May 6, (THEWILL)- The Central Bank of Nigeria, CBN, has expressed worries over the declining economic activities in the country.
The CBN deputy governor of Corporate Services, Bala Moh’d Bello, disclosed this in a statement at the end of the last Monetary Policy Committee meeting released on the Bank’s website.
He noted that the country’s Composite Purchasing Managers’ Index (PMI), declined sharply to 39.2 index points in February 2024 from 48.5 index points in the previous month.
The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of an index method that summarises whether market conditions are expanding, staying the same, or contracting as viewed by purchasing managers. The purpose of the PMI is to provide information about current and future business conditions to company decision-makers, analysts, and investors
Bello stressed that economic activities have contracted for eight months due to exchange rate pressures, inflation and security challenges.
He said, “It is concerning to note that the Composite Purchasing Managers’ Index (PMI) declined sharply to 39.2 index points in February 2024 from 48.5 Index points in the previous month.
“Economic activity has been contracting for eight consecutive months, mainly due to exchange rate pressures, rising input prices, security challenges, and other idiosyncratic headwinds. This calls for well-nuanced policy decisions targeted at price stability to forestall stifling economic activities and derailing output performance.
“Of more concern is the rising inflationary trend despite sustained hikes in the monetary policy rate with forecasts of further price increases in the near term.
“Both food and core inflation rose in February 2024, underpinning acceleration in headline inflation to 31.70 per cent in February 2024 from 29.90 per cent in the previous month.
“This continued rise in inflation was mainly due to high production costs, lingering security challenges and exchange rate pressures.”
He added that the country’s inflation soared to 33.22 per cent in March, which is unacceptably high and requires coordinated efforts to curb.
“Inflation is currently unacceptably high and requires decisive and coordinated efforts to curb it, given its adverse impact on citizens’ purchasing power, investment decisions and broad output performance,” he noted.
The CBN deputy director’s observation underpins the trail of exiting companies from the economy in recent times, especially the oil and gas and equities market.
Not less than 26 oil blocs with a current average production capacity of 346,290 barrels per day in the oil sector have been proposed to be divested by Nigerian Agip Oil Company, ExxonMobil (Mobil Producing Nigeria Unlimited), Equinor and Shell (Shell Petroleum Development Company of Nigeria Limited).
Gbenga Komolafe, the chief executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), disclosed this during an industry dialogue on divestment, held in Abuja on Friday.
According to Komolafe, the blocs have an estimated total reserve of 8.211million barrels of oil, 2,699 million barrels of condensate, 44,110 billion cubic feet of associated gas and 46,604 billion cubic feet of non-associated gas.
He noted that these assets form a significant contribution to the nation’s hydrocarbon resources.
“These blocks contain P3 reserves estimated at 5,557 million barrels of oil, 1,221 million barrels of condensate, 14,296 billion cubic feet of associated gas and 13,518 billion cubic feet of non-associated gas. It is worth noting that a substantial part of the P3 reserves is located in or near producing assets. This means that a competent successor could easily mature them to 2P reserves.
“The current average production from these blocks is 346,290 barrels per day (bpd). Nigerian Agip Oil Company -28,018 bpd, Mobil Producing Nigeria Unlimited -159,378 bpd, EQUINOR-36,155 bopd and SPDC-122,739 bopd).
“But the technical production potential is much higher – standing at 643,054 barrels (NAOC-147,481 bopd, (Mobil Producing Nigeria Unlimited (MPNU)-244,268 bopd, EQUINOR-39,203 and SPDC-212,102 bopd). These blocks have the potential to significantly boost our national production, which would benefit all stakeholders,” he explained.
An energy and financial expert, Engr. Bala Zaka, attributes the mass exit in the nation’s oil and gas sector to the unfavourable business climate in the country.
“The international oil companies are running away from Nigeria because of business climate hostility. I will give you practical examples.
“When government says they are looking for foreign investors you can know it is a lie. There is this company called Elf Petroleum, now Total Energy. They did not drill up to five wells in Nigeria for the whole of 2023. They have now signed a contract in East Africa to drill 450 wells in five years, meaning they will drill 90 wells every year. This is more than they ever drilled in Nigeria.
“Shell Development Company has sold off their landed assets in Nigeria. You remember, Shell built Port Harcourt. They have sold all those facilities in Port Harcourt and they are leaving.
“Shell is an institutional company that started oil and gas business in Nigeria. They have sold their landed assets and their staff have been disengaged. And someone will say it is a good omen for Nigeria?”, Zaka, a chartered accountant and chartered tax practitioner told THEWILL in an interview.
In the equities market, listed firs are delisting and looking for greener pastures. Between last yea and now, the Nigerian Exchange (NGX) has seen a surge of voluntary exits from companies listed on the bourse as more firms, for various reasons, opt to seek greater opportunities outside public ownership or the country.
From banking to energy and consumer goods sectors, at least seven firms have left the exchange on their own within the period or are in the middle of doing so in moves that could accelerate the decline of economic activities. No companies are engaging in initial public offers (IPOs) as before, despite various policy incentives by the government and the regulators.
MTN Nigeria’s public shares sale, held in December 2021, remains the only IPO to be recorded by the NGX in the past five years.
In a report by President Bola Tinubu’s policy advisory team last May, the committee revealed a lofty plan by the government to grow market capitalisation to 25 percent of Nigeria’s GDP between 12 to 18 months, which industry experts consider a pipe dream.
Ardova (formerly Forte Oil), Union Bank, Capital Hotels and Courteville have left the stock exchange, just like GlaxoSmithKline Consumer (GSK), which last year shut down its manufacturing operations in Nigeria and switched to a distribution model Cussons
The market value of the six companies that have voluntarily withdrawn from the exchange since last year comes to N263.2 billion, while that of the other two, which are still in the process, is N158.2 billion as of 29 April.
There are uncertainties among some large firms which might join Unilever Nigeria to consider total divestment or restructuring to shrink their operations and drastically prune down costs..
Among them are Nigerian Breweries which posted N106 billion post-tax loss in 2023. Cadbury Nigeria recorded pre-tax loss of N28.6 billion, Nestle Nigeria suffered N104 billion loss before tax, Guinness Nigeria closed its 2023 operations with a net loss of N18.2 billion.
The associated tax revenue losses, job losses and negative impact on the supply chairn via the backward integration policy, contributed to the decline in economic activities that the CBN deputy director lamented about.
“It is not going to be better any time soon; 2024 is a defining moment for most of these companies nursing the injuries of huge operating losses that will take long to heal,” said a top management employee of one of the affected companies who would not want his name disclosed as he does not have the authority of his employers to speak to the press.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
