Nigeria Country Risk Report

Published 28 January 2015 | Quarterly

  • 54 pages
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$1,195.00
Nigeria Country Risk Report

Core Views

  • Presidential elections on February 14 will be the most closely fought since Nigeria's return to democracy in 1999. While a victory for incumbent President Goodluck Jonathan and his ruling People's Democratic Party (PDP) is the most likely outcome, victory is not assured. Regardless of outcome, we expect little major deviation in policy trajectory given the personality-based nature of Nigerian politics.

  • Currency concerns will be the central issue for the Central Bank of Nigeria in 2015. Following aggressive tightening of monetary policy in November, we believe that further tightening measures will be necessary to anchor inflation expectations and reassure jittery markets.

  • The economic outlook for Nigeria has deteriorated. While we maintain our broad view that falling oil prices will not have a major impact on headline GDP growth given the predominance of the non-oil sector, some pass through now seems inevitable.

  • The new era of lower oil prices raises serious questions over Nigeria's fiscal sustainability. Substantive and politically-unpalatable spending cuts will be needed if the country is to prevent a fiscal crisis unfolding over the next few years.

Major Forecast Changes

  • We have made substantive changes to our macroeconomic forecasts for Nigeria in the wake of falling oil prices.

Key Risks To Outlook

  • The volatility of oil prices poses a significant risk to export revenues and government receipts, which, if disrupted, could harm macroeconomic stability.

  • While we believe that security risks will eventually be contained, if the situation significantly deteriorates, this would potentially affect investment, exports, and growth.

  • The approach of the 2015 elections will see political risk remain elevated and could result in lower growth than we currently predict if there is a major political event.

  • Power sector reforms are crucial for long-term productivity gains. If these are slowed or stalled, this would lead to lower long-term...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Political Challenges To Endure Regardless Of Poll Outcome
8
Nigeria's presidential elections scheduled for February 14 are set to be tightly-contested and volatile
While a victory for incumbent
President Goodluck Jonathan is the most likely outcome, a united opposition and the president's waning popularity could see a run-off
President Goodluck Jonathan is the most likely outcome, a united opposition and the president's waning popularity could see a run-off
triggered
Long-Term Political Outlook
9
Inequality, Corruption And Militancy Pose Long-Term Challenges
9
Nigeria's stability continues to be undermined by competition for political and economic power between various ethnic, political and
Nigeria's stability continues to be undermined by competition for political and economic power between various ethnic, political and
geographical groups
A more likely
outcome, however, would be a continuation of the fragility that has prevailed since 1999
Although unlikely, a major collapse of the state
cannot be ruled out
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Analysis
14
Oil-Driven Currency Woes To Weigh On Growth
14
The economic outlook for Nigeria has deteriorated
While we maintain our broad view that falling oil prices will not have a major impact
on headline GDP growth given the predominance of the non-oil sector, some pass-through now seems inevitable
We have made
downward revisions to our expectations for real GDP growth in 2015 and 2016
table : Economic Activit y
14
Monetary Policy
15
Oil Prices To Dictate Monetary Policy In 2015
15
Currency concerns will be the central issue for the Central Bank of Nigeria in 2015
Following aggressive tightening of monetary
policy in November, we believe that further tightening measures will be necessary to anchor inflation expectations and reassure jittery
policy in November, we believe that further tightening measures will be necessary to anchor inflation expectations and reassure jittery
markets
Table : Monetary Policy
15
Fiscal Policy
17
Fiscal Risks To Rise Sharply On Lower Oil Prices
17
Plummeting oil prices pose a major threat to Nigeria's fiscal sustainability
Substantive and politically-unpalatable spending cuts will be
needed if the country is to prevent a fiscal crisis unfolding over the next few years
table : Fiscal Policy
17
Regional Outlook
19
Key Themes Of 2015
19
Political risk, much of which is associated with elections, will be a key issue for the Sub-Saharan Africa region in 2015 as will the West
Political risk, much of which is associated with elections, will be a key issue for the Sub-Saharan Africa region in 2015 as will the West
African Ebola epidemic
Lower oil prices will have a meaningful impact on the macroeconomic environment with net oil importers
benefitting while exporters suffer
Lower oil prices will also encourage easy monetary policy in Japan and the eurozone, which will help
markets that rely on portfolio inflows
Loose monetary policy will also lead to a continuation of eurobond issuance as means to cover
fiscal deficits
table : ELECTION TIMETABLE, 2015
20
Chapter 3:10-Year Forecast
23
The Nigerian Economy To 2024
23
Power Sector Key For Long-Term Productivity
23
Despite being measured from a higher base following the recalculation of GDP in early 2014, Nigeria's economy will grow by around
Despite being measured from a higher base following the recalculation of GDP in early 2014, Nigeria's economy will grow by around
7
Although the oil sector will not contribute
much to headline growth, it will be crucial to macro economic stability as it will remain the most important source of export and fiscal
much to headline growth, it will be crucial to macro economic stability as it will remain the most important source of export and fiscal
revenues
Major risks to the economy include a deterioration in the security situation, a fall in oil prices and/or production, and slowerthan-
expected improvement in the power sector
Table : Long -Term Macroeconomic Forecasts
23
Chapter 4:Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
table : Operati onal Risk
28
Availability Of Labour
29
table : Sub -Saharan Africa - Availability Of Labour Risk
30
table : Top 10 Source Countries For Migrant Workers
31
table : Labour Force Employment By Sector
32
Crime Risk
34
table : Sub -Saharan Africa - Crime Risks
35
Table : Crime Statistics
36
Chapter 5: Key Sectors
39
Autos
39
table : Autos Total Market - Historical Data & Forecasts
40
Food & Drink
43
table : Food Consumption Indicators - Historical Data & Forecasts
45
table : Alcoholic Drinks Value /Volume Sales , Production & Trade - Historical Data & Forecasts
46
Other Key Sectors
47
table : Oil & Gas Sector Key Indicators
47
table : Pharma Sector Key Indicators
47
table : Telec oms Sector Key Indicators
48
table : Infrastructure Sector Key Indicators
48
table : Freight Key Indicators
48
Chapter 6: BMI Global Assumptions
49
Global Outlook
49
New Era For Oil
49
Table : Global Assumptions
49
Table : Devel oped States , Real GDP Growth , %
50
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
50
Table : Emerging Markets , Real GDP Growth, %
51

The Nigeria Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Nigeria. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Nigeria's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI  Research.

Key Uses

  • Forecast the pace and stability of Nigeria's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Nigeria's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Nigeria, including currency volatility, the commodity price boom and protectionist policies.

The Nigeria Country Risk Report by BMI  Research includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the Nigeria' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Nigeria through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Nigeria Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Nigeria and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Nigeria, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Nigeria over the next 5-years?

BMI's Nigeria country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Nigeria Market - Political Strengths, Weaknesses, Opportunities and Threats facing Nigeria.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Nigeria's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Nigeria’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Nigeria's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Nigeria?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Nigeria against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Nigeria’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in Nigeria will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Nigeria's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express