Nigeria at a Glance: 2001-02

COUNTRY REPORT

Nigeria At a glance: 2001-02

OVERVIEW President Obasanjo’s administration is approaching the half-way mark of its first term with an unimpressive record of achievement, and to put Nigeria on the road to recovery within its two remaining years in power will be a daunting task. Sectarian political campaigning in the run-up to elections in 2003 is liable to make the job of tackling the constellation of ethnic, regional, religious and class conflicts that threaten national unity increasingly difficult. Meanwhile, the government is also likely to remain cautious about implementing the tough market reforms needed to mend an economy crippled by corruption, mismanagement and decaying infrastructure. The economy will remain dependent on the energy sector, and producers in the non-oil sector will struggle to survive in an unfriendly economic climate. The EIU expects real GDP growth to rise from an estimated 2.8% in 2000 to 3.5% in 2001 and 4% in 2002. But increased government spending and a falling naira will keep inflation in double digits. With lower oil prices and rapid import growth, the current-account surplus is expected to fall sharply in 2001-02. Key changes from last month Political outlook • Nigeria’s three service chiefs have been retired by the government as it seeks to consolidate its position. However, a military coup remains unlikely at present. Economic policy outlook • The debt rescheduling deal, agreed with the Paris Club in December 2000 and which was due to be implemented on April 15th, has still not been concluded. Senior government officials say the problem lies in agreeing new performance targets and decline to state when it is likely to be agreed. Although the deal is likely to be concluded quite quickly, the delay further indicates that reform will be a very slow and erratic process in Nigeria. Economic forecast • The current account surplus will fall from 8.4% of GDP in 2000 to 0.9% of GDP in 2001 and 0.2% of GDP in 2002, as oil prices fall back and import growth picks up rapidly. May 2001

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ISSN 0269-4204

Symbols in tables “n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Nigeria 1

Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

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

12 The political scene

19 Economic policy

23 The domestic economy 23 Economic trends 26 Oil and gas 29 Industry 30 Financial services 30 Infrastructure and other services

32 Foreign trade and payments

List of tables

10 International assumptions summary 11 Forecast summary 25 Official inflation rate 26 Nigerian interbank offer rate, 2001 33 Investment inflows

List of figures

12 Gross domestic product 12 Real exchange rates 20 Petrol prices in West Africa 24 Exchange rate 24 Real effective exchange rate, 1999 26 Oil production and quota 30 Nigerian Stock Exchange, 2001

Nigeria 3

Summary

May 2001

Outlook for 2001-02 President Obasanjo’s administration is approaching the half-way mark of its first term with an unimpressive record of achievement, and to put Nigeria on the road to recovery within its two remaining years in power will be a daunting task. Sectarian political campaigning in the run-up to elections in 2003 is liable to make the job of tackling the constellation of ethnic, regional, religious and class conflicts that threaten national unity increasingly difficult. Meanwhile, the government is likely to remain cautious in implementing the tough market reforms needed to mend an economy crippled by corruption, mismanagement and decaying infrastructure. The economy will remain dependent on the energy sector, and producers in the non-oil sector will struggle to survive in an unfriendly economic climate. The EIU expects real GDP growth to rise from an estimated 2.8% in 2000 to 3.5% in 2001 and 4% in 2002. But increased government spending and a falling naira will keep inflation in double digits. With lower oil prices and rapid import growth, the current-account surplus is expected to narrow sharply in 2001-02.

The political scene The government has launched a national debate on Nigeria’s constitution as part of the process of amending the one bequeathed by the military rulers. Federal and state governments are locked in a legal battle over sharing national revenue. Nigeria’s three service chiefs have been retired simultaneously in what appears to be a shake-up of the armed forces.

Economic policy The administration has continued to face resistance to its economic liberalisation policies. The unions staged a week-long demonstration in response to the government’s announcement that it intended to remove domestic fuel subsidies. A revised timetable has been announced for the second phase of the administration’s slow-moving privatisation programme. The IMF has expressed concern over the government’s proposed level of capital spending in 2001.

The domestic economy Heavy demand for hard currencies forced the Central Bank to devalue the naira and to introduce a number of measures, including raising interest rates, to try to shore-up the currency and narrow the gap between the official and parallel market exchange rates. Nigeria’s OPEC quota has been reduced. Shell has awarded major contracts for the development phase of the deepwater Bongo oilfield, which has renewed concern about local participation in oil investment projects. The government has pressed ahead with projects to resuscitate the dormant steel sector and has announced plans for breaking up the giant electricity utility in preparation for privatisation.

Foreign trade and payments Recent official statements put Nigeria’s total external debt at US$28.64bn at the end of 2000. The IMF has advised Nigeria not to overemphasise its demands for debt cancellation.

Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: May 1st 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

Political structure

Official name Federal Republic of Nigeria

Form of state Federal republic, comprising 36 states and the Federal Capital Territory (FCT, Abuja)

Legal system Based on English common law

National legislature National Assembly, comprising the 109-seat Senate and the 360-seat House of Representatives, both elected by universal suffrage to serve a four-year term

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

Head of state President, elected by universal suffrage to serve a four-year term

State government State governors and state houses of assembly

National government The Federal Executive Council, which is chaired by the president; appointed June 30th 1999

Main political parties People’s Democratic Party (PDP); All People’s Party (APP); Alliance for Democracy (AD)

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

Key ministers Agriculture & rural development Adamu Bello Aviation Kema Chikwe Commerce in Africa Mustapha Bello Communications Mohammed Arzika Culture & tourism Tonye Graham-Douglas Defence Lieutenant-General (rtd) Theophilus Yakubu Danjuma Education Babalola Borishade Environment Mohammed Kabir Said FCT administration Mohammed Abba-Gana Finance Adamu Ciroma Foreign affairs Sule Lamido Health Alphonsus Nwosa Industries Kolawole Jamodu Information Jerry Gana Internal affairs Sunday Afolabi Attorney-general of the federation & justice Bola Ige Labour & productivity Musa Gwadabe Police affairs Steven Akiga Power & steel Olusegun Agagu Science & technology Turner Isong Solid minerals Kanu Godwin Agabi Sports Ishaya Mark Aku Transport Ojo Maduekwe Water resources Mohammadu Bello Kaliel Works & housing Tony Anenih

Central Bank governor Joseph Sanusi

EIU Country Report May 2001 © The Economist Intelligence Unit Limited 2001 Nigeria 5

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (N bn) 2,823.9 3,233.9 3,639.1 3,978.1 a 4,354.9 GDP (US$ bn) 34.9 38.7 42.7 43.1a 42.8 Real GDP growth (%) 4.3 3.6 1.8 2.5b 2.8b Consumer price inflation (av; %) 29.3 8.2 10.3 6.7 6.9 c Population (m)d 101.4 103.9 106.4 109.0 111.6 Exports of goods fob (US$ m) 16,117 15,207 8,971 12,876 19,910 Imports of goods fob (US$ m) 6,438 9,501 9,211 8,588 10,631 Current-account balance (US$ m) 3,508 550 –4,244 506 3,618 Foreign-exchange reserves excl gold (US$ m) 4,075 7,581 7,100 5,450 9,350 Total external debt (US$ bn) 31.4 28.5 30.3 29.4 29.1 Debt-service ratio, paid (%) 14.2 8.0 11.6 6.1 6.3 Exchange rate (av) N:US$ 81.00e 83.50e 85.25e 92.34 107.7 c

May 1st 2001 N114.2:US$1

Origins of gross domestic product 1998 % of total Components of gross domestic product 1998 % of total Agriculture (excl livestock) 32.2 Private consumption 77.5 Livestock 5.2 Government consumption 10.7 Crude petroleum & gas 11.4 Gross fixed capital formation 20.0 Manufacturing 5.9 Exports of goods & services 23.3 Wholesale & retail trade 11.8 Imports of goods & services –31.7 Finance & insurance 9.6 GDP at market prices 100.0 GDP at factor cost incl others 100.0

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

1999f % of total Main origins of imports 1999f % of total US 37.5 UK 11.2 India 8.9 Germany 10.1 Spain 7.8 US 9.7 Brazil 6.6 France 8.6 a EIU estimates. b Official estimate. c Actual. d IMF series based on the official census held in November 1991; the UN estimated the population in mid-1997 at 120.5m. e Autonomous rate; the official rate, applicable to selected government transactions and fixed at N21.9:US$1 in January 1995, was abolished in January 1999; the interbank foreign-exchange market (IFEM) rate is used thereafter. f Derived from partners’ trade returns; subject to a wide margin of error.

