Country Report November 2003
Nigeria Nigeria at a glance: 2004-05
OVERVIEW The president, Olusegun Obasanjo, has shown greater commitment to implementing liberal economic reforms in his second and last term in office, but still faces a huge task to if he is to turn around the corruption ridden, heavily indebted and oil dependent economy. Mr Obasanjo may also pursue controversial reforms, such as constitutional changes, to shake up Nigeria’s crisis-prone political system. However, these are likely to be resisted by powerful groups with vested interests in maintaining the status quo. Given the background of ethnic and religious divisions, widespread poverty and political disillusionment, there is a risk that the reform drive could destabilise the country if not properly managed. However, assuming that the president is able to navigate Nigeria’s turbulent political waters and achieve some progress with reform—against the background of ongoing growth in the oil and gas sector— the Economist Intelligence Unit forecasts that real GDP growth will rise marginally from 3.6% in 2003 to 3.8% in 2004 and 3.9% in 2005. Key changes from last month Political outlook • Legislation has been presented to the National Assembly seeking to curb the powers of the trade unions. Given the controversial nature of the proposed reform, the government may have opened a battle with the unions that proves difficult to win while diverting energy from other vital reforms. Economic policy outlook • The government has pushed ahead with its reforms of the oil/energy sector, which should improve the management of the sector and help to alleviate domestic fuel shortages. As well as liberalising domestic fuel prices and announcing the privatisation of the country’s four oil refineries, the head of the Nigerian National Petroleum Corporation, Jackson Gaius-Obaseki, has been sacked. Economic forecast • After remaining stable for the first ten months of 2003, the naira started to slip on the parallel market in late October and on the interbank market in early November. Further falls are expected in 2004 as the price of oil falls back and given the Central Bank of Nigeria’s low level of foreign-exchange reserves. We expect the naira to average N142.3:US$1 in 2004 and N153.4:US$1 in 2005. November 2003
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Contents
3 Summary
4 Political structure
5 Economic structure 5 Annual indicators 6 Quarterly indicators
7 Outlook for 2004-05 7 Political outlook 8 Economic policy outlook 10 Economic forecast
12 The political scene
19 Economic policy
24 The domestic economy 24 Economic trends 25 Oil and gas 29 Manufacturing 30 Agriculture 31 Financial markets 32 Infrastructure
34 Foreign trade and payments
List of tables 10 International assumptions summary 12 Forecast summary 14 Allocations by the federal government to other tiers of government 25 Inflation 25 Exchange rate 27 Nigeria’s OPEC quota 30 Performance of the manufacturing sector 34 FDI inflows into Sub-Saharan Africa and the three largest recipient countries 35 Status of Paris Club bilateral external debt negotiations/agreements
List of figures
12 Gross domestic product 12 Consumer price inflation 24 Minimum rediscount rate
Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003
Nigeria 3
Summary November 2003
Outlook for 2004-05 The president, Olusegun Obasanjo, has shown greater commitment to implementing liberal economic reforms in his second and last term in office, but still faces a huge task to if he is to turn around the corruption ridden, heavily indebted and oil dependent economy. Mr Obasanjo may also pursue controversial reforms, such as constitutional change, to shake up Nigeria’s crisis- prone political system. However, these are liable to be resisted by powerful groups with vested interests in maintaining the status quo. Given the background of ethnic and religious divisions, widespread poverty and political disillusionment. there is a risk that the reform drive could destabilise the country if not properly managed. However, assuming that the president is able to navigate Nigeria’s turbulent political waters and achieve some progress with reform—against a background of ongoing growth in the oil and gas sector—the Economist Intelligence Unit forecasts that real GDP growth will rise marginally from 3.6% in 2003 to 3.8% in 2004 and 3.9% in 2005.
The political scene The National Assembly has re-opened reviews of the thorny issues of revenue sharing in the federation and Nigeria’s 1999 constitution. A cabinet minister has publicly accused two high-ranking senators of demanding bribes to confirm his ministerial appointment. About 100 people were killed in renewed ethnic clashes between Ijaw and Itsekiri militants in the restive oil-producing Niger Delta. Nigeria has agreed to hand over 33 villages in Lake Chad district to Cameroon in compliance with the World Court’s October 2002 judgement.
Economic policy The government has quietly deregulated the prices of domestic petroleum products, which has driven fuel prices up and set trade unions on the warpath against the government. It has also announced plans to privatise the country’s refineries to help put an end to perennial fuel shortages. Mr Obasanjo submitted a supplementary budget to the National Assembly even though the main budget for 2003 does not seem to have been enacted.
The domestic economy The Central Bank of Nigeria (CBN) has cut the minimum rediscount rate from 16.5% to 15% in a bid to lower interest rates following relative macroeconomic stability. Mounting demand for hard currency has led to the depreciation of the naira. The president’s energy adviser, Rilwanu Lukman, has resigned. The government has begun a shake-up of the state-owned Nigerian National Petroleum Corporation, including the removal of 28 senior officials and its group managing director, Jackson Gaius-Obaseki. The government has launched a N150bn (US$1.15bn) bond issue and signalled its intention to make more use of the capital market to raise long-term funds.
Foreign trade and payments Nigeria’s foreign-exchange reserves fell from US$8.3bn in May to US$7.4bn in August as the CBN supported the Naira on the foreign-exchange market.
Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: November 5th 2003 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule
Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 4 Nigeria
Political structure
Official name Federal Republic of Nigeria
Form of state Federal republic, comprising 36 states and the Federal Capital Territory (FCT, Abuja)
Legal system Based on English common law
National legislature National Assembly, comprising the 109-seat Senate and the 360-seat House of Representatives; both are elected by universal suffrage to serve a four-year term
National elections The legislative election was held on April 12th 2003, the presidential election on April 19th 2003. Olusegun Obasanjo was re-elected president, and his party, the PDP, won a majority of seats in both houses of the National Assembly. The new president was sworn in on May 29th. The next national elections are scheduled to be held in 2007
Head of state President, elected by universal suffrage to serve a four-year term
State government State governors and state houses of assembly
National government The Federal Executive Council, which is chaired by the president; appointed June 30th 1999
Main political parties People’s Democratic Party (PDP); All Nigeria People’s Party (APP); Alliance for Democracy (AD); All Progressive Grand Alliance (APGA); National Democratic Party (NDP); United Nigeria People’s Party (UNPP). There are currently 30 registered political parties in Nigeria
President & commander-in-chief of the armed forces Olusegun Obasanjo Vice-president Atiku Abubakar
Key ministers Agriculture Adumu Bello Commerce Idris Waziri Communications Cornelius Adebayo Defence Rabiu Musa Kwankwaso Education Fabien Osuji Environment Bala Mande Federal capital territory Nasir A. El-Rufai Finance Ngozi Iweala Foreign affairs Oluyemi Adeniji Health Eyitayo Lambo Industry Magaji Mohammed Information Chukwuemeka Chikelu Internal affairs Iyorchia Ayu Justice & attorney-general of the federation Akinlolu Olujinmi Labour & productivity Hussaini Zannuwa Akwanga Police affairs Broderick Bozimo Power & steel Liyel Imoke Solid minerals Mangu Odion Ugbesa Transport Abiye Sekibo Wa t e r re s o u rce s Muktari Shagari Works Adeseye Ogunlewe
Central Bank governor Joseph Sanusi
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Economic structure
Annual indicators 1999a 2000a 2001a 2002b 2003b GDP at market prices (N bn) 3.2 4.2 4.6 5.0 5.8 GDP (US$ bn) 34.8c 41.1 41.4 41.4 45.0 Real GDP growth (%) 1.1 3.8 3.9d 3.3d 3.6 Consumer price inflation (av; %) 6.6 6.9 18.2 13.6a 11.7 Population (m) 120.1b 123.3b 126.6b 129.9 133.2 Exports of goods fob (US$ m) 12,971.0 21,395.0 17,949.0b 18,016.4 20,686.0 Imports of goods fob (US$ m) 10,367.0 11,068.0 12,303.0b 12,953.9 14,329.2 Current-account balance (US$ m) -3,319.0 4,263.0 1,184.0b -177.3 -160.8 Foreign-exchange reserves excl gold (US$ m) 5,450.0 9,911.0 10,457.0 7,331.0a 7,182.3 Total external debt (US$ bn) 29.1 31.4 31.1 29.7 30.9 Debt-service ratio, paid (%) 6.9 8.2b 13.1b 16.7 7.5 Exchange rate (av) N:US$ 92.34 101.70 111.23 120.58a 129.20 a Actual. b Economist Intelligence Unit estimates. c Converted at the autonomous rate from 1995 to 1999. d Official estimate.
Origins of gross domestic product 2002a % of total Components of gross domestic product 2002a % of total Agriculture (excl livestock) 36.1 Private consumption 59.8 Livestock 5.1 Government consumption 14.2 Crude petroleum & gas 9.7 Gross fixed capital formation 7.0 Manufacturing 6.0 Exports of goods & services 25.5 Wholesale & retail trade 11.3 Imports of goods & services -6.7 Finance & insurance 9.8
Principal exports 2002a US$ m Principal imports 2002a US$ m Oil 13,680 Manufactured goods 2,990 Gas 1,097 Machinery & transport 2,471 Chemicals 2,297 Food & live animals 1,160
Main destinations of exports 2002b % of total Main origins of imports 2002b % of total US 37.4 UK 15.7 Brazil 9.4 US 15.4 Spain 8.3 China 15.3 France 6.4 France 14.3 a Central Bank of Nigeria data. b Derived from partners’ trade returns; subject to a wide margin of error.
