In Africa’s biggest oil-producing country, the price of lubricant, a by-product of crude oil, has skyrocketed as high as 200 percent with businesses suffering more from rising operational cost while Nigeria’s projected $683 million lubricant market continues to face investor apathy.
From heavy manufacturers to small retail businesses, this rise in lubricant price translates to a rise in the cost of servicing vehicles as well as plant and machinery, which is further hurting the ease of doing business in Africa’s biggest economy.
The country has an installed lubricant capacity of 600,000 metric tons, accounting for about 20 percent of Africa’s total lubricants demand, according to data from the Lubricants Producers Association of Nigeria (LUPAN).
However, Nigeria’s poor local capacity has affected the cost of locally blended products now currently higher than that of imported lubricants due to global calls for energy transition, leading to a gradual switch from base oils to synthetic oils, currency devaluation, and shutdown of many foreign refineries due to the COVID-19 pandemic.
These have led to at least 200 percent rise in the price of lubricants from about N850 per litre to N2,200 per litre.
BusinessDay correspondent, who monitored the situation in parts of Lagos and its surroundings, observed that some major oil marketers were selling four-litre gallon for N23,000 from N12,000, few weeks ago.
“The rising cost of lubricant is seriously affecting my profit margin,” Daniel Akintunde, a small business owner, told BusinessDay.
These lubricant products are mostly used alongside price-capped petrol for vehicles or businesses to power their generators amid a lack of reliable power supply from the national grid.
“The cost of diesel and raw material is giving us a nightmare. The price of lubricants has been skyrocketing in a way that creates fear in particular manufacturers,” Nigeria’s largest business think tank, the Lagos Chamber of Commerce and Industry (LCCI) said in a note.
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They noted that accelerated domestic refining and processing of petroleum products would end the unstable petroleum pricing and allow Nigeria to explore the full potentials in the sector’s value chain.
According to a report by TechSci Research, a research-based management consulting firm, Nigeria’s automotive lubricants market is projected to reach $683 million by 2023.
“Despite huge domestic opportunities, Nigeria is still 100 percent import-dependent because there is no local refining of base oil, which is a major component in lubricant products,” said Emeka Obidike, executive secretary, Lubricants Producers Association of Nigeria (LUPAN).
Data published by the National Bureau of Statistics (NBS) revealed in the first quarter of 2021 that Nigeria spent N71.6 billion on the importation of lubricants that would be blended locally.
“Nigeria can redirect the huge billion it spent importing lubricant products by putting more incentives and infrastructure in the local market to drive production, which will encourage more investors to develop local capacity and generate more forex for Africa’s biggest economy,” Obidike said.
He noted that Nigeria needed to discourage capital flight and encourage a more backward integration policy that would inspire the local blending plants to stop depending on importation for their feedstock and recycling of base oils to meet market demand.
Other areas in the industry where investors can put money and expect high returns include blending plants, additives plants, reference laboratory, recycling plants and base oil plants.
Considering the country’s huge dependency on importation, other experts say the shortage of foreign exchange had a serious adverse impact on various lubricants companies’ ability to do business and imposed severe costs on key sectors of the country, which further cascaded into all areas of the economy.
Over the years, Nigeria’s lubricant market has grown with the growth in the number of second-hand and new passenger and commercial vehicles in the country.
Penetration of used cars and the requirement of more frequent lubricant changes in older vehicles as compared to newer models have contributed to the volume demand of automotive lubricants in Nigeria.
Recently, the investment landscape is changing with major oil marketers taking advantage of the fact that the lubricants market is deregulated and with little government interference.
“The Ardova plc we are looking to create is one that is going to try to balance its portfolio and get even stronger on lubricants,” Olumide Adeosun, CEO of Ardova plc, told BusinessDay.
Most major oil companies have invested heavily in upgrading synthetic lubricants facilities and have embarked on nationwide awareness campaigns and promotion to make sure that this area of their business, which the government does not have as much involvement or control or issues of subsidy yields optimum profits.
Total Nigeria plc is the market leader with the highest market share in terms of sales volume in the Nigerian lubricants market, followed by Ammasco International Limited, 11 plc, Oando plc, Tonimas Nigeria Limited, Forte Oil plc, Conoil plc, Lubcon, MRS Oil Nigeria plc, A-Z Petroleum Products Limited, Dozzy Oil and Gas, Eterna plc, Techno Oil Limited and Ascon Oil Company Limited.
Experts say increasing favourable regulations in Nigeria’s lubricants market, collaboration with transportation companies, increasing knowledge of consumers and providing better quality lubricants at lower costs will aid the manufacturers of lubricants in Nigeria to grow and achieve higher profits.
