02 Sep

The week ahead – We all have to man the oven as the national cake shrinks

Nigeria’s economic slump deepened in Q2 as a declining oil industry weighed on output. GDP contracted by 2.1 percent in the three months through June from a year earlier, after shrinking 0.4 percent in Q1, according to the National Bureau of Statistics. The country has suffered a revenue squeeze after oil prices dropped by half since mid-2014, and crude exports fell by over 20 percent in the second quarter as militants in the Niger Delta blew up pipelines and reduced output. Crude production fell to 1.69 million barrels per day in Q2, from 2.11 million barrels in the three months through March, with the oil industry contracting by 17.5 percent and the non-oil sector, which includes manufacturing, banking and agriculture, shrinking by 0.4 percent.

The allocative revenue accruing to the federal, states and local governments dropped by ₦65 billion in July, from the ₦559 billion figure realised in June, according to the finance ministry. Militant attacks had hit oil revenues hard, leading to a decline in distributable revenue among the three tiers of government to ₦494 billion in July. The distributable revenues included value added tax payments of ₦64.308 billion. Also, 2016 has seen a steady decline in the value of monthly cheque transactions in the country, sliding from ₦501.166 billion in February to ₦488.627 billion in June. A new NIBSS report showed that cheque transactions worth of ₦464.553 billion were carried out in January; ₦501.166 billion in February; and ₦487.572 billion in March. In the second quarter, cheque transactions worth ₦472.465 billion in April, ₦480.409 billion in May and ₦488.627 billion in June were executed; the report highlighting the fact that Nigerians were moving away from traditional cheque transactions to more convenient electronic channels of completing financial transactions.

The federal government says ₦20 billion of ₦500 billion earmarked for social investments has been released . According to the President’s special adviser on social investments, Maryam Uwais, it was simply not possible for the ₦500 billion social intervention fund to be implemented as contained in the budget. She went further, saying she “appreciate(s) the releases so far made for some capital projects, but the process is slow and it may not catch up with the budgetary expiry timeline of the 2016 appropriation.”

Despite the official increase in pump price of petrol from ₦86.50 to ₦145/litre in May this year, the National Bureau of Statistics has reported that pump prices were significantly above the recommended ₦145 in 28 states in the month of July 2016. The NBS report indicated that the national average pump price of petrol at ₦147.67/litre is still significantly higher than the standard price, though it also showed a marginal drop from ₦148.54/litre recorded in the preceding month of June. According to the report, all oil producing states, except Edo, are in the top 10 states where fuel is most expensive, with Bayelsa State in the lead at ₦165.71 per litre. Other states in the top 10 include Taraba, Akwa Ibom, Nasarawa, Kebbi, Abia, Cross River, Rivers, Benue and Kwara. Average petrol prices in these states ranged from ₦148.33 to ₦162.78 per litre. In what will come as a surprise, most northern states recorded petrol prices below ₦145. The states include Katsina, Borno, Kaduna and Kano.

This week, the pastoral conflict came into renewed focus. First, the Ohanaeze Youth Council (OYC) called on Nigerians in and around communities that have been attacked by Fulani herdsmen to adopt the strategy of self-defence, saying that it has become “clear now that Mr President has no control of events in the country.” This came just before the Ekiti State Assembly formally passed a Bill that had been put before it by Governor Ayo Fayose. The Prohibition of Cattle and Other Ruminants Grazing in Ekiti Law, 2016 has restricted grazing activities in the state to daylight hours and reduced the areas where cattle are allowed to go. The controversial legislative effort was precipitated by a violent attack on Oke Ako in Ikole Local Government Area in May by suspected cattle herdsmen, which led to the killing of two locals with an undisclosed number of injuries. The bill received wide bipartisan support as well as assent from the state’s association of traditional rulers, who actively pushed for government intervention in curbing a spate of herdsmen attacks which has affected a broad spate of Nigerian states. Finally, a herdsman, Ibrahim Adamumale was arrested with a Kalashnikov rifle and 24 rounds of live ammunition in Enugu. The young herdsman resides at Hausa Quarters in the 9th Mile Area of Enugu, but rears cattle in communities within the Udi Local Government Area and environs. It was gathered that Adamumale was apprehended in a bush in Affa community, in the Udi area on August 29.

