The week ahead – VAR check

1st September 2023

Nigeria’s unemployment rate dropped from 33.3% in Q4 2020 to 5.3% in Q4 2022 and then to 4.1% in Q1 2023. The National Bureau of Statistics (NBS) attributed this change to a new methodology recommended by the International Labour Organisation (ILO). Statistician-General Adeyemi Adeniran said that 73.6% of working-age Nigerians were paid in paid work in Q4 2022, rising to 76.7% in Q1 2023. Additionally, 4.96% were engaged in subsistence agriculture in Q4 2022 and 3.56% in Q1 2023.

The descriptor that says the unemployment rate dropped is faulty. The reason for the difference has been clearly explained as a change in methodology and not a drop in the actual things that the data represents. Concerning the standards adopted from the ILO, we believe that what should be crucial is asking for the value of an hour of work in Nigeria’s economy and probing if it corresponds with those we are benchmarking against. Fundamentally, Nigerians have slipped into greater poverty, destroying purchasing power. These will not change simply by a methodology update. There is no improvement in Nigerians’ economic status, so adopting a new methodology is unjustifiable. This point is bolstered by a statement attributed to a former Statistician-General, Yemi Kale, who said that he resisted the new methodology for 10 years because it does not reflect the reality of the job market in Nigeria. He also noted that the 20 hours of work used to consider employment status during his period equates to an hour of wages in the United States, where the ILO methodology is used, so discarding the 20 hours for one hour to determine employment status would send the wrong information, as the payment within one hour cannot sustain a worker. The NBS’s choice to embrace a flawed unemployment definition that presents a misleading picture of Nigeria’s disturbing employment situation is very concerning. By manipulating the unemployment rate to appear lower than reality, the government wants to present an artificially rosy economic scenario. This determination to avoid harsh truths comes from an unhelpful unwillingness to tackle pressing issues and will have the unintended consequence of making Nigerians and the international community distrust all statistics from the federal government. The twin issues of using a misleading unemployment definition and neglecting unemployment will hinder the creation of effective solutions. To rectify this, the government should adopt a precise unemployment definition that considers all relevant contributing factors regardless of how unpleasant a picture they paint. Such accuracy would empower policymakers to make well-informed choices and formulate more potent strategies against unemployment.

The Nigerian National Petroleum Corporation Limited (NNPCL) revealed that a $3 billion crude repayment loan agreement with Afrexim Bank has stalled as other lenders intended to participate backed out. Afrexim was to contribute $250 million to attract additional lenders, but concerns about exposure to Nigeria and the NNPC MD’s announcement that the money would be used to shore up the Naira made other lenders hesitant. Meanwhile, the Central Bank of Nigeria’s gross reserves have not increased since the announcement, remaining at $33.68 billion. The West African region already accounted for 45% of Afrexim Bank’s loans in Q1 2023, and doubts surround the rushed announcement amid Nigeria’s financial challenges and oil theft issues.

Several aspects of this development are concerning. First, the NNPC MD rushed to make an announcement before the loan agreements were fully executed and everyone irrevocably committed. This is not circumspect behaviour from Mr Kyari. The NNPC’s announcement that it would use a loan to prop up the Naira has made the company look like an unstable partner to potential investors in the petroleum sector. This could have contributed to the difficulties the company has had in securing the loan. This is why the NNPC must focus primarily on its core role of oil production and sales. The NNPC does not have experience in managing monetary policy. Engaging in monetary policy, which falls under the CBN’s jurisdiction, should not extend to the point where its Managing Director publicly expresses intentions to assist the President in bolstering the local currency through a loan facility. If anything, the impact of such an incident on monetary policy should be indirect, and loans must primarily serve the specific purposes outlined by the lenders. Using a loan for monetary policy would be a misuse of funds and could lead to financial problems for the company. A thorough privatisation of the NNPC would address these concerns and subject the company to market forces, which would force the company to compete for customers and investors, leading to better performance and more accountability. In addition, it is clear that the loan’s purpose was not properly disclosed in the discussions before this public announcement, and except for AFREXIM, which has politico-economic reasons, lenders who are primarily assessing the loan as a viable transaction can see what we have said since its announcement: borrowing to shore up a currency will only plunge the country into more crisis. Nigeria’s foreign reserves and the CBN’s ability to defend the Naira are in challenging situations. Revenues from oil sales have been below expectations despite high crude prices. Last week, JP Morgan estimated that Nigeria’s net foreign reserves could be as low as $3.7 billion after considering the CBN’s obligations and commitments. Thus, the news that the $3 billion crude repayment loan deal with Afrixim Bank has fallen through is another punch in the gut of Nigeria’s economy. Any thoughts that a quick fix is possible should be discarded, and sleeves should be rolled up for the work ahead. Further devaluation of the Naira is likely; more investors might take out their remaining funds from Nigeria as the announcement will make potential partners get cold feet. The way forward is for the Nigerian government to realise that the country cannot strengthen its currency, leading to the consideration of opportunities that a depreciated currency presents: fostering export discipline and boosting productivity.

