country report · gdp growth of 2% and a substantial current-account deficit of $5.9bn in 1999. if...

COUNTRY REPORT

Nigeria

1st quarter 1999

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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ISSN 0269-4204

Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1999-2000

12 Review12 The political scene19 Economic policy and the economy24 Finance25 Energy30 Industry, transport and communications31 Agriculture32 Foreign trade and payments

34 Quarterly indicators and trade data

List of tables10 Forecast summary (domestic)11 Forecast summary (external)12 Local election results, Dec 5th 199813 State election results, Jan 9th 199920 Budget, 199925 Weekly demand for foreign exchange at the

Autonomous Foreign Exchange Market (AFEM), 199826 Oil production26 Nigerian spot prices34 Quarterly indicators of economic activity34 Trade with main partners35 Direction of trade

List of figures11 Gross domestic product11 Real exchange rates

Nigeria 1

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999

February 4th 1999 Summary

1st quarter 1999

Outlook for 1999-2000: After 15 years of military rule, the presidentialelection is likely (but not certain) to take place on February 27th, as scheduled.The incoming administration will face an array of daunting challenges,including pressure from disgruntled ethnic groups demanding the restructur-ing of the federation, an uneasy relationship with an army that retains politicalambitions and increasingly desperate economic conditions. The continuingslump in world oil prices and falling production will contribute to negative realGDP growth of 2% and a substantial current-account deficit of $5.9bn in 1999.If the political situation remains stable and creditor support is forthcoming, theeconomy may improve slightly in 2000, when the external environment isforecast to be more favourable.

The political scene: Local and state elections have taken place with fewhitches and a relatively high voter turnout. The Peoples Democratic Party(PDP) has emerged as the most popular force, encouraging its two rivals tocontemplate an alliance. The government has deployed military forces in oil-producing areas of the Niger Delta in an effort to quell community unrest,while Nigerian troops serving in Sierra Leone have suffered severe setbacks.

Economic policy and the economy: The 1999 budget has abolished thecontroversial dual exchange-rate system and reiterated a commitment toprivatise major state enterprises. A draft agreement with the IMF for a staff-monitored programme awaits ratification by the government and Fund board.Revenue and expenditure targets for 1999 are substantially lower than in 1998,as a result of the sharp fall in world oil prices. The government has also reducedpayments for joint-venture operations in the oil sector to $2bn for 1999.Domestic fuel prices have almost doubled.

Finance: The Central Bank has been granted autonomy to formulate mone-tary policy. The autonomous foreign exchange rate of the naira has remainedstable, despite substantial increases in demand for hard currency, fuelled bymarket anticipation of a devaluation.

Energy: Community unrest has continued to disrupt oil production in theNiger Delta. The government has awarded new term oil-lifting contracts,following a shake-up of its sales system.

Industry, transport and communications: Industrialists have urged thegovernment to introduce investment-friendly policies to help the country’sdormant manufacturing sector. A deal between the state-owned Nigeria Airwaysand British Airways has been condemned by privately owned local carriers.

Foreign trade and payments: The 1999 budget allocation for external debtservicing has been cut to $1.5bn, from the annual $2bn allocation in recent years.

Editor: Antony GoldmanAll queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

Nigeria 3


Political structure

Official name Federal Republic of Nigeria

Form of state Federal republic, comprising 36 states and the Federal Capital Territory (FCT, Abuja)

Legal system Based on English common law

National legislature Federal legislation is by decree of the Provisional Ruling Council (PRC)

National elections June 1993 (presidential, held under Third Republic), January 1999 (state assembly andgubernatorial); National Assembly and presidential elections are due in February 1999

Head of state General Abdulsalami Abubakar, head of the PRC and the government; assumed powerin June 1998

State government State legislation is enacted by the 36 military administrators appointed by the PRC

National government The Federal Executive Council, which is subordinate to the PRC

Main political parties Peoples Democratic Party (PDP), All Peoples Party (APP), Alliance for Democracy (AD)

Head of the government & minister of defence General Abdulsalami Abubakar

Key ministers Agriculture Alfa WaliAviation Captain Benomi BriggsCommerce & tourism Major-General Patrick AzizaCommunications Air Vice-Marshal Canice UwenwaliriEducation Samuel Olaiya OniFCT administration Major-General Mohammed KontagoraFinance Ismaila UsmanForeign affairs Ignatius OlisiemekaHealth Debo AdeyemiIndustry Onikepo AkandeInformation & culture John NwodoInternal affairs Musa YakubuJustice & attorney-general Abdullahi IbrahimLabour Emmanuel UdogwuNational planning Rasheed GbadamosiPower & steel Bello SuleimanScience & technology Major-General Sam MomahSolid minerals development Patrick YakowaTransport Rear Admiral Festus PorbeniWater resources Hamza SakwaWomen’s affairs Laraba Gambo AbdullahiWorks & housing Major-General Garba AliYouth & sport Air Commodore Samson Omeruah

Central Bank governor Paul Ogwuma

4 Nigeria


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997a 1998a

GDP at market prices (N bn) 911.4 1,977.4 2,833.2 3,129.2 3,720

Real GDP growth (%) 0.1 2.5 4.3 3.1b 1.6

Consumer price inflation (year-end; %) 57.0 72.8 29.3 10.2 15.0

Populationc (m) 96.2 99.0 101.8 104.6 107.8

Exports fob ($ bn) 9.42 11.73 16.12 15.21 9.73

Imports fob ($ bn) 6.47 8.18 6.24 9.26 9.83

Current-account balance ($ bn) –2.13 –0.90 3.95 1.88 –3.07

Reserves excl gold ($ bn) 1.37 1.81 4.16 7.22 6.22

Total external debt ($ bn) 33.12 34.13 31.42 32.02 32.16

External debt-service ratio, paid (%) 17.9 14.8 12.9 13.0 14.7

Crude oil productiond (m b/d) 1.90 1.99 2.17 2.27b 2.26b

Manufacturing output index (1990=100) 89.2 83.7 84.5 n/a n/a

Exchange rate (av; N:$) 22.00 79.2e 82.4e 83.5e 85.0e

February 3rd 1999 N87.0:$1

Origins of gross domestic product 1997 % of total Components of gross domestic product 1997 % of total

Agriculture 26.7 Private consumption 68.7

Livestock 6.1 Government consumption 5.0

Crude petroleum & gas 36.5 Gross fixed capital formation 15.0

Manufacturing 5.5 Exports of goods & services 38.7

Wholesale & retail trade 16.6 Imports of goods & services –27.4

Finance & insurance 1.3 GDP at market prices 100.0

GDP at factor cost incl others 100.0

Principal exports 1997 $ bn Principal imports 1997 $ bn

Petroleum 14.9 Manufactured goods 2.7

Cocoa beans 0.10 Machinery & transport equipment 2.2

Rubber 0.05 Chemicals 2.1

Food & live animals 1.2

Main destinations of exports 1997 % of total Main origins of imports 1997 % of total

US 34.6 US 13.6

Spain 11.2 UK 11.4

Italy 6.1 Germany 10.9

France 5.9 France 8.4

Netherlands 5.1

a EIU estimates. b Actual. c Series follows the official census held in November 1991. The UN estimated the population in mid-1997 at 120.5m.d Including condensates. e Autonomous rate. The official rate, applicable to selected government transactions and fixed at N21.9:$1 inJanuary 1995, was abolished in January 1999.

Nigeria 5


Outlook for 1999-2000

The return to civilian ruleappears to be on

schedule—

Despite increasing social tensions in some parts of the country and sharplydeteriorating economic conditions, the prospects for a return to civilian ruleafter 15 years of military government appear relatively promising. Nigeria’shead of state, General Abdulsalami Abubakar, seems determined to keep hispromise to leave office on May 29th 1999. Other senior officers also appear tobelieve that a prolongation of military rule would be neither tenable nor desir-able, given the depths of the current economic crisis, the slim prospects for anearly recovery, the sharpening of ethnic tensions and persistent demands byWestern powers for the nominal adoption of a democratic system. Further-more, Nigeria’s record of human rights abuses, mismanagement, corruptionand broken pledges has caused the military to lose credibility. It would find itdifficult, therefore, to justify continued occupation of the political centre stage.

—but a coup attemptcannot be ruled out

However, circumstances can easily and rapidly change in a country with achequered post-independence history that comprises two short-lived experi-ments with civilian rule and eight military administrations. Within the armythere are still a number of politically ambitious officers, who see the incomingcivilian republic as only an expedient interlude in a nation ruled by soldiers forall but ten of its 38 years of independence. Despite the improved prospects fora successful restoration of constitutional government, after two previousaborted attempts since 1993, the possibility of a coup attempt or a last-minutelegal challenge to the validity of the process cannot be ruled out. In the weeksahead there will be increasing restiveness among senior and middle-rankingmilitary officers, who are reluctant to relinquish the powers and privilege ofoffice. Others, including members of the ruling Provisional Ruling Council(PRC), are likely to be concernd about the prospect of a new civilianadministration investigating the worst excesses of military rule. The politicalenvironment is, therefore, likely to be marked by increasing tension in therun-up both to the presidential election, scheduled for February 27th, and thefinal handover at the end of May.

Prospects for politicalstability are poor

The survival of a new civilian government will depend, at least partly, on thequality of its leadership and its capacity to tackle effectively the myriad ofeconomic and social difficulties that currently blight Nigeria’s future. Thereare, however, few indications that the aspiring political class will have thevision, policies or commitment to cure deep-rooted ailments such as the en-demic corruption, persistent ethnic conflict and institutionalised economicmismanagement that have dogged the country since independence in 1960,and which have intensified in recent years. The three registered political partieshave avoided serious debate on most policy issues and continue to appear aslittle more than convenient vehicles for the pursuit of the individual ambitionsof prominent personalities. As the parties prepared to pick their candidates forthe presidency, leading contenders included a former head of state, GeneralOlusegun Obasanjo, a former vice-president, Alex Ekwueme, and a formerfinance minister, Olu Falae. Other candidates also have experience at the heartof government, but all will, to some degree, be compromised by theirassociation with the failure of previous civilian administrations and the favours

6 Nigeria


they may owe to the powerful, but anonymous, political godfathers who havehelped to finance their campaigns and marshal their supporters.

Ethnic tensions willpersist—

The emerging pattern of civilian politics already indicates that divisive ethnicand regional tendencies will feature far more prominently in the months aheadthan under a relatively homogenous, centralised military government. Follow-ing elections in January, all six Yoruba-speaking states in the south-west will becontrolled by the Alliance for Democracy (AD), while the Peoples DemocraticParty (PDP) will govern all the states in the south-east. Northern states will beshared between the PDP and the All Peoples Party (APP). There is thereforeevery prospect that in at least one region of the country individual states arelikely to be governed by a political party firmly at odds with a presidencycontrolled by a rival. Uncertainty about how the federal system will operatewill be worsened by delays in the adoption of a constitution to govern the newrepublic. General Abubakar had promised to review controversial constit-utional provisions prepared by his predecessor that built in power-sharingbetween separate regions and divided executive responsibility between a pres-ident, his deputies and a prime minister. The results of that review had notbeen published by the end of January, indicating the sensitivities that surroundthe formal establishment of a framework for government in a country asdiverse as Nigeria. In the meantime, however, elections have taken place with-out the electorate knowing what exactly they are voting for. Confusion overthe constitution may also provide another issue for disgruntled politicians toexploit in an effort to undermine a new administration.

