Nigerian firms in trouble as central bank measures backfire

ABUJA, Sept 24 (Reuters) - Nigerian companies making anything from soap to tomato paste could run out of raw materials and be forced to shut down as Africa's top oil producer has effectively banned the import of almost 700 goods to prevent a currency collapse.

Selected luxury items such as make-up or brown bread imported from Europe have become scarce in some shops as the central bank denies importers dollars, seeking to stem the fallout from a crash in vital oil revenues hammering Africa's largest economy.

The central bank has restricted access to foreign currency to import 41 categories of items to stop a slide of the naira but the Manufacturers Association of Nigeria (MAN) said this in fact amounted to about 680 individual items.

The foreign exchange bans are part of a long-term plan by President Muhammadu Buhari to encourage local manufacturing, but they run the risk of pushing the economy closer to recession after growth halved in the second quarter compared with the same period last year.

Many items on the central bank list - ranging from incense and toothpicks to plywood, glass and steel products -- are not available in Nigeria in sufficient volumes.

While Nigeria grows a lot of tomatoes, transport is poor and it lacks facilities to produce the concentrate needed by factories making tomato paste, a staple in the West African nation.

"We've taken this matter up with the central bank and the highest authority in this country ... Fiscal authorities will also be involved, they weren't before," Remi Ogunmefun, the director general of MAN, said.

MAN had told the central bank 105 items should be removed from the list, but the bank said it could not afford to do so and agreed to look into removing 44 items.

MAN also suggested 93 finished items that should be added to the list because Nigeria produces enough of them.

The economic crisis is a blow to Buhari who wants to end dependence on oil revenues but faces criticism for failing to name a cabinet four months after taking office.

Since the central bank unveiled its controls in June, executives have had to deal with foreign suppliers worried they won't get paid. They also struggle to convince banks to approve dollar payments.

"It takes minimum 10 days now to get dollars, before it was 24-48 hours, and sometimes when you request like $100,000, you only get $80,000 and it's getting worse," said an executive at a large furniture company, asking not to be named.

It's not clear which imports are still allowed as the central bank lists only categories. He can still bring in beds and chairs to be assembled in Nigeria, but not sofas.

Some firms have defaulted on contracts and lost credit lines. "Many companies have defaulted on fulfilling foreign obligations ... even blue chip companies ... for the first time," said Muda Yusuf, director general of the Lagos Chamber of Commerce.

According to the Lagos Chamber of Commerce, Nigeria is short of 600,000 tonnes a year of palm oil, that is used to make soap, detergents and cosmetics that have also been restricted. Pharmaceutical firms lack bottles, and glass manufacturers do not have the glass to make them.

Julia Payne (Reuters)

Two in every 100 Syrian migrants may be ISIS recruits

Two in every 100 Syrian migrants smuggled into Europe are Islamic State-trained fanatics, David Cameron was warned yesterday.  Lebanese education minister Elias Bousaab, who met the Prime Minister during his lightning visit to the region, said the extremist group is sending trained jihadists ‘under cover’ to attack targets in the West.

If true, it could mean up to 400 of the 20,000 refugees Britain has promised to accept by 2020 have been radicalised. ‘It’s becoming a danger because they are recruiting kids from schools, they are recruiting everywhere. ‘It’s a very dangerous situation and the world should wake up and do something about that.

‘Isis will not stop at the border with Lebanon, before you know it Isis will be in Europe.’ Mr Bousaab’s warning came as Mr Cameron visited refugee camps to see how Britain’s £1billion aid spending is used. 

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The depth of Nigeria’s Electricity Problem

There's no end in sight to the daily blackouts that the government says are costing Africa's largest economy about $100 billion a year in missed potential and that President Muhammadu Buhari calls a "national shame." Gas shortages, pipeline vandalism, inadequate funding, unprofitable prices and corruption mean fixing the electricity cuts two years after a partial sale of state power companies to private investors won't be easy.

Generated output has never risen above 5,000 megawatts, which is about a third of peak demand, and if it did the state- owned transmission system can't deliver any more than that before it starts breaking down. South Africa, with a less than a third of Nigeria's population of about 180 million, has nine times more installed capacity and it too is grappling with blackouts.

Nigeria, Africa's biggest oil producer, ranked the worst of 189 countries after Bangladesh and Madagascar on the ease of getting electricity connected to businesses, costing almost 7 percent of lost sales each month, according to a 2015 World Bank Doing Business report.

