Shocking Figures Show Salaries Worth N2.295bn Paid To Buhari, Osinbajo, Others
A critical examination of the report indicates that Mr. President has an annual basic salary of N3.51m, Vice- President N3.03m, while Ministers, Secretary to the Government of the Federation, Head of Service and Chairmen of Boards of statutory agencies have N2.02m respectively.
Substantial cuts in the salaries of both President Muhammadu Buhari and Vice-President Professor Yemi Osinbajo earlier announced when the duo came to office last year may be nothing to write home about as both of them including Cabinet Ministers and other political appointees pocketed the sum of N2.295 billion as official salaries and allowances in the last one year, Economic Confidential can report.
The development is coming at a time the Federal Government kick-started a national orientation campaign premised on the “Change Begins with me.”
In the report obtained by the Economic intelligence magazine which shows the official remunerations of the President, Vice-President, cabinet ministers, Secretary to the Government of the Federation and the Head of Service of the Federation amongst other Chief executives, are in tandem with the approval of the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC).
The packages include: annual salaries, accommodation, vehicle maintenance/fuel, Personal Assistant, House maintenance, domestic staff, entertainment and utilities allowances. Other allowances are: Constituency allowance, Hardship allowance, newspapers and monitoring allowances.
A critical examination of the report indicates that Mr. President has an annual basic salary of N3.51m, Vice- President N3.03m, while Ministers, Secretary to the Government of the Federation, Head of Service and Chairmen of Boards of statutory agencies have N2.02m respectively.
As for members of constitutional bodies, Special advisers, Speech writers, Directors General, Accountant General of the Federation, Permanent Secretaries, CEOs of agencies and INEC Resident Electoral Commissioners each have an annual basic salary of N1.9m.
The report shows that only the President and the Vice-President in the Executive arm of government enjoy the hardship allowances of 50 percent each of their annual basic salaries; 250 percent as Constituency Allowances and enjoy other perks to be provided (TBP) by government. These benefits to be provided to the two leaders include, but not limited to the following: Accommodation, Furniture, Domestic Staff, Personal Assistants, Utilities Newspapers, Vehicles, Entertainment, Maintenance and Estacode.
Meanwhile other appointees including Ministers, Advisers, Permanent Secretaries and INEX Resident Commissioners are entitled to 200 percent of their annual basic salary for Accommodation; 300 percent for Furniture; 75 percent for Vehicle maintenance and fuel; 25 percent for Personal Assistant; 75 percent for domestic staff; 45 percent for entertainment; 30 percent for utilities; 15 percent for newspapers, and 20 percent for monitoring.
While President and Vice President duty tours and estacode will be provided by government, other officers have fixed rates. The estacode allowance per day for minister, SGF, Head of Service and Chairmen of Board is $1000 per night on foreign trip, Member of constitutional bodies $900 per night, Special Adviser and Speech Writer $800 per night while Permanent Secretary, Director General and INEC Electoral Commissioner take $600 per night each on foreign trips.
Further checks by Economic Confidential reveals that an average Nigerian worker with a minimum wage of N18,000 a month will have to work for more than four years before earning the utility allowance for Ministers of the federal Republic. Unless the remuneration package is reviewed downward for the political appointees and upward for the Civil servants the executives will continue to enjoy the current salaries and allowances.
The Revenue Mobilization Allocation and Fiscal Commission (RMAFC) determines and fixes the remuneration packages of public and political office holders, while the National Salaries, Wages and Income Commission fixes the salaries and allowances of civil servants in Nigeria.
Foreign flights to Nigeria forced to refuel elsewhere
Foreign airlines flying to Nigeria have started to refuel abroad to bypass pricey, and increasingly scarce, jet fuel as the oil producer battles a hard currency shortage that has made fuel available only at a very high price.
It is the second blow for airlines operating in Africa’s recession-hit biggest economy in a year that first saw the central bank make it almost impossible to repatriate profits from ticket sales as it tried to prevent a currency collapse.
The crash in the naira since a devaluation in June has led firms who market jet fuel locally, such as Total, Sahara and ConocoPhillips, to double the price to 220 naira a litre in August, and to as much as 400 naira this month, an airline executive said.
Even at the higher costs, marketers’ lack of dollars has made fuel scarce. Some carriers have had aircraft stuck, or were forced to cancel planned journeys, after frantic last-minute calls from ground staff warned there was no fuel available.
“The economy is crying out for investment, and now it is going to be even harder for anyone to visit,” said John Ashbourne, economist with Capital Economics. “Who is going to want to park a billion dollars in a country that you can’t even easily fly to? It sends the worst possible signal.”
