Country Report November 2003 Nigeria Nigeria at a glance: 2004-05 OVERVIEW The president, Olusegun Obasanjo, has shown greater commitment to implementing liberal economic reforms in his second and last term in office, but still faces a huge task to if he is to turn around the corruption ridden, heavily indebted and oil dependent economy. Mr Obasanjo may also pursue controversial reforms, such as constitutional changes, to shake up Nigeria’s crisis-prone political system. However, these are likely to be resisted by powerful groups with vested interests in maintaining the status quo. Given the background of ethnic and religious divisions, widespread poverty and political disillusionment, there is a risk that the reform drive could destabilise the country if not properly managed. However, assuming that the president is able to navigate Nigeria’s turbulent political waters and achieve some progress with reform—against the background of ongoing growth in the oil and gas sector— the Economist Intelligence Unit forecasts that real GDP growth will rise marginally from 3.6% in 2003 to 3.8% in 2004 and 3.9% in 2005. Key changes from last month Political outlook • Legislation has been presented to the National Assembly seeking to curb the powers of the trade unions. Given the controversial nature of the proposed reform, the government may have opened a battle with the unions that proves difficult to win while diverting energy from other vital reforms. Economic policy outlook • The government has pushed ahead with its reforms of the oil/energy sector, which should improve the management of the sector and help to alleviate domestic fuel shortages. As well as liberalising domestic fuel prices and announcing the privatisation of the country’s four oil refineries, the head of the Nigerian National Petroleum Corporation, Jackson Gaius-Obaseki, has been sacked. Economic forecast • After remaining stable for the first ten months of 2003, the naira started to slip on the parallel market in late October and on the interbank market in early November. Further falls are expected in 2004 as the price of oil falls back and given the Central Bank of Nigeria’s low level of foreign-exchange reserves. We expect the naira to average N142.3:US$1 in 2004 and N153.4:US$1 in 2005. November 2003 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. 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Nigeria 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2004-05 7 Political outlook 8 Economic policy outlook 10 Economic forecast 12 The political scene 19 Economic policy 24 The domestic economy 24 Economic trends 25 Oil and gas 29 Manufacturing 30 Agriculture 31 Financial markets 32 Infrastructure 34 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 14 Allocations by the federal government to other tiers of government 25 Inflation 25 Exchange rate 27 Nigeria’s OPEC quota 30 Performance of the manufacturing sector 34 FDI inflows into Sub-Saharan Africa and the three largest recipient countries 35 Status of Paris Club bilateral external debt negotiations/agreements List of figures 12 Gross domestic product 12 Consumer price inflation 24 Minimum rediscount rate Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 Nigeria 3 Summary November 2003 Outlook for 2004-05 The president, Olusegun Obasanjo, has shown greater commitment to implementing liberal economic reforms in his second and last term in office, but still faces a huge task to if he is to turn around the corruption ridden, heavily indebted and oil dependent economy. Mr Obasanjo may also pursue controversial reforms, such as constitutional change, to shake up Nigeria’s crisis- prone political system. However, these are liable to be resisted by powerful groups with vested interests in maintaining the status quo. Given the background of ethnic and religious divisions, widespread poverty and political disillusionment. there is a risk that the reform drive could destabilise the country if not properly managed. However, assuming that the president is able to navigate Nigeria’s turbulent political waters and achieve some progress with reform—against a background of ongoing growth in the oil and gas sector—the Economist Intelligence Unit forecasts that real GDP growth will rise marginally from 3.6% in 2003 to 3.8% in 2004 and 3.9% in 2005. The political scene The National Assembly has re-opened reviews of the thorny issues of revenue sharing in the federation and Nigeria’s 1999 constitution. A cabinet minister has publicly accused two high-ranking senators of demanding bribes to confirm his ministerial appointment. About 100 people were killed in renewed ethnic clashes between Ijaw and Itsekiri militants in the restive oil-producing Niger Delta. Nigeria has agreed to hand over 33 villages in Lake Chad district to Cameroon in compliance with the World Court’s October 2002 judgement. Economic policy The government has quietly deregulated the prices of domestic petroleum products, which has driven fuel prices up and set trade unions on the warpath against the government. It has also announced plans to privatise the country’s refineries to help put an end to perennial fuel shortages. Mr Obasanjo submitted a supplementary budget to the National Assembly even though the main budget for 2003 does not seem to have been enacted. The domestic economy The Central Bank of Nigeria (CBN) has cut the minimum rediscount rate from 16.5% to 15% in a bid to lower interest rates following relative macroeconomic stability. Mounting demand for hard currency has led to the depreciation of the naira. The president’s energy adviser, Rilwanu Lukman, has resigned. The government has begun a shake-up of the state-owned Nigerian National Petroleum Corporation, including the removal of 28 senior officials and its group managing director, Jackson Gaius-Obaseki. The government has launched a N150bn (US$1.15bn) bond issue and signalled its intention to make more use of the capital market to raise long-term funds. Foreign trade and payments Nigeria’s foreign-exchange reserves fell from US$8.3bn in May to US$7.4bn in August as the CBN supported the Naira on the foreign-exchange market. Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: November 5th 2003 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 4 Nigeria Political structure Official name Federal Republic of Nigeria Form of state Federal republic, comprising 36 states and the Federal Capital Territory (FCT, Abuja) Legal system Based on English common law National legislature National Assembly, comprising the 109-seat Senate and the 360-seat House of Representatives; both are elected by universal suffrage to serve a four-year term National elections The legislative election was held on April 12th 2003, the presidential election on April 19th 2003. Olusegun Obasanjo was re-elected president, and his party, the PDP, won a majority of seats in both houses of the National Assembly. The new president was sworn in on May 29th. The next national elections are scheduled to be held in 2007 Head of state President, elected by universal suffrage to serve a four-year term State government State governors and state houses of assembly National government The Federal Executive Council, which is chaired by the president; appointed June 30th 1999 Main political parties People’s Democratic Party (PDP); All Nigeria People’s Party (APP); Alliance for Democracy (AD); All Progressive Grand Alliance (APGA); National Democratic Party (NDP); United Nigeria People’s Party (UNPP).