NIGERIA’S OIL RISKS
The most significant underlying trends in global risk and security from the markets that will matter most in 2015:
- Diversification of the economy remains crucial to improve the sustainability of West Africa's economic growth;
- Heightened political turbulence following the postponement of the presidential poll to March threatens to dent investor confidence;
- Deepening political divisions between Nigeria's regions over the presidential poll and the absence of a clear front-runner increase the risk of a contested outcome and a turbulent aftermath;
- The drop in oil revenue will test Nigeria's economy over the next year and will show the extent to which the fast-growing non-oil sectors have become truly independent from the oil economy;
- The incoming administration in May will have to address a cash-flow crisis, the threat from Islamist militant group Boko Haram while maintaining stability in the oil-producing Niger delta and stemming social unrest.
2015 so far has demonstrated the political constraints to Africa's economic growth story. Across Africa, governments have faced difficulties in tackling key issues such as the excessive reliance on commodities such as oil, bottlenecks in the economy, security challenges from criminal and militant groups and the need to improve governance. In many places, private-sector growth frequently occurs despite government rather than because of it.
The postponement of Nigeria's elections has unnerved some investors and made others delay their final investment decisions. The economic impact of that has been shown by the drop in the naira. The genuinely competitive elections are a critical juncture on Nigeria's path towards becoming a mature democracy, but closely contested polls are uncharted territory for the country's political system. Nonetheless, Nigeria has an impressive capacity for weathering impending crises and we believe that the upcoming elections will be no different.
Regardless of the outcome of the polls, the incoming administration will have to contend with multiple challenges: resurrecting the oil sector reform agenda, managing a likely cash-flow crisis in government, dealing with the threat from Islamist militant group Boko Haram and maintaining stability in the restive Niger delta.
West Africa will remain a piracy hotspot in 2015, led by Nigeria, where maritime operators are bracing for the fallout from the contested general elections. Much will also depend on how the future administration manages the Niger delta's former rebels.
The terrorist threat will continue to evolve tactically and geographically given the adaptability of Islamist militant groups operating in West Africa. Islamist militant group Boko Haram will grab further headlines in 2015, but faces limitations outside its north-eastern heartland and has come under pressure from the Nigerian government and regional military offensive. This however increases the risk that the group will lash out outside its northeastern heartland. Meanwhile, transnational terrorists operating across the Sahel-Sahara will continue to exploit the region's ungoverned spaces but will struggle to make inroads further south and will remain a limited direct threat in Nigeria.
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