Outlook for 2011-15

• The approaching elections, due in April 2011, is likely to usher in a period of political instability that will probably see a significant increase in political tension during the early part of the forecast period.
• Nevertheless, the central scenario is that the president, Goodluck Jonathan, and his party, the People's Democratic Party (PDP), will win the elections and remain in power for the duration of the forecast period.
• Economic expansion will be buoyed by robust performance in the non-oil sector. Real GDP growth is expected to average over 6.5% in 2011-15.
• However, such a growth rate is still below the double-digit levels needed if the country is to meet the goal of becoming one of the world's top-20 economies by 2020.
• Loose fiscal and monetary policy, combined with higher food import prices, is expected to mean that inflation will come down only gradually during the forecast period, from 12.7% in 2011 to 9.1% in 2015.
• Current-account surpluses are expected throughout the forecast period as oil exports remain robust. However, import growth for infrastructure development will be rapid, leading to a steady decline in the surplus in 2012-15.

Monthly review

• The Independent National Electoral Commission (INEC) completed the registration of voters on February 7th,, an exercise that was marred by poor planning, raising doubts about the readiness for the April polls.
• President Jonathan said at the end of January that he plans to serve for just one term if elected at the April 9th presidential poll, a declaration that could help appease some of his political opponents in the north.
• The latest wave of sectarian violence in Nigeria's central Plateau state has shown little evident signs of abating.
• The Central Bank of Nigeria (CBN) raised its benchmark interest rate to 6.5% from 6.25% as part of measures to tighten liquidity and rein in inflation.
• Nigeria's commercial banks agreed on February 1st to triple their lending to the agricultural sector from around 1% to at least 3% of loans amid mounting concerns about the failure of banks to increase lending to the real sector.
• Nigeria's real GDP grew by 8.3% in the fourth quarter of 2010, up from 7.9% recorded in the previous quarter, while overall growth for the year was estimated at 7.9%.
• Nigeria issued a US$500m debut international bond on January 21st that was 2.5 times oversubscribed.

The immediate political focus is now firmly on the April 2011 presidential election. The decisive victory of the president, Goodluck Jonathan, in the People's Democratic Party (PDP) presidential primaries has significantly reduced the risk of Nigeria's largest party breaking apart over the issue of power-sharing between the north and south. Under an unwritten arrangement within the PDP, the presidency is supposed to rotate every two terms between politicians from the north and the south-an important geopolitical divide. The death in May 2010 of the incumbent president, Umaru Yar'Adua (a northern Muslim), saw the then vice-president, Mr Jonathan (a southern Christian), ascend to the presidency. As Mr Yar'Adua had served only one term, a faction of northern political heavyweights demanded that another northern candidate succeed him. However, at the primary election many northern delegates in fact chose to back Mr Jonathan, suggesting that the PDP remains largely undivided. While the significant powers of incumbency enjoyed by Mr Jonathan played an important role in his victory, the result also suggests that the party membership is not as opposed to his rule as his critics make out. Those who remain opposed to his leadership may still leave the party, but their options are limited. It is now too late for them to leave to take up the presidential candidacy of any of the major opposition parties, which have already selected their leaders.

The run-up to April's elections is likely to be fraught, with outbreaks of political violence. There has already been evidence of political unrest and mounting tension in some parts of the country, which could escalate if competing politicians choose to exploit existing fault lines and social divisions for their own ends. Likely hotspots include Plateau state, at the crossroads of Nigeria's Muslim north and Christian south, where dozens of people have been killed in sectarian fighting in recent months. The long-standing unrest in the oil-producing Niger Delta region, where armed militants and criminal gangs have been attacking oil facilities, could worsen if local politicians decide to use the region's problems for their own ends or recruit militants to intimidate their opponents, as has happened in previous elections. Even assuming that the elections pass off without any catastrophic breakdown in security, the political situation will remain tense during the remainder of the forecast period. Much of 2011 is likely to be taken up with court cases over disputed polls, as happened after the 2007 elections. In addition, Nigeria will remain troubled by political and social tensions, arising mainly from the underlying problems of poverty and underdevelopment.

