Economy overview nigeria


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Economy overview nigeria

  1. 1. Corporate NIGerIa The Business, Trade and Investment Guide 2010/2011United States of America USD 80 · United Kingdom GBP 40 · Europe EUR 60 · Japan JPY 9300 · China CNY 650 · South Africa ZAR 600 · Nigeria NGN 9.900 © Corporate Nigeria 2010/2011 is a Corporate Guides International publication.
  2. 2. C ON TE N TS Country Profile  Economy  08  Nigeria at a Glance   34  Economic Overview   10  Nigeria Country Profile   38  Nigerias Economic Growth    42  Interview: Dr Emmanuel Egbogah,   History & Culture P.Eng, (OON), Special Adviser to the    16  History & Culture Overview President on Petroleum Matters  20  Nigerian Leaders 1960–2010  Foreign Direct Investment Politics   46  Foreign Direct Investment Overview  26  Politics Overview   48  Interview: Engr. Mustafa Bello (FSNE),    30  Interview: Mr. Odein Ajumogobia (SAN),   CEO/Executive Secretary of Nigerian   Minister of Foreign Affairs Investment Promotion Commission (NIPC)  32  Interview: Mrs. Farida Mzamber Waziri,    54  In Focus: Eko Atlantic Executive Chairman, Economic and Financial     60  Incentives for Investors Crimes Commission (EFCC)   62  Doing Business in Nigeria    66  Interview: Mr. Mirko Plath, Managing Director,   Weststar Associates Ltd   70  Interview: Dr. Bamanga Tukur, President of   the African Business Roundtable (ABR)  and Chairman NEPAD Business Group4 | N i g e r i a C Or P Or aT e gUi D eS
  3. 3. CONTENTS Special Investment Destinations  Banking, Finance & Insurance  74  Kano State: History and Background 102  Banking & Finance Overview   80  Interview: His Excellency Mallam Ibrahim   106  Interview: Mr. Stephen Olabisi Onasanya,   Shekarau, Executive Governor of Kano State CEO, First Bank of Nigeria  82  Bayelsa State: History and Background 111  In Focus: First Bank of Nigeria  90  Interview: Chief Timipre Sylva, Executive   114  In Focus: Commerzbank Governor of Bayelsa State 116  Nigeria Banking Developments 2010:   A New Broom Sweeps Clean 120  In Focus: Guaranty Trust Bank Plc Legal & Accounting  92  What You Need to Know About   Doing Business in Nigeria  Energy101  In Focus: Kenna & Associates  124  Energy Overview  128  A New Era for Oil 132  Nigeria and OPEC 140  Natural Gas in Nigeria 142  Nigerian Liquid Natural Gas 144  Electricity in Nigeria 148  Alternative Energy |CO r PO raTe g UiDe S N igeria 5
  4. 4. C ON TE N TS Infrastructure – Telecommunications & IT  Industry152  Telecoms Overview 190  Industry Overview156  Interview: Mr. Steve Evans, CEO  194  Nigerian Sugar Etisalat Nigeria 196  Beer Industry162  Internet Taking Off 198  Nigeria’s Trade Relations164  Mobile Market Matures166  Innovation in ICT  Solid Minerals 200  Solid Minerals Overview Infrastructure – Transport 204  Interview: Arc. Musa Mohammed Sada,  168  Transport Overview Honourable Minister of Mines  172  Interview: Mr. Michael Druce,   and Steel Development Managing Director DHL Express Nigeria179  Facts & Figures DHL Express Nigeria180  Aviation in Nigeria184  Investing in Transport188  Firsts in Transport6 | N i g e r i a C Or P Or aT e gUi D eS
  5. 5. CONTENTS Agriculture  Listings208  Agriculture Overview 234  States of the Federal Republic of Nigeria212  Cocoa Growing 235  Good to Know – Nigeria214  Cassava – a Multi-Purpose Plant 238  Airlines216  Nigeria’s Food Security 239  Hotels 242  Diplomatic Missions Abroad 249  Foreign Embassies in Nigeria Construction 254  List of the Federal Cabinet218  Construction Overview 255  Weblinks Corporate Nigeria 256  Imprint Tourism222  Tourism Overview228  Interview: Mr. Panos Panayis,   General Manager Eko Hotel   & Suites, Victoria Island233  In Focus: Eko Hotel & Suites Lagos |CO r PO raTe g UiDe S N igeria 7
  6. 6. e c ono m y Economic Overview Diversification will support sustainable development£ Although Nigeria’s economy is still dependant on its oil sector, which pro- vides 97.5 per cent of foreign exchange ... stability of the naira, which has held earnings and roughly 80 per cent of steady against the US dollar throughout the budgetary revenues, the government is year at about NGN150 to USD1, should stop beginning to take the necessary steps any further inflation increase. towards diversification. Despite declin- ing output from the oil sector (which together with gas still accounted for 17 sis, means the inflation rate has held at USD216.8 billion. Other sources put per cent of GDP in 2009), strong per- about 11 per cent for most of 2010, up the 2008 purchasing power parity GDP formance in other sectors kept the over- from 2007’s 5.4 per cent. This is still a at USD336.2 billion. GDP per capi- all growth rate at 6.1 per cent in 2008, a significant improvement on 2005, when ta remains low, at USD1431, despite slight fall from 2007. the rate stood at 17.8 per cent, and Nigeria’s oil wealth. The World Bank December 2008, when the rate was 15.1 estimates that 54 per cent of the popu- By 2009, despite the global economic per cent. The stability of the naira, which lation has a daily income of less than crisis and weak oil sector, Nigeria had has held steady against the US dollar one US dollar. a real GDP growth rate of 4 per cent, throughout the year at about NGN150 to projected to rise slightly higher by the USD1, should stop any further inflation The Obasanjo regime recognised end of 2010 and to a respectable 5.5 increase. that wealth redistribution was central per cent by the end of 2011. However, to improving Nigeria’s economy and the global recession, coupled with ris- The Organisation for Economic security, resulting in the launch of the ing food prices, and the drying up of Co-operation and Development (OECD) National Economic Empowerment and lending as a result of the banking cri- estimates the country’s GDP as being Development Strategy (NEEDS) in 2004. 34 | Nig e ria C O rPO r aT e g U i D e S
