Nigeria_Before the Oil Runs Dry_101210

8/8/2019 Nigeria_Before the Oil Runs Dry_101210

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Please read the important disclosures at the Disclosures section of this note.

Prepared and distributed by Dunn Loren Merrifield Limited, a firm regulated by the Securities and Exchange Commission of Nigeria.

DUNN LOREN MERRIFIELD

Nigeria | Economy | Special Commentary

Friday, 10 December, 2010

Nigeria: Before the oil runs dry

Tola [email protected]

Sonnie [email protected]


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DUNN LOREN MERRIFIELD 2

Special Commentary|Before the oil runs dry

Tola [email protected]

Sonnie [email protected]

This note was prepared against the backdrop of the recent approval for anincrease in Nigerias minimum wage and its consequences on public sectorfinances, especially for the federating states. Whilst the arguments for and againstNigerias debt profile continue, we believe the assessment, viability and sustainability ofthe current model of funding Nigerias federating states remains largely ignored. In ouropinion, this is fundamental to Nigerias ability to achieve and sustain economic growthand development in the long run.

Regardless of the sheer volume of funding disbursed since the inception ofNigerias federal revenue allocation system, basic infrastructure still remainnon-existentor at best veryweakwhile states continue to receive the monthly FAAC

allocations. In general, given that recurrent expenditure consumes c. 68 percent ofstates total expenditure, the vast majority of states barely have enough funds left todevelop infrastructure that will attract investments and aid growth and development.

In our theory, the concept of incentive compatibility can be used to describe theset of rules or procedures for which, in this case, states within a countrycollectively agree and find that it is within their best interest to act in unison toachieve an agreed set of goals.

Unfortunately, we believe this may never be achieved with Nigerias currentrevenue sharing mechanism due to the low incentive it creates for states to wantto aggressively seek other revenue generating options to improve theirrespective IGRs.The country therefore needs to develop a structure that incentivises

and supports states to generate revenues. This is critical to the development ofinfrastructure in Nigeria, before the oil runs dry.

Nigeria: Before the oil runs dry


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CONTENTS

BACKGROUND .............................................................................................................................................................. 4

INCENTIVE COMPATIBILITY..................................................................................................................................... 10

THE LAGOS STATE EXAMPLE .................................................................................................................................. 13

CONCLUSION............................................................................................................................................................... 23


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TABLE OF FIGURES

Figure 1: Current structure of states' revenue profile ............................................................................................. 6

Figure 2: FAAC distribution to the 3 tiers of govt. (%) ......................................................................................... 6

Figure 3: FAAC Disbursements & ECA Withdrawals, Nbn ......................... .......................... ........................... .. 7

Figure 4: ECA balance, Jan '09 - Sep. '10, $bn ........................... ........................... ..................................... ............. 7

Figure 5: Incentive Compatibility Cycle .............................................. ........................... ...................................... ... 10

Figure 6: Proposed revenue allocation model ........................ ........................... ............................ ......................... 11

Figure 7: Lagos State: IGR vs. Statutory Allocation, (Nbn) ................................... ............................ ................ 13

Figure 8: Lagos State: IGR (Nbn) vs. Statutory Allocation as a % of total revenues ........................ ............. 14

Figure 9: Lagos State: Recurrent vs. Statutory Allocation, N'bn .........................................................................14

Figure 10: Lagos state: Summary of finances, N'bn ..............................................................................................15

Figure 11: Nigeria: Land mass distribution .......................... ........................... .......................... .............................. 16

Figure 12: Nigeria: Gross federation account revenues (Nbn) ........................... ........................... ..................... 17

Figure 13: Nigeria: Oil receipts per capita, US$, 1980-2009 ................................................................................18

Figure 14: Nigeria: Oil receipts per day, US$'mn, 1980-2009 ........................ .......................... ............................19

Figure 15: Nigeria: Oil production, mbpd, 1980-2009 .........................................................................................19

Figure 16: Hypothetical state: Funding structure (Scenario 1) ............................................................................20

Figure 17: Hypothetical state: Funding structure (Scenario 2) ............................................................................21

Figure 18: Nigerian states revenue profile: Current (A), proposed (B) ........................ .......................... ............22


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BACKGROUND

This note was prepared against the backdrop of the recent approval for an

increase in Nigerias minimum wage and its consequences on public sectorfinances, especially for the federating states. Whilst the arguments for and

against Nigerias debt profile continue, we believe the assessment, viability and

sustainability of the current model of funding Nigerias federating states remains

largely ignored. In our opinion, this is fundamental to Nigerias ability to achieve

and sustain economic growth and development in the long run.

