Nigeria's Plan to Reduce FX Demand Pressure Through Local Petrochemical Industry Expansion

or reduced FX demand pressure, transportation costs savings from lower shipping costs and industrialization are some benefits Nigeria can tap with the government’s continued support for local petrochemical companies and efforts to substantially increase local capacity to refine petroleum products. That′s according to Tilewa Adebajo, CEO of CFG Advisory joins me now for more on this. Thank you so much Tilewa, always a pleasure to have you in the studio. Yes, thank you. Comprehensive report, just looking at the macro situation of Nigeria from the ways and means to petrochemical industry, foreign direct investment, etc., just wanted to quickly comment on FDI. I mean, 30 billion US dollars is what the federal government says has come in in the last 16 months. A bit of a controversy there in terms of where and just around the amount, but talk to us about, I mean you have been tracking the numbers. Yes, I have been tracking the numbers. FDI is for this year, at least from the, as you said from your report earlier, is about just under 50 million dollars for this half year. So I think the clarity with what the President′s speech said, I think they have got some sort of confusion because one of the special advisors came out with some report and from reading that report, I think it′s clear that what they meant, I think what they should have said was that those were prospective investments. In the pipeline. Yes. So they′re prospectives. They have prospects of about 30 billion, but they haven′t secured those investments. As you know, when Coca-Cola came, Coca-Cola actually put a caveat saying that their investments was going to be based upon an enabling macroeconomic environment, and Coca-Cola had made that commitment about five years earlier, but because the economic environment was not yet favourable for them, they have withheld that. So they have already made that recommitment to the one billion if there is an enabling environment. So I think what we should be clarity is that it′s more of a prospect. Those are prospective investments, not investments that have coming. In terms of actually attracting the FDI itself into the country, in the last 18 months since the reforms began, how more attractive are we when we talk to foreign investors just looking in? Are we better, are we more in terms of attractiveness to attract the FDI, not FDIs now, actual FDIs? It′s about the reform programs going on course. You have to stay the course with your reform programs, and you have to show that you are committed to these reforms before you begin to see significant levels of FDIs coming through. You already said that at the beginning of the show when you talked about capital importation and what the quantity of FDIs were. So that, as you see, is a reflection of the fact that there is not yet confidence on the level of our capital reforms. Let′s move over to other macro, petrochemical industry. A lot has been happening with the crude, I′m sure you′ve seen that in the news, Naira crude sales from the NMPCL to the Dangute refinery, that′s supposed to happen this week. But what has been a spin-off from that, even before now, has been the conversation around we′re going to save so much FX from this because of the Naira content, blah, blah, blah. But the other economists tell us, look, at the end of the day, we′re dealing with a global international crude oil market in terms of pricing, et cetera. What are your thoughts? Definitely, and I think you have to understand that the government has finally committed to selling Naira, selling crude to the Dangute refinery and other local refineries. So let′s make that, it′s not just only Dangute. In Naira, which helps because then you have that competitiveness. But what happens, the most important thing for us is that we have energy security. That is the most important thing. It′s a national security issue and we have energy issue and I think the benefits are quite clear. I think it′s going to substantially reduce the demand for foreign exchange, there′s going to be job creation within the system. Sorry, I′m sorry, because when I hear that, I wonder if you could expand on that, when we say significantly. Do you have a number? Let me, let me, no, no, no, I don′t, you see, we don′t, don′t let′s get off track There are three points that are coming from here. You are going to have substantial saving in foreign exchange, you are going to have, the savings are also going to be on transportation cost and logistics, you are also going to have job creation, which is very important and then you are going to stimulate the industry. We now have a local refining industry in Nigeria, which will also create jobs and more importantly, a lot of the inputs that are required for manufacturing, which are petrochemicals and everything that, for plastics industry, would be available locally. Right. Now, it′s very simple, how much did we spend on oil product importation last year? It′s