  7. 7. e conomy |CO r PO raTe g UiDe S Nigeria 35
  8. 8. e c ono m yThe concept behind NEEDS and its suc- and per capita income of no less than financing, foreign direct investmentcessor NEEDS 2, which replaced NEEDS USD4000 by the year 2020, putting it in (FDI) and commodity 2007, was to introduce an integrat- the top 20 economies of the world.ed development plan, aimed in part at In Nigeria’s case the effects were firstreducing poverty. The national medium Since its introduction in 2003, NEEDS felt through a steep drop in oil’s exportterm plan would be co-ordinated with has made great strides forward in mac- value, where the US is by far the coun-a state-level plan: the State Economic ro-economic stability through stringent try’s biggest trading partner. The EU,Empowerment Development Strategy fiscal discipline and inflation control but which is closely linked to the US econ-(SEEDS), rolled out across the coun- as the World Bank figures on poverty omy and hence to the slowdown, is also a significant partner. As the country is still heavily reliant on the oil sector for foreign earnings and government rev- Non-oil industries including telecoms, enue, this in turn led to a sharp fall in the financial services and agriculture have exchange rate, putting the trade balance performed significantly better ... in deficit. Another consequence was depreciation in share prices and mar- ket capitalisation of quoted companies as both foreign and domestic investorstry’s 36 states. The plan’s other aims show, the strategy has yet to benefit fled from the country’s stock exchange,were wealth creation, generation of Nigeria’s poorest citizens. The govern- leading to an estimated 20 per cent dropemployment and ‘value re-orientation’. ment will have to work hard to meet its in remittances. FDI as a whole plum-These four goals would be achieved by 2015 MDGs. There has been progress meted by the end of 2008, and the stockeconomic empowerment – for exam- though – before NEEDS’ introduction, in market had lost 40 per cent of its value,ple through better social welfare and 2002, GDP per capita was just USD450. compared to its, stimulating private sectorgrowth, privatising state assets wherenecessary, and enhancing the efficiencyof government, in part by reducing cor- NEEDS has made great strides forward inruption and bureaucracy. macro-economic stability through stringent fiscal discipline and inflation control ... NEEDS 2 was designed to achievetwo longer-term strategies: the SevenPoint Agenda, initiated by former presi-dent Yar’Adua and the United Nations As the global recession began to Problems in the oil sector have ham-Development Programme’s (UNDP) bite in 2008, a popular theory among pered Nigeria’s economic growth – notMillennium Development Goals (MDG), Nigerian economists and politicians only did the price of oil fall, but the insur-which are intended to be completed by was that the nation could avoid the worst gency in the Niger delta also resulted in2015. As the name suggests, the Seven effects through ‘decoupling’ its trade a drop in output, leading to an estimatedPoint Agenda focuses on seven key areas links from the US and concentrating production figure of as little as 0.8 mil-that the president felt were central to on links with emerging markets, which lion barrels per day (bpd) by mid 2009,Nigeria’s development: energy reform; make up 30 per cent of the global econ- as opposed to an average of 1.94 millionfood security; wealth creation; transport omy and are responsible for 60 per cent bpd in 2008. However, by mid-2010 theupgrading; land reforms; national secu- of world growth. It was hoped by cut- future was looking considerably brighterrity and education. It also deals with two ting ties with the West, emerging mar- for the troubled sector. Firstly, the price‘special interest issues’ – the situation kets could continue to grow despite the of oil had recovered to about USD75 forin the Niger delta and the enfranchise- US slowdown. -At first, this appeared one barrel – about the same price as inment of disadvantaged groups. to be the case. However, by 2009 the September 2007, before the 2008 bub- International Monetary Fund (IMF) was ble and subsequent crash. Secondly, the The ambitious MDGs complement predicting that the financing require- Movement for the Emancipation of thethe Seven Point Agenda by setting out ments of low-income countries would Niger Delta (MEND), the group respon-specific goals for the improvement of need to increase by up to USD25 billion. sible for much of the oil infrastructurethe welfare of the nation’s inhabitants. In the US, the collapse of most major sabotage, declared an indefinite cease-The three strategies have laid the foun- investment banks and rapid drop in both fire on October 25 2009, which continueddation for the Vision 2020 (or 20:2020) commodity and equity prices was having to hold in 2010. By mid-2010, produc-plan, which envisages that Nigeria an indirect effect on emerging markets tion had risen to an estimated 2.3 mil-should have a GDP of USD900 billion through declines in remittances, trade lion bpd, and was predicted to increase36 | Nig e ria C O rPO r aT e g U i D e S
