The week ahead – Torrents

Exxon Mobil Corp’s deal to sell its Nigerian onshore assets to Seplat Energy will be approved in days after getting the regulator’s clearance, President Tinubu said on Tuesday. The presidency announced that Mobil has proposed a $10 billion investment in offshore oil operations in Nigeria. Exxon plans to focus on developing its deep-water project in Owo estimated at $10 billion. The producer also plans to spend $2.5 billion annually to boost oil output by 50,000 barrels per day over the next few years and maintain its Nigerian operations, despite agreeing to sell its onshore assets to Seplat Energy for $1.3 billion. 

As stated in our previous counsels, the $10 billion investment announcement was a PR win for both ExxonMobil and the Nigerian government. It has now been four days since the president/petroleum minister made this statement, but there has been no news about the deal’s approval. Those who criticised the speed at which the Oando-Agip deal progressed have a valid point, given the familial ties between the president and Oando CEO Wale Tinubu. Given the structure of the oil and gas sector and Nigeria’s urgent need for investments, such bottlenecks are unnecessary. They signal to the broader sector that Nigeria is not ready for business, despite what government officials proclaim on foreign trips. The fact that this deal was also mentioned in the president’s Independence Day address indicates that it is becoming a liability that must be addressed. This deal was first announced in February 2022. The Tinubu administration certainly needs to do more to ensure a seamless process, rather than just issuing presidential orders to improve the business climate. As this deal and others in the pipeline move toward completion, all eyes will be on domestic players in the oil sector to see if they can maintain production levels, given Nigeria’s desperate need for petrodollars. Moreover, international oil companies must not be allowed to shy away from their responsibilities, including cleaning up oil spills and compensating host communities for the environmental damage caused by oil extraction.

An Air Force operation targeting armed gangs has caused the death of at least 24 people in the Jika da Kolo community, Giwa Local Government Area of Kaduna. The Air Force said it was investigating the allegations but added that the airstrike was based on “credible intelligence” and “confirmatory surveillance of the target area.” Muhammad Hussaini, a resident, said the airstrike hit a local mosque instead of the intended armed gangs. On Saturday, two persons were killed and about 40 were abducted in an attack at Defence Minister Bello Matawalle’s hometown, Janboka—a community in the Maradun LGA of Zamfara State. 

The influx and growth of bandit groups in Northern Nigeria have become too widespread for the military and its partners to keep up. This is after several counterinsurgency campaigns in the region have failed to decimate these groups. The government has thus relied heavily on aerial bombardment by the Air Force and the Nigeria Army’s air wing. The terrain being operated on is a dangerous one, and although it is not as densely populated as the more urbanised south, the region possesses a lot of state-spanning forests in its rural areas that provide impregnable bases for armed groups. Some of these forests also house villages and communities which the bandits draw support from. With aerial bombardment, the government found a seemingly cost-effective strategy for containing the security challenge with minimal personnel losses. However, it substituted the life of its soldiers with that of civilians. Since 2017, it has become an annual military tradition to bomb civilians to death under the guise of chasing after terrorists. This is a phenomenon that most geopolitical zones in the country are familiar with. What used to be an exclusive preserve of the Nigerian Air Force has now become democratised to involve the army’s aviation wing which is less than three years old. The aviation wing was responsible for the last massacre in December, where no fewer than 85 Muslim worshippers were killed in the Tudun Biri area of Kaduna. Despite its decade of experience and a large pool of human intelligence in undertaking such missions, the military has yet to get its intel verification correctly. A notable driver of these alleged mistakes is the absence of accountability. Before 2023, the military staunchly denied claims that it killed civilians from the air while going after terrorists. However, that year marked a turning point because the more frequent these mishaps become, the more international opprobrium it has drawn, thus forcing a mealy-mouthed and belated promise to investigate with hardly any public results. The Air Force’s statement concerning this latest strike confirms the new regime of promising a review to no effect, and equally worse, transferring responsibility for the victims and their families to the state governments.

Electronic payment transactions in Nigeria surged by 86.44% in the first half of 2024, reaching ₦566.39 trillion, compared to ₦303.60 trillion during the same period in 2023, according to Nigeria Inter-Bank Settlement System data. July 2024 recorded the highest transaction value at ₦89.50 trillion, nearly double the ₦47.39 trillion in July 2023. June 2024 saw ₦79.59 trillion in transactions, while May, April, and March recorded ₦87.48 trillion, ₦75.32 trillion, and ₦83.05 trillion, respectively. February and January also experienced significant increases, with ₦79.33 trillion and ₦72.11 trillion, respectively, compared to the previous year.

