The week ahead – Old wineskins

The Central Bank of Nigeria joined a growing list of emerging markets betting on digital money to cut transaction costs and boost participation in the formal financial system. “Nigeria has become the first country in Africa, and one of the first in the world to introduce a digital currency to her citizens,” President Muhammadu Buhari said in a televised speech at the launch in Abuja. “The adoption of the central bank digital currency and its underlying technology, called blockchain, can increase Nigeria’s gross domestic product by $29 billion over the next 10 years.” The International Monetary Fund projects GDP for Africa’s largest economy to be $480 billion in 2021. The issuance of the digital currency, called the eNaira, comes after the central bank earlier in February outlawed banks and financial institutions from transacting or operating in cryptocurrencies as they posed a threat to the financial system. Since the launch of the eNaira platform, it’s received more than 2.5 million daily visits, with 33 banks integrated on the platform, 500 million c ($1.2 million) successfully minted and more than 2,000 customers onboarded, central bank Governor Godwin Emefiele said at the launch. Central bank digital currencies, or CBDCs, are national currency — unlike their crypto counterparts, such as Bitcoin and Ethereum, which are prized, in part, because they are not tied to fiat currency. The eNaira will complement the physical naira, which has weakened 5.6% this year despite the central bank’s efforts to stabilize the currency. “The eNaira and the physical naira will have the same value and will always exchange at one naira to one eNaira,” Emefiele said. The digital currency is expected to boost cross-border trade and financial inclusion, make transactions more efficient as well as improve monetary policy, according to the central bank. The Central Bank of Nigeria in August selected Bitt Inc. as a technical partner to help create the currency that was initially due to be introduced on 1 October. Nigeria joins the Bahamas and the Eastern Caribbean Central Bank in being among the first jurisdictions in the world to roll out national digital currencies. China launched a pilot version of its “digital renminbi” earlier this year. In Africa, countries from Ghana to South Africa are testing digital forms of their legal tender to allow for faster and cheaper money transactions, without losing control over their monetary systems.

Payment of salaries by about 33 states of the federation is uncertain as the decision of the federal government to debit local government accounts in commencement of a payment of $418 million (₦172 billion) to private consultants on Paris Club refunds has pitched states and local governments against it (FG). BudgIT, a civic group committed to government financial transparency, in its report, ‘State of States 2019’, said only three Nigerian state governments (Akwa Ibom, Lagos and Rivers) can finance their recurrent expenditure without allocation from the federal government. There had been pressure from the Nigeria Governors Forum (NGF) and the general public to stop the suspicious payments to the consultants. However, in a dramatic twist, less than a month after a directive by President Muhammadu Buhari, the Ministry of Finance, Budget and National Planning has commenced deductions to pay the claimants. The permanent secretary, Federal Ministry of Finance, told the Federation Account Allocation Committee (FAAC) meeting on Friday that it has commenced the deductions to pay the consultants. This information has irked the states which then refused to consider the revenue for the month of October 2021 until the FG comes clean with the deductions. In 2006, the federal government paid $12 billion to get an $18 billion debt write-off by the Paris Club of international creditors. However, because the payment was made directly from the revenue accruing to the entire federation, states and LGAs that did not owe the Paris Club asked the federal government for a refund. Some consultants had surfaced along the line to claim a percentage of the refunds as payment for their purported services to the states and LGAs. Some contractors also claimed they were asked to execute projects across the country by the Association of Local Governments of Nigeria (ALGON). Questions were, however, asked on why states would need consultants to negotiate with the federal government over the refund, while the projects said to have been awarded by ALGON turned out to be mostly non-existent. The governors had asked for a forensic audit. While the contractors and consultants went to court, the Attorney General, Abubakar Malami, negotiated an out-of-court settlement with them and agreed to pay $418 million as judgment debt. Meanwhile, despite opposition by the governors and activists, President Buhari has approved the payments. This comes amid aggressive borrowing by the federal government. Nigeria spent $3 billion in four years on servicing commercial loans, including Eurobonds and Diaspora bonds, according to an analysis of data on actual external debt service payments from the Debt Management Office. The cost of commercial loan servicing rose from $91.3 million in 2016 to $840.1 million in 2020, showing an increase of $748.8 million or 820.15 per cent. The country paid $91.3m to service commercial loans in 2016 which accounted for 26 per cent of the total external debt service cost of $353.1 million. In 2017, $158.8 million was spent on servicing commercial loans, accounting for 34.21 per cent of the total external debt service cost of $464 million. The country serviced its commercial loans with $1.03 billion in 2018 which represented 70.03 per cent of the total external debt service cost of $1.5 billion. In 2019, the amount spent on servicing commercial loans accounted for 59.08 per cent ($787.8 million) of the total external debt service cost of $1.4 billion. Last year, $840.1 million was spent on servicing commercial loans, representing 54 per cent of the total external debt service cost of $1.6 billion. The commercial loans obtained by Nigeria through Eurobonds rose from $1.50 billion as of 31 December 2015 to $10.87 billion at the end of last year, indicating a $9.37 billion or 625 per cent increase in five years. In September, the country raised $4 billion through Eurobonds.