  9. 9. e conomyto five million barrels as a re-educationprogramme for former militants wasintroduced. The government aims to increase production to 10,000 megawatts by 2011 through better While the improvements in the oil maintenance and construction of additionalsector are undoubtedly good news for transmission lines, as well as increased useNigeria, the drop in revenues after the of renewable energies such as hydropower.bubble burst in 2008 has emphasisedthe need for the country to diversify itsincome streams. Non-oil industries seeable financial crises. As an interim graft has been helped significantly byincluding telecoms, financial services measure, the president has created two 2007 acts – the Public Procurementand agriculture have performed signifi- an Excess Revenue Account, which Act, intended to ensure more transpar-cantly better than the oil and gas sector, will store excess cash accruing above ency in dealing, increased fines for cor-with a growth rate of 9 per cent from monthly projected revenues for the ruption and abuse of public funds and2004-9. Because of the country’s budg- country. By mid-2010, the ERA contained introduced the independent Bureau foretary reliance on oil, previous fluctua- about NGN40 billion (USD267 million). Public Procurement to vet governmenttions in oil prices had led to shortfalls in procurement contracts.state budgets, resulting in unforeseen The country still needs significantdelays or even wholesale abandonment investment in infrastructure to sustain The Fiscal Responsibility Act aimsof capital projects and delays in salary growth – the current administration to ensure increased accountability andpayment to civil service workers and believes it needs USD10 billion annu- sound management of governmentcontractors. The creation of the Excess ally for the next ten years. This will be finances at all three levels. A majorCrude Account (ECA) in 2003, which achieved through public private part- restructuring programme in the bank-saves the difference in oil revenues nerships in roads, rail, waterways, air- ing sector saw the number of banksbetween the price budgeted for and the ports and energy. The Nigerian National drop from 89 in 2006 to 24 in 2008, sig-market value, alleviates these problems Petroleum Corporation is being restruc- nificantly strengthening it.but does not entirely solve them, par- tured to enable it to compete on a globalticularly if the future market price for level. Power cuts are still commonplace. In 2009, the Central Bank of Nigeriaoil remains low. By mid-2010, electricity production was removed the heads of several major close to 4000 megawatts. The govern- banks for granting more than NGN747 In 2006, Nigeria was able to use itsoil proceeds to settle its debts withthe Paris and London Club groups ofcreditors to the tune of over USD30 ... to ensure increased accountability andbillion – the first African country to sound management of government financesdo this. However, in November 2009 at all three levels.the Nigerian government borrowedUSD500 million from the World Bankto cover budget shortfalls in infrastruc-ture and social programmes, although ment aims to increase production to billion (USD5 billion) in unsecured loansit was able to use a concessionary 10,000 megawatts by 2011 through bet- and for having insufficient capitalisation.terms that included a zero interest rate. ter maintenance and construction of After investigation by the Economic andBy late 2009 the federal government had additional transmission lines, as well Financial Crimes Commission (EFCC),withdrawn a total of NGN375.035 billion as increased use of renewable energies led by Farida Waziri, several executives(USD2.5 billion) from the ECA to aug- such as hydropower. faced charges including fraud and sharement NGN1.377 trillion (USD9.2 billion) price manipulation. The EFCC securedin state capital projects funding, leaving Tackling corruption is an integral 74 convictions in 2008-9 and recov-about USD7 billion in the account, from part of Nigeria’s growth strategies. In ered assets worth over NGN15 billiona high of USD27 billion. The account was 2005, the country successfully recov- (USD100 million), and has recently beenfurther depleted during 2010 and cur- ered USD505.5 million looted by its involved in several high profile cases –rently contains about USD3 billion. former leader, the military dictator including Chief James Ibori, former Sani Abacha. Nigeria signed a 677 mil- Governor of Delta State. ¶ President Jonathan has proposed lion euro (USD826 million) pact with thereplacing the ECA, which has no legal European Union in November 2009 tobasis, with a National Sovereign Wealth spend on peace and security, includingFund as a means of providing for unfore- fighting corruption. The battle against |COr P OraTe gUiDeS N igeria 37
  10. 10. e c ono m y Nigerias Economic Growth Are the reforms implemented by the former administration paying off?£ Nigeria’s problems in its oil and gas sector have been well publicised. The huge sector, essential to the country’s economy, is responsible for 97.5 per ... in the non-oil sector, which has been cent of export revenues, 81 per cent of a strong driver of growth over the last the government’s budgetary revenues – ten years – but only 17 per cent of Nigeria’s gross domestic product (GDP). As a result of the 2008/9 global financial crisis and a sharp drop in oil prices, Nigeria’s GDP This increased growth has been helped Two areas of the non-oil sector have growth was three per cent in 2009, com- by the introduction of the government’s excellent potential for future growth. pared with 6.1 per cent in 2008. As oil National Economic Empowerment The first of these, the telecoms sector prices recover, it is projected to rise to Development Strategy (NEEDS), a has seen exponential growth, with a 4.4 per cent by the end of 2010 and 5.5 medium term plan which, in its second more than 30 per cent growth rate from per cent