Previous Quarterly Editions
Expropriation Risk: 65 65 66 66 ► Political Violence Risk: 66 66 67 68 ▲ Terrorism Risk: 75 75 75 80 ▲ Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ► Sovereign Default Risk: 75 75 75 83 ▲
TREND▲
Nigeria’s economy recorded 5.01% growth in the second quarter of 2021, according to the latest data published by the National Bureau of Statistics (NBS) in August. The second-quarter growth figure is the third consecutive quarter of growth following the two successive contractions recorded in the second and third quarters of 2020. Africa’s largest economy slipped into recession -- its second in four years -- due to COVID-19’s onset and the subsequent collapse in demand for, and the price of, oil on international markets.
In a somewhat upbeat address, the NBS said that the new growth data indicated “the return of business and economic activity near levels seen prior to nationwide implementation of COVID-19 restrictions”. Nigeria therefore saw gross domestic product (GDP) grow by 2.7% during the first half of 2021, compared to a contraction of 2.18% for the first half of 2020. Oil production, however, stood at 1.61 million barrels per day (mbpd) in the second quarter of 2021, down 0.19 mbpd compared to the average daily production of 1.81 mbpd in the second quarter of 2020.
On the back of this new data, the Central Bank of Nigeria forecast a return to 3% growth for the economy by the end of the year, providing that COVID-19 vaccination rates continue to accelerate and assuming that there are no more national economic and societal lockdowns. These modest improvements in Nigeria’s economic performance were somewhat overshadowed by an anguished national debate on the country’s status and prospects, including concerns that Nigeria is a ‘failed state’ given criminality, Islamist insurgents and separatism. There are also concerns over corruption, the level of poverty and the state of the economy, all of which could undermine the government.
President Muhammadu Buhari came to power in 2015 pledging to improve security, stamp out corruption and improve the material condition of Nigeria’s 200 million people. But his administration has spectacularly failed to deliver on all three counts. Nigeria is currently faced by a far graver security crisis than when Buhari took office, corruption is arguably considerably worse, and the population is now materially poorer than it was six years ago.
TREND ►
Nigeria’s hostile business climate, in which the risk of expropriation by a government riding roughshod over private sector interests in pursuit of what it sees as the national interest, is perceived to be high. This is having a negative effect on investment flows into the country. A survey by the Nigerian Investment Promotion Commission (NIPC) found that Nigeria lost nearly USD200bn dollars in prospective investment opportunities in the four years between 2017 and 2020. The NIPC recorded USD203bn worth of investment announcements or expression of interest, only USD15bn of which materialised.
The failure of most prospective investors to proceed with investment proposals was attributed to investor perceptions of a greater risk of being expropriated than in other jurisdictions and Nigeria’s generally hostile business climate, poor infrastructure and high operating costs.
TREND ▲
Fears that COVID-19 might lead to runaway food price inflation and an increased potential for food price riots and other public disturbances show little sign of materialising. Food price inflation fell for the fourth consecutive month to 21.03% in July, down from 21.83% in June.
At the same time, headline inflation was 17.38% in July, only marginally down from 17.75% in June. Although both measurements of inflation remain high, earlier fears that inflation -- and especially food price inflation -- might spiral out of control are easing. But as the Buhari government approaches the end of its eight-year term of office, concern is mounting over the potential for election-related violence as presidential and legislative elections loom in 2023-24.
Nigeria’s decade-long struggle with its home-grown Boko Haram Islamic insurgency morphed into an even greater threat to national security in May following the Islamic State of West Africa Province (ISWAP) killing of Abubakar Shekau, Boko Haram’s veteran leader, and its routing of his followers after storming their base in the Sambisa Forest in Nigeria’s north-east.
ISWAP, effectively the local Islamic State (IS) franchise, is currently led by Abu Musa al-Barnawi, who has since sought to integrate former Boko Haram commanders into the new ISWAP organisation. ISWAP’s success in replacing Boko Haram suggests a new emphasis by IS on exploiting opportunities in Africa to compensate for setbacks in the Middle East. It also indicates a new IS emphasis on creating zones of ‘jihadi governance’ in ungoverned or poorly governed spaces, which could pose a major threat to weak, corrupt and inefficient national authorities across the Sahel, including Nigeria.
The Nigerian naira hit a new record low of 527 against the US dollar on the black market at the end of August after Central Bank of Nigeria (CBN) Governor Godwin Emefiele banned micro-lenders from engaging in foreign exchange dealings -- the latest in a series of curbs on currency market operations. The CBN also banned dollar sales to exchange bureaus in July, on the grounds that they had become conduits for corruption and illegal money flows.
Traders reported that the currency bans have drained liquidity from the unofficial market and warned that the naira could weaken further on the parallel market. Commercial banks were quoting 413 naira to the US dollar at the official rate at end of August. The CBN has devalued the naira three times since March 2020, but the currency continues to depreciate.
Nigeria chose JP Morgan, Citigroup, Standard Chartered and Goldman Sachs as its international bookrunners for an anticipated Eurobond issue later this year, to help finance the federal government’s 2021 budget deficit. Nigeria had planned a fresh debt issue in early 2020 following its successful sixth issue in 2018, which raised USD2.86bn, but was forced to abandon the issue after COVID-19’s onset.
The National Assembly earlier this year approved USD6bn of new external borrowings, to help plug the 2021 budget deficit of 5.6 trillion naira (USD13.6bn), which will be financed by a combination of foreign and domestic borrowings. While Nigeria remains vulnerable to a potential increase in global interest rates, rising oil prices are likely to ensure yet another successful debt issue, especially as the government’s debt-to-GDP (gross domestic product) ratio remains low at around 32%.
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