Tag Archives: Leadership

Europe could do more for Africa

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

It is a little annoying that this year’s African Union (AU) – European Union (EU) summit (29-30 November), the fifth now, has been overshadowed by recent revelations by CNN – an American news organisation much reviled by President Donald Trump – of black Africans being enslaved in Libya on their way to Europe illegally. Europe’s concerns about increasing illegal migration from African countries, often at great peril – for those who choose to make the journey, that is – would ordinarily have been the focal point at the summit regardless. European governments have committed to helping with evacuating the victims and prosecuting the culprits. Of course, it is not unlikely that the most secret bit of their ruminations wonders if the ugly phenomenon may not finally be the deterrent they so desperately seek to stop the rising illegal immigration rate of Africans to Europe. European governments have been at their wits’ end trying to stop the uncontrollable flow hitherto. Of course, the bad press that comes with many that die on the journey across the sea is not necessarily helpful. And it speaks to the motivation of the travellers if despite the dangers of the journey, more continue to embark on it. Even so, EU countries have become more stringent, as their citizens increasingly worry about losing jobs to migrants who do not mind lower pay; albeit their eyes are typically set on better skilled fellow Europeans. Upon arrival on the shores of Europe, often that of Italy, and after being rescued, the few that “made it” amongst the multitude at the beginning of the perilous journey back home, are sent to camps where they would sometimes stay for months or years. In the past, they could transition from these camps to what they eventually find to be a less than ideal “dream life” in Europe. Lately, sterner restrictions have increasingly made even this less likely: more are repartriated home these days. But these are the lucky ones. They are alive and have a chance to rebuild their lives. That said, the proportion of Africans that make this dangerous journeys pale in comparison to the many, youths mostly, who stay behind and try to make a meaning of their lives. Themed “Investing in the youth for a sustainable future”, it is this latter group that the 5th AU-EU Summit in Abidjan focuses on.

Faith and works
So at least, European governments know what the problem is. 60 percent of Africa’s 1.3 billion population is aged below 25 years. That is 761 million people. One estimate put the number of young Africans entering the labour market annually at about 10 million. Of these, only about 30 percent secure wage employment. The other 70 percent? We know some seek greener pastures abroad, for sure; and clearly in not so salubrious ways for most. Crucially, the majority are idle, thus posing a security risk not only to their countries, the African continent, but abroad as well. Trying to resolve the problem is at the core of the joint Africa-EU strategy. The advocacy here is that what has been done thus far, laudable though they are, could be much more. The European Union is quick to tout its 7-year €30 billion official development aid to 2020, for instance. It is a drop in the ocean. Compare with this: Africa needs at least $90 billion annually over at least a decade to plug its infrastructure deficit alone. There is a consensus, at least, that aid is not the solution. Better trade, could be, though. In this regard, the EU could be more forthcoming. Its Economic Partnership Agreements (EPAs) with African countries are controversial. Some African countries have reservations about them; Nigeria for instance. And there are quite a few amongst the ones that signed them which did so grudgingly. One issue is usually about the potential loss of revenue that African governments would suffer from allowing reciprocal tariff-free European access to African markets. To be fair, there has been some accommodation by the EU to compensate for this. The problem is that it pales in comparison to the potential loss. The great matter is how the EPAs in their current form might stymie Africa’s industrialization. Of course, it could be argued that automation and the so-called fourth industrial revolution are greater and more imminent threats. Even so, Europe should back its good faith with more action.

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Flattered Trump achieves little in Asia

By Rafiq Raji, PhD

Donald Trump, the American president, concludes his 5-country Asian trip in The Philippines today (14 November). Heralding his arrival in Beijing a week earlier – his third stop after earlier ones in Japan and South Korea – was a reminder of China’s trade surplus with America, data for which came out at US$26.6 billion for October; about US$223 billion thus far this year. And if he thought his trip would make China buy at least as much American goods and services as go the other way, he was a tad disappointed. Of course, there was much pomp about the US$253.4 billion in deals signed between the two delegations. But much of these were not substantive. And some were actually just old deals. The extent of the divergence in the views of the Chinese president, Xi Jinping, and President Trump, would become writ large in Da Nang, Vietnam, at the Asia-Pacific Economic Cooperation (APEC) summit, where they both headed afterwards. They provided sharply contrasting visions on trade in their speeches to the gathering of Asian-Pacific leaders. While President Xi espoused multilateralism, openness, and globalisation, Mr Trump was unapologetically insular in his views. Brief incidental interactions with Russian president, Vladimir Putin, at the APEC summit, in place of a much anticipated formal meeting, did not yield much either. Because even though the Kremlin published a joint statement on the crisis in Syria, there was not much there that was new; a missed opportunity. It did not help of course that the controversy over alleged Russian meddling in the 2016 American presidential elections would not just go away; no doubt made worse by Mr Trump’s equivocation on the matter. In fact, what little progress that was made during his time in Asia was actually on matters antithetical to his agenda. A deal was reached by the 11 countries remaining in the Trans-Pacific Partnership (TPP) trade agreement he ditched, for instance; albeit there were a few hiccups here and there before that came about.