Quarterly indicators

1999 2000 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Output Industrial production index (1995=100) 102.7 104.5 102.1 101.3 99.3 101.5 n/a n/a % change, year on year –5.0 –3.5 –4.0 –2.0 –3.3 –2.9 n/a n/a Prices Consumer pricesa (1995=100) 165.3 168.8 163.7 160.4 162.2 n/a n/a n/a % change, year on year 14.0 10.4 2.4 0.5 –1.9 n/a n/a n/a Petroleum spot price Bonny Light 37° (US$/barrel) 11.4 15.8 20.8 24.3 27.2 30.1 29.6 29.6 Financial indicators Exchange rateb N:US$ (av) 85.934 92.990 94.406 96.022 99.575 100.451 103.025 103.738 N:US$ (end-period) 89.550 94.406 94.406 97.950 100.120 101.700 101.750 109.550 Discount rate (end-period) 19.0 20.0 20.0 18.0 n/a n/a n/a n/a M1 (end-period; N bn) 467.47 449.84 437.96 400.83 487.95 519.68 556.39 630.08 % change, year on year 60.8 48.3 35.8 20.3 4.4 15.5 27.0 57.2 M2 (end-period; N bn) 698.08 708.18 732.97 699.73 795.53 904.15 962.74 1,016.48 % change, year on year 46.0 42.8 35.6 31.7 14.0 27.7 31.3 45.3 Stockmarket index (NSE all share; end-period; Jan 3rd 1984=100) 5,456 5,978 4,891 5,240 5,998 6,467 7,299 8,111 % change,year on year –13.4 1.5 –14.2 –7.6 9.9 8.2 49.2 54.8 Sectoral trends Crude oil productionc (m barrels/day) 2.01 2.01 1.88 1.95 1.95 2.01 2.04 2.15 % change, year on year –11.1 –8.2 –6.9 –0.5 –3.0 0.0 8.5 10.3 Foreign trade (US$ m) Exports fob 1,986 2,678 n/a n/a n/a n/a n/a n/a Imports cif –2,392 –2,979 n/a n/a n/a n/a n/a n/a Trade balance –406 –300 n/a n/a n/a n/a n/a n/a Foreign reservesd (US$ m) Reserves excl gold (end-period) 3,988 4,350 4,650 5,500 n/a n/a n/a n/a a The Nigerian government uses 12-month moving averages as its official measure of inflation. b Official exchange rate up to 4 Qtr 1998. From 1 Qtr 1999, autonomous foreign-exchange market. c Excluding condensates. d Official/EIU estimates.

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

EIU Country Report May 2001 © The Economist Intelligence Unit Limited 2001 Nigeria 7

Outlook for 2001-02

Political outlook

Domestic politics Political stability in Nigeria over the next 12-18 months will depend largely on the government’s ability to press ahead with economic and political reform during the rest of the year. Although elections for municipal governments, the National Assembly and the presidency are not due until late 2002 and early 2003, there are already signs that political campaigning has started, and this is set to pick up in earnest in early 2002. This leaves President Olusegun Obasanjo’s administration only a narrow window of opportunity to push through difficult reforms, if there is to be any chance of these reforms bearing fruit before the political process is overtaken by electioneering, campaigning and excessive partisanship.

The main indicators of the government’s commitment to reform will be budgetary management, privatisation and domestic fuel price liberalisation, as well as the issue of law and order. The implications of the first go well beyond simply improving economic performance and living standards. Lax fiscal management will raise concern that corruption will increase significantly in the run-up to the elections. Meanwhile further delays in the privatisation programme and lack of progress with fuel price deregulation during the next 12 months will increase doubts about the reform process in Nigeria and delay further significant changes until mid-2003, assuming the elections are held successfully. As for law and order, the run-up to the elections is likely to bring various attempts to stir ethnic and religious divisions by forces seeking to raise their own profiles and gain political capital. There will be violent clashes between religious, ethnic and—possibly—political groups.

The government’s chances of success on these issues looks mixed. High oil prices have already caused government expenditure to surge, and often on projects which seem to have little economic rationale given the poverty within the country. Meanwhile, although some sales of state enterprises, such as that of the state telecommunications company, Nitel, may go ahead, there is unlikely to be major progress on privatisation. Instead, this and other key reforms, such as domestic petroleum price liberalisation, will get waylaid by the lack of consensus on the need for reform both within the government and between it and the ruling elite, and because of the inability of the executive and legislature to work together to facilitate effective government. In addition, the president has little room to manoeuvre on potentially explosive issues, such as the implementation of sharia (Islamic law) in northern, Muslim- majority states, because he is limited by his personal status as a practising Christian from the south and by the division of power between federal and state governments under the current constitution.

The electoral cycle is therefore moving forward against a background of continuing popular frustration with the self-serving political elite and lack of improvement in living standards. There is a chance that a crisis may erupt, ultimately undermining the viability of the current political system. Even if

President Obasanjo continues to manage tension and crises with the success displayed by both his own and previous military regimes, and even if the elections do pass without excessive controversy, failure to resolve underlying tensions will keep civilian rule weak. Such a fragile political system will create opportunities for ambitious elements of the armed forces to consider inter- vening in the political process later in the forecast period.

Election watch The president has argued that genuine democratic institutions will take time to emerge after 15 years of military rule, and that politicians face a sharp learning curve. However, progress in developing democracy has been slow, and the weakness of the political parties—and their vulnerability to corruption and influence-peddling—augurs ill for the next elections in 2002-03. The political parties may be able to patch up their internal problems sufficiently to contest the elections, but it is more likely that there will be a realignment of political forces; signs of this have begun to emerge. It is also likely that politicians will resort to fraud and vote-rigging to ensure they are re-elected. This may increase tension and discredit the election system, but it is not clear whether the military as an institution has the capacity, the internal unity or even the desire to intervene once more in domestic politics. However, because of Nigeria’s history of military intervention, popular support of a coup is unlikely, despite the weakness of the civilian government, and senior officers will probably be reluctant to return to the political fray. That said, junior officers are more unpredictable, and may act opportunistically.

International relations Despite a pressing domestic agenda, Mr Obasanjo spends much of his time travelling abroad, and foreign relations will retain a high profile. The government is keen to play a more active role in African economic and political affairs outside those related to West Africa. Nigeria also expects to benefit from the change of US government—a number of those nominated by the US president, George W Bush, to his administration have strong links with the oil business and companies with high-profile operations in Nigeria.

Economic policy outlook

Policy trends Despite agreeing an IMF stand-by credit of US$1bn in August 2000 and a conditional Paris Club debt-rescheduling deal in December 2000 (which was supposed to come into effect in mid-April 2001 if various reform and macroeconomic targets were met, but is still subject to concluding negotiations), the administration has made only hesitant moves towards economic reform. Minor privatisation projects have been dogged by controversy; policy initiatives to liberalise power, telecommunications and domestic fuel prices have been confused and often contradictory; and the budget process has been drawn out for months by political wrangling.

The slow and contradictory nature of the reform process in Nigeria under civilian rule has led the IMF to voice its concern, and in normal circumstances it might well have halted its support of the programme, causing other donors to withdraw their assistance. However, President Obasanjo appears to have assumed—correctly, to date—that political factors, rather than policy

EIU Country Report May 2001 © The Economist Intelligence Unit Limited 2001 Nigeria 9

performance, are the key to external support. Moreover, high oil prices have allowed the government to gloss over the lack of progress. Should there be an abrupt fall in prices, its failure to press ahead with reforms is likely to be exposed, and the resulting economic pressure may generate a major political crisis. At this point, donors would have to decide whether to continue to support limited reforms or to demand a fundamental programme of change and debt restructuring. Having made a commitment to Africa’s most populous country, they will find it difficult to withdraw, though they may insist that some high-profile reforms, such as fuel price deregulation, are carried through.

Fiscal policy The 2001 budget was set in the context of the 2001-03 macroeconomic framework. It aims to boost the non-energy sectors of the economy and to address the twin issues of income inequality and poverty, notably by increasing expenditure on infrastructure. Although the budget is broadly realistic, doubts must persist over the realism of its revenue target—the US$22/barrel price is realistic, but it is far from clear whether oil exports will average the projected 2.41m barrels/day. Equally, doubts remain over the government’s ability to implement the planned increases in expenditure, especially on infrastructure, given its inability to deliver a range of other services in recent years. The EIU estimates a budget deficit of 0.8% of GDP in 2000, based on provisional budget data outlined by the Central Bank of Nigeria (CBN). With oil prices falling back and expenditure set to increase, the deficit is forecast to rise. We expect it to reach 3.5% of GDP in 2001 and 3.7% of GDP in 2002. The government will finance the deficit mainly by issuing domestic Treasury bills, but may also run down foreign-exchange reserves (which, according to the CBN, had risen to US$9.9bn by January 2000).

Monetary policy With inflation following a steady downward trend in the first nine months of 2000, the CBN gradually loosened monetary policy throughout the year. However, money supply grew rapidly in 2000 and, coupled with high oil prices and a large increase in government wages led to substantial spending pressure. As a result, inflation began to pick up very quickly in the final quarter of 2000 and into 2001. Because of this and because of the volatility of the naira, the CBN has been pushed into raising both the minimum rediscount rate and the minimum cash-reserve requirement for commercial banks a number of times so far in 2001—at the end of April they stood at 16.5% and 12.5% respectively. However, donor pressure to meet a stricter inflation target is growing and, unless there is an unexpected fall-off in the inflation rate, we expect the CBN to raise rates further during the year despite domestic criticism of high interest rates. Rates should stabilise towards the end of 2001, and there may be some scope for loosening monetary policy in 2002 as inflation stabilises.

Economic forecast

International assumptions The most recent data show that the US economy began to slow sharply towards the end of 2000. As a result, we now estimate that the rate of world GDP growth will slow from 4.9% in 2000 to 2.9% in 2001—and this may again be revised downwards. However, we expect the US economy to rebound quite

quickly; with no global recession, world GDP growth should pick up to 3.8% in 2002. Oil prices averaged US$28.4/barrel in 2000, but we expect OPEC’s attempts to manage oil supply, coupled with the forecast slowdown in the world economy, to lead to an easing of oil prices in 2001 and into 2002. This will only be gradual, however, and Brent crude is forecast to fall to around US$24/b in 2001 and 2002.

International assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.6 4.9 2.9 3.8 OECD 3.1 4.0 1.7 2.5 EU 2.5 3.3 2.5 2.6 Exchange rates (av) ¥:US$ 113.9 107.8 124.3 123.0 US$:¤ 1.07 0.92 0.97 1.08 US$:SDR 1.37 1.32 1.30 1.36 Financial indicators ¥ 2-month private bill rate 0.27 0.24 0.18 0.10 US$ 3-month commercial paper rate 5.18 6.32 4.40 5.20 Commodity prices Oil (Brent; US$/b) 17.9 28.4 24.1 24.0 Gold (US$/troy oz) 278.8 279.3 258.8 255.0 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 8.0 14.8 Industrial raw materials (% change in US$ terms) –4.6 13.4 2.6 5.1 Note. Regional GDP growth rates weighted using purchasing power parity (PPP) exchange rates. Economic growth Recent CBN estimates indicate that Nigeria’s real GDP increased by 2.8% in 2000, a disappointing rate given the high oil prices during that year. The low growth rate reflects the delay in passing the budget and the slow pace of economic reform. Despite lower oil prices, we forecast that the economy will grow by 3.5% in 2001 and by 4% in 2002, led by investment in offshore oil production (current investment as well as investment resulting from the new licensing round) and various new gas projects. Outside the energy sector, buoyant government expenditure in 2001-02, in the run-up to the elections, will drive a steady increase in public and private consumption. This will be supported by the steady growth of agricultural output, led by food crop production.

Real GDP growth rates of 3-5% a year will not lead to a marked rise in GDP per head in Nigeria while the population grows at 2-3% per year. In addition, because growth is driven mainly by developments in the energy and government sectors it will not reach rates high enough to create jobs or reduce poverty significantly—two pressing issues the government needs to address, especially in the run-up to an election. To do so would require real GDP growth of 8-10% per year, driven by a similar rate of increase in the agriculture sector.

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Forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 2.5d 2.8d 3.5 4.0 Industrial production growth –1.5b 1.5 1.9 3.2 Consumer price inflation Average 6.7 6.9a 14.0 11.0 Year-end 6.8 15.6 a 9.6 9.4 Short-term interbank rate 20.3 18.3 23.5 20.5 Government balance (% of GDP) –7.2b –0.8 –3.5 –3.7 Exports of goods fob (US$ bn) 12.9 19.9 18.0 19.4 Imports of goods fob (US$ bn) 8.6 10.6 13.1 14.9 Current-account balance (US$ bn) 0.5 3.6 0.4 0.1 % of GDP 1.2b 8.4 0.9 0.2 External debt (year-end; US$ bn) 29.4 29.1 29.7 30.4 Exchange rates N:US$ (av) 92.34 101.70 a 118.92 133.50 N:¥100 (av) 81.06 96.65 96.83 108.54 N:¤ (year-end) 98.40 102.81 131.67 150.50 N:SDR (year-end) 134.4 142.7 168.9 190.7

a Actual. b EIU estimates. c EIU forecasts. d Official estimates.

Inflation Helped by stable food prices, inflation averaged 6.9% in 2000. However, although inflation followed a downward trend in the first five months of 2000, there was a sharp rise in the year-on-year rate towards the end of 2000 and into 2001 as a result of the loosening of monetary policy and an increase in government spending, which significantly boosted domestic demand and money supply growth at a time when the exchange rate was falling and imports were becoming more expensive. We expect the trend followed in the second half of 2000 to continue into the first half of 2001, before it moderates slightly in late 2001 and into 2002 as the Central Bank tightens monetary policy. The 12-month moving average rate is forecast at 14% in 2001 and 11% in 2002.

However, there has been increasing criticism of the official inflation data in Nigeria in the past year, with concern that the rates published by the CBN and the Federal Office of Statistics are out of line with actual price changes and are implausible in a country where M2 has grown by 45%.

Exchange rates The government and monetary authorities have stated that they are aiming for a stable exchange rate, and, unlike past regimes, the present government seems prepared to allow the naira to depreciate (although only gradually). However, there are strong vested interests in Nigeria opposed to a fall in the value of the naira, which have come to the fore during the current volatility in the naira— the currency has been subject to sharp downward falls in the past nine months owing to the lumpy nature of foreign-exchange flows on the interbank foreign- exchange market (IFEM), arbitrage between the official and parallel rates, and changes to trading rules and regulations by the CBN. Because the Central Bank has partially intervened to reverse these falls, a significant gap has opened up between the IFEM rate and the parallel market rate since the final quarter of

2000. Although the CBN is concerned about this, it will persist until the official naira rate is allowed to fall further, especially with foreign-exchange inflow rates falling because of lower oil prices. We currently forecast that the naira will fall to an average of N118.9:US$1 in 2001 and N133.5:US$1 in 2002.

External sector Strong oil prices in 2000—and the first full year of gas exports—led to a sharp improvement in export earnings during the year. Although imports are thought to have picked up strongly in 2000, they will not have increased as rapidly as exports, owing to the delay in passing the budget and to the slow implementation of the public-sector pay rise. We therefore estimate that the current account recorded a large surplus, equivalent to 8.4% of GDP, in 2000. However, with oil exports falling back in 2001 and imports continuing to grow very quickly, the current-account surplus will fall to 0.9% of GDP in 2001 and be virtually in balance, at 0.2% of GDP, in 2002.

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

The political scene

President Obasanjo faces President Olusegun Obasanjo’s administration has faced growing public criticism disappointment at the slow pace of development in Nigeria. Much of the euphoria that greeted the restoration of democracy in May 1999 following 15 years of military rule has turned to disenchantment and despair as Nigeria’s civilian leaders prove to be as ineffectual in tackling the myriad of political and economic problems besetting the country as were their military predecessors. Roman Catholic bishops reflected the disappointment felt by many Nigerians

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when in early March they castigated the government for performing below the peoples’ expectations. The communiqué issued at the end of their annual conference noted: “We see many members of the political class, at federal, state and local government levels looking not to the needs, even the most basic needs, of the people, but spending time and money looking to how they can be re-elected two years from now” and “We see government at all levels dissipating scarce resources on expensive projects that do not directly improve the lives of the people [which] is surely a sign of a democracy that is deficient”.

While the government is certainly at fault for some of the problems currently facing Nigeria, in its defence it should also be noted that Mr Obasanjo has probably found that the ethnic, regional, religious and class conflicts that have long dogged Nigeria are more ingrained today than they were when he first governed Nigeria as a military ruler in the late 1970s. The government has also put up a spirited defence against the bleak picture painted by critics, arguing that the administration has performed well given the enormous scale of the problems it inherited. It also claims that it has restored peace following a spate of bloody ethnic and religious clashes in the country, which were widely seen as a release of the population’s pent-up grievances suppressed by many years of military rule. Taking up this theme in late March, President Obasanjo told the national convention of his People’s Democratic Party (PDP) that his administration had done much to strengthen the economy and improve the lives of Nigerians, including almost trebling the nation’s external reserves, reducing revenue wastage, improving the performance of comatose public utilities and restoring the confidence of foreign creditors and development partners.

Politicians gear up for the Meanwhile, Nigeria’s political climate is increasingly been shaped by 2003 elections preparations for the 2003 elections, in what one media commentator described as the longest pre-election campaign in Nigeria’s history. Much of the discussions about the presidential race at this stage has focused on whether Mr Obasanjo will seek a second term since the emergence of other contenders for power. In a country where election fortunes are largely determined by ethnic allegiances, trade-offs between geo-political regions and election spending power, the answer appeared likely to depend less on Mr Obasanjo’s first-term record than on his ability to rally a powerful alliance behind himself and the PDP.

Mr Obasanjo gets unwanted One unexpected source of support for the president has come from Senator election backing Arthur Nzeribe. Always a controversial politician, he has launched a group— the Movement for National Consensus and Accommodation (Monac)—to campaign for President Obasanjo’s adoption as the sole candidate in the 2003 presidential poll. In a statement in mid-March, Mr Nzeribe, a member of the All People’s Party (APP), Nigeria’s second biggest party, explained that Monac’s stand stemmed from a desire see Nigeria through a peaceful transition after previous civilian-conducted polls produced post-election crises that prompted military coups. Though most Nigerians share Mr Nzeribe’s apprehension about the coming elections, many suspect his motives, as he has previously led the group that campaigned for prolonging military rule in 1993 and helped precipitate the annulment of the presidential election that year that threw

Nigeria into political crisis. President Obasanjo, aware that Monac’s support could do him more harm than good, issued a statement on March 12th appealing to groups pushing for his sole candidacy to desist, arguing that this was undemocratic.

His Yoruba kinsmen rally Some of the most vocal support for President Obasanjo’s re-election has come for Mr Obasanjo from his Yoruba kinsmen in the Alliance for Democracy (AD), another rival party to the PDP. In a press interview in early February, Adebayo Adefarati, the state governor of the AD controlled, Ondo state, noted that a second term for Mr Obasanjo could unify the nation. Later that month, another senior AD member and Yoruba leader, Tunji Otegbeye, told the Guardian newspaper that the AD and PDP parties were forming an alliance to ensure Mr Obasanjo’s victory in the 2003 election. The AD is very strong in the six south-western states but weak outside the Yoruba-speaking region, and many of its members believe that it is important that a Yoruba remains president.

Igbo disagree on their So far, the political challenge to President Obasanjo has come mainly from presidential nomination non-Yoruba politicians and groups that believe it is the turn of their particular ethnic group to rule. Probably the most strident opposition to the president has come from a fellow member of the PDP, Orji Kalu, governor of the predominantly Igbo south-eastern Abia state, who claims that Mr Obasanjo has been an ineffectual president and wants an Igbo president in 2003. Igbo politicians are generally agreed that an Igbo should succeed Mr Obasanjo, but divided on whether this should be in 2003 or 2007. On March 17th Odenigbo Forum, an Igbo cultural association, announced that it was backing Senator Ike Nwachukwu, a retired general and former external affairs minister, as the Igbo presidential candidate for 2003. However, a week later the leading pan-Igbo cultural group, Ohaneze-Ndigbo, rejected the nomination, saying after an emergency meeting in Enugu that only it could pick a consensus Igbo presidential candidate, which it had so far not done.

