Monthly Archives: June 2017

Who should decide a central bank’s mandate?

By Rafiq Raji, PhD

Stop feeding me your English from London…mfana wami [my boy]”. Not my words. They are Jacob Zuma’s, the South African president, in the week just past. In his now often drily way, President Zuma was responding to a question from the youngish and pioneer black leader of the mostly white Democratic Alliance (DA) opposition party, Mmusi Maimane. They regularly spar when the embattled president visits parliament to answer questions. In those words, though, is the deep-seated resentment of the country’s colonialist past harboured by most black South Africans. It was thus a scathing rebuke of Mr Maimane, who not only speaks English quite well but is also married to a white woman, from a very traditional Zulu man. Of course, the refrain came handy for the wily Mr Zuma in response to what he clearly considered an annoying question. (He deploys similar tactics when trying to hide his embarrassment from what are oft-repeated allegations of malfeasance, irregularities in governance or just plain public sector incompetence.) In those words, the discerning would likely muse, is also evidence of some ironic admiration of the English. A declining power these days, there is much to love and hate about England. Incidentally, the modern-day central bank, the South African Reserve Bank (SARB) no less, is modelled after the English one. Mr Zuma would certainly not mind if the SARB took on one more characteristic of its English counterpart: state-ownership (albeit it was once privately-owned, hence the SARB’s structure).

That the SARB is still privately-owned is a sore point for a lot of black South Africans. And unlike other leading central banks which over time have expanded their mandates to suit the times, that of the SARB has not been similarly evolving. So it is not totally farfetched if some want its nationalisation and/or a change of its mandate. Were such a call to come from Nelson Mandela, the deceased father of the nation, there would not be the slightest controversy. Amongst his comrades, that is. That it didn’t whilst he had the power to do so is a taint on his legacy, it is argued in some quarters. In any case, the ultra-leftist Economic Freedom Fighters (EFF) party has left no one in any doubt, that should it seize power, the SARB would almost certainly be state-owned. To be fair, the ruling African National Congress (ANC) has similar goals, albeit over a longer time horizon. But with Mr Zuma now trying to ensure he would still be able to wield enough clout come an all-important leadership conference of his party in December, the ANC, which he leads till then, has put its foot on the gas pedal. For it is doubtful Mr Zuma gives a hoot about whether the SARB is privately- or publicly-owned; insofar as he can control it for his own ends. At least, so goes the narrative by his traducers.

Sneaky surprise
There is much evidence to suggest Mr Zuma’s critics are not entirely being mischievous. He faces myriad corruption allegations, for instance. And it cannot soon be forgotten how little he thought of the Treasury when he appointed a neophyte, Des van Rooyen to its charge, in place of a widely-acknowledged competent predecessor, Nhlanhla Nene. And even as he eventually succumbed to pressure to appoint someone more capable, Mr Zuma did get his way in the end. A pliant replacement, Malusi Gigaba, was made to the stubbornly effective Pravin Gordhan in late-March. The always dapper Mr Gigaba makes a good first impression. Scratch the surface a little? Some investors are not impressed. It is probably too early to tell. Even so, he has the uneviable record of being the trigger for a credit ratings downgrade to junk status of his dear country by two major agencies. Mr Zuma ultimately gets credit for that though.

Against this backdrop, try imagining the uproar in the markets when anti-corruption czar, Busisiwe Mkhwebane, another Zuma acolyte and former government spy, recently made recommendations that not only should the mandate of the SARB to protect the value of the rand be expunged but that the bank’s price stability focus be changed to one seeking “balanced and sustainable economic growth…while ensuring that the socio-economic well-being of the citizens are protected”. It is arguably an overreach on her part. Incidentally, her office benefits from the goodwill of her predecessor, Thuli Madonsela, whose quiet effectiveness helped establish the quite far-reaching powers of her office. Of course, it would not require much rumination to see how Mr Zuma may be behind Ms Mkhwebane’s actions. One would certainly be foolish to think it was not a well-thought move. Congress of South African Trade Unions (COSATU), a tripartite alliance partner of the ruling ANC, and hitherto estranged with Mr Zuma, was unequivocal in its support of Ms Mkhwebane’s proposals. Officially, the ANC opposes the move though. So does the parliament it controls.

