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Nigeria Country Risk Report Q2 2016

Nigeria Country Risk Report Q2 2016

Core Views

Growth in Nigeria, already suffering from the oil price collapse,will be further impacted by the unorthodox monetary policy beingenacted in the country, which – contrary to its professed aims – isstifling existing domestic non-oil production. Looser monetary andfiscal policy will not be sufficient to compensate.

President Muhammadu Buhari remains determined to plough hisown furrow, pursuing his own politically determined economic pathin the face of criticism from businesses, investors and analystsaround the world. He is single-mindedly attempting to reshape theNigerian economy, clean up its ministries and business practices,and eliminate graft. Given the massive reliance on the oil sector, andthe devastating effect fiscal leakage has had on Nigeria’s development,these are worthwhile pursuits. However, the president – andNigeria – must be prepared for hardship in their quest in the nearterm and we contend that too dogmatic a pursuit of these ideals willendanger the country’s ability to attract foreign investment.

The ramp-up in spending that the Nigerian government has proposedwill outpace any growth in revenues, and the fiscal deficit will widen asa result. This will be financed by borrowing on international marketsand from multilateral bodies – which will likely come with conditionsattached.

Nigeria’s current account will remain in deficit in 2016 and over thecourse of our forecast period, thanks to the oil price collapse and areliance on imported goods. This will be financed through borrowingfrom multilateral institutions and the international debt market.

In light of the recent monetary policy meeting in Nigeria we maintainour forecast that there will be a 100bps cut to the policy rate in 2016.

Growth stimulation remains the primary concern, and with a nairadevaluation looking increasingly uncertain, this will become evenmore important.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Expansionary Measures Will Not Compensate For Capital Controls
Growth in Nigeria, already suffering from the oil price collapse, will be further impacted by the unorthodox monetary policy being enacted
in the country, which – contrary to its professed aims – is stifling existing domestic non-oil production. Looser monetary and fiscal policy
will not be sufficient to compensate.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Expansionary Budget Will Be Funded Externally
The ramp-up in spending that the Nigerian government has proposed will outpace any growth in revenues, and the fiscal deficit will
widen as a result. This will be financed by borrowing on international markets and from multilateral bodies – which will likely come with
conditions attached.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Current Account Deficit The New Normal
Nigeria's current account will remain in deficit in 2016 and over the course of our forecast period, thanks to the oil price collapse and a
reliance on imported goods. This will be financed through borrowing from multilateral institutions and the international debt market.
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS EXPORTS IN 2014
TABLE: TOP 5 GOODS IMPORTS IN 2014
Monetary Policy
Increased Scope For 2016 Interest Rate Cut
In light of the recent monetary policy meeting in Nigeria we maintain our forecast that there will be a 100bps cut to the policy rate in
2016. Growth stimulation remains the primary concern, and with a naira devaluation looking increasingly uncertain, this will become
even more important.
Monetary Policy Framework
Chapter 2: 10-Year Forecast
The Nigerian Economy To 2025
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. While we expect
some progress, we believe the authorities will not implement these reforms at the speed necessary to prevent a notable moderation in
growth over the next 10 years.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Buhari Will Continue To Follow His Instincts
President Muhammadu Buhari has a singular vision of turning Nigeria into an efficient market with a diversified economy and with no
graft. This is a lofty ambition, but achieving it will likely cause stresses in the near term.
TABLE: POLITICAL OVERVIEW
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 betwe en various ethnic,
political and geographical groups.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: IMPORT & EXPORT DOCUMENTS
TABLE: SUB-SAHARAN AFRICA – TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
TABLE: TRADE PROCEDURES BREAKDOWN
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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