The week ahead – The streets get restive

8th March 2024

The FCT Police Command confirmed that some Abuja residents raided a warehouse owned by the National Emergency Management Agency (NEMA), carting away foodstuffs and other items. In another development, the Economic and Financial Crimes Commission (EFCC) seized 21 trucks loaded with food and non-food items heading toward N’djamena, Chad Republic, Central African Republic and Cameroon. The EFCC’s spokesperson said that the arrests are expected to stem the tide of food insecurity caused by smugglers across the country.

More than the naira-dollar crisis, the rising food insecurity is the real nightmare that the government should pull all stops to bring to an end. When warehouses empty, looters will go to shops. When those empty, they will go to houses. It has been glaring for a while that Nigeria would be faced with significant food security issues arising from its unhealthy reliance on subsistence systems, a flawed Land Use Act, poor long-term financing models, inflationary pressures on food prices and an absurd unwillingness to tackle entitled herders who routinely attack farmers across the Middle Belt, North and even parts of the South-South and the Southwest. The smuggling of food to neighbouring countries has been on the rise, primarily fuelled by the naira devaluation, but this is recent. The early onset of scarcity, seen in May/June, was attributed to smuggling, flooding, the naira redesign policy, insecurity, and the lingering impact of the COVID-19 pandemic. Therefore, the arrest of trucks smuggling food across the border will not stem the tide of food scarcity in the country. There are other factors. Frequent criminal attacks on trucks have seen food and fuel transporters contemplating halting operations, potentially worsening the current tense situation. Much of what is being done today with regard to the food crisis is not new: seizing food trucks giving barely sufficient food to the populace and clamping down on food imports is an old tactic. At the very least, some of these ideas date back to 1984. But even before then, official records show that in 1913, Northern and Southern Nigeria experienced a horrible famine which saw people do the unthinkable to survive following heightened food inadequacies. Writing in his report for the Crown’s colonial office in 1925, Colonial official A. C. G. Hastings said, “the ghost of famine stalked aboard through Kano and every other part. The stricken people…ravenous in their hunger, seized on anything they could steal or plunder.” In a particular province, “the local inhabitants, in need of food, plundered and stole everything in their way.” Judicial statistics, as well as police and army records from that period, according to Papaioannou, showed increased crimes in Ogoja (present Cross River), Ondo and Enugu due to increased food prices, decreased income and generally heightened economic pressures. More than a century later, similar experiences dot the years of lean or no harvest throughout Nigeria’s post-colonial period. We have been warning of food crisis for year now. SBM Intelligence published the Terror in the Food Basket report in 2015, which, among other things, warned of a looming food crisis as a fallout of the unchecked killings in the Middle Belt—Nigeria’s bread basket. There is hardly any food that Nigeria produces sufficiently to feed its population. Yet, many food items have come under import bans. The logical way out of this mess would be to end the obsession with substituting food imports. However, the Tinubu administration has, in a way, doubled down on it. The direct consequence is food scarcity, and the government is reacting by using state forces to force food out of warehouses. Instead of proposing a practical plan to modernise Nigeria’s food supply system, ensuring availability and potential export opportunities for its 200 million people, the government has opted for an approach where the EFCC treats food exports within ECOWAS borders as smuggling. This move hampers regional trade, contradicting the spirit of economic cooperation and stifling vital cross-border exchanges, especially during the African Continental Free Trade Area (AFCFTA) era. The APC seems to primarily concern itself with how to share things without caring about how they are created or produced to begin with. Nigeria is now dealing with hyperinflation because it chose to print money instead of fostering productive activities that would have created wealth. Instead of relying on quick fixes, the government should focus on implementing long-term measures to address persistent food scarcity. A shift towards long-term strategies that promote scalability, affordability, and export opportunities is crucial to effectively tackle Nigeria’s food scarcity challenges and ensure a more secure future for its population.

The House of Representatives rejected a bill that sought to make it mandatory for presidential and governorship candidates to be declared winners to secure more than 50 percent of the total votes cast. The bill, sponsored by Awaji-Inombek Abiante (PDP, Andoni/Opobo–Nkoro, Rivers), aimed to amend sections 134 and 179 of the 1999 constitution by removing the simple majority rule. When Speaker Abbas Tajudeen asked the bill to be considered for a second reading, the “nays” were louder than the “ayes,” prompting the motion to be thrown out.

