Nigeria plans to sell portions of its oil assets to help fund President Muhammadu Buhari’s four-year program to lift the economy from its worst slump in a quarter century and create 15 million jobs.

Buhari proposes in a 2017-2020 economic blueprint to reduce the government’s stake in joint-venture oil assets and other holdings. Selling them will “optimize their efficiency and reduce fiscal burden on the government,” according to the proposal posted on the Ministry of Budget and National Planning’s website. Lenders including the World Bank are awaiting the plan to conclude funding facilities for Africa’s second-biggest oil producer.

The proposed plan targets growth of 7 percent and inflation under 10 percent by 2020 by increasing oil output, opening up new farmland and boosting investment in power, roads and ports to diversify revenue. The economy shrunk 1.5 percent in 2016, the first full-year contraction since 1991, mainly due to a drop in prices and output of oil, the nation’s biggest export, and the resulting foreign-exchange shortage. The naira weakened after the central bank removed a peg in June, increasing the prices of imports from fuel to food, contributing to the inflation rate rising to the highest in more than a decade.

Selling some oil assets “will help unlock needed resources, so it’s positive,” Razia Khan, head of Africa macro research at Standard Chartered Plc in London, said by email. “But we will have to look at the timeframe over which this is done. Should we expect a slew of quick privatizations, or will this be drawn out?”

Unlock Resources

Nigeria has an average 55 percent stake in joint ventures run by Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA, which produce about 90 percent of its crude. The government also owns 49 percent of Nigeria LNG Ltd, a multibillion-dollar company which operates Africa’s biggest liquefied natural-gas plant. The government has also hinted it may award concessions for airports.

The government aims to increase oil output to 2.5 million barrels a day by 2020 from a low of 1.6 barrels daily in the 2016 third quarter when militants bombed pipelines. This is forecast to boost government revenue by 800 billion naira ($2.53 billion) annually. Some of the additional funds will be used to revamp domestic refineries to raise capacity to a level where the country will turn into a net exporter of refined fuel

‘Hidden’ Debt

The West African nation raised $1 billion in a Eurobond issuance last month and will probably tap the international bond market for a second time this quarter to raise $500 million. Nigeria will re-balance its debt portfolio to increase the proportion of foreign financing and “make arrangements to pay off hidden federal government debt,” according to the plan.

The government wants to issue bonds and debt certificates for 2 trillion naira to pay outstanding bills to contractors, ministries, departments and agencies, and state governments, Budget Ministry spokesman Akpandem James said by phone from Abuja, the capital. The plan refers to “hidden” debt because some of the liabilities have to be verified before they are paid, he said.

Nigeria will “sustain a market-determined exchange rate” and monetary policy will be “aligned with other aspects of the federal government’s macroeconomic program,” according to the plan.

The central bank has intervened since August to keep the naira at about 315 against the dollar, after abandoning the peg of 197-199 per dollar. The regulator has increased its key lending rate to a record 14 percent to fight inflation, despite calls from Finance Minister Kemi Adeosun to loosen policy to support the economy. The currency was 0.2 percent weaker at 315.5 by 6:18 a.m. in Lagos, the commercial capital.

Power Prices

The government will introduce cost-reflective power tariffs to encourage investment in a sector that’s heavily indebted and struggling with cash flow.

The Ministry of Power, Works and Housing said the government would, from January, guarantee 702 billion naira for state-controlled Nigeria Bulk Electricity Trading Plc to pay for electricity it receives from generating companies and sells to distributors. Nigerian power distributors paid only 27 percent owed to generators in 2017, according to data from the National Bureau of Statistics.

The plan proposes reforms including increasing value-added tax on luxury products to 15 percent in 2018 from 5 percent and improving compliance to add 350 billion naira to annual revenue collections.

At least 100,000 hectares of additional arable land will be irrigated, farmers will have better access to fertilizer, a staple crop-processing zones authority will be established, and the Bank of Agriculture will be recapitalized to increase loans. This is part of the nation’s strategy to boost production to meet domestic demand and export products including rice, cashew nuts, ground nuts, cassava and vegetable oil by 2020.

The plan “ticks a lot of the key boxes, and correctly identifies the problems that they have,” John Ashbourne, an economist at London-based Capital Economics Ltd. said by phone. “The real question is, will they follow through with this?”

cstr55:
How prudent is it for a third world nation to complete sell off its already minority stakes in its largest earner?
This is not a developed country where most of the buyers would be Nigerians which would ensure wealth remains in-country. The bulk of the buyers are foreigners and I am sure they are not very keen on spending a single second more in Nigeria than is necessary, so most of the profits would be transferred abroad.

omohayek:

At least the foreigners would ensure there are actually profits to transfer! That is better than can be said for any of Nigeria's state-owned enterprises, or even the privatized ones that were sold to Nigerians under the delusion of ensuring "wealth remains in-country": that is exactly how we ended up with under-capitalized DISCOs that are now on the verge of bankruptcy.

omohayek:
I see lots of sensible proposals listed, but will this government find the political will to implement them? This is a government that still hasn't floated the Naira after 2 years of being urged to, and yet we are supposed to believe that they will allow the DISCOs to charge more realistic tariffs, especially with the 2019 elections drawing near? I just don't believe it.

cstr55:

That is why you need to elect much better presidents and leaders with a capitalistic bent that would re-jig the system and ensure government coys thrive and are maximized in-house.
Yes, it would seem easier and better to just sell-off the assets and look forward to taxes from the white owners, but true national wealth and development and independence will never come that way.
And btw, It is not that Nigeria can not get thriving govt-owned coys, it is just a problem of organization and discipline- both of which comes from an innovative leadership. And it is a shame though, because just selling-off your assets to foreigners may result in more profits and jobs in the short run, but the national technical base would remain stunted and Nigeria may never escape the third world trap the way china and india did.

omohayek:

But nearly all of China's growth has been precisely through private-sector investments made by foreigners - first the Japanese and the Taiwanese, then the South Koreans and the Americans (eg Apple): http://www.tradingeconomics.com/china/foreign-direct-investment

China's state-owned enterprises are both extremely inefficient and highly-indebted: http://www.reuters.com/article/china-debt-moodys-idUSL3N1872L0

The idea that government has the answer is what has led Nigeria to go around in circles for nearly 6 decades - it simply doesn't work. It doesn't matter how much "discipline" you try to put into the system, the end result will still be failure, as we have seen twice now with Buhari.

The zero-sum thinking you have about economic growth is simply misplaced: foreign investors help create wealth, and there's nothing wrong with allowing them to repatriate their share of the new wealth they create, any more than a partner who backed you in a venture by funding you would be "wrong" to expect a share of the profits.

Ndiofe:
Trash he is selling oil in Katsina ni to private investors.


Can they not progress without NigerDelta Oil? Can Nigeria not do anything without NigerDelta oil?

Blue3k:
The economic recovery plan 2017-2020 is 140 pages I skimmed through a few parts and seen they did a lot of nice policies. The farming one is my favorite since it feels most thought out. The mineral sector and manufacturering will be long term biggest game changer.

trillville:


please where can i find a copy of the document?

Blue3k:


http://nigerianstat.gov.ng/report/521