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Country Profile 2007

Nigeria This Country Profile is a reference work, analysing the country's history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit's Country Reports analyse current trends and provide a two-year forecast.

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Country Profile 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007

Comparative economic indicators, 2006

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product(% change, year on year)


Consumer prices(% change, year on year)


Gross domestic product per head(US$)


0.0 5.0 10.0 15.0 20.0

Guinea-Bissau

Gambia

Togo

Guinea

Mauritania

Niger

Benin

Mali

Burkina Faso

Senegal

Ghana

Nigeria

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Guinea-Bissau

Togo

Guinea

Benin

Senegal

Nigeria

Gambia

Niger

Mali

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Ghana

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Gambia

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Nigeria

Senegal

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Mali

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Gambia

Togo

Guinea-Bissau

Burkina Faso

Benin

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Nigeria

Ghana

Guinea

118.9

19.4 25.0

Nigeria 1

© The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

Contents

Nigeria

3 Basic data

4 Politics 4 Political background 6 Recent political developments 8 Constitution, institutions and administration 9 Political forces 12 International relations and defence

16 Resources and infrastructure 16 Population 16 Education 17 Health 18 Natural resources and the environment 19 Transport, communications and the Internet 21 Energy provision

23 The economy 23 Economic structure 24 Economic policy 29 Economic performance 31 Regional trends

31 Economic sectors 31 Agriculture 33 Mining and semi-processing 37 Manufacturing 38 Construction 39 Financial services 41 Other services

42 The external sector 42 Trade in goods 43 Invisibles and the current account 43 Capital flows and foreign debt 45 Foreign reserves and the exchange rate

48 Regional overview 48 Membership of organisations

50 Appendices 50 Sources of information 51 Reference tables 51 Population and labour force 51 Federal government finances 51 Summary of state government finances 52 Domestic debt

2 Nigeria


52 Money supply 52 Interest rates 53 Gross domestic product 53 Gross domestic product by expenditure 53 Gross domestic product by sector 54 Consumer price index 54 Agricultural production indices 54 Production of major agricultural commodities 55 Oil production and exports 55 Oil prices 55 Gas production and flaring 55 Mineral production index 56 Manufacturing output 56 Industrial production 56 Stockmarket turnover and value 57 Main exports and imports 57 Main trading partners 58 Current account, Central Bank of Nigeria 58 Current account, IMF Article IV 59 Net official development assistance 59 External debt, World Bank estimates 60 External public debt, Central Bank of Nigeria estimates 60 Foreign reserves 60 Exchange rates

Nigeria 3


Nigeria

Basic data

923,773 sq km

139.8m (2005, US Bureau of Population estimate); provisional data from the 2006 population census indicates the population may be as high as 150m

Population in millions (2001, Economist Intelligence Unit estimates)

Lagos 10a Abuja 2

Tropical; with a long wet season in the south, particularly the south-east, and a shorter wet season in the north

Hottest month, March, 26-32°C; coolest month, August, 23-28°C; driest month, December, 25 mm average rainfall; wettest month, June, 460 mm average rainfall

English (official), Hausa, Yoruba and Ibo. Many other local languages are widely spoken

Metric system

Naira (N)=100 kobo. Average official interbank foreign-exchange market rate in 2005: N131.3:US$1. Rate on December 31st 2006: N127:US$1.

One hour ahead of GMT

January 1st, April 6th-9th (Easter), March 31stb (Eid al-Maulud), May 1st (Workers! day), May 29th (Democracy day), October 1st (Independence Day), October 13th-15thb (Eid al-Fitr), December 20thb (Eid al-Kabir), December 25th"26th (Christmas)

a There are large variations in estimates of the size of Lagos and other cities in Nigeria,

reflecting the weakness of population statistics in general and failure to agree over city

boundaries. The UN predicts that Lagos could have a population in excess of 20m by

2010, making it one of the five largest cities in the world.

b The dates of official public holidays, to be confirmed by the government, may differ

from those of the Muslim festivals given here.

Population

Main towns

Climate

Weather in Lagos (altitude 3 metres)

Languages

Measures

Currency

Time

Public holidays in 2007

Land area

4 Nigeria


Politics

Olusegun Obasanjo, a former military ruler, was elected as Nigeria!s first civilian president for nearly 16 years in February 1999. He took office on May 29th 1999. His party, the People!s Democratic Party (PDP), also won comfortable majorities in both houses of the National Assembly. Mr Obasanjo was re-elected in the April 2003 elections, in which the PDP also extended its grip on power at the federal and state government levels. After an unsuccessful attempt to alter the constitution in early 2006 to allow Mr Obasanjo to run for a third term, he will not contest the next presidential election in April 2007. With the political field still wide open in late 2006, this is likely to be a highly competitive election, the outcome of which remains uncertain.

Political background

There are more than 250 separate ethnic groups in Nigeria, and as many languages. The political entity known as Nigeria, named after the great River Niger, which runs across the present-day border in the north-west to the southern coast, was created in 1914 by the amalgamation of the British protectorates of Northern and Southern Nigeria. The British ruled Nigeria through a governor-general.

In 1954 Nigeria became a federation of three regions#Northern, Eastern and Western. This reflected the cultural and political differences between the country!s three main ethnic groups, the Hausa-Fulani, Yoruba and Ibo, who make up the majority of the population in Northern, Western and Eastern regions respectively. In 1957 Western region and Eastern region attained self-governing status, and Northern region followed suit two years later. At the election to an enlarged federal legislature in 1959 the Northern People!s Congress (NPC) was the dominant party, and Tafawa Balewa became Nigeria!s first prime minister. On October 1st 1960 independence was achieved, and three years later Nigeria became a republic.

Soon after independence ethnic and regional tensions mounted and came to a head in 1967, when the military governor of Eastern region announced plans for secession and proclaimed the independence of the self-declared Republic of Biafra. This resulted in civil war, which lasted for two-and-a-half years and killed an estimated 1m people. The end of the conflict did not mark a return to political stability, and in the 1970s and 1980s a succession of military coups was interrupted by only one brief period of civilian rule, from 1979 to 1983. The main causes of instability were ethnic and religious differences, disputes over the allocation of the country!s rapidly growing oil revenue, demands for greater regional autonomy, and the growing power of the armed forces. In 1979, after 13 years of military rule, elections were won by Shehu Shagari and his National Party of Nigeria. The civilian government proved incapable of tackling the country!s growing problems and, despite being re-elected in flawed elections in 1983, was increasingly associated with economic mismanagement and

Moves towards independence

Post-independence tension

Early history

Nigeria 5


corruption; its overthrow in a military coup led by General Muhammadu Buhari was not a surprise.

Under General Ibrahim Babangida, who assumed power in a bloodless coup in August 1985, there were significant changes, all initially positive. An IMF-style structural adjustment programme was launched in 1986 to help to turn around a moribund and highly corrupt economy, and the president announced a timetable for a return to civilian rule that would eventually lead to full democracy by October 1990. However, the postponement of the deadline to 1992 and subsequent delays, accompanied by mounting unrest, undermined the credibility of the administration. Nigeria was then plunged into political crisis when General Babangida, citing irregularities, annulled the June 1993 presidential election just as Chief Moshood Abiola, a millionaire businessman from the south-west, seemed poised for victory. The poll was generally considered to be one of the fairest in Nigeria!s history. However, many senior military officers#most of them northerners#did not warm to the prospect of an independent-minded president from the south.

When General Babangida finally surrendered power in August 1993, an interim national government, headed by a prominent Yoruba businessman, Chief Ernest Shonekan, took office; fresh elections were promised for February 1994. However, the unelected stop-gap government was unable to end the mounting political crisis in the country, and in November 1993 General Sani Abacha assumed power after Chief Shonekan had been encouraged to resign. General Abacha cancelled the timetable for civilian rule, dismantled all democratic political structures and imposed full military rule.

After an initial lull in the political unrest, General Abacha faced increasing opposition from the pro-democracy movement. On the first anniversary of the annulled 1993 presidential election Chief Abiola proclaimed himself Nigeria!s president. His subsequent arrest and detention on charges of treason triggered two months of street protests and industrial strikes, led by the oil unions, during which the Abacha administration detained scores of civilian political opponents. The administration also became increasingly paranoid and insecure about the army, jailing many senior military officers in connection with alleged coup plots in 1995 and 1997. In November 1995 a minority-rights campaigner, Ken Saro-Wiwa, and eight others from the oil-producing Ogoni area were executed following a controversial murder trial by military tribunal. This prompted an international outcry and the imposition of limited sanctions by the Commonwealth and some industrialised countries.

General Abacha!s increasing reliance on repression and manipulation to push through his programme for restoring civilian rule, in which he seemed intent on securing his own election as constitutional president, proved unpopular. Few regretted his unexpected death on June 8th 1998, apparently of a heart attack. His replacement, General Abdulsalami Abubakar, the most senior military officer with no evident political ambitions, quickly freed political prisoners and abandoned General Abacha!s discredited framework for the restoration of civilian rule in favour of a more inclusive and popular

General Babangida's transition programme

The rise of General Abacha

General Abubakar's fresh democracy plan

Political opponents are silenced

6 Nigeria


democratisation programme, culminating in elections in February 1999 and a formal end to military rule in May.

Important recent events

1999

National elections in May are won by General Olusegun Obasanjo and his People!s Democratic Party (PDP), ending 15 years of military rule. In October 12 northern states impose Sharia law creating a potential political crisis.

2002

In December the Independent National Electoral Commission allows the registration of new political parties. Thirty parties eventually contest the 2003 polls, compared with three parties allowed under the original 1999 constitution.

2003

Mr Obasanjo is re-elected in presidential polls in April, while the PDP extends its political domination in state and legislative elections.

2004

With ongoing outbreaks of violence in a number of states, the government opts to take a firm stance. Following renewed outbreaks of fighting, a state of emergency is imposed in Plateau State in May to quell ethnic-religious fighting. With violent activities by militants in the Delta region persisting, troops are also widely deployed there to try and quell trouble.

2005

The government steps up its campaign against corruption, arresting several prominent politicians and the former head of police. Unrest in the Delta region stays high. The government agrees a historic debt deal with its main creditors in October.

2006

A controversial bill to change Nigeria!s constitution to enable President Obasanjo to run for a third term of office is defeated in the Senate. Simmering tensions between the president and the vice-president, Atiku Abubakar, explode into open conflict, although legal attempts to stop him contesting the polls on corruption charges fail. Insurgency in the Delta region deteriorates, with record-high numbers of foreign oil workers being kidnapped, several deaths, and a significant loss in oil output.

Recent political developments

Mr Obasanjo, a retired general and Yoruba Christian who ruled Nigeria in the late 1970s as the head of a military government, won the February 1999 presidential election on the platform of the centrist People!s Democratic Party (PDP) and was re-elected in April 2003. Mr Obasanjo, who was a political prisoner under the Abacha regime, had the backing of significant elements of the powerful northern elite, including some retired army generals. However, soon after returning to power in 1999 he embarked on an extensive shake-up of important institutions, including the compulsory retirement of over 100 senior army officers, and tried to ensure the more even distribution of state appointments among Nigeria!s different ethnic and regional groups, thereby

General Obasanjo returns to power

Nigeria 7


reducing the prominence of northerners in public affairs. The government also set up the Oputa Panel, similar to the South African Truth and Reconciliation Commission, to investigate past abuses of power. However, as it lacked the power to compel witnesses to testify, the Panel never gained any real credibility.

A major problem since the return to civilian rule in 1999#and certainly in President Obasanjo!s first term in office#have been almost continuous outbreaks of ethno-religious violence. The government has tried to take a firm line, often using the military to quell the unrest. In particular, in May 2004 it imposed martial law in Plateau State in response to a massacre that left 1,000 people dead. Later in the year the government deployed the military more widely in the Delta region to curb the growing violence both between rival gangs and against multinational oil companies operating there. However, the use of the military to try to end this type of violence has often generated further confrontation and has failed to deal with the problem, notably in the run-up to the 2007 elections, which saw a sharp rise in the unrest.

The April-May 2003 elections were marred by allegations of widespread rigging and political intimidation by the ruling PDP; it is estimated that around 100 people died in election-related violence. Although outside observers deemed the outcome of the contests to have been broadly in line with the preferences of the electorate, it is clear that there was significant electoral malpractice. This was also the case in March 2004, when the PDP won control of most local governments in elections held in 30 states. However, even with the electoral fraud, the country!s past history of military rule and its record of human rights abuses meant that there was little popular support for a military coup, and most people grudgingly accepted the results.

Given the failure to make a material difference to the lives of most ordinary Nigerians during his first term in office, Mr Obasanjo made economic reform the centrepiece of his second term in office. Helped by high oil prices, the government pushed ahead with fiscal and financial reforms, the battle against corruption and rebuilding the country!s infrastructure. The combination of these factors has boosted growth, although the extent to which ordinary people have benefited from this is still not clear. Moreover, the government has struggled to bring the inflation rate into single digits for any prolonged period of time, or to put in place the policies to make a serious indent into the problem of underemployment, which has clouded perceptions of the benefits of the reform programme to date.

Despite efforts by the current administration to address the issue of corruption, Nigeria has an extremely poor international reputation with regard to the issue. Nigeria fares badly in most international comparative measures of corruption, such as the Corruptions Perceptions Index produced by Transparency International. During the president!s second term in office the government has taken a high-profile stance against corruption with the sacking of several ministers, the resignation of the Senate president on corruption charges, and the arrest of the former head of the police force. In mid-2006 one of the government!s key anti-corruption bodies, the Economic and Financial Crimes

The 2003 elections were marred by fraud

Violence persists

Corruption is still a major problem

Economic reform moves centre stage

8 Nigeria


Commission, announced that it had opened investigations into virtually every state governor on various corruption allegations, with even the vice-president coming under the spotlight. There has generally been a mixed response from the public and politicians to the government!s offensive against corruption. Many critics of the administration say that it has been selective in its purge, targeting expendable politicians or political rivals. Concern has also been expressed that the recent anti-corruption moves are designed to please foreign creditors and to secure debt relief and are not aimed at ending the endemic corruption within the political elite. This view is supported by the fact that, despite the many anti-corruption bodies set up since 1999 and several prosecutions, not a single high-profile official has so far been jailed.

Supporters of the current administration see the recent moves against high-ranking officials as a genuine new policy initiative, signalling Mr Obasanjo!s determination to clean up the system. They also dismiss charges that his purges have been politically motivated, pointing out that the president!s allies have been targeted and, perhaps more importantly, that in a country where high-level corruption is as widespread as in Nigeria, any anti-graft offensive must be pragmatic and selective if the whole system is not to collapse. Whatever the truth, corruption still remains a major issue in Nigeria, especially the petty corruption that ordinary Nigerians regularly face when dealing with government officials, which will not be resolved without major reform of the civil service and its wage structure.

Constitution, institutions and administration

Nigeria is a federal republic with a US-style presidential system. The National Assembly is bicameral, comprising a 109-member Senate and a 360-seat House of Representatives, both elected for four years. Each of the 36 states has an elected state governor and state legislature. The new constitution, introduced in May 1999, includes provisions that enshrine power-sharing and provisions for a strong executive presidency accountable to an elected legislature and an independent judiciary.

However, the new constitution has been a source of political tension. Critics claim that it concentrates too much power in the central government, contrary to the aspirations of many Nigerians for a looser federation. Other areas of contention include the dominance of the federal government in the control of state police and the appointment of judges. By stipulating that at least one cabinet minister must be appointed from each of Nigeria!s 36 states, it is also argued that the constitution hamstrings the president and promotes mediocrity by emphasising origin rather than ability. The problem for the administration is that, while many of these claims are valid, the executive is fearful that changing the current constitution could prove more problematic than living with it. Various efforts to change the constitution have failed.

Another feature of the Nigerian political system is that it is highly confrontational, with the executive and the National Assembly frequently clashing over policy direction and priorities. This has led, for example, to long delays in the implementation of the annual budgets since 1999. Since the

A new constitution has been a source of tension

Politics remains highly confrontational

Nigeria 9


return to civilian rule there have been several corruption scandals in the National Assembly that have forced leading members and several Senate presidents to resign. In mid-2000 an internal investigation of the Senate leadership highlighted numerous abuses of power, disregard for the rules, and cases of unacceptable personal enrichment.

In addition, many politicians are beholden to vested interests, and this can slow the passage of bills. The president has come into conflict with strong and independent-minded state governments, particularly over the allocation of government revenue. Mr Obasanjo has also clashed with some members of his own party, who have questioned his independent style of leadership and during his two terms in office backed politically motivated moves to impeach him, often on spurious charges such as for alleged financial mismanagement. Neither the judiciary nor the civil service is powerful or impartial enough to act as an effective constraint on the power of politicians in Nigeria.

Whatever its weaknesses, the constitution does guarantee personal freedom, which was absent during the years of military rule. It also stipulates that Nigeria is a secular state, but seems to allow the operation of Sharia (Islamic law) for consenting Muslims. In January 2000 the north-western state of Zamfara became the first state in the federation formally to adopt Sharia, triggering a bitter national row over the constitutional validity of the action in the multi-faith nation that is unlikely to be resolved quickly. By the end of 2001 a dozen northern states had introduced Sharia, which was still in force at the end of 2006. However, its imposition is opposed by many groups within Nigeria and has been a major source of religious and ethnic conflict within the country. In the past year there have been tentative signs that support for Sharia among Muslims is waning, as the hoped-for equality for all before the law has not materialised. However, no state is likely to abolish it.

Successive Nigerian constitutions have enshrined the independence of the judiciary. However, the judiciary!s authority and freedom were considerably impaired during military rule, especially in the Abacha era, by the regime!s curtailment of judicial power and flouting of court rulings. The judiciary has regained some of its powers under the present civilian administration. It has also been required to adjudicate in political disputes, particularly those related to elections and the division of power and resources between the different tiers of government, which have proved controversial. However, the judicial system is still deeply undermined by corruption and hugely underfunded. This has resulted in poor administration of justice, including long delays in the hearing of cases.

