A couple of noteworthy events of economic or business relevance occurred during the 1st half of this year. We believe that they are noteworthy because they have been vital in determining the economic direction of the country, may play a significant role in where the country ends up at the end of the year.
Some of them have been engendered by good policies, some by bad ones, and some were just stumbled upon. Here is a summary of the key event we think you should be aware of.
1. Oil sector resurgence and the quest for exchange rate parity
Nigeria had a fair amount of good luck in the first half of the year. Towards the end of 2016, and into 2017, oil prices strengthened, and production levels have surpassed 2 million bpd following the bargaining made by Ag President Osinbajo in the Niger Delta. This stability in oil sector production was instrumental to the CBN’s ability to ceaselessly intervene in the FX market. Armed with oil proceeds, the CBN by sheer force of will, dragged down the exchange rate from about N520 to the current N360 levels.
In a quest to bring down the rate at the parallel market, it force-fed Dollars to the market, ensuring that absolutely everyone that needed FX could get it. Even though this move was down to some good timing by oil prices, it was nonetheless critical to turning around the crisis situation in the country. It eradicated the anxiety and panic in the country by constantly reassuring everyone that they would get FX. This was key in stopping the Dollar hoard and reducing speculative Dollar purchases.
The CBN infused more than $7 billion into the economy. The BDC segment alone received $3.9 billion in the first two quarters of 2017 alone compared to only $58 million in the whole of 2016. The parallel market rate reduced drastically, and fell in sync with other markets.
2. The Investor and Export FX window
In April, 2017, the Central Bank of Nigeria launched the Investors’ and Exporters’ FX window. The establishment of this market was in response to calls for the CBN to liberalize the FX market and float the currency. The CBN, considering other factors including the feed-through of a weak exchange rate to inflation – which would have had severe effects on Nigeria’s import-dependent economy –, opted to liberalize a portion of the market while maintaining control of the other segments.
This would ensure that major parts of the economy are insulated from exchange-rate-related disruptions. Prices in the I&E window are market determined. We believed that this compromise by the CBN to market forces was highly commendable and timely in facilitating the gradual return of confidence to Nigeria’s FX market and financial system as a whole. It sets a foundation on which more robust economic recovery can be made. Investors and other bulk FX users are now better able to access FX for transactions such as capital, profit and dividend repatriations.
Businesses can now also make their foreign loan and interest repayments, and other trade-related payment obligations. The good thing about this market is that it has now snowballed in to a nearly $4billion market, after being midwifed by the CBN. Participants now trade with each other, as the CBN reduces its activities in the market. Due to the new-found confidence brought about by this market, MSCI (Morgan Stanley Capital International), decided to leave the country in its frontier index until at least November.
An exist from this market would have been bad future FX inflows, considering that Nigeria had already been exited from JP Morgan & Chase’s Government Bond Index for Emerging Markets (GBI-EM) in September 2015, and Barclays emerging markets local currency government bond benchmark in February 2016.
3. The 2017 budget
The National Assembly passed the 2017 budget on Thursday May 11 after a lot of drama, as usual. The budget of N7.44 trillion is the highest ever by any Nigerian government, and was premised under the assumptions of oil price at $44.5 a barrel production 2.2mbpd. This budget, which is meant to be reflationary is supposed to be the means through which President Buhari’s ambitious economic recovery plan will be executed. Despite the good intentions articulated in the Economic plan and the budget, there are serious concerns.
The first of this is Revenues. It is almost impossible for Nigeria to attain its ambitious revenue targets, if precedents are anything to go by. Non oil revenues will crawl up at snail’s pace, while oil revenues are constantly being threatened by low global prices and threats of production disruption from the Niger Delta.
The Nigerian economy is heading out of the woods, mostly because of the peace brokered by Ag President Osinbajo. But this peace is increasingly fragile as the government continues to delay on implementing its promises to the Niger Delta region.
Another worrying trend regarding the Budget is the amount set aside for debt servicing – a precarious N1.84 trillion, 24.7% of the total budget and 36.3% of revenue projections for the year. N2.18 trillion was set for capital expenditure, which although is small. However, it will do some good if the government actually implements it. Speaking of capital expenditure implementation, Minister Fashola’s idea of focusing capex on a few projects to achieve 100% completion rather than frittering it on hundreds of tiny projects that will not be completed sounds like a noble idea. It is our wish that the NASS gives him a chance.
4. Nigeria taps international debt markets, launches first diaspora bond, looks forward to sukuk bond
Nigeria successfully raised $300 million in its first ever diaspora bond at a coupon rate of 5.6% for a tenor of five years. The bond was over-subscribed at 130%. It earlier $1.5 billion Eurobond this year ($1 billion and $500 million separately). Both issues were vastly oversubscribed.
Since there was a high level of demand Nigeria’s debt, we kinda feel that the government should have taken the opportunity to raise more money from this market – given the fact that its interest rate was low– to replace the locally sourced loans for which it pays up to 16%. This would have helped to taper the rising debt service costs and freed up local funds to finance Nigeria’s real sector.
