Highlights from Reuters coverage of Nigeria over the last seven days
In this week’s round-up: President Buhari presents record 2020 budget, attorney general seeks $62bn from oil majors, Nigeria lands higher oil output target in OPEC+ cut deal, and Uber launches Lagos boat service.
- President Muhammadu Buhari presented a record 10.33 trillion-naira (around $30 billion) budget for 2020 to parliament as he aims to spur growth in Africa’s largest economy at the start of his second term in office. The spending plan assumes crude oil production of 2.18 million barrels a day and an oil price of $57 per barrel. Economic growth slowed to an annual rate of 1.94% in the three months to the end of June, the second quarter in a row of decline. “We are optimistic of attaining higher and more inclusive GDP growth,” Buhari told a joint session of the upper and lower houses of parliament. Buhari, who in his re-election campaign vowed to implement a road and rail construction programme, said 2.46 trillion naira had been allocated to capital projects and 2.45 trillion naira for servicing debts. A budget deficit of 2.18 trillion naira — representing 1.52% of the estimated gross domestic product — was to be financed through foreign and domestic borrowing, plus the proceeds of privatisation, he said. The budget is an increase from the 8.83 trillion-naira budget for 2019 and tops the previous record spending plan which was the 9.12 trillion-naira budget for 2018. Buhari’s government has repeatedly rolled out record spending plans but struggled to fund them because of lower oil production and an inability to boost non-oil exports. Actual revenue collection and budget implementation are likely to “deviate dramatically from the administration’s plans”, said Malte Liewerscheidt, vice president of Teneo Intelligence. He was not the only analyst to express a degree of scepticism.
- The budget, which must be approved by lawmakers before being signed into law by Buhari, includes a value-added tax increase from 5% to 7.5% and a minimum monthly wage increase to 30,000 naira ($98) from 18,000 to implement a change that was signed into law in April. In the wake of the budget, the International Monetary Fund (IMF) said: “Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy.” It said the “outlook under current policies remains challenging”. The Fund also gave this assessment: “Over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in over-reliance on the expensive borrowing from the central bank to finance the deficit.” Reactions on social media were swift and forthright.
- Meanwhile, the World Bank cut its economic growth forecast for sub-Saharan Africa for 2019 to 2021 by 0.2 percentage points from its earlier projection, citing a slowdown in fixed investment and policy uncertainty in the global economy. The bank said the region’s economy was expected to grow 2.6% this year, from a 2.8% projection in April. It said growth would rise to 3.1% in 2020 and 3.2% in 2021. Nigeria, South Africa and Angola, which make up about 60% of sub-Saharan Africa’s annual economic output, are all facing various impediments, the bank said. Nigeria’s economy is expected to grow 2.0% this year, compared with the previous forecast of 2.1% in April and to expand 2.1% percent in 2020 and 2021, which are 0.1 and 0.3 percentage points lower than the April forecasts, respectively. “The medium-term growth outlook continues to be constrained by a weak macroeconomic policy environment and slow policy implementation,” the bank said, citing multiple exchange rates, foreign exchange restrictions, high inflation, and low non-oil revenues among other obstacles.
- Nigeria is seeking $62 billion from oil companies under regulations that allow the government to revisit revenue-sharing deals on petroleum sales if crude prices exceed $20 a barrel, the attorney general told Reuters. The government in Africa’s largest oil exporter relies on oil for some 90% of foreign exchange. Oil prices rose to more than $100 a barrel in 2014 before a sharp drop that triggered a 2016 recession in Nigeria, leaving the government struggling to fund its budgets. A law dating back to the 1990s that governs oil production sharing contracts allows the government to review revenue sharing once the oil price rises above $20 per barrel. Abubakar Malami, the attorney general, said Nigeria had been “short-changed” under the law and was pursuing a case for recovery if it was established that the oil companies had under-paid the government. “Computing the amount that should be credited to the Nigerian government if the law was effectively applied, that translates to around $62 billion against the IOCs (international oil companies),” said Malami in a telephone interview. “All options are on the table and there is no limit to what we can do in terms of engagement, in terms of settlement, if the need arises,” said Malami. He declined to name the oil companies involved in the matter.
