The week ahead – Diagnosing the wrong ailment

Last Friday, the Osun 2018 election petitions tribunal declared Senator Isiaka Ademola of the Peoples Democratic Party as the winner of the governorship election held in the state last year. The tribunal sitting in Abuja declared the supplementary election conducted by INEC on 27 September 2018 illegal as Ademola won the election on the first ballot. INEC had previously announced Gboyega Oyetola of the APC as the winner. This happened a day before supplementary governorship elections held across five states were marred by widespread violence. Four staff of INEC were kidnapped by armed security operatives in Bauchi State. In Benue, hoodlums disrupted the elections, while widespread violence in Kano saw journalists and election monitors attacked. With three states pending, the APC has won 15 governorship seats, while the PDP won 11.

The Monetary Policy Committee of the CBN has announced the reduction of Monetary Policy Rate by 50 basis points to 13.5 percent. CBN Governor, Godwin Emefiele, disclosed this during a press conference at the end of a two-day MPC meeting held in Abuja. This is the first interest rate cut since November 2015, but the MPC decided to retain all other key parameters; Cash Reserve Requirement remained at 22.5 percent, while the liquidity ratio was kept at 30 percent. The Asymmetric Window was also left at +200 and -500 basis points around the MPR. The cut in the rates, according to the regulator’s governor, was to support the country’s feeble economic growth at this time, reduce the rate of unemployment and diversify the country’s economy.

Research by FSDH Merchant Bank shows that the net inflow of money into Nigeria’s economy is a reflection of fragility, and oil and gas transactions’ dominance, despite $2.8 million the country recorded as surplus in its balance of payments (BoP) in the fourth quarter (Q4) of 2018. The development clearly shows that the economy is also exposed to other external shocks associated with oil earnings, like exchange rates and reserves’ accretion, according to the bank. According to the report, urgency is needed in creating multiple sources of revenue and forex earnings for the country considering the weak BoP. In Q4 2018, Nigeria, though recorded a surplus of $2.8 million, lower than the surplus of $6.18 billion in the corresponding period of 2017 and higher than the deficit of $4.52 billion recorded in Q3 2018, but generally, far from the country’s potential. NBS data shows that between Q3 and Q4 2018, the country was able to reduce its imports, and increased its export of goods, leading to a significant reversal of its Current Account balance, with positive effect on the BoP. Unlike in previous years, the main drivers of exports were crude oil and gas, representing 93.79 percent of total exports. The Head of Research at FSDH Merchant Bank, Ayodele Akinwunmi, said the need to improve the business environment to attract direct investment cannot be overemphasised.

Algeria’s army chief has demanded the country’s ailing president, Abdelaziz Bouteflika, step down following months of mass protests calling for his removal. In a rare move, General Ahmed Gaid Salah called the protests against Bouteflika “legitimate’, citing article 102 of the Algerian Constitution which says that if the health of the president does not allow him to carry out his function then the office is to be declared vacant. Salah also stated his concerns that the protests, which have been peaceful so far, may turn violent with influence from foreign governments. After weeks of demonstrations against his candidacy, it was announced on 11 March that Bouteflika will not seek a fifth term in office and the 18 April elections would be postponed. Bouteflika has refused to relinquish power even though it is widely believed he is incapacitated by illness and has left the reins of the country in the hands of a civilian military elite.

Commentary

• The Osun judgement was an important judgement as it removes one of the key incentives for causing violence on election day – the hope that violence induced cancellations will lead to a chance for a candidate to win at a rerun. This kind of violence happened in some states during the just concluded gubernatorial elections. The Osun case will go to appeal and it remains to be seen what the position of the higher court will be, but we hope that all parties will pursue this to its logical conclusion so that the position of the law will be clear for future election cycles, and perhaps it will result in a decline in focus on violence by candidates and their supporters.
• The rate cut was met with surprise because over the last few years it had become clear that the CBN preferred to use open market operation as its primary monetary policy tool. Recall that the previous finance minister, Kemi Adeosun, had a running battle with the CBN as she was an advocate of reducing interest rates to drive bank lending and thus economic growth. Many analysts have rightly commented that the 0.5% rate cut is too little to drive a significant increase in banks’ loan books as lenders are still concerned about asset quality which has not improved significantly (industry wide average is still above 14%, much higher that regulatory threshold of 5.00%). It is clear that other fundamental issues with the economy need to be addressed before the desired growth can be achieved.
• Every Nigerian government since the return to civilian rule in 1999 has made the diversification of the economy its primary economic goal. All have failed simply because Nigeria’s economy is already highly diversified, it is government revenues that are not. Despite directly contributing just 7% to GDP in Q4 2019, the petroleum sector basically drives Nigerian government revenues, and thus its participation in the economy, and the sector’s current declining growth (-1.6%) has been a hindrance to the growth of the economy at large. The major reason for this is the sector provided the government with over 80% of its revenues since the government is unable to properly tax the large informal segment. With the country’s debt service to revenue ratio now at 68%, and rising, it is becoming more difficult to fund recurrent expenses not to talk of making capital investments. In other words, it is easy to analyse the problem but difficult to solve it.
• It is difficult to see Bouteflika holding on to power any longer with his open rejection by the military who are essentially the kingmakers in Algeria. Although he has rescinded his decision to run for a fifth term, the endorsement of demonstrations by the army chief is the final nail in the coffin of his political career. The actual military led ruling hegemony in Algeria have seen the writing on the wall, concluded that they are unable to continue to front his hold on to power, and are riding on the wave of the people to ease him out. This has two implications for the continent – it indicates that the era of detached democrats-turned-dictators may be at an end if the people can unite and sustain opposition, but it also shows that institutions are weak and remain open to compromise as political actors do not respect democratic conventions, leaving the door open for constant military intervention in politics. Nothing has fundamentally changed.