Country Profile: NIGERIA

West Africa

Monday, 23 November 2009 01:42

This country profile was published in November 2009 in our annual 'Africa in 2010' issue. The next edition, 'Africa in 2011' will be on sale in November 2010.

 The year ahead will increasingly be taken up with the politics of finding a leader to take the Federal Republic of Nigeria beyond its next election, due in April 2011. It will therefore be a crucial test of the power and authority of current President Umaru Yar’Adua, whose performance was questioned by many Nigerians during his first two years. If petroleum- and financial-sector reforms are pushed through and peace in the Delta holds, there may be another sea change in attitudes toward the presidency.  

Nigeria On past evidence, Yar’Adua seems unlikely to signal the intention to retire, but ongoing speculation about his health will encourage machinations by ambitious politicians who might be looking to replace him at the top. The ruling People’s Democratic Party (PDP) may hold power throughout the federation, but it is riven by splits and factions at regional level and at the level of  Nigeria’s 36 states. The president appears able to overcome divisions within his home region of the north, but his choice of some close political allies from other regions has reduced his standing in important parts of the west and east. Many of those who expected Yar’Adua to continue efforts to clear up corruption, particularly among top-level  politicians and state governors, want a new start and renewed campaigning along these lines can be expected to gather momentum in 2010. But in a series of efforts to counter the powerful pressures on this and other fronts, Yar’Adua has been able to show some  results in the course of 2009. 

Top of the list has been the initiative for the pacification of the Niger Delta. A workable plan for the development of the so-called ‘south-south’ would help resolve a political concern in the wider West and Central African region, as well as restore waning confidence in the Nigerian economy’s long-term prospects. However, there is no guarantee that the elaborate and carefully-choreographed amnesty programme that ran from August to October will deliver the desired results, in view of the volatile societal pressures at work in Delta communities and the persistence of well-connected criminal networks dedicated to stealing oil cargoes. 

October’s events could be read in different ways. Most of the big-name Delta rebel leaders seemed to have signed up for dealing with the federal government, but the Movement for the Emancipation of the Niger Delta (MEND) still had activists  displaying a determination to end the ceasefire and “burn down all attacked installations”.  

The major oil companies with onshore installations appeared to rule out any return to their original levels of output, yet Yar’Adua gave every sign of believing that the amnesty programme had already achieved its main objective of creating the conditions for dialogue. “If we treat the post-amnesty process right, Nigeria will become a global example of how to achieve peace and development under the most difficult circumstances,” he declared in front of the militants who met him in Abuja. The issue of money is critical, and Yar’Adua was quick to approve a payout of $43 a month to each militant who surrendered. 

Equally important for Yar’Adua’s reputation will be to complete in the coming months, and certainly well ahead of the 2011 elections, the long-drawn-out reform of the oil and gas dispensation that has prevailed in Nigeria since the 1970s. A wholesale reform and restructuring of the Nigerian National Petroleum Corporation has been steered through the National Assembly by oil minister Rilwanu Lukman. The principal oil majors in Nigeria have been wary, afraid that the reforms will disadvantage them at a time when other players, notably China National Offshore Oil Corporation, are eager to get a foothold. Lukman’s Petroleum Industry Bill, if passed, would also raise the government’s take from the foreign companies’ share of oil and gas ventures from around 82% at present to an estimated 93% when several new taxes would be applied. This could put the cost of operations in Nigeria on par with those of Libya and Abu Dhabi. The government has also been asking the oil  majors for billions of dollars to renew oil field  licences that they have held for 40 years. 

Successful energy-sector reforms have the potential to free up financial and managerial resources to correct one of Nigeria’s biggest economic handicaps: its nationwide absence of reliable  electricity supplies. As with so many other issues, it is far from clear if any tangible results will be felt ahead of the 2011 elections, but if regular power supplies were to become the norm in several cities, it could tip the balance of opinion in favour of  political continuity. But there was little progress towards fulfilment of Yar’Adua’s latest promise to have 6,000 MW on stream by the end of 2009. 

Regional integration back on the agenda

The Economic Community of West African States (ECOWAS) is better known for its political rather than  economic initiatives. In the 1990s, its member states  collectively approved the dispatch of (mainly Nigerian) peacekeeping forces into Liberia and Sierra Leone, and helped the UN keep up the troop numbers in both countries. Such intervention may again be back on the agenda if Guinea continues its slide into chaos. ECOWAS leaders also have been wagging their fingers at high-handed behaviour from Niger’s President Mamadou Tandja. 

Little has been heard on the economic front, largely because francophone West Africa has the advantage of contiguous borders and a common currency, leaving it up to the anglophone states to take a lead in the process. This drive for integration may at last be beginning. The  governors of the Nigerian and Ghanaian central banks have been talking about a unified bank-regulation system. This would make sense, especially as Nigerian banks have taken the lead in opening subsidiaries in anglophone and francophone countries alike. A West African Monetary Zone of Gambia, Ghana, Guinea, Nigeria and Sierra Leone is slowly moving towards convergence. But the real action is among the stock exchanges of Nigeria, Ghana and Côte d’Ivoire, where effective integration could begin much sooner.

The impact of the worldwide economic downturn has, in general, been outweighed by Nigeria’s own systemic problems, yet some of the country’s economic potential was just beginning to be realised before the global financial crisis hit. Macroeconomic policy had become more effective, international reserves had been managed more responsibly, and inflation had been largely brought under control.  But against these positives, two domestic negatives stood out in sharp relief in the first half of 2009: the incidence of gross mismanagement in the newly-consolidated banking sector and the collapse of production in the oil sector. 

The financial sector underwent a major  upheaval shortly after the change of direction at the Central Bank of Nigeria, when Charles Soludo was replaced as governor by Lamido Sanusi in June. Once it became apparent that the free-wheeling style of several bank executives had left their institutions badly over-exposed, Sanusi intervened to replace the leadership teams of five banks, and later four others, in what amounted to a bail-out to restore confidence in the system, accompanied by a tightening of bank supervision. After the first shock waves subsided, these moves were applauded at home and abroad, and could lead to a renewal of foreign investor interest in the financial sector. The fact that some of Yar’Adua’s political allies found themselves in Sanusi’s firing line added an interesting political touch. 

Falling oil output and lower prices were  expected to reduce the value of Nigeria’s exports from $76bn in 2008 to $45bn in 2009. Imports will also be down but not enough to prevent a fall in the trade surplus. The services and income accounts will be in deficit and remittances from Nigerians abroad will decline, so that the current account deficit is reckoned to be around 6% of GDP. The IMF has revised its  economic growth forecasts downwards to 2.9% in 2009, with hopes of a rise to 5.0% in 2010.

 The government’s plans to provide a fiscal stimulus and to spend around $2bn of its oil savings to clear government debts at home has been given a mixed welcome. Some analysts say it sets a poor precedent so soon after Nigeria had boosted its credit ratings by prudent management of oil savings from previous years. The savings account amounted to some $9bn by mid-2009 and was not seen as having  accumulated enough to see Nigeria through  possibly tougher times ahead.