5. Executive Order galore
Acting President Yemi Osinbajo signed 4 Executive Orders in a bid to fast track reforms. They are:
• Executive Order On the Voluntary Assets and Income Declaration Scheme (VAIDS). VAIDS is a nine (9) month window of opportunity to allow taxpayers who are owing taxes to voluntarily declare their Asset and Income and pay the taxes due on them. In return for this, they get a pardon and wont pay the interest.
• Executive Order on Budgets which mandates MDAs to prepare and submit their schedule of revenue and expenditure estimates for the next three financial years on or before the end of May every year, to the Minister of Finance and the Minister of Budget and National Planning
• Executive Order On Support for Local Content in Public Procurement by the Federal Government
• Executive Order On the Promotion of Transparency and Efficiency in the Business Environment.
The Executive Orders convey the feeling that the Ag President is serious and wants to be speedy in the achievement of reforms. This is very commendable, however, a key concern is if these orders will be adhered to.
While their aims are noble, and while the affected MDAs may want to comply, we feel that there may be systemic issues that need to be addressed if the EOs will yield result. In many cases, organizational structures of the MDAs will need to be tweaked significantly for compliance with the EOs to be complete.
This will take considerable time. Further more, the rocky relationship between the Executive and the Legislature may prove to be an adverse factor for the achievement of the Ag President’s wider reform goals.
6. The Etisalat Saga
Another event that made the headlines in the first half of 2017 is the incredible fall of Etisalat Nigeria. The Telco giant fell into a debt crisis, owing $1.2 billion to 13 Nigeria banks. Etisalat eventually defaulted on its loans, leading the banks to consider calling in their collateral which unfortunately includes seizing the assets of the company, including its shares.
The parent company – Etisalat UAE pulled out completely from the Nigerian unit, while regulators replaced the company’s key officials with CBN administrators. The now former Parent company has said that its brand name should seize being used in Nigeria, as it has terminated its management agreement with the Nigerian business.
Three weeks have been given before the brand is completely phased out in Nigeria. Etisalat Nigeria’s story throws up several lessons: it is a lesson in how a bad macro-environment can be caustic to business; it is also a lesson on how sub-par management can bring down an industry giant.
The regulators are now designating Etisalat as a systemically important telecommunications company with over 20 million subscribers and 4,000 staff, stating that if the Etisalat situation is not well handled, the banking system itself may be severely affected. This regulatory decision by CBN is a bit unorthodox.You could have seen that in the way it handled the FX crises. But what will this precedence give rise to in the future?
Will another industry giant in the future, who owes the banking system billions of Dollars/Naira and employs thousands of staff seek to be bailed out after recklessly managing its business? Will the moral hazard problem ever be solved? Will capitalism in Nigeria ever work for everyone, if businesses keep getting bailed out?
Why is it that the gains of corporations are shared privately, but its losses are socialized? Either way, we will miss our dear 0-8-0-9ja-4-Life.
Rivers State unemployment figures by NBS are fake – Wike
Governor Wike has dismissed the figures provided by the NBS concerning the rate of unemployment in his state.
The Governor of Rivers State, Nyesom Wike says that the National Bureau of Statistics’ data on unemployment in Rivers State is fake and politically motivated.
The Governor disclosed this during an interview with Channels TV on Friday morning. He said the figures are fake and political.
“It is fake; it is political. The rate (unemployment) is high, but I don’t believe in their statistics,” he said.
Nairametrics earlier reported in August that the South-South geopolitical zone is the most affected region with a 37.0% unemployment rate, followed by South East (29.1%), North Central (27.9%), Northeast (27.9%), North West (26.3%), and South West (18.0%).
Rivers State is ranked second place, with unemployment in the region at 43.7%, and underemployment at 19.8%. 1,714,189 residents were recorded as unemployed, with a total labour force of 3,921,860.
“If you have a lot of construction jobs going on, for example, does that not create employment? In Rivers State today, nobody can tell me that we have not tried in terms of employment; to reduce the level of unemployment,” Wike said.
The Governor cited formal and informal infrastructural projects across the state, which offers a means of livelihood to labourers. He went further to call on the NBS to be more deligent in their research.
“NBS should come to the state and see for themselves and see what we are doing to create jobs. Not just sitting in their offices. They never deployed anybody to come here,” Wike said.
FAAC disburses N696.2 billion in July 2020, as Lagos State parts with N1.46 billion
The sum of N696.18 billion to the Federal, State, and Local governments in July 2020 from the FAAC account.
The Federation Account Allocation Committee (FAAC), disbursed the sum of N696.18 billion to the Federal, State, and Local governments in July 2020, from the revenue generated in the month of June 2020. This was stated in the latest FAAC report, released by the National Bureau of Statistics (NBS).
According to the report, the monthly disbursement increased by 27.2% compared to N547.3 billion shared in June, and 14.8% increase compared to N606.2 billion disbursed in May 2020.
