Economic Analysis
Nigeria

Nigeria

Population 188.7 million
GDP per capita 1,995 US$
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Synthesis

major macro economic indicators

  2016 2017 2018(e) 2019(f)
GDP growth (%) -1.6 0.8 1.9 2.3
Inflation (yearly average, %) 15.6 16.5 12.1 11.6
Budget balance (% GDP) -4.0 -5.4 -4.7 -4.5
Current account balance (% GDP) 0.7 2.8 1.3 0.8
Public debt (% GDP) 17.1 19.1 19.1 19.5

(f): forecast

STRENGTHS

  • Leading African power in GDP terms
  • The most populous country in Africa
  • Significant hydrocarbon resources and considerable agricultural and mining potential
  • Relatively low public and external debt
  • At the crossroads of West and Central Africa; access to the sea

WEAKNESSES

  • Highly dependent on oil revenues (90% of exports, two thirds of tax revenues)
  • Pollution related to oil development
  • Insufficient production and refining capacity / electrical energy distribution
  • Ethnic and religious tensions
  • Insecurity and corruption putting pressure on the business environment

RISK ASSESSMENT

Mediocre growth

While growth is expected to increase for the third year running in 2019, it will still be constrained. Even if oil infrastructure is spared by activists in the Niger Delta, the contribution from the oil sector is expected to be smaller as production gains are limited by capacity constraints. Despite support from public policies (import substitution, subsidised financing), the expansion of agriculture will remain fragile due to conflict in the northeast, where Boko Haram is rampant, and in the centre of the country, where herders and farmers are clashing. The pick-up in other sectors, supported by the gradual recovery in domestic demand, is expected to remain slow. The increase in election-related spending in the run-up to the February 2019 election should support public consumption at the beginning of the year. Nevertheless, as with public investment, limited fiscal space will restrain its contribution to growth. High interest rates, sluggish credit growth, a restrictive business climate, and the complexity of the multiple exchange rates system will continue to be obstacles to private investment, despite the easing of liquidity constraints following the rise in oil prices and the introduction of a market-based exchange window for investors and exporters (NAFEX) in April 2017. Household consumption will benefit from the increase in the minimum wage, but the prevalence of poverty and unemployment, as well as persistent inflationary pressures, should limit the effects. After 18 consecutive months of disinflation, which ended in August 2018, inflation is expected to remain high as domestic unrest puts pressure on food prices.

 

Fiscal situation still precarious

The budget deficit is expected to remain high in 2019, burdened by debt interest, which absorbs about 70% of federal revenues. However, the deficit is expected to decline slightly thanks to a reduction in expenditure, mainly at the expense of capital investment spending. While little progress has been made in the collection of non-oil revenues, and oil revenues are not expected to increase substantially, the objective is to reduce borrowing and, consequently, elevated debt service costs. Nevertheless, the 66% increase in the minimum wage will weigh on the state’s wage bill and current expenditure. The debt-to-GDP ratio is therefore expected to continue on its upward path. Largely domestic (about 70% of the total) and in local currency, debt remains at a relatively low level, but its service is very high, despite the authorities' efforts to focus on cheaper external borrowing.

The current account is expected to remain in surplus, supported by the trade surplus. Import growth will remain limited, given weak domestic demand, while oil exports (almost 90% of the total) are expected to slow after catching up in 2016 and 2017. The balance of services, which is particularly affected by oil freight, will continue to show a deficit, as will the balance of income, which is hurt by profit repatriation by foreign companies. Remittances from the diaspora will maintain the surplus in the balance of transfers. After leaping following the introduction of the NAFEX window, portfolio investment flows, which have made it possible to stabilise the naira’s multiple exchange rates, are expected to decline. Nonetheless, as long as the country is spared from shocks (falling oil prices, acute political crisis, etc.), downward pressure on the Nigerian currency should remain under the control of the central bank, thanks in particular to the foreign exchange reserves, which have been replenished and are equivalent to about 13 months of imports.

 

New mandate for Muhammadu Buhari, but continuing security and economic challenges

In February 2019, President Muhammadu Buhari and his party, the All Progressive Congress (APC), won the presidential, legislative and senatorial elections, thanks in particular to the support of the northern states. Although international observers did not report massive fraud, the results were nevertheless challenged by the People's Democratic Party (PDP) and its candidate, Atiku Abubakar. In addition, violence marred the pre- and post-election period and aggravated an already precarious security situation.

The Islamist terrorist group Boko Haram continues to operate in the northeast. In the centre of the country, there has been an upsurge in deadly clashes between Fulani (Muslim) herders and Birom (Christian) farmers, in part due to long-lasting animosity over land distribution with community and religious tensions. In the south, the activists calling for fairer distribution of oil wealth – whose attacks on oil infrastructure in the Niger Delta saw oil production reduced to its lowest level in 30 years in 2016 – may be less active, but are still threatening to resume their attacks, particularly after President Buhari’s re-election. The Biafra region in the southeast also continues to be the scene of social unrest led by separatists. In addition to these tensions, there is dissatisfaction with the increase in poverty and unemployment, persistent high inflation and slow pace of reform. These sources of instability are affecting the perception of the business climate (146th out of 190 countries in the 2019 Doing Business ranking), which suffers notably from a lack of infrastructure and a cumbersome regulatory environment.

 

Last update: August 2019

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