Political forces

In the April 2003 elections the ruling PDP extended its grip on power at the federal and state levels of government. The PDP!s political dominance was confirmed by its victory in the local government elections of March 2004. The PDP is now well represented in all regions of the country, with commanding majorities in the National Assembly as well as control of about three-quarters

Islamic law is introduced

The judiciary

Political parties are really vehicles to gain power

10 Nigeria


of the federal legislatures and state governorships. Its dominance partly reflects the lack of ideological distinction between Nigeria!s three main political parties, which were formed in 1998, mostly as vehicles for alliances of prominent politicians to secure positions of power. The PDP brings together veteran politicians who played prominent roles in the Second Republic (1979"83) and the aborted Third Republic (1989"93), as well as some retired military officers.

With Mr Obasanjo constitutionally barred from standing for a third term, the battle to succeed him as the next PDP presidential candidate has been fierce. The president!s initial political aim was to ensure that the vice-president, Atiku Abubakar, did not contest the election on the PDP ticket. In this he was successful, and he eventually threw his political weight behind Umaru Musa Yar!Adua, the governor of Katsina State as his preferred candidate. Mr Yar!Adua was confirmed as the PDP candidate in late December 2006, with Goodluck Jonathan, the governor of Balyesa State, as his vice-presidential candidate. Unable to contest the poll on the PDP ticket, Mr Atiku has opted to contest the polls on the platform of the Action Congress (AC), an opposition alliance led by the Advanced Congress of Democrats, which had recently been founded by his supporters and which in mid-December formed an electoral pact with Nigeria People!s Party (ANPP). This was to ensure the selection of joint candidates, to avoid dividing the opposition vote. However, by late December the alliance had not selected a presidential candidate. The favourite is still Mr Atiku, but it could also be the former military ruler, Muhammadu Buhari, who ran on the ANPP ticket in 2003, or a compromise candidate. A total of around 30 candidates are expected to contest the polls. Given the power of incumbency and the short time left for campaigning, Mr Yar!Adua starts the election race proper as the marginal favourite.

Party strength, 1999 and 2003 elections State governors Senatea House of Representativesa

1999 2003 1999 2003 1999 2003

People's Democratic Party (PDP) 21 28 67 73 212 221

All Nigeria People's Party (ANPP)b 9 7 23 28 80 94

Alliance for Democracy (AD) 6 1 19 6 68 34

Total 36 36 109 107c 360 354d

a Number of seats. b Competed as the All People's Party (APP) in the 1999 elections (the APP merged with the United Nigeria People's Party in August 2003). c Two results still outstanding. d Others won five seats; six results still outstanding.

Source: Press reports.

Although politics is dominated by the three large parties, around 30 political parties participated in the general election, following the registration of 27 new parties by the Independent National Electoral Committee (INEC) in 2002. The new parties, which cover a wide range of interests from labour and human rights groups to disaffected politicians from the main parties, were registered after clamour for the relaxation of the strict rules that limited party registration. However, none of the new parties made a significant impact in the elections, and only a few won any seats. More new parties have been registered by INEC in the run-up to the 2007 elections, bringing the total to 41 by late 2006. In addition to the existing political parties, a number of influential human rights groups and cultural-ethnic associations have a relatively high political profile.

There are now 30 parties

The 2007 presidential election looks to be a three-way contest

Nigeria 11


However, the radical pro-democracy movement that led the opposition to military rule became divided and weakened following the deaths in mid-1998 of General Abacha and Chief Abiola, the two principal adversaries in the political imbroglio, and now have little or no real political role.

Main political figures

Olusegun Obasanjo

Elected president of the Fourth Republic in February 1999 and re-elected in April 2003. Having secured the election of his chosen candidate, Umaru Musa Yar!Adua, as the candidate of the ruling People!s Democratic Party (PDP) for the 2007 poll, he is hoping to retain some behind-the-scenes influence. This is likely to be supported by his assumption of the chairmanship of the PDP!s Board of Trustees, which could be an important body for resolving disputes within the party.

Atiku Abubakar

The vice-president and heir to the formidable northern-based political machine that was established by the late Shehu Musa Yar!Adua, Mr Obasanjo!s deputy, in the 1970s. Since 2004 Mr Atiku has been in open conflict with Mr Obasanjo and sidelined within the PDP. As a result he will seek to undermine the PDP!s election campaign by either standing as candidate for the Action Congress or by supporting a compromise candidate.

Umaru Musa Yar'Adua

Until recently the low-profile governor of Katsina State, he is now the PDP!s presidential candidate and marginal favourite to win the 2007 presidential election. Largely seen as pious and uncorrupt, his wider policy views are not well-known, but he is likely to seek to continue to broad thrust of reforms started under President Obasanjo.

Ibrahim Babangida

A former head of state who came to power in 1985 and launched Nigeria into crisis in 1993 by controversially annulling the presidential election. Widely seen as one of Nigeria!s most charismatic and Machiavellian leaders, General Babangida still wields considerable political influence.

Charles Soludo

The governor of the Central Bank of Nigeria. Appointed in 2004, after briefly serving as President Obasanjo!s chief economic adviser and head of the National Planning Commission. He also led the team that prepared the National Economic Empowerment and Development Strategy (NEEDS). Mr Soludo plays a key role in the government!s efforts to reform Nigeria!s financial system and the economy in general and should provide important continuity following the change in government in 2007.

Nasir El-Rufai

The Minister of the Federal Capital Territory. Appointed in July 2003, the former head of the government!s privatisation agency, the Bureau of Public Enterprises, has a reputation for being outspoken against corruption. Although closely associated with the Obasanjo administration, Mr El-Rufai is believed to have maintained links with other competing political forces inside and outside the ruling PDP.

Funsho Kupolokun

Group managing director of the Nigerian National Petroleum Corporation (NNPC). Appointed in November 2003, the former special assistant to the president on petroleum has been keen to try to push through controversial reforms of the grossly inefficient and corruption-ridden state oil corporation.

Maurice Iwu

The Chairman of the Independent National Electoral Commission. As head of the official agency that will conduct the national and sub-national elections in 2007, Mr Iwu will be a major focus of political attention and scrutiny during and in the aftermath of the contests.

12 Nigeria


The trade union movement, once a powerful force, was weakened during the 1990s by rising unemployment, falling real wages and poor leadership. Following the collapse of the 1994 pro-democracy strikes, General Abacha emasculated the labour movement by replacing the leaders of the militant oil unions and the umbrella union body, the Nigerian Labour Congress (NLC), with state-appointed administrators. With the return to civilian rule in 1999 the NLC re-emerged as a major political force, coalescing support around the controversial issue of domestic fuel price rises. Since 1999 the NLC has called six general strikes in response to increases in fuel prices, and on three occasions the administration was forced partially to reverse the new price levels. This confrontational approach, however, eventually forced the hand of the government, and in March 2005 the government introduced legislation to end the NLC!s monopoly. Under this the NLC is no longer the sole central labour organisation, while workers have to state specifically whether they wish to pay subscriptions to the NLC. The legislation also limits the right to strike over non-work-related issues.

The military, which ruled Nigeria for all but four years between 1966 and 1999, is still a major political force. It is, however, undergoing reform to try and turn it into a more professional and less political institution. At present, even junior officers are likely to be reluctant to seek to intervene in politics, aware that the rising factionalism and division within the ranks have increased the possibility of a contested coup with little guarantee of success. They are also aware that the army!s involvement in politics and its association with corruption have eroded public respect for the military. If the army were tempted to intervene in politics, it is more likely that such an intervention would have some veneer of constitutionality, such as a suspension of the constitution to delay chaotically organised elections until they could be held in a more orderly fashion. This is possible in the run-up to the 2007 presidential election.

International relations and defence

Nigeria!s relations with neighbouring countries have generally been good, although there has been an ongoing territorial dispute with Cameroon over the oil-rich Bakassi peninsula. After prolonged talks Nigeria finally pulled out of the peninsula in August 2006, despite persistent opposition to the transfer from Nigerian residents on the peninsula#an issue that may still come to the fore. In 2002 Nigeria settled its disputes over the oil-rich maritime borders with Equatorial Guinea and São Tomé and Príncipe.

On a regional level, Nigeria was instrumental in the creation of the Economic Community of West African States (ECOWAS) in 1975 (see Regional overview: Membership of organisations). It was also the driving force behind the ECOWAS Ceasefire Monitoring Group (Ecomog), the Nigerian-dominated multi-national military force formed in 1990 to help to end the civil war in Liberia and which returned there in 2003 to help to end a second civil war. Ecomog also intervened in Sierra Leone (1997) and Guinea-Bissau (1998). Nigeria still has a policing and military role in the UN mission in Sierra Leone (Unamsil), which is gradually being reduced. Mr Obasanjo is actively involved in the Sudanese

The military remains a major political force

Nigeria is a regional peacekeeper

Border issues

The government and unions have often clashed

Nigeria 13


Darfur crisis, where Nigerian troops form one of the largest contingents of the African Union (AU) peacekeeping forces.

In the early years of independence Nigeria maintained close relations with the UK, but since the late 1960s it has tended to follow a more diversified foreign policy. However, economic necessity has obliged the Nigerian government to try to maintain cordial relations with the UK and other Western countries, notably the US, in spite of the failure by the military to restore democracy. Relations between the Nigerian leadership and Western governments have improved significantly since the demise of the Abacha regime, whose poor human rights record made Nigeria a virtual pariah state. Since the elections in 1999 Nigeria has been re-admitted into the Commonwealth and EU sanctions have been lifted. In particular, Mr Obasanjo has built up strong personal links with the UK prime minister, Tony Blair. He has also travelled widely, and his foreign policy efforts have centred on arguing the case for a write-off of Nigeria!s external debt. The US is particularly keen to build relations with Nigeria and to promote military reform, given its current policy of seeking to diversify sources of oil imports.

Nigeria has by far the largest armed forces in Sub-Saharan Africa, and successive governments have considered themselves to be a major regional power. According to official budget data, military spending peaked in 2002, at N108.1bn (US$897m), which was largely accounted for by the cost of the Nigerian presence in Sierra Leone. Defence spending fell in 2003, but rose again substantially in 2004, following the country!s renewed involvement in Liberia and Darfur. It then dropped modestly in 2005 to N88.5bn, which according to the budget data represented 5.9% of government recurrent expenditure and 3.2% of capital expenditure. It is still not clear to what extent these data reflect the true picture of government spending on defence, but is likely to be an under-estimate. Past and current senior officers of the military often have considerable business interests as well as political ambitions.

Military forces, 2006 Army 62,000

Air force 9,500Navy 7,000

Total regular armed forcesa 78,500

a There are also an estimated 82,000 paramilitary forces.

Source: International Institute for Strategic Studies, The Military Balance, 2006.

Security risk in Nigeria

Armed conflict

It is estimated that at least 50,000 people have been killed in various incidents of ethnic, religious and communal violence since the return to civilian rule in May 1999. This gives Nigeria a casualty rate from internal conflict that is one of the highest in the world#and the country is not fighting a civil war. Although most of the conflicts have been between civilians, there have also been some serious clashes between security forces and civilians and militants.

Relations with the West have improved

Nigeria has the region's largest army

14 Nigeria


Unrest and kidnapping

Probably the most serious challenge to the government!s authority has come from rebellious groups in the oil-producing Niger Delta. Since the mid-1990s a number of militant groups, angry at their people!s political alienation and economic exploitation, have waged an increasingly violent struggle against the state and multinational oil companies operating in the area. The most high-profile of these is probably the Niger Delta People!s Volunteer Force. Fighting between the various groups and with the Nigerian military has led to the deaths of thousands of people. In 2004, with the fighting between various gangs escalating, the government substantially increased its military presence in the region. In addition, it has sought to agree ceasefires between the various groups and with the government itself. However, these efforts have not succeeded in dampening the unrests. In fact, in early 2006 the conflict accelerated to new levels of intensity, following the emergence of a new shadowy militia group, the Movement for the Emancipation of Niger Delta (Mend). The upsurge of violence, including numerous kidnappings of foreign oil workers, has been partly fuelled by the ethnic-regional struggle for power and control of national resources in the run-up to the 2007 elections, although the nature of the conflict remains complex and is fuelled by the lack of progress in economic development. To date, none of the groups organising the protests have coalesced into a coherent political force. In addition to the fighting between groups, oil facilities and their personnel have been targeted by militant youths from disgruntled communities trying to squeeze money, jobs and social amenities from wealthy, though vulnerable, oil multi-nationals. An increasing number of oil workers have been kidnapped, including foreigners who work in isolated areas in the swampy terrain of the Niger Delta, which is difficult to police. Oil workers are usually seized in large groups from isolated locations, held for short periods and freed unharmed. The deterioration in the unrest in 2006 came after a year of improvements in conditions in the volatile region. In the case of Shell, the largest multinational operator in the region, the number of community-related disruptions (which include the closure of production facilities, seizure of assets, blockade of access and disruption of drilling activities) dropped to 154 in 2005 from 176 in 2004, with resulting losses in oil production totalling some 3.6m barrels, compared with 5.2m barrels in 2004. Organised theft of oil from the company also fell to 20,000-4,000 b/d, from some 40,000-60,000 b/d in 2004. Oil production losses for the industry as a whole in 2006 have estimated at between 600,000 b/d and 800,000 b/d, with Shell suffering the largest losses. In other parts of the south ethnic nationalist groups have sprung up in recent years, reflecting a growing feeling of frustration with central government and the political domination of the numerically superior north. The authorities have been unable to contain militant nationalist groups, such as the Yoruba separatist movement, the Oodua People!s Congress, the Ijaw Egbesu in the Niger Delta, the Bakassi Boys in the south-east and the Arewa People!s Congress in the north, all of whom are linked to ethnic disturbances and anti-government activities. Many of these groups are well armed. Although the aggression of Nigeria!s militant groups is usually directed at the

Nigeria 15


failures of post-independence nation-building, outbreaks of ethnic-religious fighting, particularly in cities, could increase the sense of insecurity for foreign residents. The worst fighting of ethno-religious origin, that between mainly Christian local farmers and predominantly Muslim settler herdsmen, has taken place in the middle-belt Plateau State, where according to an official report nearly 54,000 people died in sectarian clashes between September 2001 and May 2004. Acts of violence involving Christians and Muslims also followed the introduction of Sharia (Islamic law) in 12 predominantly Muslim states in the north. In December 2003 and September 2004 security forces clashed with self-styled "Taliban" Islamic militants who attacked police stations in the northern states of Borno and Yobe; these groups have sought to exploit local grassroots discontent with the perceived failings of the secular federal government.

Violent crime

Violent robbery has been a major problem in Nigeria since the emerging oil boom of the 1970s raised expectations of quick wealth among different classes of the population. Over the years the criminals have become increasingly brutal, better armed, audacious and contemptuous of Nigeria!s ill-equipped police force, which has been ineffective in stemming the crime wave. Rich and poor communities in urban areas have been terrorised by armed robbers, and households and companies have had to install elaborate security systems to protect themselves against attacks. The police have intensified their campaign against violent crime. According to the crime statistics of the Lagos State Police Command, 287 armed robbers were killed in 2002 in Nigeria!s commercial capital, compared with 257 in 2001. The statistics showed that 34 civilians were killed in 2002, compared with 70 in 2001, whereas 45 policemen died in shoot-outs with armed bandits, up from 16 in 2001. There is roughly one policeman per 1,300 citizens in Nigeria, compared with the UN-recommended ratio of 1:400. However, the shortage of resources has not been the only constraint on the fight against crime: some police and soldiers have participated in crime themselves, including setting up illegal roadblocks.

Organised crime

Nigeria has in recent years become synonymous with organised drug-trafficking groups, international prostitution networks, money-laundering and "419 scams". (419 scams involve unsolicited letters being sent to individuals to ask for the use of a bank account and for money to be sent to Nigeria to help to release funds, of which a percentage will then be paid to the person who has helped to release the funds. The person receives nothing. The swindle is named after the relevant section of the Nigerian penal code.) Although each is a problem in its own right, together they do not pose a specific threat to conducting business in Nigeria. The civilian government is committed to tackling all these problems#in November 2003 the president, Olusegun Obasanjo, inaugurated a committee headed by his national security adviser to fight 419 Internet fraud#but it is constrained by lack of resources and other more pressing problems. Progress is likely to be slow.

16 Nigeria


Resources and infrastructure

Population

Nigeria has the largest population of any country in Africa, but the exact size of the population has long been a contentious issue because of its implications for ethnic balance, electoral competition and the allocation of federal revenue. A census held in November 1991 showed a total of 88.5m, significantly lower than previous estimates. From the 1991 census figures the government projected the population in 2001 at 118.8m, assuming a growth rate of 3.1%, although senior officials often cite higher figures in speeches. The Human Development Report of the UN Development Programme (UNDP) put Nigeria!s population at 125.6m in 2003, whereas in the World Bank!s World Development Indicators database the population in 2003 was given as 136.5m, with a growth rate of 2.7%. A population growth rate of 2.5% per year would imply an annual increase in population of 3m-3.5m. The UN projects a population of 203m in 2025 and 278.8m in 2050, when Nigeria is expected to have the world!s sixth-largest population; in 2000 it had the tenth-largest. Most estimates show that over 40% of the population are under 15 years old, which has major implications for employment, education and the provision of other government services, as well as for the future growth rate.

In March 2006 the government conducted a new census. Officials had hoped that the results of this exercise could be announced in December 2006, and that it would put to rest speculation about the size of Nigeria!s population. However, the publication of the results may now be delayed until after the 2007 elections.

Given the very poor state of most social indicators in Nigeria, it is difficult to see how the government will achieve the poverty-reduction targets set out in the National Economic Empowerment Strategy (NEEDS) policy document by 2007. According to UNDP data, Nigeria is among the world!s poorest nations, with a GDP per head figure (on a purchasing power parity basis) of US$1,050 in 2003, compared with an average for the least-developed countries of US$1,328; 70.2% of the population live on less than a US$1 a day. However, the country has made significant progress in reducing hunger. According to a report from the UN Food and Agriculture Organisation, The State of Food Insecurity in the World 2002, the number of undernourished people in Nigeria as a proportion of the population fell from 13% in 1990-92 to 7% in 1998-2000. A major factor in the improvement was an increase in the production of cassava, following the introduction of improved varieties.

