Saudi Aramco’s $75bn dividend payment shows what Nigeria is missing

Saudi Arabia’s majority-owned state-owned firm, Saudi Aramco, is paying shareholders $75 billion in dividend, an amount twice the size of Nigeria’s 2021 budget, indicating how a well-run oil company can provide a lifeline to an economy.

This is even remarkable considering that the company’s profit fell by 44 percent in 2020 following the COVID-19 pandemic, but its Nigerian counterpart, the Nigerian National Petroleum Corporation (NNPC), is unable to bail out the country’s troubled economy bogged down by subsidies, and an inefficient operation.

The NNPC has been unable to apply market reforms in two decades while its peers are leveraging opportunities from listing on the stock market, including raising quick cash to survive lower oil price challenges.

Aramco’s dividend payment is the largest of any listed company, almost all of which goes to Saudi Arabia’s government.

The dividend is a key source of cash for the oil-rich Kingdom, whose economy was hit after the virus hammered energy markets and shut down local businesses.

The Saudis, like many oil-producing countries, had seen its budget deficit increase after COVID-19 disrupted the global energy market.

“We’re very optimistic about 2021 in terms of growth in demand, especially in the second half,” Amin Nasser, Aramco’s CEO, told reporters on Sunday. “Prices have so far responded to the recovery we are seeing. We need to be prudent, but you have to compare everything to 2020.”

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Although Saudi Aramco acknowledged it had taken on more debt in the past year to keep up the dividend in the face of declining cash flow. However, some experts say paying a dividend as high as $75 billion can hedge any economy from the external shock caused by the coronavirus pandemic.

“Nothing delights investors more than paying dividends including the Saudi Arabia government who are the highest shareholders,” noted Kurt Davis, an investment banker focused on Europe, Middle East, Africa and Turkey.

Saudi Aramco is ramping investments in hydrogen and renewables as it looks beyond oil.

“I think hydrogen has huge potential going forward in transportation and power generation,” Nasser said.

For long-suffering Nigerians who have seen it all in the form of rising inflation, two recessions, and an unemployment rate at the highest levels on record, they would be wishing they are in Saudi Arabia’s shoes with the higher dividend from its state-owned oil corporation.

“Nigeria’s current situation calls for urgent intervention and reforms,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said in a statement.

Joe Nwakwue, Chairman, Society of Petroleum Engineers (SPE), said Nigeria needed to think in terms of decentralisation to move forward.

“The government must focus on setting up the right regulations and allow the private sector to drive the oil and gas sector,” Nwakwue said.

Experts have canvassed reforms that can unlock growth in the oil sector but reforms have not kept pace.

The economy, largely dependent on oil receipts, has taken a beating. Inflation rose to 17.33 percent in February from 16.47 percent the previous month. Unemployment has more than quadrupled over the last six years after two painful recessions.

Crude oil prices crashed in the first half of 2020 due to a supply glut that led to a decline in revenue, which accounts for more than 90 percent of Nigeria’s foreign exchange earnings, and this resulted in three technical currency devaluations in 2020.

The naira depreciated marginally against the dollar on Monday to close at N410/$1.

Analysts say listing the NNPC on the stock exchange is an enormous work. But an Initial Public Offering (IPO) would put the NNPC on a bigger international stage, especially if the valuation is high.

An NNPC IPO would raise cash to boost dwindling government revenue and decouple this behemoth of a state-oil firm making it operate to earn a profit.

“The privatisation of the NNPC is an international discussion. But there are many factors to the process that are local, such as the passing of the Petroleum Industry Bill (PIB) and reducing major losses incurred by the refineries,” Davis said.

Meanwhile, Saudi Aramco and ADNOC continue to reap huge benefits from listing on the stock market. Raising funds on the stock market has helped both companies to cushion the effect of fallen oil prices and they are now reforming their oil sector to attract foreign investment.

Saudi Aramco and ADNOC are modelling their operations after international oil companies by expanding downstream, trading and petrochemicals, and deepening gas investments.

For NNPC to compete in the evolving oil and gas market, it would need to reform its operations to become more transparent and commercially oriented to attract the attention of foreign investors and become profitable.