Country Report Nigeria June 2008

Outlook for 2008-09

• Major challenges for the president, Umaru Yar'Adua, will be to bring stability to the turbulent Niger Delta region, as well as to find a solution to the ongoing energy crisis, under which nationwide power cuts are commonplace.
• Owing to a recent upsurge of violence in the Delta region, oil production in 2008 will remain below potential, although it is still expected to be up on 2007 as more off-shore production is due to come on stream in the second half of the year.
• Coupled with strong non-oil sector growth, the increase in oil production will push real GDP growth up to 6.8% in 2008 and 6.6% in 2009.
• Excess liquidity and rising global food prices will make it difficult for the government and the Central Bank of Nigeria (CBN) to control inflation. We have increased our forecast to an average of 8.2% in 2008 and 8.5% in 2009.
• Despite increasing inflation, given the weakness of the US dollar, coupled with high oil prices, the naira will remain stable in 2008. It will weaken slightly in 2009 as the US dollar recovers.
• The upward revision to our forecast for world oil prices will provide a boost to the current-account surplus. It is now forecast at 9.2% of GDP in 2008 (previously 6.1% of GDP) and 8.3% of GDP in 2009 (previously 3.5% of GDP).

Monthly review

• The anniversary of Mr Yar'Adua's first year in office was marked by media and public criticisms over the slow pace at which his administration is addressing the pressing problems affecting Nigeria's development.
• The ruling People's Democratic Party (PDP) has so far had no problem winning the re-run state governorship elections ordered by the courts after last year's flawed general elections.
• The government has decided to hand over oilfields owned by Shell in Ogoniland to another international oil operator after the oil company was unable to resolve a long-standing dispute with the local community.
• The Cabinet has approved a number of measures aimed at avoiding shortage of rice, a food staple for many Nigerians. Meanwhile, the CBN has again increased interest rates in an effort to curb rising inflation.
• The government has announced plans for a more market-orientated approach to tariffs in the power sector. However, this will necessitate the government financing large subsidies in the sector.
• Real GDP grew at a provisional rate of 6.2% in 2007, according to the CBN, buoyed again by non-oil sector growth.

Source: Country Report