Columnists
Boko Haram: A protracted battle yet to be won?
Suspected Boko Haram fighters were reported to have set ablaze several trucks conveying passengers, who were stranded on Sunday night.
There were reports on Monday that at least 30 people had been killed in the town of Auno, 15 miles from Maiduguri in northeastern Borno region. Suspected Boko Haram fighters were reported to have set ablaze several trucks conveying passengers who were stranded on Sunday night along a military checkpoint due to a curfew imposed by the military in Auno town.
Boko Haram is yet to claim responsibility for the attack, but the Boko Haram group and rival Islamic State in West Africa (ISWA) group have often carried out attacks in the area. If this attack was perpetrated by Boko Haram as widely believed- it shows that the terrorist organisation still poses a significant threat to national security.
Recently, the chairman of the Christian Association of Nigeria, Adamawa chapter, a young trainee priest and the wife of a Kaduna based medical doctor were killed after they were abducted by Boko Haram.
Boko Haram continues to carry out attacks with increasing frequency despite the government’s claim of victory over the group. The frequency of these attacks, suggests the battle against the insurgents is far from over. Granted, the Military’s offensive strategy has made significant headway in crippling Boko Haram’s activities, the insurgent group, however, appears relentless, and has maintained intermittent deadly attacks and kidnappings.
In response to the recent attack, President Buhari was quoted by the media as saying, “As our armed forces continue to receive more hardware and intelligence to counter our current security challenges, the remnants of Boko Haram will ultimately be crushed. The peculiar challenges of asymmetric warfare notwithstanding, our armed forces are ever determined to defeat these enemies of humanity.”
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Although President Muhammadu Buhari made a specific electoral commitment to combat terrorism, the recent intensified efforts by Boko Haram suggests the goal of restoring peace to the Northern region is still a far reach. From our standpoint as financial analysts, as opposed to military strategists, we think it is reasonable to conclude that the Nigerian Army, after its initial remarkable successes, now faces chronic problems in dealing with Boko Haram.
Restoring peace to the North East, and by extension to the North generally has far-reaching impacts on the economy particularly in enhancing economic activities. We highlight that Consumer goods companies reckon that the North can absorb about 50% of their products, unfortunately, violence and instability have held back sales since Boko Haram stepped up its offensive attacks in late 2011.
Though many affected companies have seen significant improvements and have begun redistributing to these regions, the seemingly increasing frequency of these attacks and kidnappings may again cut back progress that has been made. Indeed, consumer companies stand to reap the dividends of peace in the north of Nigeria if the military can bring to an end the activities of Boko Haram.
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Why NNPC should be commercialised
A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations.
The Nigerian government is seeking efficient ways of positioning the country on its path to recovery and the petroleum industry which contributes about 90% of its exchange earnings would undoubtedly be critical on this journey.
The long-awaited Petroleum Industry Bill (PIB) which seeks to regulate the entire Nigerian Petroleum Industry and repeal a host of existing legislation is paramount in transforming the industry and introducing more efficiency particularly in its government-owned parastatals. The PIB has gained more traction in the current administration and is now awaiting deliberations by legislators.
A key highlight of the PIB is commercializing the State-run behemoth, Nigerian National Petroleum Corporation (NNPC). This move would see the NNPC incorporated as a Limited Liability Company and be known as NNPC Limited. This company would conduct its affairs on a commercial basis without resorting to using government funds.
While this might seem like a bold move by the government, it still should not come off as a surprise…
Owing to the fall in crude oil prices from over $100/barrel to below $50/barrel levels in 2020, Nigeria’s exciting story with crude oil slowed down but has picked up in recent months. The country’s heavy dependence on the volatile crude oil market and its ineptitude in diversifying during its “oil-rich” days have now thrown its growth story in jeopardy. The once 3rd-fastest growing economy with foreign reserves in excess of $40bn now wallows in rising inflation complemented and a weakened currency.
Why do we need to commercialize NNPC?
A core theme with a number of government-owned parastatals is the plague of inefficiency and obscurity in the way they are run. To give an idea of the NNPC’s lack of transparency, the corporation only published the group’s audited financial statements for the first time in its 43 years of operation in 2020. It’ll be right to commend this administration is pushing for transparency but you can go on to imagine what went on during those opaque years of operation.
As expected, the results were not impressive. The corporation reported a recurring loss, albeit 70% lower in 2019. The significant reduction in losses may prove the government’s will in improving the operations of the NNPC, however, comments on the report noted that “material uncertainty exists that may cast significant doubt on the Group and Corporation’s ability to continue as a going concern.”
Moving down to the State-owned refineries with a combined capacity of 445,000 bpd, capacity utilization well below 20%, and recurring annual losses in excess of ₦150bn, we can agree that the condition of these refineries is utterly worrisome. Despite the government’s annual budget for Turn Around Maintenance of these refineries, they have now been shut down with plans to undergo a Build, Operate, and Transfer (BOT) model.
Chief among the NNPC’s problems is corruption. A number of investigative reports have explained how subsidy payments, domestic crude allocation, revenue retention practices, and oil-for-product swap agreements are smeared with corruption. The Senate has initiated countless probes and new management seeking transparency has been introduced by the President, however, it just seems like the rot has eaten too deep into the system.
What does commercializing NNPC mean for the country?
The government-managed NNPC has proved to be inefficient and riddled with corruption. A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations. The possible introduction of more shareholders would strengthen the amount of funding available to the NNPC and further shift the burden of being the sole-financier away from the government.
Exploring an NNPC IPO
An Initial Public Offering (IPO) would see the NNPC’s shares traded on Stock Exchanges and position the corporation to raise much more funding, build trust and endear to the international community. While this might seem like a daunting task, Nigeria can perhaps take a cue from Saudi Arabia whose National Oil corporation; Saudi Aramco began raising capital for its IPO in December 2019.
The Saudi Crown Prince; Muhammad bin Salman (MBS) announced a valuation of $2trn enticing the world’s largest investment banks, appointed a new set of leaders on the board of the corporation, and executed a highly engaging local marketing strategy. Although the valuation figure was brought down to $1.5 – $1.7 trillion by financial advisors, Saudi Aramco successfully achieved its IPO raising nearly $26 billion for 1.5% of Aramco’s value.
NNPC’s fundamentals might not support an IPO currently as investors might be wary of the high level of risks involved but we can’t deny the immense opportunities an IPO would present not just for NNPC’s transparency and performance but Nigeria’s economic reform.
In Conclusion
The recurring performance of the corporation with several corruption allegations, inefficiency, and unclarity is indeed worrisome. It is time to have the NNPC turn over a new leaf and operate on a commercial basis. This would afford the government the ability to deploy funds into other segments of the economy and have the NNPC focus on being a commercially viable entity.
