For sub-Saharan Africa, the Informal sector is nothing new.  Indeed the types of activities carried out in this sector has existed even prior to colonialism.  Later, independence brought in the distinction between informal Vs. formal activities as countries around the region sought to formalize or “modernize” their economies.  The focus then (and indeed to some degree today) was rapid industrialization for much of the region.  If is the informal sector – not the formal sector – that is the growth engine.  It should be noted that around the world, about two-thirds of all employees work in the informal sector.  Thus how government treat the informal sector has profound impacts on employment, growth, equity and sustainability.

World Bank, 2009

The Informal sector is the part of the economy that is not taxed, organized, through legal but not monitored by the government or included in the GNP.  The informal economy was recognized in 1972, when the International Labour Organization (ILO) began its pioneering work on informality in the African economy with the Kenyan Multi-disciplinary employment missions.  ILO definitions include:

            “… the non-structured sector that has emerged in the urban centres as a result of the modern sector’s inability to absorb new entrants…”

International Labour Organization (1972).

            “… private unincorporated enterprises which produce at least some of their goods and services for sale or barter, has less than 5 paid employees, are not registered, and are engaged in non-agricultural activities including professional or technical services.

International Labour Organization (2002).

            The informal sector is characterized by a larger number of small-scale production and service activities that are individually or family-oriented and use simple labour-intensive technology.  The usually self-employed workers in this sector, have less formal education, are generally unskilled, and lack access to financial capital.  As a result, workers productivity and income tend to be lower in the informal sector than the formal sector.

            Nonetheless, some generalizations can be made about the causes of the informal sector’s growth in recent years include:

·         Bias by African leaders, international development agencies, international financial institutions to execute and support projects in urban areas, create laws and pursue development policies at the detriment of rural areas.

·         Recent migrants from rural areas who are unable to find employment in the formal sector.

·         Structural adjustment policies

·         Difficulty in establishing new firms.

·         Peace and the demobilization of military.

Their motivation is often to obtain sufficient income for survival, relying on their own indigenous resources to create work.  As many household are involved in the income-generating activities, including women and children, and they often work very long hours.  They generally lack public service such as electricity, water, drainage, transportation and educational and health services.  Others are less unfortunate, homeless, living on pavements, work temporarily as day labourers and hawkers under unhealthy weather condition.

            With the unprecedented growth rate of the urban population in developing countries, expected to continue and with the increasing failure of the rural and urban formal sectors to absorb additions to the labour force, more attention is devoted to the role of informal sector in serving as a panacea for the growing unemployment problem.

            The persistence and depth of poverty in Africa, and especially in the sub-Saharan region, appears to be strongly related to both the structure of employment and the very low level of productivity.  It is estimated by the ILO in Geneva, that 48 percent of non-agricultural employment in North Africa, is in the informal economy, and 72 percent in sub-Saharan region.  In rural areas some estimate are that the informal sector accounts for as much as 90 percent of non-agricultural employment.

            “Indeed informal sector employment in Uganda and Kenya now exceeds employment in the formal sector and nearly 90% of the labour force in Ghana comes from the informal sector.  Also many countries have not even collected data on the informal sector.”

African Union, 2008

            All the way from Lagos-Nigeria, to Moncef Bey – Tunisia, el hamiz – Algiers, Harare – Zimbabwe and the famous Derb Ghalef and Derb Omar Markets in Casablanca-Morocco.  Africans have resorted to the opportunities therein in the informal market, which makes breaking out seem to be a major development challenge.

            Zimbabwe, Tanzania and Nigeria have more than half their economies in the informal sector, while South Africa have just 28.4 percent (below the 41 percent average for developing countries world wide, but still more than the 18 percent in developed countries).

            The informal sector entails a loss in budget revenue by reducing taxes and social security contributions paid and therefore the availability of funds to improve infrastructure and other public goods and services.  This invariably leads to a high tax burden on registered labour, and of which the tax burden would be further pushed to consumers in form of high prices of goods and services.

            Finally, if economic growth is not associated with a movement into better employment opportunities or an improvement in the condition of employment in informal activities, the impact on poverty will be minimal.  This issue is central to realizing decent work, as a goal and for all workers, - to achieving the millennium development goals, and to promoting a fair globalization.  Please stay connected for more amazing insights…  Only Africans can save Africa.  Peace!

Obele Gospel Jesuite

CRO – Project Change Initiative

A 21^st Century Leadership, Organizational and Economic Development Strategist

For comments, please visit Obele Jesuite on facebook, @OBELEObele on twitter, gospel_obele@yahoo.com for email: or contact 08130070991.

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London Stock Exchange

(Bloomberg)

The U.K. economy is heading for its fastest expansion since the onset of the financial crisis, economists said as they upgraded their forecasts for growth through 2015.
Gross domestic product will rise 1.3 percent this year and 2 percent in 2014, compared with predictions of 1 percent and 1.7 percent previously, according to the median of 48 economists in a monthly survey by Bloomberg News.

That pace of growth for next year would be the fastest since 2007, before the start of a slump that has left output more than 3 percent below its peak.
For Bank of England Governor Mark Carney, the question is how quickly this recovery can lower the country’s unemployment rate after he introduced forward guidance last month and linked the jobless rate directly to the policy stance.

That measure hasn’t yet been effective, according to more than two thirds of economists in a separate survey.
“The consensus forecast has moved a long way very, very quickly,” said Jens Larsen, an economist at RBC Capital Markets in London and a former BOE official.

“If you get a very powerful recovery, the arguments for guidance, for the extended period of low rates, just look so much weaker. It’s a bit of a communication challenge.”
The economists in the Bloomberg survey see GDP growth accelerating to 2.4 percent in 2015.

Consumer spending will rise 1.6 percent this year and in 2014, while exports will increase 1.8 percent and 4.7 percent.
Guidance Framework
Bloomberg reports that under its so-called forward guidance, the nine-member Monetary Policy Committee has said it won’t consider raising the benchmark interest rate from a record-low 0.5 percent until unemployment falls to 7 percent, which they don’t see happening until late 2016.
That projection is being challenged by recent data, and economists are more optimistic, with 19 of 31 forecasting that it will fall below the threshold before 2016.
Data this week showed the unemployment rate fell to 7.7 percent in the three months through July from 7.8 percent in the second quarter.

The labor-market report also showed that jobless claims in the past two months have fallen by the most since 1997.
Government figures today showed construction output, which accounts for 6.3 percent of the economy, climbed 2.2 percent in July.

In the second quarter, new building orders surged almost 20 percent from the previous three months, boosted by demand for homes as well as wind turbines and solar farms. Overall housing orders between April and June were the strongest since the fourth quarter of 2007.
Difference of Opinion
BOE policy makers say productivity will pick up as the economy recovers, meaning companies will get more output from their existing workers, which will limit the pace of hiring.

Carney said yesterday that a difference of opinion between the central bank and other forecasters is “natural.”
“The market had a more positive view of the rate at which unemployment will come down and a more pessimistic view of productivity,” he said at a hearing of the Treasury Committee, a panel of lawmakers that scrutinizes the BOE.
Economists’ more positive outlook for the U.K. follows economic growth of 0.7 percent in the three months through June as well as a continued strengthening of services and manufacturing this quarter.
- Thisdaylive

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Managing Director and Chief Executive Officer of Guinness Nigeria Plc, Mr. Seni Adetu

The Managing Director and Chief Executive Officer of Guinness Nigeria Plc, Mr. Seni Adetu, has expressed his confidence in the nation’s economy, noting that it holds bright prospects for investors and other stakeholders.

Speaking at the Annual General Meeting of the National Institute of Marketing of Nigeria, NIMN, in Lagos, the Guinness boss said that  the the fundamentals of the nation’s economy looks bright with over 60 percent of her population belonging to the age bracket of 20s.

He noted that the world is witnessing a changing lifestyle, with consumers becoming increasingly choosy and brand-led. This he, noted, creates a big challenge for the marketing group since this has made it imperative for them to be innovative to be able to meet the changing tastes of the consumers.

‘Marketers must be ready for a whole lot of challenges; consumers’ lifestyles are changing. Regulatory framework is getting more intrusive, but a marketer should know how to behave in this changing world, since marketing is critical to growth. He must be ready to think out of the box,’ he stated.

The Guinness boss also advised marketers  on the need  to have a deep knowledge of  consumers’ wants  and  the imperative of  adopting new strategies and innovation to enable them make a success of their career.

He argued that one of the ways marketers would be able to unleash the power of marketing is by constantly investing in their growth. This, he added, would enhance their movement to the top of the organisation’s leader.

‘Gone are the days when marketing professionals were finding it difficult getting their ways to the chief executive seats. Today, the numbers of marketing professionals, who are chief executives, are growing. In Diageo, the parent company of Guinness, 80 percent of its chief executives come from the marketing community,’ he stated.

This, he however added, would not be achievable if marketing professionals failed to invest in their growth and position themselves for such opportunities.
- The Vanguard

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Minister of Transport, Senator Idris Umar

The Federal Executive Council on Wednesday approved the procurement of one water weed clearing multi-purpose equipment for N278.1bn.

The cost includes payable taxes, $1.3bn and additional N73.6bn.

The Minister of Transport, Senator Idris Umar, who stated this while briefing State House Correspondents after the FEC meeting, said the procurement was aimed at improving safety on the inland waterways.

He added that the equipment would aid navigation and boost economic activities in the various riverside communities across the country.

The minister said it would also rid the waterways of hyacinth and other aquatic weeds.

“The project will increase economic activities within the coastal areas and prevent boat mishaps. The project will create job opportunities for 15 skilled and nine unskilled Nigerians during the period of its execution,” he said.

Umar added that the council also approved the establishment of the Command Control Communication and Intelligence Centre for Sea Ports at the Nigerian Ports Authority.

He said FEC approved the project at the cost of N2.3bn with a completion period of 14 months.

Umar said the project would help in providing a secure environment for ports operations within the Nigerian territorial waters and in curtailing the threat of terrorist activities at the ports.

The project, according to him, will also create 145 job opportunities, including 33 for professionals and 77 for non-professionals during its execution as well as 35 more job opportunities as it progressed.
- The Punch

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A portion of the Lagos-Ibadan Expressway

Three months after President Goodluck Jonathan inaugurated the reconstruction of the Lagos-Ibadan Expressway, physical work on the road is set to commence immediately.