Checks by Nairametrics research, shows that a total of N4.58 trillion has been shared to the three tiers of government, between January and July 2020. Highest disbursement was recorded in April (N780.9 billion), followed by N716.3 billion in January 2020.
Meanwhile, Lagos State – the economic hub of Nigeria, parted with N1.46 billion as external debt deductions in the month, indicating a total of N9.74 billion deductions between January and July 2020.
Explore the Nairametrics Research Website for Economic and Financial Data
- The amount disbursed in July comprised of N474.53 billion from the Statutory Account, N128.83 billion from Valued Added Tax (VAT), N42.83 billion from Exchange Gain Differences, and Distribution of N50 billion from Non-Oil Revenue for the Month.
- Federal Government received a total of N266.13 billion from the total disbursement. States received a total of N185.77 billion, and Local Governments received N138.97 billion.
- The sum of N28.50 billion was shared among the oil producing states as 13% derivation fund.
- Revenue generating agencies such as Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS), and Department of Petroleum Resources (DPR) received N6.32 billion, N15.05 billion, and N2.68 billion respectively as cost of revenue collections.
South-South scoops highest share
The South-South region, also known as the Niger Delta region, received the highest share of the disbursement in the month of July. The region received a sum of N49.44 billion, representing 25.4% of the total net allocation for states.
This is largely because the region contributes mostly to crude oil production in Nigeria, which is a significant source of revenue for the federation. Out of the six states in the region, only Cross River State is not an oil producing state. Hence, Rivers, Edo, Akwa Ibom, Bayelsa, and Delta States received a total of N24.28 billion as part of 13% oil derivation fund.
North-West region received N36.83 billion (18.9%); followed by North-Central region, which received a net total of N30.69 billion (15.8%). Others include South-West (N29.55 billion), North-East (N26.32 billion), and South-East (N21.97 billion).
External debt deductions
A total of N4.47 billion was deducted from the state’s allocation, as external debt deductions for the month of July. Lagos State parted with the highest amount of N1.46 billion, representing 32.6% of the total debt deductions in the month. A sum of N9.74 billion has been deducted as a result of external debt obligations between January and July 2020.
It is worth noting that, the State’s external debt has declined by 9.67%, from $1.39 billion recorded as at the end of December 2019 to $1.26 billion in June 2020.
Others on the list of top 5 deductions are, Kaduna (N414.6 million), Oyo (N305.4 million), Rivers (N280.3 million), and Cross River (N222 million). On the flip side, Ogun State parted with the lowest, as N9.1 million was deducted, followed by Borno (N21.6 million), and Taraba (N24.5 million).
- With dwindling federally collected revenue, caused by volatility in global crude oil price and economic downtrend caused by COVID-19 pandemic, it is evident that federal allocations will likely face drastic decline, which is a cue for the State governments to strategize on more creative ways of generating revenue internally.
- A quick check at the states’ IGR numbers, shows that 91.9% of the states in Nigeria with the exception of Abuja, Ogun, and Lagos States rely more on federal allocation, as against internally generated revenue.
- This implies that several states in Nigeria are technically bankrupt without debt financing, and Federal Government monthly allocation.
Buhari to finally send Petroleum Industry Bill to National Assembly next week
Sources in the Presidency have disclosed that the President may be presenting the bill to the National Assembly.
President Muhammadu Buhari is expected to present the long-awaited Petroleum Industry Bill (PIB) to the Senate as early as next week.
According to Reuters, who were quoting 4 sources familiar with the development, the presentation of the bill to the National Assembly, follows its official approval by the president late last week. This is as the National Assembly has already formed teams of members that will work most closely on the individual portions of the bill.
Both chambers of the National Assembly must have to pass the bill after deliberating on it before it can then be passed on to the president for his final signature.
The PIB which is an oil reform bill has been in the works for about 20 years, is key to the repositioning of Nigeria’s Oil and Gas Industry under its post-COVID-19 agenda as the main laws governing oil and gas exploration have not been fully updated since the 1960s due to some contentious issues like taxes, payments to local communities, terms and revenue sharing within Nigeria.
The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), had disclosed that the delay and non-passage of the bill has made international investors to start losing confidence in the country’s oil and gas industry.
While revealing last month that the PIB will be presented to the National Assembly in the next few weeks, the Minister of State for Petroleum Resources, Timipre Sylva, also said that the executive arm will be requesting the lawmakers to specially reconvene to receive and start deliberations on the bill.
These oil reforms and regulatory certainty became more pressing this year as low oil prices and a shift towards renewable energy made competition for investment from oil majors tougher.
The draft copy of the bill which was prepared by the Petroleum Ministry is a product of series of consultation between the federal government, oil and gas companies and other industry stakeholders.
Excerpts from the bill reported by Reuters include provisions that would streamline and reduce some oil and gas royalties, increase the amount of money companies pay to local communities and for environmental clean-ups alter the dispute resolution process between companies and the government.
It also included measures to push companies to develop gas discoveries and a framework for gas tariffs and delivery. Commercializing gas, particularly for use in local power generation, is a core government priority.