The week ahead – Absolute zero

Central Bank of Nigeria Governor Godwin Emefiele said forex receipts from oil sales have dried up, and the number of Nigerians seeking foreign education is to blame for the fall of the naira. Emefiele said this at the 57th Annual Bankers Dinner of the Chartered Institute of Bankers Nigeria (CIBN) in Lagos. In his words, “the official foreign exchange receipt from crude oil sales into our official reserves has dried up steadily from above US$3 billion monthly in 2014 to absolute zero dollars today.” On education, he noted that the number of student visas given to Nigerians by the United Kingdom spiked from a yearly average of about 8,000 visas in 2020 to almost 66,000 in 2022, implying an eight-fold increase amounting to $2.5 billion yearly in study-related forex outflow to the UK alone. He said the move had put pressure on the country’s foreign reserves and the naira. This comes as the country’s Excess Crude Account has declined by 89 percent in the last eight years, moving from $4.1 billion in November 2014 to $472,513.64 as of 23 November 2022, according to a statement by the Ministry of Finance, Budget and National Planning. The ECA is the Federal Government’s fiscal account that was created to save revenues—in excess of the budgetary benchmark price—that was generated from oil sales. According to economists, the account has depleted due to a lack of inflows, oil market vagaries, and the country’s revenue crunch.

The central bank governor has effectively admitted that the state oil company has effectively lost its ability to contribute meaningfully to the government’s bottom line. This zero remittance posture from the NNPC has been known for a while, and state finance commissioners have raised the alarm in the past. The lost revenue is due to the government’s continued effort at indirectly subsidising ballooning petrol consumption (a lot of which is phantom and channelled to smuggling networks with links across West and Central Africa) through a needless and economically unintelligent price cap. Mr Emefiele simply joins the list of people who have stated the obvious. In the past, Nigeria’s economic well-being has been tied to the price of oil in the international market. A case in point is the last two recessions the country suffered. Between mid-2014 and early 2016, crude prices dropped by over 70 percent (to around $26 per barrel) due to a massive supply glut precipitated by booming U.S. oil shale production, receding geopolitical concerns and shifting OPEC policies, leading to Nigeria’s first recession in over two decades. The oil price crash was only curtailed after ten non-OPEC nations joined OPEC to form OPEC+ in late 2016 to have more control over the global crude oil market and allowed Nigeria to exit the recession in Q2 2017. Again in 2020, the COVID-19 pandemic caused the global shutdown of trade commerce, and oil prices dipped to $15 per barrel by Q3 of the same year; Nigeria’s economy had slipped into a recession. This time, the grand reopening of global economies caused oil prices to rebound (it closed the year at $50 per barrel), thus enabling the Nigerian economy to recover from that recession after just one quarter. In both cases, the oil sector’s underperformance spilt over to the non-oil sector, thus confirming that whilst the oil sector directly makes up less than 8% of the Nigerian economy, its impact on the non-oil sector is massive. However, despite oil prices remaining strong at around $80 per barrel, the Nigerian economy is suffering as production shut in and petrol subsidies (some of this is paid for by crude for petrol swaps) ensure that revenue from oil receipts has dried up. It is a travesty that Nigeria, once the largest oil-producing country in Africa, cannot take advantage of what is essentially an oil boom – a first in the country’s history, and speaks to the wilting capacity of the Nigerian state to maintain effective control of its resources. There have been no viable explanations from either NNPC or the incumbent oil minister, who also doubles as the president. Nigeria is now run primarily on debt and taxes. Despite this, the country is still structured as if oil produces most government revenue. We expect that if this type of situation persists, the ongoing reset in the relationship between the states and Abuja will accelerate. If anything, the one positive thing is that the root causes are known and can be addressed. The negatives? Pretty much everything else.

