328 Views

Nigeria Faces Double Whammy As President Buhari Fails To Manage Oil Rout

The government, which in 2014 relied on oil for two-thirds of revenue, can’t pay many teachers or finance infrastructure projects.

When Nigerian President Muhammadu Buhari came to power in May vowing to mend the economy, fight terrorism and end corruption, Kola Karim was upbeat. Oil prices had sunk, but Buhari’s arrival made him believe his company still had a chance to prosper in Africa’s biggest crude producer.

Shoreline Group, the third-biggest Nigerian oil and gas producer, decided to forge ahead with a $500 million Eurobond to expand drilling operations. Then prices fell below $50 per barrel last year. The bond sale was suspended.

One hope was to rely on income from Shoreline’s construction and power-generation businesses. Except that the central bank’s refusal to devalue the currency meant Nigeria was starved of foreign exchange, crimping business operations. Now, with prices hovering around $30 a barrel, Shoreline plans to cut 35 percent of its nearly 2,000 staff.

“It’s a double whammy,” Chief Executive Officer Karim, 47, said in his Lagos office, where two enormous bronze reliefs by artist Bruce Onobrakpeya leaned against the wall. “Getting dollars to bring in raw materials is very tough. If Nigeria was earning enough from its oil revenue, we wouldn’t have that.”

Karim’s struggle mirrors that of the wider Nigerian economy, Africa’s largest. And his difficulties show the challenges faced by Buhari, a 73-year-old former general who ruled Nigeria as a military strongman from 1983 to 1985. His task when he came to office was to push Nigeria to reform. Now he must help it survive.

Unpaid Teachers

The government, which in 2014 relied on oil for two-thirds of revenue, can’t pay many teachers or finance infrastructure projects. With the economy growing at barely half 2014’s 6.3 percent, a recession can’t be ruled out this year, according to Morgan Stanley. Nigerian stocks have fallen 16 percent since the end of December, the most in sub-Saharan Africa.

Buhari and central bank Governor Godwin Emefiele have imposed currency controls that encouraged capital flight and suffocated businesses dependent on imported supplies. Emefiele, with Buhari’s backing, has pegged the naira for almost a year at 197-199 per dollar, even as major producers from Russia to Mexico and Canada have let their currencies slide. Dangote Group, Nigeria’s largest company, has called the foreign-exchange situation “extremely tight.”

This week, the black-market rate fell to a record 350 per dollar, 76 percent weaker than the official rate. Former central-bank governor Muhammadu Sanusi II in October told business leaders that Buhari and Emefiele were “in denial” over the currency.

No Gain

The president says critics will have to “work much harder” to convince him ordinary Nigerians will gain anything from a devaluation that foreign investors from Ashmore Group Plc to Investec Asset Management Ltd. think is inevitable. The central bank says a weaker currency would only accelerate inflation already at a three-year high of 9.6 percent.

“People were expecting the Buhari dividend and that never really materialized because of the policy inertia,” said Ronak Gopaldas, a Johannesburg-based analyst at Rand Merchant Bank. “There’s still the perception that currency has to be devalued. But you’re getting this stubborn resistance at the top.”

ALSO READ  Everything To Know About The Innoson EFCC Arrest And The GTB Loan - James Osaremen

Buhari’s spokesman Femi Adesina said the president and his government have already responded publicly to questions about economic management.

Independent Bank

“There is no perfect policy,” Kayode Fayemi, minister of solid minerals development and former policy director of the ruling All Progressives Congress, said in a Feb. 8 interview. “We have an independent central bank and the central bank should do its job to convince the stakeholders” if a change in policy is needed.

Nigerian authorities say they realize they need to diversify the economy.

“For us, this is an opportunity,” Emmanuel Kachikwu, a petroleum minister and head of the state oil company, said last month in an interview at the World Economic Forum in Davos, Switzerland.

Officials want to broaden the tax base by 5 million individuals and 500,000 companies this year, mostly by tightening enforcement. Nigeria’s government-revenue-to-GDP ratio is about 8 percent, the second-lowest level in sub-Saharan Africa after war-torn Central African Republic, according to the International Monetary Fund. South Africa collects 29 percent; Kenya 20 percent.

The government says the tax measure, along with $9 billion of new borrowing from local and international investors and multilateral lenders such as the World Bank, will ensure the government can plug a fiscal deficit set to be a record $15 billion this year. Debt-service payments will be more than three times what is spent on education, and six times the expenditure on health.

