Dangote refinery, not silver bullet to solving Nigeria’s FX crisis – Bismarck Rewane
The soon to be completed Dangote refinery, expected to be Africa’s biggest oil refinery and the world’s biggest single-train facility, upon completion in 2022, will not solve Nigeria’s foreign exchange challenges, according to economist and CEO of Financial Derivative Company, Bismarck Rewane.
Acknowledging that the 650,000 barrels per day (bpd) integrated refinery and petrochemical project will help in reducing Nigeria’s petroleum refining cost as well as the cost of transportation, Rewane said it will not help Nigeria to earn the much-needed US dollar to meet its FX needs.
“Dangote refinery as a silver bullet to solving Nigeria’s foreign exchange problem is a misunderstanding of the facts. It will help in reducing refining cost, it will help in reducing transportation cost but it is the oil that you are going to export that will give you a dollar,” Rewane said during a panel session at the IMF’s Public Presentation of the fall 2021 Issue of the Regional Economic Outlook on Wednesday.
According to him, the proceeds from the refinery are “going to be refined and used here, so it is about understanding the difference between necessary and sufficient conditions. It is necessary to get the Dangote refinery to work but it is not sufficient to solve the FX problems.”
Meanwhile, at a recent foreign investors’ meeting in New York, the Central Bank Governor, Godwin Emefiele stated that Nigeria’s import of petroleum products that accounts for 30 percent of its forex can be reversed by the successful commencement of operations at the Dangote Refinery.
“The Dangote refinery once it begins production would be a major FX saving source for Nigeria,” the Governor said, adding that “if the 650,000” daily barrels that will be produced from the refinery will “be sold in Naira it would be a major FX saver for Nigeria.”
Nigeria’s dollar supply challenges come from its dependency on the foreign earnings from crude oil, which has continued to account for over 90 percent of its dollar source.
Although on the rise, the falling global crude price always reduces dollar supply in Nigeria which consequently leads to the naira devaluation.
The continuous devaluation of Nigeria’s local currency has remained a key concern for both local and foreign investors who are looking to preserve the purchasing power of their savings and investments. Foreign investors have had their money trapped in Nigeria’s debt market since March 2020 amid a dollar shortage.
“It is mental laziness which a lot of people indulge in to just think that by June next year Nigeria’s FX will be solved” due to the commencement of the Dangote refinery, Rewane said.
Under construction in the Lekki Free Zone near Lagos, the Dangote refinery is expected to process a variety of light and medium grades of crude to produce Euro-V quality clean fuels including gasoline and diesel as well as jet fuel and polypropylene.
Owned by Africa’s richest man, Dangote Oil Refinery is being developed with an estimated investment of $19billion. Nigeria’s Federal Executive Council (FEC) approved the acquisition of a 20 percent minority stake in the project by state-owned Nigerian National Petroleum Corporation (NNPC) for $2.76billion in August 2021.