The increase in electronic payments is not surprising given the rising teledensity rate and number of internet subscribers. Since the currency redesign policy, more consumers have shifted towards using electronic banking channels for financial transactions. The bulk of those transactions usually comes from mobile transfers. Although the increase was expected to be higher, the rising cost of transactions due to inflationary pressures has impacted the volume’s growth. With Nigeria’s rising youthful and tech-savvy population, the volume of real-time payment transactions is projected to hit 8.9 billion in 2027 from 5.1 billion in 2022, according to ACI Worldwide. Noteworthily, the growth in e-payment transactions is a prime example of where regulation meets business in an impactful way. Various financial inclusion targets driven by electronic payments were set out by the Central Bank of Nigeria (CBN) from the mid-2000s. Despite some detours along the way, the CBN has remained committed to this long-term goal. This commitment has spurred significant growth in existing players like Interswitch and given rise to new giants such as Paystack, Flutterwave, OPAY, and Moniepoint. Ultimately, Nigeria’s payment landscape has transformed, featuring widespread adoption of online and point-of-sale payments, along with the payment wallets that support them.

Ghana’s government missed its ambitious treasury bills target by a whopping GH¢2.670 billion, securing 64.1% of the GH¢7.438 billion target for maturing debts and projects. The Bank of Ghana’s auction results revealed an undersubscription of 35.90%. Also, the BoG has adopted a new methodology for calculating its Foreign Exchange (FX) Market Reference Rate (MRR) to better align with international best practices and accurately reflect market developments. Additionally, Ghana’s central bank had its first main interest rate cut since January (GHCBIR=ECI), opening a new tab by 200 basis points to 27% as inflation continues to ease.

A decade ago, the Ghanaian economy was touted as a model for Sub-Saharan Africa. However, recent geopolitical crises, such as the 2016 commodity price crash and the 2020 COVID-19 pandemic have led to volatile macroeconomic conditions, soaring inflation and a depreciating currency. Today, the major issue is a debt crisis that has caused the country to default on its Eurobond payments. A significant reason is that the country exploited its positive economic perception to borrow excessively to fuel development, yet it failed to generate sufficient revenue to service its debt. Ghana’s revenue-to-GDP ratio is around 14%, higher than Nigeria’s 9.4%, but still below the Sub-Saharan African average of 20.5%. Moreover, the Bank of Ghana’s decision to cut the Monetary Policy Rate (MPR) from 29% to 27% was seen as a reactive measure, not aligning with available economic data. Many saw this move as part of a broader effort to reduce the cost of borrowing, particularly as the country edges closer to elections. Consequently, the under-subscription of the Government of Ghana’s T-Bills was expected, with many investors shying away from these government instruments. The anticipation of further rate cuts likely fuelled this reaction, as investors foresee less attractive borrowing conditions in the near future. This year, Ghana’s private sector has had to compete at high costs with the government for access to capital from the T-bill market. The Bank of Ghana’s data reveals that commercial banks have favoured investing in government securities over extending loans to private enterprises. This trend limits credit access for businesses, further escalating borrowing costs. The recent rate cut is a welcome development for the private sector, as it is expected to lower the cost of borrowing. However, this reduction could lead to challenges, especially as it seeks to meet its bloated fourth-quarter financing needs. With a relatively lower rate, there’s a likelihood that the government may receive less than anticipated from future T-bill issuances. Compounding this is the Bank of Ghana’s recent introduction of a new Gold Coin, intended to offer an alternative investment avenue and stabilise the cedi. While this move could provide some relief, the persistent rise in government expenditure, exacerbated by a weakening exchange rate, may create further complications. As government spending grows, the pressure on the Bank of Ghana to hike rates again could increase. This would be aimed at making T-bills more attractive to investors, thereby enabling the government to borrow more to cover its financing needs. Nigeria, being a much more diversified economy, has several levers it can pull to remain solvent, whereas Ghana, with its overreliance on cocoa revenues, has limited options. As a result, investors are sceptical and are likely to avoid Ghanaian debt instruments unless more positive news emerges or the risk premium significantly increases. Consequently, the Bank of Ghana’s recent rate cut is unlikely to provide much relief.