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Quarterly indicators 2001 2002 2003 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Output Industrial production index (1995=100) 112.8 112.3 111.6 111.8 112.7 116.8 112.2 112.5 Industrial production index (% change, year on year) -0.2 -2.9 0.6 0.2 -0.1 4.0 0.5 0.6 Prices Consumer prices (Sep 1985=100)a 4,517 4,401 4,644 4,784 4,653 4,937 5,466 5,597 Consumer prices (% change, year on year) 19.1 16.5 17.4 12.2 3.0 12.2 17.7 17.0 Petroleum spot price (Bonny Light 37°; US$/barrel) 25.4 19.4 21.3 25.0 27.2 26.9 31.8 26.5 Financial indicators Exchange rate N:US$ (av) 110.9 111.2 114.4 116.6 125.0 126.3 128.0 127.2 Exchange rate N:US$ (end-period) 110.1 113.0 115.6 119.6 125.8 126.4 126.9 127.4 Discount rate (end-period) 20.5 20.5 20.5 20.5 18.5 16.5 16.5 n/a M1 (end-period; N bn) 773.72 816.71 835.92 872.09 933.55 946.25 1,121.55 1,133.41 M1 (% change, year on year) 39.1 25.7 8.2 16.1 20.7 15.9 34.2 30.0 M2 (end-period; N bn) 1,327.63 1,315.87 1,423.35 1,502.06 1,605.42 1,599.49 1,918.93 1,937.99 M2 (% change, year on year) 37.9 37.4 11.7 18.9 20.9 21.6 34.8 29.0 Stockmarket index (NSE all share; end-period; Jan 3rd 1984=100) 10,274 10,963 11,376 12,441 11,812 12,138 13,531 14,566 Stockmarket index (% change,year on year) 40.8 35.2 24.2 13.7 15.0 10.7 18.9 17.1 Sectoral trends Crude oil production (m barrels/day)b 2.05 2.11 1.91 1.91 1.97 2.01 2.13 2.03 Crude oil production (% change, year on year) 0.5 -1.9 -11.2 -5.0 -3.9 -4.7 11.5 6.3 Foreign trade (US$ m) Exports fob 4,587 3,565 3,180 3,421 4,101 4,405 5,202 n/a Petroleum 4,485 3,521 3,121 3,347 4,051 4,336 4,945 n/a Imports cif -2,975 -2,605 -2,510 -1,289 -1,824 -1,924 -2,949 n/a Trade balance 1,612 960 670 2,132 2,056 2,481 2,253 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 10,517 10,457 9,502 8,239 7,035 7,331 7,864 7,689 a Figures for March, June, September, December. The Nigerian government uses the 12-month moving average as its official measure of inflation. b Excluding condensates. Sources: Central Bank of Nigeria; IMF, International Financial Statistics; Direction of Trade Statistics; International Energy Agency, Monthly Oil Market Report; Energy Intelligence Group, Oil Market Intelligence; Standard & Poor's, Emerging Stock Markets Review.
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Outlook for 2004-05
Political outlook
Domestic politics Although the president, Olusegun Obasanjo, and his People’s Democratic Party (PDP) secured overwhelming victories in the presidential and legislative elections held in April and May 2003, the polls were clearly flawed by irregularities and fraud. However, it is apparent that whatever the problems with the polls, Mr Obasanjo has consolidated his position in power and is slowly turning his attention to the need for reform. The president seems determined to try and establish some sort of legacy from his two terms in office and will continue to try and drive through change in 2004-05 before campaigning to be his successor leaves him as a “lame duck” president. However, the vested political and business interests opposed to radical change in Nigeria should not be underestimated and it is perfectly plausible that Mr Obasanjo will have very little to show for his efforts in two years’ time; and even worse, if the president opens up too many new battlegrounds then the ensuing conflicts could destabilise Nigeria’s fragile democracy. Although the president will try to focus his attention on proposed reforms in the coming months, the dispute over the elections has still not died away and will continue to drag on for some time to come. The All Nigeria People’s Party (ANPP) and other opposition parties have openly stated that they have no confidence in the ability of Nigeria’s judicial system to redress their complaints, although they have filed a case to challenge the election results, which is currently dragging through the courts. Political tension has also increased following the death of the ANPP’s vice-presidential candidate, Chuba Okadigbo; various reports have blamed the police for his death, owing to their over-zealous use of tear gas following a rally organised by the ANPP in Kano. The government has also made its task potentially more difficult by taking on the unions. As well as alienating the unions over its programme of deregulating fuel prices, the government has made a difficult situation more fragile by seeking to pass legislation to emasculate the unions by starving them of funds, outlawing strikes and dismantling the powerful umbrella body, the Nigeria Labour Congress (NLC). This could create a prolonged period of conflict between the unions and the government and may even result in violence. However, the Economist Intelligence Unit still thinks that a military takeover is unlikely to occur, as it would lack popular support and civil organisations, including Nigeria’s powerful trade unions, have warned that they will resist any attempt to truncate the present democracy. In addition, the international community is likely to be less accepting of another period of military rule than it was previously. Moreover, Nigeria’s armed forces—still tarnished by their last spell in government—are probably less inclined to return to power. And as many of the leading figures in both the PDP and ANPP are retired generals, the army’s allegiance is likely to be divided in any political showdown in the barracks. Nonetheless, although unlikely, military intervention in politics is not inconceivable in the short- to medium-term, particularly if the downturn in oil
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prices causes an economic downturn against the background of a series of political crises. Despite the manifold problems facing the new administration, there are increasing indications that the president is keen to push ahead with political and economic reform. However, the scale of some of the problems that need to be addressed is daunting: these include calls for a new constitution, the revision of the formula for sharing revenue between the competing tiers of government, and increasingly problematic ethnic and religious divides. On a more positive note, Mr Obasanjo has considerable political skill—although he sometimes lacks tact—and has formed a broad-based government with some potentially promising ministers, although many are technocrats with only limited political skills. He may also be able to harness the PDP’s increased majority in the National Assembly, improved relations between the executive and the legislature possibly giving rise to more effective government than during the president’s first term in office. However, these factors could also work against Mr Obasanjo. Opting for an inclusive cabinet, in which achieving a balance of ethnic and regional concerns is probably a more important consideration than a minister’s merit, may be politically expedient, but it could just as easily result in ineffective government. Moreover, efforts to forge a closer working relationship between Mr Obasanjo and the National Assembly are likely to become strained as the oil price falls back in 2004-05, which will make it necessary for the government to take important policy decisions, many of which are likely to be unpopular. As a result, the government could struggle to fashion a solution to many of Nigeria’s outstanding problems, or to impose lasting order on the country as it slips along from crisis to crisis.
International relations In his second term Mr Obasanjo is likely to remain deeply involved in foreign policy matters, even though most Nigerians would prefer him to focus on domestic issues. As well as seeking to actively promote the New Partnership for Africa’s Development (Nepad), he will also seek to be an influential voice in efforts to settle disputes not only in Liberia and other parts of West Africa, but also further afield, in places such as Zimbabwe or Sudan. However, the president has failed to prove convincing as a mediator, and will struggle on issues such as Zimbabwe—which could overshadow the Commonwealth Heads of Government meeting which is to be held in Abuja in December—where he must seek to reconcile Western interests with those of the leaders of several African countries. Despite the ruling of the International Court of Justice in October 2002 that the Bakassi Peninsula should revert to Cameroonian sovereignty, the Nigerian government has recently made it clear that a withdrawal of its troops from the peninsula could take up to three years, during which time tensions could easily spill over into isolated conflicts.
Economic policy outlook
Policy trends Several factors have increased the prospects for economic reform in 2004-05: the appointment of a new finance minister, Ngozi Iweala, who has a background in the World Bank, the bringing into government of several respected advisors from the private sector, and the feeling that there is now a
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cabal of ministers in the cabinet who are committed to economic reform. The new team has worked hard to try and consult widely and include the state governments in drawing up a new policy document, the National Economic Empowerment and Development Strategy (NEEDS), which may be published in late 2003 (although early 2004 is more likely) and is set to run for four years. This is likely to be a pro-market policy that aims to concentrate development in key sectors such as agriculture and solid minerals. It is also likely to pave the way for an agreement with the IMF in 2004, probably in the form of a standby credit facility. However, poor policy implementation will continue to be one of the government’s biggest weaknesses, particularly if animosity reappears between the executive and legislature as tough economic policy choices have to be made because of falling oil prices. In such an atmosphere, progress with reform could once again grind to a halt. Poor policy implementation will be compounded by a weak civil service and overlapping tiers of local, state and federal government.
Fiscal policy Although we expect the passage of the budget in 2004 to be relatively more straightforward than has been the case in recent years, it is likely to be a difficult year for the government if the price of oil falls back as we expect. Having run large deficits in 2002-03 despite high oil prices, the government will struggle to cut back expenditure while meeting new commitments such as the pay rise agreed for federal civil servants in the run-up to the elections. As a result, there could be substantial delays in capital expenditure and growing domestic arrears. We forecast that the fiscal deficit will fall only marginally, from an estimated 5.8% of GDP in 2003 to 5.3% of GDP in 2004. Although the government will continue to try and tighten fiscal policy in 2005—as oil prices remain low and as part of its policy agreement with the IMF—getting the National Assembly to agree to expenditure cutbacks is likely to prove difficult (and may result in confusion, owing to the customary practice of passing supplementary budgets). As a result, we expect that the budget deficit will be in the order of 4.8% of GDP in 2005. The government should be able to finance deficits of 4-5% of GDP through domestic borrowing and has recently introduced longer-term government bonds in addition to the Treasury bills it already issues.
Monetary policy The Central Bank of Nigeria (CBN) reduced the minimum rediscount rate in August 2003, bringing it to only 15%, in response to falling inflation and political pressure to boost the non-oil sectors of the economy. However, we still feel that the easing has been premature, owing to the government’s expansionary fiscal policy and given our expectation that inflation will start rising again in the final quarter of 2003 and into early 2004. Because of the political pressures that the CBN would have to overcome in order to raise rates substantially, any upward movement in rates is likely to be limited. As a result, we expect that inflation will remain in double digits throughout 2004-05.
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Economic forecast International assumptions International assumptions summary (% unless otherwise indicated) 2002 2003 2004 2005 Real GDP growth World 2.9 3.3 3.9 4.1 OECD 1.8 1.8 2.4 2.6 EU 1.0 0.6 1.9 2.3 Exchange rates ¥:US$ 125.3 115.7 109.8 114.8 US$:€ 0.945 1.132 1.230 1.185 SDR:US$ 0.772 0.714 0.683 0.698 Financial indicators ¥ 2-month private bill rate 0.10 0.05 0.10 0.10 US$ 3-month commercial paper rate 1.70 1.08 1.38 3.56 Commodity prices Oil (Brent; US$/b) 25.0 27.6 19.6 18.9 Gold (US$/troy oz) 310.3 354.0 323.8 307.5 Food, feedstuffs & beverages (% change in US$ terms) 12.7 5.6 1.7 5.8 Industrial raw materials (% change in US$ terms) 2.2 8.9 3.0 4.3 Note. Regional GDP growth rates weighted using purchasing power parity exchange rates. It has become increasingly clear since August that a global economic recovery is under way, even if the rebound remains fragile. As a result, we expect world GDP growth, calculated on a purchasing-power-parity basis, to reach 3.3% in 2003 and pick up to 3.9% in 2004, close to trend pace, and 4.1% in 2005. Although global oil prices have remained high in 2003, we still believe that the oil market is oversupplied and that oil prices will fall back in 2004-05. We expect Brent crude to average US$19.61/barrel in 2004 and US$18.91/b in 2005, compared to US$27.64/b in 2003.