Not your call
More importantly, the SARB has announced plans to challenge the proposals in court. To be clear, the advocacy here is not that the SARB is just right as it is. It is not. It should be state-owned for instance. But as it is probably South Africa’s only surviving bastion of institutional excellence and independence, even the slightest perception of interference in its affairs would be greatly injurious to the economy at this time. Besides, should a change be contemplated, it certainly should not emanate from the good offices of Ms Mkhwebane.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz.

Time to unify exchange rates

By Rafiq Raji, PhD

With their trading volumes clearly being hurt by the increased interventions of the central bank in the foreign exchange market, bureaux de change operators recently asked that the current multiple rates regime be abolished. Aminu Gwadabe, their representative, made the suggestion in an interview with Reuters, a wire service, in mid-June. For such a call to come from participants who have profited hitherto from the market distortions induced by the central bank’s unorthodox FX policies is almost surreal. They are just being rational though. Black FX market operators have seen their margins diminish significantly since the central bank’s ramped-up interventions began. The bank has sold more than US$5 billion this year already, after OPEC production cuts in late November 2016 pushed up international crude oil prices, boosting government revenues and the central bank’s FX reserves. Besides, it was almost always going to be the case that most customers would prefer to do their transactions with banks if they could secure competitive rates.

Other stakeholders sense an opportunity for the central bank to finally integrate the market as well. In remarks to Bloomberg, another wire service, in mid-June, Bola Onadele, the head of FMDQ OTC Securities Exchange, the over-the-counter markets platform which handles the new Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism – better known as the investors’ and exporters’ FX window – by the Central Bank of Nigeria (CBN), seemed to suggest a single foreign exchange market was only a matter of time. Six weeks after it was introduced on 24 April, NAFEX has recorded more than US$2 billion in inflows. More importantly, the central bank reportedly intervened less than 30 percent of the time. And in the week just passed, the naira was trading at about the same level in both the NAFEX and parallel markets; raising hopes of convergence in the at least six FX markets. Noteworthy is also how the new FX window has mirrored the parallel market thus far, with the naira sometimes trading weaker in the former, vindicating much held views that the latter was more reflective of demand-supply dynamics.

Remove bottleneck
Still, a lot of global fund managers remain wary of putting money in local currency assets. The more Afro- and frontier-markets-centric ones have been increasing their Nigerian exposure owing to the NAFEX window, however. Some context is needed at this point. Before the FX shortages began, foreign portfolio and direct investments typically averaged about US$3 billion a quarter. In a good year, 2014, say, one quarter recorded as much as US$6.6 billion in foreign investment inflows. And the year before that, quarterly capital importation was about US$5 billion. So the US$2.2 billion FX inflows via NAFEX six weeks on (latest data) is significant. Should the remaining sceptical foreign portfolio investors join in, there could be a deluge; in a good way, of course. The importance of enticing them back into the Nigerian market cannot be overemphasized. The Nigerian economy remains in a recession primarily (in one’s view) because of the hard currency supply bottleneck. An analysis of economic growth data since the contraction began in the first quarter of 2016 shows sectors dependent on hard currency are primarily those weighing on the economy. Take one not so dependent, the agriculture sector, for instance, which incidentally also constitutes about a quarter of output: it grew by 4 percent on average in 2015-16. That more dependent on imported inputs, the industry sector (almost a quarter of output as well) for example, contracted by more than 5 percent in the same period. Not until 2016 did the remaining half of output, the services sector, record a contraction; below 1 percent at that. And when dissected, quite a few sub-sectors in services have been surprisingly resilient.

Short party
Considering crude oil prices have been sticky around the US$45-50 area lately, short of fully converging the markets, the CBN may soon become hard-pressed to sustain the current momentum. This is especially as the outlook for oil prices remains somewhat bearish. Despite the extension of OPEC’s 1.8 million barrels per day (mbpd) production cuts in late-May for almost another year, improved production by Nigeria and Libya, which are exempt from the cuts, have undermined the expected price-boosting effects. With the Forcados pipeline system back online, Nigeria has added at least 200,000 barrels per day to its production. Improved conditions in Libya has seen it add at least as much. Some estimates put incremental production between the two since the cuts began late last year at about 600,000 barrels per day, almost half of the cartel’s agreed cuts. So not only would the fiscal authorities likely need to borrow more than the US$3.5 billion they plan externally in the 2017 fiscal year, the monetary authorities may see their external reserves deplete quite significantly (or accrete slower) as well; that is, if current interventions continue. But with proof that a more transparent market would encourage needed FX inflows and is not all too destabilizing, as demonstrated by the NAFEX window, the CBN has an opportunity now to fully liberalize the market. In that event, it would not matter which way crude oil prices go.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz.

