macroafricaintel Weekly | 17 Jul

By Rafiq Raji, PhD

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Date Data / Event Period Forecast Previous
17 Jul Nigeria CPI, % yy (mm) Jun 2017 15.9 (1.4) 16.3 (1.9)
17 Jul Kenya Policy Rate, % 10.0 10.0
19 Jul South Africa CPI, % yy (mm) Jun 2017 5.2 (0.3) 5.4 (0.3)
19 Jul South Africa Retail Sales, % yy May 2017 0.6 1.5
20 Jul South Africa Policy Rate, % 7.0 7.0

macroafricaintel | Time to unify exchange rates

By Rafiq Raji, PhD

With their trading volumes clearly being hurt by the increased interventions of the central bank in the foreign exchange market, bureaux de change operators recently asked that the current multiple rates regime be abolished. Aminu Gwadabe, their representative, made the suggestion in an interview with Reuters, a wire service, in mid-June. For such a call to come from participants who have profited hitherto from the market distortions induced by the central bank’s unorthodox FX policies is almost surreal. They are just being rational though. Black FX market operators have seen their margins diminish significantly since the central bank’s ramped-up interventions began. The bank has sold more than US$5 billion this year already, after OPEC production cuts in late November 2016 pushed up international crude oil prices, boosting government revenues and the central bank’s FX reserves. Besides, it was almost always going to be the case that most customers would prefer to do their transactions with banks if they could secure competitive rates.

Other stakeholders sense an opportunity for the central bank to finally integrate the market as well. In remarks to Bloomberg, another wire service, in mid-June, Bola Onadele, the head of FMDQ OTC Securities Exchange, the over-the-counter markets platform which handles the new Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism – better known as the investors’ and exporters’ FX window – by the Central Bank of Nigeria (CBN), seemed to suggest a single foreign exchange market was only a matter of time. Six weeks after it was introduced on 24 April, NAFEX has recorded more than US$2 billion in inflows. More importantly, the central bank reportedly intervened less than 30 percent of the time. And in the week just passed, the naira was trading at about the same level in both the NAFEX and parallel markets; raising hopes of convergence in the at least six FX markets. Noteworthy is also how the new FX window has mirrored the parallel market thus far, with the naira sometimes trading weaker in the former, vindicating much held views that the latter was more reflective of demand-supply dynamics.

Remove bottleneck
Still, a lot of global fund managers remain wary of putting money in local currency assets. The more Afro- and frontier-markets-centric ones have been increasing their Nigerian exposure owing to the NAFEX window, however. Some context is needed at this point. Before the FX shortages began, foreign portfolio and direct investments typically averaged about US$3 billion a quarter. In a good year, 2014, say, one quarter recorded as much as US$6.6 billion in foreign investment inflows. And the year before that, quarterly capital importation was about US$5 billion. So the US$2.2 billion FX inflows via NAFEX six weeks on (latest data) is significant. Should the remaining sceptical foreign portfolio investors join in, there could be a deluge; in a good way, of course. The importance of enticing them back into the Nigerian market cannot be overemphasized. The Nigerian economy remains in a recession primarily (in one’s view) because of the hard currency supply bottleneck. An analysis of economic growth data since the contraction began in the first quarter of 2016 shows sectors dependent on hard currency are primarily those weighing on the economy. Take one not so dependent, the agriculture sector, for instance, which incidentally also constitutes about a quarter of output: it grew by 4 percent on average in 2015-16. That more dependent on imported inputs, the industry sector (almost a quarter of output as well) for example, contracted by more than 5 percent in the same period. Not until 2016 did the remaining half of output, the services sector, record a contraction; below 1 percent at that. And when dissected, quite a few sub-sectors in services have been surprisingly resilient.

