Not cutting back ... on the unnecessary

Doubling down on a revenue crisis

More than 50 members of staff of the Nigerian High Commission in London have been dismissed and asked to accept a letter dated 22nd of November, 2018, which the embassy claimed took effect from 1st of January 2018. The dismissed staff, however, have not been paid for months in 2018, according to the Vanguard. The termination, as stated in a letter signed by Helen Nzeako on behalf of the ambassador, is as a result of the restructuring of the organisation and due to budgetary constraints.

The early warning signals of the impending fiscal crisis in Nigeria are going off, but it appears that the government continues to carry on as if this reality is not Nigeria’s. On Tuesday, President Buhari approved a salary increase for the police, and on Wednesday, he approved a reduction of university ex- amination fees. Both moves have been flagged as populist moves as elections draw nearer. We also expect him to push home a wage increase for unions before the end of January. The government, in the middle of a revenue crisis, is ramping up recurrent expenditure spending - this year, 84% of released funds have gone to this component, with 59% comprising of debt servicing alone. Things will come to a head soon, and all those who are meant to avert it have failed to recognise this.

An obvious problem with not so obvious solutions

As competition with former gas customers tightens, Nigeria’s biggest foreign export, crude oil, might suffer a decline. A director in the Department of Petroleum Resources, Mordecai Ladan, said on Monday, that the oil and gas industry seemed to be under a new threat, which he described as the renewed dislike and global war against fossil fuels and the quest for renewable and cleaner energy. The need for renewable energy is fast becoming a reality as big technology companies, including Google and Apple, are making attempts at electric cars to replace petrol and diesel engines, with that of Tesla taking the world by surprise. Ladan also expressed concern that some of the big international oil companies are funding research into alternative fuels, which include the use of cheap, common algae.

Mr Mordecai states the obvious. Dynamics in the oil markets have been shifting over the past few years but one thing that appears constant is the shift of western countries to cleaner fuel sources. At least seven European countries, Norway, Germany, France, UK, Italy, the Netherlands and Ireland, have announced measures to phase out petrol and diesel vehicles in favour of electric models in the next few years. North America’s largest car maker G.M. recently announced plans to shut down 8 plants in the U.S. Middle Eastern countries are already responding to the changing global energy dynamic by reimagining themselves as transportation, business and recreational hubs. While it is not as present a threat as Mr Mordecai has painted, the age of oil has begun its march to a sure end. Smart countries are leveraging the natural resource revenue to prepare for this inevitability, and the question Mr Mordecai and his colleagues in the government must answer is this - how is Nigeria preparing for the inevitable?

Fork in the road for LADOL

The Lagos Deep Offshore Logistics (LADOL) has terminated the services agreement it signed with Africoat Nigeria barely two months after terminating the operating licence of Samsung Heavy Industries Nigeria, according to media reports. The termination includes the removal of Africoat’s equipment/properties from the Lagos free zone. Sources attributed the development to Africoat’s failure to pay rental fees and file quarterly data and annual returns to LADOL. On its part, Africoat blamed the situation on the toxic environment created by LADOL for companies operating in the free zone.

It appears that both sides have reason to be aggrieved, and while the details of this particular spat are yet to emerge, the exit of two firms from the free trade zone in two months doesn’t look good for LADOL. Africoat, set up by ex-employees of Bredero Shaw to take advantage of the investment opportunities in the Nigerian pipe-coating market when the latter left West Africa, appears to be battling some of the inevitable challenges most startups face, hence its inability to meet its financial obligations. The action by LADOL will, in all likelihood, spell doom for the company. LADOL is a private company (with government backing) set up strictly to make profits and having invested substantially in their Free Zone, are eager to maximise returns, Accommodating non-paying clients is simply not in the interest of its shareholders. It is however important for LADOL to uphold the rules by which the free trade zone was set up and operates. Hence, we would advise a full disclosure of the facts of this matter to avoid some of the vitriol that accompanied the episode with Samsung.