Partner Perspectives

Nigeria in 2017

42 MINS READDec 16, 2016 | 17:07 GMT

By Cheta Nwanze, Head of Research for SBM Intelligence

Introduction

2016 proved to be a difficult year for Nigeria which saw the highs and lows of important metrics. Sadly, there were highs where there should have been lows, and lows where there should have been highs. We had highs in inflation, in unemployment and in deaths from famine while the lows were in oil and tax earnings, FDI, in percentage of CAPEX budget spent, and the list goes on.

2016 was the year when the Buhari administration would run its first full year budget, starting the year with a cabinet in place and all the urgency to tackle the issues that had begun to accelerate was expected. Sadly, this was not to be. From the fiasco around passing the budget, to bungled attempts at FX policy, a deterioration in the security situation, and policy flip flops, historians will view 2016 as a lost opportunity to reset Nigeria and set it on the path to turnaround its fortunes.

The key question that begs answers is if the quality of life of Nigerians has improved in 2016 as against the previous year, and the ultimate purpose of our year ahead must be to paint the picture of what the life of the Nigerian as an individual and Nigeria as a nation will be in 2017 amidst the myriad of domestic and international pressures the year will bring. We reiterate that government’s role is not to simply explain, but to plan for, direct and react appropriately to these pressures in order to deliver a better quality of life to Nigerians.

There were key events that occurred in 2016 that impacted on Nigeria.

There were a few global events that had a significant bearing on domestic issues in Nigeria. The country played its customary leadership role within the West African region, from helping to ensure a stable political situation in the aftermath of a terrorist attack in Burkina Faso, to aiding in the smooth conduct of landmark elections in the Gambia – its first since 1994. In another important regional event, Hissène Habré, former dictator of Chad, was convicted of crimes against humanity by the Extraordinary African Chambers, the first African ex-head of state convicted of the charge by an African constituted and supported court, an event which many observers see as a watershed in efforts to deal with political corruption and the abuse of power on the continent.

The spectre of terrorist attacks were a recurring theme over the course of the year with the Islamic State at its heart. Deadly terror attacks in Brussels’ Zaventem airport and Maelbeek metro station, which left around 28 people dead and 260 injured,  a bomb attack on a police bus in central Istanbul that killed 11, a large lorry bomb in Baghdad which claimed 125 and a café attack in Dhaka, Bangladesh, which left 20 hostages dead were some of the big ticket incidents which the world’s pre-eminent progenitor of terror claimed in 2016, in addition to a gunman claiming allegiance to the Islamic State opening fire at a gay nightclub in Orlando, Florida, killing 49 and injuring 53 in the single worst mass shooting in American history. 2016 also saw new lows reached in the geopolitical interplays which continued to fuel the wars in Syria and Yemen. Situated within the context of Boko Haram pledging allegiance to the dreaded terror group at the tail end of 2015 and the Islamic State’s purported selection of a new leader for the Nigerian terror group which earned it a blacklisting from the US State Department, as well as receiving its own share of terror attacks during the year, Nigeria arrived at the end of the year as a firm part of the geopolitical terrorist morass.

In Turkey, a coup d’etat, which eventually failed, caused a minor diplomatic row between Nigeria and Turkey as Nigerian students were caught in the crossfire of the post coup purge in that country.

The global fight against tax evasion, the growing interconnectedness of global capital, and the ability of global elites to utilise extraordinary means to avoid tax payments was brought into sharp focus by the revelations of the Panama Papers, a horde of 11.5 million confidential documents from Panamanian offshore law firm Mossack Fonseca, published in what is now widely acknowledged as the largest data leak in history. Among the cache of documents detailing the registration of shell companies by the rich, powerful and influential were found the names of some of Nigeria’s wealthiest and most politically significant families, including the Saraki family whose scion, Bukola Saraki is the current Senate President, a situation which couldn’t come at a more inconvenient time for the current administration’s efforts at diversifying the country’s revenue base away from crude oil.

