Nigeria Outlook 2013

Topics: Peak oil, Gross domestic product, Macroeconomics Pages: 28 (4711 words) Published: December 12, 2013
Quarterly update – December 2013
Final analysis by Nenad Pacek

Business and economic outlook


Executive summary
Economic fundamentals
Strategic business importance
Corporate sales and profit trends
Growth trends and drivers
Household consumption trends
Gross fixed investment trends
Government spending trends
Currency outlook
Interest rates and inflation outlook
Political risks to be aware of
Forecast table


Almost 80% of companies managed to grow sales in 2010/2011/2012 and this number has dropped to 77% in 2013 amid rising competition
This makes Nigeria one of the most consistent and one of the strongest performers for corporate sales in MEA and in emerging markets
Over 50% of companies are growing in double digits, stronger than they anticipated Expectations for 2014 are mildly stronger – 84% of companies expect sales growth and half expect to grow in very solid double digits

Competitive pressures will continue to increase and affect margins as companies heavily prioritize Nigeria for emerging markets/Africa expansion
Real GDP grew 6.6% last year and it will reach 6.6% in 2013 (there is a small upside) Our central scenario is growth of 6.7% in 2014 and 6.5% in 2015 (oil price is a risk though) Growth will be mainly driven by non-oil sectors while oil production continues to struggle due to significant organized oil theft and resulting lower production In 2014 household spending will grow by 8%, corporate investment spending by 7%, government spending by under 8% and exports by 2.5%

Inflation has slipped to single digits (7.8% yoy) and it will average 8.9% this year and 9.2% next year as spending increases prior to 2015 elections

Executive summary I

The budget for next year was drafted but governors are demanding changes and more spending – as usual the budget passage through parliament will be delayed and most spending out of the $28bn budget will go for recurrent expenditures Oil output is up slightly to 2.2m b/d, but still some 300,000 barrels short of capacity The power sector has largely been privatised and is now owned by local oligarchs The current account surplus will gradually narrow in the next two years and due to strong demand for dollars (strong imports) as well as some outflows expected with US Fed tapering in 2014, there will be more naira pressures than usual in the coming 2-3 years The naira is trading at 158.4 now (on the weaker side of the 150-160 trading band) and if oil prices go down in 2014, the naira could slip to over 160 The central bank is now intervening against depreciation to keep the naira within the trading band – there are enough reserves to intervene ($45bn, down from $47 three months ago)

The long-awaited petroleum bill is still not approved -- if it does not go through, Nigeria will face a gradual decline in oil production
To reduce reliance on oil, the government is now offering major incentives for mining of 34 minerals that exist in commercial quantities – this will help growth over the medium term
The ruling PDP has partly split and opposition is growing stronger prior to 2015 elections Pre-election spending will provide a boost to domestic demand in 2014

Executive summary II

Population of over 170m, growing by a staggering 4.0 to 4.5m people per year 10th largest proven oil reserves in the world at 37bn barrels – largest in Africa after Libya (there are probably more unproven reserves, but in the absence of a proper petroleum law, new investments are rare – some new deals are now in the making for new offshore exploration) Due to lower exports to the US, together with incidences of theft and kidnappings, oil production is down from 1.95m b/d from 2.2m b/d in 2011 (the target for this year is 2.5m b/d), with plans for 4m b/d by 2022 (only...
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