macroafricaintel | Nigeria: Why not a market solution to fuel shortages?

By Rafiq Raji, PhD
Twitter: DrRafiqRaji

Nigerians were in for a rude shock last Christmas. Fuel, hitherto abundant, suddenly became scarce. It was artificial, of course. With the political cycle in high gear, myriad negative events have been on the rise. President Muhammadu Buhari blames saboteurs; perhaps a vieled reference to opponents eyeing the presidency in 2019. While he did not say who they were, there is a consensus, amongst the top echelons of the government, at least, that the shortages were contrived. Senate president Bukola Saraki called it an “artificial scarcity” in remarks when the committee put to task to unearth the causes of the fuel shortages and recommend measures to ensure such misery would no longer be meted out to the citizenry again, presented its report. Typically calm, Mr Saraki’s response was a little emotion-laden; reflective of inflamed passions around the issue. Controversy has always trailed the very politically-sensitive issue of fuel supply in Nigeria. Once a subsidised commodity, it was one of the few benefits citizens could claim to get from the government. Verner Ayukegba, principal analyst for Sub-Saharan Africa at London-based IHS Markit suggests why the Buhari administration would be reluctant to raise fuel prices like other countries have done in tandem with crude oil price movements: “It is one of the few ways in which the government can reach a broad set of Nigerians, especially the struggling masses, with subventions.” John Ashbourne, Africa economist at London-based Capital Economics adds thus: “Raising fuel prices is obviously always quite painful – both economically and politically. The government might be hesitant to raise prices now, given that the economic recovery is still fragile and inflation has only just started to come down.” But there is a greater fear for the government should it choose to increase fuel prices at this time: “The potential fallout is negative public opinion against the government in the run-up to next elections”, opines Mr Ayukegba. Could the government mitigate this, though? “In theory, the optimal policy would be to provide targeted grants to lower income people”, says Mr Ashbourne. [But]…poverty alleviation initiatives – social programs – in Nigeria have often come up short”, Mr Ayukegba adds. There are other ways the government could manage to keep the current fuel price of 145 naira unchanged without paying a subsidy to marketers or at least, prevent a steep price hike in the event it decides to be bold. Capital Economics’ Ashbourne makes a suggestion: “In the short run, the government could reduce landing fees and taxes on importers and hope they pass on the savings.” This was also one of the proposals made by state oil minister Ibe Kachikwu when he made a presentation to the Senate committee in January. Mr Kachikwu also suggested that foreign exchange could be made available to fuel marketers at a rate that makes up for any difference between the landing cost and retail price. Another suggestion he made was for a multiple pricing regime whereby marketers would be able to import fuel and sell at any price that suits them while the state oil company sells its own imported fuel at the government approved price. All three suggestions imply some form of subsidy or in the third case, an average price increase.

Cheap fuel, shady deals
Upon the assumption of the Buhari administration, subsidies were stopped. Even so at about 50 US cents for a litre, Nigeria’s petrol is very cheap. Inevitably, savvy entrepreneurs have been making a good trade of either hoarding the commodity or smuggling it to neighbouring West African countries where petrol is dear. Umar Ajiya, chief executive of PPMC, the state oil company’s distribution arm, reeled out the statistics in a media interview in January to support this supposition. Nigeria’s typical daily consumption of petrol is less than 30 million litres. His firm, the PPMC, supplies about 40 million litres a day. During festive periods, the daily supply could be as much as 60 million litres. Mr Ajiya also asserted that at least one ship cargo of 50 million litres is imported by the PPMC daily. Ordinarily, the PPMC should be a marginal player in a supposedly quasi-deregulated market: although the fuel price is set by the authorities, a reasonable margin is incorporated to make the venture profitable for marketers. Considering the price of crude oil and its distillates in the international markets tends to be volatile, marketers would only be able to make a profit if the set price is adjusted with almost as much frequency as the crude oil price changes. Unfortunately, this is not the case; especially when the price rises. In the recent past, the Buhari administration was able to make upward adjustments to the petrol price, when it still had much goodwill. Now in re-election mode, it has become more cautious. To increase the fuel price at this time would be considered very bold indeed. And it could not now say that it has resumed subsidies on fuel products; after having campaigned to remove them in the first place. It used to be a major conduit for corruption.