The Niger Delta situation is set to remain precarious throughout 2011-15. Hopes were raised by a government amnesty in 2009, but the administration has struggled to live up to its promises to create jobs and improve infrastructure in the region. Whoever the next president is, they are likely to prioritise the calming of tensions in the region after coming to power, given the importance of the oil sector to Nigeria's prospects. Although a military solution would be messy and impractical given the Delta's complex terrain, peaceful resolution will be difficult for a number of reasons, including the fact that the militants' demand for local control of mineral resources is unacceptable to the political elites in other regions of the country, especially the north. An additional complicating factor is that the militia groups form an amorphous and fragmented movement with which it is hard to negotiate and which has attracted large numbers of criminals motivated by greed rather than grievance.

Presidential, legislative and state-level elections are due to be held in April 2011. The mishandling of voter registration indicates that the Independent National Electoral Commission is not as well prepared as it needs to be to ensure the smooth conduct of free and fair polls. Nigeria has a poor record for holding free and fair elections-something that seems unlikely to be resolved this time round, with violence and malpractice likely to feature once again.

Given the enormous advantages of incumbency and the fact that the PDP is the only truly national party in Nigeria, Mr Jonathan is the strong favourite to win the presidential election. His position as front-runner is buttressed by the inability of opposition parties to form a united front against the PDP. The fact that Mr Jonathan's main rivals in the election are three northerners means that any northern vote fuelled by resentment of the PDP's choice of presidential candidate is likely to be divided. Nonetheless, the PDP may not dominate the elections to the extent that it did previous presidential polls, especially if dissident factions in the PDP were to switch their backing to an opposition candidate. As it is, out of Mr Jonathan's three main opponents, a former military ruler, Muhammadu Buhari, represents the biggest challenge. Mr Buhari has effective political machinery in the north and he is popular among some in the south who believe that his austere, anti-corruption outlook is what Nigeria needs at the moment.

An alternative scenario, albeit with a low probability attached, is that the political acrimony degenerates to such an extent that the military attempts to seize power. A coup cannot be ruled out-there have been numerous periods of military rule in Nigeria since independence-but popular support would not be forthcoming. The current situation, although unfortunate, is nowhere near as desperate as the systemic breakdowns that led to previous coups.

Foreign policy will continue to emphasise the need for Nigeria to play an influential role in Africa. Politics will become more inward-looking during the election period in 2011, but for the remainder of the forecast period whoever is the president will continue the tradition of projecting Africa's most populous nation as a leading power on the continent, and one deserving to represent the region in major international bodies. Nigeria will continue to play a prominent role in regional peacekeeping missions. The country is also a key supplier of oil to the US, and the US administration is keen to improve relations in the face of growing Russian and Asian interest in the country's natural resources. Nigeria's relations with Western oil companies may undergo some changes as China increases its competitive bids for Nigerian hydrocarbons resources and as the government attempts to make changes to oil-sector legislation that could increase taxes and the requirement for local inputs and labour. However, the current oil majors will remain the primary producers in the medium term.

The pace of reform has received a notable boost under Mr Jonathan. However, the implementation of crucial pieces of legislation-such as the Petroleum Industry Bill, which is aimed at overhauling the hydrocarbons sector-will provide a tough test for the economic team, as most of Nigeria's politicians now have their attention firmly on the upcoming elections. The reform process is therefore likely to slow, despite Mr Jonathan's best efforts, at least for the first half of 2011. If the elections are more widely disputed, this delay in policy implementation could last even longer as the subsequent legal wrangling takes precedence. Indeed, depending on the conduct of the elections, there is a possibility that 2011 could become a lost year in terms of policy reform.

Arguably the greatest challenge-and a major failing of the previous administration-will be to find a solution to Nigeria's grave electricity supply problems. The government expects the private sector to play a key role, although private companies look set to take a cautious approach given the challenging operating environment. Until they become fully involved, the government has committed itself to large subsidy payments to keep electricity prices low for end-users.

