Coface Group
Nigeria

Nigeria

Population 174,9 million
GDP per capita 3,300 US$
C
Country risk assessment
D
Business Climate
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2013 2014 2015 (f) 2016 (f)
GDP growth (%) 5.4 6.3 2.5 3.0
Inflation (yearly average) (%) 8.5 8.1 9.1 9.3
Budget balance (% GDP) -2.3 -2.0 -4.0 -4.5
Current account balance (% GDP) 3.9 0.2 -1.8 -1.5
Public debt (% GDP) 19.0 19.9 20.2 20.2

(e) Estimate (f) Forecast

STRENGTHS

  • The leading African power in terms of GDP and the country with the largest population in Africa Significant hydrocarbon resources and large agricultural potential
  • Low level of public and external debts

WEAKNESSES

  • Highly dependent on oil revenues (90% of exports and 75% of tax revenue)
  • Very reduced refining capacity, requiring costly imports
  • Ethnic and religious tensions
  • A negative impact on the business climate from insecurity and corruption

RISK ASSESSMENT

The non-oil and gas sector could struggle to power growth in 2016

The Nigerian economy, the leading African country in terms of GDP, ahead of South Africa, is dominated by services (over 50% of GDP). The non-oil and gas sectors (construction, telecoms) are likely to remain fairly dynamic. Activity in the manufacturing sector however could be limited because of erratic electricity supplies as well as currency controls that restrict the importing of certain goods. Oil and gas production is likely to only increase slightly in 2016, with low oil prices and the lack of a legal framework (the Petroleum Industry Bill has been awaiting approval since 2008) discouraging investment in the sector. Overall, investment, despite the central bank (CBN) reducing the interest rate from 13% to 11% in November 2015, is likely to decline because of weak domestic demand. The more or less static oil and gas production is going to limit the contribution made by exports to growth.
Private consumption could be supported by a budget policy aimed at revitalising growth. This is likely, however, to be kept in check by the high level of inflation. The gradual increase in the cost of food is expected to continue pushing prices up in 2016. Inflationary pressures would be further increased in the event of the devaluation of the naira.

 

The budget deficit is expected to worsen and the current account balance to stay in the red

Despite very limited growth in its revenues, with around 75% coming from the oil and gas sector, the government could attempt to support household demand by increasing its spending. .Furthermore, additional money requested by the government from Parliament at the end of 2015 for the purpose namely of settling the arrears of the fuel importers as part of the subsidy programme, could be a burden on the 2016 budget. The cut in the subsidies on fuel prices announced in December 2015 could limit the worsening of public finances.

Indeed, the government’s room for manoeuvre is very much reduced, considering the very low level of its reserves (USD 2.2 billion in November 2015, less than 1% of GDP). Public debt, however, remains fairly low.
The current account deficit that emerged in 2015 is not expected to be eliminated in 2016. Oil exports (90% of the total) are not expected to increase, held down by world demand that is likely to remain weak, and low prices. Increased consumption could lead to a small rise in imports, which would be magnified in the event of depreciation of the naira. The positive effect on FDI flows of the lifting, in November 2015, of uncertainties relating to the formation of the new President’s government, could be offset by the impact of import restrictions.
Downward pressure on the naira pushed the CBN to introduce measures during 2015 prohibiting the purchasing of currencies for the importing of certain goods, with the aim of protecting its reserves (approximately 5 months’ imports). Downwards pressure on the naira is expected to continue in 2016, especially if US interest rates are raised. Given the growing divergence between the official exchange rate and that on the parallel market, the risk of devaluation cannot be ruled out for 2016, despite a commitment on the part of the central bank not to make use of this.
The banking sector, heavily exposed to the oil and gas sector (around a quarter of all loans) is feeling the ramifications of lower oil prices, as well as the problems of accessing foreign currency on the local market.

 

High expectations of the new president among the population and his priority of controlling corruption

The security situation remains very unstable in the north of the country under attacks from the Boko Haram rebel movement.
The victory of M. Buhari, leader of the APC, in the March 2015 elections represents a real change of power after the domination of the People’s Democratic Party since 1999. The new President has made fighting corruption one of his priorities (Nigeria was in 194th place out of 215 in 2014 in the World Bank classification for this indicator). This is the context in which he dismissed the Board of Directors of the national oil company (NNPC), subject to corruption scandals, and also explained the several month delay in forming his governmental team by the need to check the probity of potential members. Expectations within the population are huge with regard to the new President, particularly in this area. An overly slow implementation of reforms, in the context of a slowing economy, could give rise to increased social tensions and instability.

 

Last update: January 2016

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