Nigeria 2014 growth to exceed 6% despite downwards revisions on previous years

Nigeria's recent rebasing of its GDP continues to lead to statistical adjustments. These include last week’s downwards revision of Nigeria’s 2013 GDP growth rate from 7% to 5.5%. The 2012 GDP growth has also been reduced to below 5% by the National Bureau of Statistics (NBS), although 2014 growth is still expected to exceed 6%.

While Nigeria is still operating from a massively increased GDP "base" level, such a change does raise concerns about future official growth rates and whether growth - quite aside from broader questions of "job creation" and increase in living standards - is being adequately assessed.

Nevertheless, the NBS projects that GDP growth in 2014 will be approximately 6.2%, based on a first quarter GDP growth rate of around this level. NBS director general Yemi Kale claims that Q1 growth is typically slower than growth for subsequent quarters.

Although growth in the oil and gas sector has been modest, optimism about growth in other sectors of the economy abounds. For example, the Renaissance Capital emerging markets bank has recently released a report entitled "Nigeria's GDP: Bigger but slower - Manufacturing is the engine of growth". It suggests that percentage manufacturing growth has been in double digits, with the Dangote-dominated and Lafarge target cement sector being a notable success story. Rencap also cites textiles as a major growth area, a significant development given the decimation of textile producers in West Africa, including in Ghana, because of foreign competition.

The attraction of the diversified Nigeria growth story is also illustrated by analyst observations that at least US$500 million of investment is planned to build a series of major shopping centres by or before 2016. South African banks, retail players, plus the UK’s CDC private equity spin-off Actis, are among the participants in a country with a significant "demographic dividend". South Africa's Shoprite Holdings, which operates a number of shopping centres or malls throughout Africa - including in Lagos' Ikeja district, Abuja and Accra - has just announced a 10.5% increase in its profits through to June 2014, and so interest is likely to continue.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2014 Menas Associates

How will Cameroon finance pay rises?

Minister of Finance Ousmane Alamine Mey has explained that Cameroon spends CFA820 billion (US$1.69 billion) a year on government workers’ salaries.

President Paul Biya’s 5% increase in these monthly salaries will increase government spending by CFA30 billion (US$62 million) in the second half of 2014 and increase this year’s total expenditure on civil servants’ wages CFA850 billion (US$1.75 billion).

Mey did not explain, however, how the government intends to pay for the additional CFA30 billion. This is worrying because the government’s 2014 budget has already been concluded. 

Menas Associates believes that the additional income will come from increasing oil revenues. Fortunately, Cameroon is expected to witness a surge in oil production in 2014, from 24 million to 30 million barrels as new oil fields come on stream. 

Increased oil production could, therefore, provide the necessary additional revenue to finance this year’s 5% pay increase for the civil servants.

For more news and expert analysis about Cameroon, please see Cameroon Politics & Security.

© 2014 Menas Associates

Libya's Brega Port under siege as guards prevent exports

Libya’s energy sector was dealt another blow on 11 July when a group of protesters from the Oil Facilities Guard closed down the Brega Port and prevented a cargo that was in the port from loading.

The members of the guard are demanding that they be paid their backdated salaries, just as those members of the guard who were blocking the ports of Es-Sider, Ras Lanuf have been paid. One of the guards told the Turkish media on 11 July that “we closed Brega today as they haven’t given us our financial dues for several months. We will prevent all ships from being loaded with fuel. There is a cargo [in the port] and we won’t allow it to load oil until we receive our dues in full.”

Brega, run by the NOC’s Sirte Oil Company subsidiary, is a relatively small port with a 90,000 b/d capacity that has lately been used to supply the Zawia refinery. Its closure is a challenge given the troubles with the eastern oil export terminal ports over recent months and the fact that it will still take a while before operations are back to normal in Ras-Lanuf and Es-Sider, handed over earlier this month.

Given that the protesters are making purely financial demands the situation should be resolved easily enough. Despite this, with the political scene in such chaos and with the economic situation in deep crisis, how long it will take the government to resolve this standoff has yet to be seen.

Meanwhile, workers at the 103 Oil Field 200 km from Ajdabiya and operated by the Zuetina Oil Company stopped working this week. On 9 July the workers began an open sit-in at the field in protest against the company’s board. It is not clear exactly what it is about the board that the workers are protesting about, but they are refusing to leave unless their demands are met.

