Nigeria | Stratas Advisors

July 28, 2016 Nigeria: President Buhari Needs Time

Stratas Advisors

The following excerpt is from Stratas Advisors’ Geopolitical Risk and Executive Dialogue services. The full report includes a Stratas Advisors’ assessment of the situation in Nigeria.

Anonymous employees of ExxonMobil estimated last week that it could take perhaps one month for the company to lift force majeure on its Qua Iboe export terminal, which has an export capacity of 300,000 b/d. Although ExxonMobil denied that militants bombed the facility on July11, an anonymous company security official contradicted the company's official statement. The company had just resumed exports from the terminal after lifting force majeure through the month of June after an attack claimed by the Niger Delta Avengers (NDA).

Shell's Forcados terminal, which has an export capacity of 400,000, has not resumed exports since February when the NDA bombed an underwater pipeline connected to it. Shell was also forced to halt transports through the Trans-Niger pipeline, which has a 180,000 b/d capacity, after it was bombed earlier in July.

NDA has also targeted Chevron and Agip infrastructure as well as pipelines owned by the Nigeria National Petroleum Corporation (NNPC). It has succeeded in disrupting the supply of refined products from two of five Nigerian oil refineries and causing electricity blackouts.

Over the past six months, NDA-attributed attacks have reduced oil production by 700,000 barrels a day, according to NNPC. NDA has threatened to kill international oil company (IOC) personnel who attempt to repair infrastructure and has stated that its goal is to cut exports to zero and cripple the Nigerian economy at least until President Muhammadu Buhari agrees to negotiate in the presence of international observers, including foreign government representatives of the IOCs.

They have also threatened to conduct attacks targeting IOC headquarters and state facilities in Lagos — specifically referring to Chevron — and Abuja. Interestingly, they have thus far refrained from attacks on Nigerian troops, indicating their intention to build popular support for their cause, including among the rank-and-file of the military.

President Buhari’s Reforms From 2005-2009, militants operating under the umbrella Movement for the Emancipation of the Niger Delta contributed significantly to a decline in crude oil production by approximately 25% due to bunkering (i.e. illegal siphoning) and sabotage of oil infrastructure. In 2009, President Umaru Musa Yar’Adua established a system of oil infrastructure payments to reduce such incidents, which cost the country hundreds of thousands of barrels per day in lost production and billions in lost revenues. He also granted amnesty to the militants and provided funding for job training in an effort to help stimulate more self-sustaining economic development of the region. The program succeeded in reducing attacks on oil infrastructure but not bunkering incidents, in which elements of Nigeria’s security forces have been complicit. It largely failed to generate self-sustaining employment. With the downturn in oil prices, President Buhari has felt compelled to phase out these subsidies in the 2017 budget and replace them with economic development aid. He has agreed to honor the amnesty. The subsidies are of dubious value given that they have not reduced bunkering incidents and have largely not trickled down to most of those to whom they were intended. Many of the militant leaders through whom these payments were supposed to be distributed have allocated them primarily to expanding their own largesse and maintaining their patronage networks. They perpetuate dependency on the government and should indeed be phased out, albeit ideally over a longer period of time than Buhari had envisioned considering the time it will take to generate self-sustaining employment. The NDA have declared that they are incensed by high unemployment, lack of public infrastructure, and environmental damage the region suffers from despite the fact that it generates most of the country’s revenue. They are also undoubtedly skeptical of pledges of private sector job creation in lieu of subsidies considering the apparent lack of follow-through or effective implementation of economic development plans during the last seven years.

Page 1 of 2 © 2018 Stratas Advisors. 1616 South Voss Road Suite 675 | Houston, TX 77057 | United States | +1.713.260.6426 | stratasadvisors.com The NDA are calling for secession of their oil-rich region from Nigeria. If they succeed in convincing a critical mass to support their cause, this would compel Buhari to devote substantial military resources toward suppressing the insurrection at a time when Nigeria is already facing serious financial strains. Buhari has already been forced to redeploy forces that were engaged in the counterinsurgency against Boko Haram in the northeast down to the Niger Delta in order to hunt down those responsible for the oil infrastructure attacks. The NDA ostensibly perceive that Buhari’s predecessor, Goodluck Jonathan, was a more just ruler and that Buhari is corrupt. Stratas Advisors assesses that the converse is actually the case and that the NDA either misperceive the situation because Buhari is prioritizing reconstruction in the insurgency-ravaged northeast or because they are undeclared partisans of Buhari’s southern state political opponents. Anti-Corruption Reforms According to Nigeria’s Ministry of Finance, the Nigerian government has removed nearly 24,000 ghost workers from its payroll and will save nearly $140 million per year as a result. Since Buhari was elected in May 2015 dozens of government officials, including a former national security advisor and several governors, are facing corruption charges. The outgoing US ambassador to Nigeria, James Entwistle, has vouched for Buhari’s anti-corruption efforts and rebutted skepticism that indictments and prosecutions have targeted political opponents. Stratas Advisors concurs with his view and believes that Buhari must be given time to fix daunting problems in a very leaky ship of state. This will require patience in a democratic country that does have substantial separation of powers between the executive, legislative, and judicial branches of government. Nevertheless, time is ticking. The IMF predicted in mid-July that Nigeria’s GDP would contract by 1.8 percent in 2016, a significant revision from its April report in which it expected the country’s GDP would grow by 2.3%. The downward revision was spurred by foreign currency shortages resulting from lower oil revenue, low power generation and weak investor confidence. Inflation has also risen to 16.5 percent, the highest since June 2005.