—especially inoil-producing areas of the

Niger Delta

Perhaps the greatest political challenge facing the incoming government willbe the militant ethnic nationalism that has now firmly taken root in theoil-producing Niger Delta region. The trouble has grown from intermittentagitation by disgruntled communities in the early 1990s to a nascent rebellionthat now seriously threatens Nigeria’s oil industry, the mainstay of the eco-nomy. At the root of the tension is the widespread feeling of alienation from,and exploitation by, a central government that has paid no attention to thedemands of the politically marginalised communities that live in abject pov-erty. Troop deployments have imposed an uneasy calm on the area, but youthsare likely to test the resolve of a new government in a dispute for which therewill be no easy solution. Beyond making bland statements on the need forgreater public investment to improve living conditions in the Niger Delta,none of the civilian political parties appear ready to adopt the bold and poten-tially risky moves required to ease tensions in the region. The danger is that,unless these issues are resolved, the combination of poverty, unemployment,alienation and despair could transform today’s young ethnic agitators in theNiger Delta and elsewhere into armed rebels, as has happened in several otherAfrican countries. Nigeria faces a crisis that could in the medium term easilydegenerate into a prolonged sectarian conflict. The situation will be madeworse by the erosion of living standards elsewhere in the country, especially inurban areas, that is likely to accompany the economy’s sharp decline in 1999.

West African affairs willdominate foreign policy

The end of military rule will probably have a significant impact on Nigeria’sforeign policy, particularly in relation to West Africa. Under military rule,

Nigeria 7


Nigeria has endeavoured to live up to an image as the regional superpower,despatching troops to conflict zones in several countries. But military interven-tion has been protracted and expensive in both human and financial terms. InSierra Leone, a rejuvenated rebel force seems far from defeat in its struggle totopple a government propped up by the Nigerian-dominated EconomicCommunity of West African States Ceasefire Monitoring Group (Ecomog).General Abubakar will be keen for a deal in Sierra Leone that would allowNigeria to withdraw its troops with some honour by the time he leaves office inMay. However, if the protagonists fail to reach some form of accommodation,one of the first policy dilemmas facing the new civilian administration in Abujawill be what to do about Ecomog’s role in Sierra Leone, which has already costthe Nigerian army hundreds of lives and the cash-strapped country millions ofdollars. Further afield, the process of normalisation of relations that followedthe death of General Sani Abacha in June 1998 is likely to reach a conclusion,following the formal swearing-in of a civilian president in May, with the endingof Nigeria’s suspension from the Commonwealth of former British coloniesand the lifting of the last elements of EU sanctions, imposed in 1995.

Tough economic decisionslie ahead—

Prospects for political stability over the forecast period will be further under-mined by unfavourable external economic conditions and potentially highfinancing needs in 1999-2000. Bold reforms and inspired leadership could yetcreate the conditions for democracy and sustainable economic growth. How-ever, a failure fully to grasp the seriousness of the situation and to act upon itquickly will severely deepen the current desperate economic crisis, and maycontribute to an escalation of political tensions that threaten to pull thecountry apart. In its remaining weeks in office the Abubakar administration islikely to come under pressure to relax the cautiously reformist policies that inJanuary prompted the IMF to agree a new staff-monitored programme. Politicalwrangling has already delayed the privatisation of some state-owned indus-tries, while the market has indicated a determination to test efforts to maintainexchange-rate stability at around N87:$1, with the parallel rate already slippingtowards N100:$1. Monetary and fiscal policy may also loosen in the run-up tothe handover, despite warnings even within the government against thenegative impact on inflation and the balance of payments.

Even if the transition to civilian rule is completed on schedule, the prospectsfor a deepening of the reform process are bleak. Many of the front-runners inthe presidential race are uneasy about the political risks associated with policiesthat, in the short term, may worsen an already difficult situation. All threepolitical parties broadly support the concept of a free-market economy. But anew administration, eager to make an impression in harsh economic circum-stances, may be tempted to adopt panic measures, such as meddling with theforeign exchange rate and embarking on new, ill-conceived, capital projects. Itis unclear whether the civilian government will pursue the existing programmeto privatise major public enterprises—an important source of patronage—withthe same vigour as that promised by the current administration.

—with donors likely to bedisappointed

Having agreed a staff-monitored programme with the IMF in late January, offi-cials in Nigeria are hopeful that a deal for a medium-term economic strategy canbe reached with the World Bank in the coming months. This will then pave the

8 Nigeria


way for a three-year IMF enhanced structural adjustment facility (ESAF) of up to$1bn, and a new debt-rescheduling initiative from the Paris Club of officialcreditors before the end of 1999. Acknowledging Nigeria’s desperate economiccircumstances and the uncertainty of the political environment, the IMF has setout very modest policy and performance targets in the January agreement.These include a commitment to increase transparency through an external auditof the state-owned oil company, the Nigerian National Petroleum Corporation(NNPC), closer monitoring of official foreign-exchange flows, the reconciliationof conflicting debt data between the finance ministry and creditors, and a time-table for the privatisation of some state-owned companies. But the privatisationprocess has already been subject to delays and accusations of a lack of transpar-ency. The Central Bank of Nigeria is having to spend heavily to prevent thenaira falling below the benchmark rate, set at N90:$1. Efforts to sustain fiscalrestraint are expected to be unsuccessful, partly as a result of the high cost ofunexpectedly costly military commitments in Sierra Leone, Guinea-Bissau andthe Niger Delta. In addition, provision for external debt service has been cut to$1.5bn for 1999, $3.6bn less than due, and may indeed be cut further as thegovernment seeks further savings, despite the potential damage to the prospectsfor a Paris Club initiative. The incoming administration may prove even lesslikely to curb spending or proceed quickly with privatisation. Some Westernpowers, fearing for the strategic consequences of the looming economic crisis inNigeria, may be ready to ease conditionality still further. However, the UK andothers continue to believe that the crisis is very much of Nigeria’s own making.They feel that it has been exaggerated by government officials seeking to avoidthe very reforms that might ease fiscal pressures, and improve the efficiency andtransparency of economic management, without which the seeds of a futurecrisis will remain. On balance, therefore, the fiscal deficit is forecast to rise from2.6% of GDP in 1998 to 4.4% of GDP in 1999, before easing to 2.4% in 2000,when revenue should increase. It appears unlikely, but not entirely impossible,that there will be sufficient consensus for a formal, donor-backed, economicrescue package in 1999.

GDP growth is likely to benegative in 1999

In his January budget General Abubakar forecast an increase in real GDP of 3%for 1999. The EIU, however, expects the 1998 economic downturn to intensifyin 1999, owing to a sharp reduction in export earnings, a continuing shortageof energy supplies and persistent inefficiencies in the production system. Theseare liable to push Nigeria into recession in 1999. With oil sales accounting formore than 90% of export revenue, the slump in prices on world markets willcontinue to have a profound effect on Nigeria’s import-dependent economy.In basing the 1999 budget on a $9/barrel oil selling price, the government hasbeen more realistic than in 1998, when prices averaged nearly $5/b less thanthe budget assumption of $17/b. Nevertheless, with persistent weak demandand oversupply in the global oil market, we forecast that average oil prices willfall below the $9/b assumed by Abuja in 1999 to just $8.55/b, before recoveringto $9.95/b in 2000. Revenue will be further reduced in 1999 as a result of anexpected fall in output to 2.04m barrels/day (b/d), from 2.26m in 1998. Thisreflects Nigeria’s nominal commitment to OPEC production quotas, a reduc-tion in funding for the sector and, importantly, the prospect of further unrestin the oil-producing areas. According to official figures, oil GDP will shrink by

Nigeria 9


10.1% in 1999, after a fall of 0.4% in 1998. The performance of the non-oilsector, constrained by lack of credit, poor infrastructure and weak domesticdemand, will only partly mitigate the impact of the decline in the oil sector,with official data estimating growth of 3.8% in 1998 and 3% in 1999. Wetherefore expect real GDP to fall by 2% in 1999, from growth of 1.6% in 1998.Thereafter the economy is forecast to recover gently on the back of an expectedimprovement in oil prices, a rise in production to 2.15m b/d, additional reve-nue from new exports of liquefied natural gas, and the effects of increaseddomestic and foreign investment. Average GDP growth for 2000 is, therefore,forecast to be a modest 1%, considerably less than the 2.8% increase in the rateof population.

Inflation will rise,fuelling the prospect of a

devaluation

Against the background of an unfavourable external economic environmentand volatile internal political conditions, the macroeconomic stability that hasprevailed since 1995 will come under threat in 1999. Officials acknowledge thatthe running of a large fiscal deficit, financed mainly by the Central Bank, andthe monetisation of past budget savings, will contribute significantly to infla-tionary pressures. A new government will be even more reluctant to curb publicspending and may increasingly resort to credit financing. Consumer price infla-tion, which reached 15% at the end of 1998, is expected to average 30% in 1999,before easing to 20% in 2000. Increased pressure on the naira is already evident,with a sharp rise in demand for foreign exchange since December 1998. Themilitary administration, determined to hand over power with an impressiveeconomic record, is likely to dip into reserves to prevent the naira falling belowN90:$1 before it leaves office in May. However, owing to a shortage of foreignexchange, the only alternative to a rapid depreciation in the second half of 1999will be the reintroduction of exchange controls. If the administration doescontinue to pursue a market-based exchange-rate policy, the naira is forecast toslide from N85:$1 in 1998 to N105:$1 in 1999 and to N125:$1 in 2000.

Forecast summary (domestic)(% change year on year unless otherwise indicated)

1997a 1998b 1999c 2000c

Real GDP at factor cost 3.1 1.6 –2.0 1.0

Agricultural production 4.2 3.5 2.7 2.5

Crude oil production (m b/d) 2.27 2.26 2.04 2.15

Manufacturing GDP 1.3 2.0 1.5 1.4

Consumer price inflation (av) 9.3 15.0 30.0 20.0

a Actual. b EIU estimates. c EIU forecasts.

The current-accountdeficit will increase

sharply

The poor performance of the oil sector in 1999 will contribute to a sharp dete-rioration in Nigeria’s current-account position. Election-related spending willkeep imports at some $9.4bn, despite a substantial reduction in export incomeowing to falling prices and flat production in the oil sector. Depressed prices anda fall in the production of oil, which contributes more than 90% of exportearnings, will contribute to a fall in total exports of nearly 20% in 1999 to$7.9bn, down from $9.7bn in 1998 and $15.2bn in 1997. We therefore expectthat the trade deficit will deteriorate significantly, from $1bn in 1998 to $1.5bnin 1999. With Nigeria’s traditionally large invisibles deficit forecast to improveonly marginally as a result of a fall in trade-related costs in the depressed oil

10 Nigeria


sector in 1999, the overall current-account deficit is forecast to rise to a massive$5.9bn, some 18.3% of GDP. In 2000 the forecast improvement in the tradebalance and foreign investment inflows should reduce the current-accountdeficit to $4.4bn, 12.3% of GDP.