This follows the signing of agreement on Monday by the Federal Government and the two companies that will work on the road, Julius Berger Nigeria Plc and RCC.

While responding to a question on the delay in the commencement of the project after its inauguration in July, the Deputy Director, Federal Ministry of Works, Mr. Umunna Ekenna, told our correspondent that after the cancellation of the concession of the road to Bi-Courtney Highway Services Limited by the Federal Government last year, it was important to agree on a tidy contract with the contractors.

Ekenna spoke with our correspondent in Ibadan on Wednesday on the sidelines of an event organised by National Orientation Agency.

He said although the major work did not start immediately after the July inauguration by the President, a lot had happened prior to the final signing of the agreement.

Ekenna said, “The physical work may not have started after the inauguration of the project by the President in July, but that was because the agreement was just signed between the Federal Government and the two companies this week. Now that the agreement has been signed, the companies can begin physical work immediately.

“Their equipment will be moved to the site and hopefully, full work will begin this month. Before now, the companies had studied the road and came up with permanent solutions to the problems encountered on the road. Julius Berger will work on the Lagos-Sagamu part of the road, while RCC will work on the Sagamu-Ibadan part of it.”

He also said the government entered into the concession agreement because of lack of funds to work on all the roads across the country, stating that it was unfortunate that the concessionaire did not fulfil its own part of the agreement.

Ekenna said, “Our annual budget (for the ministry) is N100bn but the Federal Government gave us additional N85.5bn through the Subsidy Reinvestment and Empowerment Programme. It is helpful but not adequate. So, what we decided to do was to spend the money on major roads that were of national benefit.

“The federal roads shoulder a lot of heavy duty and it is important to constantly work on them. We also decided to engage in Public-Private Partnership, but before you can do that, you must assure the partners that they are going to get a return on their investment.

“Unfortunately, the company, Bi-Courtney Highway Services Limited, which got the job, did not act on the project. It was difficult for the government to quickly come in, but after due process was followed, the concession was withdrawn.”

The Managing Director, Infrastructure Bank Plc, Mr. Adekunle Oyinloye, had said in a statement on Tuesday that Federal Government had mandated the bank to raise N167bn for the reconstruction of the 127-kilometre road.
- The Punch

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Aliko Dangote, CEO, Dangote Group of Companies

When Shell Petroleum Development Company’s (SPDC) executive director, Malcolm Brinded said recently that building a refinery in Nigeria did not make good business sense, he apparently had not reckoned with Aliko Dangote.

Africa’s richest man, Dangote has a history of being a disrupter of most industries he chooses to play in, like cement, sugar, and flour, and his foray into the oil sector with plans for a new 400,000-barrel-a-day (b/d) refinery has the prospect of shaking up Nigeria’s stagnant oil and gas industry.

The immediate area where Dangote’s refinery investment may push the government into reforming is in the elimination of fuel subsidy, say analysts.

“We are encouraged by recent plans announced by Aliko Dangote to build a new local refinery with a 400kb/d capacity, which should improve pricing terms for local producers,” said Renaissance Capital oil and gas analyst Lldar Davletshin.

“If a local refinery buys crude at world price it will then have to sell refined product with a mark-up, which would mean much higher domestic prices if no subsidy is provided,” Davletshin said.

Nigeria’s gross domestic product (GDP) grew steadily at about 7 percent per annum over the past 10 years with a population of 167 million.

Analysts say the country’s energy thirst is rapidly increasing (from the currently extremely low 300kb/d level), which should make the current fuel subsidy regime unsustainable in about three years, just as Dangote’s new refinery is coming on stream.

Refining “is an excellent business to get into,” Dangote said in an interview in May, suggesting it will be in a position to make a profit, by selling at international rates to fuel marketers.

The refinery would also shake up the entrenched international oil companies (IOCs) in Nigeria, as well as the notoriously opaque national oil company – NNPC, which has the poorest transparency record out of 44 national and international energy companies, according to Transparency International and Revenue Watch Institute.

The NNPC gets an allocation of 445,000bpd of crude oil to refine locally, but it has been selling itself this oil at cut-down prices, a practice that cost Nigeria $5 billion in potential revenue between 2002 – 2011, according to a 146-page report by Nuhu Ribadu, former head of the anti-corruption agency, EFCC.

Dangote’s new refinery would immediately double Nigeria’s refining capacity and reduce dependence on NNPC decrepit refineries as well as cut imports from refiners owned by the IOCs by up to 50 percent.

Its expected 100 percent capacity utilisation may convince the government and prove to sceptics of the need to privatise Nigeria’s four state-owned refineries.

Dangote’s new refinery, fertiliser and petrochemical complex would cost $9 billion. This compares with the NNPC $4.5 billion deal with an unknown ‘Vulcan Group,’ to build six modular refineries with a combined capacity of 180,000b/d, signed since early 2012, which has remained largely on the drawing board.

Nigeria, which is Africa’s top producer of crude oil, relies on fuel imports to meet more than 70 percent of its needs. Four government-owned refineries with a combined capacity of 445,000b/d are operating at a fraction of that because of corruption and poor maintenance.

Nigeria spent over N1 trillion ($8bn) on fuel subsidy payments last year, equivalent to 20 percent of the total federal budget, according to finance ministry data.

“Removing the fuel subsidy would be a major step forward in the reform process in Nigeria,” Samir Gadio, an emerging markets strategist, at Standard Bank, London, said, saying “clearly, this inefficiency is a major constraint on the country’s economic emergence which will eventually have to be addressed.”

President Goodluck Jonathan attempted to remove the subsidy in January 2012, but was forced by a wave of strikes and protests to partially reinstate it, at a reduced price of N97 per barrel. Another attempt by the government at deregulation would only come after the elections in 2015, according to FBN Capital.

The oil and gas industry accounts for 70 percent of the Federal Government budget and 90 percent of the nation’s dollar earnings. The Petroleum Industry Bill aimed at reforming the industry is currently stuck in the National Assembly, although Dangote’s move to establish a refinery may have already set in motion a reform of the industry.
- BusinessDay

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Shell officials on Monday began talks in Port Harcourt with representatives of the Bodo community on compensation and cleanup, five years after one of the worst oil spills in the country’s history, the Associated Press reported.

Some experts say two oil spills that started in 2008 led to the largest loss of a mangrove habitat ever caused by an oil spill, affecting about 30,000 people in the Niger Delta area since then, according to a London-based law firm, Leigh Day.

“These people, since 2008, are living on a creek of oil. You step out of the front door, you see oil, breathe in oil and toxic fumes,” said a lawyer, Daniel Leader of Leigh Day, representing about 15,000 people from the community that filed a lawsuit in 2012.

Although Royal Dutch Shell has admitted responsibility for the two spills, the impact has been disputed and will be the main focus of negotiations in Port Harcourt.

Royal Dutch Shell said a joint investigation team estimated that 4,100 barrels were lost in the two spills. That estimate is based on the initial investigations by representatives from the company and the local community, spokesman, Jonathan French, told the Associated Press.

“Having said all that, it doesn’t matter how much was spilled because the compensation will be based on the financial loss that people have suffered because of the spill in the lagoon, and that is a matter of dispute between us and the claimant,” he said.

Leigh Day said that 15,000 fishermen and 31,000 inhabitants of 35 villages were affected in and around the Bodo lagoon and its associated waterways.

The law firm said independent experts estimated between 500,000 and 600,000 barrels were spilled, devastating the environment that sits amid 90 square kilometres (35 square miles) of mangroves, swamps and channels.

“The majority of its inhabitants are subsistence fishermen and farmers. Until the two 2008 spills, Bodo was a relatively prosperous town based on fishing,” the firm said in a statement.

The spills had destroyed the fishing industry and environment there, it said.

“Those communities are still having water shipped into them. But it’s patchy, and we fear many of those communities are drinking from poisoned wells,” Leader said.

But Shell said such estimates were high.

French said the company did not have access to the area to clean it up and that not all oil spilled was a result of the company’s operations.

Shell blames most of the spills in the region on militant attacks or thieves tapping into pipelines to steal crude oil, which ends up on the black market.

Nigeria, one of the top crude oil suppliers to the United States, requires companies to promptly clean up oil spills but the policy is not enforced, according to the report.

Both parties have said they hope to reach an agreement by the end of the week.

Neither side would discuss possible settlement figures. Britain’s Guardian newspaper reported that the company was thought to be offering about $20m in compensation, while the villagers were seeking $200m.
- The Punch

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Minister of Power, Prof. Chinedu Nebo

Top officials of the Nigerian Electricity Regulatory Commission and the Bureau of Public Enterprises have met to work out modalities for the transfer of electricity companies carved out of the Power Holding Company of Nigeria to private sector investors.

The Assistant General Manager, Media, NERC, Maryam Abubarkar, confirmed this development in a statement made available to our correspondent in Abuja on Monday.

Present at the meeting, according to the statement, were the Chairman, NERC, Dr. Sam Amadi, and Director-General, BPE, Mr. Benjamin Dikki.

The meeting was held despite disagreements between the Technical Committee of the National Council on Privatisation and the BPE over the extension of time for preferred bidder for the Enugu Electricity Distribution Company, Interstate, to pay the 75 per cent balance of the bid price.

Although details of the decisions reached between the two government agencies could not be ascertained, Abubakar said the issues tabled at the meeting included the application of the Fit and Proper Guidelines and the business plans of the core investors.

Others were the framework for monitoring and enforcement of transaction agreements, and the formalisation of contracts pertaining to transmission, power purchase agreements, vesting contracts and gas supply agreements.

According to the statement, Amadi emphasised the importance of preparing grounds for a successful takeover by the investors.

He maintained that NERC would on its own strengthen the laid down procedures for monitoring and enforcement.

Amadi also stated that a priority of the commission was customer metering, without which, he said the industry could not stand.

The NERC boss said the owners of the new distribution companies would be required to adopt the existing metering scheme put in place by the commission or to provide a better alternative.

Another meeting has been scheduled for next week to review the Fit and Proper Guidelines as well as to agree on the mechanism for dealing with liabilities incurred post-handover, Abubakar said.