Gunfire caused panic at Kuje Prison, Abuja, on Monday, following a riot by some inmates, who resisted the attempt by prison officials to search their cells for banned items. It was gathered that security operatives fired gunshots and tear gas canisters to restore law and order and control the rioters. This happened 11 days after a similar incident in Abakaliki Prison, Ebonyi State, that led to the death of six inmates and injuries to four prison warders. The Monday riot occurred two months after two inmates, standing trial for culpable homicide, escaped from the Kuje Prison on June 25. Reports say the violent protest was brought under control by the armed squad of the Nigerian Prisons Service supported by soldiers providing additional security cover for the formation.

The Nigerian army has said it has killed the leader of the Boko Haram sect, Abubakar Shekau as well as his impostor. Major General Lucky Irabor, the theatre commander of Operation Lafiya Dole, who was speaking in Adamawa state on Thursday, described as “a façade” recent videos of Abubakar Shekau released by the Islamist sect. “I can confirm to you that the original Shekau was killed, the second Shekau was killed, and the man presenting himself as Shekau, I can also confirm to you that a few days ago, he was wounded. We are yet to confirm whether he is dead or not,” he said. “They released videos to prove that they are still active, but that’s just a facade.” Last week, the army spokesman, Sani Usman said Shekau was “fatally” injured in an air raid.

At least 28 people have been killed as floods wreaked havoc across many states in Nigeria in the last few days. Hundreds of houses were swept away in the floods that followed days of heavy rain. The Nigerian Meteorological Agency, in its updated weather report, is predicting that floods will persist well into to October in at least 10 states. NIMET said its analyses rainfall data from observatories nationwide for June and July, showed that soil moisture had either reached saturation or near saturation levels due to cumulative high-intensity rainfall in some parts of the country. Such states include Akwa Ibom, Bauchi, Benue, Borno, Cross River, Delta, Kaduna, Kwara, Nasarawa, Yobe and Zamfara. The agency said by implication, floods should be expected in these areas because the soil would no longer be able to absorb more rainwater in the coming weeks, which coincide with the peak rainy season in some of the states. Experts suggest that states like Niger, Anambra, Kogi, Ebonyi may also suffer isolated flooding, especially around the river banks.

Suggestions:

