Nigeria's fuel crisis: How some are finding business opportunities amid the chaos - CNBC Africa

Nigeria's fuel crisis: How some are finding business opportunities amid the chaos

Western Africa

by Peace Hyde, FORBES AFRICA 0

Photo: Wikipedia

It's 7:30 am in Victoria Island, Lagos and across the road from Oniru, a suburb in the city, cars are piled up in front of the Total petrol station. There is also a separate line of about 100 people with empty yellow containers waiting to be filled. Toke Ogunlesi, founder of GQ Shoes, a local shoe manufacturing business is number 30 in the queue of irritated car drivers some of whom slept in their parked cars at the station last night. “This is really terrible, I have been queuing for the past three hours even though I arrived very early this morning. Yesterday, I couldn’t get any fuel and so I decided I would leave the house early today but unfortunately that plan did not work,” says Ogunlesi.

Business has slowed down significantly for his fledgling company, as it the case for many other organisations in Africa’s largest economy which is hampered by severe power cuts. Nigeria has a diversified economy, however the country’s monetary policy is heavily dependent on the oil sector. Finance minister, Kemi Adeosun in an interview with Reuters, said the country is expected to post budget deficits for the next two to three years. Reuters puts the 2016 deficit at 2.2 trillion naira ($11.6 billion).

“Firstly, Nigeria has a revenue challenge, oil prices are low and this is leading to production challenges. We lost forcados which is a major terminal for exporting crude oil that means about 250,000 barrels have been shut down and can not leave the country at the moment so we are not pushing as much production as we used to. This means the little revenue we are making right now has to be dispersed to finance imports for various things, like Foreign Exchange (FX) for imports and refineries, normal FX for fuel imports and other production costs,” says Dolapo Oni, an analyst with Ecobank.

“On the other side, the industry also has a regulated pricing structure so marketers are not able to sell at whatever prices they need to sell to recoup whatever costs they incur in the process of buying and selling the petroleum products so as a result most of them are either not ready to sell and keep that loss or if they had the opportunity, they will sell at a much higher price so that they can recoup the costs that they are facing. They are also faced with higher cost of FX because most of them have to buy their FX from the parallel markets among the various other charges that they face when they also try and load at the depot”.

The restriction of foreign currency in the country has had a negative impact on the oil market, which is a dollar denominated business. According to the Shippers Association of Lagos State, the forex restriction has led to 50 per cent of Nigerian bound cargoes being diverted to Cotonou. But there may be help on the horizon. “I think the situation is gradually easing because we now have FX supply coming from oil and gas companies. The upstream guys like Shell, Total and ENI have been tasked to provide about 200 million dollars to some of the fuel marketers to assist them to import more products into the country. This is not a sustainable solution because you are asking these guys to also part with FX, which they also need to invest in other parts of the world where they have operations. They cannot continue to always give us 200 million dollar every month or every year and also I do not know what we have given up as a country to be able to receive that help because there has been a trade off somewhere,” says Oni.

The current dilemma has however presented an unlikely opportunity for one entrepreneur. Fueledup is an app that has been created by 24-year-old Nigerian developer, Subomi Owo-Odusi. The app is an on demand delivery service, where customers sign up to request fuel.

“It is more of creating a convenience that is necessary. It picks your location naturally with Google location services. There is a request for how much you want and the delivery time. We have three delivery times; there is priority, expectant and flexible. Flexible is within three hours, expectant is within 30 minutes and two hours, and priority is within 30 minutes and an hour. So take for instance a situation where you wake up and you go to take a shower, by the time you finish getting ready in an hour you realise that your car is already filled up,” says Odusi.

The app is scheduled to be launched in May and has already received a positive response.

“We are speaking to private depots that we can get our supply from. Eventually we want this to become a lifestyle where people ask have you gotten fueled up today?” The company, which has been profiled recently on CNN, is looking to expand rapidly outside Lagos to other major cities in the country.

A critical success factor for start-ups like Odusi’s in this climate is the cost of goods and services.

“Inflationary measures are rising. Prices have been increasing steadily. It got to 11.3 per cent last year and the figure is due to come out this week and I am already hearing fillers that it will be around 12.8% which is significantly higher than the last inflation figure so even with them fixing the exchange rate at 200 uneconomically, inflation is still rising. It is the lesson of the crisis, when you don’t save or put money aside for a rainy day, when the rainy day comes you will be wet,” says Oni.

[READ:Nigeria's inflation rises to almost 4-year high in March]

He believes the Government should push for deregulation of the industry to prevent this crisis from reoccurring.

“In a market that is regulated it is very easy for these conditions to happen because once we have that common pricing structure people tend to come strongly under unions but once we deregulate this, there is no tendency that the union will tell someone to shut down their station because they know that once others are all not selling, they will make more money if they sell. So unions go weaker in markets that are competitive”.

The influx of foreign currency is expected to ease the current fuel crisis gripping the Nigerian economy however the economic hardships are far from over. There is decline in oil prices and a corresponding decline in revenues, which has had a knock on effect on the oil sector and other ancillary markets. According to Oni, “ the only way out is that we should allow the market to decide where the naira should be priced at and as a result where the products within the economy should also be priced to allow for a competitive business environment.”