At present, states receive a substantial portion of their income average of c.

N3.4 billion as at June 2010 - from the Federation Account AllocationCommittee (FAAC), which is the body responsible for disbursing revenues that

accrue to Nigerias federation account; the account credited with Nigerias oil

and non-oil revenues, and from which disbursements are made to the three tiers

of government federal, state and local. For example, between January 2009 and

November 2010, FAAC has distributed c. N7.6 trillion (c. $50.6bn) to the

federal, state and local governments. Of particular concern is the accelerated

depletion of the nations Excess Crude Account (ECA), a saving-for-the-rainy-

day account set up by the previous administration for the excess of the actualselling price of the countrys oil over the budgeted price. At present, the ECA

stands at c. $460 million from $20 billion in January 2009, indication

disbursements of over US$19 billion c. N2.9 trillion within the period.

Between January

2009 andNovember 2010,

FAAC has

distributed c. N7.6

trillion (c.

US$50.6bn) to the

federal, state and

local governments.


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Figure 1: Current structure of states' revenue profile

Source: DLM Research

As indicated in figure 1 above, most states in Nigeria are predominantly funded

by allocations from the federation account, whilst internally generated revenues

(IGR) remain weak and inconsequential in some states.

Figure 2: FAAC distribution to the 3 tiers of govt. (%)

Source: Fed. Ministry of Finance, DLM Research

On the average, statutory allocations to states from the federation account is c.

25.8 percent of total disbursements while allocations to the federal and local

governments are 40.6 and 20.1 percent respectively.

13% Derivation

VAT

ECA

Statutory

allocation

IGR

Revenues from Federation Account State Revenues Generation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-09 M ay-09 Sep-09 Jan-10 M ay-10

Others

Local Govts.

State G ovts.

Fed. Govt.


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Figure 3: FAAC Disbursements & ECA Withdrawals, Nbn

Source: Fed. Ministry of Finance, DLM Research estimates

As shown in figure 3, withdrawals from the ECA are responsible for the spike in

FAAC disbursements, resulting in a rapid decline in the accrued savings from

excess crude revenues.

Figure 4: ECA balance, Jan '09 - Sep. '10, $bn

Source: DLM Research estimates

0

5

10

15

20

25

Jan-09 M ay-09 Sep-09 Jan-10 M ay-10 Sep-10

0

100

200

300

400

500

600

700

800

Jan-09 May-09 Sep-09 Jan-10 May-10

FAACdisbursements

ECAwithdrawals


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Regardless of the sheer volume of funding disbursed since the inception of

Nigerias federal revenue allocation system, basic infrastructure still remain non-

existent or at best very weak while states continue to receive the monthly FAAC

allocations. In general, given that recurrent expenditure consumes c. 68 percent

of states total expenditure, the vast majority of states barely have enough funds

left to develop infrastructure that will attract investments and aid growth and

development. This has led to a assumed impression that many states in Nigeria

live for FAAC allocations as their entire economic viability is dependent on the

federal government.

As a result of the latest increase in minimum wage, states have indicated the

preference to vest the power to resolve labour issues within a state and by the

state government, as opposed to the federal government as is the current

practise. The Exclusive List contained in the Nigerian constitution empowers

the federal government to deliberate on all labour issues including trade unions,

industrial relations; conditions, safety and welfare of labour; industrial disputes;

prescribing a national minimum wage for the Federation or any part thereof; and

industrial arbitration. But, as states seek greater autonomy within the

federation, it becomes important that each state begins to seriously look inward

to improve economic viability.

We therefore believe that states in Nigeria need to urgently begin to develop a

funding model with a long term view of reducing their economic dependence on

the federal government. This is also critical to each states ability to access the

debt capital market for project financing. In our opinion, the current practice of

securing repayments to investors in state bonds with an irrevocable standing

payment order (ISPO) may be tested extensively in the years ahead if states

continue to maintain weak IGR profiles whilst recurrent expenditure continues

to increase.

In general, given

that recurrent

expenditureconsumes c. 68

percent of states

total expenditure,

the vast majority

of states barely

have enough

funds left to

develop

infrastructure

that will attract

investments and

aid growth and

development.


