The week ahead – Shege

The Independent Petroleum Marketers Association of Nigeria (IPMAN) has said that the volume of petrol supplied to marketers has dropped by 50 percent from July last year. Meanwhile, BusinessDay reported that the FG had given approval to the Nigerian Midstream and Downstream Petroleum Regulatory Authority for an upward review of the official retail price of petrol to ₦185. Meanwhile, the Lagos State Government has announced that filling stations operating along major roads and traffic-prone areas within the state are to operate only between the hours of 9 am and 4 pm daily, pending when the fuel shortage crisis abates. In Lagos and Abuja, petrol prices now range from ₦250 and ₦300 a litre, depending on the purchase area.

The current petrol scarcity is a case of market realities catching up with the government’s resolution to maintain an unsustainable and inefficient petrol subsidy regime that has bled the country for years in monetary terms. Setting aside the impracticability of Nigeria’s continued implementation of the subsidy scheme, NNPC Limited is now, according to a source, unable to source foreign exchange to meet its importation quota. In normal times, the corporation is, by virtue of the direct-sales-direct-purchase mechanism, not required to spend cash to bring refined petroleum products. The corporation does this through a batter system. They swap oil with select traders, who give them fuel. Unfortunately, the company’s increased oil production has not met the OPEC threshold of 1.4 million barrels per day. As a consequence, NNPC does not have enough to fund its commitments to its traders, who have responded by terminating petrol supplies, according to media reports. So the company, like every other Nigerian business, is pressed for forex to hire vessels and pay for the cost of sourcing and importing petrol and other refined products. Petrol tankers are not well suited to dock in the country’s preferred Apapa Port because it is not deep enough to berth vessels of a certain build, as well as congestion challenges. The NNPC has often had to take the circuitous route of offloading products into smaller vessels in Lagos and dispatching to terminals in Lagos, Port Harcourt and Onne. This strategy comes with attendant and offloading costs for the vessels; the latter cost is called a lightering charge and is paid in US dollars. When you sum up the fact that the NNPC is queuing for dollars like the rest of the economy and selling retail petrol at less than its cost value, the company appears to be shooting beyond its limit. The company does not collect its domestic crude allocation of 445,000 barrels daily for free. It remits dollars to Abuja. The company also has a plethora of financial commitments apart from remitting to the federation account. It is also not the only partner in the fields producing oil and gas. So, it gets to share every dollar it makes with these partners. Nigerians need to brace up for a life without subsidised petrol. With some retail outlets selling products north of ₦300/litre already, prices could easily race towards ₦500/litre by the time Muhammadu Buhari leaves office at the end of May. For the new president to retain the scheme, a new borrowing plan would have to be submitted to the 10th National Assembly, which will take time. For context on what those numbers might look like, the 9th Assembly passed a half-year spend of ₦3.36 trillion for subsidy payments, which is more than 56% of overall capital expenditure. The rising subsidy cost and Nigeria’s fiscal troubles mean that the government will always be playing catch up to make the payments and import fuel products. This means that these queues will remain until at least June, when the subsidy regime is scheduled to end. In the interim, motorists will have to decide between wasting productive time in fuel queues to buy at the official price or buying more expensive fuel from independent marketers. In the end, the latter option might work well as a dress rehearsal for when the subsidy regime ends, and prices go up. The ship cannot hold much longer.

As the window for the phasing out of the old banknotes closes, the Central Bank of Nigeria (CBN) has stepped up an aggressive awareness programme to sensitise the public on the security and other issues about the new notes. Officials of the regulatory bank started visiting markets across the country, assuring market people that the naira redesign is aimed at combating counterfeiting. They also urged them to deposit the old notes they had kept, assuring them that the current scarcity of the new notes would soon be over. They also encouraged those without bank accounts to visit banks of their choice to open accounts.

