How do you solve a problem like Nigeria? Long touted as the jewel in Africa’s crown in terms of economic potential, the country’s bad debts and a domestic liquidity crunch are showing no signs of abating as long as the low oil price persists.
Brent crude futures edged down to around $43.63 yesterday evening, which is not a million miles away from August’s six-and-a-half year low of $42.23. I’m pretty bearish on oil and wouldn’t be surprised to see the price slide wayyy down over the coming months – the underlying pressures just aren’t going away.
The Nigerian economy, which is heavily dependent on oil, can’t break even at these prices and its currency has crashed. The central bank is rationing its foreign currency reserves, causing major problems for companies who borrowed in dollars and need to pay off their debts.
Multinational oil companies such as Shell and Chevron had already sold off their assets in Nigeria to local firms, who borrowed money to buy them and are now the ones saddled with this bad debt.
With such limited liquidity in Nigeria, it’s the international market who is providing the refinancing – mainly banks and private equity. And a well-placed source tells me that he expects more London listings for Nigerian companies, who can’t raise money on the teeny Nigerian stock exchange.
Will institutional investors come to rescue Nigeria from its debt debacle? It’s not the safest bet, but I expect that there is money to be made for those willing to take a long (long, long…) view.
Meanwhile Nigeria is facing a major fuel crisis. Despite its plentiful oil reserves, the country imports its petrol as it does not have the capabilities to refine it. Importers are now withholding petrol after an alleged payment dispute with the government, causing lengthy queues of angry motorists at petrol stations.
Nigeria needs to get a grip on its resources and build some refineries. Of course, to do this it needs reliable power generation, another problem the country is yet to address. And is unlikely to do so as long as its liquidity woes continue.