Home Features The Week Ahead – The Pursuit Of Obviousness

The Week Ahead – The Pursuit Of Obviousness


By SBM Intelligence.

When one thinks of Nigeria’s rising debt amid low tax levels and slowing growth, a structurally inefficient power sector which might hamper West Africa’s energy dynamics, telcos facing up to social media mavericks, the security crisis in Zamfara, and possible political rapprochement in Ethiopia, one might be inclined to think the interested actors will know the right thing to do. Or do they?

Zamfara’s elite feels a taste of its insecurity venom

In the early hours of 22 May, gunmen abducted the wife, three children and three relatives, of the Commissioner for Youths, Sports and Skills Acquisition in Zamfara, Alhaji Abdullahi Bore. The attackers broke into the home of the Bores in Gurbin Bore village, Zurmi Local Government Area in the northwestern Nigerian state between 1 and 2am, according to state police spokesman, Mohammed Shehu. Bore said no ransom demand had been made and the matter had been reported to the security agencies. Zamfara police commissioner, Kenneth Ebrimson told Nigerian media that internal mechanisms have been put in place to rescue the kidnapped victims. Gurbin Bore is close to the state border with Katsina state.

Over the last few weeks, Zamfara has been consistently in the news for the wrong reasons. This incident is simply the latest. From our point of view, Nigeria’s security establishment, especially the police, lacks the capacity to think through this constant stream of terror. Unfortunately, President Muhammadu Buhari, as Commander-in-Chief, has not properly articulated a coordinated approach towards revitalising Nigeria’s security architecture, and tackling our porous borders. We believe a critical overhaul and comprehensive reform of our security services and doctrine remain the best way to arrest the current anarchy. Time is running out.

IMF’s latest debt sermon will fall flat

The IMF says Nigeria’s debt stock might be low, but it doubts the country’s capacity to repay the debts. Speaking on Monday at the public presentation of Spring 2018 Regional Economic Outlook for Sub-Saharan Africa, the IMF said the country has to increase domestic revenue. “Nigeria is not considered a low-income economy. Nigeria’s debt stock figure, which is 20 to 23 percent of [GDP], is still quite low by any standard. The issue is capacity to repay the debts. So, interest payment to revenue is an issue,” said Amine Mati, IMF senior resident representative and mission chief to Nigeria.This comes as the country’s economic growth slowed in the first quarter of 2018 for the first time since the country pulled out of recession last year as the non-oil sector struggled, according to the Nigerian Bureau of Statistics. The economy grew by 1.95 percent in the first quarter lifted by the oil sector. That was a slight dip from 2.11 percent year-on-year in the final quarter of 2017.

Most economists now agree that debt to GDP ratio is a misleading measure simply because governments do not always have access to all the national income, only the share they collect in taxes. A better comparison is to examine the country’s debt to government tax revenue, since that is the government’s income. With that in mind, a country with high tax revenues (for example South Africa which collected tax revenues of approximately $101.3 billion in 2017) can afford more debt than a low tax country (such as Nigeria which collected tax revenues of approximately $11.2 billion in 2017). Despite recent calls by the Monetary Policy Committee of the Central Bank of Nigeria to take advantage of the increasing oil price at the international market to cut its excessive spending and save more to build ‘fiscal buffer’ against any economic crisis, the recently passed 2018 budget shows that Nigeria is likely to press on with its borrowing strategy.

Telcos’ OTT moans only half the story

Over-The-Top operators, including WhatsApp, WeChat, Viber, Skype and Google have slashed about $17.8, or 81 percent from the Average Revenue per User of Nigerian mobile operators over the past 13 years, a new study shows. Operators’ ARPU, which was around $22 in 2005 has dropped to $4.14 as at April 2018, according to Tekedia, which says the development is part of a global trend. ARPU is a measure used primarily by consumer communications, digital media, and networking companies, defined as the total revenue divided by the number of subscribers. Ovum, an independent consultancy, says the growing adoption of OTT services by customers instead of traditional telecom services will occasion global revenue loss of $386 billion over a period of six years (2012 – 2018) for traditional operators.

While it is true that the ARPU has experienced an 81% decline, we believe attributing this to the Over The Top operators is not accurate. In the same interval, subscriber count has increased tenfold, with cost dropping, hence this was bound to impact significantly on ARPU. This is perhaps the primary driver of reduced ARPU. However, it is also true that the OTT operators have had an impact. The telcos will therefore be forced to seek other ways of monetising their relationship with their customers beyond the traditional voice and data segments. We expect to see a stronger push by telcos to explore providing financial services, content marketing and other Value Added Services to improve the industry’s ARPU in the coming months.

