2007 in Review

Nigeria International Bank

ECONOMIC & MARKET ANALYSIS Year in Review 2007

NIGERIA

Aderonke Adetoro +234 (1) 2798483 aderonke.adetoro@citi.com

Ayokunle Ojo +234 (1) 2798488 ayokunle.ojo@citi.com

Fundamentals:

Economic growth measured by GDP averaged 5.8 percent in the first 3 quarters of 2007, compared with 5.6 percent in 2006; however the oil sector’s share dropped to 20 percent from 22 percent. This seems to indicate a diversification of the economy and the development of the private sector. A contributory factor to lower oil production was regional agitation over resource allocation in the Niger Delta. In the battle with inflation, the government was able to curb the rise in prices, keeping inflation below the 9 percent threshold set out in the budget. Foreign Exchange reserves closed the year at US$51.32billion in December 2007 from US$36.2billion in December 2006.

FX Market:

The Naira was the currency to hold in 2007; it revalued by 8 percent against the US Dollar to close the year at 118.05, effectively nullifying the 3 percent volatility band set out in the 2005/2006 Monetary Policy Statement. Robust FX reserves from high oil prices, rising interest rates and strong foreign portfolio investments were the main drivers of the revaluation. A plan by the Central Bank to gradually liberalize the exchange rate also contributed to a stronger Naira given that the Naira is perceived to be fundamentally under-valued.

Money Market:

Interest rates spiked in the last quarter of the year on the back of security sales through the Open Market Operations. A restructuring of the maturity profile of domestic government debt by the Debt Management Office led to a 38 percent increase in the volume of 3 to 10 yr bonds on offer to NGN584billion and the mid-year spike in inflation also helped the interest rate rally.

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Economic & Market Analysis – Year in Review 2007

Fundamentals: Booming Economy

Oil prices continue to mount A main feature of the...