MLT political risk rating upgraded from 6/7 to 5/7

Nigeria is Africa’s biggest oil producer and has the largest proven reserves in the region, after Libya. Not surprisingly, the country is very reliant on the oil sector. In 2018, oil accounted for 62% of exports and 58% of government revenues. The lack of diversification exposes the country to the risk of fluctuations in global oil prices and oil output disruptions resulting from instability in the oil-producing regions. The fall in oil prices – in combination with years of mismanagement – hit Nigeria particularly hard in 2016. The country is still recovering from this oil price shock (see graph 1). Real GDP growth of respectively 2.3% and 2.5% is expected for 2019 and 2020, a rate below population growth. President Buhari’s response to the oil price shock was the introduction of interventionist economic policies. These policies, however, hinder economic growth and restrain foreign investment. Indeed, capital controls and the Central Bank of Nigeria’s interventions obstruct transfers and limit foreign exchange availability in the market. In addition, import restrictions on a significant number of goods still cause disruptions and supply shortages. For example, Buhari's government promoted a nationalistic vision of agriculture self-sufficiency in the production of rice, millet, sorghum, maize, soybeans and wheat. Ever since, agriculture GDP growth has slowed while the output gap encouraged informal food imports (smuggling) and hikes in food prices. As Buhari won a second four-year presidential term in February 2019 by a decisive margin, these interventionist policies are expected to continue.  

 

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