Playground rhetoric
Mr Trump came out a little bruised on the North Korean matter as well. After initially striking a somewhat conciliatory tone towards the communist regime, urging it to do a deal over its nuclear weapons programme, he adopted an aggressive posture shortly afterwards in his address to the South Korean legislature; defiantly telling the volatile man up north not to test America’s might. Unsurprisingly, the North Korean regime replied with insults, calling Mr Trump an ‘old lunatic’, ‘warmonger’ and ‘dotard.’ Not one to take such expletives lying down, the American president threw back a few of his own, suggestively referring to Kim Jong-un, the North Korean leader, as ‘short’ and ‘fat’. Even so, if there is a slight chance of some deal with the communist regime, Mr Trump’s unusual style probably makes him best-placed to make it happen. China remains crucial to any potential progress, however. Unfortunately, they did not offer more than they already had on the matter.

Flatter to naught
The Japanese were more gracious at least; they imposed additional unilateral sanctions on North Korea. Not that this could necessarily be attributed to Mr Trump’s powers of persuasion: North Korea fired missiles over Japan in mid-September. And this was despite Mr Trump’s taunts at prime minister Shinzo Abe: He went on unabashedly about how the Japanese were inferior to Americans and wondered aloud why the Japanese did not shoot down the North Korean missile, suggesting how if they had American-made weapons, they would have been able to do so easily. (The Japanese are officially pacifist but have a military for self-defense purposes.) Little wonder then his Japanese trip turned out to be a failure somewhat. He did not get much from them on trade; a major issue for him. (Like China, Japan also maintains trade surpluses with America; albeit at 9 percent of the total American trade deficit, it pales in comparison to China’s 47 percent.) As if to buttress the point, the Japanese ruled out a potential Free Trade agreement (FTA) with the Americans, Mr Trump’s preferred route to dealing with trade imbalances. Instead, Japan led the effort to ensure a deal was reached on the so-called TPP-11. The Asians were all smiles but gave him little.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/flattered-trump-achieves-little-asia/

2018 budget should be passed before year end

By Rafiq Raji, PhD

Muhammadu Buhari, the Nigerian president, presents his 2018 budget statement to the legislature on 7 November. He reportedly wanted to do it in late October; to allow ample time for the spending proposals to be considered and passed by December. Some lawmakers have expressed reservations about this. BusinessDay, the newspaper which publishes this column, found out why. There are at least three executive proposals currently under consideration by the lawmakers. First is the 2018-2020 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). Second is a N135.6 billion virement proposal. And third, a US$5.5 billion foreign borrowing request. My view is that the lawmakers can get them all done on or before 31 December. And they should. Considering how much they get paid, it would not be too much to ask that they go into overdrive, consider and pass them all before heading for their Christmas break.

More spending
In the MTEF, the 2018 spending estimate is put at N8.6 trillion, up by about 16 percent relative to the 2017 budget of N7.4 trillion. Oil production is assumed at 2.3 million barrels per day (mbpd), which would probably be no more than 1.8 mbpd if a likely OPEC production cap in November is sanctioned. But even this level of production may be weighed on by imminent militant attacks on oil and gas infrastructure by agitators in the Niger Delta region. Additional tax measures are planned. A 15 percent tax on luxury goods from 5 percent currently, for instance. An ongoing tax amnesty programme till March 2018 should also boost the government’s finances. Tax revenue performance this year has been quite impressive, with respect to VAT at least; N797.5 billion was realised between January and October 2017, up about 20 percent from the same period last year.

