Economy in Best Shape for Years: A Number of Factors, Including Record Prices for Oil and Gas, Have Left Nigeria in a Healthier Economic Position Than It Has Been in for Many Years. but Union Opposition to Civil Service Reform and Other Issues Are Looming on the Horizon. Analysis by Neil Ford

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The Nigerian economy is certainly in a better state now than it has been for many years. Record oil and gas production would be cause for celebration enough but it has been achieved at a time of record oil and gas prices. Accompanied by the prospect of a third consecutive period of civilian government, the resolution of the Bakassi dispute and the completion of the first national census for many years, there are many indications that Nigeria has finally turned the corner in its troubled history.

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Yet there are clouds on the horizon that could raise the pulse of a Nigerian population that has become accustomed to political and economic setbacks.

The federal government's success in tackling Nigeria's massive external debt must rank as one of its biggest achievements to date, as the $30bn debt deal was the largest financial agreement in the history of sub-Saharan Africa.

Nigeria's oil and gas wealth made it ineligible for debt relief under the highly indebted poor countries (HIPC) scheme and so the government opted for another strategy. Abuja agreed to repay $12.4bn of its Paris Club debts, in the short term, in return for the cancellation of the remaining $17.6bn debt. Given that the Paris Club creditors were owed over 80% of Nigeria's external debt, the agreement marked a major breakthrough in Nigeria's financial history and should enable the government to use its revenues in a more constructive way once the debt is repaid.

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Nigeria's ability to make such a large and rapid debt repayment was enabled by the oil and gas boom. The very high oil price has produced a growing balance of payments surplus that will fund the repayment and provide much needed funding for improvements to infrastructure and education.

Oil production has already reached 2.7m barrels a day (b/d) and should reach 4m b/d by 2010, while national liquefied natural gas (LNG) production capacity is likely to double over the same period as a result of the ban on gas flaring and the various gas consumption projects planned by the oil majors operating in the country.

As an indication of its growing wealth, the government has now unveiled ambitious plans to upgrade the country's rail network. Rail investment has been discussed over the past three years and the Chinese government was reported to have been prepared to take part but the government has now completed its strategic plan for the industry. A complete overhaul and modernisation of the existing system is envisaged, with new track and other railway infrastructure on most lines, plus new rolling stock.

The first phase of the modernisation programme will concentrate on the north-south line from Kano to Lagos, while Phase Two will focus on the Port Harcourt to Jos line.

Over the next 25 years, the government has promised to invest $8.3bn to connect every state capital to the rail network. While outgoing governments can easily produce long term plans that they will not be around to implement, the fact that Abuja is thinking big demonstrates the confidence generated by its stronger economic position.

Okonjo-Iweala moved out

On the other side of the coin, the government faces a series of problems, some of which could be of its own making. Finance Minister Ngozi Okonjo-Iweala was generally regarded as one of Africa's most capable ministers. She was widely credited with negotiating the debt deal and developed strong relations with key foreign governments and multilaterals. While Nigeria's political system remained open to criticism and liable to fall into crisis, she seemed a safe pair of hands and the driving force behind the West African state's economic renaissance, particularly given her experience as a senior World Bank official.

However, she was transferred from the Ministry of Finance to the Ministry of Foreign Affairs in June and then lost her position as head of the government's economic reform team several weeks later. …