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The Week Ahead – Losing Control

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SBM Intelligence

Another dreary week of developments was topped by a neighbour offering an unrequested Band-Aid, dwindling revenue flows, nepotism and renewed forex woes. But, Ekiti state offered a ray of hope in exemplifying sensible regulation and Rwanda, in facing its past with a renewed sense of justice.

The pain begins to bite
Two sources of foreign exchange for Nigeria took a hit this week. Nigeria’s cocoa mid-crop output is expected to be very low as measures to curb the spread of the coronavirus hindered farmers and exporters. Mufutau Abolarinwa, president of the cocoa association, said the measures have created a backlog of unshipped beans as some of April’s orders still being exported were disrupted by the lockdowns and restrictions on transport and port activities. Around 5,000 to 6,000 tonnes of beans were stuck at Lagos port and warehouses in the country, Abolarinwa told Reuters. Some farmers said that this year’s mid-crop could begin in the southwest region a month later than usual, in June, due to late rains, and output could be hit by a lack of chemicals. This could see the main crop extend to November. Meanwhile, data from Baker Hughes and OPEC has shown that the active oil rigs in Nigeria reduced by 23.8 percent to 16 in April amid the collapse in oil prices and demand as a result of the coronavirus pandemic. The report said that the country’s rig count stood at 21 in March while it recorded the second-biggest decline in the number of rigs among its peers in OPEC in April, after Venezuela, whose rig count plunged by 11 to 14.

2020 began as a decent year for Nigerian government revenues, with oil prices beginning the year above $60 per barrel and production close to 2 million barrels per day. It also appeared that non-oil revenues would get some serious input following the new Finance Act. The coronavirus outbreak changed all that. It forced the world’s largest importers of African cash crops, including India, China and Vietnam, to cut orders as their processing factories close due to lockdowns imposed to slow the spread of the virus. This wreaked havoc to the livelihoods of farmers across the African continent. The price of cocoa in the international market has plunged 16% over the past 3 months and other commodities like cashew and tobacco have seen similar trends. The lack of processing and storage infrastructure in most African countries means that a lot of the harvest will go to waste and many farmers will be forced to sell at discounts to reduce loss margins. There is, therefore, a need to rethink agricultural policies across the continent. The primary goal of modern agriculture should be to add value to harvested products rather than exporting raw materials. The same can be said for oil, where Nigeria’s inability to refine crude oil is hurting revenues. The Baker Hughes report also stated that in the US, the rig count fell 44% year-on-year, dropping to 566 in April 2020. The crucial difference is that the Americans can refine their oil and either store the refined produce, or make use of it domestically. US shale producers have been oil industry disruptors over the past decade and their growth was fueled by high oil prices, pushing the US to become the largest oil producer in the world in 2018 with over 12 million barrels per day (compared to Nigeria’s 2.4 million barrels daily peak). In this new reality, however, oil fields with high production costs have to shut down. Shale, tar sands and deep-sea fields cost over $60 per barrel to produce so such fields are quickly going offline whereas desert fields in Saudi Arabia and other Gulf countries which enjoy low average production costs of between $10 – $15 per barrel are only constrained by OPEC+ quotas. Nigeria’s average cost of production is estimated at $23 per barrel, which is currently below global prices, but with the country currently unable to find buyers for its crude, even at discounted rates of $15 per barrel as well as refine crude at home, it is difficult to see how the industry will escape the current crisis unscathed.  

Shrinking pie
The federal, states and local governments have received a total of ₦606.196 billion from the Federation Accounts Allocation Committee for the April 2020 revenue. The amount comprised Value Added Tax, exchange gain, solid mineral revenue, excess bank charges and excess oil revenue was announced Friday after a virtual FAAC meeting. The FG received ₦169.831 billion; the states got ₦86.140 billion; while the local governments collected ₦66.411 billion out of the amount. The oil-producing states received ₦32.895 billion as 13 percent derivation from mineral revenue. The cost of collection/Federal Inland Revenue Service refund/allocation to North-East Development Commission and transfer to excess oil revenue was ₦15.134 billion according to the communique. It said that the gross revenue available from VAT for April 2020 was ₦94.495 billion as against the ₦120.268 billion distributed in March 2020, amounting to a decrease of ₦25.772 billion. From the VAT revenue, the Federal Government got ₦13.182 billion; the states received ₦43.941 billion; while the local governments got ₦30.758 billion. The distributed statutory revenue of ₦370.411 billion received for April was lower than the ₦597.676 billion received for the previous month by ₦227.265 billion. In another development, the Nigerian Senate has asked the Federal government to cancel the entire privatization process of the power sector that was carried out during former President Goodluck Jonathan led administration, following its very epileptic nature. The red chamber has also urged the FG to immediately suspend the planned electricity tariff increase due to take effect from July following the increased hardship occasioned by the Coronavirus pandemic.