A debt deal is possible Government officials believe that if the IMF staff-monitored programme agreedin January proves a success there is a real prospect not only of a new Paris Clubinitiative within months to deal with Nigeria’s substantial external-debt burden,but also of new concessional credit. Such a scenario, while possible, appearssomewhat improbable. Confusion still surrounds the exact size of Nigeria’s totaldebt stock, with the government using a figure of $27bn, the IMF $28bn and theWorld Bank $31bn. A new, UK-financed initiative to reconcile debt data is underway, but officials are uncertain whether they can complete the task before theend of July, as scheduled. It is highly unlikely that a cautious Paris Club wouldconsider a package for Nigeria while such substantial discrepancies exist. Fur-thermore, given the country’s terrible repayments record—arrears of some $3bnannually have accrued since the government formally capped debt servicing in1994—some creditors are likely to demand clear evidence of a genuine commit-ment to reform by the incoming administration before considering the case fora new agreement. We therefore continue to believe that overall debt will in-crease slightly in 1999, and probably also in 2000; however, if a civilian govern-ment can establish a good track record on economic management and policyreform, the case for a new Paris Club initiative will increase.

Forecast summary (external)($ bn unless otherwise indicated)

1997a 1998b 1999c 2000c

Merchandise exports fob 15.2 9.7 7.9 9.1 of which: crude oil 14.9 9.3 7.3 8.6

Merchandise imports fob 9.3 9.8 9.4 9.3

Trade balance 5.9 –1.0 –1.5 –0.2

Current-account balance 1.9 –3.1 –5.9 –4.4

Average exchange rate d (N:$) 83.5 85.0a 105.0 125.0

a Actual. b EIU estimates. c EIU forecasts. d Autonomous market rate (official rate of N22:$1 wasabolished in January 1999).

60

80

100

120

140

160

180

1990 91 92 93 94 95 96 97 98 99 2000

Real exchange rates (c)1990=100

Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$Naira:$

Cedi:$Cedi:$

CFAfr:$CFAfr:$CFAfr:$

Naira:$

Cedi:$

Naira:$

Cedi:$Cedi:$

CFAfr:$CFAfr:$CFAfr:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

Naira:$

Cedi:$

CFAfr:$

Naira:$Naira:$

Cedi:$

CFAfr:$

97(a) 98(a) 99(b) 2000(b)97(a) 98(a) 99(b) 2000(b)97(a) 98(a) 99(b) 2000(b)97(a) 98(a) 99(b) 2000(b)97(a) 98(a) 99(b) 2000(b)

-2

-1

0

1

2

3

4

5

6

1996 97(a) 98(a) 99(b) 2000(b)

Nigeria

Africa

Gross domestic product % change, year on year

(a) EIU estimates. (b) EIU forecasts.(c) Nominal exchange rates adjusted for changes in consumer prices.Sources: EIU; IMF, International Financial Statistics; World EconomicOutlook.

n/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/a

Nigeria 11


Review

The political scene

Elections dominate theagenda—

Political activity has intensified, following the local government elections inDecember and state elections in January. The Independent National ElectoralCommission (INEC) granted provisional registration to nine political parties tocontest the municipal ballot. According to INEC rules, only parties scoringmore than 5% of votes cast in at least 24 of Nigeria’s 36 states will qualifyto contest future polls. This stipulation ensured that the elections for thecountry’s relatively powerless 744 local councils were treated more seriouslythan might otherwise have been expected. Competition between the parties,which had been formed only five months earlier, was marked by the incidentsof violence, fraud, intimidation and kidnapping that have come to be associ-ated with elections in Nigeria. According to local press reports, about a dozenpeople died and many more were injured in incidents of election violence indifferent parts of the country. However, the undemocratic behaviour was iso-lated. In most areas balloting was peaceful and orderly. International and localmonitors said that they were largely satisfied with the conduct of the voting,noting only isolated incidents of trouble and irregularities in Nigeria’s first steptowards a return to civilian rule. In its report, the Transition Monitoring Group(TMG), a coalition of 44 local human rights organisations, observed a numberof lapses, including the inadequate or late arrival of election materials, butconcluded that, despite the shortcomings, the elections had been credible.Most observers commented that voter turnout was relatively high, indicatingpopular enthusiasm for the transition programme, in contrast to the apathyduring the aborted democratisation scheme of the previous administration.

—as three parties emerge Only the Peoples Democratic Party (PDP) and the All Peoples Party (APP)actually won more than 5% of votes cast in two-thirds of Nigeria’s 36 states.The PDP took 464 council chairmanships and 4,856 councillor seats, while theAPP came a distant second with 192 chairs and 2,578 councillors. The Alliancefor Democracy (AD) secured 102 chairmanships and 1,104 councillors. Al-though it had failed to win the minimum 5% of the vote in 24 states, the ADwas, nevertheless, registered for future elections on the basis of INEC provi-sions designed to ensure that at least three parties qualified to take part insubsequent polls.

Local election results, Dec 5th 1998

Party Votes %

Peoples Democratic Party (PDP) 11,208,687 46.2

All Peoples Party (APP) 8,547,510 35.3

Alliance for Democracy (AD) 2,701,400 11.2

Others 1,780,097 7.3

Totala 24,237,694 100.0

a Turnout was estimated at 45.5%.

Source: Independent National Electoral Commission (INEC).

12 Nigeria


The losing parties cry foulover the local elections—

As usual in Nigeria, the elections were followed by recriminations, as losingparties disputed the results and alleged fraud. The APP complained that govern-ment officials had helped the PDP to rig the poll, and threatened to boycottfuture ballots. For its part, the AD said that the APP was as indictable as the PDPfor its use of intimidation and rigging. Despite such exchanges, all three partiesproceeded to the second stage in the transition programme, with elections heldon January 9th for state governors and assemblies.

—but the state pollsprogress more smoothly

Organisation of the state elections was more efficient than for the earlier poll,although ethnic violence and community unrest caused a postponement of theballot in Bayelsa state in an oil-producing area of the Niger Delta. The INEC’sbetter performance was attributable to the experience it had gained during themunicipal contests, and the simpler task of dealing with just three parties. Theresults broadly reflected the earlier pattern, with the PDP emerging trium-phant, winning the governorships of 23 of the country’s 36 states. The APPtook seven states and the AD six. However, the emergence of clear ethnic andregional patterns of support for the three parties was more important than theoverall result or the success of individual candidates. The PDP dominated thesouth-east of the country and shared the north with the APP. The Yoruba-dominated AD swept to victory in all the south-western states, including Lagos,but performed dismally elsewhere. The new governors and state houses ofassembly will not assume office until May; it is not clear, in the absence of aconstitution, precisely what powers they will enjoy.

State election results, Jan 9th 1999

AD PDP APPRegion ’000 States % ’000 States % ’000 States %

South-west 2,473.0 6 65.4 933.0 0 24.7 373.8 0 9.9

South-easta 257.2 0 2.8 5,665.6 11 62.7 3,120.4 0 34.5

Middle belt 187.5 0 3.5 2,930.8 5 54.2 2,288.3 2 42.3

North 278.3 0 3.3 4,498.0 7 53.4 3,637.7 5 43.2

Totalab 2,938.8 6 11.1 14,027.4 23 53.2 9,420.2 7 35.7

a Not including Bayelsa state. b Turnout was estimated at 49.8%.

Source: INEC.

Veterans line up for thepresidential race

The results have influenced the battle for the presidency and the prospects ofat least two dozen aspirants looking for the three parties’ nominations. Front-runners in the strongest of the parties, the PDP, include a former military ruler,General Olusegun Obasanjo; the vice-president in the defunct SecondRepublic, Alex Ekwueme; a former oil minister, Don Etiebet; and a former Kanostate governor, Abubakar Rimi. While General Obasanjo, who is well-regardedin the West, appeared to have the support of the military and others in theestablishment, his prospects were damaged by the party’s abject showing in hisnative south-west. Many Yoruba have never forgiven him for sanctioning thecontroversial victory of a northerner, Shehu Shagari, in the 1979 presidentialelection. Some human rights groups argue that General Obasanjo is unfit togovern again because of alleged atrocities committed during his time in office.Critics further point out that the former head of state’s conviction andimprisonment in 1995 for alleged coup plotting should disqualify him from

Nigeria 13


the presidency, despite being granted a pardon in June 1998 by GeneralAbdulsalami Abubakar. General Obasanjo’s pledge of a N130m ($1.5m) dona-tion to the PDP campaign fund in early November has also triggered calls fromcritics for an investigation of his finances. One of the factors underlying theopposition to General Obasanjo’s candidacy was the common belief that hewas backed by northern interests as well as retired and serving senior militaryofficers, including the former ruler, General Ibrahim Babangida, and thepresent head of state, General Abubakar.

Mr Ekwueme’s bid hasalso raised questions

Mr Ekwueme’s bid for the presidency has been strengthened by his mobilisa-tion of his Igbo kinsmen and the overwhelming success of the PDP in local andstate elections in the south-east, in contrast to the party’s thorough defeat inthe south-west, even in General Obasanjo’s local government area in Ogunstate. However, political analysts wondered whether the PDP could sell an Igboflag-bearer in the north, where many people still remember with bitterness the1967-70 civil war between Igbo secessionists and northern-dominated federalforces. They also question whether the military would easily hand over powerto the vice-president of the government that they toppled in 1983. However, ifthe party were to choose a non-Igbo ahead of Mr Ekwueme, it is possible that itmight lose some support in the south-east. That would undermine the PDP’sdominant position and might potentially create the conditions for a muchcloser contest for the presidency.

The AD and the APPcontemplate ways to stop

the PDP

Aspirants to the presidency in the APP include an Igbo businessman,Emmanuel Iwuanyanwu, and a former national security chief, Umaru Shinkafi,who is a northerner. So far, the former finance minister, Olu Falae, is set to winthe AD’s nomination. However, since the December local elections leadersfrom both parties have worked towards an electoral alliance, arguing that thispresents the best prospect of challenging the PDP for the presidency. However,given the institutional frailties within the two parties and the antipathy ofmany senior officials towards one another, such an opportunistic coalitionwould be difficult to cement and might thereafter prove unstable and difficultto hold together. Further doubts over the legitimacy of the proposed alliancewere added when the INEC declined the request of the AD and the APP to havea joint symbol on ballot sheets for the February 27th polls.

Human rights improve With the programme to restore civilian rule enjoying the near-unanimoussupport of the professional political class, including some of the most stridentcritics of the military, domestic and international concern about human rightsabuses, so prominent under the Abacha regime, has faded. In late November,during a visit to Nigeria, a UN investigator, Soli Sorabjee, described develop-ments since the death of General Sani Abacha in June as a sea-change. How-ever, the issue still prompted some concern. Local human rights activists, whileacknowledging obvious improvements in human rights conditions in thecountry, said that much still needed to be done. In November the Lagos-basedCommittee for the Defence of Human Rights claimed that the military govern-ment was holding at least 295 political detainees, mainly convicted coupplotters and Shia Muslim fundamentalists.

14 Nigeria


The government is urgedto release coup plot

convicts

Concern about the well-being of military officers accused of plotting to over-throw Abacha rose after reports in late December of the death in unclear circum-stances of Colonel Olu Akinyode, one of several senior officers serving longprison sentences for their alleged role in a coup plot that security officialsclaimed to have uncovered in 1997. This followed the death in custody a yearearlier of Major-General Shehu Yar’Adua, a former deputy head of state, whowas convicted in similarly controversial circumstances for plotting a coup in1995. Human rights organisations and church leaders have urged the presidentto release all those accused of plotting against his predecessor, includingAbacha’s former deputy, Lieutenant-General Oladipo Diya, and two formercabinet ministers jailed for the alleged 1997 plot. According to local press re-ports, General Abubakar supports the release of the coup convicts, but strongresistance from a group of hardliners in the Provisional Ruling Council (PRC),including the chief of army staff, Lieutenant-General Ishaya Bamaiyi, who waspublicly accused by General Diya of entrapment in the 1997 plot, will remain amajor problem.

