Tag Archives: Trade

Doing Business: Can Nigeria replicate the Singapore model like Mauritius did?

By Rafiq Raji, PhD

It is undeniable that there is a correlation between a country’s business environment, foreign direct investment inflows and international trade performance. Countries that make setting up businesses easy, allow clearance of goods at ports with little hassle, grant entry and exit visas to investors and visitors alike in quick time, enable the registration of property with little trouble, provide reliable electricity, and make documentation like construction permits easy to acquire, attract more foreign direct investment (FDI). [1] The easier it is to do these things, the more likely cross-border and broader international trade would flourish.[2] These benefits are what motivate countries to try to improve their business environments, more so now that capital is increasingly choosy and circumspect.

Country GDP per capita(US$) (2016) (PPP) Overall DB rank (over 190) Trading across borders (over 190)
Singapore 87,855 2 41
Mauritius 20,422 49 4
Rwanda 1,977 56 6
Botswana 17,042 71 3
South Africa 13,225 74 25
Kenya 3,361 92 9
Seychelles 27,602 93 5
Zambia 3,880 98 31
Lesotho 3,601 100 2
Namibia 11,290 108 17
Ghana 4,412 108 29
Nigeria 5,942 169 181

Source: IMF, Doing Business 2017: Equal Opportunity for All (World Bank, Oct 2016) [3]

Singapore as role model
Singapore is the quintessential example. In the World Bank Ease of Doing Business (DB) 2017 rankings, Singapore is second out of 190 countries ranked globally, having topped the rankings at least nine times since they began in 2004.[4] With a GDP per capita on purchasing power parity (PPP) basis of US$87,855 (2016), it is one of the wealthiest countries in the world. More than three decades earlier, its GDP per capita of about US$8,852, was just one-tenth of its current level. Between 1980-2016, the Singaporean economy grew twenty-five times over from US$12 billion to US$297 billion. Its remarkable success is testimony to the heights any country can reach on the back of sustained reforms and reinvention. In Singapore, contracts matter and are readily enforced, the resolution of insolvencies are not tedious, there is little or no red tape in conducting tax affairs and cross-border trade thrives consequently. In spite of the second place ranking referred to above, Singapore is still widely acclaimed as the easiest place in the World to do business in.[5]

One aspect of doing business in foreign countries that investors dread, is that of dispute resolution. Court processes can be unnecessarily long and slow in most jurisdictions. Singapore overcame this constraint by automating the process, with almost all litigation activities (e.g., submission of claims, payment of court fees, serving of initial summons, etc.), outside of those requiring the physical presence of the litigants or their lawyers, doable online.

Even as some aspects of the Singaporean model are clearly replicable, attempts at copying it often falter when some of the necessary conditions that enabled the Southeast Asian nation to succeed, are missing. “Remaking is essential”: A country must be willing to reinvent itself when the variables change. [6] So just because a model proves successful over a certain period, does not mean it would be a good fit when the times change, as they always do. “Collective response” and “social consensus” also matter a great deal. [7] A determined leadership in the absence of an equally enthused followership may still flounder. Singapore has the unique distinction of having both. Still, there are probably just two essential ingredients for success. First, there must be the political will for reforms.[8] Second, and probably most important of all, the political leadership must be in a secure position and endure long enough for what are sometimes painful reforms, to translate into concrete progress.[9] The two identified prerequisites go together. Otherwise, longstanding African regimes could easily have been similarly transforming. Unsurprisingly, with political will lacking, most are not. There are a few exceptions, however. That is, cases where there have been both the political will for reforms and stable government to see them through. Successes recorded by Mauritius, Botswana and Rwanda, as the DB rankings show, offer a ray of hope for the continent. In line with the Singaporean evolution, their experience also adds to evidence about the identified necessary ingredients for success. In other words, they offer a template on how to assess the likelihood of success of many other countries, African ones especially, who now seek to be similarly attractive to foreign investors.