Liberalise, deregulate and diversify
But it is abundantly clear that the official price of 145 naira for a litre of petrol is not realistic, having been set when the crude oil price was much lower than current levels of above $60. At a landing cost of 171 naira for a litre of petrol, the authorities take a loss of 26 naira on each litre of petrol sold to the public. Marketers complained the authorities were not making up for the difference and insisted on being paid before resuming imports. With the authorities unyielding, in light of the complication that doing so would also imply an acknowledgement that subsidies were being paid, PPMC became the sole importer of petrol. But if it were still selling at 145 naira and importing at a higher cost, how then was it funding the difference? When pressed hard during the earlier mentioned TV interview, Mr Ajiya classified it as an operating cost. Since PPMC is wholly-owned by the government, that operating cost is borne by taxpayers. Simply put, the authorities have been paying subsidy on petrol. As such payments are extra-budgetary and an infraction by the executive branch, Mr Buhari could ideally be impeached because of them; not that this is likely, though. Another suggestion made by Mr Kachikwu is for the country’s moribund refineries to be repaired and perhaps new ones built. As a lot of resources has been wasted in the past to do so, it is probably a bad idea. They could be sold to private investors instead. Incidentally, this was done before; during the administration of former president, Olusegun Obasanjo. Africa’s richest man, Aliko Dangote, was one of the buyers. The sale was revoked by the next administration, however. Instead, Mr Dangote is now building his own refinery from scratch. It is perhaps why the authorities likely reckon they could continue to take losses on fuel imports to ensure the retail price for petrol remains unchanged at 145 naira in the hope that the Dangote refinery would become operational as scheduled in 2019. When completed, the refinery would be able to refine 650,000 barrels of crude oil into petroleum products daily; enough to supply all of the country’s fuel needs with extra to export. But is this a wise strategy? “I would worry about putting so many eggs in one basket”, says Capital Economics’ Ashbourne; “from a pure efficiency perspective, the best option would be to liberalise prices and then deregulate the import stream to allow more competition.

Since the publication of the above article by African Business magazine in early February 2018, which I authored, the Nigerian government has since admitted paying subsidy on fuel imports: “an under-recovery of N774 million [$2.2 million] every day.” At the African Development Bank Annual Meetings in Busan, South Korea, which concludes today (25 May), a former central bank governor put the figure at about 1.4 trillion naira (circa $3.9 million). And even as the authorities refused to call it what it is, the legislature has since given it the proper nomenclature. Sadly, with the Muhammadu Buhari administration already in election mode, the principal of which is actively seeking a second term, the likelihood that market forces would be allowed to determine fuel prices anytime soon is very slim. The opportunity cost of this supposed “political necessity” is sobering indeed.

macroafricaintel | Smart Lagos (3): Status, Prospects & Opportunities

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

‘Lagos Innovates’
The smart city vision of the state government was discussed extensively at a conference it sponsored during its “Lagos at 50” celebrations in May 2017. Themed “Towards a Smart City: Preparing for the next 50 years of prosperity”, it had as keynote speaker a top thinker on African issues, Oxford professor, Paul Collier. He had a more engaging definition of what a smart city is. “Smart does not mean elite. Smart means a city that works for everybody in it. A city that works means that ordinary people can become productive and so earn a decent living.”

The envisioned smart city offers opportunities in transportation, ICT, tourism, hospitality, entertainment, and sports for excellence. The Lagos state government envisions the city to be the most attractive to live and do business in Africa. This is an exaggeration, of course. Even so, the government’s confidence is underpinned by what Mr Ambode dubbed an “urbanisation dividend” in a speech in February 2017. Despite its many deficiencies, and even before the authorities started making the needed effort to transform the city, which coincided with the birth of the country’s most recent democratic experiment in 1999, Lagos has always been attractive to Nigerians elsewhere. At 86 immigrants every hour, it has the highest inward migration rate of any city in the world.