The CBN’s approach to rolling out the new banknotes (only the higher denomination ₦1000, ₦500, ₦200 notes are being changed) has been all shades of wrong. From an anaemic public sensitisation campaign to the patchy circulation of the new notes paired with a mostly lax retrieval of old naira notes, the management of the new currency onboarding has been shoddy and scatter-gun. Utterances from the CBN, including from its governor, indicate that its key success metric is halting the usage of the old naira notes by 31 January, but the regulator has paid lip service to the processes that will help achieve this target. It was first announced in October 2022, with the President shepherding a glitzy launch in November. In other words, Africa’s largest economy only allowed two months to overhaul half of its banknotes. There is no precedent for a tight turnaround on a major policy thrust of this kind anywhere in the world, and it is spooking major stakeholders. Retail banking agents, who have quickly risen to be the dominant financial services contact point for most Nigerians, have complained of a constrained supply of the new notes. The bank responded by launching a last-minute cash swap programme across as many of the country’s 774 local government areas as possible – 12 days before the deadline. The National Assembly, packed with politicians acting as elected representatives and election candidates who have stockpiled cash to secure re-election, have asked the regulator to consider extending the deadline to the end of July. The CBN has refused. Observers have said that the ostensible aims of the redesign – enhancing currency security, limiting the appeal of cash in favour of electronic bills payment and curbing corruption – can be better achieved by less disruptive mechanisms. The regulator has acted like those concerns are nonexistent. Governor Godwin Emefiele may have vehemently denied the possibility on numerous occasions but we foresee the CBN will extend its deadline as it is unlikely that total circulation of the notes alongside sensitisation on the new notes, specifically in the area of counterfeit note identification will be attained before the deadline. Yet again, public institutions in Nigeria keep rolling out campaigns without a well-thought-out implementation roadmap. For the CBN, it is increasingly becoming par for the course.

Pandemonium broke out at the Rumuwoji Playground in Port Harcourt, the Rivers State capital on 19 January after a twin explosion rocked the campaign rally of the All Progressives Congress, leaving at least three persons seriously injured. The Punch reported that the APC governorship candidate Tonye Cole and other candidates were present at the rally when the blast occurred. A similar event held by the Peoples Democratic Party in Edo State ended in disarray after unknown men fired gunshots at the campaign ground in Ward 7 of the Edo Central Local Government Area. The police have launched investigations into both incidents.

The 2023 election and its lead-up is a departure from previous electoral seasons because security before the polls make up the most pressing issues. In the past, discussions on electoral security heavily focused on the security and safety of INEC staff, voters and voting materials on election day despite pockets of violence that followed the campaign season. This time, however, the heightened insecurity in the country has put the safety of INEC, the electorate, political actors and members of their patronage networks on mounting concerns. The resultant ripple effect is that it creates a demand for the business of private security in terms of the purchase of bulletproof cars. Not only that, it over-burdens the system, especially when one considers that a sizable number of the casualties are police officers who are on VIP protection duties. Often, when these attacks occur, police officers are used as cannon fodder as they are not found in the bulletproof cars of their principals and are thus easy targets, which ultimately is a misappropriation of the much-needed but scarcely available security manpower. Among the two places where last week’s political violence took place, Rivers tops with the most concern. Rivers State has consistently encountered electoral violence since the beginning of the Fourth Republic, even as a one-party state, and it appears this is not abating. It has a history of pre-election violence that is a spin-off of school and street gang rivalry that is part of the larger ecosystem of Niger Delta militancy. In a May 2020 report, SBM examined the state’s key drivers of gang violence with their ties to political parties and actors. This has not changed. Rather, the violence deployment pattern has now evolved to using explosives in an arena that used to tout its gun supremacy. Since 2020, there have been about 17 incidents of unclaimed bomb explosions across the country. Rivers lead the country with at least five; only Imo and Kaduna come close with three each. The last time a bomb went off in the state was in May 2021, when six people got injured in a dynamite explosion in the Mile 3 area of Port Harcourt. While Edo is yet to experience those levels of political violence, bar claims from the Islamic State West Africa Province that it killed some policemen and destroyed their vehicles with explosives in Igarra in September 2022, the state is not faring any better on matters of security. Edo and Rivers have a long history of gang violence from youths that act as mercenaries for political ends, but with the elections imminent, the dynamic may have changed to something more sinister: more actors would be looking to bring bombs to a gunfight.