Economic growth Although growth in 2003 is likely to have been affected by political uncertainty associated with the elections, owing to high government spending, reasonable growth in agriculture and a gradual pick-up in oil production we estimate that real GDP will grow by 3.6% in 2003. In 2004-05 the performance of the economy will be affected by the government’s efforts to reduce the fiscal deficit, but the increase in offshore oil production and investment in the gas sector are expected to continue apace. We also expect a modest improvement in economic policy and a fall in political uncertainty following the elections, against the background of reasonably robust growth in agriculture and services. Thus we forecast growth of 3.8% in 2004 and 3.9% in 2005.
Inflation Inflation has trended downwards in the first eight months of 2003 with the 12- month moving average just slipping into single digits in August, at 9.9%, according to provisional data from the CBN. However, despite the downward trend, we expect inflation to rise in the final quarter of 2003 as food prices pick up and as the proposed increase in government wages and the deregulation of domestic fuel prices begin to feed through to other sectors of the economy, against a background of relatively loose monetary and fiscal policy. The price of
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imported goods is also expected to pick up in 2004-05, owing to the expected fall in the value of the naira. We are, therefore, forecasting average inflation of 11.7% in 2003, 10.6% in 2004 and 10.3% in 2005.
Exchange rates The relative stability of the naira during the first 10 months of 2003—due to relatively strong oil prices and substantial intervention in the foreign-exchange market by the CBN—appeared to have come to an end in early November as mounting demand for foreign currencies pushed the naira above N140:US$1 on the interbank market. Even if the naira recovers marginally in December, we expect further deterioration in 2004-05 as oil prices start to slip back; the CBN will be unable to support the currency without jeopardising its level of foreign- exchange reserves, which has already been depleted in a futile attempt to defend the naira. In addition, the desire of the administration to reach a new policy agreement with the IMF makes it likely that the CBN will allow the currency to fall in value, even if this attracts considerable political opposition. The naira will also be adversely affected by the slow strengthening of the US dollar on global markets. As a result, we forecast that the naira will fall back steadily throughout 2004-05 to average N142.3:US$1 in 2004 and N153.4:US$1 in 2005, although given the political opposition to devaluation it will still remain overvalued.
External sector Because oil prices have remained high in 2003 and Nigeria’s oil production has picked up steadily compared to 2002, we expect that the current-account deficit will be a modest 0.4% of GDP in 2003. However, any further increase in the volume of oil exports in 2004-05 will be more than offset by the fall in oil prices to below US$20/b. Although imports should fall back in 2004-05 as foreign-exchange shortages emerge and the naira falls in value, the adjustment will take time and we therefore expect the current-account deficit to widen to 8.8% of GDP in 2004 and remain high at 7.5% of GDP in 2005. Although changes in the current account are driven mainly by the trade account, some trends in invisible trade will be discernible in 2004-05. The income and services accounts will remain firmly in deficit, the services account because of Nigeria’s heavy dependence on international services, and the income account because of profit remittances by multinational oil companies and interest charges on external debt. In contrast, the current-transfers account will be in surplus owing to large inflows of private transfers from the Nigerian diaspora.
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Forecast summary (% unless otherwise indicated) 2002a 2003a 2004b 2005b Real GDP growth 3.3c 3.6 3.8 3.9 Industrial production growth 1.2d 1.2 1.1 0.5 Gross agricultural production growth 5.3 4.3 4.8 5.0 Consumer price inflation (av) 13.6d 11.7 10.6 10.3 Consumer price inflation (year-end) 12.2d 14.8 10.4 11.7 Short-term interbank rate 24.8d 18.5 16.6 16.8 Government balance (% of GDP) -6.0 -5.8 -5.3 -4.8 Exports of goods fob (US$ bn) 18.0 20.7 16.2 15.6 Imports of goods fob (US$ bn) 13.0 14.3 13.3 12.6 Current-account balance (US$ bn) -0.2 -0.2 -3.8 -3.3 Current-account balance (% of GDP) -0.4 -0.4 -8.8 -7.5 External debt (year-end; US$ bn) 29.7 30.9 31.1 29.8 Exchange rate N:US$ (av) 120.6d 129.2 142.3 153.4 Exchange rate N:¥100 (av) 96.19d 111.66 129.69 133.70 Exchange rate N:€ (year-end) 132.6d 167.5 176.7 187.1 Exchange rate N:SDR (year-end) 171.8d 201.1 212.4 227.5 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Official estimate. d Actual.
The political scene
Nigerians mark independence Nigeria’s 43rd anniversary of independence on October 1st passed almost in sombre mood unnoticed with little open display of the pomp and celebration that used to mark the occasion when Africa’s most populous nation still held the dream of being an African superpower. In his address to the nation, the president, Olusegun Obasanjo, called for a “rebirth of optimism”, but with the same breath urged the people to brace themselves for the implementation of tough reforms to turn around a nation crippled by sectarian divisions, corruption, waste and mismanagement, which can be expected to entail sacrifice in one form or the other. As the president spoke, huge fuel queues, which had been building for days, snarled up traffic in Nigeria’s major cities as private petrol
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stations began raising their prices following the official government announcement that it was to deregulate the prices of domestic fuel products. Mr Obasanjo did not mention the fuel price increases in his speech, an omission that deepened the anger of Nigerians who are opposed to the deregulation of fuel pricing, worried by its likely impact on living costs. The Lagos-based Vanguard newspaper said that the president’s silence on such an important issue contradicted his call for popular optimism and his pledge for greater accountability and transparency in governance.
A survey deems Nigerians the Perhaps ironically, on the day many Nigerians were fuming over the increased world’s happiest people costs of fuel a new study of more than 65 countries published in New Scientist magazine claimed that Nigeria has the highest percentage of happy people in the world. The survey raised some curiosity in Nigeria; people reacted to its finding with disbelief and astonishment. Vanguard said that its own sampling of public opinion showed that most Nigerians thought that New Scientist’s finding did not reflect the true mood of the nation, noting that those who conducted the survey probably mistook the resilience of Nigerians for happiness. The newspaper further noted that as Nigerians are living in a nation troubled by corruption, sectarian violence, abject poverty and gross mismanagement, they were more likely to rank as the least happy in the world.
A review of the constitution is On October 30th the Senate inaugurated a reconstituted National Assembly restarted joint committee mandated to review the 1999 constitution, apparently restarting the long drawn-out process of producing a new constitution which had been started by the previous parliament (February 2003, page 20). The Senate president, Adolphus Wabara, told the committee, headed by deputy Senate president, Ibrahim Mantu, to review whatever sections of the constitution, written during military rule, it deemed necessary. Mr Mantu said that the National Assembly’s last attempt to produce a new constitution, following the establishment of a similar joint committee in May 2000, failed because the tenure of parliament lapsed before the third reading of the bill. However, the first review also contained some far-reaching proposals that generated much controversy, including the introduction of a single, five-year term for the president and state governors, the rotation of the presidency among six geographical/political zones that Nigeria is commonly divided into, and the election of two vice-presidents. The formulation of a new constitution, which touches the core of the power struggles between Nigeria’s different tiers of government and between its rival ethnic and religious groups, could emerge as a fault-line for tension between the executive and the lawmakers.
TheRelations Senate beginsbetweenParliament a debate executive restarts on Another difficult issue that may test the unity of the federal system is the andconstitution legislaturerevenue review show exercisesignssharing of setting of a new formula for sharing revenue between the different tiers of strains government. In mid-October the Senate began to consider Mr Obasanjo’s proposal for a new revenue-allocation formula for the Federation, submitted last December, but which did not get beyond heated procedural arguments over the status of the bill—which focused on whether it was an executive or a private bill. In a curious move the deadlocked Senate resolved to write to Mr Obasanjo to either reconfirm the revenue-allocation formula proposed by the
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Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), or to submit amendments to it. At present: • the RMAFC proposal is to allocate 46.63% of the Federation Account to the federal government, 33% to the states and 20.37% to local governments; which compares with • the current formula, introduced by the military in 1992, which allocates 48.5% to the central government, with the states receiving 24%, local councils 20% and special funds 7.5%.
Allocations by the federal government to other tiers of government (N m) 1998 1999 2000 2001 2002 Total in the Federation Account 404,689 576,801 1,262,468 1,678,111 1,899,488 Total distributeda 257,331 446,475 1,051,644 1,298,301 1,692,771 Federal government 124,573 218,875 502,294 530,658 859,015 State government 57,500 108,215 248,562 391,327 398,768 Local government 47,910 90,179 207,147 245,437 333,901 Federal capital territory 2,392 4,509 10,511 12,780 1,360 a Amount for distribution after payments to various statutory allocations such as the stabilisation account and the reserve account. Source: Central Bank of Nigeria, Annual Report and Statement of Accounts 2002.
Revenue sharing is a highly sensitive political issue in Nigeria as all governments are heavily dependent on share-outs from the Federation Account which, in turn, is funded almost entirely from oil revenue. State governments have been complaining about the delay in setting a new revenue-sharing formula that reflects their demand for greater decentralisation in the Federation. On October 22nd, for the second time in six weeks, a delegation of state governors visited the National Assembly to press lawmakers for a favourable share of funds for the states, reminding senators that their individual political futures lies with the states that they come from.
The Delta region comes back Despite these developments, relations between the federal executive and the into the spotlight National Assembly have still been relatively smooth since the election, following the strain between the two during Mr Obasanjo’s first term in office. However, there are signs of potentially fractious differences between the two arms of government, both of which are controlled by the People’s Democratic Party (PDP). For instance, in mid-September the executive withdrew a bill it had submitted to amend the Niger Delta Development Commission (NDDC) after lawmakers contended that it was unconstitutional. The bill had sought to cut the federal government’s financial contribution to the commission from 15% to 10% and compel state governments in the Niger Delta to make up the shortfall. The sharing of responsibility for developing the impoverished Niger Delta is a controversial issue as federal and state governments tussle over the division of the region’s oil wealth. Florence Ita-Giwa, special adviser to the president on National Assembly matters, told a press conference that the government would redraft the bill, noting that a potential row over the bill had been avoided by the sensitive handling of the matter.
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Renewed conflict in the Delta region
The debate over the funding of the Niger Delta Development Commission (NDDC) comes in the wake of a further deterioration in the political climate in the region. About 100 people were killed between August 15th and 20th in renewed clashes between ethnic Ijaw and Itsekiri militias in the southern oil city of Warri, Delta State, according to the Nigerian Red Cross. The latest bout in the long-running battle between the two groups—mainly over access to the region’s oil wealth—ended following the arrival of federal troops in the form of a Joint Security Task Force and the signing of a peace agreement between leaders of the two communities brokered by the state government. It is unclear how long the truce will last given that at least one Ijaw group, the hardline Federated Niger Delta Ijaw Communities, rejected the peace agreement, saying that they doubted the neutrality of the government, although the dust-to-dawn curfew was relaxed on October 9th.
