The week ahead – The clouds gather

Last week, the Central Bank of Nigeria began the disbursement of old naira notes to Deposit Money Banks (DMBs), following a meeting between the CBN Governor, Godwin Emefiele, and bank chief executive officers on 22 March. An unnamed bank executive told the Punch that the cash scarcity was unlikely to end soon, but “things should normalise between one and two weeks.” Nigeria Labour Congress President Joe Ajaero and his counterpart at the Trade Union Congress, Festus Osifo, told journalists on 28 March that they would resume their planned protest if naira notes remained unavailable to Nigerians by mid-April.

It now appears that the poor implementation of the Naira Notes Swap Policy has seen the CBN lose many of its backers. Initially, there was widespread support for the policy among analysts who saw the move as one that would achieve two objectives: curtail vote-buying during the general elections and allow the CBN to rein in cash outside the banking system, thus strengthening its ability to deploy its monetary policy tools. Unfortunately, it appears that the CBN failed to print enough new notes and did not have a proper Plan B should inevitable hitches occur. Positively, it does appear that the old notes are now coming back into circulation, thus easing the pressure. Our observation is that in the city centres, ATMs have begun to dispense old currency, so the scarcity is likely to ease over the next few weeks. It will be interesting to see if the CBN meets the revised December 2023 deadline for phasing out the old notes; therefore, a post-mortem of this policy is required. Needless to say, it has been a disaster in both conceptualisation and implementation. It was thoroughly politicised by the CBN, which gave no thought to the plight of Nigerians; now, the regulator has returned to the implementation timeline originally recommended by stakeholders, including SBM Intelligence. Unfortunately, such disastrous policymaking will portend no consequences on those who championed it. At the minimum, the CBN governor should be tendering his resignation.

The National Bureau of Statistics (NBS) said in its February 2023 report that domestic air transport fares rose by 66.36 percent last year. The average fare for specified routes for a single journey decreased by 0.18 percent month-on-month. The report said average intracity bus fares decreased by 0.47 percent in February 2023 to ₦647.66 from ₦650.70 in January. On a year-on-year basis, average fares rose 26.07 percent from ₦513.72 in February 2022. Average intercity bus fares dropped to ₦3,990.70 in February.

In February 2022, Russia invaded Ukraine, which set off a series of events that led to a crude oil price increase (up to $130 per barrel) because of supply concerns. Also, that event came on the back of eight consecutive quarters (from the third quarter of 2020 to the second quarter of 2022) of global crude oil inventory decreases. The lower inventory resulted from withdrawals from storage to meet the demand from rising economic activity after pandemic-related restrictions eased. Consequently, the price of refined products rose in the international market, such that in Nigeria, the price of aviation fuel shot up in early 2022. Having laid out this background, it is necessary to point out that the factors driving the rise in airfares in Nigeria are myriad. These factors range from increased demand from a shrinking middle class that wishes to avoid the insecurity of road travel to the cost of aviation fuel and Nigeria’s high airside taxes; all these factors have combined to continue to drive up costs. The domestic operators’ refusal to properly align with the Single African Air Transport Market (SAATM)’s demands, which is meant to improve local and continental air-travel rates by boosting airline connectivity and efficiencies, has not helped. Nigeria’s transport mix is now effectively stratified where there is a safe and expensive component (air); and land and sea-based components, which are riddled with security risks. It is hardly the ideal environment for conducting business. Take shipping. Studies show that the costs of shipping goods from China to Lagos are outweighed by the costs of moving the same goods within Lagos. A 2020 SBM study showed that local transport costs were ten times higher in Lagos than in Durban (South Africa) and Tema (Ghana). When intercontinental logistics costs are underweighted in-country transportation costs, it is easy to see a unique situation that negatively affects final costs and how this affects inflation and market depth. It is difficult to see how the situation will improve in the short term because the incoming administration is committed to removing the fuel subsidy, further pushing up transportation prices.

Kogi’s House of Assembly has suspended nine of its members pending the outcome of an investigation into terrorism allegations. This was after the House Speaker, Mathew Kolawole, read Governor Yahaya Bello’s letter, alleging that the lawmakers engaged in terrorist acts based on “security reports”. The Deputy Speaker, Alfa Rabiu Momoh (representing Ankpa II State Constituency), supported the suspension, arguing that the state is bigger than any personal interest, and lawmakers should not be found contravening the law. The state government also suspended eight local government council chairmen for similar reasons.

