The Week Ahead – Uneasy Lies The Crown

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The sands of time and practice shifted this week with the lawmakers finding a new pickle with the executive, letting the 2017 budget flow. This, as Nigerian states get a poor debt scorecard, a den of thieves displays decreasing state authority, the military owns up to struggling in the North-East, Sierra Leone works through its own election hangovers and Milost discovers the joys of doing business in these parts. At least, the MPR didn’t flinch.

Dealing with 2017’s budget hangover in 2018

Senate President Bukola Saraki has told the Federal Government to let the implementation of the 2017 budget run till the end of May 2018. Saraki’s comment, which was directed at Finance minister, Kemi Adeosun, followed a point of order raised by Atai Aidoko (PDP, Kogi East). Aidoko brought the attention of the Senate to a circular issued to Ministries, Department, and Agencies, which said that 2017 budget funds will be mopped up by March 31. Claiming that the letter contravened the provisions of section 3(1) of the 1999 Constitution, Aidoko added that the section mandates that the budget runs for 12 months after Presidential assent. President Buhari assented to the 2017 budget in May 2017. Reacting to the point of order, Saraki asked the finance ministry to rescind the circular, adding that it did not have the powers to make the order.

While the Senate President’s position is legal, we are concerned that an executive and legislature led by the same party, the APC, has not been able to pass the 2018 budget four months into the new year. For the three budget cycles this administration has overseen, the budgeting process has been plagued with all manner of disappointing incidents, delays and claims that bordered on the ridiculous at times. When we couple this with the lack of transparency on budget implementation, the budgeting process has deteriorated significantly under the current administration, and cannot be seen to be the driver of the governmental agenda it is meant to be. It is a sad commentary on the state of things.

Failing states within a failing state

A Daily Trust analysis of the NBS data, indicates that Nigeria’s 36 states will take at least seven years to repay their total debt stock using their internally generated revenues alone. According to the NBS, at the end of 2017, states’ total debt stock stood at ₦7.33 trillion while total IGR was a paltry ₦931.23 billion, 12.69 percent of total debt. Only a handful of Nigerian states can fund their operations with only their IGR, with Federal Government allocations being the primary source of their finances. The analysis showed that states would require three years to clear their debt using all revenues from their IGR and Federation Account Allocation Committee (FAAC) allocations. The total debt stock comprised of external debts and domestic debts while the total revenue included revenues from net FAAC allocations, and IGR.

A few months ago, the dominant topic of discussion in political circles was restructuring the Nigerian state. This has died down largely because of two factors the increased revenues from oil proceeds on the back of higher oil prices and production, and the onset of election season. 2019 will see the entry of some new state governors and their focus will be on making their marks via developmental programmes rather than fiscal responsibility. It is safe to say that the debt stock of the country will continue to rise into the next election cycle in 2023.

MPR stays still as real sector lending contracts

The Central Bank of Nigeria kept its main interest rate at 14 percent on 4 April, Governor Godwin Emefiele said, after the first policy-setting meeting of the year. The regulator cancelled its January meeting due to an inability to form a quorum after several departures reduced it to just five out of 12 members. The decision to raise the key interest rate to 14 percent was made in July 2016, and has been kept at the same level since then. At 14 percent, the Monetary Policy Rate is currently at its highest in at least 12 years. Aisha Ahmad, Edward Adamu, and the two other newly confirmed members of the Monetary Policy Committee voted for the first time.

It is not often that there is an almost even split on opinions amongst market watchers, but this was the case in the days leading to the MPC meeting. In its Credit Conditions Survey Report for Q1 2018, the CBN revealed that most commercial banks have increased the collateral requirements demanded from all business sizes on new loan applications, and will demand more collateral in the next quarter. At the same time demand for corporate lending from all business, sizes increased in the current quarter and was also expected to increase in the next quarter. It is clear that banks are moving to check the growing non-performing loans ratios they experienced during the recession that saw the closure of large numbers of small and medium scale enterprises. That had a knock on effect on personal loans given to the staff of these companies. Expectations are that the economic recovery will pick up the pace in 2018, and with declining inflation, the MPC will at some point during the course of the year, have to cut interest rates to spur lending to the real sector.

The unease of doing business in Nigeria

Milost Global, a US private equity firm says it will no longer go on with its proposed $1 billion investment in Unity Bank. The company made its decision known in a statement by Kim Freeman, the company’s CEO, on 26 March, citing an unidentified politically connected shareholder who threatened the investor’s Nigerian interests if it pursues the deal. The Lagos-based lender has denied that the documents were binding, and said it had nothing to do with the threats. The facility, a combination of equity and debt, was provided on the exciting understanding that Unity Bank would delist on the Nigerian Stock Exchange and move its listing to the USA, according to Milost, and the signed term sheet was approved by the board of Unity Bank. The NSE has the Milost situation under consideration, and will issue a statement at the appropriate time, spokesman Olumide Orojimi told Bloomberg.