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In our theory, a hitherto uneconomically viable state should be able to challenge

other economically viable states for the location of industries and other

institutions for the creation of jobs and increase in revenues that accrue to the

host state. Our theory indicates that this is possible following the

implementation of deliberate economic reforms that seek to develop and sustain

infrastructural development, which in turn attracts investments. This we believe

is an area where fiscal policies such as taxes amongst others, may be well utilised

to drive economic growth, as in most progressive countries.


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INCENTIVE COMPATIBILITY

In a distributed or open environment where agents are self-interested and goaloriented, they might pursue any means available to them to maximize their own

utility. That could lead to undesirable situations where some agents would try to

influence the solving process towards solutions that are more preferable to

them, but not necessarily acceptable to others, or sub optimal to all in any case.1

In our theory, the concept of incentive compatibility can be used to describe the

set of rules or procedures for which, in this case, states within a country

collectively agree and find that it is within their best interest to act in unison toachieve an agreed set of goals.

Figure 5: Incentive Compatibility Cycle


___________________________________

1 Artificial Intelligence Laboratory at the Swiss Federal Institute of Technology, Lausanne.

Infrastructuraldevelopment

Attracts new &viable private sector

investments

More revenues tothe state via taxes

etc

Increase in state

IGR

Additionalinvestments in

revenue-generating

ro ects


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Figure 6: Proposed revenue allocation model


At present, most states rely heavily on the federal purse for revenues as shown

on the left side of the diagram above. Truth be told, this situation does not

encourage states to aggressively seek ways of generating revenues internally as

the incentive is weak.

However, as depicted in figure 6, the right side of the diagram shows a situation

where a states investments in infrastructure attract private sector growth, which

consequently leads to increase in revenues (generally taxes) that will accrue to the

state. Thus, making the states revenues more robust, independent and

sustainable.

One of the key assumptions of our theory is that states will adopt a judicious

application of FAAC allocations in the years ahead to develop infrastructure and

consequently attract investments. This should be done by gradually scaling back

the burgeoning public sector and investing FAAC allocations into hard and soft

infrastructure that will support the expansion of private sector activities.

Private

Sector

State

Govt.

Investment in infrastructurefuels private sector growth

Private sector growth leads toincrease in revenues to state

Federal Govt. /FederationAccount

StatutoryAllocation


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Why is this required? Besides the increasing global awareness for the need to

develop alternative sources of energy, we also consider that, according to the

Department for Petroleum Resources, Nigerias crude oil would not last beyond

25 years at the current rate of depletion. In addition, the oil-producing Niger

Delta region of the country remains a flash point as seen by the recent

resurgence in militancy in the region, regardless of the governments amnesty

plan. Therefore, in the long term, a states viability within the polity rests on its

ability to generate internal revenues to sustain growth and development and

financial independence.


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Figure 8: Lagos State: IGR (Nbn) vs. Statutory Allocation as a % of total

revenues

Source: Lagos State Government, DLM Research estimates

Our analysis further revealed that statutory allocation to the state is significantly

less than recurrent expenditure, which is an average of c. N72 billion per annum

and would have resulted in an average annual shortfall of N34 billion. However,

the states strong IGR sustains much of the growth in total receipts and

investments in infrastructure.

Figure 9: Lagos State: Recurrent vs. Statutory Allocation, N'bn


0.00

20.00

40.00

60.00

80.00

100.00

120.00

2004 2005 2006 2007 2008 2009

Av. Recurrent expenditure

Av. Statutory allocation

Recurrent expenditure

Statutory allocation

N34 billion average annual shortfall

34.0

161 .6

40.0%

26.2%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

0 .0

60.0

120.0

180.0

20 04 2 00 5 2 006 2 0 07 2 00 8 2 0 09

IGR

Statutory allocation tototal receipts


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Figure 10: Lagos state: Summary of finances, N'bn


Using the Lagos state as a benchmark, it is evidently possible for states to

generate at least 1x the size of their respective statutory allocation received from

the federal purse. It has also become obvious that increased investments in

infrastructural development will result in an increase in IGR as the state

continues to attract new investments whilst existing companies/institutions

thrive.

