Its 7:30AM in Victoria Island, Lagos, and across the road from Oniru, a suburb in the city, cars are piled up in front of the Total petrol station. There is also a separate line of about 100 people with empty yellow containers waiting to be filled. Toke Ogunlesi, founder of GQ Shoes, a shoe manufacturing business is number 30 in the queue of irritated car drivers – some of whom slept in their cars.
“This is really terrible, I have been queuing for the past three hours even though I arrived very early this morning. Yesterday, I couldn’t get any fuel and so I decided I would leave the house early today but unfortunately that plan did not work,” says Ogunlesi.
Business has slowed down significantly for his fledgling business, which, like many businesses in Africa’s largest economy, is hampered by severe power cuts. Nigeria has a diversified economy, however, the country’s monetary policy is heavily dependent on oil. The finance minister, Kemi Adeosun, in an interview with Reuters, said the country is expected to post budget deficits for the next two to three years. Reuters puts the 2016 deficit at 2.2 trillion naira (around $11 billion).
“Firstly, Nigeria has a revenue challenge, oil prices are low and this is leading to production challenges. We lost Forcados which is a major terminal for exporting crude oil, that means about 250,000 barrels have been shut down and cannot leave the country at the moment, so we are not pushing as much production as we used to. This means the little revenue we are making right now has to be dispersed to finance imports for various things, like foreign exchange (FX) for imports and refineries, normal FX for fuel imports and other production costs,” says Dolapo Oni, an analyst with Ecobank.
“On the other side, the industry also has a regulated pricing structure so marketers are not able to sell at whatever prices they need to sell to recoup whatever costs they incur in the process of buying and selling the petroleum products. So, as a result, most of them are either not ready to sell and keep that loss or, if they had the opportunity, they will sell at a much higher price so that they can recoup the costs that they are facing. They are also faced with higher cost of FX because most of them have to buy their FX from the parallel markets among the various other charges that they face when they also try and load at the depot.”
The restriction of foreign currency in the country has also had a negative impact on the oil market, which is a dollar-denominated business. According to the Shippers Association of Lagos State, the forex restriction has led to 50% of Nigerian bound cargos being diverted to Cotonou, Benin. But there may be help on the horizon.
“I think the situation is gradually easing because we now have FX supply coming from oil and gas companies. The upstream guys, like Shell, Total and ENI, have been tasked to provide about $200 million to some of the fuel marketers to assist them to import more products into the country. This is not a sustainable solution because you are asking these guys to also part with FX, which they also need to invest in other parts of the world where they have operations. They cannot continue to always give us $200 million every month or every year and also I do not know what we have given up as a country to be able to receive that help because there has been a trade-off somewhere,” says Oni.
The current dilemma has however presented an unlikely opportunity for one entrepreneur. Fueledup is an app that has been created by 24-year-old Nigerian developer, Subomi Owo-Odusi. The app is an on demand delivery service, where customers sign up to request fuel.
“It is more of creating a convenience that is necessary. It picks your location naturally with Google location services. There is a request for how much you want and the delivery time. We have three delivery times; there is priority, expectant and flexible. Flexible is within three hours, expectant is within 30 minutes and two hours, and priority is within 30 minutes and an hour. So, take for instance a situation where you wake up and you go to take a shower, by the time you finish getting ready in an hour you realize that your car is already filled up,” says Odusi.
The app is scheduled to be launched in May and has already received a positive response.
“We are speaking to private depots that we can get our supply from. Eventually we want this to become a lifestyle where people ask ‘have you got fueled up today?’”
The company is looking to expand rapidly outside Lagos to other major cities in the country.
A critical success factor for start-ups like Odusi’s in this climate is the cost of goods and services.
“Inflationary measures are rising. Prices have been increasing steadily. It got to 11.3 percent last year and the figure is due to come out this week and I am already hearing that it will be around 12.8 percent, which is significantly higher than the last inflation figure… It is the lesson of the crisis, when you don’t save or put money aside for a rainy day, when the rainy day comes you will be wet,” says Oni.
He believes the government should push for deregulation of the industry to prevent this crisis from repeating itself.
“In a market that is regulated, it is very easy for these conditions to happen because once we have that common pricing structure people tend to come strongly under unions. Once we deregulate this, there is no tendency that the union will tell someone to shut down their station because they know that once others are all not selling, they will make more money if they sell. So, unions go weaker in markets that are competitive.”
The influx of foreign currency is expected to ease the current fuel crisis gripping the Nigerian economy, however, the economic hardships are far from over. The decline in oil prices and corresponding decline in revenues, has had a knock-on effect on the oil sector and other ancillary markets.
“The only way out is that we should allow the market to decide where the naira should be priced at and, as a result, where the products within the economy should also be priced to allow for a competitive business environment,” says Oni.

