‘MTN has liquidated Visafone, recognising a loss of N30.3 billion ($18 million) on the 2016 acquisition of Nigeria’s last-standing CDMA network. “Following the absorption by MTN Nigeria, Visafone is now fully liquidated,” a note in its H1 2024 financial statement said”’ – TechCabal.

Like Bourdex and Starcomms, Visafone was in the class of CDMA companies. But they quickly faded when GSM companies like MTN, Econet* and Glo took off.  These CDMA companies had knocked down Nitel and its cobwebs of voice telephony, but they could not withstand the GSM firms. Of course, today, GSM firms in Africa are at the crosshairs of Elon Musk’s Starlink which provides satellite broadband services.

Meanwhile, do you see that 15 kobo/sec in the photo? Yes, that 15 kobo was very “expensive” and that should be late 1990s. 

The lesson of Visafone and CDMA cousins is an important one: the technology platform you adopt may even become the enabler of your failure. And that is why it is recommended that we seek professional opinions because some of those actions are not easily reversible.

This is a pure creative destruction in action. Creative destruction is a theory developed by Austrian-American economist Joseph Schumpeter in 1976 that describes how new innovations replace existing ones that have become obsolete. The term is often used to emphasize the dynamic nature of the modern economy and is generally viewed as a positive evolutionary process. 

Schumpeter believed that capitalism is always changing and that new products and markets are constantly entering the sphere. He also believed that new ways of doing things are the main source of the capitalist economy’s development, and that old assumptions need to be broken so that new innovations can benefit from existing resources. 

Creative destruction can lead to the destruction of existing economic structures, such as industries, firms, and jobs, but this destruction can also create long-term economic growth and progress.

For example, LASIK surgery has reduced visits to optometrists and opticians, but has increased the need for ophthalmologists. Similarly, the development of the internet led to the decline of the newspaper industry, and the rise of online shopping led to the decline of brick-and-mortar stores. 

The Federal Government of Nigeria has announced that the sale of crude oil to the Dangote Refinery in naira will commence on October 1, 2024. This decision follows a directive from President Bola Tinubu aimed at transitioning the sale of crude to local refineries from dollars to naira, which is part of a broader strategy to stabilize the local currency and foster a more self-sufficient energy market.

The sale of crude oil to local refineries in naira has been touted as key to reducing Nigeria’s heavy dependence on foreign exchange and stabilizing the naira, which has seen consistent depreciation due to a combination of external and internal factors. The directive, approved by the Federal Executive Council (FEC) on July 29, 2024, signifies a shift in the country’s energy policy, reflecting a desire to harness the benefits of its local refining capacity to foster economic stability.

At a meeting held by the Technical Implementation Committee, led by Wale Edun, Minister of Finance, the groundwork was laid for the transition. Key stakeholders involved in ensuring a smooth implementation of this policy include:

• The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA)
• The Central Bank of Nigeria (CBN)
• The Nigerian Upstream Petroleum Regulatory Commission (NUPRC)
• The African Export-Import Bank (Afreximbank)
• These entities will collaborate to streamline the logistics, regulation, and financing involved in executing this shift from foreign currency-based payments to naira.

Backstory: NNPC’s Inability to Meet Crude Supply Obligations

While the current move toward naira-based crude sales to the Dangote Refinery marks a significant shift, it also follows a series of challenges that the Nigerian National Petroleum Company Limited (NNPC) has faced in its dealings with the refinery. Initially, NNPC held a 20% stake in the Dangote Refinery, acquired as part of a strategic partnership to ensure crude supply and share in the refinery’s future profits.

However, NNPC’s inability to meet its crude oil supply obligations became a critical issue in the partnership. This shortfall, driven by production and operational challenges, including oil theft, pipeline vandalism, and other inefficiencies, severely impacted NNPC’s capacity to consistently deliver the agreed volumes of crude oil. As a result, Dangote Refinery was forced to source crude oil independently from international markets, raising questions about the value NNPC was bringing to the partnership.

In light of these issues, Dangote Refinery negotiated a reduction in NNPC’s stake from 20% to 7.2%, a significant cut reflecting NNPC’s failure to uphold its end of the deal. The reduction of the stake symbolizes a recalibration of the partnership, where Dangote Refinery sought to protect its operations from the volatility and supply constraints faced by NNPC.

Naira Payments for Crude Sales to Begin October 2024

The introduction of naira payments for crude sales marks a new chapter in the NNPC-Dangote relationship. Despite the earlier challenges, NNPC remains a vital player in the local oil market, and the agreement to begin naira payments on October 1, 2024, indicates renewed cooperation between the government and Dangote Refinery. This move is expected to ease the refinery’s operations, which had previously been complicated by the need to source foreign exchange for crude purchases.

The first Premium Motor Spirit (PMS) delivery from Dangote Refinery is expected next month, and it is anticipated that the naira-denominated crude oil sales will begin contributing to the local economy in a significant way. This aligns with broader government goals of fostering a self-sufficient refining industry and reducing reliance on imported fuel products.

The shift to naira for crude sales is also seen as part of the federal government’s efforts to reduce pressures on foreign reserves and stabilize the exchange rate. With Nigeria’s foreign exchange reserves under strain and the naira’s value continuing to decline, the move is expected to relieve some of the pressure by keeping more transactions within the domestic economy.

At the same time, production increases are expected from both the Dangote Refinery and the Port Harcourt Refinery, with significant output boosts anticipated by November 2024. This increased capacity will be critical as Nigeria continues to grapple with fuel shortages and high import bills.

At the meeting, Edun emphasized the need for transparency in the process, directing the technical subcommittee to finalize the details of the arrangement and ensure that all stakeholders are aligned. The committee has been tasked with preparing a report for President Tinubu, confirming that the transition to naira payments is on track for October 1.

This policy, while ambitious, also raises questions about how effectively Nigeria’s domestic refineries can be sufficiently supplied with crude oil, and whether the naira-denominated sales will be sufficient to offset the international oil market price. However, with crude oil theft and pipeline vandalism showing signs of reduction, as stated by NNPC Ltd’s Executive Vice President, Upstream, Oritsemeyiwa Eyesan, there is optimism that Nigeria’s production will reach 2 million barrels per day by the end of 2024.