  • By most analysts’ indications, the chorus of bad economic data has some way to go before things get better. The nation’s finance minister may think the term recession is “just a word” but try telling that to the 4.5 million people that are estimated to have joined the horde of Nigeria’s unemployed and underemployed within the duration of the oil slump, it is a reality that is stark. Every section of the economy, bar agriculture (saved by the onset of the harvest season) took a hit – finance and insurance, consumer products, services and construction. In classic economics, the best way to get out of a recession is to spend. In an emergency situation such as this recession, the government is yet to communicate with Nigerians appropriately. It is also yet to outline a detailed policy to get the country out of the recession. It is definitely not the time to grant the executive emergency powers or for the legislature to be in recess. It is time for everyone to act. First, the government has to spend in a way that stimulates broader economic activity. Unfortunately, government revenues are plummeting, exacerbating a messy situation. A quick win would be scored by getting the militants in the Niger Delta to the negotiation table. This is obviously more within Aso Rock’s control than getting oil prices back to their 2014 numbers. Borrowing targeted at stimulating infrastructural spending would also be a quick win but for our lousy credit rating. Broadening the tax base, dealing with regulatory red tape and cutting the size of government are also important structural reforms that would produce a demonstrable economic boon. This is not the time to raise the tax rates on those already heavily taxed. It is, in fact, more imperative that much-needed tax reforms, aimed at streamlining taxation and eliminate multiple taxation and overzealous enforcers are carried out to stimulate business. Nigerians need to get back in jobs and out of poverty. We must utilise every weapon our arsenal to ensure the government delivers.
  • The Ministry of Finance statement about monthly allocations makes for sobering reading. A moment’s silence needs to be had in memory of those states of whom their share of the allocative pot constitutes a significant proportion of their finances. The clarion call to diversify the government’s revenue away from oil, expand the tax base, encourage economic regionalism and send every governor a copy of ‘An Introduction to David Ricardo’ has to be the loudest at this point. While we are sceptical about foisting a heavier burden on the Nigerian consumer, our VAT collection rates are abysmal, hence, we think it is appropriate for the government to review the VAT rate incrementally upward to act both as a curb on consumption (which may help with our inflation fever), as well as boost revenue generation. The drop in the value of cheque transactions is as much an indicator of slowing economic activity as it is a sign that technology is playing a larger role in facilitating key economic exchanges. If there’s one silver lining in the raft of economic data released this week, it is this. Nigerians are increasingly going digital in how they manage their pocketbooks. We recommend that fiscal incentives be channelled towards the technology/IT industry as it is one of the potential high growth areas in which we can quickly get our young people working again.
  • This would probably be a non-issue save for a little quoted snippet of Ms Uwais’ statement. It seems part of the reason why the social investment fund – which is to provide money for such things as the administration’s flagship ‘food for school kids’ scheme as well as a stipend for unemployed graduates – may not be receiving the monies it needs because “the precarious revenue situation has forced the Federal Government to raise funds from issuing treasury bills at up to 18 percent. Most of this money, as we hear, is just to cover recurrent expenditure.” We understand that it was not Uwais’ intention to unwittingly shoot her boss’ actions in the foot, but shoot them she did. We have repeatedly emphasised that government is too big, too inefficient and is getting in the way of unleashing the creative and entrepreneurial energies of Nigerians, the key to shaking the country out of its current economic malaise. Thankfully, Uwais has a prescription. “These are things the Federal Government of Nigeria should be engaging the National Assembly and stakeholders now so that we do not just keep passing budgets that will not be implemented.” We couldn’t agree more.
  • There are indications from news reports that the petrol price is going to go up in the near future. This is entirely plausible, as the current price is calculated at an exchange rate of ₦285, while the current market reality is that exchange rate is ₦317, predicted to go further up. This implies that to maintain the price at the current ceiling of ₦145 per litre, the government will be left with two choices – paying subsidies on the imported petrol, or providing subsidised FX to the oil marketers. We suggest that the government remove price controls on the price of petrol, and allow the market determine the price. We believe that demand for petrol will reduce with the potential increase in price this will bring, further reducing demand on FX and potentially driving the exchange rate down.
  • The statement from the Ohanaeze Youth council is quite potent, as it could spur unemployed young people in the South East to reprisal attacks against any Fulani herdsman in the region, thereby increasing the security challenge facing the country, and resulting in more strain on the economy, and making the business environment tensed and unfriendly for investors. On the other hand, Ekiti’s actions can be considered a certain way: a government sworn to protect the lives and livelihood of its citizens is finally taking some action. They can also be considered in another way: an emotional, unhelpful and haphazard attempt at dealing with a complex problem using the most simplistic of tools – hastily crafted legislation. But even understanding the issue within these two frames would be to overly simplify the problem. Like we pointed out last week, constituent states are increasingly taking advantage of the leadership lacuna created by Abuja’s intractable inability to intelligently engage and deal with the pressing problems of the polity. The lack of an overarching security strategy, coupled with the centre’s tacit encouragement of a national conversation on the worryingly increasing incidence of herdsmen attacks along solely North-South lines has ensured that any state can do whatever it can to address the problem, and they are. We do not see how slapping a ‘terrorism’ label on any herdsman attack makes us safer. It may be a feel good pill, but it is nothing more than a placebo.
  • The interior affairs ministry has not learnt anything from these prison incidences across the country. We believe the current interior minister should sit up and make certain there are reforms within the prison system in order to ensure cohesion and internal order of the correctional facilities so that they can stop constituting a problem to the general public. However, there is also a case of legitimacy. The proportion of inmates awaiting trial languishing in our prisons is put at 72%. These are essentially people who know they are locked up without being convicted and have no other recourse to free themselves but attempted escapes. This is a fundamental injustice that requires urgent attention.
  • We have, in a previous edition of this report, said that the military needed to come clean with a factual explanation of the ‘death’ of Abu Shekau. This is important so Nigerians can understand whether the name is a title used by the sect or an actual human being. Irabor’s comments do not meet the demands of a satisfactory explanation of the current whereabouts of Shekau. As the ancient dictum goes, actions speak louder than words. Pictorial and video evidence, as well as a detailed blow by blow account of the death of the original Shekau and the many Shekaus that have followed, is the only appropriate test that will satisfy Nigeria.
  • One issue that has not been emphasised is the level of destruction caused by these floods on communities who are prone to erosion. It has devastated lives and properties, and forcibly uprooted families and peoples from their ancestral homes, with no help from the government. We call for an independent management of the ecological fund for a transparent and judicious use. We also ask that government to move beyond releasing annual warnings for areas that are known to be flood prone to putting measures in place to ensure that the flooding does not create this level of devastation year in year out.