Northern politicians look Despite the early pre-election politicking, it was still unclear by April whether to recover power President Obasanjo would seek a second term. On February 26th he told journalists he was undecided on the matter. However, some observers believe that his eventual decision is likely to be influenced by whether he is able to retain the support of the groups of powerful northern politicians that helped him to power in 1999. Many northern politicians have expressed disappointment with Mr Obasanjo’s rule, believing that their vast and powerful region has been marginalised by his administration, particularly in the allocation of government appointments, after it in effect conceded power to the south in the last elections. Growing numbers of northern politicians have been calling for the north to reassert itself as a political force and recover central power, which it has held for most of the years since independence thanks to its population strength. Media speculation that a former military leader, General Ibrahim Babangida, is planning to return to power gained ground after his associates, including cabinet ministers, retired generals and special aids, launched a political movement—the National Solidarity Association—which many observers said could be a platform for

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Mr Babangida’s political comeback, although it is not clear what support he would have or whether the move would face legal challenges.

Party registration becomes In late March the Independent National Electoral Commission (INEC) an issue submitted an electoral reform bill to the Senate, raising the hopes of groups seeking registration of new parties. The draft bill included guidelines for registering new parties and provided for the government funding of parties. Forming parties is a contentious process in Nigeria, where the authorities have in the past limited the number of approved parties and set stringent registration conditions to prevent the emergence of ethnic or regional parties. Some civil liberties organisations say that INEC’s electoral reform bill also restricts the free formation of parties and have urged the National Assembly to drop the legislation—the most contentious provisions include a requirement that registered parties must renew their registration after every presidential election and that a party must have branches in at least two-thirds of the states of the federation. However, the issue of registering parties is very controversial. The chairman of the ruling PDP, Barnabas Gemade, upset many unregistered parties when he reportedly urged INEC not to register new parties for the next elections, prompting the National Progressive Forum, a newly formed party, to denounce Mr Gemade in a statement which also warned INEC that failure to register new parties could destabilise Nigeria. What is clear is that Abel Guobadia, the chairman of INEC, has an extremely difficult job in proving his neutrality to mistrustful and bellicose politicians, and he even recently faced demands for his resignation after he called on the government to interpret the constitutional provision on party registration.

State governors take the Nigeria’s political conflicts are also being fought out in the courts, with the government to court government being dragged into what looks set to be a prolonged dispute over the allocation of state resources which has the capacity to degenerate into a crisis. At one level, the federal government is pitted against all the states of the federation, which are demanding a larger share of federal revenue. In pursuit of their demand, Nigeria’s 36 state governors have united to seek a court judgment to compel the federal government to deposit all collected revenue into the “federation account” and distribute the money to the different tiers of government. This development followed the government’s decision to withhold some N158bn (US$1.4bn) in excess crude oil revenue from distribution to the different tiers of government after the Central Bank of Nigeria said this was necessary to avoid over-fuelling the economy. However, state governments maintained that the central government lacked the constitutional right to withhold the money, and the governors of Nigeria’s 17 southern states agreed at their joint meeting in late March to go to court to compel the federal government to pay up. The 19 governors of the northern states joined the campaign at a meeting on April 2nd of the Governors’ Forum, which brings together all 36 governors, when they also resolved to take court action against the federal government. In their communiqué, the 36 governors also complained that the Revenue Mobilisation, Allocation and Fiscal Commission had not yet produced a new revenue allocation formula to replace the current one imposed by the military. The commission, set up soon after President Obasanjo came to power in 1999, is widely expected to raise the

revenue share of states and local governments, which currently receive 24% and 20%, respectively, with the federal government taking 48% and the rest going to the Federal Capital Territory and the National Ecological Fund. The states want 45% of national revenue, with 25% going to the local governments and 30% to the federal government. Meanwhile, the government has relinquished and paid the outstanding excess into the federation account (see Economic trends).

The legal showdown over The second and probably most politically explosive row over resource sharing oil revenue begins centres on the demand by southern states for greater local control of economic resources produced in their territories. In particular, the governments of Nigeria’s six oil-producing states have been pressing to take over ownership of natural resources from the federal government, reflecting the demand of local militant youths who have been waging a struggle against what they claim has been the historic neglect and exploitation of their impoverished communities by northern-dominated central government. The federal government and the relatively poor northern states have opposed the demand, which if implemented would radically alter the balance of power in Nigeria, a country highly dependent on state resources. The argument over the ownership of oil resources is reflected in the quarrel between Abuja and the oil-producing states over the interpretation of the constitutional provision that allocate states 13% of the revenue from natural resources produced in their territory. President Obasanjo has applied the derivation principle only to oil revenue from onshore production, but the governments of the oil-producing states demand its application to income from offshore output as well. In an unprecedented step, the federal government on February 6th shifted the argument to the law courts. On April 9th the Supreme Court began hearing the case brought by the federal government against all of Nigeria’s 36 states. The federal government has asked the court to determine the seaward boundary of littoral states for the purpose of calculating revenue generation. Its lawyers have contended that natural resources located in Nigeria’s territorial waters belong to the federation and not any state.

The row over resources stirs The resolution of the conflict is made harder by the warnings uttered by both memories of civil war sides of the dispute of impending disaster, and even civil war, in Nigeria if they do not get their way. In a recent visit to Bayelsa state, at the heart of the oil- producing Niger Delta, the president reminded those involved in the court action that “the entire nation fought a bitter 30-month civil war to ensure that the resources of the nation are kept intact” and that up to 1m lives were lost. Similarly, several senior northern politicians have reaffirmed their region’s commitment to federal government control and ownership of resources and warned the southern states to tread carefully. “This country fought a civil war essentially because of resource control,” Governor Adamu Aliero of Kebbi state told reporters in early April after a meeting with his fellow northern governors from Plateau and Zamfara states; while in late March, Isa Kachako, a senior northern politician, said that the agitation for local resource control could ruin Nigeria—“resource control is a way of dividing the nation, a way of encouraging people to take up arms” he told Vanguard newspaper. On the other side, advocates of changing the current revenue formula have been no less

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dramatic in spelling out the consequences for Nigeria if the current system remains unchanged.

Islamic law continues to As well as the ethnic and regional divide over resource distribution, political spread tension in the country has continued to be fuelled by religious disagreement over the introduction of sharia (Islamic law) in the north. On March 31st Bauchi state adopted sharia, a month after its governor, Adamu Muazu, signed the sharia bill. In early April the governor of Borno state announced that the implementation of sharia would begin in his north-eastern state on June 1st. About 10 northern states have implemented Islamic law, or plan to do so, despite opposition from Christians and human rights groups, who argue that its harsh treatment of offenders, including the amputation of limbs and public flogging is uncivilised. Critics also claim that the growth of sharia stems more from the political calculations of local politicians eager to please voters following the political emasculation of the north, than the religious convictions of state officials. Islamic radicals have also criticised sharia states of failing to fully implement the Islamic code and culture, which include a ban on alcohol consumption and prostitution and the separation of the sexes. On April 22nd the National Council of Ulamas, Nigeria’s highest Islamic council, criticised northern states that have adopted sharia for not enforcing it. It noted that Zamfara state, where the flogging of a 17-year-old girl in January drew international protests, was the only state to have adequately applied the Islamic law. The Ulamas called for the immediate and complete implementation of sharia in all officially sharia-practising states. Meanwhile, there have been several confrontations between Moslems and Christians over the implementation of sharia in the northern states which, given past disturbances (February 2001, page 13; November 2000, pages 13-14), the police were trying to treat with extra care.

Review of Nigeria’s Nigeria has embarked on a review of its constitution to produce one better constitution begins suited to its present circumstances than the much-criticised constitution fashioned by military rulers. A joint committee of the bicameral National Assembly began public hearings on the constitution in Abuja on February 13th, while a separate cross-party presidential committee on the review of the 1999 Constitution submitted its report to President Obasanjo on February 28th. The report proposed 92 amendments, including the following.

• Provisions empowering citizens to resist military coups and stipulating that coup plotters and their civilian collaborators would be punished for treason.

• Nigeria should remain a federation but with more powers devolved to the federating units.

• The derivation payment in revenue allocation should be raised substantially beyond the minimum 13% stated in the 1999 constitution.

• The devolution of powers to state and local governments, by removing some areas of government responsibility from the exclusive list to the concurrent list.

• On the thorny issue of sharia, the report noted that freedom of religion is constitutionally guaranteed and there must be separation of state and religion.

The recommendation that has fired most public debate, at least among politicians, is the proposal that the federal president and state governors be limited to two non-consecutive five-year terms of office. Many politicians and analysts have commended the proposal, seeing it as a way of avoiding the succession crises that have dogged Nigeria since independence.

Government launches The government is organising a series of conferences to seek the views of debate on constitution ordinary Nigerians on the proposed constitutional amendments. The information minister, Jerry Gana, said in April that a series of regional conferences would culminate in a national conference in Abuja on May 29th. Radical political groups, mainly in southern Nigeria, have long demanded the convening of a sovereign national conference to iron out and redefine the terms of Nigeria’s unity as the only solution to the country’s problems. The May conference is not expected to satisfy their vision of a conference with binding powers.

