Flash Forecast, Nigeria Political Risk Forecast, PRS Group

1. Political Risk Services
19-Feb-2015
Nigeria: Flash Forecast
FORECASTS OF RISK TO INTERNATIONAL BUSINESS
Turmoil
Financial
Transfer
Direct
Investment
Export
Market
18-Month: Very High C+ (B-) C (C+) C
Five-Year: Very High C C C
KEY ECONOMIC FORECASTS
Years
Real GDP
Growth % Inflation %
Current
Account ($bn)
2010-2014(AVG) 5.9 10.7 15.14
2015(F) 5.0 9.4 -6.30
2016-2020(F) 6.3 8.0 7.20
Heading for an Explosion?
Tensions were running very high in Nigeria in the days leading up to the presidential and legislative
elections scheduled for February 14, and the political climate has only worsened as a result of the
postponement of the vote until late March. The delay was deemed necessary owing to dismal security
conditions that precluded the staging of credible elections in large sections of the Muslim-dominated north
of the country, and given the degree of overlap of geography, religious leanings, and party affiliation, the
effective exclusion of a sizeable share of any section of the electorate would inevitably call into question the
legitimacy of the result. The question going forward is whether there is reason to expect that security
conditions will be greatly improved six weeks from now. The government claims to have scored some
military successes against the Islamist militant Boko Haram forces that have carved out a sizeable zone of
control in the north, but evidence that the jihadists are expanding their operations into neighboring countries
would seem to indicate that there is little chance that Boko Haram might be sufficiently neutralized as to
permit the holding of elections in areas it currently controls anytime soon.
According to recent polls, Muhammadu Buhari, the presidential candidate of the opposition All Progressives
Congress (APC), is running neck-and-neck with the incumbent, Goodluck Jonathan, who is once again
standing as the candidate of the governing People’s Democratic Party (PDP). The PDP has controlled the
government continually since the restoration of civilian rule in 1999, and as the only party that enjoyed truly
national support, its retention of power was long seen as essential to Nigerian unity. However, leading
northern Muslim figures bolted the party in protest over Jonathan’s insistence on running for another term,
which they perceived to be a violation of the principle of alternating rule between the southern Christian and
northern Muslim wings of the PDP. Consequently, the 2015 election in effect represents a battle between a
southern Christian presidential candidate and party (Jonathan and the PDP) and a northern Muslim
candidate and party (Buhari and the APC). Under the circumstances, the risk of post-election sectional and
sectarian violence is especially pronounced, regardless of the outcome of the voting.
The risks are heightened further by a rapidly worsening economic outlook, the result of a sharp slide in oil
prices, which, in addition to undermining growth potential, has contributed to the rapid depreciation of the
naira, even as reduced dollar inflows from oil sales have diminished the central bank’s capacity to intervene
in defense of the currency. In mid-February, monetary authorities halted biweekly dollar auctions, extended
a ban on the resale of dollars between banks, and set the official naira exchange rate at 198 to the dollar,
moves that amounted to a de facto devaluation. With liquidity remaining very thin, a further substantial
devaluation may be unavoidable, the result of which would be higher inflation, the depletion of household
savings, and heightened labor unrest as unions push for significant compensating wage increases. Those
ingredients, along with the heat generated by election-related discontent, amount to recipe for upheaval.