The Ministry of Finance is pushing for a tightening of fiscal policy over the forecast period, as laid out in its 2011-13 Medium-Term Fiscal Framework and Mr Jonathan's recently delivered 2011 budget speech. The aim is to reduce the fiscal deficit that built up in 2009-10 as the government attempted to mitigate the impact of the global slowdown with a loosening of fiscal policy. However, the administration is expected to find it hard to curtail expenditure in 2011 as pressure grows for ministries to launch high-profile projects, but it is likely to have more success in 2012-14, especially if capital expenditure is better managed. However, even then the administration will have few options open to it to make sharp cuts in public spending without upsetting trade unions. The government will also face mounting pressure from cash-strapped state governments for greater access to their share of any windfall earnings from oil and gas. The federal government will try to maintain its large share of income against the clamour for greater decentralisation of Nigeria's finances, but it is likely to have to bow to some of the states' demands and raise their allocations.

Total revenue is likely to continue to increase steadily throughout the forecast period, in line with robust economic growth, although the gradual decline in international oil prices from 2012 will mean that revenue as a share of GDP will fall. However, better expenditure control should mean that the government is able to bring down the fiscal deficit, albeit only slowly, from 5.9% of GDP in 2010 to 4.2% of GDP by 2014. Fresh elections due in 2015 are likely to push up expenditure and, consequently, raise the fiscal deficit to 4.5% of GDP.

The budget deficits expected during the forecast period are not likely to be large enough to endanger overall economic stability, but they are likely to generate some inflationary pressures. Although the deficits during the forecast period will continue to be financed largely by domestic borrowing, the government has also indicated that it intends to access external sources. A debut Eurobond was successfully launched in January and based on this success, the government is expected to return to international capital markets in 2012-15.

The Central Bank of Nigeria (CBN) is expected to find it difficult to maintain a balance between its objective of managing inflation and the government's aim of reducing the cost of borrowing by the private sector to encourage investment in productive activities. As a result, while the CBN has recently increased its prime interest rate by 25 basis points, and while further rises are possible during 2011-12 as the central bank attempts to offset high government expenditure, they are unlikely to be of sufficient magnitude to bring inflation to single digits as desired by the CBN. The issue of boosting lending to the productive sectors is also complicated by the banking crisis of 2009 and the subsequent reform programme put in place by the CBN. Banks are proving reluctant to lend given the uncertainty in the sector. The government is attempting to push banks towards increasing loans in areas like agriculture, but as many lenders lack the capacity properly to assess risk in smaller businesses, little benefit is likely to arise from such a scheme. Overall lending interest rates are expected to come down only moderately during the forecast period as inflation remains stubbornly high.

One matter that may affect monetary policy over the early part of the forecast period is the relationship between the current CBN governor, Lamido Sanusi, and the next president following the 2011 elections. As an appointment of Mr Yar'Adua, Mr Sanusi now has less support in the upper echelons of government and a move to replace him cannot be ruled out. However, he would probably be replaced by another technocrat, following the trend of recent appointments at the CBN, and so monetary policy would not be expected to suffer overall.

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Although uncertainty related to elections and the global economy may affect growth levels in 2011, Nigeria is expected to enjoy a period of robust economic expansion averaging over 6.5% per year during the forecast period. However, this is below the double-digit levels needed if the country is to meet the goal of becoming one of the world's top-20 economies by 2020. This is primarily a result of the dire state of Nigeria's infrastructure, notably the electricity supply. Furthermore, continuing flare-ups of political unrest in the Niger Delta-despite growing efforts by the government to find a solution to some of the issues involved-will constrain growth in the vital oil and gas sector throughout the forecast period. There will, however, be some increases in oil and gas production as new deep-water oilfields open or expand. These are less susceptible to action by militias than the onshore fields, but they will not be immune.

With oil production having contracted in 2005-09 owing to the troubles in the Delta, it has been non-oil growth that has driven the economy forward. This will continue to be the case in 2011-15. The services sector will be a major contributor, particularly from the dynamic telecommunications sector, but also from the construction of both privately and publicly financed infrastructure. The contribution of the banking sector-a major source of growth in recent years-will be more muted in the early part of the forecast period as the sector recovers from the troubles of 2009. The agriculture sector has also performed well in recent years, with food production increasing steadily. Agriculture will remain an important sector throughout the forecast period, not only as a contributor to overall economic growth, but also as a major employer. The manufacturing sector will continue to struggle owing to dire infrastructure and strong Asian competition.

