The Senate has rejected a bill seeking to compel the federal government to recognise Lagos as the countrys commercial capital. This recognition was more than symbolic as it would have entitled Lagos to one percent of the nations revenue. The bill, which was sponsored by Senator Oluremi Tinubu, was rejected in a rowdy session on 6 September. During the second reading of the bill, the Chief Whip, Senator Olusola Adeyeye, one of those who supported the bill, had asked why the Federal Capital Territory was being subsidised by the Federal Government, whereas taxes were being paid for same government services in Lagos. He also asked why some northern states which banned alcohol consumption were benefiting from the revenue from the VAT paid on alcohol consumed in Lagos.
The debate within the Senate this week was less about the bickering over the designation of a city which is clearly recognised globally as Nigerias commercial capital than it was about the growing groans for more responsible fiscal federalism. Whether it is the increasing calls for state policing, dealing with the proceeds of taxation or greater resource control by the states, it is clear that Nigeria as presently constituted is unwieldy, inefficient and grossly under-representative of the interests of its constituent parts. This represents the perfect opportunity for a national conversation on what kind of nation we ought to be. We believe that more states will begin to make similar demands, and this chorus will increase until the discussion, and decisive decisions, on the devolution of powers, and proper implementation of fiscal federalism is forced. We, however, caution that this is not a silver bullet, and urge citizens to demand more accountability from their various sub-national governments for resources they already receive, even as demands for increased resources continue.
Plans by the Nigerian government to borrow billions of dollars from the World Bank and other international lenders to plug its budget deficit have run into delays amid a stalemate over reforms, jeopardising the countrys ability to finance its budget. In another development, the EUs top official in the country called for Nigeria to further devalue the naira in order to stabilise the economy.
The call by the World Bank and the IMF clearly crystallises the need for the federal government to embark on reforms and eliminate the waste in governance that Nigeria has become notorious for. The lack of clearly thought out action is seen by external observers as weakness, which would further shrink the options available in terms seeking foreign assistance should the economic situation escalate out of control. A key government actor these agencies look at to gain insight to policy direction is the finance minister, and her utterances in the last week have not engendered confidence. A second thing; these bodies are keenly studying is the MTEF and the proposed 2017 budget. Again, these documents do not reassure that the government is facing the situation with the requisite realistic pragmatism, as against a hope that some miraculous turnaround will happen in the oil and gas industry.
President Muhammadu Buhari has proposed ₦6.866 trillion for the 2017 fiscal year, pegging the exchange rate at ₦290 to $1, a 13.3 percent increase on the 2016 spending plan. In its bid to sustain its development projects, the federal government also announced plans to set up a $25 billion Infrastructural Development Fund as a means of attracting non-budgetary resources. This is coming even as the countrys debt stock hits ₦16.3 trillion ($61.45 billion) as of June 30. In adherence to the 3 percent threshold set out in the Fiscal Responsibility Act 2007, the 2017 fiscal deficit is projected at ₦2.7 trillion in nominal terms. The Presidents plans were contained in the 2017 to 2019 Medium Term Expenditure Framework and Fiscal Strategy Paper, which he sent to the National Assembly for approval. The government has projected $42.5 per barrel and 2.2 million barrel per day as crude production baselines, despite the volatility in global oil prices, as well as $45bpb and $50bpb respectively for 2018 and 2019 with oil production benchmark of 2.3 million and 2.4 million barrels per day for the same period. During the same week, the Debt Management Office revealed that as at June 2016, Nigerias external debt accounted for just 18.33 percent of the countrys total debt stock of about ₦16 trillion. According to the DMO DG, Abraham Nwankwo, within the small external debt, concessional debt (average interest rate of about 1.25 percent per annum and average tenor of about 40 years), accounted for about 80 percent of the total. He also said that the external debt service accounted for an insignificant proportion of the total public debt service expenditure. The annual external debt service expenditure for the last five years was always less than 6.5 percent of the total public debt service outlay.