The data says it all. FAAC allocation for January came in at ₦716 billion. However, by February allocations had plunged 25% to ₦531 billion and the news led to an initial impasse as states rejected the allocations given. The CBN was forced to adjust the official naira exchange rate to boost revenues and allocations for March came in at an “impressive” but unsustainable ₦780 billion. Knowing that the Naira devaluation alone cannot sustain revenues, the FG announced that it has slashed its 2020 budget and removed petrol subsidies. The Minister of Finance, Zainab Ahmed, had said that while the states were expecting to share ₦3.3 trillion from the Federation Account during the year, they would not be able to get more than ₦2.1 trillion. The FG’s share from the Federation Account initially projected to be N4.8 trillion will decline to ₦2.4 trillion. The share of the LGs, expected to be ₦2.5 trillion at the beginning of the year, will decrease to ₦1.5 trillion. While ₦8.6 trillion was projected as the total inflow into the Federation Account in 2020, it is now expected that only ₦3.3 trillion will accrue to the account. Nigeria has a serious revenue problem, and the government refuses to come to terms with it in their budgeting, especially for expenditure. A second perhaps more fundamental problem is the language of government with regards to revenue – sharing. Everyone is simply focused on sharing, not growing and improving revenue. There seems to be no strategic view of developments, and this is also reflected in the manner in which the power privatisation rollback is being mooted. Is the Senate unaware that the biggest bottleneck today is electricity transmission; the only part of the privatisation plan that was not completed? Are the real issues hindering the power industry not well known? Why is the Senate not tackling those headlong? It is a symptom of the same thing – those who govern Nigeria are unwilling to deal with the reality of governing Nigeria.

Ekiti shows the way
Ekiti has reduced its right of way charges from ₦4,500 per metre to ₦145. The governor of the state, Kayode Fayemi, signed an executive order last Thursday to effect the reduction. With the reduction, 1km of cable will now cost ₦145,000 rather than the previous ₦45 million for the RoW charge, the levy paid to state governments for laying of optic fibre on state roads. A single telecoms operator needs RoW covering thousands of kilometres. Going by the development, Ekiti is the first state in Nigeria to comply with the NEC approved the right of way charges for broadband thus becoming the cheapest state for broadband infrastructure investment. Fayemi said the executive order is part of ongoing reforms to make the state attractive to investors within five years. 14 states; Lagos, Kano, Anambra, Ondo, Cross River, Kogi, Osun, Kaduna, Enugu, Adamawa, Ebonyi, Imo, Kebbi and Gombe, had hiked their RoW charges at the beginning of the year. The cost of RoW on federal roads is ₦142 per linear metre. At the time, the minister of communications and digital economy, Isa Pantami, had warned states that telecommunications companies would transfer the costs to customers.

This is a solid move in the right direction by the Ekiti State government and one that will definitely set the ball rolling as happened on Wednesday when Imo reduced its own right of way charges. While many other states continue to quarrel with the minister, Ekiti has signalled to telecoms firms that it is open to receive their business. It is especially so in a period where remote work is at the centre stage of the world’s business habit due to the COVID-19 pandemic. Nigeria is in desperate need of infrastructure and making it cheaper for private sector participants to provide infrastructure for broadband is a sure way to bridge the gap. We expect the telcos to respond by investing in the state, creating much-needed jobs, and more importantly, building the capacity to create higher productivity jobs. We urge other states to follow suit.