The case of Mauritius
The one African country that has consistently topped the rankings on the continent, and sometimes dubbed the “Singapore of Africa” – Rwanda also shares the epithet these days – is Mauritius (ranked 49 in the latest DB rankings).[10] [11] [12] Although the Mauritian economy (GDP of US$12 billion) is relatively small when compared with continental giants like South Africa (US$294 billion) and Nigeria (US$406 billion), it is one of the wealthiest. Its remarkable evolution especially suggests the Singapore model can be successfully replicated by African countries. Like Singapore, Mauritius ranks high for good governance and its politics is quite stable.[13] Mauritius’ strong institutions have also been widely acknowledged to be a key success factor.[14] Its cosmopolitanism, similar to that also evidenced in city and coastal states like Singapore, together with similarly close ties to China and India, were also crucial to the development of its manufacturing sector.[15] There is also a consensus in the literature about the huge role its trade policies played in its rapid development.[16] Preferential trade access agreements with key export markets and investment incentives via export processing zones (EPZs), enabled it to develop an apparel and textile manufacturing base, for instance. There is also now a vibrant light manufacturing sector. In addition, tax incentives have enabled Mauritius to become a preferred destination for offshore financial services, and was hitherto a major channel for Indian capital flows, a feat it competes with Singapore to achieve. Unsurprisingly, Singapore and Mauritius already explore palpable synergies between them, signing an air corridor agreement in October 2015, for instance.[17]

Mauritius especially highlights its DB ranking when pitching to foreign investors, and is acknowledged to be for Africa what Singapore is to Southeast Asia. However, unlike Singapore, it has not been similarly successful in getting foreign businesses that register within its jurisdiction, to actually situate the bulk of their operations within the country. That is why it is widely considered to be mostly a tax haven, a characterisation Mauritian authorities dislike and would like to disabuse. Unsurprisingly, its goods exports trend is not impressive, unlike the Singaporean example. It is noteworthy though that a bulk of its goods exports emanate from its EPZs. Lately, Mauritius has been forced to address these deficiencies, as developed economies crack down on tax havens and avoidance schemes and hitherto lucrative tax arrangements are renegotiated. Mauritius, which does not charge a capital gains tax, used to be the preferred destination for channelling capital to India, where capital gains tax can be as high as 40 percent and accounted for a quarter of its foreign capital inflows.[18] This may change from April 2017, when India started charging taxes on investments from Mauritius, after the more than 3-decade tax treaty between the two countries was amended in May 2016.[19] Consequently, Mauritius has ramped up its African focus, with more than half of foreign companies registered by it in the past few years, aiming to do business on the continent.

Corruption and poor governance may weigh on Nigerian reforms
Other African countries have been trying to improve their business environments.[20] Even so, most African countries remain in the lower rungs of the DB rankings, with South Africa and Kenya respectively at 74 and 92 out of 190 in the most recent one. Still, more than a quarter of ease of doing business reforms in 2015-16 were by Sub-Saharan African (SSA) countries, with Kenya one of the top 10 improvers globally. [21] Others seek to join the list of top improvers. Most recently, Nigeria (DB rank: 169) has made a splash about its DB reforms, announcing a 60-day action plan in late February 2017.[22] Nigeria’s abysmally poor non-oil goods exports is another motivation for the authorities’ forced reformist stance, after low crude oil prices over the past two years starved the government of revenue. Crude oil exports constituted more than 90 percent of total goods exports between 2009-15. That is, even as total goods exports were less than 20 percent of GDP on average. Unfortunately, attempts at using EPZs to spur export of manufactures have been slow-moving, with the most promising one (Lekki Free Trade Zone) still largely at development stage.

Fundamentally, the recently proposed DB reforms are aimed at increasing international trade and FDI. This is what motivates the three broad areas that Nigerian authorities have identified for reform: entry and exit of goods, entry and exit of people and government transparency and procurement. Agencies at the ports are to be reduced to six, from almost a dozen. Visitors to the country would be able to get visas on arrival, and those that apply at the country’s embassies, would hopefully get theirs within 2 days.