The bill sponsored by Mr Abiante, may have sought to reduce the emphasis on the zero-sum nature of Nigerian politics, where winning by a single vote is enough. The choice not to mandate presidential and gubernatorial candidates to secure a majority of votes is contentious. It necessitates the reevaluation of the advantages and disadvantages of requiring candidates to attain an absolute majority in elections. Requiring candidates to secure over 50 percent of the votes ensures that elected leaders have the support of the majority, potentially leading to more representative and widely accepted governance. Supporters of the bill argue that a candidate with more than 50 percent of the votes can claim a stronger mandate, enhancing the perceived legitimacy of their leadership and reducing disputes over the electoral process. The proponents believe that having a clear majority winner helps with political stability by minimising controversies and challenges to the election results. However, Nigeria’s simple majority system aligns with its unique federalism, forming a distinctive marker between its parliamentary antecedents and current presidential inclinations. As for the cons, requiring an absolute majority places a heavier burden on elected officials, making the electoral process more challenging. The most mentioned disadvantage, however, is related to the increased cost and length of the election process due to the addition of runoff elections. Nigeria’s political leaders hesitate to engage in costly and monetised electoral reruns to secure an absolute majority. This reluctance is due to the high expenses involved, which affect not only the political class but also the electoral umpire. But isn’t it better to go through the runoff election process to ensure the emergence of a candidate that is truly legitimate and wanted by the majority? Opting for runoff elections, though potentially more time-consuming and resource-intensive, can lead to the election of a candidate with broader support, ensuring that the chosen leader truly represents the majority’s desires. In the quest for a more robust democratic process, the trade-off of a slightly prolonged election period may be a small price to pay for the legitimacy and acceptance that come with a clear majority mandate. However, considering Nigeria’s voter turnout rates, the potential passage of this bill could result in multiple rounds of voting to achieve an absolute majority, which could either reduce voter apathy or engender voter fatigue, causing electoral violence. Given Nigeria’s history with both supplementary and run-off elections, the latter seems more likely. In the final analysis, there is also no guarantee that if the bill had scaled through the National Assembly it would get the required 24/36 states assent for passage. There is absolutely no surprise in the way the House of Representatives voted. The current president won about 33% of the vote, and the current speaker is a firm ally. His party also has the majority in the House. Many members of the House also nurse ambitions to go on and contest for governorship positions. It is, therefore, unlikely that such an amendment will ever pass in the current political dispensation, except if a sitting president champions it, which is unlikely in this scenario. The key question these political elites have refused to face, however is one of legitimacy, and it is one that they will ultimately be forced to face, whether they amend the laws appropriately or not.

The Federal Government has paid over $120 million to offset part of the debts owed to gas companies for electricity generation, Ed Ubong, the director of the Decade of Gas Secretariat, said at the ongoing 7th edition of the Nigeria International Energy Summit in Abuja. He said the arrears gas producers were owed as of last year was about $ 1.3 billion, but the government has paid over $120 million between October 2023 and the end of January. The minister noted that the total debt owed to power-generating companies was ₦1.3 trillion, of which 60 percent is owed to gas suppliers.

