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Nigeria Lost Out on $10bn Oil Asset Divestment – Operators

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Nigeria’s Minister of State for Petroleum Emmanuel Kachikwu
  • Nigeria Lost Out on $10bn Oil Asset Divestment

Nigeria failed to benefit from the over $10bn raked in by international oil companies from recent divestment of assets in the country, industry operators said.

The divestment exercise, which started in 2010, saw a number of indigenous oil companies falling over themselves to snap up assets that had been described as over-priced.

In the past few years, mostly before the steep fall in global oil prices, the IOCs such as Shell, Total, Chevron, and Eni successfully disposed of stakes in some onshore and shallow water assets in the country.

But some industry operators said the country did not benefit from the divestment because a proper lease administration and an attractive investment environment were not in place.

The operators stated this while discussing how to grow Nigerian independents to world-class exploration and production companies at the Aspen Energy Roundtable conference held in Lagos on Tuesday.

The Chief Executive Officer, Seplat Petroleum Development Company Plc, Mr. Austin Avuru, said about $10.4bn was spent by indigenous oil firms to acquire divested assets in the last seven years.

He said, “It is not small money; 70 per cent of all of this came out of Nigerian banks. I can tell you that 60 per cent of this money would have gone to the DPR (Department of Petroleum Resources) if the DPR had handled the lease administration properly.

“But this is all the money that we as indigenous companies, using Nigerian banks, paid to the IOCs. I hope that will be a lesson for the next lease administration, bid rounds and renewals.”

Avuru stressed the need for the country to administer its resources in such a way that “maximum value is captured without expropriation.”

“We are the victims knocking our heads together and paying three times more for these leases because we have no option. There are no leases available. So, we knock our heads together and then the IOCs are smiling. We could have paid one third of what we paid to the government and everybody is happy,” he said.

The Managing Director, ND Western, Mr. Layi Fatona, said the divestment had grown a portfolio of new entities in the nation’s oil industry such as Seplat and ND Western.

“But the most important thing is that when you look at the spending, all of the money came mostly from the Nigerian banking system. And I ask a pertinent question: Shall we call this capital flight? All that money that was taken from the Nigerian banking system by essentially indigenous E&P companies paid to the IOCs left the shores of this country.

“How much of this money ended up as a backward reinvestment in the Nigerian petroleum industry?”

Fatona said some of the assets were over-priced but the sellers could not be blamed if the buyer was naive enough or consciously paid what was demanded.

He said if the government had created an environment where the IOCs could put back the money they got from the divestment, the oil majors would have done so.

“So it is not about capital flight; it is about the fact that we have failed holistically to create the environment where the seller of an asset who makes profit believes sufficiently in this society and put all the money back into the system,” he said.

Fatona said the divestment had provided an opportunity for indigenous companies, as assets acquirers, to learn to work with the dominant partner, the Nigerian National Petroleum Corporation.

He described the exercise as a catalyst for the Nigerian petroleum industry to build its own capacity.

The Chairman, Aspen Energy Nigeria Limited, Mr. Bayo Opadere, said the inherent potential of the Nigerian energy sector would not be realised if the players operated in silos and failed to engage in deliberate and structured conversations.

“It is against this background that Aspen Energy has undertaken the task of facilitating the roundtable conference. By this, we hope to create a platform for focused discussion that will articulate strategy and policy proposals on an ongoing basis.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Growth Forecast Lowered to 3% for 2025, Higher than Most Emerging Markets

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IMF global - Investors King

The International Monetary Fund (IMF) has projected a 3% growth rate for Nigeria in 2025, slightly down from the 3.1% forecasted for 2024.

Despite this slight decline, Nigeria’s projected growth remains higher than that of many emerging markets as detailed in the IMF’s latest World Economic Outlook released on Tuesday.

In comparison, South Africa’s economy is expected to grow by 1.2% in 2025, up from 0.9% this year. Brazil’s growth is projected at 2.4% from 2.1% in 2024, and Mexico’s growth forecast stands at 1.6% for 2025, down from 2.2% in 2024.

However, India is anticipated to see a robust growth of 6.5% in 2025, although this is slightly lower than the 7% forecast for 2024.

The IMF’s projections come as Nigeria undertakes significant monetary reforms. The Central Bank of Nigeria has been working on clearing the foreign exchange backlog, and the federal government recently removed petrol subsidies.

These reforms aim to stabilize the economy, but the country continues to grapple with high inflation and increasing poverty levels, which pose challenges to sustained economic growth.

Sub-Saharan Africa as a whole is expected to see an improvement in growth, with projections of 4.1% in 2025, up from 3.7% in 2024. This regional outlook indicates a modest recovery as economies adjust to global economic conditions.

The IMF report underscores the need for cautious monetary policy. It recommends that central banks in emerging markets avoid easing their monetary stances too early to manage inflation risks and sustain economic growth.

In cases where inflation risks have materialized, central banks are advised to remain open to further tightening of monetary policy.