Eighteen electricity firms were carved out of the PHCN as part of the process to reform the electricity generation and distribution industry.

These included the Transmission Company of Nigeria, 11 distribution companies based on geographical coverage and six generating companies.

Out of the successor companies, core investors have emerged for 10 distribution companies and five generating companies. The process for the emergence of core investors for Afam Power Plc (a generation company) and Kaduna Electricity Company is currently ongoing.

While the prospective core investors have concluded payment for nine Discos, the payment for the Enugu Electricity Distribution Company has been shrouded in controversy.

The preferred bidder for the company, Interstate, owned by business mogul, Mr. Emeka Offor, failed to meet the August 21 deadline to complete the payment.

However, the privatisation agency has failed to invite the reserve bidder, Eastern Electric, being promoted by a former Minister of Power, Prof. Bath Nnaji, to take the slot as required by the privatisation rule.
- The Punch

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Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke

The Department of Petroleum Resources has said that 76 out of the 77 oil blocks awarded between 2005 and 2007 are largely dormant.

The Director, DPR, Mr. George Osahon, said at a forum on the 2005-2007 licensing round in Lagos on Thursday that the Federal Government awarded a total of 77 oil blocks through three bid rounds in 2005, 2006 and 2007.

He, however, expressed worry that only one of the blocks was currently producing, while less than 30 per cent of the remaining 76 were actively working.

Osahon lamented the fact that majority of the operators were using the delay in the passage of the Petroleum Industry Bill as an excuse not to develop their fields, arguing that this was improper and a ploy to blame the government for their challenges.

He said, “In the last three to four years, nothing has been happening in Nigeria’s exploratory sector, while in the marginal fields sector, only eight fields are currently producing out of the 24 fields awarded to 31 successful companies.

 “Only one block is currently producing, while less than 30 per cent of the blocks are actively working; several Production Sharing Contracts have yet to be signed, bank guarantees yet to be put in place, work obligations not respected and downstream obligations not performed.”

According to the breakdown of the 2005-2007 licensing rounds, 14 of the 44 oil blocks awarded in 2005 are onshore, eight deep offshore and 11 located in the continental shelf, while the remaining 11 are located in the Chad Basin, Benue Basin and Anambra Basin.

Indigenous exploration and production companies got 65 per cent of the oil blocks awarded in 2005, leaving the remaining for foreign firms.

The DPR director further explained that 16 oil blocks were awarded in 2006 with indigenous operators taking 40 per cent.

Eight of the blocks are deep offshore blocks, three onshore, two in the Chad Basin, while the remaining three are located in the continental shelf.

Osahon explained further that another 17 oil blocks were allocated in 2007, nine of which are located onshore, one deep offshore and the remaining eight located in the continental shelf.

Indigenous operators got 85 per cent of all the oil blocks allocated in 2007, leaving the remaining 15 per cent to foreign operators.

Despite that, Osahon expressed regrets that only one of the fields had hit production.

He said that the Federal Government was concerned about the inability of the operators to meet industry targets for reserves and production capacity; limited activities in the oil and gas industry; and the implications for the industry’s vitality and social challenges.

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Mr. Tony Elumelu, Chairman, Heirs Holdings

Heirs Holdings has acquired significant stake in Seadrill Mobil Units (Nigeria) Limited, a West African affiliate of New York listed global offshore drilling company, Seadrill.

As a result, the Chairman of Heirs Holdings, Mr. Tony Elumelu, according to a statement on Thursday, has been appointed as chairman of the board of Seadrill Mobil Units.

The statement added that the investment was a further evidence of Elumelu’s strategy of increasing African business participation across the oil and gas value chain, and complement existing interests in oil and gas production and exploration.

Seadrill, the world’s leading offshore driller, is listed on both the New York and Oslo stock exchanges, and operates the second largest ultra-deepwater fleet and largest premium jackup fleet in the industry with 7,500 employees in 15 countries.

Commenting on the investment, Elumelu was quoted to have said, “Seadrill is a significant player in the oil and gas space, with a strong track record and one of the most respected names in the industry. The partnership makes strong commercial sense, bringing together a major global player and a leading African participant in the oil and gas industry.

“Successful development of Nigeria’s deep water oil and gas fields is of strategic importance to our country. This is an important part of our own approach of creating synergistic added value investment across the energy sector, from extraction to processing, and perhaps most importantly for Nigeria, industrial production and power generation.”

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Minister of Agriculture, Dr. Akinwumi Adesina

The United Nations Industrial Development Organisation on Thursday called for a more pragmatic approach that would help to stimulate the growth of agribusiness in Nigeria.

The UNIDO Regional Director and Representative in Nigeria, Dr. Patrick Kormawa, made the call in Abuja while speaking at a two-day workshop on the development of policy guidelines to engage women and the youth in agribusiness.

He said the approach should be anchored on youth and women entrepreneurship as this would help to promote modern form of agriculture.

This, he noted, would help to resolve the economic, social, cultural and security challenges currently facing the country.

Kormawa said, “Over the past 10 years, the number of youths aged 15 to 24 in Africa has increased from 133 million to 172 million. It is projected that by 2020, that figure is expected to rise to 246 million. This youth bulge could significantly tilt the current social dynamics positively or in a negative direction as shown in the recent North Africa uprisings.

“It is now widely recognised that inclusive growth and development, job creation, significant reduction in unemployment and poverty must be addressed simultaneously to achieve the sustainable growth and development we all want.

“Investing in agribusiness has been singled out as one way to achieve prosperity in Africa. However, stimulating growth of agribusiness is anchored on youth and women entrepreneurship.”

He added that effective participation of the youth and women as entrepreneurs in the agric sector was essential for job creation, poverty alleviation, gender equality and economic empowerment.

Kormawa said, “There are several programmes and projects working to support youths and women in agribusiness. Our experience from several African countries shows that despite the huge investments to this effect, the number of youths taking up agribusiness as profession is not commensurate with the investment.

“In other words, the number of sustainable and decent jobs created in agriculture has not been encouraging, particularly for the educated youth. For this to happen, agriculture needs to be profitable and must provide dignity for women and youths.”

The Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina, said the workshop was particularly relevant in view of the high unemployment rate in sub-Saharan Africa.

The minister said having recognised the recent youth restiveness, security challenges and the abject poverty facing women, the government had decided to revitalise its employment generation strategies to solve the problem of youth unemployment and gender equality.

He said, “With the high involvement of women in agriculture, developing the sector and improving access to productive resources for women is the surest way to achieve food and nutrition as well as other Millennium Development Goals.

“Therefore, we must have the political will to channel the required resources to youth development in order to set Africa on the path of sustainable development.”

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CBN Governor, Sanusi Lamido Sanusi

              Access Bank had its 2013 half year investor presentation.
The Central Bank of Nigeria’s policy on the increment of Cash Reserve Ratio (CRR) on public funds deposited in banks is taking its toll on the banks.
Access Bank, one of Nigeria’s banks, licensed by the Central Bank of Nigeria as an International Bank, highlighted the impact of this policy in its 2013 half year investor presentation released last week.
According to the bank, the CRR on public sector of 50 per cent (from 12 per cent) in the third quarter of 2013 is having a “negative impact on the Nigerian banking industry earnings” adding that there is an “increased pressure on the cost of funds for banks”, given the reduced dependence on banks on public sector deposits.
The bank said that compliance with this policy would impact on its earnings an estimate of N3 billion in 2013.
The bank also highlighted other pressure points on banks’ earnings which include the Central Bank’s revised guide on bank charges. These include the COT which was reduced from N5 to N3/million in 2013, and to be completely phased out by 2016, the interest on savings which was increased to 30 per cent of MPR: and 3.6 per cent paid on savings from about 1 per cent.
The bank said these policies are having “Increased pressure on non-interest income for Nigerian banks and that the estimated impact of these on Access Bank’s earnings is about N6bn in 2013.”
Another issue it lamented was the increase in AMCON Charge. There was an increase in banks’ AMCON levy from 0.3 per cent in 2012 to 0.5 per cent of total assets in second half of 2013. The bank said this move would only end up increasing banks’ cost base. It said the impact on Access Bank’s Opex was estimated at N7.2 billion in 2013.
Highlights of 2013 half year result
The bank’s Net interest Income (NII) declined by 29 per cent to N39 billion year-on-year but up 29 per cent to 22 billion from 17 billion quarter-on-quarter. Net Interest Margin (NIM) improved by 60 basis points (bpts) from the depressed first quarter 2013 level to 6.8 per cent in second quarter (QoQ), Non-Interest Income was up N5.3 billion or 20.9 per cent YoY to N30.7 billion and down N6.9 billion or 36.7 per cent QoQ to N11.9 billion, Operating expenses up N5.4 billion or 11.2 per cent YoY to N53.8 billion and N4.4 billion or 17.8 per cent QoQ to N29.1 billion, while the contribution of Non-Interest income to gross earnings increased to 30 per cent in first half 2013 from 23 per cent.
Profit Before Tax (PBT) declined by 13 per cent to N26 billion in half year 2013 but increased by 36 per cent to N15 billion QoQ. Funding cost increased by 16 per cent in half year due to high interest rate environment, loan growth of 11 per cent from N623 billion in Q1 to N691 billion in Q2, 14 per cent reduction in interest income from earning asset resulting from sale of AMCON bonds in second half year 2013 and non-interest income declined by 36 per cent QoQ as a result of significant non-recurring dividend income from Q1.
Key drivers of the half year results, according to the bank, include growth in interest expense due to high cost of funding due to high interest rate environment. The growth was driven by increased transaction volume, strong dividend income and good trading performance; significant decline in premium income from WAPIC (Insurance) (seasonality), increase in AMCON surcharge and other non-recurring expenses such as additional NDIC premium, (N568 million) claim expenses by WAPIC (N1.3 billion), depreciation adjustment (N768 million), professional fees and branding cost (N560 million) and card charges (N600 million) among other parameters.
Covering up anticipated earnings shortfall

