Tag Archives: Nigeria

Blue economy: Nigeria could learn from Seychelles

By Rafiq Raji, PhD

Some years ago, at an investor event in London, a prominent Africa-focused portfolio manager wondered if anyone knew where he could get research on Seychelles. The firm I used to work for at the time had perhaps the most comprehensive African macroeconomic research coverage, including such countries as Sierra Leone, The Gambia and so on; which I incidentally covered at the time, but no, we did not cover Seychelles. The reason was not farfetched. It is a small country, even by African standards. When you think of Seychelles, the thought that immediately comes to mind are its beaches and other tourist attractions. Turns out, its economy is also well-run. Of course, I had since moved on to other things. But just recently, a contact wondered if my budding research firm, Macroafricaintel, had any report on the country. I wondered what spurred the sudden interest. She graciously explained her curiosity was aroused by such innovative solutions coming from the country like the proposed US$15 million blue bond, the proceeds from which would be used to fund the development of sustainable fisheries. Just so you know how impressive it is, it earned the 2017 Ocean Innovation Challenge award at The Economist World Ocean Summit earlier in the year. In 2016, Seychelles also struck a “debt-for-adaptation” deal with the Paris Club in partnership with The Nature Conservancy (TNC), an American non-profit environmental organisationIn exchange for promising to protect at least 30 percent of the country’s waters by 2020, authorities got debt relief to the tune of US$21.6 million. Authorities would thus now be able to disburse about US$280 thousand per year from the interest savings to train fishermen, do research and so on. Unsurprisingly, other African countries with similar endowments like Mauritius, Madagascar, Mozambique, Tanzania, and the Comoro Islands are now looking to develop similar initiatives, according to The Economist, a British newspaper. But if they hope to succeed, they must first start with a blue economy roadmap like Seychelles did. What is a blue economy, though? Seychelles’ finance, trade and the blue economy minister, Jean-Paul Adam, defines it “as all those economic activities that directly or indirectly take place in the ocean, use outputs from the ocean, and put goods and services into ocean activities.” With tourism and fisheries accounting for 11 percent of its workforce and 33 percent of its GDP, the Seycehellois government clearly has good reason to take its blue economy seriously.

Collaborate to secure waters
For a very long time, fishing boats from Europe and elsewhere have prowled the continent’s waters with impunity, pillaging them for fish and everything else in between. Oceana, an American non-profit organisation dedicated to protecting and restoring the world’s oceans, released a report in September that put illegal fishing costs to West African countries at about US$2.3 billion per annum. It reports 19 vessels from Italy, Spain, Portugal and Greece illegally spent about 31,000 hours on Gambian waters between April 2012 and August 2015. Perhaps in response, The Gambia has decided to do something about it, announcing ongoing negotiations with at least three private firms to police its waters and stem the pillaging of their marine life. Greater collaboration between African countries, especially West African ones, would help a great deal, though. And surely for an industry with an estimated output of US$1 trillion per year, it should not be too difficult for African governments to be enthused about doing so. There are already some initiatives in this regard. The African Charter on Maritime Security, Safety and Development in Africa (“Lome Charter”), adopted at the African Union (AU) extraordinary summit on maritime security and safety and development in Africa in October 2016, builds on earlier collaboration mechanisms like the 2009 Djibouti Code of Conduct2013 Yaounde Code of Conduct and 2050 Africa’s Integrated Maritime Strategy adopted in 2014. The Lome Charter is a huge step as it formalizes what is referred to as a “blue economy”, defining it as “sustainable economic development of oceans using such technics as regional development to integrate the use of seas and oceans, coasts, lakes, rivers, and underground water for economic purposes, including, but without being limited to fisheries, mining, energy, aquaculture and maritime transport, while protecting the sea to improve social wellbeing”. 

Make blue economy part of diversification agenda 
One is not aware of a robust government policy on fishing in Nigeria. The Economic Recovery and Growth Plan, the most recent 4-year strategic plan of the government, espouses the need to diversify the economy but does not elaborately consider how the blue economy would be tapped in this regard. It mentions fisheries as part of its agricultural policy, though, but does not spell out specific initiatives. Maritime policy in Nigeria is more focused on shipping and security via two principal agencies: the Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA). Their utility is seen primarily through the lens of the revenue they generate for the government through these activiities. Deep-seated corruption at the agencies means the government has been perennially short-changed, though. Even so, they could be doing so much more. And like the Seychellois example shows, an ambitious blue economy agenda need not weigh significantly on the government’s finances: it could be self-funding if creativity is applied. In the Nigerian case, however, any potential gains would require some initial investment by the government to resuscitate the country’s polluted coasts and waters, especially in the Niger Delta region. Nigeria’s blue economy could offer so much more than oil.

