Nigerian President Goodluck Jonathan and striking unions are deadlocked over their demands that the government reverse its decision to lift fuel subsidies that more than doubled the price of gasoline.
The strike, which entered its third day today, shut down banks, businesses and ports across the West African nation, limited the trade in stocks and the naira. While the action hasn’t slowed oil exports from Africa’s top crude producer, pumped by companies such as Royal Dutch Shell Plc (RDSA) and Exxon Mobil Corp. (XOM), it may have cost 320 billion naira ($2 billion) in economic output, said Bismarck Rewane, chief executive officer of Financial Derivatives Co.
“It’s mind boggling the cost” to the economy, he said by phone from Lagos today. “The foreign-exchange markets are down” and “the stock market is operating at about less than 5 or 10 percent of its optimal turnover and transactions.”
Jonathan, who won a four-year term in April, has pledged to use savings from the 1.2 trillion naira subsidy to invest in power plants and roads in sub-Saharan Africa’s second-largest economy. At the same time he faces an increase in religious violence in parts of the north where he has declared a state of emergency and says Islamist militants pose a worse threat to the country than the 1967-70 civil war.
Credibility at Stake
“Any backing away from the issue now will raise quite profound credibility issues with the government,” Antony Goldman, the head of London-based PM Consulting, which specializes in risk analysis in West Africa, said in a phone interview yesterday. “If they get this through, maybe people will start believing the transformational agenda is something more than just rhetoric.”
The lifting of the subsidies will lead to higher inflation and likely tighter monetary policy, Yvonne Mhango, an economist at Renaissance Capital, said today in an interview with Bloomberg Television in Johannesburg. Growth may slow to as low as 6.5 percent from a previous forecast of 7 percent this year, she said.
“It’s a big positive the fuel subsidies have been scrapped,” she said. “It created a huge scope for corruption.”
Thousands of protesters marched through the streets of major cities, led by union leaders, displaying banners and signs denouncing Jonathan’s government and demanding the reversal of fuel-price increases. Police have shot dead three people and injured 25, London-based Amnesty International said today in statement, as it urged Jonathan to investigate the use of police force against demonstrations.
Naira Trading Limited
Naira trading was limited for the third day, as Nigeria’s currency slid less than 0.1 percent to 161.91 per dollar as of 1:24 p.m. in Lagos. The Nigerian Stock Exchange All-Share Index (NGSEINDX) fell less than 0.1 percent to 20,901.13, according to data compiled by Bloomberg.
Yields on Nigeria’s 6.75 percent Eurobonds due 2021 declined 10 basis points, or 0.1 percent, to 6.015 percent, the lowest since Nov. 8, as of 12:16 P.m. in London, according to data compiled by Bloomberg.
The unions’ defiance of an injunction the National Industrial Court issued against the strike last week “constitutes an open invitation to anarchy,” Attorney General Mohammed Bello Adoke said yesterday in an e-mailed statement. The government may withhold the pay of state workers who don’t honor their employment contracts, he said.
The northern state of Kaduna imposed a 24-hour curfew in its the capital to curb violent protests, Police Commissioner Bala Nasarawa said.
At least 11 people, including four policemen, were killed yesterday in attacks by suspected Islamic militants in the northern states of Yobe and Bauchi, police said.
The Senate will mediate between the government and striking labor unions to end the deadlock over removal of fuel subsidies, Senate President David Mark said today in a statement.
Gasoline prices in Nigeria, where two-thirds of the population of about 164 million live on less than $1.25 a day, more than doubled after Jonathan abolished the subsidies on Jan. 1. The price had been capped at 65 naira a liter, undermining investment in refineries that forced the nation to import about 70 percent of its fuel.
The Petroleum and Natural Gas Senior Staff Association of Nigeria, one of the country’s two main oil workers’ unions, urged Jonathan to compromise.
Oil Industry Impact
Nigeria produced an average 2.2 million barrels of crude a day in December, according to data compiled by Bloomberg, and is the fifth-largest provider of oil imports to the U.S. At least 90 percent is pumped by Shell, based in The Hague, Exxon Mobil, San Ramon, California-based Chevron Corp. (CVX), Total SA (FP) and Eni SpA (ENI) in joint ventures with state-owned Nigerian National Petroleum Corp.
“There’s nothing as yet to indicate that the strike action will significantly impact the oil industry,” Mhango said.
Nigel Cookey-Gam, a spokesman for Exxon Mobil, said the company’s position was the same as yesterday when he said production wasn’t affected the strike. Precious Okolobo, a spokesman for Shell’s venture, which has the biggest operations in Nigeria, wouldn’t comment on output or exports.
“If the oil continues to flow then I think that the government would hope that it can face down the strikes and tough it out,” Goldman said.
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