Not cut­ting back ... on the un­nec­es­sary

Business a.m. - - THE MONDAY INTERVIEW - SB Mor­gen In­tel­li­gence

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.

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