HAUSA PROPHET PREDICTION AND ADAGE ON INEVITABLE COLLAPSE OF NIGERIA IN FEW YEARS
Written by Gary Busch
Sunday, 28 June 2009
There's an old Hausa proverb “The cry of the hyena and the loss of the goat are one”. Nigeria has been celebrating the arrival of the chief hyena and his pack over the last week and has not understood that its goats are in mortal danger.
The NNPC is deluding itself when it rejoices over the Russian (Lukoil) proposed investment in crude production. Oil Minister Rilwanu Lukman (former OPEC Secretary General) said. "Nigeria produces 2 million barrels of oil per day. With Russia's help, we hope to double the output. At the very least, we hope to make it 3 million barrels per day." Lukman doesn't mention that current production is 1.05 million barrels a day and falling; nor that Nigeria is part of OPEC and the notion of OPEC allowing Nigeria to produce 4 million barrels a day is fanciful at best in this market.
The idea of building a gas pipeline in Nigeria from the Delta to the North is a politically blind decision. The Delta states have been having a hard enough time getting their 13% derivation from the Northern bosses for existing production. Setting up a direct gas line from the Delta to the North is likely to be setting up a permanent target for the Delta militants to attack.
For anyone with a memory Nigeria's experience with the Russian-built steel mill at Ajaokuta which was supposed to become the largest metal producing plant in Africa raises many issues.. The building of the steel plant started in 1970 during the Soviet era. The whole project fell apart in the 1980s and is ''a painful topic in discussions among Nigerian policy experts on Russian-Nigerian relations''. (IPS 23/3/09). A brief and unsuccessful interlude with the Indians did not advance the project so Nigeria is trying “hair of the dog” solution to the failure of Ajeokuta. This reliance fails to understand the deeply depressed nature of the international iron and steel industry and the failure of Russian steel mills to thrive or even survive. One of Russia's largest steel businesses has just issued a warning of its imminent failure to trade as a “going concern” As Reuters reported on 25/6/09 “Debt-saddled steel and coking coal producer Mechel on Wednesday raised major doubts about its future as a going concern. Top Russian steel producers borrowed more than $30 billion to make acquisitions and increase production during the pre-crisis boom, and Mechel is one of the most indebted, with total debt of $5.4 billion as of Dec. 31. There is substantial doubt about our ability to continue as a going concern," the company wrote in a key filing with the U.S. Securities and Exchange Commission. Mechel has breached covenants on $4.2 billion of loans, forcing it to -reclassify most of its debt as shirt-term. Are these the people to save Nigeria's steel business?
Perhaps the only truly positive outcome of this visit is the agreement between Nigeria and Russia to jointly work on the exploration of space. It will be a wonderful thing if there are Nigerian cosmonauts who can escape the confines of the planet and search the ether for Nigeria's missing satellite.
A few days ago the government of Nigeria was host to Dimitry Medvedev, the President of Russia, and a large delegation of his advisors. While they were meeting they signed a number of agreements and protocols on nuclear energy, transfer of prisoners, investment promotion and cooperation on legal matters. They signed a Memorandum of Understanding on co-operation in the field of exploration of outer space and a joint venture between Nigerian National Petroleum Corporation (NNPC) and the Russian state gas monopoly Gazprom. There were agreements made on the takeover by the Russians of the railway project; the renovation of the Ajeokuta steel mill, and the building of a gas pipeline from the Delta to the North. Further agreements included the joint venture to exploit Nigeria's large reserves of uranium.
This sounds as if it will be profitable for Nigeria and will see the massive influx of developmental cash into the economy. It is a plausible conclusion for anyone to draw who has no knowledge of the fairly desperate state of the Russian economy. The World Bank has just issued its Report 19 on Russia the same day that the deals were signed in Abuja. Its highlights include:
“Economic and social deterioration in the first five months of 2009 has been deeper than expected just a few months ago. Real GDP is estimated to have dropped by more than 10 percent, unemployment reached close to 10 percent, and the poverty rate rose dramatically.
*Given a much larger GDP contraction in the first two quarters of 2009 than anticipated, Russia's economy is now likely to contract by 7.9 percent in 2009, despite higher oil prices assumed in the current forecast. Most of the adverse impact in Russia is concentrated in the first two quarters of 2009. Depressed export demand, tight credits, declining investment, and compressed consumption will remain the major factors of output contraction this year. The speed of the subsequent recovery in Russia will likely be slow, dependent on the revival of the global demand and global financial system.
*Looking into the medium term, with the current growth profile, real GDP levels in Russia will reach the pre-crisis high only at the end of the third quarter of 2012. Thus, economic recovery is likely to be very gradual and prolonged.
