Month: February 2023

By Nicolas de Zamaróczy

Hundreds of thousands of American and European companies that rely on imported products from Nigeria’s supply chain face a heightened risk of disruption as a result of the protracted political and economic crisis gripping the country.

A presidential election held on February 25^th proved contentious, with widespread irregularities in voting and significant violence. The national election commission declared on March 1^st ruling party candidate Bola Tinubu as the winner with 36.6% of the votes cast. However, opposition parties have thus far refused to accept the results and called for a redo, pointing to the fact that many polling places opened late on election day. Meanwhile, the country has been reeling for months from a botched currency reform which has completely paralyzed Nigeria’s cash-dependent informal economy.

Supply Chain Management in Nigeria: Western Oil and Agricultural Firms at Risk

Many foreign companies are at risk of having their imports from Nigeria disrupted. Nigeria’s main export is petroleum, with crude oil, petroleum gas, and refined oil collectively accounting for around 86% of exports by value. However, the country’s cash cow has suffered greatly in recent years with production down to nearly half of its level in 2020.

Nigeria LNG—a natural gas joint venture between the Nigerian state and energy majors Shell, Total, and Eni—has been unable to fulfill export orders for its European customers in recent months. Nigeria’s main other exports are agricultural goods (most notably, cacao beans) and small maritime craft, both of which are at significant risk from the economic turmoil in the country.

Global relationship data in the Interos platform indicates that:

• Roughly 700 American and 400 European companies have at least one Tier 1 (T1) supplier based in Nigeria.
• More than 127,244 American companies have an affected Nigerian company indirectly in their supply chains at Tier 2 (T2), with almost 300,000 at Tier 3 (T3).
• More than 236,000 E.U. and British companies have an affected Nigerian supplier at T2, with over 510,000 at T3.

As has been the case during the last three election cycles (see chart below), Nigeria’s exports to the US had been dropping in the leadup to the election, with the volatile on-the-ground situation complicating normal operations and logistics. (The one-time surge in Nigerian exports to the US in early 2022 was due to re-routing petroleum from other destinations following the breakout of the war in Ukraine.) The lack of clarity in the presidential election suggests that low exports will continue for the foreseeable future.

Interos analysis of Panjiva data. Vertical red lines indicate prior election periods.

Nigeria’s Supply Chain Election-Related Disruptions Likely to Persist into Mid-March

Nigeria voted in a tight three-way presidential election on February 25^th amidst an atmosphere of intimidation and election-related violence.

ACLED, an NGO which tracks political violence, has counted at least 193 incidents of election-related violent activity since January 1^st, 2022 (see map). Human rights observers have issued warnings that Nigeria has not implemented any structural reforms since 2019, when several hundred people died during the last presidential election. These warnings have taken on new urgency following the assassination of a prominent Senate candidate on February 22^nd.

Locations of Election-Related Violence in Nigeria (Jan. 2022 through Feb. 2023)

Source: ACLED’s Nigeria Election Violence Tracker. Latest data available is February 17. The size of the circle indicates the number of violent events at that location, the color of the circle indicates the specific form of violence, e.g. orange = “violence against civilians” (Image Copyright: © Mapbox, © OpenStreetMap and Improve this map).

Given that state elections will not conclude until March 11^th, high levels of violence and uncertainty are likely to persist through mid-March, with a consequent impact on economic activity.

“Cash Crisis” Complicates Supply Chain Management in Nigeria

As if the political chaos were not enough, Nigeria is also suffering from the aftermath of a poorly implemented currency reform. When the Nigerian central bank announced the reform in October 2022, the hope was to combat corruption by redesigning the currency bills most used by criminal organizations. But an overly aggressive window for citizens to redeem their old banknotes combined with an extremely short supply of the new banknotes has left the entire Nigerian economy effectively without cash for several months. This has pummeled the Nigerian informal sector, which according to the IMF accounts for over 50% of GDP and over 80% of employment.

• Riots have been widespread across the country, with at least 7 local bank branches being destroyed. Paradoxically, mobile payment alternatives to brick-and-mortar banking have also stopped working, overwhelmed by a surge in demand.
• Truckers have stopped accepting old currency notes, leaving cash-strapped farmers in a lurch and unable to move their goods; cacao exports have been especially hard hit.
• Foreign airlines have faced particular headaches, routinely clashing with Nigeria’s central bank over the release of their funds, leading Delta Air Lines, British Airways, and Emirates to suspend service to Nigeria in 2022.