Three migrants rescued in the Canary Islands, after apparently enduring an 11-day journey from Nigeria crouched on the rudder of a fuel tanker, should now be returned home under stowaway laws, a police spokesman said on Tuesday. In a photograph distributed on Twitter by the Spanish coast guard on Monday, the three stowaways are shown crouching on the rudder under the hull, just above the waterline of the Alithini II. According to Marine Traffic, the 183-metre ship, sailing under a Maltese flag, arrived in Las Palmas in Gran Canaria after setting out from Lagos on 17 November and navigating up the West African coast. A Canary Islands police spokesperson said it was up to the ship’s operator to take care of stowaways, provide them with temporary accommodation and return them to their origin as soon as possible. However, the migrants may be able to remain in Spain if they claim asylum, Helena Maleno, director of migration non-governmental organisation Walking Borders, said. The Spanish-owned Canary Islands are a popular gateway for African migrants attempting to reach Europe. The number of migrants arriving illegally to the archipelago by sea fell 17.6% to 14,875 in the first ten months of 2022 from a year earlier, according to the Interior Ministry. Back in the country, the Nigerian Association of Resident Doctors says 4,000 members plan to leave, plummeting the country’s doctor-to-patient ratio to one doctor to 10,000 patients. According to the body, the government’s attitude to members’ compensation and work condition demands means that “on average, we have lost between 100 to 160 doctors every month.” NARD President Dr Emeka Orji said the country had already lost 2,000 doctors to the outside world in the last two years. “We are not just talking about the low-level staff here, we are talking about the highly specialised doctors leaving the country,” he told the Vanguard.

On the whole, the Spanish authorities seem to have better handled the Canary Islands migrant crisis than France and Italy recently handled theirs. Over 880 people are known to have died attempting to cross into the Islands in 2021 – surpassing the total for all of 2020 – and more than 1,000 others potentially perished in so-called invisible shipwrecks. The coronavirus pandemic exacerbated migration to the island, which has been dormant since 2006. Although Nigeria’s history with stowaways is well documented, going back to a near-epidemic in 2013, not much has been heard of migration by that route in a while. The economic crisis has reactivated both unorthodox and supercharged legal migration. There is a reason why the authorities in the Canary Islands have better managed the over 23,000 migrants and asylum seekers who have made it ashore since 2020. Tensions subsided as arrivals declined during the first months of 2021. According to a report by The New Humanitarian, reception facilities with more capacity opened in March 2021 and a court ruling in April of that year forced the government to allow some asylum seekers to travel to the mainland. Now, people are periodically being transferred to the Spanish mainland to prevent overcrowding, the local government has implemented better health protocols to manage arrivals and mitigate the threat of COVID-19, and the economy has started to recover – all of which have helped to improve the situation. On the bread and butter side, a March 2022 study by the Medical and Dental Consultants’ Association of Nigeria found that nine out of every ten medical and dental consultants with less than five years of experience plan to leave the country. The Nigerian Medical Association says only 24,000 doctors are registered to practise in Nigeria, which works out to one doctor for every 8,000 Nigerians, well below the World Health Organisation’s recommended 1:600. NARD’s warning is both timely and troubling. For the doctors and other professionals who can leave these shores, the effect of their actions has this moment looking like the calm before the storm, at home but especially abroad. For much of the past decade, European politics have been plagued with talking points on migration. Earlier this week, Brexiteer Nigel Farage posted a video tweet claiming that the UK’s Office for National Statistics’ new report states that three of the UK’s biggest cities–Birmingham, London and Manchester are now minority white areas. Although Mr Farage is not in government, his “alarm bells” offer a window into understanding the social issues that will plague the continent in the near future. It has already begun with the squabble between Paris and Rome over migrant handling, with new Italian PM Giorgia Meloni using France’s neocolonialist enterprise in Africa as a score point. For now, the economics support migration, but history has repeatedly shown that placing a bet on rational actors to remain rational is a fool’s errand. Depending on the season, grass has an uncanny ability to alter its colours.

The Chief Justice of Nigeria (CJN), Justice Olukayode Ariwoola has said the Nigerian Judiciary is not truly independent due to the absence of financial autonomy. Justice Ariwoola made the assertion on Monday at a special session of the Supreme Court held to mark the beginning of the 2022/2023 Legal Year and the swearing-in of 62 newly conferred Senior Advocates of Nigeria (SAN). According to Ariwoola, harsh economic realities are hurting judicial activities in the country. He said: “I will make it clear to whoever cares to listen that when the Nigerian judiciary is assessed from the financial aspect, we are yet to be free or truly independent. The annual budget of the judiciary is still far from what it ought to be. The figure either stagnated for a long period of time or goes on a progressive decline when placed side-by-side with current realities in the market. Prices of goods and services are not getting less or friendly to buyers, while at the same time, our purchasing power is abysmally low and weak enough to transmit on the same wavelength with market forces.” He pleaded with other arms of government and allied agencies “to clear all the impediments so we can enjoy our independence holistically”.