Education

According to Central Bank of Nigeria (CBN) data, education spending averaged around 7% of federal government recurrent expenditure and around 3% of capital expenditure in 2001-05. According to most local sources, over the past decade standards of education in the public sector have plummeted. As a result, there has been significant growth in the number of private secondary schools,

Nigeria is home to Africa's largest population

Standards have fallen

Social indicators

Nigeria 17


which, because of their high fees, are accessible only to the elite. The university system, once highly rated, is in poor shape, struggling with dilapidated facilities, lack of funding and the loss of its best teachers. There is, however, some contradiction in data from organisations such as the World Bank and the UNDP on whether there has been an improvement in the literacy of the general population in recent years. This largely reflects the weak statistical database.

In September 1999 the president, Olusegun Obasanjo, launched the free and compulsory Universal Basic Education (UBE) scheme, aimed at wiping out illiteracy. It is similar to the Universal Primary Education programme, which was introduced in 1976. The government claims that the programme has had some success, with the pupil/school ratio falling as more schools have been built in the past five years. The number of primary schools has risen from 48,860 in 2000 to 59,340 in 2005 and secondary schools from 8,275 to 12,610, according to CBN data, although it is not clear what percentage of these are private. However, the reality is that in the current situation the government will continue to struggle to generate sufficient funds, facilities and qualified teachers to make significant improvements in education standards.

Health

Provision of healthcare in Nigeria is very poor, and official data indicate that standards have declined further in recent years. Limited resources are being channelled into personnel rather than buildings and equipment. Health spending averaged 4.5% of federal government recurrent expenditure in 2001-05. In order to raise money to fund additional spending, a long-awaited national health insurance scheme was launched in February 2003. Under the scheme, for a modest financial contribution a worker plus spouse and four children can qualify for free health services, excluding treatment for chronic diseases such as cancer and HIV/AIDS. Contributions are voluntary for most workers but compulsory for public-sector employees, who will pay 5% of their basic salary into the scheme, with the government paying 10%. Those not in formal employment can also join the scheme by forming socially cohesive groups of more than 500 members, with each member paying an agreed flat rate. Meanwhile, most indicators of health provision remain poor. Life expectancy is low and, according to CBN estimates, there was only one hospital bed per 1,806 people in 2005. The person/doctor ratio was extremely high at 3,059:1, as was the person/nurse ratio at 714:1.

As with many African countries, Nigeria is facing a potential health crisis caused by the HIV/AIDS pandemic. According to the latest estimates from the joint UN programme on HIV/AIDS (UNAIDS), there were 2.9m people living with HIV/AIDS in Nigeria at the end of 2005, equivalent to 3.9% of the sexually active population (defined as males and females between 15 and 49, using UNAIDS population estimates). Despite this apparently low infection rate, the Ministry of Health has been keen to stress that the problem is still potentially huge; that there are geographical pockets of infection where the level is above 20% of the sexually active population; and that there are major differences in the prevalence rates across states, ranging from 1.2% to 12%.

Healthcare standards are also in decline

HIV/AIDS

18 Nigeria


HIV/AIDS, end-2005 ('000 unless otherwise indicated)

No. of people with HIV/AIDS 2,900 Adults (aged 15-49) 2,600 Women (aged 15-49) 1,600 Children (aged 0-14) 240

Adult infection rate (%) 3.9Current number of orphaned children 930

AIDS deaths in 2005 220

Source: UNAIDS.

In August 2004 the government launched a revamped anti-AIDS policy, which had as one of its key element the HIV/AIDS Emergency Action Plan (HEAP), a revised version of which is running from 2005 to 2009. As part of HEAP, the government is attempting to boost the provision of anti-retroviral drugs (ARVs), with the aim of increasing the number of recipients from 14,000 at the end of 2004 to 350,000 by the end of 2007. The drugs will be supplied by a combination of donors and the government, through imports and increasing local production. However, even if the HEAP targets are met, many of those infected will not receive ARVs: according to government estimates, the number of people in need of ARVs is between 450,000 and 600,000.

Natural resources and the environment

Nigeria!s climate is tropical, with a long wet season in the south lasting from May to October, and a shorter wet season in the north from June to September. Temperatures are highest between February and April in the south, ranging from 26°C to 32°C in March in the Lagos district, and are highest in the north between March and June, when they can exceed 35°C. The coolest months throughout the country are July and August, when temperatures can drop to 20°C. Rainfall is heaviest in the south, at up to 400 cm or more per year in the eastern coastal area, and lowest in the north, with as little as 50 cm per year. During the Harmattan, between December and mid-February, the temperature drops as winds blow from the Arabian peninsula across the Sahara, resulting in a dry, dusty and hazy atmosphere that can considerably reduce visibility.

Deep mangrove swamps and creeks characterise Nigeria!s 800-km coastline, where most of the country!s oil and gas reserves are found. Exploration for oil began in 1937, but deposits were not discovered until 1956. The Niger and Benue rivers divide the country into western, eastern and northern regions, merging below a middle belt of rolling savannah hills rich in granite, marble, limestone, tin, coal, iron ore, lead, zinc and some gold. Palm oil plantations are cultivated in the tropical forest zone lying between the mangrove swamps and the savannah. Coconut cultivation occurs in coastal areas. Yam, cassava, maize and a wide range of fruit and vegetables are grown throughout the country. Millet and groundnuts grow in the north, and rice, sugar and tea grow in eastern areas. Cattle are grazed throughout the north and driven south to market.

The climate is tropical

Untapped resources are substantial

Nigeria 19


Transport, communications and the Internet

The advent of massive oil wealth in the 1970s created the opportunity for major investment in port capacity, roads, bridges and airports. As a result of reduced federal revenue in the 1980s there was almost no significant addition to capacity, and lack of maintenance led to a particularly sharp deterioration in many of the country!s roads. Given the heavy reliance on road haulage for the distribution of goods, this has proved to be a particular constraint on economic growth. Until recently the railway system was neglected, with minimal services on the 3,500-km network. In August 2006 the president, Olusegun Obasanjo, announced a bold 25-year modernisation and expansion plan, and in October 2006 his government signed a US$8.3bn contract with the CCECC for the construction of a 1,315-km standard-gauge, double-track railway line from Lagos to Kano, as the first phase of the modernisation plan.

Capacity at the country!s ports expanded rapidly in the 1970s in an attempt to handle the great surge in imports. Because of the downturn in economic activity since the early 1980s handling capacity at Apapa, Warri, Tin Can Island, Port Harcourt and Calabar is adequate to meet demand. In practice, owing to a lack of maintenance much of the dockside equipment is unworkable, and the low level of automation slows the loading and unloading process. In addition, frequent policy changes and the multiplicity of authorities in ports mean that corruption and delays are common. Oil and gas exports are shipped through various onshore and offshore terminals (such as Bonny terminal, which is operated by Shell; Qua Iboe terminal, by Exxon-Mobil; Brass terminal, by Agip), which are handled by the multinational oil companies and are far more efficient.

Nigeria has 20 main airports, which are run by the Federal Airports Authority. Operational and safety shortcomings have plagued the country!s international airports, giving them the reputation of being among the worst in the world. The quality of local airports is even poorer. The state-owned Nigeria Airways was finally liquidated in May 2004, after losing all but two of its planes, following years of crippling financial problems caused largely to gross mismanagement, corruption and a dwindling fleet, with accumulated debts of US$60m. Since the disappearance of Nigeria Airways international routes have been served mainly by foreign airlines.

In July 2005 the government launched Virgin Nigeria, a privately owned airline, to replace Nigeria Airways as the national flag carrier. As its name suggests, Virgin Atlantic, a UK-based airline, is the core investor/technical partner, holding 49% of the initial US$50m equity, with the remaining 51% held by Nigerian shareholders. It is now flying both local and international routes. Competition on domestic routes has increased sharply since the late 1990s and the early 2000s because of the emergence of a number of local private airlines.

However, the domestic air services sector has suffered setbacks in recent years as a result of diminishing public confidence in the safety of air travel. According to data from the Central Bank of Nigeria (CBN), the number of passengers flown by private airlines plummeted by 58.6% to 4.2m in 2005, compared with 10.1m in 2004. The CBN attributed to poor performance of the sector in 2005 to

The railways and ports have suffered from neglect

A new national flag carrier

Air safety is an issue

20 Nigeria


the erosion of public confidence in air travel following three air crashes that claimed a total of over 200 lives. Public confidence in flying further diminished in 2006, after two more plane crashes killed over 100 people. However, with road travel arguably more dangerous that air travel, the numbers are likely to rebound quickly.

The government has announced new minimum capital requirements for airline companies, which it hopes will improve investment and standards. In addition, in early 2006 it set aside US$150m to improve its airports. Under a plan drawn up by the Ministry of Aviation and to be implemented in the coming year, this money will be used to upgrade facilities at the nation!s 22 airports; to refit the control towers; to provide total radar coverage of the nation!s airspace; and to improve the capacity for controlling air traffic and forecasting weather.

The monopoly of Nigerian Telecommunications (Nitel) over telecommuni-cations services was officially ended in October 1997, but the government has faced difficulties in privatising the inefficient and overmanned state-owned company. According to the Nigerian Communications Commission (NCC), Nitel currently has an installed network of around 720,000 fixed lines, of which at best 500,000 are activated. Between 2002 and 2005 the government made various unsuccessful attempts to privatise Nitel. However, a deal was eventually reached in August 2006, when a 75% stake in the company was sold for US$750m to Transnational Corporation (Transcorp), an investment company formed by a number of leading Nigerians with strong political connections to the current administration. The remaining 25% is to be sold to the public in a share offering.

As well as having to overcome the company!s internal problems, the new owners of Nitel will also face greater competition in the marketplace than when it was initially offered for sale. In August 2002 the NCC awarded a 20-year fixed-line licence (which may be extended by 15 years) to Globacom, a locally owned company, as Nigeria!s second national operator. Globacom also secured a mobile-phone licence, valid for 15 years. There has also been growth in the corporate market for companies to have their own private networks (mainly using Globacom!s infrastructure).

In January 2001 M-Tel, Nitel!s mobile-phone subsidiary, and two private companies, Mobile Telephone Networks (MTN) Nigeria from South Africa and Econet Nigeria International from Zimbabwe, allied with local investors, were licensed to operate mobile-phone networks. Given the paucity of the fixed-line network, Nigerians have been quick to embrace mobile technology, and the companies providing the service have struggled to roll out their networks fast enough to keep up with demand. NCC figures show that the number of subscribers has risen from 450,000 at the end of 2001 to around 24.4m in June 2006.

In contrast, Nigerians have been slow to embrace Internet technology, partly because of prohibitive local subscription charges and the poor state of the local fixed-line telephone system. However, despite the high costs the number of Internet users has risen rapidly in recent years: from under 300,000 in 2002 to

The fixed-line telephone network is poor

The mobile-phone network is growing rapidly

Adoption of the Internet is slower

Nigeria 21


around 2.5m in 2005 and an estimated 3.5bn by late 2006. This is reflected in the growth of Internet service providers. These have been licensed by the NCC since January 1999#more than 100 have a basic licence, although a large number of them are inactive. However, owing to the high costs and the problems associated with telephone lines, access to the Internet is mainly provided by Internet cafés, which are present in most urban centres.

Nigeria has a flourishing English-language press, much of it in private hands. Relations between the media and the government have improved since the end of the Abacha administration (mid-1998), which muzzled newspapers that it considered to be hostile. There are at least 20 daily papers, 12 Sunday newspapers and four weekly business papers. According to World Bank data, 24 people out of every 1,000 in Nigeria had access to a published newspaper at least four times a week in 2000, compared with 12 people per 1,000 in Sub-Saharan Africa. The broadcast media are dominated by state-run organisations, the Nigerian Television Authority and the Federal Radio Corporation of Nigeria. However, following the deregulation of broadcasting in 1992, several indepen-dent television and radio stations now operate in a fast-growing private sector. A wide range of foreign stations are also available via satellite, including South Africa!s M-Net (with its SuperSport channel), which in November 1999 became the first non-Nigerian company to be listed on the Nigerian Stock Exchange.

Energy provision

Nigeria!s energy balance is dominated by petroleum and, to a much lesser extent, associated natural gas. However, as most of the oil is exported, petroleum products and natural gas provide most of the domestic commercial energy; hydroelectricity provides the balance. Nigeria has sizeable coal reserves, but production is substantially lower than the 100,000 tonnes/year produced in the early 1990s, although exports of coal resumed in 1996 after many years (the government has estimated that some 15m tonnes/year could be exported). Most people are not, however, connected to the mains electricity grid, and for them the sources of energy are petrol, gas oil, diesel, wood and kerosene, the latter two being used for cooking. Candles and lamps are the main source of light.

The National Electric Power Authority (NEPA)#which was reconstituted into the Power Holding Company of Nigeria (PHCN) in May 2005#has installed power generation capacity of nearly 6,000 mw provided by natural gas (40%), hydroelectricity (35%) and petroleum (24%). This level should just about meet national demand in a country where only 30% of the population has access to electricity. However, because of outdated and poorly maintained facilities, total power generation is only around half of capacity, and at various times in recent years the grid has collapsed completely. Although the president has stated on a number of occasions that restoring a reliable power supply is one of the most important goals of his administration, progress has so far been slow. The board of NEPA has been dismissed twice: in March 2000, when the national grid system collapsed, and again in November 2003 on the grounds of slow progress in improving performance and preparing the company for

Media

The supply of electricity is very poor

22 Nigeria


privatisation. A technical committee is now running the PHCN until the privatisation process is completed.

As part of ambitious plans to reform the sector, the government has set a target to raise electricity production to 10,000 mw by 2007. However, progress in building new generation plants and drawing in private participation in the state-dominated sector has been slow. Therefore, in an attempt to improve power supply temporarily, the administration has over the past six years invited some overseas companies to operate power facilities on build-own-operate terms. Discussions about potential investments of US$1bn have been initiated, which, if completed, would make the privatisation of the electricity industry more complex, as the company would be locked into contracts with private suppliers over which it would have little control. By late 2004, however, no major international company had committed itself to investing in the power sector, apart from in the long-standing Lagos barge project run by a global power company, AES Corporation.

In addition, in September 2005 Mr Obasanjo outlined a Special Energy Project to invest US$2.5bn by 2007 to build seven power stations in the oil-producing Niger Delta region as well as transmission and distribution facilities to add 2,600 mw to the national grid. In his 2007 budget he announced that work was progressing well. These seven stations are in addition to earlier plans to construct new power facilities, including five state power stations with a combined capacity of over 1,400 mw by Chinese companies with the support of the China Exim Bank. In June 2004 an independent power station from Rivers State began selling its power to PHCN. Although small (36 mw), this agreement has set a precedent for the supply of power to PHCN by state governments and the private sector, with a number of other projects having subsequently been announced.

In March 2005, after several years of delay, Mr Obasanjo signed into law the long-awaited Electric Power Sector Reform Bill. This has set the legal framework for private-sector participation in the industry and provides the basis for unbundling PHCN into six generating companies, 11 distribution firms and one transmission company. There will also be a special-purpose entity to take over its existing liabilities, such as debt and pensions. The sector will then be regulated by a newly established Nigerian Electricity Regulatory Commission. In late 2005 the privatisation body, the Bureau for Public Enterprises, was in the process of selecting consultants to help to work out how best to sell the newly created distribution and generation companies. It is still too early to know what approach the government will adopt, but it now appears that it is looking to privatise the sector through leasing or concessions, rather than the outright sale of assets.

As well as promising to reform the power supply, the government is committed to alleviating the problem of shortages of basic domestic fuel products in the world!s seventh-largest oil-exporting country. Domestic shortages are the result of a number of factors, including the smuggling of cheap Nigerian fuel to neighbouring countries, lack of investment in and poor management of the

Domestic fuel supplies remain a problem

Expansion of the current generating capacity is slow

Privatisation is seen as the long-term solution

Nigeria 23


four national refineries, and the government!s inability to deregulate the downstream sector. In order to pave the way for the privatisation of the refineries, the government started removing domestic fuel subsidies in October 2003. However, a series of nationwide strikes in protest over the subsequent fuel price rises compelled the administration to back-pedal on this policy, announcing in late 2005 that domestic fuel prices would remain frozen in 2006. As a result, the Nigerian National Petroleum Corporation (NNPC) is still subsidising domestic fuel prices by between US$2m and US$3m a day.

The four national refineries, all run by the NNPC, operate at less than 50% of their capacity of 445,000 barrels/day, supplying only 16.6% of demand for domestic fuel. Low domestic fuel production has made Nigeria increasingly dependent on imports of petroleum products. The current administration has spent over US$700m on renovating the existing refineries, with only limited results. The government has long had plans to privatise the refineries, but the oil multinationals already operating in the country have remained unenthusiastic about acquiring a majority stake in them because of their dilapidated condition, the regulation of fuel pricing and their location (three of them are in the Niger Delta region). They have, however, held talks with the government about building a new refinery. Meanwhile, it has been announced that the China National Petroleum Corporation will invest in the Kaduna refinery as part of its successful bids for oil fields in the 2006 licensing round. In early 2004 the government gave construction approval to two companies from among the 18 firms that applied for a preliminary licence in 2002. Progress in this sector will be determined by the deregulation of domestic oil prices or, until then, by export opportunities.

The economy

Economic structure

Nigeria displays the characteristics of a dual economy: an enclave oil sector with few links to the rest of the economy, except via government revenue, exists alongside a more typical developing African economy, heavily dependent on traditional agricultural, trade and some limited manufacturing. During the colonial era cash crops were introduced, harbours, railways and roads were developed, and a market for consumer goods began to emerge. At independence in 1960 agriculture accounted for well over half of GDP and was the main source of export earnings and public revenue, with the agricultural marketing boards playing a leading role.

However, the rapid development of the oil sector in the 1970s meant that it quickly replaced the agricultural sector as the leading engine of growth. According to official Nigerian government estimates, the oil sector accounts for 70-80% of federal government revenue (depending on the oil price), around 90% of export earnings and about 25% of GDP, measured at constant basic prices. Agriculture (including livestock, forestry and fishing), which is still the main activity of the majority of Nigerians, constitutes about 40% of GDP. In

A dual economy

The sell-off of refineries proves difficult

24 Nigeria


recent years it has become clear that the manufacturing sector has also continued to decline, to well under 5% of GDP, while the services sector and the retail and wholesale sectors have continued to grow and now account for the majority of the remaining 30% of GDP.

