Nigeria Business Forecast Report Q4 2012

Core Views Despite the headwinds in the global macroeconomic outlook, we expect growth in Nigeria to remain around 7.0% over the coming years, bolstered by high government spending and improving productivity in the non-oil sectors. Security risks, which we have long highlighted, have risen, with militants increasing their activity in the northern parts of the country. The situation is beginning to have an adverse economic impact in terms of agricultural production. Major Forecast Changes We have again upgraded our current account forecasts, due to both a rise in non-oil exports (which have helped to offset declines in oil productivity) and a decline in imports. We estimate that the current account will equal 19.3% of GDP in 2012, before easing to 15.3% in 2013. Based on a sharp decline in oil prices which threatens government revenues as well as rising demands for expenditures we have downgraded our fiscal account balance projections. We now believe the budget deficit will equal 3.6% of GDP in 2012, compared with a previous estimate of 3.3%. Key Risks To Outlook The volatility in the price of oil poses a significant risk to export revenues and government receipts, a fact starkly illustrated with the sharp downturn seen in Q212. A significant deterioration in the economies of Europe, the US, or other major markets could see the price again head lower, with negative implications for Nigeria’s economy. While we believe that security risks will eventually be contained, if the situation significantly deteriorates, this would potentially adversely affect investment, exports and growth.