The Lagos Development Plan (2012-2025) embodies what the authorities hope to achieve over the next decade. The “smartness” in Lagos Smart City or Lagos, the smart city, is in seeing technology as an enabler for development, whether it is in the provision of infrastructure, security or investment incentives, with the goal being to make Lagos attractive to investors who would then create much needed jobs. There have been some laudable initiatives by the government with regard to transport infrastructure, like the completion of one of the phases of a city railway (albeit not yet operational), reform of the bus mass transit system, expansion and tolling of a key highway in conjunction with the private sector (at first) and so on. But the pace and reach of the government’s infrastructure programme are grossly inadequate. Strained finances are one reason why. True, the state government earns more revenue than other states. But the revenue is inadequate for the huge spending bill of needed development programmes. And the private sector has not always had a good experience with public-private partnership (PPP) projects with the state government.

To fund its programmes, the government sometimes resorts to extreme means. Recently, the state government announced a land use charge that was considered hugely insensitive. Naturally, it was met with uproar from the general public. Consequently, the state government had little choice but to revise the charges downwards. Even so, some grumbling remains. This also typifies what tends to happen when what are ordinarily acceptable infrastructure financing and maintenance measures – road tolling, for instance – are attempted. But the authorities are getting it right in other areas. Its support programme for technology entrepreneurs in the state is exemplary.

In December 2017, the Lagos State government launched “Lagos Innovates” to support tech entrepreneurs. Through the programme, small and medium-sized enterprises (SMEs) would be provided the infrastructural support, training, capital and networks they need to succeed. The initiative copies similar models in Chile, India and Singapore. Targeted at tech entrepreneurs residing and working in Lagos whose businesses are less than three years old, Lagos Innovates aims to facilitate access to “high quality workspaces and infrastructure”, “learning”, “early stage investment capital” and “investor and peer networks”. Bottomline, Lagos Innovates is “a set of programs aimed at making it easier to build a successful tech startup in Lagos”. It is perhaps the greatest demonstration yet of the government’s recognition of the tech opportunity in Lagos.

The initiative currently has three major programmes. The first, “workspace vouchers”, would enable budding tech entrepreneurs secure funding support to acquire a workspace at one of the numerous innovation hubs in the city. For access, the tech entrepreneur need only apply online. The second, “hub loans”, provides capital to hub operators looking to expand or for those looking to invest in hubs. And the third, “events sponsorship”, provides support to enable tech entrepreneurs organize events to seek talent, publicize products and so on. Other programmes to be offered in due course, include “co-investments”, “program vouchers”, and “accelerator”. In early May 2018, Lagos Innovates will be sponsoring the “Secure Lagos Hackathon” event. Other upcoming events include “The Coworking Conference” in late July 2018.

The author, Dr Rafiq Raji, is an adjunct researcher of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

macroafricaintel | Nigeria: GDP forecasts (2018-19)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Click here for PDF version

  Q1 2018F Q2 2018F Q3 2018F Q4 2018F 2018F
% qq -12.3 3.0 7.0 3.0
% yy 3.1 2.7 0.8 -0.4 1.4

Source: Macroafricaintel Research

  Q1 2019F Q2 2019F Q3 2019F Q4 2019F 2019F
% qq -10.0 3.5 6.0 3.5
% yy 2.2 2.7 1.7 2.2 2.2

Source: Macroafricaintel Research

  Q1 2017 Q2 2017 Q3 2017 Q4 2017 2017
% qq -13.3 3.4 9.0 4.3
% yy -0.9 0.7 1.4 1.9 0.8

Source: NBS, Macroafricaintel Research

macroafricaintel | Mr Idris, visit the Senate

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Ibrahim Kpotun Idris, Nigeria’s Police chief, has rebuffed the invitation of the country’s Senate to appear before it to render explanations for myriad security issues thrice already. When Mr Idris first “shunned” the distinguished senators on 25 April, he did not do so carelessly. He sent a representative. The Senate or anyone else could hardly disagree with his reasoning for not showing up at the time; albeit it was probably a God-sent excuse. He accompanied the president, Muhammadu Buhari, to Bauchi, a security hotspot; a planned event known to the Senate and in fact, the wider public. The second time he missed his appointment with the “Red Chamber” on 2 May, he was clearly more in control of his itinerary. Just like in the first instance when he sent his deputy to the Senate to act on his behalf, one of his subordinates could similarly have gone in his stead to Birnin Gwari in Kaduna, where killings had just occurred. So on the second occasion, at least, he likely made a choice not to attend. The most recent summons by the Senate was on 9 May. Mr Idris simply went about his day; much to the chagrin of the Senate. How is the impasse to be resolved then?