Comparative economic indicators, 2006a (US$ bn unless otherwise indicated)

Nigeria Ghana Côte

d'Ivoire South Africa Angola

GDP 118.9 12.6 16.8 254.0 28.5

GDP per head (US$) 832 556 913 6,005 1,740Consumer price inflation (%) 10.5 10.9 3.2 4.8 13.2

Current-account balance 13.7 -0.2 0.5 -12.7 6.0Exports of goods fob 59.0 3.3 7.8 59.1 33.7Imports of goods fob -24.2 -5.7 -5.6 -61.4 -11.0

a Economist Intelligence Unit estimates.

Source: Economist Intelligence Unit.

Economic policy

The emergence of the oil industry in the late 1960s, and its rapid build-up in the 1970s, led to a severely overvalued exchange rate that undermined the domestic manufacturing industry and agricultural production in Nigeria (particularly goods and crops for export). Although it did lead to considerable investment, much of which is now severely dilapidated, the real problem was enormous wastage, largely on prestige projects in urban areas, and, inevitably, the high level of corruption. Moreover, when the price of oil fell, successive governments failed to scale back overambitious development plans, leading to high levels of borrowing. They also struggled, with little success, to reverse the economic imbalances caused by the mismanagement of oil revenue and to cope adequately with the fluctuating international price for oil. As a result of these distorting effects, combined with endemic mass poverty, many Nigerians have come to regard oil as a curse rather than a blessing.

The early 1980s were marked by economic decline, falling living standards and a debt crisis. To address these problems, in 1986 the then head of state, General Ibrahim Babangida, took the bold step of embracing limited IMF-style reforms. Long-overdue changes were implemented, including the abolition of inefficient price-fixing agricultural commodity boards, a modest reduction in domestic fuel subsidies, banking deregulation and the partial liberalisation of the exchange rate. This policy shift, with IMF backing, enabled Nigeria to obtain debt rescheduling from bilateral creditors and commercial banks. The reforms and the resulting external financial assistance brought some improvement in economic growth, but in the early 1990s, as General Babangida gave more attention to political issues, economic reform ground to a halt, resulting in a virtual policy vacuum. Following a short-lived oil boom in 1990 because of the Gulf war, government spending again spiralled, and the budget deficit quickly ballooned to over 10% of GDP by 1993. Under General Sani Abacha (end-1993 to mid-1998), economic policy initially reverted to a more inward-looking, nationalistic stance. The 1994 budget, which in effect ruled out both a new IMF

Oil receipts squandered

Stop-start reforms

Nigeria 25


agreement and the much needed rescheduling of external debt, imposed a single legal foreign-exchange rate, fixed at N21.9:US$1.

Faced with the evident failure of its attempt to regulate the economy by fiat and increasing local business demands for a change of direction, in 1995 the government made a partial about-turn on policy. It moved from economic regulation to a policy of "guided deregulation", the most important element of which was the re-establishment of an autonomous foreign-exchange market, while maintaining the N21.9:US$1 official rate for selected public-sector transactions. Import liberalisation in 1995 reduced tariff rates significantly and eased trade restrictions. Following General Abacha!s death in June 1998, General Abdulsalami Abubakar, the new military ruler, introduced further market reforms. Notably, his administration abolished the dual exchange rate, opened up the economy to foreign investment, partly deregulated the domestic fuel market, and announced a far-reaching privatisation programme.

In February 1999 Nigeria agreed a staff-monitored programme with the IMF, which seemed to indicate that the government was more committed to market reforms and to ending the years of icy relations between Nigeria and the Fund. However, the government missed most of the modest benchmarks in the agreement, partly because of a deliberate policy of not embarking on any major policy initiatives ahead of the transition to civilian rule. The military administration did, in fact, increase state spending by dipping deep into foreign-exchange reserves, often for personal use. As a result the current civilian govern-ment was involved in a prolonged, but broadly successful, legal case to reclaim some of the foreign-exchange reserves that the Abacha family appropriated.

Despite initial fears that President Obasanjo might reintroduce the inter-ventionist policies common during his first term in office in the late 1970s, since coming to office in 1999 he administration has consistently expressed a desire to create a liberal, market-oriented economy, driven mainly by the private sector. However, senior officials have also maintained that economic policy should not be determined solely by market forces, but also by the need to alleviate poverty and promote local production, while the government has still shown a strong belief that selected government interventions, such as import bans, are important policy tools. However, the problem of consolidating civilian rule and the lack of a real commitment to potentially difficult reforms meant that progress with reform was painfully slow during his first term in office, with the government failing to meet most of the highly ambitious goals outlined in the administration!s published economic programmes, the Nigerian Economic Policy 1999-2003 and the subsequent Framework for Nigeria!s Economic Growth and Development (2003-07). In addition, although the government did initially manage to reach a US$1.03bn stand-by agreement with the IMF in August 2000, little progress was made in meeting the benchmarks that were established, despite their undemanding nature, leading to its collapse in February 2002.

Since his re-election in 2003 the president and his administration have shown greater commitment to implementing economic reforms, especially more prudent fiscal management. This change of gear seems to reflect Mr Obasanjo!s

Steps towards liberalisation

Economic reform was initially piecemeal

Reform efforts have picked up pace since late 2003

26 Nigeria


desire to leave some sort of legacy from his time in office. In early 2004 the government launched a new "home-grown" policy blueprint, the National Economic Empowerment and Development Strategy (NEEDS), which is broadly in line with the World Bank-IMF!s country-based poverty reduction strategy paper (PRSP) adopted in many Sub-Saharan African countries, and which is set to run until 2007. Unlike previous economic policies, NEEDS involved a public consultation phase with the various layers of government and administration, in line with the recommendations of IMF-World Bank poverty reduction policies. As a result, state governments have also produced their own version of NEEDS, known as the State Economic Development Strategy (SEEDS). NEEDS seeks to reduce the involvement of the federal government in the economy through privatisation, deregulation, liberalisation and the promotion of infrastructure development, particularly in the electricity, transport and water sectors. It has also identified key sectors of the economy to act as engines of growth, notably the agricultural, manufacturing, solid minerals and tourism sectors, as well as emphasising the importance of small and medium-sized enterprises as key agents of job creation.

The World Bank and the IMF have become much more complimentary about the government!s economic reform efforts since 2003, in contrast to their concerns about the administration!s previous poor record of adhering to agreed reforms. The improved relations between Nigeria and the IMF led to the Fund!s approval of a two-year policy support instrument (PSI) for Nigeria in October 2005, which paved the way for the country to conclude n historic debt agreement with the Paris Club of official creditors later that month.

An additional problem in formulating economic policy is that since the return to civilian rule many state governments, which have a considerable degree of independence and are difficult to control under the current constitution, have made the formation and implementation of economic policy more problematical. This has been particularly evident in fiscal management, as cash-strapped state governments, which receive roughly half of all public revenue, have been less inclined to restrain the spending of oil windfall revenue than the federal government. A further complicating factor is that all the states have their own policies and budgets and often make policy pronouncements that differ from, or contradict, those provided by the federal government.

Despite some marked improvements in the federal government!s fiscal management, with greater efforts to curb waste and corruption, the government remains inclined towards expansionary monetary and fiscal policies that, coupled with loose fiscal practice in many states, have fuelled inflation. Although the government!s fiscal deficit has contracted from an average of 4.7% of GDP in 1999-2003 to below 2% in 2004-05, the improvement is mainly attributable to rapidly rising revenue, rather than real expenditure control and rationalisation of government spending. High levels of spending have remained a major problem, particularly when oil revenue has risen well above expectation, prompting the passing of supplementary budgets that pushed up expenditure in an uncontrolled fashion.

Rising revenue has reduced the fiscal deficit

State governments retain considerable independence

The World Bank and IMF are increasingly supportive

Nigeria 27


The Obasanjo administration has, however, been engaged in a prolonged political battle to pass a fiscal responsibility rule during its second term in office. This would formalise an informal fiscal rule that has been in place since 2004, under which windfall oil revenue#or revenue earned above the oil price on which the budget has been based#has been saved by the federal government (at present as foreign-exchange reserves), with only a portion subsequently distributed to states as the fiscal year has progressed. The problem with this informal approach is that the amount eventually distributed has been the subject of intense political bargaining. In contrast, if passed, the fiscal responsibility bill would ensure that any revenue above the budgeted oil price would be saved as under the current agreement, but would only be distributed under more strictly defined economic criteria.

The Central Bank of Nigeria (CBN) is theoretically committed to using market operations to control monetary and exchange-rate policy. In practice, however, it has found itself under considerable political pressure to intervene in both markets. In particular, the CBN has found it difficult to resist political pressure to keep interest rates low in order to boost non-oil economic activity. The extent of this pressure was clear when in November 2002 the CBN agreed with the Bankers! Committee (which consists of representatives of the commercial banks and discount houses) to restrict lending rates to no more than 4 percentage points above the minimum rediscount rate (MRR).

Since the start of 2005 there have been a number of important changes to monetary policy. The first of these, in early 2005, was the introduction of a 3% band in which the naira has to trade. This was followed in December 2006 by the introduction of a new benchmark interest rate, the monetary policy rate (MPR), which replaces the current MRR. The CBN is hoping that the MPR will be more influential than the MRR in acting as the nominal anchor for setting all other interest rates in the economy, as well as reducing interest rate volatility in the money markets. The CBN also hopes that the interest rate on Treasury bills will now be more heavily influenced by the government!s borrowing requirements, rather than monetary policy requirements and market liquidity.

In addition, the MRP is supposed to be much more influenced by the inflation rate and is therefore more likely to indicate the stance of monetary policy. According to the CBN, the new rate will be set at 10%. This level has been set so that it offers a small positive rate of return, based on an inflation rate that is calculated using a combination of the current inflation rate and the inflation target for 2007. In addition, there will be a spread around this central rate, with an upper limit of 3 percentage points acting as the repurchase, or repo rate, and a lower limit of the same magnitude acting as the rate which the CBN will pay on deposits to commercial banks. The CBN is also seeking more aggressively to pursue a policy under which commercial banks retain zero balances with it, which should make them more responsive to changes in the interest rate. In other words, it will only act as a lender of last resort. This is an important step forward in introducing a monetary policy framework that is more market-influenced than driven by the direct intervention of the central bank.

Monetary policy has evolved, within political constraints

28 Nigeria


Whatever the exact mechanics of the monetary policy regime, it is clear that it will be difficult to control inflation, given the high level of excess liquidity in the system in recent years, which will remain a problem as long as oil prices remain high. In particular, the high level of excess liquidity in the system has meant that Treasury-bill rates have been highly volatile. For example, T-bill rates fell from over 14% in 2004 to around 2-3% by the end of 2005, before rising again to over 10% in 2006. To counter this problem, since mid-2005 the CBN has been taken stronger measures to slow money supply growth, including stepping up sales of foreign exchange and engaging in more aggressive open-market operations. It has also introduced new financial instruments (mainly CBN bills, which are identical to Treasury bills but cannot be rediscounted) and has forced some parastatals, notably the Nigerian National Petroleum Corporation (NNPC), to move its deposits with commercial banks to the CBN. However, it has struggled to bring the inflation rate down to below 10% for any sustained period of time.

The process of privatisation began in January 1988, when General Babangida announced that 95 state-owned companies were to be partly or fully privatised. Of these, 73 had been privatised by 1993, including insurance, banking and agro-industrial firms. For a variety of reasons, notably their poor financial position, the remaining 22 firms, including several large public enterprises such as Nigeria Airways, Nigerian Telecommunications (Nitel) and the National Electric Power Authority (NEPA), were not sold, and the privatisation programme in effect came to a halt in 1993. Privatisation is a controversial issue in Nigeria: public opinion is divided between those who support it as a means of reviving decrepit utilities and companies, and those who fear that it will widen economic inequalities or undermine the patronage powers of the state.

Following the privatisation-enabling law enacted by General Abubakar in 1998, the Obasanjo administration launched a three-stage privatisation programme, which has largely been driven by the Bureau of Public Enterprises (BPE). However, the pace of implementation of the ambitious scheme has been slow because of a number of problems, including the inadequate technical capacity of the privatisation agency, opposition from people with vested interest in maintaining state ownership, and unrealistic timetabling, given the poor shape of many of the enterprises slated for sale. By the end of 2005 the BPE was well behind on its initial schedule to complete the privatisation programme by the end of the administration!s term of office in mid-2007.

Despite these delays, there was a notable acceleration in the pace of the divestiture programme in 2005. A key step was the passage of the Electric Power Sector Reform Bill, which was signed into law in March 2005 by the president. This created the Power Holding Company of Nigeria, which will take over all NEPA assets and liabilities and should pave the way for its full privatisation. In addition, the BPE managed eventually to complete the controversial sale of Nitel. Speaking in September the director-general of the BPE, Irene Chigbue, announced that the BPE had realised approximately N500bn (US$3.9bn) from the sale of 115 public enterprises since the start of 2005. She also noted that another 100 enterprises were slated for privatisation in late 2006 and 2007, although the process is expected to grind to a halt in early 2007, until the elections are over and a new government is firmly in place.

Privatisation has been slow and erratic

Excess liquidity was a problem in 2005-06

Progress was made with privatisation in 2005

Nigeria 29


Economic performance

Economic growth since the early 1970s has been driven primarily by fluctuations in Nigeria!s oil production and the price obtained on the global oil market. In the early 1980s oil production was squeezed by the rise of non-OPEC oil producers, and Nigeria suffered a sizeable decline in real GDP. Growth steadied in the mid-1980s and began to pick up from 1988, as oil production and prices recovered and some of the benefits of economic reform under the rule of General Babangida began to feed through, particularly in the agricultural sector. In 1991-94, as the political situation deteriorated, economic policy drifted and OPEC imposed restraints on oil production, growth slowed steadily.

After some recovery in production in 1995-97, which drove higher rates of GDP growth, a substantial fall in oil prices in 1998, the tightening of OPEC quotas and political unrest in the oil-producing Delta region pushed the rate of real GDP growth down to 1.5% in 1998. Although oil prices recovered in 1999, OPEC quotas continued to restrain production against the background of political uncertainty related to the elections, with real GDP growth remaining low, at 1%.

Since the return to civilian rule the steep rise in oil prices, coupled with higher oil production and a sharp pick-up in growth in the agricultural sector, has resulted in a sharp pick-up in real GDP growth, which reached an exceptional peak of 9.6% in 2003 and remained strong in 2004-05, at over 6%, according to CBN data. This compares with average GDP growth of 4.5% over the three years from 2000 to 2002. As well as in the agricultural sector, growth has also been strong in the transport and communications sectors, driven by growth in the aviation industry and mobile phones. Provisional data for 2006 indicate that growth is likely to have slowed from recent levels, reflecting problems with oil production in the Delta region, although growth in the non-oil sector has remained high.

The impact of the oil sector is important not only in driving changes in the headline growth rate. Movements in world oil prices directly affect sectors reliant on foreign-exchange earnings for financing imported inputs, in particular manufacturing and government revenue. Few industries, with the exception of brewing and drinks, have moved significantly towards local sourcing for their inputs. Economic activity has also been hampered by decaying infrastructure, energy shortages and low consumer incomes, all of which contribute to low-capacity utilisation in non-oil industries.

Despite the pick-up in the economy and the return to civilian rule, in general investment outside the oil sector has remained low. However, a number of high-profile multinationals have made large investment commitments to existing operations. Consequently, in expenditure terms, private consumption and government consumption have been the main factors driving growth. The agricultural sector has held up reasonably well, with production levels of export crops on the rise, and an increasing number of Nigerians have resorted to growing their own food to augment low earnings from formal employment. Much of the informal sector is not recorded in official statistics.

Oil production has a major impact on GDP growth rates

The wider impact of the oil sector

30 Nigeria


The importance of the informal sector in sustaining Nigeria!s fast-growing population has increased since the 1990s, as the formal sector has stagnated. According to the government!s NEEDS policy document, unemployment declined from 18% in 1999 to 10.8% in 2003. However, these figures, based on sample surveys by the Federal Office of Statistics, do not accurately portray actual levels of unemployment and the extent of casual work and under-employment. In August 2001 the vice-president, Atiku Abubakar, put Nigeria!s unemployment rate at 50%. Given the low employment capacity of Nigeria!s struggling formal sector and government plans to rationalise the country!s bloated public service, activity in the informal sector is a vital means of support for people in a country lacking state social security benefits.

Despite lengthy periods of sluggish economic growth since the early 1980s, inflation has been a particular problem, averaging more than 50% per year in 1992-95. Contributory factors included persistent shortages of consumer goods resulting from foreign-exchange scarcity, high levels of monetary expansion, periodic sharp increases in the price of electricity and petrol, and bouts of depreciation in the currency. Annual average inflation was 72.8% in 1995, but then reached a record low of 6.8% in 2000, following the tightening of fiscal and monetary policy and an improvement in the food supply. During the period 2001"05 inflation remained in double-digit levels, partly as a consequence of high levels of government spending, the problem of dealing with excess liquidity, and periodic rises in food and domestic fuel prices. In 2001 inflation reached 18.9%, boosted by increased food prices. Although it moderated to around 13-14% in 2002-03, it increased to 15.1% in 2004 and 17.8% in 2005, as the CBN struggled to combat the problem of excess liquidity. Although the CBN has tightened monetary policy significantly since late 2005, prompting inflation to decelerate in 2006, the rate is still estimated to have remained in double digits for the year.

One consequence of these lengthy periods of high inflation has been a sharp decline in real earnings and in standards of living. Real earnings fell significantly in both the public and the private sector in the 1980s, and a wage freeze imposed in 1982 lasted until the 1988 budget. The national minimum wage was set at N125 a month in 1981, and doubled to N250 in 1991. Actual average earnings of low-paid workers are now substantially higher than this, although trade unions still consider them inadequate, given the dramatic erosion of the purchasing power of the naira. In late 1998 the government increased the minimum monthly wage for public-sector workers from N800 (US$9) to N3,500 for federal workers and N3,000 for state and local council employees. In May 2000 this was raised to N7,500 and N5,500 respectively. Low-paid federal government workers received a further 12.5% pay increase in October 2003 as part of a graduated review of public-sector pay.

