The pot is shrinking big time
The three tiers of government received a total of ₦4.95 trillion instead of the ₦6.1 trillion projected to be distributed to them in the 2016 fiscal year from the Federation Account Allocation Committee, new data shows. This created a ₦1.1 trillion shortfall within the 12-month period. The federation account is currently being managed by a legal framework that allows funds to be shared based on three major components – statutory allocations, Value Added Tax distribution; and allocation made under the derivation principle. Figures of statutory allocations obtained from FAAC revealed that while the government had projected to distribute ₦509.1 billion monthly among the three tiers of government, the shutdown of oil installation facilities, which led to a drop in crude oil production, made it difficult to generate enough revenue to achieve that target. For instance, within the 12-month period of last year, the government could only surpass the monthly budgeted allocation to the three tiers of government thrice. The Chairman of the FAAC Forum of Finance Commissioners and Adamawa finance commissioner, Mahmoud Yunusa, told reporters on the sidelines of January’s FAAC meeting that the scarcity of resources to implement the programmes of government owing to the economic recession had made it imperative for states to be prudent and transparent in financial management.
The number represents a 20% shortfall in FAAC allocations in 2016. Here is a quote from Mahmoud Yunusa: “The resources are no longer there and so whatever resources that we have must be effective, transparently and judiciously used for the benefit of the people.” This sums up the problem and a part of the solution. Resources are shrinking, while Nigeria’s population is growing, and government at all levels keep spending on the wrong things. It is clear that this model of sharing FAAC cannot last much longer and the solution is to allow sub-national parts of the country control their own resources, and make remittances to the centre, with a commensurate shift in the responsibilities from the centre to these sub-national parts to match the resource movement. It is however also clear that Nigeria will not do this willingly, except events force this to happen. Already, in 2017, the same pattern is set to repeat itself with the governments’ ambitious budgets while the pot continues to shrink.
The CBN is clearly patriotic, but it also needs to be sensible
CBN Governor, Godwin Emefiele has insisted on regulated foreign exchange regime to ensure that the naira does not go beyond a certain band in the exchange market. Also, the regulator said it has no intention of becoming reckless with the country’s foreign reserves, which have increased from $24 billion to $29.8 billion in three months. The CBN boss who spoke last week at the Monetary Policy Committee meeting, said the bank would tighten the forex management knob or strategy by introducing more items to the list of banned goods, to deter their importation to the country, as a way of boosting local production, creating employment and growth, as well as, diversifying Nigeria’s sources of income. According to the bank’s spokesman, Isaac Okorafor, “The present economic challenges that we face have been worsened by our past practice of frittering away huge earnings made from oil sales, over the years. As we have explained severally, our decisions on forex management are prompted by the challenge posed by the level of depletion of the country’s reserves, arising from issues such as a drastic reduction in oil earnings, speculative attacks and round tripping.”
Managing any country’s economy is a tough balancing act and usually requires a coordinated strategy between the various government establishments, including the finance ministry and the central bank. Eight months ago, the government signalled a move toward an open market with a floating currency. Today it has made a complete about turn, now favouring a protectionist market with a pegged currency. Arguments can be made for either approach as far as they are consistent and all the players are in sync, including the customs service which must enforce the importation ban. There is no doubt that last year’s devaluation of the naira will make it easier and cheaper to defend the currency around a chosen benchmark going forward. However, the manner in which the government went about it, vacillating, delaying decision making and deferring to politics has eroded confidence in the ability of the CBN to formulate and implement the best FX policy for the country at this point. Hence the calls to take the path that Egypt has taken and float the currency properly.