Buhari can claim progress for his anti-corruption drive, said Cobus Claassens, managing director of security company Pilgrims Africa Ltd. The president has sacked executives at the national oil company and ordered the new management to clean it up, while starting probes into whether the last government siphoned off billions of dollars meant for the military fighting Islamist militant group Boko Haram in the northeast.

Drum-Beating

“Buhari is beating a drum that’s scaring the living daylights out of every corrupt guy,” Claassens said. “That doesn’t stop them from being corrupt, but they’re not so in-your-face. The offensive side of corruption — extortion — is dying out.”

Some investors are also benefiting from gains made against Boko Haram, which has been dislodged from swathes of territory it held early last year.

Buhari “has opened the north up a bit more,” Alex Kanellis, chief executive officer of PZ Cussons Plc, a U.K. soap maker that gets more than a third of its sales in Africa, said on an earnings call last month. “It’s helping improve our distribution.”

Still, the president’s economic policies are worsening the pain caused by falling oil prices, says RMB’s Gopaldas.

“The anti-corruption and security drives are positive, but they need to be matched with clear, unambiguous economic policies,” he said. “At $30 a barrel, there’s no getting away from the fact it’s going to be really tough.”

bloomberg.com

Get the best viral stories straight into your inbox!

Don't worry, we don't spam

Leave a Comment

Your email address will not be published.

Latest Posts

How Kebbi State Government Publicly Disregarded First Wife, Aisha Bagudu As State’s First Lady
Politics
17 views
Politics
17 views

How Kebbi State Government Publicly Disregarded First Wife, Aisha Bagudu As State’s First Lady

MT - April 23, 2018

A mild drama recently occurred on Twitter leading to a public revelation that the popular Aisha Bagudu isn't recognized as first lady.  Recently, one of the national…

Moment Nigerian Singer Mayorkun Re-United With His Dad After Two Years
Entertainment
24 views
Entertainment
24 views

Moment Nigerian Singer Mayorkun Re-United With His Dad After Two Years

MT - April 23, 2018

Singer Mayorkun has reunited with his dad in Dallas. The singer says the last time he saw his dad was two years ago when he was still…

#BBNaija Special: According to Google, Cee-C is the Most Bitter Woman in Nigeria
Buzz & Trends
24 views
Buzz & Trends
24 views

#BBNaija Special: According to Google, Cee-C is the Most Bitter Woman in Nigeria

MT - April 23, 2018

Cynthia Nwadiora popularly identified as Cee-C was tagged a very bitter and angry person following her controversial activities at the Big Brother Naija reality show which was…

How Lagos Saved N4.5bn From Non-sponsorship Of Pilgrimages
Politics
24 views
Politics
24 views

How Lagos Saved N4.5bn From Non-sponsorship Of Pilgrimages

PH - April 23, 2018

The Lagos State Government says it has saved a total of N4.5billion in the last three years since it stopped funding pilgrimages. According to it, the feat…

Afrobeat Artiste, Seun Kuti, Unveils New Album “Black Times”
Entertainment
22 views
Entertainment
22 views

Afrobeat Artiste, Seun Kuti, Unveils New Album “Black Times”

PH - April 23, 2018

Afrobeat artiste Seun Kuti has announced a new album, “Black Times“. According to him, “Black Times is a true reflection of my political and social beliefs; it…

Former Super Eagles Star, Femi Opabunmi Reveals How He Became Blind
Politics
28 views
Politics
28 views

Former Super Eagles Star, Femi Opabunmi Reveals How He Became Blind

MT - April 23, 2018

There is a photo of Femi Opabunmi trying to mark David Beckham in what look liked a set-piece situation during Nigeria’s goalless draw against England in a…

#BBNaija: See All the Prizes Miracle Will Be Going Home With After He Emerged Winner
Entertainment
31 views
Entertainment
31 views

#BBNaija: See All the Prizes Miracle Will Be Going Home With After He Emerged Winner

MT - April 23, 2018

Big Brother Naija 2018 winner, Miracle Igbokwe is still counting his blessings after winning the reality television show yesterday night. A list of all the prizes he…

Read Vimbai’s Open Letter to #BBNaija Housemates
Entertainment
28 views
Entertainment
28 views