High inflation has eroded real wages

A large informal sector

Nigeria 31


Regional trends

The states in the south and around the major conurbations, such as Lagos State and Rivers State, have the highest populations and the most developed economic structure. Much of the country!s manufacturing is based around Lagos. In the north, population density is lower and economic activity is concentrated in the agricultural sector and agro-industry. Reliable data on the economies of most states are either sparse or non-existent, although some state governments have established websites in recent years, which frequently extol the reasons why companies should locate in their state.

One of the few areas where there is some revenue is on the fiscal side. This reflects the fact that state governments depend heavily on the federal government for their revenue (and have long-demanded a greater share). In 2005 the federal government collected a total of N5.5trn (US$43bn). After making various statutory payments, such as joint venture cash calls, a total of N3trn was available for allocation to the three tiers of government and the derivation fund (which came to N484bn and is shared only among the oil-producing states). Of this, the federal government received N1.24trn, the state governments N628bn and the local governments N484bn.

Economic sectors

Agriculture

Despite the rapid growth of the oil industry during the 1970s, agriculture still accounts for 40% of GDP and provides employment, both formal and informal, for a large majority of the population. Nevertheless, the financial rewards of farming have eroded over the years and the country, a large net exporter of agricultural produce at independence in 1960, has now become a large importer. Various attempts to revive agriculture have been made since the 1970s but, given a lack of political will and investment, they have made little impact. Other factors that played a part in the decline of agriculture were the grossly inefficient commodity boards, the smuggling of produce into neighbouring Franc Zone countries for hard currency, and the inadequate distribution of fertilisers and other necessary inputs.

In the 1960s Nigeria exported large volumes of cocoa beans, groundnuts and groundnut oil, palm kernels and palm oil, rubber, cotton and timber, but in the early 1990s only cocoa, and on an even smaller scale rubber and palm products, were being exported to any notable degree. The market-oriented reforms introduced in 1986 to mend Nigeria!s ailing import-dependent economy initially increased the production of both export and food crops. The changes included lifting the ban on the export of some agricultural commodities, getting rid of price-fixing marketing boards and devaluing the naira, which resulted in higher domestic prices for farmers. In the case of food crops, government policy also began to refocus on small farmers, and banks were encouraged to lend more actively to help them. Output recovered in the initial years of the structural adjustment programme (SAP): imports of rice, maize, wheat and

There are limited reliable economic data on the states

From large exporter to large importer of farm produce

32 Nigeria


sugar, which had risen rapidly in the 1980s, to nearly 15% of total imports in 1985, began to fall (their share of food in total imports fell to 7% in 1991).

Since his return to office the president, Olusegun Obasanjo, who as ruler in the late 1970s introduced a major national food-production programme, has tried to refocus attention on agricultural development. Although investment is still needed to modernise the sector, favourable weather conditions have helped to maintain growth in crop production (at an average of 3.4% in 1998-2001) above population growth, and food imports (rice, maize, wheat and sugar) have fallen to only 11.6% of total imports in 2001. Of export crops, only cocoa now remains significant, with output ranging between 130,000 and 175,000 tonnes in recent years, compared with an average of 400,000 tonnes in the early 1970s. In 2003 production was boosted by a temporary import prohibition on some produce, a price support policy and favourable weather conditions.

In the government!s National Economic Empowerment Strategy (NEEDS), one major route to improve the performance of the agricultural sector is through boosting agricultural exports. To date it has identified a number of crops with potential for this. One of the first targets set was to increase cassava exports to US$3bn by 2007. A presidential committee has also been set up to devise strategies to make Nigeria the world!s largest rubber producer. Rubber is currently Nigeria!s second-biggest agricultural export earner after cocoa, yet export earnings were a paltry US$50m in 2004. The current goal is to increase production to 400,000 tonnes/year (t/y) by 2022. As well as cassava and rubber, other crops identified as having potential for export growth include cotton and palm oil. All these goals are highly ambitious, considering that the figure for Nigeria!s total annual non-oil exports is currently less than US$1bn.

The role of livestock, fishing and forestry is limited. Outbreaks of disease have hampered livestock farming, although the supply of improved vaccines from the National Veterinary Research Institute helped to boost growth in livestock output by 2.7% in 2001, compared with 0.5% in 1998. Fisheries output (sea and freshwater) rose in the second half of the 1990s, owing partly to government schemes to assist fishermen with equipment, but an increase in the cost of inputs, such as outboard engines, caused growth to fall from 6.2% in 1998 to 4% in 2001, close to the annual average for the early 1990s. However, growth did rebound to 6.2% in 2002, helped by restocking.

Forestry output has also improved in recent years, but growth in the sector has been low, owing partly to the depletion of timber stocks, which is creating an urgent need for reforestation. The UN Food and Agricultural Organisation (FAO) estimates that around 15%, or some 13.5m ha, of Nigeria was forested in 2000, substantially less than in the 1980s. It also estimates that Nigeria is Africa!s largest producer of wood, with an annual harvest estimated at more than 100m cu metres. The majority of the country!s wood production is burnt as fuel, although some, along with imports, is made into sawn timber, plywood, particle board and paper for local use.

Agriculture is becoming a priority again

The role of livestock, fishing and forestry is limited

Nigeria 33


Although most Nigerian farmers work on holdings of less than one hectare, there has been a trend towards the private-sector acquisition of rights to areas of farmland from 50 ha to 20,000 ha. In northern river basins irrigated areas have been developed, radically altering traditional farming practices. Yields per hectare in Nigeria are low; the reasons for this include ecological degradation, low levels of farming technology and an inefficient supply system for inputs such as fertiliser. Attempts to encourage manufacturing industries to grow their own substitutes for imported raw materials, including sugar, vegetable oils, sorghum and maize, may in time have significant effects on Nigerian agriculture, but to date the results have been limited.

Mining and semi-processing

Production of oil began in 1958 and rose from around 150,000 barrels/day in the early 1960s to 2.3m b/d in 1979. In the 1980s, with OPEC!s loss of markets as a result of competition from the North Sea, production fell drastically, reaching a low of 1.27m b/d in 1987 and earning only US$7bn in exports, less than one-third of the 1980 total. The next decade saw a steady recovery, and Nigeria!s output reached 2.32m b/d at the end of 1997. It subsequently dipped because of reductions in the OPEC country production quota and disruptions caused by political unrest in the Niger Delta, but began to rise again in the 2000"05 period to reach around 2.5m b/d by late 2005, according to International Energy Agency (IEA) data. This steady increase in production would probably have continued in 2006, but as in 2002, production has been adversely effected by unrest in the Niger Delta, which is likely to increase in the run-up to the national elections in April 2007.

The rapid growth of Nigeria!s oil industry in the 1960s and 1970s was facilitated by two important advantages. First, the country!s oil is of a high quality and generally sells at a premium to Brent Blend on the spot market, although in recent years it has traded broadly at parity. Second, Nigeria is well located to supply oil markets in North America; currently the US alone accounts for between one-third and one-half of Nigerian crude exports. Combined with high oil prices, these advantages will continue to be major attractions for ongoing investment in the sector.

According to the Nigerian government, by November 2006 it had achieved its target of raising production capacity to 3m b/d, after a number of offshore oilfields came on stream during the year, including Shell!s EA and Exxon Mobil!s Erha. However, the IEA estimated Nigeria!s sustainable capacity at only 2.6m b/d in late 2006. Some of the difference can be explained by the government!s inclusion of condensate in its production figures, which is not included by the IEA or by OPEC. The government also claims to have met the target, initially set in 2003, to boost crude oil reserves to 30bn barrels, from 27bn barrels in 2000. According to the NNPC!s Annual Statistical Bulletin 2005, oil reserves stood at 35bn barrels in 2005, compared with 27.9bn barrels in 1999 and 16bn barrels in 1989. This level of proven reserves is sufficient to provide Nigeria with another estimated 35 years of production, although much will

Nigerian crudes are of a high quality

Oil production is targeted to reach 4m b/d by 2010

Oil production has risen steadily since the 1960s

The prevalence of traditional methods

34 Nigeria


depend on the rate of exploitation of the deposits. The reserves/annual production ratio dropped to 38.1 in 2005, from a peak of 44.4 in 2002 (it was below 30 in the early 1990s). The government!s current targets are to reach a production level of 4m b/d and 40bn barrels of reserves by 2010.

Although new major offshore oil finds will improve the prospects of reaching these targets, they will create a problem with OPEC, as Nigeria requires an increase in its quota to accommodate this additional production. Government officials make the case that Nigeria!s current OPEC quota does not adequately reflect the size of the country!s reserves and the needs of its impoverished population. They have so far had little success in persuading the cartel to increase the country!s production quota significantly. The government will continue with its efforts to obtain a higher quota in the coming years. Although an agreement will take time, the Economist Intelligence Unit does not expect Nigeria to withdraw from OPEC.

Since 1979 the NNPC has operated joint-venture equity participation agreements with the main multinational oil companies. The NNPC initially had an 80% stake in the operations and output of the Shell Petroleum Development Company of Nigeria (SPDC), which alone accounts for about 40% of Nigerian oil production. In June 1989 the NNPC sold a 20% interest in the venture, reducing its stake to 60%, raising that of Shell to 30% and bringing in Agip and Elf with 5% each. In the face of increasing financial problems, the NNPC sold a further 5% stake in the venture in 1993.

In the past the NNPC has regularly been unable to meet its share of investment and maintenance in its various joint"venture agreements, reflecting partly its own inefficiencies and partly the lack of government funding available. However, since 2001 the civilian government has paid its regular cash call requirements to the NNPC, allowing it to remain current on its joint-venture funding commitments. In fact, the government has even raised its contribution from US$3.2bn in 2004 to US$4.2bn in 2005 and 2006, and according to the 2007 budget it is planning to spend US$4.5bn in that year.

Despite the increase in recent years, operators still regularly complain that the amount approved to cover NNPC investments and cash call obligations is inadequate to meet planned programmes, particularly the need to integrate oil and gas schemes, as the companies try to comply with the government!s target of eliminating gas flaring by 2008. Delays and unwillingness to increase funding partly reflect the suspicions of many within the political elite about the major oil companies and the general resentment of their dominance in the nation!s oil industry. In May 2002 the government granted the NNPC full commercial status, a move that could enhance the finance-generating capacity of the corporation, provided the government truly respects its independence.

Given the NNPC!s financial problems and the social and political difficulties arising from onshore production, interest in offshore oil production has been growing rapidly. During the first offshore licensing round, which took place in 1994, Shell was allocated the Bonga field, ChevronTexaco the Agbami field and ExxonMobil the Erha field. Because of the promising finds in these fields, most

Offshore oil production is set to grow rapidly

NNPC funding levels have remained a contentious issue

The NNPC has a major stake in the oil industry

Nigeria 35


of the oil multinationals showed major interest in the 22 new blocks put on offer by the government in March 2000. Of these, 11 were deepwater or ultra-deepwater, seven were shallow-water and the remainder onshore. Eight of these blocks are to be developed by 14 oil firms, of which six are major multi-nationals. As they will not come on stream for a considerable time, offshore oil production will continue to be driven by the development of the blocks awarded in the 1994 round, which are now starting to come on stream.

In the last large-scale licensing round in August 2005 a total of 44 concessions, both offshore and onshore, were awarded to oil companies, most of which were new to Nigeria. A notable feature of this auction was the lack of interest shown by the major western oil multinationals, with blocks mainly awarded to Asian companies, notably Chinese and Korean, which were also prepared to commit themselves to simultaneously invest in infrastructure projects in the country. This was a deliberate strategy pursued by the government, which it repeated in a mini-licensing round in May 2006 and is expected to apply again in another major round initially planned for late 2006, but which may now only occur in 2007.

In March 2004 the NNPC reached agreements with companies, notably Shell and ChevronTexaco, that were actively seeking to hand over some of their onshore and shallow-water fields in order to concentrate on the development of their offshore oil fields. In parallel, the NNPC has become a more active player in the offshore industry with the acquisition#by its exploration subsidiary, the Nigeria Petroleum Development Company (NPDC)#of stakes in five small offshore fields. The main benefit for the oil multinationals in developing offshore production is that although offshore fields carry a higher cost base, they have tended to yield high-quality crude, and the establishment in 1993 of production-sharing contracts (PSCs) made their development possible without initial investment by the NNPC. Under PSCs operators fully cover exploration costs and recoup their investment when production starts, avoiding the delays that occurred under the traditional joint-venture agreements.

The government is also keen to boost domestic participation in the foreign-dominated oil sector. To this end it is developing policies to ensure that operations by multinational companies have a minimum level of participation by Nigerian companies, and it has set a target for raising local content to 70% by 2010, although this is highly ambitious. To boost Nigerian participation in the oil industry, in 2002 the government launched a licensing round for marginal fields that had been released by major oil firms because they were not profitable enough, and in December 2003 the NNPC handed over licences for 24 marginal oil fields to five state governments and 26 indigenous oil companies. To boost local participation in the upstream sector further, the government reserved 10% of the equity in blocks auctioned in the 2005 licensing round for indigenous companies.

Proven gas reserves, both oil- and non-oil-associated, are currently estimated at around 3.5trn cu metres and are among the largest in the world, with additional reserves estimated at more than 25trn cu metres. About 60% of the verified reserves lie to the east of the Niger Delta. In the gas sector the biggest issue is

The government is keen to boost local involvement

A number of LNG export projects are moving ahead

36 Nigeria


still flaring; the Nigerian government and the multinational oil companies are committed to eliminating all gas flaring by 2008 (although this does not seem to be an absolute deadline). According to the NNPC, just under 40% of natural gas produced in 2005 was flared, compared with 98% in the early 1970s. There is, therefore, intense competition to find commercial outlets for gas, particularly export opportunities, as domestic demand for gas is limited and likely to remain so for some time. Most of the existing domestic pipelines are owned by the Nigerian Gas Company, an NNPC subsidiary.

The main export project to date is the Shell-led Nigerian Liquefied Natural Gas Company (NLNG), in which the NNPC has a 49% stake, Shell 25.6%, Total 15% and ENI-Agip 10.4%. It began exporting in late 1999 and produced 9m tonnes in 2003. The NLNG plant!s fourth train came on stream in November 2005, followed by a fifth train in February 2006, bringing overall capacity to 18m t/y of LNG and 3.4m t/y liquefied petroleum gas (LPG). Work has begun on a sixth train, which is expected to enter service in 2007 and boost the plant!s capacity to 22m t/y of LNG and 4.6m t/y of LPG. Development planning is under way for a seventh train. There are three other major gas projects on the drawing board.

• An ExxonMobil project to build a 4.8m-tonne LNG plant at Bonny Island, near the existing NLNG plant. ExxonMobil currently expects that the project will start to export LNG in 2010.

• The Brass LNG project, which is being proposed by a consortium comprising the NNPC, ENI-Agip and Conoco-Phillips. The aim is to reach production of 10m tonnes by 2011.

• The OKLNG project between Shell, ChevronTexaco, British Gas and NNPC, to be located in Olokola in south-west Nigeria. This will have an initial capacity of 11m t/y and planned capacity of 33m t/y from four production lines and is currently scheduled for completion in 2009.

Another major export project for gas is the West African Gas Pipeline (WAGP), which is intended to export gas to Benin, Ghana and Togo. ChevronTexaco is the lead company in the development of the project, which initially suffered a number of financial and technical delays but is now expected to come on stream by the end of the first quarter of 2007. A provisional feasibility study on a trans-Saharan pipeline that would connect to the EU market through Algeria has also been commissioned. However, the length of the pipeline#up to 4,500 km#and fears of sabotage mean that there are major practical problems.

Apart from oil and gas, the principal mineral resources are coal, iron ore, tin, uranium, phosphates, limestone and marble. Production in each case is insignificant in global terms. The low output, despite large deposits, is mainly attributable to the use of obsolete equipment, poor maintenance and inadequate working capital. The government has identified the solid minerals sector as one of the key sectors to act as an engine of growth in its NEEDS policy. To boost the development of the sector, it is seeking to conduct new geological surveys to identify commercially recoverable mineral deposits. With these new data it will then seek to attract new commercial investors into the

Other minerals

Gas export pipelines are being developed

Nigeria 37


sector. The government is also trying to regularise the many informal mining activities that occur throughout the country and to boost small-scale mining as an important potential source of employment generation.

Manufacturing

Industrial activity is concentrated around major urban centres: Lagos and its surroundings account for more than 60% of the total. Kano, Kaduna and Ibadan all have sizeable industrial zones, and the oil industry has attracted first-class investment at Port Harcourt and Warri. Although many multinationals have major operations in Nigeria, much manufacturing is carried out in the informal sector and can be more dynamic than indicated by official statistics on the manufacturing sector. According to official data, manufacturing has accounted for less than 5% of GDP in recent years.

Textiles, beverages, cigarettes, detergents and cement account for around 60% of manufacturing output. In these subsectors, which benefit from significant foreign involvement, local sourcing has been quite successful, hence reducing vulnerability to foreign-exchange shortages. However, manufacturing still depends heavily on imports, and has suffered severely during foreign-exchange shortages. It has also been depressed by rising production costs, falling consumer demand and intense competition from East Asian imports. However, these shortcomings are compensated for by a thriving informal manufacturing sector that produces a range of goods for the local market, even if these are of variable quality.

Nigeria!s heavy industrial sector is run down. Driven by surging oil revenue in the early 1970s, the government devised an industrial strategy with the emphasis on promoting state participation in heavy industry, particularly steel, petrochemicals, fertilisers and metals. The steel industry, planned to be at the heart of a largely self-sufficient industrial sector, has made little progress, despite swallowing an estimated US$10bn of public investment. The sector has suffered from poor management and a lack of funds to pay for maintenance and imported inputs. The Delta steel plant at Aladja and three steel rolling mills, which were opened in the early 1980s, have for most of the time operated at less than 20% capacity and in recent years have been barely operational. In May 2005 the Delta plant resumed steel production after ten years of being idle. This followed its sale to India!s Global Infrastructure Holdings Limited.