What this Unity Bank saga shows, is that while Nigeria is outwardly pro-investment, in practice foreign investors don’t always receive a warm welcome. Questions have been thrown up about Milost by local newspaper BusinessDay, but as of this point, Milost’s $1.1 billion purchase of Primewaterview Holdings Nigeria, a real estate company, and its pending $250 million investment in Resort Savings & Loans Plc account for almost all Nigerian mergers and acquisitions so far in 2018. The risk profile of Nigeria accounts for why foreign investors continue to desire returns that are significantly higher than what obtains in other comparable markets like Ghana and Kenya. We note that much about the Milost deal, however, leaves more questions than answers, and we continue to follow the ongoing developments.

An audacious robbery points to state failure

Up to 12 people, including six policemen and six civilians, were killed in Offa, Kwara state, when a gang of up to 30 bank robbers attacked the town. The robbers blocked the roads from both Ilorin (to the North) and Osogbo (to the South), then went into Owode Police Station and shot four policemen before proceeding to the banks in the Sanni Aba area of Offa. The amounts stolen from the banks have not been confirmed.

The sheer number of the men in the gang, the manner in which the robbers first blocked off the roads into town, then attacked the symbol of authority, before proceeding to do their work for a few hours unimpeded is indicative of a growing confidence that they own the space. This loss of monopoly of violence of the Nigerian state in swathes of its territory continues to embolden non-state actors to be more and more audacious in their acts of violence in the state. This slow burn will reach a tipping point where people rescind the outsourcing of protection from violence which they made to the state and resort to protecting themselves. We are firmly on the road to that tipping point as has been shown by calls from various influential figures for people to defend themselves. If we get to that point at scale, the collapse of the Nigerian state will become inevitable.

Bungling a war against terror

The Borno Police Command said 25 persons died in an Easter Sunday suicide attack on the state capital Maiduguri. Police Commissioner Damian Chukwu, told journalists that the high number of casualties occurred because the insurgents attacked a wedding ceremony on the outskirts of the city of more than a million people. He said 18 persons died at the scene as five male suicide bombers detonated their Improvised Explosive Devices in the midst of people at the wedding. In a related development, President Muhammadu Buhari has approved the release of $1 billion for the procurement of security equipment to fight the Boko Haram insurgency on 4 April, Defence Minister Mansur Dan-Ali announced at the end of a meeting between Buhari and security chiefs in Abuja.

The Nigerian military is right in saying that it does not have the manpower to sustain an effective security presence in schools in the North-East. With a total of 162,000 personnel, who currently are on active deployment in thirty-three of Nigeria’s thirty-six states, deploying soldiers to secure schools in the North-East will further deplete the number of soldiers available to quickly defend the country’s territorial integrity. What this means though, is that rather than just defending the territory, the military needs to be more proactive in finding out the location of the terrorists and hitting them first. It will need the use of human and electronic intelligence – especially the use drones and surveillance aircraft over a region that is vast, and with little forest cover for terrorists to hide under. If this change in strategy is pursued, the importance of acquiring intelligence to strike at the terrorists before they strike, rather than just repelling attacks cannot be overstated. Hopefully, the $1 billion approved for procurement of security equipment will bring a new impetus to the war on the side of the Nigerian military, and make them more offensive-minded.

Looking beyond the runoff election in Sierra Leone

Sierra Leone’s ruling All Peoples Congress (APC) is demanding a vote audit from the opposition Sierra Leone People’s Party (SLPP) stronghold before the National Electoral Commission (NEC) announces results of the 31 March presidential runoff. An elections monitoring group, Sierra Leone Decides reported the development citing a letter signed by APC National General Secretary, Osman Foday Yansaneh, and addressed to the NEC Commissioner in the Southern Province. The said province is an SLPP stronghold according to political watchers. Its candidate, Julius Maada Bio was born in the Bonthe District located in the Southern Province. The letter alleged electoral malpractices which it said had the tendency of impacting the final results.

The presidential runoff is the final leg of an electoral process that saw voting for presidential, legislative, and councillors. Out of a field of sixteen candidates, the runoff pits the APC’s Samura Kamara against the SLPP’s Julius Maada Bio, who won the first round with 54.1 percent of the vote, for the honour of succeeding Ernest Bai Koroma. Whoever wins will have to deal with implementing structural economic reforms in a country still recovering from years of conflict, with the outlook for 2018 and beyond challenging due to the uncertainty surrounding iron ore prices, its main export. Expected GDP growth of 6.1 percent this year, and 6.5 percent next year according to the African Development Bank should help the world’s 151st largest economy, but a lot of that will depend on resolving the political uncertainty occasioned by an election that West African partners are closely monitoring.

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