Short party
Considering crude oil prices have been sticky around the US$45-50 area lately, short of fully converging the markets, the CBN may soon become hard-pressed to sustain the current momentum. This is especially as the outlook for oil prices remains somewhat bearish. Despite the extension of OPEC’s 1.8 million barrels per day (mbpd) production cuts in late-May for almost another year, improved production by Nigeria and Libya, which are exempt from the cuts, have undermined the expected price-boosting effects. With the Forcados pipeline system back online, Nigeria has added at least 200,000 barrels per day to its production. Improved conditions in Libya has seen it add at least as much. Some estimates put incremental production between the two since the cuts began late last year at about 600,000 barrels per day, almost half of the cartel’s agreed cuts. So not only would the fiscal authorities likely need to borrow more than the US$3.5 billion they plan externally in the 2017 fiscal year, the monetary authorities may see their external reserves deplete quite significantly (or accrete slower) as well; that is, if current interventions continue. But with proof that a more transparent market would encourage needed FX inflows and is not all too destabilizing, as demonstrated by the NAFEX window, the CBN has an opportunity now to fully liberalize the market. In that event, it would not matter which way crude oil prices go.

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

macroafricaintel | The Osinbajo imperatives

By Rafiq Raji, PhD

Evil men are forever in bondage of their schemes. Just when they think victory is within their very grasp, that ever-patient Omnipotent simply declares otherwise. It is sometimes no more than a blink of the eye. So to speak. All of a sudden, the variables just change. A man whose aspiration was no more than a life in academia has power thrust upon him without even the slightest effort. Yet, many abound in those stained corridors who have twisted knots to no end for the exact same thing. To simply watch how the varied machinations of these sort of people often come to naught is to put it mildly: awe-inspiring. Who would have thought such mischief possible from just a word. “Co-ordinate” in place of “act”: who knew? Of course, the law is clear. Following the letter by the Nigerian president, Muhammadu Buhari, to the legislature declaring his intention to proceed on medical leave – the second one this year already, power transfers automatically to his deputy, Yemi Osinbajo. But the drafters of the letter already knew that. So why did they do it? The shadowy figures probably wondered if anyone would notice. How about we test the waters to see what we can get away with, they probably reckoned. Well now, they know. It is not likely that the president had the time or the strength to bicker with his clearly mischievous aides over the wording of a simple letter. The ailing leader is excused.

Act without fear
With such mischief about though, it has been suggested in some quarters that the life of the acting president might be in danger. Complete nonsense. Prof Osinbajo is not any safer being guarded by his kinsmen than he is by those of his principal. His enemies are not fools. But if they could just guide his hand, slow it perhaps and our destinies in tandem, that may be just right for them, say. Courage beckons on Prof Osinbajo. He must embrace it. Should he act with the needed firmness, he may even come to earn the respect of those who are counting on the stereotype of the faint-hearted Yoruba man. With power now placed by Divinity in the hands of one who has the twin blessings of salubrity and diligence, and might actually be able to do some good with them, even the slightest compromise by the one so chosen would be the greatest betrayal. The acting president must act with dispatch to fix some of the rubbish that has been festering due to the failing health of President Buhari; who could not attend to many government business consequently. It is widely believed a lot of official memoranda which required his approval were either not brought to his attention or even when they were, he could not attend to them.

Ordinarily, a president should not have to personally approve everything. In the American or British jurisdictions, some of these are delegated to the chief of staff or cabinet secretary. And such mundane tasks like the signing of greeting cards, routine letters and so on are done using a so-called “autopen” programmed with the president or prime minister’s signature. That type of leeway would be prone to unimaginable abuse in the Nigerian context, however. Still, it is unbelievably astonishing how some very inconsequential activities require the approval of a Nigerian head of state. A still existing command-and-control structure inherited from the military is partly why. Unsurprisingly, the healthiest president might still find the office a little overwhelming. Even so, Mr Buhari was not able to consider even the very important ones, it is believed. Unfortunately, there have also been actions emanating from the so-called “presidency” in his name that seem alien to his character and thus he probably did not approve of. To have to reverse these likely presidential usurpations whenever he became acquainted with them would have been problematic; especially as the erring officials are believed to be some of his closest. This understanding probably motivates their daring. With Mr Buhari now rightly taking care of himself in England, such mischief would be hard to pass by Prof Osinbajo. Thus, the president’s close aides may be reluctant to give Prof Osinbajo a free pass this time around: during Mr Buhari’s penultimate medical leave, the heavens simply poured rain on the second house. Understandably, the occupants of the first house cannot soon forget the lessons that the drought brought with it: shall we not hold the heavens this time with such conjurations as “co-ordinate” or whatever, some smart aleck probably mused. Well, good luck with that.

