Previous Quarterly Editions
Expropriation Risk: 58 56 55 55 Political Violence Risk: 63 62 64 65 Terrorism Risk: 82 80 80 80 Exchange Transfer and Trade Sanction Risk: 63 60 60 58 Sovereign Default Risk: 56 54 52 50
TREND ► OUTLOOK ▲
Communal violence is rising in Nigeria’s troubled Middle Belt region and a tepid economy is still recovering from the country’s worst recession in 25 years. Yet President Muhammadu Buhari entered the final six months before next February’s presidential election looking set to win a second term despite being 75 and in poor health. His main advantage at that stage was the weak and disorganised state of the opposition People’s Democratic Party, which had yet to choose its candidate. Economic growth is expected to reach 2.1% in 2018, a notable increase on 0.8% in 2017 but down from initial forecasts of 2.6% at the start of the year. However, the trend should rise gradually to 3% in 2019. The communal violence has reached serious levels as Fulani herdsmen, who are used to moving their flocks, have mounted multiple armed attacks on mostly Christian famers who are cultivating land previously use for grazing. Reliable estimates suggest that 1,300 people were killed in clashes during the first half of 2018. Ahead of the election, this is being portrayed in parts of the media as Muslim cattle herders killing Christian farmers while Buhari, himself an ethnic Fulani, fails to take any action to stem the atrocities. This may well damage his prospects in the Middle Belt, a region which voted heavily for Buhari in 2016. This this is not expected to prevent him from winning but it does undermine his claims to have put security at the top of the agenda. This already looked hollow because, despite several military claims to have defeated the radical Islamic Boko Haram, the group remains active if weakened. Economic growth slowed to 1.95% in the first quarter of 2018, with the non-oil sector growing by a particularly disappointing 0.7%. This leaves Nigeria’s fragile economic rebound dependent on an increase in oil production and steadily rising international oil prices. The departure in September of Buhari’s finance minister, Kemi Adeosun, after a scandal about her credentials is not expected to result in any significant change to economic policy. The forthcoming election means that many domestic and foreign potential investors are waiting until the outcome is clear before moving forward with new projects. One reason for their hesitation is the possibility that Buhari’s candidacy may be hindered by renewed factionalism inside the ruling All Progressive Congress (APC), as well as by the president’s own performance in the final six months of his first term.
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Few policy changes are expected in the run up to the election. The prospect of another term for Buhari, who has made little progress in terms of increasing security, fighting corruption, or revitalising the economy, is not an encouraging one for investors. However, Buhari has not used heavier than usual public spending to support his campaign and the emphasis on attracting foreign investment is likely to continue both before and after the election regardless of the result. The Economic and Financial Crimes Commission has been less active in looking directly at oil and gas companies since the High Court overturned its seizure of control of an oil exploration block from Shell and Eni at the start of the year, but it is renewing its focus on the banking sector. Plans for a new national airline, initially announced in July, appear to have been shelved.
TREND ▲ OUTLOOK ▲
In addition to the agrarian violence across the Middle Belt, Nigeria continues to experience the protracted Islamic insurgency in the north-east of the country, where Boko Harum suicide attacks continue, and the threat of renewed turbulence in the Niger Delta, where the sense is growing that the central government will again renege on earlier promises of development funding. The arrest and detention of an Iran-backed Shia leader has added to the turmoil by sparking unrest amongst his followers in the north. Mounting frustration at the slow pace of economic recovery will test the ability of Nigeria’s Independent National Election Commission (INEC) to hold a fair and credible ballot in all parts of the country. Almost all corners of the country now face security threats, any one of which could disrupt the elections.
A succession of suicide bombings and abductions in Adamawa state in May underlined the government’s inability to end the country’s decade-long Islamic insurgency, which is estimated to have claimed the lives of 20,000 Nigerians since it first erupted in 2009. Boko Haram is expected to step up its campaign of bombings and abductions as the February ballot approaches with the aim of reinforcing its argument that corruption has made the central government weak and inept.
TREND ▼ OUTLOOK ►
Monetary policy remains tight. The central bank has now left its interest rate unchanged at 14% for more than two years as inflation stays stubbornly above its 6-9% target band. However, it has been gradually falling month by month and is now down to 11.6%. The government continues to push for a strong naira despite pressure from the IMF for a devaluation. With the steady rise in international oil prices boosting the federal government’s receipts from oil exports, the central bank is concerned that the federal government is not increasing the amount it saves to cope with the next downturn in prices. Instead, Buhari has been dividing the windfall among the country’s 36 states where it is being used for recurrent expenditure rather than fostering the non-oil economy.
The higher oil price is translating into stronger foreign exchange reserves, and these had reached 48 billion dollars by the middle of 2018. The government’s recent Eurobond bond issues are meant to be used to pay down high-interest government bonds, and this does seem to be happening despite the political pressures associated with the upcoming election. The country’s debt to GDP ratio is expected to rise from 19% last year to 22% in 2018 but this is still relatively low, and default is not a major concern.
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