Service chiefs retire The announcement on April 25th of the retirement of all three of Nigeria’s service chiefs came as a surprise to many, though relations between the government and the army chief of staff, Lieutenant-General Victor Malu, have recently been strained. A government statement said that President Obasanjo had accepted the retirement of General Malu, the chief of the naval staff, Rear Admiral Victor Ombu, and the chief of the air staff, Air Vice-Marshal Ibrahim Alfa. Their replacements are Major-General A O Ogomudia, Rear Admiral S L Afolayan and Air Vice-Marshal J D Wuyep. No reasons were given for the early retirement of the service chiefs, who were appointed by President Obasanjo shortly after he assumed power in 1999, but observers saw it as a major shake-up of Nigeria’s armed forces as part of the civilian government’s endeavour to consolidate its position. General Malu raised public concern about his political loyalties when, appearing before the human rights investigation panel last year he publicly boasted of his unqualified loyalty to the late Sani Abacha, probably Nigeria’s most hated former dictator. General Malu, who commanded the West African intervention force Ecomog in Liberia and Sierra Leone, also annoyed government officials by publicly criticising the military co-operation agreement between Nigeria and the US. Nigerian newspapers criticised the general for airing his objections in public rather than through official channels.

US-Nigeria military co- General Malu’s recent comments on Nigeria’s growing military ties with the US operation is controversial probably broadly reflect the concern of many of his colleagues. In particular, General Malu accused President Obasanjo’s administration of imposing a “servant-master” relationship on the army by bringing in US military officers to help restore professionalism in the Nigerian force. “Our interplay with any such country should not in any way compromise our military strategy, national interest and national objectives, upon which our sovereignty as a nation is sustained,” General Malu said during a meeting with the newly appointed minister of state for the army, Lawal Baragarawa, in mid-March.

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Senior Nigerian army officers are also unhappy with the access to military locations given the US advisers, and say that their country’s security is being compromised. In response to the controversy generated by the US military presence in Nigeria, the US embassy in Abuja felt it necessary in late February to publicly deny the existence of a defence pact with Nigeria or plans to establish a military base there; and a few weeks later, the US ambassador to Nigeria, Howard F Jeter, said during a meeting with the vice-president, Atiku Abubakar, that America’s military co-operation with Nigeria was not based on a hidden agenda but was aimed at assisting the country to improve its military capabilities, especially in the areas of training, logistics and equipment.

Economic policy

There is strong rhetorical President Olusegun Obasanjo’s administration has affirmed its commitment to commitment to reform the liberalisation of Nigeria’s state-dependent economy. In various statements and public documents such as Nigerian Economic Policy 1999-2003 and including the 2001 budget, the government has clearly outlined its determination to restructure and diversify the economy, increase the role of the private sector, pursue market-friendly monetary policies, improve economically vital infrastructure, such as energy, communications and transport and generally create an environment attractive to local and foreign investors. However, the government has not really moved beyond this rhetoric and demonstrated a clear commitment to reform. After two years of democracy the health of the economy has shown little improvement, as the unrelenting inefficiency of the public sector continues to hamper growth; and, like its military predecessors, the present administration has so far failed to translate its declared dedication to reform into good operating economic policies.

But a lack of consensus on Part of the reason for this lack of progress is that policymaking has been the need for reform hampered by a lack of consensus, including within the ruling party, which is necessary to drive through sensitive economic reforms without political ruptures. These difficulties in policy implementation have been evident in the government’s handling of key reforms, such as the reduction of state subsidies, the rationalisation of the public-sector workforce and, most notably, its attempt to deregulate domestic fuel prices. For example, despite the administration’s apparent willingness to bite the bullet on the issue, not only are the labour unions deeply opposed to the change, but in late March the speakers of Nigeria’s 36 state legislatures said in a communiqué after their conference in Lagos that they were opposed to oil deregulation because it would worsen the suffering of the people. The Senate president, Anyim Pius Anyim, has also distanced the upper chamber of the National Assembly from deregulation, saying President Obasanjo was acting on his own in the matter.

Domestic fuel price deregulation—the story so far

Fuel price deregulation in Nigeria has become the litmus test of the government’s commitment to reform. President Obasanjo first announced the deregulation of domestic fuel prices in November 1999, but the administration was force to back down on its decision to raise prices by 50% following a general strike. Despite this failure, early in 2001 the administration began a campaign to prepare the public for the full deregulation of the downstream sector of the oil industry. President Obasanjo said in late February that the government was determined to remove fuel subsidies, which cost the state about US$2bn annually, and use the money to subsidise education, health and water services. Officials have also argued that without deregulation the privatisation of Nigeria’s inefficient oil refineries will be hard. However, Nigeria’s labour unions have threatened to strike again if the government implements its deregulation plan. The Nigeria Labour Congress, the umbrella trade union organisation, staged a week of demonstrations in late March with workers holding rallies in cities across the country. Unions and anti-poverty groups believe that deregulation will trigger fuel price increases—petrol now sells at N22 (US$0.19) per litre—and consequently push up the costs of public transport and other basic necessities, which they say would run counter to the government’s policy of reducing poverty in Nigeria. Whether the government will succeed is not certain, but without deregulation most economists feel that Nigeria will continue to suffer from shortages of domestic fuel despite being the sixth largest oil exporter in the world.

Lack of budget transparency Another problem that hinders the policy debate is that despite government worries experts claims of seeking greater transparency, economic management has in some respects become more opaque than it was during military rule. For instance, data in the IMF’s International Financial Statistics are now increasingly out of date, while more than three months into the year , the public remained in the dark about the contents of the 2001 budget document. The government only released a few budget figures with the president’s speech, leaving the public and analysts unable to identify its real targets and assess it performance. In late March economic researchers and analysts at a conference in Ibadan complained that they could not monitor the implementation of the 2001 budget because of the lack of disclosure. For instance, they noted, it remained

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unclear whether the government was aiming for a deficit or surplus, and asked why the presidency and legislature should shroud the budget in secrecy. Even under military rule, Nigerian governments regularly published budget details, even if their projections often proved to be way off mark.

The timetable for Lack of political resolve has also hampered the implementation of the wide- privatisation is revised ranging privatisation programme. The scheme, launched soon after President Obasanjo took office in May 1999, has run well behind schedule, and in late March the government approved a revised timetable for the second phase of the sell-off having just completed the first phrase (this involved the sale of state shares in 14 firms already quoted in the stock exchange which according to its original timetable should have ended in December 1999). The government now aims to complete the second phase, involving the sale of 39 hotels, insurance firms, vehicle assembly plants, paper mills and other enterprises within 12 months.

The likelihood that the administration will achieve its goal of completing the privatisation programme in 2003 is slim. Many of the enterprises scheduled for sale are unprepared for privatisation, especially the large corporations in the third phase. For instance, the splitting up of the unwieldy National Electric Power Authority (NEPA) into several smaller units prior to privatisation (see Infrastructure), a process that was supposed to have started more than three years ago, remains on the drawing board. In March the Bureau of Public Enterprises (BPE; the government’s privatisation agency) was considering the appointment of an adviser for Nepa’s restructuring from a list of five firms seeking the job. Another potential dampener on the privatisation programme is the huge debts owed by many of the enterprises to each other. It has been reported that the cross debts of parastatals and government companies could total as much as N800bn (US$7bn). In late March the director-general of the BPE, Nasir El-Rufai, told Vanguard newspaper that his agency was building the debt profile of each enterprise, adding that the federal government did not plan to clear the debts as the affected companies could pay up themselves.

There is considerable Moreover, there has been opposition to Nigeria’s divestiture plans both from opposition to privatisation within the administration and from the management of the affected enterprises, which has hampered the work of privatisation officials. At a seminar on privatisation organised for government functionaries in March, President Obasanjo criticised the public bickering between some ministers and BPE officials over the privatisation programme and reiterated that there was no going back on the plan. At the same meeting, the vice-president, Atiku Abubakar, who heads the National Council on Privatisation, which is responsible for overseeing the sell-off, complained that the behaviour of some supervising ministries and enterprise managers was undermining the success of the programme, accusing them of making public statements that were at variance with the objectives of privatisation.

The sale of Nitel makes At least there has been some progress with the sale of the giant progress telecommunications company, Nitel: the president has announced the aim of selling Nitel by end-September 2001—six months after the end-March target

which was one of the performance criteria for the standby loan agreement reached with the IMF in August 2000. As part of this new initiative, in mid- March the BPE advertised the sale of Nitel, calling for expressions of interest by prospective core group/strategic investors to acquire 40% of the combined company (Nitel and its cellular service, M-TEL) as well as management control, by June 11th (a further 20% will be sold to the Nigerian public). The director- general of the BPE has said that Nigeria is hoping to earn at least US$2bn from the partial sale of the telecommunications company. However, some analysts believe the government is overoptimistic about Nitel’s worth, since it has just under 500,000 connected telephone lines and in view of the downturn in the global telecommunications market. BPE officials have said that by mid-April over 30 foreign investors had expressed interest in Nitel’s sale, and claim that Nitel’s value is not mainly its existing facilities, but the access it offers to a country likely to become Africa’s biggest phone market. However, whether the government will accept a much lower price for the company than the US$2bn they perceive to be its value it not clear.

Nigeria’s commitment to As Nigeria is clearly failing to meet the modest performance criteria agreed reform worries the IMF with the IMF for its current stand-by agreement, as it did under the previous military administration with respect to its IMF staff-monitored programme, international creditor organisations have become increasingly concerned about the country’s capacity to carry out reforms. The IMF has been particularly unhappy with the sharp rise in the government’s 2001 capital budget, which it claims has more than doubled to N496bn, and the failure to meet the inflation target. Nigeria’s minister of state for finance, Jubril Martins Kuye, told the Sunday Vanguard newspaper in mid-March that the Fund had expressed concern that the level of capital spending would exacerbate liquidity, which would in turn increase the inflation rate and weaken the naira; similar viewpoints have also been expressed by the chief economic adviser to the president, Chief Philip Asiodu. Despite Nigeria’s failure to meet its commitments to lower inflation, reform the civil service and accelerate its privatisation programme, the Fund is under pressure to give ground over a strict enforcement of the criteria from Paris Club creditors, who would like to implement last December’s debt restructuring agreement. However, the debt rescheduling agreement had not been implemented by the end of the April—it was scheduled to come into force on April 15th. Speaking at a recent conference in London on oil and gas investment in Nigeria organised by CWC Associates, Chief Asiodu said that although agreement was close, it was being delayed by differences over the exact details of new performance criteria. However, he was unwilling to indicate how long it would take to reach new targets acceptable to both the government, the Fund and World Bank and key bilateral donors, which suggests that the details will prove difficult to resolve.

