How the Nigerian Government can solve the Oil and Forex Crises – Updated

By Ugo Nwagwu

The Nigerian National Petroleum Corporation (NNPC) has put the national daily consumption of petrol at 40 million liters per day. The ‘barrel of crude’ equivalent is 478,068. That is to say that 478,068 barrels of crude should be able to supply the demand of petrol every day in Nigeria. Nigeria’s peak production and the 2016 budget is based on 2.2m barrels of crude daily. Basically 22% of Nigeria’s peak capacity can take care of the Nation’s demand.

Even with the diminished supply due to militant pipeline attacks, Nigeria’s capacity is 1.6m and demand is 30% of that locally.

Currently, according to NNPC, Nigeria’s refineries have the capacity to take care of only 17% of the total demand. There are discussions to increase the capacity of Nigeria’s refineries through public means (NNPC) and through private investments most notably that of Nigeria’s wealthiest individual, Aliko Dangote. Dangote’s refinery is projected to refine 650,000 barrels per day and is currently scheduled to come online in 2018.

However due to the lack of available dollars in the system, rumors are that Dangote may be finding it difficult to get additional funding from foreign bans to be able to meet the deadline. Current projections from unnamed sources peg 2019 as more realistic

The Problem

In simple terms, the current problem is that, the lack of FOREX had caused NNPC to lift the cap on fuel prices from N86 to N145 earlier in the year. Many have called this subsidy removal but that is simply not the case. What has happened is that since the Central Bank has been making forex available to oil marketers at the official rate post naira-float.

Because of the volume of foreign currency required to service Nigeria’s energy needs, very little is left over to serve other industries such as manufacturing, airlines and individual needs to foreign and school fees.

When we initially published this article back on May 16, 2016, we predicted the following…

“The issue with that is twofold; a drastic increase in pump prices which among many effects will boost inflation and hurt the pocket books of the average Nigerian. You could make the argument that due to fuel scarcity, market forces have already caused pump prices to go up.

The second problem is that the pressure on forex rates will increase because now that markets will be sourcing for dollars through the parallel market, it would increase demand and force prices up. By my calculation, it will cost roughly $6b annually if all of Nigeria’s fuel supply were to be sourced externally.”

Since then, parallel market dollar rates have skyrocketed from N290 per dollar to as high as N500 per dollar at the end of September but has thankfully begun to drop trading at N450 per dollar at time of publishing.

Our solution is still the same as it was back in May. It is as follows….

The Solution

Nigeria has a long term solution in the works. If NNPC can boost capacity to 25% from 17% of demand and Dangote’s refinery comes online as scheduled with the ability to supply 130% of demand; and even with accounting for population growth, you can see that we could be heading towards a market driven solution in the long run.

However, we need a short term solution. Here’s my solution –

Crude Swaps for 100% of demand made entirely by NNPC. Stay with me. Crude swaps would eliminate the need for FOREX to source products. NNPC can then sell products for a minimal profit to marketers and allow markets to set their own prices. When those marketers compete with each other, it will regulate prices without subsidy and minimal price gouging.

What of the loss of revenue the FGN will sustain? Simple, with a foreign reserve of $26b, we would be budgeting $12b over a two year period. Moreover, the FG wouldn’t actually be losing money, they would just be converting USD to petroleum and then to Naira because they would be selling the petroleum swapped at a profit.

What of corruption such as that sustained in such deals during the past regimes? According to Nigeria Extractive Industries Transparency Initiative, Nigeria lost $966 million to crude oil swap deal between 2009 and 2012. So that’s a real concern and a real threat to this plan. However, this is a new regime which has promised to tackle corruption. Also, the loses aside, this actually worked quite well in the past. But back then, no one was paying attention to back room deals. We are not so oblivious now.

Conclusion

Such a move will leave the $20b estimated that Nigerians from the Diaspora to serve other forex demands. Others will come from Foreign Direct investments and whatever sources they currently come from since the FG has limited its supply.

I am sure much smarter people can offer even better solutions and some might even disagree.

What we can all agree to is that we need both short and long term solutions. What we can agree to is that we need to be having these sorts of discussions to come up with those solutions. What we also need is the political will to do something to ease the pressure on Nigeria citizens at the pump and in their pockets.