Our wars must be no more than words

By Rafiq Raji, PhD

Our aspirations whether we are Igbo, Hausa or Yoruba (even this characterisation is an injustice; we are much more diverse) are the same. Like all humans, we desire a life of peace, dignity and wealth. Do we have these currently? We have relative peace at least. Were we to loose that, flawed as it is, our loftier aspirations would be no more than dreams. The examples of war-torn Syria, Iraq and Afghanistan are instructive. These countries have been so disfigured and scarred that it would take generations for any reasonable semblance of normalcy to return to them. Do we want that in Nigeria? Still, the marginalisation of the Igbos (and minorities elsewhere) in Nigeria must be acknowledged. We must also be frank with our Igbo brothers. If they insist on secession, there will be war. All of us, Nigerians, must do our utmost to prevent this.

Stop threats and bluffs
It has come to light that recent incendiary statements against the Igbos by some youth representatives in the north had the backing of their elders. The venue, their calm and confidence were evidence enough regardless. The symbolism of “Arewa House”, where the so-called “quit notice” was made from, was definitely meant to convey their legitimacy. Unsurprisingly, their ‘tactical’ hate-speech has gone unpunished. Thus far. Because unlike the popular perception, our country’s security services, inefficient though they are in many spheres, have one distinct competence: they have their ears to the ground. It is very unlikely that the security system did not get wind of the event that led to this unnecessary stoking of tensions. Besides, the culprits are not in hiding. So it is right that acting president, Yemi Osinbajo, and the security services be criticized for this seeming impunity. Cold feet, argue cohorts from the Niger Delta. If only things were that simple. Still, by not arresting the northern youths as yet, assertions about a privileged north and a marginalised south are vindicated.

When people scheme to influence outcomes in their favour, they often do not plan for when things get out of control (as they always do) on the back of their actions. Say the northern youths were simply calling the bluff of their Igbo brothers’ threats of secession. If come October 1, their deadline, a few criminals decide to instigate violent incidents here and there, what then? We cannot afford such a crisis on our hands. And as far as tactics go, the northern youths’ threat was similarly not well thought through. Because just like the Igbos have a significant portion of their wealth outside Igboland, so do northerners. As if to buttress the point, supposedly pacified Niger Delta militants have issued threats of their own. In demanding that owners of crude oil exploration blocks from the north relinquish their assets, the stakes have been raised not only for the pseudo-tacticians and strategists across the divide but for the entire nation.

Efforts by Prof Osinbajo to soothe frayed nerves are laudable. In meeting with the respective regional groups seperately and later with both, he has taken a necessary first step towards resolving the impasse. Shouldn’t Nnamdi Kanu, leader of the Indigenous People of Biafra (IPOB), who has been made a living martyr by the authorities’ needless sensationalism, have been included in the meetings, some ask. I imagine Mr Kanu was snubbed because the government may have realised its folly hitherto: To do so would almost certainly deify him further as the leader of the Igbos. But is he? Igbo leaders and elders must bear responsibility for allowing Mr Kanu usurp them. Ralph Uwazuruike, leader of the Biafra Independence Movement (BIM) and former leader of the Movement for the Actualization of the Sovereign State of Biafra (MASSOB), acknowledges as much. (Some of Mr Uwazuruike’s kinsmen accuse him of not sincerely acting for the Biafran cause.) Still, in company of Hamza Al-Mustapha, former chief security officer to former head of state, late General Sani Abacha, he has been trying to secure safety guarantees for Igbos living in northern Nigeria and provide assurances of same for the Hausa-Fulani living in southeastern Nigeria. In purportedly handing over “Radio Biafra” to Mr Kanu, Mr Uwazuruike says he did not envisage that things would deteriorate as they have. One thing has become clear, however. Unlike the Hausa-Fulani and Yoruba, Igbo elders cannot boast of having the ears of their youth. And therein lies the risk. It is not all too clear that the Igbo elders the acting president met with would be able to rein in their younger ones. Unless they do, a likely imminent militarisation of the southeast is almost inevitable.