A spokesman for state oil company NNPC did not answer calls for comment.
The central bank hoped floating the naira would attract dollar inflows, but the naira sunk by 50 percent, forcing oil firms to charge airlines, stuck with piles of naira, in dollars for jet fuel.
“It’s an impossible situation. The oil marketers don’t want to sign long-term agreements anymore so we have to accept whatever prices they demand,” one airline executive said. “We sell tickets in naira and now they want us to come with dollars.”
Spain’s Iberia and United Airlines cancelled their Nigeria services earlier this year, and two local carriers also halted operations. Other international airlines responded by boosting ticket prices within Nigeria, charging its globe-trotting elite as much as $2,000 for an economy class ticket to Europe to cut losses – more than double the cost of a Lagos ticket bought abroad.
Dubai-based Emirates has started a detour to Accra, Ghana, to refuel its daily Abuja-bound flight, a spokesman said. The airline already cut its twice-daily flights to Lagos and Abuja to just one.
The move was aided by a substantial drop in Ghana’s jet prices amid tax reform last month, according to the Ghana Chamber of Bulk Oil Distributors.
Air France-KLM said it had refueled abroad in “very exceptional cases” by juggling suppliers and stomaching extra costs.
Germany’s Lufthansa is loading more fuel in Frankfurt for its Lagos flight, where the ground staff doubt their ability to refuel for the final destination of Malabo, the capital of Equatorial Guinea, an executive said. The airline did not respond to official requests for comment.
The scarcity has even pitted airlines against local consumers; a surge in demand for cooking and heating kerosene during the rainy season, when households cannot easily burn wood or charcoal, means if the airlines do not pay up, marketers will sell to locals.
Airlines met with transport ministry officials last week in Abuja to press for fuel at lower prices, industry sources said.
Nigeria used to be one of the most profitable markets for foreign airlines, landing planes with plenty of first and business class to cater to executives and officials jetting around under former President Goodluck Jonathan.
President Muhammadu Buhari cut air travel allowances for officials in a bid to tackle graft; others simply have less spending power with consumer inflation running at an 11-year high of 17 percent.
British Airways, a popular choice for well-heeled Nigerians, said it is using smaller aircraft on its Lagos-London route, as did Air France-KLM.
Turkish Airlines’ use of smaller planes has added another inconvenience: passengers complained there is not always space for luggage on the smaller aircraft, delaying it for days. The airline did not respond to requests for comment.
South Africa regains Africa’s ‘biggest economy’ title from Nigeria
South Africa has regained the title of Africa’s largest economy, two years after Nigeria rebased its economy to claim the spot, according to IMF data. A recalculation using current exchange rates put South Africa on top because the rand has strengthened against the dollar. Nigeria’s currency has fallen sharply since a peg to the dollar was dropped. But BBC Africa Business Report editor Matthew Davies says both economies could be on the brink of recession.
Nigeria rebased its economy in 2014 to include previously uncounted industries like telecoms, information technology, music, online sales, airlines, and film production. Most countries do rebasing, updating the measure of the size of the economy, at least every three years or so, but Nigeria had not updated the components in its GDP base year since 1990.
On the basis of these numbers, there’s not a lot between the two. South Africa’s economy is worth around $301bn (£232bn) and Nigeria comes in at $296bn. The exercise in calculating the numbers using last year’s IMF figures and this year’s currency exchange numbers, technically puts South Africa back on top. But look behind the league table and the light-hearted jostling about who has the largest economy in Africa and things, economically speaking, are a little bleaker.
Both economies contracted in the first quarter. Another contraction and they’ll both be in recession.
Nigeria is almost entirely dependent on its oil exports. And as the price of oil slumps so does the flow of petrodollars coming into the country’s coffers. South Africa’s economy is more diverse.
Indeed, after Nigeria knocked it off the top spot two years ago, we started describing it as “Africa’s most industrialised economy”, rather than Africa second-largest economy.
But economic growth is unlikely to make it above 1% in South Africa this year and many, including the country’s Reserve Bank, are forecasting it at zero. Unemployment remains stubbornly high and a credit rating review is looming at the end of the year. If the whole “largest economy in Africa” competition was a horse race, the two leading contenders would be virtually neck and neck.
But they wouldn’t be galloping, they’d be trotting at best. And looking increasingly tired and in need of sustenance.
Nigeria is finally going to do the painful thing everyone said it has to do
Business Insider/ Nigeria is finally going to do the painful thing everyone said it has to do.
