Risks In Nigeria

NIGERIA

Country rating: D

(A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.)

BUSINESS CLIMATE RATING: D

(The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional frame work has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environment rated D.)

Nigerian growth is stabilizing at a respectable level in a difficult international context

GDP growth, which was steady in 2012, is expected to slow slightly in 2013 due to tighter fiscal and monetary policies. Oil prices are not expected to fall significantly on the world market in 2013. The volume of production in Nigeria is expected to rise thanks to the start of operations at a new oilfield (Usan), guaranteeing the maintenance of oil export revenues and preventing growth from slowing too sharply. Agriculture and services will be buoyed by domestic demand with private consumption (54% of GDP) remaining dynamic.

The drop in oil price subsidies and the expected rise in electricity prices, as the sector is privatized, will continue to exert upward pressure on prices. The Central Bank of Nigeria’s (CBN) maintenance of a relatively restrictive monetary policy will curb inflation.

Budgetary and fiscal balances in a state of fragile equilibrium, as is the banking sector

The slight public accounts surplus recorded in 2012 (1.5% of GDP) will continue in 2103 thanks to the policy of controlling government spending. The creation of a new fund using a portion of oil revenue (Sovereign Wealth Fund) could improve the management of public finances, the previous fund having been almost completely emptied under political pressure. But the government’s room for man oeuvre will be tighter than expected, in view of the partial maintenance of fuel subsidies following last year’s strikes triggered by their announced abolition. Moreover, the delay in privatizing the electricity sector will postpone by at least a year the increase in revenues on which the government was also counting. The state’s revenues remain strongly dependent on oil revenues, which makes the public finances vulnerable.

The current account balance, “historically” in surplus, is likely to lessen in 2013 due to higher imports of capital goods and refined oil. Crude oil exports (90% of the total) will increase in volume but will probably not benefit from the price rises recorded in 2012.

Foreign exchange reserves, which are one of the main instruments

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