“Central banks should refrain from easing too early and should be prepared for further tightening if necessary,” the report stated. “Where inflation data encouragingly signal a durable return to price stability, monetary policy easing should proceed gradually to allow for necessary fiscal consolidation.”

The IMF also highlighted the importance of avoiding fiscal slippages, noting that fiscal policies may need to be significantly tighter than previously anticipated in some countries to ensure economic stability.

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Nigeria’s Inflation Rises to 34.19% in June Amid Rising Costs

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Food Inflation - Investors King

Nigeria’s headline inflation rate surged to 34.19% in June 2024, a significant increase from the 33.95% recorded in May.

This rise highlights the continuing pressures on the nation’s economy as the cost of living continues to climb.

On a year-on-year basis, the June 2024 inflation rate was 11.40 percentage points higher than the 22.79% recorded in June 2023.

This substantial increase shows the persistent challenges faced by consumers and businesses alike in coping with escalating prices.

The month-on-month inflation rate for June 2024 was 2.31%, slightly up from 2.14% in May 2024. This indicates that the pace at which prices are rising continues to accelerate, compounding the economic strain on households and enterprises.

A closer examination of the divisional contributions to the inflation index reveals that food and non-alcoholic beverages were the primary drivers, contributing 17.71% to the year-on-year increase.

Housing, water, electricity, gas, and other fuels followed, adding 5.72% to the inflationary pressures.

Other significant contributors included clothing and footwear (2.62%), transport (2.23%), and furnishings, household equipment, and maintenance (1.72%).

Sectors such as education, health, and miscellaneous goods and services also played notable roles, contributing 1.35%, 1.03%, and 0.57% respectively.

The rural and urban inflation rates also exhibited marked increases. Urban inflation reached 36.55% in June 2024, a rise of 12.23 percentage points from the 24.33% recorded in June 2023.

On a month-on-month basis, urban inflation was 2.46% in June, slightly higher than the 2.35% in May 2024. The twelve-month average for urban inflation stood at 32.08%, up 9.70 percentage points from June 2023’s 22.38%.

Rural inflation was similarly impacted, with a year-on-year rate of 32.09% in June 2024, an increase of 10.71 percentage points from June 2023’s 21.37%.

The month-on-month rural inflation rate rose to 2.17% in June, up from 1.94% in May 2024. The twelve-month average for rural inflation reached 28.15%, compared to 20.76% in June 2023.

The rising inflation rates pose significant challenges for the Central Bank of Nigeria (CBN) as it grapples with balancing monetary policy to rein in inflation while supporting economic growth.

The ongoing pressures from high food prices and energy costs necessitate urgent policy interventions to stabilize the economy and protect the purchasing power of Nigerians.

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Inflation to Climb Again in June, but at a Reduced Pace, Predicts Meristem

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Nigeria's Inflation Rate - Investors King

As Nigeria awaits the release of the National Bureau of Statistics’ report on June 2024 inflation, economic analysts project that while inflation will continue its upward trajectory, the pace of increase will moderate.

This comes after inflation rose to a 28-year high of 33.95% in May, up from 33.69% in April.

Meristem, a leading financial services company, has forecasted that June’s headline inflation will rise to 34.01%, a slight increase from May’s figure.

The firm attributes this persistent inflationary pressure to ongoing structural challenges in agriculture, high transportation costs, and the continuous depreciation of the naira.

Experts have highlighted several factors contributing to the inflationary trend. Insecurity in food-producing regions and high transportation costs have disrupted supply chains, while the depreciation of the naira has increased importation costs.

In May, food inflation grew at a slower pace, reaching 40.66%, but challenges in the agricultural sector, such as the infestation of tomato leaves, have led to higher prices for staples like tomatoes and yams.

Meristem predicts that food inflation will persist in June, driven by these lingering challenges. Increased demand during the Eid-el-Kabir celebration and rising importation costs are also expected to keep food prices elevated.

Core inflation, which excludes volatile items like food and energy, was at 27.04% in May. Meristem projects it to rise to 27.30% in June.

The firm notes that higher transportation costs and the depreciation of the naira will continue to push core inflation up.

However, they also anticipate a month-on-month moderation in the core index due to a relatively stable naira exchange rate during June, compared to a more significant depreciation in May.

Cowry Assets Management Limited has projected an even higher headline inflation figure of 34.25% for June, citing similar concerns.

The firm notes that over the past year, food prices in Nigeria have soared due to supply chain disruptions, currency depreciation, and climate change impacts on agriculture.

This has made basic staples increasingly unaffordable for many Nigerians, stretching household budgets.

As inflation continues to rise, analysts believe the Central Bank of Nigeria (CBN) will likely hike the benchmark lending rate again.

The CBN’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) by 650 basis points this year, bringing it to 26.25% as of May 2024.

At a recent BusinessDay CEO Forum, CBN Governor Dr. Olayemi Cardoso emphasized the MPC’s commitment to tackling inflation, stating that while the country needs growth, controlling inflation is paramount.

“The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilize the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming inflation, and they would do what is necessary to tame it,” Cardoso said.

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