The week ahead – Soul searching

19th January 2024

The Supreme Court put to rest legal battles arising from the 18 March 2023 governorship elections in eight states. Candidates and parties who felt the elections should have gone their way had approached the Supreme Court, which affirmed the victory of Lagos State Governor Babajide Sanwo-Olu, his Abia, Bauchi, Cross River, Ebonyi, Kano, Plateau, and Zamfara states counterparts: Alex Otti, Bala Mohammed, Bassey Otu, Abba Yusuf, Francis Nwifuru, Caleb Mutfwang, and Dauda Lawal.

A major challenge from last Friday’s rulings is how in certain cases, arguments used by the Court of Appeal, which was applied to down-ballot elections, were thrown out by the Supreme Court. This inconsistency in the application of the law is problematic. The judiciary must be seen to penalise judges who give rulings bordering on illogicality. An already fragile country like Nigeria cannot afford a judiciary with no credibility and whose rulings are openly discussed as fraught with political expediency. Meanwhile, the Supreme Court’s decisions were received well by the public. In Kano State, apprehension prevailed before the results were disclosed, but the mood shifted dramatically after the judgement was pronounced. Upon his return, jubilation and celebrations ensued in Kano, welcoming the Governor, Abba Yusuf, of the New Nigeria People’s Party (NNPP). Abia State citizens also welcomed the judgement of the Supreme Court. However, a disquieting trend has emerged where opposition governors publicly express gratitude to the President upon favourable Supreme Court decisions, shedding light on a potential intersection between executive influence and the judiciary. When governors, regardless of political affiliation, feel beholden to the President over judicial outcomes, questions arise about the independence and impartiality of the judiciary. This submissive behaviour from opposition governors undermines the judiciary’s credibility and cultivates an environment where political allegiance takes precedence over the rule of law. This dynamic seriously threatens the opposition’s nature and quality, discouraging leaders from challenging electoral outcomes and impeding healthy political competition. A robust opposition is a political foil and a vital force motivating leaders to deliver on promises and uphold the public interest. When opposition figures hesitate to contest outcomes or challenge the status quo due to perceived executive influence, the democratic process loses a critical driver for accountability and improvement. Preserving the judiciary’s integrity becomes imperative not just for the sake of legal processes but as a linchpin in maintaining a vibrant and effective opposition. To fortify Nigeria’s democratic fabric, it is crucial to ensure that legal battles are fought on merit, based on constitutional principles, and shielded from external pressures. This commitment is pivotal in nurturing a political landscape where a dynamic opposition can thrive, offering checks and balances and a compelling alternative vision for excellent governance and public welfare. Moreover, the real task lies ahead for the election victors who have successfully secured their triumph. Nigerians are eagerly anticipating their efforts in tackling issues such as insecurity―the growing kidnapping and banditry―unemployment, brain drain, the plight of out-of-school children, food security concerns, escalating inflation, and various other pressing matters. For the candidates who faced defeat, the suggestive path ahead is to actively fulfil their roles as opposition parties, holding current governments accountable for their actions or inactions. They can initiate mentorship and leadership programmes to cultivate the next generation of public service leaders. Also, investing time in expanding their intellectual horizons, strengthening their party’s influence and simultaneously gearing up for upcoming elections will further contribute to their political resilience. These initiatives help candidates stay relevant and contribute positively to their communities and political landscapes.

Shell Plc is set to sell its Nigerian onshore oil assets to the Renaissance consortium for over $1.3 billion, pending government approval. Zoe Yujnovich, Shell’s Integrated Gas and Upstream Director, emphasised the deal’s importance in the company’s portfolio streamlining strategy. Additional payments of up to $1.1 billion are expected. The consortium includes local firms ND Western, Aradel Energy, First E&P, Waltersmith, and Swiss-based Petrolin. Following the sale, Shell will maintain operations in Nigeria through its deep-water oil, natural gas, and solar ventures. The deal aligns with Shell’s broader focus on portfolio optimisation and sustainability.

