On Wednesday, March 11th 2020, the Group Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari, sat among national stakeholders during the CBN roundtable and addressed the elephant in the Nigerian economy – declining crude oil revenue.
Of course, he blamed everything on Coronavirus and the disagreement between Saudi Arabia and Russia to reach a deal on output cut. As you may well know, the disagreement between the two countries, which are two of the world’s biggest oil producers, has resulted in a full-blown global oil price war. Smaller producers like Nigeria are, therefore, left in a really precarious situation.
This is the question that has been on everybody’s lips since oil price began to tank. What is Nigeria’s strategy towards handling ths situation? Mele Kyari, who heads the country’s state-owned oil company, attempted to answer this question yesterday by proffering two possible solutions. The first solution has to do with cutting down on oil production cost.
As the name implies, oil production cost basically entails how much it costs to produce a barrel of crude in a country. At the moment, the cost of crude production in Nigeria is about $30 per barrel of crude. And this is quite problematic when you consider the fact that oil is currently trading at $34.48 per barrel according to Oilprice.com.
Nigeria is trying to survive in a “voodoo market”
It is understandable to see how frustrating the current situation must be for Nigeria, a country whose main source of income is oil revenue. Unfortunately, all the odds are stacked against it, because not only are oil prices low, the country’s production cost is high and the country cannot even produce more than 2 million barrels of crude per day. Little wonder Kyari describe the international oil market as “voodoo market”.
The situation is so bad such that if Brent Crude ever declines below the current price, Nigeria might as well be out of business, as Kyari noted.
He did, however, come up with a second possible solution, and it is all about ramping up Nigeria’s oil output. According to him, the NNPC is working earnestly towards increasing Nigeria’s daily production to 3 million barrels per day. But even this plan is problematic.
Nobody is buying Nigeria’s sweet crude as revenue crisis becomes complicated.
According to Nairametrics’ commentator and economic expert, Kalu Aja, the solution to Nigeria’s oil problem is much more about finding buyers than any other thing. He tweeted:
“Brent Crude is trading about $35 per barrel. That’s the small problem, the bigger problem is where to sell the Nigerian high-grade oil. Saudi Arabia and Russia are not just in a price war but a market share war. Nigeria can drop prices as well; can she boost production?”
This is a real problem by the way, one that was confirmed yesterday by Kyari. According to him, Nigeria has about 50 cargoes of crude that nobody wants to buy. Therefore, even if production cost is reduced and Nigeria slashes prices, if it cannot find buyers, the country is in for serious trouble.
Once again, Nigeria depends mainly on oil revenue to finance its budget. The country has recently been battling a revenue crisis, a situation that was exacerbated by the recent developments in the oil market. Earlier this week, Nairametrics reported that the Nigerian Government was taking steps to scale down on the country’s N10.6 trillion 2020 budget, in response to the dramatic crash in global oil prices.
Nigeria’s border reopening will not impact profitability in 2021 – Flour Mills GMD
Flour Mills Nigeria Plc has stated that the recent reopening of the nation’s land borders will not affect the profitability of the company.
Mr. Omoboyede Olusanya, the Group Managing Director of Flour Mills Nigeria Plc has disclosed that the recent reopening of the nation’s land borders will not adversely impact the performance and profitability of the company in 2021 and beyond.
He added that FMN will continue to leverage brand loyalty, product standardization and innovation, as well as improved cost efficiency to increase profitability in 2021.
This statement was made by the Olusanya during the company’s 9M’20/21 Investor Webinar which held virtually on January 26, 2020.
According to the statement made by Mr. Olusanya at the virtual meeting, the reopening of the nation’s land border will not affect the company’s sales and revenue, as Flour Mills Nigeria is focused on increasing operational efficiency with accelerated plans for cost optimizations across the group to ensure competitive product offerings and profitability in the new operating environment, occasioned by the border reopening.
He revealed that the company will continue to invest in local content development, production capacity and aggregation to strengthen product innovation and product standardization in a bid to foster brand loyalty.
In line with this, Flour Mills Nigeria has invested heavily to upscale its Regional Distribution Centers (RDCs), in order to gain direct access to consumer market segments across the country, and expand consumer reach with the road to market initiatives and product offerings across the group, especially in the B2C segment.
Olusanya revealed that the group has successfully opened new regional distribution centers (RDCs) in Kano, Magboro and Abuja targeting the new fast-growing B2C product categories (fats, sugar and garri).