Incidentally, attempts were made in the past to sanitize the maritime ports.[23] That the bottlenecks remain point to the intense pushback reformers tend to face. Corruption is a principal motivation and is why Nigerian ports are some of the most expensive to clear goods at.[24] A report commissioned by the ports authority in October 2016, found that Nigerian authorities lose about N1 trillion annually to corruption at the ports. [25] Under new leadership, the ports authority has embarked on an anti-corruption war. Expectedly, it has come under attack, with death threats and mudslinging in tow.[26]

To demonstrate progress, Nigerian authorities announced in April 2017 that the number of days for registering a business had been reduced to two days from at least ten days, as part of reforms to ease doing business in the country.[27] Ordinarily, the activity takes longer than the statutory 2 working weeks hitherto. With that now reduced to two days, it could be reasonably expected that new business registration would be accomplished in a week, say. How was this achieved? Automation. Similar to how Singapore (and many other countries that copied its model since) was able to get rid of human-related bottlenecks to the ease of doing business, some of the tortuous tasks would now be done electronically. For instance, a lawyer would no longer be required to prepare registration documents, as some of the tasks they charge for could easily be done online by the prospective business owner. Also, such arduous tasks, in the Nigerian context at least, like registering with tax authorities, have been integrated into the government’s company registration portal. Additionally, lawyers at the business registry can now certify incorporation forms and other statutory compliance declarations for a token fee, tasks previously done by lawyers hired by the prospective business owner.

Considering how extraordinarily frustrating the Nigerian legal system is, the knotty issue of dispute resolution may be a hard nut to crack. Setting up specialist courts like Singapore did has not been similarly effective because the judiciary is as yet not equipped for the automation element. Judges still write their judgements by long-hand, there are no audio recording facilities in courts and virtually all documentation is in hard copy form. These deficiencies are why even with specialist courts like the National Industrial Court, Investments and Securities Tribunal and so on, cases can sometimes take years before resolution. And even when successful after years of litigation, red tape can be craftily deployed by a well-connected local partner or disputant to make the whole exercise seem like a total waste of time. A much broader reform of the Nigerian judiciary would have to presage any potential measure directed specifically at the ease of doing business. Understandably, the proposed DB reforms focus on those issues that can be easily fixed. But considering how important dispute resolution is to increasing investor confidence – as the Singaporean and Mauritian examples show – lack of progress in this regard only buttress the poor governance characteristic of the Nigerian business environment. And as earlier highlighted, entrenched interests, corruption and inter-agency rivalry at the ports, mean multiple inspections and continued unwholesome practices, which increase the lead time of goods clearance, would probably endure and continue to stymie the country’s trade performance. Patronage networks around doing business in Nigeria, beneficiaries of which include politicians and their lackeys in every facet of government, would be difficult to dismantle as well.

Conclusion
Nonetheless, even the slightest attempt at improving the Nigerian business environment should be applauded. Still, it would take at least a year of monitoring to determine how much difference the announced reform moves would make and if that would eventually be reflected in the Doing Businessrankings. Besides, there are other more entrenched problems that would require time and determination to fix. With Nigerian politics still relatively fragile, and even simple activities like passing the budget enmeshed in much wrangling, the risk remains that these new reforms may suffer the fate of earlier botched ones. That said, the legislature has expressed support for the efforts of the executive and aims to pass relevant legislation to ensure the DB reforms become codified in law and hopefully survive future administrations. As at late April 2017, two of the identified fifteen DB legislative bills had already been passed.

Despite recent crackdowns on treasury looters and other corrupt persons, corruption would be harder to tackle, however. There is the impression that should there be a change of government after the 2019 elections, the current anti-corruption momentum is likely to slow. Besides, a judiciary not in trend with the times would likely continue to slow the wheel of justice. And defense lawyers have proved to be quite deft at beating the system: successful prosecutions of high-profile corruption cases are rare. Thus, if one were to use the Singaporean and Mauritian success stories as templates, scepticism about the potential success of current reform proposals would be somewhat justified. Still, even the slightest reduction in red tape would bring tremendous relief to those foreign investors who are already decided on doing business in the country. Besides, foreign companies who have anyway managed to make hay despite the many constraints, could do with the efficiencies that some of the reforms would potentially bring about; that is, despite the risk of holdups down the line. But with a still fragile political fabric – evidenced by much infighting within even the ruling political party, which is an agglomeration of strange bedfellows of sorts – endemic corruption and poor governance, the reforms may yet flounder. There needs to be a “collective response” and “social consensus” around the reforms for them to succeed.

