Nigeria, Africa’s biggest oil producer, could attract more U.S. investment if the oil and gas sector becomes less opaque and a fuel-price peg is removed, a US official has said.
“Nigeria needs to think strategically about what is going to make it a more attractive destination,” Brent Omdahl, commercial counselor at the U.S. Department of Commerce, said in an interview in Lagos.
“Our investors are willing to compete on fair terms for new investments if there’s a transparent process to try to win new oil opportunities. What is difficult or a disincentive to investors is when deals are done and then the contracts are not honored,” he added.
Controls on energy prices are also constraining investment, according to Omdahl, who is leaving Nigeria this month.
The country’s National Petroleum Company imports most gasoline under a swap program and has capped the pump price at 145 naira ($0.40) per liter – one of the lowest prices worldwide. Yet that system cost the government almost $2 billion in subsidies last year, according to the International Monetary Fund, which has called for the cap to be lifted.
The controls “perpetuate a system where only certain people benefit,” Omdahl said. “Why not open it up and let everybody benefit from it. That is money that can be used in making investments in refineries and all of a sudden you are paying less for imported fuel and your price goes down.”
Omdahl further said that an accumulation of “easy” loans from China risks increasing debt-servicing costs, and warned against missing out on financing opportunities from multilateral development banks with more stringent requirements.
Nigeria has increased borrowing from China in recent years to finance railways, airports and power plants. Loans from China stood at $2.55 billion as of March 31, which is about one-tenth of Nigeria’s external debt stock, according to the country’s debt management office. While Nigeria has a relatively low 19% ratio of debt to gross domestic product, debt servicing takes up about 69% of government earnings, IMF data show.
“Nigeria needs to ask, money isn’t free, somebody has to pay,” Omdahl said. “So you might as well do what is necessary to earn transparent money.”