Nigeria

Résumé pays

Economic performance and prospects: The economy continued to show signs of recovery from the 2016 recession. GDP growth was estimated at 0.8% in 2017, up from –1.5% in 2016. The outlook beyond is positive, with growth projected at 2.1% in 2018 and 2.5% in 2019. This outlook is anchored in higher oil prices and production, as well as stronger agricultural performance. Oil prices rebounded to an average of $52 per barrel (Brent crude) in 2017 and are projected to reach $54 in 2018, up from $43 per barrel in 2016. Oil production also increased from 1.69 million barrels per day in the first quarter of 2017 to 2.03 million in the third quarter of 2017 following deescalation of hostilities in the delta region and is expected to remain at the same level in 2018 and 2019, in tandem with the Organization of the Petroleum Exporting Countries production restrictions. 

Macroeconomic indicators: Fiscal policy remained expansionary in 2017 as in 2016. Although total spending as a percentage of GDP declined from 13% in 2014 to 10.3% in 2017, revenues declined more sharply, from 11.4% to 5.6%. The budget deficit was estimated at 4.8% in 2017, up from 4.7% in 2016, and is projected to improve to 4.3% in 2018 and 4.1% in 2019, as revenue performance improves. At 14%, unemployment remained high in 2017, the same as in 2016, and is expected to decline only slightly in 2018, to 13.5%, as recovery eases production constraints in manufacturing and agriculture. Monetary policy continued to be contractionary in 2017 and is expected to remain so in 2018; the policy rate has been kept at 14% since July 2016 to support the naira and control inflation. Inflation has remained stubbornly high and in the double digits—an estimated 16.2% in 2017, up from 15.6% in 2016—but is projected to ease to 13.7% in 2018 and 12% in 2019. Foreign currency liquidity has improved following the introduction of administrative measures by the Central Bank since early 2017. The measures include a trading window for portfolio investors at market determined rates and the introduction of the Nigerian Autonomous Foreign Exchange Rate Fixing, which allowed commercial banks to quote forex rates that are close to parallel market rates. The naira remained stable for most of 2017 and is expected to strengthen slightly as the economy continues to recover. 

Tailwinds: The recovery in oil prices and production will help drive growth and provide fiscal space as the government pursues important structural reforms to diversify the economy. Faithful implementation of the Economic Recovery and Growth Plan (2017–20) holds the promise of weaning the country off its dependence on oil. The plan focuses on six priority sectors: agriculture; manufacturing; solid minerals, including iron, gold, and coal; services, including information and communication technology, financial services, tourism, and creative industries; construction and real estate; and oil and gas. The government has produced specific programs for each sector and defined broader growth policy enablers to drive the plan. 

Headwinds: Nigeria still faces some challenges, including disruptions in power supply, and insecurity in some parts of the country. Revenue mobilization efforts are insufficient; at 5%, value added tax rates are among the lowest in the world, and overall revenue administration should be made more efficient.

Source: African Economic Outlook 2018

Revenu fixe

Summary

The government securities yield curve extended to 20 years with seven benchmark points along the curve (1-3-5-7-10-15 and20 years). 

Nigeria is 6th  in the ABMDI 2017 Ranking Report. 

Issuance strategy 

According to the 2012-2015 Medium-Term Debt Strategy, the National Debt Management Framework (NDMF) is designed to further facilitate development of the domestic bond market and attract more foreign investor inflows. Furthermore, the borrowing mix for domestic debt is guided by an allocation of 75% and 25% for long and short term debt, respectively. 

Benchmark issues 

Reopening and auction are the techniques used by the federal government. Issuance of bonds is essentially meant to augment government income. However, the yield curve is important to both investors and government debt managers for appropriate pricing. There are 7 benchmarks maturities: 1-3-5-7-10-15-20 years. 

Yield curve 

Yield curve calculation models 

Financial Market Dealers Quotation (FMDQ) Methodology 

Interpolation methods 

FMDQ Methodology 

Yield curve managed by 

FMDQ OTC Securities Exchange 

Display platform 

Bloomberg and FMDQ’s

Challenges in building an efficient yield curve 

  • Narrow investor base: Nigeria needs to diversify the investor base, in particular to attract non-residents to invest in the domestic sovereign bond markets. 
  • Macroeconomic challenges: especially the ripple effects that arose from volatility in international commodities prices, notably oil. 

Guide d’achat des obligations

Procedures for market participation

A quarterly issuance calendar is available on the website of the DMO. However, the schedule posted may be subject to change.

Bids from bidders whose offers are higher are served first followed by lower bids, until the desired amount is reached. The DMO does not set minimum prices, but may apply a minimum rate in cases where the bid rate does not reflect the operating conditions.

Bids submitted in auctions of FGN Bonds must be expressed for a total amount, at a fixed price and expressed in actuarial rate of return (yield to maturity). Multiple offers are allowed. Tenders must be available for a minimum of N50,001,000 and multiples of N1,000 thereafter. 

The market intermediaries are the only one to quote prices in the secondary market.

Trading system "call over" or "call over trading" has been replaced the Automated Trading System. The prices provided at the NSE correspond to those determined by market intermediaries with the help of a computer network. Bids are received every working day from 11am until execution of those bids.

Settlement cycle

The settlement of the Bond auction transaction is done by the Central Bank of Nigeria through the Scrip less Securities Settlement System (S4).

Taxation

In March 2010, the government adopted a law exempting all investors to pay tax on income and gains on financial obligations for all categories. This law is effective for 10 years.

Rating

Rating AgencyCurrent ratingOutlook
Moody’sB2Stable
Fitch B+Negative
Standard and Poor’sBStable

Primary Dealers

Primary Dealers Market Makers (PDMMs), were introduced in 2006 to allow the emergence of a liquid secondary market and dynamic for government securities. Since then, there has been a strong participation of private investors and foreign investors.

The number of PDMMs has been reduced from 20 to 18 in 2012. These are mainly banks and traders appointed by the DMO. The PDMMs are the only players allowed to participate in the primary market for FGN bonds. They participate in the auctions for their own account and on behalf of their clients. They also allow secondary market liquidity by offering ask and bid prices in all market conditions. In other words, PDMMs must also buy or sell at these prices to respond to investors.

Market Restrictions

Openness to international investors

The Nigerian bond market is open to foreign investors. The Government of Nigeria solicits foreign investment and has implemented various reforms to attract higher levels of investment. These include the loosening of controls on foreign investment. 

Capital Controls

Foreign companies and individuals can hold non-naira-denominated accounts in domestic banks. Account holders have unlimited use of these funds, and foreign investors may repatriate capital without restrictions. 

Restrictions on FX and profit repatriation

The Foreign Exchange Monitoring Decree of 1995 opened Nigeria's foreign exchange market. Investors can carry out unrestricted transfers of dividends abroad, less a 10% withholding tax. Companies must provide evidence of income earned and taxes paid before externalizing dividends from Nigeria.