Country Report Nigeria September 2008

Outlook for 2008-09

• Major challenges for the president, Umaru Yar’Adua, will be to bring stability to the turbulent Niger Delta region and 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 Niger Delta region, oil production in 2008 will remain below potential. Production should increase in 2009 as greater offshore output comes on stream.
• Coupled with strong non-oil sector growth, the increase in oil production will push real GDP growth up to 6.3% in 2008 and 6.5% in 2009.
• Excess liquidity and rising food prices will make it hard for the government and the Central Bank to control inflation. The Economist Intelligence Unit has increased its inflation forecast to an average of 10.7% in 2008 and 10% in 2009.
• The forecast for oil prices has been revised downwards, with a consequent impact on the current account. Nevertheless, a large current-account surplus is still expected in 2008, of 7.3% of GDP (previously 10.7% of GDP).
• Owing to lower oil prices and higher service charges in relation to the development of electricity and oil production, the current-account surplus is expected to fall to 1.5% of GDP in 2009 (previously 5.4% of GDP).

Monthly review

• Mr Yar’Adua has removed the country’s chief of defence, as well as the heads of the army and navy, replacing them with his own choices.
• The changes in defence personnel have been perceived as an attempt by the president to strengthen the armed forces and throw off the influence of his predecessor, Olusegun Obasanjo.
• The ruling People’s Democratic Party (PDP) has accused opposition parties of plotting to overthrow the government.
• There is mounting evidence that the militants and bandits fighting over oil wealth in the Delta are becoming more sophisticated in their operations, with one group recently having sabotaged an underwater pipeline.
• Parliament has agreed to a revision of the 2008 budget, trimming spending by 3.3% to N2.65trn (US$22.5bn), partly in line with Mr Yar’Adua’s request to cut back expenditure to enable more of Nigeria’s oil income to be saved.
• The government has been busy developing plans for an intensive public-private partnership (PPP) initiative. This initiative has apparently sidelined the privatisation programme.
• Economic growth strengthened in the second quarter of 2008, with growth continuing to be propelled by the strong performance of the non-oil sector.