It seems that this administration draws the data that drives their planning from a different reality. The current interbank exchange rate, already accused of being heavily manipulated, stands at ₦317 to a dollar, while the parallel market rate which represents a fairer assessment of the naira’s value is at an all-time high of ₦472. The oil benchmarks of 2.2 million and the growing benchmarks of 2.3 million and 2.4 million for 2018 and 2019 respectively not only assume we will reach peak productivity by the end of 2016 but that we will add more production in those years. Again, this does not represent the current reality. While the planners can point out our low debt to GDP ratio, a better measure to look at is how much of our revenue goes to debt servicing, and how much of our dangerously low foreign reserves are encumbered by various obligations. We had our most ambitious budget ever in 2016 (the 2017 proposal is even more ambitious), but critically, have we evaluated the performance of Budget 2016 thus far? The execution radically departs from the lofty goals espoused by the budget. Policy planners need to do away with the alternate reality basis for budgeting and fiscal policy. In case they have not realised, sound and grounded fiscal policy is needed in tandem with well thought out monetary policy to turn the economy around. The current posturing is simply not encouraging.
Bad loans in Nigerias banking system soared to more than double the limit set by the Central Bank of Nigeria as the industry struggles with an economic downturn. The ratio of non-performing loans to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015, a development which will be uncomfortable for the regulator, which requires banks to keep the measure below 5 percent. According to a CBN report, credit risk is expected to trend higher into the second half of 2016 owing to increased loan impairments resulting from the depreciation of the naira, and also that the inability of debtors to service foreign currency-denominated loans, as well as bank exposures to the oil and gas sector, were also factors.
The underlying cause is exposure to an oil industry that is struggling to stay afloat with low oil prices and militant activity plus an over-reliance on government funds for liquidity management which the TSA implementation took away. This represents an opportunity for regulators to refocus Nigerian banking to lend to the real sector and become drivers of manufacturing, agriculture and other more productive activities. Also, it presents an incentive for banks to seek deposits from Nigerias unbanked population and innovate to create real lending products for the people. It is an opportunity that should not be passed.
S&P Global has lowered the MTN Groups credit rating amid Nigerias recent downgrade, sparking more challenges for the mobile network in its largest market. Last month, S&P lowered its long-term ratings on Nigeria to B from B+ amid weak growth dynamics here. S&P, though, said that the outlook for the Nigerian economy is stable. But the downgrade further represents increased risk for the MTN Group as Nigeria is the mobile networks biggest operation, said the company in a statement. On review of MTNs ratings, S&P lowered the groups long-term corporate credit rating to ‘BB+’ from ‘BBB-‘ as well as its South Africa national scale rating to ‘zaA+’ from ‘zaAA, outlook stable, said MTN. “S&P also lowered its issuer rating on the group’s existing senior unsecured debt to ‘BB+’ from ‘BBB-‘, outlook stable. S&P maintains a cap of two notches above the blended sovereign rating of Nigeria and South Africa which is currently ‘BB-‘, said the company. This is just the latest challenge for MTN in Nigeria. Last month, lawmakers in Nigeria accused MTN of illegally moving around $14 billion out of the country. And last year, Nigerian regulators also fined MTN ₦330 billion for failing to disconnect around 5 million unregistered SIM cards. Its stock has declined 39 percent since the Nigerian fine was first reported last October.
One of the stated economic goals of the Buhari administration is to attract more foreign direct investment into the country. However, not only has the country slipped into a recession and struggled to fund its budget, the latest World Economic Forum rankings for global competitiveness in doing business saw Nigeria drop three places from 124 to 127 globally, ahead of only 11 largely crisis-ridden nations. Apart from the standard economic indicators, FDIs will naturally pay keen attention to how foreign businesses already in Nigeria are faring. MTN Nigeria is one of Nigeria’s largest non-petroleum companies and investors will be using the company as a barometer for gauging the current regulatory or operating environment and thus far, investors are voting with their money to go elsewhere. Situations where regulators such as the NCC deny giving approval to a deal, with same approval present on their website, are a clear signal to investors that Nigeria is not going to abide by the rules of business. This is terrible signalling and can only mean one thing desperately needed foreign investments will keep going elsewhere, contrary to the claims that foreign investors are falling over themselves to do business in Nigeria.
