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Crude Oil: Nigeria’s volatile oil sector and economic progress   

Nigeria is Africa’s largest crude oil exporter and ranks among the top ten exporters in the world.

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Crude Oil worker, OPEC, oil prices, Bulls hit back to support US crude oil amid panic sell- offs in global equity markets, Nigeria’s local oil players smashed by low crude oil prices

Nigeria is Africa’s largest crude oil exporter and ranks among the top ten exporters in the world. The country’s economy remains heavily reliant on its oil sector as it is the main source of both government revenue and foreign exchange. Petroleum export accounts for c.70%-80% of revenues with several transmission channels into incomes and economic output.

Although the government has introduced a few policies in past years to diversify the Nigerian economy from its reliance on oil, the intended outcomes of those policies are yet to materialise- leaving the economy at the mercy of the volatile oil sector. Interestingly, the oil sector that wields so much power on the economy constitutes just about 9%-10% of the countryís GDP.

The Nigerian oil sector is no stranger to fire outbreaks, theft and sabotage from the Niger-Delta militia. The disgruntled militia in the Niger-Delta region often resort to vandalism as a way of getting government’s attention which ends up sabotaging the country’s economic progress. In 2016, one of such malicious attacks, alongside the slump in global oil prices, forced the country into its deepest economic downturn in over 30 years as the country’s crude output fell sharply from a peak of 2.2 million barrels per day (mbpd) to near 1 mbpd.

Nigeria's crude oil production, Crude Oil: Nigeria's volatile oil sector and economic progress   

Recently, the operator of one of the country’s major oilfields, Aiteo, disclosed to Reuters that attacks on the Nembe Creek Trunkline ñ which produces about 150k bpd ñ resulted in the trunkline being shut down for 61 days this year. The Nembe Creek Trunkline, one of two that exports Bonny Light crude oil, has been shut down twice this year- once in April and the other in September.

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The operator also added that over the last four years, more than 200 days of shut down have been recorded. The pipeline attacks have resulted in losses in crude production, culminating in deficits in revenue to all stakeholders- including the government who appears to be in desperate need of revenues to bridge its rising fiscal deficits.

[READ MORE: Headline inflation jumps to 11.61% in October on border closure]

Naturally, mono-product economies are exposed to fluctuations in the prices of underlying commodities. Often, the proceeds during periods of high prices are poorly managed, leaving weak buffers to cover periods of downturn in such commodity prices.

In our opinion, we believe reforms geared towards improving non-oil revenues are urgently required in improving fiscal buffers, strengthening domestic stability and insulating the economy from volatilities in crude oil prices. Looking ahead, we think the continued uncertainty around domestic crude production combined with the somewhat bleak outlook for global oil price in the long term should be a source of concern for policy-makers.

________________________________________________________________________

CSL STOCKBROKERS LIMITED CSL Stockbrokers,

Member of the Nigerian Stock Exchange,

First City Plaza, 44 Marina,

PO Box 9117,

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Lagos State,

NIGERIA.

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Key ‘side-hustles’ Nigerian Bankers supplement their income with

The need to meet up with their financial obligations has forced some bankers to adopt side hustles.

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How much banks pay

The headline above seems a little inappropriate given the earnings of Bankers, vis-à-vis statistics on salaries and wages in the Nation.

The average Nigerian Banker earns at least four times the poorly implemented National minimum wage of N18,000; gets his pay promptly without being owed arrears, and enjoys other employment benefits, such as healthcare, without hassles.

Why then would these privileged few, whose wage bill cost the 13 NSE listed banks, a whopping N178b in the first three months of 2020, lockdown notwithstanding, need to supplement their already impressive income?

Simple, because they need to meet up with their financial obligations.

The expectations are high for anyone with a decent job in a country where the unemployment rate is currently 27.1%, and where 28.6% of its population are underemployed.

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The expectations are even higher for those whose work is in the banking sector, of whom it is erroneously believed, have access to unlimited funds, and an endless flow of credit facility, because they facilitate the consummation of volumes of such transactions daily.

(READ MORE: Naira expected to be under pressure until backlogs for FX payments are cleared )

The peculiarity of HR policies in Nigerian banks does not allow for ‘helping’ of relatives into the same system, as is obtainable in the Nigerian Civil service. Hence, the basic assistance which Bankers can offer their ever-expanding network of dependants is direct financial aid, forcing them to engage in moonlighting activities to meet up the ‘hype’.

The activities below are from close observation and interactions with Nigerian Bankers.

Forex dealings

The existence of different exchange rates, coupled with the scarcity of FX for most sectors of the economy has given rise to opportunities for arbitrage and round-tripping. Most bankers, who by virtue of their jobs have become privy to their customers’ FX needs, are able to broker deals; matching the demand of FX with supply, and earning handsome margins in the process. Gratitude, loyalty, and referrals from their customers are an added bonus for flouting their Bank’s internal policies on staff participation in FX dealings.

Such dealings have in recent times expanded to include transactions in cryptocurrencies.

Personal professional practice

Nigerian Banking industry is a melting pot of various first degrees, with some using their bank jobs as a stop-gap for their employment problems, as they seek to improve on their chosen professions. Hence, it is not uncommon to see bankers start and run their startups in other fields, while still in paid employment of their banks.

Although, the Banks are likely to frown on not getting 100% commitment from their employees; they continue to provide a rich base of potential clients for these startups and have been their customers too.