The underlying reasons for the unrest in Niger Delta are complex and varied. Apparently, the main rationale for the recent clashes were claims by leaders of the Ijaw—the biggest ethnic group in the Delta region—that political power is unfairly skewed in favour of the Itsekiri; it was contended that the government gives the Itsekiri greater state patronage and had gerrymandered local council boundaries in southern Warri in their favour. Control of local councils is a politically sensitive issue in Nigeria because it provides access to limited state funds. Ijaw militants have also accused oil multinationals of favouring Itsekiris in the provision of jobs and award of contracts. During the past decade local communities in the Niger Delta have become increasingly militant in their demand for a greater share of the region’s oil wealth. A more fundamental reason for the unrest, however, is the abject poverty of the region and resentment of official neglect of a region that economically sustains the nation. The disturbances also stem from the activities of criminal gangs who exploit the genuine grievances of local communities as a cover for their criminal activities. For instance, many people believe that the conflict in Warri is really about which of the rival groups control the growing illegal trade in stolen crude oil.
It was in an attempt to break the potentially explosive cycle of economically damaging oil theft and politically threatening build-up of arms in this volatile region that the president, Olusegun Obasanjo, established the Joint Security Task Force, comprising military and police personnel, to pacify the area, secure oil installations and stop crude oil theft. But deploying soldiers to restore order in the Niger Delta carries political risks, given the army’s past record of using excessive force in civilian operations. The government is also seeking more subtle strategies to deal with the subversion of its authority in the region, such as joint anti-bunkering patrols by marine police and local youths, a system designed to give unemployed militants a role in protecting, rather than attacking, the oil industry and its installations. Religious tensions are still Another ever-present fault-line facing the country is the increasingly problematic problematic Christian-Muslim religious divide and the attempts to implement Sharia (Islamic) law in 12 northern states. One of the most high profile and controversial cases in this respect has been the sentencing to death by stoning handed to Amina Lawal, a single mother, by two lower Sharia courts for adultery (November 2002, page 17). Given that the case has become a cause célèbre for non-governmental organisations (NGOs), governments and human
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rights organisations in Nigeria and abroad who are opposed to the draconian aspects of the Islamic justice system, the decision of a Sharia appeals court on September 25th to squash the ruling, even if mainly on technical grounds, was generally greeted with relief by those opposed to the sentence. It also meant that Mr Obasanjo did not have to put into effect his assurances that even if the death sentence against Mrs Lawal had been confirmed by the Sharia appeals court, it would have been overturned by Nigeria’s secular Supreme Court. The verdict came five weeks after an Islamic appeal court in neighbouring Jigawa, in far-northern Nigeria, quashed another controversial conviction, that of a man sentenced to death by stoning for the rape of a nine-year-old girl on the grounds that he was mentally unfit to stand trial. Although the potential for conflict between supporters and opponents of Sharia over the Amin Lawal case was removed by the court verdict, much disquiet remains about the application of Sharia law in northern Nigeria since 2000. Such concerns were heightened in late August, when the government of Kano State announced that it had made it compulsory for all girls attending schools run by the state government to wear the hijab Islamic headscarf, whether or not they are Muslim. The Kano State commissioner for education, Ishaq Mahmoud, said that the order was part of his government’s efforts to uphold public morals and ensure that “the teachings of Islam are applied in each and every aspect of governance”. Christians in Kano, Nigeria’s second biggest state and one of the states most prone to religious violence, condemned the order, saying that it imposes an alien culture on them. The extent of religious distrust was also clearly visible when a World Health Organisation (WHO) programme to eradicate polio in Nigeria was temporarily brought to a halt in Kaduna, Kano and Zamfara states in late October after an influential Islamic leader said that the vaccines might contain viruses causing AIDS, cancer, or sterility as part of a US plan to kill off African Muslims. The government subsequently asked the WHO to check the vaccine in order to remove doubts about its safety. Nigeria has the highest incidence of polio in the world, according to the WHO.
Relations between the government Already strained relations between the ruling PDP and the opposition All and the ANPP are strained Nigeria People’s Party (ANPP) over the controversial April elections have worsened following the death of Chuba Okadigbo, the ANPP’s vice-presidential candidate in the April election, on September 25th, a day after attending a party rally which was tear-gassed by the police. The rally was organised in the northern city of Kano to honour the ANPP’s defeated presidential candidate, the former military ruler, Muhammadu Buhari, who is challenging Mr Obasanjo’s election victory in court, accusing his party of rigging the contest. The ANPP blamed Mr Okadigbo’s death from a heart attack on the police, alleging that the politician, who was asthmatic, was tear-gassed by policemen at the rally. The party said that two more of its leaders—national party chairman, Don Etiebet, and former presidential aspirant, John Nwodo— were also attacked, leading to the latter being flown abroad for medical treatment. Supporters of Mr Okadigbo, particularly from his Igbo-speaking south-eastern region, called on the government to investigate the circumstances surrounding his death. The day before the rally the police had banned the
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gathering saying that its organisers did not have the required permit. However, Kano’s ANPP governor, Ibrahim Shekarau, insisted that the rally should go ahead, raising the question of whether it is the state police commissioner or the state executive chief who is really in charge of ensuring security in the state.
The Anambra state On September 9th the Anambra state House of Assembly impeached the controversy rumbles on deputy governor of the state, Okey Udeh, following a failed attempt to topple the governor, Chris Ngige, in July (August 2003, page 17). Mr Udeh was accused of gross misconduct for declaring himself governor shortly after Mr Ngigi was abducted from his office by a team of policemen, apparently on the orders of his political godfathers who were angered at the governor’s failure to compensate them for their election support. The impeachment vote followed the Assembly’s adoption of a judicial panel report on the role of the deputy governor in the controversy. Although Mr Ngigi returned to his office in July and some of the PDP members involved in his abduction were suspended, or expelled, from the party, Mr Obasanjo’s government has been criticised for not doing enough to expose and prosecute the protagonists and senior security officials involved in the serious crime.
A new minister accuses two On October 7th the newly appointed minister of the Federal Capital Territory Senate leaders of corruption (FCT), Nasir el-Rufai, ignited a political storm when he publicly accused the deputy Senate president, Ibrahim Mantu, and the deputy leader of the Senate, Jonathan Zwingina, of demanding a N54m (US$415,380) bribe to confirm his nomination as minister. The allegation, made before the Senate Privileges, Ethics and Public Petitions Committee, has sparked a row that could strain relations between the executive and the legislature and further undermine public confidence in Nigeria’s corruption-infested political system. Mr el-Rufai, the former head of the privatisation agency, the Bureau of Public Enterprises (BPE), had in September, shortly after his appointment as minister, alleged in the press—without naming names—that some MPs demanded N54m from him to facilitate his confirmation. The allegation led the Senate to mandate the committee to investigate the charges. During the hearings, Mr el-Rufai claimed that when he told the two senators that he did not have the money, he was told to recoup his “investment” from land sales: a reference to him using his ministerial office, which gives him control over the sale of government land in both Abuja and the wider FCT, to solicit kickbacks. Both senators denied the allegation. Mr Mantu described the minister as “a pathological liar” and alleged that he was merely settling a score with him because he (Mr Mantu) scuttled his attempt to have his in-law replace him as director-general of the BPE. In a counter-offensive, Mr Mantu alleged that the vice-president, Atiku Abubakar, pressurised the Senate to confirm Mr el-Rufai, saying that without the vice-president’s intervention, Mr el-Rufai would not have been cleared for the position. Responding to this allegation, the vice-president’s spokesman issued a statement denying any wrongdoing by his boss. In a unanimous vote on October 9th the Senate absolved its two embattled principal officers, deciding to “consign the allegation into the dustbin of history” as Mr el-Rufai had not presented evidence to support his claim.
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Nigeria is ranked as one of the Mr el-Rufai made his allegation before the Senate committee on the same day world's most corrupt nations that Nigeria was named as the world’s second most corrupt country in the annual survey published by the Berlin-based anti-graft watchdog, Transparency International (TI). For the third consecutive year Nigeria was ranked second bottom to Bangladesh in TI’s annual Corruption Perceptions Index. Scoring only 1.4 points out of a possible 10 in the survey of 133 countries, Nigeria’s performance was worse than in 2002 when it managed 1.6 points (November 2002, page 25). The country’s record in the widely acknowledged index indicates that Mr Obasanjo has so far failed in his declared crusade to clean up Nigeria’s political system. Indeed, Nigeria’s corruption score over the past eight years suggests that perceptions of graft in the country have been greater under democracy than during military rule. Unsurprisingly, Abuja was unhappy with Nigeria’s latest corruption rating. The Information Ministry spokesman, Remi Adebayo, acknowledged that there is corruption in Nigeria but denied that it is as severe as Transparency International’s index suggests. Other officials blamed the persistence of corruption in Nigeria on the operations of multinationals, citing recent incidents involving US oil companies Halliburton and Baker Hughes. Halliburton is being investigated by both Nigerian and US prosecutors following recent allegations before the US Security and Exchange Commission that its subsidiary paid a Nigerian tax official bribes worth US$2.4m in 2000 to reduce its tax burden in Nigeria. The case of oilfield service company Baker Hughes involves a former employee who sued the company in Texas alleging that he was sacked by the company for refusing to pay kickbacks to Nigerian officials as he had been instructed by senior company officials. In early October the lawsuit was settled out of court. However, the biggest criticism of the government’s anti-corruption policy remains that it is selective and superficial, leaving untouched the main culprits in a country where most senior officials and politicians would find it difficult to account for their wealth. Since the government’s anti-corruption law was promulgated in 2000, no senior official or politician has been convicted, which critics believe indicates that the administration is reluctant to move against sacred cows, either because it has compromised itself or lacks the courage to do so. However, the president did recently appoint Oby Ezekwesili who, like the president, is closely involved in TI, as a senior advisor to help give the administration’s anti-corruption policy new impetus. The government has also announced that it will work closely with a new initiative sponsored by the World Bank and the British government, the Extractive Industries Transparency Initiative, which aims to encourage governments to make information about financial flows in the oil and mining industry publicly available. Ms Ezekweili said that the Nigerian approach would be home-grown, but that the government would conduct an audit of the Nigerian National Petroleum Company (NNPC) and of the financial flows between the NNPC, oil multinationals and the government.