Nigeria’s current environment, as a highly insecure country, has opened realms of possibilities and realities that would be termed abnormal in fully functional societies. Kogi is one of the most terrorised states in the country, and its location in Central Nigeria, where it shares state lines with eleven states in four geopolitical zones, makes it very strategic for armed groups. Over the years, prominent armed groups such as all three Boko Haram factions have attempted to make the state’s forests their habitat with varying degrees of success. Its vast ungoverned spaces aided by misgovernance have created prime conditions for terrorists to thrive, and thrive they have: on 3 January, ISWAP claimed responsibility for a car-bomb explosion that killed at least three people. The claim by the Islamic State affiliate came days after an explosion at the palace of the traditional leader of the Ebira ethnic group, Ohinoyi of Ebiraland. The incident occurred shortly before President Muhammadu Buhari arrived in the state to commission some projects. It is against this backdrop that political actors have weaponised such volatility. The suspension of the nine assemblymen has lacked sufficient details beyond the state government’s narrative of support for terrorism. On a deeper level, the development speaks to a power play that has appropriated state authority to settle political scores: a letter came from the state APC chairman Bello Abdullahi to the House, stating that the legislators and the chairmen “have been suspended by their Wards Excos of the All Progressives Congress with immediate effect for gross misconduct, insubordination and anti-Party activities in the just concluded general elections.” In essence, this letter is the opening shot of a witch-hunt. Beyond the pettiness of Nigerian party politics, this development also provides a useful backdrop for the recently signed bills on the devolution of powers and autonomy of certain institutions, such as the judiciary and the local government administration, by President Buhari. The popular argument is that state governors are powerful with nothing more than the most basic mechanisms for accountability, as state legislatures are not politically empowered. Nigeria’s restructuring cannot be a successful enterprise without addressing key issues of institutional independence. When the institutions created to ensure checks and balances are caving in to strong men, the odds are not good.

Ghana’s independent power producers have rejected a government proposal to restructure a $1.4 billion debt owed by the West African country, their lobby group’s chief executive said on Thursday. Elikplim Kwabla Apetorgbor, Ghana Independent Power Producers Chamber head, told Reuters they could not guarantee power generation if the government failed to meet its debt obligation. “Members have accrued huge arrears with their suppliers for which they are already in default and accruing associated penalties. We cannot continue defaulting on our obligations,” Kwabla Apetorgbor said. He added that the independent power generators control over 60 percent of Ghana’s available thermal power generation capacity.

It is not news that Ghana’s debt levels are so unsustainable that it is servicing both domestic and external debt. A $3 billion bailout package from the IMF, which is supposed to help redeem its creditworthiness, is now contingent on a mammoth debt operation exercise, and investors at various levels have elected to take a hit. One stubborn holdout has been Independent Power Producers (IPPs), and the reason is not too far-fetched. Between 2011 and 2016, Ghana witnessed the “dumsor” (Dumsor is Akan for “off and on”) catastrophe of protracted blackouts that compelled Accra to enter Power Purchasing Agreements (PPAs) with IPPs. Even though power production has increased and dependability has improved, the energy sector is now under severe financial stress due to a strain on public resources, growing debt, rising rates, and a dearth of investment. About 32 Power Purchase Agreements (PPAs) are operating in the country. The Volta River Authority (VRA) and the Electricity Company of Ghana (ECG) have PPAs with private IPPs. The Ministry of Energy has also contracted PPAs with Emergency Power Producers (EPPs). There are 14 known PPAs for operating or near-operational projects with a total installed power generation capacity of 2,825 megawatts (MW). There are several issues with the contract style used by Ghana to secure new energy projects and negotiate PPAs. First, the country has mostly relied on unsolicited proposals to find new energy projects, which can lead to limited competition and higher prices. Additionally, most of these contracts are based on a take-or-pay agreement, which means that the government must pay for the energy-generation capacity even if no electricity is consumed. Astoundingly, the only information that is made public about these PPAs is the project name, type of contract, technology/fuel, location, and total project cost. In 2018, excess generation capacity contracted under take-or-pay PPAs cost the government $320 million in capacity charges, which was projected to hit $620 million annually with the addition of new plants in 2019. Half a decade down the line, the country’s energy sector generates a debt burden of about $1 billion and excess capacity charges of $500 million annually. Finance Minister Ken Ofori-Atta, in 2022 insisted the government saved about US$ 13.2 billion in renegotiating power purchase agreements with six different IPPs. At the end of 2021, when Ghana’s debt GDP ratio reached the historic 80% threshold, IPP payments were a major contributor. The $58 billion in debt stock as of end-December 2021 was mainly attributed to a clean-up of the financial sector, energy sector payments and COVID-19-related expenditures. Accra has thrown in the towel on honouring its energy sector debt obligations. As a result, the Electricity Company of Ghana has been compelled to embark on a mass power disconnection exercise. The company’s message is simple — pay up or get disconnected. It hopes to recover about $500 million owed them by customers. According to the power supplier, private manufacturing industries and mining firms are the highest debtors, followed by some government institutions. Just last week, the ECG was on the verge of disconnecting parliament but paused after the House decided to offset 60% of its debt. Although the ECG’s approach of “pay up or get disconnected” may yield some positive results, energy analysts have criticised its sustainability because revenues recovered may not be significant enough to settle the over $1.4 billion owed to independent power suppliers. Exactly a year ago, the Ministry of Finance assured investors of the continued implementation of the Cash Waterfall Mechanism (CWM) — a payment system allowing debtors to pay higher-tiered creditors their full interest and principal before lower-tiered creditors receive theirs. Any U-turn by the government due to the debt negotiations could leave a serious legal fallout and protracted power rationing. The independent power generators’ control over 60% of Ghana’s available thermal power generation capacity, and any decision to cut power generation could result in another dumsor, which is the last thing Ghanaians want in these hard times.