Fuel Shortage  In The   Land Of Oil

Strikes have hit Africa’s biggest economy with a vengeance and the losses are high.
Hundreds of thousands of South African employees went on strike, crippling the gold mines, car factories, petrol forecourts, and the national airline South African Airways (SAA) in August and September.
Towards the beginning of September, the National Union of Metalworkers of South Africa (Numsa) ended a three-week strike of around 30,000 workers in the motor manufacturing industry, after accepting a revised wage offer from  Volkswagen, Nissan, Ford and Toyota.
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However, as car manufacturers returned to work, thousands of petrol station attendants, affiliated to Numsa, downed tools after serving a 48-hour notice of strike action.
Their demands included a R30 ($3) per hour increase and that maternity leave be paid in full.
The SAA employees, affiliated to the South African Transport and Allied Workers Union (Satawu), ended a 15-day strike a day later.
By far the most expensive strike was the one organized by the National Union of Mineworkers (NUM) in the gold mining industry, which was reported to have cost R32 million ($3.2 million) per day. In 2012, similar strikes cost companies R349 million ($35 million) a day and employees lost a total of R100 million ($10 million) in salaries each day.
The strike was effectively ended when NUM, the United Association of South Africa (Uasa) and Solidarity accepted an 8% wage hike, backing off from its initial demand of 15%.
In addition to the wage increase, the monthly living allowance of miners was raised from R1,640 ($164) to R2,000 ($200).
The Association of Mineworkers and Construction Union (Amcu), however, refused to accept the pay deal. The mining companies were taking a hard-line stance and refusing to give in to the demands while the union was threatening a second strike.
The morning after the strike began, when FORBES AFRICA visited the mining area in Carletonville, Johannesburg, a handful of NUM members gathered outside the union’s office at Sibanye Gold mine in Driefontein, as rival union members reported for work.
“An estimated 14,000 miners had downed tools in the area of Carletonville on Tuesday evening. Our members have not clocked in for the night shift at several mines. The strike is on,” says Mbuyiseli Hibana, NUM regional secretary.
Amcu spokesperson, Jimmy Gama, tells FORBES AFRICA the union had not been given a mandate and was considering strike action.
“We remain unchanged to our wage increase demands. We rejected the offered 6.5%. Amcu demands a living wage of R12,500 ($1,250) and R11,500 ($1,150) for underground and surface employees respectively,” says Gama.
All labor unions in the gold mining sector, besides Amcu, have accepted the revised offer and operations at the mines are back to normal.
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The Chamber of Mines had confirmed that it would continue to talk with Amcu in an attempt to get everyone back to work.
“This tentative agreement is encouraging because it signals a number of important developments for an industry battered by labor instability, fast rising costs, declining market conditions, and continued regulatory uncertainty,” says mining analyst and Eunomix managing director, Claude Baissac.
“Unions have been forced to change their strategy from one of expecting large increases to one that is more achievable. If initial demands were completely unrealistic, these demands were largely part of the posturing unions are doing in relation to one another, notably NUM, and Amcu, the disruptive newcomer. They needed to show their members and each other that they will fight on for the best deal.”
That fight is far from over.