Sports betting and Mobile Money agencies

Sports betting in Nigeria has opened up a new world of investment possibilities for sports enthusiasts and shrewd businessmen. Since 2009, when the first online sports betting site launched in Nigeria, over twenty more have joined to compete for the market in Africa’s most populous black nation, and they all seem to be thriving, as each sports competition sees the unveiling of another sports betting site in Nigeria.

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(READ MORE: Bank like a hero with the Stanbic IBTC Super App “Voice Banking” feature)

Bankers, with their knowledge of the industry figures, have had a first mover’s advantage in being agents of these sport betting firms.

The same holds true for Mobile Money agencies, where Bankers have been known to use the influence of their office to expedite mobile money agent approvals and secure POS terminals, which have consequently become inaccessible to the common man.

Other activities

As with most business endeavours, Bankers generally indulge in businesses, in which they have a comparative advantage. Bankers in big cities use their cars to run shifts under popular cab-hailing services; some moonlight as real estate agents, because they can match customers with their real estate needs. A few others have become millionaires, by investing in their customers’ businesses. The possibilities are endless, as Bankers seek to make ends meet through their ingenuity, while staying relevant in their careers.

Cyprian Ekwensi in his classic novel ‘Chike and the River’, made popular the phrase of a man who lives by the bank of the Niger, washing his hands with spittle. Sadly, this has become the lot of most Nigerian Bankers, as they live from paycheck to paycheck, exploring one loan option to pay off a previous loan, even as they condescend to their customers in volunteering financial advice, that they are better off implementing in their personal finances.

No one is immune to the economic squeeze our double-digit inflation has brought on fixed income earners, especially not our beloved bankers.

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Emerging concerns on crude oil price dents economic recovery

The economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves.

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Crude Oil prices, oil

Yesterday, Brent crude oil price settled at US$41.44/bbl, down 10.7% from 6-month high of US$45.86/bbl. We note rising emerging concerns on the outlook for oil price in the global market. Cases of coronavirus are now rising faster in many European countries that had earlier taken gradual steps to open up their economies. For example, in the United Kingdom, Prime minister Boris Johnson stated the possibility of another lockdown to curtail the recent resurgence in new cases of infections. Furthermore, Libya (who has not been producing crude) announced the lifting of the force majeure on some oilfields & ports where fighters no longer have their presence. This implies Libya would resume production soon which may lead to a glut in the crude oil market particularly as the country is exempted from all OPEC cuts. The fear of increased supply comes amidst fragile demand for jet fuel.

The renewed concerns around crude prices is an unwelcome development for Nigeria considering the fact that hope of an economic rebound is largely hinged on sustained rebound in crude prices. Last week, the Minister of Finance highlighted that the country has suffered a 65% slump in revenue largely due to weak oil revenue. Furthermore, the
economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves. In addition, external trade condition continues to worsen with a trade deficit of N2.2tn in H1 2020. With oil prices still down by c.30% from 2019 levels amidst the nation’s pledge to OPEC cuts, we do not expect any significant improvement in external conditions. However, we believe news of a decline in crude prices may provide succour for the Nigerian consumer given that lower crude price is expected to translate into lower petrol prices following the deregulation of the downstream sector.

That said, we reiterate our position that the diversification of the economy from oil remains the key strategy in reducing the vulnerability of the Nigerian economy to volatilities in oil market. The non-oil economy (which accounts for c.90% f GDP) remains crucial and its potentials can be best exploited by the private sector.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Are we heading towards a food crisis?

The government may need to review the protectionist measures in place in order to avert a food crisis.

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How Nigeria’s GDP growth and food security hinges on financial inclusion of farmers

Based on the selected food price watch data for August 2020 released by the National Bureau of Statistics (NBS), major consumer staples showed substantial increases between August 2019 (when the land border closure took effect) and August 2020. The steep price increases across the food items is consistent with the increase in food inflation from 13.17% in August 2019 to 16.0% in August 2020. Of more concern is the fact that rice, the most
widely consumed food staple among consumers showed substantial increase in the two variants; local sold loose (up 37.5% y/y) and imported high quality sold loose (up 40.7% y/y).

Explore the Nairametrics Research Website for Economic and Financial Data

READ: Nigeria among countries to be worst hit by food crisis globally

In our view, the predominant factor behind the surge in the prices of major food items is the closure of the land borders, which has been exacerbated by administrative controls employed by the monetary and fiscal authorities in rationing foreign exchange. We recall that in July, the CBN included Maize on the list of items ineligible for FX from official sources. Recently, President Muhammadu Buhari ordered the Central Bank of Nigeria (CBN) not to allocate foreign exchange to importers of food and fertilizer. We also understand that heavy rainfalls in the northwestern part of the country have also affected farmlands, as the head of Kebbi state branch of the Rice Farmers Association of Nigeria revealed that about 90% of the 2 million tons of rice to be harvested were destroyed.

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READ: Has the President erred in stopping CBN from funding food imports?

The persistent increase in the prices of food items despite the protectionist measures implemented by the government suggests that local production still lags consumption significantly. Considering the weak harvest season due to the impact of the global pandemic amidst higher distribution costs linked to higher PMS prices following the deregulation of the downstream sector, we believe price of food items will continue to trend upwards.

Additionally, we expect the pass-through impact of the devaluation in the local currency to put further pressure on imported food inflation. Overall, we think the government needs to review the protectionist measures in place in order to avert a food crisis.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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