The good news, however, is that the agreement between the head of the Cyrenaican Transitional Council (CTC) politburo, Ibrahim Jedhran, and the government appears to be holding despite the fragility of the situation on the ground. It was reported this week that foreign workers have returned to work in the oil fields in Jalu and that European companies are restarting their operations.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2014 Menas Associates

More alleged Renamo attacks and civilian deaths in Mozambique

There have been more alleged Renamo attacks in Sofala Province near Muxungue, with one taking place on 25 June, Mozambique’s Independence Day. Media reports suggest that during the week of 23-28 June, at least 12 people were killed, including four civilians, and many others were injured.

The army-protected convoys have now been reduced, adversely disrupting trade between the centre and south of the country. Lorry drivers travelling from Zimbabwe, Zambia and Malawi to the regional port of Beira have also been affected.

There have also been reports of minor attacks and exchanges of gunfire in other regions of the country. In Tete Province, for example, the local media reported that Renamo had attacked a police post in Chiuta and stole weapons. There were other cases of armed attacks in the province but it is believed that these could be the work of local criminals taking advantage of the current security instability.

There were reports of an exchange of gunfire between Renamo men and government soldiers in Zambezia Province when the army tried to dismantle a temporary Renamo base near Gurue District. Some of these attacks took place just before and during the Renamo meeting in Beira, and Renamo's leader Afonso Dhlakama has been asked by his supporters to explain why civilians were targeted. His response was that "the government is using civilian cars to transport weapons by road".

Dhlakama’s position has also been corroborated by a local priest, Jose Luiz Gonzalez, who has been working for the past six years on a local project run by US-based Catholic missionaries. He told reporters that Renamo does not attack civilians and that when there are civilian victims, it is because there are soldiers in the civilian convoys. The priest also stressed that in his area of Muxungue the local people do not agree with Renamo’s plan to divide the country and also do not support the violence.

For more news and expert analysis about Mozambique, please see Mozambique Politics & Security.

© 2014 Menas Associates

Ghana budget review comes amid ailing economy

Embattled Finance Minister Seth Terkper is expected to outline new measures to address Ghana’s economy when he presents a mid-year review of the 2014 budget.

The review, which is likely to take place before the end of this month, could see the ministry modify its macroeconomic targets for the 2014 budget, which are widely seen as being unrealistic, as well as present new policies to stabilise the economy.

As reports emerged this week that the cedi could fall even further to between GH¢3.50 and GH¢4 per dollar, there is mounting pressure on President Mahama and his Finance Minister to deal with the country’s ailing economy.

Last week the Trades Union Congress released a statement reprimanding the government for an economic situation which is “getting worse every day” and a country in which “nothing is working”. It pointed to the continuous slide in the cedi, unpaid salaries, job losses, failing businesses, rising inflation, energy shortfalls, rising utility tariffs and high taxes as factors which continue to harm hardworking Ghanaians.

The Private Enterprise Foundation (PEF), an umbrella organisation for private businesses, also said last week that the government’s “misguided” policies mean that business confidence is at its lowest in four years. This echoed the sentiment of the Association of Ghana Industries which in May called for drastic measures to improve the dwindling fortunes of Ghanaian businesspeople, as well the concerns of the Monetary Policy Committee which, in its April report, spoke of a depressed business environment. There is also considerable anger that the government is not grasping the severity of the situation. The PEF’s CEO, Nana Osei-Bonsu, said, “Government comments like ‘we are going through short-term challenges and difficulties, and this is like a hiccup’ are not helping. These are hurricanes! This is not a hiccup.”

International ratings agencies have meanwhile delivered a damning report on Ghana’s economic management. Following Fitch’s downgrade of its outlook from stable to negative, Moody’s lowered Ghana’s rating to B2 from B1, and maintained a negative outlook on the rating to signal the likelihood of a further downgrade in future; it then downgraded the ratings for the GCB.

Despite increasing pressures, the government is sticking to “home-grown” solutions for now rather than seeking financial assistance from the International Monetary Fund to help solve its problems.

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2014 Menas Associates

Libya's 2014 Budget is finally passed

On 22 June the long awaited 2014 Budget originally submitted to the Congress in January by the then Prime Minister, Ali Zidan, was passed. This came as a surprise to some Congress members who had expected to debate the issue in a session on the 22 June. Having waited almost all day for there to be enough members present to reach 94 - the required number of members present to be able to hold an official consultative session - the Congress was told that the budget had been passed on a technicality.