Also published in my Premium Times Nigeria column. See link viz. http://opinion.premiumtimesng.com/2017/09/15/a-blue-economy-what-nigeria-could-learn-from-seychelles-by-rafiq-raji/

Let Buhari be

By Rafiq Raji, PhD

Surprise, surprise
A gaunt-looking but lively Muhammadu Buhari, who will be taking a huge risk if he is not back in Nigeria from London on or before 4 August – 90 days from 7 May when he left for his most recent medical leave – was probably horrifying to merchants of falsehood hitherto touting exclusive knowledge of the ailing Nigerian president’s fragile health. The picture they painted was far worse than that which emerged on 23 July. It is not unlikely that President Buhari was probably in a more vulnerable position before then, as he underwent treatments that likely required anaesthesia and so on. But this would not be unusual. He is after all unwell. Some suggest Nigerians would be more sympathetic to Mr Buhari’s predicament if he were more transparent about what ails him. I doubt that very much. At least, not this late in the game. Truth is, no matter how loved you are and how many the multitude in your company, a man ultimately bears his burden alone. All the empathy in the world would not transfer the pain Mr Buhari feels to the many hypocrites who claim to love and care for him. It is actually pathetic listening to some of the commentary. Most of our political leaders are suffering from one ailment or the other. That compulsory vacation they all take to England or America (and lately to Singapore) is often motivated by the need to check their health status. It is the ultimate hypocrisy that while they keep their own conditions under wraps, they advocate otherwise for Mr Buhari. Some say he should resign. Another group has gone further to seek a court order to force his cabinet to declare him unfit to govern. Their efforts would end in futility.

Justice and dignity
Why does he have a presidential jet waiting on him at a London airport, some ask with feigned exasperation. Why shouldn’t he? Is it not too expensive, they wonder. Well, our republican-type presidency is very expensive. Could the money not be better used to alleviate the poverty that plagues millions of Nigerians, it is mused. Why start there though, I wonder. We could aver that the State House with the many mansions that sometimes never get occupied is too expensive to cater for just one man and his staff. Yes, let us put the head of state in a place where he could be a danger to his neighbours. Maybe we should also ask that his motorcade switch off their engines when he is not in the car. After all, his security should not matter. Wait a minute, Nigeria is not a sovereign country. Is it? It cannot be. Because if it is, we would not ask that our president be going cap in hand begging for a plane in case of an emergency. What is wrong with us? Advanced democracies that we are always quick to cite as examples of excellence would not dare suggest that their sick president should leave office. At least, not until all medical options are exhausted. They would instead do as Mr Buhari has done. Immediately swear in an acting president while the substantive man ails. There are numerous examples of presidents who having survived assasination attempts go on to seek additional terms in office even more popular. Were that the case, would anyone dare suggest Mr Buhari should resign from office? In any case, no good deed goes unpunished. Mr Buhari has been transparent as much as his temperament can allow. When analysing issues such as these, the fundamental question to ask is thus: Has Mr Buhari broken the law? No, he has not. Is the acting president, Yemi Osinbajo, adequately empowered to do the job in his stead? Technically, yes. Politically, no. But he has certainly been able to do the part that matters.

There is a reason it is the politicians that occupy high office and not bureaucrats. A popular leader comes to office with the mandate of the people. That legitimacy comes handy when difficult decisions are to be made. Prof Osinbajo has had it easy thus far not so much because of his intellectual acumen or political prowess but more due to the goodwill his principal enjoys. Those who are scheming to have Mr Buhari declared unfit for office whether via the courts or the cabinet should be very careful. If there is even the slightest perception of an unceremonious exit plan for the man, even the acting president may find the seat too hot to handle. It is unfortunate, of course, that what is motivating some of those who wish Prof Osinbajo should rise faster to the throne have religious and ethnic underpinnings. And of course, the north would need to do some soul-searching around why for the second consecutive time, their choice to rule Nigeria has come up with ailments that have hampered his capacity to rule. I have in the past asserted that until whoever their choice is does away with the injustice that has become typical of the stewardship of their brethren, even the next person may not succed. So yes, Mr Buhari is sick. He would probably remain so for the remainder of his first term. And yes, he should not even contemplate contesting for a second term. And I doubt very much that he does. But the country does owe him some dignity. Never mind that how we treat our leaders does ultimately reflect on us. And yes, how they treat us does reflect on them as well, hence their suffering.

