Nigerians feel strain as oil slide hits main street

The near 40 percent slide in oil prices in the past year is beginning to put a strain on Nigerians and their businesses as its impact starts to trickle down beyond just a dampener on government finances.

BusinessDay has learnt that some upstream oil and gas projects have been suspended or cancelled, implying material revenue delays for the service companies that have taken out loans from banks.

A slowdown in consumption is also beginning to be felt as firms lay – off staff in a bid to cut costs, a trend that analysts say may hit second quarter growth figures and boost banks bad loans.

“We see an additional implication of what we have described in terms of staff layoffs by both upstream and service companies – employees that Nigerian banks have historically been happy to support with payroll loans,” said Renaissance Capital bank analysts led by Adesoji Solanke in a June 08 note.

“We expect consumer NPLs to arise from these sectors.”

The oil and gas sector made up 15 percent of Nigeria’s GDP in 2013, according to rebased economic data released by the National Bureau of Statistics (NBS).

Data from the NBS showed that six major areas of economic output drove growth, including crop production which contributed 21.5 percent, Trading (16.4 %), Oil and gas (15.6%), ICT (11%), Real Estate (7%) and Manufacturing (6.6%).

All sectors above are vulnerable to a slide in oil prices with its attendant symptoms of lower consumption and naira volatility.

Growth in the first quarter of 2015, slowed to about 4 percent, from on an annual basis compared with 5.9 percent a quarter earlier, as the oil sector shrunk by 8.2 percent, according to data from the NBS.

Nigeria’s Federal Government gets up to 70 percent of its budget from oil sales. In some states it reaches as high as 90 percent

The delay by many state governments in paying workers, late salary payments at the Federal level, and non payment of contractors at various levels of government, is a drag on consumption growth with the man on the street most hit.

In the services sector, sources tell BusinessDay that some advertising agencies are feeling the pinch as major firms pull back on advertising.

“We are currently dealing with circular debts in the industry,” one brand executive said on condition of anonymity.

“One of my clients a big firm in the oil and gas space has not paid for services being rendered since February. We in turn owe some of our partners.”

For main street traders, the major pain is being felt from the 30 percent depreciation of the naira over the past six-to-nine months, as well as the low availability of FX to facilitate imports.

“Nigeria continues to face challenges from last year’s oil-price shock,” said Samir Gadio, Standard Chartered Bank’s head of Africa Strategy and FICC Research.

“The black market USD-NGN rate is currently around 215.5/217.5 versus a CBN auction rate of 196.95; 3M and 6M non-deliverable forwards (NDFs) are quoted at 211.5/214.5 and 220.5/224.5, respectively.”

Other impacts of the oil slide on Nigerians and their businesses include the tight monetary policy of the CBN which has led to an increase in lending rates.

Stanbic IBTC for example increased its interest rates on mortgage and consumer loans by 200 – 300 basis points this year.

Banking sources say other lenders have done the same.

“We understand players in the general commerce and manufacturing sectors are feeling the strain – something the banks have corroborated. The weak macro environment has also led to a cooling in real estate markets,” said Solanke.

PATRICK ATUANYA