Know the law you make
It is tempting to quickly decry Mr Idris’ supposed disrespect of the Senate. Not that it would not be justified: whether we like the current crop of senators or not, they are our representatives. A slight on them is a disregard for “We, The People.” But when you hear the legal arguments, you are awakened to the reality that the Senate may not have acted wisely. One senior lawyer categorically stated in a widely aired television interview that the Senate did not have the powers to summon the Police chief. Instead, they should have invited the interior minister, who has supervisory authority over the Police (in part) and other internal security agencies. The well-spoken and oft-impassioned lawyer was very persuasive. But he only spoke about the side of the elephant his hands chose to feel. Another silk – “Senior Advocate of Nigeria (SAN)” in these parts – weighed in on the same medium subsequently. He revealed the powers of the Senate extend beyond that: they can invite anyone. The more practical insight, in my view, came from neither of them. A bright young lawyer, who regularly comments on such issues, gave a very brilliant assessment. (If you follow my Twitter handle, @DrRafiqRaji, you’ll know who.) He explained how because the legislature’s right of summon is qualified and restricted to issues of public policy, national security and so on, the inclusion of the travails of a particularly colourful senator in the hands of the Police as one of the reasons for summoning Mr Idris may have vindicated his actions. I agree.

Restrain yourself
In any case, should one summoned refuse to show up, the legislature has the powers to issue a warrant of arrest. The dilemma, of course, is that the Police is the body that implements any such warrant. Who would arrest the Police chief then? His subordinates? True, a former Police chief has been arrested before. But the order came from the president of the country at the time, not the legislature. And it was for an entirely different matter. Were President Buhari to order the arrest of anyone in this country at this time, it will happen. But is Mr Buhari likely to allow the arrest of Mr Idris in the event the Senate issues a warrant of arrest against him for failing to honour its summons? I doubt that very much. Lest I forget, the Senate once summoned a senior lawyer and he refused to show up on the basis of law. Well, that ended that matter. To put it bluntly: the Police chief was well-advised, the Senate was not. The mistake of the latter, I believe, was in allowing its hurt about the supposed maltreatment of a member of its chamber by the Police to cloud its judgement. In its summons of the Police chief, it should not have given the slightest hint the legal troubles of one of its own was a matter to be discussed. Having done so, Mr Idris had the backing of law in shunning the Senate.

Change the headline
The Police and the Senate have both issued elaborate statements explaining their positions. The Police says the Senate was primarily interested in questioning its chief on the case of their embattled colleague. The Senate says this was never the case, insisting its main interest has always been to find a solution to the spate of killings going on in the country unabated. The terms of reference are now very clear, at least. Bearing in mind the fragility of power and how those who wield it effectively know not to allow it be pushed to its limits, Mr Idris should kindly now send a positive “signal” to the Senate.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

macroafricaintel Weekly | 14 May

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Kindly click here for PDF version

Date Data / Event Period Forecast Previous
16 May South Africa Retail Sales, % yy Mar 2018 2.6 4.9
Botswana CPI, % yy (mm) Apr 2018 2.3 (0.3) 2.8 (0.1)
Namibia CPI, % yy (mm) Apr 2018 3.4 (0.2) 3.5 (0.1)
Nigeria CPI, % yy (mm) Apr 2018 12.2 (0.6) 13.3 (0.8)
South Africa CPI, % yy (mm) Apr 2018 3.9 (0.2) 3.8 (0.4)

macroafricaintel | Smart Lagos (2): Status, Prospects & Opportunities

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Smart city defined
“A smart city is a destination where hard and soft infrastructures are integrated with technology and securely connected together.” And what does the Lagos State government hope to achieve when it refers to the concept? In remarks made in May 2017, Governor Ambode explained his understanding of the concept this way: “In the emerging knowledge era, ICT has taken centre stage, and as the city of the future, Lagos must take advantage and indeed leverage on the tools of ICT in moving towards a Smart City.”

So, what are the steps already taken by the government towards this objective? In June 2016, the Lagos State government signed a memorandum of understanding with Dubai Holdings LLC, owners of Smart City Dubai LLC, “to develop sustainable, smart, globally connected knowledge-based communities that drive a knowledge economy.” To be located in Ibeju-Lekki on the outskirts of Lagos, “a Smart-City Lagos will be the pride of all Lagosians, just as we have Smart City Dubai, Smart-City Malta and Smart-City Kochi (India).”

