Now Available: Nigeria Business Forecast Report Q1 2014

Although we maintain that the Nigerian economy will grow by a robust 7.2% in 2014, we note that downside risks have increased over recent months. In particular, ructions within the ruling party and the uncertainty surrounding the identity of the governor are issues which could destabilise the economy.

We believe that the Nigerian monetary authorities are likely to maintain a tight monetary policy for the remainder of 2013 and during 2014 due to risks of currency depreciation and inflation pressures. The major risk to this view stems from the fact that Sanusi Lamido Sanusi's tenure as central bank governor will come to an end and his departure could prompt a shift in policy priority.

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Although surpluses in the current and financial accounts give Nigeria's balance of payments position the appearance of wellbeing, there are significant risks to the country's external accounts. These stem from strong hard currency demand from wealthy Nigerians looking for safety for their savings, and from the fact that the vast majority of financial account inflows have been made up of portfolio inflows over recent quarters.

Major Forecast Changes

No major forecast changes.

Key Risks To Outlook

The volatility of the price of oil poses a significant risk to export revenues and government receipts. A significant deterioration in the economies of Europe, the US, or other major markets could see the price again head below our current projections, with negative implications for Nigeria's economy.

While we believe that security risks will eventually be contained, if the situation significantly deteriorates, this would potentially affect investment, exports, and growth.

Ructions within the ruling party could lead to economically disruptive instability in the lead up to the 2015 elections.

If Sanusi Lamido Sanusi is replaced by a more dovish central bank governor when his term expires in 2014, inflation could head higher, leading to a less favourable growth environment.

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