New government will face tough economic decisions - Nigeria - 1993 World Trade Outlook

Nigeria's military government is preparing for a peaceful transition to democratic rule in August 1993. A civilian Transitional Council assumed office in January to oversee day-to-day government operations until the elected government assumes power. The new government will face some difficult economic decisions in the face of a budget deficit equal to more than half of projected revenues, and uncertain prospects for concluding a new International Monetary Fund agreement.

Since late 1990, Nigeria's once praiseworthy performance under its Structural Adjustment Program has faltered, as domestic political pressures have motivated increased government spending and relaxed monetary policies.

Nigeria took significant steps in 1992 to deregulate the financial system and liberalize the foreign exchange market, but these measures have been thwarted by the large budget deficit. The naira's declining value has led to a severe shortage of foreign exchange, wildly fluctuating interest rates, and an inflation rate of 46 percent.

Nigeria's moderate 4 percent GDP growth rate in 1992 is expected to continue in 1993, provided oil production is maintained at the level of 2 million barrels per day (mbd). However, OPEC has assigned Nigeria a production quota of 1.8 mbd. Growth in the agricultural sector, which contributes over 30 percent of gross domestic product, should remain stable if rains are adequate. Manufacturing, which accounts for 8 percent of GDP, is not likely to increase due to a continuing shortage of foreign exchange to purchase raw materials.

The country's general economic situation is highly dependent on the international oil market. The petroleum sector provides Nigeria with about 95 percent of its foreign exchange earnings and 85 percent of government revenues, but has little direct spillover into the rest of the economy. Nigeria remains the second leading supplier of crude petroleum to the United States, with oil sales of $4.9 billion in 1992. Purchases from Nigeria accounted for nearly 13 percent of U.S. crude oil imports.

U.S. exports to Nigeria increased 82 percent in the past two years, with the top items being oil and gas field equipment, motor vehicles, construction machinery, and electric motors and generators. The U.S. and Foreign Commercial Service (US&FCS) identifies best prospects for further increases in U.S. exports as: computers and peripherals, telecommunications equipment, airport and ground support equipment, aircraft and parts, medical equipment, oil and gas field machinery/services, airconditioning and refrigeration equipment, food processing and packaging equipment, laboratory scientific instruments, and printing and graphic arts equipment.

Doing business in Nigeria is not without risk, however. During the past few years, many American firms have been contacted by Nigerian companies claiming to have strong connections with both government and private organizations that are able to award and/or obtain multi-million-dollar contracts. Some of the offers imply a possible violation of U.S. or Nigerian laws. The U.S. Commerce Department advises that all unsolicited business offers from Nigeria be approached with caution, even though many are legitimate. Cases of counterfeit bank drafts and even fraudulent letters of credit are common. Unfortunately, these business scams show no signs of abating in the near future. U.S. companies are advised to verify the bona fides of Nigerian companies and their business proposals through Commerce Department district offices. American firms should make shipments only on the basis of an irrevocable letter of credit confirmed by a U.S. bank.

For further information, contact the Country Desk Officer, (202) 482-4388.

COPYRIGHT 1993 U.S. Government Printing Office
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