Abacha’s murderous dirtytricks are exposed

Media reports on the activities of the security services during Abacha’s ruleindicate that various types of dirty tricks were employed by the junta to retainpower. It was reported in mid-December that the general’s chief security offi-cer, Major Hamza al-Mustapha, who is now in detention, told investigatorsthat his boss had sanctioned political killings, including those of KudiratAbiola, the wife of the opposition leader, Chief Moshood Abiola, in 1996, anda prominent Lagos businessman, Alfred Rawane. Major Al-Mustapha said thatstate security operatives had planted a bomb at Abuja airport that was intendedto kill General Diya, shortly before he was arrested for his alleged involvementin the December 1997 coup plot. One security officer was killed in the blast,which the government at the time blamed on the radical opposition andGeneral Diya.

Large-scale officialcorruption is outlined

The dilemma of what to do with the aides and relatives of Abacha who havebeen implicated in the massive abuse of power during the previous adminis-tration is proving to be a major problem for the current head of state. Nigeria’snormally cynical public was astonished by the scale of the embezzlement ofpublic funds unearthed by a probe ordered by General Abubakar. On November9th the head of state’s chief press secretary, Mohammed Haruna, said that$750m of missing state funds had been recovered from members of the Abachafamily and from Ismaila Gwarzo, the former national security adviser.Mr Haruna said that 37 landed properties, 5 vehicles and 16 trailer loads offertiliser were also recovered from Mr Gwarzo, who had described himself as anerrand boy for Abacha. A week earlier Abacha’s finance minister, Anthony Ani,had independently disclosed that some $1.3bn was irregularly withdrawn fromgovernment funds by Mr Gwarzo between January 1997 and May 1998. In anindication of the sensitivities surrounding the former national security adviser’spublic disclosures and other information that he may not yet have revealed,Mr Gwarzo was released from detention in October, officially for health reasons,and confined to his village in northern Nigeria.

Nigeria 15


Former ministers arelinked to a Russian debt

buy-back scam

In another stunning disclosure, in December Mr Haruna confirmed mediareports that the government had uncovered a $2bn fraud by a member of theAbacha family and two of Abacha’s ministers. According to Mr Haruna, in 1996officials had withdrawn $2.5bn from state funds to settle debts owed to Russiafor the construction of the Ajaokuta steel plant and other projects, while in factthe Russians received only $500m in a dubious buy-back deal negotiated by anintermediary company, aided by unscrupulous Russian and Nigerian officials.Although the government did not name the two ministers involved, there wasfeverish media speculation over their identities. On December 20th Mr Aniissued a statement denying that $2bn had been transferred abroad under thepretext of paying money owed to Russia. He said that, contrary to the alleg-ation, he had in fact saved the country some $1.3bn in the debt buy-back deal,which entailed Nigeria paying $640m to repurchase, at a 68% discount, debtworth $1.99bn for work on the Ajaokuta steel plant. In a separate statement,the former steel minister, Bashir Dalhatu, insisted that he had committed nowrongdoing with respect to the Russian debt buy-back deal. An IMF StaffCountry Report on Nigeria, published in August 1998, said that in late 1996intermediaries reportedly paid $640m for Nigerian debts to Russia, equivalentto $2bn in bills of exchange on several steel plant projects, other debt, lateinterest and miscellaneous project expenses. The IMF said that the fiscal cost toNigeria was presumably somewhat higher, but that it had not been reported.

The failure to prosecuteAbacha’s cronies raises

eyebrows

The truth of the debt buy-back deal remains a mystery, given the differences inthe accounts given by the government and the two former ministers. Whatmost puzzles observers and critics of the government is that despite all theofficial disclosures on the blatant abuse of power during the Abacha regime, bylate January no charges had been laid against any senior member of thatadministration. Human rights organisations and anti-corruption groups havecriticised the government’s corruption probe and demanded a public judicialinquiry and the prosecution of those found to have looted the Treasury. InNovember privately owned newspapers and magazines reported that during hisinterrogation Mr Gwarzo had implicated several former aides of Abacha, in-cluding Hamza al-Mustapha, his chief security officer; Brigadier-GeneralIbrahim Sabo, the former head of the Directorate of Military Intelligence(DMI); and Colonel Frank Omenka, ex-head of a security unit in the DMI. Allthese men played important roles in Abacha’s notorious security system. Somenewspapers have claimed that Mr Gwarzo’s testimony went well beyondsecurity personnel and compromised several senior government officials,including members of the ruling PRC. It was speculated that Mr Gwarzoavoided prosecution because a court hearing could compromise some membersof the Abubakar government and undermine the regime at a delicate time inthe transition to civilian rule. It seemed that a deal that pinned all the misdeedson the deceased and already disgraced Abacha may have been made.

Ethnic Ijaw groups takeon the state and oil

multinationals

Against the background of public disclosures of large-scale misappropriation ofpublic funds, there has been growing unrest in the country among theimpoverished communities who have suffered from the previous regimes’financial mismanagement. This has been most evident in the oil-rich NigerDelta, from where most of Nigeria’s national revenue is extracted, but whose

16 Nigeria


inhabitants are among the poorest in the country. On December 11th, 25ethnic Ijaw organisations issued a joint declaration claiming ownership andcontrol of all natural resources in Ijawland for its communities, and demandedthat multinational oil companies leave their land by December 30th 1998,pending the resolution of the issue of resource control. The declaration, issuedat the end of the All-Ijaw Youth Conference at Kaiama, near Port Harcourt, didnot state the consequences of non-compliance, nor, indeed, was it ever likelythat the companies would comply. Nevertheless, it marked a turning point inthe conflict in the Niger Delta. It showed a new degree of organisation on thepart of the militant, but previously chaotic and disparate, Ijaw groups and wasa direct challenge to the regime. The federal government, which up until thenhad tried to resolve the dispute peacefully, poured thousands of troops into theregion, especially the mainly Ijaw Bayelsa state, where a dusk-to-dawn curfewwas imposed by the state government. By mid-January at least 30 people haddied in clashes between protesting youths and security forces. Ijaw militantshave insisted that the Kaiama declaration did not amount to waging waragainst the state, but was a struggle for self-determination of resource control.

General Obasanjo’sintervention secures a

partial ceasefire

Various prominent Nigerians have appealed to both the government and theIjaw youths to resolve the dispute peacefully. At a meeting in early Januarybetween General Obasanjo and Ijaw youth representatives, the aspiring PDPpresidential candidate managed to secure a promise from the youths to stopfurther disturbances until the May 29th handover. Like other presidential hope-fuls, General Obasanjo promised to bring economic development and generateemployment in the Niger Delta if he becomes president. But not all militant Ijawgroups have suspended their struggle. In mid-January the Ijaw Youth Councilvowed to continue targeting multinational oil companies and military forcesoperating in the Niger Delta until a new dispensation is reached. The councilhas also rejected negotiations between the government and Ijaw elders.

Southern activists backthe Ijaw nationalists

The Ijaw youth rebellion has been supported by southern-based oppositiongroups, which are dominated by activists also disillusioned with the state ofNigeria. With the majority of elements of the most radical opposition to Abachanow back in the political mainstream, such groups are, in political terms, rela-tively marginal at present, but could become more important in the future if thetransition fails to deliver political stability. In January 1999 the Joint ActionCommittee of Nigeria (Jacon), which brings together dozens of radical activistgroups, gave the federal government an ultimatum to withdraw troops from theNiger Delta by the end of February or face nationwide peaceful mass protests.Jacon blamed the imbroglio in the Niger Delta on the structural imbalance ofthe country, which it said favoured the north in terms of revenue allocation.The committee demanded a reallocation of revenue away from the federalgovernment to the states. Given the organisational weakness of Jacon, theauthorities were probably not worried by the ultimatum, which also includeddemands for public-servant wage increases, the reversal of recent domestic fuelprice rises, the withdrawal of Nigerian troops from Sierra Leone and therepudiation of dubious foreign debt.

The government has, however, been concerned about the activities of anincreasing number of ethnically based groups demanding a fundamental

Nigeria 17


restructuring of Nigeria, who are seemingly prepared to test the unity of thenation. In Lagos there have been run-ins between the police and activists of theOodu People’s Congress, a Yoruba nationalist group. At the Conference ofEthnic Nationalities, organised by the Campaign for Democracy in November,representatives of ethnic groups insisted that the basis of Nigeria’s federationshould be its nationalities, rather than states or other units, and called for theestablishment of a new national army with regional commands. While themilitary is hoping to keep these tensions in check in the short term, variousgroups, and most especially militant Ijaws, are likely to test the resolve of theincoming administration.

Nigeria suffershumiliation and heavy

casualties in Sierra Leone

Ten months after being hailed for reinstating Sierra Leone’s elected government,Nigeria was humiliated when its army lost ground to rejuvenated rebel forceswho stormed the capital, Freetown, on January 6th. As rebels advanced towardsthe city in December, Nigeria had despatched more than 1,000 troops to SierraLeone to reinforce the Economic Community of West African States CeasefireMonitoring Group (Ecomog, the West African intervention force). Ecomog isfighting Revolutionary United Front/Armed Forces Ruling Council (RUF/AFRC)rebels, who are trying again to overthrow the president, Ahmed Tejan Kabbah.The battle for Freetown, between Ecomog’s estimated 15,000-strong force andrebels helped by Liberian fighters and Ukrainian and South African mercenaries,caused huge human losses and physical destruction. The Nigerian authoritieswere careful not to disclose casualty figures for Ecomog, the bulk of whose

��

18 Nigeria


troops are Nigerian. However, in paying tribute to Ecomog, the British foreignsecretary, Robin Cook, disclosed in January that many hundreds of Ecomogtroops had been killed in the battle for Freetown, perhaps inadvertently givingan indication of the high human costs to Nigeria of its intervention.

This military setback created a dilemma for Nigeria, which wanted a quick andhonourable exit from Sierra Leone. Nigeria’s involvement in the war is unpopu-lar at home, where people wonder why their country should be fighting rebelsin Sierra Leone at a time when it is confronted by an economic crisis, growingunrest in the Niger Delta and a delicate political transition. In JanuaryGeneral Abubakar told the Canadian foreign minister, Lloyd Axworthy, that itwas his government’s “ardent wish” to see peace restored in Sierra Leone so thatNigerian troops could be withdrawn from that country before the May hand-over. Given the complexities of the dispute in Sierra Leone, and the massivepolitical differences between its government and rebel forces, the prospects ofan early settlement are not encouraging, which could leave the incomingNigerian administration with another, highly delicate issue to resolve.

Ecomog is to be deployedin Guinea-Bissau

Even as Ecomog was being stretched in Sierra Leone, the Nigerian-dominatedforce was set to intervene in another part of the region. In mid-January theexecutive secretary of the Economic Community of West African States(Ecowas), Lansana Kouyate, said in Abuja that 5,000 Ecomog troops would berequired in Guinea-Bissau to monitor the implementation of a plan to end asix-month stand-off between the president and the army. General Abubakar,chairman of Ecowas at the time, had played a vital role in getting the two sidesto agree to the accord, signed in Abuja in early November. The agreement callsfor a government of national unity and presidential elections by the end ofMarch. Under the agreement, Ecomog troops will replace those from Senegaland Guinea deployed in Guinea-Bissau last year after rebels, accusing thepresident, João Bernardo Vieira, of corruption, launched a rebellion in June.