Better narrative
It is not news that the 2017 budget was only partially implemented; never mind shortfalls here and there even for the parts that were. As the authorities likely plan to issue a US$5.5 billion eurobond imminently, it would help a great deal if investors are able to see how things are beginning to indeed change for the better. There have been some positive developments lately. The World Bank recently affirmed the authorities’ ease of doing business reforms are working, raising Nigeria’s ranking 24 places to 145th out of 190 countries. Central bank governor Godwin Emefiele was also recently conferred with an award by Forbes magazine. And in late October, Nigeria kept its place in the MSCI Frontier Markets Index (country weight of 8 percent); attributed to a rebound in the foreign exchange market. So, imagine how truly positive the Nigerian investment narrative would be if the authorities are able to also demonstrate they are succeeding with fiscal policy.

Good plan
Concerns have been raised about the supposedly planned US$5.5 billion eurobond, though. The country’s historical pains with indebtedness make Nigerians naturally wary. Public debt of N19.6 trillion (US$64.2 billion) in June, about 16 percent of 2016 GDP of US$405 billion, should ordinarily not be concerning. But electioneering for the 2019 polls has started in earnest. And President Buhari, hitherto thought might not be seeking a second term in light of his fragile health, recently signalled he has decided otherwise. So there is the risk that new borrowings might not be spent wisely. In response, finance minister Kemi Adeosun is taking pains to explain the rationale behind the plan. Of the US$5.5 billion they plan to borrow, US$3 billion would be used to refinance the authorities’ current debt portfolio. The remaining US$2.5 billion, which would be new borrowing, is intended to in part fill a hole in the 2017 budget; already appropriated for. It seems like a good plan, if you ask me.

Be bold
Feelers that came out initially were that the planned foreign borrowing would be done in two parts. I do not believe this to be wise. Interest rates are rising in the developed world, with the American Federal Reserve expected to hike rates again in December. And only last week, the Bank of England raised its benchmark rate by 25 basis points to 0.5 percent, the first time since 2007. What this portends for African sovereigns looking to issue eurobonds is that potential subscribers are going to insist on higher yields; albeit they would by far still not be as dear as those in their domestic debt markets.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/2018-budget-passed-year-end/

South Africa: Gigaba’s first test

By Rafiq Raji, PhD

Malusi Gigaba, the sometimes colourfully dapper – his unique wardrobe include suits with such ‘interesting’ colours like green and purple – South African finance minister, presents his first budget statement on 25 October. It is not the big one; that won’t be due until next year. But the mid-term budget would be a good first test of his 7-month stewardship thus far. Economists polled by Reuters put the likely revenue shortfall in the current fiscal year to be announced by Mr Gigaba at R40 billion (US$3 billion). (It could be up to R55 billion, some suggest.) I did not provide a shortfall forecast but the fiscal deficit projections I expect the finance minister to announce are as follows: 3.3 percent of GDP for the 2017/18 fiscal year, 3.1 percent for 2018/19, 2.8 percent for 2019/20 and 2.6 percent for 2020/21. Of course, if growth were to improve, they would be a little lower. However, there is not much to suggest that the needed structural reforms to spur growth would be implemented anytime soon.

Show me the money
Ahead of Mr Gigaba’s speech, several allegations have emerged he might be following a meticulous script written by his controversial principal, Jacob Zuma, the president of South Africa. Lately, he has made some moves that deserve commendation, though. Dudu Myeni, a Zuma acolyte and perhaps much more, would finally leave her post as chairperson of loss-making and highly indebted national airline, South African Airways (SAA), in early November. Even this supposedly laudable move is being viewed with suspicion. There have been suggestions that the R5 billion (US$374 million) that is needed by end-October to ensure SAA remains solvent could be funded from the coffers of the Public Investment Corporation (PIC), the manager of public workers’ retirement funds. Additionally, as much as US$7 billion in total might be drained from the PIC to sustain ailing state-owned enterprises (SOEs). These suggestions have been met with vehement opposition by labour unions and others. To allay such fears, Mr Gigaba has provided assurances that the PIC’s funds would not be put to such use and has ordered an investigation into alleged irregularities at the PIC. Such moves might still not be enough. Earlier, Julius Malema, the firebrand opposition Economic Freedom Fighters (EFF) party “commander-in-chief”, accused Mr Gigaba of being the architect of the now infamous phrase: “state capture”; which implies the domineering influence of a few private actors in collusion with public officials over state resources. Mr Malema analogizes the finance minister’s assurances to a rat saying one’s cheese is safe with it. Curiously, PIC chief, Daniel Matjila, who earlier asserted machinations were afoot to see his back at the investment firm because he won’t let go off “the keys to the big safe”, somehow got a clean bill of health from the PIC board in late September; after an internal audit about whether he allocated funds improperly. Interestingly, Mr Matjila now says he has not entirely ruled out providing some funds for SAA. But should public workers’ hard-earned pensions be used to revive something so intractably failing? Surely not.

