Previous Quarterly Editions
Expropriation Risk: 55 55 55 57 Political Violence Risk: 64 65 66 62 Terrorism Risk: 80 80 78 75 Exchange Transfer and Trade Sanction Risk: 60 58 58 59 Sovereign Default Risk: 52 50 48 50
TREND ▼ OUTLOOK ►
Following President Muhammadu Buhari’s comfortable victory in February’s presidential and legislative elections, there is little likelihood of any substantial changes to the government’s economic policy. He defeated former vice-president Atiku Abubakar of the Peoples’ Democratic Party (PDP) by the convincing margin of 56% to 41%. However, turnout was only 36% as opposed to 44% in 2015 and Buhari, 76, won just 19 states compared to 17 for Abubakar, allowing the president to claim the support of only 20% of the electorate. The decision of so many Nigerians to stay away from the polls has been widely taken as evidence of frustration at the failure of politicians to improve living standards. Buhari’s electoral pledges in 2019 were similar to those he made during the previous campaign, with an emphasis on diversifying the economy, rooting out corruption, and boosting national security. Having arguably made little progress in these areas, his campaign was largely uninspiring and not helped by a substantial increase in unemployment during his first term to 23%. With the country’s oil production at a 15-year low, Buhari is now under increasing pressure to push through the complex reform of the moribund oil and gas sector that was first proposed under the long-delayed 2008 Petroleum Industry Bill. Plans were unveiled in March to proceed with sales that would reduce the stakes held by the Nigerian National Petroleum Corporation (NNPC) in a number of joint ventures from 60% to 40%, but the government may have overestimated the extent of investor interest. With Buhari’s All Progressives Congress (APC) in full control of the House of Representatives and the Senate, the prospects for oil sector reform should be relatively good, but Buhari’s preference for a state-led development model rather than a greater role for the private sector suggests that the scale of the ultimate reform package will be modest. In addition, with oil prices showing a modest recovery thanks to global production restraint, federal income is rising and this may also mute calls for a more radical approach. However, higher oil prices are also a problem for the government because they increase the subsidy required to stabilise retail petrol prices. Buhari could have abolished the subsidy when he first came to office as global oil prices were collapsing but chose not to. Any attempt to make significant cuts now is likely to trigger widespread protests. Economic growth rose to 1.9% in 2018, up from 0.8% in 2017, but with the working age population growing by 3% a year, GDP growth needs to be in the region of 6-8% a year to accommodate new entrants to the labour force. It is not clear that Buhari’s second term will be able to deliver the ambitious type of reform programme needed to generate these levels of growth.
TREND ▲ OUTLOOK ▼
Nigeria’s policy towards the South African mobile telecoms giant MTN continues to inflict damage on the country’s reputation among investors. Last year Abuja accused MTN of illegally repatriating 8.1 billion dollars and demanded two billion dollars in back taxes. Although MTN had failed to meet the regulatory deadline for the phasing out of non-registered SIM cards, the government’s punitive approach towards MTN is being widely seen as driven by resentment at the company’s commercial success in Nigeria. Proposals to dispose of up to 20% of stakes held by state-owned NNPC in joint ventures with major international oil companies will not affect its corporate partners. Buhari's suspension of Chief Justice Walter Onnoghen in January, leading to his eventual resignation in April, indicated the president's willingness to impose his will on the judiciary, in this case over the establishment of special anti-corruption courts.
TREND ▼ OUTLOOK ▲
By recent standards and despite bitter rhetoric in the latter stages, the February elections were relatively peaceful and fears of a spike in post-electoral violence failed to materialise despite allegations by the losing PDP that the ballot was a sham. While there was evidence of vote buying and other dubious electoral practices, particularly in the north, these were not on a scale that would have altered the outcome. Nevertheless, the continued Islamic insurgency in the northeast, the rising sectarian conflict between Muslim herders and Christian farmers in the central Middle Belt, and growing pressures from Biafran secessionists in the south, together with the continuing threat to oil infrastructure in the Niger Delta, present a range of security concerns across the country that is stretching the effectiveness of the armed forces.
The authorities have stepped up efforts to control addictive opioids after reports that they are regularly provided to Boko Haram militants prior to attacks on military and civilian targets. At the same time, reports of a potential split in the ranks of the Islamic State West Africa Province (ISWAP), a more radical faction that itself splintered from Boko Haram and targets the security forces, suggest that the group may be weakening.
TREND ▲ OUTLOOK ►
President Buhari may choose not to reappoint Godwin Emefiele when his term as governor of the central bank ends in June, creating some uncertainty around a post that has importance for the country’s monetary and exchange rate policy. However, as the policy which keeps the currency overvalued at an artificially high exchange rate of 350 naira to the dollar has the personal backing of Buhari, a new central bank governor may have little room for manoeuvre in this area. With inflation still above the bank’s target range, a second reduction to follow the surprise interest rate cut of 50 basis points to 13.5% in March is not imminent.
The IMF continues to urge the government to save more of its oil receipts instead of using them to cover recurrent expenditure, but combined federal, state and local government revenues were only 7.8% of GDP in 2018, meaning that once again government spending outpaced income. While still relatively low, overall public debt increased from 14% of GDP in 2015 to 21% in 2018 and debt servicing costs have increased sharply. Yet there is little prospect of a reduction in subsidies, the introduction of VAT, or other measures that might help to reduce the risk of a debt sustainability crisis.
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