Consequently, states should adopt the doctrine: if I dont attract the right form of

businesses to my state, I will not have any revenues such revenues to the state by way

of taxes and levies. With this doctrine imbibed, states will then aggressively seek

to increase their IGRs and invest in infrastructural development and the cycle

will evolve. (See fig. 5)

0

50

100

150

200

250

2004 2005 2006 2007 2008 2009

Total receipts

Capex

IGR

Recurrentexpenditure

Statutoryallocation

States should

develop a mind-set

of if I dont attract the

right form of businesses

to my state, I will not

have any revenues


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The foregoing therefore highlights the following critical issues about Nigerias

current funding model:

Is the current allocation mechanism optimal for incentivising the states,economy and infrastructural development? This has to be assessed

against the backdrop of the possible elimination of state and private

sector incentive compatibility as states continue to rely solely on the

federal purse for revenue generation.

The 80-20 rule (Pareto principle) is indirectly operating in Nigeria asapproximately 12% of the land mass generates 74% of federal revenues.

At present, the nine oil producing states in Nigeria have a land mass of

c. 111,937 sq. kilometres which accounts for 12 percent of Nigerias

total land mass of 923,768 sq. kilometres. The states are Abia, 6,320 sq.

km.; Akwa Ibom, 7,081 sq. km.; Bayelsa, 10,773 sq. km.; Cross River,

20,156 sq. km.; Delta, 17,698 sq. km.; Edo, 17,802 sq. km.; Imo, 5,530

sq. km.; Ondo, 15,500 sq. km. and; Rivers, 11,077 sq. km.

Figure 11: Nigeria: Land mass distribution


Abia, 0.7%

Akwa Ibom,0.8%

Bayelsa,1.2%

Cross River,2.2%

Delta, 1.9%

Edo, 1.9%

Imo, 0.6%

Ondo , 1.7%

Rivers, 1.2%

Other states,87.9%


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According to the Central Bank of Nigerias economic report in July 2010, oil

revenues from these states have accounted for 74 percent of federal revenues

whilst non-oil revenues have contributed 26 percent.

Figure 12: Nigeria: Gross federation account revenues (Nbn)

Source: CBN, DLM Research estimates

In this case, our theory compares a country to a company where all divisions are

expected to contribute to group revenues. Any other practice would suggest an

imbalance in the companys revenue generation strategy and that certain

divisions are not viable thereby hindering overall company growth.

To address this imbalance, each division will need to add to the revenue of the

company or country. This we believe can be dealt with by re-directing FAAC

allocations into infrastructure development to create jobs and private sector

opportunities; at the same time adjusting the size of the public sector to a more

manageable level.

0

100

200

300

400

500

600

700

800

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10

Total revenues

Oil revenues

Non-oil revenues

Strong positive correlationbetween movements in oiland total revenues


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OIL REVENUES:RES IPSA LOQUITUR2

In our analysis of Nigerias oil revenues over the last 30 years, it was deduced

that the countrys real oil proceeds per capita declined by c. 69 percent to 80

cents in 2009 from $2.7 in 1980, indicating an effective drop in the nations real

wealth regardless of the increase in nominal oil revenues over the years.

Figure 13: Nigeria: Oil receipts per capita, US$, 1980-2009

Source: BP Statistical Review, DLM Research estimates

For our analysis, we considered data on the spot prices of Nigerias crude oil

over the last 30 years which indicates that in 1980 the country sold its prime

commodity at $36.98/barrel with production levels at c. 2.059 million barrels per

day (mbpd) resulting in revenues of c. $76.14 million per day. As at December

2009, Nigerias crude was sold at c. $63.35/barrel whilst production levels were

at c. 2.061mbpd leading to revenues of c. $130.55 million per day.

When this nominal increase is weighed against the increase in population from c.

74.5 million in 1980 to c. 158 million in 2010, the result is a 51.9 percent decline

in real income. This is not sustainable.

__________________________________________

2 Res ipsa loquitur is a Latin term meaning the thing speaks for itself.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1980 1985 1990 1995 2000 2005 2010

Oil receipts per capita,2009 $ terms

Oil receipts per capita,Money of the day $ terms

over the last 30

years, it was

revealed that thecountrys real oil

proceeds per capita

declined by c. 69

percent to 80 cents

in 2009 from $2.7 in

1980


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However, when oil prices are adjusted for relative value of US$1 in 1980

compared to 2009 value, Nigerias oil in 1980 was sold at $96.28/barrel in 2009

dollar terms whilst income would be $198.24 million per day. Therefore, the

country earned more from oil in 1980 i.e. $198.24 million per day and $2.7 per

capita, than it earns today 2009: $130.55 million per day and $0.8 per capita.

