The streets of
Nigeria’s largest city, Lagos, became easier to navigate in recent weeks
as a biting petrol scarcity meant fewer cars and trucks were present on
usually packed roads.
The fuel shortage is however translating
to little economic activity taking place in the megacity of 21 million
people which is an economic hub for Nigeria, as businesses run short on
petrol for generators, employees face difficulties getting to work,
banks close early and airlines ground planes.
Nigerian President Muhammadu Buhari needs
to move swiftly to end fuel subsidies that have led to the shortages
and reform the corruption riddled Nigerian National Petroleum
Corporation (NNPC) private sector sources BusinessDay spoke to, say.
Any hesitation from the president on
critical reforms risks him facing popular discontent similar to Brazils
Dilma Rousseff, from a young Nigerian populace increasingly jaded by
excuses from politicians unable to provide jobs, or basics like
electricity or petrol.
“Brazils Rousseff was re- elected barely
six months ago but now faces daily protests in various cities due to her
inability to end corruption in the state owned oil company Petrobras,” a
CEO of an indigenous upstream Nigerian oil and gas firm said on
condition of anonymity.
“Buhari must make hard choices regarding the NNPC, eliminate subsidies, and reform the gas sector for power and industries.’’
Comparisons between Nigeria and Brazil which are both the largest economies on their respective continents are apt.
Rousseff’s attempts to revive the
Brazilian economy have failed as a corruption scandal at state-run oil
giant Petrobras, along with inflation, a falling currency and lower GDP
growth rates exacerbated public discontent. Millions have demonstrated
in the streets, some of them calling for her (Rousseff’s) impeachment.
The slide in oil prices which provides 70
percent of the Federal revenue and 95 percent of exports has meant a
squeeze in the Nigerian government’s ability to fund capital expenditure
(capex), with most public construction projects cancelled or
mothballed.
The FY15 budget presented to the Nigerian
National Assembly in December, proposed slashing capital expenditure by
two-thirds to N387bn.
Growth in the first quarter of 2015
slowed to about 4 percent, from on an annual basis compared with 5.9
percent a quarter earlier, as the oil sector shrunk by 8.2 percent, the
Nigerian Bureau of Statistics said.
Nigeria’s consumer price inflation rose
for a fourth month in April to 8.7 percent, interest rates are at a
record high 13 percent, as the Central Bank fights inflation and a
weaker currency which is down some 22 percent to N199 per dollar from
N162 in the past year.
Many Nigerian corporates have announced
they are slashing their FY15E capex plans, with Flour Mills, a blue chip
consumer goods firm planning to halve its capex.
“Consumption and fixed investment look
set to slow sharply in 2015,” Yvonne Mhango, an economist at Renaissance
Capital said in an April 14 research note.
“When we consider the impact of low oil
prices and paralysing polls on GDP by expenditure (consumption, fixed
investment, net exports) in 2015…we think 2015 growth could fall to 3.4% (vs. 4.5% previously).”
Brent futures, the benchmark for more
than half the world’s crude, were 0.9 percent higher at $65.45 a barrel
on the London-based ICE Futures Europe exchange at 10:28 a.m. local
time, yesterday. It is down from an average of $100 a barrel in 2014.
Nigeria, which accounts for 6 percent of
OPECs production has been unable to increase production sufficiently to
offset the fall in oil prices as output rose 80,000 barrels a day to
1.98 million in April, the first gain this year, data compiled by
Bloomberg show.
Nigeria needs $119 per barrel to balance its budget according to the International Monetary Fund (IMF).
Saudi Arabia boosted crude production for
a fourth month in April, to the highest level since 1970 while Iraq
plans to increase crude exports to a record 3.75 million barrels a day
as OPEC is set to meet on Friday in Vienna.
The current fiscal problem facing Nigeria
is further impetus to remove the fuel subsidy, according to research
firm, Financial Derivatives Company.
“A cursory look at the subsidy scheme
shows that the steep increase in the amount spent on subsidies cannot be
justified by the population growth, nor the number of cars imported
into Nigeria,” research firm FDC said in a May 28 economic update.
The rise of the social media in Nigeria
means young people are able to express their views, exchange ideas
online and increasingly shape the discussion about Nigeria’s future.
“These are people whose understanding of
freedom is different from what we grew up in, as they never had to deal
with closures of newspapers by Nigeria’s former military rulers,” said
Toni Kan, publisher of online news website Sabi – News.
“Buhari has to engage with them differently.”
PATRICK ATUANYA
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