The centrepiece of the steel industry should have been the Ajaokuta complex, built with Russian assistance and against the advice of the World Bank. This massive project, into which Nigeria has sunk almost US$5bn, was started in 1979 and completed in the early 1990s, producing no commercial steel, but it did eventually produce coil wire for the first time in 2004. In August 2004 the government signed an agreement with a subsidiary of the Indian steel giant, Ispat, to rehabilitate the complex, breaking off a ten-year Complete Operate Transfer agreement with Solgas Energy Ltd of the US after it proved unable to raise funds to rehabilitate the company. It is not clear how much money Ispat is prepared to invest in Ajaokuta, but the government estimates that the plant may require up to US$240m to re-start full operation.

Industry is concentrated in Lagos

Attempts to establish heavy industry prove costly

38 Nigeria


Attempts to develop industries based on local energy resources, including a petrochemicals industry, have been slightly more successful. Nafcon, the national fertiliser company at Port Harcourt, which uses natural gas as an input, has performed better than other state enterprises, but it too has accumulated debt and has been running at low capacity in recent years owing to mismanagement and a lack of funds to import spare parts. In June 1999 an aluminium smelter company, Alscon, suspended operations at its plant in Ikot Abasi because of a lack of working capital. In its first year of operation in 1998 the US$2.3bn plant was able to produce at only 9.5% of its installed annual capacity of 193,000 tonnes of aluminium ingots. The controversial sale of a majority stake in Alscon to a Russian company, Ruski Alumini (RusAl), was finalised in early 2006.

Construction

After strong growth in the 1970s, construction activity was considerably reduced in the 1980s by the economic slowdown. Payment delays resulted in the build-up of debts to contractors, two-thirds of which were owed by state governments. Road construction and railway development by small contractors and direct labour were singled out for greater investment in the 1990s, as the country!s infrastructure was gradually decaying. Since 2000 there has been a surge in government capital expenditure on the back of high oil prices, in a belated attempt by the civilian government to eliminate many of the country!s infrastructure constraints. In particular, the share of roads and construction in federal government capital expenditure has risen substantially in recent years. Large sums of money have gone into the completion of unfinished road projects and the building of new roads, which reflects the ongoing problem that much past and current spending has been wasted on inappropriate projects or corrupt tendering procedures.

Increasing public investment in basic physical infrastructure, including power, water and roads, was a major theme in President Obasanjo!s 2007 budget. Ambitious government plans to improve infrastructure, especially the upgrade and extension of Nigeria!s road and rail networks, should give a further boost to the construction sector. However, many indigenous construction firms complain that the impact on the real economy of such public investments is limited, because most of the important construction contracts go to a limited number of companies that have long dominated Nigeria!s construction industry, such as Julius Berger (Nigeria) Plc and Cappa & D!Alberto. Although the names of many of these companies sound European, they are scarcely known outside Nigeria and have over decades maintained strong links with Nigerian governments. It is often argued that indigenous construction firms, which tend to be small, lose out to the bigger companies because they frequently lack the expertise and capital to carry out major contracts.

The country!s most ambitious construction project has been the creation of a new capital at Abuja, in the centre of the country. The decision was announced by the Murtala Muhammed government in 1976, during the oil boom, with the dual aim of easing the demographic and infrastructural pressures on Lagos and

Building a new capital

Construction is a boom-bust sector, depending on oil prices

Nigeria 39


symbolising national unity. Plans for a city of 3m people were drawn up in 1978 and construction began in 1980. However, the introduction of austerity measures in 1982 slowed the work down, and the target date for transferring government ministries was postponed until 1990. In December 1991 Abuja was formally declared Nigeria!s capital. Although the pick-up in construction was initially slow, following the restoration of civilian rule in 1999 there has been a greater commitment to resuming the development of Abuja, especially in light of the high oil prices in recent years. The new capital benefited from hosting the 2003 All African Games and may get a further construction boost if Nigeria wins its bid to host the 2014 Commonwealth Games. However, critics of the move of Nigeria!s capital to Abuja argue that the huge sums of money spent on creating a modern city from scratch in a remote part of the country could have been better spent on improving Lagos, which remains Nigeria!s economic hub, and other existing major urban centres in the country.

Financial services

The deregulation of the financial sector in 1986, coupled with the quick and easy profits to be made from foreign-exchange arbitrage, led to a rapid increase in the number of banks in Nigeria. The combined total of commercial and merchant banks reached 115 in 1997, compared with just 41 in 1985. However, in January 1998 the Central Bank of Nigeria (CBN) liquidated 26 troubled banks, bringing the total in operation down to 89 (51 commercial and 38 merchant banks). In January 2001 the CBN allowed banks to register as universal banks, meaning that they no longer had to restrict themselves to either commercial or wholesale banking. As a result of these changes there were 89 banks operating in Nigeria by the end of 2005. The deregulation of the financial sector also triggered the mushrooming of non-bank financial institutions, such as community banks, bureaux de change and mortgage banks.

The rapid growth of the financial sector stretched the regulatory authorities! capacity to supervise the industry. Although the CBN has introduced a number of reforms since 1986 aimed at strengthening the capital bases of the banks, these had little effect, given the CBN!s reluctance to close banks. However, one of the first acts of the new CBN governor, Charles Soludu, in 2004 was to announce that the minimum paid-up capital for all banks would be raised from N2bn to N25bn (US$185m) from December 31st 2005. As a result of this Nigeria!s financial system has undergone a fundamental change, with the number of registered banks in Nigeria falling from 89 to only 25 when the new legislation came into effect. Of these, only six met the new capital requirement without having to merge, with most of the rest forming new banking groups. Only 13 banks did not meet the new requirement and are currently being liquidated.

Although the new banks are clearly better capitalised and more efficient than their predecessors, the financial sector is still faced with many fundamental challenges, notably that the banks are extremely bureaucratic and that Nigeria remains a cash-based economy. This second issue is a major problem, as security concerns make the transport of cash highly complex. Also, the banking sector still serves only a small percentage of the population, the ability to make

The number of banks increased rapidly in the 1990s

A successful recapitalisation exercise

40 Nigeria


electronic payments is in its infancy, and the number of automated teller machines (cash points) is very limited. Despite this, confidence in the sector has clearly improved as a result of the recapitalisation exercise, and foreign banks have become actively interested in the market. However, most analysts expect a second wave a consolidation to start soon to create even larger Nigerian banks that can compete regionally, and possibly globally. Mr Soludo has on several occasions highlighted the fact that despite the consolidation exercise the Standard Bank Group (Stanbic), the smallest of South Africa!s four big banks, had a capital base equivalent to Nigeria!s current combined total of 25 banks.

The Nigerian Stock Exchange (NSE) has eight branches in Lagos, Kaduna, Port Harcourt, Kano, Ibadan, Onitsha, Abuja and Yola, with 204 companies listed at the end of June 2006. Market activity had been generally sluggish for many years, reflecting the declining economic situation and an excessive regulatory environment. Since 1995 a series of reforms has boosted renewed interest in the NSE: restrictions concerning foreign ownership of Nigerian ventures have been abolished; the ceiling on daily share-price movements has been doubled; the settlement period has been reduced to one week; and a computerised central securities clearing system has been installed at the Lagos floor. In October 2000 the Abuja Stock Exchange was opened as a rival to the NSE, but because of the low level of share trading it became Nigeria!s first commodities exchange in August 2002.

After a period of uncertainty related to the transition to civilian rule in 1999 the stockmarket surged, driven in part by increased confidence in the government!s commitment to liberalisation and privatisation, the fact that a number of companies reported good results, and the possibility for foreign investors to invest. As a result the index, which stood at 5,266 in December 1999, has been on a five-year bull run, reaching 23,845 at the end of 2004 (the index reached an all-time high of 30,704 on June 18th before dropping in the second half of the year). The wave of bank mergers in 2005 gave a boost to the market, with the index rising from 21,565 at end-June 2005 to 26,161 at end-June 2006, while market capitalisation jumped from N2.08trn to N3.65trn over the same period. Despite its strong growth the market remains small by international standards: at the end of 2005 the Johannesburg Stock Exchange had a market capitalisation of US$549bn, or 227% of the country!s GDP, compared with US$19.4bn for the NSE, or 21% of Nigeria!s GDP.

As well as reforming the banking industry, the government is pushing ahead with reform of the pension and insurance sectors and trying to develop a long-term capital market. The passage of the Pensions Act in June 2004 was long overdue, as the old system was essentially a non-contributory, pay-as-you-go defined-benefit scheme, which was bankrupt, and its burgeoning costs and administrative weaknesses meant that it failed to make all the payments it should. Under the new act it is mandatory for all federal government employees and private-sector firms with five employees or more to pay into a pension fund. Employees provide an amount equivalent to 7.5% of their salary, which employers match. State and local government employees are excluded but may join voluntarily. A 20-year contribution guarantees a minimum

The stock exchange

Pension system is undergoing fundamental reform

Nigeria 41


monthly pension. Private schemes can continue to exist, but their assets need to be held by a pension fund custodian; otherwise, they must apply for a licence to a closed pension fund administrator. The system is now regulated by the recently created National Pensions Commission (Pencom).

In September 2005 the National Insurance Commission (Naicom) announced that, as with the commercial banks, the capitalisation requirements for insurance firms are to be raised. The new requirements will be N2bn for life insurance companies, N3bn for general insurance concerns and N5bn for composite insurance businesses. Firms involved in the reinsurance business will have a minimum capital requirement of N10bn. The new capitalisation levels come into effect in February 2007, and as with the banking industry, these new levels will set off a major round of capital-raising for insurance companies. It is estimated that the number of companies will fall to around 30, from over 100 in late 2006.

Other services

Of the other sectors, only the wholesale and retail trade is of significance, accounting for around 12-14% of GDP in recent years. Without a pick-up in revenue in the rest of the economy, there is limited scope for growth in this sector, which is constrained by the predominance of small traders and local, open-air markets. However, there is a substantial middle- and upper-income class in the major cities and the growth of shopping malls in Lagos, Abuja and Port Harcourt has been pronounced in recent years. There is a thriving restaurant industry in most towns, and the growth of fast-food outlets has also been apparent in recent years.

Tourism, although beginning to perform well in other African countries, is almost non-existent in Nigeria. Owing to the country!s poor international image and the lack of suitable accommodation, few people visit Nigeria solely as tourists. The government declared tourism as one of its six key areas for economic development in 2003-07, although there has been little progress.

Outside of retail and finance, the other most developed services sector is the film industry. Nigerian-made films are often referred to as "Nollywood" films and have a large market in other African countries. Although data are not readily available, it is estimated that a Nollywood film costs between US$40,000 and US$210,000 to produce and can sell up to 120,000 copies locally and more when exported (they are usually sold on video or DVD). Film making, both production and distribution, has become a major employer in Nigeria. This partly explains why the government has indicated its interest in promoting the industry, which has previously been self-financing.

Most food sales are in markets or through small retailers

The "Nollywood" film industry

Insurance industry reforms

42 Nigeria


The external sector

Trade in goods

There have consistently been major discrepancies between the external trade figures published by the Central Bank of Nigeria (CBN) and those published by the IMF. For example, in 2002 both the CBN and the IMF estimated that Nigeria ran a current-account deficit. But whereas the CBN estimated that the deficit was US$2.2bn (3.4% of GDP), the IMF figures indicate the deficit was US$5.4bn. And in 2004, although both sources estimate that Nigeria ran a current-account surplus, the CBN estimated it at US$15.5bn (17.7% of GDP), whereas the IMF estimates that the surplus was far lower, at US$3.3bn. The main reason for the difference between the IMF and the CBN figures are import data, which the IMF argues are considerably underestimated in official figures owing to the poor collection of data. Such major differences between the main sources of economic data on Nigeria reflect the difficulties in obtaining reliable statistics on the economy. Although the CBN has acknowledged the weakness of its import data and has revised them considerably upwards in recent years, they still remain substantially below the IMF data.

Whichever data are used, both sets indicate clearly that Nigeria recorded its biggest trade surpluses for more than a decade in 2003-04, a trend which has continued in 2005-06. This reflects the huge surge in oil exports owing to high global oil prices. Using IMF data, total exports reached U$37.3bn in 2004, of which US$36.4bn were oil and gas exports. The impact of changing oil prices on the trade surplus has been very clear in recent years. Exports jumped sharply between 1999 and 2000 as oil prices rose, from US$12.9bn to US$23.7bn. This pushed the trade surplus up from US$2.8bn to US$13.2bn. However, with the oil price falling back in 2001-02 against a background of steady import growth, the trade surplus fell to only US$4bn in 2002, before rebounding in 2003 as exports surged, despite a sharp pick-up in imports. Imports are estimated by the IMF as having been at US$10.1bn in 1999, rising to US$13.6bn by 2002, before jumping sharply, to US$17.2bn in 2003 and US$19.1bn in 2004.

The structure of Nigeria!s foreign trade has been dominated by petroleum since the increase in world oil prices in the early 1970s. Since then, oil has generally accounted for around 95% of total exports of goods. Despite government plans to diversify the export base, little progress has been made. The main change in recent years has been the rise in liquefied natural gas (LNG) shipments, which began in October 1999 and have made gas easily Nigeria!s second-largest export commodity. In 2004 oil accounted for around 90% of total exports, and LNG for around 8%. While this reflects export diversification of a sort, it still shows a heavy reliance on hydrocarbons as the main source of export earnings.

Part of the reason for the decline in non-oil exports has been the large volume of smuggling, the main attractions of which are the convertible CFA franc in Nigeria!s Franc Zone neighbours, significant crossborder price differences, and a hugely overvalued naira. As land borders are almost impossible to police, the lure of hard currency in preference to the naira provides an important financial

Current-account data are a problem

A record trade surplus in 2003

Exports are dominated by oil

Nigeria 43


incentive. Imports are primarily geared towards capital goods and raw materials, which accounted for 50-60% of total imports 2001-05, with the rest mainly accounted for by non-durable consumer goods.

Nigeria!s largest trading partner is the US, which is the main market for about 40-50% of the country!s exports and has supplied 10% of its imports in the past few years. In the 1980s, when the build-up of North Sea oil production eroded Nigeria!s traditional oil export outlets in Europe, its high-quality crudes found a ready market in the US. Nevertheless, Nigeria!s traditional links with Europe, and the UK in particular, remain strong. The UK, the US and France have historically been the leading sources of imports. Imports from the EU have traditionally represented nearly 50% of total imports, but imports from mainland China have increased almost twenty-fold, from US$99m in 1994 to US$2.5bn in 2005, which made it largest source of imports for the second consecutive year. Formal regional trade within the Economic Community of West African States (ECOWAS) is limited, as Nigeria tends to export the same agricultural commodities as its neighbours.

Invisibles and the current account

The trade surplus is traditionally offset by deficits in the services and income accounts. According to IMF data, the combined deficit on the services and income accounts has grown steadily, from US$8.1bn in 2001 to US$17.6bn in 2004. This is attributable to a sharp rise in imports of services, triggered by general GDP growth and the repatriation of profit remittances by oil companies.

Official transfers have traditionally made only a modest contribution to the current account, partly because for a long time oil wealth pushed Nigeria!s income per head above the level below which countries qualify to receive grant or concessional aid. Even though income per head fell sharply in the early 1980s, Nigeria received no substantial amounts of foreign grant aid, on account of its slow movement towards democracy and economic reform. Following the restoration of constitutional rule in May 1999, aid inflows and current transfers picked up, but then fell back again, as the difficulty of operating aid programmes in Nigeria became apparent. Instead, the main factor driving the traditional surplus on the current-transfers account continues to be remittances from the large Nigerian diaspora. These are generally around US$1.5bn a year, but in recent years have ranged from a low of US$1.3bn in 1999 and 2001 to a peak of US$2.8bn in 2004.

Capital flows and foreign debt

Foreign direct investment (FDI) in Nigeria grew modestly in the 1990s, with most of it going to the oil sector. Data from the World Investment Report of the UN Conference on Trade and Development (UNCTAD) estimate that FDI inflows to Nigeria rose from an average of US$723.3m in 1986-90 to US$1.25bn in 1991-95 and stayed around US$1bn from 1998 to 2001. Since 2002 FDI inflows have averaged around US$2bn, which means that Nigeria vies with South Africa and Angola as the main destination for FDI into Sub-Saharan Africa.

The US is the main trading partner

Deficit on the services and income accounts

FDI flows are dominated by the oil sector

44 Nigeria


However, unlike South Africa, most of the flows into Angola and Nigeria are into one sector, oil and gas; the oil sector accounted for some 80% of FDI in Nigeria in 2005.

FDI flows into Nigeria in this sector are difficult to capture in official statistics, since a high proportion of FDI inflows consist of reinvestment by oil companies. However, as long as the FDI flows remain essentially in the energy sector, they will have little impact on the life of the average Nigerian. Despite this the government periodically publishes claims of high levels of FDI flows into the non-oil sector, which it claims have been growing as a result of its economic reforms. However, there is little clear evidence to support this, although it is clear that portfolio investment into Nigeria surged in 2005, largely as a result of the banking consolidation exercise.

Total external debt jumped from US$13bn in 1981 to over US$30bn in 1989, and remained at well over US$30bn in the early 1990s. The steep rise in debt during the 1980s largely reflected the build-up of external debt arrears and penalties for failure to make payments, and since then fluctuating oil revenue has severely affected Nigeria!s ability to service its external commitments. In particular, when the debt-service ratio became intolerably high in 1985, the government limited debt servicing to 30% of exports of goods and services. In the early 1990s, when oil prices were buoyant, annual payments averaged US$3.3bn. However, with amounts due averaging US$5.7bn, arrears accumu-lated each year, particularly after 1994, when the government began to cap its annual external debt-service payments, initially at US$2bn. Actual debt service paid since 1994 fell below this mark, and arrears continued to mount steadily.