VP Osinbajo is Nigeria’s Captain Obvious of the week
Acting President Yemi Osinbajo has set up a task force to work out a way of reducing the prices of foodstuff. On the task force are Kemi Adeosun, finance minister; Chibuike Amaechi, transport minister; Audu Ogbeh, agriculture minister; Chris Ngige, labour and employment minster; Okey Enelamah, trade and industry minister, and Suleiman Adamu, water resources minister. The team has seven days to present a plan of how to reduce the cost of food. According to Laolu Akande, senior special assistant on media to the vice-president, Osinbajo put together the team because he was moved by the need to make food affordable to Nigerians. “While there have been reports of bumper harvests in parts of the country, the prices of foodstuff still end up rather high, while some of the produce even end up wasted due to a number of reasons preventing effective transportation delivery to the markets,” Akande is quoted to have said. One of the focus areas of the task force – as directed by Osinbajo – would be the review of the transportation and preservation processes.
This is not rocket science, it is very elementary as a matter of fact. The cost of food in Nigeria has traditionally been negatively affected by the vagaries of preserving and transporting produce from the farms mostly in the North to their traditional markets in the country’s key population centres. To act like the recession essentially created these factors is to underscore how out of touch policy-makers are with the facts on the ground and the Nigerians who labour under these supply forces. Nothing short of infrastructure renewal, better storage facilities, and discontinuing the lunacy that is our fiscal policy which among other things, prevents Nigerian growers from exporting food to forestall a ‘scarcity’ will curb these influences. It is also absurd that the government chose to ban importation of staple food items and we urge the government to reconsider these bans. Or what else will the task force recommend to Mr Vice President?
The states may be on the cusp of a major legal victory
The Supreme Court on January 27 struck out a land suit filed by the Lagos State Government against the Federal Government. The disputed land is No. 10 Gerald Road, Ikoyi, which the plaintiff had used as test case for many of such lands in Lagos. Delivering the judgment, Justice Musa Muhammad held that the plaintiff lacked the standing to sue. Muhammad also held that the suit lacked the strength to force the invocation of the original jurisdiction of the court to assert a title the plaintiff no longer had. “It will be academic and hypothetical for the court to proceed on the matter. It never does. For the foregoing, defendant’s preliminary objection which is well taken is hereby sustained and the plaintiff’s action accordingly struck out,” the judge said. The parties are the Attorney-General of the Federation (defendant) and Attorney-General of Lagos State (Plaintiff). The Plaintiff took out a civil summons in March 2011, invoking the original jurisdiction of the apex court against the defendant. On October 10, 2016, the AGF gave a notice of preliminary objection pursuant to Order 2 Rule 29 of the Supreme Court Rules 1999. It also hinged the objection on Section 232(2) of the Constitution and under the inherent jurisdiction of the court. The defendant had asked for order striking out the suit as it argued that the court lacked the requisite original jurisdiction to entertain it as well as an order striking out the suit as the plaintiff allegedly lacked the locus standi to institute the action. The defendant had argued that the court could not exercise original jurisdiction in causes or matters purely on ownership of land. The plaintiff having divested its interest in the subject matter of the suit, according to the defendant lacks the locus standi to institute the action. On its part, the plaintiff sought a declaration that the acts of re-issuing of Certificate of Occupancy, granting of consent or exercising rights of ownership, control and management within Lagos by the defendant was illegal.
A little crash course on civil procedure will suffice here; when a case is 'struck out' by any court, it simply means one of the parties has committed a procedural irregularity and needs to correct that and refile the suit. It could be that the suit was filed using the wrong process (whether originating summons or by writ), the parties are not the right parties (raising the subject matter of locus standi or 'legal standing to sue') or that the case was filed in the wrong court, which is part of the SC's argument in this case in addition to the locus standi bit - where it essentially said that the AGF cannot sue on behalf of the 'Federation of Nigeria' but only the 'Federal Government of Nigeria,' two clearly different entities. On the other hand, if a case is 'dismissed' by a court, it means it has heard substantive arguments from both sides on the matter and delivered a judgement on the issues (or in legal speak, 'on the merits) of the case. If the SC dismisses a suit, it's game, set and match. In this particular case, it was merely struck out so there's still life in this dispute to expend. The FG is unlikely to back down from this but refile the suit in a High Court because the issue does raise important substantive questions about how states can handle federal property within their borders and a court judgement will clear a lot of the grey areas that a hastily enacted Land Use Act has bequeathed to Nigeria for four decades and counting. Expect this to rummage through the court system for the next decade at least.