in 2011. phase aims to drive growth by improv- 2006 to 2008 and an estimated 32.54 per ing infrastructure through increased cent in the first quarter of 2010, trans- This economic growth has largely private sector participation. On a state lating to an estimated annual growth been due to developments in the non-oil level, NEEDS has its counterpart in the rate of over 125 per cent in terms of the sector, which has been a strong driver of State Economic Empowerment and number of mobile and fixed line sub- growth over the last ten years – growing Development Strategy (SEEDS). In the scribers. Despite being the fastest grow- by over nine per cent a year from 2003-7, first quarter of 2010, growth in non-oil ing communications sector in Africa and in marked contrast to the period 1997 to output increased to 8.15 per cent, com- 8th fastest growing in the world, attract- 2000, when it grew by just 3.5 per cent. pared with 7.9 per cent a year earlier. ing USD18 billion in private investment 38 | Nig e ria C O rPO r aT e g U i D e S
  11. 11. e conomyin 2009, the sector only constitutes justunder three per cent of GDP at present,although given its exponential growth, The Nigerian Communications Commissionthere is no way this won’t increase. (NCC) is using its Wire Nigeria (WiN) project With a teledensity of just under 50 and the State Accelerated Broadbandper cent – Africa’s highest – there is Initiative (SABI) to provide a fibre-opticstill plenty of potential for growth. The broadband network throughout Nigeria,Vision 20:2020 plan aims for 100 per which should spur further growth.cent teledensity by 2020. Nigeria cur-rently has six mobile networks: MTNNigeria, Globacom, Zain, Etisalat, M-tel and the State Accelerated Broadband reform after years of neglect in favour ofand Visafone. M-tel is a subsidiary of the Initiative (SABI) to provide a fibre-optic oil. The sector has been unable to keep upformerly state-owned fixed line opera- broadband network throughout Nigeria, with population growth and Nigeria nowtor NITEL, currently in the process of which should spur further growth. spends USD2.8 billion annually on foodbeing reprivatised after three previous imports. Despite this, agriculture grewfailed attempts. In 2009, Globacom completed its by an estimated 5.5 per cent in the first USD800 million Glo 1 undersea cable, quarter of 2010, slightly less than in the MTN is currently the market leader, connecting the UK and Nigeria, which previous year. The USD450 million Thirdwith 33.3 million subscribers in the first should see a drastic drop in broadband National Fadama Development Projectquarter of 2010 – believed to be over 50 prices when it launches. It already (Fadama III), assisted by the World Bank,per cent of the market. Unsurprisingly, faces competition from the Nitel Sat3 covers all of Nigeria’s 36 states and thegiven the growth potential, the sector cable, MainOne – expected to land in Federal Capital Territory (FCT). Like itshas seen a heavy influx of foreign direct mid-2010 – and a future MTN WACS predecessor plans, Fadama III aims toinvestment (FDI) – nearly all of the net- submarine cable. push the sector away from subsistenceworks are foreign-owned. As the mar- farming towards commercial farming byket becomes more saturated, average Despite providing 36.5 per cent of providing training, funding for market-revenue per user (ARPU) is starting to GDP, Nigeria’s agricultural sector, the ing and infrastructure such as irriga-decline – most high-income users are second area with good growth poten- tion, storage and mechanised farmingalready signed up, so the operators are tial, is in need of further investment and equipment.starting to chase lower-income users.In the case of MTN, ARPU dropped toUSD13 in 2009, down from USD16 a yearearlier. Zain’s ARPU fell from USD10 toUSD7 in the same period. The averageARPU in 2009 for Nigeria was USD10.45,a decline of -17 per cent in an intensivelycompetitive market. The scope for growth in rural areasis hampered by infrastructure issues.At present, only 13 million of the 67.2million active lines are in rural areas,home to 80 per cent of the population.Mobile coverage only covers about halfof the country, largely in urban areas.As operators expand into rural areas, awave of consolidation, similar to that inthe banking sector, is expected to coverthe higher costs of new lines and powergeneration. Many rural base stationsare powered independently becausethe Power Holding Company of Nigeriais unable to supply them. The NigerianCommunications Commission (NCC)is using its Wire Nigeria (WiN) project |COr P OraTe gUiDeS N igeria 39
  12. 12. e c ono m y Other organisations are also com- credit facilities to commercial farms taken years to come to fruition but wasmitted to the development of Nigeria’s at low interest rates. Together with the ready for gas deliveries by the end ofagriculture sector – in 2008 the African government’s Commercial Agricultural 2008. It began delivering gas to Ghana inDevelopment Bank (AfDB) provided Development Programme (CADP) and April 2010 from Nigeria’s oilfields, andUSD250 million to improve the process- Guaranteed Minimum Price scheme, is the first regional natural gas trans-ing and marketing of food. In partner- which sets a minimum buying price for mission system in sub-Saharan Africa,ship with USAID, development consul- commercial crops to encourage farm- delivering to Benin, Togo and Ghana.tancy firm Chenomics is attempting ers to cultivate them, future growth Nigeria LNG ltd was incorporated into generate agricultural revenues of should be assured. May 1989 in order to produce LNG and Natural Gas Liquids (NGLs) for export. However, unused