The week ahead – Fight or flight

The Central Bank of Nigeria (CBN) raised its Monetary Policy Rate (MPR) by 50 basis points to 27.25%, marking the fifth consecutive rate hike this year. The CBN also raised commercial banks’ Cash Reserve Ratio (CRR) by 500 basis points to 50%. Merchant banks saw a smaller increase, with their CRR raised by 200 basis points to 16%. The CBN retained the asymmetric corridor around the MPR at +500/-100 basis points while keeping the liquidity ratio unchanged at 30%.

This hike marks the fifth consecutive increase despite inflation dropping consecutively for the second month in August. The recent hike was probably because the CBN anticipates a resurgence in the inflation rate after two consecutive declines. This concern is valid, given the rise in fuel prices and the uncertainty surrounding the future of NNPC and the Dangote Refinery. The CBN Governor noted that the committee observed that “although headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices. The uptrend poses severe concerns to members, indicating the persistence of inflationary pressures.” While core inflation, by definition, does not include food and energy costs, in Nigeria it is greatly affected by these sectors, particularly in light of the recent naira devaluation, petrol subsidy reductions, and widespread insecurity. The benchmark interest rate hike surprised most economists and analysts, including SBM, who had predicted a “hold” in the rate. Also, central banks in developed economies like the US, UK, and Japan either paused or reduced their interest rates last week. Since the beginning of the year, the CBN has adopted an aggressive monetary tightening stance, raising the rate by 850 basis points to 27.25 percent in September. With the CBN governor admitting the difficulty in controlling the increase in foreign exchange rates until fundamentals like oil prices and economic diversification are addressed, The central bank seems to view interest rates as the primary tool to curb inflationary pressures from a rising exchange rate. The impact of this will likely be a further reduction in banking credit, which has little direct effect on consumption, as Nigerian consumption is not credit-driven. Instead, it will primarily affect production, with businesses facing higher lending rates and a shrinking pool of available funds. While increasing interest rates helps reduce a country’s inflation and stabilises its currency—an advantage for foreign investors, especially those in portfolios—it dampens business activity by raising borrowing costs, making it difficult for many Nigerian businesses to access loans or credit. This affects businesses’ survival rate and leads to increased job losses, with the unemployment rate rising from 5.0 percent in Q3 last year to 5.3 percent in Q1 2024. The MPC is trying to control the money supply in the economy, as they believe that too much money is chasing too few goods, contributing to rising inflation. However, we have often opined that Nigeria’s inflation is more of a cost-push issue and not caused by excessive demand. We believe the CBN needs to rethink its monetary policy and consider policies that will relieve businesses during this challenging time.

Nigeria’s nonprofit sector has grown by over 1,000% in just four years amid concerns about the motivations and questionable activities of nonprofit firms being used by politically exposed individuals to undermine the rule of law. The Guardian surveyed the figures between 2019 and 2023 and found an increase of 174,101 NGOs. As of May 2019, there were 17,177 NGOs, rising to 191,278 by November 2023. With the frequency of daily registrations in Nigeria, especially with the Companies and Allied Matters Act (CAMA) 2020 allowing individuals to register companies, the number is expected to surge in the coming years.

The rapid growth of Nigeria’s nonprofit sector, fuelled by the proliferation of NGOs across diverse sectors, clearly reflects the challenges plaguing public governance, which impact various facets of Nigerian life. As these organisations step in to address critical needs, they inadvertently highlight the areas where traditional governance structures have fallen short. Therefore, the narrative that NGOs are just seeking foreign grants is secondary. Case in point: there are few NGOs in Europe because social care systems handle most of the work NGOs do elsewhere. Several factors drive the NGO registration boom, the key among them being the ease with which these entities can be established, thanks to less stringent CAC requirements. Most of the journey toward approval is handled by a solicitor, who manages documents such as the composition of trustees, minutes of meetings and a certificate of incorporation. The latter is necessary for raising money from the public after a bank account has been set up. During the registration process, applicants are not required to undergo security checks by relevant agencies, such as the Economic and Financial Crimes Commission or the Nigerian Financial Intelligence Unit. These agencies are only involved when NGOs are suspected of money laundering. Given Nigeria’s reputation as a hub for illicit finance, more needs to be done to address the issue. In its 2022 global ranking, the Basel Institute of Governance placed Nigeria 17th out of 128 countries for money laundering and terror financing risks, marking it as a country with “high risks of ML/TF.” The Basel AML Index scored Nigeria 6.77 out of 10, indicating it is “not doing enough” to combat these issues. Recently, Nigeria has fluctuated on the Financial Action Taskforce’s grey list, reappearing in February 2023 due to rising capital inflows and ongoing deficiencies in addressing money laundering and terrorism. This negligence has led to international embarrassment, exemplified by the UAE’s conviction of six Nigerians for terrorism financing and money laundering. While Nigerian security services focus on political actors using NGOs to launder money, many of these organisations are established by internet fraudsters known as “Yahoo Boys.” This reality, especially evident in cities like Benin and Warri, highlights the EFCC’s ineffective focus on internet fraud, which has not produced results matching its stated goals. To harness the NGO sector’s potential while addressing these challenges, Nigeria needs to strengthen public institutions, foster collaboration between NGOs and government bodies, create enabling environments for NGOs, and address the root causes of governance failures.