The slow pace of reform in Nigeria

A new World Bank report—Aid and Reform in Africa: Lessons from Ten Case Studies—which examined the reform efforts of ten African states, categorised Nigeria as a non-reformer. The study argued that foreign aid could help key economic reforms take root in developing countries, but only if recipient governments and their people broadly support the need for change. The

message of the report is that countries like Nigeria, which lack national commitment to reform, cannot be successfully pushed into reforms with aid or conditionality. It said that Nigeria’s experience shows how ethnic, regional and religious competition encourages inefficient public investment projects. Intense political pressures make it difficult for leaders to promote reform. Lack of domestic ownership of reforms means implementation “almost always” falters, and the absence of a constructive policy environment makes aid and debt rescheduling “useless and possibly counterproductive”. Referring to the failure of Nigeria to implement structural adjustment policies in the early 1990s, the report noted that “these failures came about because the logic of austerity and economic reform is anathema to the clientelistic system of Nigerian politics”. Unfortunately, despite Nigeria’s transition to democracy, the nature of its politics has not changed. The Lagos-based Guardian newspaper quoted David Dollar, one of the authors of the World Bank report, as saying at its launch in Washington in March, that it was still be to be seen whether Nigeria would succeed in putting good economic policies in place.

The domestic economy

Economic trends

The naira takes a battering After ignoring trends on the interbank foreign-exchange market (IFEM) for much of 2000, on April 10th the government was forced to raise the official exchange rate of the naira to N112.7:US$1 from N110.7:US$1. The rate was raised further to N115.7:$1 on April 11th. The depreciation followed a surge in demand for currency, which peaked at US$138m from a daily average of US$27m-35m. Dealers said the increase was due to the sudden release of N158bn (US$1.4bn) in federal government revenue allocations to state governments and corporations, which boosted commercial bank deposits. However, even before the injection of government funds the naira had taken a battering on the interbank and parallel markets. According to Reuter’s closing IFEM rates, the naira fell from N108.9:US$1 on January 1st to N115:US$1 on February 28th. However, it began to slide quickly in March reaching N124.5.9:US$1 by March 30th. It then dropped to a low of N134:US$1 on April 13th, before recovering to N114.2:US$1 by the end of the month. Meanwhile in the parallel market, Afrinvest data show that the naira dropped from around N125:US$1 in January to over N140:US$1 by mid April.

The government has been worried by the naira’s depreciation since the start of the year, especially the growing gap between official and open market exchange rates which increases the opportunities for currency speculation, especially round-tripping—selling money bought at the official rate at higher rates in other markets—a practice which in the past seriously undermined the naira as dealers made easy profits from a falling currency. In an attempt to stem speculation against the naira, the Central Bank of Nigeria has introduced a series of policies to rein in liquidity and reduce currency speculation.

• On February 8th, it launched a new long-term money market instrument, CBN certificates, which it hopes will improve its ability to control liquidity on the money markets when used in conjunction with its shorter-term Treasury bills. The non-discountable certificates are available in two forms—180-day bills with a 19% interest rate and 360-day bills with a 20% rate.

• Later in the month, on February 26th, the Central Bank also suspended trading by banks of foreign exchange sourced from it, reversing its December 8th decision which lifted the restriction.

• The Central Bank has also announced a series of increases in the cash reserve requirements (CRR) for commercial banks and the minimum rediscount rate (MRR). The MRR has now increased from 14% at the end of 2000 to 16.5% at the end of April; while the CRR has been upped in two steps from 10% at the end of 2000 to 12.5% by the end of April.

The government reacts to Though the changes seemed to have tightened liquidity and resulted in a slight demands to stop the naira’s fall appreciation of the currency, the real question is whether this is only a temporary respite or not. The Central Bank governor, Joseph Sanusi, recently stated that if demand for foreign exchange continued at the rates seen in the first four months of the year, it would reach US$12bn in 2001—compared with US$5bn in 2000—nearly 90% of projected government forex earnings from oil sales. The fall has also increased the traditional demands both on, and within government, for a stronger naira. Facing such pressure, in late March the president, Olusegun Obasanjo, promised to take steps to narrow the gap between the official and parallel market exchange rates, blaming speculative buying of foreign exchange for the naira’s woes; and on April 12th the president met bankers in Abuja and urged them to show greater patriotism by refraining from speculative foreign-exchange trading—“I will not sit down here and allow Nigeria to haemorrhage to the point of death on the altar of liberalisation” and there will be “no runaway devaluation”. However, as the bankers pointed out to the president, the high dollar demand was not artificial but reflected the huge injection of money into the economy, largely stemming from increased government spending. Therefore the EIU believes that although the moves will temporarily halt the fall in the naira, the naira is still

overvalued and needs to fall to boost the non-oil sectors of the economy. Facing strong opposition to the fall, the government will seek both to slow it and ensure that the fall is more orderly than in recent months, although this means that it will remain overvalued for several years to come.

Official inflation rate (%) 2000 2001 Oct Nov Dec Jan Feb 12-month moving average 4.5 5.8 6.9 8.6 10.3 Sources: CBN; Reuter.

Inflation rates return to As well as a falling currency, the Central Bank is also faced with a rapidly rising double digits inflation rate. According to the Federal Office of Statistics, inflation (using the official 12-month moving average favoured by the Central Bank) returned to double digits by February, to 10.3% from a low of –6% in April 2000. With the month-on-month rate now at around 2% and because of the fall in the exchange rate and the rapid increase in government expenditure forecast for 2001, it looks likely that inflation will stay in double digits for the year, although the rise should moderate towards the end of the year as the current tightening of monetary policy takes effect (and policy is likely to be tightened further). The government is also well aware that in the past high inflation has sparked social unrest and public resentment at market reforms, which are blamed for the rising prices. To check rising food prices, in late March President Obasanjo ordered the release of 30,000 tonnes of grain into the market from Nigeria’s strategic grain reserves; the agriculture minister, Adamu Bello, told reporters that the grain would sell at below market prices.

Interest rates rise as money Although the Central Bank is under considerable pressure to lower interest becomes tighter rates in order to boost the non-oil sectors of the economy, with the exchange rate falling and inflation rising the government has been forced to raise the MRR which in turn has led to a general increase in interest rates in the economy. The benchmark Nigerian interbank offer rate (Nibor) reached two year highs in February: the 7-day call jumped from 15.22% on February 7th to a peak 31.46% on February 28th, before easing to 18.45% on April 10th, helped by the injection of funds into the financial system due to the disbursement of funds to the various tiers of government and cash calls to joint-venture oil operators. But the further tightening of liquidity following the naira devaluation in early April helped to send interbank interest rates rocketing: the Nibor 7-day call reaching a new high of 41.24% on April 23rd before falling back to 31.66% on April 25th.

Nigerian interbank offer rate, 2001 (%) 7-day 30-day 60-day 90-day Jan 29th 15.9449 17.1010 17.5223 17.8175 Jan 31st 15.6135 16.7521 17.1398 17.4773 Feb 5th 15.3850 16.6558 17.1451 17.3231 Feb 7th 15.2183 17.1067 17.7869 18.1848 Feb 12th 19.3411 20.8965 21.0256 21.3592 Feb 14th 20.6065 22.1766 22.5135 22.6111 Feb 19th 17.4037 18.9968 19.5393 19.8036 Feb 21st 19.5874 21.3627 21.5299 21.5341 Feb 26th 29.0802 30.8258 29.7350 28.8422 Feb 28th 31.4635 33.1427 32.0537 31.6626 Mar 7th 20.5854 22.7303 23.7155 24.0639 Mar 12th 16.0910 18.9714 20.1081 20.8335 Mar 14th 16.6018 19.8053 20.1830 20.4466 Mar19th 19.3719 22.5622 23.2155 23.5356 Mar 21st 18.5520 21.5303 22.2491 22.5169 Mar 26th 18.6972 22.1395 22.3337 22.6608 Mar 28th 20.5036 22.9758 23.1698 23.2276 Apr 2nd 21.1871 23.3500 23.5908 23.6693 Apr 4th 18.3750 20.8866 21.3882 21.7426 Apr 10th 18.4459 21.3214 22.0000 22.1250 Apr 11th 18.4459 21.3214 22.0000 22.1250 Apr 13th 22.2003 24.0749 23.9383 24.0659 Apr 23rd 41.2368 42.0270 39.9837 38.6066 Apr 25th 31.6594 32.9363 31.7973 30.9902 Source: Money Market Association of Nigeria

Oil and gas

Nigeria’s oil output exceeds At its meeting on March 16th and 17th, OPEC agreed to cut its total oil output its quota by 1m barrels/day to 24.2m b/d, effective from April 1st. The reduction, the second this year, was to shore-up prices in anticipation of the traditional weakening in demand in the second quarter of the year and reduced Nigeria’s quota from 2.075m b/d, which came into effect on February 1st, to 1.993m b/d. Although the country pumped below its quota in the fourth quarter of 2000 (the quota for that period was 2.198m b/d), owing partly to continued disruptions to production caused by disgruntled local communities, output in the first quarter of 2001 rose above quota. In the medium and longer term, with community conditions relatively calmer in the Niger Delta and oil operators expected to increase their production capacity, mainly through deepwater developments, Nigeria is on course to reach its objective to raise oil production capacity from the current level of 2.3m b/d to 3m b/d by 2003 and 4m b/d by 2010.

