Monthly Archives: August 2016

No need for Buhari emergency powers

By Rafiq Raji, PhD

Protect the old man from himself
Good men are rare. Leaders that are good men are scantier, more so in Africa – an old teacher of mine would disagree: she doesn’t think there is a dichotomy between leadership and goodness. Leaders are good men. I did wonder aloud though where she’d put those different shades of grey, that matters leaders sometimes have to grapple with, often take. A country of mixed fortunes, even during the best of times, Nigeria this time has the rather unusual good fortune of having a leader that is at least honest. Muhammadu Buhari means well for Nigeria. He has good intentions certainly. But good men are also human. There is a storied saying: ‘the road to hell is paved with good intentions.’ I have read varied versions of a likely ‘Emergency Economic Stabilisation Bill 2016.’ There is nothing in there that cannot be legislated into laws. Put simply, it is not necessary to grant President Buhari additional powers that he could abuse. Mr Buhari is likely nostalgic, by his own not so subtle admission in any case, of when he could simply issue decrees. One would not be totally wrong if one thought there is a part of him that probably craves the wide-ranging powers that an economic emergency declaration would enable him wield. This is no trifling matter. In my column of 16 August 2016 (“You are hereby directed to cut interest rates. Really?”), I highlighted the unabashed disposition of one of Mr Buhari’s closest eggheads, Nasir El-Rufai, governor of a northern state bordering the Nigerian capital, towards cutting interest rates via legislation. Shortly after, the Central Bank of Nigeria (CBN) directed that banks should allocate 60 percent of their foreign exchange to manufacturing firms. The Nigerian leader’s preference for a strong naira is also well-known. And now there is talk of a bill that could grant the executive branch the very powers needed to do all these without prior legislative oversight or approval. Bear in mind, the highly controversial ‘War Against Indiscipline’ policy of the 1980s military dictatorship of Mr Buhari is set for a rebirth. Surely, it cannot be too difficult to see how these sequence of events is not necessarily coincidental.

Red herring is a fish too
There is a practice in government: when it is about to implement a potentially controversial policy, a media leak is engineered to test potential reactions. If the public backlash is deemed manageable, the policy gets the nod. A similarly well-known legislative practice is to bury potentially controversial laws beneath a deluge of minutiae in supposedly mundane laws. Thus, the fine print of any potential economic emergency bill should be thoroughly scrutinized; clause by clause. Nigerians must come out forcefully against any attempt at turning Mr Buhari’s democratic mandate into a dictatorship. Especially because this time, those who should know, prominent economists and the organised private sector, have chosen to hold brief for the administration; probably in good faith. Even so, they are mistaken. And to think that even as they know the factors – cronyism, nepotism, tribalism, rent-seeking, corruption, and sometimes just plain incompetence – that made past economic emergency measures fail, remain or have worsened, they would still elect to think that things could be any different this time, is a little depressing.

There is an American parallel. Then US treasury secretary Henry Paulson introduced a bill (with the exact same title) during the 2008 global financial crisis. Thing is, theirs was mostly for extra-budgetary spending. Not at first. Mr Paulson’s original meagre 3-page proposal would have granted him a carte blanche to spend as much as US$500 billion to purchase distressed bank assets without prior legislative appropriation. He would also have been immune from legislative and judicial scrutiny. Naturally enough, US lawmakers shut it down. Although what was eventually passed did allow for unprecedented extra-budgetary spending, about US$700 billion for a troubled assets relief programme (TARP), it made sure to require legislative oversight. What the Nigerian government is purportedly about to propose is even more far-reaching. And yet the circumstances are not nearly as dire. Some laws, it goes, designed precisely to guard against untoward executive discretion, are to be suspended for the duration of the planned emergency. Why not simply amend the laws? More puzzling, most of the recommendations of the purported bill that were let slip to the media, are currently within the powers of the executive branch to implement. Visa issuance reforms do not require legislative approval. Reducing the time it takes to clear goods at the ports is totally within the capacity and powers of the port authorities. The Nigerian president can, with the stroke of a pen, instruct the myriad agencies causing bottlenecks at the ports to take a hike. Physical inspection of goods, which increases the clearing time for goods at the ports to days, could be eliminated by simply buying and installing scanners. And how is it that such emergency spending – if haste were key – couldn’t be speedily appropriated for via a supplementary budget bill?

