NIGERIA

Nigeria is not just an oil economy and domestic consumption has grown. Still, petroleum exports remain the main source of hard currency. When the oil price slump crisis erupted, Nigeria faced an acute dollar scarcity, a particularly complex problem in a 0-day DSO economy. The economy came to a sudden stop in 2016, and GDP growth collapsed from +2.7% in 2015 to -1.6% in 2016.

Moreover, poor public spending implementation (a stimulus was delayed by about 6 months) and a self-defeating exchange rate policy added to the credit crunch. In June 2016, the Central Bank decided to devalue the Naira. It then got rapidly bogged down by a fixed exchange rate regime despite a wide margin with the black market exchange rate. The regulator introduced tough capital controls to tame speculative pressures, drying up liquidity in the country. After some quarters with a visible gap between official and black market exchange rates, NGN depreciation closed it and the easing of capital controls ended the credit crunch. However, since then growth recovered only gradually (+0.8% in 2017 and +1.8% in 2018) and missed former targets.

Nigeria renewed with sizeable fiscal deficits (-5.5% of GDP expected in 2019), but debt remains quite sustainable despite a trend increase, since it came from a low level after strong debt haircuts implemented in 2006: public debt will represent 29% of GDP in 2019 and external debt should reach 9.5% of GDP next year. Moreover, a stronger oil price in 2017 and 2018H1 favored strong capital inflows: It helped the import cover of foreign reserves to grow to about 8 months. However, it was financed more through debt (USD 5.4bn Eurobond issuance in 2018, and bilateral lending from China) than FDI.

Political risk remains the main issue 

The relatively peaceful transition to the presidency of Muhammadu Buhari suggests democracy is becoming entrenched. However, the country is a federation of states of varying size and economic power, encompassing a plethora of ethnic, tribal and religious groupings. These overlapping ethnic and religious identities are often in conflict with Nigeria’s federal system, as customary authority continues to play a crucial role in the country.

Internal regional economic differences and endemic corruption pose ongoing threats to stability and inhibit effective policymaking. In particular, these threats are indicated through religious differences and disputed claims on oil resources. Disputes between state powers and indigenous groups (particularly in the oil-rich Niger delta) and the federal government over allocations of oil earnings have led to sharp divisions and lawlessness.

Unemployment has also risen to about 23% in 2018Q3, as a result of low growth. Unions are key opponents to projects such as the African Continental Free Trade Area, and Nigeria is among the countries where this project is the most criticized. Moreover, the current social context is adding uncertainty to the next Presidential election (February 2019).