Recent attacks by supposed economic experts and patriotic Nigerians on the President of Dangote Group of Companies, Aliko Dangote over his suggestion that certain national assets should be disposed to boost the nation’s foreign exchange reserves and by extension put the economy on the path of recovery are certainly diversionary.The commentator, Tony Ademiluyi in an opinion published in The Guardian of Monday October 10, 2016 mostly strayed from the key points he raised and focused on assets sale.
For the records, Dangote did not call for the outright sale of national assets; he only called for reduction of government’s equity in some assets to generate more foreign exchange. Reduction of government’s equity simply means offering part of government’s holding to private sector investors. It is the same as a business owner selling some of his shares to other investors. The process yields more capital for expanding the business and creating more values for stakeholders.
As a seasoned businessman, Dangote understands the technicalities involved in raising funds to finance projects. He listed four companies- Cement, Sugar, Flour and Salt – on the Nigerian Stock Exchange (NSE). The shares of these companies are trading on the floor of the Exchange on a daily basis. Working with a team of financial advisers, he knows when to dilute equity to raise funds for expansion.
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His suggestion that government dilute equity in some national assets is based on experience. Those vilifying him are yet to offer practical suggestions on how to ameliorate dwindling national fortunes. His clarifications that he is not willing to buy Nigeria’s LNG even if it is offered for sale on credit, did not assuage them. As an avid observer, these attacks are diversionary tactics by people with sinister minds, bent on creating negative public perception of Aliko Dangote. They want to divert attention from the current economic challenges and cast Dangote as a man who ‘wants to grab it all.’
As an economist, it is difficult to believe there is so much criticism about assets dilution at a time the exchange rate is swinging between N450 and N500 per dollar. It is common knowledge that the Incorporated Joint Venture model of Nigeria LNG is a success story. This was made possible with the arrangement in which the equity of the government stands at 49 per cent and other partners sharing the balance of 51 per cent.
Following the same model, we have to reduce government equity of 60 and 55 per cent to 49 per cent in oil blocks being operated by Shell, ExxonMobil, Eni-Agip and Total. The reduction will generate foreign exchange earnings in billions. It will also free JV operators from bureaucracy in growing reserves and production output.
Government should not dillydally in the constitution of the board of Nigerian National Petroleum Corporation (NNPC).The delay in constituting the board in the past years hindered the activities of these JV firms on issues relating to exploration and development. Hence, long contracting cycle with an average of three years compared with maximum of six months continues to raise cost of operations compared with other oil producing countries. Nigeria’s reserves and production targets of 40 billion barrels and 4.4million barrels per day have become plans mainly on paper with no concrete achievement. The consequence today is the decline in reserves and production levels.
Delays in decision in the past by JV firms particularly on corporate social responsibility (CSR) had also pitched the companies against host communities. This often led to disruptions in production. This is besides incessant invitations of JV CEOs and NNPC GMDs by both the Senate and the House of Representatives on issues which the board could have handled.
The Managing Director of Nigeria LNG Tony Attah at a recent forum warned that the plans by the National Assembly to tinker with the NLNG Act will slow down the activities of the 4th largest multi-billion Dollar LNG firm with 22 million tonnes per annual (mtpa) capacity.
Therefore, the argument that Dangote is proposing the idea of selling national assets as opportunity to buy any of them particularly the Nigeria LNG does not hold water. He is only giving an honest view that one of the best ways to come out of the crisis is to dilute government equity in some national assets. Given the challenges of forex scarcity and geometric fall in the value of Naira against other foreign currencies, it will be in the best interest of the economy if certain assets particularly idle assets such as abandoned oil blocks are offered for sale to raise foreign exchange earnings.
It is the not the first time the nation will be selling national assets. The administration of former President Olusegun Obasanjo sold assets to come out of the forex crisis. He launched out early with the offering of over 80 oil blocks for sale on July 3, 2000 as the first competitive bid round to raise foreign exchange at a time when crude oil price was below $16 per barrel.
During his eight years, several oil assets were sold through competitive and selective bid rounds. Other strategies adopted for raising of forex included marginal field licensing round in 2003 and private refinery licences in 2002.
It will also be recalled that during the administration of former Military President General Ibrahim Babangida wealthy Nigerians were approached and convinced to acquire oil blocks with foreign exchange when it was impossible to finance 1986 budget as a result of the fall in crude oil price below $10 per barrel.
Using the gains earned by Nigeria from the sales of these national assets particularly during the administration of former President Obasanjo as a case study,then the idea of selling national assets proposed by Dangote should be supported by Nigerians and not be considered as self-serving.
Nigerians should call for a transparent process of selling these assets to meet up with the challenges of funding budget and provide needed infrastructures. As it is today, Nigeria’s external reserves have dropped below $25 billion, therefore, making Nigeria unattractive for investment.
Embarking on external borrowing being proposed by the Director General of Debt Management Office, Dr. Abraham Nwankwo and other top officials will not help private sector operators in Nigeria. The nation should not consider the option of borrowing, whether external or local.
Several undeveloped oil blocks which today are so attractive to foreign investors despite the militant attacks in the Niger Delta will generate billions of dollars for Nigeria. Using the 2007 competitive licensing round minimum level estimate of $50 million signature bonus payment per deep offshore block, sales of these assets will earn over $10 billion for the country. This is besides, foreign exchange earnings opportunities available with several blocks in the inland basins of Chad, Benue Trough, Sokoto and Dahomey.
When former President Obasanjo sold NNPC refineries to Bluestar in 2007, Nigerians who claimed to be patriotic put pressure on late President Umaru Yar’Adua to cancel the sale. What has become of these refineries today? They have become mere drain pipes and avenue to siphon foreign exchange on the ground of routine maintenance and repair.
For the record, Aliko Dangote is currently building 650,000 barrels per day petroleum refinery in Lagos. At completion, it will be the largest single train petroleum refinery in the world. Other features of the mega-petrochemical complex include the largest sub-sea pipeline infrastructure in Africa; 1,100 kilometres.
At completion, the complex will enable the nation earn over $5.5 billion per annum in foreign exchange earnings from export and over $7.5 billion per annum in foreign exchange savings from import substitution. Conservatively, about $13 billion will be realised annually in the economy at the completion of Dangote petrochemical complex.
Towards ending the nation’s milk industry dependence on import, Dangote has also unveiled plans to invest massively in dairy business. The investment is expected to turn the fortunes of the sector in the next three years. He said, ‘we believe we can do a lot to bridge the importation gap by developing local production of this product because we have the competitive and comparative advantages.’
His decision to invest in the dairy sector is significant as all the operators have focused on imports and neglected the local industry. Dangote has invested billions of dollars in rice farming spanning thousands of hectares across many states of the federation. He is an economic patriot as he wants the economic well-being of the nation. His investment philosophy is to produce locally made goods that are normally imported.
Such a man needs commendation and incentives as his projects have a significant national impact. He should be supported and not vilified.
Nigeria needs foreign currencies to stabilise the Naira which agriculture and solid mineral development cannot provide in the short term. Ensuring transparency and accountability should be the concern of Nigerians. At least, it will be a major test of the anti-corruption and “Change begins with me campaign” of President Muhammadu Buhari’s administration.