Dr. Rafiq Raji wrote this article for the NTU-SBF Centre for African Studies at the Nanyang Business School, Singapore, where he is an adjunct researcher. See link viz. https://www.ntusbfcas.com/african-business-insights/content/doing-business-can-nigeria-replicate-the-singapore-model-like-mauritius-did

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/business-can-nigeria-replicate-singapore-model-like-mauritius/

Time for Hailemariam to lead

By Rafiq Raji, PhD

With an economy set to grow by more than 7 percent over the next few years – after about 10 percent on average over the past five, Ethiopia is a bright spot on a continent beset by stagnation as commodity prices remain tepid. Its growing success in replicating China’s manufacture-for-export model is a source of hope for peers and partners who desire an Africa that adds more value to its resources. Cheap labour, ample power generation capacity in view, and generous investment incentives are major attractions. Still, much of what Ethiopia has been able to achieve can be traced to its stable polity, held so by an autocratic leadership that has little tolerance for the slightest dissent. Erstwhile forceful leader, Meles Zenawi, was able to hold things together, because of his credentials. He led the rebellion that freed his countrymen from the much loathed Derg military regime. Under a more genteel leader, Hailemariam Desalegn, that model has become increasingly tested. Most recently, albeit intermittently hitherto, an uprising by the Oromo and Amhara tribes – about two-thirds of the population – over land and basic human rights threatens to unravel the country’s economic miracle. It need not be so. The most recent casaulties of the face-off with authorities are more than 50, adding to about 400 believed to have been killed since 2015 under similar circumstances. About 40,000 jobs are now at risk, after protesters attacked foreign-owned establishments. For Ethiopia’s economic success to continue, the politics can no longer be ignored. Room has to be made for the quite diverse polity. Mr Hailemariam has a chance to do this. But to succeed, he would need to be his own man.

Address the concerns
The Oromo and Amhara peoples feel marginalised by the ruling minority Tigray tribe, about 7 percent of the population, which dominates the government and military. The authorities have met their agitations with brute force. This approach worked in the past, on the surface at least. Not this time: this recent unrest was triggered precisely because of the authorities’ heavyhandedness to what are widely believed to be legitimate concerns. The troubles this time could be potentially more damaging than past ones: foreign investors are being targeted. Lingering terrorist threats from neighbours are daunting enough; add unrest by a majority of the population, and you have a combustible mix. And the protests are growing nationwide; these are not isolated and distant pockets of dissatisfaction. It is widespread. And they could spread even more. Solution then? Address the concerns. The Oromo want more self-determination. The Amhara likewise. Authorities might be quick to point out that the country operates a republic of semi-independent states, with enormous leeway guaranteed them in the Constitution, including the right to secede. That is not the case in reality. There needs to be more inclusion. A devolution of actual powers to the regions might be a good start.