It appears that other long term plans may be in place to help Nigerians economically in the long run such as the Naira/Yuan swap agreement. But we have to provide short term solutions to allow Nigerians survive to the point they can also benefit from these long term plans.

Fantastically corrupt or fantastically incompetent

By Ugo Nwagwu

Niger Delta Avengers, Tomato Ebola, economy heading full steam into a recession, incoherent foreign exchange policy, civil unrest in the southeast….the list reads like a nation in turmoil and that’s because it is.

It was only a little over a year ago that PDP and APC campaigned on differing personas to lead the country into the future. Not much differed in terms of substance but in the end, the people decided to change course and elected APC into power.

How and why did APC win? One word, Change. All promises evolved around that idea of change. Change from corruption, lack of consistent power, jobs, a plunging naira among other issues that have plagued Nigeria for so long.

One year in and even the most ardent supporters of the party in power will tell you that the change they sought is at best a little slow in coming. At worst, you hear the phrase “one chance” which basically means, they’ve been duped.

Why?

The answer is actually quite simple. Campaigning does not equal governance. APC and it’s flag bearer and now President, Muhammadu Buhari campaigned earnestly, making promises I believe they thought were achievable; well, other than the alleged dollar to naira conversion promise of $1 to N1.

However just as the US President, Barack Obama promises to close Guantanamo Bay in his first term in office, the actual situation on ground when the oath of office is taken has a way to altering the plans of incoming governments.

Basically, you don’t get to pick and choose what situations remain on ground when you take office or what situations will arise when you take office. What you can’t do is continually blame past administrations indefinitely without seeming woefully inadequate for the job.

Fantastically Incompetent

Engage the average Nigerian and you’ll hear angst in their voices. Many recognize the problems. They want to be patient with the current government but they don’t see a way forward or ahead.

They remember a Nigeria not too long ago where the US Dollar traded at $1 to N150. They remember a Nigeria not too long ago where a liter of petrol sold for N97. They remember a Nigeria not too long ago where no one had ever heard of Tomato Ebola (note that this isn’t the first time this pest has struck). They remember a Nigeria not too long ago where economic growth was routine year after year.

They also remember a Nigeria not too long ago where her government and its officials were reportedly pillaging the financial resources for personal gain routinely; where political office was a means to a personal financial end; where the former CBN Governor and current Emir of Kano, Lamido Sanusi for example claimed that $20b was unaccounted for in the nation’s treasury.

The Real Question

My conversations with friends and associates led me to one simple conclusion. The previous administration was fantastically corrupt (to borrow the tired phrase from British Prime Minister, David Cameron) but quite aptly competent.

On the other hand, the current administration appears to be aptly incorrupt but (based on current mood), fantastically incompetent.

The real question is, which situation is preferable? The fact that we have to ask that question only tells you the sad state of where we are as a country.

Unfortunately this is a question many citizens, businessmen, youths, business are struggling to answer today. Some have answered. Back on March 27th, 2016, #IStandWithCorruption (a play on the popular #IStandWithBuhari) was trending in Nigeria.

Conclusion

Competency and morality as it relates to governance should not be mutually exclusive. In the end, the current administration may have to something they would never had imagined a year ago, reach back and ask for help to learn how to govern. And do so while maintaining the same anti-corruption mantra that got them in power.

Top 5 Ministers on the hot seat – One Year Anniversary Edition

By Ugo Nwagwu

Yesterday, we celebrated commemorated Democracy Day. It also marked the one year anniversary of APC and President Muhammadu Buhari’s rule.

Several weeks ago, we ranked the Top 5 Ministers on the hot seat. As you can imagine, these things are fluid. Yesterday’s prisoner can be tomorrow cup bearer. You’d understand if you read your bible.

So I believe it’s only fair to update the list and see where we are right now.

  1. Tie- Minister of State for Petroleum – Emmanuel Ibe Kachikwu

Ibe-Kachikwu

Previous Rank – 2

The fuel supply situation has been resolved although at a massive inflation inducing cost. After the prices of a liter of PMS aka petrol went up from N86 to N145, every supplier all of a sudden had so much product to sell that the queues essentially died overnight. However multiple issues still plague the office, the biggest being the seemingly daily bombings of Nigeria oil pipelines. The effect is a reduced production capacity of over 50% which means Nigeria can’t even take advantage of recent spike in oil prices. Kachikwu is the face of the Oil and Gas sector and right now, he needs a lot to start going his way if he’s to hold onto this job for the long haul.