- An $875 million Nigerian government lawsuit against U.S. bank JPMorgan is clear to move forward after a London-based appeals court rejected the bank’s bid to have the case dismissed. The bank had asked the court to quash the Nigerian government’s case, arguing that it had no prospect of success. All three justices at the Court of Appeal in London rejected JPMorgan’s argument in a ruling. This week’s decision upheld a February ruling from a lower court. Nigeria is suing JPMorgan for more than $875 million, accusing it of negligence in transferring funds from a disputed 2011 oilfield deal to a company controlled by the country’s former oil minister.
- Global ride-hailing giant Uber launched a pilot test of a boat service in Nigeria’s commercial capital Lagos to attract commuters seeking to avoid the megacity’s notoriously congested roads. The combination of population growth and congestion has made Nigeria, and more broadly West Africa, attractive to foreign transport companies. Uber’s chief business officer told Reuters in June the company planned to launch the service to carry travellers in the city of around 20 million people that was built on a lagoon. The waterway service, UberBOAT, is operated in partnership with local boat operator Texas Connection Ferries and the Lagos State Waterways Authority (LASWA), said the ride-hailing firm. Passengers will be charged a flat fare of 500 naira ($1.39) per trip, compared with about 300 naira by minibus for a similar journey in the commercial hub of the West African country where most people live on less than $2 a day.
- Nigeria has a cunning plan. It aims to team up with Cameroon to agree a premium for their cocoa with buyers, the vice president of the World Cocoa Producers Organisation told Reuters. It comes after top growers Ivory Coast and Ghana moved to boost prices for their crops. The plan suggested by Nigeria, the world’s fourth-largest cocoa producer, is part of a drive by growers in West Africa and Latin America to try to address a perceived imbalance between farmers’ incomes and money made by big commodities traders. Ivory Coast and Ghana, which account for nearly two thirds of global output, have imposed a fixed “living income differential” of $400 a tonne on all cocoa contracts sold by either country for the 2020/21 season. World Cocoa Producers Organisation Vice President Sayina Riman, who doubles as president of the Cocoa Association of Nigeria, said Ivory Coast and Ghana had effectively agreed a $400 per tonne premium above global prices for their cocoa, and that Nigeria wanted to follow suit to protect its farmers. Nigeria has had informal discussions with Cameroon, Riman said. “We are talking to Cameroon to see if we can become a regional bloc … and see if we can get our buyers who know our quality to give us better differentials,” he said in a telephone interview. “We need to approach it as a bilateral discussion,” he said.
- OPEC has granted Nigeria a higher oil output target under an OPEC-led deal to limit oil supply in a move unannounced by the group, following efforts by Africa’s largest exporter to tweak the agreement to accommodate its expanding oil industry. The country’s allocation was increased to 1.774 million barrels per day (bpd) from 1.685 million bpd at the last OPEC meeting in July, three OPEC delegates with knowledge of the matter said. “It’s happened,” one of the delegates said. “I’ve not heard of any other changes to the agreement.” The quota increase will mean Nigeria will see an improvement in its compliance with the supply cut accord, but it is still pumping more crude than the new target according to OPEC’s own figures and industry surveys. Abuja has had a dismal record in delivering its share of the cut, overshooting by 400% in August according to the International Energy Agency. OPEC put Nigerian production at 1.866 million bpd in August - far above the new quota. Nigeria has previously tried to draw a distinction between what it considers as crude and what it considers as condensates, an ultra light crude-like product that doesn’t fall under the OPEC+ cut agreement.
- Still on oil news, Royal Dutch Shell said it had lifted force majeure on exports of Nigeria’s key crude oil grade Bonny Light on 8 October. The company announced the force majeure on 13 September after one of the two pipelines taking the grade to the export terminal was shut down.
- And state oil company Nigerian National Petroleum Corp (NNPC) said it had signed a $2.5 billion pre-payment agreement with Nigeria LNG (NLNG) for upstream gas development projects. NLNG, which produces liquefied natural gas (LNG) for export, is owned by NNPC and foreign energy firms Royal Dutch Shell, Total and ENI. NLNG operates six LNG processing units, known as trains, on Bonny Island. The pre-payment agreement is “for upstream gas development projects to supply trains 1–6”, NNPC said. Nigeria was the fifth largest LNG producer in the world last year, falling from fourth place as its production declined and it was overtaken by the United States, according to the International Group of Liquefied Natural Gas Importers.