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Panic as multinational companies exit Nigeria, Naira becomes lowest in Africa

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The recent trend of multinational companies, especially oil companies, exiting Nigeria is becoming alarming. Things are gradually deteriorating to the point that foreign investors no longer see the potential in running businesses in Nigeria.

Recently, micro-blogging platform, Twitter announced that its African headquarters will be situated in Ghana, not Nigeria. The development sparked a bit of controversy with notably public figures like the Minister of Information and Culture, Alhaji Lai Mohammed attributing Twitter’s decision to ‘alleged’ negative actions of Nigerian citizens, including the #EndSARS protest.

Over the past decade, Nigeria welcomed foreign investors into its oil and gas industry, both as players in the market and as financers. However, in the last few years, there appears to be a growing trend of foreign investment and businesses exiting the country.

Some experts suggests that multinationals exiting the country could be an aftermath of the global fall in the price of crude oil in 2014, a development that made it more difficult for businesses of all sizes to survive Nigeria. While this reason is valid, there are several others, including the weak status of the Naira.

Recent checks have shown that oil majors, including Royal Dutch Shell, ExxonMobil, Total and Eni, are cutting billions in spending after taking hits to their profits. With this, money is being shifted to renewable fuels and cost-effective markets are been targeted.

Out of the $70 billion committed into new projects in Africa between 2015 and 2019, it has been unraveled that Nigeria was able to attract only $3-4 billion.

This development spells doom for an economy that solely relies on oil to thrive.

Speaking on the exit of multinational oil firms, the Delta State Commissioner for Environment, Hon. Onogba Christian, said oil majors like Shell, Chevron and others may have been compelled by the present socioeconomic realities that has made the current operating environment bad for their business to plan their exit from the country.

“The first ominous signs that presented itself was the deliberate efforts by the international oil companies (IOCs) to relocate their headquarters outside the Niger Delta region. When that happened few years back, it was a bad signal.

“Of course, you cannot lay all the blame on the IOCs entirely because no businessman wants to invest in an area where insecurity is a big issue. The problem really has to do with the issue third party interference, poor legislation among other factors which are genuine reasons to affect investment decisions,” the Commissioner said.

Below are some reasons why multinational companies are leaving Nigeria.

1. Nigeria no longer funds joint ventures.

With Nigeria no longer funding joint ventures, operators have to fund the business, recover capital and generate profit. In the case of Agip, its partner ConocoPhillips sold to Oando, a firm that has been trailed with reports of not being able to fund its own shares.

Majors have sold what they can because of community problems and because deep offshore has much better potential. These multinationals are better equipped, technogically and capital wise, for deep offshore ventures.

2. Instability in Licence renewal

Renewal of licences for multinational oil companies is no longer guaranteed. This affects long term plans. The federal government revoked Shell’s OML 11 and handed it to NPDC, who cannot do anything with it.

3. Litigation issues

Oil majors, at one point or  the other, have had litigation issues with the federal government. For instance, some multinationls were in court over the government’s claim of $62 billion debts because terms of the production sharing contracts were not revised by previous administrations. While the case has been withdrawn, the white material seems to be tinted with ink.

Another instance is the case of Aiteo and the Trans Niger Pipeline from Shell. Aiteo had bought the Trans Niger Pipeline from Shell and went to court for compensation over the condition of the pipeline. The High Court froze all Shell’s bank accounts pending the outcome of the case.
ENI (Agip) and Shell have only just been acquitted following a long, high profile trial in Milan over Etete and OML 245.

4. Influence of the Nigerian Content Act

The Nigerian Content requirements have had a substantial impact on project cost and schedule. Operators have to negotiate with NCDMB because the requirements of the Act are impossible to meet. This reduces Nigeria’s competitiveness.

5. New sources of oil and gas

Oil multinations are now finding alternative sources for oil and gas. With the shale boom, Chevron and ExxonMobil can now get most of the oil and gas they need from within the US.

Total and Agip are now investing in Mozambique and Tanzania, which are much closer to the Asian markets. Shell is in shale and also the leading company in Gulf of Mexico deep water. It also has a big Canada LNG project.

6. Transition to green energy

With the recent push for a safer climate, many oil multinationals are now migrating to renewable energy to renewables. The strategy is to invest in high-value oil and gas projects and reinvest the profits in renewables. Many of them are set to become producers of electricity and green hydrogen.

Meanwhile the federal government has said as soon as the Petroleum Industry Bill (PIB) is passed, there will be more foreign investment opportunities. The continual failure to pass the bill has taken a toll on the oil and gas sector.

The Senate President, Ahmed Lawan has said the bill will be passed before the end of the second quarter of 2020, to enhance the country’s ability to attract both local and foreign capital as resource-rich nation have continued to mount preesure as pose as stiff competitors to Nigeria.

 

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