Also published in my Premium Times Nigeria column (2 Aug 2017). See link viz. http://opinion.premiumtimesng.com/2017/08/02/let-buhari-be-by-rafiq-raji/

Constitution review is a farce without devolution of powers

By Rafiq Raji, PhD

Power belongs to the people
Admittedly, the recent constitution review votes at the Nigerian Senate and House of Representatives caught me a little by surprise. Yes, I did see the occasional news showing deputy Senate president Ike Ekweremadu going to a couple of states on the matter. But I did not take it seriously. Until that fateful day in late July when they voted. Bizarrely, most of the commentary on restructuring the Nigerian federation, loud and impassioned as they were, rarely made prescriptions to the lawmakers who it turned out, were not only in a position to do something about it, but would imminently vote on proposals in this regard. It suddenly dawned on me that all those vociferous agitations could have been more effectively channelled towards pressuring the lawmakers. Devolution of powers, affirmative action for women, greater control of resources, revision of the archaic land law that puts all land in the hands of the government by fiat and so on, have long been thorny issues. The legislators had the power to get them all done. And instead of putting relentless pressure on them, we were mostly pointing fingers at the executive arm of government. Absent the pressure, they simply did what they liked on voting day.

What is the point of reviewing the constitution at this time if some of the federal government’s powers are not going to be devolved to the states? True, there were a couple of amendments they passed that had one excited; like reducing the age of eligibility for high office, the so-called “not too young to run” bill, independent candidacy for elections and making it compulsory for the president to address a joint session of the national assembly in a “state of the nation address”. Still, restructuring our dysfunctional federal system should have been the raison d’etre of that exercise. Should that be the one thing they choose to reject? And judging from those who were shouting down these crucial issues before they were even voted on, the lawmakers most opposed to them come from the north. This is unfortunate. With increasing likelihood of finding crude oil and other mineral resources, a reformed land use act might actually be more beneficial to the north now more than ever.

Perhaps the legislature’s greatest fear at the moment is the potential convocation of a constituent assembly to draft a new constitution or amend the current one. It probably motivated the current and rather unusually quick recent amendment process. You would think the legislators would see how passing the devolution of powers amendment would be key to shutting up such suggestions and thus preserve the status quo. Because should they fail to do so, as they have done now, no one can say what a likely constitutional conference in the aftermath would propose. It could include scrapping the Senate, for instance. It is not a secret that our bicameral legislature is taking its toll on our finances. They have simply failed to act in their own self-interest by refusing to deal with the restructuring question now once and for all. Senate president Bukola Saraki says hate speech evolving from the regions, like the secessionist quest by some in the southeast and evacuation notice issued to Igbos in the north, stoked fears that led to a misunderstanding of the devolution of powers proposal amongst senators. I am not convinced. It should instead have been the primary motivation for doing something about the issue. The states have registered their displeasure at the betrayal: they were assured the amendment would pass. Well, they should not stop there. They should refuse to pass any constitutional amendment at their respective legislatures until the devolution of powers bill is part of the package.

Smiles, hugs and scoffs
Women were also definitely disappointed over how most of their issues were rejected. There were two key proposals. One was to ensure that at least 35 percent of cabinet positions are assigned to women. The other was to allow women have almost the same citizenship and indigeneship rights as men via marriage. The former was rejected in the Senate but approved in the lower legislature. The latter was rejected in both houses. One popular female commentator wondered aloud if they might not have to resort to the Aba women “naked” protest of lore to ensure they get heard. Quite frankly, I blame the women. When women want to get concessions from men, and often on issues that require men to cede power, whether from their husbands at home, male siblings or male bosses at work, and so on, they are never short of ways to ensure they get what they want. They do not rely on hugs and kisses for these. And on the issues that really matter, they know not what to do? Personally, I think any type of affirmative action, talk less that for women, is condescending. But it has become a global practice, in business especially, with company boards not having a decent representation of women largely frowned upon. High-achieving women no doubt chafe at the notion that way needs to made for them to succeed. Not that the same women hesitate to use the allowances to advance their interests when they suit them. But if the increasing number of women who are or have been prime ministers, presidents, chief executives and so on by dint of hardwork, drive and diligence is anything to go by, women do not need anyone to open the gates for them. Besides in politics, people rarely do stuff for altruistic reasons. Female lawmakers who simply focused on just lobbying for their causes need to up their game. What leverage did they have? Did they care to find out first what political issues or goals were uppermost on the minds of their male counterparts and present a trade that they would not be able to refuse? That is the type of hard bargaining that would get women what they want. Not smiles and hugs.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/constitution-review-farce-without-devolution-powers/