Economic policy and the economy

The government unfolds a“budget of realism”—

The 1999 budget, which, in another conscious effort to distance the adminis-tration from its predecessor, was announced on January 1st, on schedule for thefirst time in many years, introduced some important reforms further to liberalisethe economy ahead of the handover of power to civilians in May. Reformsinclude the abolition of the dual exchange rate, the deregulation of the domesticfuel market and the formal adoption of the privatisation programme. In whatwas tagged a “budget of realism”, the government has slashed state revenueforecasts by more than 50% compared with 1998, to reflect the anticipatedcontinuing sharp fall in oil earnings. As in previous years, the government saidthat it hoped liberal economic policies would result in the diversification ofNigeria’s monoculture economy, increase industrialisation and boost foreigndirect investment. According to official figures, however, real GDP growthslowed from 3.8% in 1997 to an estimated 2.4% in 1998, less than populationgrowth. No sectoral breakdown was provided of growth, which the EIU believesto have been significantly less, with growth in non-oil sectors, includingagriculture and financial services, partly mitigating for a small overall decline in

Nigeria 19


oil-sector growth, to produce an estimated increase in real GDP for 1998 of just1.6%. Officials nevertheless acknowledged that Nigeria’s dependency on oil hasnot lessened. Capacity utilisation in the manufacturing sector dropped from34% in December 1997 to about 28% in the first half of 1998. In addition,non-oil-sector foreign investment has remained low. In his analysis of the 1999budget, the finance minister, Ismaila Usman, said that the disappointing out-come of the new measures adopted in 1998 had been owing to structural prob-lems in the economy. These, he said, included the “unsustainable level ofimport dependence, overreliance of the economy on a single economic sector, aweak industrial base, low levels of agricultural production, a weak private sector,excessive external debt overhang, inefficient public utilities, low quality ofsocial services and rising unemployment”.

—and turns to the IMF forsupport

Government policies seem designed to move Nigeria into the globalisation processin the hope that the expected inflow of capital will help resuscitate an investment-starved slumbering economy. To achieve this, Nigeria needs the support of theIMF and the World Bank. Mr Usman has said that Nigeria expects to reach agree-ment in early 1999 with the IMF for a staff-monitored programme (SMP), a pre-condition to negotiating the medium-term economic strategy (MTES). He saidthat the original draft of the MTES, a set of free-market policy prescriptions aimedat releasing the economy from the shackles of administrative control, should be informal operation before the end of the second quarter of 1999. The IMF and thefinance ministry were reported to have reached agreement on an SMP in lateJanuary, setting modest performance targets. Final agreement, however, will de-pend on cabinet approval in Nigeria and the support of the IMF board, which isdue to meet at the end of February.

Budget, 1999(Fiscal operations; N bn)

1997a 1998a 1998ac 1999b

Actual Budget Actual Budget

Oil revenue 286 257 224 453

Non-oil revenue 166 167 195 214

Total revenue 452 424 419 667

Priority expenditure 198 183 145 343 of which: joint-venture cash calls 45 55 50 172 NNPC priority projects 44 54 29 22 external debt service 30 44 34 129 transfer to trust fund 35 30 32 20

Total federally distributable allocation 254 241 274 324

Federal government independent revenue & VAT 24 22 17 20

VAT from state & local governments 22 30 26 42

Total federation account 208 189 231 262

Distribution of federation account revenueFederal government 101 92 112 127 State governments 50 45 55 63 Local governments 42 37 46 53 Special Fund 15 15 18 19

a Including transactions at official exchange rate of N22:$1. b Including transactions at autonomous market rate N86:$1. c January-November.

Source: Ministry of Finance, Budget Briefing 1999.

20 Nigeria


The dual exchange-ratesystem is axed to

curb abuse

As General Abdulsalami Abubakar noted in his budget speech, the abolition ofthe dual exchange-rate system removed “a long-standing opportunity for per-sonal gain at the expense of the public purse”. The system allowed somebranches of government, including security and defence, access to foreignexchange at an official rate of N22:$1, compared with the autonomous marketrate of around N86:$1. The scrapping of the official exchange rate made thebudget estimates more transparent than in recent years, but also presents afiscal challenge, particularly as regards expenditure on defence and the pres-idency, traditionally the prime beneficiaries of the preferential official ex-change rate. Federal government spending, therefore, while increasing in nairaterms from N112bn in 1998 to N127bn in 1999, is in fact likely to have fallensignificantly, although the lack of clarity over exactly how much of the 1998budget was allocated to foreign-exchange purchases at the official rate makes itdifficult to say by how much. Thus while the naira allocation to individualministries reflected the traditional pattern of favouring health and educationover the security services, some analysts wondered how realistic the defencebudget of N26bn ($302m) was, given Nigeria’s military commitments in WestAfrica, particularly Sierra Leone. The abolition of the dual exchange-ratesystem was, however, widely welcomed by creditors, who have long regarded itas a symbol of the lack of transparency and accountability at the heart ofgovernment in Nigeria.

The privatisationprogramme attracts

foreign interest

The government reiterated its commitment to privatisation, but slow imple-mentation of the programme has prompted speculation whether any of the 19public enterprises slated for privatisation would be sold before May. Under thescheme, launched last October, the government plans to sell 40% of its equityin a variety of companies—ranging from the giant telecommunications andpower utilities to hotels—to strategic investors who would manage the enter-prises. A further 20% will go to Nigerian investors through the local stockexchange, leaving the state with 40%. In January Mr Usman said that 48 poten-tial strategic investors had indicated interest in eight enterprises. However, bymid-January it was not clear how many bids the government had formallyreceived. Officials at the Bureau of Public Enterprises (BPE), the governmentagency charged with handling the privatisation exercise, said that investorinterest has focused mainly on Nigerian Telecommunications (NITEL), theNational Electric Power Authority (NEPA) and the National Fertiliser Company(NAFCON). At the beginning of February the government had not publishedvaluations of firms earmarked for sale, many of which have not been properlyaudited for years. BPE officials said that NITEL was likely to have a strategicinvestor by May, but by early February a decree giving legal backing to theprivatisation had not been promulgated. Local newspapers reported that theimplementation of the programme was marked by confusion, and that the BPEhad been sidelined in the making of vital decisions concerning the scheme ina political tussle with high-ranking military officers. The government is stillconsidering how to break up NEPA into generation, transmission and distrib-ution units for sale, making it unlikely that the corporation will be privatisedin 1999. Stockmarket operators who had hoped that privatisation would in-vigorate Nigeria’s depressed equity market were disappointed when, in earlyDecember, the BPE boss, Hamza Zayyad, was reported as saying that the public

Nigeria 21


sale of a 20% stake in privatised firms could not take place until after 2000, andthat public flotation could take place only once core investors had settleddown and added value to the enterprises.

A public-sector pay risetriggers labour unrest

After announcing a huge public-sector pay increase of 300% in September, thegovernment, hit by the compelling reality of its shortage of funds to meet suchobligations, began back-pedalling in mid-December, angering labour unions,which threatened strike action. In his budget speech General Abubakar saidthat, as a result of shrinking oil revenue, the government would be unable todeliver the promised increments which would have taken the minimummonthly pay from N800 ($9.30) to N5,200. In pay negotiations with labourunions in January the federal government offered its workers a minimummonthly wage package of N3,000, while the unions demanded N3,740.

The federal government’s initial, generous pay award created problems inindustrial relations for the individual state governments, which were even lessable to match the proposed increments. Several states in the federation were hitby protests and strikes by workers demanding a N5,200 monthly minimumwage. In Lagos striking civil servants cut off water supplies to the city for severaldays. The federal government urged state public servants to accept a N2,100minimum wage, N980 less than that demanded by the unions.

Plans for masscivil-service retrenchment

remain on hold

The government appears reluctant to carry out the massive retrenchment exer-cise to streamline the country’s vast and ineffective public sector which hadbeen announced by the previous administration. It has, however, ordered civilservants aged over 60 to retire by the end of May or be sacked, presumably bya fresh civilian administration. Without a major rationalisation of Nigeria’sbloated public sector it is difficult to see how the government can manage itsfinances. A sharp rise in the size of the government’s wage bill over the past 12years has transformed the structure of public-sector expenditure. Personnelcosts accounted for 30.3% of the federal government’s non-debt expenditureallocation in the 1999 budget, compared with 17.7% in 1998. A reduction inthe share of wages in public expenditure is likely to feature in any MTES forNigeria agreed with the IMF and the World Bank, which have longrecommended the downsizing of the country’s public sector.

Domestic fuel prices arederegulated amid

confusion

Nigeria’s military rulers took the politically risky decision to raise domesticpetroleum products prices in December, but implementation of the policy wasenacted in such a way as to allow them to distance themselves from such anunpopular move. Just a few days after Nigeria’s deputy head of state, RearAdmiral Mike Akhigbe, told journalists that the government would not in-crease fuel prices, motorists were shocked when they arrived at filling stationson December 20th to find that the price of petrol had risen from N11 (12 cents)a litre to N25/litre. Admiral Akhigbe had also said that the government hadderegulated fuel prices and therefore would no longer fix them. Clearly therewas some confusion, even within the administration, as to what the govern-ment policy entailed. Hours after independent oil marketers raised their pumpprices, defence headquarters issued a statement saying that the increases wereunauthorised, and threatened to shut petrol stations that sold fuel above theprices fixed since 1994. The jump in prices, which also took per litre costs for

22 Nigeria


diesel from N9 to N23 and for kerosine from N5 to N23, angered the public,which has long seen low fuel costs as one of the few benefits to ordinary peopleof Nigeria’s oil wealth. The Nigerian Labour Congress threatened strike actionif the government did not meet a two-week ultimatum to reverse the priceincreases by January 6th. The strike threat was withdrawn after the governmentset up a committee to negotiate with the unions and then persuaded oil mar-keters to cut their prices. On January 6th pump prices fell to N20/litre forpetrol, N19/litre for diesel and N17/litre for kerosine. On the previous day fivepeople had died in riots in Lagos over the hike in fuel prices.

Despite the deregulation of the petroleum products sector and increased fuelimports, Nigeria has continued to experience fuel supply shortages. Outputfrom the country’s four refineries, which when fully operational have a com-bined capacity of 445,000 barrels/day (b/d), has in recent years been insufficientto meet local demand, estimated at 280,000 b/d. Only two of the refineries havefunctioned since mid-1997, and sometimes all have been out of operation. Thegovernment has tried to put the refineries back in production. According to thefinance minister, $215m was paid in 1998 for the turnaround maintenance ofthe 110,000-b/d Kaduna refinery. The plant in northern Nigeria resumed prod-uction in January 1999 after the work had been carried out by the Frenchcompany Total. Mr Usman said that the government had also fully paid the$182m cost of the turnaround maintenance for the new Port Harcourt refinery.Chrome Consortium of Nigeria and Romanian firms are reported to be handlingthe work on both Port Harcourt refineries, with Shell acting as technical adviserin a deal widely condemned for its lack of transparency. Mr Usman said that thegovernment paid $10m in 1998 for the normal maintenance of Warri refinery,and that the cost of its turnaround maintenance was included in the1999 budget.

