The week ahead – Pivot

Gunmen abducted an unspecified number of students in Ughelli, Delta State, and three University of Calabar (UNICAL) students from their hostels. Meanwhile, the Nigerian Army announced the rescue of LEA School’s abducted pupils and teachers in Kaduna’s Chikun Local Government Area (LGA), Zamfara State, following a ₦1 billion ransom demand. Army Spokesman Major General Edward Buba confirmed the rescue of 137 victims out of 287, comprising 76 females and 61 males, with assistance from local authorities. This rescue follows the liberation of 16 pupils (Almajiris) and a woman in the Gada LGA of Sokoto State by the troops.

The military’s claim of “rescuing” the abducted students leaves more questions than answers. First, it was widely reported that 287 students were abducted. However, 137 students were said to be “rescued,” raising questions about the remaining 150 left behind. The Kaduna State Governor, Uba Sani, has refused to confirm the total number of students abducted in the Kuriga incident, and his response to press enquiries could mean that he does not know the exact figures. This reflects a general problem with record keeping and data collection in Nigeria, which is often treated cavalierly. For the military to assert that they rescued the abducted students, specific conditions must be fulfilled. The primary requirement in a successful rescue operation involves a confrontation between the operatives and the kidnappers, which was absent in this instance. The peaceful return of the students suggests that, contrary to the government’s claims, a ransom was exchanged. It is common practice for the Nigerian government to avoid using force in such situations. However, they typically remain secretive about any ransom payments made. The lack of willingness to be forceful has fuelled the kidnap epidemic because would-be abductors understand that a very good way to exert public and international pressure is to engage in large-scale abduction of vulnerable people, many of whom are students. This is one of the underlying causes of worsening campus security across the country. Kidnappers who had hitherto targeted travelling students have taken the war to their hostels in off-campus accommodations, as witnessed in the abduction of three students of the University of Calabar the previous week. While the initial kidnappings in Nigeria were linked to extremist groups, the trend has morphed into a lucrative criminal enterprise that is freely available to any group of violent criminals with the required firepower and nerve. Ransom demands can reach hundreds of thousands of dollars, as evidenced in the recent mass abduction of schoolchildren in Kaduna, where kidnappers demanded a staggering ₦1 billion (around $2.4 million) for their release. We recently showed that there were over 2,500 reported kidnap cases in 2023 alone, which is significant in a country where many crimes are officially unreported. This surge deters investment-sourcing efforts and increases the number of out-of-school children. Fear of abduction can deter parents from sending their children to school, hindering educational attainment and impacting the future workforce. A United Nations Children’s Fund (UNICEF) report estimates that school closures due to security concerns, often related to kidnappings, have already pushed millions of Nigerian children out of education. Appeals to morality are not an option at this point. Preaching and cajoling have not worked, so the government has to gather the political will to attack this wave at its roots while growing its capacity to respond proactively and reactively. Strengthening intelligence gathering and law enforcement at all federal, state and local levels is crucial.

The FG plans to begin the issuance of domestic foreign currency-denominated bonds from this quarter, Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, said yesterday. The government move is expected to herald domestic issuance of similar bonds by companies and sub-nationals. The move aligns with the government’s plan to attract more forex inflows to stabilise the naira. Edun told his audience that Abuja would seek to sell forex bonds to Nigerians at home and abroad who, “because of lack of faith in the currency, have decided to try to hold and save in dollars.”

