Source Next: Daniel Osunkoya, January 20th 2010

Afrinvest West Africa, an investment management firm, has said that in view of the various uncertainties surrounding Nigeria’s socio-political economy, it would be difficult to make an accurate forecast of the economy’s performance in this financial year.

Reactions to the “Nigeria: 2009 Review, 2010 Outlook” report, released last week, show fear that the political lacuna created by the continued absence of President Umaru Musa Yar’Adua may have the greatest impact on the economy.

Decision making stalled

Commenting on the outlook, Deji Agboade, Partner at High Tech Synergy, a consulting firm, said economic performance remains unclear because Mr. Yar’Adua’s absence has stalled decision making in government.

“The problem with this (his absence) includes the lack of clarity on the deregulation issue which affects the way business is done in the downstream sector of the oil and gas industry,” he said.

Mr. Agboade said the situation has also increased uncertainty around the passage of the 2010 budget. “When will it be passed? Who will defend the budget before the House and answer their questions?” he asked. “As long as these issues are pending, some of my clients cannot make decisions and as such, making money is rather restricted.”

In his opinion, Philip Nnadi, an analyst at Union Registrars, said, “(There is) no doubt that the absence of President Yar’Adua has created a vacuum in government, and consequently key policy decisions are put on hold in view of the fact that Vice President Goodluck Jonathan is yet to assume office as the acting president.” Besides, Mr. Nnadi noted, Mr. President’s absence is already affecting the implementation of the amnesty programme.

“Some days ago, Chevron’s oil facilities was reported to have been attacked and 20,000 barrels per day production shut in. The resumption of hostilities in the Niger Delta, if unchecked, could affect crude oil production and hence our foreign exchange earnings,” he said.

2010 federal budget

The 2010 Outlook said the 2010 budget proposal, predicated on a total spending of N4.1 trillion, representing a 32 per cent increase on the 2009 levels, is in line with its projection, given that 2010 is a penultimate election year.

The budget assumes an average oil price of $57 per barrel, annual crude oil production of 2.1 million barrels per day, and an exchange rate of N150 per $1.

The report noted that about a third of the planned spending relates to capital projects, targeted at infrastructure, power and the development of the Niger Delta region with the balance of N3.0 trillion on recurrent expenditure.

Gross Domestic Product (GDP) growth is expected to come in at 6.1 per cent, while inflation is expected to settle around the 11.2 per cent mark.

“These assumptions appear reasonable in our view, but with perhaps potential downside risk due to leadership vacuum, excessive electioneering spend and sustainability of the amnesty programme,” it said.

Relative stability

According to the report, a return of relative peace and stability to the Niger Delta region is expected to impact positively on oil production. “If oil prices hold stable in the $70-$80 range, the outlook will be stable with potential for further strengthening on the back of robust oil earnings,” it noted.

The Outlook also expects to see a stable Naira, with prospects for slight appreciation (say to N145 to $1).

“It is important to note though that a return to armed struggle by militants in the Niger Delta is a very real and distinct possibility as the amnesty programme appears threatened by the absence of the president,” the report added.

Also, it noted that the controversy surrounding the lack of a substantive head of government at the federal level poses a threat to the timely passage into law of the 2010 appropriation bill.

“This scenario has begun to assume a worrying dimension as government remains Nigeria’s major sources of domestic market liquidity. A speedy resolution of this constitutional impasse will augur well as it would help support targeted levels of GDP growth through timely budget disbursements,” the report said.

Nigerian Bank Nigeria