Chief Justice Ariwoola might as well have been reading from the same script passed on by his predecessor, Justice Ibrahim Tanko Muhammad concerning the lack of judicial independence fuelled by the absence of financial autonomy. For Justice Tanko, it was the reality that “it would be difficult for the judiciary to be impartial and objective in a democracy when it is not autonomous.” The Ariwoola version emphasised the astronomical rise in retail prices, which “are not getting less or friendly to buyers, while at the same time, our purchasing power is abysmally low and weak enough to transmit on the same wavelength with market forces.” This might come across as yet another voice in the chorus of many railing at the raging cost of living crisis. Still, these statements raise red flags about the apron strings, which tie a teetering third arm of government to a tone-deaf executive. The primary goal of separation of powers — to enable the three arms of government to be functionally independent of each other envisages the judiciary as the guardian and protector of fundamental human rights. A real or perceived lack of independence will hinder judicial officials from performing their functions without fear or favour. President Buhari, in May 2020, signed an executive order granting financial autonomy to both the judicial and the legislative arms of government. The President’s decision was commended, especially by the judiciary, but state governors expressed concerns over its constitutionality and financial implications. However, the order’s gazetting was suspended after the President met with the governors. For one, decreeing a reality is not the most solid of footings. For another, the governors have a point. Over the years, the judiciary and other stakeholders have reiterated the fundamentals of ensuring its financial autonomy and how its absence affects the discharge of its responsibilities. In 2021, the Judiciary Staff Union of Nigeria (JUSUN) shut all courts across the country in protest of the non-implementation of financial autonomy for the judiciary. This led to the strike, which started on 6 April 2021, with activities of the court being stagnant for some months. Even more worrying is the signal these statements send to the political class as the elections approach. In normal cycles, the judiciary is inundated with financial inducements to rule in favour of politicians with the deepest pockets. This situation is bound to create an atmosphere where elections will be determined in the courts and may, more often than not, legitimise unpopular mandates in various constituencies. Set amid escalating living costs, an underperforming economy and a competitive electoral map which is almost too close to call, expect the 2022-2023 cycle to be supercharged on this front. All lovers of democracy and open governance should be at their battle stations to support the judiciary as it enters one of its most challenging periods on record.

The Independent Petroleum Association of Nigeria (lPMAN) blames the current fuel scarcity on the unavailability of petroleum products and the difficulty in accessing foreign exchange by marketers. lPMAN’s Operations Controller, Mike Osatuyi said this to the News Agency of Nigeria over the weekend. He said the Nigeria National Petroleum Corporation (NNPC) Ltd. had stopped importing enough petrol to meet the country’s demand. Mr Osatuyi was emphatic that marketers could no longer sell at the regulated price because the unsteady supply of petrol had resulted in higher prices at the depots, saying the price of a litre of petrol at private depots is currently between ₦205 and ₦210 as against ₦162.50. Despite assurances in October by the Nigerian Midstream and Downstream Petroleum Regulatory Authority that an industry stakeholder meeting would decisively deal with persistent fuel scarcity, by November, long queues surfaced in many parts of Lagos and the South-West affecting both motorists and commuters alike. The Guardian reported that retail stations owned by members of the Major Oil Marketers Association of Nigeria (MOMAN) are dispensing products and selling at the regulated price of ₦170 per litre. In contrast, some IPMAN-owned stations sell between ₦200 and ₦210, respectively. This has not been helped by Nigeria’s oil production averaging 1.34 million barrels per day in the first ten months of the year against the budget benchmark of 1.88 million barrels per day, costing the country about 161.58 million barrels in lost production. At an average crude oil price of $95 per barrel, the country lost about $15.35 billion in estimated earnings. According to the budget office, gross oil revenue amounting to ₦2,172.35 billion was collected in the first half of 2022 compared to projected prorate revenue of ₦4,684.98 billion.

