Insecurity, epileptic power, fuel shortages mar businesses in 2012

on   /   in Sweet Crude 12:30 am   /   Comments

The Federal Government made many promises, which gave rise to greater expectations from the business community, especially as the President Goodluck Jonathan’s administration was expected to prove its mettle as a duly elected regime, and not one inherited from a predecessor. However, from the beginning of the year till the end, there were operating challenges all the way such that hardly any of the promises made could be fulfilled.

Clara Nwachukwu argued that insecurity, epileptic power supply and fuel shortages stunted business growth, and hopes that as again promised, Mr. Jonathan will tackle these challenges in this operating year for the economy to attract more investments.

Perhaps, no stronger picture of the economy could have been painted more than that painted in the Key Findings from Focused Survey of the 2012 Business Environment Report, by the Lagos Chamber of Commerce and Industry, LCCI,

The Chamber, which also has the Oil Producers Trade Section, comprising all the major oil producing companies in Nigeria as one of its members, declared that “The business and economic environment was typically characterized by upsides and downsides, but the latter seem to have outweighed the former. The economy (as always) offered tremendous opportunities during the year, but the capacity of investors to harness the opportunities was constrained by the prevailing challenges of the operating environment.”

It noted that “The limitations were even more profound for indigenous entrepreneurs,” especially in view of government’s Nigerian Content development drive.

File photo

File photo

The LCCI identified the upsides recorded in the period in review to include robust natural endowments, youthful demography, large coastlines, largest population in the continent, 7th largest oil exporting country in the world, a large enterprising population, an innovative banking sector, a GDP growth of 6.6%, which is one of the best globally; rising foreign reserves which was $44.5billion as at November 2012, excess crude account of $9.6billion, and a stable polity bolstered by increased credibility of the electoral process.”

However, in spite of these ups, the chamber insisted that for most investors, the downside was more overwhelming, as “The operating environment was generally adjudged to be unsatisfactory by many investors.  This had profound impact on returns on investment and profit margins.

The broad issues and challenges included weak consumer demand, cost and access to credit, cargo clearing processes, transportation costs, especially the collapse of the rail system; institutional problems, corruption, especially in relation to public sector transactions.

“Other concerns were the uncertainty and inconsistency in the policy environment, growing insecurity, manpower issues and the relevance of educational curriculum to the needs of the economy; high level of receivables across sectors, power supply challenges, poor sectoral linkages and weak commitment to the development of indigenous enterprise.”

Some of the “cross cutting issues the chamber identified as mitigating economic growth in 2012 were:

Security concerns

The security situation in the country was a major concern to investors during the year. Beyond the direct consequences for the economy, it had profound effect on the perception of the country as an investment destination.  The security problems did not abate during the year.  If anything, it has worsened.   Specific implications were as follows:

•    The economies of the affected states suffered setbacks following the closure of companies and relocation to other states.  The impact on job losses was profound;

•    Many firms lost sizeable portion of their sales as they could no longer access most part of the northern market;

•    Manufacturing firms sourcing raw materials from the north faced new challenges;

•    Projects funded by banks in the affected states are at risk;

•    Many bank branches have been closed, while the working hours for others have been drastically reduced;

•    Sales representatives of many companies have fled the affected states;

•    Many projects under construction in the north have been abandoned;

Power supply

The power supply situation in the country improved slightly mid-year but declined in the last quarter. This scenario created sustainability concerns over the celebrated improvement in the power situation.  High energy cost was thus a major issue for investors during the year.  This of course had implications for productivity and profitability of investments.

Oil & Gas (Upstream)

Challenges and Key issues:

•    Policy uncertainty was a major issue for upstream investors in 2012.  The Uncertainty about the Petroleum Industry Bill (PIB) persisted as the fate of the bill is still unknown.  Given the enormity of capital requirement for investment in this sector, it is difficult to expect any progress in the circumstances.

•    Government neglect of the host communities created serious challenges for the oil producing companies.  The logic of the Derivation Principle in Revenue Allocation was to ensure development priorities for the oil producing communities.  The same logic goes for the Niger Delta Development Commission (NDDC) and the tax proceeds from the oil and gas activities.  But no such priorities were given, creating a situation where hostilities against the oil producing companies intensified during the year.

•    Long/delays in resolving dispute relating to oil and gas contracts.  There were often disputes between the oil companies and contractors; and between the government and the oil companies, but no mechanism for speedy resolution of such disputes.  It was a major source of frustration for upstream investors.

•    Upstream oil and gas companies expressed concern over the capacity of contractors in the sector leading to exorbitant cost of contracts and unsatisfactory delivery in quality and time.

•    No new investment in exploration because of the policy uncertainty.

•    Significant drop in the active oil fields from 46 in 2007 to 10 in 2012

•    Rising/resumption of hostilities by the host communities increase operation cost and impact on output

•    Security lapses leading to escalation of oil theft and vandalisation

Required Government Action:

•    Legislators and all relevant stakeholders to Speed up the passage of the new PIB

•    Government (federal and States) should show better commitment to the development of host communities.

•    Greater and transparent enforcement of oil and gas laws such as the Nigerian Local Content Act.

•    Security forces should live up to their responsibility and step up on protection of oil insulations and oil workers

Oil & Gas (Downstream)

Challenges and Key issues:

•    Uncertainty surrounding the fuel subsidy programme. This had made planning difficult for investors in the sector.

•    Poor supervision and monitoring by the relevant regulatory bodies in the downstream oil and gas sector. Concerns were expressed about the highly fragmented, uncoordinated and numerous regulatory institutions in the downstream sector –Customs, DPR, NNPC, PPRA, PPMC, Federal Ministry of Trade and Investment (Weight & Measures) etc.

•    Increasing distribution constraints due to infrastructure shortcoming and security lapses.

•    Significant drop of importation and loss of profit margins

•    Sustained scarcity of petroleum products across the country

•    Disincentive for private investment in the downstream oil and gas infrastructure

Required Government action:

Players in the sector proposed the following as the way forward for the industry.

•    Full deregulation of the downstream oil and gas sector beyond removal of fuel subsidy.

•    Immediately privatise all the refineries,

•    Privatise all the petroleum products depots and pipelines

•    Install a strong regulator, an equivalent of NCC in the telecom sector

•    Scrap NNPC and its affiliate institutions

The report argued that for the government to realise its aspiration of economic transformation, the concerns and challenges highlighted by the operators, including those above must be addressed.  “The report presents a valuable feedback on the effectiveness of public policy and a useful content for the improvement of the economic governance process in 2013 and beyond,” it added.

The report had earlier noted that the transformation of the Nigerian economy is critically and dependent on the quality of investment climate, even as President Jonathan in a recent media chat told Nigerians that they will begin to reap the benefits of his policies from this year, and the time has begun.

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