Two sources of foreign exchange for Nigeria took a hit this week. Nigeria’s cocoa mid-crop output is expected to be very low as measures to curb the spread of the coronavirus hindered farmers and exporters. Mufutau Abolarinwa, president of the cocoa association, said the measures have created a backlog of unshipped beans as some of April’s orders still being exported were disrupted by the lockdowns and restrictions on transport and port activities. Around 5,000 to 6,000 tonnes of beans were stuck at Lagos port and warehouses in the country, Abolarinwa told Reuters. Some farmers said that this year’s mid-crop could begin in the southwest region a month later than usual, in June, due to late rains, and output could be hit by a lack of chemicals. This could see the main crop extend to November. Meanwhile, data from Baker Hughes and OPEC has shown that the active oil rigs in Nigeria reduced by 23.8 percent to 16 in April amid the collapse in oil prices and demand as a result of the coronavirus pandemic. The report said that the country’s rig count stood at 21 in March while it recorded the second-biggest decline in the number of rigs among its peers in OPEC in April, after Venezuela, whose rig count plunged by 11 to 14.

The federal, states, and local governments have received a total of ₦606.196 billion from the Federation Accounts Allocation Committee for the April 2020 revenue. The amount comprised Value Added Tax, exchange gain, solid mineral revenue, excess bank charges, and excess oil revenue was announced Friday after a virtual FAAC meeting. The FG received ₦169.831 billion; the states got ₦86.140 billion; while the local governments collected ₦66.411 billion out of the amount. The oil-producing states received ₦32.895 billion as 13 percent derivation from mineral revenue. The cost of collection/Federal Inland Revenue Service refund/allocation to North-East Development Commission and transfer to excess oil revenue was ₦15.134 billion according to the communique. It said that the gross revenue available from VAT for April 2020 was ₦94.495 billion as against the ₦120.268 billion distributed in March 2020, amounting to a decrease of ₦25.772 billion. From the VAT revenue, the Federal Government got ₦13.182 billion; the states received ₦43.941 billion; while the local governments got ₦30.758 billion. The distributed statutory revenue of ₦370.411 billion received for April was lower than the ₦597.676 billion received for the previous month by ₦227.265 billion. In another development, the Nigerian Senate has asked the Federal government to cancel the entire privatization process of the power sector that was carried out during former President Goodluck Jonathan led administration, following its very epileptic nature. The red chamber has also urged the FG to immediately suspend the planned electricity tariff increase due to take effect from July following the increased hardship occasioned by the Coronavirus pandemic.

Ekiti has reduced its right of way charges from ₦4,500 per metre to ₦145. The governor of the state Kayode Fayemi, signed an executive order on Thursday to effect the reduction. With the reduction, 1km of cable will now cost ₦145,000 rather than the previous ₦45 million for the RoW charge, the levy paid to state governments for laying of optic fibre on state roads. A single telecoms operator needs RoW covering thousands of kilometres. Going by the development, Ekiti is the first state in Nigeria to comply with the NEC approved the right of way charges for broadband thus becoming the cheapest state for broadband infrastructure investment. Fayemi said the executive order is part of ongoing reforms to make the state attractive to investors within five years. 14 states; Lagos, Kano, Anambra, Ondo, Cross River, Kogi, Osun, Kaduna, Enugu, Adamawa, Ebonyi, Imo, Kebbi and Gombe, had hiked their RoW charges at the beginning of the year. The cost of RoW on federal roads is ₦142 per linear metre. At the time, the minister of communications and digital economy, Isa Pantami, had warned states that telecommunications companies would transfer the costs to customers.

Sokoto residents now rely on soldiers from the Nigér Republic to save them from incessant attacks of the bandits in the state as the Nigerian military was no longer capable of the responsibility, a Senate member representing Sokoto East Senatorial District, Ibrahim Gobir, has said. The APC Senator said this Tuesday on the floor of the House while seconding the motion moved by the Deputy Chief Whip, Sabi Abdullahi, on the order given by President Buhari, to the Nigerian soldiers to flush out bandits from some states. Gobir added that at least 300 people have either been killed or kidnapped in the last three months while over 5,780 cows valued at ₦2.5 billion had been stolen. During attacks by the criminals, the Nigerian army whose personnel are a few kilometres away don’t respond instantly compared to the Nigérien soldiers who are in about five kilometres away, but moved in swiftly and warded off the intruders. Gobir also said more than 5,000 Nigerians in the troubled parts of the state have relocated to the Republic of Nigér following the increased bandit attacks on local communities. This comes as hundreds of residents of Yangayya community in Jibia LGA of Katsina on Saturday blocked a highway to protest repeated attacks by armed bandits on the community. Residents said the protest followed an attack in which many residents lost their valuables, many injured and women raped. The residents said the bandits first attacked the community on Wednesday after iftar (break of fast) when the largely Muslim residents were about to go for their night (Isha) prayer in the mosque. They invaded the community, reportedly using over 70 motorcycles, looted shops, and went away with valuables. The bandits returned on Saturday around 0800 hours. During the attack, they raped and physically assaulted many women, with some of the women later hospitalised, a resident told Premium Times, asking not to be named for security reasons. He said following the Saturday attack, the residents trooped to the main road in protest, blocking motorists, targeting and molesting government officials who use luxury cars. The residents also used derogatory language against Governor Aminu Masari and President Muhammadu Buhari.