With these anticipated shortfalls in banks’ earnings due to varying regulatory policies, Access Bank highlighted set targets for second half 2013, as well as paths to which it can improve it services to its customers and attract new ones, while hoping to generate more earnings doing so.
The bank said Personal Banking is one of the focus of its growth priorities and it intends to upgrade telemarketing centres to improve customer contact (up 90 per cent) from once in 2 months to once every month, improve cross selling, increase product penetration, increase alternative channels such as online banking, verve banking centre and mobile banking to drive transaction activities, generate fee income and focus on growing low cost deposits whilst increasing customer base.
On growth projection, it intends to reactivate 500, 000 dormant accounts, increase active internet banking users from 100, 000 to 500, 000; 40,000 walk in customers monthly, Grow Salary Account by additional 250, 000. Also, it hopes to achieve a loan growth of N10 billion by 2013 financial year end (Personal loans: 2 billion, Credit Cards: 2.5 billion, Vehicle finance: 3.5 billion, Mortgages: 2 billion) and an income uplift of N1billion among a series of other strategies.
Despite these odds, the Central Bank’s policy is here to stay, at least, in the short time.
Ayodeji Ebo, a Research Analyst at Afrinvest, an investment bank, said there was pressure in the market following the policy announcement, as banks scrambled for funds to meet the new Central Bank’s requirement. The Cash Reserve Requirement (CRR) on public funds was raised to 50 per cent, thereby necessitating a sell down on investments where these funds have been invested.
He said the Central Bank is worried about banks’ practice of sourcing public sector deposits at fairly cheap rates and lending the same to government via its fixed income securities, at higher rates. So basically, they collect money from the government and borrow the government via treasury bills and so on. According to him, the banks will have to call back their funds from the sources they have invested in and source for more deposits; at perhaps, higher rate, to comply with the policy.
Government’s deposit with the Central Bank is currently estimated at N2.6 trillion with federal government constituting 50 per cent (N1.3 trillion) and State and local governments approximately 20 per cent of N1.3 trillion.
Mr. Ebo said bank’s lending rates may rise due to the development, but they may still remain in the 20’s, as lending rates have proven over time, to be inelastic to changes in market dynamics.
“It is a further contractionary measure by the Central Bank. The impact of this policy will quarantined an additional 38 per cent of bank’s deposit from the public sector, as they already have 12 per cent as reserve across all their deposits. Hence, the banks will need to sell down and raise 38 per cent of their deposit (from the Public sector),” he said.

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President, MAN, Chief Kola Jamodu

Nigerian manufacturers have disagreed with the trade terms of the European Union, describing them as capable of hindering the nation’s industrial growth.

The new trade agreements, Common External Tariff (CET), Community Levy and the Economic Partnership Agreement (EPA), which are still being negotiated, are designed to become operational in respect of business relationship between EU and Economic Community of West African States (ECOWAS) countries.

MAN explained that the CET could compromise the needed protectionist profile required to safeguard the interest of the nation’s industrialists.

The association’s Director-General, Rasheed Adegbenro, expressed the hope that a consensus that would favour Nigerian industries would become feasible in the new CET regime.

The CET is a precursor to a regional customs union, which is predicated on the harmonisation and convergence of national fiscal, monetary and trade policies of member states for the attainment of economic integration by the 15-nation economic community with a combined population of more than 300 million people.

At the March meeting in Praia, Cape Verde, regional ministers of finance had endorsed a new five-band tariff regime for West Africa, after 10 years of internal negotiations, driven by the technical committee of the Commissions of the ECOWAS and the eight member West African Economic and Monetary Union (UEMOA), following the 2006 decision by the ECOWAS Heads of State and Government.

The new tariff regime covers 5899-tariff lines with the rate ranging between zero and 35 per cent for the 130 tariff lines that fall into the category of specific goods that contribute to the promotion of the region’s economic development.

Under the new regime, five per cent duty is applicable for 2146 tariff lines under the basic raw materials and capital goods category 10 per cent for the 1373 tariff lines that qualify as intermediate products category; while 20 per cent duty is reserved for the 2165 tariff lines under final consumer products.
- Vanguard

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Chief Aliko Dangote

The Dangote Group has said it will sign $5.55bn loan deals with financiers on September 4 for the building of a $9bn refinery and petrochemical complex to be located at the Olokola Free Trade Zone, Ondo State.

The group told Reuters on Tuesday it would borrow $3.3bn for the 400,000 barrels a day refinery expected to double the country’s refining capacity by late 2016.

The conglomerate, with business interests in cement, food processing and oil and gas, also said it was seeking another $2.25bn from development funds for the refinery.

When put together, about $5.55bn will be sourced externally from financiers and the group said the loan deals would be signed with the financiers on September 4.

The Chairman, Dangote Group, Alhaji Aliko Dangote, who recently emerged as Africa’s richest man, said he would put $3.5bn down as his own equity.

Dangote had in April said he would put down $4bn of his personal fortune to build the refinery, while international financial institutions would raise the balance.

The Dangote Group spokesman, Mr. Anthony Chiejina, who spoke with Reuters, said, “We are not resting on our oars. The complex, including petrochemical and fertiliser plants, could be the single largest contribution to this government’s economic transformation agenda.”

The 400,000-barrel capacity, experts have said, would almost double Nigeria’s current refining strength.

“This will really help not only Nigeria but sub-Saharan Africa. There has not been a new refinery for a long time in sub-Saharan Africa,” Dangote had told Reuters in a telephone interview.

Nigeria currently has the capacity to produce some 445,000 barrels per day from four refineries, which operate well below that owing to decades of mismanagement and corruption.

The country relies on subsidised imports for 80 per cent of its fuel needs.

Dangote said the country’s ability to import fuel would soon be challenged.

“In five years, when our population is over 200 million, we won’t have the infrastructure to receive the amount of fuel we use. It has to be done,” he said.

Past efforts to build refineries have often been delayed or cancelled, but analysts have said Dangote should be able to build a profitable Nigerian refinery, owing to his past successes in industry and his strong government connections.

Analysts have said previous attempts to get the refineries going were held back by vested interests such as fuel importers profiting from the status quo.

“The people who were supposed to invest in refineries, who understand the market, are benefiting from there being no refineries because of the fuel import business. Some are going to try to interfere,” Dangote said.

He said making a new refinery run at a profit would work even if the government failed to scrap the subsidised fuel price that has deterred others from investing.
- The  Punch

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Former Minister of Industry and National President, Manufacturers Association of Nigeria (MAN), Dr Kola Jamodu,

Former Minister of Industry and National President, Manufacturers Association of Nigeria (MAN), Dr Kola Jamodu, has urged federal and state governments to urgently remove the bottleneck of multiple taxation and provide infrastructure that will support manufacturing industries with a view to returning the country to full industrialisation., has urged federal and state governments to urgently remove the bottleneck of multiple taxation and provide infrastructure that will support manufacturing industries with a view to returning the country to full industrialisation.

Jamodu said this in Ilorin during a familiarisation visit of the national executive members  of the association to industries in Kwara State, which include KAM Industries, United Foam, RAJRAB Pharmaceutical company and Forgo Battery industries, among others. The MAN boss noted that it is only through industrialisation that the unemployment problems in the country can be solved.

His words, “if we mean very well for  this  country on the need to generate employment, such can only be done if  manufacturing industries are assisted and revived through infrastructural development.” He said  available records have shown that 23 out of every 100 Nigerian are unemployed, stressing that the trend should be urgently redressed. He also explained that the number of unemployed is largely made up of  people between the age of 20 to 27, adding that this is the reason why government at all levels need to join hands  with manufacturers to solve unemployment problem in the country.

Jamodu further said that the agricultural produce in the country should not be exported without adding value to them. He noted that such move will  lead to providing jobs for citizens, and urged government to fashion out policies that would favour establishment of industries in the country.

He said the association has about 2,500 members and that about 70 percent of industries in the country are located in Lagos, Ogun and South Eastern parts of the country, adding that government should accelerate the provision of gas pipeline to encourage  establishment of manufacturing industries and their sustenance in other parts of the country.

Kwara State Governor, Alhaji Abdulfatah Ahmed, assured the manufacturers of the state government’s readiness to create incentives that will encourage manufacturing industries to flourish in the state. He said the state will also design policy that will grant tax holiday to manufacturing industries in the state, adding that all bottlenecks will be removed.

Earlier in her address, Chairperson of Kwara and Kogi states chapter of the association, Princess Omolola Olobayo, said the essence of the visit is for the association to evaluate the industrial development in the state. She urged members of the association to continue to be committed to the drive of providing employment to the teaming unemployed youths in the country.
- Vanguard

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Minister of Agriculture, Dr. Akinwumi Adesina

The Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina, said on Tuesday that the Federal Government would soon place a total ban on the importation of fish and other aquatic consumables.

Adesina said this in Ado-Ekiti during the inauguration of the Special Growth Enhancement Support scheme for fisheries and the aquaculture value chain, according to the News Agency of Nigeria.

He, however, said that the ban would be imposed only if arrangements being put in place by the government to that effect worked as planned.

The minister, represented by the Federal Director of Fisheries, Mrs. Foluke Areola, said the country had no business importing fish, given its huge natural and renewable resources.

He said it was in view of this that the ministry was promoting increased fish production through the aquaculture value chain.

This is in pursuance of the goal of the Agricultural Transformation Agenda of the Federal Government, he said

"The value chains are to create an enabling environment for increased and sustainable production of over one million tonnes of fish within the next four years, generate employment and pursue gradual reduction of fish imports," the minister said.

Adesina noted that the aquaculture value chain, under its four-year implementation plan, would increase the annual production of fingerlings in the country by 1.25 billion tonnes.
- The Punch

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Executive Secretary, NCMDB, Mr. Ernest Nwapa

The Nigeria Content Development and Monitoring Board, NCMDB, said it currently has over US$200 million in its Fund, to promote the execution of projects in the oil and gas sector in areas such as fabrication, manufacturing, and training of local talents.

The Executive Secretary of the Board, Mr. Ernest Nwapa, who disclosed this also, hinted that over N2 billion had been invested in the construction of fabrication yards across the country, noting that it had a zero account when it commenced operations three years ago.

“I will rather say that there have been more opportunities in the industry since the creation of the board. Although as at the time we started, we operated from a zero account but today $200 million fund with us,” he said.

Within three years of enforcing the local content initiative in the oil and gas sector, he explained that it has achieved 90 per cent content in local engineering, 50 per cent in fabrication, and seven per cent in manufacturing.