Game of thrones
Hitherto loud political noise have recently become even louder, after President Zuma lost a court case that if he had won, would have enabled him escape his day in court for myriad corruption charges. Regardless of recent directives by the prosecution authorities that he make representations to them before end-November, it is not likely he would be prosecuted (if at all) before he secures a deal to leave office relatively unscathed (see my earlier column on 17 October 2017: “What next after Zuma fails to shake off corruption charges?” for broader views on this). More pertinent is that plans are likely at an advanced stage to remove Mr Ramaphosa as deputy president. The speculations have been fuelled even more by frantic denials from the president’s office. But in Mr Zuma’s case, when there have been speculations in the past, they tend to happen eventually; that is, even after many denials. Besides, a recent surprise cabinet reshuffle that saw the exit of Blade Nzimande, an ardent Zuma critic and leader of the South African Communist Party (one of the ruling African National Congress (ANC) tripartite alliance partners) suggests Mr Ramaphosa’s axing is only a matter of time. Turns out the wait may not be too long. Just this past weekend, reports emerged that Mr Ramaphosa might be arrested and charged with treason as early as November. The reason the president would want Mr Ramaphosa out of his government is not too difficult to discern. Should his deputy win the elective ANC presidential elections in December, Mr Zuma’s likely premature retirement may be very cold indeed.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/south-africa-gigabas-first-test/

What is the North’s restructuring game?

By Rafiq Raji, PhD

Northern political leaders met in Kaduna in mid-October to articulate their position on recurrent agitations by major ethnic groups about restructuring the Nigerian federation. They had hitherto either been silent on the issue or suggested there was no need to change the current governance structure; which most argue is biased in their favour. It would be interesting to know what made them come around on the issue. If history is a guide, perhaps an argument was made that engaging other sections of the country on the great matter would be more beneficial than their aloofness hitherto. Tagged “The North and the future of the Nigerian Federation” and under the auspices of the Arewa Research Development Project (ARDP), I was pleasantly surprised at how well-organized it was. (I shall refer to it as the “Arewa Conference” subsequently.) Not that I made the day road trip to Kaduna from Lagos just to attend: I followed it on social media; which in addition to tweets also included live video feeds of key discussions. And even though, the political elite were accorded the usual prestige, ordinary northerners, especially minorities, were amply represented and had their say. This is important. One of the key problems of the north is the feeling minorities have of neglect and discrimination. Northern political leaders have been keen to use their numbers for supposedly the region’s gain but often to the detriment of the minorities’ interests.

Heard of Catalonia? 
The Spanish region of Catalonia recently voted to form its own country via a secret referendum, after a court declared the planned vote illegal. Tensions remain, even as Catalan president, Carles Puigdemont, has signalled he would not be averse to talks. You would think the Spanish government would be similarly conciliatory. What did Spanish prime minister, Mariano Rajoy, do? He gave Mr Puigdemont a 5-day ultimatum to say pointedly whether his government has declared independence from Spain or not. If in the affirmative, Mr Rajoy has signalled the central government would take over the reins of power in the autonomous region. Still, you have to wonder whether Spanish authorities needed to wait for things to go this awry. Some of the Catalans’ grievances could have been easily managed and perhaps resolved if the central government were more accommodating, for instance. And clearly, even now, it does not appear the Spanish government has taken lessons from its past mistakes. It is also worth noting how fellow European authorities have rallied round the Spanish government while at the same time piling tremendous pressure on the Catalans. Were a similar crisis to be in a developing or African country, they are not known to be so resolute in their support for constituted authority; often urging restraint by central governments while accommodating oft-called “freedom-fighters” or “activists” in tandem. No foreign government has yet to put pressure on regional agitators in southeastern Nigeria, for instance; with evidence suggesting that but for their turning a blind eye, the errant groups might not be so enduring.

That said, the Nigerian government must take lessons from what is happening in Spain. Back home, the problem has not yet degenerated to the point where someone or a group would be able to organize a referendum for independence and potentially get some legitimacy. Besides, when people agitate peacefully, it is usually because despite their dissatisfaction, there is something about the status quo that still appeals to them. Igbos in southeastern Nigeria have long expressed displeasure about the state of their affairs in the Nigerian federation; especially as they are even now not adequately represented in the current Muhammadu Buhari administration. Bear in mind, the Niger Deltans similarly made public their grievances in peaceful ways, and only took up arms after their cries fell on deaf ears.