With the return to civilian rule in 1999 the Nigerian government launched a concerted push for external debt relief, arguing that the unrelenting burden of debt servicing was undermining efforts to secure democracy and eradicate poverty in one of Africa!s poorest nations. However, mainly because of its oil wealth Nigeria did not qualify for the IMF-World Bank!s heavily indebted poor countries (HIPC) debt-relief initiative, and it had failed to adopt the required programme of reforms to secure debt relief. Nonetheless, the government did manage to reach a rescheduling deal with the Paris Club of official creditors in December 2000, which reduced the arrears to zero, and agreed a new repayment schedule. However, despite high oil prices, repayments continued to be erratic. According to World Bank data, repayments rose to US$2.54bn in 2001 but fell to only US$1.49bn in 2002, before rising again to US$2.4bn in 2004, although more than US$3bn was due. As a result, arrears built up again quickly, reaching US$5.1bn by the end of 2004.

Despite the initial lack of success in pushing its case for debt relief, the greater commitment to economic reform since 2003 gave new impetus to the debt negotiations, and in October 2005 Nigeria and its leading creditors agreed on a unique debt reduction deal. Under the deal the Paris Club agreed to restructure Nigeria!s debt under Naples terms on eligible debt and to buy back the remaining debt at a discounted rate. Under the deal the government cleared its arrears with the Paris Club in 2005. The Paris Club subsequently wrote off US$18bn of debt, with the government buying back the remainder. The deal

Nigeria has struggled to repay its external debt

A special deal is struck with the Paris Club

Nigeria 45


was eventually completed in April 2006, and although it cost the government an estimated US$12bn, the Economist Intelligence Unit estimates that as a result the country!s external debt will fall to US$6.1bn at the end of 2006 (from a recent peak of US$35.9bn at the end of 2004).

There has been a mixed public response to the Paris Club deal. Nigerian government officials have argued that it eliminated an unsustainable debt burden and was a judicious use of some of its windfall oil revenue, whereas anti-poverty activists have condemned it as a wasteful use of funds that could have been invested to create new jobs and improve infrastructure and social services. There is also some concern that an incoming government may take advantage of its new debt profile and high global oil prices to build up new debt, notably by borrowing from multilateral lending institutions, led by the World Bank and African Development Banks, and from Asian bilateral creditors, notably China. These fears, however, should not be overstated.

Even before the Paris Club deal was finalised, the government clearly indicated that its next goal would be to reach an agreement to reduce the stock of private-sector debt through another buyback agreement such as that agreed in 2002. At the end of 2005 Nigeria owed US$649.8m in promissory notes and US$1.44trn to the London Club of private-sector creditors. The Debt Management Office (DMO) is currently in discussions on the issue and hopes to conclude negotiations before the president, Olusegun Obasanjo, leaves office. To speed up the negotiations, on November 7th Mr Obasanjo presented a supplementary budget to the National Assembly to provide the finance to settle the debt. However, it is also clear that, although the negotiations will lead to the full settlement of the promissory notes, the debt to the London Club debt is likely to be settled only partially. Given the regular repayments made on the London Club debt in recent years, many international financial institutions are keen to keep the debt as part of a balanced portfolio, which is paying a relatively good rate of return.

Foreign reserves and the exchange rate

The level of foreign-exchange reserves, which fluctuated considerably under military rule, has picked up substantially under the civilian government. According to the CBN, total reserves, which stood at US$7.6bn in 1997, fell to an estimated US$4bn in 1999 for reasons that remain unclear. After initially rebuilding them, the civilian administration drew heavily on the reserves: their level fell from US$10.5bn at end-December 2001 to US$7.3bn at end-December 2002 and US$7.1bn at end-December 2003. This was the result of efforts by the CBN to support the naira in the face of heavy demand for foreign exchange. However, strong windfall oil earnings since 2004 as a result of high world crude prices have allowed the CBN to rebuild its reserves. At the end of 2005 they had risen to US$28.3bn (equivalent to ten months of import cover), despite paying back the arrears under the Paris Club agreement. In September 2006 foreign-exchange reserves crossed the US$40bn level.

Reserves have raised substantially

A private-sector debt deal

46 Nigeria


The naira has long been regarded by Nigerian governments as a symbol of national strength, and successive military rulers have viewed devaluation as a sign of weakness. Because of these political considerations the naira was for many years kept unchanged at close to parity with the US dollar, making non-oil exports uncompetitive and increasing import volumes at the expense of domestic production. However, under pressure from the IMF the currency was devalued in 1986, and again during the structural adjustment programme, but a thriving parallel market had already developed at well below the official rate, undermining attempts to steer the naira slowly downwards.

In an attempt to suppress the symptoms of mounting economic crisis, in the 1994 budget the then head of government, General Sani Abacha, announced an end to foreign-exchange liberalisation, outlawed free-market transactions and imposed a fixed single-tier exchange rate of N21.9:US$1. This resulted in further distortions in the economy, including a widening of the gap between the official and free-market exchange rates. The new policy was reversed in the 1995 budget, with the restoration of a legal autonomous rate, applicable to most transactions, of around N82:US$1, alongside the N21.9:US$1 official rate for cer-tain public-sector transactions, including military purchases and debt servicing.

The current administration has at various times stated its commitment to allowing the exchange rate to be determined by the market, but even so it has proved unwilling to allow a major devaluation of the naira. Following the measures taken in the 1999 budget, which abolished the dual exchange rates, the civilian government introduced a new interbank foreign-exchange market (IFEM). The system was modified further in July 2002, when the CBN started to auction foreign exchange through a Dutch auction system. In general, this has meant that, despite ongoing intervention in the market by the CBN, there was a steady fall in the value of the naira over the 1999-2003 period. It averaged N92.3:US$1 in 1999, but had fallen to N129.4:US$1 by 2003.

The pressure on the naira was particularly heavy in the second half of 2003, as the demand for hard currency picked up, driven by steady increases in imports and government spending, with the naira ending the year at N136:5:US$1. Although it is still not clear to what extent the government could have continued to intervene in the foreign-exchange market if oil prices had stayed low, the recovery in oil prices in 2004 meant that the CBN could afford to continue its policy, and by the end of 2004 the value of the naira had returned to N132.9:US$1. In the absence of any signs that oil prices would fall back in the short to medium term, the CBN became concerned about the ongoing appreciation of the currency, and in January 2005 it announced a new policy of keeping the value of the naira within a tight band of 3%, based around this year-end rate. This has been broadly successful, with the naira stabilising in 2005 and then very gently appreciating from N129:US$1 at the end of 2005 to around N127:US$1 at the end of 2006.

The move to a more market-oriented system for determining the exchange rate and the ready availability of foreign exchange in recent years have meant that the premium between the parallel rate and the official rate has fallen from around 20% in 2001 to 9% in 2003 and to only 5% in 2005. In a move to

The exchange rate is highly politicised

The government has been unwilling to let the naira fall

The naira has been very stable in recent years

Nigeria 47


liberalise the foreign-exchange regime further and reduce the parallel-market premium, the government introduced a wholesale Dutch auction system (DAS) in early 2006. It has also improved the access of bureaux de change to foreign exchange. This has helped to reduce the premium between the official and parallel exchange rates to well under 5%, although demand has picked up substantially. While the policy has been successful, there are two potential problems. First, the currency may wobble on the parallel market as the next national elections in April 2007 approach. Second, should oil prices fall, the CBN might find it difficult to continue to support the naira within its 3% band and might be forced to choose between letting the value of the currency slide and maintaining its current value by running down foreign-exchange reserves.

48 Nigeria


Regional overview

Membership of organisations

The African Union (AU) is the successor to the Organisation of African Unity (OAU). The AU is modelled on the EU and has ambitious plans for a parliament, a central bank, a single currency, a court of justice and an investment bank. The most advanced initiative is the Pan-African Parliament, which was inaugurated in March 2004 and has since held a number of sessions, although it is unlikely to play a legislative role for years. The AU also aims to have common defence, foreign and communications policies, based loosely on those of the EU. Even if these goals are not reached, the organisation fulfils the need for a forum for discussing the continent!s problems, and the idea of pan-African unity exerts a strong hold over member countries. The day-to-day affairs of the AU are managed by the AU Commission, which is modelled on the European Commission. The Commission is headed by the former Malian president, Alpha Konaré.

One of the main problems facing the AU is the cost of many of the proposed new institutions and policy co-ordination mechanisms. To help to counter this, at the July 2004 Annual Summit Mr Konaré presented a 2004-07 Strategic Framework for the AU. Under this, member states are supposed to pledge 0.5% of GDP to fund the AU, which would allow it to double the staff at its headquarters and to push ahead with the implementation of the New Partnership for Africa!s Development (Nepad). However, few states have honoured their funding commitments, while the involvement in Nepad remains a bone of contention with the South African government, which is keen for Nepad to remain in its South African headquarters. As such, the AU!s heavy dependence on donor support continues, and its expansion plans remain unimplemented.

The main criticism levelled at the OAU in the last decade was that little real action resulted from its policy announcements. There are concerns that the AU, like its predecessor, will be undermined by a lack of real commitment to its initiatives among the 53 member states, many of which suffer from very weak governance. This problem is further compounded by the fact that many member states are unlikely to give up the sovereignty required to make several of the proposed initiatives#such as a single currency or a court of justice#operate effectively. On a more positive note, the AU has shown a much greater willingness to overcome opposition to the principle of non-interference. However, its intervention has had a mixed success rate, particularly in Côte d!Ivoire, where little progress has been made, while it has avoided a wider involvement in more contentious political crises, such as that in Zimbabwe.

In 2003 the AU established a Peace and Security Council (PSC) modelled on the UN Security Council. It is envisaged that the PSC will sanction military intervention in member states in cases of genocide, unconstitutional changes of government and gross human rights abuse. The proposed military intervention by the AU is to be through a standing armed force. This is projected to comprise five battalions by 2010 and will be part of a wider peacekeeping initiative

African Union (AU) African Union (AU)

Nigeria 49


proposed by the G8 in 2004, which seeks a commitment to train and, where appropriate, equip some 75,000 troops by 2010 to take part in peace support

operations worldwide "with a sustained focus on Africa". The first real test of the PSC to intervene in a conflict arose in 2004. As a result of this, 7,000 troops are now in Sudan, trying to keep the peace in the Darfur region. They are, however, chronically under-equipped and overwhelmed by the sheer size of the mission. Until such issues are really resolved#quite apart from the political constraints to intervention#it is unlikely that the AU will be able to send an effective peacekeeping force to intervene in these kinds of crises.

The Economic Community of West African States (ECOWAS) was established in May 1975 by 15 West African countries: Benin, Burkina Faso, Côte d!Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. Cape Verde joined ECOWAS in 1977, and Mauritania withdrew in early 2000. The community!s principal objective is to establish a customs union and a common market to promote the free movement of goods and people within West Africa. ECOWAS has an executive secretariat headed by a Ghanaian former minister, Mohamed Ibn Chambas, a 120-member parliament and a court of justice, all based in the Nigerian capital, Abuja. Decision-making powers are vested in a council of ministers and a chairman (who is elected annually and is currently Mamadou Tandja of Niger); supreme authority rests with the annual conference of heads of state and government. The ECOWAS Bank for Investment and Development (EDIB) carries out development projects in member states.

In 1994 eight members of ECOWAS#mainly francophone countries#set up the Union économique et monétaire ouest-africaine (UEMOA) to work towards a customs union and other aspects of economic convergence. The UEMOA members#Benin, Burkina Faso, Côte d!Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo#already share the same currency, the CFA franc, and similar legal codes. In December 2000 six other ECOWAS members#The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone#signed an agreement to create a second regional monetary union, the West African Monetary Zone (WAMZ). This led to the creation of the West African Monetary Institute, an interim organisation that was to pave the way for the creation of a West African central bank and the introduction of a common currency, the Eco, in January 2003, followed by the merger of the two monetary zones in 2004. However, the failure of member countries to meet most of the WAMZ convergence criteria led to the creation of the Eco being postponed until December 2009, although this deadline is also unlikely to be met.

Although ECOWAS was created for economic reasons, it has been most active on regional security issues. The ECOWAS Ceasefire Monitoring Group (Ecomog), which is dominated by Nigerian forces, has been used for peace-enforcement operations in Liberia (1990-97 and 2003), Sierra Leone (1997-99), Guinea-Bissau (1999), the Guinea-Liberia border (2001) and Côte d!Ivoire (2002). ECOWAS plans to turn its peacekeeping force into a permanent stand-by force for deployment in the sub-region. An observation and monitoring centre at the secretariat in Abuja is the hub of a system that has four observation and monitoring zones to prevent and control civil tension and upheaval in West Africa.

Economic Community of West African States (ECOWAS)

50 Nigeria


Appendices

Sources of information

National economic data should be treated with caution. Many series, in particular inflation figures, are believed to underestimate economic problems, and monthly trade data have not been produced since 1993. In addition, data are often extensively revised, making analysis of trends difficult. The publication of monthly bulletins by the Central Bank of Nigeria (CBN) and the Federal Office of Statistics (FOS) is irregular, but has improved recently with the establishment of the Central Bank website. The most authoritative source of statistics is the CBN!s Annual Report and Statement of Accounts, which draws from numerous sources, including the FOS. Stockmarket data are available from the market and local brokers.

The leading international source is the IMF!s International Financial Statistics, but it draws almost exclusively on national data. There is a further complication in data from IMF and World Bank internal documents, which often form the basis for lending decisions and tend to diverge from the statistics that the organisations release to the general public. The other leading international sources are three annual publications from the World Bank, Global Development Finance, World Tables and Trends in Developing Economies; and the OECD!s Geographical Distribution of Financial Flows to Aid Recipients.

IMF, Staff Country Report, Nigeria: Selected Issues and Statistical Appendix, August 2005

www.bpeng.org#Bureau of Public Enterprises (BPE), responsible for the country!s privatisation programme

www.cenbank.org#Central Bank of Nigeria; monthly economic reports and the Annual Report and Statement of Accounts 2004 are available on the website, as well as selected economic research

www.expresson-line.com#Express on line, which provides a range of financial information on Nigeria

www.ngrguardiannews.com#a leading Lagos-based newspaper, The Guardian

www.thisdayonline.com#a leading Lagos-based newspaper, This Day

www.vanguardngr.com#a leading Lagos-based newspaper, Vanguard

www.nopa.net#official website of the Nigerian government

www.nigeriannews.net#Nigerian News Net

www.nigeriafirst.org#Office of Public Communications, State House; has started to provide up-to-date coverage of news on Nigeria

www.ngex.com/snc#Sovereign National Conference

National statistical sources

International statistical sources

Select bibliography and websites

Nigeria 51


Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Population and labour force 2001 2002 2003 2004 2005a

Population (m) 126.6 129.9 133.2 136.5 139.8 Labour force (m) 43.8 44.6 45.2 46.7 47.9

a Provisional data from the 2006 population census indicate that the population may be as high as 150m.

Sources: UN Census Bureau; Economist Intelligence Unit.

Federal government finances (N bn)

2001 2002 2003 2004 2005a

Retained revenue 797.0 716.8 1,023.2 1,253.6 1,660.7

Total expenditure 1,018.0 1,018.2 1,226.0 1,426.2 1,822.1

Recurrentb 579.3 696.8 984.3 1,032.7 1,223.7

Capital & net lending 438.7 321.4 241.7 351.3 519.5

Overall balance -221.0 -301.4 -202.7 -172.6 -161.4

Financing

Domestic (net) 118.7 149.0 163.7 46.5 143.5

Banks 136.7 60.8 134.2 - -

Non-banks -18.0 88.2 29.5 46.5 143.5

Others 102.3 152.4 39.0 126.1 17.9

a Provisional. b Includes extra-budgetary expenditure.

Source: Central Bank of Nigeria (CBN), Annual Report and Statement of Accounts.

Summary of state government finances (N m)

2001 2002 2003 2004 2005b

Current revenue 573,548.2 669,817.7 854,997.1 1,113,943.7 1,255,670.6

Transfer from federation accounta 404,094.0 388,294.7 535,179.9 777,208.0 920,985.9

Total expenditure 596,956.4 724,537.2 921,159.7 1,125,057.0 1,269,286.3

Recurrent expenditure 294,709.5 424,195.4 545,308.7 556,812.3 640,334.1

Capital expenditure 235,241.7 283,473.8 324,019.9 412,926.2 454,218.8

Extra budgetary 67,005.2 16,868.0 51,831.1 155,318.5 174,733.3

Overall surplus -23,408.2 -54,719.5 -66,162.6 -11,113.3 -13,615.7

a Statutory allocation (gross). b Provisional.

Source: CBN, Annual Report and Statement of Accounts.

52 Nigeria


Domestic debt (N bn; outstanding stock)

2001 2002 2003 2004 2005

Treasury bills 584.5 733.8 825.1 871.6 854.8

Treasury bonds 430.6 430.6 430.6 424.9 419.3

FRN Development Stocks 1.8 1.6 1.5 1.3 1.0

1st FGN bonds - - 72.6 72.6 72.6

2nd FGN bonds - - - - 178.3

Total 1,017.0 1,166.0 1,329.7 1,370.3 1,525.9

Source: Debt Management Office, Annual Report and Statement of Accounts.

Money supply (N bn unless otherwise indicated; end-period)

2001 2002 2003 2004 2005Money (M1) 816.71 946.25 1,225.56 1,330.66 1,537.01 % growth 28.1 15.9 29.5 8.6 15.5 Currency outside banks 338.67 386.94 412.16 458.6 563.23 Demand deposits 478.04 559.31 813.4 872.1 973.77Quasi-moneya 499.16 653.24 759.63 932.9 1,089.45Money (M2) 1,315.87 1,599.49 1,985.19 2,263.60 2,626.46 % growth 27 21.6 24.1 14.0 16.0

a Quasi-money consists of time, savings and foreign-currency deposits of commercial and merchant banks, excluding takings from discount houses.


Interest rates (%; end-period)

2001a 2002b 2003 2004 2005a

CBN minimum rediscount 20.5 16.5 15.0 15.0 13.0

Treasury-bill rate 20.5 13.8 14.5 14.4 12.0

Interbank rate 12.7 12.7 21.1 12.1 7.0

Commercial bank savings 5.0 3.7 3.2 4.4 3.3

Commercial bank lending

Prime 26.0 20.6 19.6 18.9 17.8

Maximum 31.2 25.7 21.6 20.4 19.5

a With the introduction of universal banking in January 2001, banks' interest rates represent industry averages. b From November 2002 to December 2006 the Bankers' Committee (which consists of commercial banks and discount houses) informally agreed with the Central Bank of Nigeria to restrict the prime lending rate to the minimum rediscount rate plus 4 percentage points.


