Jan. 12 (Bloomberg) -- Nigerian President Goodluck Jonathan will meet labor leaders in a bid to end a four-day-old nationwide strike against the lifting of fuel subsidies and avert a shutdown of the oil industry, a union leader said.
The meeting will take place at 5 p.m. local time today in Abuja, the capital, Peter Esele, president of the Trade Union Congress, told reporters. Earlier, the Pengassan labor union said it would begin shutting down Africa’s biggest oil industry on Jan. 15, while the Nupeng union said it has withdrawn its workers from fields operated by companies such as Royal Dutch Shell Plc. The strike has limited trade in stocks and the naira, closed ports and banks and sparked street protests.
“If there’s a prolonged shutdown of oil exports, that would put tremendous presssure on the government,” Antony Goldman, the head of London-based PM Consulting, said by phone today. In the short term, “companies producing off floating production storage and offloading vessels can probably increase production” to offset initial losses, he said.
Jonathan, who won a four-year term in April, has pledged to use savings from the 1.2 trillion naira ($7.4 billion) 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.
Nigeria at ‘Crossroads’
More than 85 people have died in bomb and gun attacks since Christmas Day on churches in Abuja, the capital, and in the north that the authorities blame on Boko Haram. Its leader, Abubakar Shekau, in a 15-minute video posted on Youtube, claimed responsibility for recent attacks and said the group will target Christians in the north if they don’t heed its warning to leave.
“The strike and the security situation leave Nigeria at a crossroads,” Goldman said. “Whether things will get better or worse will be resolved in the next few weeks. The status quo looks increasingly unsustainable.”
Oil accounts for about 80 percent of state revenue and more than 95 percent of export income, according to the Finance Ministry. Nigeria produced about 2.2 million barrels of oil a day last month, according to data compiled by Bloomberg. At least 90 percent of Nigeria’s crude is pumped by Shell, based in The Hague, Exxon Mobil Corp, San Ramon, California-based Chevron Corp., Total SA and Eni SpA in joint ventures with the state-owned Nigerian National Petroleum Corp.
Oil Installation Security
An attempt by the unions to shut down production “would not necessarily have an immediate or severe impact on operations due to the high level of automation in the process, the presence of non-unionized and foreign workers and tight security at oil installations,” IHS Global Insight Africa analyst Sebastian Boe said today in an e-mailed statement.
Crude for February delivery gained as much as $1.46 to $102.33 a barrel and was trading at $101.84 in electronic trading on the New York Mercantile Exchange at 2:26 p.m. in London.
Shell is monitoring the situation, said spokesman Tony Okonedo. “Our priority now is the safety of our staff, contractors, and our operations,” he said by phone from Lagos.
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 West African nation to import about 70 percent of its fuel.
“To subsidize the importation of petroleum products is to keep refineries in Europe and the Middle East open; you’re not creating jobs here in Nigeria,” central bank Governor Lamido Sanusi told Channels TV in Lagos today. “If we continue spending a trillion or a trillion plus every year and subsidize fuel for another three to four years, what will happen is that you run into a huge sovereign debt crisis.”
The cost of the strike to the economy may be more than $1 billion a day, Gregory Kronsten, head of macroeconomic research at FBN Capital Ltd. in London, wrote in an e-mailed note today.
Jonathan’s move to abolish the subsidy is key to reforms needed for an upgrade of Nigeria’s B+ rating, Christian Esters, a sovereign analyst at Standard & Poor’s, said by phone from Frankfurt yesterday. 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.
Cocoa prices have gained 9.4 percent this week in London on concern the strike will stop shipments from the world’s fourth-biggest producer of the chocolate ingredient. The labor action has halted cocoa grading and transportation of the beans from farms, according to the Cocoa Assocoiation of Nigeria.
Trading in the naira on Nigeria’s interbank market was limited for a fourth day. The currency was unchanged at 161.91 per dollar, as of 3:12 p.m. in Lagos, the commercial capital, according to data compiled by Bloomberg.
“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.
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