Nigeria is once again being left behind as Saudi Arabia, the world’s largest oil producer, and other oil rich nations seek alternative sources of revenue.
The sale of five percent of Saudi state-owned oil corporation- Aramco, and raising non-oil revenue are impending steps Saudi Arabia which has 28.8 million people, five times less than Nigeria’s population, would be taking as the oil producing nation comes to terms with the collapse in energy prices blowing holes in budgets.
Analysts say the proposed sale of Aramco would be the biggest Initial Public Offering (IPO) in that country because even a small stake would dominate the Saudi stock market which has a capitalisation of about $409 billion.
Taiwo Oyedele, head of tax and regulatory services, PricewaterhouseCoopers, says it would take state owned Nigerian National Petroleum Corporation (NNPC) three to five years to be suitable for listing on the Nigerian Stock Exchange (NSE).
“To be listed, there must be transparent NNPC reports, forecasts of return on investments, and a resolve on corporate governance and government influence,” Oyedele said.
Ayodeji Ebo, head of investment research, Afrinvest, says putting NNPC in the right state, where it functions at optimal level will create more value for the oil corporation.
“With the present state of the NNPC, a stake of five or ten percent is of a higher valuation than a 100 percent stake when the company was in a dire state,” Ebo said.
“I think what the minister of petroleum, Ibe Kachikwu, is trying to do by restructuring NNPC and refurbishing the refineries are right steps in the direction of revamping the company, thereby increasing its value.”
However, analysts are uncertain whether President Muhammadu Buhari, will endorse a release of the nation’s stranglehold of state owned NNPC, to offset a looming economic recession.
“Clearly, Buhari is a statist and he seems to have a reputation for rejecting sound advice on economic policies. Listing NNPC on the Nigerian Stock Exchange (NSE), thereby relinquishing a stake in the company is an unlikely move to expect from his administration,” an analyst said on condition of anonymity.
“Buhari’s thinking is not in line with selling fixed assets. Rather, he seeks to consolidate government ownership. His plan to bring back a national airline corroborates this.”
Mohammed bin Salman, deputy crown prince of Saudi Arabia, says the kingdom is considering a dual listing of $2 trillion worth Aramco, as a way to reach investors beyond the local stock market.
Nigeria, like Saudi Arabia, has also slashed subsidies as the oil slide bites hard.
“It has not been able to fulfill its purpose, so why continue?” Ebo of Afrinvest asked, as he spoke to BusinessDay on the removal of the petroleum subsidy. “It benefits only the middle and upper classes who own cars and generators, and not the low class who it’s intended to target.”
Saudi Arabia projects a revenue generation target of $100 billion per year by 2020 in additional non-oil revenue. However, a new value-added tax which is projected to generate $10 billion a year, aside other revenue sources, may be soothing to Saudi officials.
In the Nigerian context, Oyedele of PWC says tax reforms hinged on process simplicity and compliance should be prioritised in order to increase non-oil revenue.
“Saudi Arabia generated $2 billion in tax revenue in the previous year; therefore a $10 billion tax revenue projection is not far-fetched, with the newly introduced VAT. However, for Nigeria, all we need do is to improve our tax system,” Oyedele said.
The Federal Government has projected oil and non-oil revenues of N2.27 trillion for 2016 which is to come mainly from company income tax, value added tax (VAT), and customs and excise duties.
However, earlier BusinessDay reports noted that this may be overly optimistic in an economy growing way below potential, as can be seen from the lower year on year profits of most listed firms and much lower import and export volumes.
PATRICK ATUANYA & LOLADE AKINMURELE