resources and falling It began delivering gas to Ghana in April 2010 global demand means the environmen- from Nigeria’s oilfields, and is the first tally damaging practice of gas flaring, regional natural gas transmission system in losing the industry USD3 billion a year, sub-Saharan Africa, delivering to Benin, is still widespread. The Nigerian Senate Togo and Ghana. has set a target of December 31 2010 to end flaring, while the Nigerian National Petroleum Company (NNPC) is involvedUSD200 million and create 100,000 jobs As in other sectors, notably manu- in constructing a trans-Saharan gasby connecting farmers with smallhold- facturing, related industries to agri- pipeline to Algeria in order to exploitings in products such as rice, cowpeas, culture such as construction, roads the lucrative European market. In mid-sorghum to international markets and and power will also need investment to 2010, NiGaz, a joint venture between thetraining them in techniques to increase allow maximum growth. Even though NNPC and Russia’s Gazprom, estab-productivity. 90 per cent of goods are transported by lished in 2009, was considering pros- road, the Federal Ministry of Transport pecting the deepwater Nnwa Doro block, Several states offer substantial estimates that only 15 per cent of fed- which may hold huge gas reserves.incentives to attract further FDI to the eral roads are in good condition, whileagriculture sector. In the case of Sokoto, 30 million rural inhabitants are more Oil shouldn’t be completely writ-the state charges just one per cent duty than 2 km away from the nearest road, ten off just yet either. A ceasefire in theon agro-industrial machines, makes no hampering increased productivity. In troubled Niger Delta region declaredrestrictions on capital allowance and mid-2010 President Jonathan unveiled by insurgents in October 2009, led to aoffers a five-year tax-free period to agri-cultural produce processors. Kwara hasprovided land and financing to displacedZimbabwean commercial farmers, and Biofuels production is a key driver of growthto Kwara Casplex ltd, a biofuels com- within the sector.pany producing ethanol from cassavas.The project avoids electricity supplyproblems by generating its own powerfrom agricultural waste. a plan for public private partnerships period of relative peace by June 2010. (PPP) as a means of repairing Nigeria’s Increased production as a result of the Biofuels production is a key driv- infrastructure quickly and cheaply. The peace, combined with a rise in the oiler of growth within the sector. Global country requires an estimated 10,000 price to nearly USD75 a barrel meansBiofuels ltd produces ethanol from MW of electricity – presently only 4000 the sector will soon be contributingsweet sorghum and aims to produce MW are available, and 40 per cent of the more to the nation’s economy, at a timebiodiesel from safflower and edible oil population is completely disconnected when it is urgently needed. If the secu-from soya beans. Plans are in progress from the grid. rity situation in the Delta continues toto build refineries in Ondo, Oyo, Osun, be peaceful, Nigeria should be able toEkiti and Kwara, with possible future Gas, despite being closely related to utilise money from its oil cash cow toprojects in Kaduna, Kano, Plateau, the oil sector, is still relatively underde- fund infrastructure, allowing the non-oilBenue, Kogi, Nasarawa and Zamfara. veloped. Despite its huge gas resourc- sector’s continued expansion and fur-The Central Bank of Nigeria is expedit- es – estimated at 5.215 trillion cubic ther diversification of the economy. ¶ing sector growth through the introduc- metres – Nigeria has only invested in twotion of the N200 billion (USD1.34 bil- major projects: Liquefied Natural Gaslion) Commercial Agricultural Credit (LNG) and the West African Gas PipelineScheme (CACS), which will provide (WAGP). The USD1 billion WAGP has40 | Nig e ria C O rPO r aT e g U i D e S
  13. 13. e conomy |CO r PO raTe g UiDe S Nigeria 41
  14. 14. e c ono m y Interview: Corporate Nigeria (CN) talks to Dr Emmanuel Egbogah, P.Eng, OON Special Adviser to the President on Petroleum MattersExtensive KnowledgeCN: Dr Egbogah, as Special Adviser to the President on ented to host-community involvement, local content and indig-Petroleum Matters you play a key role in shaping the policy enous participation objectives as well as local and interna-for one of Nigerias most important resources. Can you tional best practices.describe your responsibilities in this role?Dr Egbogah: I advise Mr President holistically on matters of “It also provides for an open andoil and gas resources planning, exploration, development, robust sector, more competitive,exploitation, processing, transportation, management, asset technically and scientificallyvaluation, economics, policy regulation, strategy, governance, proficient, and oriented to host–legal and regulatory framework, fiscal systems/regimes and community involvement ...”petroleum arrangements, financing and all issues pertainingto the orderly development of the nation’s petroleum resourc-es. I have been leading the effort in the comprehensive reformof the public sector of the oil and gas industry resulting in the What needs to be done to raise the profitability of the naturalpreparation of the Petroleum Industry Bill (PIB), a bill that gas industry in Nigeria?coalesces all existing 16 laws into one comprehensive, all-encompassing legislation, which captures all the experience e The most important thing is the setting up of a commercialof past more than 50 years in addressing all institutional mat- framework for gas to power which has resulted in the approv-ters: policy, structure, legal