To assess its potential, it would help to examine the evolution of smart cities elsewhere. Investments and jobs have been touted as potential gains. That has been the case for Smart City Dubai, certainly. But there are many advantages Dubai has that Lagos does not as yet have. Apart from looking to successful cities like New York and drawing up plans and implementing them, a crucial factor for Smart City Dubai’s success has been the authorities’ collaboration with the private sector, especially global technology companies. Today, just about five years after the Dubai Smart City project was launched in 2013, Dubai is at the forefront of research in artificial intelligence, autonomous vehicles and so on.

The city of Dubai has also taken on ambitious events and projects to motivate it towards its ambitions, like the Expo 2020 (which it won hosting rights to the same year the smart city project was initiated), Hyperloop Dubai, Oasis Eco Resort and so on. Other initiatives are: Happiness Metre, Smart District Guidelines, Smart Dubai Index, Dubai Data, Smart Dubai Platform, Dubai Blockchain, and so on. Although the Dubai example is perhaps a long shot, the promoters of Smart City Lagos are right to aim that high.

Local capital looking to profit from tech play
So, what could realistically be expected to happen in regard of Smart City Lagos over the short- and medium-term? And what are the opportunities to watch out for over these time horizons? In assessing the opportunity, a potential investor, and indeed the government, could choose to focus on Smart City Lagos or Lagos as a smart city. In any case, the state authorities seem to be aiming for both.

In May 2017, they started the installation of free wifi infrastructure across the city. The state government has also started training its staff to align them with its smart city vision. For instance, staff in the Lagos central business districts (CBDs) had their training session in January 2018.

The real opportunity lies in Lagos, the smart city. True, the advantages that a smart city in the mould of Dubai Smart City provides, which in addition to flawless infrastructure, include a clustering of talent in a particular area, such that tech companies could easily conduct all their operations in one location, with all the logistical and operational benefits that engenders.

Currently, there are two other major smart city developments in the city apart from Smart City Lagos, which are already at advanced stages, and probably more relevant for a foreign firm looking to make the move to Lagos momentarily. Eko Atlantic City is a new city being created from a sand-filled area of the Atlantic Ocean bordering the highbrow Victoria Island area of Lagos. A totally private initiative, but with considerable government support, firms could easily set up shop and find accommodation for their staff in a secure and efficiently run enclave, without any of the difficulties typically associated with the main city.

The other major development is the Lekki Free Trade Zone (LFTZ), where a deep sea port is being built. Promoted by The Tolaram Group, a Singaporean conglomerate, and the Lagos State government, the Lekki Deep Seaport, the first phase of which is expected to start operations in 2020, would be able to handle 2.5 million TEUs and subsequently almost double that to 4.5 million TEUs when the second phase is completed. And although the broader LFTZ is currently dominated by manufacturing firms and the like, an IT hardware manufacturer could easily set up shop there as well.

The Lagos Smart City, under the aegis of the state government, should not be confused with other self-acclaimed smart city projects by private sector players that are ongoing across the city. The idea is more or less the same: a cluster of office and residential buildings dedicated to the ICT business. One being promoted by Chams Plc, “SmartCity Innovation Hub,” located in the Lekki-Epe corridor of Lagos, would, when completed, “provide a conducive cocoon in terms of physical and ICT infrastructure, energy, regulatory and fiscal policies for the optimum and most profitable operation and development of technology products and/or service companies.

The key attraction of the concept remains the proximity advantages of having many ICT companies in one location where they are able to operate under world-class conditions and standards to enable them to compete favourably with their contemporaries anywhere in the world.

Another smart city project, also located in the Lekki-Epe corridor, is the $300 million Imperial International Business City (IIBC), initiated by one of the royal families in Lagos. They boast it would be the first eco-friendly smart business city in Africa and is expected to be completed by 2021. Put together with that of the state government, the potential investor is spoilt for choice. They are all trying to address the typical first concern for tech startups and indeed bigger firms of finding a conducive and cost-efficient environment to operate.

But Lagos offers much more than that. It is a market of more than 20 million people. If all these people are able to use the internet for free, they could easily serve as the target of the services of these firms.

The author, Dr Rafiq Raji, is an adjunct researcher of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.