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The Week Ahead – We Have Been Here Before

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In a week where insurgents started flexing their muscles despite denials by the military, the proper conduct of next year’s elections became less clear. As did the future of Nigeria’s largest FDI contributor, and its home country. In positive news, Nigeria got some money from China, while our pension funds look to invest in infrastructure. It all seems vaguely familiar.

Same cycle of attacks and denial with Boko Haram

The bodies of 17 soldiers were recovered on Sunday following an attack on an army base in Zari, 210km north of Maiduguri, by Boko Haram insurgents. Troops from the Nigerian Army’s 145 Battalion who are leading the search and rescue efforts have recovered a total of 48 bodies after the attack which happened last Thursday. The attack is the deadliest against a unit since Boko Haram resumed its attacks against military formations in July. Scores of Nigerian troops were killed in successive attacks between mid and late July, raising fresh concerns about a resurgent sect amongst top military chiefs. At least 90 soldiers have now been confirmed killed within the past six weeks. In its reaction, the army, through its spokesman, Brig-Gen. Texas Chukwu said that the reported deaths of the soldiers, was the “figment of the imagination of the news agency” that reported the attack.

Unfortunately, it has become a habit for the Nigerian military to deny attacks as a first response, and in some cases, such as this one, double down on those denials. Multiple sources have confirmed that the attack in Zari happened. This bad habit of the military’s top brass has eroded the public’s confidence in their statements, and in their position on the battle against the insurgency. Indeed, this lack of confidence has filtered to every action that the military takes in other theatres. What is worse is that at least the Musa al Barnawi faction of Boko Haram is increasingly becoming surgical in the way they target the military. They have turned away from attacking villages and civilians to focus on the military, and they appear to be running a more effective hearts and minds campaign than the military. It also appears that the military has a defensive strategy and a focus on preventing the terrorists from re-entering major urban centres like Maiduguri, in effect ceding territory to the insurgents. This showed in this week’s kidnap, by the Shekau faction it appears, of at least 10 civilians. We have in the past warned about the Diffa corridor. Again, there is a need for a more offensive strategy to finish off the terrorists on the one hand, and a transparent hearts and minds strategy to win back the people in the region.

Electoral reform doesn’t interest the President

For the third time, President Muhammadu Buhari has declined his assent to the Electoral Act Amendment Bill 2018. The rejection of the Electoral Amendment Bill, according to the Senior Special Assistant to the President on National Assembly Matters, Senator Ita Enang, was communicated to the National Assembly on August 30. The President also withheld his assent on seven other bills, including the Advance Fee Fraud and Other Related Offences (Amendment) Bill, 2018 and the Nigerian Maritime Administration and Safety Agency (Amendment) Bill, 2017. Recall that President Buhari had, last week, rejected to sign the Petroleum Industry Governance Bill, PIGB, over alleged constitutional conflict. The first time President Buhari rejected to assent to the Electoral Act Amendment Bill was when the National Assembly tampered with the election sequence by making the Presidential election to be the last election. The second rejection was when there were alleged correction errors and this third rejection, Enang explained, is as a result of draft issues.

President Buhari’s three time refusal to sign the electoral act amendment is indicative of his unwillingness to progress the electoral reforms which kicked off, and have gone on since 2007, improving elections progressively since then. Considering that this refusal happened in the same week as a hastily put together group contravened Section 91(9) of the subsisting electoral act in order to buy a nomination form for President Buhari, it is a setback to hopes that the 2019 elections will be an improvement on the 2015 elections. Like his refusal to assent to the PIGB, it is clear to us that this was done not with the interest of the majority of Nigerians in mind, but from the prism of his own narrow interests. Unless the National Assembly can put together the numbers to overrule him, we do not see next year’s general elections being free or fair.

PFAs look to go building

Pension Funds Administrators have continued to raise their investments in infrastructure and are considering investing in Nigeria’s airports as assets under their management increase. The Pension Funds Administrators have raised their investments in infrastructure to ₦11.36 billion, according to the NBS. As of the end of June, the total funds under the Contributory Pension Scheme stood at ₦8.23 trillion. The MD, Sigma Pensions, Dave Uduanu, told Punch newspaper that the operators are working with development finance institutions on how to create support for investible projects. “The pension operators are looking at forming a consortium in such areas for investment because those are large-scale investments, which are beyond the capacity of any one pension fund,” he said.