As Libya Politics & Security – 16.06.14 explained, the Al-Thanni government declared last week that the Congress had 120 days from the budget’s initial submission to debate the law, after which time the government had the right to issue a financial mandate to ratify it. Al-Thanni therefore scored a bit of a coup by getting the law passed in this way, despite the fact that certain Congress members were keen for the budget to be reduced. 

The Central Bank may, however, still object to the budget being passed in this fashion, although it is not clear whether it has a legal right to do so. The budget stands at LD56.5 billion (US$45 billion). Given the crisis in revenues caused by the disruptions at the oil ports, a significant portion of this money is expected to come from a reserve fund at the Central Bank that was set up by Colonel Qadhafi as a fund for future generations. Whether the Central Bank will agree to this fund being used also remains open to question. 

It is clear, however, that Libya cannot fund itself from oil revenues alone. The budget committee in the Congress based the 2014 budget on a projected annual oil production of 600,000 b/d but the country has clearly fallen woefully short of this. Thus drawing on this LD16 billion fund, plus some of the central bank’s foreign reserves, therefore seems to be the only solution.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2014 Menas Associates

Kenya's Eurobond success indicates improved appetite for African debt

Kenya has pushed ahead with its Eurobond while Nairobi's officials negotiated with their Nigerian counterparts on preferential pricing for oil and gas purchases. Market watchers are drawing attention to the parallels between Nigeria and Kenya in that they are politically important and dynamic economies facing growing security risks.

Kenya's Eurobond has gone ahead with outsized interest for the US$2 billion bond, apparently more than four-times over-subscribed. International investors seem prepared to accept yields of less than 6% for a five-year tranche and less than 7% for the ten-year tranche of the issuance. These rates were significantly below analyst expectations of 7.5% or more if Kenya were to raise as much as US$2 billion.

Eurobond issuances are less of a factor for Nigeria - which issued a US$1 billion Eurobond in May 2013 - than for smaller economies seeking to announce their impact on the capital markets. The low yields are, however, a notable indicator that - despite the US Federal Reserve tapering earlier this year - investor interest in emerging and frontier market (including African) debt is increasing which, in turn, may have implications for even non-sovereign African fundraising.

Africa may also be fortunate that the highest profile emerging market debt negotiations are currently in Argentina, as ruthless bondholder "vulture funds" circle. This continues the saga that once led to the 2012 impounding of an Argentinean navy training vessel at a Ghanaian port in 2012 following a pro-bondholder ruling by a US court.

Kenya, following Nigeria's lead, has also announced its revised GDP figures following its "rebasing" exercise. Its 20% revision increase is proportionally less than Nigeria's GDP rebasing announced earlier this year. The revised calculations of the Kenya National Bureau of Statistics indicates, however, that Kenya's 2009 GDP was US$37 billion rather than US$31 billion which implies that its current GDP is around US$50 billion. This is according to investor disclosures in its Eurobond prospectus.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2014 Menas Associates

Kazakhstan increases crude oil export duty

The Kazakhstan government has increased the so-called ‘export customs duty’ (ECD) on crude oil from $60 to $80/ton. This change will take effect on 1 April, according to economy and budget planning minister Yerbolat Dosaev, who unveiled the new export tariff at a ministerial meeting.

The ECD increase should boost this year’s projected government revenue by $2.7 billion. The economy ministry has added $1.6 billion to this total in the form of extra tax income to be derived from the exporting industries’ future profits, which are widely expected to ameliorate after the 20% devaluation of the tenge in February 2014.

The ECD was introduced in May 2008 at the rate of $110/ton at a time when international oil prices were as high as $125/barrel. It was argued that the new duty would enable Kazakhstan to benefit fully from increasingly favourable conditions on global markets as well as its expected stabilising domestic effect.

In January 2009, however, the government scrapped the ECD after oil prices had fallen from their historic highs. As the global market stabilised the ECD was re-introduced in August 2010 at the rate of $20/ton. This was applied to all Kazakhstan-based oil exporters except those whose production-sharing agreements guaranteed stability of the customs regime. In January 2011 the ECD was increased to $40/ton and then again to $60 in April 2013.