On an expenditure basis, growth in public consumption will remain significant as robust oil prices allow the government to expand its infrastructure development programme, but will be down on the levels seen during the 2009-10 fiscal expansion aimed at stimulating the economy. Gross fixed investment will remain centred on the oil and gas sector, but will be below potential because of the fragile security situation. Private consumption may be hit by a drop in confidence early in the forecast period, around election time, but will rebound strongly in line with the broadly favourable outlook for economic prospects. Export growth is also likely to improve as the forecast period progresses, with production improving on the back of greater offshore development and slightly better security onshore. However, exports will continue to be outpaced by import growth as capital imports for infrastructure and consumer imports both increase quickly.

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The CBN has struggled to control inflation over the past two years, owing to elevated global food and fuel prices, political uncertainty and the high level of both government spending and liquidity in the economy. Although some of these factors will decline in significance during the forecast period, inflation will not come down especially quickly. Food prices are on the increase once again, and although government expenditure will slow, it will remain robust-especially at state level, where fiscal laxity remains a problem. The CBN recognises the challenges faced, having increased its prime interest rate in the second half of 2010 and early 2011, and is expected to tighten monetary policy further in 2011. However, the strength of tightening required for a major drop in inflation will be politically unpopular with a government that will continue to favour keeping interest rates relatively low, in order to boost lending to the non-oil sectors of the economy. From an estimated peak of 13.7% in 2010, inflation is forecast to moderate to an average of 9.1% in 2015.

The CBN is expected to continue to favour maintaining the value of the local currency, the naira, within a narrow band, with periodic adjustments to avoid a further significant running-down of foreign-exchange reserves. Relatively strong oil prices in the forecast period-albeit falling from 2012-should allow the maintenance of this policy, although the reform-minded CBN governor is likely to want greater liberalisation of the currency markets once the current instability in Nigeria's financial sector has been addressed. In addition, the government and the CBN are keen to avoid the further running-down of foreign-exchange reserves, which plummeted in 2009-10. Coupled with the expected moderation in oil prices during 2012-15, periodic downward adjustments to the currency are expected throughout the forecast period to avoid further pressure on reserves. From an average of N155:US$1 in 2011, the naira is expected to slide to N177:US$1 in 2015. Greater currency liberalisation will also erode the parallel market premium.

Oil prices will remain the single largest determinant of the health of Nigeria's external position, as diversification during the forecast period is expected to be subdued at best. An increase in the oil price forecast for 2011 improves the external position at the start of the forecast period, but with oil prices falling back subsequently, overall export growth will be relatively slow. Meanwhile, imports will grow more rapidly as infrastructure spending is scaled up and strong economic growth attracts higher levels of consumer imports. This means that the current-account surplus will gradually shrink as a proportion of GDP, from 11.8% of GDP in 2011 to 6% of GDP in 2015. The services and income accounts will remain firmly in deficit, related as they are to trade and oil-sector profit repatriation, respectively. Private transfers from the large Nigerian diaspora will remain sizeable, but will be slow to recover in 2011 owing to the impact of the global economic slowdown on Nigerians working in the West. However, they will pick up in 2012-15 amid a healthier global context.

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The Independent National Electoral Commission (INEC) completed the registration of voters on February 7th,an exercise that was marred by poor planning, which raised doubts about the readiness for the April 9th national and state elections. The voter registration drive was initially scheduled for the two-week period ending January 29th, but was extended by the parliament by a week, to February 5th, because of technical problems experienced at centres across the country. On February 5th the INEC announced a further two-day extension to enable it to record voters in areas where registration had not taken place "due to communal conflicts, overpopulation, technical or logistical problems". Much of the difficulties encountered by the INEC stemmed from shortages of imported electronic voter registration equipment-including laptop computers, fingerprint scanners, cameras and printers-faulty machines, and the lack of experience of INEC operators in using the new technology introduced in an attempt to avoid the fraud that marred past elections.