OppositionNigeria is praised politician for itsdies role after in Nigeria has continued to play a crucial role in the international efforts that have attending banned politicalLiberia helped to restore peace to war-shattered Liberia. As the political giant of the rally
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West African region, Nigeria has provided the bulk of the 3,500-strong Economic Community of West African States (ECOWAS) peacekeeping force that helped to secure Liberia and allow international aid agencies to assist traumatised civilians. Abuja also gave political asylum to the former Liberian president, Charles Taylor, to pave the way for peace talks which led to the inauguration of a new Liberian government on October 14th. Ordinary Liberians showed their appreciation by coming out in their thousands to give Mr Obasanjo a hero’s welcome when he visited the Liberian capital, Monrovia, in early September. Nigeria’s role was also praised by the UN, which on October 1st formally took over peacekeeping operations in Liberia by absorbing the ECOWAS force into a larger multinational force. However, Nigeria’s role in Liberia has not been without its critics, particularly those opposed to the granting of asylum to Mr Taylor, the ex-Liberian president and former warlord who now lives in comfortable exile in south-eastern Nigeria while still wanted for alleged war crimes by the UN-backed Special Court in Sierra Leone. Local and international human rights groups are campaigning for Mr Taylor to be surrendered to the UN court where he can be tried for his alleged crimes. On September 23rd the African Bar Association said that it planned to sue Nigeria to force it to give up Liberia’s former ruler. Mr Obasanjo has made it clear that he does not intend to be “harassed” by the international community into giving up Mr Taylor, but he also told reporters in New York in September that he would be willing to hand Mr Taylor to the UN tribunal “if the people of Liberia desired”. Meanwhile, Mr Taylor’s attempts to meddle in the affairs of Liberia from exile through mobile telephone calls to remnants of his administration have irritated and embarrassed Abuja. In a meeting with Mr Taylor on October 11th Mr Obasanjo warned him not to interfere in Liberian affairs.
Nigeria is to withdraw from 33 Nigeria has agreed to hand over 33 villages in the Lake Chad region to villages in Lake Chad Cameroon in compliance with the judgement of the International Court of Justice in October 2002 (November 2002, page 17). Nigeria’s minister of justice, Akinlolu Olujimi, announced the decision at the sixth meeting of the Nigeria- Cameroon Mixed Commission in Abuja. According to the schedule provided by the commission, the handover of the villages in the north-east of Nigeria is to be completed by December 31st, 2003. The commission was set up in November 2002 after Nigeria refused to comply with the ruling of the World Court which gave Cameroon sovereignty over the Bakassi Peninsula in the oil rich Gulf of Guinea. The more sticky issue of the status of Bakassi is yet to be resolved by the commission. However, according to the commission’s schedule, Nigeria’s withdrawal, the establishment of a Cameroon civil administration and the deployment of security forces in the peninsula by the Mixed Commission is expected to be completed by May 2004.
Economic policy
The government unfolds a Although it was not formally unveiled until early October, the administration new economic blueprint of the president, Olusegun Obasanjo, used the tenth Nigerian Economic Summit meeting of the Nigerian Economic Summit Group (NESG), held in
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Abuja in early September, to give the first major insights into the administration’s proposed new economic policy, the National Economic Empowerment Development Strategy (NEEDS). Set to run for four years, the policy is supposed to increase Nigeria’s economic growth to 5% in 2005 and 7% in subsequent years. Probably conscious of the scepticism with which the new agenda is likely to be received after the woeful implementation of the administration’s previous economic policy documents, the president has tried to stress that NEEDS is not just another empty policy document. Charles Soludo, the president’s chief economic advisor and the co-ordinator of NEEDS, has also taken up the theme, telling the NESG that the new reform package had become necessary to arrest economic problems exemplified by the country’s low GDP growth rate, low productivity, de-capitalisation, under-capitalisation and low savings and investment. But details of the new reform package were still sketchy by end-October and the full policy document may not be ready until next year. However, Mr Obasanjo confirmed to the national conference of the ruling People’s Democratic Party (PDP) on October 23rd that the administration had identified six key sectors which would be targeted as engines of growth and for local and foreign investment, namely: oil, gas, agriculture, solid minerals, manufacturing and tourism development. He also identified four key priority areas for reforms as: • the acceleration of the privatisation programme, notably the sale of public utilities, to improve the service they provide (although the minister of finance has also indicated that the goal is to privatise selectively and to succeed with a few projects rather than to implement an overambitious programme with few successes); • the improvement of governance and implementation of institutional reforms so that all tiers of government can improve service delivery; • the need to boost transparency and accountability and target corrupt practices; and • the reform of the pension system.
Positive signs about government’s The administration has also taken some important steps since June which commitment to reform suggest that it is more serious about economic reform than it was during its first term. The president has a stronger economic team led by the finance minister, Ngozi Okonjo-Iweala, a former senior World Bank official. Mr Obasanjo has also established a new structure for the economic policy team that will drive the implementation of NEEDS, of which the centrepiece is the economic management team. This comprises key economic ministers and officials and is to meet with the president every Wednesday to discuss policy issues ahead of the cabinet meeting held on that day. A Presidential Economic Advisory Council, headed by Mr Soludo, has also been established to work in conjunction with the management team. Another important step forward has been that the government has sought to consult more widely than in the past on the policy document and stress, notably to members of the National Assembly, the need for economic reform. It hopes that this will make the passage of legislation through the two houses much smoother. Finally, Mr Obasanjo has established a number of agencies and committees to help
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implement specific aspects of his economic programme, including the National Council on Small- and Medium-Scale Enterprises and a committee to implement the recommendations of the panel on Failed and Non-Performing Contracts awarded between January 1976 and December 1998. Despite these positive developments, it should not be forgotten that the main bane of all economic reform programmes in Nigeria to date has not been the measures outlined in the various programmes, but the lack of political will and institutional capacity to implement agreed programmes. Policies have tended to flounder under the pressure and manipulation of powerful vested interests that benefit from the status quo, including militant trade unions, inefficient and corrupt state governments and local tiers of governments, and rent-seeking officials. However, it appears that Mr Obasanjo, who is now in his final term in office and has little to lose, is more inclined to take on some of the vested interests to implement long-needed reforms.
The government bites the The president’s apparent willingness to take up the mantle of reform has been bullet to deregulate fuel prices clearly indicated by his decision to approve the deregulation of domestic fuel prices with effect from October 1st. On September 30th the Petroleum Products Pricing Regulatory Agency (PPPRA) quietly lifted the price cap on domestic fuel products, spurring oil marketers to raise petrol pump prices the following day. Although there had been indications for some days that the move was imminent, there was still chaos on the roads as motorists were stunned by the overnight hike in petrol prices from the old official price of N34/litre (26 US cents/litre) to around N40/litre (31 US cents/litre) and uproar from the trade unions which have fought every attempt by the government to cut domestic fuel subsidies since the early 1990s. In response to the deregulation, the Nigeria Labour Congress (NLC), the umbrella trade union, called a general strike from October 8th although it was suspended after last-minute talks between the unions and oil-marketing firms, brokered by state governors. It was agreed that the fuel price increases would be reversed, but retailers subsequently failed to implement the agreement (the government has stated that since prices are deregulated, it is up to retailers to charge the prices they consider appropriate). Since then, union activists have picketed petrol stations trying to compel them to drop prices, but by late October the price of petrol ranged between N39.6/litre and N42/litre. On October 22nd the state-owned Nigerian National Petroleum Corporation (NNPC) raised its ex-depot prices for petroleum products, taking petrol from N26.40/litre to N33.50/litre, and also raised its pump price from N34/litre to N39.5/litre, further driving home the government’s resolve to stick to its deregulation policy. An NNPC spokesman, Ndu Ughamadu, said that the adjustments followed the government’s decision to start selling crude oil to the corporation at international market prices, as against the fixed subsidised rate of N22/barrel. Mr Obasanjo has received a lot of flack in the press for not properly announcing the decision to lift domestic fuel subsidies. However, although the change came abruptly, it followed many government warnings of its intention to deregulate. Fuel pricing is a sensitive issue in Nigeria where many people believe that cheap fuel is their birthright and most do not trust the government
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to spend money saved from removing subsidies in an honest fashion. As on previous occasions when the government raised fuel prices, elected officials distanced themselves from the unpopular move, but it seemed that this time their protests were more constrained. For instance, on October 2nd the House of Representatives voted to suspend all legislative functions in protest at the hike in fuel prices, but soon became quiet on the issue.
Fuel imports will remain Nigeria’s downstream oil sector is in a state of flux following the deregulation important for some time to come of fuel pricing and the beginning of the sale of the NNPC’s four oil refineries. In mid-October, the Bureau for Public Entreprises (BPE), Nigeria’s privatisation agency, invited investors to bid for shares in the country’s four refineries, kicking off what may be the first major privatisation of the president’s second term in office. The BPE gave prospective investors until November 14th to express their interest in buying 51% operating stakes in the refineries in Kaduna, Warri and Port Harcourt, with the aim of selling them by the end of this year. The government is banking on these two measures bringing to an end the perennial domestic fuel shortages that have dogged Africa’s biggest oil producer for nearly two decades. The country’s four refineries, all owned by the NNPC, produce at less than half their combined installed capacity of 445,000 barrels/day, owing to frequent breakdowns caused by ageing and poorly maintained facilities as well as mismanagement and corruption (August 2003, page 28). Although the privatisation of the refineries has started, Nigeria is likely to continue importing fuel for some time to come, given the time it may take to rehabilitate the privatised refineries and build new plants. The government’s decision to hand over Apapa jetty to independent oil marketers for the importation of petroleum products indicates its awareness of this. Wale Tinubu, director of the independent marketers, said on October 14th at the offloading of 45.6m litres of imported petrol that the transfer of the jetty would ensure that marketers could import enough fuel to meet domestic demand.
The IMF gives a cautious The Bretton Woods institutions have cautiously welcomed Mr Obasanjo’s new welcome to economic reform reform drive. The finance minister, Mrs Okonjo-Iweala, said on September 26th that the World Bank and the IMF have both given a positive welcome to NEEDS and promised to support its implementation. She said that the plan got a positive response when she presented it at the joint IMF-World Bank meeting in Dubai, United Arab Emirates, in September with the World Bank pledging to double its lending to Nigeria if NEEDS is successfully implemented. It also seems likely that the government’s demonstration of willingness to implement tough reforms will pave the way for some sort of agreement with the IMF in 2004. The likelihood of this will be enhanced if the administration’s 2004 budget shows further resolve to reform the system and improve fiscal discipline.
