Navigating Nigeria’s economic shifts

Welcome to today’s edition of 234Digest! I’m Samuel Okocha, the curator and editor. Although I missed the deep dive on Sunday, I’m excited to be back this Monday with a comprehensive round-up of last week's important stories. Recently, I embarked on transforming 234Digest from a weekly highlight to a daily staple, publishing from Tuesdays to Fridays, with deeper dives on Sundays. My absence on Sunday was due to a much-needed rest after a weekend trip, but I’m thrilled to be back in your inbox today, maintaining the momentum. It’s just past quarter past 7pm here in Nigeria as I send this newsletter. I’m eager to see what more I’ll learn as I strive to deliver daily, snappy, and nonpartisan insights on the country’s economic and business landscape.

Today’s briefs

Nigeria's gas agreement

Nigeria has signed a gas sales-and-purchase agreement worth $3.3 billion with partners including Shell, TotalEnergies, and Agip. This landmark deal will supply gas to the Brass Fertilizer & Petrochemical Co. Ltd methanol-manufacturing project. The agreement, signed in Abuja on Friday, comes nine years after the project was first announced. This move highlights Nigeria's effort to attract investment in its gas sector.

Dangote’s oil exploration ambitions

Following his ambitious goal to refine oil in Nigeria for the first time in decades, Aliko Dangote has now set his sights on crude oil exploration. Initially planned for Q4 2024, Dangote's crude production will commence in 2025. According to a report by S&P Global Commodity Insights, production at Dangote's two oil properties in the southern state of Delta will begin at around 20,000 b/d before ramping up further in Q1 2025. A senior official at the Dangote refinery confirmed the plan, stating, “Yes, our company is truly going to start crude oil production to support the refinery, but it is going to start in the first quarter of 2025.”

Fuel market deregulation

Turning to fuel policy, Nigeria has ended the Nigerian National Petroleum Corp.'s monopoly on purchasing gasoline from Aliko Dangote's refinery. Retailers can now buy gasoline directly from local refineries. This change marks a departure from the previous arrangement where the state-owned oil company was the sole purchaser and distributor of premium motor spirit. Finance Minister Wale Edun announced the shift on Friday.

Fuel price hikes

The end of the NNPC's monopoly coincides with another significant development: fuel prices have increased by 15 to 20 percent at pumps across Nigeria, dealing another blow to an already struggling population. This marks the second hike in just over a month. The state oil company has not commented on the sudden increase. The price hike exacerbates the economic crisis in Nigeria, already regarded as the worst in a generation.

Foreign investment surge

In brighter news, Nigerian equities attracted $150 million in foreign investment in the second quarter, a 204% surge from the previous quarter, as investors capitalized on the naira's undervaluation. The influx of foreign capital is a welcome boost for Nigeria's stock market, which has struggled to recover from a pandemic-induced slump. Analysts say the naira's weakness, with a price difference of around 30% between the official and parallel markets, is a key draw for investors. "The undervalued naira is an incentive for foreign investors," said Muktar Mohammed, an analyst at Assar Investments, in an interview with CNBC Africa. "They're coming in at the right time, and the market is creating value for them." However, concerns persist about the difficulty in repatriating funds, which had driven investors away in the past. Nigeria's exclusion from MSCI's frontier market index remains a significant hurdle.

Binance executive denied bail

And turning to legal matters, a Nigerian court has denied a bail application on health grounds for a Binance Holdings Ltd. executive facing charges of money laundering and currency manipulation. Tigran Gambaryan, held since February, had his bail application rejected by Justice Emeka Nwite of the Federal High Court in Abuja. His lawyer cited his poor health, requiring surgery, but the court maintained that illness alone doesn’t justify bail unless it poses harm to others.

Deeper dive: Nigeria's fuel market deregulation

Introduction: Nigeria has ended the NNPC's monopoly on fuel purchases, aiming for a fully deregulated market. Finance Minister Wale Edun announced the move, which could reshape the economy.

The big picture: For decades, the Nigerian National Petroleum Corporation (NNPC) held a monopoly on the purchase and distribution of petroleum products. This centralized control was intended to stabilize prices and ensure a steady supply of fuel. However, it also led to inefficiencies and corruption, with subsidies often benefiting a select few rather than the broader population.

By the numbers:

• Fuel prices have surged from N198 per liter to N1,030 in just over a year

• Nigeria is Africa's largest oil producer, yet has long struggled with fuel shortages and price instability.

The deregulation of the fuel market is expected to introduce market dynamics that could lead to more competitive pricing. By allowing private players to enter the market, the government hopes to reduce the burden on the state and encourage investment in local production.

Between the lines: The government faces a delicate balancing act between economic reform and social stability. The sharp rise in fuel prices has sparked public outcry and protests. The long-term success of this policy will depend on how well the government can manage these social challenges and ensure that the benefits of deregulation are felt by the broader population.

What to watch: The success of deregulation hinges on:

• Boosting local production to reduce import reliance

• Implementing measures to protect consumers from price volatility

• Ensuring equitable distribution of benefits

The bottom line: Looking ahead, the success of Nigeria's fuel market deregulation will hinge on several factors. Nigeria’s fuel market deregulation is a bold move with significant potential and challenges. The government’s policies will be crucial for its success.

Quote of the day: "Success is not final, failure is not fatal: It is the courage to continue that counts." - Winston Churchill

Photo of the day

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