and governance. The PIB is viewed al of a new gas pricing which has been most welcomed by allas an integrated, viable, functional, sovereign enterprise with the industry players and new investors as a sure way togeostrategic capacity and global market understanding equal- encourage investment in gas development. The government,ing sustainable economic development. in recognition of the impact that the multiplier effect of gas has on the domestic economy has embarked on the reform ofThe PIB which is currently in the National Assembly for pas- the gas sector through the development and implementationsage into law represents a truly unique Nigerian institutional of a Gas Master Plan, which provides a structured and holisticstructure for the energy sector with strong, stable legal and framework for enhancing gas availability and sustainability offiscal aspects supplemented with built-in mechanisms for supply in Nigeria and for export.transparency and accountability, which, in the aftermath of thenear-collapse of the global financial system, have become the The Gas Master Plan aims to address some of the challengesessential tools to secure investment and capital flows into confronting the Nigerian gas sector, notably that of inadequateNigeria. It also provides for an open and robust sector, more infrastructure and commercial framework. A gas pricingcompetitive, technically and scientifically proficient, and ori- framework which is expected to form the basis of Gas Supply42 | Nig e ria C O rPO r aT e g U i D e S
  15. 15. e conomyand Purchase Agreements has been developed and has been ticular interest is the fact that Nigerian’s gas is rich in naturalapproved by the Government. A key element of the pricing gas liquids. This large resource base has positioned Nigeriaframework is the introduction of sector based pricing and as one of the key players in the global energy supply andgradual movement towards export parity in domestic gas demand mix for now and in the future.pricing. The pricing structure requires the establishment ofthe Strategic Aggregator that should essentially serve as the Unfortunately, these huge hydrocarbon resources have notengine for the implementation of the domestic gas pricing translated to availability of petroleum products in Nigeria. Partand the realization of commercial pricing and export parity of the problem is due to the fact that the existing refineriesfor suppliers.The framework divides the domestic market into three (3) “Of particular interest is the fact thatcategories comprising Power, Strategic Gas based Industries Nigerian’s gas is rich in natural gas(i.e. industries that use gas as feedstock e.g. fertilizer, meth- liquids.”anol, etc.), and wholesale gas marketers who purchase whole-sale gas for onward distribution to low pressure commercialbuyers such as manufacturing industries who typically require either do not or have never functioned to full capacity, therebymuch smaller volumes for fuelling their plants. leaving the country to depend on imported products. Also, the downstream retail sector is highly regulated with the result that private investors lack the necessary motivation to invest “With this pricing approach, it is in refineries and petrochemical projects where the margins expected that the strategic intent of are extremely tight. Government has therefore continued to economic growth can be realized.” subsidize the importation and distribution of some of the prod- ucts at great cost.A pricing approach has been developed for each of these cat- A long-term solution to the problem lies in deregulating theegories as follows: cost-plus for the power sector; netback for downstream sector in order to provide a level-playing field thatgas based industries; and alternative fuels pricing for the will encourage private investors to invest in the downstreamwholesale buyers. With this pricing approach, it is expected sector of the economy. A number of private investors havethat the strategic intent of economic growth can be realized. already signified interest in investing in refineries and petro- chemical projects in different parts of Nigeria. These newDespite Nigerias vast reserves of oil and gas [36.2 billion bar- refineries could deliver up to 900,000 barrels per day of refin-rels of proven oil reserves, OPEC 2006], fuel shortages and ing capacity. Government is currently looking at the issue ofpower outages are still common in parts of the country. deregulation and consulting with all the different stakeholdersHow does the government plan to address these issues in the to insure that an amicable solution is found. Meanwhile,coming years? Government is continuously making efforts through the NNPC to ensure that the existing refineries are rehabilitated ande With about 38 billion barrels of oil reserves, Nigeria has the functional.tenth largest proven oil reserves in the world, and accountsfor about a third of Africa’s oil resources. The volumes are In addition, government has embarked on efforts aimed atcontained mainly in the onshore Niger Delta and the offshore addressing internal inefficiencies which have been militatingdeepwater basins of Nigeria. However, significant upsides against effective petroleum product distribution in the country.still exist in deeper geological plays and in Nigeria’s ultra These include reducing the time it takes for the approval ofdeepwater. vessels carrying petroleum products to berth at Nigerian ports and effective monitoring of product distribution.Nigeria is also endowed with huge gas reserves and it isbelieved that Nigeria is more a Gas than an oil country. Current The governments Vision 20-2020 plan has as one of its goalsestimate