The delayed and problematic compilation of the electoral roll did little to boost public confidence in the INEC's ability to organise smooth, free and fair ballots for April. There remains some concern that Nigeria may end up with a voter list that is not much of an improvement on the flawed register used for the 2007 elections, which were spoilt by widespread vote rigging that led observers to deem them not to have been credible. Nigerians have been hopeful that the administration of the current president, Goodluck Jonathan, will deliver on its pledge to organise credible polls in April, thereby breaking the cycle of chaotic elections that have so far blighted democracy in Africa's most populous nation. The US-based International Republican Institute released a Nigerian public opinion survey on February 1st that showed that 74% of people interviewed believed that April's ballot will be more credible than the 2007 polls. The poll of 3,030 people, conducted between November 29th and December 7th 2010, also showed that 63% have a lot or some confidence in the INEC. The Commission may well not have enjoyed this level of confidence had the survey been carried out following the voter registration fiasco.

President Jonathan said at the end of January that he plans to serve for only one term if elected at the April 9th presidential poll, a declaration that could help appease some of his political opponents in the north. Mr Jonathan, a southerner who inherited office after Umaru Yar'Adua, a northerner, died last year during his first term in office, would constitutionally be entitled to seek re-election in 2015, but the prospect of this happening would further alienate those northern politicians who wanted the People's Democratic Party (PDP) to select a northern candidate for the 2011 election, in accordance with a zoning arrangement that rotates power between the north and south of the country every two terms. Mr Jonathan is expected to win in April, largely because of the advantages of incumbency as well as the failure of opposition parties to agree on a joint candidate to face the ruling party, which has dominated Nigerian politics since the outset of the Fourth Republic in 1999. However, while Mr Jonathan's proclamation may take some of the sting out of any potential northern backlash to his selection for the 2011 election, the Economist Intelligence Unit suspects that the situation could be different by 2015. Four years is a long time in Nigerian politics and if the president is able to start moving the reform process in the right direction and build upon his general popularity, he may well change his mind on the issue of re-election in order to try and finish the job, calculating that he will be in a strong enough position to face down any challenge from his opponents in the north without risking party unity too much.

The latest wave of sectarian violence in Nigeria's central Plateau state, which began on December 24th with multiple bombings in the state capital, Jos, has so far shown few evident signs of abating (January 2011, The political scene). According to a report by the US-based Human Rights Watch (HRW), published on January 27th, more than 200 people had been killed since the start of hostilities in tit-for-tat clashes. The authorities face a difficult task trying to quell the unrest in this region where inter-communal bloodletting claimed at least 1,000 lives in 2010 and nearly 4,000 since 1999. At the end of January the government began to dispatch new troops to Jos to replace members of the special task force that has served for more than a year in the state, but has been accused by Christians of being biased against them. Meanwhile, Muslims have called for a state of emergency in Plateau state and the removal of the state's Christian governor, Jonah Jang, accusing his government of instigating violence against Muslims.

The tension in Plateau state is fuelled by several hard to resolve, underlying factors, including resentment between so-called indigenous people, who are mostly Christians, and migrants and settlers from the mainly Hausa-speaking Muslim north, who compete for scarce resources, especially fertile farmland, and for political power. The situation is complicated by the operations of the fanatical religious sect, Boko Haram, which wants strict Islamic law extended throughout Nigeria. Boko Haram claimed responsibility for the December 24th bomb blasts in two Christian communities in Jos, attacks that appear to form part of a wider plan to destabilise this multi-ethnic, poly-faith nation as it approaches the April elections.

Federal and state authorities face the additional challenge of preventing the violence in the state from spreading to neighbouring states where relations between Christian and Muslim communities have also long been tense. There is already mounting tension in Bauchi state, where a dispute over a snooker game triggered clashes between Christian and Muslim youths on January 27th, killing at least 19 people and badly damaging houses and places of worship.

On January 28th unknown gunmen assassinated a leading governorship candidate and six others in the north-eastern state of Borno. Modu Fannami Gubio, the governorship candidate of the All Nigeria People's Party (ANPP) for the upcoming election, was shot in Maiduguri city after Friday prayers. The outgoing governor of Borno, Ali Modu Sheriff, a member of the ANPP and whose younger brother was among those killed, dismissed initial media speculation that Boko Haram was responsible, insisting it was politically motivated. President Jonathan condemned the killings, saying that the era of do-or-die politics in Nigeria is over. Nineteen people were arrested by the police at the end of January in connection with the killings. Borno state police commissioner, Mohammed Abubakar, told reporters that the suspects are political thugs linked with some powerful politicians in the state. However, on February 2nd Boko Haram put up posters in Maiduguri claiming responsibility for the murders and threatening to launch a full-scale war in its quest for liberation from infidels and the government. Boko Haram has carried out several attacks against public buildings, politicians and policemen in recent months, but some officials believe that some of the seemingly random violence attributed to the sect was in fact perpetrated by thugs working for political masters who use the insurgency as convenient cover to intimidate or get rid of rivals.