The central bank announced on Wednesday that the naira peg will be abandoned on Monday, June 20, and the currency will be allowed to float freely.
Although, Central Bank of Nigeria Governor Godwin Emefiele also said that the bank will intervene “as the need arises.”
As for what this means for Nigeria’s economy, in the short-term it’s going to get ugly. But in the long-term, things should start to pick up.
“Over the long-run, a weaker currency will help Nigeria’s economy by encouraging import substitution and attracting foreign investors, who have shunned the country for fear of a devaluation,” wrote Capital Economics’ Africa economist John Ashbourne in a note.
“But the move will be painful over the short term. Higher import prices will add to inflation, which reached 15.6% y/y in April. This will probably force the authorities to tighten monetary policy,” he added.
Plus, if Nigeria’s central bank can’t get inflation back under control, then the country might end up getting stuck in a “vicious” cycle of high inflation that leads to a weaker naira, noted Marc Chandler, the global head of currency strategy at Brown Brothers Harriman. And that, then, could lead to higher inflation.
“This is one reason why devaluations can be so painful, as central banks typically jack up interest rates afterwards. Recessions are often seen post-devaluation,” he wrote. “Yet if Buhari has finally relented on maintaining what we viewed as an unsustainable peg, the longer-term outlook for Nigeria will have improved.”
Analysts have long been arguing that Nigeria will eventually have to capitulate and devalue its currency given that the government’s controversial agenda of currency and price controls created a bunch of economic stresses in Africa’s largest economy. Most recently, inflation soared to a six-year high.
Still, devaluing the currency peg will not magically fix all of Nigeria’s problems.
“A weaker currency is, at best, a necessary but insufficient condition of an economic recovery,” concluded Ashbourne.
But at least it’s a step in the right direction.
Inflation is getting out of control in Africa’s largest economy
Business Insider – Africa’s largest economy is failing to keep inflation under control. Nigeria’s inflation accelerated to 15.6% in May, up from 13.7% in the previous month, according to the National Bureau of Statistics.
That’s the highest rate in over six years, and above economists’ expectations of 14.7%.
The continued rise in Nigerian inflation over the last few months has been attributed to the government’s controversialagenda of currency and price controls, including on petrol.
Nigeria has attempted to hold its currency, the naira, fixed at 200 per dollar on the official FX market by rationing the supply of dollars. So, as a result, consumers have been trying to get dollars from the parallel market, where the exchange rate was 320 nairas per dollar, according to March figures.
As for the second policy, Nigeria attempted to fix the retail cost of petrol at 86.5 nairas per liter, which has resulted in one of the worst fuel shortages in years.Petrol prices on the black market and other utility prices have, unsurprisingly, skyrocketed in the aftermath.
“Given that both the naira policy and the petrol pricing strategy were originally presented as methods of keeping prices down, the continued rise of inflation is a significant blow to the government’s economic strategy,” Capital Economics’ Ashbourne noted previously.
On the positive side, in late May, the government finally admitted that it needed a more flexible exchange rate. And there have recently been reports that the Central Bank of Nigeria is thinking about introducing a dual exchange-rate system and devalue its currency.
But, for now, “today’s data underline the failure of the current FX system to keep inflation under control,” according to Ashbourne.
Nigeria Without Oil: Focusing on the Fundamentals
Permit me to tell you a story of a prodigal entity that squandered its wealth on frivolities and, now it appears that the music is over. It now needs to decide on how best to return to the basics and ensure its very survival. There are no easy choices. The question, therefore, is whether Nigeria has what its takes to make big, difficult, decisions.
Share the Wealth
There are a few countries in the world that are as blessed as Nigeria. Only 8 countries have more arable land than Nigeria.1 Nigeria has over 40 different types of precious minerals2 and floats on a sea of natural gas and crude oil. But for six countries, Nigeria has the largest population or domestic market.3 Almost in a bid to spite the rest of the world, in addition to the above resources, providence spared Nigeria from significant natural disasters.
But, on its own, Nigeria over time adopted a severely destructive strain of corruption. With the discovery of oil in commercial quantities, the country lost its thrift and discipline, and adopted prodigality. The World Bank estimates that over $400 billion of oil revenues has been stolen or misspent since 1960. Furthermore, Nigeria has received over $400 billion in aid. The combined amount is equivalent to twelve times what the United States pumped into reconstructing the whole of Western Europe after World War II.4
The perfect storm
But it appears the music may have stopped as Nigeria now finds itself in a perfect storm. There has been a significant decline in oil revenue, which accounts for over 80 percent of Nigeria’s budget. The Civil Services are largely unproductive and can’t think Nigeria out of its current economic malaise. The 1.2 million Nigerians who are not able to gain admission in universities every year remain semi-literate. The 0.5 million graduates who enter the labour market every year are not much better. Furthermore, Nigeria failed to invest in economic infrastructure when oil revenue gushed. It succeeded in creating a political class that spends more time scheming their way to the feeding trough and spares little thought to economic development or the improvement of the lives of its citizens.