Global oil prices continued a market driven fall during 2016, a development which set the stage for one of the year’s most gripping high stakes tussle between geopolitical rivals awash in oil over production cuts within the Organisation of Petroleum Exporting Countries. Saudi Arabia’s unwillingness to allow Iran, fresh from a nuclear deal with the United States and its Western allies, an exemption in order to aid the former ramp up its production to pre-sanction levels hampered efforts at a deal, which only served to dampen investor sentiment about the wider energy market and effectively put a lid on benchmark prices – a situation which placed economically inefficient, under pressure mono-producers like Venezuela, Iraq and Nigeria in a fiscal pickle.

Finally, the rise of nationalistic populism significantly altered the political dynamics in two of Nigeria’s traditional allies – the United Kingdom voted to end its four decade long membership of the European Union in June, the "Brexit" referendum effectively ending the career of UK Prime Minister David Cameron while across the Atlantic, American voters elected an isolationist candidate in real estate magnate and casino owner turned reality-TV star Donald Trump in a fiercely contested voted that upended decades of settled American political and social teleology. Both votes have significant implications for the foreign policy approaches of both global powers and their diplomatic relations with Nigeria, particularly in key areas as development aid assistance and the war against Boko Haram.

Assessing our predictions for 2016, and how they fared

A year ago, we forecast that the following were likely to happen in 2016:

The price of crude would remain at close to 2015 levels (around $38) or even get lower. We considered OPEC’s refusal to put production quotas at the time, and Iran’s re-entry into the market. We posited that this would mean a further reduction in oil earnings for Nigeria. Our position on OPEC was largely right as the association only announced cuts in late November. The year is however closing at higher oil prices than we predicted. It is worth noting that Nigeria’s oil earnings did decline, but for other reasons, which shall be discussed.

As part of our forecast for 2016 we expected that state governments in Nigeria would continue to struggle financially, leading to many months of owed salaries and pensions. We also posited that reduced revenues would hamper the efforts of state governments to borrow from the capital market to finance their recurrent expenditure. These happened, and despite a couple of federal bailouts, the problem has persisted, as more and more states are abandoning capital projects, and are still unable to meet their recurrent obligations.

In addition, we expected that states would be forced to either cut down their workforces or continue to be in the financial red, delaying on salaries. Whatever direction the states took, we said, they would enter into conflict with the labour unions. So far in some states, there have been attempts to cut down the workforce (Imo being a good example) but the labour unions have kicked, forcing many states to backtrack on cuts but still leaving thousands of workers without regular salaries.

With regards to the Federal Government, we expected an end to fuel subsidies in order to avoid incurring heavier debts. This happened early in the year, but the subsidies have been reintroduced, because the government has found it politically expedient to do so. We also correctly called the increased taxation attempts from the government as it struggles to increase revenue and the backlash that has followed from Nigerians.

At the end of 2015, we predicted that Boko Haram would be dislodged from most of their territory in the North East and would resort to attacks from fragmented cells and suicide attacks, using the Diffa Region of Niger Republic as both a refuge and a forward base. This has largely been the modus operandi of the insurgent group this year until the dry season upswing in attacks and a change in tactics again by the group.  We also accurately called the government’s efforts to resettle IDPs, some of which has happened.

Our position regarding the pastoral conflict was that that tension would continue in the Middle Belt between nomadic herdsmen and farmers. We believed that the FG would continue to devote its attention and resources on the North East and not pay enough consideration to the pastoral conflict. 2016 was the year of Agatu, Ukpabi-Nimbo, Godogodo and other massacres which resulted in an increase in retaliatory attacks. Eventually as things began to get out of hand, FG began to pay some attention to the crisis - not nearly enough in our opinion.

“There will continue to be emigration from cities in the North-East caused not just by the insurgency but by overall worsening economic conditions,” we said at the end of 2015. “Cities such as Lagos, Abuja, Jos and Kano will be net recipients of the migrants.” The IDP crises, beginning to emerge in locations removed from the Boko Haram crisis, and increasing communal tensions between ethnic Northern communities, and their hosts across Southern Nigeria, made this prediction sadly true.