The Independent National Electoral Commission has declared the Edo State All Progressives Congress (APC) governorship candidate, Monday Okpebholo, the election winner. Monday Okpebholo received 291,667 votes, defeating the Peoples Democratic Party (PDP) candidate, Asue Ighodalo, who garnered 247,274 votes. The Labour Party (LP) candidate, Olumude Akpata, came in a distant third with 22,763 votes. The final results claimed that Mr Okpebholo won 11 LGAs, while Mr Ighodalo won seven. Mr Akpata did not win in any LGA. Meanwhile, the state’s PDP has protested the election results, alleging they were manipulated in favour of the APC candidate.

The recent gubernatorial election in Edo State has sparked discussions about the health of Nigeria’s democratic institutions. The APC candidate, Monday Okpebholo, emerged victorious, but the circumstances surrounding the election have prompted some to question the integrity of the process. Observers noted Mr Okpebholo’s limited public engagement during the campaign; he was absent from extensive campaigning and televised interviews. This strategy has left some voters questioning the basis for his electoral success. At the start of Saturday’s elections, it became clear that the umpire was not enthusiastic about change. Electoral officers arrived late at several locations, and voting materials reached polling units later than scheduled. Much of the blame for this lack of punctuality has been attributed to adverse weather, which should have been considered from the outset. From a security perspective, the election proceeded better than in previous years, alleviating fears over the political parties’ failure to sign the symbolic pre-election peace accord. This relative success can be attributed to the police’s preemptive arrests of potential troublemakers in the Akoko-Edo and Oredo Local Government Areas (LGAs). However, what many voters who are not aligned with the APC will remember about this election is the credibility of its results. The PDP candidate, who finished second, has alleged result manipulation in the APC candidate’s favour. The situation in Edo State raises important questions about voter engagement, electoral transparency, and the role of institutions like INEC in safeguarding democracy. According to the Centre for Democracy and Development report, blurry results were uploaded to the result viewing portal, and some included results from Ozolua Primary School II, Abumwenre, Okokhua ward/RA 09, Ovia North-East LGA. Additionally, results from various polling units in Etsako East were noted for overvoting. In the Weppa Registration Area, at the polling unit in Osholo Primary School, INEC also uploaded a result where the votes recorded for the APC exceeded the number of accredited voters, reporting 352 votes for the APC and 52 for the PDP, despite only 213 accredited voters. These troubling issues further undermine INEC’s already declining credibility, leading some to question whether an audit of the electoral umpire’s performance is necessary to justify its operating budget. As Nigeria continues to develop its democratic processes, events like these provide opportunities for reflection and potential reform. Ensuring that future elections are not only free and fair but are also perceived as such by the electorate is vital for maintaining public trust in the democratic system.

Ghana’s year-on-year inflation rate at ex-factory prices for goods and services rose to 33.2% in August 2024, up from 29.1% in July, with month-on-month producer inflation at 2.7%. The Producer Price Inflation (PPI) in the Industry sector increased to 44.2%, while the Construction sector’s rate dropped to 27.7%. Ghana’s economy grew by 6.9% year-on-year in Q2 2024, the fastest in five years, driven by a 9.3% rise in the Industry sector, particularly mining and quarrying. The services sector grew 5.8%, and agriculture rose 5.4%, though the cocoa sector contracted for the fourth consecutive quarter by 26.2%.

Ghana’s economic crisis continues to unfold, with key indicators still signalling distress. Despite over a year of the IMF-supported economic recovery programme, which has successfully undergone two reviews and disbursed more than $1.5 billion, the tangible benefits remain elusive for the average Ghanaian. Consumer inflation has declined significantly but remains stubbornly high at over 20%, and producer inflation, which is a predictor of future consumer inflation, continues to rise at year-on-year and month-on-month levels, indicating further price pressures ahead. This disconnect between the first macroeconomic stabilisation goals and the lived experience of Ghanaians highlights the country’s deep-seated challenges. One of the biggest concerns is the continued depreciation of the cedi against major currencies, compounding inflationary pressures. The country’s GDP growth rate of 6.9% may seem impressive at face value—marking the fastest quarterly growth in five years—but this growth is largely driven by inflation. The sharp rise in prices has inflated the GDP figures when calculated using both the constant and current market price (purchasing approach), making the growth appear more robust on paper than it is in real terms. For the average consumer and businesses, high prices are eroding purchasing power, and the cost of borrowing remains excessively high, further dampening economic activity. The nominal growth is not translating into real economic relief, as productivity is not growing at the same rate as prices. Ghana’s agricultural sector, particularly cocoa—a key export commodity—continues to decline, with no signs of recovery in the near term. Persistent challenges, including low yields, high input costs, and global price fluctuations, are compounding the sector’s struggles. This lack of momentum in such critical subsectors poses a significant risk to overall economic growth, as agriculture plays a vital role in Ghana’s economy. The IMF programme’s focus on macroeconomic stability, such as reducing fiscal deficits and stabilising the currency, has yet to translate into broad-based economic improvements. The real sector—agriculture, manufacturing, and services—is struggling with high production costs, expensive credit, and weak consumer demand. Cocoa, which is supposed to be the backbone of the Ghanaian economy, has lost its power as illegal mining activities and bad weather conditions continue to affect yield and revenue.