Commentary

  • 2020 began as a decent year for Nigerian government revenues, with oil prices beginning the year above $60 per barrel and production close to 2 million barrels per day. It also appeared that non-oil revenues would get some serious input following the new Finance Act. The coronavirus outbreak changed all that. It forced the world’s largest importers of African cash crops, including India, China and Vietnam, to cut orders as their processing factories close due to lockdowns imposed to slow the spread of the virus. This wreaked havoc to the livelihoods of farmers across the African continent. The price of cocoa in the international market has plunged 16% over the past 3 months and other commodities like cashew and tobacco have seen similar trends. The lack of processing and storage infrastructure in most African countries means that a lot of the harvest will go to waste and many farmers will be forced to sell at discounts to reduce loss margins. There is, therefore, a need to rethink agricultural policies across the continent. The primary goal of modern agriculture should be to add value to harvested products rather than exporting raw materials. The same can be said for oil, where Nigeria’s inability to refine crude oil is hurting revenues. The Baker Hughes report also stated that in the US, the rig count fell 44% year-on-year, dropping to 566 in April 2020. The crucial difference is that the Americans can refine their oil and either store the refined produce, or make use of it domestically. US shale producers have been oil industry disruptors over the past decade and their growth was fueled by high oil prices, pushing the US to become the largest oil producer in the world in 2018 with over 12 million barrels per day (compared to Nigeria’s 2.4 million barrels daily peak). In this new reality, however, oil fields with high production costs have to shut down. Shale, tar sands and deep-sea fields cost over $60 per barrel to produce so such fields are quickly going offline whereas desert fields in Saudi Arabia and other Gulf countries which enjoy low average production costs of between $10 – $15 per barrel are only constrained by OPEC+ quotas. Nigeria’s average cost of production is estimated at $23 per barrel, which is currently below global prices, but with the country currently unable to find buyers for its crude, even at discounted rates of $15 per barrel as well as refine crude at home, it is difficult to see how the industry will escape the current crisis unscathed.
  • On dwindling monthly allocations, the data says it all. FAAC allocation for January came in at ₦716 billion. However, by February allocations had plunged 25% to ₦531 billion and the news led to an initial impasse as states rejected the allocations given. The CBN was forced to adjust the official naira exchange rate to boost revenues and allocations for March came in at an “impressive” but unsustainable ₦780 billion. Knowing that the Naira devaluation alone cannot sustain revenues, the FG announced that it has slashed its 2020 budget and removed petrol subsidies. The Minister of Finance, Zainab Ahmed, had said that while the states were expecting to share ₦3.3 trillion from the Federation Account during the year, they would not be able to get more than ₦2.1 trillion. The FG’s share from the Federation Account initially projected to be N4.8 trillion will decline to ₦2.4 trillion. The share of the LGs, expected to be ₦2.5 trillion at the beginning of the year, will decrease to ₦1.5 trillion. While ₦8.6 trillion was projected as the total inflow into the Federation Account in 2020, it is now expected that only ₦3.3 trillion will accrue to the account. Nigeria has a serious revenue problem, and the government refuses to come to terms with it in their budgeting, especially for expenditure. A second perhaps more fundamental problem is the language of government with regards to revenue – sharing. Everyone is simply focused on sharing, not growing and improving revenue. There seems to be no strategic view of developments, and this is also reflected in the manner in which the power privatisation rollback is being mooted. Is the Senate unaware that the biggest bottleneck today is electricity transmission; the only part of the privatisation plan that was not completed? Are the real issues hindering the power industry not well known? Why is the Senate not tackling those headlong? It is a symptom of the same thing – those who govern Nigeria are unwilling to deal with the reality of governing Nigeria.
  • Ekiti’s reduction of Right of Way charges is a solid move in the right direction and one that will definitely set the ball rolling as happened on Wednesday when Imo reduced its own right of way charges. While many other states continue to quarrel with the minister, Ekiti has signalled to telecoms firms that it is open to receive their business. It is especially so in a period where remote work is at the centre stage of the world’s business habit due to the COVID-19 pandemic. Nigeria is in desperate need of infrastructure and making it cheaper for private sector participants to provide infrastructure for broadband is a sure way to bridge the gap. We expect the telcos to respond by investing in the state, creating much-needed jobs, and more importantly, building the capacity to create higher productivity jobs. We urge other states to follow suit.
  • Senator Gobir’s comments are not surprising, considering how overstretched the Nigerian military is in between battling insurgencies in the North-East, bandits in parts of the North-West, and deployments across 34 of the country’s 36 states. On the other hand, the Nigérien military is most active around its southwestern borders, primarily because of the activities of terrorist jihadist groups around the intersecting borders of Mali, Burkina Faso and the Nigér Republic – the often mentioned tri-border area. Also, the proximity of the Nigérien capital, Niamey to Sokoto City (a distance of 460km) makes it very likely that its army is keeping a watchful eye on the situation in Nigeria’s NW to ensure that it doesn’t cause further instability on its own side of the border. Overall, it is clear that Nigeria cannot fight two wars concurrently, and while relying heavily on its military for internal operations without a major increase in its numbers and capacity. In addition, it is clear that the strategy of simply paying off the bandits has failed, as it only ends up rewarding their criminal activities. The Nigerian government requires a comprehensive approach towards resolving insecurity in that part of the country which will incorporate a military approach, border security enforcement, and understanding the remote causes which have fueled the rise of the different terrorist networks operating in the region.