Further mud is thrown atAbacha’s economic policies

In November the former finance minister, Anthony Ani, provided an insightinto the extent to which personal political interests have sabotaged Nigeria’seconomy. Speaking to journalists, Mr Ani said that the lengthy and damagingdelay in the release of the 1997 capital budget allocations had been a deliberateploy to frustrate the private sector, which depended on government spending.Mr Ani said that General Abacha had stalled on the release of funds because theclique of shadowy advisers that surrounded him advised that the moneyshould be withheld “so that the private sector could be brought to their knees”.Mr Ani, apparently eager to distance himself from the mismanagement of theAbacha era, said that these advisers had also scuttled plans to privatise majorpublic enterprises. The disclosures support the view that economic manage-ment in Nigeria has been determined by predators who see the private sector asa threat to their control and misappropriation of state assets. The many revela-tions of official corruption during the Abacha administration have under-mined public confidence in the state and strengthened the lobby in the privatesector that has called for the privatisation of major public enterprises. Clearly,for as long as powerful elements in the political elite conspire against economicdevelopment, there can be no question of the country pulling itself out of theeconomic morass.

Nigeria 23


Finance

The Central Bank recoversits autonomy

The government’s decision in the 1999 budget to restore the autonomy of theCentral Bank of Nigeria (CBN) over the formulation and implementation ofmonetary policy has been widely welcomed by the financial sector. During theadministrations of President Ibrahim Babangida and General Sani Abacha, theCBN came increasingly under the control of the government and was used as agateway to state funds. It was formally reincorporated into the finance ministryin 1997. Following the recent disclosures of massive looting of the state Treasuryduring the Abacha regime, the CBN came under public criticism for its role inthe affair. Responding to public indignation, the CBN governor, Paul Ogwuma,said in early January that his institution had only acted as the government’sbanker and was not involved in decision-making, nor was it aware of anymisapplication of security payments. The 1999 budget has ordered the transferto commercial and merchant banks of the commercial banking functions car-ried out by the CBN on behalf of ministries and parastatals by the end of March.Enormous scepticism remains, however, over the prospects for the emergence ofa genuinely independent central bank in Nigeria, given that the CBN will stillremain nominally answerable to the presidency, and therefore subject topolitical influence.

One-fifth of Nigerianbanks miss the

capitalisation deadline

In January the CBN reported that 72 of Nigeria’s 89 banks had met the govern-ment’s December 31st 1998 deadline to increase their paid-up capital to auniform N500m ($5.8m), from N50m for commercial banks and N40m formerchant banks. It said that those banks that had failed to meet the deadline,set in January 1997, would have their licences reviewed during the first quarterof 1999. This was widely interpreted to mean that the affected banks would beliquidated. By mid-January the CBN had still not named the failing banks, butmedia reports indicated that none of the country’s main players would beaffected. In 1998 the monetary authorities liquidated 26 insolvent commercialand merchant banks in a move to reform Nigeria’s troubled banking industryand help eliminate distress.

The naira remains stable The naira has remained stable, despite increased demand for foreign exchangesince the end of December, trading at around the N86:$1 mark that it has heldsince September. Total demand for foreign currency at the CBN-operatedAutonomous Foreign Exchange Market (AFEM) rose from $50.4m at thebeginning of December to $124m at the end of that month and to $200m onJanuary 13th. The jump in demand was largely fuelled by concern about thesharp drop in world oil prices and initial fears that government funding of theAFEM would be inadequate. Mr Ogwuma responded by insisting that with$4.4bn available from government and private sources for the weekly sales offoreign exchange, the AFEM would be able to meet the market demand. Never-theless, many bankers and importers believe that the N86:$1 rate would proveunsustainable under free-market conditions, given that on the parallel marketthe exchange rate was around N97:$1 in late January. Indeed, pressure is likelyto grow on the AFEM rate in the weeks ahead, as speculators seek to force thegovernment into a devaluation.

24 Nigeria


Weekly demand for foreign exchange at the Autonomous ForeignExchange Market (AFEM), 1998

Auction date Bid amount ($ m) Exchange rate (N:$)

Oct 21st 85.80 86

Oct 28th 72.02 86

Nov 4th 50.32 86

Nov 11th 64.14 86

Nov 18th 71.12 86

Nov 25th 70.88 86

Dec 2nd 50.38 86

Dec 9th 86.30 86

Dec 16th 88.60 86

Dec 23rd 124.01 86

Jan 6th 195.20 86

Jan 13th 200.02 86Source: Central Bank of Nigeria.

The equity marketremains in the doldrums

Nigerian stocks remained weighed down by the poor performance of the eco-nomy and market pessimism about the prospects of rapid growth. In 1998 theall-share index fell by 11.9%, to close the year at 5,672.76. Market capitalisationdropped to N263.3bn ($3.1bn) at the end of 1998 from N292.9bn a year earlier.Turnover for 1998 was 2.1bn shares valued at N13.5bn, up from 1.3bn sharesvalued at N11.1bn traded in 1997. The director-general of the Nigerian StockExchange (NSE), Hayford Alile, argued that the decline in the index and marketcapitalisation were attributable to a combination of factors, including equityprice losses caused by falls in corporate earnings, the delisting of some equitiesand mature bonds, and the interplay of market forces. “The stockmarket in 1998operated in an environment characterised by political uncertainty, recurrentfuel scarcity, irregular public power supply and poor implementation of theyear’s budget,” observed Mr Alile.

The foreign portfolio isboosted by Saudi investors

Foreign portfolio investment rose from $9.4m in 1997 to $49.7m in 1998. Alarge part of the increase came from the purchase of a 30% stake in United Bankfor Africa (UBA) for $29m by five foreign-based investors through the globaldepository receipt programme. The 307.1m shares were bought by KingdomHoldings, owned by a Saudi Prince, Alwaleed bin Talal; the Saudi-based FrontierCapital; Intermarket Holdings of Zimbabwe; a UK investment banking group,Global Emerging Markets; and the US-based Citizens Capital Corporation. Thesale was the largest single transaction ever completed on the floor of the NSE.The shares were originally held by Banque nationale de Paris, which divestedfrom the Nigerian bank earlier in 1998.

Energy

Ethnic unrest hits oilproduction

Ethnic unrest in the oil-producing Niger Delta pushed Nigeria’s crude oil prod-uction in the last quarter of 1998 to its lowest levels since 1995. According todata from the International Energy Agency (IEA), the country pumped 1.96mbarrels/day (b/d) in the fourth quarter of 1998, compared with 2.32m b/d in the

Nigeria 25


same period in 1997. The worst month was October, when the country onlymanaged to produce 1.84m b/d owing to disruptions caused by ethnic Ijawyouths demanding political and economic reforms. The government’s crudeoutput projection for 1999 is 2.035m b/d, including 175,000 b/d of condensate,with 300,000 b/d earmarked for domestic consumption. Nigeria’s OPEC quotais 2.042m b/d, excluding condensate, which is not counted under the organis-ation’s rules. Nigeria’s anticipated non-condensate oil production is onlyslightly higher than its OPEC quota minus the 225,000 b/d it agreed last yearto trim off its output. This agreement with OPEC was part of an internationalproducers’ accord to reduce the oil glut in order to reverse the slump in theworld market.

Oil production(m b/d)

1997 1998 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Production 2.32 2.25 2.19 2.02 1.96Source: International Energy Agency, Monthly Oil Market Report.

Nigerian spot prices($/b)

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr Jana

Bonny Light 14.19 13.26 12.58 11.19 11.32

Bonny Medium 14.04 12.92 12.35 10.97 10.91

Forcados 14.06 13.00 12.37 11.15 11.13

Brass River 14.27 13.39 12.64 11.23 11.37

a To January 26th.

Source: industry press.

The government cutsfunding for the oil

industry

The sharp drop in Nigeria’s foreign-exchange income caused by the slump inworld oil prices has forced the government to cut back on investment in the oilindustry in 1999. It has earmarked $2bn for cash-call payments to the country’ssix joint-venture oil companies in 1999, down from $2.5bn in 1998. Thegovernment explained that with Nigeria expecting to earn $5.28bn from oilsales in 1999, compared with the estimated $6.8bn it received in 1998 againstthe forecast $9.8bn, it could not fully meet the financial demands of its joint-venture partners. The finance minister, Ismaila Usman, indicated that thegovernment would be unable to settle pre-1998 cash-call arrears totalling some$723.5m, promising the oil companies only further talks on how to settle theissue. The minister said that the government was exploring alternative ways offunding its share of the joint-venture operation, with the view to solving perma-nently the financing problem. He said that the government was discussingalternative funding plans with Elf, Shell and Texaco involving sole-risk financ-ing options. Under these schemes, operating companies bear all exploration anddevelopment costs, and, once the investments have been recouped, the projectthen reverts to joint-venture conditions. It is similar to the production-sharingcontracts applied by the government to new deepwater concessions. Morethan $2bn investment in sole-risk financing projects proposed by threemultinationals, including the $1bn sought by Elf to develop the 90,000m b/d

26 Nigeria


Amenam offshore field, could expand Nigeria’s output by at least 200,000 b/dwithin three years.

The government promisesa new deal for joint-

venture partners by May

Mr Usman said that the government aims to complete negotiations of a newmemorandum of understanding (MoU) and would promulgate it before theend of May. The new MoU is likely to provide oil companies with greaterincentives to encourage them to help the government achieve its ambitioustarget of increasing reserves from 25bn barrels to 40bn barrels, and productioncapacity from 2.4m b/d to 4m b/d by 2010. Nigeria’s joint-venture oil partnershave been pressing for several years for a substantial increase in their guaran-teed profit margin. The government has said that it will appoint internationaloil advisers this year to carry out a review of the upstream sector, includingjoint-venture operations and alternative financing options. The possibility ofgovernment divestment of some of its 57% equity in the six oil joint ventureshas continued to be a subject of speculation in the oil industry and media. Inlate November Dalhatu Bayero, the managing director of the Nigerian NationalPetroleum Corporation (NNPC), said that the government was consideringseveral options to privatise parts of the NNPC, including converting existingjoint ventures into production-sharing contracts and reducing its equity to40%. But Mr Bayero doubted whether there was sufficient time to embark onany privatisation of the upstream sector before the transition to civilian rule.Even if a future civilian government opts to privatise the oil industry, it maynot give majority control to foreign multinationals. There are growing callsfrom the Nigerian private sector for the government to sell some of the oilequity through the local stock exchange in order to give citizens theopportunity to invest in the country’s most profitable sector of the economy.

New oil-lifting contractsare awarded

By mid-January the NNPC had established 34 term contracts covering thelifting of some 750,000 b/d out of the government’s 57% share of the country’scrude oil exports. An NNPC official was reported as saying that the corporationhad agreed 28 new contracts since early December, mainly with internationaltraders. The other six were previous arrangements. In July General Abubakar’sadministration issued new guidelines for oil sales, in a bid to check abuses thathad been rampant during the Abacha administration. Under the new rules,buyers must have a minimum turnover of $100m or a market value of at least$40m. The shake-up has removed middlemen—Nigerians and foreigners—whohad previously obtained lucrative lifting contracts mainly on the strength oftheir political or family links with leading government officials.

Texaco announces a newdeepwater oil find

Multinationals operating in Nigeria’s deep offshore waters have remainedoptimistic about prospects for the sector, which suffers none of the problemsassociated with the more volatile onshore areas. The offshore sector projects arefunded on a production-sharing contract (PSC) basis, in contrast to joint-venture operations, which remain constrained by the government’s lack ofresources. On January 5th Texaco Inc reported that it had found at least severalhundred million barrels of recoverable oil at a wildcat well on Block 216, some70 miles from the Niger Delta coast. Texaco and Famfa Oil, an independentNigerian company, were granted exploration rights to the block in 1996. Otheroil companies that have made significant finds in Nigeria’s potentially lucrative

Nigeria 27


offshore province include Shell, Elf and Conoco. Most, however, remain cau-tious over making public statements about discoveries, for fear of attractinggovernment interference.