Scheming for 2019
Fissures exist in the north as well. Two northern governors were very visible after the quit notice from their younger brothers. One because the threat emanated from his domain. The other because of his incumbency as the chair of the northern governors’ forum. That they are alleged to be interested in the vice-presidency should the ailing Nigerian president, Muhammadu Buhari, succumb to his ailments, has hurt their credibility somewhat. The call by the former, Nasir El-Rufai, a Buhari stalwart, that the erring northern youths be arrested has been derided by some of his kinsmen, for instance. And by inviting Bola Ahmed Tinubu and Bisi Akande – influential Yoruba politicians in the ruling All Progressive Congress (APC) party and backers of the acting president – to commission projects in Borno state, popular opinion in the north wonders whether governor Kashim Shettima’s similar call is not also purportedly motivated by his desire to boost his nationalist credentials. Unless the two say otherwise, we have to assume that they were simply doing their patriotic duty. For had they been silent, eyebrows would have been raised certainly. That said, northern politicians interested in the vice-presidency are already mud-slinging each other. A purportedly doctored telephone conversation between Mr Shettima and Ibikunle Amosun, a governor in the Yoruba southwest, which recently surfaced online, in which the former supposedly wondered about the hypocrisy of the Igbos’ secession quest while still prospering in other parts of the country, is evidence of this: Mr Shettima’s spokesman, Isa Gusau, told Voice of America Hausa, an American radio station popular with northerners, that an unnamed northern politician interested in contesting the presidency in 2019 was behind the smear campaign. Of course, Mr Gusau was quick to point out his principal has never indicated an interest in joining the race.

Evidence has also emerged about what the real intentions behind some of the Biafran agitations could be. In about mid-June, the Ohanaeze Ndigbo Youth Council revealed how their agitation is partly motivated by positioning for the 2019 elections, unabashedly demanding an Igbo presidency in 2019 or secession the year after. This is needless. Any regional group interested in ruling the country must convince others why they should be given the opportunity. Building a coalition with at least one of the other major ethnic blocs is most definitely a required first step. Since coalitions are built on trust, it behoves the agitators to make necessary moves towards engendering it. Besides, the north already fears the acting president, a Yoruba, could suddenly desire to run for president in the event that President Buhari dies before his first term expires. They already worry about his rising popularity: His recent travels across the country, which are arguably much needed to douse the tension in the land, have revealed the law professor’s surprisingly deft grassroot touch. Recent military coup rumours were aimed, it is believed in some parts, at tempering any potential presidential ambitions on his part. Should ongoing regional agitations deteriorate further, it would not be surprising at all if a state of emergency declaration is forced on him; a scenario that would give the armed forces and security services enhanced powers. In this regard, there is little comfort in the fact that their command structures are now predominantly northern. Curiously, the Nigerian Senate recently started reviewing the country’s emergency powers law. The chamber’s president, Bukola Saraki, who was recently acquitted of false assets declaration charges, has refuted claims that this is aimed at empowering the federal government to remove elected state governors and appoint sole administrators in their place. Mr Saraki did add that civil unrest, insurgency or unmanageable natural disasters could be sufficient grounds for declaring a state of emergency though.

Be fair
Suggestions have been made in past articles by this columnist on ways out of our current troubles. It is not farfetched for Igbos (and minority ethnic groups) to feel like foreigners in their own country when the top three most powerful leaders in the land are from the north. (Unless acting as president, the vice-president is only as influential as his principal allows him.) Peripatetic Fulani pastoralists continue to maim and kill farmers from minority ethnic groups over grazing land with impunity. These are just few but significant examples. Clearly, with the root of most of these agitations due to many unpunished past and ongoing injustices, whether by one region over the other, or the rich over the poor, or politicians over the electorate, not until there is some semblance of equity and justice for the marginalized, oppressed and wounded would there be peace. Even so, any potential solution must be within the ambit of existing laws. The process of changing the constitution for anything beyond what the extant ones accommodate would be almost certainly destabilizing. And history is replete with examples of how agitators almost always loose the plot when they resort to anarchy. There are a number of creative ideas about how to begin to remedy the current potentially combustible situation in the reports of past constitutional conferences as well. Political will has always been the problem. And because Mr Buhari is indisposed and the authority of the acting president remains relatively shaky, the bell tolls for the legislature to do the needful. Thankfully, the Senate has decided to do just that. It has asked the executive to make available to it the report of the 2014 national conference with a view to adopting some of its recommendations. Of course, it speaks to the insincerity of past governments (and indeed the current one if it pushes back on the request) if the peoples’ elected representatives, sworn to protect the sovereignty of our dear country, are as yet not privy to the contents of the report of a constitutional conference supposedly instituted in the peoples’ name. Our lawmakers must act swiftly.