The power bottleneck comes on top of a slump in oil prices and currency that are threatening Nigeria's role as a destination for investors. Economic growth slowed to 2.4 percent on an annual basis in the second quarter from 6.5 percent a year earlier.

About two-thirds of Nigeria's people have no access to electricity, and at the current plant commissioning rate, supply will barely meet 9,500 megawatts by 2020, according to a 2014 World Bank project document. Demand is expected to increase 10 percent each year. Buhari's party promised before he won power in March's election to generate 40,000 megawatts within four to eight years.

For years the industry's poor performance has spawned jokes about the former state electricity company's name. Nigerians called the National Electric Power Authority "Never Expect Power Always," and when its name was changed to the Power Holding Company of Nigeria a decade ago, they mocked it as the "Problem Has Changed Name."

Hopes that the power situation would improve after former President Goodluck Jonathan partially sold off 15 state generation and distribution companies for more than $3 billion to private investors two years ago have been dashed.

The buyers included locally owned companies such as Forte Oil, Sahara Group and Transnational Corp. of Nigeria, along with foreign technical partners such as Korea Electric Power Corp.

They found the companies they bought weren't financially viable, and the distribution firms mounted with debt started hemorrhaging cash. Last year, "the financial flows in the sector came close to collapse,'' Britain's Department for International Development said in a December 2014 report.

"There wasn't much due diligence done" because strikes during the sale period blocked access to the utilities, said Dolapo Kukoyi, a partner at Lagos-based Detail Commercial Solicitors, which advised investors looking to buy the distribution companies. "People basically bought blind -- this was across the board."

Nigeria's central bank designed a 213 billion-naira ($1.1 billion) bailout package to cover revenue shortfalls and help the companies meet debt-service obligations on bank loans of almost 500 billion naira.

The power industry still requires as much as $20 billion of investment in the next six years, according to Benjamin Dikki, the director-general of the Bureau of Public Enterprises, which led the sales.

Even after the sales, bribery of electricity workers by some diesel generator and fuel suppliers to organize household and business blackouts in order to boost sales is continuing.

Diesel generation costs 30 cents to 50 cents per kilowatt-hour, compared with the average grid tariff of 13 cents, according to the World Bank. Timothy Oyedeji, a spokesman for the Power Ministry, didn't answer two calls and a text message seeking comment.

The generation companies have battled with chronic gas shortages used by 70 percent of the plants, despite Nigeria holding Africa's biggest reserves of more than 180 trillion cubic feet. From December to June, rampant pipeline attacks reached levels last recorded at the peak of a 2006 to 2009 militant insurgency in the oil producing Niger River. They've slowed since then.

Government-set tariffs have also hampered the distribution companies. Just before the elections, the regulator banned them from charging consumers for losses caused by billing mistakes, effectively cutting the tariff by more than half in some areas. This caused most of the distribution utilities to declare force majeure, claiming they couldn't pay for their power supply.

Up the chain, generating companies say they haven't received payments from state-owned Nigerian Bulk Electricity Trading, which acts as a middle man between them and the distribution companies.

And because the distribution utilities haven't paid about 20 billion naira owed since February, payments to the power plants have slowed, said Rumundaka Wonodi, chief executive officer of NBET in Abuja.

While NBET has enough cash to make the market payments for five months, the money is there to cover breakdowns and the company doesn't want to deplete the funds without the agreement of the power minister, Wonodi said. Problem is, Buhari hasn't filled that position more than three months after taking office.

The generation companies are also feeling the pinch. The 30-year-old Egbin plant in Lagos, which is owned by Sahara and Korea Electricity, is owed almost 44 billion naira for December to June, along with 22 billion naira of past debt costs.

"We've never broken even in 2 1/2 years," Egbin Chief Executive Office Dallas Peavey Jr. said in an interview at the plant. "If it wasn't for Sahara to be quite honest we would have shut down about three months ago.''

The national grid is another bottleneck. It needs about $40 million a year just for maintenance, compared with the $1 million now allocated by the government, Peavey said. Nigeria's aggregate technical, commercial and collection losses are 35 percent of total generation, according to the World Bank.

Buhari said last month that he recognized that transmission was a greater problem than generation and his administration was taking action to boost supply.

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