of proven gas reserves is about 187 trillion cubic feet, the production of 40 billion barrels of oil reserves and a dailywhich makes Nigeria the world’s 7th largest gas reserves production of 4 million barrels by 2010. Are you confident thisholder in the world. However, a US Geological Survey (USGS) target can be achieved?study estimates that the gas reserves potential in Nigeriacould be as high as 600 trillion cubic feet. To date, there has e The Government’s aspiration for 40 million barrels of oilnot been dedicated exploration for gas and all the proven gas reserves and 4 million barrels of daily oil production in 2010reserves were incidental to oil exploration. It is therefore not can not possibly be realized due to protracted restiveness andunlikely that with focused gas exploration, the USGS estimate militancy in the Niger Delta, which restricted oil and gas oper-of gas reserves can be realized. This will easily put Nigeria in ations. However, with the amnesty program now in place,the league of top 4 gas reserves holders in the world. Of par- activities have picked up, with production currently at 2.5/2.6 |CO r PO raTe g UiDe S N igeria 43
  16. 16. e c on o m ymillion barrels per day and lends hope to the realization of the This strategy of comprehensive reforms is to ensure greateraspiration probably by 2012. efficiency and effectiveness such as to meet the aspirations of Nigerians and all the stakeholders, and also to ensure globalVision 20-2020 also aims to address the environmental issues competitiveness.associated with gas exploitation. Can you give some details ofthe measures being undertaken to protect Nigerias unique The Petroleum Industry Bill (PIB) on the other hand is a com-natural environment? prehensive, all-encompassing piece of legislation given the significant role of oil in our National economy, the size ofe The Federal Government will continue to take all necessary capital involved and the level of emotions and controversiesmeasures to preserve and protect our natural environment surrounding the industry. It captures all the experience of pastespecially from the effects of the exploration and utilization of 50yrs in addressing all institutional matters: policy, structure,fossil fuels which account for a significant portion of the envi- legal and governance. Most importantly and significantly itronmental challenges we have in Nigeria. also endorses clear separation of roles and responsibilities across various directorates, companies and agencies. The PIB incorporates the emergence of gas as a key element “It is Nigeria’s modern blueprint for of the value chain, and accordingly, considers new fiscal sustainable long-term development.” frameworks that are more robust to withstand changes. How is the PIB perceived by the international community,In particular, the Government will, through the Petroleum whether it be multilateral institutions, sovereign jurisdictions,Industry Bill introduce and enforce integrated Health, Safety international oil companies (IOCs), lending institutions andand Environmental quality management systems to ensure influential media? In my assessment, it is viewed as an inte-compliance with local and international standards and obliga- grated, viable, functional, sovereign enterprise with geostra-tions. This includes investment in routine flares out projects. tegic capacity and global market understanding equaling sus-In the past investors complained that projects to stop flares tainable economic development. The PIB represents anwere not profitable. investor-friendly environment with greatly enhanced business investment opportunities.However, with the new gas pricing, this is no longer so. TheDomestic Gas Obligation policy is another policy which isaimed at encouraging operators to eliminate routine gas flaresin their areas of operation. The ability of the Federal Ministry “... the expectation of Governmentof Environment and other regulatory institutions to make and that the new law will transform theenforce regulations and directives are to be strengthened. industry from “the most opaque” to “one of the most open and trans-Corruption and ongoing disputes in the Niger Delta have had parent in the world”an adverse effect on both the productivity and image of theNigerian oil and gas industry. What is your view of the currentsecurity and management of the oil and gas industry? The PIB will serve to promote transparency in the operation of the oil and gas industry in Nigeria. Transparency, goode Federal Government of Nigeria, through a comprehensive governance and accountability will be promoted through thereform agenda, wishes to reposition the industry for greater removal of confidentiality, which in a way encourages corrup-effectiveness and efficiency which will serve as a bedrock upon tion. With the passage of the PIB, Petroleum Prospectingwhich the Nation’s Vision 20-2020 will be anchored. Priority Licenses (PPLs) and Petroleum Mining Leases (PMLs) canareas would be anchored on appropriate reforms, well- only be granted by the Minister through a truly competitive bidplanned programs and relevant trade policies with dedicated process. Such process will be open and accessible to all qual-resources for the creation of an overall growth-inducing and ified companies. The details of all licenses, leases and con-people-oriented development environment. tracts, and any of the changes to such documents will no longer be confidential.The greatest effort and investment in planning of the reformshave been made through the launching of the National Content It is therefore the expectation of Government that the new lawPolicy and the Petroleum Industry Bill, PIB. The PIB, is the will transform the industry from “the most opaque” to “one oflegislative vehicle that will be the basis for what many, includ- the most open and transparent in the world”. To that extent,ing myself, believe will be the resolution to Nigeria’s many PIB has the prospects of bringing to an end the age-longproblems particularly that of the Niger Delta. It is Nigeria’s decadence and orgy of exploitation and corruption in themodern blueprint for sustainable long-term development. industry.44 | N i g e r i a C Or P Or aT e gUi D eS