Also published in my Premium Times Nigeria column. See link viz.

On the Ugandan economy

By Rafiq Raji, PhD

Growth this year would not likely be as robust as earlier expected. This much has been acknowledged by the authorities. Finance minister Matia Kasaija announced in his recent budget speech for the 2017-18 fiscal year that growth would be about 3.9 percent for the 2017-18 fiscal year, 1.6 percentage points below the authorities’ 5.5 percent target. In the government’s defense, Mr Kasaija was quick to point out that at least the Ugandan economy was not in a recession. (Africa’s two largest economies, Nigeria and South Africa, are in one.) Even so, major sectors of the Ugandan economy slowed quite significantly over the past year. Agricultural output underwhelmed by almost half the preceding year’s rise. Industry, mining and construction were also laggards. There are a couple of reasons for this. For one, drought in the region has been weighing on agricultural production. Key export markets, whether in faraway Europe or its war-torn neighbour, South Sudan, have also been battling troubles of their own.

Price pressures call for easing pause
High interest rates have also been a factor, motivating the Bank of Uganda (BoU) to start easing monetary policy once the inflation outlook began to show improvements; most recently by 50 basis points to 11 percent. There is now a strong case for a pause though. Consumer inflation rose to 7.2 percent in May, from 6.8 percent the month before. More importantly, core inflation ticked higher than the BoU’s 5 percent target in the month at 5.1 percent from 4.9 percent previously; albeit it is not expected too far afield subsequently. Still, the headline figure may remain on an upward trend for a couple of months more.

Long wait for oil
Mr Kasaija’s budget was more aspirational than realistic in some aspects though. It is laudable that Ugandan hopes to be a middle-income country in the next three years. Considering the economy would need to have grown by more than half its expected 2017 size of US$26 billion over the period to 2020, this seems a little farfetched. Adding $17 billion over 3 years at an average annual nominal GDP growth rate of 22 percent would be, to say the least, a tall order. Ambition should always be lauded, however. If Uganda is able to quicken the pace of its oil and gas exploration, it could achieve this goal in the next 6-7 years, say. Unlike its bigger neighbour, Uganda has not been similarly aggressive in developing its oil and gas fields: Kenya hopes to export its first barrel of crude oil this year, five years after its discovery in 2012. If everything goes according to plan, Uganda’s could be by 2020: fourteen years after crude deposits were first discovered in 2006. In light of its developmentalist approach, however, it could take longer: Uganda wants to be able to cater for its domestic fuel needs from its oil. (Africa’s largest producer, Nigeria, exports its crude oil and imports refined petroleum products.) Mr Kasaija says the government is in the process of selecting a lead investor to build the refinery. Getting investors for the project has been difficult hitherto. There is greater focus now on the export pipeline. Thankfully, regional politics, which initially stalled its construction seem to be less of a concern now: In February 2016, Uganda changed its mind about piping its oil via Kenya and chose to go with Tanzania instead.

Old man talk
As if to refute arguments suggesting the security services were increasingly lax, especially in light of recent high profile murders, Uganda’s president, Yoweri Museveni, kicked off his recent 2017 state of the nation address (SONA) by first highlighting his government’s defeat of the Lord’s Resistance Army (LRA) and Allied Democratic Forces (ADF) rebel groups and cattle rustlers in the northeastern part of the country. President Museveni however failed to highlight some of the very deplorable excesses of the security forces: the army killed more than 100 people at a royal’s palace in November 2016, it is alleged. His main critic and leading opposition politician, Kizza Besigye, was quick to rebuke him on social media about this and other security failings. To be fair, Mr Museveni acknowledged the gaps in the security architecture that have allowed the criminals have their way. His excuse then? Funding. He wishes the government could put cameras in towns and highways for instance. But there is a competency problem as well. A greater factor is corruption, however, with the police repeatedly criticized by the public for being in cahoots with criminals. The old man says they have the capacity to ensure nobody disturbs the peace.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