Nwapa disclosed this while speaking on the theme: “Three years of Nigeria Content: Achievements and Challenges,” at the Annual Conference of the National Association of Energy Correspondent, NAEC, in Lagos last week.

He stressed that over the past three years, the Board had made huge progress in achieving the objectives of the Minister of Petroleum Resources, in relation to marine vessels ownership, local fabrication, job creation and manufacturing.

According to him, “As part of our plans to moving the industry forward we will launch two tanker vessels that will carry Nigerian crude oil. This will be the first in the country.”

He reiterated that the Nigeria content initiative is aimed at bringing back lost jobs to the country, saying, “Nigeria for decade has been buying and importing things that we need in the sector. This has resulted to the loss of opportunity to create jobs for Nigerians.

“America realised the importance of bringing jobs back to America and for Americans. Nigeria should not be left out; we should strive to do the same.

“The Nigeria content aims to do just that which is to bring back lost jobs into the country. But in an attempt to be a robust oil producing country, Nigeria must have the facilities, operators own and manage assets in the industry.

“In addition, the Board is involved in direct training to develop local skills which is a model of training Nigerians and sending them abroad. This has been done in collaboration with PETROFAC and OGTAN,” he said.

Nwapa argued that the NCDMB is becoming a robust entity owing to the growth of more indigenous players in the industry, and haven seen the success of the local content initiative in the petroleum industry, the National Assembly is currently deliberating on laws in spreading the Nigeria content law to all sectors of the economy.

“We can make Nigeria a great oil producing nation, but in doing so, we need the support of the press. The Nigeria content law does not deprive anybody to work in the industry, but encourages everybody to work,” Nwapa said.
- Vanguard

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Nigeria's Minister of Finance, Dr. Ngozi Okonjo-Iweala

The Federal Government has unveiled plans to establish a special finance institution that will attract funds into the economy at lower interest rates.

The Minister of Finance and the Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, stated this on Friday in Ilorin during her visit to KAM Industries Nigeria Limited’s multi-billion naira cold steel rolling mill.

She said the bank, which could be established in the next 15 to 18 months, would lend funds to the Bank of Industry, Bank of Agriculture and commercial banks to ensure that interest rates were reduced to a sustainable level for indigenous industries to grow.

Okonjo-Iweala said the government was concerned about the high interest rates being charged by banks and was working to provide an enabling environment that would assist the banks to reduce the rates, especially for indigenous manufacturers and industrialists.

Although she acknowledged the contributions of the banks to the national economy, the minister said the high rate of 20 per cent and above was not favourable for industrial growth.

Okonjo-Iweala said, “We are going to build a development finance institution maybe in the next 15 months to 18 months, a wholesaler that will bring funds and more liquidity into the economy at a lower rate so that it can lend to  the BoI and BoA, other industries and even straight to the commercial banks.

“In the meantime, let our industries not be killed because I have looked at the structure of the economy, it does not warrant 20 per cent interest rate. Government wants the interest rate to come down because we believe that we cannot have sustainable investments at such a high interest rate.

“We are not saying that the banks should not make profits. They are there for profit-making. It must be a commercially viable enterprise but why must they charge 20 per cent? Our inflation has gone from 12 per cent in January this year to 8.7 per cent now, meaning that interest rates, can also go down.”

She also said that the steel sector was critical to the industrialisation of any nation.

The minister noted that in recognition of its importance, President Goodluck Jonathan in January 2012 granted an approval for new and existing industries in the steel sector to import their machineries, equipment, spare parts and raw materials for the establishment of cold roll steel plants at zero per cent duty.

“A 700-tonne capacity per annum cold steel roll mill by Messr. Swesterm Products Company Limited, WAPCO was inaugurated by  President Jonathan early this year and the plant has commenced production and generates 3,000 jobs, Okonjo-Iweala said.”
- The Punch

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BACKGROUND TO THE ESSAY

Nigeria is the largest producer of Petroleum in Africa and the sixth largest OPEC producer with proved reserves of more than 23 billion barrels. Nigeria's proven oil reserves are estimated by the U.S. United States Energy Information Administration (EIA) at between 16 and 22 billion barrels (3.5×109 m3) but other sources claim there could be as much as 35.3 billion barrels (5.61×109m3). Its reserves make Nigeria the tenth most petroleum-rich nation, and the most affluent in Africa (US E.I.A 1997). However, as oil prospecting continues in the Lake Chad basin and with new discoveries along the Anambra-Kogi basin, Nigeria’s proved and probable reserves are expected to be reviewed upwards. Over the years, the structure of the Nigerian economy had evolved to position the petroleum sector as the mainstay of the economy. The Petroleum industry currently accounts for more than 95% of the country’s foreign export earnings, over 80% of government revenue according to the International Monetary Fund (IMF) (EIA, 2012). The Petroleum sector also contributes well over 20% of the nation’s Gross Domestic Product. Econometric simulations (Iyoha (1995), Orubu (2003)) had established a strong linkage between the value of Nigeria’s oil export earnings and her economic performance. Following this, Scholars including Oriakhi (2003) have argued that oil in the next 20 years or so will continue as an independent variable in the economic growth and development of Nigeria. Not only is petroleum economically relevant, it remains a strategic national product providing the internal energy requirements of the country for both domestic and industrial use.

There are many products as well as by-products of Nigerian Crude including but not limited to the Premium Motor Spirit (PMS) commonly known as petrol, Automotive Gas Oil (AGO) commonly known as diesel fuel, and Dual Purpose Kerosene (DPK) for household and aviation uses (Orubu, 2003).

Minister of Petroleum Resources Diezani Alison Madueke

PETROLEUM PRODUCT PRICING AND ADMINISTRATION IN NIGERIA

Nigeria is a Country with a very high demand for all categories of petroleum products. Although figures vary, official sources show average demands are put at: PMS 30-33million litres per day; AGO  12million/d; Kerosene 10million/d; and ATK (Aviation Turbine Kerosene commonly known as aviation fuel) 1.6million -3million/d depending on the season (Vanguard, January 26, 2011).  Nigeria also consumes a high level of both Automotive Gas Oil (AGO) and the Dual Purpose Kerosene (DPK). The Ministry of Petroleum Resources (MPR) remains the overall coach of the Nigerian Petroleum industry with the Nigerian National Petroleum Corporation (NNPC) under the MPR serving as an industry operator and a direct handler of government interests in the sector. However, the NNPC first existed as the Nigerian National Oil Corporation (NNOC) which was established in 1971 (Orubu, 2003). The NNOC was established to strengthen Nigeria’s control over the petroleum industry (In view of the activities of powerful Oil Multi-National Corporations) and given responsibility for both up-stream and downstream activities in the sector. The NNOC also looked after Government’s participation in the activities of the oil companies. Before 1977, the Ministry of Petroleum Resources (which also had regulatory functions) operated side-by-side with the NNOC. That year, they were merged to form the Nigerian National Petroleum Corporation (NNPC). The NNPC combined the commercial functions of the defunct NNOC (that is, exploration, production, transportation, processing of oil, refining and marketing of crude oil and its refined products) with the regulatory functions formerly exercised by the Ministry of Petroleum Resources (National Bureau of Statistics, 2010). In March 1988, the NNPC was declared a commercial, integrated international oil company whose functions were to explore, develop,produce, process and market crude and refined petroleum, its by-products and derivatives at internationally-competitive prices in Nigeria and abroad.

Today, the NNPC has many subsidiaries but it is the Petroleum Products Pricing and Regulatory Agency (PPPRA) that was established in 2003 to determine the pricing of Petroleum Products and to regulate the supply and distribution of petroleum products (PPPRA 2013). The PPPRA is supposed to work in conjunction with other subsidiaries of NNPC to attain a strong, vibrant downstream sub-sector of the petroleum industry, where refining, supply, and distribution of petroleum products are self-financing and self-sustaining.

 THE WOBBLING STATE OF THE DOWNSTREAM PETROLEUM SUB-SECTOR

After about 56 years of commercial oil exploration and production (E&P), it could be argued that the upstream sub-sector of the Nigerian petroleum industry has been moderately successful owing largely to the massive investment of Oil Multi-National Corporations (OMNCs). Oil exploration and production (E&P) which is the source of crude oil has immensely contributed to Nigeria’s economic growth by serving as a major source of revenue and foreign exchange.

But this is probably where the good news ends for the Nigerian Petroleum industry. The downstream sub-sector of the industry which comprises of Refining (although sometimes placed under the so-called mid-stream sub-sector), Distribution and Marketing could best be described to be in a wobbling state. This is as a result of the high level of inefficiency in the sub-sector in terms of low value addition on crude oil.

The fact that bulk of Nigeria’s crude oil is refined abroad is a pointer to this fact. Although, Nigeria has about four Refineries including the old Port-Harcourt Refinery (1965), the Warri Refinery (1978) , the Kaduna Refinery (1980) and the new Port-Harcourt Refinery (1987) but these Refineries are functioning at sub-optimal capacity and the country continues to spend substantial foreign exchange to import fuels for domestic consumption (Orubu, 2003).

THE RESULTANT IMPORTATION PRICING POLICY

Domestic refining in Nigeria cannot meet up with domestic consumption so Nigeria resorts to importation of refined crude – This is actually the tragedy of the story of the petroleum industry. According to NNPC sources, Nigeria’s four refineries have a combined installed capacity of 445,000 bpd but using less than 30% of their installed capacity (Vanguard, January 23, 2012).  For almost the whole of 2010, the four refineries with a combined capacity in excess of 445,000 barrels per day could only refine a mere 80,757 metric tonnes of petroleum products. These are 19,967 of premium motor spirit, PMS or petrol; 53,223.4 MT of automotive gas oil, AGO or diesel; and 7,567MT of liquefied petroleum gas, LPG or cooking gas.

The rest volume of 8.1 million MT of petroleum products that came into the downstream sector was imported. But for the Federal Government/ Nigeria LNG LPD Domestic Supply Programme, only LPG was not imported (Vanguard, January 26, 2011).  With this low domestic refining capacity, Nigeria has no choice but to depend on importation of refined products to meet domestic energy requirements.