The African Development Bank said Ghana’s economy expanded by 3.6 percent in 2022, from 5.4 percent in 2021. In its latest 2023 Macroeconomic Performance and Outlook Report, it said deep macroeconomic imbalances, higher inflation, depreciating local currency, and high public debt estimated at 91 percent of GDP weighed down growth. 2022’s top African growth performers were Seychelles (8.3 percent), Rwanda (6.9 percent) and Kenya (5.5 percent). Growth in oil-exporting countries declined marginally, with average growth reaching an estimated 4.0 percent in 2022, from 4.2 percent in 2021, largely reflecting Libya’s sharp decline and Nigeria’s weaker growth.

Ghana’s macroeconomic environment came under significant pressure after the Finance Minister, Ken Ofori-Atta, presented the 2022 budget to parliament in November 2021. The adverse impact stemming mainly from global shocks and domestic developments made it difficult for the government to call the shots in its own economic space. The scarring from the COVID-19 pandemic, coupled with the impact of the Russia-Ukraine war on an already fragile global supply chain, spiking commodity prices, global inflation, interest rates and the tight financing conditions rendered the assumptions that underpinned the country’s 2022 macroeconomic planning obsolete and irrelevant. Global inflation skyrocketed to a 40-year high, and the Fed decided to tackle it by pursuing monetary policy tightening and almost all developed and developing countries, Ghana inclusive, were not spared. By the year’s first half, the Black Star’s inflation had more than doubled – from 13.9% in January to 29.8% in June. The cedi lost more than 20% of its value to the US dollar and became one of the world’s worst-performing currencies. Ghana’s fiscal deficit was 5.7% of GDP for the first half of 2022 compared to the government’s 3.9% target. Despite a 450 basis point hike in the monetary policy rate between March and May 2022, real GDP grew only 3.3% in Q1 2022. When paired with a debt-to-GDP ratio approaching 80%, global credit rating agencies duly downgraded Ghanaian debt and asset qualifications. The fall in international reserves was the last straw that broke the camel’s back. Currency reserves fell to US$7.7 billion (3.4 months of import cover at the end of June 2022, compared to US$9.7 billion (4.3 months of import cover at the end of December 2021), putting the cedi in a forlorn position. July represented a turning point for the government as it finally ate humble pie and sought an IMF bailout package after months of playing hide and seek. By the time the Finance Minister announced a revision of all macroeconomic targets for the 2022 fiscal year, including cutting GDP growth by almost half, Ghana’s economy had lost its anchor. The country has suffered at least seven downgrades and revisions and lost complete access to the Eurobond market. Foreign investors began dumping Accra’s long-term sovereign bonds, revenue targets were missed, and default was next for both external and domestic creditors. The IMF cut Ghana’s growth rate for 2022 to 3.6% from the earlier 5.2%. It, therefore, does not come as a surprise when AfDB disclosed that the country’s economy expanded by 3.6%. Sectorally, a demise in the industry was somewhat offset by expansion in agriculture and services. Most observers still maintain a positive outlook on the economy; those hopes hinge on securing a $3 billion IMF package. The government has also implemented various measures to address the imbalances and boost economic growth in 2023, including fiscal consolidation, monetary policy tightening and structural reforms. Many of those efforts are not popular. The AfDB’s projection, while higher than the IMF, World Bank or government projections, is still a long way down from recent trends. For an economy that grew by 7% on average between 2017 and 2019, the AfDB’s report serves as a reminder of the current economic turbulence and a great lesson to other Sub-Saharan African economies whose economic growths are directly tied to unstable booms in certain commodities.