The government submits a Although the Fund is keen for the administration to rein in its spending, supplementary budget particularly in view of an expected fall in world crude oil prices in the coming years, with the price of oil remaining high in 2003 there is little sign of this so far this year. Budget management under Mr Obasanjo’s administration has in some respects been more chaotic and opaque than it was during military rule. For instance, it seems that the government has operated so far this year without
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a formal budget being passed by the National Assembly. On October 14th Mr Obasanjo submitted a fresh Supplementary Appropriation Bill of N278.9bn (US$2.3bn) to parliament and withdrew the one that he submitted in September which entailed expenditure of N179.8bn (US$1.38bn). In a letter to the Senate the president said that the earlier bill was “inadvertently transmitted”. Although the opposition All Nigeria People’s Party criticised the government for presenting the supplementary budget while still not having publicly stated the position of the 2003 budget—for instance, how much was approved and how much spent—the PDP used its overwhelming majority in the chamber to quickly pass the supplementary budget bill without debate, leading to a walk-out by members of the opposition parties. The supplementary budget proposes N179.8bn as capital expenditure and N96.6bn for recurrent spending. Moreover, the budget includes expenditure of questionable priority related to Nigeria’s plans to host the Commonwealth Heads of State meeting in early December, including N651m (US$5m) for the rehabilitation of the International Conference Centre, N5bn to extend the international airport and N4.6bn for the completion of the International Sofia Hotel. Not surprisingly, the administration has faced criticism for committing scarce public funds to prestigious projects in contradiction to its pledge to prioritise measures to curb poverty and induce economic growth. Critics also point to the decision to commit resources to the launch of Nigeria’s first satellite on September 27th, carried out by Russian engineers in Plesetsk, northern Russia. Although marking Nigeria’s entry into the space age, the venture was considered by some as distant from the needs of the majority of its people in one of the world’s poorest nations. The government’s decision to withdraw Nigeria’s bid to host the 2010 World Cup was greeted with relief by critics who condemned the original bid as fanciful.
Federal government workers The supplementary budget included provision of N5bn to fund wage increases get a pay rise of between 4% and 12.5% for public-sector workers, agreed between the government and the Nigerian Labour Congress (NLC) in the run-up to the elections (May 2003, page 21). The deal followed nearly a year of union pressure on the administration to fulfil a promise made in 2000 and involves a sliding scale whereby the lowest grade workers get a 12.5% increment and the highest grade a 4% increase. The increase was supposed to be backdated to July 1st but the government backtracked on its agreement and said that it would be implemented from October 1st 2003.
The government wants a law With the NLC increasingly taking on the mantle of the political opposition to to curb union power the government, it is perhaps not surprising that the House of Representatives is considering a bill submitted by Mr Obasanjo which seeks to curb the power of the NLC and outlaw strikes in Nigeria. The speaker of the house, Aminu Masari, said in late October that the trade union amendment bill seeks to end automatic payment of check-off dues paid to the NLC and automatic union membership. The bill, which was in its second reading, also wants trade unions to cease being affiliated to a central labour organisation in Nigeria, but join international trade unions. The government says the aim of the bill is to democratise trade unionism in Nigeria, but unsurprisingly, the unions do not
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see it that way and have vowed to resist any attempt by the government to emasculate the NLC or weaken trade unions in Nigeria. Mr Obasanjo may have opened a battle front against the unions that could prove difficult to win without diverting energy from his other reforms.
The domestic economy
Economic trends
The CBN cuts the minimum On August 19th the Central Bank of Nigeria (CBN) implemented its first cut in rediscount rate to 15% the minimum rediscount rate (MRR) in 2003 when it lowered the rate from 16.5% to 15% in a bid to lower general interest rates to boost investment—the president, Olusegun Obasanjo, had called on the CBN to lower the MRR to help stimulate growth in the productive sector—and as a result of falling inflation and the relative stability of the exchange rate. The drop in the MRR plus the injection of funds into the economy by the government did result in a decline in interest rates, with 30-, 60- and 90-day Nigeria Interbank Offer rates down to 13.9% on average in early October, compared with 16.6% before the MRR review. The average was 14.95% in late October.
Inflation dips below 10% The cut in the MRR was also justified by the gradual fall in the inflation rate during the first eight months of 2003. According to the CBN’s economic report for August, the 12-month moving average rate of inflation dropped to 9.9% from 10% in July and 10.1% in June, when it rose for the first time this year. However, although inflation has been on a downward trend in 2003, the fall does seem to have tailed off in recent months and with the recent increases in fuel prices and the government’s ongoing loose fiscal policy, we expect inflation to pick up again in the coming months.
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Inflation (%) 2002 2003 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 12-month moving averagea 15.2 13.6 13.2 12.9 12.3 11.4 10.5 10.1 10.0 10.1 10.0 9.9 a The 12-month moving average is the measure of inflation preferred by the Central Bank of Nigeria. Source: Central Bank of Nigeria, Economic Report (monthly).
There are signs that the naira After months of stability during 2003, there are signs that the CBN’s will slip back intervention to support the naira may be coming to an end, causing the currency to fall back in the coming months. The first signs that there could be a potential fall in the currency were seen on the parallel exchange-rate market. Like the main rate, this had been stable in the first ten months of the year at around N138:US$1, but slipped to N145:US$1 in late October/early November. More importantly, the interbank rate quickly followed suit. The Bloomberg closing rate on November 3rd was N132.8:US$1, very little changed from the closing rate on the first trading day of the year, January 2nd, at N130.1:US$1. However, on November 4th the rate tumbled to close to N149.7:US$1. The Economist Intelligence Unit has long argued that the exchange rate has only stayed so stable in 2003 owing to high oil prices and the willingness of the Central Bank to intervene in the market. But even with high oil prices, foreign- exchange reserves have fallen sharply during the year. Confirming the problem facing the CBN, the finance minister, Ngozi Okonjo-Iweala, attributed the decline in foreign-exchange reserves to withdrawals by the CBN to support the naira on the foreign-exchange market. She told This Day newspaper that faced with mounting demand for hard currency at the foreign-exchange auctions, the CBN would soon have to make a simple choice between deciding whether to continue propping up the naira and draw on the reserves, or conserve the reserves and let the naira depreciate.
Exchange rate Jan Feb Mar Apr May Jun Jul Aug Sep Oct N:US$ (end period)a 129.10 135.00 129.80 135.00 129.75 130.10 128.20 132.00 131.20 132.75 Parallel rate (end of month)b 138.0 139.0 139.0 139.0 139.0 137.5 137.7 138.0 137.8 144.0 a Bloomberg interbank market closing rate. b Parallel rate as quoted by Afribank. Source: Bloomberg and Afribank.
Oil and gas
A new presidential advisor is As well as the deregulation of domestic fuel prices and the moves to privatise appointed on petroleum the country’s refineries, the government has also pushed ahead with its overall efforts to reform the crucial oil sector. Perhaps the most surprising development in this respect was the unexpected resignation of the president’s energy advisor, Rilwanu Lukman, in early October. No official reason was given for the departure of Mr Lukman, probably Nigeria’s most experienced oil official, who has held top oil-related positions since the late 1980s, including that of petroleum minister and secretary-general of OPEC. Newspapers, however, speculated that Mr Lukman quit owing to discontent with the way that Nigeria’s oil industry was being run and, more specifically, because of a power
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struggle between him and the Nigerian National Petroleum Corporation (NNPC) group managing director, Jackson Gaius-Obaseki. Observers said that Mr Lukman felt left out of the policy loop as Mr Gaius-Obaseki reported directly to Mr Obasanjo. Mr Lukman’s disenchantment was said to have peaked last June when Mr Obasanjo directed that the control and administration of oil concessions should lie with the NNPC, thereby revoking the 1990 law that shifted these functions from the NNPC to the Department of Petroleum Resources. With the NNPC responsible for organising licensing rounds for the award of lucrative oil mining licences, Mr Gaius-Obaseki’s position seemed to have been enhanced. The president has announced that Mr Lukman will be replaced by Edmund Daukoru, who is broadly seen as being in favour of liberalising the oil sector having worked in both the private sector, with Shell, and the public sector, as the former group managing director of the NNPC.
A major shake-up of the NNPC Although Mr Lukman may have felt sidelined by Mr Gaius-Obaseki, the latter’s starts, including a new head position has also come under intense scrutiny in recent months, particularly as the government embarked on a major overhaul of the notoriously inefficient NNPC in late August. The overhaul began with the sacking or retirement of 28 senior officials and the scrapping of two of its six divisions. In a statement the NNPC said that those compulsorily retired included the head of the Pipeline and Products Marketing Company (PPMC), Dan Nzelu, and the head of Refining and Petrochemicals. However, the reforms led to a direct clash between Mr Gaius-Obaseki and the president, with the president eventually issuing a short statement on November 3rd that Mr Gaius-Obaseki had been dismissed and would be replaced by Funso Kupolokun, the former special assistant to the president on petroleum matters, who is also more supportive of reform. The corporation now comprises four directorates: Exploration and Production; Finance and Accounts: Corporate Services; and Refining and Petrochemicals. Nineteen new officials were appointed including Edmund Ayoola as head of Exploration and Production and Abdullahi Yar’Adua as head of Refining and Petrochemicals.
A deadline is set for the Further reforms are expected because in mid-September Mr Obasanjo gave the submission of a new oil policy National Council of Privatisation (NCP), headed by the vice-president, Atiku Abubakar, two months to submit the final draft of a new Nigerian Oil and Gas Policy, suggesting that time was running out to implement the reform. In a speech to the National Oil and Gas Policy Stakeholders’ workshop in Abuja on September 18th Mr Obasanjo said that the reform programme would include: • a review of extant petroleum laws and the establishment of a statutory basis for comprehensively regulating activity in the sector which would balance the interests of consumers, the environment and operators; • a review of petroleum product marketing; • a review of gas laws; • the privatisation of refineries; and • further restructuring of the NNPC.
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Although the details of the proposed changes are not clear, the Guardian newspaper reported that the new policy being put together by the NCP will create a new institutional structure for the oil and gas industry, including a Gas Regulatory Agency (GRA) and a National Petroleum Directorate (NPD). National Petroleum Investment Management Services (NAPIMS), which supervises and manages the joint ventures, production-sharing contracts and other exploration and activities of the NNPC will be moved from the NNPC and instead report to the Ministry of Finance. The responsibilities of the Ministry of Petroleum Resources may be increased, including supervision of product regulation, the NPD, the Department of Petroleum Resources and the Federal Environmental Agency (FEPA).
OPEC reduces quotas While the president pushed ahead with major reforms of the country’s oil sector, at its September 24th meeting OPEC unexpectedly cut its target production to 24.5m barrels/day, effective from November 1st, reverting to the level before the June increase. The organisation said that the readjustment became necessary in view of the continued rise in non-OPEC supplies and the ongoing recovery in Iraqi production, which could affect the supply/demand balance in the final quarter of 2003 and the first quarter of 2004, thereby potentially destabilising the market.
Nigeria’s OPEC quota (m barrels/day) Effective from Quota Jan 1st 2002 1.787 Jan 1st 2003 1.894 Feb 1st 2003 2.018 Jun 1st 2003 2.092 Nov 1st 2003 2.018
Source: OPEC.