Nigeria’s pension industry is evolving and as AUMs grow the PFAs, working with their regulator (PenCom) must find new structures to invest in. Following losses incurred from stock market crash in 2008/2009, many PFAs now shy away from equity investments leaving them playing largely in the fixed income space. Real estate and infrastructure therefore provide another opportunity for the PFAs to match their long-term funds. A framework to allow Nigerians access a portion of their contribution to buy houses on mortgage similar to the Singaporean model may be a direction to take. All in all, the National Assembly needs to review the Pensions Act, along with stakeholders, to achieve this. As always proper risk assessment will be required on a case by case basis.

China opens the taps amid controversy

Chinese officials have been forced to defend plans to spend as much as $60 billion (₦2.14 trillion) in investment, aid and loans in Africa over the next three years, after accusations the plan could saddle developing nations with too much debt. While the details of the spending remain vague, Xi outlined a few specific areas such as emergency food aid, agricultural development, scholarships and vocational training programmes. He said the figure would include $20 billion in credit lines, $15 billion in grants, interest-free loans and concessional loans, and $10 billion for “development financing”. There was no information on which countries would receive the bulk of the investments, and Xi also said private companies would be encouraged to invest $10 billion on the continent. One of the agreements signed was by Nigerian government owned Galaxy Backbone Limited which will get $328 million (₦117 billion) from the Chinese EXIM Bank, for the National and Communication Technology Infrastructure Backbone Phase 11 project. The NICTIB 11 will be executed by Galaxy Backbone and China’s Huawei Technologies.

Nigeria desperately needs funding for infrastructure and such funding coming from the Chinese is acceptable. The terms of these loans/grants however need to be made public so that they are weighed against the alternative sources of such funding in order to ascertain that the best possible deal for Nigeria in the circumstances has been obtained.

Yellow on the ropes

MTN South Africa’s share price took a severe pounding on Tuesday as news broke over a $2 billion (₦714 billion) back taxes slammed on the company by authorities in Nigeria. Nigeria’s Attorney General, Abubakar Malami, calculated that the company owes the Nigerian Government the sum over a ten-year period. Malami claimed that the taxes are related to the importation of foreign equipment into the country as well as payments to the suppliers of the said equipment. Tuesday’s trading opened on the Johannesburg Stock Exchange (JSE) at R8684 (₦217,100) and began to slide once news of the back taxes broke. The stock closed at R7225, down 16.8%. Just over a week ago, the Central Bank of Nigeria (CBN) ordered MTN to refund the sum of $8.1 billion (₦2.89 trillion); being funds that were allegedly illegally remitted to South Africa over time. MTN’s stock has lost over 30% since the crisis began.

While there may be short term pecuniary gains in harassing what is effectively Nigeria’s most successful example of FDI, the long term effect will definitely be more harm to Nigeria. The Attorney General has no business calculating tax and unilaterally penalising a company for tax issues. In recent times, we are seeing more regulatory overstretch with agencies and government personnel usurping regulatory oversight actions that they have no business with. The abrasive approach the government has repeatedly taken with regards to MTN is a clear signal to others who may be considering FDI in that magnitude that regulatory risk is a loose cannon they have to factor into their risk assessment of investing in Nigeria, increasing the risk and therefore the returns threshold that investors are willing to invest in Nigeria for.

SA takes a beating as politics affects the economy

South Africa’s economy fell into its first recession in almost a decade, exacerbating the rand’s decline amid the recent emerging-market rout and heaping pressure on President Cyril Ramaphosa. Africa’s most-industrialised economy shrank an annualised 0.7 per cent in the second quarter, an outcome that was far worse than any forecaster had anticipated. The latest data, released on Tuesday by the South African authorities, shows President Ramaphosa’s six-month-old government posting a negative start like his immediate predecessor, Jacob Zuma. The country’s Gross Domestic Product was reported at a decline of 2.6 per cent in the first quarter. On a year-on-year basis, the South African economy grew 0.4 per cent , but the second quarter GDP came in below Bloomberg’s median estimate for 0.6 per cent expansion.

South Africa’s out-of-the-blue recession is a lesson for other African countries that there is a clear correlation between political uncertainty and economic performance. Many economists thought that the fight to remain investment grade was good enough, but this has shown that it was clearly not, and the unease over land reforms is having its say in the debate. South Africa’s economic problems are another sign that the contagion spreading across emerging markets is strengthening. The main reasons behind the contraction of Africa’s second largest economy were slowing agriculture, transport and trade sectors, with the agriculture market falling by 29.2 per cent. Market watchers have attributed this decline in agriculture to by policy uncertainty, particularly with regards to contentious issues like mining and land redistribution. The negative news has already impacted the rand which dropped at a 2 per cent rate against the US dollar, its lowest level since early 2016. We however believe that Cyril Ramaphosa needs to continue the investment roadshows he has started until he hits his $100 billion target.

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