However, oil officials are conscious of the constraint posed by the OPEC quota system to realising this goal. When questioned about this at a conference on

investment in oil and gas in Nigeria, organised in London by CWS Associates in late April, Rilwanu Luckman, the presidential adviser on petroleum and energy (and a former secretary-general of OPEC) gave no direct answer. Instead, he indicated that the forecast increase in world demand would allow OPEC to increase quotas in the next few years while keeping prices within a range of US$22-28/barrel and that Nigeria would be in a good position to get a substantial proportion of any increase given its much higher production capacity. In addition, it wanted to be in a position where it had a 5-10% cushion between production capacity and output. However, looking at the issue on a more practical basis, the group managing director of the Nigerian National Petroleum Corporation (NNPC) , Jackson Gaius-Obaseki, said in Abuja in late March “my problem is not getting to 3m barrels per day, but how to distribute production under the limitations of the OPEC quota”. What is clear is that oil multinationals pushing ahead with the development of deepwater acreages under production-sharing agreements will be keen to use their extra capacity and, as oil experts point out, the government may find it difficult to keep output below any official quota.

Senators complain about In March, Shell Nigeria Exploration and Production, a subsidiary of Shell Bongo contracts Petroleum Development Company of Nigeria, awarded a series of major contracts for the development of the US$2.4bn deepwater Bonga field. With the NNPC holding 55% equity in Shell Petroleum Development Company of Nigeria, Nigerian legislators were angry that the country would not benefit much from the job opportunities created by the Bongo contracts. During a debate in the Senate on the awards, several senators expressed disgust at the fact that all the contracts went to foreign firms. The contracts “as structured represent net outflows”, said Senator John Mbata, adding that they “negate the growth of local capability”. According to its document Nigerian Economic Policy 1999-2003, the government is aiming for 40% local content in upstream operations by 2003 and in Vision 2010, this is to be 50% by 2010. The government has estimated that, if current trends continue, of US$50bn invested in Nigeria in the next nine years, only US$4bn would be retained in the local economy. This issue will not go away, although many multinational oil companies will find it hard to source many inputs locally.

New oil licensing round Although the results of the 2000 licensing round still continue to generate will start in third quarter controversy—Chevron won the bid to operate the highly prized OPL250 with an offer significantly below those of its rivals, and later Ocean Energy’s 10% share in the block was rescinded and reallocated to the other successful bidders with no official reason given—the government is keen to push ahead with further oilfield development. A new licensing rounds is now in the offing, which the government has stated will begin in the third quarter of 2001. It is expected to feature five deepwater and five shallow blocks in the Niger Delta. As the government achieved its stated goal of increasing the diversity of operators in Nigeria during the last round, price is likely to be a much more important factor in determining which bids are accepted.

New natural gas projects Nigeria has continued to make progress in the utilisation of its abundant are being considered supply of natural gas, as companies start to work out how they can contribute

to the government’s stated goal of eliminating associated gas flaring by 2010. Nigeria Liquefied Nural Gas (NLNG) is pressing ahead with the construction of a third train to come on stream at its Bonny Island plant in late 2002, raising the plant’s capacity from 7.15bn cu metres of LNG annually to 10.85bn cu metres. In addition, in February the government signed a memorandum of understanding with a US consortium of ExxonMobil, Chevron, Texaco and Conoco for a feasibility study for a new LNG facility, and Phillips and Agip have also started preliminary talks with the government about a possible third plant. NLNG’s managing director, Andrew Jamieson, has said that a second LNG project in Nigeria is unlikely to threaten NLNG’s fourth and fifth train schemes as the planning and marketing for these are well advanced, but prospects for a sixth train could be affected, given demand limitations in the world gas market. Other projects to use Nigeria’s gas include exporting to neighbouring states through the West African Gas Pipeline and boosting domestic use both in energy projects and in domestic industry (for example, the recent Ikeja gas distribution project). In fact, such is the interest in Nigerian gas that there has even been talk of reviving the idea of building an overland pipeline to Algeria, although such a project still remains a distant hope.

Fuel scarcity persists despite Before such fanciful long-distance projects can be considered, Nigeria should improved refinery output sort out its domestic fuel problems. In late February, the NNPC announced that for the first time in several years all of its four refineries, with combined capacity of 445,000 b/d, were operating simultaneously. The head of the NNPC, Mr Gaius-Obaseki, said that the two refineries in Port Harcourt were producing at 75% of installed capacity, while the Kaduna and Warri plants were operating at 66% and 60% of capacity respectively. However, despite the improvement, many parts of Nigeria continue to experience petroleum product shortages, even though the NNPC maintains high levels of fuel imports. Government officials are dismayed by the persistent shortages, and possibly are reflecting on the comment of an exasperated President Obasanjo in early February, that Nigeria’s fuel predicament looked like a jinx. In mid- March the information minister, Jerry Gana, blamed sabotage for the problem: “This is no longer a question of supplies,” he said in a special nationwide television broadcast, “it is a question of diversion. It’s a question of sabotage,” accusing marketers of smuggling products into neighbouring countries for higher returns. President Obasanjo came to power promising quickly to end Nigeria’s perennial fuel supply crisis, but has found himself embarrassed by its continuation, which is caused by a number of inter-related factors, including: underperforming refineries hampered by poor management, sabotage and lack of adequate maintenance of facilities; low domestic fuel prices which encourage crossborder smuggling and diversion to local black markets; and unscrupulous dealing in the lucrative oil import business.

Construction begins on The state monopoly in domestic fuel production is set to end with the new private refinery emergence of private companies ready to establish refineries. A US-based engineering firm, Ventech Engineers, said in early March that design and construction was under way on a 12,000 b/d refinery to be located in Eket, in Nigeria’s south-eastern Akwa Ibom state. The refinery, commissioned by a Nigerian firm, Amakpe International Refineries, is scheduled to start up in

December, making it the first privately owned and financed refinery in Nigeria. The facility will be built in prefabricated modules in the US and shipped to Nigeria for assembly adjacent to ExxonMobil’s Qua Iboe oil terminal. No fewer than 300 individuals and corporate bodies as well as state governments have applied for licences to establish oil refineries in Nigeria, according to Funso Kupoloku, President Obasanjo’s special assistant on petroleum matters. However, prospective investors will have to be sure that the deregulation of the downstream sector is really to go ahead before committing themselves to more substantial refinery investments.

Industry

The government seeks While the Manufacturers Association of Nigeria continues to report on the to revive state-owned problems facing businesses operating in Nigeria—in its quarterly report on industries export business, released in March, it noted that decaying infrastructure, the low level of industrial capitalisation, multiple levies and taxes from different tiers of government, and expensive and frustrating bureaucratic bottlenecks were hampering Nigeria’s export drive—the federal government has continued its policy of attempting to resuscitate the country’s ailing or abandoned state- owned industries, although whether any of the proposed plans will prove successful is far from clear.

Olusegun Agagu, the minister of power and steel, told reporters in late March that the government aims to complete the Ajaokuta steel project within 24 months and that it would negotiate the terms of its completion with Tyazhpromexport, the Russian company that handled the construction of the controversial complex, which has been almost complete since the early 1990s. Mr Agagu said that Nigeria had so far spent US$4.14bn on the complex, conceived as the centrepiece of Nigeria’s industrialisation. A further US$460m is now needed to complete the first phase of the project for the production of 1.3m tonnes of steel per year, he explained. In mid-March, shortly after a trip to Russia with President Obasanjo, Mr Agagu said that a US$100m facility to produce 100,000 tonnes per year of railing steel would be added to the Ajaokuta complex and that Tyazhpromexport was keen to return to Nigeria, the Russians having promised technical aid and an improved credit scheme to develop the plant.

The government has also taken steps to reactivate its three steel rolling mills and the moribund Delta steel company in Aladja under its National Steel Rehabilitation Programme. Danjuma Goje, minister of state for power and steel said that US$100m had been put aside to reactivate the Delta Steel Company, while N200m had been released to each of the steel rolling mills in Katsina, Oshogbo and Jos. Mr Goje assured Nigerians that by 2002 all three mills would be in production. One concrete step towards meeting this ambitious goal, is that the administration has entered a US$140m seven-year agreement with Voest-Alpine Industrial Services of Austria and Osaka Steel Nigeria for the rehabilitation of the Delta steel complex, Mr Agagu told a press conference on March 27th. It was reported that the government will contribute US$45m, while Voest-Alpine will contribute US$55m and Osaka US$40m.

Aluminium smelter to be The government also plans to pump US$150m into the Aluminium Smelter reactivated Company (Alscon) to rescue the plant in Ikot Abasi, Akwa Ibom state, which has been closed since June 1999 for lack of working capital. Mr Agagu said that the government wanted to safeguard its huge public investment in Alscon which, like other state industrial projects was crippled by mismanagement and corruption. President Obasanjo said on April 9th that there was over US$600m of unaccounted-for expenditure in the construction of the 193,000-tonnes-per- year plant, which was constructed during the military regime. He said well over US$2.3bn had been sunk into the project before it was closed, and noted that in Mozambique a similar smelter was being constructed at a much lower cost and that “Alscon was a project that was very badly executed”.