As of 21 October, two weeks after 7 October slated for the commencement of collecting PVCs in Anambra State, registered voters had not started collecting their PVCs. This is despite the governorship election scheduled for 6 November, in less than two weeks. INEC’s National Commissioner and Chairman, Information and Voter Education Committee (IVEC), Festus Okoye, had earlier said that the Permanent Voter Cards (PVCs) would be ready for collection on or shortly after 7 October 2021. Dubawa, a fact checking organisation, spoke with various residents in the state who all confirmed that the PVCs were not ready after a Twitter user had reported this. When Dubawa contacted Mr Okoye, he restated the commitment of the commission to conduct the election as planned, adding that the PVCs for newly registered voters were currently being printed and will soon be ready for collection. “We are printing the PVCs presently. We have their (voters) telephone numbers and email addresses. The moment their PVCs are ready, we will send emails to them and text messages and call them by phone and they will come and pick their PVCs. Everybody who registered and really wants to vote will get their PVCs at least a week before the election.” The Anambra election has been under threat by the rebel movement IPOB, and President Buhari has ordered security agencies to ensure that it happens. Governor Willie Obiano steps down after eight years in office. Despite this, INEC says 81,778 newly printed Permanent Voter Cards (PVCs) are ready for collection in Anambra. The commission, which offered this update on 26 October in Abuja, said the newly printed PVCs included those for newly registered voters and those who applied for replacement or transfer of their cards in the state during the just concluded first phase of the Continuous Voter Registration in the state.

Separatist leader, Nnamdi Kanu, pleaded not guilty to charges including terrorism in an Abuja court on Thursday, three months after his trial was delayed when authorities failed to produce him in court. The charges against Kanu, who holds both British and Nigerian citizenship, also included calling for secession, knowingly broadcasting falsehoods about President Muhammadu Buhari, and membership of an outlawed group. The government proscribed Kanu’s Indigenous People of Biafra (IPOB) as a terrorist organization. IPOB wants a swathe of the southeast, the homeland of the Igbo ethnic group, to split from Nigeria. An attempt to secede in 1967 as the Republic of Biafra triggered a three-year civil war that killed more than 1 million people. Security services barred journalists from entering the court and forcibly dispersed crowds of supporters who gathered nearby. In selfies with his lawyer, Kanu looked healthy and in good spirits. Kanu was first arrested in 2015 but disappeared while on bail in April 2017. His social media posts during his absence, and his Radio Biafra broadcasts, outraged the government, which they said encouraged attacks on security forces. Security agents produced him in court in Abuja on June 29 after detaining him in an undisclosed country. His lawyer alleged he was detained and mistreated in Kenya, though Kenya has denied involvement. Kanu has filed charges alleging that he was illegally taken from Kenya and asking that he be repatriated to Britain. On Thursday, his lawyers also asked, unsuccessfully, for Kanu to be transferred to the Nigerian Correctional Centre instead of the state security custody for easier access to his lawyers. Kanu’s lawyer, Ifeanyi Ejiofor, said they have an application challenging the competence of the underlying charges, most of which reference Radio Biafra broadcasts made out of London. “I can’t see how someone would make a statement in London and it becomes a triable offence in this country,” Ejiofor told reporters. The trial was adjourned until 10 November. In a related development, transporters in Abia have appealed to IPOB to give them palliatives to cushion the effects of the sit-at-home lockdown. The transporters who spoke to the News Agency of Nigeria in Umuahia, the state capital, on Monday, said the development was making things difficult for them. According to them, they are worried that the weekly exercise has crippled the socio-economic activities in the region. Henry Okezie, Chairman of the Abia State Drivers’ Welfare Union, said the exercise had dealt a deadly blow on the transport sector. He said, “This frequent sit-at-home is really affecting us because we can’t operate if we don’t see passengers. Most of our members have their vehicles on hire purchase; which means that we must work every day to meet the target.” Despite the suspension of the sit-at-home by IPOB, residents of the region still comply with the order over the fear of attacks. The transporters complained that their sector was the worst hit by the directive as their vehicles are usually attacked or vandalised by IPOB enforcers while passengers hardly come out of their homes for fear of attacks.