What this means is that Nigeria exports raw crude only to import refined petroleum products. To import these refined products, Nigeria would have to pay at the international price per metric ton plus other costs of landing the products in Nigeria. This explains the concept of importation pricing policy. More succinctly, we can explain the concept of importation pricing policy of petroleum products as the situation where Nigeria imports refined petroleum products (in millions of metric tonnes) at the prevailing international price plus other costs of landing the products in Nigeria as indicated in the PPPRA pricing template. This importation is usually undertaken by both the Nigerian National Petroleum Corporation (NNPC) and independent marketers. Not only do we import refined products, the process of importation is fraught with irregularities with high level of corruption including the inflation of figures of imported products (in order to make high subsidy claims) at huge costs to both the government and the Nigerian citizenry. It is worthy to note that the crude refined in Nigeria is supplied to end users at the same price with the imported products.

To understand how petroleum products are priced in Nigeria, we need to take a cursory look at the pricing template of petroleum products in Nigeria.

THE PETROLEUM PRODUCT PRICING TEMPLATE IN NIGERIA AS PROVIDED BY THE PPPRA

The PPPRA products pricing template (Daily & Monthly) is a pricing information sheet detailing the components used in deriving the PPPRA daily/monthly guiding products prices. It employs Import Parity Principle and this includes:

(i) Landing Cost of Products

(ii) Margins for the Marketers, Dealers, and Transporters

(iii) Jetty-Depot Through-put

(iv) Other charges and Taxes.

The objectives of the pricing template are to ensure transparency, full cost recovery, Fairness and efficiency in the importation process but how far this template has fulfilled these objectives could be called to question because of the secrecy, conservatism and non-disclosure in the practical sense.

DESCRIPTION OF COMPONENTS ON THE PRICING TEMPLATE.

 According to the PPPRA, with effect from February 2009, the components of the petroleum product pricing template include:

1.         PRODUCT COST ($/MT)

This is the monthly moving average cost of products cost as quoted on Platts Oil gram. The reference spot market is North West Europe (NWE).

2.         FREIGHT ($/MT)

This is the average clean tanker freight rate (World Scale (WS) 100) as quoted on Platts. It is the Cost of transporting 30, 000mt (30kt) of product from NWE to West Africa (WAF). Trader’s margin of $10/MT is also factored into the Freight cost.

3.         LIGHTERING EXPENSES ($/MT)

STS/Local Freight charge is the cost incurred on the trans-shipment of imported petroleum products from the mother vessel into daughter vessel to allow for the onward movement of the vessel into the Jetty. This charge includes receipt losses of 0.3% in the process of products movement from the high sea to the Jetty and then to the depot. The mother vessels expenses are based on the allowable 10 days demurrage exposure at the rate of $28,000 per day.

The Lightering Expenses also includes the Shuttle vessel’s chartering rates from Offshore Lagos to Lagos and Port Harcourt which currently stands at N2.00 per litre and N2.50 per litre respectively. Trans-shipment (STS) process is as a result of peculiar draught situation and inadequate berthing facilities at the Ports.

4.         NIGERIA PORT AUTHORITY (NPA) CHARGE ($/MT)

It is the cargo dues (harbour handling charge) charged by the NPA for use of Port facilities. The charge includes VAT and Agency expenses.

Currently, NPA charge attracts $10.50/MT on the pricing template.

5.         FINANCING

It refers to stock finance (cost of fund) for the imported product. It includes the cargo financing based on the International London Inter- bank Offered Rates (LIBOR) rates+5% premium for 30 days (for Annual Libor rate of 2.07%, LIBOR cost would be 7.07%). Also included in the Finance cost is the interest charge on the subsidy element being awaited for an allowable 60 days period at Nigerian Inter Bank Offered Rate (NIBOR) rate of 22%.

6.         JETTY DEPOT THRU PUT

This is the tariff paid for use of facilities at the Jetty by the marketers to move products to the storage depots. The value is currently N0.80/litre.

7.         STORAGE CHARGE

Storage Margin is for depot operations covering storage charges and other services rendered by the depot owners. The charge is currentlyN3.00/litre.

8.         LANDING COST

It is the cost of imported products delivered into the Jetty depots. It is made up of components highlighted above (1, 2, 3, 4, 5, 6 and 7).

9.         DISTRIBUTION MARGINS

These include Retailers (N4.60 per litre), Transporters margins (N2.99 per litre), Dealers margin (N1.75 per litre), Bridging Fund (plus Marine Transport Average) (N6.00 per litre) and Administrative charge (N0.15 per litre). This amounts to N15.49 per litre on the template. The overhead cost and other running costs have been considered in the determination of these margins.

10.       TAXES

These include highway maintenance, government, import and fuel taxes. It has the overall objectives of revenue generation, social infrastructure investment and servicing and efficient fuel usage. Presently, all these attract zero taxes.

11.       RETAIL PRICE

This is the expected pump price of petroleum product at retail outlet. It is made up of landing cost of imported product plus reasonable distribution margins.

THE PRICING TEMPLATE: USING PREMIUM MOTOR SPIRIT (PMS) AS A CASE STUDY.

Given the high usage of Premium Motor Spirit (PMS) commonly known as Petrol in Nigeria, we use it to provide a clue on how petroleum products are priced in Nigeria. Following the description provided above, the pricing template of PMS as provided by the PPPRA is as follows:

PPPRA PRODUCT PRICING TEMPLATE PMS        Based on Average Platts' Prices for the month of DECEMBER, 2012 Average Exchange Rate of the NGN =N= to US$ for the Month of DECEMBER, 2012 PMS $/MT Naira/Litre Cost Element; 1 C + F     1,009.92    119.66 2 Trader's Margin          10.00        1.18 3 Lightering Expenses (SVH)          33.46        3.96 4 NPA             5.25        0.62 5 Financing (SVH)          15.85        1.88 6 Jetty Depot Thru' Put Charge              6.75        0.80 7 Storage Charge          25.32        3.00 8 Landing Cost    1,106.55   131.10 Distribution Margins: 9 Retailers          38.83        4.60 10 Transporters          25.24        2.99 11 Dealers          14.77        1.75 12 Bridging Fund           49.38         5.85 13 Marine Transport Average (MTA)             1.27         0.15 14 Admin Charge             1.27        0.15  Subtotal Margins      130.74     15.49 Foot Note: 15 Total Cost     1,237.29    146.59 16 * Official  Ex-Depot        687.96      81.51 **  Under/Over Recovery  -      418.59    (49.59)  Taxes  17 Highway Maintenance              -   18 Government Tax              -   19 Import Tax              -   20 Fuel Tax              -   Subtotal Taxes              -   21 Retail Price        818.70      97.00 Expected Open Market Price (OMP) (Naira/litre) is Landing cost +Margins      146.59 * C+F price is Offshore Nigeria Conversion Rate (MT to Litres): 1341 Exchange Rate (N to $): 159.76 *  Official Ex Depot is exclusive of Bridging Fund, Marine Transport Average (MTA) & Admin. Charge  * *Ex Depot includes Bridging Fund, Marine Transport Average (MTA) & Admin. Charge  *** Effective Date of New Approved Pricing Template is 1st July 2011 Data is as at 31/12/12 The figures below show the importation of crude oil for the 31 days of the month of December 2012.   PPPRA Daily Products Pricing Template – PMS DECEMBER, 2012 Days C + F Trader's  Lightering NPA Exchange Jetty-Dep Depot  Sub-Total Financing Landing Cost Other Charges Dist. Margin  Expected  (Off. NGN) Margin Expenses Rate Thru'Put Charge OMP $/Mt ($/Mt) Charge (MV) (SVL) (SVH) (MV) (SVL) (SVH) (MV) (SVL) (SVH) ($/Mt.) ($/Mt.) (Naira/$) Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Mother Vessel Shuttle Vessel (SV) (MV) Low High 1 2 3 1016.08 10.00 7.72 29.26 33.48 5.25 158.88 0.80 3.00 126.90 129.45 129.95 1.80 1.89 1.90 128.71 131.34 131.86 6.15 9.34 147.35 4 1005.08 10.00 7.69 29.23 33.45 5.25 158.88 0.80 3.00 125.59 128.15 128.65 1.76 1.84 1.86 127.36 129.99 130.51 6.15 9.34 146.00 5 991.08 10.00 7.64 29.18 33.40 5.25 158.88 0.80 3.00 123.93 126.48 126.98 1.71 1.79 1.81 125.64 128.27 128.79 6.15 9.34 144.28 6 979.08 10.00 7.61 29.15 33.37 5.25 158.88 0.80 3.00 122.50 125.06 125.56 1.66 1.75 1.76 124.17 126.80 127.32 6.15 9.34 142.81 7 968.08 10.00 7.57 29.12 33.34 5.25 158.88 0.80 3.00 121.20 123.75 124.25 1.62 1.70 1.72 122.82 125.45 125.97 6.15 9.34 141.46 8 9 10 984.08 10.00 7.62 29.16 33.38 5.25 158.88 0.80 3.00 123.10 125.65 126.15 1.68 1.76 1.78 124.78 127.41 127.93 6.15 9.34 143.42 11 981.14 10.00 7.61 29.15 33.37 5.25 158.88 0.80 3.00 122.75 125.30 125.80 1.67 1.75 1.77 124.42 127.05 127.57 6.15 9.34 143.06 12 996.08 10.00 7.66 29.20 33.42 5.25 158.89 0.80 3.00 124.53 127.08 127.58 1.73 1.81 1.83 126.26 128.89 129.41 6.15 9.34 144.90 13 1008.97 10.00 7.70 29.24 33.46 5.25 158.89 0.80 3.00 126.06 128.62 129.12 1.78 1.86 1.87 127.84 130.47 130.99 6.15 9.34 146.48 14 1011.97 10.00 7.71 29.25 33.47 5.25 158.89 0.80 3.00 126.42 128.97 129.47 1.79 1.87 1.88 128.21 130.84 131.36 6.15 9.34 146.85 15 16 17 1022.47 10.00 7.74 29.28 33.50 5.25 158.89 0.80 3.00 127.67 130.22 130.72 1.83 1.91 1.92 129.50 132.13 132.65 6.15 9.34 148.14 18 1022.02 10.00 7.74 29.28 33.50 5.25 158.89 0.80 3.00 127.62 130.17 130.67 1.83 1.91 1.92 129.44 132.07 132.59 6.15 9.34 148.08 19 1027.08 10.00 7.75 29.29 33.51 5.25 158.89 0.80 3.00 128.22 130.77 131.27 1.84 1.93 1.94 130.06 132.69 133.21 6.15 9.34 148.70 20 1033.08 10.00 7.77 29.31 33.53 5.25 158.89 0.80 3.00 128.93 131.48 131.98 1.87 1.95 1.96 130.80 133.43 133.95 6.15 9.34 149.44 21 1021.08 10.00 7.73 29.27 33.49 5.25 158.89 0.80 3.00 127.50 130.06 130.56 1.82 1.90 1.92 129.33 131.96 132.47 6.15 9.34 147.96 22 23 24 1017.14 10.00 7.72 29.26 33.48 5.25 158.89 0.80 3.00 127.03 129.59 130.09 1.81 1.89 1.90 128.84 131.48 131.99 6.15 9.34 147.48 25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 26 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 27 1043.64 10.00 7.80 29.34 33.56 5.25 158.89 0.80 3.00 130.18 132.74 133.24 1.91 1.99 2.01 132.09 134.73 135.24 6.15 9.34 150.73 28 1034.19 10.00 7.77 29.31 33.53 5.25 158.89 0.80 3.00 129.06 131.61 132.11 1.87 1.95 1.97 130.93 133.57 134.08 6.15 9.34 149.57 29 30 31 1026.19 10.00 7.75 29.29 33.51 5.25 158.89 0.80 3.00 128.11 130.66 131.16 1.84 1.92 1.94 129.95 132.59 133.10 6.15 9.34 148.59 AVG 1009.92 10.00 7.70 29.24 33.46 5.25 158.88 0.80 3.00 126.17 128.73 129.23 1.78 1.86 1.88 127.95 130.59 131.10 6.15 9.34 146.59 Note: Off. NGN: Offshore Nigeria

