Nigeria Business Forecast Report Q3 2009

Publication Date	May 2009
Publisher	Business Monitor
Product Type	Report
Pages	68
ISBN Number	1756-7947
Product Code	BMI03881

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Summary

Recession In 2009

Amid the sharpest fall in Nigeria's oil price since the discovery of hydrocarbons in the 1970s, and the worst global economic climate since at least independence, we are now forecasting an outof- consensus full-year recession of 0.4% in Nigeria. Trouble in the economy will be exacerbated by banking sector problems, though the central bank has begun to take action, cutting interest rates aggressively and drawing up contingency plans in case some banks become insolvent. We believe the root cause of the banking sector's current state is low confidence in the sector, which can be solved only by improving transparency, and the Central Bank of Nigeria is making some efforts to move the sector in this direction. On the political front, the government has also made some movements to implement electoral reform, but we believe these efforts are unlikely to have a significant impact until there are broader changes in Nigeria's political culture of corruption and violence.

This culture resulted in arguably Nigeria's worst election to date in 2007 but, despite domestic and international outrage over the conduct of the polls, we do not believe the 2011 ballot will be much better. While reforms proposed by the electoral reform commission do address many of the problems of Nigerian elections, we are sceptical the reforms will be passed in their full strength with enough time to implement them before the next round of national polls. Furthermore, the crux of the problem is enforcement of existing laws against corruption and violence, and there is little reason to believe the new laws will be respected.

On the economic front, we believe the Central Bank of Nigeria will continue to oscillate between drawing down foreign reserves and countenancing depreciation of the parallel exchange rate until another official devaluation of the naira occurs. In the meantime, Nigeria is weakening its free-market credentials in the eyes of many foreign investors, which we believe may lengthen the recovery of the banking sector and the wider economy. Some good news, however, is that inflation appears to be on the way down, though it remains stubbornly in the double digits for now.

As regards the business environment, poor physical infrastructure remains a significant shortcoming, with port congestion a major problem. At the same time, attacks by militants in the Niger Delta continue to impede oil production, though there is still foreign investor interest in the sector.

Meanwhile, corruption remains a major issue, despite the country's improvement in Transparency International's corruptions perceptions index.

Content

Executive Summary
- Recession In 2009
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- We Are Sceptical 2011 Elections Will Be Better
- The electoral reform commission has released its recommendations, which have been partially endorsed by
- Nigeria's cabinet.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Recession In 2009
- We have revised down our real GDP growth forecast to a 0.4% contraction in 2009, followed by 2.9% growth in
- 2010, as private consumption wanes and investment plummets.
- Exchange Rate Policy
- Where Is The Naira Going?
- We believe the Central Bank of Nigeria will eventually be forced to allow the Nigerian naira to depreciate towards
- NGN165/US$, as the costs of defending the current peg mount in the form of falling foreign reserve levels and a
- depreciating parallel exchange rate.
- Monetary Policy
- Major Interest Rate Cut: Implications
- Following the Central Bank of Nigeria's larger-than-expected 175bps interest rate cut on April 8, we are now
- calling for an additional 150bps of cuts in the latter half of 2008.
- Banking Sector
- Bank Reform: It's A Start
- The Nigerian authorities have signalled that they may finally be ready to take action over the problems building in
- the Nigerian banking sector, with the government looking into setting up an asset management company to buy
- bad bank debts and banks recommitting to harmonised year-end reporting.
Chapter 3: 10-Year Forecast
- The Nigerian Economy To 2018
- Infrastructure Investment Is Key
- We are forecasting average annual real GDP growth of 5.7% over the next 10 years.
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Petrochemicals
- Executive Summary
- Poor infrastructure, political instability, labour militancy, sabotage, poor management and corruption will
- remain barriers to investment which raised the risks and start-up costs of downstream projects.
- Freight Transport
- Executive Summary
- Our expectation is that maritime freight will be the fastest growing transport mode in the forecast period,
- with average annual growth in million tonnes-km of 7.8%, followed by airfreight at 6.2%, road haulage at
- 6.0%, pipeline throughput at 5.4%, and rail freight at 2.8%.
Chapter 7: BMI Global Assumptions
- Global Outlook
List of Tables
- Table: Political Overview
- Table: ECONOMIC ACTIVITY
- Table: EXCHANGE RATE POLICY
- Table: MONETARY POLICY
- Table: LONG-TERM MACROECONOMIC FORECASTS
- Table: LOAN-TO-DEPOSIT RATIOS, Selected States
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: MIDDLE EAST & AFRICA ANNUAL FDI INFLOWS
- Table: TOP EXPORT DESTINATIONS
- Table: Nigeria Petrochemicals Sector - Historical Data And Forecasts
- Table: Oil Product Price, 2006-2013 (US$/bbl)
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL ASSUMPTIONS - LONG-TERM FORECASTS
- Table: Developed States, Real GDP Growth Forecast
- Table: EMERGING MARKETS, REAL GDP GROWTH FORECAST
- Table: Commodities
- Table: GLOBAL & REGIONAL REAL GDP GROWTH