On January 25th the Central Bank of Nigeria (CBN) raised its benchmark interest rate to 6.5% from 6.25% as part of measures to tighten liquidity and rein in inflation. In addition to the 25-point increase in the monetary policy rate (MPR) the CBN's monetary policy committee (MPC) decided to raise the cash reserve requirement ratio for banks to 2% from 1% with effect from February 1st, and to increase the liquidity ratio to 30% from 25% with effect from March 1st. Recent data indicates that the year-on-year headline inflation rate fell to 11.7% in December from 12.8% in November, but has stayed stubbornly above the government's target of a single-digit rate since May 2008. The committee saw the risk of higher inflation in the coming months, with upward pressure from the likely increase in government spending in the run-up to the April elections and the purchases of banks' bad loans by the newly created Asset Management Corporation of Nigeria (AMCON; January 2011, Economic policy). The MPC said that getting to grips with inflation requires steps to address both supply and demand factors that drive inflation in Nigeria, including implementing outstanding structural reforms. It suggested that aggregate demand could be kept in check by restraining debt-financed government spending in the medium-term. Furthermore, government finance could be enhanced by removing unsustainable petroleum subsidies and cutting some other forms of recurrent expenditure.

The Central Bank is not alone in expressing concern about the state of Nigeria's public finances, especially growth in government spending and the depletion of the nation's external reserves and windfall oil savings despite current high levels of world petroleum prices. On January 20th the Presidential Advisory Council (PAC) urged the government to slash recurrent spending to 40% of the budget and reduce the budget deficit to no more than 3% of GDP. The panel, headed by former defence minister, Theophilus Danjuma, recommended that the current high cost of running government could be reduced by merging some ministries and agencies and reducing the remunerations of political office holders, thereby freeing up funds for development projects. However, recurrent expenditure accounts for more than 70% of the government's 2011 budget proposal currently before parliament, and significant cuts are unlikely in the run up to an election. Tighter fiscal policy is expected to receive renewed attention for the 2012 budget with a new government in place, but spending pressures are likely to remain high for years to come. Even if the government can face down the unions and cut the wage bill and subsidies-itself unlikely-infrastructure spending will remain high. Indeed, a return to fiscal deficits below 3% of GDP seems unlikely unless oil prices climb even higher than present, boosting revenue.

Nigeria's commercial banks agreed on February 1st to triple their lending to the agricultural sector from around 1% to at least 3% of loans. The decision by the Bankers' Committee came after mounting concerns about the failure of banks to increase lending to the real sector, especially agriculture (which accounts for about 40% of Nigeria's GDP and 60% of employment). At its January meeting the Central Bank's MPC reckoned that the greatest challenge facing the economy is insufficient flow of credit to the critical sectors of the economy, and stressed the need to get credit flowing to agriculture, small and medium-sized enterprises and manufacturing. While growth in credit to the private sector declined in 2010, lending to government grew substantially as banks, still reeling from the banking crisis in 2009, remained risk adverse. However, banks face a serious challenge in meeting the 3% target for loans to agricultural producers, as many lenders lack the capacity properly to assess risk and service a sector that is dominated by small producers.

