11 Nov

The week ahead – The naira goes into geostationary orbit

The Central Bank of Nigeria has issued a new circular warning Illegal Money Transfer Operators to stop facilitating illegal transfer of forex into Nigeria (especially at exorbitant rates) without their approval. The regulator said that these MTOs “lure unsuspecting customers with ridiculous exchange rate, use Naira accounts opened in local banks ostensibly for legal business to pay out the proceeds to the beneficiaries while channeling the foreign currencies to fund the parallel market,” saying this has led to the non-reporting of such transactions to the authorities as well as leading to discrepancies in statistics on the transactions between countries of origin of remittance and the destination country, Nigeria. In a related development, the State Security Service and the police raided the offices of black market currency dealers on Thursday, detaining some dealers and ordering others to sell dollars at a lower rate in a bid to break the fall of the currency. A dealer told Reuters that “the police and state security service officials are raiding black marketers in Lagos and Abuja to compel an appreciation of the naira.” Another trader said security agents visiting bureau de change operators told dealers not to sell dollars for more than 395. The police and central bank had no immediate comment. The bank regulator also fined Standard Chartered Bank ₦2 billion for foreign exchange infraction, Thisday quotes a source as saying. The bank, according to the source, drew the regulator’s ire by buying $25 million at the official rate and selling same far above the inter-bank market rate. Apart from the hefty fine, the commercial bank’s treasurer is also said to have been suspended by the apex bank that has been battling to rein in unwholesome banking industry practices that have engendered a huge differential between the interbank and parallel market rates.

The Association of Telecommunication Companies of Nigeria has said the passing into law of the 9 percent Communications Service Tax bill currently before the Senate will deprive twenty million Nigerians of access to telecommunications services. This claim was contained in a statement made by ATCON’s president, Olusola Teniola, during a visit by the group to the Senate President, Bukola Saraki. Teniola pleaded with the Senate to use its legislative powers to reduce the proposed tax to 0.2 percent. In his words, “We ask for a reconsideration of the CST Bill; we recommend, as an alternative, a tax reform that increases the current Value Added Tax by a new one per cent added for the purpose of development of communications.”

The Miyetti Allah Cattle Breeders Association of Nigeria (MACBAN) has warned its members against violence and crime. National president of the group, Muhammad Kiruwa, noted that criminals were hiding under the association’s name to perpetrate evil. “Miyetti Allah was established to unite Fulani herdsmen to work together and contribute to the development of the country. As a peaceful and law abiding association, Miyetti Allah always cooperates with government at all levels, security agencies, traditional leaders and stakeholders to ensure the peace, stability and development of our country,” he said. “It is rather unfortunate that we are misunderstood by the public due to activities of some criminals who have been using our name to perpetrate crimes, but we will not tolerate such any longer.”

During the week, Chief of Army Staff, Lieutenant General Tukur Buratai, attributed the re-emergence of high-profile attacks in Nigeria’s Northeast to the support that the Boko Haram terrorists receive from some individuals. Meanwhile, the Nigerian Army said on Monday that it had released about 1271 detainees after clearing them of any link with the Islamist group. Eleven soldiers have been killed since October 31, following repeated Boko Haram attacks.

Suggestions:

  • The recent action by the DSS in collusion with the CBN is the final nail in the coffin of the purported float that was gleefully announced in June. We foresee an increased scarcity of already scarce FX, and this will only create a black market within a black market. The result will be higher risk and followed by a rise in the price of the FX. We believe that the Naira will cross the ₦500 mark before November runs out. The CBN’s actions against Standard Chartered Bank must be applied to other banks within the industry who have been reported to have been involved in similar actions in order for the regulator to be seen as fair and equitable.
  • The proposed CST according to the industry pressure group will exclude 10 percent of the country’s population and about a third of its mobile phone subscribers from accessing telecommunication services. The industry already suffers from the twin pincers of double taxation and over-taxation, a situation which the pressure group says explains the slow penetration of services into parts of the country yet to be covered by mobile phone services. Contrary to popular belief, Nigerian telcos are barely eking out a living in a challenging operating environment. Coupled with the fact that the pockets of Nigerian consumers are being squeezed on every side, the introduction of yet another tax – which the telcos have said will be passed on to customers – is a really bad idea. This move is symptomatic of only one thing – the government is unwilling to do the hard work of actually increasing the tax base and collection capacity. Rather, they are content with easy targets, and telcos seem to be the easiest on the government radar. We urge the FIRS to do the right thing and improve tax coverage rather than overtaxing the existing base.
  • This is the first time that the cattle herders association is, at least publicly, asking its members to go on the path of peace. It is cheering news, and we welcome it. Publicly denouncing violence, rather than the past attitude of justifying it, will give other parties confidence that a peace is possible, and all should go for it. However, we must keep in mind that even agreements for peace must be enforced, and this is where the federal government comes in. The government must not only act, but must be seen as an impartial actor in enforcing the peace. Regardless of people’s prejudices, the herdsmen are facing real problems, and a well thought out solution that can accommodate everyone is possible. But only if there is sincerity.
  • While the military will be privy to information that is not generally available, the CoAS essentially spinning conspiracy theories is unhelpful to a proper understanding of the seeming resurgence of Boko Haram. An anonymous senior military official told Premium Times in an interview this week, that the Islamist group possess good strategists who study the army’s modus operandi and adjust accordingly. This corroborates independent findings by SBM from sources on the ground. The picture that is emerging is one of a fighting force transitioning from a ‘regular’ guerilla army to a nimble patchwork of coordinated fighting networks which possess almost full operational evidence and are quick to respond to the army’s moves. As we transition into the dry, Harmattan season, we foresee an uptick in attacks of this nature – lone, single strikes at military instalments and soldier combines, and unfortunately, an increase in the security services’ body count. Taking them down will require a recalibration of the military’s counterinsurgency efforts. One move that seems to be a mistake in hindsight was the termination of the contracts of mercenaries – locals who fought alongside the military in early 2015 – by the government. The government also needs to quickly fix the equipment issues raised in the Premium Times report if we are to avoid corresponding casualty increases amongst the army as Boko Haram attacks get more frequent.