Reform for the long-run
More importantly, the advantage of dire circumstances is that you are able to get buy-in much more easily than during normal times. The Land Use Act, which grants the government an undeserved right to all land and thus stymies investment, needs to be reviewed. The Petroleum Industry Bill, dithering on which has led to an exodus of capital from the sector, needs to be passed with dispatch. Double taxation needs to be eliminated. Multiple agency inspections at the ports need to be abolished. There should not be preferential access to foreign exchange at the central bank. Authorities should take advantage of the challenging but propitious times to enact or review laws needed to put the economy on a sustainable growth path. Not short-term emergency measures. My fear is that the leadership of the legislature may be open to a deal with the executive, in light of its legal troubles. This would be a betrayal. So if it finds at any time that its resolve may waver, it should take heed in the saying that no good deed goes unpunished.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz.  http://businessdayonline.com/no-need-for-buhari-emergency-powers/

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EFF needs to introspect as well

By Rafiq Raji, PhD

I was a little bit disappointed the Economic Freedom Fighters (EFF), the ultra-leftist opposition party in South Africa, chose not to seek one of the top three positions in the key metropolitan municipalities (metros) of Johannesburg, Tshwane and Nelson Mandela Bay. The EFF could have, if it insisted, been availed a deputy mayorship or speakership in at least one of the three influential municipal councils. A speakership in each would have been ideal I thought. Instead, the EFF decided it would vote to wrest control of the metros from the African National Congress (ANC), thus enabling the Democratic Alliance (DA) – an opposition party no more, in Tshwane and Nelson Mandela Bay at least – to take over power, with it remaining in opposition.

The EFF is adamant it will not co-govern. With just about 8.3 percent of the vote in the recent local elections – the ANC and DA got 55.7 percent and 24.6 percent respectively – the likelihood that it would be able to govern on its own in the near future is a little remote. That is, if it does not change its currently hard stance, on land expropriation without compensation for instance. Short of that, it would probably remain perpetually in opposition. Even so, it had a chance this time, to co-govern either with the ANC or DA in quite a couple of hung local councils. Unfortunately, to my mind at least, the EFF balked at the prospect for ideological reasons.

Now not a few municipalities would potentially be laden with the type of disruptions that have become the norm in the federal legislature since the EFF joined it. Chaos beckons. Ironically, the ultimate beneficiary would be the very party the EFF loathes: the ANC. To think that this could have been its moment of triumph otherwise.

The media is awash with how the ANC needs to engage in thorough introspection on why it failed (or didn’t succeed as it did hitherto) in the 2016 local elections. I admonished as much, ahead of the elections (see my column of 2 August 2016 titled: “What should a chastened ANC do?”). However, I think there is a need for similar soul-searching by the EFF. The EFF needs to reappraise its strategy. It didn’t do as well as it could have, or was expected to, in the just concluded municipal polls. A relief to some actually: because now we know unless the EFF moderates its leftist rhetoric, it is not likely going to be able to rule South Africa through the ballot box.

Prove that you can govern
That opportunity came its way in the hung local councils where it wielded the deciding vote. If the EFF thought its differences with the DA were that significant, then a trade could have been made for it to secure at least one mayoral slot, an executive position, and maybe a speakership in another. That way, it could demonstrate its capability and capacity to govern. If the DA does well under the current arrangement, that is, deliver much needed services efficiently and effectively, the EFF would not really be able to take credit. And if realising this, it chooses to sabotage the efforts of the DA, that would simply alienate voters. As far as political strategy goes, however, the EFF’s move may not be entirely sub-optimal. The leadership likely thought it may begin to have the type of problems the ANC is currently grappling with: corruption mostly. And its current structure is still too weak to withstand such disruptions. Incidentally, EFF councillors in Johannesburg were reportedly offered bribes in exchange for votes by an ANC official – based on an EFF press release on 21 August – ahead of the council’s first sitting on 22 August. The EFF may have been able to fend off such temptations this time. But not for long, especially as EFF cadres likely become increasingly frustrated, when it begins to seem like theirs’ would be lifelong political careers in opposition.