The Buhari dilemma

By Rafiq Raji, PhD

After Friday Muslim congregational prayers last week, as I was waiting for just the right “danfo” – local parlance in Lagos for often rickety but sturdy german-built public buses – to board home, I did the unusual: I decided to check my phone. Ordinarily, I prefer to take in the surroundings. If you have travelled to a few places like I have, the beauty and sheer humanity of fellow Nigerians can be both thrilling and exasperating. It is my experience that what you feel in the end is sheer relief: there are not many places in an increasingly ‘zombied’ world where people are just themselves. But this day could be epochal was the refrain that broke the rule that day. Should Muhammadu Buhari, our ailing president, not make a public appearance at perhaps the one activity he likely derives some consolation from, it could trigger a series of potentially destabilising events. So it was with some joy that I received the news that not only was he able to attend the weekly Jumat service, he did it with his usual calm and grace. I almost had my two hands in the air out of sheer delirium before it dawned on me where I was. On the often interesting bus trip back home, I couldn’t help wondering how when a supposedly good man finally takes the helm of leadership in Nigeria, it is either he suffers some ailment or he is removed. Or he is killed. Thus far, there has been some consistency to this. Murtala Mohammed, another benevolent dictator, was killed before he could fulfill his promise. With the benefit of hindsight, many Nigerians argue the late Umaru Musa Yar’Adua – kinsman to President Buhari, whose successor he defeated – could have changed the fortunes of the country were he not ailing. Thus, when the incumbent, whose draconian military dictatorship also had the unique distinction of being the least corrupt in Nigerian history to date – made his second coming, not a few wise men wondered if his rulership would endure this time. Within the Nigerian context, Mr Buhari is a good man. And he means well. But then the road to hell is paved with good intentions.

Take care of yourself
Still, Mr Buhari remains unwell. Even so, there is no place in our laws that says he is not entitled to remain in office. In fact, the law allows him to seek medical attention for as long as it takes. Nonetheless, he has a responsibility to ensure governance does not suffer on the back of his poor health. He should take medical leave and delegate his authority to his deputy. The dilemma for him and his close aides, I suppose, is that another trip to his doctors in England would make him easy prey for the many vultures already circling overhead. (Unfortunately, these odious creatures are the ones that often finish their terms in office.) His aides likely also fear they would lose relevance in the event. But considering Mr Buhari himself announced he needed to return abroad shortly after his last medical holiday, suggestions that he is being held hostage by his inner circle also has some currency. Besides, they most definitely fear should Mr Buhari reveal what is ailing him, there could be sufficient grounds for the Senate to constitute a medical panel to ascertain whether he is fit to remain in office. Those scheming towards this scenario should tread gently, however.

Because even as Mr Buhari is increasingly becoming a figurehead, there is relative value in allowing him to finish his term. This would give another good man, Yemi Osinbajo, who has proved capable of acting in Mr Buhari’s stead, the needed political cover to get some necessary work done for the remainder of their joint mandate. It should not be mistaken that Prof Osinbajo – a southerner – would be able to discharge his duties without the support of the north, where his boss is from. Fortunately, Prof Osinbajo has deftly endeared himself to them. The reason they are comfortable with him is not farfetched: Apart from having the full support of Mr Buhari, he has also proved himself to be principled, unassuming and above all, very competent. And as far as it is humanly possible to gauge ambition, Prof Osinbajo has no desire to contest the presidency in 2019, when another northerner is expected to complete the region’s informally arranged 8-year mandate.