Allow more room for dissent and political expression
It was always going to be a huge task for Mr Hailemariam to fill the shoes of his larger than life predecessor – Mr Zenawi had a force of personality that is palpably missing in his successor. Already perceived to be weak, he likely fears those views could become entrenched if the current unrest is treated with kid gloves. Still, Mr Hailemariam has an opportunity here. It is in time of crisis that leaders often emerge; tested at least, in a manner that cements their authority to the point where they are able to make bolder moves. The longer the Oromo and Amhara protests and deaths continue at the hands of the security forces, the more hardened the protesters would get. And now they may have caught on to the one thing that would get the attention of the ruling elite: targeting foreign investors. If there is anything that has made the autocratic leadership tolerable, it is the veneer of stability it has engendered, the type investors crave. They have shown that confidence with their pockets, pouring money into manufacturing and agriculture. Ethiopia has the only other light railway mass transit system in sub-Saharan Africa outside of South Africa. And only just recently, it opened a Chinese-built railway to Djibouti, whose seaport it relies on. Its development-before-democracy paradigm faces its toughest test yet. Just as foreign investment gains have come about by the authorities’ strong grip, their reluctance to adopt a more democratic approach may be what unravels them. And frankly, a desire for equity by a genuinely aggrieved people is not farfetched. Land sold to foreign investors should be well compensated for. Locals should be given greater consideration in employment. And there should be a preference for dialogue over coercion. The Oromo and Amhara are too numerous and determined to be put to rest by force. The authorities must engage them and find a solution that is acceptable within the bounds of reason.

Tough love by powers could help
Democratic reforms would be easier under Mr Hailemariam. But to fend off likely resistance from the Tigray elite that dominates the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), his hand would need to be strengthened. He is not Tigray. Neither is he an Ethiopian orthodox christian. World powers have leverage: about $3 billion in aid. The United States has already raised significant concerns. Together with others – German chancellor Angela Merkel visits this week, they should engage the leadership, making the point that the protests provide a unique opportunity to finally embark on much needed democratic reforms. The Oromo and Amhara are likely to be less agitated if they believe they are able to participate in the democratic process. Not the charade midwifed by the authorities hitherto: how is it that not a single seat in parliament is occupied by an opposition party? Ms Merkel has refused an invitation to address the ‘lawmakers.’ She plans to speak to opposition parties though. Fact is, it is when people feel stifled and find no means to exert their opinions that they resort to insurrection. True, the minority Tigray worry if they did that, they could be overwhelmed. That is often not the case. And even so, they might have little choice now that more than half of the population has had enough. And in this age of instant news and social media, it would be foolhardy for the authorities to think that they could quell yet again another uprising with force. A state of emergency has been declared. Sadly, the authorities may yet learn a lesson.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/time-for-hailemariam-to-lead/

What is Japan’s African game?

By Rafiq Raji, PhD

The 6th Tokyo International Conference on African Development Summit (TICADVI), held on 27-28 August in Nairobi, Kenya, has come and gone. But what did it achieve? Some US$30 billion in aid and investments over the next three years were promised, half of what China pledged late last year at its similarly themed get-together, the Forum on China-Africa Cooperation (FOCAC); also its sixth meeting then. Some 73 memoranda of understanding were also signed, a lot of which were related to infrastructure, power generation especially. Others were in the health, education and expectedly, oil and gas sectors. A friend who attended the summit was particularly excited about some of the products on display at the exhibition along the sidelines of the event, like pay-as-you-go solar power, supplements for maize porridge, and so on.

Like China, Japan is involved in quite a few infrastructure projects in various African countries, albeit to a lesser degree. And Japanese companies already do quite a great deal of business in most of these. Chinese companies increasingly so as well. In sum though, China’s engagement with the continent is more intense and widespread. The Japanese make up for this in other ways. Japanese brands evoke feelings of quality, brilliance and efficiency. From electronics to cars, they are quite ubiquitous across the continent. Despite China’s growing closeness, similar sentiments are barely associated with its brands, if at all. Chinese goods are still considered inferior. Surprisingly, their cheapness barely appeals commensurately. Even so, China’s experience and relatively ample resources may be more germane to African needs. No matter. Both are willing. Sand in the wheels? Both are staunch rivals, albeit they feign some level of maturity in front of their African ‘friends’ – an official Chinese delegation attended TICADVI.