A former Vice-Chancellor of the University of Ibadan, Prof. Olufemi Bamiro, was shot on Tuesday evening by gunmen in a failed kidnap attempt in the Oluyole district of Ibadan. Also this week, the Police in Kaduna confirmed the release of the immediate past Minister of Environment, Mrs Laurentia Malam, and her husband, Pius, who were kidnapped on 3 September. Earlier, Margaret Emefiele, wife of the CBN governor, Godwin Emefiele was freed after being abducted on the Benin-Agbor Expressway on 29 September. The abductors demanded a ransom of ₦1.5 billion, according to some online reports, but were forced to release their victims following pressure from the police, army and Department of State Services.
The kidnapping of high profile persons such as the CBN governors spouse has raised the stakes on the menace of kidnapping gangs across the country. We believe that the current ad hoc response to the crisis must give way to a permanent, and pragmatic strategy that would help the security services tackle this problem and bring it to an end. It must not take the arrest of a VIP for the state to deploy all resources in tracking down criminals.
The Nigerian mission official in Ankara, Turkey has been scheduled to meet with Turkish foreign ministry officials over the arrest of Nigerian students in the country. The students were arrested and their passports confiscated by the Turkish security agents upon arrival at the Ataturk International Airport in Istanbul. Reports say Turkeys immigration officers collected the passports and resident permits of returning students at the airport, and reportedly detained them.
Nigerian news reports have suggested that this incident may not be unconnected with Julys coup detat in Turkey. In the wake of the coup, the widest ranging purge of any nations society in this millennium has been undertaken and no sphere of Turkish society has been spared. Nigeria and Turkey enjoy excellent relations and the Middle Eastern nation has made vital investments in power, agriculture and education in this country. We urge the Nigerian government to use all diplomatic means to engage the Turkish government and ensure the rights of Nigerians are protected within that country.
September 30, 2016
The Minister of Budget and National Planning, Sen. Udoma Udo Udoma, says Nigerias foreign reserves have reduced from $26.51 billion in the second quarter of 2016, to $24.74 billion in September. Udoma said this at the 57th annual conference of Nigerian Economic Society with the theme The developmental state and diversification of the Nigerian economy. He said Nigeria had revenue and foreign currency concentration problems, adding that a diversification of the economy was the only solution. Udoma said due to four strategic pipeline terminals being blown up, Nigeria had been unable to achieve its 2016 Budget production target of 2.2 million barrels a day. In January, the CBN estimated that Nigerias foreign exchange earnings declined from around $3.2 billion monthly to about a billion dollars monthly.
Mr. Udoma’s portfolio includes National Planning, which presumes that there should be an element of foresight involved. Hence, basing the budget on a 2.2 million barrels per day production target was already a faulty premise. The recently approved MTEF has repeated this error. It also, in the face of intelligence that says otherwise, assumed an oil benchmark that rises in 2017 and 2018. The rhetoric that government is determined to diversify its revenue base is not reflected in the most important documentation of its medium term plan. We believe that the eternal fixation on our foreign reserves is not as important as ensuring sound policy congruence between fiscal and monetary policy to facilitate availability of foreign exchange as and when due in the market. The reserves are an effect and not an input.
The Minister of Information and Culture, Lai Mohammed, says the final decision to sell national assets will be taken by the Federal Executive Council, which essentially comprises the President, the Vice-President and the 36 ministers. Speaking after the Federal Executive Council meeting, Mr. Mohammed said calls by the National Economic Council for the assets to be sold were of no consequence. He also said the government has yet to come out with its position on how to bail out the economy, and it will take that position in due course.
