Nigeria’s plan to rebuild oil refineries ignores one key detail – oil is no longer valuable

(This is a transcript of the podcast posted on Monday, June 7th 2021. You can listen to the podcast by clicking on this link: https://open.spotify.com/episode/0Vw5MYhMNXmYwMsM5O6FLh?si=V22y4gYeSnmURwk24gNRPA&nd=1)

Welcome to The Weekly Beat by Mansa with your hosts, Arnold Segawa, Maggie Mutesi, and Dumi Jere. Giving you all the info on Africa’s big finance and economic stories, The Weekly Beat by Mansa.

DUMI JERE: Greetings ladies and gentlemen. Welcome to this week’s episode of The Weekly Beat. My name is Dumi Jere, and I’m coming to you from Johannesburg in South Africa. I’m not alone, as always my cohost is with me, the ever so gracious Maggie Mutesi coming to us from Nairobi in Kenya. Maggie, how are you doing?

MAGGIE MUTESI: I’m doing great, Dumi. How are you?

DUMI JERE: I’m all right.

MAGGIE MUTESI: We’re grateful we still have access to Twitter. I mean, there’s so many things to be happy about.

DUMI JERE: That’s such a relief, yeah. I see the cases in Kenya also going up, about 400 cases in the last 24 hours. What does that mean?

MAGGIE MUTESI: It’s quite interesting but it all comes back to what we’ve been saying, even on this podcast Dumi, that the only way out of this is to get access to these vaccines, because I think, and everybody’s saying there might be a third wave. This is the same thing happening to neighboring Uganda, there is that a bit of a silence and this is going down and then out of the blue when countries are out of lockdown, they just go back up. The only solution is having vaccines honestly.

DUMI JERE: True. How’s that rollout going anyway in Kenya?

MAGGIE MUTESI: Well, that’s another story because…

DUMI JERE: Okay. Let’s leave it at that.

MAGGIE MUTESI: As you can imagine we are all looking forward to, especially Kenya, they’re looking forward to the Johnson & Johnson vaccines in South Africa. I should ask you how is that faring because you guys actually hold what we need.

DUMI JERE: Well, I think we need another whole podcast for that but for purposes of progress today, I think let’s move on. Funny you were mentioning Twitter and I see you throwing a jab at our brothers and sisters in Nigeria. For those that are not aware the Nigerian government decided to ban Twitter, the social media platform as a whole, because, well, firstly, Twitter temporarily suspended the account of the president for violating the social media company’s PCP behavior policy. And it seems as if the government then retaliated by banning the whole platform in the whole country.

MAGGIE MUTESI: If Twitter violates Nigerian rules and regulations why wouldn’t Nigeria ban them if they also feel like they’ve violated their rules and regulations, which is interesting? But I want to look at it in a business side of ways. We’ve seen that in the past 24 hours when the government announced the suspension, the country lost $6 million based on just this shutdown alone and that’s just 24 hours. And I think the commission also announced that the loss is continuing at a rate over $250,000 every hour, which is a lot of money. Nigeria has one of the biggest startup companies in this entire continent and imagine how they are operating. So it’s a big hit to businesses and let’s see how it turns out.

DUMI JERE: For me, apart from the government itself announcing the ban on the platform that they are banning-

MAGGIE MUTESI: I know that is funny.

DUMI JERE: Right. The whole thing to me I think it’s just quite stiffening of freedom of speech really because a lot of people depend on the platform for dissemination of information. And the government is saying if we find out that you are tweeting even via VPN as long as you’re still in Nigeria-

MAGGIE MUTESI: Exactly, that’s a crime. Where’s Nigeria heading? What lessons has it really learned?

DUMI JERE: It seems as if none because for the longest time, about four decades, Nigeria did not develop its state refineries. And today it finds itself in a very awkward position of being one of the world’s biggest oil exporters, but also one of the world’s biggest fuel importers. So you export the crude oil and then you import the processed fuel. It just doesn’t make sense.