In the face of these challenges, Nigeria’s gross domestic product dropped from a high of 7 percent over the last 10 years to negative 0.36 percent in Quarter 1 of 2016. By the end of June 2016, Nigeria will be officially in a recession. Nigeria will be in an economic recession as it prosecutes a war in the Northeast, potentially another war in the South- South, while the Biafran agitators in the Southeast continue to rattle the cage.
Petroleum sector analysts estimate that price recovery to $100 a barrel will take over two decades. This puts Nigeria’s finances in a shambles. The situation is worsened by states that are proving to be economically unviable. Most of the states in Nigeria are unable to pay their staff salaries and continue to rely on bailouts from a Federal Government that may soon need a bailout. Every thing seems to be falling apart: electricity, education, healthcare, transport infrastructure, security and the socio economic indicators.
Time to go home
Like the biblical prodigal son, Nigerians realise that the country cannot continue on this trajectory of sub-optimal performance. The challenge, however, is how to reach a decision on the most optimal options for Nigeria.
Most commentators propose the diversification of the economy away from an over-dependence on the petroleum sector. That is where the consensus ends.
The Nigerian economy is quite diversified with services contributing about 56 percent of the GDP, industry contributes about 24 percent, and agriculture contributes about 20 percent. The question, therefore, is how can Nigeria develop these sectors (that are already contributing to GDP) to increase their contributions to funding the budget? Petroleum revenue contributes about 85 percent.
There is enough prescriptive literature on the economic sectors Nigeria should focus on. The current administration is already prioritizing agriculture, solid minerals, power sector, etc. The challenge with these recommendations is that there is usually no consensus on the economic objectives and methodology for selecting the sectors. Late last year, principals from my firm, Nextier Advisory, were involved in an exercise to prioritize economic sectors to promote foreign direct investment. We made the assumption that government’s priority is to create jobs for the millions of young Nigerians. This goal was gleaned from the speeches and public pronouncements of the government. We used a methodology that evaluated 55 economic sub-sectors by attractiveness and feasibility. Attractiveness was measured using two parameters: size of the opportunity and impact on job creation, while feasibility was measured using Nigeria’s ability to compete against other countries in sub-Saharan Africa, and the ease of removing constraints to foreign direct investments. The result of the analysis was a bit surprising.
The top five sectors were Business Process Outsourcing, Automotive, Cassava, Renewable Energy, and Packaging. This is where the good news ends and the gory story begins. Nigeria has always been very good at producing strategy documents but not necessarily good ideas. At Nextier, we define “good ideas” as those solutions that take full account of the opportunities as well as the challenges and obstacles to their full implementation. Most of the strategy documents do not focus enough effort on the reasons why we have never been able to implement and then propose how best to\ navigate the implementation process.
How did we get here?
An Igbo adage states that one who does not know where the rain started beating him will not know where the rain stopped pelleting him. If we do not seek to understand how Nigeria got in to this mess in the first place, we will not figure out how to get out of it. So when did the wheels of
Nigeria begin to wobble?
We can go all the way back to 1914 and rest the blame at the feet of the colonial masters but after 100 years, we would be challenged to find anyone who would truly agree with that assessment. We must cast our gaze much closer to the 1960s. Nigeria had the misfortune of military intervention only 6 years into self-rule. The military, which could be excellent at what they have been trained to do, are not the greatest candidates for nation building. In the 28 years they ruled Nigeria, they appeared to wage a war against intellectualism and empowered apologists who did not understand the tenets of economic planning and nation building. These apologists became the politicians of the postmilitary era. These politicians begot other politicians of their ilk and we have continued this dive to the bottom of anti-intellectualism. Today, what we have is a public space that is dominated by people who should have nothing to do with piloting the affairs of state. A good friend of mine put it quite succinctly, “those who speak for us today, are the one who should sit with paper and pen in hand and simply take notes. Those who should speak have been chased away from the public space”. It is therefore not surprising that we are not able to marshal the intellectual power required to solve some of our most banal problems.
