Nigeria to Cut Stake in Oil Assets Under Buhari’s Growth Map

LAGOS (Capital Markets in Africa) – 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 economyshrunk 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 awardconcessions 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?”