The House of Representatives revealed that farmer-herder clashes have resulted in 60,000 casualties since 2001. Speaker Abbas Tajudeen shared this during an interactive session of the House’s ad hoc Committee on recurring clashes in Gombe State and other regions. Deputy Speaker Benjamin Kalu stated that the lower chamber is actively examining the causes, impacts and actors involved in these conflicts to find national solutions. National Security Adviser (NSA) Mallam Nuhu Ribadu, represented by Prof. Abdullahi Mohammed Ya’u, emphasised the importance of dialogue, community engagements and collaborations with relevant authorities in addressing the ongoing insecurity challenges in Nigeria.

In Nigeria’s security issues, one would expect that Josef Stalin’s statement: “The death of one man is a tragedy. The death of millions is a statistic” would ring true, but it does not. In Nigeria, all deaths are deaths, and all are statistics. That is a national tragedy, and the failure of successive national governments to find solutions to the country’s pastoral crisis is sad. Nigeria’s key post-independence problem is mainly its inability to share power or resources equitably, and as a result, it makes unforced errors. The farmer-herders crisis dates back to at least the 1920s, which the British sought to manage by designating grazing routes. The political elites who took over from the British had to deal with population explosion and climate change. As a result, many clashes blamed on the herders have occurred along water bodies. Equally worse is the dwindling availability of pastures, leading to herders’ encroachment of farmers’ lands. The biggest tragedy in all of these is the Nigerian justice system. Over the years, as community dialogue failed, the court of law, which used to be the place for seeking redress, failed to discharge its duties. This has made bad actors latch on to violence as the fastest route to justice. It has led to cattle rustling, ushering in gangs and vigilantes and a market for an unregulated use of firearms. The government has also compounded the problem by doubling down on socially unpopular policies such as ruga, further exacerbating the problem. The monstrosity of the victim list is concerning, meaning the government has a tough row to hoe. However, the Plateau and Benue events have shown that this is not a priority for the federal government, indicating that the proliferation of self-help groups is just in its infancy stage.

The Ghana Revenue Authority (GRA) has collected ¢440 million in taxes from e-commerce businesses since instituting taxation in late 2022. Approximately 110 firms are registered on the portal and are paying taxes. The Electricity Company of Ghana (ECG) and Independent Power Producers (IPPs) agreed that IPPs will be paid for only 35 percent of their electricity generation to address a $1.7 billion debt threat. Additionally, Ghana has agreed to swap around $4 billion of domestic debt, a step towards fulfilling IMF bailout obligations, with a 95% success rate in three recent debt exchange deals.

The Ghana Revenue Authority (GRA) is under pressure to achieve its $12 billion tax revenue goal for the year. Falling short of the electronic transaction levy’s expected annual revenue of $700 million, the GRA is turning to digital taxation alternatives. In April 2022, the GRA mandated that foreign e-commerce and digital platforms operating in Ghana file tax returns and make monthly payments. This “social media tax” is projected to yield GH¢2.7 billion (about US$372 million) in the first year, targeting platforms like Facebook, WhatsApp, Netflix, and Amazon. The GRA also aims to collect GH¢1.7 billion from betting and gaming firms and another GH¢1 billion from digital giants like Google, Instagram, and TikTok. To boost revenue from Over-The-Top (OTT) digital services, the Ministry of Finance, GRA, and Ministry of Communications collaborate as telecom customers shift from traditional services, reducing government income. Under the Value Added Tax Act 2013, e-commerce refers to electronic business transactions conducted over networks. With Ghana needing revenue under the IMF Extended Credit Facility, it’s implementing measures like the e-VAT invoicing system from October 2022 to cover major taxpayers by June 2023 and 80% of VAT revenue by 2023-end, with all taxpayers included by 2024. While digitalising taxation is crucial, experts warn against overburdening the digital sector, contributing over 60% of GRA-generated taxes, with double taxation. Beyond revenue, Ghana aims to ease fiscal pressures via a debt exchange initiative. The domestic debt exchange, already reducing domestic debt by $10 billion, is entering the second phase, restructuring pension funds and debts owed to Independent Power Producers (IPPs). Organised labour agrees to favourable conditions for bond exchange, while IPPs are compelled to accept reduced owed amounts. Power cuts loom due to the government’s unilateral decision to pay only for consumed power, not excess capacity. The government’s negotiation approach with power producers individually sparks division. The government sees the IPP contracts’ “take or pay” nature as favourable, anticipating success in the second IMF disbursement of $600 million. The Akufo-Addo administration remains confident in fulfilling disbursement prerequisites while addressing revenue collection and debt restructuring challenges.