Handle with care
Of course, Mr Buhari could simply resign and a northern vice-president be chosen for Prof Osinbajo. Unbecomingly, the north is at odds on who that should be. Already, potential candidates have recently been bizarrely battling one corruption allegation or the other. One of them, Sule Lamido, a former state governor was only just released on bail by the police. The house of the relative to another, Rabiu Kwankwaso, a senator and former state governor as well, was recently raided by the police. One has to assume the police were simply doing their job. But when their obviously ‘directed’ reversal on a similar raid on another influential northern senator and former state governor, Danjuma Goje – whose support is needed to pass the budget – is countenanced, it is hard not to read political meanings into their recent actions. Bear in mind, the farfetched but still plausible candidate from a part of the country that is northern when it suits it and southern when the winds are favourable, Bukola Saraki (currently president of the Senate), has been sufficiently kept on a short leash with legal troubles over allegations of false assets declaration. The other scenario that is only whispered, which the north is incidentally believed to be somewhat comfortable with, suggests that should Mr Buhari resign, Prof Osinbajo must do likewise. Without restraint by all, it could all be a mess.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/the-buhari-dilemma/

Make a fuss. It’s your economy too

By Rafiq Raji, PhD

This week, I share edited views I presented on the state of the Nigerian economy and outlook for 2017, at the Bonds, Loans and Sukuk Nigeria Briefing Day held in Lagos on 21 November 2016. You can download my presentation via this link: http://www.gfcmediagroup.com/africa/bonds-loans-nigeria

Macroeconomic vs geopolitical woes: What is hurting the economy the most?
In the Nigerian case, they are interconnected. Attacks by Boko Haram, a terrorist group, in the northeast hitherto weighed significantly on agricultural output, as logistics and other parts of the agriculture value chain were significantly disrupted. In any case, farmers couldn’t plant for fear of being killed. Some of those fears have abated, in light of successes recorded by the Nigerian military. But a significant number of able men in the region are still not farming, because they are displaced, fighting with Boko Haram or in hiding to avoid arrest by the military on suspicion of being Boko Haram sympathizers. Attacks by Fulani cattle herdsmen on farming communities also affected agricultural production. As some of these troubles remain, insecurity in these areas remains concerning.

In the Niger Delta, attacks by militants on oil and gas infrastructure have disrupted crude oil production and gas supply to power stations. And even though these attacks are motivated in part by a desire for more control over resources, there is a corruption dimension as well; as erstwhile treasury looters feel squeezed by the administration of Muhammadu Buhari, Nigeria’s president. There is also likely a political motivation. A supposedly competent President Buhari, in the security sphere at least, would be hard-pressed to explain why he failed to curtail militancy in the Niger Delta come 2019, when elections are due. The casualties? Economic growth, inflation, and the fiscus. To a great extent, these negative geopolitical events contributed to the recession, double-digit inflation, and budget deficit.

Still, poor economic management made these troubles worse. The actions of the monetary authorities in light of dwindling foreign reserves were quite frankly irresponsible. To have kept the exchange rate artificially strong for so long, meant that even the little that had been saved was pilfered away to speculators and the like. And fiscal policy? You are all privy to how problematic the 2016 budget process was. Bizarrely, it seems history is about to repeat itself: the 2017 budget process is eerily following the same timeline.

More fundamentally, the main issue with the Nigerian economy is one of confidence. Authorities need to be clear on policy direction and be consistent. The government’s fundraising efforts have faced some pushback from multilateral institutions in part because of a lack of these. Though, it is surprising the authorities have not considered potentially much more effective ways of stimulating the economy. A 2-3 year tax holiday for households and businesses, whose expenditure constitutes at least 90 percent of economic activity, is one example.

Short-term suffering vs long-term gains: What does the end of the commodities super-cycle reveal about Nigerias economic fundamentals?
It is not the economy that is not diversified. It is government finances – 70 percent of which are crude oil-based – that are not. Unlike the popular commentary, Nigeria is not a mono-economy. 90 percent of the economy is non-oil related, based on 2015 data. At 23 percent of GDP, agriculture has a greater share of output than oil’s 10 percent. Then there is the dominant and varied services sector (53 percent of GDP), with telecoms, banking and other financial services accounting for not only significant tax revenue but are also major sources of employment. Only recently, Nigerian authorities raised an alarm about a potential famine next year, as farmers now find they could get more value for their produce abroad. One wouldn’t want to belabour the point about how unwise it was on their part for raising that alarm in the first place; after all authorities could better monitor the borders or quietly buy up grains needed for the strategic reserve. Even so, it highlights the likely underestimation of the agriculture sector and its potential as a source of foreign exchange; if in addition to producing for domestic consumption, farmers are able to export as well. Other sectors are probably underestimated as well.