Nigerian Exports Likely to Stay Low in the Short Term

American and European firms with Nigerian suppliers in their extended supply chains should stay wary. Interos recommends taking the following actions to promote supply chain resilience:

• Communicate frequently with key Nigerian suppliers (or suppliers you know to be reliant on Nigeria) to determine the production impacts of the election and cash crisis.
• Identify which tier-2 and tier-3 Nigerian suppliers are critical to your direct suppliers.
• Ascertain whether suppliers in Nigeria are prepared for the extended elections period and the likely disruptions it will entail.

Organizations looking to understand where the next big supply chain shock is coming from — and which suppliers they need to engage with to mitigate the impact — should consider investing in supply chain visibility and operational resilience solutions. In times of turmoil, knowing who you are connected to, and how those parties will be impacted by unfolding events, can make the difference between continuity of operations and disaster.

By Alberto Coria and Trent Chinnaswamy

A growing number of attacks on the United States’ critical electricity infrastructure threatens to cause supply chain disruption to thousands of businesses across the country.

In 2022, the U.S. electrical grid sustained at least 103 deliberate physical and cyber-attacks – the highest level in a decade.

Two recent attacks on electricity substations in North Carolina, and four in Washington, have raised alarm among experts at the U.S. Department of Homeland Security (DHS). These attacks resulted in over 45,000 homes as well as businesses in the surrounding area losing power.

In each case, the modus operandi was similar: intruders carrying firearms gained access to the facilities and disabled them. This has led experts to believe that the attacks, which occurred within a short time of one another, may have been coordinated.

Electrical disruptions in the U.S. caused by intentional human interference are rising. Vandalism accounts for the majority of outages, but suspicious activity – where the intention is unknown – and sabotage are also on the increase (see chart).

The previous peak in vandalism was mostly caused by individuals stealing and selling copper wires. But the industry standard has since changed to use a less profitable kind of copper.

Why then are these attacks increasing and what risk do they pose to businesses?

Exploring Electrical Supply Chain Issues

Regional blackouts, defined as power loss in an area, can affect not only households, but also industry and logistics operations. However, the degree to which different entities are affected varies. Owing to their typically higher demand for power, manufacturing facilities are more exposed to power surge issues and accustomed to experiencing power failures, with one in four experiencing a power failure once a month.

Manufacturing facilities are also more likely to have backup and stress-tested generators, and have a coverage plan. However, these are generally focused on short-term power outages caused by high energy demands. In the case of a physical attack on a substation, a manufacturing site may have to deal with a longer-term power outage. So they can still face moderate levels of risk in the case of a physical attack.

Non-manufacturing facilities that are part of a supply chain are also likely to be affected by power outages, with the industries most reliant on electricity at the highest risk. These include financial corporations, IT services providers, data centers, perishable item producers, control centers and medical.

Rural Substations are Key Vulnerabilities for an Electric Grid Attack

The U.S. electrical grid is broken up into three large, connected networks (Texas Interconnection, Western Interconnection, and Eastern Interconnection) that operate fairly autonomously with eight regions seen (see map).

The U.S. Federal Energy Regulatory Commission has determined that transformers in rural substations are most vulnerable to physical attacks. Substations in urban areas typically have higher levels of monitoring and protection, while rural substations are completely unguarded.

The Eight U.S. Electricity Generating Regions

While substations in rural areas are at high risk of attacks, and the surrounding areas are at risk of a power outage, only 10.8% of the U.S. electrical grid is subject to “cascading” blackouts.

This means that attacks on substations in rural areas are likely to affect only the surrounding areas, and not cause blackouts in other areas of the country. This likelihood of power outages remaining contained to smaller areas places a greater emphasis on assessing supply chain risk exposure in rural areas.

Transformers at high-voltage and rural substations are prime targets for physical attacks, as transformers are difficult to protect and replacement parts are difficult to obtain.

In many of the higher-risk rural areas, substations are considered “dead-end”. Dead-end structures are where the line ends or angles off, meaning there is no backup power connection. The pink dots on the map below indicate the propensity of dead-end substations across the US. The darker the area, the more likely there is no backup power connection in the case of disruption.

What Companies Should Do

To get ahead of this critical infrastructure risk, Interos recommends that companies do the following:

• Use supply chain mapping and operational resilience tools like Interos’ Resilience platform and global relationship data to identify suppliers in industries and locations at the highest risk of being affected by potential power disruptions, and which agencies are responsible for power restoration.
• Engage key suppliers in high-risk regions to understand what impact, if any, they have experienced as a result of physical and/or cyber-attacks.
• Assess high-risk suppliers’ mitigation plans in the case of a regional blackout, and develop business continuity plans or workarounds for such disruptions where possible.