Regional development commissions as a restructuring model

By Rafiq Raji, PhD

At just this time last year, I made an advocacy for regional development commissions to be considered as a quick but potentially effective way to placate growing ethnic-based agitations across Nigeria. (See “Regional agitations, regionalism and development commissions” published on 7 June 2016: What I proposed was a “Regional Development Commissions Bill” that would harmonise the hoped-for commissions for each of the country’s six geopolitical zones. Since then, the enabling law for the establishment of the “North-East Development Commission (NEDC)” has been passed. Another for a “North-Central Development Commission (NCDC)” was reportedly proposed in the House of Representatives as well, but was stood down by the leadership. And most recently, a bill seeking to establish a “South-East Development Commission (SEDC)” failed to pass in the lower house of parliament. Had all the proposals been successful, that would have added to the already existing “Niger Delta Development Commission (NDDC)”; making four in all. There would still have been a need for two more if my thesis were fully adopted: a “North-West Development Commission (NWDC)” and “South-West Development Commission (SWDC).”

Seize the moment
Nerves remain frayed about the botched SEDC bill. This is not surprising. Only days before the vote, there was a relatively successful (albeit coerced) stay-at-home protest in the southeastern part of the country. Many argued afterwards that the SEDC bill might have been a unique opportunity to begin to address what are quite legitimate grievances over the continued marginalisation of the region. Some of the northern lawmakers that opposed the bill, it was mused, probably did not want to reward the protesters. Suggestions have also been made about whether House Speaker Yakubu Dogara was neutral in his handling of the proceedings that led to the failed vote. After calling what seemed like a majority “aye” voice vote the first time, with proponents of the bill almost about to start slapping their backs in jubilation, Mr Dogara asked for a second one whereafter he ruled in favour of the “nay” group. It is needless to play the blame game at this point. Simply put, there was a significant number of lawmakers, especially from the north, who were vehemently opposed to the bill. Unfazed, there are reports that southeastern lawmakers plan to re-package and re-propose the bill. If they do, it would be wise of their colleagues to ensure they succeed.

Truth is, the Nigerian polity is very heated at the moment. A prominent politician from the north with presidential aspirations has joined his voice to growing calls for the restructuring of the country. (I remain sceptical of his intentions.) Unfortunately, many who have raised their voices in this regard have not been able to suggest in coherent terms what a likely restructured Nigeria would look like. That is, one that ensures the current federation remains intact. Because quite frankly, no Nigerian president would take the risk of accommodating these agitations beyond a certain point. Should agitators escalate their methods even slightly beyond the bounds of the law, the likelihood of a disproportionate clampdown is almost certain. Besides, recommendations of past constitutional conferences – which were instituted by the respective incumbents at the time in response to similar cries but often for politically expedient reasons – remain unattended to. Considering many of the changes advised in their proceedings have enjoyed scant mention talk less implementation, it is highly unlikely current calls for the more far-reaching regionalism of old would be countenanced with any seriousness. And with just two years left for an ailing Muhammadu Buhari’s presidency, there is just no time or will for any such groundbreaking moves at this time. But as the problems remain, without any sign of abating, something needs to be done urgently.

Learn from history
The Niger-Deltans got their NDDC after a violent insurgency. So did the northeasterners; after what is still a murderous war in that part of the country. Shall we soon forget the costs to the economy when the then new Buhari adminstration attempted to stop paying compensation to supposedly repentant Niger-Delta militants? Reduced crude oil production owing to rampant bombings of pipeline infrastructure amid low crude oil prices not only strained the government’s finances, it contributed to what is still a biting recession. And even as the insurgency in the northeast had external influences, the genesis and eventual contributing factors were related to issues of marginalisation, regional suspicion, and federal neglect. Some correlation has also been suggested between what was seen by the elite in the north as the usurpation of power by an incumbent president from the south. Surely, our leaders are not about to allow it be supposed that only a violent uprising gets their attention.

Also published in my Premium Times Nigeria column. See link viz.

Can Africa win Trump over?

