whether he wants a second term in office. However, many in his party believe he does. For example, in an event attended by top APC politicians, the Buhari Support Organisation opened its new headquarters in Abuja on October 27th in readiness for the president's anticipated declaration for re-election and start of campaigning. Mr Buhari also told the APC council that he would soon reconstitute the boards of parastatals that have not been reconstituted since 2015. He has been under pressure from APC members to make the new appointments, which can be a source of patronage used to put allies in key positions at election time. Political and fiscal considerations are likely to restrain progress Mr Buhari may also want to expand his cabinet in order to have more flexibility in forming his team, while abiding by the constitutional requirement that the federal cabinet must have at least one person from each of Nigeria's 36 states. The present 36-strong team is the minimum allowed. Unfortunately, under the present climate of heightened geo-ethnic sensitivity in the country, any new additions to the cabinet are likely to be scrutinised by see whether they maintain the geopolitical balance in the distribution of power. Also, by enlarging the cabinet and appointing new boards for parastatals, the president will probably raise the cost of governance at a time when the government's revenue inflows are barely sufficient to cover its recurrent expenditure. Faced with a cash crunch, the challenge before the administration is not only to boost its non-oil revenue but also reduce recurrent expenditure by trimming a bloated bureaucracy. All of this is likely to undermine a more major programme of reform ahead of the elections. For now, although Nigeria continues to make some progress in re-energising the economy, it will not be a rapid

Slim prospects for common currency in ECOWAS November 10, 2017 The Economic Community of West African States (ECOWAS) has been planning to have a common currency (the "eco") for almost two decades, with the aim of strengthening economic integration and performance. The project has, however, suffered repeated delays. Recently, leaders of the 15country bloc pledged to fasttrack implementation of the current roadmap to introduce the eco by 2020. To actualise the project, however, ECOWAS must reckon with the chronic obstacles of uncertain political commitment, poor initial conditions, and doubts about the scheme's desirability and workability. As these will continue to dog the process, the prospects of remaining on schedule are slim. ECOWAS first set the singlecurrency agenda at a summit in 1999. In 2000 it agreed a two phase strategy, whereby six member states—The Gambia, Ghana, Guinea, Liberia (a later member), Nigeria and Sierra Leone—formed the West African Monetary Zone (WAMZ) to pioneer the eco by 2003. The WAMZ planned to become a monetary union of all West Africa by merging with the Union économique et monétaire ouestafricaine (UEMOA), a bloc of eight, mostly Francophone ECOWAS countries that already shared a common currency, the CFA Franc. The 2003 date was missed, and three further postponements, in 2005, 2009 and 2015, have preceded the 2020 deadline. The lack of substantive progress on important obstacles calls into question the feasibility of the latest drive. A common currency could be beneficial, in theory A single currency and monetary union of West Africa could be beneficial in many ways. By addressing multiple currencies and exchange-rate fluctuations, it would lower transaction costs and facilitate payments. This would boost intra-regional trade, officially recorded as below 10% of all trade by ECOWAS members. A common central bank also has the chance of being more independent than some national central banks within the bloc at the moment, and could facilitate effective supervision of the growing number of regional banks. If ECOWAS, which lags behind other economic groupings in the east and south of Africa in its achievements, is able to gets its own currency, its influence in the continent, especially with Africa's biggest economy, Nigeria, as a member, would undoubtedly increase too. Poor conditions In pursuing the eco, ECOWAS is obviously persuaded by the merits. However, despite more than four decades of existence and recent steps to develop a functional common market, the bloc cannot boast of adequate conditions to maximise the benefits of a currency union. Infrastructural links—transport, communication and financial—needed to spur trade are deficient and, in some places, have not improved markedly since colonial times. Financial constraints mean that more projects are stuck on shelves than being executed or completed. A lot of migration and informal trade nevertheless occurs within the region, taking advantage of porous borders and belying official statistics on those indicators. Corruption and crime are a persistent challenge though, given undisciplined administration and weak security on border corridors. Without addressing these problems systematically, the effort to create a common currency seems premature, and also a distraction because of the attention it gets. The WAMZ countries have also failed to achieve the macroeconomic stability stipulated for common currency convergence. After several years of inconsistent performance, the macroeconomic convergence criteria were reduced from 11 to 6 in 2014. The main ones are limits for inflation (10%), the fiscal deficit (3% of GDP), deficit monetisation (10% of previous year's tax revenue) and a floor for foreign reserves (three months of import cover). Exchange-rate stability and debt sustainability are also mandated. The latest data show most countries are far from converging towards these goals, and the short period to 2020 is unlikely to produce any dramatic or sustainable improvements. Despite rhetoric, political commitment is uncertain If enough political commitment could be rallied, then the barriers to the eco could probably be

Country Report December 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Nigeria 33 surmounted. West African leaders' constant reaffirmations of the vision, like during the October 2017 meeting in Niamey, Niger's capital, may easily be read as a willingness to act. However, the reality is more subtle. The necessity for countries to renounce some economic sovereignty for the sake of monetary integration has produced many sceptics of the project, including within the top echelons of power, giving governments a dilemma. An example can be found in the speech given by Nigeria's president, Muhammadu Buhari, at the gathering in Niamey, in which he evoked the EU crisis to urge caution and patience by ECOWAS. Nigeria's stature as the biggest and most populous economy in the bloc makes it hard to discount its hesitations. There is also the issue of UEMOA, which is expected to dissolve the CFA Franc Zone to join the eco but has not presented a plan to do so yet. Given its more advanced status (the zone has a common central bank and regional stock exchange, for instance) and relative macroeconomic stability, because of tying the CFA franc to the euro with backing from France, there would be much introspection before it takes this step. It may decide to hold out for better macroeconomic conditions in the WAMZ, further delaying its participation. Unfavourable prospects Overall, the chances of realising the eco by 2020 in its full conception are slim. Even beside the major hurdles, the practicality of establishing the required institutions and changing national legislation in less than three years is doubtful. An alternative scenario proposed by some ECOWAS technocrats is for a smaller group of member states that may be better positioned than the rest to take the lead in 2020. But this would only really serve to complicate the process. A delay beyond 2020 would certainly pose credibility problems for the project, but it will not cause it to be jettisoned, we believe. In part, this is because a similar agenda is being pursued at the continental level by the African Union, aiming to build on the success of sub-regional monetary zones, which will thus provide the impetus for further efforts by West Africa in this direction. In short, we expect ECOWAS to keep trying.