Nigeria Without Oil: Focusing on the Fundamentals
This lack of competence pervades Nigeria’s public service. The depth of the incompetence is staggering. Can our Civil Service deliver the policies, programmes, and implementation required to deploy the infrastructure that will support 480 million Nigerians by 2050? Can this Civil Service compete against a rising China and India? It is clear to any casual observer that we lack what it takes to pull Nigeria out of the current economic quagmire. At what point do we stop scratching with chickens and start soaring like eagles?
But after 17 years of civilian rule, we are wasting time casting the blame on the military. The blame has to rest squarely at the feet of the Peoples Democratic Party that was in power for those years. While there is much to be celebrated in the economic reforms of the Obasanjo years that resulted in almost a decade of 7 percent GDP growth, and the infrastructure development of the Jonathan years, there is much that is left to be desired. It is the public service that will develop the policies and implement the programmes. A reform of the Civil Service should have been top priority for the government.
Time to go home
For Nigeria to be able to diversify its revenue base, it must create the impetus for reform, decide on the economic goals and enablers, prioritise the sectors, develop good ideas, focus on implementation, and manage the results.
Create the impetus for reform
We can’t assume that everyone understands that the cavorting is over. For instance, the State governments can’t pay salaries but we are yet to see any commitment to fundamental restructuring of governance. Nigeria Without Oil: Focusing on the Fundamentals Remember that some state governors opposed the Sovereign Wealth Fund (in the name of opposition politics) and also of these same governors put pressure on the Federal Government to draw down from the Excess Crude Account even before the rainy day. Furthermore, it appears that the Labour Unions do not quite understand how bad things and that is the reason why they oppose efforts to right size.
Decide on the economic goal(s) and enablers
There are a number of complimentary economic goals that the government can focus on: job creation, economic growth, income equality, quality of life, etc. However, there is need to secure consensus and sequence these economic goals to agree on the optimal economic development strategies.
There are a number of enablers of a fully diversified revenue base for Nigeria. These enablers include governance structures for improved transparency and accountability; public service reforms, enabling economic infrastructure, etc. Take infrastructure, for instance, Nigeria needs $65 billion to meet the commitment for infrastructure development over the next five years. In all, Nigeria needs $2.9 trillion over the next 30 years.
Prioritise the sectors Nigeria does not have the ability to invest in all economic sectors. As a result, it must prioritise. This focus also helps with efforts to promote foreign direct investment to the sectors. This point is more apt given the steady decline in Foreign Direct Investment from 2012.
The failure of Nigeria is the failure of the intelligentsia. The politicians are good at what they do: the win power by any means possible. The intellectual class has not been as effective. The intelligentsia should think through the challenges of implementation and present a plan that the politician can simply approve and facilitate implementation.
While Nigeria has a library of policy documents and strategies, the fact that these plans have not yielded the desired results is indicative that the ideas may not have been well considered. These documents should have considered the evident challenges and proposed a way to side step and navigate them. Therefore, any ideas that are proposed today for diversifying Nigeria’s revenue base should be subjected to rigorous scrutiny and debate. They must be based on verifiable methodologies and data. Anything short of this is simply a work of fiction and should be considered as such.
The bitter nugget of truth is that Nigeria lacks the capacity to implement. Our recent history shows that our human capital is not up to par. This assessment is not to castigate; rather, it is to highlight the need for a new approach to implementation. Dubai was a country of pearl divers when they discovered oil. Knowing that they lacked the human capital to deliver their vision, they bought the required experience and got the job done. We are getting to a point where we may begin to think about such models.
It appears that what we have in Nigeria today is government by “strategic communications”. Government spends a lot of time celebrating what it plans to do and not what it has done. Government decisions should be driven by data, and not propaganda or politics.
A review of Nigeria’s Federal and State budgets shows a lot of projects that are funded without any assessment of performance or delivery. Every year, more funds are assigned to such programmes because they are already on the previous year’s budget without assessing their feasibility or measuring their impact. A nation that fails to measure and calibrate is bound to deliver sub-optimal results.
Bringing it together
The real question is not whether Nigeria is willing to diversify its revenue base because, let’s face it, Nigeria does not have a choice but to diversify or else we will be like Venezuela. This is not the time to play partisan politics with this issue. This is not the time to be PDP or APC or XYZ. This is the time to be NGR – Nigerian. Every Tomi, Dike, and Haruna must shelf his or her historical biases to realise that we are all in this Titanic together and it has already hit the iceberg. We can sit on deck and twiddle our fingers, pray, and hope that by some miracle the gaping hole with close. Or we can roll up our sleeves, forget our differences, focus on our commonalities, and fight together because we will either win together or we will all die together.