CBN to start currency future trading as pressure remains on local currency

On February 1st the Central Bank of Nigeria (CBN) announced that it would start foreign-exchange futures trading as part of efforts to smoothen out hard currency demand and help businesses to hedge their currency risk. Under the guidelines, the CBN will conduct bi-weekly auctions offering three tenors of one-, two- and three-month forwards. The minimum permissible bid by authorised dealers will be US$500,000 for each tenor. The bank said that all foreign-exchange forward purchases must be backed by trade and will not be transferable in the inter-bank market. The authorities are hoping that this initiative will lessen demand pressure in the foreign-exchange market driven by anticipation of a depreciation of the local currency, the naira. The CBN says that satisfying high demand for hard currencies at its twice-weekly Wholesale Dutch Auction System (WDAS) sales has been partly responsible for the decline in Nigerian external reserves, which stood at US$33.16bn on February 1st, compared with US$42.18bn a year earlier. Official funding of WDAS totalled US$24.84bn in 2010 as against US$25.07bn in 2009, while sales to bureaux de change amounted to US$5.34bn in 2010 compared with US$4.73bn in 2009, according to the regulator.

The CBN governor, Lamido Sanusi, said in January that the bank remains committed to a stable exchange-rate regime, but cautioned that without appropriate industrial and trade reforms to reduce Nigeria's import dependence the cost of sustaining the regime will be the erosion of foreign reserves. Another reason for the depletion of external reserves, the governor explained, is the payment of cash calls to the joint venture companies (JVC) that produce most of Nigeria's crude output. The bank expects this outflow to be stemmed when the Petroleum Industry Bill (PIB), currently before parliament, is enacted. The legislation aims to transform the state-owned oil corporation, NNPC, into a profit-making company able to tap international capital markets for its funding requirements. The Nigerian president, Goodluck Jonathan, said in early February that he expects the bill to be passed into law before the end of the current parliament in May.

According to provisional data from the National Bureau of Statistics (NBS), Nigeria's real GDP grew by 8.3% in the fourth quarter of 2010, up from 7.9% in the previous quarter, and overall growth for the year was estimated at 7.9%. The non-oil sector, which has experienced robust expansion in recent years, remained the major driver of growth, with most of thrust provided by agriculture, wholesale and retail trade and services. Agricultural output has benefited from favourable weather, and the increasing commercialisation of the sector. This is good news; although still high, the trend of food inflation in Nigeria has been mostly downward in recent months despite world prices of many food crops rising since July 2010. We do not expect growth to be as strong in 2011, mainly owing to the political uncertainty generated by the April elections. Investors are likely to adopt a cautious approach during the election period, while domestic confidence may well also take a dent if the elections are disputed, leading to even wider insecurity. Nevertheless, assuming that the political transition is managed without any catastrophic breakdown in security, the economy is forecast to grow by 6.6% in 2012.

Foreign direct investment (FDI) inflows to Nigeria fell sharply to US$2.3bn in 2010 from US$5.9bn in 2009, according to the Global Investment Trends Monitor released on January 17th by the UN Conference on Trade and Development (UNCTAD). The monitor did not explain the dramatic 60.4% drop in FDI to Nigeria, a decrease that was much bigger in scale than the 14.4% contraction in FDI experienced by Africa as whole. The CBN's External Sector Statistics Monitor for the second quarter of 2010 (its latest) ascribed the sharp drop in FDI to the effects of the global financial crisis on Nigeria's trading partners. Unsurprisingly, critics of President Jonathan's administration view the fall differently, presenting it as evidence of international investors' diminished confidence in the Nigerian government's economic management. For instance, former CBN governor, Chukwuma Soludo, said that the UNCTAD report showed that Nigeria's FDI performance was the worst in many years and is indicative of the current poor state of the economy. He argued that the decline in investment should be interpreted as international investors sending a strong message to the Nigerian government that it needs to get its act together. His comments were published in the local press at the end of January in response to a reported comment by the minister of finance, Olusegun Aganga, insinuating that Mr Soludo was to blame for Nigeria's banking crises. The good news for Nigeria is that although FDI slumped last year, inflows of foreign portfolio investment into the country rose considerably. The Nigeria Stock Exchange data statistics indicate that foreign portfolio inflows rose to N350bn (US$2.3bn) in 2010 from around N229bn in 2009, while net foreign portfolio inflow increased to N171bn in 2010 from N33.4bn recorded in 2009.