As things stand, the economy may continue on its current downward spiral due to the fact that the FG has not approached the crisis the way it ought to. More worrisome is the fact a FEC was held, and Mr. Mohammed only came to deny speculations rather explain tangible or practicable steps that were discussed at the meeting to lift Nigeria from crisis. The more the government waits to take action, the worse the crisis gets. Yesterday, reports emerged that the presidency had indeed sent a bill to the senate for consideration. This approach where government puts out speculations, denies those speculations, and then acts on said speculations, is worrisome and does not portray the government as one whose word should be taken seriously. We believe that government should think proposals through, deliberate on them thoroughly and ensure communications are actual explanations of these thought through positions as opposed to denials.
The African Development Bank is set to lend Nigeria a total of $4.1 billion over 2016 and 2017, and $10 billion by 2019, to help the economy plug its budget gap and develop its infrastructure. AfDB president, Akinwumi Adesina, said he would go to the pan-African lenders board next month to seek approval for a first, $1 billion loan to cover this years deficit as Nigeria grapples with its first recession in more than 20 years. The FG also plans to raise $1 billion in Eurobonds this year, its first since 2013. The performance of its dollar debt and OPECs agreement to cut oil production as the West African country prepares to tap the Eurobond market signals investors are comfortable the government has sufficient reserves to cover its foreign obligations. The high demand for Ghanas Eurobond earlier this month may bode well for Finance Minister Kemi Adeosuns plan to issue $1 billion this year, according to analysts including NN Investment Partners, Aberdeen Asset Management, Exotix Capital and Vetiva Capital.
This is a step in the right direction. The government urgently needs to raise money to finance the budget and spend its way out of the recession. Financing from bodies like the AfDB and the IMF are a good fit for the kind of funding the government needs and it is a good thing that the deal with the AfDB makes provisions for up to 2019 especially as it struggles to resolve the issues in the Niger Delta and tax revenue being significantly short of their set expectations. The key thing is utilization. The stated intent is to fund infrastructure and not consumption. This is crux of the matter, and the government must show discipline in this regards.
Pension fund operators in the country are alarmed at the moves being made by the Federal Government to use part of the ₦5.8tn Contributory Pension Scheme assets to fund infrastructure development and move the economy out of recession. Operators, have complained that it is wrong for government officials and senators to accuse the administrators of the CPS of holding on to the funds when the economy is going through a difficult time.
While Pension Fund assets present an opportunity to fund much-needed capital infrastructure, we are not convinced that this is anything beyond an opportunistic grab at what looks to the governments agents as idle funds. The people who crafted the laws guiding pension administration were careful to limit assets that the funds can be invested in to those which successive governments almost have no choice but to honour their commitments to. Infrastructure, sadly, is not one of these areas in the Nigerian system. There is no dearth of financing from private equity for infrastructure projects from other sources. It is the rigour of convincing these funders that the government is serious about utilization, and can guarantee the continuity of honouring agreements in successive government, the kind of discipline that will guarantee returns, that the government seeks to eschew by looking to the pension funds. We suggest that government should look away from these funds in order to forestall a crisis when contributors to the funds need to get paid. The principle should be to prove first with other funding sources before accessing such special funding as the pension funds.
Shell Nigeria has maintained its silence over the latest sabotage of its pipeline, by the terrorist group, Niger Delta Avengers after the group claimed on Friday that it had broken its self-declared ceasefire by bombing the Bonny oil export pipeline. The Niger Delta Avengers, the leading militant group operating in the oil-rich region of southern Nigeria on Friday, September 23, end the proposed truce with the federal government after they blew up a major pipeline, the Bonny 48 inches crude oil export line in Rivers State. Leader of the Pan-Niger Delta Coastal States Stakeholders Consultative Forum and former Federal Commissioner for Information, Chief Edwin Clark has condemned in very strong terms, the bombing of the Bonny Export( 48) inch pipeline on Friday by members of the Niger Delta Avengers, saying that the 60-day cessation of hostilities has not elapsed, there is no justification for further bombing. As the Niger Delta Avengers called off their ceasefire, and blew up an oil pipeline in Bonny, Rivers State, some youth leaders in the region have appealed to the group and other militants to stop further attacks. Yesterday, another pipeline was blown up, this time, the Unenurhie-Evwreni Delivery Line in Ughelli, Delta State, by another group, the Niger Delta Greenland Justice Mandate. Their second in as many weeks.