If Nigeria were a video game, the power sector conundrum would resemble that challenging level where you earn sufficient points to progress yet struggle to grasp how to achieve all the points required for complete success. It is an unchallenged fact that electricity use and access are strongly linked with economic development, thus, Nigeria’s failure to deal with the issues around inadequate power supply is a major factor in its economic underperformance. Nigeria’s current power master plan, designed about two decades ago, has three interrelated segments—generation, transmission and distribution—each facing significant challenges. From generation to transmission and distribution, there are so many knots within the power sector that untying one does not make the journey ahead easier. Generation companies have to buy gas in dollars, and the transmission and distribution facilities are not efficient enough to distribute the power generated, recover all the funds for the power distributed, or raise tariffs to reflect the cost of generating electricity. A major problem in the value chain is the absence of cost-reflective tariffs due to the policy of subsidies. The key issue is the lack of deployment of prepaid metering by the DisCos, which makes it hard to engender trust in charging cost-reflective tariffs. This translates to the government’s attempts to provide unsustainable subsidies to the players along the value chain, including distribution companies, which means they cannot pay the transmission and generation companies their full bills, nor can they properly service their debts. In turn, the generation companies owe the gas companies huge debts, part of which the FG is trying to pay down. Government facilities—about 86—across the country (including Aso Rock and CBN) owe an estimated ₦47.1 billion in electricity debt. Additionally, there is the national grid that keeps collapsing every market day. Considering Nigeria’s dire financial straits, especially in obtaining FX, it is no wonder that gas companies are owed this much while Nigeria struggles to meet its obligations. Again, this shows how the country is obsessed with trying to control the price of a commodity it does not fully control. As with petrol, the cost of air tickets and the exchange rate, the subsidies become unsustainable. These subsidies create distortions in the market, leading to inefficiencies that hinder key sectors from attracting investment and realising their full potential. Fresh investments are essential to address the challenges in the power sector. However, it can be difficult to persuade investors to commit when uncertain about their ability to recover their investments. Fortunately, companies like Gegeru and Transcorp Power have shown some interest in the power sector, but there is much work to do. To move forward, the government needs to settle all debts across the value chain and remove electricity subsidies, allowing investments to flow into the industry and lead to growth.

The Bank of Ghana has suspended the Foreign Exchange Trading Licences of Guaranty Trust Bank Ghana Limited (GTB) and FBNBank Ghana Limited (FBN) for one month starting from 18 March 2024, citing various breaches of foreign exchange market regulations, including fraudulent documentation. The suspension, in accordance with the Foreign Exchange Act 2006, aims to address these issues. The licenses will be restored after the suspension period, pending the implementation of effective controls to ensure compliance with foreign exchange market regulations. The bank added it uses the statement to ensure adherence to applicable FX regulations and guidelines.

Ghana is currently facing significant economic hurdles largely due to forex inadequacy, leading to a substantial balance of payment gap. This situation has resulted in considerable pressure on the local currency, the cedi, causing it to lose value against major trading currencies like the US dollar. To address this crisis, Ghana has sought funding assistance under an IMF-supported programme, with additional inflows expected from institutions like the World Bank and the Africa Development Bank. Despite receiving assistance, Ghana’s central bank is grappling with significant losses due to illegal activities in the forex exchange market. Discrepancies between reported inward remittance receipts by the Bank of Ghana and those recorded by the World Bank indicate a gap of approximately $2 billion, highlighting the prevalence of illegal forex transactions. In response to the continuous depreciation of the cedi, the Bank of Ghana is taking measures to crack down on illegal forex operations, emphasising regulatory enforcement and compliance. The expansion of the forex exchange market in Ghana, facilitated by regulatory initiatives such as the Payment Systems and Services Act (2019) and the National Payment Systems Strategic Plan (2019-2024), has led to increased complexity in detecting illegal exchange schemes. The Bank of Ghana’s licensing of Money Transfer Companies (MTCs) and Fintech companies aims to complement the operations of licensed dealer banks and forex bureaus, but it has also created challenges in monitoring and regulating the market effectively. The recent crackdown on illegal operators and licensed institutions by the Bank of Ghana is not an isolated incident, as the central bank has a history of taking stringent measures. Five months ago, Zeepay Ghana Limited faced fines for non-compliance, specifically for not utilising the average interbank exchange rate set by the Ghana Association of Banks and the Bank of Ghana when converting settlement funds into the local currency. Despite the Bank of Ghana emphasising that the sanctions were meant to serve as a robust warning to all participants in the forex market, including banks, forex bureaus, forex brokers, Dedicated Electronic Money Issuers (DEMIs), Enhanced Payment Service Providers (EPSPs), and Money Transfer Operators (MTOs), the current situation indicates persistent challenges within the dealer banks’ space. The recent suspension of Foreign Exchange Trading Licences for GT Bank Ghana and FBNBank Ghana reveals the seriousness of regulatory non-compliance in the forex market. Both institutions have pledged to address the issues raised by the central bank, emphasising their commitment to regulatory compliance and anti-money laundering measures. However, the situation highlights broader challenges within the dealer bank space, indicating the need for continued vigilance and enforcement by regulatory authorities to maintain stability in Ghana’s forex market.