In late January General Abubakar’s special adviser on petroleum, Arret Adams,said that a long-awaited decree to give legal backing to the development bymultinationals of Nigeria’s offshore reserves would soon be published. Accord-ing to Mr Adams, the decree, which will legalise the terms of PSCs signed in1993, had been approved by the ruling Provisional Ruling Council. The termsof the 1993 contracts are regarded by the industry as generally favourable.Mr Adams explained that new PSCs may not carry the same terms. The govern-ment has said that it will continue to encourage PSCs in order to lessen itsfinancial obligations. According to the 1999 budget, oil operators who signeddeep offshore PSCs in 1993 can claim tax credits throughout the term of theircontracts. However, this concession will not apply to new contracts.

Shell declares forcemajeure on its Forcados

shipments

Most of the approximately 610,000 b/d of oil output shut in by armed Ijawyouths, who seized facilities belonging to Shell, Chevron and Agip in earlyOctober, had been freed by mid-November. About ten flow stations, totallingabout 200,000 b/d, remained under occupation. A statement by Shell said thaton January 6th it had declared force majeure—a technical term indicating afailure to meet contractual obligations to purchasers—for two to three weekson exports at its Forcados terminal, owing to low oil output from its westerndivision operation. Low levels of production were the result of persisting com-munity problems and scheduled repair work on the terminal’s loading line.The force majeure provision was still in force on January 26th.

Besides the politically motivated protests by ethnic Ijaw youths, oil multi-nationals have continued to suffer disruptions from community attacks fuelledby general discontent. Shell, the largest and most visible oil operator in theNiger Delta, was hit worst. On December 8th the Forcados export terminal wasshut by protesters from the Ogulagha community demanding compensationfor an oil spill from a ruptured Mobil pipeline in January 1998. Shell wastargeted because Mobil was not present in the area. In mid-December irateyouths demanding compensation from Shell for their Isoko community seizedfive of the firm’s flow stations. They accused Shell of not doing enough todevelop their community, and also demanded jobs and social amenities fromthe government. The increased physical risk to oil personnel in the violence-prone and anarchic Niger Delta region was again highlighted in November,when eight oil workers were kidnapped and held for a week by youths demand-ing money, development aid and employment for their community. The eight,including seven foreigners, were captured from a Texaco rig located at offshorePennington. The hostages were taken to a village in the swamps and creeks inBayelsa state, but were released unharmed after a team, including governmentand Texaco officials, negotiated with the captors. It was unclear whether any ofthe youths’ demands were met.

An oil spill shuts Shellflow stations

A pipeline oil spill on November 27th on the Santa Barbara river forced Shell toshut an estimated 145,000 b/d of crude oil from five flow stations in the Nembearea of Bayelsa state. The leak was estimated at about 1,500 barrels. Shell

28 Nigeria


officials suspected that the spill had been caused by sabotage. In late Decemberthe company said that a clean-up exercise in the affected area was in progressand that the shut-in of production had had no impact on oil exports. Oil spillsin the Niger Delta have become more frequent and are one of the majorcomplaints of people in the region, who mainly depend on farming and fish-ing for their livelihood. Oil operators claim that most of the spills were carriedout by disgruntled communities or unscrupulous contractors looking to profitfrom clean-up exercises. Several oil spills have also been caused by equipmentfailure, accidents and ageing pipes.

Shell plans to expandBonny terminal

Oil-producing companies have appeared undeterred by the difficult social andpolitical conditions of operating in the Niger Delta, where production costs arestill relatively low. Multinational producers have continued to invest in Nigeriain ways that demonstrate faith in the long-term prospects of the country’s oilsector. On December 8th a senior Shell official told journalists in Bonny thathis company planned to expand its crude oil terminal there to make it thelargest in the world by 2009, with a $500m upgrade programme. The terminal’ssuperintendent, Harry Bolten, said that the construction contract for the newterminal, which would double its current crude storage capacity of 7.2m b/d,would be signed in 1999, for work to start in 2000.

The mammoth LNGproject has made progress

Various ongoing projects to increase the utilisation of Nigeria’s abundantnatural gas reserves have continued to make steady progress. The $4bn lique-fied natural gas (LNG) project, the largest single industrial project in Africa, isexpected to begin production and exports in the fourth quarter of 1999. The5.9m-tonnes/year (t/y) two-train plant is being built in Bonny island by NigeriaLiquefied Natural Gas (NLNG), comprising the NNPC with a 49% stake, Shellwith 25.6%, Elf with 15% and Agip with 10.4%. NLNG is expected to take afinal investment decision by the end of February on plans to construct a thirdliquefaction train that would expand capacity to 8.7m t/y from 2002. In earlyJanuary NLNG officials said that buyers had already been found for a substan-tial part of the extra output. The LNG project, first conceived more than30 years ago, is expected to earn as much as $1bn per year and reduce Nigeria’soverdependence on crude oil sales.

Shell awards contracts forother gas projects

Progress has been made on other gas projects. In late January Shell awarded aFrench services company, Bouygues Offshore SA, a $160m contract for engi-neering, procurement, installation and commissioning of gas collection andprocessing facilities at its Odidi Associated Gas Gathering project. The Odidiventure, expected to come on stream in 1999, involves the collection of some80m cubic feet per day of gas that is currently flared at five Shell fields. Thedelivery date for the Bouygues contract is the third quarter of 2001. InNovember Bouygues was awarded a $43m contract by Shell for laying gaspipelines between the Ekulama field and Soku gas-processing plant, southwestof Port Harcourt, by July 2000. Also in November a unit of Willbros Groupsigned a contract with Shell, worth about $135m, for the construction of pipe-lines to carry associated gas from Shell’s Nembe Creek flow stations to Soku gasplant. The work is to be completed by the fourth quarter of 2000. On January 4thWillbros said that it had signed another contract with Shell, worth $30m, to

Nigeria 29


install four concrete barge-mounted compressor facilities for a project to com-press low-pressure flare from Nembe Creek for injection into a series of newhigh-pressure gas pipelines.

The government boostsfiscal incentives for the

gas sector

Nigeria’s 1999 budget includes four additional tax incentives for the gas ind-ustry, mostly targeted at gas-to-liquid projects. All capital investment relatingto gas-to-liquids facilities will henceforth be treated as chargeable capital allow-ance and recovered against the oil income. The existing petroleum investmentallowance on capital investment in natural gas liquids extraction plants andgas-to-liquid facilities has been raised from 15% to 35%.

Industry, transport and communications

Industrialists seek moreinvestment-friendly

policies

Although private-sector organisations have welcomed many aspects of the1999 budget, including the currency and fuel import liberalisation, many busi-ness leaders believe that it did not sufficiently address the underlying con-straints to economic development, particularly those affecting the country’sstruggling manufacturing sector. Many industrialists shared the views of thechairman of Cadbury Nigeria Plc, Bunmi Oni, when he told a post-budgetseminar in Lagos in January that the dismal performance of the manufacturingsector in 1998 may continue this year, as the budget failed to address thefundamental problems of the sector. According to Mr Oni, investment-friendlypolicies that serve to lower operating costs, raise consumer purchasing powerand strengthen its international competitiveness are needed. To reduce prod-uction costs, he advised the lowering of tariffs and taxes, the removal of unnec-essary levies, lower interest rates, reform of the ports and an improvement ofinfrastructure. These recommendations were contained in the pre-budgetmemorandum of the Organised Private Sector (OPS), which brings together theManufacturers Association of Nigeria (MAN), the Nigerian Association ofChambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and theNigerian Employers Consultative Association (NECA). The OPS also called forthe relocation of business-related government agencies to Lagos, Nigeria’s com-mercial capital, in order to reduce business administration and other overheadcosts. In its post-budget memorandum, the OPS predicted more factory clo-sures in Nigeria and higher inflation arising from such budget measures as theincrease in fuel prices and abrogation of the 25% import-duty rebate intro-duced in 1995. It condemned the restoration of excise duty on items such asspirits and cigarettes.

The government may beseeking investors in the

power sector

In November the administration was reported to have approved a plan torehabilitate the country’s eight electric power stations within six months. Thecash-strapped state-owned National Electric Power Authority (NEPA) producesless than half of its installed generating capacity of 5,867 mw, causing thecountry to suffer from frequent and prolonged power cuts. The power and steelminister, Bello Suleiman, was quoted in the press as saying that the govern-ment wanted private investors to participate in developing 16 power-generation sites. It was not clear where the money for rehabilitating existingpower stations would come from. NEPA officials have said in the past thatbillions of dollars would be needed. The government said in January that

30 Nigeria


N2.2bn ($25.7m) was spent in 1998 on the rehabilitation of four power stationsand other facilities, and declared that the priority in 1999 would be the ruralelectrification scheme, for which N1bn has been allocated in the budget.

A Nigeria Airways andBritish Airways deal

triggers a row

Nigeria’s private airline operators have attacked a commercial agreement be-tween the state-owned Nigeria Airways and British Airways (BA), signed onSeptember 29th. The Airline Operators of Nigeria (AON), which representsindigenous airlines, said that the agreement allowed BA to operate three extraflights per week from London to Lagos, on which Nigeria Airways is allocated70 seats per flight. This is in addition to BA’s daily flights to Lagos. In news-paper advertisements in November the AON described the arrangement as a“sell-out and a national sabotage”. The agreement, it said, reduced NigeriaAirways to a “glorified travel agent selling tickets on BA flights” and also giveBA a virtual monopoly of the lucrative route. Airline officials have said that theco-operation agreement was to help the cash-strapped and heavily indebtedNigeria Airways, with its depleted fleet, generate much-needed funds. The extrabusiness should also be quite lucrative for BA. The AON stated that it would notobject to the deal if BA were to invest in Nigeria Airways, which the govern-ment has found difficult to privatise. Some European airlines operating inNigeria were also unhappy with the BA-Nigeria Airways deal, especially thosethat have unsuccessfully sought permission from the Nigerian authorities toincrease the frequency of their flights to Lagos.

Nigeria Airways beginsflights to South Africa

After lengthy negotiations, Nigeria Airways finally opened a new route to SouthAfrica in late December. The commencement of direct air links between Africa’stwo regional powers followed the recent exchange of visits by the Nigerian headof state, General Abdulsalami Abubakar, and the South African president,Nelson Mandela. Nigeria’s High Commissioner to South Africa, Shehu Malami,who was on the inaugural flight to Johannesburg, said that it marked an im-provement in relations between the two countries, which had been volatileunder Abacha.

Agriculture

A parallel-marketcurrency depreciationboosts the cocoa trade

Nigerian export-commodity farmers and exporters were given a financial boostby the fall in the value of the naira in the parallel market used by traders. Cocoatraders said that, moved by the strength of the dollar, increased demand forcocoa by exporters pushed up farmgate prices for the commodity, Nigeria’sbiggest non-oil export earner. In mid-January the minimum price of gradedcocoa rose from N105,000 ($1,105)/tonne to N110,000/tonne. The upwardmovement did not reflect the state of the world cocoa market, where prices wereunder pressure from low growth in consumption and increasing supply fromWest Africa. Traders expected that the size of Nigeria’s 1998/99 crop would belarger than anticipated earlier because of better than predicted weather condi-tions. The crop is forecast to range between 150,000 tonnes and 160,000 tonnes,after an extended harvest, owing to a late start of the main crop.