The decision to introduce these bonds reflects the government’s efforts to attract foreign exchange inflows and stabilise the naira amidst ongoing economic challenges. By offering domestic foreign currency-denominated bonds, the government aims to tap into the funds held by Nigerians at home and abroad who lack faith in the local currency and prefer to save in more stable currencies like the US dollar. This strategy could boost foreign exchange reserves and provide a source of funding for government projects and initiatives. However, there is a contradiction: how does Nigeria, which does not control the supply of any foreign currencies, intend to convince investors to invest in domestic foreign currency-denominated bonds outside of the usual stringent conditions of bond issuance? With Nigeria’s recent behaviour around honouring agreements that it guaranteed concerning foreign currency remittance to the airlines, is there a basis for foreign investors to trust that it will honour its obligations? Nigeria is seeking shortcuts to solving problems that require longer, harder thought-out solutions. And that only leaves the fiscal hole it has dug itself into to deepen. South Africa has a similar programme, and the issuer is at the mercy of the market. However, it’s a welcome strategy to raise FX. The issue remains a supply mechanism to pay back; this includes the FX earning policy. We wouldn’t have had to do this if Nigeria had taken non-oil exports seriously. We need to be discerning, but it’s a good start. Nigeria should have implemented most of our present policies as far back as 2018. Now, our issues remain complex. On the FX side, supply is the main headache, as refusal to have a proper and realistic plan will mean the Nigerian government needs another temporary FX financial engineering plan soon. It is crucial to consider the broader implications of this move. Issuing foreign currency-denominated bonds carries risks, especially in a country like Nigeria, which has a history of currency volatility. If the Naira depreciates significantly against foreign currencies, the government’s debt burden could increase, potentially leading to financial instability.

Nigeria’s electricity regulator approved tariff increases as part of the government’s efforts to reduce reliance on subsidies and alleviate strain on public finances. Approximately two million households, constituting 15% of Nigeria’s 13 million electricity consumers, will experience a substantial tariff hike—from ₦70 to ₦225 per kilowatt-hour (kWh). This adjustment comes after the Nigerian Electricity Regulatory Commission (NERC) raised the electricity tariff for newly categorised Band A customers. NERC based its decision on rising gas prices, inflation and foreign exchange rates. The price of prepaid metres may rise to over ₦300,000. NERC has revised the Eligible Customers Order, raising the consumption requirement from 2MWh/h to 6-20MWh/h over 90 days. Nigeria faces an eight million household metering gap.

As of the time of writing, the NERC has approved a 240% increase in the tariff of elite customers who enjoy at least 20 hours of electricity supply daily. According to the commission, this reduces the government’s subsidy burden by ₦1.4 trillion. This increase was approved after an application by electricity Distribution Companies (DisCos), and this is the biggest increase in electricity tariff since 2015. Subsidies in the power sector have been identified as one of the many reasons discouraging private investment since investors cannot guarantee that they can recoup their investments. However, the way the Tinubu government announces and implements policies that will lead to a geometric rise in the price of essential commodities does not portray a government that fully understands or cares about the impact of such shocks on the people on a micro level and to the economy on a macro level. Hikes in the price of utilities worldwide are carefully managed processes once the sector is not fully deregulated. Such hikes are accompanied by palliatives, performance milestones and other necessary components to make it clear to the people that it is not only an increase in price that they are being forced into but a corresponding increase in value. This 300% increase in electricity tariffs is a massive blow to households already struggling under harsh living conditions. Theoretically, it supposes that the distribution companies will provide at least 20 hours of power to those under Band A (high-tariff neighbourhoods). However, from experience, many Nigerians in cities like Lagos cannot boast a generous power supply, meaning they spend significant resources on buying diesel and petrol to run their generators. Considering that diesel now sells for as much as ₦1,500 per litre, the additional power tariff cost will worsen things. Considering that the electricity supply is at all-time lows, it is inappropriate to implement this type of policy now. We expect to see even further reductions in productivity and quality of life as Nigerians prioritise feeding overpowering their homes and workplaces. Also, the plan to keep prices constant for all other bands while slamming a 300% increase on Band A customers is akin to robbing Peter to pay Paul. A better approach would be to spread the increase across the band, with Band A customers paying slightly more. A government’s first responsibility is to its people, not foreign investors. Therefore, this administration must also roll out social interventions as fast as it has done with its other capitalist policies. The onus is now on stakeholders in the electricity sector (generation, transmission and distribution) to show Nigerians that increased tariffs can translate to better power supply, improved collection efficiency and modern infrastructure (including closing the metering gap). Apologies to the CBN, but this singular move has now taken their battle with inflation to another level. Electricity is a significant production input. Manufacturers and businesses already dealing with high diesel and petrol prices will simply pass on the extra cost to the final consumers. Ultimately, the success of any policy addressing Nigeria’s energy crisis hinges on its ability to balance investors’ interests with the populace’s welfare. Only through a comprehensive and inclusive approach can the government hope to achieve sustainable solutions that benefit all stakeholders and drive meaningful progress for the country.