Be quick, firm and transparent
Prof Osinbajo’s imperatives this week are as follows. Firstly, he must sign the 2017 appropriation bill without delay. For sure, there would be someone who will likely come with identified “paddings” in the budget: truth can be deployed towards mischief as well. Such issues (if they arise) should be handled through back channels. Time is of the essence. Secondly, swear-in the two new ministers recently confirmed by the Senate at cabinet on Wednesday. Thirdly, deploy the about forty-three already languishing ambassadors-designate. Fourthly, the acting president should relieve the suspended government scribe, Babachir Lawal, of his appointment. (That is, if it has been found that he indeed corruptly enriched himself with humanitarian aid meant for internally-displaced persons in the northeastern part of the country.) Doing these for starters would hardly be reckoned as “co-ordinating” or any such nonsense.

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

macroafricaintel | Rejoice and despair

By Rafiq Raji, PhD

Even as economic growth was negative in the concluding quarter of 2016, it was positive for the full year; though a paltry 0.3 percent. And the South African economy would probably pull further ahead in 2017. Much of the constraints (load-shedding, political noise, rand weakening and volatility, drought-induced food imports and price spikes) which hitherto bogged down the economy have become relatively subdued. The rand has rallied lately. Barring the now expected negative political event now and then – most recently, the social welfare payments crisis – the Zuma government has been relatively well-behaved as well. Nonetheless, growth remains far short of the authorities’ target. That is even as growth is expected above 1 percent this year. Policy uncertainty has also been raised a couple of notches: Would land be expropriated without compensation? Is the treasury going to be weakened? Is finance minister Pravin Gordhan going to be fired?

Mixed promise
After the better than expected current account deficit data for the fourth quarter of 2016 – which came out at 1.7 percent of GDP, much lower than the consensus forecast of 3.5 percent – expectations have been raised that the South African Reserve Bank (SARB) would be able to cut rates sometime later this year, from the current benchmark level of 7 percent. Besides, the rand has been strengthening lately. Naturally, it is wondered whether this would be sustained at a time that the US Federal Reserve is decidedly now on a policy tightening path and external and internal political risks abound. Also, annual consumer inflation may remain above the SARB’s 6 percent upper bound target for most of the year. For instance, even if food prices become stable (a much bumper maize harvest is expected this season), power tariffs could rise: Eskom has already secured approval from the electricity regulator to raise tariffs by 2 percent in the 2017/18 fiscal year, in addition to getting leave to make additional hike requests if necessary. And should crude oil prices rise as envisaged, fuel prices would probably rise in tandem. Despite these though, the outlook looks promising, by and large.

Judging and ruling
Land expropriation without compensation. Xenophobic attacks fuelled by politicians trying to deflect attention from their corruption. Impunity enjoyed by certain favoured officials in the face of palpable incompetence. These are just few examples of the recently complicated turn of South African politics. In February, opposition Economic Freedom Fighters MPs were forcefully ejected from parliament as they frustrated the state of the nation address by South Africa’s president, Jacob Zuma; amid an unprecedented military presence on parliamentary grounds. And as the judiciary increasingly reins in the excesses of the executive, it has started having misfortunes of its own. The office of the chief justice was recently burgled, with crucial case files carted away, raising suspicions that those who could potentially be on the wrong side of the court’s judgements decided to be proactive. Such thinking is not farfetched. The boss of the elite police unit (“The Hawks”), Berning Ntlemeza, had his appointment revoked in mid-March by a high court, in a case brought against him by two non-governmental organisations. And only just before this recent rebuke of the executive by the judiciary, the constitutional court did not hold back its punches against social development minister Bathabile Dlamini, whose incompetence nearly put at risk welfare payments due 17 million people on 1 April.