Source: PPPRA

A HISTORY OF PETROLEUM PRODUCT PRICING AND FUEL SUBSIDY ADMINISTRATION IN NIGERIA

Over the years, the Nigerian government has intervened in the pricing of petroleum products. The Nigerian government unilaterally determines the pricing of petroleum products through the administration of a subsidy regime under the Petroleum Support Fund (PSF). Of all the essential products, only the Automotive Gas Oil (AGO) commonly known as gas is not being subsidized as it has undergone complete deregulation. The government periodically reviews the subsidy regime (and by implication the price of petroleum products) as determined by government’s fiscal position. Although, the government views the subsidy regime as a huge fiscal burden but attempts to completely remove the subsidy is usually met with very stiff resistance by labour unions and the general public (who see the subsidy as the only thing the masses benefit directly from government) through strikes and mass protests. So, the approach of government has been to increase the prices of these products marginally and then negotiate with labour unions. In January, 2012, President Goodluck Jonathan announced a full ‘deregulation’ of the downstream sector but still pegged the price of PMS at N142 per litre. With the new price tag of N142, many Economists including Professor Milton Iyoha have argued against government’s use of the term ‘deregulation’ as anti-economics since government still fixed the price of the products. He argued that the better term to describe the scenario was a fuel price increase (The Economist magazine, November 2012). Today, as reflected in the PPPRA template above, the official price of PMS is fixed at N97 (although the price varies across the country despite the existence of a Petroleum Equalization Fund (PEF) due to the high level of inefficiency and profiteering in the downstream sector) as against a total cost of N146.59 per litre (landing cost of N131.10 and distribution margins of N15.49) effectively giving a subsidy figure of N49.59 paid by government per litre imported.

Although, the purpose of the subsidy is to reduce the retail price of petroleum products for end users (and thus increase welfare gains) but this is argued against based on the premises that government’s activities in the downstream sub-sector have been largely distortionary. Below is a chronological presentation of petroleum product prices in Nigeria as administered by different political administrations since the 1970s:

Gowon, 1973: 6k to 8.45k (40.8%)

Murtala, 1976: 8.45k to 9k (0.59%)

Obasanjo, October 1, 1978: 9k to 15.3k (70%)

Shagari, April 20, 1982: 15.3k to 20k (30.71%)

Babangida, March 31 1986: 20k to 39.5k (97.5%)

Babangida, April 10 1988: 39.5k to 42k (6.33%)

Babangida, January 1, 1989: 42k to 60k Private vehicles.

Babangida, December 19, 1989: moved to uniform price of 60k (42.86%)

Babangida, March 6, 1991: 60k to 70k (16.67%)

Shonekan, November 8, 1993: 70k to N5 (614%)

Abacha, November 22,1993: petrol price drops from N5 to N3.25k (-35%)

Abacha, October 2,1994: N3.25k to N15 (361.54%)

Abacha, October 4,1994: price drops from N15 to N11(-26.67%)

Abubakar, December, 20, 1998: N11 to N25 (127.27%)

Abubakar, January 6,1999: N25 to N20 (-20%)

Obasanjo, June 1, 2000: N20 to N30 (50%)

Obasanjo, June 8, 2000: Petrol price reduced to N22 (-10%)

Obasanjo, January 1, 2002: N22 to N26 (18.18%)

Obasanjo, June to October, 2003: N26 to N42 (23.08%)

Obasanjo, May 29, 2004: N50 (19.05%)

Obasanjo, August 25, 2004: N65 (30%)

Obasanjo, May 27, 2007: N75 (15.38%)

Yar’Adua, June 2007: N65 (-15.38%)

Jonathan, January 1, 2012: N141 (117%).

January 28, 2012: N97 (-31.20%).

Source: Eme Okechukwu and Onwuka Chukwujekwu (2011)

6.0 WHY NIGERIA PURSUES A POLICY OF IMPORTATION PRICING OF HER PETROLEUM PRODUCTS.

From our analysis so far, it is very obvious that Nigeria pursues a policy of importation pricing of petroleum products essentially because she imports bulk of her products from abroad due to the fact that domestic refining capacity cannot meet up with domestic demand.

There seems to be an age-long conspiracy to ground the refineries or keep them at sub-optimal capacity so that the lucrative business of petroleum product importation will continue to boom. This is a grand conspiracy by past and present political leaders and their stooges in oil agencies (including the NNPC) and rapacious oil magnates to keep feeding fat on oil subsidy at the expense of the development of the downstream sub-sector and the Nigerian project as a whole.

The high level of general inefficiency (and specifically, inefficiency in the management of refineries) and corruption in the sector is mind-boggling. The Petroleum industry is one that is run like an elite secret society leaving the operations of the industry to be shrouded in secrecy ( largely because activities of the Nigerian Extractive Industry Transparency Initiative (NEITI) is inhibited) with lots of non-disclosure and false disclosure. This fact was recognized in a town hall meeting during the heated days of the fuel subsidy crisis by the President of the Trade Union Congress (TUC), Comrade Peter Esele when he described the operations of the NNPC and its subsidiaries as “the more you look, the less you see.”

The argument therefore is that as long as Nigeria’s domestic refining capacity cannot meet up with local demand, Nigeria would always resort to importation pricing of petroleum products. This is not an option for any inward and forward-looking country but that is the situation with Nigeria.   

THE IMPLICATION OF THE IMPORTATION PRICING POLICY: A THEORY OF WELFARE LOSS.

Nigeria’s policy of importation-pricing has wide-ranging national implications. Here, I attempt to capture these implications in a theory of welfare loss. The welfare loss includes losses being incurred by the masses, the private sector, the government and the general economy. These losses are captured below:

`

               i.            By buying petroleum products at imported prices, the Nigerian citizenry incurs a loss in standard of living despite the existence of a subsidy regime. This is because even with the subsidy, Nigerians are still buying petroleum products at a higher price than it would have been if the products are refined internally. When compared with other members of the Organization of Petroleum Exporting Countries (OPEC), we find that Nigeria has the second highest price of PMS per litre at N97 after Iran (N102.05). Yet Iran pays a national minimum wage of N86, 585 while about 18 states of the federation have not complied with the national minimum wage act provision of N18,000.

OPEC Member	PMS Price/Litre	Minimum Wage	Population	Production '000 bPD (2007)
Venezuela	3.61 Nigerian naira	95,639 Nigerian naira	29,105,632	2,340
Kuwait	34.54 Nigerian naira	161,461 Nigerian naira	3,566,437	2,340
Saudi Arabia	25.12 Nigerian naira	99,237 Nigerian naira	27,136,977	9,800
Iran	102.05 Nigerian naira	86,585 Nigerian naira	75,330,000	3,700
Qatar	34.54 Nigerian naira	101,250 Nigerian naira	1,696,563	810
UAE	78.18 Nigerian naira		8,264,070	2,500
Algeria	63.55 Nigerian naira	55,957 Nigerian naira	36,423,000	1,360a
Libya	26.69 Nigerian naira	23,813 Nigerian naira	5,670,688	1,650
Iraq	59.66 Nigerian naira	25,813 Nigerian naira	30,399,572	1,481
Nigeria	140–200 Nigerian naira	18,000 Nigerian naira	167 million	2,250

Source: Wikipedia
As of 28 January 2012, the exchange rate was 1 United States dollar = 160.9561 Nigerian naira

The table above when analyzed lead us to conclude that Nigeria has the lowest standard of living among all OPEC countries as far as petroleum product pricing is concerned.       

            ii. As long as importation and thus importation pricing of petroleum products continue, the country is indirectly exporting jobs and importing unemployment and poverty. The more worrisome is the fact that the products are even imported from non-oil producing countries like Amsterdam, India, Korea, Finland, Singapore, France, Israel, Portugal, Italy, Sweden, Tunisia and many more. Worst still, majority of the products are ex-vessels rather than ex-depots (Vanguard, January 26, 2011). If all of Nigeria’s oil is refined in Nigeria, lots of jobs would have been created in the value chain of the downstream sector and this would alleviated the high level of unemployment and poverty in Nigeria. This is a welfare loss to the Nigerian masses.

         iii. The continuous importation of petroleum products also orchestrates a loss for the private sector. The private sector is losing possible profits it could have recouped by investing in building private refineries. The continuous importation pricing and particularly the regulation of the downstream petroleum sub-sector by government is a dis-incentive for private sector investment in domestic refining. This is a loss to the private sector.

         iv.  The government is also at the losing end as far as the subsidy regime (which is a result of the importation pricing policy of petroleum products) is concerned. The government views the subsidy regime as a fiscal burden and (only as a necessary evil) as huge funds that are supposed to be pumped into development efforts are diverted into a corruption-ridden subsidy regime. Nigeria spends so much on the subsidy regime despite her infrastructural deficit. The sadness of the imports as well as the subsidies that go with them, made a former Minister of National Planning and former PPPRA Board Chairman, Chief Rasheed Gbadamosi, to declare, “Trillions of naira which should have been used to develop other sectors by providing basic infrastructure such as water, roads, schools, hospitals are being wasted, because the downstream allowed monumental laziness.” (Vanguard, January 6, 2011).

