The week ahead – A vicious cycle

22nd March 2024

After 16 military personnel were murdered in Okuama, a community in Ughelli South Local Government Area of Delta State last week, parts of the community have been razed down, allegedly by soldiers. On 19 March, the Nigerian Army invaded Igbomotoru community in the Southern Ijaw LGA of Bayelsa State, allegedly killing about 11 people and razing houses suspected to be the hideout of a militant leader allegedly involved in the killing of the soldiers in neighbouring Delta State. Although the military denied any involvement, a community leader, Ayibakipreye Solomon Clarkson Suobo, publicly accused the military of arson.

Since independence, there have been 18 reprisal events that the Nigerian Army or Police have been accused of. The core of this is the clear message and implication that the Nigerian military is a law unto itself and operates above the Constitution on such matters. Collective punishment is as much a Nigerian culture as it is ingrained in our military’s ethos. A culture of impunity pervades the Nigerian military, especially the army which was responsible for the Odi Massacre of 1999 in Bayelsa State. Nigeria’s history is littered with mass atrocities like these committed by the Nigerian military, a disproportionate number of which had been suffered by communities in the Niger Delta. The Nigerian military is often allowed to conduct reprisal missions with little oversight. There have been massacres such as Bakolori, Zamfara (1980) and Zaki Biam, Benue (2001), but the military’s special dalliance with coastal communities is quite dated and precedes the modern era. British colonists who created what is now known as the Nigerian Army launched the Akassa Raid in Brass in modern-day Bayelsa State in January 1895 as a devastating punitive action in retaliation for the killing of 40 British soldiers. The military’s overuse and underperformance have led to attacks on them, but their reprisals, which often disregard human rights, only fuel a desire for revenge, continuing the vicious cycle. These brutal responses are not only unjust but also counterproductive. They alienate the local population and make it more likely that future violence will occur. Part of why these actions continue to persist is that Nigeria has become awash with small arms and light weapons. With too many guns around, everyone becomes a fair target, including state agents, and the failure of the President to rein in his military—partly due to fear of the military itself—makes him an accessory to possible genocide. It is necessary to ascertain exactly what was responsible for the hostility in the first place because the region involved has a lot of oil theft to the tune of billions of naira, which is said to have been done with the complicity of the armed forces and security agencies in the areas. The army’s primary job is related to territorial security, so it is odd to see it involved in this scale of hostility in a state that does not share a border with a hostile foreign adversary. Overall, the Nigerian military must develop a more professional and restrained approach. This includes conducting thorough investigations to identify those responsible for attacks on military personnel and bringing them to justice through the legal system. It’s also important for the military to build trust with local communities through engagement and outreach programmes.

Foreign airlines operating in the country have disputed the announcement by the Central Bank of Nigeria, CBN, that it has settled all outstanding backlogs of valid foreign exchange claims. The CBN had announced on Wednesday that it had finally settled all valid foreign exchange backlogs, fulfilling a key pledge by Governor Olayemi Cardoso to process inherited claims totalling US$7 billion. Hakama Sidi Ali, the regulator’s spokesperson, said that the CBN recently concluded the payment of $1.5 billion to settle obligations to bank customers, effectively settling the residual balance of the FX backlog. She also disclosed that independent auditors from Deloitte Consulting meticulously assessed these transactions, ensuring that only legitimate claims were honoured and invalid transactions were promptly referred to the relevant authorities for further scrutiny. However, in an interview with Leadership Newspaper, the president of the Association of Foreign Airlines and Representatives in Nigeria (AFARN), Kingsley Nwokoma, said that about $700 million belonging to foreign airlines was still trapped in the country and asked for transparency in the CBN’s dealings.

The news that the CBN had settled all valid foreign exchange backlogs caused the Naira to appreciate from $1/₦1,600 to $1/₦1,400 within 48 hours. There is also a sense on the street that many speculators of FX are looking to sell their USD holdings and take positions in high-yield Treasury Bills, indicating that the current CBN initiative to reduce demand from FX is yielding results. There has also been a noticeable FX inflow from foreign portfolio investors looking to take positions in high-yielding fixed-income instruments and equities. The coming months will determine whether the naira’s appreciation is sustainable or short-lived. We fear that, based on the reaction of foreign airlines, the latter would be the case. Settling obligations to bank customers and successfully eliminating the remaining FX backlog would position the CBN to keep its commitments and bolster trust in the financial system. Thus, they would need to, as a matter of urgency, take Mr Nwokoma’s advice and be transparent about their dealings, publishing who got what. Such a move would positively impact the stability and credibility of Nigeria’s financial sector. Overall, the announcement that they had cleared the backlog reflected a step in the right direction towards resolving financial challenges and enhancing trust in the banking system. Publicising it and removing all doubts would be a further step in that direction. Institutions like the CBN need to continue implementing transparent and accountable practices to maintain the integrity of financial operations.