Patrick O. Okigbo III is the Principal Partner at Nextier Advisory – a multi-competency public sector advisory firm with expertise in research, strategy, finance, monitoring and evaluation, and strategic communications.
Nigeria may soon have tomatoes again
Nigerian scientists believe they have found a cure to a pest that has ravaged the country’s tomato crop and seen the price of the fruit increase more than 30-fold.
The tomato leaf miner moth, also known as Tuta Absoluta, has destroyed around 80 percent of the tomato farms in the northern state of Kaduna, leading the local government to declare a state of emergency. Prices have skyrocketed and a basket of tomatoes that cost $1.20 less than three months ago now sells for more than $40.
Nigerians have been desperately searching for a solution to the crisis, which has even been blamed on the Boko Haram insurgency by Nigerian Information Minister Lai Mohammed. The minister said that the lack of tomato farming in the northeast was a direct result of the armed group’s campaign, which began in 2009 and has displaced more than 2 million people.
Tomatoes are displayed for sale in Lagos, Nigeria, May 25, 2015. A tomato shortage caused by a pest has seen prices skyrocket in Nigeria, but a solution may be at hand. PIUS UTOMI EKPEI/AFP/Getty Images
The shortage of what is a common ingredient in many Nigerian dishes has also forced many to close their farms, including business mogul Aliko Dangote, Africa’s richest man, whose Dangote Tomato Processing Factory suspended operations in May due to the shortage.
Now Nigeria’s National Research Institute for Chemical Technology says it has come up with a pesticide that can be used to tackle the moth. The institute’s public relations officer, Alhaji Bala Aliyu, told the News Agency of Nigeria that the vaccine had proven to be “very effective” during testing and that the institute was working with regulatory agencies to getting the pesticide certified and distributed to farmers.
As well as depriving Nigerians of a favored food stuff, the scarcity has also seen citizens of the West African country casting envious eyes at Spain, where residents of the eastern town of Bunol celebrate the festival of La Tomatina each August by throwing tonnes of near-rotten tomatoes at each other. Nigerians took to social media to poke fun at the disparity in the amounts of the red fruits available in the two countries.
Airlines Pull Out of Nigeria as Its Economy Tanks
LAGOS—United Airlines flies daily between to Lagos — Nigeria’s largest city — and the U.S. city of Houston, Texas. But not for much longer.
Media reports say demand for the route connecting the two oil-industry capitals has fallen. The airline is also having trouble converting proceeds from ticket sales in Nigeria’s naira into dollars.
United is not the only airline with this problem. Spanish carrier Iberia recently ended its flights to Nigeria from Madrid. The International Air Transport Association says nearly $600 million in airline revenues is trapped in Nigeria.
Chris Aligbe, CEO of aviation consulting firm Belujane Konzult, says if airlines can’t get their money out of a country, they leave.
“Airlines are in business to make money and to survive,” he said. “And when they make money and they don’t find the value in the money they are making, they will give up.”
The global drop in the price of Nigeria’s top export, oil, has caused a shortage of dollars in the country. Capital controls imposed by the government mean many companies struggle to move profits out of Nigeria.
Nigerian airlines — such as Arik Air and Medview — that fly internationally may see more passengers attracted to them, Aligbe said. These airlines can accept payments in naira without having to worry about moving the money overseas.
But these airlines will still have to settle bills in the countries they serve in foreign currency.
“They are facing very serious challenges in terms of that. But they are also gaining in terms of passengers,” Aligbe said.
Foreign airlines have taken measures to reduce their exposure to naira. Delta Air Lines, for instance, doesn’t accept payment in naira for certain tickets.
While they may reduce their services, Aligbe said countries with longstanding ties to Nigeria are unlikely to end their flights. Ethiopian Airlines has been flying to Nigeria since the 1960s. British Airways also has been flying to the country since it was a colony of the UK. And Turkish Airlines connects Nigeria to a country it does hundreds of millions of dollars in trade with every year.
“I know that airlines like BA will never pull out,” Aligbe said. “I know that Ethiopian Airline will not pull out. I know that Turkish Airlines will not pull out.”
Nigeria’s central bank announced last month that it would alter its foreign exchange policy. Details on those changes have yet to be made public.
Lost Year in Nigeria Under Buhari Leaves Economy on Knees
Muhammadu Buhari took office as Nigeria’s president a year ago on a wave of optimism that the ex-military ruler could revive a nation battered by falling oil prices and decades of corruption. Now, Africa’s biggest economy is on its knees, forcing Buhari to throw in the towel on a central pillar of his economic policy — a currency peg.
