Dangote Fuel Exports on the Horizon, but Challenges Loom in Nigeria's Business Landscape - EIU Analysis

Dangote's refinery, with a capacity of 650,000 barrels per day, is gearing up for its initial fuel exports, followed by shipments to the domestic market. While the facility theoretically has the potential to meet all domestic needs, uncertainties arise due to petrol subsidies, raising questions about profitability and profit maximization.

Regardless, Nigeria will continue relying on fuel imports for the majority of the year as the refinery gradually increases its output. The broader business environment remains highly challenging, marked by corruption, cronyism, widespread insecurity, and a substantial infrastructure gap.

Multinationals are increasingly opting to exit or reduce their presence in Nigeria. Economist Intelligence Unit (EIU) March 2024 estimations indicate a net withdrawal of foreign direct investment in 2023, expected to repeat in 2024 due to naira losses affecting balance sheets with significant foreign liabilities.

Oil majors are also divesting from onshore assets, which are considered high-cost and susceptible to insecurity, contributing to the sector's indigenization over time. Although this trend could theoretically be positive for foreign exchange accumulation, local companies may struggle to match the investment capacity of departing multinationals.

As inflation decreases and monetary policy becomes expansionary from 2025, domestic demand is anticipated to grow slowly. Consequently, real GDP growth is projected to accelerate to 3.5% in 2025—the second-highest rate in a decade—partly due to rebound effects, averaging 3.3% annually between 2026 and 2028.

Economist Intelligence Unit (EIU) analysts believe that factors such as power outages, rampant insecurity, a lack of land titling, and a substantial infrastructure gap are expected to impede economic progress.

EIU analysts predict an increase in Nigeria's crude oil production, from 1.23 million barrels per day (b/d) in 2023 to 1.48 million b/d in 2028, still below the 2019 level by approximately 250,000 b/d. Net exports are expected to drive growth in 2024, supported by recent large currency devaluation and increased crude output as the government addresses oil theft in the Niger Delta, coupled with the expanding capacity of the Dangote refinery.

Note that recent data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) indicates that the country produced 1,643,671 barrels of oil in January 2024, with crude oil accounting for 1,426,574 barrels, blended condensates at 58,177, and unblended condensates reaching 158,920, totalling 1.6 million barrels per day.

Also, data from the Nigerian National Petroleum Company Limited (NNPCL) between February 24 and March 1, 2024, show that crude oil theft incidents recorded in the Niger Delta region were 263; 46 illegal connections, 105 illegal refineries, 15 pipeline vandalism acts, 43 wooden/fibre boats, 11 vessels AIS infractions, eight illegal storage sites, 4 oil spills, and 31 vehicle arrests.