They all want the same thing
When there are numerous suitors for a potential bride, it is often ironic that blessings do not always follow. The one being sought after might overestimate her value, dither, or hope for better opportunities that may never come. Africa is one of many frontiers of interest to these world powers. So for Japan and China, longstanding rivals, whose volatile relationship is writ large by a territorial dispute over eight islands in the East China Sea, Africa provides a vast field for them to spar. Even so, they both really want the same thing: influence. Like China, Japan is also interested in the continent’s mineral resources. Resource-poor Japan seeks fuel for its energy needs, as its nuclear-dominated system have been mostly shut down since the 2011 Fukushima mishap. Both are also counting on African countries to pursue varied agendas at the United Nations and other multilateral institutions. Like the Europeans and Americans before them, Japan and China are also building military bases on the continent. Simply put, they are pursuing their own interests. Knowing this could be a blessing for African countries, whose negotiating positions are enhanced as a result. The temptation to pitch one against the other should be resisted, however. Instead, African countries should articulate what their development needs are and then go with the partner that best ensures their fulfilment. Japan is not offering as much money as China is. But it has one advantage over the latter. It is more technologically advanced. Its projects are executed with the highest standards and are delivered on time. And they last. China, on the other hand, knows only too well how steep the road to development can be. It is likely a better teacher on how to traverse that road than Japan could ever be at the moment. There need not be a dilemma in any case. Both can help.

Accept only the help that liberates you
As the Japanese prime minister, Shinzo Abe, was engaged in his charm offensive – the TICAD conference was being held on African soil for the first time – Chinese officials were quick to deride his efforts. It was almost the same way the Americans were all too quick to point out how the Chinese then newfound interest in Africa was going to be similarly or more exploitative. Truth is, these supposed development partners go into these relationships often because they already see more advantages for themselves. Or at least, they see the costs and benefits as evenly balanced – not in the African case: whether the partner is China, Japan, America or Europe, the advantages are tilted towards the other side. And the toast is always the same: we want to help. That is all very well. What African countries need the most, in addition to infrastructure, is technology and skills transfer. In doing this though, the situation can no longer be as it is currently, whereby these so-called partners set up businesses on the continent, bring their own staff, integrate little and barely mask their disdain. The scorecards cannot continue to be about how many billions of dollars our partners’ supposed benevolence allowed for each time. Thankfully, more energy at these summits is now being devoted towards changing this lopsided paradigm.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/en/what-is-japans-african-game/ 

No need for Buhari emergency powers

By Rafiq Raji, PhD

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

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

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

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

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

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

By Rafiq Raji, PhD

Kindly click on the link below for the article.

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

Brexit risks for Africa are overblown

By Rafiq Raji, PhD

For Africa and the United Kingdom, I choose to be optimistic.

Scare-mongering can stop now, the vote is over
I do not share the pessimism expressed by some on the potential negative impact of Brexit – term used to refer to the now almost certain exit of the United Kingdom from the European Union – on African countries. It is important to distinguish between short-term and long-term impacts. Credible risks – if they materialize – are likely short-term. Once market participants get over the shock, things should get back to normal. Market participants were surprised by Brexit. UK pollsters got it wrong. Again. Considering the margin by which the ‘leave’ side won, it is hard to believe that robust polling would have showed a ‘too close to call’ reading. Brexit-induced market volatility may pass sooner than people think, in my view. That is, after market participants get over the angst of being blind-sided. The South African Rand – the worst-hit African currency in the aftermath of the Brexit vote – is typically vulnerable when there are market jitters. And when negative domestic events – bizarrely intermittent – don’t cause some trouble, happenings in distant lands – a la Brexit – almost always come about to disrupt things. But if a long-term view is taken, it is not likely that increased sovereignty for the United Kingdom would be disadvantageous for African countries, the longstanding primary focus of UK foreign policy – or influence. There is ample time for both sides to calmly negotiate, once emotions become subdued and rationality takes over.