Multinationals boost Nigeria’s quota reverts to 2.018m b/d, which is around 25% below its production capacity sustainable capacity. Moreover, the reduction has occurred at a time when Nigeria’s multinational oil operators are pushing ahead with advanced plans to increase their production capacity, in accordance with the government’s aims to boost output and reserves. For example, Shell Petroleum Development Company (SPDC), Nigeria’s largest producer, said that its crude oil output reached a five-year high in early October. The company’s statement on October 8th said that it produced 1.007m b/d on October 5th and 1.012m b/d on October 6th, noting that the last time it achieved such levels was in March 1998, when it produced 1.009m b/d. It also announced on October 15th that it plans to begin production from its Bonga oilfield by the end of June 2004 using a US$700m floating production and storage vessel, and aims to reach its full 225,000 b/d capacity within two to three months from start-up. In addition to Shell’s announcements: • a French oil major, Total, said in a statement on October 14th that the Usan-4 well was the third successful appraisal of the Usan field discovered in 2002. Two zones were tested in the Usan-4 well and flowed at 4,400 and 6,300 b/d under restricted flow conditions; and
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• an affiliate of ChevronTexaco said on October 21st that it had made two new significant deepwater oil discoveries off Nigeria’s coast. Star Ultra Deep Petroleum said that the discoveries at bloc 249 include high-quality crude oil from the wildcat Nsiko-1 well, one of whose zones tested at 6,500 b/d, and sand oil from the Aparo-3 appraisal well. These, and similar developments will place the administration in a major dilemma in the coming months over what to do with the mounting spare capacity and how to share output quotas between older inland fields, operated on a joint venture basis, and newer offshore ones run on production sharing contracts.
Foreign oil firms are accused There is some concern within the oil industry that the government’s latest of cheating Nigeria efforts to reform the petroleum sector may reflect growing resentment within public and official circles at the domination of the country’s hydrocarbons sector by foreign corporations. Evidence of this growing suspicion of oil multinationals operating in the country comes from a variety of sources. For instance, in September Nigeria’s privatisation agency, BPE, said in a report that Nigeria is losing US$750m per year through multinational oil companies inflating their production costs. It noted that firms operating in the same geological regions of Nigeria have reported different operating costs, citing Shell’s operating costs as US$6.50/barrel compared with ChevronTexaco’s US$9.00/b, Total’s US$11/b and ExxonMobil’s US$4.50/b. In a separate development the House of Representatives’ Committee on Petroleum Resources has called for the revocation of the floating production and storage vessel contract awarded for the Bongo field—the vessel is currently en-route to Nigeria—claiming that the country was being ripped off. The committee’s chairman, Cairo Ojougbo, also told reporters in October that the licence for the field was given to SPDC in an improper manner and that lawmakers were concerned that the company was granted the right to pipe the oil offshore, thus foreclosing any close monitoring by the Nigerian authorities.
NNPC stipulates local content Oil companies, as well as the government, have also been criticised for not in oilfield development doing enough to boost indigenous participation in the oil industry, which remains largely detached from the rest of the economy. In October Nigerian oil experts at a petroleum conference in Delta State lamented that after almost 50 years, local content of goods and services in Nigeria’s oil industry was still less than 5% and the country pays some US$5.5bn per year for the technical services of foreign companies. The government has taken such concerns seriously and introduced some measures aimed at boosting local content usage in the industry. For instance, it was reported in the press in mid-September that the NNPC has directed that 40% of the contracts awarded for the US$2.5bn Agbami deepwater oilfield must be sourced from within Nigeria. The NNPC holds a 50% stake in the field while ChevronTexaco (the operator) has 32%, a Nigerian firm, Famfa, 10% and Brazil’s Petrobras 8%. Agbami, potentially one of the largest fields discovered in Nigeria, is expected to begin producing in mid-2006 and peak at 225,000 b/d.
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Government suspends Following bitter complaints from oil trade unions that oil firms were employing issuance of temporary overseas workers in preference to Nigerians, in mid-September the government expatriate work permits suspended the issuance of temporary work permits to foreigners. When announcing the decision at a meeting with the internal affairs minister and senior oil and state security officials, the minister of labour, Hussaini Akwanga, said that the unions had also complained of non-implementation of collective agreements by some oil multinationals and that the authorities and unions were also concerned that the globalisation schemes for exploration and production proposed by oil giants will lead to Nigerian job loses. Mr Akwanga accused his ministry officials of colluding with expatriates, particularly those in the major oil companies, to abuse the temporary permit and quota system, and suggested that the Ministry of Internal Affairs would take over foreign work permit application.
Rising theft of crude oil The theft of crude oil is one of the biggest challenges facing the government in concerns the authorities its efforts to reform the management of the industry. The country is estimated to lose more than 10% of its daily oil exports to criminals siphoning crude from pipelines in the Niger Delta into barges and ships for sale abroad. The Nigerian navy said in early September that 15 ships had been apprehended since April for alleged involvement in oil theft. Government officials say that as well as local crooks, foreigners are heavily involved in the lucrative racket—a claim given credence by the navy’s arrest on October 8th of a ship carrying 11,300 tonnes of stolen Nigerian crude oil with a crew of Russians and Romanians. Newspapers reported that Côte d’Ivoire and Cameroon as well as Brazil were among countries identified by the government as destinations for Nigeria’s stolen crude. The US, Nigeria’s biggest oil importer, has undertaken to donate seven of its former coastguard vessels to the Nigerian authorities this year to help curb the oil bunkering. The third ship was delivered on September 4th.
Government A new LNG sees project privatisation is to go Outside of the oil sector, there has been a major development in the country’s of refineriesahead freeing at Brass fuel gas sector, when it was formally announced that the NNPC (49%), Eni (17%), supplies ChevronTexaco (17%) and ConocoPhillips (17%) had signed an agreement on October 30th to build a two-train 10m tonnes/year, liquefied natural gas (LNG) plant in Brass, Rivers State. The partners are to form an incorporated joint venture, to be known as Brass LNG, to undertake the project which is expected to come on stream by 2008. This will be the second major LNG export plant after the other joint venture, Nigerian Liquefied Natural Gas (NLNG), which started operations in October 1999.
Manufacturing
The manufacturing sector is Although the fall in interest rates in late 2002 should provide a fillip to the still facing many hurdles country’s troubled manufacturing sector in the next few months, in general the outlook remains poor. In its recent Economic Review 2001-02, the Manufacturers’ Association of Nigeria (MAN) identified a range of concerns that were facing the sector, and recommended that the government takes action in four key areas to support the manufacturing sector:
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• ensuring the provision of adequate infrastructure, notably stable power supplies; • setting clear macroeconomic targets and ensuring macroeconomic stability; • helping to ensure there is available and affordable development finance, immigration friendly policies and improved government transparency; and • taking pro-active fiscal policies, improving the operations of the ports and introducing legislative solutions to multiple taxation and levies and harassment on the highways. Industrialists are also deeply concerned about the scale of illegal imports into the country in the last few years, which is partly a problem of ingrained corruption at the country’s ports. However, on a more positive note, there has been a slow increase in the use of industrial capacity in recent years. According to the CBN, manufacturing capacity utilisation rose steadily from 35.9% in 1999 to 41.3% in 2002, while even MAN data show that it had risen to 52.5% by the end of 2002, although the lack of growth in employment remains a huge problem and, as MAN points out, “the sector could have done better if not for the myriad of socioeconomic obstacles”.
Performance of the manufacturing sector Jan-Jun 2001 Jul-Dec 2001 Jan-Jun 2002 Jul-Dec 2002 Capacity utilisation (%) 38.9 41.9 50.1 52.5 Employment 1,439,246 1,323,586 1,445,664 1,395,419
Source: Manufacturers’ Association of Nigeria, Economic Review 2001-02.
Agriculture
The government announces The government says that in its second term it will continue to make programmes to boost agriculture agriculture it top priority. To help support this goal, the minister of agriculture and rural development, Adumu Bello, announced in early October that henceforth the government would set aside 10% of its capital budget for agriculture. On October 10th the government also launched a scheme to sell 1,000 tractors to farmers at 50% discount. Mr Abubakar said the tractors assembled by Steyr Nigeria in north-eastern Bauchi state will be sold via local government councils. The government has also entered into agreements with several foreign countries for projects to boost Nigeria’s agriculture. • In September Thailand’s minister of commerce, Adisai Bodharamik, announced an agreement to grow rice in Nigeria as part of Thailand’s rice-export plantation scheme. Nigeria is a major importer of Thai rice, but its high import tariff has hampered trade. Under the project Thailand will also establish rice distribution centres in Nigeria to re-export to countries in West Africa. • The first batch of Chinese experts has started working in Nigeria as part of a tripartite food security agreement between Abuja, China and the UN Food and Agricultural Organisation (FAO), the national co-ordinator of the programme said in late October. Under this scheme China is to provide 504 technicians and 20 experts for three years.
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• Finally, a delegation of South African farmers visited Kwara State to consider taking up cattle breeding and poultry in the middle-belt state. The state government is hoping that South African farmers will be able to revive some of the unsuccessful agricultural projects that have been implemented there. But its officials were quick to deny media reports that the visiting farmers where white Zimbabweans, to head off possible controversy given the land conflict between black and white farmers in Zimbabwe.
Financial markets
The federal government floats The federal government, through the Debt Management Office (DMO), N150bn in bonds launched a N150bn (US$1.15bn) bond issue as part of a bid to make better use of the capital market to raise long-term funding and service its debt and to lengthen the maturity profile of its domestic debt. The offer opened on September 5th and closed on October 10th 2003. The securities, which will be traded in the stock exchange, come in four categories: • two bonds with fixed rates of 17.75% for those redeemable in 2006 and 18.25% for those redeemable in 2008; and • and two floating rate bonds maturing in 2010 and 2013.
Even with an inflation rate in double digits, the bonds offered an attractive rate of return in a deliberate attempt to ensure that there was a good take-up and to instil confidence in the market which has not seen such long-term maturity profile government debt issues since the return to civilian rule. (Federal government bonds have not been traded in the capital market since 1987, although some state governments have issued them since then). However, the market still remained wary and, despite the fact that the 3-year bond was oversubscribed, the total take-up was only around N77bn (N57bn for the 3-year bond, N17bn for the 5-year bond and about N3bn for the two floating bonds). Despite this, we still expect the government to try and continue to tap the longer-term domestic debt market, as outlined by the finance minister at the launching ceremony for the bonds in Abuja. She said that the government would routinely turn to the capital market to fund its annual fiscal operations and thereby relieve the Central Bank of the burden of funding gaps in the budget outside its weekly Treasury Bill auctions, which will continue to be run by the CBN.