Stop wasting time
A committee of northern governors, traditional rulers and political leaders are expected to review the final document of the Arewa conference. Town hall meetings would also be held across the region in tandem, the organizers say. Quite frankly, I am not so sure there is a need for that much ado after the Kaduna get-together. If the intention is not to buy time, what the committee under the chairmanship of Sokoto governor, Aminu Tambuwal, should do is to immediately reach out to other regional leaders for a frank talk about the future of the Nigerian federation.

Also published in my Premium Times Nigeria column. See link viz. https://opinion.premiumtimesng.com/2017/10/13/what-is-the-norths-restructuring-game-by-rafiq-raji/

Liberia: Is it finally George Weah’s time?

By Rafiq Raji, PhD

I have been quite surprised, former world star footballer, George Weah, is yet to become president twelve years after he first vied for the office in 2005. (He was the first African player to win both the FIFA World Player of the Year and Ballon d’Or in 1995.) There are not many things that could make one easily popular in African countries than being a master of the round leather game. And if Like Mr Weah, you rubbed shoulders with the world’s best, god-like status is almost assured. Mr Weah’s elusive ambition is partly because despite Liberia’s history of poverty, misery and war, the upper echelons of its society is largely elitist: Mr Weah did not have formal education early in life. (He has since corrected this lapse, earning a graduate degree in public administration from an American university in 2013.) When Mr Weah first contested against departing Liberian president, Ellen Johnson Sirleaf, and lost, his lack of education was touted as one of the reasons why (President Sirleaf is Harvard-educated). Mr Weah claims intimidation and vote-rigging were the actual reasons. Clearly, though, Ms Sirleaf was better prepared: she was already finance minister when Mr Weah was in his teens. Besides, she had the backing of the establishment: an uneducated Mr Weah had to start from scratch, forming his own political party, the Congress for Democratic Change (CDC), just to contest. Even so, he proved to be a strong competitor, securing a place in the second round and garnering 41 percent of the vote to Ms Sirleaf’s 59 percent. Thereafter, Mr Weah contested as a vice presidential candidate in the 2011 elections and lost again. Finally in 2014, he won a senatorial seat, beating Robert Sirleaf, the president’s son.

Last chance
With Ms Sirleaf finally departing the scene after 12 years of mixed performance, Mr Weah now has a fighting chance of becoming the president of Liberia in elections scheduled for 10 October. Considering there are 20 candidates on the ballot, an easily recognizable Mr Weah may be ideally placed to benefit from the overcrowding. And he could not be accused of inexperience this time around: he has an almost 4-year senatorial stint under his belt; and representing Liberia’s most populous county at that. There is also evidence of some political maturity on his part: his running mate is Jewel Howard Taylor, the influential ex-wife of jailed former warlord, Charles Taylor. Unsurprisingly, she is a controversial choice, with some arguing she could be a drag on the ticket. I disagree. In most post-conflict transitions, the protagonists in the preceding war or crisis tend to retain their influence. And even as Mr Taylor languishes in an English prison for war crimes, he is still able to exert considerable influence back home.

Cold shoulder
Most permutations put Mr Weah against incumbent vice president Joseph Boakai of the ruling Unity Party (UP) in a likely second round. Mr Boakai, who a friend just back from the country refers to as mild-mannered, has not enjoyed the support of his principal. Ms Sirleaf did not show up for any of his campaigns, for instance. At least his principal is not being hypocritical about it: there are not many cases of warmth between African presidents and their deputies. Considering Mr Boakai’s major selling point is that he is best placed to continue Ms Sirleaf’s legacy, her aloofness suggests she does not necessarily think so; a point voters are not likely to miss. Mr Weah has not been without troubles of his own; lately fending off accusations he has been in touch with Mr Taylor. He denies the allegations. I think he is lying. There is no way there could not have been some sort of communication between the two; probably by proxy, though. That is, even as he probably did not need to deny having contact with a man that one of his compatriots recently remarked would be accorded red carpet treatment were he to return to the country today. It may be no matter, really. More importantly, people just desire that the polls be peaceful. Besides, times are hard. Liberians simply want someone that would improve their fortunes.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz. http://www.businessdayonline.com/liberia-finally-george-weahs-time/