With the courts becoming a pseudo-government of sorts, President Zuma has been pushing back: he rose in defence of Mrs Dlamini, an ally; albeit her survival is not unconnected to her leadership of the influential African National Congress (ANC) Women’s League, a voting bloc Mr Zuma needs if his preferred choice for the party’s presidency is to win the day in December (The two principal candidates are deputy president Cyril Ramaphosa and erstwhile African Union Commission chairperson Nkosozana Dlamini-Zuma). An imminent cabinet reshuffle by Mr Zuma is expected to help position Mrs Dlamini-Zuma for the top job. Mr Zuma has also deftly used the welfare payments crisis to bring the responsible agency under his direct control via his oft-used interministerial committee mechanism. Other power grabs are afoot. In mid-March, the ruling ANC indicated its desire for Mr Zuma to be “the strategic centre of power”, not the treasury. They want him (or whoever is president) to be the one who sets budget priorities that the treasury simply puts into action without question. Needless to say, the potential for abuse is best left to the imagination.

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

macroafricaintel | Future of Banking

By Rafiq Raji, PhD

This past week, I was a guest speaker at “Digital Banking Nigeria 2017” (8 February 2017), an event organised by India’s Infosys and Lagos-headquartered CWG Plc, information technology solutions providers. My speech was on the future of banking in Nigeria. That is, amid digital disruptions to an industry slow to catch up.

About 40 percent of Nigeria’s 88 million adult population is financially excluded. Digital financial services (DFS), increasingly embraced by Nigerian banks and their customers, make it cheaper to increase the number of the banked, currently 53 percent. Research done by the Lagos Business School (LBS) – “Digital Financial Services in Nigeria: State of the Market Report 2016” – suggests mobile money adoption remains relatively tepid, however: 0.1 percent in 2015. This is despite mobile phone ownership of almost 90 percent. And some 20 million Nigerians would probably own a smartphone by 2018 – almost half of the banked adult population of about 47 million – some suggest. Of course, a distinction has to be made between mobile money, an electronic wallet service, and the use of internet banking services via smart mobile devices. The latter has caught on, with an increasing number of Nigerians using their mobile devices to transfer funds, pay for services and so on. And the former? Not so much. Only 1.2 percent of electronic payments in 2016 were done using a mobile channel, based on data from the National Bureau of Statistics (NBS). And even as point-of-sale terminals are now quite pervasive, only 1.2 percent of e-payments in 2016 were done using the channel. What about automated teller machine (ATM) cards? Just 8 percent. According to NBS data, the predominant electronic payment channels, in 2016 at least, were NIBSS instant payments (59 percent) and NIBSS electronic fund transfers (22 percent); both of which can be done via internet banking. For DFS to successfully increase the country’s GDP by 12.4 percent (US$88 billion) by 2025 as envisaged by McKinsey, a global consultancy, mobile money adoption has to rise significantly from current lows. But who will lead the charge? Bank-led mobile money operators, eight of the twenty-one licensed by the Central Bank of Nigeria (CBN), are able to serve their customers relatively cheaply; about half the cost of non-bank led ones, LBS research suggests.