And this is what we’ve always been talking about. That as African countries, we’ve got to wake up to some of these things and not create value outside only for us to reimport the value back. What’s your take around their management of the oil revenues and so forth?

MAGGIE MUTESI: There’s been this conversation. I don’t know if the government wanted a stake in Dangote’s refinery, which we know is one of the biggest oil refineries globally, it’ll be doing 650,000 barrels per day. And the government wanted a stake in that.

Now the question is, if over the past years really as a government you’ve had these refineries that you haven’t actually been able to develop then what guarantees that having a stake in this other one won’t really run it down because like you’ve mentioned that the biggest exporter of oil on the continent, and then I think they are eighth or ninth, largest exporter globally, but also they’re the biggest importer of gasoline and all those products back to their country. I think they spend a couple of billions annually to just importing those products. I mean, the question is where are they heading?

What next for Nigeria? Because if we are looking at the refinery is being built by the Dangotes and of course government is putting up other refineries, then there’s a chance for them to be self-sufficient. But now if you have government wanting a stake kind of course it regulates a lot of things.

One of the things that has been said about this industry, especially also these refineries being run down in the past, has been corruption and poor management. So is it time for governments to take their hand out of some of these big projects and let the private sector run off with that, then that can create the sustainability?

DUMI JERE: Yeah. Here’s my take on this thing. I feel that these countries are relying way too much on oil. And if the past year 2020 was anything to go by and going forward the price of oil is only expected to go lower and lower. I mean, last year we had the price of oil per barrel reaching lows of around $25, right? So gone are the days where oil was a big revenue in these countries, right?

So the impact of what’s going on in Nigeria is almost the same as all these other countries that rely on oil. So for example, Angola. I feel that these countries rely too much. When you look at their GDP and how much it comes into their government coffers way too much dependence is on the oil. For example, in Angola 75% of government revenues come from oil. In Egypt the case is a bit different because oil is only 10% of government revenue, with the number climbing to 78% in South Sudan, 80% in Equatorial Guinea.

For example, now when you go to the Gulf states like Qatar, Qatar is already diversifying its economy by building up massive cash reserves. Even Saudi Arabia, where for example, it costs about $6 for a barrel to get out of the ground, they’ve had to make cuts. VAT has been tripled to 15% just to increase government revenue. Yet Afro states that depend on this oil industry they don’t seem to be diversifying enough and they are headed for disaster.

Once these prices keep on dropping and dropping and dropping, because at the end of the day you’re going to have a situation where 30% of your national budget is going to disappear because the price has gone down. So to me, it feels like a ticking time bomb. It feels like they’re all sitting ducks unless they begin to radically transform their economies and move them away from depending on oil to other things.

MAGGIE MUTESI: And you’ve put it quite well, especially for Angola. If we take a step back and look at Angola before oil exploration, that’s in the ‘50s and ‘60s, it was the fourth largest export of coffee in the world. And it was also the largest processor of foodstuffs in Sub-Saharan Africa. And when you actually read about it, price of consumption was at 70%. It was basically not just an oil economy.

And I think all of us have heard this line of resources could be a curse if not well managed properly. Because you’ve talked about commodity prices that fall each and every other day, we’ve seen what COVID-19 has done, especially in the past two years where there is absolutely no trade. So it’s a ticking bomb, they’ve got to diversify. This is something the IMF, the World Bank, every institution has advised, especially resource rich countries in Africa to get back to looking at other ways to rely on like agriculture.

But imagine if there is no diversification and the time comes where we’re going into another revolution of even using everything electric, what will happen to these countries?

DUMI JERE: True. True. True. Yeah, it’s very sad that one common theme around all of these countries is that even though they are so rich, when you look at their hospitals, their schools, their public spaces, not much investment has gone in there. And now we hear that… Well, Mozambique is also another place where the government it’s heavily relied on gas and it thought it was going to get lots of income from these new gas fields. And what it then did it ignored the people who lived near that natural resource.