Nigeria: Still delicate

By Rafiq Raji, PhD

The Nigerian economy exited recession in the second quarter of 2017 to much applause. Readers of my column would recall my earlier expectations of a positive recovery in the first quarter of 2017. When that did not happen, I took a more cautious view that a recession exit was likely in Q3 but almost certainly in Q4. Needless to say, I was pleasantly surprised that it finally happened in Q2. A particular client, I thought, would at least be already ahead of its competitors if they acted on my recommendation that the recession was going to be shortlived. But now that the economy is recovering, how sustainable is it likely to be? That would depend on a few things. Government policy for one. Agriculture proved to be resilient during the slump and yet despite stimulus efforts by the authorities in the sector, growth has been slowing. This must be a little frustrating for the Central Bank of Nigeria (CBN), which has been at the forefront of encouraging banks to lend to the agriculture sector. It may very well be that one is being a little hasty: there are indications the CBN is beginning to succeed. Recently, Stanbic IBTC Bank signed a 50 billion naira agreement with the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL), an agricultural credit guarantee scheme that used to be a unit within the CBN. Should the partnership succeed, more than 90 thousand jobs are expected to be created. And that is just one bank. Also, power generation has begun to improve, rising to about 7,000 mega watts (MW) lately; albeit only about 96 percent can be transmitted and just two-thirds reach consumers. In any case, it would likely remain a while before there is ample electricity to spur the type of industrialization needed to employ the country’s teeming jobless youths.

High food prices weighing on inflation 
Annual consumer inflation has been slowing; 16 percent in August from almost 19 percent in January, although the price index accelerated by the same monthly pace in both months. So, price pressures remain persistent. High food prices are majorly why, with food inflation – about 51 percent of the consumer price index (CPI) – at 20.3 percent in August from 17.8 percent in January. There are myriad reasons for this. Floods in the agricultural belt states of Kogi, Benue and environs mean this year’s harvest has likely been jeopardized. Incidentally, these are areas that have also been barraged by Fulani herdsmen attacks, leaving damaged crops in their wake. Continued insecurity in the northeastern parts of the country also means a significant portion of the farming community remains idle. Never mind that at least 5 million people in these parts are reportedly in need of food aid. Additionally, exporting food is now very lucrative. So what should ordinarily be sold in local markets are increasingly ferried to neighbouring countries and further abroad, where they can be sold at a premium. Some of the food inflation is imported, however, about 13 percent of the CPI. So, a still dear foreign exchange rate is also a factor. There is much to cheer about in this regard, though. Above US$50 crude oil and relative security in the oil-producing Niger Delta area means rising production volumes have been improving the authorities’ finances. These would likely be constrained still, as the authorities’ 2.2 million barrels per day (mbpd) target for 2017 now seems highly unlikely. Because even if that much could be produced, there are indications the oil exporting countries’ cartel the country belongs to would not allow output above 1.8 mbpd.

Burgeoning debt
There is growing concern about the government’s debt burden, rising to US$64.2 billion (16 percent of GDP) in June from US$63.8 billion two years earlier. Ordinarily, there should not be much worry at this relatively benign accumulation rate. But in the period, foreign debt has increased by almost half. And debt servicing is beginning to weigh overmuch on tax revenue, which the International Monetary Fund (IMF) put at more than two-thirds. Also, the authorities have not been as successful as they would have liked in securing foreign concesssionary debt. There are a couple of reasons for this. It held on to a costly fixed exchange rate regime for too long, haemorrhaging much valuable hard currency. Had the government been more prudent, floating the naira early on that is, it would not have needed to borrow as much. A populist political leadership also meant the CBN lost a great deal of its independence, to the dismay of investors and development partners. Consequently, multilateral financial institutions were relunctant to lend money while such a sub-optimal policy regime subsisted. There is reason to be optimistic now, though. A new FX market platform now allows foreign portfolio investors to trade at market-determined exchange rates. Hard currency inflows have surged consequently, with at least US$9 billion in volumes recorded in the first 6 months of the platform’s operations.

Do not rock the boat
The best the CBN can do at this time – its monetary policy committee would be deciding on interest rates on 26 September – is thus to maintain its current policy stance; one that has engendered naira stability and brought a new lease of life to the equity and fixed income markets. For those who desire that interest rates be lower (the monetary policy rate is currently 14 percent), the fundamental question remains whether they would buy government securities if yields were not high enough. When the authorities recently sought to test if they would, subscriptions were unsatisfctory. So, until market participants are willing to accept lower yields, it would not make sense for the CBN to start reducing interest rates. And that would not likely be the case until inflation is much lower, in the third quarter of 2018, say, when it is likely in the single-digits. Until then, the CBN would do well to do nothing.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/nigeria-still-delicate/