Previous Quarterly Editions
Expropriation Risk: 55 57 55 59 Political Violence Risk: 66 62 62 63 Terrorism Risk: 78 75 75 75 Exchange Transfer and Trade Sanction Risk: 58 59 57 57 Sovereign Default Risk: 48 50 50 52
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President Muhammadu Buhari’s decision in October to close Nigeria’s land borders, ostensibly to reduce the flow of smuggled goods such as rice and tomatoes, has had a devastating effect on trade with neighbouring Benin, Niger and Cameroon. In addition to disrupting regional commerce, the border closure has affected the already uncertain outlook for Africa’s largest economy. The move also casts a shadow over Abuja’s commitment to the African Comprehensive Free Trade Agreement (AfCFTA), which Buhari had finally signed in July, because his underlying reason for closing the borders has been to boost domestic production by limiting access to imports. Quarterly growth continued to slow during 2019 and President Buhari, whose frequent medical absences continue, appears unable to revitalise the economy and is now trying drastic measures such as the border closure, although few economists expect it to work. Without imports of food and raw materials, food prices will spike and local industry will not develop. One of Buhari’s consistent policies has been to stimulate the agricultural sector. Nigeria currently spends 22 billion dollars annually on importing food, much of which could be grown locally given time, but attempts to force this quickly will not be successful. While rice farmers have applauded the move, which has cut access to cheap Thai rice smuggled across the border, consumers have been enraged as the price of a 50kg bag of rice has tripled to reach 60 dollars. Members of the Economic Community of West African States (ECOWAS) have retaliated by shutting their borders to Nigerian goods. Ghana has also started shutting Nigerian small businesses that have been operating locally in sectors reserved for Ghanaian traders. Meanwhile, the crucial hydrocarbons sector, which provides 85% of the country’s export value, remains largely moribund as the Petroleum Industry Bill (PIB) that was meant to revitalise it has been bogged down in parliament for more than a decade. The government now promises to have a new version of the PIB passed by the end of 2020, and points to passage of the new Production Sharing Contracts (Amendment) Act in October as a reason for optimism. The Nigerian National Petroleum Corporation is talking about finally launching a long-awaited bid round in mid-2020, offering both onshore and offshore blocks, once negotiations with existing licence holders on the introduction of the new terms are completed. Looking ahead, questions about Buhari’s ability to complete the second term to which he was elected at the start of 2019, as well as related questions within ruling All Progressives Congress (APC) about the political succession, risk distracting from efforts to deal with the country’s economic and security challenges. The recent sidelining of Vice-President Yemi Osinbajo, whose popularity and modest approach made him a major electoral asset to the APC in the south of the country and a potential successor to Buhari in 2023 or earlier, has already set up tensions that threaten the government’s stability. The new Economic Advisory Council (EAC), made up of experts from the public and private sector, is likely to advocate a free float of the naira or the removal of hugely expensive fuel subsidies, but is equally likely to be ignored.
Nigeria’s dramatic border closure to curb imports, which was extended until at least the end of January, together with the regional impact on its exports, carries serious risks for the business sector. Nigerian exporters are already being hit hard by the ECOWAS response, but businesses across the region are also suffering from the sudden inability to access its largest market. In a separate development, the government, which continues to rely heavily on oil exports for revenue, has announced its intention to increase taxes on all existing and new deep water production sharing contracts ahead of the new offshore licensing round due in mid-2020. The move has been strongly criticised by the major international oil companies.
Although the federal and local elections during 2019 triggered little violence, frustration with perceived government impotence is growing. The ban on food imports has put pressure on prices in urban areas, and the overstretched security services will struggle to contain any serious anti-government protests. In addition, opposition groups demanded the release of former presidential candidate Omoyele Sowore after his detention was extended by the courts following the emergence of video showing him meeting with pro-Biafra secessionists. Pro-government demonstrators have also mounted demonstrations outside the Abuja offices of Amnesty International calling for the NGO to leave Nigeria, following accusations by government supporters that it is seeking to destabilise the country by supporting the opposition. If Buhari continues his recent tough line against his critics, he is likely to fuel anti-government sentiment rather than control it.
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The recent terror attacks in neighbouring Burkina Faso and Mali have again drawn attention to the decade-long insurgency by Boko Haram and the breakaway Islamic State of West Africa Province (ISWAP) faction, both of which continue to attack remote communities and military locations. More than 30,000 civilians and security personnel have been killed during Nigeria’s Islamic insurgency, which has also displaced some three million people in the region, according to UN figures. The government’s failure to bring a decisive end to the Islamist threat despite several declarations of victory is increasingly being held against Buhari’s administration.
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The rise in food prices associated with the border closure pushed up inflation to 12% at the end of 2019, the highest level for eighteen months. With inflation rising, the central bank is unlikely to lower its benchmark rate from 13.5% soon, despite President Buhari’s frustration that this is inhibiting lending to the private sector.
Heavy levels of public spending combined with weak revenue streams have forced the central government to increase borrowing on the local market. This, in turn, is crowding out the private sector as the commercial banks take refuge in buying up government paper rather than accepting the risks associated with commercial lending that would help to stimulate growth. With the Buhari administration keen to avoid hard economic decisions, it will continue to look for soft money from Russia and China to finance infrastructure development.
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