Nigeria scenarios

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Africa Riskwatch - Issue 9 - January 2017
Nigeria scenarios – what Buhari’s sickness means for business

Control Risks regularly publishes forecasts of possible developments for monitored countries for its clients. The scenarios are categorised in “most likely”, “credible alternative” and “outlier”.

For Nigeria in the early months of 2017, the increasing role of Vice-President Yemi Osinbajo in the daily running of the government is our most likely scenario.

Most likely: Vice-president takes charge, stability maintained

The political and security situation remains broadly stable as Osinbajo steps in as acting president while President Muhammadu Buhari takes medical leave. Osinbajo favours more progressive economic policies than Buhari, and places pressure on the Central Bank to loosen foreign exchange restrictions in the first half of 2017, leading the bank to re-peg the naira at 350 to the dollar, but stop short of allowing the naira to free-fall. This process is facilitated by a reduced role for Buhari in economic affairs , which permits the implementation of a more coherent policy framework. However, it also contributes to inflation, which remains in double figures. Foreign revenues increase as the oil price stabilises at USD 55-USD 60 per barrel, exceeding the USD 42.50 benchmark set in the 2017 budget.

After months of negotiations, the legislature passes the Petroleum Industry Governance Bill (PIGB) in 2017, marking the first stage of oil industry reforms. Meanwhile, incentivised by monetary rewards and general fatigue with corruption, the public increasingly buys into a government whistle-blower scheme, leading to some high-profile arrests. However, in Buhari’s continued absence, anti-graft measures remain uneven. The Economic and Financial Crimes Commission (EFCC) continues its anti-corruption drive, but fails to secure high-profile prosecutions.

Scenario developments
  • Osinbajo is able to exert sufficient authority in Buhari’s absence and pushes forward with some economic reforms, but reform impetus tapers off as the 2019 elections approach. A technocrat, Osinbajo is considered to be more decisive and active in the capacity of acting president, even by some of Buhari’s allies. Osinbajo uses the president’s absence to push ahead with policy changes, and the theoretically credible Economic Growth Recovery Plan that the government presents in the first half of 2017 helps to unlock loans from the World Bank. China also offers substantial soft loans that will be invested on a project-by-project basis in large infrastructure projects. Government borrowing rises significantly.
  • Inquiries by Dutch and Italian authorities into the 2011 purchase of the lucrative OPL 245 block propel the EFCC to aggressively pursue investigations into the Nigerian oil and gas industry. The legal battle in Italy regarding the block implicates oil majors, oil mogul Abubakar Aliyu and former minister of petroleum Dan Etete. Backed by rights and anti-corruption groups, the EFCC also tries to prosecute oil majors involved in the scandal. Further investigations take place into alleged fraud in the oil and gas industry, particularly during previous administrations. Protracted legal cases and investigations underscore the legal risks, regulatory uncertainty and endemic corruption associated with the oil and gas sector in Nigeria.
  • The independence of the Central Bank continues to be compromised as governor Godwin Emefiele remains exposed to pressure from the administration. Under Emefiele’s leadership, the bank’s reputation as an independent regulator has waned significantly.. Its resistance to devaluing the naira has largely been blamed on interference from Buhari, who has remained staunchly opposed to devaluation. After the Central Bank re-pegs the naira under Osinbajo’s influence, the spread between the official and black market exchange rate slowly decreases. Inflation remains in double digits for the rest of 2017, squeezing purchasing power and increasing the risk of localised social unrest as frustration mounts with the difficult socioeconomic environment.
  • Implementation of the PIGB remains slow and fraught with challenges, while a lack of agreement sees the remaining tranches of the Petroleum Industry Bill (PIB) stuck in the legislature. The PIGB aims to overhaul the Nigerian National Petroleum Corporation (NNPC) to form an operator and a regulator, but the nature of the organisation and the political interests involved complicate the process, and the organisational changes fail to translate into behavioural  reform. Meanwhile, Nigeria offers operators tax incentives for investing in its gas industry, though these will take years to translate into significantly higher revenues. The government also says it will review and streamline joint venture contracts, but reform is slow.
  • The government continues its military campaign in the north-east in coordination with neighbouring countries. Boko Haram’s capacity to stage complex attacks is reduced, but not eliminated. The group continues to pose a cross-border threat, targeting symbols of government and soft targets such as camps for internally displaced people (IDPs). Budgetary pressures and a reluctance to withdraw focus from the military campaign limit the allocation of resources to the humanitarian crisis in the north-east, which continues to worsen, prompting mounting international criticism. Thousands of young men remain in police custody and allegations of rights abuses mar the military campaign. Boko Haram continues to split into factions, and members who see themselves as aligned with Islamic State (IS) join Sahelian terrorist groups.
  • Fearful that attacks on oil and gas assets will reduce crude exports and revenue, the government extends payments to new militant groups in the Niger delta, including the Niger Delta Avengers, enabling a peace agreement to be reached. As a Christian southerner, Osinbajo has more political currency in the oil-producing Niger delta region, which Buhari has yet to visit, and spearheads efforts to broker a peace process. Although he is unable to deliver regional development on a scale that will satisfy all the Niger delta’s fractious militant groups, he is less ideologically opposed than Buhari to granting patronage in exchange for peace. Nonetheless, factionalism undermines the peace process as small militant groups fear regional domination by Ijaws, which they feel benefited disproportionately under the amnesty programme. Minor groups continue to stage attacks to reassert their relevance. Meanwhile, the underlying conditions that gave rise to militancy do not improve, sustaining entrenched conflicts over resource allocation.
  • Ethno-religious reprisal attacks continue in central and northern regions as the stretched security apparatus struggles to contain communal tensions. Tribal groups in southern Kaduna continue to hold grievances against the ethnic Hausa-Fulani, perceived as being more politically influential. Structural issues such as high youth unemployment, political rivalries, and poverty undermine peace efforts. Under enormous pressure to act, Kaduna governor Nasir El-Rufai – a Hausa-Fulani and a Muslim – struggles to straddle the ethno-religious divides. The crisis presents an ongoing challenge to the state and federal government.
  • Relations between the security forces and Nigeria’s Shia Muslim minority – uneasy for years – continue to deteriorate amid the fallout from a December 2015 confrontation between the army and the Shia Islamic Movement in Nigeria (IMN) in the northern city of Zaria (Kaduna state). The IMN accuses the army of illegal killings and arrests. This feeds into wider tensions between Shia and Sunni Muslims, driving a rise in sectarian violence in Kaduna, Kano and Sokoto states.
  • The APC decides that Buhari will not run for a second term, and power struggles increase as the party primaries approach in late 2018. These are driven by the concept of ‘zoning’, a tacit agreement whereby the presidency rotates between the Christian-dominated south and the mostly Muslim north. Northern party members claim that it is still their ‘turn’ to rule. Potential presidential candidates include Kaduna state governor, Nasir El-Rufai, former vice-president Atiku Abubakar and Senate (upper house) President Bukola Saraki. It remains unclear whether or not Osinbajo will stand, given that his south-west region held the presidency under Olusegun Obasanjo (1999-2007). His relatively limited political experience may also count against him. The PDP remains weak and does not pose a credible national threat to the APC, allowing the ruling party to secure the presidency again at the 2019 elections.

Credible alternative: Buhari’s return prompts increased ruling party infighting

Outlier: Sharp fall in oil price triggers severe financial crisis

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