Heard of being ideologically pragmatic?
The majority of South Africans, whether poor or rich, want better service delivery. And they all want corruption to stop. And even if everyone agrees that the DA remains a white-dominated party, they see the good job the party did in Cape Town; albeit not perfect. Yet again, the DA gets to demonstrate it can keep its promises (in Tshwane and Nelson Mandela Bay this time): services would be delivered as and when due and there would not be corruption where it governs. In general elections scheduled for 2019, when the issue becomes less about the current embattled South African president, Mr Jacob Zuma, or the ANC for that matter, these credentials would stand the DA in good stead.

EFF needs to take heed of DA’s experience
Barring evidence, the EFF’s pitch was intuitively thought to be appealing to the majority of black and mostly poor South Africans. As it turns out, not very much. And recent local elections have proved that. I am not entirely surprised. The black South Africans I have met are aspirational. They want jobs. They want better service delivery. They want to go to malls, shop, and watch movies. They want to live the good life! So ultimately, they are going to vote for the party that provides them with the opportunity to have or do these things. The DA’s triumph at the recent local elections is evidence of this. And surely, there cannot be ideological differences between the EFF and DA on that. The EFF underperformed because apart from its revolutionary rhetoric, it did not offer much else. Having now not formed a single formal coalition that would enable it demonstrate that it too can deliver such ‘good’ things, what may now happen is that minority local governments, that most likely would flounder, get to be used by the ANC to prove the point that the devil you know is better than the saint you don’t.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. https://businessdayonline.com/eff-needs-to-introspect-as-well/

You are hereby directed to cut interest rates. Really?

By Rafiq Raji, PhD

Unrepentant beggars?
Nigerian authorities are set to launch a US$1 billion Eurobond, could be by late September or October though. Just last week, the country’s vice president, Yemi Osinbajo, announced capital spending of over US$300 million, to be deployed as early as this week. The plan: spend, irrespective of the source, until the economy recovers. Good news is; the government would probably get the funds it needs. But at what price? Foreign financiers and multilateral institutions have been impressed by the authorities’ adoption of a treasury single account (TSA) and the free-floating of the naira (such as it is). Market participants, initially sceptical, have begun to come around. Even so, there are still worries. Would the reforms be sustained? These concerns are not unfounded. Last week, Nasir El-Rufai – an influential member of the inner circle of Nigeria’s president, Muhammadu Buhari, and governor of a state bordering the capital territory – hinted that the central bank’s independence may be attacked yet again. This time, it could be ‘directed’ to cut interest rates. So to speak. His desire is for a law to be enacted giving the executive branch the legal power to do so. Mr El-Rufai’s comments coincide with recent action by Kenyan lawmakers, who passed a law capping interest rates. Regardless, talk like this riles foreign investors. Not that it surprises them anymore. And since African sovereigns are increasingly reliant on foreign capital, unwise though that is, external investors’ views matter. Add to that: they are now not shy of punishing erring ones; Ghana lately.

Populist policies often fail
In late July, the Kenyan parliament passed a revised banking law that included a cap on interest rates, effectively setting the maximum price for a commercial loan by fiat. Banks would be required to cap interest rates at 4 percentage points above the Central Bank of Kenya’s (CBK) benchmark rate, currently 10.5 percent. At no more than 14.5 percent, banks would still make a decent profit. Smart people that they are, the bankers didn’t put up a fight. And really, why should they? You want to set the price for another person’s money? “We go see now,” to use a popular passive-aggressive Nigerian expression of defiance. They signed a memorandum of understanding with the CBK, pledging to cut interest rates. The lawmakers are not fooled. They have threatened to approve the law if the country’s president, Uhuru Kenyatta, witholds his assent. It is probably just political grandstanding: Mr Kenyatta’s handwriting is all over the law. It is a key campaign promise of his, one he would be all too eager to show-off to voters ahead of a likely keenly contested presidential election in 2017. I’ll be frank. The policy would probably fail. In Kenya. In Nigeria. And anywhere else. True, bankers are some of the meanest people you can find. Even so, the way to get them to reduce interest rates is not to force them but to create the type of environment that makes them want to.