Brexit is an opportunity to rebalance the UK economy
Former Rolls Royce – a British carmaker – chief executive, John Rose, wrote once of the unbalanced ‘post-industrial’ UK economy for The Economist. In the article (“Made in Britain”), he recalls how an eminent British industrialist at a conference he was attending was introduced to a German audience as follows: “Our speaker is now going to explain how you run an economy based on real estate.” Sir John Rose made a case then for more British high value-added manufacturing. Brexit is an opportunity for such issues to get the type of attention they deserve. Also, even as Brexit negotiations could potentially get nasty, London’s place as a global financial centre in continental Europe would be hard to replace in a hurry. Still, some global banks have started to make contingency plans, reportedly transferring some jobs to Dublin, Paris, and Frankfurt. They are probably being hasty. It is still possible that the UK would be allowed some form of nuanced access to the single EU market for some services, probably just enough for financial institutions to be able to continue doing their EU-related business from London. So, upcoming Brexit negotiations may still tilt in banks’ favour. The view that a hard EU stance would be a crucial signaling tactic to dissuade other potential ‘Brexiters’ in the EU is short-sighted. I think the EU would be pragmatic.

Domestic factors matter more for African giants
It is the actions of authorities in Nigeria and South Africa – Africa’s largest economies – that matter more for investors. Structural imbalances in both economies have nothing to do with Brexit. And even portfolio inflows into these countries – expected by some to slow due to volatility and uncertainty in global markets owing to Brexit – would depend on the actions of their monetary authorities. Both countries clearly need to remain on a policy tightening path. And in the Nigerian case, if authorities follow through on ongoing structural reforms, the investment case for that country is hard to refute. Morever, capital seeking African assets are now more diversified. Long-term investment plays for asset classes like infrastructure are likely to continue unabated, in my view. The African Development Bank, Africa Finance Corporation and other African infrastucture or development-focused financial institutions are not going to cut back plans just because the UK decided it wanted more sovereignty over its own affairs. Furthermore, fears about a potential reduction in African diaspora remittances may be misplaced. Actually, I think Africans – who now see an increasingly insular West – may begin to build closer ties with their home countries.

Recessions don’t last forever
UK recession fears are the main argument behind negative African Brexit impact fears. Pray tell, do recessions last forever? The key question is whether Brexit would have a long-term negative impact on African economies. It is hardly robust to base an assessment of this on a potential UK recession; which would likely pass – if it happens – within the two years or so that Brexit negotiations and modalities are expected to be completed. Fears that Britons would buy less Kenyan flowers – expressed no less by the Kenya Flower Council – seem defeatist to me. Say that happens during a UK recession that everyone seems to think would occur this year, what about afterwards? I think things would either go back to normal or improve. Morever, there are other markets that could be explored.

British outwardness was never about the EU
There is a need to distinguish between the increasing insularity of some Britons – mostly the white, less educated and older ones, borne out of fears about immigration, and the likely rational decision-making of UK authorities. Whoever succeeds David Cameron as prime minister is not likely to jeopardize the advantages that the UK currently enjoys in global trade and finance. Now free from its EU obligations, it would likely ramp up its foreign policy reach through The Commonwealth – a multinational association of fifty-three member states formally under British colonization, which it controls. A likely renewed British Commonwealth focus would be an additional positive for African countries’ trade. Thus, I am sceptical of the view that the UK would need to renegotiate each and every trade deal it agreed to under the aegis of the EU, especially those with African countries. Brexiters are not dumb. A simple conversion would do.

Also published in my BusinessDay newspaper back-page column. See link viz. http://businessdayonline.com/2016/06/brexit-risks-for-africa-are-overblown/

Recession likely, devalue naira now

By Rafiq Raji, PhD

It is no longer news that the Nigerian economy contracted by almost half of a percent in the first quarter of 2016 – my forecast for subscribers to my firm’s research service (http://macroafricaintelligence.com) and Reuters was -0.7 percent. Some clueless individuals have tried putting the blame on Dr Yemi Kale, the head of Nigeria’s statistics bureau. Complete nonsense. Considering the delayed passage of the 2016 budget into law, foreign exchange restrictions and the policy uncertainties in tandem, the negative growth headline did not come as a surprise. In my column of 23 February 2016 – “Budgets have never been so crucial for South Africa and Nigeria” – I highlighted this possibility. Then I wrote: “Year-on-year economic growth in the first quarter of 2016 would likely be lacklustre – could be negative even – due to constrained economic activity in the quarter thus far.” I offered reasons why this could be the case in my column of 12 April 2016 (“Buhari needs to be pragmatic”): “These economic difficulties are due to bad policy choices by Nigeria’s current leader, Muhammadu Buhari. The scarcity of foreign exchange and fuel can be traced to his administration’s penchant for price control. The naira is depreciating in the parallel market because of speculation fueled by inappropriate pricing of the currency by the country’s central bank. Fuel is scarce because marketers stopped importing the commodity to avoid losses. With fuel subsidies stopped and foreign exchange needed to replenish supplies scarce, marketers have little incentive to fill the supply gap; especially as the regulated price provides meagre margins. Until a market-driven approach is adopted on all these fronts, the problems are likely to remain.” The quasi-deregulation of fuel pricing in May – owing admittedly by Vice-President Yemi Osinbajo to the scarcity of foreign exchange – is a vindication of these views.