about $10 billion. Okay. So, that′s your savings, it′s a direct savings because they are not going to be making demands for $10 billion for product importation anymore, so that′s going to cease. So, don′t let′s get, it′s a direct benefit and let′s not get into it. Flat prices now for PMS is about $0.52, $0.53 and crude oil prices are at $70 a barrel, so the local refineries are going to be buying crude at the prevailing exchange rate in dollars, benchmark at the current international prices, so and the exchange rate now is about $1.6, $1.650 and that′s what price is, at least for today, so those are the rates. So, it′s a very simple, straightforward exchange. Okay, $10 billion. And your savings is like $10 billion. Savings $10 billion. Since you want to quantify. Yes, I want you to put a number on that, but that′s fine, that is fair, but I mean going forward there′s also that issue of, okay, I know it′s also controversial, but I mean just also something to think about, while it′s, you know, based on benchmark against the international prices, at the end of the day is all of that cost going to come to the Nigerian consumer, are we still going to see some kind of subsidy or that will be at the discretion of the federal authorities? That′s now, if you want to subsidize, that′s your problem, but the market pricing is what it is. The market price is the market price. Subsidy is a different issue. Right. Okay, gotcha. Well, let′s move on to ways and means, still on the macro conversation. Yes. I mean, still an issue, but we′ve seen a central bank where we appear to have a central bank that, you know, standing its ground and saying, look, pay us what′s been owed from the previous year, fiscal year, before you want to, you know, come in and take another, I don′t know, 5%, 10%. No, I think we need to get clarity on ways and means. I think, first of all, I think the ways and means issue is very simple. Section 38 of the CBN Act says very clearly that securitization of ways and means cannot be accepted by the central bank as a form of repayment. Now, when this administration came in last year, they spent 7 trillion in ways and means within 5 months. So they, out of that, I think they repaid some out of that. I don′t know how much of that they′ve repaid. But as far as ways and means is on the central bank books today, it′s about 32 trillion in ways and means. It was as high as 35 trillion at the end of last year. So that is the state of the ways and means. So the attempt to securitize ways and means as a form of repayment is illegal. So even if the federal government goes to securitize ways and means, the House, the senators don′t have any powers to approve securitization of ways and means. The central bank of Nigeria has not released its annual report from last year. So and it cannot release its annual reports until it classifies ways and means because it′s illegal for them to put ways and means on their books. The last accounts which the former governor did at 2022, there′s a footnote on the ways and means which says debt to government, which is clearly illegal. But it′s already on the books of the central bank. So the question now is that when the president in his speech says that they have cleared out ways and means, they haven′t cleared out ways and means. Ways and means is still in the books of the central bank, as you said, it′s 32 trillion, until the government pays that down, no matter what the limits are, it cannot access any ways and means from the central bank. So what needs to be done is that we need remedial legislation so that we can amend the Central Bank Act, we can amend the Fiscal Responsibility Act in such a way that we can now resolve finally this ways and means issue. But it′s going to take time, or you need to create another institution like another Amcon for the federal government to resolve the ways and means. So there are many options on the table, the government just needs to go through due process. Okay, we′ll see how that pans out. But thank you so much Thiliwa for talking to us today, thank you so much for being on the show. Thiliwa Adibadjo, CEO of CFG Advisory.

Reduced FX demand pressure, transportation costs savings from lower shipping costs and industrialization are some benefits Nigeria can tap with the government’s continued support for local petrochemical companies and efforts to substantially increase local capacity to refine petroleum product. That’s according to Tilewa Adebajo, CEO of CFG Advisory joins CNBC Africa for more. 

Adebajo: Naira crude sale, purchase to reduce FX demand pressure

Reduced FX demand pressure, transportation costs savings from lower shipping costs and industrialization are some benefits Nigeria can tap with the government’s continued support for local petrochemical companies.

Adebajo: Naira crude sale, purchase to reduce FX demand pressure

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Adebajo: Naira crude sale, purchase to reduce FX demand pressure

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