What is pushing the currency down and how much further is it going to fall?
The main source of foreign exchange inflows to the Nigerian economy is not crude oil. Autonomous sources or so-called invisibles (ordinary domiciliary accounts, over-the-counter purchases, and so on) account for 60-70 percent of FX inflows. Crude oil? 20-30 percent. To encourage these suppliers, it is important for the Central Bank of Nigeria (CBN) to indeed let the naira float. It does not make sense for a central bank to keep supporting a currency when the extent of its firepower is in the full glare of the public. Then there is still pent-up demand. And just recently, the unthinkable happened. The country’s spy agency went after bureau-de-change (BDC) operators, ordering them to sell their foreign exchange stock at a certain price. Such actions discourage market participants.

There are other ways the government could increase FX supply. It is likely a significant sum of the money stolen during past administrations, foreign exchange especially, may still be domiciled within the country: It is not likely there was just one case of an ex-government official hiding dollars in a specially-built soakaway at his house. There are probably numerous others who have similar repositories of cash in safes and elsewhere. A way to formalise that money might be to issue a domestic dollar bond, like Ghana did. The Buhari administration may need to look the other way in the event. It is better to have stolen funds put to use in the domestic economy, than have them rot in some hideaway. So would the naira depreciate some more? It probably would. Unless the CBN allows the naira to trade freely long enough to re-gain the confidence of market participants, who have been disappointed by what has been a CBN-manipulated market thus far.

Is there more volatility ahead or will 2017 see a return to stability?
The recession would probably be over in Q1-2017. After likely negative growth of 1.5 percent for 2016, the Nigerian economy would probably record positive growth in the first quarter of 2017; 2.9 percent year-on-year is my reckoning. Inflation would also likely be in the single-digits by end Q2-2017, about 9 percent in June, say. Crude oil prices would also likely recover. Authorities’ economic stimulation efforts – to be proposed in a National Economic Recovery and Growth Plan (NERGP) – add to one’s optimism. In any case, base effects alone may buoy growth towards good numbers. But would that change the feeling of a go-slow economy among Nigerians? To the extent that likely positive growth figures in Q1-2017 changes the currently depressing commentary of government officials, the mood may turn around.

Hopefully, the Buhari administration would also adopt a pragmatic approach to current regional agitations. In the event, stability is likely. The Niger Delta issue has to be resolved by peaceful means certainly. And quickly. The Boko Haram issue should also be resolved once and for all. And to fend off other brewing regional agitations, authorities have to adopt a more inclusive style. It does not at the moment. And the CBN needs to make data-dependent decisions, consistently. Yes, it is under political pressure to cut rates. Still, a reduction should not be contemplated at this time. Thankfully, the CBN governor, Godwin Emefiele, has signalled as much. And the fiscal authorities need to get their acts together: pass the budget on time, borrow prudently, and explore untapped revenue sources. Ironically, it is the external environment that might make for a turbulent 2017. A Trump-led America, Brexit uncertainties, US Fed policy tightening and so on. But on balance, there is good reason to be cautiously optimistic.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/make-a-fuss-its-your-economy-too/

Tight policy by CBN & SARB to continue

By Rafiq Raji, PhD

Central banks at Africa’s two largest economies, Nigeria and South Africa, are meeting this week to decide on interest rates. Foreign exchange scarcity and the consequent weakening of the naira is principally what is stoking Nigerian inflation, which has been on an upward trend since the beginning of the year. From a 2016-low of 9.6 percent in January, annual consumer inflation accelerated to an 11-year high of 18.3 percent in October. Still, the Central Bank of Nigeria (CBN) is widely expected to hold its benchmark lending rate at 14 percent, when it announces its decision on 22 November. Its South African counterpart, the South African Reserve Bank (SARB) may raise rates, however, by 25 basis points to 7.25 percent is my reckoning. At 6.1 percent in September, headline inflation remains outside the central bank’s target inflation band (3-6 percent). My forecasts (6.1 percent for October) put the headline outside of the band for the remainder of 2016 and first month of 2017. Even so, external factors like the imminent policy tightening by the American central bank and uncertainties about what a Trump-led America means for the world at large may be what tilt the SARB’s decision towards a hike. Not that there are not ample domestic worries that weigh on the inflation outlook: the continued negative political dynamic that sends the rand on a tailspin every other two weeks or so for instance. There is some relief though: surplus maize (the staple food) output is predicted for 2017, after drought-induced shortfalls in the last season. The SARB announces its decision on 24 November.