*The financial crisis has significantly worsened not only poverty, but also the entire income distribution in Russia. A deeper-than-expected drop in real GDP of 7.9 percent in 2009 is causing huge changes in the composition of wealth and the overall income distribution. The share of the poor will rise from 13.2 percent before the crisis, to 17.4 percent by year's-end. And the share of the vulnerable population will increase to 20.9 percent in comparison to 18.3 percent previously (an increase of 3.6 million people).
*The Russian middle class measured in terms of household consumption is likely to shrink - by about 10 percent - from 55.6 percent to 51.2 percent (a decline of 6.2 million people).( World Bank's Russian Economic Report No. 19 24/6/09).
On June 22, Russia's ruble-denominated MICEX Index dropped 7.8 percent to 937.98, bringing its decline since June 1 to 22 percent. The dollar-denominated RTS Index declined by 4.98 percent to 961.04. On the same day the World Bank said it expected the Russian economy to contract by 7.5 percent this year (www.top.rbc.ru, June 22). The economic crisis is clearly deepening, since the decline of Russian industrial output accelerated by 17.1 percent in May compared with 16.9 percent in April. Experts admit that even rising oil prices will hardly help the inefficient Russian economy.
The much-vaunted Russian recovery plan isn't working very well despite Medvedev's cheerleading. Gazprom is not doing much better. Data from the International Energy Agency showed last week that Gazprom's market share in Europe and Turkey plunged to 16 percent in the first quarter of this year, compared with 30 percent last summer. European customers preferred buying cheaper LNG in spot trading from Gazprom's competitors because contracts with the Russian company fix prices for pipeline gas to those of oil six to nine months ago, when it hovered at record-high levels. Russia's reputation as a gas exporter also took a hit in January, when a dispute over supplies and transit in Ukraine led to widespread shortages throughout much of Europe. Gazprom exported to Europe just 74 percent of what it planned to in the first half of this year, or 59.5 billion cubic meters. (Anatoly Medetsky, Moscow Times 25/6/09). Gazprom has immense reserves of natural gas in the new Sakhalin plants and with the development of the Stockman gas deposit located in the central part of the Barents Sea. Its stocks are estimated at 3.2 billion cubic metres of gas and 31 million tonnes of condensate. Gazprom doesn't have the resources available to develop its own gas fields on its own and is desperately trying to set up deals with the oil majors. How is it going to develop Nigeria's gas fields? Gazprom is Nigeria's competitor in the international gas business not its ally. Nigeria already has five gas trains working producing LNG for which there is a growing market, especially in Europe trying to avoid the energy blackmail of Russia during its disputes with the Ukraine.
The NNPC is deluding itself when it rejoices over the Russian (Lukoil) proposed investment in crude production. Oil Minister Rilwanu Lukman (former OPEC Secretary General) said. "Nigeria produces 2 million barrels of oil per day. With Russia's help, we hope to double the output. At the very least, we hope to make it 3 million barrels per day." Lukman doesn't mention that current production is 1.05 million barrels a day and falling; nor that Nigeria is part of OPEC and the notion of OPEC allowing Nigeria to produce 4 million barrels a day is fanciful at best in this market.
The idea of building a gas pipeline in Nigeria from the Delta to the North is a politically blind decision. The Delta states have been having a hard enough time getting their 13% derivation from the Northern bosses for existing production. Setting up a direct gas line from the Delta to the North is likely to be setting up a permanent target for the Delta militants to attack.
For anyone with a memory Nigeria's experience with the Russian-built steel mill at Ajaokuta which was supposed to become the largest metal producing plant in Africa raises many issues.. The building of the steel plant started in 1970 during the Soviet era. The whole project fell apart in the 1980s and is ''a painful topic in discussions among Nigerian policy experts on Russian-Nigerian relations''. (IPS 23/3/09). A brief and unsuccessful interlude with the Indians did not advance the project so Nigeria is trying “hair of the dog” solution to the failure of Ajeokuta. This reliance fails to understand the deeply depressed nature of the international iron and steel industry and the failure of Russian steel mills to thrive or even survive. One of Russia's largest steel businesses has just issued a warning of its imminent failure to trade as a “going concern” As Reuters reported on 25/6/09 “Debt-saddled steel and coking coal producer Mechel on Wednesday raised major doubts about its future as a going concern. Top Russian steel producers borrowed more than $30 billion to make acquisitions and increase production during the pre-crisis boom, and Mechel is one of the most indebted, with total debt of $5.4 billion as of Dec. 31. There is substantial doubt about our ability to continue as a going concern," the company wrote in a key filing with the U.S. Securities and Exchange Commission. Mechel has breached covenants on $4.2 billion of loans, forcing it to -reclassify most of its debt as shirt-term. Are these the people to save Nigeria's steel business?
Perhaps the only truly positive outcome of this visit is the agreement between Nigeria and Russia to jointly work on the exploration of space. It will be a wonderful thing if there are Nigerian cosmonauts who can escape the confines of the planet and search the ether for Nigeria's missing satellite.
Culled from Ocnus.net