Figures from a factsheet presented by the Finance Minister, Dr. Ngozi Okonjo-Iweala (during a parley between government officials and opposition political parties) show that between 2006 and 2011, the country spent N3, 655.17 trillion to subsidise fuel. According to the Minister, the cash is 30 per cent of the total expenditure, 118% of the capital expenditure and 4.18% of the GDP.’ The Minister observed that in 2011 alone, about ‘N1.348 trillion was spent between January and October and it is expected to reach N1.436 trillion by the end of the year.’ Obviously, it is seen that the subsidy on imported petroleum products is a huge constraint on government finance expenditure since much of the funds that should go into infrastructural financing is swallowed up by the callous subsidy.

When Nigeria cannot play the role of a developmental state because of diversion of much-needed funds to a callous subsidy, then it could be argued that both the government and the society are incurring losses.

            v.            As importation and thus, importation pricing of petroleum products continue, the whole society is incurring a loss. With a distortionary subsidy regime, there is no incentive for private sector investment in the downstream sector (particularly in refining). The dearth of such investment denies Nigeria the possible value addition to the larger economy that a buoyant downstream sub-sector could have triggered. This is therefore a loss to the whole Nigerian society.

WAY FORWARD – ALTERNATIVE POLICY ACTIONS TO AVOID THE IMPORTATION PRICING POLICY PETROLEUM PRODUCTS IN NIGERIA.

Given the detrimental implications of the importation pricing policy of petroleum products especially with regards to the huge national welfare losses being incurred, it becomes necessary for Nigeria to seek alternative policy actions to avoid the importation pricing policy of petroleum products. The following alternative policy actions are recommended:

EFFECTING THE TURN AROUND MAINTENANCE (TAM) OF EXISTING REFINERIES

Nigeria’s four refineries have an installed capacity of 445,000 bpd but are currently operating far below capacity. There is need for Nigeria’s existing refineries to be repositioned to function at optimal capacity.

In this regard, Government should ensure that the overall Turn Around Maintenance (TAM) of our refineries as announced by the Minister of Petroleum Resources is properly supervised to allow the refineries function at optimal capacity and augment domestic supply. It is to be noted that the Federal government had announced that it had signed a contractual agreement with the original designers and builders of the existing refineries to effect a turn-around maintenance that will allow the refineries function at 90% capacity. It is important for the government to make true its words in this regard. This will serve at least as a short-run solution to reduce the quantity of imported petroleum products and reduce the imbroglio of importation pricing policy of petroleum products in Nigeria.

BUILDING NEW REFINERIES

It is unfortunate that all of Nigeria’s four refineries were built by the military. It is important for the government to invest in building new refineries especially the so-called green-field refineries.

Many analysts have argued that the way out of the current downstream quagmire is not only to get the four refineries to be truly operational, rather than mere political pronouncements as well as invest more in Greenfield refineries (Vanguard, January 26,2011).

In a lecture delivered during the heated days of the fuel subsidy protests, the Managing Director/Chief Executive Mobil Oil Nigeria Plc, Mr Yemi Oyebanji  argued that what import money can buy based on current value, the $7.6bn used to import petroleum products between January and November 2010, can comfortably build at least 10 green-field refineries  (Vanguard, January 26,2011).

However, there is a caveat here and that is the fact that from the Nigeria’s experience, government and her agencies are bad managers. Therefore, these new refineries should be handed over to the private sector to manage to ensure that they function efficiently. The erection of new refineries would raise local refining capacity and Nigeria would be able to avoid the importation pricing of petroleum products in Nigeria

FULL DEREGULATION OF THE DOWNSTREAM SUB-SECTOR

The dearth of private sector investment in the downstream sub-sector of the petroleum industry has been attributed to government’s regulation of the downstream sub-sector and the administration of a distortionary subsidy regime.

The existence of the oil subsidy has obviously stifled the much-needed private sector investments in the downstream sector of the oil industry. This goes with the attendant loss of potential jobs because of the dearth of investments in the sector. This is particularly disturbing especially in an economy with a very high unemployment rate as ours. Yet, we do know how much unemployment has contributed to the current wave of insecurity across the country. The oil subsidy as currently administered is neither helpful in capacity development nor building industry. Rather, by subsidising imported oil products, Nigeria only creates jobs for the exporting countries. If the subsidy is removed, it will enhance market competition and create the environment for private domestic refining to sustain domestic demand. As much as rudimentary economics tells us, no rational investor will put his investments where Government arbitrarily administers a regulatory price.

The Managing Director/Chief Executive Mobil Oil Nigeria Plc, Mr Yemi Oyebanji, argued at a recent conference in Lagos, “As long as it is easier for people to secure import licenses even when it is difficult to judge their capacities, and as long as we cannot have competitive pricing and better standard for all, the downstream will remain at the development stage (Vanguard, January 26, 2011).

 From the foregoing, it is obvious that the oil subsidy regime has a very gigantic opportunity cost in terms of loss of employment generation, investments and value addition to industry.

The Deregulation policy has globally been embraced by several countries, in order to lessen public sector dominance and for developing a liberalized market while ensuring adequate supply of products. Such is the story in Peru, Argentina, Pakistan, Chilean, Philippines, Thailand, Mexico, Canada, Venezuela, Japan and USA, all of which have systematically dismantled their State-owned oil companies, for a significant turning point in the success story of their oil industry reform efforts. (Loretta, 2004)

SANITIZING THE PETROLEUM SECTOR

  Before embarking on building new refineries and full deregulation, there is need for the petroleum industry particularly the downstream sector to be sanitized. This is because of the high level of corruption and secrecy in the sector.

In this regard, government should adequately implement the reports of the various committees set up by government including the Mallam Nuhu Ribadu-led Petroleum Revenue Special Task Force; the Mr. Dotun Suleiman-led Taskforce on Governance and Control; and the Dr. Kalu Idika Kalu-led National Refineries Special Taskforce.

In the same vein, government should legally and administratively empower the Nigerian Extractive Industries Transparency Initiative (NEITI) to go beyond preparing reports and recommendations to implementing them to ensure sanity of the petroleum industry.

OVERHAULING THE NIGERIAN NATIONAL PETROLEUM CORPORATION (NNPC).

 If the NNPC must still exist after full deregulation, then the Corporation must be ready to play in a competitive industry with no special attention from the government. NNPC must be overhauled to operate in a level-playing ground with other industry operators and not a situation where government’s bias for the corporation has fuelled inefficiency and poor performance making it to be ranked as one of the 10 most failed corporations in the World.

In this regard, the NNPC has a lot to learn from the success stories of the national oil corporations of other developing countries including the Aramco (Saudi Arabia), Petrobras (Brazil) and Petronas (Malaysia) of this World.  

 CONCLUSION

At this stage of our national life, Nigeria should not have any business with the importation pricing of petroleum products but this has become inevitable due to the high level of inefficiency that characterized activities of the petroleum sector (particularly the downstream sub-sector). The huge national welfare loss being incurred is particularly devastating. The way forward for Nigeria is for government to provide the enabling environment for the private sector to build new refineries, ensure full deregulation, sanitize the petroleum sector, overhaul the NNPC and make efforts to diversify the country’s economic base. It is hoped that when these measures are put in place, Nigeria would be able to avoid the importation pricing of her petroleum products and reposition the Nigeria’s petroleum sector for maximum productivity and efficiency. Government must be sincere in efforts to avoid the importation pricing of petroleum products which has become the shame of our nation and a huge national tragedy.

  REFERENCES

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Ayoola, K.A. & Salami, O (2010). The 'War' of Appropriate Pricing of Petroleum Products: The Discourse of Nigeria's Reform Agenda.  http://www.linguistik-online.de/42_10/salamiAyoola.html

Loretta O.(2004). Deregulation Of The Nigerian Downstream Oil Sector Keeping Faith With A Global Trend ww.pppra-nigeria.org/articledetails.asp. Also at www.vanguardngr.com/.../why-oil-sector

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National Bureau of Statistics (2010). Petroleum Statistics .

Ojameruaye, Emmanuel (2011): “The Political Economy of the Removal of Petroleum Products Subsidy in Nigeria: Part 1- The Politics.” Available at http://www.chatafrik.com/articles/economy/itemlist/user/149-emmanuelojameruayephd.html

Oriakhi, D.E (2003). “OPEC and the Development of the Nigerian Petroleum Industry.” In Nigerian Economy: Structure, Growth and Development. Mindex Publishers, Benin-City.

Orubu, C. O (2003). “The Development and Contribution of the Petroleum Industry to the Nigerian Economy.” In Nigerian Economy: Structure, Growth and Development. Mindex Publishers, Benin-City.

PPPRA. 2013. Petroleum Products Pricing Template. Available at http://www.pppra-nigeria.org/index.asp

PPPRA. 2013. Petroleum Products Pricing Template: PMS.

Social Development Integrated Centre (2012). Fuels of Dissent: Politics, Corruption and Protest over Fuel Subsidy in Nigeria. Published by Social action @ www.saction.org.

The Economist Magazine (November 2012). 4^th edition, volume 4. A Publication of the Nigerian Economics Students Association (NESA), Uniben Chapter.

The Energy Information Agency (EIA,), United States: Nigeria .Last updated on October 16, 2012. Available at http://www.eia.gov/countries/analysisbriefs/Nigeria/nigeria.pdf

Vanguard. 2011. “Petroleum Imports: Shame of a Nation.” January 6, 2011.

Uzoigwe, Chimezie Daniel is an Author and Social Commentator. A final year Student at the University of Benin. E-mail: uzoigwechimezie92@yahoo.com. 08179741950

      

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