“It was difficult to imagine a scenario in which things got worse,” said Malte Liewerscheidt, a Nigeria analyst at Bath, U.K.-based consultant Verisk Maplecroft. “But it’s been a lost year. What’s missing is sound macroeconomic policies.”
Nigeria will soon enter a recession, according to the central bank, and an upsurge of militant attacks since February has sent crude production, which usually accounts for 70 percent of government revenue, plummeting to an almost 30-year low. Delays in approving a budget and a cabinet as well as Buhari’s refusal to weaken an overvalued currency — until he hinted at relenting last week — have caused foreign investors to flee.
Foreign investors, fearing a devaluation, are staying away. Foreign direct investment was the lowest last year since the 2007-08 global financial crisis, and Citigroup Inc. said deals have ground to a halt. Capital controls prompted JPMorgan Chase & Co. in September to kick Nigeria out of its local-currency emerging-market bond indexes, tracked by more than $200 billion of funds.
This year, Nigeria’s local-bond yields have climbed 276 basis points to 13.46 percent, leaving them as the only such securities among 31 emerging markets tracked by Bloomberg to make losses. Electricity output has plunged to about a 30th of that of South Africa, sub-Saharan Africa’s second-biggest economy, as attacks on pipelines cut supplies of natural gas to power plants.
When Buhari beat then-President Goodluck Jonathan in the first election victory by an opposition candidate, U.S. President Barack Obama’s administration called it an “historic step for Nigeria and Africa.” A 73-year-old retired major-general who ruled from 1983 to 1985, Buhari campaigned to end the corruption he said was “killing” his country. He and his All Progressives Congress party promised to crush Boko Haram, whose Islamist insurgency has led to thousands of deaths in the northeast since 2009, and boost economic growth to as much as 10 percent.
Now recession looms. The economy contracted in the first quarter by 0.4 percent, the first decline since 2004. If Buhari doesn’t alter his stance on the naira and loosen the restrictions used to defend its peg to the dollar, output will probably sink further, according to Mark Bohlund, an Africa economist with Bloomberg Intelligence in London.
“The Nigerian economy is at high risk of experiencing its first full-year recession since 1987,” Bohlund said. An improvement next year depends on security being restored in the oil-rich Niger River delta region and “a shift toward more market-based economic policy.”
Buhari was dealt a tough hand. He inherited a virtually empty treasury and Jonathan’s administration did little to diversify the economy, leaving it vulnerable to the crash in oil prices since 2014. A rainy-day fund known as the Excess Crude Account was whittled down to barely $2 billion when Buhari took office, from $21 billion in 2008.
The president has won plaudits from investors for beating back Boko Haram and trying to overhaul graft-ridden institutions, including the Nigerian National Petroleum Corp., the management of which he sacked. Yet they have been left bemused by his economic policies.
He opted to keep gasoline prices capped at 87 naira ($0.44) a liter ($1.76 a gallon) until months of shortages and unrest over long fuel lines forced him to increase them by 67 percent in mid-May. He has also clung to the naira peg even as evidence showed a dollar shortage was strangling the economy. Buhari continues to oppose devaluation, though he has given the central bank leeway to implement a more flexible currency regime, his spokesman, Garba Shehu, said on Monday.
Under Governor Godwin Emefiele, the central bank began to fix the naira at 197-199 against the dollar in late February 2015, even as other oil exporters from Russia to Colombia and Kazakhstan let their currencies drop. Buhari has backed that stance since coming to power.
Businesses are struggling to operate as the central bank, whose reserves have fallen to a more than 10-year low, runs out of the dollars they need to import raw materials and equipment. Many are forced to turn to the black market, where the naira’s value has plunged to around 350 per dollar. That’s pushed the inflation rate to 13.7 percent, the highest in almost six years.
U.S. carrier United Airlines said would it stop flying to Nigeria next month, in part because of the hard-currency squeeze, and British Airways said it may follow suit. Foreign airlines have the naira-equivalent of $575 million trapped in the country that they can’t repatriate, according to the International Air Traffic Association. The Africa president of Unilever, whose Nigerian unit has seen its shares drop 29 percent since Buhari became president, called the currency policy “very insane.”
The central bank’s Monetary Policy Committee voted on May 24 to allow “greater flexibility” in the foreign-exchange market, which investors hoped meant that banks would be allowed to trade the naira more freely. Yet, while Emefiele said a new system would be unveiled “in the coming days,” no changes have been made.