Figure 14: Nigeria: Oil receipts per day, US$'mn, 1980-2009


Figure 15: Nigeria: Oil production, mbpd, 1980-2009


when oil prices are

adjusted for relative

value of US$1 in

1980 compared to

2009 value the

country earned more

from oil in 1980

than it earns today

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1980 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08

Average production = 1.939mbpd

0.0

50.0

100.0

150.0

200.0

250.0

1980 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08

Oil receipts per day2009 $ terms

Oil receipts per dayMoney of the day $ terms

$198.2mn/day

$130.5mn/day


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While oil production levels have remained fairly stable over the last 30 years (fig.

15), other factors such as population, size of the public sector and leakage in the

system have increased significantly.

We went further in our analysis to estimate what Nigeria would need to earn

from crude oil sales in the years ahead for revenues and oil proceeds per capita

to match the levels achieved in 1980 against the backdrop of a young and

growing population, increasing public sector spending profile and weak or non-

existent investments in infrastructure.

Our estimates indicate that oil proceeds per capita in 1980 is 3.2x that of 2009.

Therefore, the countrys crude would have to sell at $204.3/barrel assuming

production levels remain constant to generate oil proceeds of c. $403

million/day and oil proceeds per capita of $2.7. The possibility of this

occurrence is remote.

Overall, our theory posits that incentives are necessary to grow Nigerias overall

income; therefore the following scenarios would apply to a hypothetical state

where:

Significant share of state revenues is from federal purse (Scenario 1)Figure 16: Hypothetical state: Funding structure (Scenario 1)


N'million p.a. Contribution, %

Revenues:

- Statutory Allocation 20,000 89

- IGR 2,500 11

22,500

Expenditure:

- Recurrent 18,000

- Capital 6,000

24,000

Surplus/(Deficit) (1,500)

Our estimates

indicate that oil

proceeds per capita

in 1980 is 3.2x that

of 2009. Therefore,

the countrys crude

would have to sell at

$204.3/barrel assuming production

levels remain

constant to

generate oil proceeds

of c. $403

million/day and oil

proceeds per capita

of $2.7.


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For this state, dependence on statutory allocation for its fiscal operations

results in a N1.5 billion deficit. This is because its recurrent expenditure

consumes c. 80 percent of total receipts while capital expenditure

required for infrastructural development and growth - is 27 percent of

total receipts. Consequently, the states deficit will be financed by

borrowings, which places further constraints on development as a

growing debt profile indicates a gradual increase in debt servicing

payments; the opportunity cost being investments in infrastructure.

For this state, we further assume that it has a young population with

median age of c. 19 years whilst c. 44 percent of the population isbetween 0 14 years of age. Therefore, beyond the debt that will be

inherited by the significant portion of the current population,

infrastructural decay and the attendant social problems will most likely

result from this funding model.

Deliberate shift in revenue drive to growth in internal revenues(Scenario 2)

Figure 17: Hypothetical state: Funding structure (Scenario 2)


N'million p.a. Contribution, %

Revenues:

- State Taxes 25,000 71

- Federal Allocation 10,000 29

35,000

Expenditure:

- Recurrent 18,000

- Capital 16,00034,000

Surplus/(Deficit) 1,000


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In our theory, the calculated shift in the funding structure with an

emphasis on increasing IGR would result in a robust income profile and

surplus. As seen in figure 17, IGR contributes 71 percent to total

receipts while contribution from the federal purse is 29 percent.

Consequently, the states recurrent and capital expenditure is c. 51 and

17 percent of total receipts respectively.

By and large, a viable and sustainable funding model that generates a

surplus increases a states attractiveness to investors and enhances its

ability to fund infrastructural development via the debt market without

exerting pressure on its finances.

If FAAC becomes a domestic infrastructure/development fund available to

exclusively fund projects in each state with the goal of making such state

independent financially, then the additional income that such state generates

makes the whole nation better off; for example:

Figure 18: Nigerian states revenue profile: Current (A), proposed (B)


Essentially, Nigeria will still earn its oil revenues but can then boast of significant

additional revenues due to the channelling of existing oil revenues into revenue

generating projects. Consequently, overall wealth to the nation can be

significantly improved by c. 3.6x i.e. N720bn/N198bn (fig. 18). In view of

historical precedents, this is arguably the way forward for the country.