Financial services

New N500 note introduced In early April the Central Bank of Nigeria (CBN) introduced the new N500 (US$4.3) note as the highest denomination in the country. It was the last of the higher denominations promised by the CBN when it launched the N100 note, followed by the N200 note late last year. Higher denominations became necessary in a cash-based economy where routine financial transactions often required wads of notes because years of high inflation had eroded the currency’s purchasing power. However, many ordinary Nigerians fear that the introduction of N500 notes will trigger higher inflation, a concern to which the Central Bank has responded with assurances that this will not happen.

The stockmarket remains The stockmarket has largely maintained the dramatic gains it made last year, buoyant after a roller-coaster performance since January. The all-share index reached a new record high of 9,545 on March 8th after dipping as low as 8,578.79 on January 23rd from a previous peak of 9,543 on January 17th. For most of March the index slumped, touching 9,041 on March 27th, before rising again to reach 9,431 on April 18th. Movements in prices this year have been largely determined by changes in liquidity in the financial system, resulting from government measures to tighten liquidity and the injection of funds from the release of budget allocations. But its performance has also been affected by the introduction of high-interest CBN certificates, which attracted some investors away from the capital market and profit-taking by investors cashing in on a recovery that saw the index rise by more than 80% since January 2000.

Infrastructure and other services

NEPA struggles to stabilise Frequent and long-lasting power cuts remain a feature of life in Nigeria despite the electricity supply repeated government promises to solve the country’s energy crisis. The state- owned National Electric Power Authority (NEPA) seemed to be ill-fated in its struggle to increase and stabilise its generating capability. On February 22nd, during a period of unusually hot weather, the country was without electricity for a day after the collapse of NEPA’s system. NEPA blamed the failure on the cutting-off of the gas supply to its thermal stations by the Nigerian Gas Company over a debt of more than N4bn (US$35m) owed by the power company. The failure came at a time when NEPA had improved its electricity

generation to some 2,830 mw from about 1,300 mw in November 2000, out of an installed capacity of around 5,900 mw. In March 2000 President Obasanjo replaced NEPA’s management with a nine-member technical committee with a mandate to generate 4,000 mw of electricity and end power cuts by December 2001. The government has increased the budget outlay for the power sector and hopes to boost energy supplies through mainly independent power producers who will generate and sell electricity to NEPA.

The hopes of Lagos residents that power cuts in the state would soon end with the start of a US$225m independent power project with the US company Enron have been dashed again. On March 23rd the Ministry of Power and Steel said that the US power company would not be able to meet its April deadline to begin the first stage of the 270-mw project, involving the initial supply of 90 mw from gas-fuelled generators on board barges. The project, Nigeria’s first deal with an independent producer, initially had an end-December 2000 deadline, but has been marked by a row between the federal and Lagos state governments over the costs of the contract.

Several other states in the federation are pursuing their own independent power projects to supplement NEPA’s inadequate power supplies. In early March the government of oil-producing Rivers state said it had nearly completed its own power projects to boost the electricity supply from 15 mw to 90 mw. This involves three new gas turbine stations supplementing the existing supply from NEPA. On March 22nd the vice-president, Atiku Abubakar, laid the foundation stone of the Ibom Power Plant Project in Akwa Ibom state in the south-east. The 120-mw power plant, part of a US$1bn Akwa Ibom refinery and petrochemical project, is scheduled for completion by January 2002. The state government plans to buy 60 mw of the electricity for distribution in the state, hoping that the boost in energy supplies will stimulate the growth of modern industries in the remote state.

Government plans to split The federal government faces an enormous task in preparing NEPA for NEPA into 28 companies privatisation. On March 27th the power and steel minister, Mr Agagu, told journalists that the authority would be split into at least 28 companies by 2002—20 to handle distribution, 7 dealing with generation and 1 to co- ordinate transmission. The new companies would emerge after the appointment of consultants and the approval of the new National Electricity Power Policy by the National Assembly, explained Mr Agagu. Since January 1998 successive Nigerian governments have undertaken the reorganisation of NEPA into smaller units in preparation for its sale, but till now plans have never left the ground and some energy experts doubt whether Nepa will be ready for privatisation by 2003.

Nitel’s joint-venture mobile Expectations that the state-owned Nigerian Telecommunications (Nitel) would phone deal stalled quickly develop a mobile phone network after paying US$285m for one of the three licences awarded in January (February 2001, page 31) were dashed, when it was reported in April that the government had put on hold a memorandum of understanding agreed between Nitel and Mobile Systems International (MSI) on setting up a joint venture to operate a cellular network (M-TEL). Senior MSI officials told reporters in Lagos that Nitel had invited their company to assist

with its digital mobile operation. However, a combination of administrative difficulties and the need to sort out the implications of the joint venture on plans to privatise Nitel in 2001 appeared to be the main causes for the delay in concluding the deal, which industry sources say would give Nitel 51% equity and MSI 49%. The other companies holding mobile phone licences are South Africa’s Mobile Telephone Networks and Zimbabwe’s Econet Wireless. But the Nigerian controlled Communications Investment lost its licence after failing to pay the licence fee. It was unclear in April what would happen to the fourth licence, though an official of the Nigerian Communications Commission suggested that it might go to whichever company wins the licence to operate a second fixed-line network in the country.

Foreign trade and payments

Nigerian ports are A World Bank team that made a study visit to Nigeria’s main ports said it found corruption infested them riddled with corruption and inefficiency—an obstruction to Nigeria’s progress, according to the Bank’s office in Nigeria. The team was to assess how the Bank could assist in modernising and privatising the operations at the ports, which have long been an object of complaint by importers and expor- ters. The World Bank said it expected the port authorities’ role would change to being simply a landlord when the ports reform project came on stream.

Customs officers resent The government has lost staggering amounts of potential revenue through the foreign involvement non-collection, or diversion, of import duties and other charges by corrupt port officials. To help tackle this problem, the administration recently appointed the Crown Agents, a UK-based company, to join the Nigerian Customs Services in import duty collection at Nigeria’s ports. However, customs officers, angered at the use of a foreign firm, have condemned the move, saying that the employment of a foreign company to collect import duty had been abandoned following allegations that some of its employees were no less corrupt than Nigerian officials.

The DMO puts external A new agency partly funded by the World Bank, the Debt Management Office debt at US$28.64bn (DMO), has reconciled Nigeria’s foreign debt which it put at US$28.64bn at the end of 2000. The DMO’s boss, Akinlose Sylvester Arikawe, said that the reconciliation was part of a World Bank-assisted exercise to map out the debt management strategy ordered by President Obasanjo shortly after he assumed power in 1999. He said that before the DMO was established as a centralised office of international standard in August 1999, seven agencies handled debt management, which made debt reconciliation difficult. According to the latest edition of the World Bank’s Global Development Finance, Nigeria’s total external debt stood at US$29.4bn at the end of 1999, and with the negative net flows of recent years (there having been very little pick up in 2000), a fall in the value of the debt stock is not implausible. The EIU currently estimates that Nigeria’s total external debt stock at the end of 2000 was US$29.05bn, but substantial new data should be available following the forthcoming DMO conference on sustainable debt strategies in Abuja.

IMF warns against full debt Since coming to power, President Obasanjo has vigorously campaigned for cancellation debt cancellation for Nigeria, Africa’s biggest debtor nation. However, the IMF’s managing director, Horst Koehler, has cautioned the country that undue emphasis on debt cancellation could rebound on the administration. Speaking to journalists during his two-day visit to Nigeria with the World Bank president James Wolfensohn, as part of their four-nation Africa tour in February, Mr Koehler said a push for total debt cancellation could harm the country’s prospects of attracting more investment and credit. “Nigeria is a rich country,” said the IMF chief, “… it could be an obstacle to investment. Investors want to be sure that if they invest they get their returns on investment. And creditors want to be sure if they give a credit that they are paid back.” Though Nigeria undoubtedly requires more debt relief, contended Mr Koehler, it also needs to create an environment that is conducive to new inflow of capital.

Investment does not seem Speaking at a conference in London on investment in oil and gas in Nigeria to have picked up organised by CWC Associates, the chief economic adviser to President Obasanjo, Philip Asiodu, presented quarterly data on investment inflows into Nigeria over the last two years. Although not final data, these provisional figures show that investment inflows into Nigeria increased only very moderately in 2000 and that there had been no marked rise in the first quarter of 2001 (despite the sale of the mobile telephone licences). The data are also substantially below those reported by the UN and the IMF in their figures for inflows of foreign direct investment (FDI), although one of the main reasons for this is that the new figures do not seem to include reinvestment of earnings in the oil sector, which is one of the main factors driving the overall level of FDI into Nigeria. Although there are questions over the data, they are significant in that they appear to support the view that the democracy dividend in Nigeria does not seem to have had much of an impact on inward investment and that, outside the oil and gas sector, investment levels remain minimal.

Investment inflows (US$ m) 1 Qtr 2 Qtr 3 Qtr 4 Qtr Total 1999 18.7 70.2 34.8 33.1 156.8 2000 28.2 44.4 45.5 49.0 167.1 2001 18.6 –––– Sources: Central Bank of Nigeria; chief economic adviser to the president.

Foreign reserves reach Nigeria’s foreign reserves have continued to grow on the back of improved oil US$9.8bn export earnings, reaching close to the symbolic US$10bn mark in January when they stood at US$9.898bn, up from US$9.339bn the previous month. According to the Central Bank’s monthly monetary and foreign-exchange data, quoted by This Day newspaper, the total inflow of foreign exchange in January was US$1.602bn; the oil sector accounted for US$1.536bn, or 95.9% of this. The total foreign-exchange outflow in January was US$1.276bn. Central Bank funding of the interbank foreign-exchange market (IFEM) accounted for US$992.8m or 77.8% of the outflow; IFEM funding was 39% higher than the previous month’s level of US$714.3m; cash call payments to oil joint ventures totalled US$121.3m; and debt service took US$77.1m.