Positive Uranium Outlook Good For Budget Balance

BMI View: We forecast that Niger's budget balance will return to a deficit in 2014, although it will remain at a manageable level. Income will be boosted by a positive outlook for the extractive industries, though foreign grants will remain essential.

Niger enjoyed a budget surplus in 2013, at 0.1% of GDP. Although we expect the budget balance to return to deficit in 2014, at 2.3% of GDP, it will remain at a manageable level over the next several years. Government coffers will benefit from the nascent oil sector; an expected recovery in uranium prices, and a new deal struck with French mining firm Areva. Nevertheless, the country remains one of the poorest in the world, regularly coming near the bottom in a host of global development indices, and we expect that it will remain reliant on foreign grants to meet its fiscal expenditure.

Strong Commitment To Capital Expenditure

Return To Deficit
Niger - Budget Balance, USDbn (LHS) % % GDP, (RHS)

BMI View: We forecast that Niger's budget balance will return to a deficit in 2014, although it will remain at a manageable level. Income will be boosted by a positive outlook for the extractive industries, though foreign grants will remain essential.

Niger enjoyed a budget surplus in 2013, at 0.1% of GDP. Although we expect the budget balance to return to deficit in 2014, at 2.3% of GDP, it will remain at a manageable level over the next several years. Government coffers will benefit from the nascent oil sector; an expected recovery in uranium prices, and a new deal struck with French mining firm Areva. Nevertheless, the country remains one of the poorest in the world, regularly coming near the bottom in a host of global development indices, and we expect that it will remain reliant on foreign grants to meet its fiscal expenditure.

Strong Commitment To Capital Expenditure

Niger's budget moved into positive territory in 2013 - albeit at just 0.1% of GDP - for the first time since 2008. Given that total revenue and grants declined by 5.9%, the shortfall was closed thanks to a reduction in spending, with total expenditure falling by 9.9%, or from 23.8% of GDP to 23.7%. That said, it is positive news for Niger's economic development that capital expenditure - essential for developing the country's severely lacking infrastructure - expanded. The key driver of the fall in expenditure in 2013 was a 34.8% decrease in current spending (excluding wages and salaries).

Return To Deficit
Niger - Budget Balance, USDbn (LHS) % % GDP, (RHS)

Over the coming years we forecast that annual growth in total expenditure will hover around the 11.0% mark, at just under a quarter of GDP. We expect that capital expenditure growth will remain robust at 15.0%, accounting for nearly half of all spending. The government has ambitious development plans, aiming to develop an effective transport network to serve the sprawling country. Other current expenditure will also see strong growth, given government commitments to increase social spending, especially in education - essential to close the skills gap in the Nigerien economy,

Revenues Reliant On Extractive Industries

This growing expenditure will in part be funded by an improving outlook for government income. There are a number of factors we believe will boost revenues in Niger in the coming years. First is the nascent oil sector, which was launched in 2011 with investment from China National Petroleum Corporation. Nigerien President Mohamadou Issoufou announced in August that agreement had been reached with Chad and Cameroon whereby oil would be exported through the two countries' territory by pipeline to the Cameroonian port of Kribi from 2016. President Issoufou hopes that production, which currently stands at 20,000 barrels per day (b/d) will reach up to 80,000 b/d, generating funds he aims to spend on development. Domestic revenue saw a boost of 67.4% in 2011 when production began, and while we expect future gains to be more sedate, the oil sector will nonetheless remain an important source of revenues.

The second two factors both pertain to the uranium mining sector. Niger is the fourth-largest uranium producer in the world, accounting for around 8% of global production. Although prices have been depressed in recent years, which has had a negative impact on the Nigerien economy, our Power team holds a positive view on uranium prices in the long term, and this will serve to boost government income. This view is predicated on the belief that negative sentiment towards the sector is overdone, and that a number of key markets could ramp up or reinstate their nuclear power programmes - many were cancelled or mothballed in the wake of the 2011 Fukushima disaster, which caused uranium prices to plummet ( see 'Uranium Equities: Bottomed Out, Upside Mounting', July 17).

An increase in uranium prices will be especially beneficial given the recently negotiated settlement between the Nigerien government and French state-owned uranium mining firm Areva, which operates the two primary mines of Somair and Cominak. The company had been paying just 5.5% tax on its exports from these facilities, and had been becoming the focus of increasing anger from the Nigerien people. Following two years of failed negotiations, an agreement was finally reached in May 2014. There remains some discontentment in Niger over the opacity of the agreement - it is not entirely clear what tax rate Areva will now be paying, and whether this level is reliant on a certain income - and protestors were arrested when French President Francois Hollande visited Niger in July. Nevertheless, it seems certain that Niger will receive a greater share of the profits than it had previously. Following a 26.8% decline in 2013, and a forecast 3.0% rise in 2014, we project that growth in domestic revenues will average 14.3% over the 10 years to 2023.

Still Reliant On Foreign Grants

Despite the improving outlook for Niger's revenues, the country will remain massively reliant on foreign grants in order to meet its fiscal obligations. The country is one of the poorest in the world, and without foreign aid its government would be unable to fund its institutions or pay for planned development works. Grants accounted for 34.1% of revenue in 2013. That said, we believe that the growth in tax revenue collection will enable Niger to steadily reduce its reliance on foreign budget support; by 2023 we forecast that foreign grants will have declined to 24.9% of revenue, or 6.8% of GDP.

Fiscal Policy (Niger 2010-2018)
Indicator 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Revenue, % of GDP 18.2 25.8 27.6 23.9 21.4 21.5 22.2 22.9 23.6
Fiscal expenditure, XOFbn 572.8 865.5 991.8 894.0 980.2 1,082.9 1,201.0 1,336.8 1,493.0
Expenditure, % of GDP 20.2 28.6 28.7 23.8 23.7 23.8 24.0 24.3 24.7
Current expenditure, XOFbn 355.1 659.5 597.6 468.6 492.1 522.6 557.8 598.2 644.6
Current expenditure, % of total expenditure 62.0 76.2 60.3 52.4 50.2 48.3 46.4 44.7 43.2
Current expenditure, % of GDP 12.5 21.8 17.3 12.5 11.9 11.5 11.2 10.9 10.7
Capital expenditure, XOFbn 217.7 206.0 394.2 418.2 480.9 553.0 636.0 731.4 841.1
Capital expenditure, % of total expenditure 38.0 23.8 39.7 46.8 49.1 51.1 53.0 54.7 56.3
Capital expenditure, % of GDP 7.7 6.8 11.4 11.2 11.6 12.2 12.7 13.3 13.9
Budget balance, XOFbn -57.0 -84.0 -37.6 3.6 -95.5 -104.2 -91.4 -78.1 -64.5
Budget balance, % of GDP -2.0 -2.8 -1.1 0.1 -2.3 -2.3 -1.8 -1.4 -1.1
f = BMI forecast. Source: National Source

Click here to explore data

Read the full article

This article is tagged to:
Related sectors of this article: Economy, Balance of Payments, Investment Climate, Fiscal Policy
Geography: Niger
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.