And Four Other Things…
The Federal Capital Territory (FCT), Nigeria’s seat of power, has come under unwanted attention recently with the upsurge in kidnappings. It has never been crime-free — we should remember how Boko Haram used to bomb FCT with ease — but hopes that it has become a safe haven in recent years are fast disappearing. The brutal nature of the kidnappings — a young student was killed while ransom money was still being mobilised — might suggest a touch of terrorism. Kidnappers hardly kill their victims who are cooperating with them, but terrorists are usually desperate and murderous as they seek to raise funds for their operations. This is for the security agencies to consider. Terrifying. because investors are adopting a wait-and-see posture and constantly scanning competing investment domains. We need to continue to remove the constraints to domestic and foreign investments, but we should have no illusions.
The third option is to take some foreign loans at commercial or concessionary rates. One example of a commercial loan is Eurobonds, which we binged on at a point. Another is the recent $3.3 billion Afrexim Bank loan facilitated by NNPCL. When stripped of all the financial and legal jargons, this is a commodity-backed loan, a tribe of loans renowned for opacity. Besides, at 11.85%, it is expensive. We can get longer-term loans for under 3% interest rate from the World Bank and the International Monetary Fund (IMF).
However, Nigeria seems to have maxed out its credit line with the World Bank and the IMF will not give loans without stringent conditions. Nigeria has never gone to IMF for a bailout, but the institution is roundly demonised in popular imagination in the country. This makes approaching the IMF a tough political choice. Interestingly, Nigeria is already implementing some of the conditions that IMF will stipulate, though IMF is likely to insist on more transparency and prudence. As politically unpalatable as it may be, this is an option the president may have to keep alive and figure out how to sell it to Nigerians.
The fourth option for boosting forex supply is related to the third. We can seek placements or deposits from countries awash with forex, such as the petrostates of the Gulf. This could come in different forms: currency swaps, direct deposits and strategic investments in state-owned companies. In July 2023, the United Arab Emirates signed deals worth $50.7b with Turkey. On its part, Egypt has attracted long-term deposits and short-term debts above $30 billion from Saudi Arabia, UAE, Qatar, Kuwait and even Libya.
The Federal Reserve of the US also provides dollar swap lines to central banks to boost dollar liquidity in other countries. This facility has been extended to central banks in Canada, Mexico, England, Australia, Japan, Brazil, Singapore and others. We should be realistic that Nigeria might not have the same strategic and systemic significance to the US as these other countries. We may stand a better chance with some of the Gulf states. My sense is that some of these discussions are ongoing with the
Wednesday night brought trauma to Ibadan, Oyo state, with the explosion that rattled the city, grinding houses to dust and sending five people to early graves. Those who survived need attention. Some will develop hearing problems, mental health issues and PTSD. Treating physical injuries and discharging patients from the hospital should be complemented with therapy. I can see we are trying to blame foreigners for the disaster, but maybe we need to look inwards too. What sort of system allows a private residence to stockpile explosives? This is a national security issue. The trucks must have passed various security checkpoints after paying the dirty tolls on its way to that house. Porous.
Tinubu
recent visits by the president and his team to UAE and Saudi Arabia, but we need to offer reassurances and step up formal and informal contacts with those countries as well as prepare internally for potential charges of religious agenda in some quarters.
To make any difference on the forex market, we need loans and deposits in the region of $20 billion. This is the quantum that will calm the market and reassure players in the forex market about adequate liquidity. We actually don’t have to draw down on or use the forex loans/deposits. Their existence will serve as psychological boost and take the heat out of the forex market. But loans (whether commercial or concessional) have to be repaid, and at a cost. So, taking on loans in whatever guise has implications for our external debt, for the increasingly crushing revenue/debt-service ratio, and for the debt burden we are imposing on future generations. However, we may have little or no options but to seek some significant but reasonable loans/deposits.
