21 Apr

The week ahead – Groping for light

On April 13, President Muhammadu Buhari appointed 23 new executives into a bevy of federal government agencies, including the National Agency for the Prohibition of Traffic in Persons, the National Park Service and the Federal Mortgage Bank of Nigeria. Much of the spotlight was however reserved for the significant shake-up at the National Pension Commission. Here, six Executive Board members, including its respected Director-General, Dr. Chinelo Anohu-Amazu; the Chairman and four executive commissioners were replaced.

The IMF on April 18 forecast a 0.8 percent growth for Nigeria in 2017 as a result of a recovery in oil production. In its latest World Economic Outlook report, it also cited sustained growth in the agricultural sector as a factor that will help get the country out of its first recession in a quarter of a century. Double-digit inflation was forecast for Nigeria following a sharp depreciation in the naira in recent months. The entire sub-Saharan Africa region is expected to grow by 2.6 percent this year, aided by a modest recovery in Nigeria, as well as other large economies as South Africa and Angola.

NERC is set to release a minimum recapitalisation level required to be met by core investors in the power sector. It has identified capital inadequacy as a major issue in the power sector, pointing out that the successor companies of PHCN were handed over to the core investors without any liability. As a result, after three years of operating the successor companies, there have been colossal losses, necessitating the need to set minimum capital adequacy requirement by the investors. NERC’s Vice Chairman, Sanusi Garba, in making the announcement, did not indicate how much the core investors in the GenCos, and DisCos are expected to beef up their capitalisation, or the timeframe for its actualisation. This comes as the 11 electricity distribution companies in the country condemned an alleged plan by the FG to escrow and centralise their revenue accounts, over poor market performance, with respect to their various monthly remittances to NBET. Speaking under the aegis of their umbrella body, the Association of Nigerian Electricity Distributors; the power firms, said such a move would amount to a nationalisation of their operations.

Suspected Boko Haram insurgents have killed five soldiers in an attack on a military checkpoint in Sabon Garin Kimba village in Borno State. They injured five other soldiers in the incident which was said to have occurred on the night of April 17. The insurgents are understood to belong to the Abu Al-Barnawi faction of the group. Local residents in Sabon Garin Kimba and a military officer confirmed the deaths, noting that it was an unexpected attack. On the same day, troops of Operation Lafiya Dole said they killed 21 Boko Haram fighters in Jarawa, Ngala LGA, Borno, rescuing 1,623 residents. These events took place in the week marking the 3rd year abduction of 216 girls from a Chibok secondary school.

Suggestions

  • The surprise removal of Anohu-Amazu, an unusually competent government official with the solid track record of growing a nascent pension industry and bringing the gospel of a savings culture to a generation of Nigerian workers, is not likely to allay the legitimate concerns of investors, who have spent the duration of this administration making sense of a myriad of policy U-turns, about-faces, and in some cases, thinking that flies in the face of economic rationality. Nigerians should be rightly concerned about the chatter about political interference being a major factor in the shake-up and what the future holds for what has traditionally been considered a bright spot in the economy. These questions are far from academic – Anohu-Amazu’s successor will preside over a ₦6.5 trillion sector.
  • In our 2017 outlook we had mentioned that statistics on recovery would be rife this year, all geared towards the narrative that the government has halted the slide into recession and recovery is on the way. However, in the same report, we cautioned that such statistics must be confirmed and reconfirmed independently. This claim is one such statistic. We believe Nigeria’s recession will be halted when the Q2 numbers come out, in July. However, the basis of the WEO claim is unclear as we are just a few weeks into the quarter. We also believe that the key driver of this turnaround will be oil prices that have been higher than they were at this stage last year based on the OPEC deal. However, Nigeria appears not to have altered its economic drivers much during the crisis period. A good crisis has been wasted, and a slump in oil prices will return the economy into dire straits.
  • We believe that this move by NERC amounts to a show of activity as opposed to solving the fundamental problems that plague the GenCos and DisCos. Much of this stems from three things: First, is the regulated pricing of electricity delivered to the end user – this limits possible profit in the value chain from the DisCos to GenCos. Second is a collection problem, especially with customers like government and their agencies. Data suggests that the government and its agencies owe ₦140 billion in electricity bills, thus hampering liquidity. Third is the pricing of gas, which constitutes the fuel for majority of our generation plants. All these factors combined have hampered investment and growth, and we do not think that recapitalisation will resolve these problems.
  • Three years after their most notorious action in Chibok, it is clear that Boko Haram has adjusted to the current realities of the North-East battle space, by not trying to hold on to territories and villages. Their preferred tactics now are to raid, loot, maim, and then move on. The lack of population-based-security strategy to counter these raids is glaring, and as a result soldiers are often taken unawares by ambushes. We suggest, again, that the military intensify intelligence collection in collaboration with the police, and properly vetted vigilante groups. The vigilante involvement is important because these days, Boko Haram members move in small groups, often disguised as farmers, and human intelligence will prove more useful than electronic in helping the military curtail some of these raids, and ultimately defeat the group.