NIGERIA Invest in 2012-13 - Newsdesk Media

58
the economy and finance
petroleum and natural-gas production
accounted for 35 per cent of GDP in the
1980s, according to figures from the
National Bureau of Statistics. This was
down to around 16 per cent by 2009.
The country’s former vulnerability
to changes in oil and gas prices made its
growth very volatile. Even so, there is
plenty more growth to come from oil,
increasingly from offshore rather than
onshore fields. The government is
reforming the industry under the
auspices of its Petroleum Industry Bill,
turning the state oil company, the
Nigerian National Petroleum Corporation
(NNPC), into an independent entity.
At the end of December,
Standard & Poor’s revised its outlook
invest in niGeRia 2012-13
Equally, a rebasing will give
Nigeria a lower debt-to-GDP ratio, which
could make international investors take
another look at the country.
Benefits and risks of oil reserves
Even given all the changes in Nigeria,
there are still plenty of risks to the
exciting growth story. Nigeria has the
seventh largest oil reserves in the world
– a huge benefit, but also a risk,
encouraging political corruption. As
Citigroup’s Cowan puts it: “If Nigeria’s
elites do not focus on fighting over the
large rents that result from its resource
abundance – as regrettably has been the
case a number of times in the past – but
instead use the natural-resource rents to
Rebasing Nigeria’s GDP statistics
could see the country’s output revised
upwards by as much as 60 per cent
on Nigeria from stable to positive, citing
reform initiatives and attempts to move
the country away from its oil dependency.
“The authorities have restructured and
strengthened the banking sector, and we
expect economic growth to remain
strong,” the ratings agency said.
The potential of rebasing
The Nigerian government is in the
process of rebasing its GDP statistics –
a move that could see the country’s
output revised upwards by as much as
60 per cent. Currently it is third, trailing
South Africa and Egypt. “The rebasing
has the potential to make Nigeria the
largest economy in Africa. That would
have a big impact on its profile,” says
Business Monitor’s Anderson.
enhance human capital and infrastructure
and to encourage private-sector enterprise
and employment, the low-hanging fruits
of growth are likely to be gathered.”
Political uncertainty caused by the
recent terrorist activity in the Muslim
north of Nigeria adds an extra dimension
to those risks. Bismarck Rewane, an
analyst at Lagos-based Financial
Derivatives, says that many of the
government’s policies are sound, but the
country’s institutions will require
strengthening: “We have the leadership,
we have the policies. But the institutions
– democracy, the judiciary, the central
bank – are fragile.” This is further
compounded by policy inconsistency
and lack of continuity, which the
government is currently addressing.
When the country’s economy is
rebased, one thing that will be
highlighted again is the low level of its
tax revenues as a percentage of GDP.
Tax revenues, separated from oil
revenues, languish below 10 per cent
of GDP. It is expected that the new tax
law will help to address the issue.
Obstacles to business
Infrastructure issues – particularly
around power – are a key stumbling
block. And despite the strengthening
reforms to the financial sector, Standard
Bank’s Gadio argues that there is a
disconnect between banking and the
general economy in Nigeria. “Economic
growth seems to be exogenous, because
of the weight of agriculture and oil and
gas,” he says. The two make up 60 per
cent of GDP, and generally attract
capital from elsewhere, he argues.
Citigroup’s Cowan suggests that
many of these roadblocks will not
hinder Nigeria’s growth in the short
term, however. The country will have
room to grow, he says, before
institutional issues prove restrictive.
“Nigeria will have its hands full to
realise its growth potential. But on the
plus side, it does not need to get all
its ducks in a row. Sporadic progress,
even on power, may well prove
sufficient to maintain, and even
accelerate, the rate of GDP growth in
the coming years, with the possibility
of an even greater upside.”
Nigeria needs a middle class and
efficient state institutions, Cowan says.
“But those are problems of
middle-income countries and, for now,
there is clear daylight between the
middle-income countries and Nigeria.” ■
Alex Hawkes is a Mail on Sunday business
and financial journalist who has previously
worked as a writer for the Guardian