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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Nigeria inaugurated bilateral trade relations with China back in 1971, and this year Abuja and Beijing celebrated 51 years of bilateral trade relations, representing one of the longest trading partnerships on the African continent. Two-way trade topped USD19.7 billion in 2019, heavily skewed in China’s favour, and China’s ambassador to Nigeria recently called for bilateral trade to be increased to USD50 billion over the next five years.
Nigeria’s motivation for boosting economic ties with China arises solely out of Abuja’s desire to broaden its range of development partners, which has led to an estimated USD20 billion of Chinese investment over the past half century. Chinese firms are present in every sector from textiles to household appliances, autos to fintech, and from construction to power generation. Chinese banks are now contemplating opening branches in the country.
China has built roads, bridges, railways, and power stations that Western banks and development finance institutions would not have financed, making China a highly valued development partner. Furthermore, China now has the largest number of foreign nationals working in the country, and Nigeria has the largest number of African students in China. During the Cold War, aspiring Africans learned Russian, now, however, they learn Chinese.
Two-way trade began to accelerate rapidly from 2018, effectively doubling over the past four years, after the two countries singed a currency swap deal facilitating transactions by removing financial intermediaries. The currency swap deal, however, has greatly augmented the trade imbalance in China’s favour, which Chinese officials have repeatedly pledged to reduce by importing more Nigerian products.
Few observers doubt the goal of boosting bilateral trade to USD50 billion will be reached over the target horizon and could well happen much earlier, if China takes on some of the oil and gas concessions the Western majors are in the process of relinquishing.
Most political parties, including the ruling All Progressive Congress and the opposition People’s Democratic Party, have thrown their support behind broadening ties with China, not least because of their growing frustration with the reluctance of Western financial institutions to invest in Nigeria’s economic development.
Nigeria’s hostile business climate took a turn for the worse in February, as far as international oil companies (IOCs) are concerned, with the passage of the Petroleum Industry Act. While passage provided a much needed regulatory, administrative, and fiscal framework for the IOCs, Mallam Mele Kyari, Group Managing Director of the Nigerian National Petroleum Corporation, warned foreign investors they must comply with the guidelines for divestment from joint ventures and production sharing contracts, including payment of oil field abandonment and relinquishment costs, severance of staff, and all third-party contract liabilities.
The warning was clearly directed at Shell and ExxonMobil, both of whom have announced plans to exit the Nigerian hydrocarbons sector, and which face huge remediation costs over the failure of both companies properly to decommission and cap oil and gas assets across the Niger Delta.
With only a few months remaining before the 2023 presidential and legislative elections, fears are mounting over the growing risk of political and sectarian violence erupting in the runup to or the aftermath of the polls. President Muhammadu Buhari’s second four-year term expires in February, when the electorate must choose between Bola Tinubu’s All Progressives Congress, Atiku Abubakar’s People’s Democratic Party, Peter Obi’s Labour Party, and Rabin Kwankwaso’s New Nigeria’s Peoples Party.
Nigeria’s post-pandemic recovery has been hit hard by the economic reverberations of the Russia/Ukraine crisis from February 2022, triggering sharp rises in food and fuel prices, which the World Bank estimated has put 120 million Nigerians at risk of food insecurity. Political violence risks are always elevated during elections, and this could prove particularly the case in the 2023 polls.
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A marked increase in banditry and kidnapping for ransom has resulted in a further deterioration in Nigeria’s security environment. In March, the Abuja-Kaduna train was attacked at Katari in Kaduna state, with nearly 1,000 passengers on board. At least eight were killed and some 65 kidnapped by marauding bandits who arrived on motorbikes, armed with firearms and explosives. The incident took place two days after an attack on Kaduna airport, in which two personnel from Nigeria’s space agency were also killed and several others kidnapped.
The Nigerian Air Force later attacked the suspects located in the forest boundary between Niger and Kaduna states, claiming to have killed more than 30 of the perpetrators. The authorities subsequently produced evidence that bandits and Islamic insurgents from Boko Haram were working hand-in-hand to target the symbols of state authority.
Nigeria’s GDP grew 3.5% year-on-year in the second quarter of 2022, up from 3.1% in the first quarter. The growth figures were nevertheless lower than were expected, due to the ripple effects of Russia/Ukraine crisis, with higher priced food and fuel imports acting dragging on growth.
A June International Monetary Fund economic review concluded real GDP was now growing in all sectors except for hydrocarbons due to lower output and persistent vandalism to pipeline infrastructure, but high inflation and escalating food costs were a growing concern.
The Central Bank of Nigeria hiked interest rates by 150 basis points to 13%, hoping to tame inflation and arrest the depreciating naira, which as of September was trading at 710 to the U.S. dollar on the parallel black market, compared with 440 to the U.S. dollar at the official rate.
Although the oil price has been over USD100 a barrel for the first time since 2014, Nigeria has been unable to benefit fully, due to falling production. The current account deficit has narrowed significantly, helped by import compression. The fiscal deficit remains high at 6.1% of GDP, exacerbated by the expensive fuel price subsidy, which the government failed to muster the courage to abolish this side of the pending elections, and which is forecast to cost the Treasury USD9.6 billion in 2022.
Foreign exchange reserves fell to USD38.6 billion in May 2022, down from USD41.5 billion in September 2021, and are expected to fall further until after the 2023 ballot. The stock of debt under President Buhari has risen from USD28 billion to USD72 billion, consuming ever greater volumes of scarce foreign exchange to service it.
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