03 Feb

The week ahead – As things get tighter we’ll need to be more creative

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.

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.

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.

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.

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.

Suggestions

  • ₦4.95 trillion instead of the ₦6.1 trillion 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 reason for rising food prices in Nigeria 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 arms seizure by Customs 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.
  • 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.
  • 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.