Nigeria 31


Foreign trade and payments

Pre-shipment inspection isabolished

In the 1999 budget the government announced the abolition, with effect fromApril, of pre-shipment inspection for imports and exports, to help removecostly bureaucratic bottlenecks at ports. The current arrangement will be re-placed with destination inspection for imports. The government has alsopromised to cut the number of agencies operating at Nigeria’s ports, so as tocurb malpractice and corruption.

An anti-dumping agencyis planned

The government announced in the 1999 budget its intention to establish ananti-dumping authority to stem the dumping of goods on Nigeria. The author-ity will monitor and investigate unfair trade practices, including the dumpingand importing of subsidised goods. The government said that local manufac-turers have complained of being hit by an influx into the Nigerian market ofimported substitutes sold at below-cost prices, particularly items from Asiancountries affected by the financial crisis.

The allocation for foreign-debt servicing is cut

The 1999 budget allocated $1.5bn for debt servicing, down from the $2bnearmarked for the past few years. According to the finance ministry, Nigeria’sexternal debt-service requirement for 1999 is $3.6bn, excluding arrears onrescheduled debts. Government officials said that the huge gap betweenNigeria’s debt repayment obligations and the amount available for servicingdebts made it imperative for the country to seek debt reduction from the ParisClub and other creditors. However, this will depend on the successful imple-mentation of agreements not yet formalised with the IMF, and therefore seemssomewhat unlikely to be achieved in 1999.

A database for Nigeriandebt is under construction

Nigeria’s exact debt situation remains a mystery because of discrepancies be-tween the country’s debt figures and those given by its creditors. For example,the World Bank’s estimate of Nigeria’s debt stock is over $2bn more than thesum given by the Nigerian government. The finance minister, Ismaila Usman,said that the government, in conjunction with the Commonwealth Secretariat,had taken steps to improve the country’s debt database in order to be ableeffectively to reconcile the conflicting debt figures. A British financial servicescompany, Crown Agents, is playing a leading role in the project, but officialswarn that, owing to years of mismanagement and the absence of data, the sizeof the task is huge.

The embargo on externalborrowing is lifted

General Abdulsalami Abubakar said in his budget speech that the governmenthad lifted the 1994 embargo on external borrowing so as to broaden the sourceof funding to close the financial gap envisaged in 1999. The government wasparticularly interested in concessional and project-tied loans and credits.General Abubakar said that loans for financing export-oriented projects, basedon the assets and revenue of the affected enterprise, particularly in the oil andgas sectors, would also be considered.

32 Nigeria


External reserves remainhealthy despite a

cash crunch

Nigeria ended 1998 in a reasonably strong external reserves position, despitethe financial problems it experienced during the year. The government putforeign reserves at end-1998 at $7.1bn, only slightly less than the $7.7bn atend-1997. Official reserves figures were baffling, however. General Abubakarsaid in an interview in the independent ThisDay newspaper, published in lateDecember, that to meet a shortfall in revenue the government drew downreserves by $1.87bn, leaving $6.2bn in the kitty at the end of October. In hisbudget address the head of state put external reserves at the end of Novemberat $7.6bn. Analysts questioned the source of the roughly $1.4bn used to top upthe reserves between October and November. In his budget briefing Mr Usmansaid that the government would draw down on reserves in 1999 to help reducean anticipated budget deficit of N202bn ($2.35bn), to achieve an overall deficitof just N34bn ($400,000m).

The balance of paymentsdips into deficit

Nigeria’s overall balance-of-payments position in 1998 fell to an estimateddeficit of N153.35bn ($2.07bn) from a N1.08bn ($15.1m) surplus in 1997,according to the Central Bank of Nigeria’s Monetary Policy 1999 report. It saidthat the deterioration in the performance of the external sector was traceable tothe N394.9bn ($5.3bn) current-account deficit resulting from the sharp declinein oil export earnings, while non-oil imports increased from 1997 levels. Thereport said that the deficit was partly offset by the surplus in the capitalaccount, owing principally to the increase in deferred payments of externaldebt obligations.

Nigeria 33


Quarterly indicators and trade data

Quarterly indicators of economic activity1996 1997 1998

2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Industrial production Monthly av

General 1990=100 101.1 100.8 102.5 100.5 102.5 103.1 102.3 104.6 104.7 n/a

Mining: petroleum Prodn/day

Crude petroleuma m barrels 2.12 2.15 2.23 2.25 2.29 2.28 2.32 2.26 2.19 2.02b

Monthly av

Pricec $/barrel 19.9 21.3 24.1 21.7 18.4 18.9 18.8 14.2 13.3 12.7d

Prices

Consumer prices: 1990=100 889.7 963.1 929.2 939.4 985.6 1,003.5 983.1 1,010.1 1,065.7 1,107.4

change year on year % 30.5 26.6 19.9 14.3 10.8 4.2 5.8 7.5 8.1 10.4

Money End-Qtr

M1, seasonally adj: N bn 227.23 231.13 231.46 275.74 257.72 268.62 274.64 291.89 300.10 314.35e

change year on year % 27.5 21.5 15.3 28.9 13.4 16.2 18.7 5.9 16.4 n/a

Foreign tradef Qtrly totals

Exports fob $ m 3,866 3,912 4,387 4,132 3,653 4,054 4,055 3,659 n/a n/a

Imports cif ” 1,525 1,718 1,805 1,410 1,661 1,926 1,737 1,568 n/a n/a

Exchange holdings End-Qtr

Central bank & government:

goldg $ m 201 198 194 183h n/a n/a n/a n/a n/a n/a

foreign exchange “ 2,234 2,705 4,075 4,075h n/a n/a n/a n/a n/a n/a

Exchange rate

Official rate N:$ 21.887 21.887 21.886 21.886 21.886 21.886 21.886 21.886 21.886 21.886

Note. Annual figures of most of the series shown above will be found in the Country Profile.a Excluding condensates. b Figure for 4 Qtr, 1.96. c Spot price, Nigeria Bonny Light 37°. d Figure for 4 Qtr, 11.2. e End-August. f Source: DOTS.Figures are subject to revision. g End-quarter holdings at quarter’s average of London daily price less 25%. h End-January.

Sources: IMF, International Financial Statistics; IEA, Monthly Oil Market Report; Oil Market Intelligence; IMF, Direction of Trade Statistics, quarterly.

Trade with main partners($ ’000; monthly averages)

Total exportsa USbc Spainb Franceb Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports from Nigeria cif 1995 1996 1996 1997 1995 1996 1996 1997

Crude petroleum 2,725,912 4,897,977 485,758 528,359 81,727 131,235 111,827 55,074Total incl others 2,848,322 4,986,962 514,278 558,705 87,904 138,215 115,767 59,268

continued

34 Nigeria


Total importsa USbc UKb Germanyb

Exports to Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Nov Jan-Nov Jan-Dec Jan-Dec

Nigeria fob 1991 1994 1995 1996 1997 1997 1998 1996 1997

Food, drink & tobacco 34,456 62,836 77,784 13,501 9,340 2,720 3,746 709 738

of which:

dairy products 6,142 n/a n/a 5 10 81 349 369 423

cereals & preparations n/a n/a n/a 13,104 8,790 464 700 6 6

sugar & products 10,387 n/a n/a 3 0 132 115 130 40

Mineral fuels & lubricants 2,952 7,321 8,643 1,435 3,398 427 892 599 418

Chemicals 81,682 153,736 174,847 5,039 7,242d 10,889 11,210 7,577 6,227d

Manufactured goods 104,338 136,044 154,237 6,707 n/a 14,802 11,378 13,158 n/a

of which:

textile yarn, cloth & mnfrs 4,582 n/a n/a 485 778e 2,335 2,895 110 99e

non-metallic mineral mnfrs 16,481 n/a n/a 858 283f 890 1,736 1,339 413f

iron & steel 47,616 n/a n/a 3,983 2,316g 6,204 1,562 4,479 5,625g

metal manufactures 10,969 n/a n/a 565 331h 2,995 2,969 1,314 458h

Machinery & transport eqpt 195,067 190,339 182,825 35,634 40,574 22,176 27,063 24,459 26,762

of which:

machinery incl electric 128,017 n/a n/a 32,074 30,036 19,992 24,519 19,198 16,975

road vehicles 57,785 n/a n/a 1,620 1,810i 1,644 1,931 4,064 3,953i

Miscellaneous manufactured

articles 20,982 27,453 27,435 1,665 n/a 5,387 6,264 5,025 n/a

of which:

clothing & footwear n/a n/a n/a 63 64 530 487 68 107

scientific instruments etc n/a n/a n/a 1,109 1,093 2,430 3,080 960 916

Total incl others 592,863 610,062 664,816 66,358 67,579 57,643 62,142 54,570 58,582

Note. Prior to 1997, US and Germany based on SITC. From 1997, Harmonised System. Figures are not strictly comparable.a Figures from Nigerian statistics; exports fob; imports cif. b Figures from partners’ trade accounts. c US imports averaged $573.8m and$393.1m per month for the periods January-November 1997 and 1998. US exports averaged $66.9m and $68.2m per month for the periodsJanuary-November 1997 and 1998. d Including crude fertilisers and manufactures of plastics. e Including fibres. f Including precious metals andjewellery. g Including manufactures. h Tools and miscellaneous metal manufactures. i Including tractors.

Sources: IMF, International Financial Statistics; UN, External Trade Statistics, series D; UN, International Trade Statistics, yearbook; UK HM Customs & Excise, Business Monitor, MM20; US

Department of Commerce News, FT900.

Direction of tradea

($ m; monthly averages)

Imports from Jan-Dec Jan-Dec Jan-Sep Jan-Sep Exports to Jan-Dec Jan-Dec Jan-Sep Jan-Sep

Nigeria cif 1996 1997 1997 1998 Nigeria fob 1996 1997 1997 1998

US 525.6 558.7 586.3 410.3 US (fas)b 68.0 68.2 69.1 65.5

Spain 138.3 130.1 116.8 80.8 UK 57.0 58.2 57.9 61.4

France 115.4 59.6 48.0 67.7 Germany 54.6 60.7 62.8 49.9

Italy 28.7 43.7 40.8 34.7c France 42.2 38.1 38.3 43.1

Germany 58.9 72.1 71.2 27.5 Italy 20.3 29.8 29.9 28.8c

Portugal 45.1 41.3 39.0 24.4d Netherlands 26.6 22.8 21.8 27.4

UK 38.5 16.8 18.1 22.7 Japan 25.8 17.8 18.1 19.0

Canada (fob) 19.0 31.4 33.8 22.2 Brazil 22.9 20.8 20.2 14.0e

Switzerland 21.2 25.8 27.3 20.9 Belg-Lux 10.6 13.2 13.8 9.8

Brazil 23.3 51.3 35.0 18.0e Spain 13.7 7.6 7.4 9.3

a Figures from partners’ trade accounts. b Including re-exports. c January-August. d January-July. e Estimate.

Sources: US Department of Commerce News, FT900; OECD, Monthly Statistics of Foreign Trade; IMF, Direction of Trade Statistics, quarterly.

Nigeria 35


country report · gdp growth of 2% and a substantial current-account deficit of $5.9bn in 1999. if...

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