No state in Nigeria scored up to 30% in our revised, health preparedness index, which serves as the official one for 2020. In the first version of this chart, which was only published only to this newsletter, we got the budgets of each state, extracted how much they spend on health, then calculated both the per capita expenditure on health, as well as the percentage of the budget spent on health. We believe that a more accurate data point than the announced budget for each state would be the budget implementation, but these reports are not available for most states. For example, our highest ranked state, Cross River, has a budget that is deemed by many, including us, to be unrealistic. This fact is responsible for the lower weighting given to budgets in this, our final ranking. Recently, however, the doctor-to-population ratios of each state became available, so we have updated the ranking to include that criterion. The doctor-to-population ratio of Borno state is not available. To weight how seriously each state takes its health expenditure, we included some other outcomes, namely, infant mortality and Human Development Index. Finally, to produce the rankings, we weighted as follows: Doctor to population ratio – 30%; Infant Mortality – 25%; Human Development Index – 20%; Portion of budget spent on health – 10%, Per capita budget – 10%; Average household size – 5% where states were scored based on the size of a household compared to a standard household size of four. A lower household size attracted a higher score. This index is meant to be produced once a year.
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On acquiring kinsmen
The chairman of the Federal Inland Revenue Service, Muhammad Nami, has enacted an old civil service rule hitherto suspended to retire nine directors of the agency. The chairman was said to have unlawfully removed the directors to pave the way for his allies. According to the Punch, the government of late President Umaru Yar’Adua had instituted a civil service rule which made it compulsory for directors to retire after serving for eight years. However, the administration of President Muhammadu Buhari rescinded that directive. The new regulations said that civil servants are to leave service after attaining the retirement age of 60 or spending 35 years in service. The new regulation, which was reportedly upheld by former Chairman of the FIRS, Babatunde Fowler, as no director was retired as long as they had not crossed the retirement benchmark, was, however, revoked by Nami who assumed office in November 2019. Nami was said to have instructed that directors who had served for eight years be retired. Nine directors received retirement letters in March 2020. According to a copy of the letter signed by Nami, the board of the FIRS at its emergency meeting held 20 March 2020, approved the retirement of all directors who have served eight years and above as directors in the service in line with Para 10: 1(a)(iii) of HRPP. The directors were asked to retire the service with immediate effect. The affected directors were Victor Ekundayo (Career and Skills Development); Kemi Odusanya (Facility); Emmanuel Obeta (Chairman’s Office); Chiaka Okoye (Programme Office Non-Tax); Kola Okunola (ICT); Asheik Maidugu (Planning and Statistics); Innocent Ohagwa (Human Capital Development); Ezra Zubair (Programmes and Policy Monitoring) and Olufemi Faniyi (Team Lead Tax Operations Group).

In the larger scheme of things, the bigger issue is that of national cohesion. Cries of marginalisation have been getting louder especially from the South. Now, some Northern voices have joined in because all the new appointees in FIRS are from Mr Nami’s Nupe ethnic group. Mr Nami’s hiring of four directors who are not just from the same state, but the same ethnic group as himself, is a glaring illustration of nepotism which flouts the federal character principle laid out in the Constitution. This is further buttressed by the fact that Mr Nami moved in clear violation of a presidential directive which is yet to be reversed. His assertion that this directive does not apply to the FIRS because it is a public service and not a civil service institution falls hollow when examined against the fact that he is basing his actions on the directives of a previous President. We wonder why an agency of the government should so flagrantly disobey presidential directives without any cries for accountability. However, a precedent might have been set in such a situation in the case of the former Minister of Health Isaac Adewole and the former Executive Secretary of the National Health Insurance Scheme, Yusuf Usman, whose suspension by the Minister was reversed by the President despite his brazen insubordination towards the Minister. It will be interesting to see if Nami’s superiors (specifically the Finance Minister) will orchestrate a necessary intervention.

Spooking the neighbours
Sokoto residents now rely on soldiers from the Nigér Republic to save them from incessant attacks of bandits in the state as the Nigerian military is no longer capable of the responsibility, a Senate member representing Sokoto East Senatorial District, Ibrahim Gobir, has said. The APC Senator said this Tuesday on the floor of the House while seconding the motion moved by the Deputy Chief Whip, Sabi Abdullahi, on an order given by President Buhari, to the Nigerian soldiers to flush out bandits from some states. Gobir added that at least 300 people have either been killed or kidnapped in the last three months while more than 5,780 cows valued at ₦2.5 billion had been stolen. During attacks by the criminals,  the Nigerian army whose personnel are a few kilometres away don’t respond instantly compared to the Nigérien soldiers who move in swiftly and ward off the intruders, usually from a further distance. Gobir also said that more than 5,000 Nigerians in the troubled parts of the state have relocated to the Republic of Nigér following the increased bandit attacks on local communities. Gobir’s statements came some days after hundreds of residents of Yangayya community in Jibia LGA of Katsina on Saturday blocked a highway to protest repeated attacks by armed bandits on the community. Residents said the protest followed an attack in which many residents lost their valuables, many injured and women raped. The residents said the bandits first attacked the community on Wednesday after iftar (break of fast) when the largely Muslim residents were about to go for their night (Isha) prayer in the mosque. They invaded the community, reportedly using over 70 motorcycles, looted shops and went away with valuables. The bandits returned on Saturday around 0800 hours. During the attack, they raped and physically assaulted many women, with some of the women later hospitalised, a resident told Premium Times, asking not to be named for security reasons. He said following the Saturday attack, the residents trooped to the main road in protest, blocking motorists, targeting and molesting government officials who use luxury cars. The residents also used derogatory language against Governor Aminu Masari and President Muhammadu Buhari.