  1. Tie – Minister of Petroleum – President Muhammadu Buhari (PMB)

buhari33

Previous Rank – 1

Many Nigerians still don’t agree with a president Buhari filling the position with himself. That said, as Minister of Petroleum, he shoulders the responsibilty for the issues that come up. Right now, the biggest on his plate is the terrorist activities perpetrated by militants from the South-South. Oil revenues are down due to poor supply as a result of blown up pipelines. PMB is planning on visiting the troubled region which may be a first step to stemming the violence. Some say increased military action is the way to go while others advocate negotiations. Perhaps a combination of both could be the solution. Nevertheless, if the situation continues, no doubt it could devastating effects to the legacy of this administration.

  1. Minister of Information – Lai Mohammed 

Previous Rank – 5

The only reason Alhaji Lai Mohammed isn’t higher on the list (and perhaps the reason he still has a job) is that those higher on the list have significantly more pressing issues to deal with and are thus under more pressure. One of the knocks on the current administration is the lack of a cohesive message. It has become routine to have cabinet ministers contradict themselves when talking about the same issues. This is one of the many roles of an information minister; ensure that the administration speaks with one voice. So this marks a failure on his part. The leaked document of the minister seeking loans for foreign travel was also embarrassing if not scandalous. If such things continue, Alhaji Mohammed would no doubt find himself higher up this list and perhaps out of a job soon.

  1. Minister of Agriculture and Rural Development – Chief Audu Ogbeh

index

Previous rank – Unranked

Tomato Ebola? Considering that tomatoes are a major ingredient in many Nigerian dishes, it is unsurprising that there is a public outcry over the scarcity as well as the soaring cost of the vegetable crop due to a pest ravaging tomato farms across the nation. Chief Ogbeh is on this list because the situation has reached critical mass. The fact that this isn’t the first time this pest has been an issue and that it has been tackled without fanfare in the past under previous administrations is troubling. It also speaks to a lack of foresight by the ministry and all fingers point to the head. If this isn’t tackled with intensified efforts and the “jollof rice enjoyment index” suffers, Chief Ogbeh might want to brush up on his resume because the average Nigerian will call for blood and he may be the fall guy.

  1. Minister of the Niger Delta – Usani Usani Uguru

Uguru

Previous Rank – Unranked

One of the reasons for this list is accountability. Let us make famous those who appear to be incompetent at the execution of their jobs. While the apparent portfolio of the Niger Delta Ministry might not be easily accessed, it is safe to assume that what is going on in the Niger Delta should fall under his jurisdiction and it is currently completely unacceptable. Mr. Uguru should bear some responsibility for this. If a country operated as a business entity and the largest revenue source fell by more than 50%, there’s no doubt the division head would be on the outside looking in. Mr. Uguru should have been much more proactive in checkmating the source of anger in the region and at the very least found way to bridge the divide between the administration and the communities. If he’s not up to the job or doesn’t feel this is his responsibility, then it is time for him to go.

  1. Minister of Finance – Folake Adeosun

kemi-adeosun-e1451378049121

Previous Rank – 4

The economy is on the verge of recession (back to back quarters of economic contraction). The nation just experienced its first quarter of contraction in over a decade. Foreign Direct Investments (FDI) are practically nonexistent. Just last week, United Airlines announced it was pulling out of Africa’s largest country, a move already made by Spanish airline, Iberia. Dozens of other foreign companies are considering pulling out. Right now, the Nigerian economy is in shambles. As such many people think that the Finance Minister, Folake Adeosun is way in over her head in this job. President Buhari recently remarked that it would be up to Nigerians to tell him who isn’t performing among his cabinet members. If one had to be chosen, many if not most Nigerians would opt for the former finance commissioner.

* Just missed joining the ranks

– Minister of Industry, Trade and Investment: Okechukwu Enelemah

– Minister of Labour and Employment: Chris Ngige

– Minister of Budget and National Planning: Udoma Udo Udoma

** Dropped off from last ranking

– Minister of Power, Works and Housing – Babatunde Raji Fashola