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Nigeria Country Risk Report Q1 2016

Nigeria Country Risk Report Q1 2016

Core Views

Nigeria will continue to struggle with its readjustment to low oil prices, and some policies being pursued by the president and the central bank will further constrain growth in the near term. We forecast a real GDP expansion of 3.8% in 2016.

The CBN will maintain the key policy rate at 13.00% at the next monetary policy committee meeting in December, as concerns over weak real GDP growth will come to the fore. We believe that the bank's more unorthodox policies must also be relaxed if growth is to be maintained.

Nigeria's current account balance will remain in deficit in 2016, as exports will fail to recover from the 2014 oil price collapse. The deficit will narrow from 2015, however, as an inevitable naira devaluation will limit imports.

Five months into the Buhari presidency, it has become clear that Muhammadu Buhari is committed to oil sector reform and the fight against corruption. Overall, his cabinet nominations have been market-friendly. However, the overall investment climate has deteriorated on unorthodox economic policies, reduced central bank independence and Boko Haram resilience.

A repeat of the 2009 Nigerian banking crisis and government bailout is unlikely. Still, low oil prices will weigh on banks' loan growth, as 25-30% of loans go to the oil and gas sector and prospects for the non-oil sector are also dim.


Executive Summary
Core Views
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Investment Climate Worsens Despite Market-Friendly Cabinet Nominations
Five months into his presidency, it has become clear that Muhammadu Buhari is committed to oil sector reform and the fight against
corruption. Overall, his cabinet nominations have been market-friendly.
TABLE: MAJOR ACTIVE TERROR GROUPS
Long-Term Political Outlook
Inequality, Corruption And Militancy Pose Long-Term Challenges
Muhammadu Buhari's presidential election victory in March 2015 represents a significant maturing of the country's democratic political
system. Even so, stability will continue to be undermined by competition for political and economic power between various ethnic,
political and geographical groups.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Painful Adjustment To Low Oil Prices Will Hamper Growth
Nigeria will continue to struggle with its readjustment to low oil prices, and some policies being pursued by the president and the Central
Bank will further constrain growth in the near term. We forecast real GDP expansion of 3.8% in 2016.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Monetary Policy
Monetary Policy Will Prioritise Growth Stimulation
The CBN will maintain the key policy rate at 13.00% at its next monetary policy committee meeting in December, as concerns over
weak real GDP growth will come to the fore. We believe that the bank's more unorthodox policies must also be relaxed if growth is to be
maintained.
TABLE: MONETARY POLICY
External Trade And Investment Outlook
Current Account Balance Will Remain In The Red In 2016
Nigeria's current account balance will remain in deficit in 2016, as exports will fail to recover from the 2014 oil price collapse. The deficit
will narrow from 2015, however, as an inevitable naira devaluation will limit imports.
TABLE: CURRENT ACCOUNT
Banking Sector Update
Bleak Macro Outlook To Weigh On Nigerian And South African Banks
A repeat of the 2009 Nigerian banking crisis and government bailout is unlikely. Still, low oil prices will weigh on banks' loan growth,
as 25-30% of loans go to the oil and gas sector and prospects for the non-oil sector are also dim. South African banks are slightly
better placed to withstand these conditions, given higher earnings growth, and unlike Nigerian peers they do not face a sharp
devaluation.
Chapter 3: 10-Year Forecast
The Nigerian Economy To 2024
Power Sector Key For Long-Term Productivity
Nigerian economy faces a challenging decade ahead as it adjusts to an era of lower oil prices. With a dearth of domestic productive
capacity, reforms to the power, infrastructure and oil and gas sectors in particular will be necessary if the country is to transform its
economy from an elite-driven consumption model to one driven by investment and more broad-based consumption.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Education
TABLE: SUB-SAHARAN AFRICA - EDUCATION RISK
TABLE: GRADUATES OF TERTIARY EDUCATION ('000)
Government Intervention
TABLE: SUB-SAHARAN AFRICA - GOVERNMENT INTERVENTION RISK
Chapter 5: BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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