Senator Gobir’s comments are not surprising, considering how overstretched the Nigerian military is in between battling insurgencies in the North-East, bandits in parts of the North-West, and deployments across 34 of the country’s 36 states. On the other hand, the Nigérien military is most active around its southwestern borders, primarily because of the activities of terrorist jihadist groups around the intersecting borders of Mali, Burkina Faso and the Nigér Republic – the often mentioned tri-border area. Also, the proximity of the Nigérien capital, Niamey to Sokoto City (a distance of 460km) makes it very likely that its army is keeping a watchful eye on the situation in Nigeria’s NW to ensure that it doesn’t cause further instability on its own side of the border. Overall, it is clear that Nigeria cannot fight two wars concurrently, and while relying heavily on its military for internal operations without a major increase in its numbers and capacity. In addition, it is clear that the strategy of simply paying off the bandits has failed, as it only ends up rewarding their criminal activities. The Nigerian government requires a comprehensive approach towards resolving insecurity in that part of the country which will incorporate a military approach, border security enforcement and understanding the remote causes which have fueled the rise of the different terrorist networks operating in the region.

One step closer to closure
French gendarmes have arrested Rwandan genocide suspect Felicien Kabuga, who is accused of funding militias that massacred about 800,000 people in Rwanda. The 84-year-old who is Rwanda’s most-wanted man was arrested on Saturday near Paris after 26 years on the run, the French justice ministry said. Kabuga who had a $5 million U.S. bounty on his head, was living under a false identity in a flat in Asnieres-Sur-Seine, according to the ministry. He was indicted in 1997 on seven criminal counts including genocide, complicity in genocide and incitement to commit genocide, all in relation to the 1994 Rwanda genocide, according to the UN-established International Residual Mechanism for Criminal Tribunals. The Hutu businessman, Kabuga is accused of funding the militias that massacred some 800,000 Tutsis and their moderate Hutu allies over a span of 100 days in 1994. Rwanda’s two main ethnic groups, Hutus and Tutsis, have historically had an antagonistic relationship and fought a civil war in the early 1990s. According to the French ministry, Felicien Kabuga, since 1994, known to have been the financier of Rwanda genocide, had with impunity stayed in Germany, Belgium, Congo-Kinshasa, Kenya, or Switzerland. His arrest paves the way for the fugitive to come before the Paris Appeal Court and later be transferred to the custody of the international court based in the Hague, Netherlands and Arusha, Tanzania. Kabuga, who controlled many of Rwanda’s tea and coffee plantations and factories, was part-owner of Radio Television Milles Collines which ran a radio station that fanned ethnic hatred against Rwanda’s Tutsis, told Hutus where Tutsis were to be found and offered advice on how to kill them. He is accused of being a main financier of the genocide, paying for the militias that carried out the massacres.

The arrest of Kabuga is a huge victory for Rwanda and helps in ensuring that all the perpetrators of the genocide are brought to justice. It also brings some closure to families of victims and to a country which is still reeling from one of the worst atrocities of the 20th century. Although Kabuga’s journey to justice has only just begun, the verdict can be reasonably predicted as a guilty one, and a very likely life sentence. On the diplomatic front, however, this will likely bring into question the role of France in the genocide (considering how it was close to the government of President Juvénal Habyarimana), but also if it knew of the presence of an international fugitive such as Kabuga, but did nothing about it. It is unclear how the two countries will navigate that, especially considering how relations between them have been far from their best over the last two and a half decades.

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