21 Jul

The week ahead – Activity does not always mean progress

The latest Consumer Price Index from the National Bureau of Statistics show that inflation dropped from 16.25 percent in May to 16.1 percent in June. “The CPI which measures inflation increased by 16.1 percent year on year in June 2017. This was 0.15 percentage points lower the rate recorded in May. Accordingly, this represents the fifth consecutive decline in the rate of inflation since January,” the report said. On a month-on-month basis, the headline index rose by 1.58 percent in June 2017, a decline of 0.30 percentage points from 1.88 percent in May. Cumulatively, month-on-month inflation rose by 9.28 percent since January 2017. For the food index, the NBS said this increased by 19.91 percent (year-on-year) in June, down by 0.64 percentage points from 19.27 percent in May, an indication of the continued pressure on food prices according to the statistics agency.

Crude oil and non-oil income has cut Nigeria’s gross federally collected revenue in May 2017 by 13.42 per cent to ₦458.42 billion. Specifically, crude oil earnings decreased from ₦292.82 billion in February to ₦238.09 billion in May. With Nigeria’s capital expenditure put at ₦2.24 trillion and a large portion of it expected to come from the oil and gas sector, financing the 2017 budget will be a challenge for the Nigeria government. The country’s federally generated monthly revenue was however, lower than April’s receipts by 13.4 per cent, reflecting a decline in both oil and non-oil revenue components. According to the Central Bank of Nigeria’s latest economic report for May, oil and non-oil receipts were at ₦238.09 billion and ₦220.33 billion, respectively, constituting 51.9 per cent and 48.1per cent of total revenue. This put the federal government retained revenue and estimated expenditure for May 2017 at ₦185.58 billion and ₦583.32 billion, respectively, resulting in an estimated deficit of ₦397.74 billion. The apex bank stated that domestic crude oil production was estimated at 50.53 million barrels in May 2017.

Nigeria is to deploy troops and police to reduce violence in Kaduna, the acting president’s spokesman said on Wednesday, as ethnically charged violence pressures a government already fighting Boko Haram in the northeast. Police said 32 people were killed on Tuesday in clashes between herdsmen and villagers in Kajuru local government area of southern Kaduna. Troops were deployed to southern Kaduna in April amid an eruption of inter-communal violence. “Acting President Yemi Osinbajo has ordered further security reinforcements in Kaduna state following reports of communal clashes,” presidency spokesman Laolu Akande said.

Boko Haram released a video on July 17 showing some women abducted by the insurgent group last month. In the video, published online by Sahara Reporters, the women pleaded with the Nigerian government to negotiate with the terrorists for their release. The women are believed to be among the 14 abducted, when gunmen ambushed a convoy travelling under military escort along the Biu road in Borno. The video, which lasted about five minutes, featured a hooded Boko Haram member introducing the women and thereafter asked two of them to deliver their message to the government. The video showed about ten of the women who appeared traumatised but physically ok. A large convoy travelling from Maiduguri to Damboa under a military escort was ambushed on June 20 by Boko Haram gunmen, 31 kilometres from the state capital Maiduguri. Some of the travellers, including a police officer and a soldier were killed in the ambush. Although the Borno Police Command confirmed the attack, it refused to state the number of those taken away by the attackers.

Suggestions

  • Nigeria’s inflation rate has seen a steady decline from its recent high of 18.72 percent in January 2017 to its lowest one-year level. It represents good news all round and especially for investors who will see real returns on investments improve. A note of caution though, prices are still rising, albeit slower. The most crucial and direct impact on Nigerian pockets remains food inflation and this has continued to rise, with the attendant risks it poses. We expect the Ministry of Finance to continue its call for CBN’s monetary policy committee (MPC) to drop monetary policy rates during its next meeting, to ensure reduced borrowing costs. The MPC may however, hold the rate at present levels a bit longer, to ensure the gains from tightened monetary policy are not immediately wiped out.
  • Concerns about Nigeria being unable to finance its budget continue to show up in new numbers every week. A Financial Times report detailing Nigeria’s debt to revenue ratio paints a dire picture, and news of further decline in revenue, though not unexpected, is still worrisome. Having promised to “spend out of the recession,” Nigeria’s answer has been to borrow massively at high interest rates and also print money at record levels. While it sounded good on paper, implementing the plan has become much tougher. These continue to drive the double digit inflation, especially food inflation which continues to rise. Shrinking revenues and rising debt repayments mean that Nigeria may soon be unable to meet even these recurring revenue obligations. The government’s main source of money remains oil, which is threatened on three sides by falling oil prices, cuts to Nigeria’s OPEC quota, and a potential resumption of militancy in the Niger Delta – all are dire points to hang revenues on. To stave long term trouble off, in the short term, the government must urgently take the painful steps that have been avoided so far to cut recurring revenue and also allow energy prices to be market driven. The time to act was yesterday. Now, is the next best time.
  • The government is belatedly addressing an issue which has festered for some time and even then, its actions are still insufficient. In a special report on the Kaduna crisis, we highlighted the social and economic implications of failing to get a handle on the situation. But the security concerns are not restricted to the country’s third most populous state. Kaduna is geographically contiguous with Plateau, which only recently became stable. Plateau is in its turn, geographically contiguous with Taraba. We’ll call them KPT. The combined population of these three states is greater than that of the northeast states of Adamawa, Borno and Yobe, the epicentre of the ongoing Boko Haram insurgency. A continuation of the BH crisis could easily spill over into KPT, bringing with it an important national consequence for transport, food security and social cohesion. Preventing that will take more than guns, boots and a presidential statement.
  • It is important to note that the release of the video came on the same day community leaders held a press conference urging the Nigerian government to secure the release of 14 abducted women, lamenting “the disturbing silence of the government” over the fate of the missing women. The women are relatives of a deceased policewoman who was being taken for burial when their convoy was attacked. This incident brings to the fore the celebrity status of the Chibok girls. While the abduction of the Chibok schoolgirls is well-known, Boko Haram has also been involved in numerous abductions of men, women and young children. For example, 300 students were abducted from a school in Damasak in 2014 and nothing has been heard of them since. With the constant reference to the abduction of the Chibok girls’ by the terrorists, it appears that they hope for some prisoner exchange in the near future. Given that there was an increase in attacks after the last prisoner exchange, we do not think that this is the right way to go.