Lee Group Sugar in Jigawa State: Anatomy of a Deal – Naira Insider

Deals in Nigeria take an extraordinarily long time to complete.

Yesterday’s announcement by CBN Governor Mr. Godwin Emefiele lauding the take off of a venture between Lee Group and Jigawa state to producer sugar was first announced in 2015.

How has  it taken 2 years to get to the point of mobilisation?

Having been active in agricultural investment in Nigeria, I will give 3 likely reasons;

  1. The government officials have been jockeying for position to get their piece of the pie. This always delays deal implementation as commissioners from different departments and relatives of the governor block progress until they are sufficiently lubricated. Once they feel they have something commensurate with the size of the deal, they release authority to get detailed paperwork completed and it then the turn of the minor officials to hold the process to ransom.
  2. Land has been difficult for Jigawa state commissioners to source. Despite positive noise and statements by the commissioners that they”hold the land in trust for the people”, it is always problematic for the state government to procure land in such a way that does not anger local communities. The relationships are generally poor and rightly distrustful. If there is any leak of information to the communities about how much of the land purchase/lease price is being “chopped” by commissioners before the scraps reach the communities, then there is often outright rejection of the deal.
  3. Guarantee of investor funds and ability to input and extract currency from Nigeria with ease. This is no doubt why the CBN has an opportunity to further chop some money from the deal. The Lee group is Chinese and will need to understand how it can easily conduct its financial transactions across borders. Due to the opaque and corruption ridden foreign exchange processes, the CBN is required.

So the handshakes were done and the photos taken.

As the stories are placed in the mainstream media we, the more questioning media outlets are left wondering…

When will the neo-colonialism of the Chinese halt?

When will this project fail so that the Governor and the rest can walk away with full pockets?

What is the real size of the investment and deal structure?

And perhaps most importantly, why is it only the Chinese who are able to conduct business in our country currently?

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.