As Oil Facilities, Economy Face New Threat…

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As armed groups in the Niger Delta threaten to resume attacks on oil infrastructure, Olaseni Durojaiye examines the looming danger to the economy

Relative peace in the Niger Delta in the wake of the President Muhammadu Buhari administration’s Economic Recovery and Growth Plan has ushered in a period of smooth and increased oil production in the region. The country’s foreign reserves have gone up to $34 billion, the highest in almost three years, and the government has projected further economic gains as oil prices begin to pick up again after a record fall.

Nigeria is currently benefiting from a bullish oil market and “rampant demand,” attaining its highest production target since 2015, following a 39 per cent rise in crude oil prices since June 2017, as the Organisation of Petroleum Exporting Countries and Saudi Arabia push for output cuts to continue into 2018. Production in Nigeria, which is exempted from the curbs, has risen 15 per cent this year to 1.7 million barrels a day as militants ceased bombing export terminals and pipelines.

The ripple effect of the current good run in receipts from the volatile sector transcends rise in foreign reserves. It is being felt across all critical sectors. The new dawn of stability in the foreign exchange market has begun to breathe life back into the manufacturing and services sector even as government is revving up its investments in critical infrastructure.

It is also swelling investors’ confidence in the economy.  Portfolio inflows have risen in the past three months with crude prices increasing above $60 a barrel and money managers are showing confidence in a new foreign-exchange trading window, in which the naira has converged with the black market rate.

 

 Threat 

But the economic gains are threatened in the face of recent warnings by the Niger Delta Avengers, an armed group in the Niger Delta, that they had ended a truce reached with the federal government and decided to resume attacks on the oil facilities.  This is giving stakeholders cause for concern.

Analysts hold that resumed hostilities in the oil-rich region will hurt and halt the current good run in the sector beyond revenue generation and that portends dire consequences for the country’s oil-dependent economy, which is barely recovering from recession. 

Before the latest threat from NDA, some analysts had contended that Nigeria’s current rosy runs in the sector was fragile and could end if Brent crude price dropped to around $50 a barrel. They said it was capable of pushing Nigeria’s current account back into deficit. This position is shared by America Corp., which sees the naira falling to 432 per dollar by the end of 2018. This fear is besides the latest threat.  NDA had announced an end to a ceasefire agreement it had with the federal government, in a statement recently posted on its website. The group declared its readiness to resume damaging attacks on the oil infrastructure in the Niger Delta.

 

Grouse 

Armed groups in the region had succeeded in cutting Nigeria’s oil exports by half in the wake of violent attacks last year. NDA said the federal government’s failure to develop the region and forge a new vision for the oil producing areas in line with Buhari’s promises was behind its decision to return to attacks. It alleged that the federal government was only interested in exploiting oil from the region.

The statement, signed by the group’s spokesman, General Murdoch Agbinibo, also condemned the Chief Edwin Clark-led Pan Niger Delta Forum, saying it has lost faith in the ability of PANDEF to get the federal government to develop the region. 

“The position of the Nigerian government is made emphatically known to the Niger Delta people that its only interest remains the flow of oil from our region to the Central Bank of Nigeria. We want to make it known to the PANDEF and the Nigeria government that our call for halt on ‘Operation Red Economy’ is officially over,” the Avengers vowed.  

The group stated, “We are aware that Egina FPSO built in South Korea by Samsung to be operated by Total Nigeria is one of the biggest FPSO built in South Korea, and has started it’s voyage to the oil fields of the Niger Delta to further exploit us while our concerns are left unattended.  

“We are presently tracking and monitoring its movement; and God willing, it shall not operate successfully amidst the return of the fury of the Niger Delta Avengers.”  

It also sent a warning signal to oil companies operating in the region, promising to destroy any obstacle on the group’s way to victory.  

“Message to the oil companies: our next line of operation will not be like the 2016 campaign which operated successfully without any casualties; this outing will be brutish, brutal and bloody.  

“We shall crush everything we meet on our path to completely put off the fires that burn to flare gas in our communities and cut every pipe that moves crude away from our region. We can assure you that every oil installation in our region will feel the warmth of the wrath of the Niger Delta Avengers,” the group said. 

 

Economic Implications 

Stakeholders in the local economy see dire consequence in the warning by NDA and urge the federal government to resume and scale up engagement with the group. A key voice in the manufacturing sector said “there is no other option than to engage them.”

Speaking with THISDAY, Director General of the Lagos Chamber of Commerce and Industry,  Mr. Muda Yusuf, noted that resumed restiveness in the Niger Delta would have far reaching implications across a broad spectrum of the economy. Yusuf advised the government to scale up engagements with the groups, adding that the current respite that has positively impacted the economy is a result of engagement.

According to him, “If we allow it to happen it will have dire consequence and affect the economic recovery and growth process. Renewed hostility in that area has implications for revenue generation, our foreign reserves, our exchange rate and the foreign exchange market. The stability that we have been witnessing in the FX market in recent times will be affected.

“It will also undermine investors’ confidence, which is not good for the current recovery process. It will also affect investors in the oil and gas sector because it is their assets and investments that are at risk.” 

President of the Manufacturers Association of Nigeria, Dr. Frank Jacobs, shared Yusuf’s take. Responding to enquiries on Tuesday, on how resumed attacks on the oil infrastructure would affect the real sector, Jacobs said, “It will have dire consequences on our operations.”

According to him, “It will affect the national revenue, which will in turn affect the capacity of our members to buy machinery and raw materials for production. 

We don’t want a return of what we used to experience trying to source for machinery and raw materials.”

 

Way Forward

Both Yusuf and Jacobs argue that the best way to avert the looming threat remains to engage stakeholders in the region, particularly the militant group. They advised the federal government to live up to its promises to the group even as Jacobs insists that he has confidence in the ability of government to avert the looming crisis.

Jacobs said, “Government should nip it in the bud and find solutions to the issues. The way forward is engagement; government should resume engagement process with stakeholders in the region, including the group. I believe government is aware of their grouse and what needs to be done, and I have confidence in the ability of government to engage with them. There is no other option but engagement. This is like a guerrilla war, you can’t really dislodge them.” 

In his own thoughts on the way forward, Yusuf said, “Government should scale up its engagement with the stakeholders in the region and live up to its promises to them. Even though destroying national assets is not a good approach to expressing discontent or to protest, it is important that government engage with them. The respite that we’ve had so far was due to engagement. “

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