A word on the power sector’s many woes

New NBET data shows that 3 distribution companies (DisCos) made zero remittances to the generating companies (GenCos) from a total February 2018 invoice of ₦8.68 billion. The three DisCos are Kaduna DisCo with a ₦3.30 billion invoice; Port Harcourt DisCo, ₦3.75 billion; and Yola DisCo, ₦1.63 billion. 8 of the 11 DisCos remitted ₦11.38 billion from a ₦44.44 billion bill received from the GenCos. The data published on NBET website showed that the remittances represented 25.62 percent payment of the invoices for the 3,225MWh/h energy consumed by the DisCos. Ikeja DisCo remitted ₦2.63 billion from its ₦5.59 billion invoice, Eko DisCo remitted ₦2.09 billion from the ₦5.22 billion invoice while Ibadan DisCo remitted ₦1.93 billion from its ₦5.89 billion invoice. Abuja DisCo had the highest invoice of ₦6.19 billion, but only remitted ₦1.99 billion. Enugu DisCo remitted ₦1 billion out of a ₦3.75 billion invoice while Benin DisCo remitted ₦1 billion out of ₦3.79 billion invoice. Jos DisCo remitted the least at ₦225 million out of a ₦2.26 billion invoice while Kano DisCo remitted ₦500 million from its ₦3.03 billion bill.

If these reports are true, then this development is worrisome. Nigeria’s power sector reform commenced in 2001 but really took-off in 2013 with the unbundling of the Power Holding Company of Nigeria (PHCN) and privatisation of electricity generation and distribution companies in 2013. The plan has four broad phases, the second of which is the institution of the transitional electricity market in 2015, characterised by NBET’s active trading of bulk power – as a buyer from gencos and IPPs and reseller to discos. The process has been plagued with challenges at all levels. At the generation level, only 8,000MW out of 13,000MW of installed power generation capacity is mechanically available. At the transmission level less than 5,000 MW of the available volumes are dispatched on average. At the distribution level, the lack of constant electricity supply has affected consumers’ willingness to pay, coupled with non-reflective tariffs, vandalism and corruption, has contributed to an inherent shortfall in the tariff and the accrued sector cash deficit. Also, critical is the elimination of subsidies which is a prerequisite for attracting investors to the sector. Until the major challenges are addressed the reform goals will just remain a pipe dream.

Nigeria as lynchpin of West Africa’s energy strategy

The West African Power Pool (WAPP) has disclosed plans to connect to a single power grid by 2019. The Chairman of the WAPP Executive Board and Managing Director of the Transmission Company of Nigeria (TCN), Mr. Usman Gur Muhammed disclosed this at an ECOWAS sensitisation meeting on Regional Electricity Market Agenda on 22 May. According to the projection, all the 14 land-based countries in the Economic Community of West African States (ECOWAS) would be involved in the connection. Currently, the West Africa electricity grid links nine countries, while the six others are scheduled to come on-stream by the end of next year. The plan calls for the electricity market to be launched in June, in Cotonou, Benin where a regional control centre would be established with a backup centre in Ikeja, Lagos.

Nigeria needs to solve her power problems before being able to provide regional leadership. Considering the country’s gas reserves, it is meant to play a role similar to that which Russia plays in Europe in terms of gas supply for power generation in overseas markets. However, inept leadership and a refusal to fix pricing issues in the gas market has stifled investments and hence caused this potential to go unrealised. Mohammed cautioned that the project’s success would depend on the ability of WAPP to get a guarantee that carries a load of 340MW power. This promise can only work if Nigeria is able to reform its gas sector.

A ray of hope breaks through Ethiopia’s dark politics

The Ethiopian government says it will meet with leadership of an exiled opposition party for further political talks, chief of staff of the Prime Minister Abiy Ahmed confirmed on 22 May. According to Fitsum Arega, the leadership of the Oromo Democratic Front (ODF) were due to arrive in the capital Addis Ababa this week for talks which he said were “to promote sustainable peace consistent with the Ethiopian constitution.” He added that the government was encouraging other political entities to follow suit. The ODF had confirmed in a 13 May statement that it had reached an agreement with the government after talks at an undisclosed location to return to the country to partake in the democratic process.

This represents the best hope for a resolution to the political crisis in Africa’s second most populous country. The ODF, representative of the interests of the Oromo ethnic group, was established in 2013 having broken away from the country’s oldest opposition political party, the Oromo Liberation Front (OLF) – the latter remains a banned group under the law amid protests and a violent crackdown through much of 2017. In the wake of the resignation of Prime Minister Hailemariam Desalegn , the ruling EPRDF coalition in January announced that it was set to undertake political reforms which included opening up the democratic space and guaranteeing more political freedoms, a situation which has led to mass prisoner releases including of leading political opponents and detained journalists. Political stability is required for the continent’s fastest growing economy, already a magnet for big ticket internationally-funded infrastructure projects, to keep developing at a reasonable clip. The current PM can start with lifting a state of emergency which has persisted since February and concretising talks with the political party that represents the country’s largest ethnic group.


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