The Central Bank of Nigeria (CBN) has lifted restrictions on importing milk and dairy products, as seen in a 12 March 2024 circular sent to banks. In February 2020, the CBN restricted foreign exchange allocation for milk importation exclusively to six designated companies within Nigeria: FrieslandCampina WAPCO Nigeria, Chi Limited, TG Arla Dairy Product Limited, Promasidor Nigeria, Nestle Nigeria, and Integrated Dairies Limited, to stimulate domestic milk production. The new CBN decision now allows any entity that meets the regulation requirements to source for FX at the Nigerian Autonomous Foreign Exchange Market (NAFEM) for milk-related transactions.

Policymakers continuously seek to strike a balance between protecting an economy and doing what is best for the citizens. Nigeria’s inflation rose to a 28-year high in February 2024, with food inflation hitting 37.9%. The CBN, under the leadership of Godwin Emefiele, restricted forex allocation for the import of dairy products to six companies in a bid to ramp up local production. This yielded some results, as seen in the establishment of the Ikun Dairy Farm in Ekiti, amongst several others across the country. However, local production is still not enough to meet the demand. A situation where favoured companies are selected for a staple food item like milk in a country where malnourishment of young children and protein deficiency continue to ravage the population is far from ideal. Such market distortions only serve the goal of driving prices up, a situation the vast majority of Nigerian consumers cannot afford. Our counsel remains the same for any other food item on any CBN restriction list that may remain: let it flow freely. Given the strategic importance of milk in the nutrition of children and adults and the current high inflation regime partially caused by the FX restrictions and border closure exercise, this decision to lift FX restrictions is a good one. However, the government must implement other measures to protect the local dairy industry—perhaps a local content law would help. Other structural issues must be addressed, including transitioning to large-scale cattle ranching, selective breeding and adoption of modern milking equipment.

The Ghana cedi has lost 8.63% in value to the dollar since the beginning of 2024 as pressure continues to mount on the local currency. The country’s interest rates also fell for the 11th week as demand for the Treasury bills surged. Despite the International Monetary Fund’s (IMF) $3.0 billion bailout, Bloomberg predicts more tough times for the cedi as the debt restructuring with Eurobond holders drags. During her visit to Ghana, the IMF Managing Director, Kristalina Georgieva, said Ghana’s failure to reach a better deal with its Eurobond holders could prolong the country’s debt situation.

Ghana is in a big economic quagmire; unstable power supply, partial internet shutdown and on top of the list is a depreciating domestic currency. The West African country has still not been able to find an effective way to deal with its economic crisis, which gained momentum in 2022. A $3 billion IMF bailout package is expected to wind down the impact on ordinary Ghanaians and give life to key economic indicators. Almost a year after implementing the first phase of the IMF programme, inflation has dropped from a 2022 peak of 54% to 23.5%, signalling a positive outcome. Beyond inflation, critical indicators such as exchange rate and unemployment have failed to yield the intended outcomes. When Ghana approached the Fund for a bailout after it was kicked out of the international capital market, one key solution the authorities sought was an intervention to clear the dark clouds around its domestic currency, which had lost more than 30% of its value to major trading currencies like the US dollar. After receiving about $2 billion from the IMF, World Bank and AfDB combined, Accra is returning to its 2022 level, where the cedi was no match for the US greenback. As the depreciation story continues, it is projected that the IMF Managing Director’s visit could help expedite debt rework negotiations between Ghana and its commercial creditors. One of the country’s leading foreign exchange earners, cocoa, is in short supply as Ghana fails to reach the targeted yield, causing demand and supply shortfalls. At the moment, the only viable option is for Accra to pass its second IMF programme review, which could help unlock about $350 million in forex inflows from the Fund alone, plus other scheduled disbursements from the World Bank and the African Development Bank partially conditioned on a successful debt restructuring exercise with its commercial creditors. In total, Ghana is expecting more than $700 million from sources like the IMF, World Bank and the AfFB in 2024, and it is projected that this could avert further depletion of its international reserves, which can only afford less than two months of imports. In the short run, the Ghanaian authorities are working around the clock to close restructuring talks with its commercial creditors, including Eurobonds, to gain the needed financing assurances for the disbursement of the IMF third tranche expected to hit Bank of Ghana’s account by May 2024. For now, the incoming $300 million budget support from the World Bank looks like the most immediate inflow to stop the cedi from further depreciation.