Commentary

• As expected, the flashy era of Nigeria’s official entry into the world of financialised blockchain-backed commerce has been characterised by teething problems – from middling online reviews and negative app store reviews (which forced it off the Google Play Store by midweek) to technical glitches, and above all else, a paucity of public understanding about the product offering. Unlike its global peers, the CBN did not roll out a pilot scheme, undertake a market fit analysis or publish most of its much-cited but little-seen research into the eNaira mechanism. In the lead up to launch day, concerns were raised about the bid and tender process behind the recruitment of the scheme’s technical partner. Setting to one side all of these well documented concerns, it remains to be seen how the eNaira will achieve the lofty goals that have been set for it. The financial inclusion argument seems a bit far fetched in a predominantly cash-based economy where a majority are unbanked and underbanked. When squared with the price stability mandate of the CBN, there is no lucid analysis that shows how a digital currency that will be pegged in value to a currency habitually buffeted by the whims of commodity prices will keep prices down or sane. In any case, the initial hundreds of millions of eNaira as it stands will take a while to hold its own in a market currently lubricated by trillions of fiat Naira in circulation. Finally, there is the legitimate concern of driving uptake for the new kid on the block. One way will be to mandate commercial banks to require depositors to hold a fraction of their funds in the digital currency but that will run into the hard wall of the property rights of Nigerians depositors – 99.4 percent of whom contain less than ₦500,000 Maximum Insured Limit (MIL) according to data from the Nigeria Deposit Insurance Corporation – to determine how their funds are utilised. If the CBN’s regulatory track record is anything to go by, that wall will be laid low. Ultimately, Governor Emefiele and his team have a few critical questions which they initially skipped to grapple with in the weeks, months and years ahead: what is the utility of the eNaira? How is its value proposition different from fiat Naira already in circulation digitally? And how are Nigerians expected to overcome their well known (and fully merited) distrust of the CBN having such visibility into their funds while keeping the blockchain it utilises for the eNaira issuance opaque?
• Headlines such as this have become a yearly tradition and with each passing year, the number of states flirting with near public insolvency appears to either be rising or remain elevated. The 2015 version of BudgIT’s dispatch only highlighted 19 states that were in that situation. This brings to further light the precarious position of financial sustainability of the Nigerian state as structured. Not only will the Federal Government struggle to cover salaries from revenues due to the debt service issues, but most of the states are also technically insolvent. A note must be mentioned of this unhelpful habit of engaging consultants without due process to do the government’s business. It has become a gig that those in the corridors of power employ to siphon money, and it sadly requires signing the country into questionable deals. This is a never-ending story of misappropriation, greed and corruption and sadly the ordinary Nigerian will be left to suffer the consequences. It has to stop. On the debt pile up, what we expect to see is more bitter fighting between the federal and the state governments as the reality of this fiscal faceoff sinks in, especially after President Buhari exits the political scene with his aura of unchecked and unquestioned policy setting. All round, it is difficult to find silver linings to this story.
• Before the Continuous Voter Registration (CVR) exercise was suspended in Anambra in early September to enable INEC to compile the voter register, print Permanent Voters Cards, and prepare for the 6 November governorship election, 77,475 people had successfully registered as first-time voters. This is slightly less than the number of newly-printed PVCs said by INEC to be ready for collection, suggesting that the excess might be from already registered voters in the state who did not possess PVCs. However, while the data on PVC collections is not publicly available, there are clearly a lot of uncollected PVCs from previous registrations. This is an indicator that INEC’s logistical lapses remain a factor and could hamper the participation of voters in this election, further depressing voter turnout in a state with historically low electoral participation. Turnout is predicted to be even lower in this cycle due to rising insecurity. As INEC continues efforts to test out new technology such as the Biometric Voter Accreditation System (BVAS) and insisting on voter accreditation, it must ramp up its logistical capabilities in terms of printing and distributing PVCs. In the same vein, it must work to ensure that election materials are ready, safeguarded and distributed in a timely manner to all polling centres for the election.
• While it appears that the Federal Government has valid charges against Nnamdi Kanu, his trial and possible imprisonment will not end separatist agitations in Nigeria’s South-East nor will it put a stop to IPOB’s activities. As we have pointed out in previous editorials, the use of force to end these agitations without any attempt at resolving the causes of these agitations will only force IPOB supporters to use violence as a tool. This seems to be what is happening with the increase in violence in the region with attacks on security agencies, government offices and civilians, the use of force to enforce sit-at-home protests and the insistence that there will be no elections in Anambra in November. Rather, the trial and possible imprisonment of Nnamdi Kanu will only add to the image that has been built of him as a freedom fighter by IPOB supporters. The agitation for Biafra is not one that will be ended simply by state force or imprisoning a key figure in the agitation. It needs to be observed that IPOB’s methods are fast losing their popularity with people in the region as the sit-at-home orders have caused economic losses to the people of the region according to research findings by SBM . It cannot be said that IPOB is speaking for the region even if the sentiment of marginalisation is held by a wider plurality of the residents. This presents an opening that Abuja can use smartly to defuse the worsening insecurity and tensions. However, if the situation is not handled delicately, it risks becoming a full-blown insurgency which will set the region back economically and become one more internal security challenge for a burdened Aso Rock to handle.