NIGERIA, SAUDI: after IMF’s caution on GCC’s rising fiscal break-even oil price, note greater vulnerability of Nigeria, compared to Saudi, to falling oil p & QE taper. Particularly given its equities have outperformed. Last year: MSCI Nigeria +31% vs Saudi +24%, Frontier +20%. See attached Frontier Alpha graphic.

1. Rising Breakeven Oil Price: Nigeria More Vulnerable Than Saudi
•
Niger Delta output theft raises effective fiscal breakeven price above budgeted breakeven assumption
•
Oil theft has risen in the run up to 2014 PDP presidential nomination and 2015 election
•
Pressure to raise expenditure likely intensifies in 2014 (pre-election year), particularly with emergence of nPDP, APC
•
Nigerian currency floating as opposed to dollar peg in Saudi
•
Nigerian equities driven more by foreign funds flow compared to Saudi (driven by local investors with surplus capital)
•
While both have low debt, Nigeria has saved little of its recent oil windfall (versus Saudi sovereign wealth buffer)
•
Long-term, challenge for both countries to pursue difficult economic reforms when/ if oil price weakens, QE tapered
Fiscal Breakeven in 2013-14
150
Mid 2008 Peak
130
110
2014 Spot Price
90
Saudi
Nigeria
70
50
End 2008 Trough
30
0
5
10
15
20
25
Change in Fiscal Breakeven Price 2008-2014
Source:: IMF November 2013 MENA REO, Budget Office of the Federation of Nigeria
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