04 Nov

The week ahead – We need a plan, with details please

Nigeria’s Senate on Tuesday rejected President Muhammadu Buhari’s plan to take on almost $30 billion in external borrowing to fund a record budget spending as the country battles to overcome a recession. The plan was turned down “due to lack of documents supporting the request,” the Senate said in a statement posted on Twitter. Buhari had last week sent a letter to parliament urging lawmakers to approve his plan to raise $29.6 billion to fund sorely needed infrastructure projects over the next three years. Financial analysts said the Senate’s decision could still be negotiated.

The African Development Bank’s Board of Directors on Wednesday approved a $600 million loan for Nigeria, just over a month after the FG had approached the lender for a budget-support facility. The loan is meant to help Nigeria plug its budget deficit. The $600 million is the first tranche of a total $1 billion budget support package. The second disbursement of $400 million will depend on the implementation of reforms, and is expected early next year, according to Ousmane Dore, the bank’s Nigeria country director. The President, AfDB, Dr. Akinwunmi Adesina, had on September 26 said the bank was working on giving Nigeria loan facilities of $4.1 billion between now and next year for critical sectors of the economy. The loans include $1 billion at a concessionary interest rate of 1.2 percent for Nigeria to address the 2016 budget deficit and aid her economic recovery.

Erisco Foods, Nigeria’s largest tomato processor, which runs a 450,000 metric tonnes capacity with an investment of $150 million, has announced its planned exit from Nigeria owing to its inability to get foreign exchange with which to import tin plates and concentrates. The company said it is now moving to China from where it will produce and export back to Nigeria. The company added that it has so far been frustrated by the unbridled importation of cheap tomato paste into the country which competes favourably with locally produced ones. Announcing the exit on Tuesday, CEO Eric Umeofia said he will conclude the relocation of his plant to China in nine months, stressing that Erisco products will still remain in the market after the period as the company is gearing up to feature among biggest importers of tomato paste into Nigeria. Umeofia vowed not to return his plants and machinery to Nigeria again, regretting that he has so far lost ₦3.6 billion to dumping and has inventory worth over ₦6 billion in his warehouses.

An average of 83 Nigerians crossed illegally from Nigeria to Europe, daily, via the Mediterranean in the first nine months of 2016, data by the European Union shows. The daily figure was extrapolated from the 22,500 illegal Nigerian migrants that the EU said crossed the Mediterranean Sea to Europe between January and September this year. This figure in the first 9 months of 2016 is against the 23,000 who crossed in the whole of 2015. The Deputy Head of EU Delegation in Nigeria, Richard Young, made this disclosure on Thursday at a media workshop in Abuja. Young expressed concern that the number of Nigerians taking dangerous adventure through Mediterranean to Europe within nine months in 2016 was higher than those who did same throughout 2015. According to him, there has been huge increase in migrants crossing border without the right travel document to Europe from all over the world.

Ekiti governor, Ayodele Fayose has said he has nothing against the interest of Fulani people or any other ethnic group in the country. Fayose made the statement during a meeting with leaders of the Miyetti Allah Cattle Breeders Association of Nigeria, the umbrella body of cattle rearers, in Ado-Ekiti to iron out grey areas in the enforcement of the state’s Anti-Grazing Law. The meeting, which took place at the Government House, had MACBAN leaders and representatives from the state’s local governments in attendance. In Fayose’s words, “I have nothing against you or any other ethnic group. Nobody should bring politics into this matter. If a Yoruba person destroys your property I will defend you too. It is people destroying other people’s farms that are causing this problem. Ekiti State MACBAN chairman, Alhaji Muhammad Nasamu, commended the governor for his frankness and openness.

Suggestions

  • The Senate has made a correct call on the loan request. The President’s plan seeks approval to borrow an amount greater than the 2016 budget, greater than our current foreign reserves and double the country’s current total debt stock. Such an ambitious borrowing plan must be well thought out, with detailed utilisation documented, proper scenario planning for repayment and other contingencies. It should not be a simple letter with vague proposals for utilisation of amounts that should carry this plan to the Senate. The Finance Minister, the Budget and Planning Minster and indeed the President, or his vice, should be making presentations to the Senate, showing all the details, and answering all the questions. Nigeria has borrowed before in the face of drastic drops in oil prices and it took two decades of careening debt servicing payments before debt forgiveness got the country out of the disaster. This must not be allowed to happen again.
  • The AfDb loan is a welcome development. Budget performance numbers have not been released, but it is clear that we have had difficulty funding the 2016 budget. The major concern is this – will this loan fund the capital expenditure components of the budget, or will it be funnelled to recurrent expenditure? Added to that, the AfDB has tied disbursement of the second tranche to implementation of reforms. What are these reforms? The Executive has clearly made debt a key part of its budget financing strategy. However, this must be weighed against the ratio of debt servicing expense to government revenue.
  • While we sympathise with Erisco Foods, it is important to let the market take its course. Erisco imports its raw materials for precisely the same reasons many Nigerians prefer to buy the imported products. What would have been expected was for Erisco to innovate and drive down costs in order to compete. We do not think Nigeria’s manufacturing sector should be hinged on the hopes of a protected domestic market where they can sell at above market prices. Erisco has made a move which it thinks is best for its business. We think that as long as the tomato paste is available in the market for Nigerians to buy at the best price, it is a win for all.
  • It may not be Iraq, Afghanistan or Syria but Nigeria is contributing to the migrant crisis in Europe at a frightening pace. The 2016 figures, which will surely break the record set only last year, represent a 2712% increase from 2012, when only 800 Nigerians crossed the Mediterranean into Europe, according to EU data. At current rates, more Nigerians illegally get to Europe in two weeks than in the whole of 2012, a situation exacerbated by challenging economic conditions and rising instability in several parts of the country. We believe it is the time for the Nigerian government, especially the interior and foreign affairs ministries, to address this issue from a policy-led and pragmatic framework. Surely it must worry them that Nigeria was the eighth largest source of asylum seekers to Europe in all of 2015.
  • The latest developments in Ekiti with respect to the herdsmen issue are a welcome breath of fresh air. Governor Fayose has taken an approach that is principle based irrespective of ethnicity, and there have at least been verbal expressions of commitment towards forging a path to reconciliation. The embers of reconciliation were also present in Kaduna where the military reportedly brokered an accord between herdsmen and local rulers of several communities in southern Kaduna that bore the brunt of herdsmen attacks last month. Unfortunately, there were reports of gunshot exchanges between herdsmen and youths in Umunor, Ndokwa East Local Government Area of Delta State. While we hope that the situation in Delta State does not deteriorate, and we welcome the developments in Ekiti and Kaduna, an overarching national strategy spearheaded by the federal government could not be more imperative.