The week ahead – Flirting with reform

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It was a case of looking more closely at a week where the Senate finally said the right things about police reform, while taking flak for its poor budgetary oversight, the PIGB continued to be a political plaything, a major consumer company licked its woundsrising ATM and online bank fraud offered some pause, and the emergence of a new faction promised to upend the dynamics in 2019.

Looming police reform offers Senate an invaluable opportunity

The Nigerian Senate on 3 July approved suggestions for the creation of state police as a way of strengthening security across the country. Adopting a motion sponsored by former Plateau Governor Jonah Jang on killings in his home state, the upper legislative house also directed its Committee on Judiciary, Human Rights, and Legal Matters to come up with a bill for creation of a truth, peace and reconciliation commission within the next two weeks. Saraki said the Police Reform Bill, which had been pending before the Committee on Police was to be given expedition consideration. These were parts of the resolutions reached at the end of a marathon debate on killings in several parts of the country, which the lawmakers condemned, Saraki describing them as “totally unacceptable.”

Given the current insecurity nationwide, the renewed clamor for state police authorities and its apparent currency among elites is understandable. However, there is a great need for caution as this move carries significant risks of its own that could compound the insecurity index. Simply replicating the current structure of the national police at the state level would amount to reproducing its impunity and dysfunction in 36 different jurisdictions. Arguably, the main constraint on the performance of the police is its lack of independence. Section 9 of the Police Act vests operational control of the police in the President. This, in addition, to its lack of financial autonomy, means that the police force operates as less a service for the protection of the public than an armed organization that serves at the pleasure of the President and his cronies. Predictably, this renders the force vulnerable to politicisation and to charges of partiality which erode the credibility and integrity of the institution as a law enforcement body. Simply decentralizing the police under these circumstances would merely establish police forces under the absolute control of state governors and replicate the problem at the state level, bringing the near certainty that they will be used to suppress religious, ethnic and political minorities as well as opposition politicians and heighten rather than de-escalate insecurity and violence. A more useful approach would be a two-step pursuit of police reform that expunges Section 9 of the Police Act, extricates the Police from the grasp of the presidency and secures its financial autonomy. Subsequently, decentralization can ensue, with the establishment of state police services placed under either state Houses of Assembly or the State Judiciaries to prevent executive abuse of police powers. However a note of caution. With many states currently struggling to pay civil service salaries, the specter of armed uniformed individuals going unpaid for several months portends a risk to public safety.

Big Two face important existential questions with Reformed APC emergence

A former breakaway faction of the Peoples Democratic Party announced the formation of a new faction, in what observers see as the first step in their exit from the All Progressives Congress in preparation to rejoin the PDP. The so-called ‘Reformed APC’ bloc includes Senate President Bukola Saraki, Speaker of the House of Representatives, Yakubu Dogara, and a former Kano governor, Rabiu Kwankwaso. The faction, whose members once comprised the ‘New PDP’ faction in 2014 made the announcement in a late press conference on 4 July. The announcement would lead to a coalition of political parties and interests to challenge President Muhammadu Buhari. The faction, comprising some former governors and ranking lawmakers, has been in a tug of war with the APC-led administration. Some of the PDP members, including Mr. Saraki, former Adamawa governor, Murtala Nyako, and a senator, Dino Melaye, are facing corruption charges, among other legal challenges.

Even after accounting for subsequent comments to the contrary on Thursday by key actors, including the APC national chairman Adams Oshiomhole and even Saraki himself, this move has been long expected. The continued stay in APC by the nPDP group has been contentious from the moment the current administration took office, and especially following the election of Saraki and Dogara as the Senate President and House speaker respectively. What remains to be seen is what impact this will have on the reelection chances of President Buhari next year. The move certainly makes his chances of winning the North-Central more difficult, as Saraki is very influential in his native Kwara state and together with Senator Melaye, can effectively turn Kogi, which voted for the President, into a battleground state. Already, President Buhari’s popularity in Benue, Plateau and large parts of Nasarawa states are at a low, due to the ongoing Pastoral Conflict. Just as important is how the PDP will handle the ambitions of these returnee members as its primaries approach. It is no secret that Senators Saraki and Kwankwaso have presidential ambitions. Together with former Vice President Atiku Abubakar, former Jigawa governor, Sule Lamido and Gombe governor, Ibrahim Dankwambo, it could be a hotly contested primary. An inability to manage the ambitions of its members will only lead the PDP down the path of the APC.