A recession – two consecutive quarters of negative growth – is highly likely this year. A similarly higher base in Q2-2015 and tepid activity in Q2-2016 thus far is why. I actually now see the risks to my revised 2 percent growth forecast for 2016 – 4 percent earlier in the year when I was cautiously optimistic about the ability of the Buhari administration – significantly to the downside; the economy grew by 2.7 percent in 2015, even then a significant drop from 6.3 percent only a year earlier. Other challenges have arisen. Just as some progress was being made in tackling the terrorist group Boko Haram, Fulani herdsmen from the northern parts of the country (authorities initially alleged they were foreigners) began engaging in wanton killings of rural farmers in the south, residents of which are now contemplating arming themselves. With emoluments for former Niger Delta militants cut, there are renewed agitations in that part of the country as well; evident in increased oil and gas pipeline vandalization. Gas supply disruptions have cut power generation by about half sometimes – even at full capacity, power supply is inadequate in any case. President Buhari was slow to react, albeit he has since directed the armed forces to do the needful. Still, the deterioration in security is instructive. A strategic appraisal suggests the disruptions are likely sponsored, in view of presidential elections in 2019: President Buhari rose to power on the promise of improving the security situation.

Amid the foregoing, the monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) meets on 23-24 May. Annual consumer inflation accelerated to 13.7 percent in April, effectively making the monetary policy rate of 12 percent – raised to this level by 100 basis points in March – negative in real terms. The most recent inflation data available at the committee’s meeting in March was for February: 11.4 percent. The pace of consumer inflation has since quickened: 12.8 percent in March. With likely continuing naira weakness – especially on currency devaluation expectations – and the authorities’ expansionary fiscal stance, inflation is likely to accelerate further. Thus, inflation expectations have risen significantly. As recession also looms, the committee faces a policy dilemma – not entirely, considering its hitherto accomodative stance (since July 2015) before tightening policy in March failed to stimulate the economy. Still, the MPC needs to tighten policy further. My view is that committee members may opt for a 100 basis point rate hike to 13 percent at this meeting – a 200 basis point increase is probably more appropriate. There are also indications the CBN would soon announce a new foreign exchange policy framework – likely in the committee’s press statement on 24 May. A two-tier system and a wider exchange rate band have been mooted. Restrictions on disruptive short-term portfolio inflows are also being considered it seems – one committee member suggests this at the meeting in March. More importantly, a robust foreign exchange policy framework would ease current uncertainties and provide some predictability. In tandem, there is a need for the CBN to devalue the naira further – by at least 25 percent to 250 naira in exchange for the U.S. dollar (currently about 200 naira) in the first instance. Vice-President Osinbajo – who is formally in charge of economic policy – has signalled this is likely soon. However, President Buhari – who has not hidden the fact that he really calls the shots – is yet to show concurrence publicly. There is speculation he may have acquiesced however, in light of the worring state of the country’s finances. In any case, there has never been a better time for the CBN to do the right thing. That is; devalue the naira as needed and tighten monetary policy as necessary to curb the initial but likely temporary jolt of inflation.

Also published in my BusinessDay Nigeria newspaper back-page column. See link viz. http://businessdayonline.com/2016/05/recession-likely-devalue-naira-now/