President Akufo-Addo has reshuffled his government, reassigning Deputy Trade and Industry Minister Stephen Amoah as Deputy Minister for Finance after the passing of Deputy Finance Minister Dr John Kumah. Following Stephen Amoah’s reassignment, President Akufo-Addo appointed Kofi Ahenkorah Marfo as Deputy Minister-designate for Trade and Industry, pending parliamentary approval. Mr Akufo-Addo has removed Dr Ammishaddai Owusu-Amoah as the Ghana Revenue Authority (GRA) Commissioner-General and dissolved the GRA board without providing a specific reason. Julie Essiam has been appointed as his replacement. Pressure for Ammishaddai’s removal stemmed from the fact that he had surpassed public officers’ legal age limit.

President Akufo-Addo has less than nine months left in his term and faces a significant challenge in addressing various economic issues, especially revenue generation. The recent reshuffle, which involves dissolving boards and reassigning ministers and key figures in Ghana’s revenue collection sector, is driven by the need to realise the demanding revenue goals outlined in the ongoing $3 billion IMF programme. The controversy surrounding Dr Ammishaddai Owusu-Amoah’s tenure without a contract and his age exceeding the maximum for public service had gathered momentum. As a result, President Akufo-Addo’s decision to remove him as Commissioner-General of the Ghana Revenue Authority (GRA) and dissolve the GRA board, without citing a specific reason, was not unexpected; for many, it was long overdue. What surprised many was the revelation that he had been operating with a contract retroactively awarded by the president, leading to further public outcry. Official contract documents show that President Akufo-Addo issued two retroactive contracts to the Commissioner-General, signed on Tuesday, 26 March 2024, by the Secretary to the President, Nana Bediatuo Asante. The first contract covered two years, from 11 October 2021, to 10 October 2023, while a subsequent contract extended from 11 October 2023 to 31 March 2024. These documents confirm that the GRA leader was indeed serving as the head of Ghana’s premier revenue institution without a formal contract offer from the president. SBM Intelligence is also learning that the ongoing transformations at the Ghana Revenue Authority, overseen by the Finance Minister, are fostering renewed trust within the investor community. This is crucial as Ghana readies itself for another round of assessments under the IMF programme. The country anticipates receiving approximately $720 million from the Fund this year, split into two tranches: the first $360 million expected in the second quarter, followed by the remaining $360 million scheduled to hit the Bank of Ghana’s account by November 2024 before the country heads to the polls to elect a new President and 276 Members of Parliament. Unlocking these foreign exchange reserves requires Ghana to meet crucial revenue targets, with the Ghana Revenue Authority playing a pivotal role. Additionally, there is the challenging task of persuading commercial creditors, who hold over 43% of Ghana’s external debt, to accept up to a 40% reduction in principal alone. Former Finance Minister Ken-Ofori Atta, who oversaw Ghana’s borrowing of approximately $11 billion from the Eurobond market in under four years, has been replaced. Despite securing a debt moratorium from Ghana’s bilateral creditors, co-chaired by China and France, a new Finance Minister, Dr Amin Adam, has been appointed. Dr Adam was instrumental in convincing Independent Power Producers to restructure their dollar-denominated debts. It is understood that Ken Ofori-Atta faced diminishing favour from domestic and foreign investors, with over 90 Members of Parliament from the ruling party calling for his removal. We also understand that Dr Amin Adam’s appointment aims to create a renewed environment conducive to smooth commercial debt restructuring, a key step toward unlocking the next IMF disbursements. Ghana’s urgent need for revenue pushes the president to take decisive action to stabilise the economy and build political capital, setting the stage for Vice President Dr Bawumia’s future leadership.