An end to political discretion on the budget

Civil society NGO, BudgIT says the projects added to the 2018 budget by the National Assembly are fragmented and do not fit into the Economic Recovery and Growth Plan (ERGP). In a statement released on Tuesday by Abiola Afolabi, BudgIT’s communications manager, the NGO said, “Out of the 6,529 new projects entered into the budget, 90.6 percent or 5918 items have a unit value below ₦200 million. Also, the projects cannot be directly linked to the written, medium-term aspirations of the government as highlighted in the Economic Recovery and Growth Plan.” An analysis of the inserted projects shows that ₦63.64 billion or approximately 11 percent of the new projects added by the National Assembly will be spent on various training and capacity building programmes in 2018.” The organisation said given that the budget will be largely funded by borrowings, as highlighted in the 2018 fiscal plan, “it is disheartening to discover that most of the identified line items therein show a significant disconnect from the developmental goals of government, as stated in its Economic Recovery and Growth Plan (ERGP).”

The divergence between the newly added projects and the overall objectives of the administration as stipulated in the ERGP reflects the state of relations between the executive and the legislature which have been strained to breaking point. The tension between the National Assembly and the Presidency has escalated in recent weeks and has now come to a head with the controversy over the final budget figures and added projects. With an oncoming election year and the ruling party riven by internal discord, we can expect the divergence between both branches of government to intensify. While the presidency has since raised an alarm about the padding of the budget by legislators, it is noteworthy that both the executive and the legislature have exercised their prerogatives on budgetary and financial matters with considerable indiscipline. Only a few months ago, President Buhari himself authorized an illegal expenditure from the Excess Crude Account. While the Executive reviles the National Assembly for its dubious “constituency projects, the administration has expanded the use of security votes by agencies, ministries, and departments. The elections on the horizon have seen both branches of government leveraging discretionary powers to create slush funds and channels of patronage. Any common sense effort to address budgetary processes and restore sanity to Nigeria’s financial management must aim to eliminate the wide discretionary latitude that politicians wield over national fiscal resources.

The PIGB rigmarole will endure for a while

The Presidency will receive the long-awaited Petroleum Industry Governance Bill next week, Businessday reports, quoting the Senior Special Assistant to the President on National Assembly Matters (Senate), Ita Enang. The paper also said that President Muhammadu Buhari is currently “thoroughly reviewing” the new Electoral Amendment Bill before signs it into law. The PIGB was passed in March 2018 but Enang insists the Presidency was yet to receive the bill, a position confirmed by Senate Leader, Ahmad Lawan, due to legal advice received from the National Assembly Legal Services Directorate which observed some contentious areas in the bill. But Enang, on 4 July, confirmed that the bill will be received by the President next week, as all the contentious issues have been resolved.

Enang’s comments this week represents the kind of official obfuscation that has made passing much-needed petroleum sector reform difficult. While the Executive and the Legislature continue their unhelpful horsetrading, Nigeria may have lost at least $200 billion in new projects, investments and upgrade in the petroleum sector as investors vote with their checkbooks for other oil provinces on the continent with a more certain regulatory environment. The new law is expected to replace the existing archaic one that has aided and abetted huge revenue losses, impeded transparency, accountability, even as the old legislation has consistently frustrated new investment opportunities in the nation’s oil and gas industry. Also, important questions remain about the extent of the reforms that might be passed – a decision by the Directorate set up to reconcile the contentious areas referenced by Enang and Lawan to retain Clause 102, which excludes the proposed National Petroleum Company from the provisions of the Fiscal Responsibility and Public Procurement acts because the exclusion would insulate the company from bureaucratic drawbacks – raises fresh oversight concerns that this long drawn reform process was supposed to deal with.