Leave them with little choice, tap into their greed
Block the means for banks to deploy as much funds as they currently do to government securities. True, the government needs to borrow money. But it has to make a choice, strike a balance at least. It could make the cost to banks for not lending to small and medium-sized enterprises (SMEs) very high. For instance, the Central Bank of Nigeria (CBN) could boost the capital and capacity of the Bank of Industry (BoI) by increasing its stake; to the point where if any viable SME needed a loan, it could get one. When lending to businesses – SMEs especially – becomes the only viable way for commercial banks to make money, and BoI (just one of quite a few government-backed banks: the Nigerian Export-Import Bank is another) proves to be a strong player in the field, they are going to try having the field to themselves, and rates may gradually fall; albeit likely over a long-term horizon. In any case, some of that already happens, competition that is, on the liabilities side. When bankers are looking for deposits, you would be amazed at the concessions relationship managers and salespeople are willing to offer. What needs to be done is for that type of competition to happen on the asset (lending) side.

The CBN is probably now the wiser. Last week or so, it barred banks and other financial institutions from accessing its discount lending window on the same days they settle treasury bills and other government securities, that is in addition to an earlier directive denying dealers access to the interbank market on auction days to trade foreign exchange. That is a good first step. It shouldn’t stop there. It should apply similar creativity towards encouraging them to lend to the real economy. That first, before worrying about cheaper loans.

Even so, that is, if banks eventually do that which is wished, it may not necessarily lead to a fall in interest rates. Bank loans have to be priced above the inflation rate to be profitable. So yes, the inflation rate would continue to be a floor irrespective of the monetary policy rate (MPR). To ensure policy credibility, the CBN has little choice but to take this into account. Despite this, there is quite a bit that the CBN could still do: discouraging cartel behaviour for instance – banks could decide informally on a floor up and above that which would be considered reasonable. A vigilant CBN could check that. Cheaper loans may still be a pipe dream regardless: the structural issues, if not fixed, will continue to be in the way. Costs from those expensive back-up generators and information technology servers (to mention a few) have to be recouped somewhere. That last bit is not greed. It is simply common sense.

Also published in my BusinessDay Nigeria back-page newspaper column (Tuesdays). See link viz. http://businessdayonline.com/you-are-hereby-directed-to-cut-interest-rates-really/

Zambians and their central bank decide

By Rafiq Raji, PhD

Zambians go to the polls this week (11 August). They would also be asked to endorse a constitutional amendment in tandem. Holding the referendum together with the elections has been criticized: the amendment enjoys wide support, potentially tilting the electoral vote towards the ruling Patriotic Front (PF) party. Quite naturally, heightened tensions ahead of the vote have spurred fears of potential violence in the aftermath of what are likely to be disputed results. Just before then (8-9 August), Zambia’s central bank, Bank of Zambia (BoZ), decides on its benchmark interest rate, which I reckon would remain unchanged at 15.5 percent.