He added that the FMN Group among other strategic investments made, has invested in trucks to support the RDCs, animal feeds and starch value chains; as well as sales force automation platforms to ensure high-quality processes and services.
He concluded that the activities of the company will be complemented by the efforts of the nation’s border security, as these agents would ensure that the borders do not become porous, and would help to curtail markets from being proliferated by imported items.
What you should know
- Recall that Nairametrics reported that Flour Mills Nigeria Plc declared a profit of N5.65 billion in the third quarter ended, 31st December 2020.
- The report revealed that the profit which Flour Mills made in the third quarter of its accounting year 2020/2021 rose by a whopping 150.36% when compared to the profit it made in the corresponding period of 2019.
- It is important to note that the impressive performance of the company was driven by the agro-allied segment. The Agro-Allied segment benefited immensely from the August 2019 border closure, as the profit from this segment improved by 15,268%.
South African President appeals to wealthy countries not to hoard COVID-19 vaccines
South African President, Cyril Ramaphosa has called on the world’s wealthiest countries to stop “hoarding” vaccines.
The South African President, Cyril Ramaphosa has urged the world’s wealthiest countries to stop “hoarding” vaccines and called for an end to “vaccine nationalism.”
He made this call at the World Economic Forum’s virtual Davos Agenda event, where he clearly cautioned that some countries had ordered more supplies of vaccines than they needed, and that this was counterproductive to the global recovery effort.
According to him,
- “Ending the pandemic worldwide will require greater collaboration on the rollout of vaccines, ensuring that no country is left behind in this effort”
- “The rich countries of the world went out and acquired large doses of vaccines from the developers and manufacturers of these vaccines, and some countries have even gone beyond and acquired up to four times what their populations need”
- “That was aimed at hoarding these vaccines and now this is being done to the exclusion of other countries in the world that most need this”
What they are saying
According to Africa CDC Director, John Nkengasong, the African continent is quite facing a “very aggressive second wave” of the pandemic, with mortality increasing on average 18% across the 55 African member states last week.
“We as a continent must recognize that vaccines will not be here when we want them, but as such we need to really focus on the public health measures that we know work”
He however praised the progress of the African Vaccine Acquisition Task (AVAT) Team, which he said was created when AU nations realized “how the world’s richest countries are behaving.”
What you should know
- South Africa is the country, worst hit by Covid-19 on the continent.
- As at date, the country had recorded more than 1.4 million cases with 41,117 deaths.
- The African Vaccine Acquisition Task (AVAT) Team has secured a provisional 270 million doses for AU member states directly, in addition to the 600 million expected from the World Health Organization’s COVAX initiative.
IMF optimistic about global economy but warns new Covid variants could affect recovery
IMF is quite optimistic about the fortune of the global economy but expressed fear that the new Covid variant could derail economic recovery.
The International Monetary Fund (IMF) has expressed optimism about the global economy but warns that the new COVID 19 variant could affect the global economic growth, according to its latest World Economic Outlook.
According to the report, “the institution now expects the global economy to grow 5.5% this year — a 0.3 percentage point increase from October’s forecasts. It sees global GDP (gross domestic product) expanding by 4.2% in 2022”.
According to its Chief Economist, Gita Gopinath:
- “Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens.
- “There remains tremendous uncertainty and prospects vary greatly across countries.
- “China returned to its pre-pandemic projected level in the fourth quarter of 2020, ahead of all large economies. The United States is projected to surpass its pre-Covid levels this year, well ahead of the euro area.
- “Policy actions should ensure effective support until the recovery is firmly underway, with an emphasis on advancing key imperatives of raising potential output, ensuring participatory growth that benefits all, and accelerating the transition to lower carbon dependence.”
What you should know
- There has been a surge in the number of reported cases of the new variant Covid-19 infections and deaths over the past few months.
- The new variant has been described as being more infectious and potentially deadlier than the original strain.
- The IMF had cut its GDP forecasts for the euro zone this year by 1%.
- It is being projected that the 19-member region, which has been severely hit by the pandemic, would grow by 4.2% this year.
- Germany, France, Italy and Spain — the four largest economies in the euro zone — also saw their growth expectations cut for 2021.
- Economic activity in the region slowed in the final quarter of 2020 and this is expected to continue into the first part of 2021. The IMF does not expect the euro area economy to return to end-of-2019 levels before the end of 2022.
- IMF revised its GDP forecast upward by 2% points on the back of a strong momentum in the second part of 2020 and additional fiscal support, with GDP expected to grow to 5.1% this year.