FX scarcity and politics limit CBN’s choices
The CBN’s monetary policy committee (MPC) would be making its decision this week amid an ongoing economic recession and tricky political environment: there is limited political space for it to raise rates; that is, if it desired to make the policy rate positive in real terms. In any case, there is probably no need for it to do so, as inflation likely reached its zenith in October, and could begin to slow from December onward; albeit all too slightly at first, at about 18 percent then. Even so, the CBN governor, Godwin Emefiele, in recent comments, has ruled out a rate cut anytime soon. At least, not at current inflation levels. More importantly for the CBN would be how to tackle the continued foreign exchange scarcity. It was confirmed last week that the CBN may seek extraordinary powers from the legislature to prosecute those who keep foreign currencies for more than a predetermined legal holding period, 30 days, say. Although the CBN says in news reports, by Bloomberg at least, that the proposed legislation did not emanate from it, it did not seem to object. The proposal comes against the backdrop of recent raids by security operatives on black market foreign exchange operators, mandating them to sell FX at a price directed by the central bank. In a nutshell, what has turned out to be a disappointing turn of events, after initial excitement that the naira would trade freely since its supposed float in June 2016, has worsened further. Much needed foreign portfolio flows would probably slow even more consequently, as fund managers hold back their funds for fear of getting burnt a second time. Prior to the float, the CBN frustrated the repatriation of capital abroad, with investors and businesses having their funds stuck in the country for much longer than even their most extreme risk model scenarios ever envisaged. Most lost money.

It is tempting to think that the reason there is FX scarcity is because crude oil prices have more than halved, with similar consequences for the revenue of government. An examination of the typical structure of FX flows into the country, in 2014 say, reveals that the dominant source of foreign exchange inflows is not the CBN or crude oil. Instead, it is the so-called autonomous sources that supply about 70 percent of needed foreign exchange, at least in 2014. These are those kept in domiciliary accounts, sold over the counter, and non-oil receipts by banks. In the current anti-corruption environment, the OTC sources have diminished significantly. And those in domiciliary accounts, which have risen as speculation is rife, remain just there. The CBN now wants to tap into that source. With the CBN’s foreign exchange reserves fast depleting on its stubborn but futile support for the naira, the central bank is clearly desperate. A suggestion to the CBN on how to tap domestic dollar deposits without resorting to coercion might be to issue a domestic dollar bond, like Ghana did. But even after that, it cannot run away for too long from the inevitable measure it must take: allowing the naira to find its level. Any solution that avoids that is never going to be sustainable.

Toxic politics and imminent Fed tightening may force SARB’s hand
The SARB’s MPC meeting this week comes against the backdrop of an almost certain rate hike by the US Fed in December and consequent strengthening of the US dollar in anticipation of it. President-elect Donald Trump’s expected fiscal expansionism adds to market sentiments buoying the dollar. Never mind that South Africa has upheavals of its own. The political environment remains toxic, spewing at every other occasion, some irritation or the other to rile market participants. Incidentally, at least one rating agency, Moody’s no less, is expected to reveal its rating assessment this week (25 November). Although it has South Africa two notches above sub-investment grade, its decision may lead the mood ahead of the much more anticipated decision by SPGlobalRatings in early December. Besides that, the inflation outlook suggests annual consumer inflation would remain outside the upper bound of the SARB’s 3-6 percent target range for the remainder of 2016 to January next year. Rand volatility weighs certainly. After showing some resilience to the now expected negative political event every other week, it almost lost its bearing, so to speak, once it became clear the US Fed was going to hike rates almost for sure in December – bets of a hike are about 100 percent in some cases. The dollar exchange rate of the rand has weakened by almost 10 percent over the past two weeks to 14.4 (18 November), a 2-month low. The SARB, although it would be loth to acknowledge this, might also want to pre-empt potential market volatility should SPGlobalRatings go ahead to downgrade the rating of South Africa to junk status in December. Short of a pre-emptory strike by the SARB, all these may be a little too much to bear for South African assets. These considerations underpin my reckoning that the SARB may raise its repo rate by at least 25 basis points to 7.25 percent this week.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/tight-policy-by-cbn-sarb-to-continue/

So you want to sell the golden goose. And tomorrow?