The government plans for at least 6% GDP growth by the end of 2014, while also containing annual inflation below a 6–8% cap. The benchmark oil price that serves as the basis for all income and expenditure forecasts has also been increased, from $90 a barrel to $95. Some local analysts have already expressed their scepticism about the latter benchmark, given the possible impact of the crisis in Ukraine on future global oil market stability.

Earlier this month the US administration announced its intention to release around 5 million barrels of crude to the market and cited the need to test the sustainability of the US oil infrastructure after a recent surge of domestic production. Some have seen this, however, as a calculated move as part of Washington’s efforts to punish Moscow for its combative stance on

Ukraine’s Crimea peninsula.

While this quantity is clearly too small to have any significant impact on oil prices, expanding US domestic production may upset both Russia’s and Kazakhstan’s medium- to long-term price expectations.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

© 2014 Menas Associates

Nigeria: Finance Minister seeks to reassure international community

Minister of Finance Ngozi Okonjo-Iweala has assured the international community of the government's seriousness over the issue of financial accountability.

The political and international nature of the NNPC dispute has become increasingly clear to Ngozi Okonjo-Iweala who is not only Minister of Finance but also a former senior World Bank official and former candidate for Bank leadership. According to some analysts, her position and reputation have been damaged by the affair despite her calls, which preceded Jonathan’s authorisation, for a forensic audit of NNPC financial affairs.  

She has even been accused of instituting a public relations “campaign” to protect her international and domestic reputation. This observation has been bolstered by her alleged use of the expensive US-based Mercury LLC public relations firm which has reportedly been used by President Jonathan’s administration since August 2013. 

This perception was perhaps bolstered by an Okonjo-Iweala piece that appeared in London’s Financial Times newspaper earlier this week. It opened with an assurance that despite “consternation in the markets” following Sanusi’s suspension and foreign exchange reserves below US$40 billion, the Naira has recovered and that the fundamentals are strong.  

Okonjo-Iweala - notably echoing Jonathan and Abati’s references to Sanusi’s three different estimates of the missing oil revenues - criticised him. She observed that Sanusi had first claimed that the figure was US$49.8 billion before he “accepted“ a finance ministry estimate of an unaccounted US$10.8 billion, before he “alleged” a “new figure” of US$20 billion. Besides the details, the minister also called for passage of the much-delayed PIB. It is clear that she was staying on message – even highlighting and supporting Jonathan’s announcement of a forensic enquiry – while also appealing to the international community.

Okonjo-Iweala was not the only senior high profile Nigerian appealing to foreign interests in London earlier this week. A large Nigerian delegation - including governors Isa Yuguda (Bauchi State), Emmanuel Uduaghan (Delta State) and Adams Oshiomhole (Edo State), former president Yakubu Gowon (1966-75) and Minister of Power Chinedu Nebo held court at the Institute of Directors. There they emphasised the attractiveness and openness of Nigeria to foreign investment and the length, admittedly including colonial rule, of the relationship between Nigeria and the UK.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2014 Menas Associates

Egypt: New government meets for first time to deal with strikes

Prime Minister Ibrahim Mehleb appealed to Egyptians’ sense of patriotism to go back to work and to call off their strikes which are crippling the national economy.

The labour unrest, however, is largely the making of government measures introduced over the past three years allied to the sense of people-power acquired since the protests started three years ago. Successive governments have sought to mollify public opinion by granting wage increases to public sector workers which are not sustainable, given the dire state of government finances. Furthermore, the increases have not been universally applied, with the police and army getting a higher increase and some workers, particularly in the transport sector, deemed ineligible for the minimum wage.

The prime minister promised to look into the demands of protesters, but it is unclear what he can propose to meet their grievances.

Those who have been on strike include bus drivers, postal workers, doctors, pharmacists and workers in the steel and textile industries. According to media reports, negotiations between the minister of communications and postal workers broke down when the minister said that there was not enough money to pay the workers what they were asking for.

The difficult economic conditions have been exacerbated by power cuts caused by a shortfall in the production and supply of natural gas to meet demand, rising at 8-10% a year.

Security challenges are also dampening economic activity. The tourism minister flew to Berlin for the major travel trade show and also to try to persuade the German authorities to reverse their advisory on citizens to avoid all of the Sinai Peninsula. The Egyptian authorities have sought to isolate Sharm el Sheikh and other resorts from the violence that has afflicted other parts of the peninsula, but the German government was unwilling to see the distinction.

For more news and expert analysis about Egypt, please see Egypt Politics & Security.