Nigeria 53


Gross domestic product 2001 2002 2003 2004 2005N bn at 1990 constant prices 431.8 451.8 495.0 527.6 560.4Real change (%) 4.7 4.6 9.6 6.6 6.2 Oil sector 5.2 -5.7 23.9 3.3 0.5 Non-oil sector 4.5 8.3 5.2 7.8 8.2Per head (US$) 379 359 438 528 653

Sources: Economist Intelligence Unit; CBN, Annual Report and Statement of Accounts.

Gross domestic product by expenditurea (N m; at current prices)

2000 2001 2002 2003 2004Private consumption 1,718,221 2,031,760 2,838,948 3,328,410 3,668,526Government consumption 978,668 1,445,737 1,364,903 1,787,610 2,117,953

Fixed investment 947,555 1,286,198 1,477,029 1,797,521 2,140,204Exports of goods & services 2,537,758 2,310,724 2,296,286 3,746,500 5,231,686Imports of goods & services -1,505,808 -1,735,356 -2,344,857 -3,127,126 -3,583,329

GDP 4,676,394 5,339,063 5,632,308 7,532,915 9,575,040

a The CBN has published a GDP series by expenditure up to 2005. However, it has a number of inconsistencies, notably related to private consumption which call into question its reliability.

Source: IMF, Nigeria: Selected Issues and Statistical Appendix.

Gross domestic product by sector (N bn; at 1990 constant basic prices)

2001 2002 2003 2004 2005a

Agriculture 182.66 190.37 203.01 216.21 230.94

Industry 128.74 123.91 150.25 156.49 159.12

Crude petroleum 112.42 106.00 131.34 135.67 136.35

Mining & quarrying 1.13 1.18 1.24 1.38 1.51

Manufacturing 15.19 16.72 17.67 19.44 21.27

Construction 6.11 6.37 6.93 7.62 8.52

Wholesale & retail trade 55.11 58.68 62.06 68.08 76.47

Services 59.17 72.46 72.75 79.18 85.38

Utilities 12.87 16.45 17.03 18.88 20.09

Transport 11.09 13.06 13.21 13.99 14.91

Communications 2.69 3.85 5.24 6.69 8.55

Hotels & restaurants 1.57 1.68 1.76 1.95 2.14

Finance & insurance 17.91 23.17 20.96 21.53 22.12

Real estate & business services 6.53 6.74 6.95 7.71 8.52

Government services 3.88 4.48 4.53 5.02 5.29

Community and social services 2.63 3.02 3.06 3.40 3.75

GDP 431.78 451.79 495.01 527.58 560.43

Non-oil GDP 319.37 345.78 363.67 391.91 424.08

a Provisional.


54 Nigeria


Consumer price index (2003=100 unless otherwise indicated; annual averages)

2001 2002 2003 2004 2005Urban 81.8 92.0 107.2 125.1 148.3 % change 20.5 12.5 16.5 16.7 18.5Rural 82.4 93.1 105.4 120.2 142.0 % change 18.6 13.0 13.2 14.0 18.1Composite 82.3 92.9 105.9 121.9 143.6 % change 18.9 12.9 14.0 15.1 17.8


Agricultural production indices (1990=100)

2001 2002 2003 2004 2005a

Crops 143.4 149.3 159.8 169.9 181.5

Staples 157.5 164.1 175.9 186.9 199.5

Others 69.9 72.8 76.5 82.2 88.6

Livestock 199.5 208.9 225.5 238.0 250.0

Fisheries 157.0 158.1 160.5 172.2 182.1

Forestry 120.4 121.3 123.1 125.7 132.6

Aggregate 148.9 154.9 165.4 175.5 186.9

a Provisional.


Production of major agricultural commodities ('000 tonnes)

2001 2002 2003 a 2004 2005a

Cassava 28,473 29,654 31,698 33,393 36,058

Yams 22,523 23,456 25,073 26,700 28,522

Sorghum 8,365 8,712 9,461 9,994 10,594

Maize 8,189 8,528 8,685 9,503 10370

Millet 5,839 6,081 6,561 6,963 7,395

Beans/cowpeas 3,524 3,670 4,211 4,328 4,462

Rice 3,103 3,232 3,520 3,714 3,929

Groundnuts 2,867 2,985 3,049 3,351 3,630

Cocoyam 1,958 2,039 2,351 2,407 2,479

Plantain 985 1,025 1096 1,162 1,247

a Provisional.


Nigeria 55


Oil production and exports 2001 2002 2003 2004 2005Productiona ('000 b/d) 2,083 1,945 2,145 2,333 2,416Exports (US$ m) 16,437 13,680 22,957 33,309 46,771

a Excluding production of condensates from the Oso gasfield.

Sources: International Energy Authority, Monthly Oil Market Report; CBN, Annual Report and Statement of Accounts.

Oil prices (US$ per barrel)

2001 2002 2003 2004 2005Average Nigerian pricea 24.5 25.1 29.0 38.3 55.3UK Brent 38° API 24.5 25.0 28.8 38.5 54.7

a There are three main Nigerian oil crudes: Bonny Light 37° API; Forcados 30° API; and Brass River 43° API. All trade at a marginal differential to Brent.

Sources: Economist Intelligence Unit; Nigerian National Petroleum Corporation, Annual Statistical Bulletin.

Gas production and flaring (bn cu metres)

2001 2002 2003 2004 2005Production 52,083.5 47,188.3 52,230.9 59,493.8 57,861.1

Gas sold for NLG 6,292.6 6,301.4 6,764.7 7,734.1 7,808.7Re-injected 10,334.9 10,367.1 10,554.3 12,387.1 12,555.2

Flared 26,311.6 21,260.2 24,158.3 25,316.3 23,117.0

Sources: Department of Petroleum Resources; Nigerian Economic Summit Group, Economic Indicators.

Mineral production index (1985=100)

Weighting

% 2001 2002 2003 a 2004 2005a

Petroleum 98.9 146.3 145.8 145.7 155.3 156.4

Gas 0.0 225 240.3 238.2 240.9 242.3

Cassiterite 0.8 24.9 25.0 0.0 0.7 0.7

Columbite 0.1 97.7 98.3 108.1 28.2 28.3

Coalb 0.1 11.3 11.4 0.0 0.0 0.5

Limestoneb 0.1 6.4 6.5 16.4 2.3 2.4

All minerals 100.0 144.9 144.6 144.0 154.0 155.6

a Estimates. b Coal and limestone indices bear little resemblance to actual volume production in original source material.


56 Nigeria


Manufacturing output (1990=100)

2001 2002 2003 a 2004 2005a

Sugar & confectionery 47.5 48.7 47.3 47.4 47.5

Soft drinks 194 198.8 195.7 194.2 193.8

Beer & stout 125.7 133.5 136.7 134.3 134.5

Cotton textiles 93.6 90.8 96.4 95.4 94.7

Synthetic fabrics 665.6 661.5 674.6 669.5 669.4

Footwear 44.9 44.8 45.4 44.3 45.4

Paints 114.4 115.8 115.4 115.3 115.8

Refined petroleum 133 136.6 145 144.2 144.5

Cement 93.5 96.0 97.0 95.0 100.6

Roofing sheet 27.6 28.1 29 29.1 29.8

Vehicle assembly 15 15.1 15.6 15.5 15.5

Soaps & detergents 210.1 214.8 218.4 216.2 214.3

Radio and televisions 3.3 3.3 3.6 3.4 3.4

Aggregate 142.3 146.5 147.1 145.7 145.7

a Provisional.


Industrial production (1985=100)

2001 2002 2003 2004 2005a

Manufacturing 142.3 146.5 147.1 145.7 145.7

Mining 144.9 144.6 144.0 154.0 161.8

Electricity 157.2 181.0 216.3 259.9 288.7

Total industry incl others 144.2 146.0 147.0 153.8 157.0

a Provisional.


Stockmarket turnover and value 2001 2002 2003 2004 2005Volume (m shares) 5,930 6,614 13,304 19,210 26,673 Equities & industrials 5,891 6,611 13,301 19,209 26,666 Government securities 39 3 3 1 7Value (N m) 57,684 59,407 120,403 225,820 262,936 Government securities 36 2 3 318 7,319 Equities & industrials 57,648 59,404 120,400 225,503 255,617

All-share index 10,968.0 12,137.7 20,128.9 23,844.5 24,085.8Market capitalisation (N m) 648,450 747,600 1,324,898 1,925,93 2,900,062

Source: Nigerian Stock Exchange.

Nigeria 57


Main exports and imports (N m)

2001 2002 2003 2004 2005

Exports fob 1,867,954 1,749,964 3,098,185 4,620,085 6,310,248

Oil 1,839,935 1,654,918 3,003,092 4,506,350 6,217,937b

Non-oil 28,019 95,046 95,093 113,735 92,311

Imports cifa 1,358,180 1,669,485 2,295,891 2,193,967 2,496,424

Manufactured goods 402,811 522,555 717,788 645,528 801,393

Machinery & transport 324,050 418,092 550,527 506,707 547,634

Chemicals 305,226 329,239 465,931 498,648 603,676

Food & live animals 158,664 159,254 222,553 197,361 173,002

Crude materials 61,852 83,616 116,119 112,589 148,288

Animal & vegetable oils & fats 20,169 23,485 37,730 43,401 61,787

Mineral fuels 17,480 23,301 31,923 29,491 49,429

Beverages 9,412 15,088 20,782 24,122 24,715

Miscellaneous manufactures 53,784 90,752 127,453 129,416 74,144

a The CBN data also have a substantial component of imports as unclassified, which averaged N6,596m a year in the period. b In 2005 gas exports amounted to N60,080m.


Main trading partners (US$ m)

2001 2002 2003 2004 2005Exports to: US 7,320.2 5,819.1 9,204.9 15,556.5 22,826.6Brazil 1,051.2 1,538.0 1,635.7 3,499.3 4,394.9Spain 1,175.5 1,018.8 1,483.2 2,327.0 3,500.6France 1,142.2 997.0 1,358.6 1,092.3 1,337.6Côte d'Ivoire 341.5 269.6 360.1 868.2 1,309.3Portugal 461.4 491.0 589.1 773.6 1,132.5Indonesia 537.1 961.5 770.0 978.6 1,051.9Netherlands 364.8 288.1 535.1 388.1 1,050.5South Africa 197.7 388.2 589.4 803.8 1,009.5Japan 172.9 549.0 965.0 1,298.3 902.3Total 18,044.6 18,339.6 24,061.5 33,209.1 46,369.7Imports from: China 526.8 739.3 1,067.3 1,899.4 2,535.8US 816.1 1,121.3 2,314.9 1,707.5 1,776.5UK 1,069.7 1,095.0 1,419.9 1,573.0 1,657.1Netherlands 391.7 277.6 320.2 1,183.5 1,499.4France 371.7 363.1 479.7 1,112.2 1,455.3Germany 780.7 531.2 1,087.8 983.6 948.1South Korea 223.3 310.6 434.3 748.2 895.7India 315.7 309.6 377.4 661.1 791.4Italy 200.8 259.6 636.1 814.2 742.4Brazil 174.6 179.9 182.6 555.7 665.2Total 7,928.3 8,732.6 14,854.6 20,716.5 24,085.7

Source: IMF, Direction of Trade Statistics.

58 Nigeria


Current account, Central Bank of Nigeria (US$ m)

2001 2002 2003 2004 2005a

Exports 16,687 14,466 23,950 34,607 47,928

Imports -11,030 -12,546 -16,135 -14,940 -17,237

Trade balance 5,657 1,920 7,816 19,667 30,691

Services (net) -2,969 -2,390 -2,239 -2,625 -3,148

Income (net) -3,073 -3,164 -3,278 -4,272 -5,368

Current transfers (net) 1,358 1,409 1,553 2,691 3,399

Current-account balance 974 -2,225 3,581 15,461 25,573

% of GDP 1.5 -3.4 4.9 17.7 22.8

Memorandum item Foreign direct investment (net) 1,184 1,868 2,004 1,866 2,304

Portfolio investment (net) 235 206 183 177 2,860b

a Provisional. b A substantial factor behind this increase was investment due to the banking consolidation exercise.


Current account, IMF Article IV (US$ m)

2000 2001 2002 2003 2004Goods: exports fob 23,761 19,598 17,672 27,250 37,297Goods: imports fob �10,553 �11,482 �13,631 -17,193 -19,132Trade balance 13,208 8,116 4,041 10,058 18,165Services balance -6,308 -4,258 -4,438 -5,325 -5,888Income balance �3,774 �3,880 �6,401 -8,388 -11,727

Net transfers 1,568 1,278 1,398 2,086 2,751Current-account balance 4,694 1,255 �5,400 -1,568 3,302Official capital (net) -1,552 -1,642 -1,268 -1,291 -1,286

Direct & portfolio investment (net) 1,236 2,051 2,484 2,891 4,409Short-term capital (net) �294 �648 -431 -39 -64

Capital-account balance �610 -239 785 1,562 3,059Errors & omissions -1,847 �1,114 111 -1,549 1,775

Overall balance 2,238 -98 �4,503 -1,556 8,135Financing (� indicates inflow) Reserve assets -3,959 -1,023 2,742 213 -9,487Exceptional financing 1,721 1,121 1,761 1,343 1,352 Accumulation of arrears 1,141 1,184 1,900 1,127 1,302

Source: IMF, Nigeria: Selected Issues and Statistical Appendix.

Nigeria 59


Net official development assistancea (US$ m)

2000 2001 2002 2003 2004Bilateral 84.3 107.5 215 199.8 314.2 France 4.1 14.8 8.8 8.0 7.4 Germany 11.3 13.3 37.7 10.3 13.7 Japan 2.6 8.9 19.1 6.4 8.7 UK 22.9 32.8 41.7 42.6 126.1 US 32.5 24.7 76.1 98.7 120.2

Multilateral 100.2 78.6 100.5 118.3 259.6 IDA 51.0 1.3 4.2 46.1 137.2 EC -8.1 11.4 8.0 18.5 76.1 UNICF 18.9 22.8 18.3 21.3 24.5 UNDP 6.1 8.6 12.7 4.8 3.5

Total 184.8 184.8 313.8 317.6 573.4 Grants 129.6 194.9 262.2 288.9 403.9

a Disbursements minus principal repayments on earlier loans. Official development assistance is defined as grants and loans with at least a 25% grant element, provided by OECD and OPEC member countries and multilateral agencies, and administered with the aim of promoting development and welfare in the recipient country.

Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows to Developing Countries.

External debt, World Bank estimates (US$ m unless otherwise indicated)

2000 2001 2002 2003 2004Total external debt 31,355 31,042 30,476 34,963 35,890 Long-term debt 30,235 29,399 28,206 31,563 31,304 Short-term debt 1,120 1,643 2,270 3,400 4,586 Interest arrears on long-term debt 44 415 1,475 2,655 3,235 Use of IMF credit 0 0 0 0 0Memorandum item Principal arrears on long-term debt 117 116 957 1,360 1,886Public & publicly guaranteed long-

term debt 30,020 29,218 28,057 31,563 31,304 Official creditors 26,574 25,933 25,538 29,178 29,062 Multilateral 3,302 2,881 2,891 2,984 2,964 Bilateral 23,272 23,053 22,646 26,194 26,098 Private creditors 3,446 3,285 2,519 2,385 2,241 Bonds 2,051 2,051 1,441 1,442 1,442 Banks 0 0 0 23 20Total debt service paid 1,845 2,543 1,490 1,636 2,412 Principal 1,091 1,715 1,148 1,217 1,374 Interest 754 828 342 409 1038 Short-term debt 64 24 18 10 13

Ratios (%) External debt/GNP 83.1 71.0 75.6 70.1 59.5Debt service paid/exports of goods &

services 8.2 12.1 7.6 6.0 8.2

Source: World Bank, Global Development Finance.

60 Nigeria


External public debt, Central Bank of Nigeria estimates (US$ m)

2001 2002 2003 2004 2005Multilateral 2,797.9 2,960.6 3,042.1 2,824.3 2,512.2Paris Club 22,092.9 25,380.8 27,469.9 30,847.8 15,412.4

London Club 2,043.2 1,441.8 1,441.8 1,441.8 1,441.8Promissory notes 1,291.8 1,153.2 911.4 783.2 649.8Others 121.2 55.6 51.6 47.5 461.8

Total debt outstanding 28,347.0 30,992.0 32,916.8 35,944.7 20,478.0Total debt-service payments 2,128.2 1,168.5 1,809.3 1,754.8 1,367.5

Source: Debt Management Office, Annual Report and Statement of Accounts.

Foreign reserves (US$ m; end-period)

2001 2002 2003 2004 2005Foreign exchange 10,456 7,331 7,128 16,956 28,280SDRs 1 0 0 0 0

Reserve position in IMF 0 0 0 0 0Total reserves excl gold 10,457 7,331 7,128 16,956 28,280Gold (national valuation) 0 0 0 0 0Total reserves incl gold 10,457 7,331 7,128 16,956 28,280Memorandum item Gold (m fine troy oz) 0.687 0.687 0.687 0.687 0.687

Source: IMF, International Financial Statistics.

Exchange rates (annual average unless otherwise indicated; official rate unless otherwise indicated)

2001 2002 2003 2004 2005N:US$a 111.23 120.58 129.22 132.89 131.27

N:US$ (end-period)a 112.95 126.40 136.50 132.35 129.00N:US$ (Bureaux de change rate) 133.0 137.8 141.4 140.8 142.6

N:£ 160.17 180.87 210.63 243.17 238.96N:� 100.11 113.35 146.02 164.77 159.55N:CFAfr100 6.59 5.78 4.50 3.98 4.02

a The rate at which the CBN sells foreign exchange directly to commercial banks.

Source: IMF, International Financial Statistics.

Editors: David Cowan (editor); Pratibha Thaker (consulting editor) Editorial closing date: January 1st 2007 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected]

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