War on terror requires a war on illegal arms
The Nigeria Customs Service said on January 30 that it intercepted and seized a massive weapons haul of 661 brand new pump-action rifles in Lagos. In a press statement delivered by the Comptroller-General of NCS Hameed Ali, the agency said the guns were intercepted on Sunday, January 22. The statement read: “On Sunday 22nd January 2017, the Roving Team of the NCS Federal Operations Unit while on information patrol intercepted a Mack truck with registration number BDG 265 XG conveying a 1x40ft Container with Number: PONU/825914/3along Mile 2 Apapa road. The truck was immediately taken to the premises of FOU Zone A,Ikeja where Physical examination revealed 49 boxes containing a total number of 661 pieces of pump action rifles concealed with steal doors and other merchandise goods.” The Customs says the actions of the importer contravened Nigerian laws and was made all the more relevant by the current security conditions in the country. It added: “These Rifles are under absolute prohibition; therefore its importation is illegal. Such deadly contravention of the law is even more unacceptable considering the fragile security situation in some parts of the country.” The Customs confirmed the arrest of three people in connection with the importation of the large arms: Oscan Okafor the importer; Mahmud Hassan, the clearing agent and Sadique Mustapha who accompanied the consignment to its destination. A Customs officer, Abdullahi I. turned himself in to authorities on February 1, while Odiba Haruna Inah remains at large. The investigation remains ongoing.
This seizure is commendable and the fact that arrests have been and the customs officers responsible identified and declared wanted are also good developments. However, the seizure brings up quite a few questions. First, we think it would have had more of an impact if rather than an outright seizure, a tracking device had been placed on the truck. This would have helped in finding the actual destination, and possibly the buyers. Guns, in Nigeria, are not an over the counter item. Someone made the order. Who is that someone? Secondly, the question needs to be asked, how many more sophisticated weapons have gone through Customs without being discovered? Nigeria is major transshipment point for small arms and ammunition and sits lock deep in a region that is flush with weaponry gotten through mostly illegal means and littered with porous borders which guarantee their ease of delivery. Within its borders, the government is dealing with major security challenges on at least four major fronts fuelled in part by the arms bonanza that nefarious elements have historically enjoyed. Clearly, a more holistic approach to Nigeria’s firearms dilemma would be required, but for now, Hameed Ali has a heck of a job and a lot of questions to answer from a very worried Nigerian public.
Foreign capital is increasingly allergic to Nigeria
Nigeria’s capital imports slumped to a nine-year low in 2016 as Africa’s biggest economy battled a weaker currency and its first recession in 25 years. The NBS said on Wednesday that capital importation into Nigeria fell 47 percent last year to $5.12 billion, largely because the weak currency meant fewer dollars were required for the same naira investment. It said $9.64 billion was imported in 2015. “This was the lowest value since the (data) series started in 2007, which reflects the numerous economic challenges that afflicted Nigeria in 2016,” the statistics office said. Equity investments from portfolio investors and direct investment rose sharply from 2012 to 2014, at a time when Nigeria was one of the fastest growing economies in the world and a top destination for investment. But a sharp drop in the price of crude oil, Nigeria’s main export, from mid-2014, slashed government finances, weakened its economy triggering a recession and battered its currency, frustrating business and leading investors to flee its markets. The NBS said portfolio investments fell the most in 2016, deterred by the recession and the currency, down by 69.8 percent from 2015, as investors weighed market conditions relative to expected returns. The NBS said Nigeria imported the bulk of its capital from the UK, the US and Netherlands, with the telecoms, banking and oil sectors the main beneficiaries.
