No let up in social strains as Nigeria keeps growing

ABUJA Mon Feb 18, 2013 5:23am EST

People wash and bathe in a village on the banks of the river Nun in Nigeria's oil state of Bayelsa November 27, 2012. REUTERS/Akintunde Akinleye

People wash and bathe in a village on the banks of the river Nun in Nigeria's oil state of Bayelsa November 27, 2012.

Credit: Reuters/Akintunde Akinleye

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ABUJA (Reuters) - Nigeria's economy is expected to grow at a speedy 6.75 percent this year, driven by progress in agriculture, banking and oil, while high inflation rates should ease slightly, data showed on Monday.

Both will add to the reputation of Africa's top oil producer as a growing investment destination with a huge consumer market of 160 million people. Demand for its sovereign debt, for example, has soared since JP Morgan added it to its emerging bond index last year.

The kidnapping by gunmen of a Briton, an Italian, a Greek and four Lebanese workers in Bauchi state on Sunday, however, underlined that there are risks to investment outlook.

The National Bureau of Statistics forecast this year's growth to be slightly faster than in 2012, 6.75 percent compared with 6.61 percent.

It said gross domestic product should expand by an average of 7.2 percent next year, 6.9 percent in 2015 and 6.6 percent in 2016, adding that the projections assumed no change to monetary policy, stable fuel prices and a stable external environment.

Social strains, epitomized by the weekend's kidnapping, may undermine some investor sentiment, however. It was the worst case of foreigners being abducted in the north since an insurgency by Islamists intensified nearly two years ago.

There is also a longer history of kidnapping and oil theft in the southern oil region.

And despite solid growth, the gap between rich and poor is widening, contributing to unrest and violence. Unemployment is 23 percent, while youth unemployment is double that and most people live on less than $2-a-day.

WORKING ON GROWTH

Government pledges to improve infrastructure and support job-creating areas such as agriculture will be key to the economy and stability but reforms have been slow over the last two years, hampered by vested interests and corruption.

Investors have been pleased with the stability brought to monetary policy and the macro-economy in recent months but they remain wary of the government's tendency to squander its oil windfall on reckless spending and corruption.

Foreign exchange reserves are at more than a 3-year high and the stock index is up around 18 percent this year as investors show faith in local debt markets and the oil, banking and telecommunication sectors.

Plans later this year to rebase Nigeria's GDP, which have been repeatedly delayed in the past, could push it close to the size of South Africa, the continent's top economy.

The statistics office said consumer inflation eased to 9 percent year-on-year in January from 12 percent in December, dropping within the central bank's single-digit target range.

The bank's governor said last week that he was in no hurry to cut interest rates even if inflation fell.

Food price inflation, the biggest contributor to the headline index, eased to 10.1 percent in January from 10.2 percent, NBS statistics showed.

(Editing by Jeremy Gaunt)

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