With more fintech comes more fraud

The Central Bank of Nigeria says Automated Teller Machine and mobile banking fraud is on the increase. Speaking at the unveiling of the 2017 Nigerian Electronic Fraud Forum annual report in Lagos, Dipo Fatokun, director of Banking and Payment Systems at the regulator said the value of electronic banking fraud cases between 2015 and 2017 stood at ₦5.571 billion. NeFF data showed that the value of over-the-counter fraud which was ₦732.85 million in 2015, had dropped to ₦259.022 million by 2017. Fraud carried out through ATM channels rose from ₦355.89 million in 2015 to ₦497.643 million in 2017 while mobile payment fraud rose to ₦347.645 million in 2017 from ₦248.144 million in 2015. In a separate announcement, the regulator said all commercial banks must resolve disputes arising from the use of Unstructured Supplementary Service Data channels within three days.

The advent of electronic banking has brought a lot of positives including fostering commerce and reducing incidences of household robberies. However, scammers are regularly devising new ways to beat established safeguards to secure transactions. The techniques used by scammers include the traditional shoulder surfing and physical attacks at ATM machine boxes to more sophisticated PIN interception. The CBN’s new directive is positive, but should not be a one-off. All stakeholders, including regulators, operators and law enforcement must set up working groups to devise new strategies to stay ahead of the curve.

Perfect economic storm soils P&G’s diapers

Procter & Gamble is in the process of shutting down its multi-billion naira plant in Agbara, Ogun, barely a year after the leading American FMCG leader decided to expand into the Nigerian market, according to Premium Times. First opened in 2012, but expanded in June 2017, the $300 million, 40.2-hectare production facility produces diapers and a range of sanitary pads, including the popular Always brand. While the company has not issued any official statement regarding the shutdown speculation, Procter & Gamble has struggled to break even over the past year due to challenges ranging from government regulations, stiff competition, and inadequate access to raw materials, the online newspaper quotes sources as saying. About 120 employees are gradually being laid off as part of the facility’s closure. A 2017 Nairametrics analysis found that Hayat Kimya Group, makers of Molfix, has a market leading 44 percent of the diapers market with Procter & Gamble second at 37.3 percent.

P&G Nigeria is currently in the throes of a brutal lesson in frontier market economics. Banking on continued growth in Nigeria’s health product market – which at ₦89.1 billion, a growth rate of 8 percent according to Euromonitor estimates, and fuelled by population growth, consumer behaviour changes, as well as access to funding from local and international markets, is huge – the American consumer goods giant introduced three of its best performing global diaper lines which required an uninterrupted power supply to maintain production and created a logistics and distribution systems that was acclaimed at the time as a global benchmark. Then the reality of forex shortages and cheap competition set in. Perhaps more importantly, its parent company is in the midst of its worst crisis ever, reducing staffing by 25 percent globally since 2013 and with an activist investor on its board who is keen on shutting down unprofitable projects. Their main Nigerian competitor is probably the cautionary tale in not rushing exuberantly into investing in a chaotic market. Turkish firm Hayat Kimya stormed the market in 2015 by importing and pricing its Molfix brand at a discount to established brands like Dr. Browns, Pampers and Huggies. Having captured a substantial market share, the company then established its first domestic plant, thus cementing its position in the industry. This case proves that despite huge entry barriers to certain industries due to high upfront costs, competitors can cause market disruption on the back of a well-designed importation and trading strategy. Summatively, these complications make for a discomfiting appraisal of Nigeria’s nascent industrialization drive.

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