Nigeria issued a US$500m debut international bond on January 21st, which was 2.5 times oversubscribed, according to the finance minister. Investors from 18 countries spanning Europe, the US, Asia and Africa took up the offer of the 10-year bond carrying a 6.75% coupon. Mr Aganga said that the issue's success meant that Nigeria had met international standards in getting the deal to the market and has provided a benchmark for Nigerian corporate organisations to access well-priced long-term financing from the international capital market. The Nigerian bond was admitted on January 31st to trading at the London Stock Exchange (LSE) main market. Ibukun Adebayo, the LSE's head of business development Africa, described the offering as the start of the next phase in the development of Nigeria's corporate bond market, adding that cheaper and easier access to debt finance is crucial to the development of Nigerian companies. Analysts and investors believe that Nigeria's first Eurobond was well received despite concerns about government finances, partly because the 7% yield is attractive compared with what is on offer elsewhere. Besides, Nigeria's large oil reserves, low debt ratios, considerable foreign reserves and continuing strong economic growth makes it a relatively safe bet for investors.

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Please see graphic below

Please see graphic below

Please see graphic below

Land area

923,773 sq km

Population

143.3m (2007, US Census Bureau mid-year estimate)

Main towns

Population in millions (2001, Economist Intelligence Unit estimates)

Lagos: 10(a)

Abuja: 2

Climate

Tropical; with a long wet season in the south, particularly the south-east, and a shorter wet season in the north

Weather in Lagos (altitude 3 metres)

Hottest month, March, 26-32°C; coolest month, August, 23-28°C; driest month, December, 25 mm average rainfall; wettest month, June, 460 mm average rainfall

Languages

English (official), Hausa, Yoruba and Ibo; many other local languages are widely spoken

Measures

Metric system

Time

One hour ahead of GMT

Public holidays

January 1st; February 15th(b) (Mawlid al-Nabi); April 22nd-25th (Easter); May 1st (Workers' Day); May 29th (Democracy Day); August 30th(b) (Eid al-Fitr); November 6th(b) (Eid al-Adha); October 1st (Independence Day); December 25th-26th (Christmas)

9a) There are large variations in estimates of the size of Lagos and other cities in Nigeria, reflecting the weakness of population statistics in general and failure to agree over city boundaries. (b) The dates of official public holidays, to be confirmed by the government, may differ from those of the Muslim festivals given here.

Official name

Federal Republic of Nigeria

Form of state

Federal republic, comprising 36 states and the Federal Capital Territory (FCT, Abuja)

Legal system

Based on English common law

National legislature

National Assembly, comprising the 109-seat Senate and the 360-seat House of Representatives; both are elected by universal suffrage for four-year terms

National elections

Most recent legislative and presidential elections, April 21st 2007; Umaru Yar'Adua was elected to the presidency, and his party, the People's Democratic Party, won a majority of seats in both houses of the National Assembly; he was sworn in on May 29th 2007; state governor elections were held on April 14th 2007; next national elections are scheduled for April 2011

Head of state

President, elected by universal suffrage to serve a four-year term; in May 2010 the acting president, Goodluck Jonathan, was sworn in as head of state following the death, after prolonged illness, of the president, Mr Yar'Adua

State government

State governors and state houses of assembly

National government

The Federal Executive Council, which is chaired by the president; appointed July 26th 2007; extensive reshuffle carried out in April 2010

Main political parties

People's Democratic Party (PDP); Action Congress (AC); All Nigeria People's Party (ANPP); Progressive Peoples Alliance (PPA); All Progressive Grand Alliance (APGA); more than 30 political parties are currently registered

President, commander-in-chief of the armed forces & minister for power: Goodluck Jonathan

Key ministers

Agriculture & water resources: Ahmed Abdullah

Commerce & industry: Jibril MartinsKuye

Defence: Adetokunbo Kayode

Education: Ruqayyatu Rufai

Environment & housing: John Odeh

Finance: Olusegun Aganga

Foreign affairs: Odejin Ajumogobia

Health: Christian Otu Onyebuchi

Information & communications: Dora Akunyili

Interior: Emmanuel Iheanacho

Justice & attorney-general of the federation: Mohammed Bello Adoke

Labour: Chukwiemeka Wogu

Mines & steel: Musa Mohammed Sada

Petroleum: Deziani Allison-Madueke

Transport: Yusuf Sulaiman

Women's affairs: Iyom Josephine Anenih

Youth development: Akinlabi Olasunkanmi

Central Bank governor

Lamido Sanusi