  17. 17. e conomyThe aim of Corporate Nigeria is to inform the global businesscommunity about business, trade and investment opportuni-ties in Nigeria. Why should foreign investors consider investing “... the PIB provides for the highestin the oil sector Nigeria? What, if anything, should be done to regulated rate of return in the worldfurther open up the sector to foreign investment? on gas pipeline and gas processinge The Petroleum Industry Bill awaiting passage into law in the investments ”National Assembly is an integrated, viable, functional, sover-eign enterprise with geostrategic capacity and global marketunderstanding equaling sustainable economic development. guard investment in one of the most prolific hydrocarbonThe PIB represents an investor-friendly environment with provinces in the world today.greatly enhanced business investment opportunities. Investments in the Nigerian oil and gas industry offer some ofOpinion has been divided on whether the proposed reforms the most attractive returns in the world. For example, theof Nigeria’s oil and gas industry will stimulate or endanger proposed terms of the deep PSC terms in Nigeria’s PIB provideinvestment due to the structural, regulatory and fiscal provi- for an overall government take that is much less than in Angolasions of the PIB. Government’s objective in carrying out the under most conditions. Due to the fact that in Nigeria opera-reform is to reposition the industry for better performance, tions can be consolidated for Companies Income Tax andand to also bring the industry in line with modern day oil and Nigerian Hydrocarbon Tax purposes, the profitability of thegas industry standards of efficiency, effectiveness and trans- operations is significantly in excess of Angola for companiesparency. To achieve the reform objective, the industry will already operating in Nigeria under comparable cost condi-require legal, structural, regulatory and fiscal changes, tions. Also, the PIB provides for the highest regulated rate ofhence the need for an all encompassing piece of legislation return in the world on gas pipeline and gas processing invest-called the PIB. Government believes that these changes will ments where the taxation terms are among the most favour-not only encourage investment, but will also protect and safe- able in the world. ¶ |COr P OraTe gUiDeS N igeria 45
  18. 18. I MP RI N T£ ImprintCorporate Nigeria 2010/2011 is a Sources of Facts, Figures, Graphs Nigerian National Agency for Food andCorporate Guides International Ltd. and Tables: Drug Administration and Controlpublication, produced in collaboration OECD Access Intelligencewith the Nigerian InvestmentPromotion Commission (NIPC). AllAfrica Global Media Office of the United States Trade Representative Broad Street Journal Nigeria OT Africa Line (OTAL)Publisher: Corporate Guides Business Monitor InternationalInternational Ltd. Paul Budde Communication Business WireExecutive Director: Elke Gill Reuters BusinessDay TeleGeography Corporate Guides ResearchEditorial Director: Anji Gill The Associated FDA News The EconomistAssistant Director: Jenny Tan Finnish Fund for Industrial The Economist Intelligence Unit Global Insight The Financial Times World BankDesign & Production: The Nigerian CommunicationsCONIN Werbeagentur GmbH, CommissionCologne, Germany Governmental Sources The Nigerian Ministry of Information Highway Africa News Agency and CommunicationsPlease visit our website: International Finance Corporation The Public-Private International Telecommunications Advisory Facility (PPIAF) Union (ITU)For editorial information This Day Nigeriaplease write to: Transparency Interviews: Corporate Guides United States Department of ResearchTo advertise within Corporate Nigeria Agricultureplease write to: IRIN (Integrated Regional Information US State Networks) Vanguard NigeriaTo purchase your own copy Lagos State Governmentplease write to: World Bank Library of Congress – Research Division Xinhua News Agency Multilateral Investment GuaranteeContributors: Agency Image Sources:Justine Doody, Johnny Paige, Tony National Sugar Development Council Anji GillKiely, Greg Leadham, Steven Mather National Food Security Programme DHL Nigeria Export Processing Zones Elke Gill Authority Federal Government of Nigeria Nigerian Federal Ministry of Transport iStock Photo Nigerian Investment Promotion Commission Jennifer Tan Lufthansa Nasa I NV E STMENT Obudu Ranch Int. Mountain Race PR N IGERIAN OM CORPORATE GUIDES OTION Special Thanks go to: International Ltd. NIPC – Nigerian Investment Promotion CommissionCorporate Guides International Ltd. Nigerian Investment Stanbic IBTC Bank Promotion Commission (NIPC) info@nipc-nigeria.orgWhilst every effort has been made to ensure the accuracy of the information contained in this book, the authors and publishers accept noresponsibility for any loss, financal or otherwise, sustained by any person using this publication. No part of this publication may be reproduced,stored in retrieval system or transmitted in any form by any means, without prior written permission of Corporate Guides. All rights are reserved.256 | N i g e r ia C Or P Or aT e gU i D eS