The conversation around petrol consumption in Nigeria is often a labyrinthine enterprise filled with diversion, obstruction, dissent and flat-out dead-ends. This week’s rhetoric joust between key actors in that ecosystem illustrates this principle. Conflicting developments have overtaken Mr Osatuyi’s claim that there is a fuel shortage across depots in the country. Factional IPMAN president, Chinedu Okoronkwo was quoted as saying there is enough supply, only distribution challenges. NNPC’s Executive Vice President Downstream, Adeyemi Adetunji, said the country has more than two billion litres of petrol in stock for more than 30 days, representing its strategic buffer. On Wednesday, the company ordered 24-hour off-loading from its strategic depots. If the company has to aggressively empty its strategic reserves, it implies the presence of market gaps. So, what is happening? Two key things: infrastructural collapse and bad regulation. First, the relatively minor issue. The NNPC, like the rest of Nigeria, is over-reliant on the Apapa port to move essential commodities in and out of the country. Repairs on the Apapa road and access points have created a backlog that has no doubt glued the NNPC trucks (as well as those of many operators), creating traffic jams of epic proportions, shutting out entire districts of the city (including Apapa and Ijora) and costing traders billions of naira. Processing at least 80% of goods entering and leaving the country through two poorly managed ports in one state (when there are eight other ports) has consigned Apapa and its environs to congestion seldom seen anywhere in the world and illustrate the shortsightedness of Nigerian decision-making. That said, Dangote has been building a 35 km road that connects Apapa and Tin Can to the A1 national highway since 2018. The road was slated for completion in November, but no announcement has been made about its current contractual status. The NNPC has not, in all of that time, fully blamed port congestion for fuel queues. While the said congestion would have been a factor from time to time, the company has found a way to work around it. It is not the chief culprit here, only a mere accessory. The real culprit is regulation or, more to the point, the absence of sensible industry management. A four-year study by the Natural Resource Governance Institute showed that the NNPC makes complicated offloading arrangements for its petroleum products, which increases depot costs. Ships supplying petrol for the company are not, for example, mandated to buy from a refinery and bring directly to either the Apapa or Tin Can port. They buy off tankers, get to a port close to Lagos like Cotonou and offload into smaller vessels. These vessels were offloaded at different terminals around Lagos, Port Harcourt and Warri. At each vessel-to-vessel transfer, a transhipment charge is incurred. This charge is factored into the pricing template layered on top of the landing cost. There is also a lightering charge for using the smaller vessel. In March 2022, the transhipment charge was reportedly passed on to depot owners. The NNPC has a mere 21 storage facilities across the country. Hundreds more are in private hands. When the petrol arrives at their facility, they add their fees and margin when supplying to the filling station, which is expected to sell at a subsidised rate. Because of this multi-layered chessboard-like process, marketers, depot owners and the NNPC have to haggle over how to keep the end-retail price fixed. That process is often acrimonious and accompanied by queues and claims of hoarding. If it stopped there, it would be bad, but it gets even more complicated. If the fuel were enough to go around, there would be no need for queues. At different points throughout the year, however, queues have surfaced. By the terms of the Direct Sale Direct Purchase contract the NNPC enters into with middlemen and international oil traders yearly, the company offers crude oil in exchange for petrol, kerosene, aviation fuel and other products. The allocation ought to come from the 445,000 barrels per day that should have been allotted to the refineries, assuming they were working. Nigeria had benchmarked 1.8 million barrels per day in crude production but instead has been producing a mere million for months. It means that almost half of daily production ought to meet the country’s domestic fuel needs – pegged by the state oil company at 66.66 million litres a day – alone. Assuming the NNPC does not sell all its oil on the spot market, it would have outstanding DSDP contracts it needs to fulfil. Suppose it sells all its oil on the spot market. In that case, the company will be effectively exchanging all of Nigeria’s daily crude allocation for refined petrol, which it would still subsidise for retail consumers. In October, the NNPC set up new contracts with its petrol importers, to cope with the shortage in oil production. Under the deal which is different from the DSDP, the company would owe the importers crude for three months. It entered that deal because it did not have enough oil to meet its DSDP commitments. Since the corporation’s corporate terraforming, it has ceased the monthly operational and financial publication, which was the only window into how much oil it swaps for refined products. Cornered on all sides, with lawmakers gunning for accountability, operators unwilling to share the avoidable risk of maintaining the musical chairs and consumers left with no fuel, the NNPC increasingly bears the appearance of a fatally wounded animal. This is an overbeaten problem for which the solution is obvious. Nigeria insists on regulating the price of a commodity it neither controls nor produces. As long as it does this without having the means to continue subsidising, the outcome will always be scarcity. The scarcity has become a constant feature in big cities, with the federal capital Abuja intermittently under its scourge all year and Lagos joining the party within the last five months. The uncertainty increases the cost of doing business and causes families that would otherwise allocate money differently to tie scarce funds down in securing fuel stashes. What has become clear is that, on the one hand, the marketers no longer want to sell fuel at the regulated price of ₦170 per litre. On the other hand, the various government agencies do not have the will or justification for enforcing that price. It is, of course, unlikely that the Buhari administration will remove petrol subsidies. However, in the same vein, it is unlikely that whoever replaces him in 2023 will be willing to take the political fallout from removing petrol subsidies after securing Aso Rock. Therefore, it is likely that the petrol price will be increased to another regulated price between ₦200 and ₦250, and the cycle will restart again. One thing is certain, petrol queues will persist until the downstream industry is fully deregulated.