By Rafiq Raji, PhD

It is all coming together now. The Nigerian president, Muhammadu Buhari, wants emergency economic powers. His officials have advised him to sell some national assets to raise cash for stimulating the economy. Assets sale, they call it. We Nigerians are a creative lot. Privatization it used to be called once. But then that involves a myriad of longwinding processes, approvals, due-diligence, and so on. A lot of hassle for a government eager to lift the economy out of an ongoing recession. Laws are crafted precisely for a situation like this. With emergency powers, President Buhari would not need anyone’s approval to sell any national asset to anyone. He would have the unprecedented powers to choose the assets to sell and to whom. It is a recipe for increased disaffection. My view.

Make ‘State of the Nation’ address compulsory
The legislature plans to ask Mr Buhari to address a joint session of the National Assembly, albeit principally to present his views on the economy. This is a welcome idea. But it should not be adhoc. Most countries have an annual address by their head of state, to their legislature or citizens. Reading the budget does not suffice as one – finance ministers do that in better climes. Actually, I think there is an opportunity here. We should have an annual ‘State of the Nation’ address by the president. It should be made a matter of law, a way to hold any sitting president accountable. And put pressure on the office-holder to perform: it is not likely an incumbent would like to address the legislature year in year out without anything tangible to show for his stewardship.

Call it privatization. And follow the law
It is believed a prominent businessman first mooted the idea of selling some national assets to fund the government’s budget. Central bank governor, Godwin Emefiele, makes the case recently that he suggested it much earlier – last year; and back then, such a sale would have garnered better valuations than they would currently. A leader in the Nigerian legislature either read the mind of the leading mogul or was privy to his thinking. For he all but read out what he suggested. $15 billion is the amount on everyone’s lips. They all probably mean well. But if you thought they were also being self-interested, you wouldn’t be blamed. I’ll elect to think their views are well-intentioned. Truth is, what is being proposed is essentially a privatization of some majority- or minority-owned government assets and entities. But the government already has a process for that. A National Council of Privatisation (NCP) needs to be constituted. Only issue might be that an NCP, statutorily led by the vice-president, might make the incumbent, Yemi Osinbajo, all too powerful for the liking of Mr Buhari’s inner circle. Otherwise, all that is being proposed potentially falls under the purview of the NCP. And there is a reason the system was designed thus: to prevent the abuse of power.

Liquidity might be a problem. Lever assets instead
There seems to be a consensus in any case: if you must sell assets, sell only the non-performing ones. Incidentally, the non-performing assets are mostly illiquid. They cannot be sold easily and readily. So if the issue is speed, asset sales would not cut it. At least the type that does not amount to pilfering our commonwealth. We often talk about how we saved little during the boom years. And yet, coveted government stakes in the Nigeria LNG Limited, a liquefied natural gas producer, and Africa Finance Corporation, a development financier, have turned out to be quite fortuitous. It is almost a miracle that these investments were ever made during those heady years. These crown jewels must not be sold. Not at this time, at least. More optimal would be to leverage the other so-called non-performing but still quite valuable assets: use them to borrow. Don’t forget that even potential buyers would borrow to fund their purchases. So why not the government be the entity that does the borrowing using assets it already owns. An argument has been made about higher debt service costs consequently. It is weak. If the objective is to get out of the current economic slump at the earliest possible time – optimists reckon a recovery could be palpable by the fourth quarter of this year, higher debt service costs in two years or so, when the economy would hopefully have revved up, would matter little. In any case, there is always the IMF – it agreed to lend $12 billion to Egypt last month. It is no longer the villain we are quick to label it. We should not be afraid to seek the fund’s help. It is now more flexible. Its conditions are not as stringent. And the fund’s endorsement is increasingly de rigueur for raising capital in global financial markets, whose participants now worry that African countries are backtracking.

Policy consistency is what inspires confidence
All these troubles have a source. Confidence. The lack of it. It would take a while for international investors to believe the government would stay the reformist course it has embarked on. I won’t harp on the authorities’ past mistakes, amply discussed in earlier columns anyway. And some were really just honest mis-steps. Even so, some of them are being repeated. For instance, finance minister Kemi Adeosun probably meant well when she advised the central bank to cut interest rates recently. But she didn’t need to say so publicly. An investor might think: was the phone faulty? Thankfully, the bank chose to look at the facts and decided to take the efficient path, as it saw it. A central bank that articulated a tightening stance only just recently after acknowledging an earlier easing move was ineffective was not now expected to reverse course only too soon. At least, not a central bank that knows what it is doing. In any case, a policy rate is a guide. It is not a directive. If policy is not reflective of the prevailing economic realities – and consistent, it would simply be ignored.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/en/so-you-want-to-sell-the-golden-goose-and-tomorrow/