Read Vimbai’s Open Letter to #BBNaija Housemates

PH - April 23, 2018

Former Big Brother Africa housemate and media personality, Vimbai Mutinhiri in a new post on her Instagram page, has a message for the housemates from the recently…

25-yr-old Nigerian Man Becomes Africa’s first PhD holder in National Security Strategy In The UK
Best of Nigeria
42 views
Best of Nigeria
42 views

25-yr-old Nigerian Man Becomes Africa’s first PhD holder in National Security Strategy In The UK

PH - April 23, 2018

A 25-year-old U.K based Nigerian man and Twitter @olamideDIY just achieved a great feat of becoming Africa’s first PhD holder in National Security Strategy. Sharing the amazing…

Actress Omoni Oboli Launches Feeding Outreach “Sister Lizzy’s Kitchen” in memory of Late Mum
Entertainment
28 views
Entertainment
28 views

Actress Omoni Oboli Launches Feeding Outreach “Sister Lizzy’s Kitchen” in memory of Late Mum

PH - April 23, 2018

Nollywood actress and latest author in town, Omoni Oboli, turned forty yesterday and to celebrate her new age, she spent her day with the children of Makoko…

Nigeria’s Chinedu Moghalu Appointed Head, Communications & Advocacy, Africa Risk Capacity/UN WFP
World Buzz
39 views
World Buzz
39 views

Nigeria’s Chinedu Moghalu Appointed Head, Communications & Advocacy, Africa Risk Capacity/UN WFP

PH - April 23, 2018

Chinedu Moghalu, a Nigerian, has been appointed the Senior Communications Specialist/Head, Communications & Advocacy for the Africa Risk Capacity/United Nations World Food Programme, based in Johannesburg, South…

#BBNaija’s Teddy-A Surprises BamBam on her Birthday (Photo)
Entertainment
46 views
Entertainment
46 views

#BBNaija’s Teddy-A Surprises BamBam on her Birthday (Photo)

PH - April 23, 2018

Today is Big Brother Naija’s BamBam’s birthday, and to celebrate, her one-time strategic partner in the house Teddy-A paid her a surprise. According to Olorisupergal, Teddy-A threw…

#BBNaija’s BamBam to launch Beauty Oils on her Birthday
Business
36 views
Business
36 views

#BBNaija’s BamBam to launch Beauty Oils on her Birthday

PH - April 23, 2018

Bam Beauty Oils – that’s the brand name of the beauty oil collection Big Brother Naija’s BamBam is set to launch on her birthday, April 23. BamBam…

#BBNaija’s Teddy A To Launch Clothing Line “Badman Apparel”
Entertainment
40 views
Entertainment
40 views

#BBNaija’s Teddy A To Launch Clothing Line “Badman Apparel”

PH - April 23, 2018

Hot out of the “Big Brother Naija” house, evicted housemate Teddy A is set to launch a clothing line. The musician made the announcement on his Twitter,…

Omoni Oboli Celebrates 40th Birthday With New Book
Entertainment
33 views
Entertainment
33 views

Omoni Oboli Celebrates 40th Birthday With New Book

PH - April 23, 2018

You can now add author as a title when referring to Nollywood actress Omoni Oboli who turned 40 today. To celebrate the big 4-0, the actress has…

Nigeria’s Most Bitter Woman
Entertainment
37 views
Entertainment
37 views

Nigeria’s Most Bitter Woman

PH - April 23, 2018

Who is Nigeria’s Most Bitter Woman? We asked the Google Image search engine for this question and you won’t believe what we found. But first, congratulations again…

Chude Jideonwo Covers Latest Issue of The Guardian Life Magazine
Entertainment
52 views
Entertainment
52 views

Chude Jideonwo Covers Latest Issue of The Guardian Life Magazine

PH - April 23, 2018

Joy, Inc. founder, Chude Jideonwo is on the cover of this Sunday’s edition of The Guardian Life magazine. Tagged ‘The harbinger of joy’, in the issue Chude…

Miracle Named Winner Of BBNaija 2018
Entertainment
70 views1
Entertainment
70 views1

Miracle Named Winner Of BBNaija 2018

PH - April 23, 2018

Miracle has emerged the winner of the Nigeria’s biggest reality TV show, Big Brother Naija, BBNaija which started since January 28, with 20 housemates. Miracle will be…

Loading...