(A)N'million

per month(B)

N'millionper month

FAAC Allocation 5,000 FAAC Allocation 5,000

IGR 500 IGR 15,000

Total Income 5,500 Total Income 20,000

N5bn x 36 states 198,000 N20bn x 36 states 720,000


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CONCLUSION

If the above holds, perhaps Nigerias economic and political administratorsshould strongly consider evolving the current system into one that stimulates

healthy competition, provides incentive compatibility to states to create their

own revenues and increase the overall wealth of the nation. Currently, 23 of

Nigerias 36 states are running fiscal deficits. Lagos is the only state that

generates IGR exceeding statutory allocation i.e. IGR to statutory allocation

ratio of 2.1x (6yr average). This states IGR to statutory allocation ratio was 1.5x

in 2004 and had increased to 2.8x in 2009 as a result of policies targeted at

growing IGR.

Whilst we acknowledge that all states may not perform like Lagos state, we are

inclined to enquire as to what incentive does a state, say Niger state, have to

enable it attract a blue chip multinational, Nestle for instance, to set up a best-in-

class production facility in Minna, the state capital. The multiplier effect of such

a development on employment and other economic activities will subsequently

result in an improvement in the states revenue profile

The foregoing indicates a critical need to move Nigeria towards sustainable

economic development. Unfortunately, we believe this may never be achieved

with Nigerias current revenue sharing mechanism due to the low incentive it

creates for states to want to seek other revenue generating options to improve

their respective IGRs. The country therefore needs to develop a structure that

incentivises and supports states to generate revenues. This is critical to the

development of infrastructure in Nigeria, before the oil runs dry.

The country

therefore needs todevelop a structure

that incentivises

and supports states

to generate

revenues. This is

critical to the

development of

infrastructure in

Nigeria, before the

oil runs dr .


24/24


DUNN LOREN MERRIFIELDElephant House214 Broad Street,Lagos, Nigeria

Tel: 234 1 462 2683-4www.dunnlorenmerrifield.com

IMPORTANT DISCLOSURES.

This research report has been prepared by the analyst(s), whose name(s) appear on the front page of this document, to provide background information about the issues which are the subjectmatter of this report. It is given for informational purposes only.Each analyst hereby certifies that with respect to the issues discussed herein, all the views expressed in this document are his or her own and reflect his or her personal views about any and allof such matters. These views are not necessarily held or shared by Dunn Loren Merrifield Limited or any of its affiliate companies (DL Merrifield). The analyst(s) views herein are expressedin good faith and every effort has been made to use reliable comprehensive information but no representation is made as to its accuracy or completeness. The opinions and informationcontained in this report are subject to change and neither the analysts nor DL Merrifield is under any obligation to notify you or make public any announcement with respect to such change.This report is produced independently of DL Merrifield and the recommendations (if any), forecasts, opinions, estimates, expectations and views contained herein are entirely those of theanalysts. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the recommendations, forecasts, opinions, estimates, expectations and viewscontained herein are fair and reasonable, none of the analysts, DL Merrifield nor any of its directors, officers or employees has verified the contents hereof and accordingly, none of theanalysts, DL Merrifield nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof.With the exception of information regarding DL Merrifield, reports prepared by DL Merrifield analysts are based on public information. Facts and views presented in this report have notbeen reviewed and may not reflect information known to professionals on other DL Merrifield business areas including investment banking. This report does not provide individually tailoredinvestment advice. Reports are prepared without regard to individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not besuitable for all investors. It is recommended that investors independently evaluate particular investments and strategies. The appropriateness of a particular investment or strategy will dependon an investors individual circumstances or objectives.Neither the analyst(s), DL Merrifield, any of its respective directors, officers nor employees accepts any liability whatsoever for any loss howsoever arising from any use of this report or itscontents or otherwise arising in connection therewith. Each analyst and/or any person connected with any analyst may have acted upon or used the information herein contained, or theresearch or analysis on which it is based prior to its publication date. This document may not be relied upon by any of its recipients or any other person in making investment decisions.Each research analyst certifies that no part of his or her compensation was, or will be directly or indirectly related to the specific recommendations (if any), opinions, forecasts, estimates or

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Nigeria_Before the Oil Runs Dry_101210

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