Five key objectives in Nigeria’s $3 billion loan from Afreximbank

Nigeria and Afreximbank reached an understanding for an immediate support facility that will see west African nation receive $3 billion in new credit.

The credit is aimed at providing a much-needed relief for the Nigeria’s apex bank and give it some firepower in its battle against speculators that have laid ambush against the local currency.

In a statement late Wednesday, the state oil company NNPC limited celebrated the breakthrough in the negotiations, saying the “NNPC and Afrexim Bank have jointly signed a commitment letter and term sheet for an emergency $3bn crude oil repayment loan.”

According to the statement, the facility will provide some immediate disbursement that will enable the NNPC limited to support the Federal government in its on-going fiscal and monetary policy reforms aimed at stabilizing the exchange rate market.”

What does this mean for the government and how will it impact Nigerian lives.

First, the deal has been championed by the state-owned company, NNPC limited. The NNPC and Afrexim led by Nigeria’s Benedict Oramah have been in negotiation for some time but when the talks began the primary objective was to help provide cash for NNPC to consummate its bogus ambition to buy-off oil assets that were being sold by the IOCs despite not having any track record of managing these assets efficiently. This explains the speed of the announcement.

Secondly, the so-called term sheet referred to in the statement made by NNPC mean a set of conditions which the state oil company has agreed to be able to access the $3bn and key among this is that NNPC will pledge part of its royalty crude oil that is still in the ground as collateral for the loan.

Thirdly, the $3bn will immediately be available to the Central Bank of Nigeria to boost its foreign reserves about which very unsavory news has been printed lately. With this firepower, the naira should in the short term be better protected against the so called speculators.

Fourthly, the government President Bola Tinubu may have resorted to this quick fix because things were getting out of hand for this is not the first time Nigeria has found itself in such tight corner. In the past, the government of the day offered the IOCs significantly better fiscal and tax incentives like reserve addition bonus for them to invest to grow both oil reserves and production levels and that’s how we got to now have the world class Bongas, Erha’s and Agbami’s. The problem with this option is that it is like a worker who gets an office IOU in lieu of his salary and when the month ends, he will have nothing in his bank account unless he get a salary raise.

The final key point of this agreement is that so far, the government has not said how this loan will lead to lifting crude oil production levels from the current 1.3m to around 2m barrels a day, the level analysts say Nigeria needs to reach to expand FX availability in the medium to long term. And this is why so many Nigerians are unimpressed on social media.

Some analysts have called the loan a mere band aid while others have questioned taking a loan of this size without a cabinet in place and without saying what the loan will be used to achieve.

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Lawrence Baraza

Lawrence Baraza is a dynamic journalist currently overseeing content at Metropol TV Digital. With a keen focus on business news and analytics, Lawrence guides the platform in delivering insightful, data-driven content that empowers its audience to make informed decisions. Lawrence’s commitment to quality and his ability to anticipate market trends make him a key figure in the digital media landscape. His work continues to shape the way business news is consumed, making a significant impact in the field.

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