Social financial networks
The fundamental thesis of my presentation was that the real threat to the banking industry may not be the so-called fintech companies and mobile network operators so much as the customers themselves. Two phenomena in particular: social networks and virtual currencies. MMM, a social financial network, though a ponzi scheme, and unabashedly so, has somehow managed to attract 3 million ‘sane’ Nigerians. And despite the CBN’s frantic efforts at curtailing the menace, its disintermediation effects continue. When warned of the risks of MMM, subscribers, as if in a trance, are almost fanatical in defence of the scheme. More importantly, note how almost 10 percent of the banked Nigerian population were successfully organized, albeit for a promised enticing return of 30 percent, for financial intermediation activities with no more than a website. And in a manner that effectively made the regulator impotent. Still, that even some ordinarily cautious Nigerians jettisoned reason to invest in the scheme points to a gap in the banking industry: savings accounts offer a paltry 5 percent. It also points to the possibility of financial intermediation outside of the traditional financial services industry. Banks beware.

Digital currencies
Bitcoin, a digital currency, is increasingly gaining ground as a store of value. (Incidentally, MMM subscribers can now give ‘help’ with Bitcoin.) And it is open-source: no central bank owns or controls it and anyone and everyone can use it. Imagine a scenario where bank account holders withdraw money en masse from their local currency accounts to buy foreign exchange for the sole purpose of acquiring bitcoin. The transactions they are used for thereafter are almost entirely out of the reach of central banks. Up to a point. In most developing countries – most African ones at least, where there are no bitcoin exchanges, the authorities are effectively powerless. But what about the countries where digital currency exchanges are domiciled, China, say? As it turns out, the People’s Bank of China (PBoC) announced last Thursday (9 February 2017) that it would close any of them that violated regulations, a move that caused bitcoin prices to drop sharply. African central banks are still looking on.

Open-source biometrics
Aadhaar, a cloud-based biometric identification system set up by the Indian government, initially to ensure that intended recipients (who get assigned a unique 12-digit number) of welfare payments are actually the ones that receive them, would this year have on record all of India’s adult population. Together with an online database of citizens’ documents (tax filings, bank statements, etc) called “India Stack” and a “Unified Payments Interface”, the digital ID and document ecosystem would, when fully operational, be nothing short of revolutionary for what is still largely an informal economy. Whether it is the acquisition of a phone line or job application, all that is required to verify a person’s identity is now no more than a fingerprint scan. In the Nigerian case, the Bank Verification Number (BVN) is analogous, but unfortunately not as useful. Having a BVN does not exempt you from onerous know-your-customer (KYC) checks if you wanted to open a bank account elsewhere. Besides, the so-called unbanked and underbanked Nigerians, who though may not have bank accounts, ordinarily own a mobile phone. And their biometric data? They reside with mobile network operators and their regulator. Banks of the future would be agile, open-source and collaborative.

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

macroafricaintel | Africa FX Monthly – May 2016

By Rafiq Raji, PhD

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Currency   1 month

(31 May 2016)

3 month

(29 Jul 2016)

6 month

(31 Oct 2016)

12 month

(28 Apr 2017)

South African Rand (USD:ZAR)   14.5 15.0 15.5 15.7
Nigerian Naira (USD:NGN)   210.0 220.0 250.0 270.0
Ghanaian Cedi (USD:GHS)   3.9 4.0 4.1 4.2
Kenyan Shilling (USD:KES)   101.5 102.0 102.5 103.0
Ugandan Shilling (USD:UGX)   3,320.0 3,325.0 3,327.0 3,330.0
Tanzanian Shilling (USD:TZS)   2,190.0 2,195.0 2,200.0 2,220.0
Ethiopian Birr (USD:ETB)   21.8 22.2 22.6 23.0
Mauritian Rupee (USD:MUR)   35.1 35.5 36.0 36.2
Namibian Dollar (USD:NAD)   14.5 15.0 15.5 15.7
Botswanan Pula (USD:BWP)   10.5 10.4 10.3 10.0
Zambian Kwacha (USD:ZMW)   10.0 10.5 10.7 10.2
US Dollar Index (DXY)   92.1 90.3 91.5 95.0