The insecurity of lives, property and economic installations in the Delta will continue to represent the most significant challenge facing the current administration. The lack of a bold strategy to addressing the perennial problems of the region means that attacks like this will continue to occur. This is not a good omen for a government seeking to ramp up oil production to pre-2016 levels and whose Medium Term Expenditure Framework is premised on production being at such level and sees ramping up spending as the route to fight off a recession. The government needs to urgently engage the Niger Delta militants through people whom the militants find credible in order to find a political solution to the problem as it is a political problem that a purely military approach will not resolve. Unfortunately, we are coming to the conclusion that President Buhari may not have the required political mien to resolve the Niger Delta crisis. The situation touches on constitutional reform and devolution of powers, and we keep questioning whether the current government has the capacity to resolve these issues. When we look at the bills currently under consideration at the National Assembly, it appears that the import of a constitutional review is lost on both the executive which is not driving the agenda, and the legislature which is responsible for enacting the necessary changes.
Two soldiers were killed in an ambush on Saturday in Efut Esighi Waterfront in Bakassi Local Government Area of Cross River State. The attack led by wanted criminal, Benjamin Simplee, leader of the Bakassi Strike Force, occurred when the militants arrived the Efut Esighi Waterfront in speedboats.
A combination of intelligence failure and irresponsibility on the part of the security and political leadership are responsible for the Bakassi strife. Since the signing of the Green Tree agreement that ceded Bakassi Peninsula to Cameroon, there has been a massive displacement of people from communities especially youth who have taken up arms to eke a living in the oil rich area, and have also gotten involved in all manners of criminality. It appears that the fate of the people was not factored into the planning of the aftermath of the ceding and they have resorted to self-help in a poorly secured region that straddles two countries. We urge the state government and the FG to work closely before the militant situation degenerates to an all out conflict.
A new report, released by a Civil Society Organisation, Right to Know, says ministries, departments and agencies are not complying with the provisions of the Freedom of Information Act 2011. The report, released to mark the first celebration of the Universal Access to Information Day, said that the National Assembly which passed the bill that eventually became the FOI Act five years ago had also never complied with the provisions of the act. The Act requires public institutions to pro-actively disclose certain information, including how many staff they have, their salaries, grade levels and many more. However, the report found that this provision of the Act was not being complied with. The Bureau of Public Sector Reform was rated the most ready to respond to Freedom of Information requests, while more than 100 other institutions were cited for flouting FOI requirements, including the State House, Press Council, Human Rights Commission, the Central Bank of Nigeria, Nigeria Communications Commission, and Bureau of Public Procurement and the Office of the Head of Service.
The list of defaulting public institutions is virtually a complete run down of the federal bureaucracy. The worst culprits in the ranking includes the National Hospital, the health, communication and environment ministries, the Bank of Industry and the Nigerian Television Authority which have never disclosed any information or respond to any FOI requests. The report assessed compliance by public institutions in Nigeria with two key provisions of the Freedom of Information Act: Section 2 (3 & 4) relating to the provision on Proactive Disclosureand Section 29 (1, 2 &3) obligating an FOI Annual Submission to the Office of the Attorney-General of the Federation. This new report essentially corroborates a finding of SBM Intelligence which gave this government a NOT DONE score on enforcing the FOI Act, a campaign promise and an overall 0% score on Accountability in Public Service in our May Scorecard of the first year of its life. With all the economic challenges the nation is currently facing, the time for action remains now.