© 2014 Menas Associates

Kenya's Eurobond delays highlight pressure on Ghana

As Ghana’s economic star wanes - with high inflation, interest rates and fiscal deficit, and a declining currency detracting from what is still respectable annual GDP growth - a major focus of an improving East African economy is facing problems in its plans to issue what prominent economists hope could be a landmark Eurobond for the East African region.

Ghana, whose finance ministry hopes to issue a third Eurobond sometime this year - although concerns over the country’s international debt ratings have prompted calls that Ghana should improve its ratings position before doing so - might watch events in Kenya with interest.

According to the Fitch ratings agency, Kenya, which had planned to issue a US$2 billion or more Eurobond early this year, now looks set to delay its plans from a currently contemplated March date until April at the earliest. This is largely due to global market conditions and the volatility in emerging and frontier markets.

Much as in the case of Ghana’s broader economy - rather than just the Eurobond itself - the current and anticipated US Federal Reserve’s recent tapering is seen as a major factor. The Kenyan authorities are wary of paying a high coupon rate in the same way as Ghana did last year with its second poorly-timed Eurobond. All this is despite a relatively positive current view of Kenya’s economy and the likely partial use of the proceeds from the Eurobond to repay an existing US$600 million syndicated loan.

Although not apparently reflecting contagion from the delay to Kenya’s Eurobond - and merely reflecting expected delays in receiving a credit risk assessment from international Citigroup which it requires to apply for and receive an international credit rating - neighbouring Tanzania has indicated also that it will delay its planned Eurobond issuance until probably next year.

This contradicts the earlier confidence of Tanzania’s central bank governor, Benno Ndulu, that a Eurobond of up to US$1 billion would be issued during the second half of 2014. It raises further questions given that Citigroup bankers recently denied they are responsible for the delay.

Meanwhile, Zambia, which has issued a Eurobond in the past, is also planning a second Eurobond later in the year. Like Ghana, it has recently received IMF backing, despite the high yields on its existing Eurobond issuance which, in part, is due to its low debt levels and strong growth. Ghana, although with a manageable debt level, faces a deficit problem that could make future Ghana bond investors nervous.

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2014 Menas Associates

Nigeria: ADB officials agree to replenish US$3.7 billion fund

African Development Bank (AfDB) officials met in Paris last week to agree the US$7.3 billion replenishment of the African Development Fund, a concessional loan programme. As part of its mission to spur development in low-income African countries, the ADF targets energy, transport, water and sanitation, education and agriculture projects. The current replenishment is for 2014-16.

Last week in New York, the AfDB and the Made in Africa Foundation launched a US$500 million fund aimed at infrastructure investment in Africa. So far, US$250 million has been raised with the rest to be secured in the first half of 2014. The fund is the project development arm of AfDB's Africa50 initiative which marshals financing from central bank reserves, pension funds and sovereign wealth funds, the African diaspora and wealthy individual donors.

 

Made in Africa Foundation was co-founded by Nigerian billionaire industrialist Kola Aluko (above) and the British Ghanaian-born fashion designer Ozwald Boateng.

 

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2013 Menas Associates

Ghana: Markets react positively to verdict

As one might expect the Supreme Court verdict in favour of the NDC and Mahama was positively received by the financial markets, which had been perturbed by the uncertainty created by the impending decision, the risk of unrest, the impact of a full or partial election re-run, and the partial paralysis of Ghana's political system due to this uncertainty.

In financial terms as the confidence of investors in Ghana increases, yields - or the implied market-demanded effective interest rates on outstanding bonds, given bonds' market price - on Ghana's cedi denominated bonds have indeed been falling. Rates on the planned September auctions of around 600 million cedis worth of bonds have perhaps fallen by between 2%-4% to as low as 17% - a rate not to be confused with the much lower rates and yields on the dollar denominated Ghana Eurobond.

 

Cedi depreciation may well also be slowed as investors stop the shift to dollar-denominated assets due to electoral uncertainty - with Elvis Darku of Nigeria's Access Bank projecting a slight cedi appreciation versus the dollar by the end of the year. This is even if other analysts remain pessimistic and unlikely to shift from predictions of further cedi decline, even with the recent influx of Eurobond dollars and expected receipt of Cocobod financing dollars through the agreed US$1.2 billion syndicated financing facility which should both increase dollar supply and thus reduce its relative price compared to the cedi.