By Rafiq Raji, PhD

In mid-May, at the Africa Finance Corporation’s 10th year anniversary infrastructure summit (“AFC Live 2017”) held in Abuja, I asked Jay Ireland, the president and chief executive of GE Africa – the subsidiary of the American industrial giant on the continent – about his thoughts on whether Donald Trump, the American president, would be good or bad for Africa. Specifically, I wanted to know if President Trump would be worth the trouble of winning over. As Mr Trump does not know much about Africa, if the little mention the continent got during his election campaign is anything to go by, engaging with him early on might spring pleasant surprises, some pundits argue. Despite such assurances, I remained a little sceptical. So the opportunity to ask Mr Ireland, who incidentally is also the chair of former President Barack Obama’s Advisory Council on Doing Business in Africa and co-chair of the US Africa Business Centre, which leads the American business community’s engagement activities on the continent, was huge. In a sign of the times and the peculiar style of the current American president, Mr Ireland demurred, humorously wondering if his answer might not become the “subject of a tweet.” More importantly, he said a strong case was being made to the Trump administration to continue ongoing initiatives. I was particulary interested in the “Power Africa” programme initiated during the Obama administration; especially since even during Mr Obama’s tenure, it was floundering, talk less that of Mr Trump. The African Growth and Opportunity Act (AGOA), is not as vulnerable to a Trump rethink, albeit the administration could still exercise certain prerogatives over the choice of beneficiary countries and so on. My interpretation of Mr Ireland’s comments are as follows: Should Africa indeed not be a priority for Mr Trump, ongoing African initiatives may simply continue under the aegis of able and experienced technocrats at the American State department. And in the event Mr Trump suddenly develops a keen interest on African issues, proactive engagement with the administration like his and the business people he represents may be hugely differential. It has also been argued that African heads of state should do likewise.

Focus on first-order issues
In light of the recent exit from the Paris climate accord by Mr Trump, however, some are now beginning to think whether there is a need to even try. I would not be too quick to give up. True, with African countries already beginning to see the negative effects of climate change via droughts and so on, the recent American action is a setback. And of course, African countries initially had their own reservations about the accord. Not a few wondered why they should have to be environment-friendly at the expense of their development; especially as currently developed countries were not similarly cautious. But with research showing a nexus between climate change and increasing incidents of conflict in a number of African countries, there is a growing consensus about the need to be more caring of the Earth we live in. Still, to do this, African countries would require financial and technological support. To this end, the Paris agreement makes substantial provisions. With the American exit, however, also goes its financial commitments. It is also evidence that a Trump presidency would (at least for now) have second-order negative effects for Africa when the issues relate to broader international and multilateral arrangements that Mr Trump is averse to. So it is on the more specific African initiatives that African leaders should hope to influence him on.

Show respect
At the recent G7 summit in Italy, it was all too clear Mr Trump was not enjoying himself. He was particularly irritated by Emmanuel Macron’s (the French president) “macho-diplomacy”: Mr Macron’s overly firm and lingering handshake with Mr Trump at their very first meeting since the former’s inauguration was well-reported. As if determined to rattle the American president or put him to size, Mr Macron also made sure to refer to the incident afterwards as deliberate. That and another, where Mr Macron seem to be moving towards Mr Trump to shake hands, as the G7 leaders and invited guests did their traditional group-walk in front of the press, but at almost the last minute swerved to shake that of Angela Merkel, the German chancellor, must have been a little unnerving for a man known for his fragile ego. Thus, it is very likely that unpleasant experience was at least a secondary motivation for his action on the Paris accord. In his speech announcing the decision, Mr Trump was almost certainly taking aim at Mr Macron when he said: “I was elected to represent the citizens of Pittsburgh, not Paris.” (The Washington Post did a very insightful article on the dynamics leading to Mr Trump’s decision.) At the G7 summit it turns out, one of few instances where Mr Trump seemed to be enjoying himself was when he ran into some of the African delegates: Yemi Osinbajo (Nigeria), Alpha Conde (Guinea), Uhuru Kenyatta (Kenya), Hailemariam Desalegn (Ethiopia) and Akinwumi Adesina (African Development Bank). With deft handling, Mr Trump could become an ally.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

Do not reverse power sector privatization

By Rafiq Raji, PhD

Power supply in Nigeria remains epileptic. Four years after the privatization of the sector, this is a sad state of events. Naturally, there is growing public clamour for a reversal of the sale. This is ill-advised. At the forefront of this advocacy – and incidentally also with the power to act on the issue – is the Nigerian Senate. Recently, while debating the continued fraudulent overbilling of customers by the privatized power distribution companies, the lawmakers wondered why the supposedly “technically bankrupt” firms should not be reappropriated. They probably mean well. But in doing so, they would do more harm than good.