It was an “admission of the inevitable failure of the policy, which created a black market economy,” said Kingsley Moghalu, a former deputy governor at the central bank who now teaches at Tufts University in Boston. “The exchange-rate policy contributed quite significantly to creating a recessionary situation. It hit manufacturers, who could not access forex. It has created unemployment.”
The economy is so weak that Finance Minister Kemi Adeosun says officials probably won’t be able to collect enough taxes to meet the revenue target in this year’s record 6.1 trillion naira budget, which was only passed this month after senators said Buhari’s team made mistakes in the first version sent to them.
Nigeria’s 36 states, most of which depend on monthly handouts from the federal government, are on average three to four months late with salary payments to teachers, doctors and other civil servants, according to the oil minister.
“There’s a sense of exasperation among investors,” said Ronak Gopaldas, a Johannesburg-based analyst at Rand Merchant Bank. “There’s still a level of goodwill toward Buhari and his government, but it’s dissipating. The man on the street is really struggling.”
Nigeria currency crisis explained: What we know and don’t know
This article was written by Paul Wallace. It appeared first on the Bloomberg Terminal.
Nigeria’s central bank may soon give bond and stock investors what they have been pleading for: a weaker naira.
Governor Godwin Emefiele announced after a meeting of the Monetary Policy Committee in Abuja, the capital, on Tuesday that a more flexible foreign-exchange system would be unveiled “in the coming days.” But his statement was short on details and left plenty of questions. Here are some answers:
What’s the problem?
Nigeria has held the naira at 197-199 per dollar since March 2015, even as other oil exporters from Russia to Colombia and Malaysia let their currencies drop amid the slump in crude prices since mid-2014. Foreign reserves dwindled as the central bank defended the peg, while foreign investors, fearing a devaluation, sold Nigerian stocks and bonds.
While President Muhammadu Buhari and Emefiele argued a devaluation would fuel inflation, that happened anyway. Consumer prices accelerated at the fastest pace in six years in April as the black-market naira rate plummeted to about 350 against the dollar. To make matters worse, data released four days before the MPC meeting showed the economy contracted in the first quarter for the first time since 2004 as the dollar shortage curtailed manufacturing. That probably surprised policy makers, prompting the change of heart, according to Mathias Althoff, a fund manager in Stockholm at Tundra Fonder AB, which has about $200 million invested in frontier market stocks, including Nigerian banks.
What happens next?
While Emefiele didn’t specify what he meant by “greater flexibility,” analysts at Renaissance Capital Ltd. predict the central bank will allocate dollars at a fixed rate to strategic industries, such as energy and agriculture, while letting the naira weaken in the interbank market, where everyone else would buy their foreign currency. The central bank may also try try to control the new interbank rate by imposing a trading band of about 5 or 10 percent around it, according to Althoff.
Will that satisfy investors and save the economy?
If the central bank doesn’t allow the naira to drop enough, foreign investors will continue to shun Nigerian assets, according to Althoff. The currency should trade at around 285-290 per dollar, according to Alan Cameron, an economist at Exotix Partners LLP in London. A devaluation won’t solve Nigeria’s structural economic problems, which include an over-reliance on oil exports, and may fuel inflation in the short term. But it would make Nigerian exports more competitive, curb imports and encourage foreign investment.
What are the pitfalls?
Most investors would prefer a fully-floating naira, yet doubt that Nigeria, which has always had currency controls of some sort, will choose that option. And there are concerns it will be impossible for the central bank to ensure that only importers meeting its criteria are able to buy foreign currency at the discounted official rate. Many analysts fear that in a nation U.K. Prime Minister David Cameron described as “fantastically corrupt,” access to the official rate will come down to political connections.
“The suggestion of a dual exchange rate, with the maintenance of the official window, is a concern,” said Razia Khan, head of African research at Standard Chartered Plc in London. “This might lead to continued distortions in the market, ultimately with pressure on foreign-exchange reserves.”
What else should investors watch out for?
Buhari. He has made it clear that he, not Emefiele, is the person in charge of exchange-rate policy. The president is loath to allow the currency to drop unless he’s forced to and in February likened such a move to “murder.” He has yet to make any response to the MPC’s announcement. And while he is due to make a speech on May 29, the first anniversary of his coming to power, local press reports suggest he will focus on the government’s fight against corruption and Boko Haram’s Islamist insurgency.
The central bank has hinted at change before, only to do nothing. “The MPC has dangled the carrot of exchange-rate reform, but without giving any details of what a reformed market would look like,” said Cameron at Exotix. “To the skeptics among us, this will simply sound like a re-hash of the same old material we’ve been hearing about since December 2015.”