Nigeria powers on, but will it take off?

Nigeria's geopolitical and socio-economic outlooks, while improving, are far from ideal. While the economy is growing again, long-running issues relating to security, corruption and infrastructure constraints continue to hamper business activity. Presidential and legislative elections in 2019 will increase political ambitions and competition in the next year which will create further challenges. President Muhammadu Buhari, who is frail and has not yet disclosed if he will seek a second term, is likely to be assessed on several of these issues, which he campaigned on in 2015.
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Improving security to some extent

In the southern oil-rich Niger Delta, attacks on oil infrastructure and workers have subsided compared to their peak in 2016, when the Niger Delta Avengers (NDA) cut Nigeria's oil production by one third after several attacks in Bayelsa and Delta states. Nevertheless, the NDA repeatedly threatened to resume attacks on oil installations last year, arguing negotiations between local communities and government officials were not progressing fast enough. However, the NDA is not the only militant group in the region and myriad other armed groups remain active whilst refusing to give up their arms. With presidential elections due next year and primary elections for the main APC and PDP parties due by the end of this year, it is possible that antagonism in the area will grow. Politicians have in the past been central in the growth of many of these groups, allegedly providing them with arms to rig elections.
PBIED attacks grew from around 27 per cent in 2016 to 34 per cent last year
The picture elsewhere is less positive. Although the armed forces, in December 2016, effectively dislodged a faction of the Islamist non-state armed group (NSAG) Boko Haram from its stronghold in the Sambisa Forest in the north-eastern Borno state, attacks continue unabated. In fact, the number of attacks increased from 127 in 2016 to 150 last year. Nigeria was the focus of Boko Haram's operations in 2017, although Cameroon also saw a growing number of attacks. Furthermore, the proportion of person-borne IED (PBIED) attacks grew from around 27 per cent in 2016 to 34 per cent last year. This is in line with our forecast last year that although Boko Haram was on the back foot in the Lake Chad region, the militant group would continue to stage PBIED and armed assaults from remote areas, as well as in the city of Maiduguri, while its different factions could look to compete over new recruits. Also Read: Somalia's security paradox Furthermore, long-running inter-communal fighting in the north-central Middle Belt states has intensified in the past two years. The Middle Belt states include the states of Adamawa, Benue, Kogi, Kwara, Nasarawa, Niger, and Plateau, as well as the capital Abuja. Muslim Fulani herdsmen have typically fought with local farming communities over pasture, although the conflict has grown more ethnical in recent years. The eastern Benue State has become a hotspot for pastoralist conflict with over 1,200 killed there in 2016. Although the violence is typically limited to remote areas, studies have shown that spikes in the number of fatalities have corresponded with declining agricultural output in recent years. In addition, the ongoing hostilities in neighbouring Cameroon's Anglophone regions of Northwest and Southwest could pose an emerging risk to security in Nigeria's south-eastern states, including the oil-rich Rivers and Cross Rivers. Aid organisations, including the U.N., estimate that between 10,000 and 40,000 refugees have crossed the border into Nigeria in the past year.

The economy of Baba go slow

While the economy has recovered since the recession in 2016, with oil production reaching its highest level at 2.01 million bpd in July last year, the IMF projects that overall GDP will grow by a pitiful 2.5 per cent this year is one of the slowest rates on the continent. In fact, this represents a declining GDP per capita as demographic growth is around 3 per cent. Furthermore, like other countries in Sub-Saharan Africa, such as Ghana, Kenya and Zambia, Nigeria is struggling with growing debt, mainly due to the global drop in oil prices in 2014 as well as the disrupted local oil production in 2016. According to the IMF, debt-servicing costs accounted for 62 per cent of government revenue in June 2017, compared to 22 per cent in 2016. In addition to the growing fiscal pressures, unsuccessful policies aimed at expanding non-oil GDP led Moody's Investors Service, a credit rating agency, to downgrade Nigeria's long-term bond ceiling from B1 to Ba3, highlighting the country's growing economic vulnerabilities to external shocks.
the government issued several bonds to fund its widening fiscal deficit
Despite the deteriorating credit outlook, international investors remained confident about Nigeria, mainly thanks to rising oil prices and a stabilised naira. Over the past year the government issued several bonds, including two on international debt markets, to fund its widening fiscal deficit, improve its deteriorating infrastructure, and to inject money into other sectors, such as retail and green technologies. But the government is also looking for revenue in other sectors, including oil and gas, in order to fund its largest budget on record: USD23.9 billion. In January, the senate adopted the first in a series of five bills that will aim to amend petroleum industry legislation. The legislation, which aims to bring more efficiency and transparency to the governance of the sector, has been in the making over a decade. This has created uncertainty for the sector, a situation authorities estimate have cost the country as much as USD15 billion in lost annual investment. Further changes are therefore possible in the coming year, as the Buhari administration will likely look to speed-up sector changes to have progress to show for in the next year. The government is also looking to increase taxation and tariffs of the oil industry, which already contributes to over two-thirds of government revenue. For instance, authorities are looking to change the law for gas flaring, which they say is costing the country billions in lost revenue and is causing serious environmental damage to adjacent communities. Gas flaring is a practice by which extractive operators burn (flare) natural gas that is produced along with crude oil instead of exploiting it, due to cost and security concerns. Specifically, the government wants to scrap the clause which allows companies to deduct penalties for gas flaring from their tax payments. In addition, in its December statement of the 2018 budget, Buhari also proposed to sell off state equity in joint ventures (J.V.s) in a move it expects to raise approximately USD2 billion to pay the high levels of debt in its energy sector J.V.s, which stood at USD5.1 billion at the end of 2016, after it was cut from USD6.8 billion.


Looking ahead, although Buhari has not yet confirmed if he will run for a second five-year term next year, voters are likely to judge him and the APC on their previous campaign promises. So far, they have had mixed results. When Buhari was elected in 2015, hopes were certainly high that the former army general would bring security and stability to a nation that was being ravaged by the Boko Haram insurgency. While Boko Haram has been driven out of its stronghold, its ability to launch deadly attacks remains intact. The economy has not improved significantly either. Subscribe to read the full insight here