Reversals cost economy
Many investors, foreign and local, can usually handle the challenges of investing in less than ideal markets. Unprecedented regulatory hurdles (sometimes borne out of needless officialdom, ignorance or archaic rules) and undercapacity, corruption, and foreign exchange scarcity, are a few of the difficulties that have come to be expected when investing in African countries. So these do not tend to be as bothersome for investors as some might think. What tends to be really frustrating is the penchant by African governments to move the goalposts midway into the game. Considering they are forever travelling global financial capitals cap in hand seeking investors, it is somewhat absurd that their travels have not enlightened them to the debilitating costs of holdups. Any country, no matter how challenged, but with a reputation for abiding by agreements, would still attract investors easily if the potential return is worth the risk. Nigeria, which acknowledges its reputation problem, would be better served if its officials devote more energy to keeping their word than to paying expensive image-laundering fees. Were Nigeria not so attractive an investment destination, most foreign investors would long have been put off by its government’s quirks. As there are now numerous other attractive locations, however, any country that takes them for granted does itself a great disservice. The Senate’s proposal – if adopted – would have repercussions beyond the sector. Thankfully, there are viable market mechanisms that can be used to correct the obvious rot in the sector.

Use market mechanisms
It is public knowledge that a couple of the privatized power companies are highly levered. Their woes emanate not from their debt load primarily, however, but from their lack of matching revenues to meet their obligations. This should not be totally surprising. A mismatch of assets and liabilities would always be problematic. The gripe of these companies, however, is that legacy debts owed them by mostly public entities remain unpaid. And since they cannot necessarily cut off the electricity of what are sometimes vital public assets without repercussions, the vicious cycle continues. Additionally, a significant number of the beneficial owners of these power companies are politically-exposed or highly-placed persons. Within the Nigerian context, there are not many who would have the daring to challenge them. Besides, political undertones may inevitably be read into why the Senate is choosing to put its searchlight on the problems of the sector at this time. That said, the government has the power to legally take over a company that is crucial to the public interest but has evidently demonstrated a lack of capacity to fulfill its mandate. For instance, the government’s “bad bank” was recently used to intervene in the aviation sector. It would not be farfetched if a similar mechanism is deployed to rescue the even more crucial power sector.

Enforce pre-paid metering
Curiously, one senator described the erring power firms as “technically bankrupt”; suggesting perhaps that their current deplorable state of affairs is suggestive of incompetence. This is farther from the truth. Most of the current staff of these firms used to work for the defunct public power utility. And one is well aware of how highly trained they are; albeit their orientation is more towards maintenance and minor repairs. (Most could not confidently demonstrate competence along the whole gamut of engineering, procurement and construction.) Still, they are competent for their current tasks. Besides, the firms have foreign technical partners; who incidentally either built the facilities or at one point, were contracted for major maintenance and repair works. In any case, needed specialist labour can be easily acquired if the system is market-oriented. On the commercial side, there is not a skills shortage as being touted. It is not all too difficult to adapt the old billing systems (or replace them) for now ubiquitous technologically savvier ones. Furthermore, pre-paid metering is even simpler. So what then is the motivation for the continued use of an estimated billing system by these power companies? A much-used excuse relates to pre-paid meter procurement difficulties. Even so, it is more likely the companies are really just employing any means they can get away with to boost revenues, which insiders say have been below expecations. Because of the information asymmetry between the supplier and customer, the distribution firms profit more from an estimated billing system than they would from a more transparent and accountable pre-paid system. In this regard, the industry regulator cannot escape blame. Thus, if the Senate must do something, this is what it should try to change.

Expand and diversify grid, empower players
Only about 30 percent of electricity generated can be passed through the grid. Were all of the sector’s problems solved without resolving this bottleneck, power shortages would still persist. As the grid remains publicly-owned, it behoves the government to make expanding it a priority. Newer but smaller grids can also be allowed. In the few instances where the same investors own both a generation and distribution company, this would be ideal. Thankfully, generation companies were recently granted leave to sell power directly to qualified customers. Off-grid solar power producers have also been licensed. With the Niger Delta at relative peace, gas supply and pricing, which were hitherto – and perhaps remain so – major constraints for generation companies, have also improved. But as gas is priced in US dollars and power producers earn revenue in naira, they suffer another mismatch problem with their finances. Were the authorities to facilitate a special naira market window for them to procure gas, wouldn’t that go a long way? To this end, they already put in place a naira payment guarantee scheme to allay their fears and those of gas suppliers. More fundamentally, the sector needs additional investment if the country’s power supply deficit gap is to be narrowed anytime soon. Making sure the sector is investor-friendly is hardly a subject for debate.

Also published in my Premium Times Nigeria column. See link viz.