18 May

The week ahead – Not so fast

Annual inflation in Nigeria stood at 12.48 percent in April, its lowest level in more than two years and its 15th straight monthly drop, the NBS has announced. It fell from 13.34 percent in March. A separate food price index showed inflation at 14.80 percent in April, compared with 16.08 percent in March. Food inflation has been in double figures for nearly three years but has slowed for the past six months. The highest increases were recorded in potatoes, yam and other tubers, as well as bread and cereals, plus oil and fats.

The Senate passed new legislation overhauling the country’s regulation on companies and other forms of corporate regulations, the first in 28 years. The new Companies and Allied Matters Act (CAMA) passed into law by the Senate on 15 May will make it possible to register a company in Nigeria from anywhere in the world. Speaking of the passage of the bill, Senate President Bukola Saraki, said that the passage of CAMA is a significant milestone in the current legislative agenda. The bill will “allow business owners to now register their businesses in a faster and more efficient way — using technology; remove all the unnecessary regulatory provisions — such as the requirement for annual general meetings and company secretaries, and reduce the minimum share capital for all companies and start-ups in Nigeria.” The bill also creates a new form of legal identity for Nigerian businesses, the Limited Liability Partnership, which is expected to increase foreign investment and enable Nigerian register their businesses online. The bill awaits the President’s assent.

The Nigerian National Petroleum Corporation has awarded 50 companies with contracts to buy Nigerian crude and more than half of them are local firms. Of the total, 32 were local companies, doubling the number of awards to Nigerian firms compared to 2017. The state oil firm also awarded contracts to supply crude to 12 governments, although it was not clear how many of the deals would be handled by the companies already on the list of awards. The NNPC awards the oil purchase contracts annually, but sources say the deals this year were for two years not one year. Contract awards were announced in January last year. A partial list of firms awarded deals emerged on 14 May, with a final list coming out a day later.

At least 100 people have been kidnapped along a road in northern Nigeria in the past few days, officials, witnesses and relatives of the abducted said on 15 May, underscoring the insecurity still afflicting parts of the country. “Over 120 people were kidnapped between Friday and today, Tuesday along the Birnin Gwari-Kaduna road,” said Surajo Usman, of the National Union of Road Transport Workers, who escaped an abduction himself. Birnin Gwari, in Kaduna, is infamous for its lawlessness, and thick forests provide bandits with hideouts from security forces.

Suggestions

  • We have said in the past that inflation rates would continue to go down as the full impact of the base effect of the heights it rose to during the stagflation of 2016. A critical component, food, which has the largest weighting in the index, has seen prices trending upwards consistently mainly due to production shortfalls as a result of the pastoral conflict in the main farming areas of Nigeria’s Middle-belt region. There are other factors which could impact inflation – implementation of the 2018 budget (buoyed by increased oil revenues) and spending by politicians during the coming election season. Importantly, until the Monetary Policy Committee takes the decision to reduce benchmark interest rates (currently at 14 percent), the benefits of the decelerating inflation rate will not be fully passed on to the larger economy. Presently non-prime borrowing rates are close to 30 percent, which is unsustainable for most borrowers. Finally, as the price of crude oil continues to rise, we wonder how much longer the NNPC can continue absorbing the petrol subsidy before they are left with no choice but to increase the petrol price which will inevitably have an inflationary effect, amongst other more significant outcomes.
  • This wholesale effort at instituting company reform is commendable but important work remains to be done. Firstly, the country was already inching in this direction as part of a wider economic reform programme, with the FG setting its sights on the next target – revamping a convoluted procurement process. These incremental steps have had some effect as indicated by a 1.78 point year-on-year rise (on the ‘starting a business’ component) in the country’s World Bank’s Ease of Doing Business ranking. Secondly, the Corporate Affairs Commission, the main regulator under the old CAMA was already easing some regulations made under the 1990 law, like relaxing proficiency requirements for small businesses in March and reducing registration times in April. In the final reading, while the FG is patting itself on the back for pushing through reform that was needed decades ago, Nigeria is the 130th easiest place to start a business in the world this year. Next year’s rankings will show us whether this week’s hype will earn the country more than a 2 point drop.
  • On the contract awards by the NNPC, a crucial point to note is that while the NNPC insists that these are not procurement contracts, this assertion flies in the face of market realities. The NNPC is the country’s procurement behemoth, with contracts spanning the range of crude oil marketing, sales and transportation services from these companies and they can easily put a dollar amount to each component – a major reason why critics have repeatedly called for the corporation to open its books. The simplest reason why it refuses to label these contracts as procurement contracts is basic discretion – Nigeria has stringent procurement laws and regulations that must be complied with. In much the same way as the controversial petrol swaps, as long as the state oil firm permits discretionary awards and keeps the dictionary away, the space for under-the-table activities will remain. Doubling the number of local firms is simply, to most observers, a 2019 election fundraising scheme – some of the ruling party’s largest donors in 2014/2015 are big players in the oil import business. It is likely that these companies and their patrons will be forced to contribute money towards the ruling party’s campaign.
  • Earlier this month, at least 45 people died in an attack on a village in the region. On Tuesday, three villages – Dakwaro, Mashigi, and Sabon Gida, were attacked leaving ten people dead.  Armed groups have for years frustrated authorities’ attempts to apprehend them. In some cases they have amassed thousands of stolen cattle and fought off security agents sent to deal with them. Now they are getting even bolder. Kidnaps have been on the rise in Nigeria’s North-West geopolitical zone over the last few months, and based on the data available to SBM, the Abuja-Kaduna road is now the most dangerous in the country, such that many who can afford it now use the train. For a region that desperately needs investment, this, and other mounting security issues, must be tackled urgently.