The company at the centre of the social register verification contract saga is New Planet Projects Ltd, founded in 2009 by Mr Olubunmi Tunji-Ojo, now minister of interior, and not Planet Projects Ltd, as I mistakenly wrote last week. Planet Projects Ltd, the transport infrastructure company, was founded by Mr Biodun Otunola and is best known for building the Oshodi bus terminal. It was registered in 2007. Although I am not making any excuses, the Corporate Affairs Commission (CAC) surely created a room for the mistaken identity. By just adding “new” to an existing name, you can get the CAC to register your company with the help of insiders, even when it could amount to “passing off”. Chaos.
The fifth and last option is to ensure that Nigeria returns to earning forex from its main export: oil and gas. In 2010, flows from the oil and gas sector accounted for 94% of total forex flows to the CBN but dwindled to 24% by June 2022 (and is probably much lower now). A ready explanation for this is the decline in oil production. But it is more than that.
Yes, there has been a precipitate decline in Nigeria’s oil production since 2020 as our production fell from an average of 2m barrels per day to between 1.2-1.4m barrels per day. The reason favoured by government officials for this major decline is oil theft (and it is a favoured line because the oil-theft narrative will involve spending money and awarding contracts). But other reasons for the decline include the stagnation of investment, the aging oil and gas assets, the divestments, and the failure to close new deals.
As said earlier, reduced oil production doesn’t fully explain why oil forex flows more or less dried up. Nigeria is still producing oil, prices
On Thursday, Mr Ola Olukoyede, chairman of the Economic and Financial Crimes Commission (EFCC), said something we knew all along but had been silent upon for years: that the anti-graft body stinks. The elephant in the room. “The craze and quest for gratification, bribes and other compromises by some of our investigators are becoming too embarrassing and this must not continue”, he lamented. We should pray for him as he prepares to take on the monsters within. Olukoyede may also want to find out why Nigerians pay N60,000 under the table to get the SCUML certificate. Restoring public faith and confidence in the commission will definitely take a while, but it is worth a try. Uphill. of oil have remained consistently high since Russia invaded Ukraine about two years ago and oil still accounts for more than four-fifth of Nigeria’s export. The reason why the oil exports are not translating to commensurate forex flows is because of the effect of the policy that assigns a portion of the Federation share of oil to domestic consumption, called the Domestic Crude Allocation (DCA) and paid for in Naira.
As indicated in a recent policy memo by Agora Policy, crude oil apportioned for domestic consumption constituted only 8.57% of the Federation share of oil in 2004, meaning the remaining 91.43% went to Federation Export, which fetched the country dollars. Fast forward to 2023, DCA accounted for almost 100% of Federation share of oil because oil production declined and the Federation share as a percentage of total oil produced also declined on account of shift in oil production arrangements. The crude oil due to the Federation was still exported, but bartered for petrol for local consumption through the direct sale, direct purchase (DSDP) arrangement, and was paid for in Naira (note: the Naira payment itself is not guaranteed as NNPCL makes sundry upfront deductions from the DCA and this explains why the national oil company failed to make remittances to the Federation Account for a long time).
The DCA represents multiple whammies for Nigeria and has been overtaken in the context of deregulation. Agora Policy rightly called for the scrapping of this opaque and suboptimal policy, asking for the Federation’s share of oil to be sold in dollars whether it is on offer within or abroad. (For those interested, it can be accessed here: https://agorapolicy. org/cancelling-domestic-crude-oil-allocationis-nigerias-surest-path-to-easing-forex-supplycrunch/).
Earning forex from all of Federation’s share of oil is Nigeria’s surest path for addressing its lingering forex supply challenge. While other options for unlocking forex supply should be pursued, cancelling the DCA or earning dollars from Federation’s oil is a necessary complement that will yield immediate and continuous result. It is fully within the control of the country, and it will provide constant flows that will guarantee liquidity in the forex markets. It is the way to go.