 

On the inflation front, despite double-digit inflation and the impact of cedi depreciation on inflation due to relatively more expensive (in cedis) imports, the most recent release from the state Ghana Statistical Service (GSS) indicates that July producer price inflation has fallen by 0.5% in month-on-month terms and by 2% points on a year on year basis, to 5% for July 2013 compared to July 2012 (whereas the June producer price level was 7% higher than that in June 2012).

 

Although this may seem like positive news, further detail revealed by GSS statistician Dr Philomena Nyarko indicates that while manufacturing inflation rose from 10.6% to 10.9% (year-on-year), mining and quarrying inflation fell significantly into the sub-zero zone partly due to lower gold prices - a factor which (broader implications for Ghana's economy aside) is unlikely to cause sustained inflation relief.

 

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2013 Menas Associates

Nigeria: Bank governor Sanusi keeps tight grip on money supply

Security risks, corruption and unemployment do not seem to have dented foreign optimism about Nigeria's economy. The country's US$1 billion Eurobond was four times oversubscribed at its launch in July and the capital markets continue to attract interest.

Central Bank of Nigeria governor Mallam Sanusi Lamido Sanusi's decision to maintain a tight monetary policy rate in spite of the prevailing favourable economic indices was designed to keep the Nigerian economy attractive as a destination for portfolio investors and raise the volume of foreign exchange.

 

But some analysts think that the hot money being pumped in through portfolio investments could do more harm than good if a stronger regulatory structure is not imposed on fund managers.

 

Even Kingsley Moghalu, the CBN Deputy Governor for Financial Stability, seemed to agree. "The monetary policy rate at this point in time is reasonably high," he recently said.

 

Tope Fasua, the chief executive officer of Global Analytics Consulting Limited in Abuja, thinks the reliance on foreign funds is a possible risk - the money could flee as quickly as it is now pouring in.

 

"In 2008/9 we had a crash in our stock market of about 70%, from which the market is still recovering," Fasua told Nigeria Politics & Security. "A lot of the market recovery is actually from foreign portfolio investment, which may also disappear in a jiffy" if conditions turn sour.

 

A lot of the monies playing in that market are from foreign portfolio managers.

 

The influx of foreign portfolio investments increases the reserves level and strengthens the naira, which means the central bank has to intervene in the market less often, Fasua said. Meanwhile, many Nigerian investors are watching the market from the sidelines, having been burnt in the past.

 

"When these investors are leaving they will demand foreign currency," said Fasua. "There is a huge risk that the naira will fall if these guys, for any reason, decided to exit their investments en masse, and we would be in a much worse shape than ever. The reserves we have accumulated may therefore be a mirage."

 

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2013 Menas Associates

Nigeria: Eurobond funds pumped into gas infrastructure

Minister of Power Chinedu Nebo said on 16 August that N70.2 billion (US$450 million) from Nigeria's Eurobond has been allocated for gas-to-power infrastructure. The Eurobond was launched in early July and it raised US$1 billion. It was four times oversubscribed which reflected investor optimism about Nigeria's economic prospects, and it secured long-term capital for the government's plans to tackle rampant power shortages.

While Nigeria's abundant gas resources mean generation capacity could soar, with a target of 40,00MW by 2020, the weakness of the country's transmission infrastructure remains a serious bottleneck. The country's transmission grid has a current capacity of less than 6,000MW.

 

The government has secured an additional US$1.47 billion to upgrade the transmission infrastructure from other sources, including the World Bank, the African Development Bank and the China Export-Import Bank. To finance the Transmission Company of Nigeria an additional US$1.6 billion is expected to come from the sale of ten electrical plants under construction as part of the National Independent Power Project (NIPP).

 

The NIPP project was inaugurated in 2004 under President Olusegun Obasanjo to construct power plants throughout the country and sell them to private operators. This week, the Federal Government pre-qualified 82 consortia as bidders. To meet the standards, the groups were required to have three years' experience in operating a thermal plant of over 300MW as well as having a net worth of US$100-200 million. The list of preferred bidders is due to emerge in January 2014.

 

There is, however, a serious disconnect between government policy and implementation. To boost the power sector's development the Federal Government waives duties on the import of certain machinery and equipment. But the Independent Power Producers Association of Nigeria complains that administrative sluggishness creates long delays in the approval of the waivers.

 

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2013 Menas Associates