The Nigerian share index hits a The Nigerian Stock Exchange (NSE) all-share index reached an all-time record new record high high in October having gained 56% since the start of the year. The index rose from 14,684.7 on June 19th to 18,922.06 on October 29th, before dipping to 18,900.72 on November 2nd. The index began the year at 12,137.7. Investors say the market has been buoyed largely by the good half-year results of blue chip companies and the prospect of economic upturn spurred by the administration’s greater commitment to implementing economic reforms and the lowering of interest rates. In addition, the deregulation of fuel pricing helped to boost the share prices of petroleum marketing companies. The market may make further gains when the government begins to float shares in
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major state enterprises. However, the long-awaited commencement of the offer of 25% of the equity in Nitel, expected to be Nigeria’s largest offer, has continued to be delayed with the NSE now saying that the offer will be launched in November.
Infrastructure
The electricity utility boosts After months of poor performance, power generation by the state-run National power output Electric Power Authority (NEPA), which has installed capacity of nearly 6,000 mw, reached a 19-month high of 4,000 mw in late August. NEPA’s output has more typically been around 2,000 mw in recent years, resulting in long and frequent power outages which cause hardship to households and businesses throughout the country. The recent improvement followed the restoration of natural gas supply to the Lagos Thermal Power Station, which contributes 1,320 mw of power, and higher output from several hydro power plants which have been boosted by good rainfall levels. Supply of natural gas to the Lagos plant was disrupted for several months after a major gas pipeline was damaged by vandals. According to NEPA officials the authority currently distributes about 3,500 mw of electricity across the country, which, although an improvement on previous performance, remains inadequate for the country’s needs. Meanwhile, in September the Nigerian Economic Summit Group recommended that Nigeria set a power generation target of 10,000 mw by 2007, which would require investment of US$5.5bn to achieve, but the country would be hard pressed to raise such a level of finance without major private-sector input, which is unlikely to come without a track record of liberalisation in the energy sector. The summit urged Mr Obasanjo to sign the Power Sector Bill passed by the National Assembly to enable the unbundling and sale of NEPA to proceed (November 2002, page 32).
Nitel is to expand its fixed line In August the new management of state-owned Nigerian Telecommunications service (Nitel) announced plans to deploy 250,000 new digital fixed lines in Nigeria’s commercial capital, Lagos. A Nitel spokesman said that five firms—Germany’s Siemens, France’s Alcatel, Sweden’s Ericsson, and China’s ZTE and Huwea technologies—have bid for the US$150m contract to install the lines within nine months of the deal being signed. A management contract for Nitel was awarded to the Dutch telecommunications consultants, Pentascope, in March 2003 (May 2003, page 29) after an attempt to privatise the company collapsed in February last year, when the preferred bidder failed to produce the balance of its bid. The additional lines should significantly boost the services of the corporation, which has less than 500,000 connected fixed lines.
Mobile phone subscribers In contrast to fixed line services, voice telephone usage has grown considerably protest against high tariffs over the past couple of years, due largely to the entry into the market in 2001 of mobile phone operators, MTN of South Africa and Zimbabwe’s Econet. Ernest Ndukwe, executive vice-chairman of the Nigerian Communications Commission (NCC) told the News Agency of Nigeria in August that deregulation of the telecommunications sector has boosted the number of telephone lines in the country from 400,000 nine years ago to 2.8m lines in
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2003. Although Nigerians from different social groups have welcomed the mobile revolution, there has been growing discontent over the high cost of calls, which led to a one-day boycott on cell phone use on September 19th, called by the GSM Subscribers’ and Phone Users’ Association. The group, which ironically organised the boycott through text messaging, reckoned that about half of the country’s GMS subscribers observed the protest. It is hoped, meanwhile, that the proposal by Vodacom of South Africa to buy into the Econet Wireless International (EWI) consortium will drive down prices. Vodacom and MTN have, in general, not competed head on in Africa outside of their domestic South African market, but the profits made by MTN’s Nigerian subsidiary have attracted Vodacom to make a bid for Econet Wireless Nigeria (EWN). EWN has had significant problems with its mobile operation in Nigeria, notably raising money to fund them. As a result, Vodacom has put forward an offer to buy EWN for around US$260m; this would give Vodacom a 50% plus one share majority stakeholding (competition will also be boosted by the fact that the second national fixed line operator, Globacom, got its mobile network up and running in August). However, the deal has been opposed by EWN’s parent company (Econet Wireless International, which has a 5% stake in EWN), which claims that it has the first choice to increase its stake in the company. This claim is now the subject of a legal battle, although we expect the deal to go ahead. The first step towards lower prices was also announced by the NCC, which has reached an agreement with mobile phone operators to switch to per second billing and to lower changes from December 2003. Combined, this could reduce the average bill by around 20%.
The private sector becomes Mr Obasanjo’s administration is looking to involve the private sector in the involved in road construction development of Nigeria’s grossly inadequate road network. On October 7th it inaugurated a panel, headed by banker Denis Odife, to determine how this can be achieved, including setting the legal framework for private business to engage in road construction and rehabilitation. The minister of works, Adeseye Ogunlewe, said when inaugurating the committee that the state could no longer fund road construction and rehabilitation alone, and that there is a need for private involvement through the Build Operate and Transfer (BOT) and the Rehabilitate, Maintain, Operate and Transfer (RMOT) programmes. Although government spending on roads has been less than required to give the country a decent network, levels of expenditure have nevertheless been substantial relative to outlays on other sectors. According to a Ministry of Works statement in late October, the government has spent N361.67bn (US$2.78bn) on road construction and rehabilitation within the past four years. This is much more than its combined capital expenditure on education and health over the period. The ministry said that N57.79bn of the money went to build 62 new roads while N302.03bn was used for the rehabilitation of 94 other roads. It said that Mr Obasanjo has approved N26bn to fund 51 ongoing road rehabilitation projects and an additional N10bn to offset the ministry’s outstanding liabilities of N44.5bn. According to Mr Ogunlewe, about 80% of Nigeria’s 140,000-km road network is in a state of disrepair, resulting in colossal carnage of people in motor accidents and economic losses estimated at N133.8bn per year. He has already announced, on August 4th, a government embargo on new road
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projects in order to concentrate on completing existing projects and repairing damaged highways.
Foreign trade and payments
Foreign-exchange reserves dip Nigeria’s foreign-exchange reserves have shown a sharp downward trend in the second half of 2003 despite the high oil price. According to Central Bank of Nigeria (CBN) data, they fell from US$8.2696bn in May to US$7.689bn June, US$7.642bn July and US$7.402bn in August. According to the CBN, the August level represented 5.6 months of import cover, compared with 5.9 months in July. The finance minister, Ngozi Okonjo-Iweala, attributed the decline to withdrawals by the Central Bank to support the naira on the foreign-exchange market. She told This Day newspaper that faced with mounting demand for hard currency at the foreign-exchange auction, the CBN would soon have to make a simple choice between deciding whether to continue propping up the naira and draw on the reserves, or conserve the reserves and let the naira depreciate.
Foreign direct investment Foreign direct investment (FDI) inflows to Nigeria rose to US$1.281bn in 2002 inflows edge up from US$1.104bn in 2001 and US$930m in 2000, according to the World Investment Report 2003 published by the UN Conference on Trade and Development (UNCTAD) and, compared to the other three main recipients of FDI in Sub-Saharan Africa, tend to be much more stable. This, however, also reflects a weakness in the nature of the inflows: FDI remains dominated by re- invested earnings in Nigeria’s oil and gas sector, with little going into the non- oil sector which is more important in terms of employment generation. Another worrying development according to the UNCTAD report is that according to its Inward FDI Performance Index—which measures the ratio of a country’s share in global FDI to its share in global GDP—Nigeria has moved from being an above potential attractor of FDI to an under-performer.
FDI inflows into Sub-Saharan Africa and the three largest recipient countries (US$ m) 1998 1999 2000 2001 2002 Total FDI into SSA 6,046 8,663 5,364 13,295 7,452 FDI into SSA (excl South Africa) 5,485 7,161 4,476 6,506 6,698 Angola 1,114 2,471 879 2,146 1,312 Nigeria 1,051 1,005 930 1,104 1,281 South Africa 561 1,502 888 6,789 754
Source: UN Conference on Trade and Development, World Investment Report 2003.
Nigeria signs bilateral debt Nigeria has made significant progress in the second half of 2003 with regard to rescheduling deals completing the debt rescheduling process that it signed with the Paris Club of main creditors in December 2000. According to the Debt Management Office (DMO), all the bilateral deals have now been signed with the exception of Italy, where the Italian government has been slow in putting up a draft agreement for negotiation. However, while the agreement will reschedule future repayments on easier terms and clear the arrears situation up to the cut-off date of July 2001, since then the country has built up new arrears on its external
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debt repayments. According to the DMO data, arrears had built back up to US$2,415bn by the end of 2002.
Status of Paris Club bilateral external debt negotiations/agreements Country Status Austria Fourth Bilateral Rescheduling Agreement signed December 2002 Belgium Fourth Bilateral Rescheduling Agreement signed August 2003 Denmark Fourth Bilateral Rescheduling Agreement signed September 2003 Finland Debt not qualified for rescheduling as per agreed minutes of Paris Club France Fourth Bilateral Rescheduling Agreement signed January 2003 Germany Fourth Bilateral Rescheduling Agreement signed September 2002 Italy Italy has not put up a draft for negotiation Israel Fourth Bilateral Rescheduling Agreement signed January 2002 Japan Fourth Bilateral Rescheduling Agreement signed September 2003 Netherlands Fourth Bilateral Rescheduling Agreement signed October 2003 Spain Fourth Bilateral Rescheduling Agreement signed April 2003 Switzerland Fourth Bilateral Rescheduling Agreement signed January 2002 UK Fourth Bilateral Rescheduling Agreement signed March 2003 2002 US Fourth Bilateral Rescheduling Agreement signed September2002
Source: Debt Management Office, Abuja.
What this indicates is that even if Italy does meet its commitment to the Paris Club rescheduling deal, Nigeria will need to negotiate another one immediately if the arrears problem is to be resolved. It is even more likely that this process could go on ad-infinitum. Although we still do not expect Nigeria to qualify for radical debt treatments such as the heavily indebted poor countries (HIPC) initiative, given its lack of real commitment to economic reform, Nigeria may benefit from the Paris Club decision on October 8th, which reflects discussions that took place at the G8 summit in Evian in June 2003 to adopt a more tailored approach to dealing with non-HIPC countries to ensure that debt restructuring provides debtor countries with a debt treatment that reflects their financial needs and ensures long term debt sustainability. The Paris Club said in a press release that with respect to countries with unsustainable debt, its members agreed that they would participate in a comprehensive debt treatment provided these countries are committed to IMF reforms and to seeking comparable treatment from other external creditors. To design the debt treatment, Paris Club creditors would resort to a menu of options with a view to tailoring their response to the creditor countries’ circumstances according to the results of the debt sustainability analysis conducted in co-ordination with the IMF. The statement added that debt reduction would continue to be considered only in exceptional cases.
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