Shell’s divestment from its Nigerian onshore oil assets has been in the works for years. The divestment was delayed after a Supreme Court ruling forced it to wait for the outcome of an appeal over a 2019 oil spill. This news is open to different interpretations by whoever is reading it. If you’re a foreign investor, this may mean a long-time stakeholder in Nigeria’s oil and gas sector is reducing its dealings because doing business in Nigeria is challenging. Yes, this is true, but that’s not the whole story. As an environmental advocate, you might see this as a sign that a company facing multiple allegations of environmental pollution is finally exiting the country. However, this is also not the complete story. If you support Nigerian interests, you might view this as a sign that local companies are finally making strides on the national stage―and you would be partially right. For all parties and stakeholders, this announcement shows an urgent need to resolve whatever challenges International Oil Companies (IOCs) face in the onshore operations. Nigeria’s onshore oil and gas industry has never truly recovered from the height of the kidnappings and militancy in the mid to late 2000s, having steadily declined since, from 1.2 million bpd at its height to 480,000 bpd in 2013. Vandalism, crude oil theft and conflict with host communities have made things complicated. Shell and other IOCs have repeatedly expressed concerns about issues of oil theft and insecurity, and to mitigate these risks, they have chosen to focus on deep-water operations – tragic in a country with more reserves in the cheaper onshore regions than in the more expensive offshore regions. We anticipate that this trend will continue as they opt to either leave Nigeria entirely or shift their focus to deep-water assets where issues such as oil bunkering and host community concerns are less prevalent. Nigeria does not need this exit at this time, given the urgent need to ramp up revenue and attract foreign investments. Shell’s departure is only another sad chapter in this terminal decline. It shows that irrespective of how lucrative an opportunity is, when risks rise to a certain level, the rewards will no longer be worth it. Having said all of this, it is difficult not to conclude that Shell’s activity in the Niger Delta since 1956 has been a net negative for the region. The organisation should be made to embark on cleanups, especially in Ogoni, before leaving, or else its Nigerian successors will have to inherit this responsibility. There needs to be effective regulatory oversight to ensure that companies carry out regular maintenance of oil and gas infrastructure to avoid cases of oil spills and environmental pollution. This will go a long way in reducing conflicts with host communities. Overall, domestic entities must begin to take positions to raise capital and expand operations―although the CBN makes this difficult with the high interest rate regime; that is a tale for another day.

The Federal Inland Revenue Service (FIRS) has revealed plans to significantly increase its tax revenue collection by 57% to ₦19.4 trillion. According to Bloomberg, the FIRS hopes to increase its oil revenues to ₦9.96 trillion with non-oil tax revenue at ₦9.45 trillion. To achieve this, the FIRS plans to enhance efficiency and tax compliance by restructuring its organisational framework to prioritise taxpayers and implementing additional automation measures for tax collection, as outlined in the document. It also plans to carry out internal reallocation from oil to non-oil.