And that’s the decision that kicked off the insurgency, which became so dangerous when French giant Total was forced to halt operations. And Total it feels like a common name in Africa because now they have gone ahead and signed an agreement with Uganda and Tanzania to drill oil in Uganda and ship it to Tanzania through almost a 1,500 kilometer pipeline. So it’s worrying for me that all of these countries continuously depend on oil and gas and in all these resources.

MAGGIE MUTESI: Even now there are lots of conversations around 70% of Africa’s population or households rely on agriculture and all of that, so it’s just a few countries that have these resources, of course we know in Africa, but do you honestly think there’s a chance for African countries to really rely on agriculture and be able to get their economies still going?

Is it far to attain to say that let’s get back to the basics and export coffee and get into agriculture and get our people understand that this is where our competitive advantage is? I guess my question should be, where is our competitive advantage? If oil is so fragile and these resources, where do we go back to? And is that attainable?

DUMI JERE: Well, you nailed it. Agriculture it is because one, we’ve got I think it was 60% if I’m not mistaken of the world’s arable land in the continent. So that means we’ve got the capacity to feed the whole world. When you look at Europe, they have to import a whole lot of things, a whole lot of food. And where do they import these things from? From Africa.

You walk into Sainsbury and you pick up a packet of strawberries. You won’t be surprised to find imported from Zimbabwe or Ethiopia or wherever. So we need to push more on that. And for me, I actually feel that it’s a cleaner way of caring for earth, because anything else that we’re going to look into whether it’s minerals or oil or any of such things they are bad for the climate, let’s not beat about the bush.

MAGGIE MUTESI: But for me it’s a dilemma. And again, I think it’s a question we can leave out there to our listeners. And it’s a conversation we can visit even in the near future. Because if we are saying that the question is around being able to add value to our resources, the oil, the only problem we have is that we cannot refine it here. We are exporting and importing it again.

The minerals in Congo is the same thing. We are exporting and then importing our finished product. What makes you think with agriculture we’re going to add that value, because again, we’re going to need industries, factories that are able to process the coffee beans, they’re able to process the agriculture products we are talking about?

If we are not able to do them now, if we have not been able to do that with the minerals and the resources that we have, oil and everything, are we able to do that with the foodstuffs, the agricultural products we’re talking about?

DUMI JERE: Most definitely. And I’ll tell you why, because a lot of the financing institutions, so like the big banks and all those guys, they’re sort of moving away from investing in fossil fuels, right? So they actually call them stranded assets where a bank invests in a project that can then not pay back that debt. And so there’s an increase in such kind of assets across the globe let’s put it that way.

So this now has also influenced the world’s biggest stock markets. At the end of the day banks now need somewhere else to put the money. If we’re able to fully develop our agricultural side, the banks definitely will be willing to participate in such initiatives, these opportunities. Now, I mean, for example, you mentioned that we will need to have factories to process the coffee and the chocolates and all of those things.

So these are now investment opportunities that are now coming up and we’re saying somebody can put up something like that and get financing for that. And that’s how agriculture is going to help all of us out. And at the end of the day government revenues will likely increase on the backdrop of agriculture.

So I think that’s where we’re going to leave it for today. Thank you so much, Maggie, I really appreciate, and the team behind the scenes as well as of course you the loyal listeners. Please remember to visit our website, mansamedia.africa for more news.

And also in case you missed anything during the week as well follow our social media pages, Mansamedia Africa on Facebook and @mansa_media on Twitter. Till the next time I’m Dumi Jere, yes to peace and profits.

The Weekly Beat by Mansa with your hosts Arnold Segawa and Maggie Mutesi and Dumi Jere, giving you all the info on Africa’s big finance and economic stories, The Weekly Beat by Mansa.

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