Nigerian President Goodluck Jonathan is bolstering the credit rating prospects of Africa’s largest oil producer as he rejects demands from striking workers to reinstate fuel subsidies, Standard & Poor’s said.
Jonathan’s move to abolish the subsidy on Jan. 1, which more than doubled gasoline prices, is key to government reforms needed for an upgrade of Nigeria’s B+ rating, Christian Esters, a sovereign analyst at S&P, said in a phone interview from Frankfurt yesterday.
The nationwide strike, which is in its fourth day today, has shut branches of Standard Chartered Plc (STAN), closed ports and threatens oil output from Royal Dutch Shell Plc. (RDSA) The action has cost the economy 320 billion naira ($2 billion) in lost output, according to Bismarck Rewane, chief executive officer of Lagos- based Financial Derivatives Co. Jonathan, who imposed emergency rule in parts of the north to quell religious violence, shows no signs of backing down.
“Getting rid of the fuel subsidies is part of that reform program,” Esters said. “The potential upgrade is linked to whether the government implements its reform program.”
S&P raised its outlook on Nigeria’s credit rating to positive from stable on Dec. 29, indicating it may upgrade the nation’s rating if the government follows through with plans to boost the economy and savings. Jonathan plans to use 1.2 trillion naira in savings from the subsidy to invest in power plants, roads and other infrastructure projects.
“If Nigeria were to reverse, it would have been the worse thing that will happen to the nation,” Information Minister Labaran Maku told reporters in the capital, Abuja, yesterday. “This protest is only adding more pains to Nigerians.”
Yields on Nigeria’s 6.75 percent Eurobonds due 2021 declined 13 basis points, or 0.13 percent, to 5.964 percent, the lowest since Nov. 7, as of 8:42 p.m. in London, according to data compiled by Bloomberg. Yields have retreated 24 basis points since the removal of the subsidy on Jan. 1. Trading in the naira has been limited since the strike started, and the currency was unchanged at 161.91 on the interbank market as of 9:45 a.m. in Lagos. The naira has gained 0.06 percent against the dollar since the strikes started Jan. 9.
“Both the interbank foreign exchange and money market are effectively closed,” Leon Myburgh and Coura Fall, Africa strategists at Citigroup Inc. in Johannesburg, wrote in an e- mailed note to clients today.
The Nupeng oil union has withdrawn its members from oil fields in support of the strike, Elijah Okougboh, general secretary of the National Union of Petroleum and Natural Gas Workers of Nigeria, said today by phone from Lagos.
The Petroleum and Natural Gas Senior Staff Association, one of the country’s two main oil workers unions, said in an e-mail yesterday it alerted its 24,000 members to a “total production shutdown.” At least 90 percent of Nigeria’s oil is pumped by Shell, based in The Hague, Exxon Mobil Corp (XOM), San Ramon, California-based Chevron Corp. (CVX), Total SA (FP) and Eni SpA (ENI) in joint ventures with state-owned Nigerian National Petroleum Corp.
Crude for February delivery gained as much as 67 cents to $101.54 a barrel in electronic trading on the New York Mercantile Exchange at 8:24 a.m. in London.
Shell spokesman Tony Okonedo said the company is monitoring the situation. “Our priority now is the safety of our staffs, contractors, and our operations,” he said by phone from Lagos. Nigel Cookey-Gam, a spokesman for Exxon Mobil, declined to comment on the company’s operations by phone today. Charles Ebereonwu, a spokesman for Total, didn’t respond to calls seeking comment.
Standard Chartered’s 29 branches in Nigeria were closed, Diran Olojo, a spokesman for the lender said by phone from Lagos yesterday. Diamond Bank Plc’s 220 branches were also shut, Abdulrahman Yinusa, chief financial officer, said by phone yesterday from Lagos. Electronic banking facilities were still operating, he said.
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 subsidy. 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.
Thousands of protesters marched through the streets of major cities in the past three days, led by union leaders displaying banners and signs denouncing Jonathan’s government and demanding the reversal of fuel-price increases. A 24-hour curfew was imposed in Kaduna and Niger states after protests turned violent in the past two days. Police have shot dead three people and injured 25 since the strike began, London-based Amnesty International said yesterday.
The strike’s cost to Nigeria’s economy may run above $1 billion a day, Gregory Kronsten, head of macroeconomic research at FBN Capital Ltd. in London, wrote in an e-mailed note today.
Jonathan, who won a four-year term in April, is already under pressure to address an increase in religious violence in parts of the north. He declared emergency rule in some states in the region after a Christmas Day bombing of a church near Abuja killed 43 people. Islamist militants pose a worse threat to the country than the 1967-70 civil war, Jonathan said on Jan. 8.