Polls may be violent, but not all too much
Zambia’s president, Edgar Lungu, faces a tough challenge in polls this week from the leading opposition United Party for National Development (UPND) candidate, Hakainde Hichilema – two elections in a row now – who he barely beat (and under controversial circumstances) in the 2015 by-election, following the death of erstwhile leader, Michael Sata. If social media following were a valid benchmark, Mr Hichilema would win by a wide margin. In any case, dissatisfaction and economic woes since Mr Lungu’s ascension to the presidency may have strengthened Mr Hichilema’s following. There are pointers: Mr Sata’s former deputy, Guy Scott, who was also briefly president, has endorsed the leading opposition candidate – evidence of divisions within the ruling party. There have also been incidents of violence, mostly against opposition supporters. A popular independent newspaper critical of the Lungu administration has also had to endure the weight of officialdom, with tax authorities accusing it of evasion. Mr Lungu has also not been shy to use threatening language: it is widely reported that he has tremendous admiration for Uganda’s president, Yoweri Museveni, known for his ruthless strangulation of opposition elements in his country; leading many to believe Mr Lungu could deploy similar tactics against opponents in the aftermath of elections that he could lose. True, the opposition could potentially lead the vote or the two leading candidates’ tallies may be so close, like the last time, as to be within the margin of error; and hence instigate potentially violent protests. However, authorities’ heavy-handedness ahead of the elections fan these fears some more. Mr Hichilema has expressed concerns: he does not believe the elections would be free and fair, citing recent cancellations of two rallies by authorities. Even so, I am not convinced that any potential violence would be so significant or widespread as to put the economy in jeopardy. Former Nigerian president, Goodluck Jonathan, who is leading the African Union observer mission, believes the elections would be ‘satisfactory.’ Naturally a pacifist, Mr Jonathan tends to take a positive view, especially of constituted authority. Regardless, both sides need a peaceful country to retain their support base, currently frustrated in light of still ongoing economic headwinds – drought, power shortages, high food prices, and expensive electricity. And even if Mr Hichilema feels cheated in the event that he is declared to have lost, his vast local business interests should be good enough reason for him to adopt a peaceful approach. All that may be needless: Mr Lungu may yet prove to be a statesman.

BoZ would likely hold rates
Expectedly, Zambian consumer inflation has started trending downwards: the annual headline slowed to 20.2 percent in July from 21.8 percent at the beginning of the year. The monthly inflation pace is more instructive: it slowed to a paltry 0.1 percent in July from 1.3 percent in January; surprisingly little affected by the election cycle. Current measures have been adequate in fending off price pressures, which typically intensify ahead of elections. After the polls, fears about potential violence might cause an initial artificial scarcity: affecting food and transportation prices. And electricity tariffs remain high: even when the poor are spared the expense, continued power shortages mean second-round effects transmit to prices of goods and services that depend on electricity in one form or another. Regardless, my forecasts have not changed much since my last column on Zambia (10 May 2016): I still see annual consumer inflation slowing to single-digit levels before year-end. Thus, the BoZ may see the wisdom in cutting rates at its monetary policy committee (MPC) meeting in November, by 350 basis points to 12 percent, say. But at the meeting this week, the committee would likely keep the benchmark rate unchanged at 15.5 percent.

Also published in my Business Day Nigeria newspaper back-page column on 9 Aug 2016 (Tuesdays). See link viz. http://businessdayonline.com/zambians-and-their-central-bank-decide/

Volatile environments test the resilience of firms: The experience of businesses in #Nigeria during the 2015-16 FX scarcity

By Rafiq Raji, PhD

Kindly click on the link below for the article.

https://ntusbfcas.com/african-business-insights/content/volatile-environments-test-the-resilience-of-firms-the-experience-of-businesses-in-nigeria-during-the-2015-16-fx-scarcity  

What should a chastened ANC do?

By Rafiq Raji, PhD

Change or we will punish you
Local elections this week (3 August), apart from being a test of President Jacob Zuma’s and the ruling African National Congress (ANC) party’s popularity, could also be a turning point in South African politics. Polls suggest the Democratic Alliance (DA) – the official opposition party – may win key municipalities: Johannesburg, Tshwane, and Nelson Mandela Bay. In any case, there are indications the ANC may need to find coalition partners in some, as it may not be able to secure enough votes to remain in charge. In other instances, it is the DA that would need the support of other parties. Even so, DA’s likely triumph would be a victory for liberalism: the ANC would not need to shift all too much to the left. DA gains would be a positive on other fronts. It would be the clearest warning yet to the ANC from the electorate: clean up your act. Furthermore, it would signal a welcome departure – albeit likely still meek – from racial politics.