The FIRS sets its targets each fiscal year, but its performance has fluctuated. Four have seen year-on-year increases over the last eight years, while the other four have experienced declines. The new leadership of the FIRS will have its inaugural full fiscal year in 2024 to put its policies to the test, especially as these promised figures are almost double what the agency generated two years ago in 2022. Given the sluggish growth of the underlying economy, potential drivers of growth could be an assertive compliance campaign or benefits resulting from the depreciation of the Naira. Drawing from the current President’s past actions as the governor of Lagos, it is likely that the former scenario will prevail, so businesses should make necessary preparations. When highlighting things needed for Nigeria’s growth and economic revival, it is common to hear experts (both domestic and international) talk about the need to increase tax revenue. Although important, it is noteworthy that simply increasing tax revenues does not guarantee prosperity for the country, as higher tax rates alone cannot lead to economic success. A good way to increase tax revenue is to expand the tax net by making processes easier, improving tax education and using taxpayers’ money for tangible things. Reports of government officials misappropriating public funds raise serious concerns about tax collection and allocation, potentially dampening taxpayer confidence. People will only be eager to comply with tax laws when they see that the government uses the proceeds judiciously. The FIRS has done well by automating some processes in the past. Hopefully, this can be replicated by the tax agencies at the sub-national level. Improved efficiency at the lower level will certainly make the job easier for the FIRS. Tax tsar, Taiwo Oyedele, announced that the government plans an “electronic invoicing” of Value Added Tax that would make it more difficult to evade tax. Additionally, it aims to implement the Digital Service Tax Regulation, which mandates digital companies providing various paid cross-border online services to Nigerian residents to remit income tax. These companies are to remit 6% of their annual turnover, derived from online business activities conducted within Nigeria’s digital realm, as income tax to the FIRS. While these are applaudable, there is a need to take lessons from past failures. The Buhari administration began its tenure with a rhetoric about broadening the tax base to increase revenues, and various initiatives were launched, such as the Voluntary Assets and Income Declaration Scheme (a tax amnesty programme). However, VAIDs had limited success, and analysts described the programme as a well-intended scheme that failed to punish defaulters who did not take advantage of the amnesty. Therefore, a vital lesson to take from past initiatives is that implementation is key.

Ghana has reached a $5.4 billion loan restructuring deal with official creditors, a move applauded by IMF Managing Director Kristalina Georgieva. The agreement “clears the path for IMF Executive Board consideration” of the first review of Ghana’s programme. The Finance Ministry anticipates formalising terms in a Memorandum of Understanding, handled bilaterally with creditors. The Ministry said the agreement will support ongoing engagements with bondholders and other commercial creditors. Notably, the announcement does not address the “cut-off date”, which emerged recently as a stumbling block to an agreement. Sources reveal Ghana’s official creditors have consented to restructure debts extended to the country until December 2022.

Ghana is actively seeking assistance, primarily in debt relief and forgiveness, as evidenced by its participation in a debt restructuring programme facilitated by a $3 billion IMF bailout package. The country faces a substantial balance of payment gap, requiring approximately $2 billion annually, even with significant support from the IMF and the World Bank. According to data from the Finance Ministry, Ghana aims to rework around $20 billion of its total debt, approximately $30 billion. The restructuring efforts involve securing $5.4 billion from bilateral creditors and $14.6 billion from commercial creditors, primarily dominated by Eurobonds. On the bilateral front, Ghana seeks a debt moratorium and is actively working to secure a haircut of up to 40% on the principal from commercial creditors, particularly Eurobond holders. The recent agreement with the Official Creditor Committee, comprising bilateral lenders, allows Ghana to temporarily suspend interest payments on bilateral loans, enabling a fiscal pause. This development is expected to pave the way for the IMF Executive Board’s approval of the first review of the Fund-supported programme, unlocking a disbursement of $600 million. Subsequently, the World Bank will consider financing $300 million in Development Policy Operations. Ghana has secured assurance for debt restructuring, a crucial prerequisite for receiving funds from the IMF and the World Bank. The next steps involve engaging various creditors, including China and members of the Paris Club, to negotiate and sign memoranda of understanding to determine the extent of relief. Ensuring comparability of treatment among the diverse set of creditors is crucial. Ghana anticipates a freeze on servicing its bilateral debt for the next four years, with repayments starting after 2026 and maturities spread over an average of 16 years. The primary challenge lies in convincing external commercial creditors, particularly the Eurobond holders, who constitute about 48% of Ghana’s external debt and 73% of the total foreign debt earmarked for treatment, to accept the proposed haircut on both interest and principal. As Ghana awaits the IMF Executive Board approval, Finance Minister Ken Ofori-Atta is set to engage creditors in China and London to navigate discussions with both bilateral and commercial stakeholders.