Not many needed the release of official figures to realise that investments into the capital markets and real sectors have dried up drastically in recent years. With the steep fall in crude prices, it was widely expected that capital imports would drop briefly as investors watched to see the federal government’s response. Unfortunately, the massive stimulus the government promised back in 2015 has not materialised after 20 months, instead the uncertainty around the value of the naira has dominated discussions. In the meantime, capital has sought returns in safer markets across Europe, North America and Asia.
Chevron Nigeria aches for better days
American energy giant Chevron has reported a full-year 2016 loss of $497 million, contrasting with 2015 earnings of $4.6 billion. The company reported a second quarter 2016 loss of $1.47 billion in July and reported earnings for four months ending December of $415 million, that way reversing a loss of $588 million in missed forecast earnings from a year ago. Production in Nigeria shrank by one-sixth because of the impact of militant attacks on pipelines and infrastructure. “Our 2016 earnings reflect the low oil and gas prices we saw during the year,” said John Watson, CEO on January 27 when the results were released. He further said, “We responded aggressively to those conditions, cutting capital and operating expenses by $14 billion. “We are well positioned to improve earnings and be cash flow balanced in 2017 through continued tight spending and cost control and additional revenue from expected production growth.” The company said in a release that production increases from major capital projects and base business were offset by normal field declines, the impact of asset sales, production entitlement effects in several locations and the effects of civil unrest in Nigeria. The energy giant’s average sales price per barrel of crude oil and natural gas liquids was $40 in the quarter, up from $35 a year ago. The average sales price of natural gas was $1.98 per thousand cubic feet, compared with $1.54 in last year’s quarter. However, the company’s downstream earnings plunged 65 percent from the year-ago period to $357 million, reflecting lower margins on refined product sales and higher tax items. Attacks on Chevron’s facilities in the Niger Delta were frequent last year and one of the most devastating was an attack on the company’s Okan facility in May 2016, which shut-in about 35,000 barrels per day of Chevron’s net crude oil production in Nigeria.
2016 was a tough year for Chevron globally and indeed the oil industry with low oil prices. The Nigerian business unit weathered some of the worst disruptions in a decade with militants attacking their facilities, cuts in personnel and no investment in new capital projects. 2017 already has a better feel to it with no significant disruptions to its operations in January and with oil prices heading up, the company will surely be looking forward to a good year. A new CEO has also been appointed to lead the Nigerian operations. They will be hopeful that discussions between the Buhari Administration and the militants will yield much needed calm and that oil prices stay up.
No let up for Nigerian manufacturing
Nigeria’s manufacturing activity fell to 48.2 index points in January 2017, down from 52.0 recorded in December, the CBN said in its Purchasing Managers’ Index released on Tuesday. The report showed that while the manufacturing PMI dropped to 48.2 index points, the non-manufacturing PMI stood at 49.4 points, indicating a slower decline compared with the 47.1 points recorded in December 2016. In the PMI report posted on its website, the CBN said, “A composite PMI above 50 points indicates that the manufacturing/ non-manufacturing economy is generally expanding, 50 points indicate no change and below 50 points indicate that it is generally declining.” Though the manufacturing PMI grew in December 2016, it had recorded declines for eleven consecutive months and averaged 45.2 in the last 12 months. The report showed that 10 of the 16 sub-sectors surveyed recorded declines in the month under review while the remaining six sub-sectors expanded. The six sectors are: petroleum and coal products; appliances and components; nonmetallic mineral products; food, beverage and tobacco products; textile, apparel, leather and footwear; and computer and electronic products.
The numbers tell the same story repeated by many other numbers such as job losses, factory shut-downs and more – in spite of the efforts of the government, Nigerian manufacturing is suffering. The main reason for this is also not hidden; the manufacturers struggle to get FX to import raw materials and have been unable to find viable local alternatives even though CBN’s FX policy requires 60% of FX to be allocated to the manufacturers. We counsel that CBN loosen its grip on FX supply and pricing that threatens to continue to choke critical sectors of the economy, particularly manufacturing.