Even as Mr Zuma is decried by the comfortable bourgeoisie in cities, he remains a popular politician among the common folk. So, elitist and middle-class city dwellers may harp on all the wrongs committed by Mr Zuma, his victories – he survived an impeachment vote and got off many corruption scandals quite leniently – pyrrhic though they might be, are a source of inspiration for black South Africans with similarly poor backgrounds: mostly older, little educated (if at all), live in the hinterlands, and are extremely loyal to the ANC. Still, even these staunch supporters know the ANC is failing them: services are poor, jobs are scarce, and opportunities are sparse.

But would Mr Zuma be bothered? If it is the vantage Mr Zuma that we have come to know, he will probably just shrug it off. In any case, the ANC would likely still win the general election in 2019, albeit probably not as popularly hitherto. Because even as the DA likely makes gains in the cities, it is doubtful it would be able to make similar progress in villages and homesteads far and wide – it can’t easily shake off the perception that it is a ‘white’ party. For now.

The Economic Freedom Fighters (EFF), the ultra-leftist offshoot of the ANC, is better placed to win the support of rural dwellers. But it is inexperienced: only has seats in parliament. Council seats it is able to secure in these local elections, its first, would provide it the opportunity to demonstrate it can deliver where the ANC has failed: improve service delivery, create jobs, and provide more housing.

Nonetheless, the ANC has the higher ground. And its support is the most wide-ranging, and would likely remain so for a while. Thus, a potential rebuke of the ANC at the polls this week, would not be so much a rebuff of the ANC, as it would be a cry for change. A call for a reformed ANC.

Time for ANC reformers to assert themselves
Reformist elements within the ANC need to assert themselves much more forcefully, not just in the back-rooms. First, get Mr Zuma out. Second, insist that Mr Cyril Ramaphosa, the deputy president and Mr Zuma’s likely successor, take a deputy from the younger cadres. Third, reassess the utility of the tripartite alliance with the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU). That with COSATU especially: unless organized labour gives way on the minimum wage – which is relatively high – and supports policies that engender labour-intensive industries, unemployment will continue to rise; the rate of which is about 27 percent currently. A 2014 paper by the renowned African political economy scholar, Robert Rotberg, partly blaims COSATU’s ‘labour aristocracy approach,’ for ‘the failure to create myriad jobs.’ ANC’s acquiescence with COSATU’s stance, even as the labour market dysfunction is writ large, is defeatist and has to change. Only visionary leadership, of that ilk by the old man now gone, would be able to bring this about.

Youth and vigour perhaps?
The demographics of registered voters suggest there is a gap that a coalition of opposition parties (or a new centrist party drawing its membership from reformist elements in the ANC, DA, and others) could fill. About a quarter of registered voters are aged between 18 and 29: so-called post-apartheid ‘born-frees,’ oldest of whom are now 22 years old, fall under this group. Together with those aged 30-39, this cohort is about half of the voters’ roll. They do not share the loyalty of older South Africans to the ANC. They simply want jobs. The EFF has been quick to target them. Quite surprisingly, it has not enjoyed the type of wide appeal amongst them that you would intuitively expect, judging from its showing in polls thus far. And even as DA optics are ‘youthful,’ the perception that it remains a ‘white party’ is one that still resonates with the cohort. So, the ANC would probably be able to retain its numbers among their ranks, albeit increasingly less so. That is, those who still choose to participate in the political process. For there are many quite disillusioned. And signs of unrest are emerging: apart from sometimes violent protests against unpopular party choices, there have been at least a dozen politically-motivated killings of ANC members this year, mostly relatively young cadres. Some erstwhile ANC members – not necessarily young – are choosing to contest these local elections as independent candidates. Another group of rebels formed its own political party, the ‘Forum for Service Delivery’ in Rustenburg (a platinum mining city in the North West province), just so it could contest. To keep the youth (and indeed other cadres) in the fold, a reformed ANC may need to purge its upper echelons of older (and veteran) members. Better still, it should make candidates’ selection more democratic. Otherwise, it could have more rebellions on its hands.

Also published in my Business Day Nigeria newspaper back-page column (Tuesdays). See link viz. https://businessdayonline.com/what-should-a-chastened-anc-do/