Strikes Strafe  Africa’s Biggest Economy

President Joyce Banda took, what many call, the worst and hardest job in Africa, at a time when Malawians needed a savior. Malawi was on the brink of economic collapse after months of petrol shortages, price rises and unrest.
Discontent lingers, but the economy is improving. Despite jubilation on political podiums; the technocrats are more cautious. Expectations remain high, but much needs to be done if there is to be an economic turn-around.
Banda inherited Malawi’s deteriorating economy from late President Bingu wa Mutharika. Aid dried up when Malawi failed to secure an Extended Credit Facility (ECF) with the International Monetary Fund (IMF), after disagreements over political and economic governance. In 2011 and 2012, problems with foreign exchange meant problems with petrol. It led to rationing and queues. Production fell as key firms left the country.
“Malawi is still teetering on the edge of an economic abyss. It is obviously not out of the woods economically yet [&#8230;],” says Dalitso Kubalasa, an executive director at the Malawi Economic Justice Network.
The administration in Malawi has taken bold steps to turn around the economy. This has been far from the dangerous economic trajectory the economy was destined for, particularly with the infamous Zero-Deficit Budget (ZDB) of 2011/12 fiscal year. The ZDB stance hindered the economy more than helped it; punitive tax measures were introduced, invoking a huge outcry.
The ZDB framework was supported by around MK30 billions ($87.9 million) of printed money printing, with MWK20 billion ($58.6 million) domestic borrowing and around MWK72 billion ($211.1 million) in arrears to private sector and banks, according to the quarterly expenditure reports from Malawi’s central bank.
“The Malawi economy was virtually collapsing a year ago. The economy is heavily import-dependent in production. Imports account for about 42% of GDP, among the highest in the world, and yet 60% of exports earnings are accounted for by one commodity: tobacco, which is not only a primary commodity but also has endangered demand. The gap between imports bills and export earnings has been widening at an alarming rate and we had been relying on external aid payment arrears to fill this. Malawi relies on external aid to cover 40% of government expenditure, which is again very high. Poor tobacco prices and a drying up of aid automatically results in an inability to pay for imports, hence accumulation of arrears and loss in credit ratings,” says Ben Kaluwa, an economist at the University of Malawi.
Banda’s decision to devalue the Malawian kwacha, to stabilize the economy, was hailed by the IMF, but led to protests, including a nationwide strike by civil servants in February.
“The biggest challenge has been living up to the people’s expectations of dealing with all the challenges as fast as possible; including the issue of dealing with the negative impact of the economic reforms through some cushioning programs and interventions,” says Kubalasa.
Banda, established a controversial employment scheme in July, attempting to decrease the country’s 50% unemployment rate. One hundred thousand migrant workers will be sent to South Korea, Dubai and Kuwait as unskilled agricultural workers or to work in the hospitality sector. Critics worry that the scheme may result in modern day slavery. Around 40% of Malawians live on less than $1 a day, those who will work in South Korea could earn up to $1,000 a month.
Other key measures undertaken include: the scrapping of the zero-deficit budget; the restoration of fiscal incentives, the absence of which had made the business environment unbearable for new investors; the removal of subsidies by liberalizing the prices of strategic goods.
“Liberalization of the exchange rate and fuel prices were meant to obviate rationed access in favor of market-priced allocation. The liberalization of the utility tariffs was meant to incentivize the utilities to invest and also make the sectors attractive to new private sector investors, including public-private partnerships (PPP). Queues for both forex and fuel have been eliminated and there is expressed interest by the private sector to invest in utilities. Manufacturing firms—which had been operating with excess capacity because of imports and fuel shortages—are now believed to be operating close to capacity,” says Kaluwa.
More governmental measures came in May 2012. They included loosening the executive grip on monetary policy, thereby giving a good measure of decision-making authority and independence to the central bank, which is the requisite authority. This resulted in the adoption of a market-led foreign exchange rate regime. These two moves attempt to reconcile huge macro-economic imbalances, due to the overvalued currency that was further crippling the economy.
When the kwacha depreciated by around 50%, an immediate flotation of the exchange rate followed. It aimed to rein in on the huge disparities between the official and parallel forex market and to free up the forex that was being hoarded. The restrictions on forex transactions by banks and forex bureaus, an increased bank rate and a tight monetary policy helped to monitor the progress.
“Beyond the pre-economic reforms it is therefore a fact that we are still a long way off, from comprehensively dealing with the whole list. All of the challenges are structural in nature and quite huge and terminal to the economy, let alone to any efforts, in need of real and meaningful policy consistency for urgent and sustainable consolidation of the gains being realized at restructuring of the economy,” says Kubalasa.
There was support from fiscal policy side, aimed at austerity and recovery. Civil servants demanded a pay rise of more than 65%, saying that the devaluation has caused inflation, which had eroded their salaries.
“On the down side, because of import-dependence in production, production costs have gone up since the devaluation and domestic prices have followed. The cost of living has risen and this has affected all Malawi Kwacha earners and this will be the case for time, until the economy attracts sufficient investment transformation and import-substitution and export diversification,” says Kubalasa.
Banda was ranked 47th on FORBES’ ‘The World’s 100 Most Powerful Women’ 2013 list and was also one of five short-listed contenders for the FORBES AFRICA Person of the Year award in 2012. She is expected to seek re-election in May.
Stakeholders expect economic progress to be mirrored in public service delivery, as well as through the lowering of commodity prices.
A source of discontent is the dislike of austerity, across the board by government. The president has been traveling extensively; most trips are not in tandem with the austerity measures.
Civil society has called for balanced programs; they want extra-budgetary funded interventions to be integrated into other already established programs.
“These include those such as the Green Belt Initiative, the One Village One Product (OVOP) [movement] that needed to be fully sustained and supported by operationalizing the National Export Strategy; if we are to sustain the promise for maximum potential gains they seem to have if properly harmonized and rationalized,” says Kubalasa.
It seems that Malawi and its first woman president have a long way to go.

Tag: Petrol

FORBES AFRICA SOCIAL MEDIA

Fuel Shortage In The Land Of Oil

Strikes Strafe Africa’s Biggest Economy

Banda On The Abyss, In Africa’s Toughest Job