Economic Update

Published 12 Jan 2012

After overcoming a number of political obstacles in 2011, Nigeria’s government has pledged to keep economic reform momentum strong this year, with steps aimed at encouraging macroeconomic stability, improving investment attractiveness and confronting unemployment.

Since defeating the challenge to his April election victory in November, incumbent President Goodluck Jonathan has focused on his Agenda for National Transformation (ANT), which envisions widespread reforms in sectors ranging from finance to health care and insurance.

A key target of this agenda has been the banking and finance sectors, with a Sovereign Wealth Fund (SWF) established to put excess revenues earned from oil exports to better use. In November Jonathan also praised efforts by the Central Bank of Nigeria (CBN) to clean up the banking sector and ensure stability.

“We are determined to constantly monitor the banking system, making sure it remains robust and competitive,” Sanusi Lamido, the governor of the CBN, told local media.

In August the government was forced to take over three banks – Bank PHB, Afribank and Spring Bank – which were failing despite a $4bn bailout in 2009 that was provided for these and six other banks “in the interest of depositors and to prevent possible liquidations,” according to Nigeria Deposit Insurance Corporation.

However, by December all nine rescued lenders had agreed to recapitalisation deals, closing the reform programme established in 2009 and leading CIB officials to state that Nigeria had “drawn a line” under the country’s banking crisis. On October 21, Fitch Ratings revised Nigeria’s credit rating outlook to stable, or BB-.

The SWF, which received the final green light of both the federal and state governments in November, is aimed at securing funds for greater economic stability and the improvement of national infrastructure. According to the Finance Ministry, the fund’s management will be appointed in early 2012 after which it will start operations with a paid-up capital of $1bn.

The country is trying to escape the image that it is suffering from a resource curse, where vast oil revenues do not lessen unemployment or poverty.

In September, Jonathan said the insurance sector was highlighted to play a leading role in Abuja’s ANT agenda and called on stakeholders in the industry to reassure Nigerians of the benefits that insurance provides to their socio-economic wellbeing.

In July the Nigerian Insurers Association established a centralised database system to act as an authentic repository for all the sector’s data. The system is intended to provide mechanisms for the verification of Insurance Certificates issued or presented as evidence of insurance for motor and marine at the first instance and then other classes of insurance.

Meanwhile, progress has not been sound in the stock market, with the full-year average return of 18.9% in 2010 upended when the exchange suffered major setbacks in 2011. Average loss by investors in equities stood at N1.6trn ($9.8bn) as the benchmark index indicated a 19.1% negative return. In December, the Securities and Exchange Commission inaugurated seven sub-committees of the Capital Market Committee to map out strategies aimed at the stock market’s revival.

In terms of investment, Abuja has targeted N34trn ($208.29bn) in investment over the next four years as part of Vision 2020, the development plan that aims to place Nigeria among the leading 20 world economies by that year. Officials say that investor confidence will be buoyed as election-related woes pass, and that the government’s foreign direct investment (FDI) focus is on creating opportunities for private investors in the energy sector, as well as in agriculture and manufacturing.

According to the World Investment Report 2011, prepared by the UN Conference on Trade and Development, FDI inflows into the country fell from $8.65bn in 2009 to $6.09bn in 2011, with blame placed on delays to the Petroleum Industry Bill.

Another focus of the government’s multifaceted reforms in 2011 has been the telecoms sector. Omobola Johnson, the minister of communication technology, stated at a major International Telecommunication Union conference in Geneva in October that Nigeria is ready and fully prepared to carry out more reforms in the communications industry, and that international investors and industry experts should come and play a role in a market that has a guaranteed pay back on investment.

That same month the sector received a boost with the entry of Chinese firm Huawei Technologies, which plans to tap into the 90m-strong market of mobile phone users by offering more advanced devices with multimedia and internet.

In the energy sector, the government is working to pass the far-reaching and long-awaited Petroleum Industry Bill, a law that is expected to streamline industry operations and increase Nigeria’s share of profits from oil exports through steps that include improving fiscal regimes and restructuring the state oil company.

Opposition lawmakers have argued that delays to the bill’s passing will deprive the nation of the comprehensive legal and regulatory framework needed to manage large oil revenues. In December French oil firm Total said recent boosts in its output would lift the country’s crude oil production to 2.8m barrels of oil equivalent per day (boepd), from the current level of 2.6m boepd.

As the PIB has returned to the drawing board in a bid to overcome its main objections, the government is accelerating initiatives to diversify the economy, targeting the manufacturing, entertainment and agriculture sectors for growth. “When one considers the non-oil revenue collection ratio as a share of GDP, Nigeria lags well behind other peer economies,” said Razia Khan, the head of Africa research at Standard Chartered.

Business leaders say the country needs to increase its investment infrastructure to better achieve diversification. Critical to this objective is a resolution to the problems with electrical supply. As Nigeria is the world’s highest importer of generators, several provinces have welcomed Jonathan’s plans to commence a pilot scheme for uninterrupted power supply, with seven states currently being used to test the programme. The federal government has pledged a steady power supply throughout the country by 2015.

Promises such as these, combined with the government’s focus on maintaining economic growth momentum in 2012, should see improvement in a variety of economic sectors as they open the doors further to private investment.