On the Shiite crisis which started in December 2015, we predicted an escalation in the North West without reaching the levels of a full blown insurgency in 2016. Sadly, this prediction has proven accurate, with Kaduna leading the way in banning and suppressing the IMN, followed by Kano, Zamfara, Katsina and Kebbi in the North West and Plateau in the North Central. The leader of the group is also being held by the government in spite of court orders to release him with a 50 million naira compensation.

2016 Review – Economy

The year was filled with a variety of economic shocks, largely precipitated by dwindling revenues from oil.

Firstly, from the day the Buhari government took office, it could not show that it had a coherent economic strategy/plan to steer the country through the tough times. A key highlight of the paralysis was the delay in passing the medium-term expenditure framework (MTEF) and the 2016 federal budget. The MTEF which the Buhari administration has touted as its silver bullet for the Nigerian economy was not passed until May 2016.

Secondly, there was a clear divergence of purpose between the CBN’s monetary policy and the government’s fiscal policy. There was no better expression of this than the crash of the exchange rate of the Naira against other currencies. Prior to oil price crash, the CBN had maintained +/- 3 $ band around the exchange rate of N199/$. Once foreign currency receipts fell following the oil price crash, it became impossible for the CBN to meet majority of FX demand and this drove users to the black market, pushing up the price in the process. Eventually the CBN jettisoned its fixed exchange rate and in collaboration with FMDQ OTC developed a new FX regime in which the interbank market was to become the official market and CBN would intervene where necessary to ensure a “managed float” of the Naira.  Despite some early success, this has failed to solve the underlying issues and users still have to source FX from the parallel market which presently quotes rates at over 20% of the interbank market to the frustration of FMDQ OTC and other market participants. As at 1st December, 2016 interbank market closing spot rate was 305.0 naira/$ whereas the parallel market rate stoodat 475.0 naira/$. Attempts such as the use of security agencies to force FX prices down have backfired, causing further supply issues and a commensurate increase in exchange rates at the parallel market and providing key incentives for hoarding and making huge profits from round-tripping currency.

Third was the sad news that Nigeria’s GDP had contracted in the first quarter of 2016. Following similar decline in the 2nd quarter, the country officially slipped into a recession - the first time this has happened since the Nigerian Bureau of Statistics began to take records. The trend continued in the 3rd Quarter with a further negative GDP growth reported by the NBS. The shrinking GDP was widespread with almost all sectors showing significant decline. The recession was complemented by a continued record rise in inflation which the CBN has failed to control even after several adjustments of the monetary policy rates.

Fourth is the rise of various militant groups in the Nigeria Delta region. The actions of these groups and other vandals have led to the loss of over 130 million barrels of crude oil worth about 3 trillion naira or almost half of the 2016 budget (using estimates of $50 per barrel and an exchange rate of 470 naira/$ between January and October 2016), according to BusinessDay.

Critical has been the government’s policy responses to the various economic pressures in 2016. Most of the responses have been delayed and uncoordinated, with various players in the government singing different tunes. Where response has happened, it has been attempts to command and control, rather than allow markets and process frame the economy. The funding sources available to the government have been greatly limited, and the last bond was severely under-subscribed providing a clear indication of investor sentiments towards Nigeria. This has not been helped by attempts by the government to tighten capital controls which critically include the rights of foreign investors to repatriate profits. Huge regulatory fines on foreign owned firms have also not helped investor confidence.

There were a few positives worthy of mention. The implementation of the treasury single account and the integrated payment system has largely plugged unnecessary leakage in government revenues. The unintended consequence of this implementation however is its impact on government liquidity and speed of disbursement of funds to relevant organs of government. Furthermore, Nigeria’s North Eastern economy is stirring into existence once again following gains against the Boko Haram insurgency.

2016 Review – Security

2016 saw security conditions deteriorate to unprecedented levels with the Nigerian military conducting internal security operations in 35 of 36 states over the course of the year (only Kebbi did not record one form of military deployment or the other).

Northern Nigeria, which comprises the old Northern Region, begins from the boundary between Oyo and Kwara states in the West; Enugu and Benue states in the East, and Edo and Kogi states in the centre and makes up about 79% of Nigeria’s land area. This region has seen various forms of instability in the past decade and its continuing volatility has had a significant effect on migration, food, and the general perception of Nigeria as a  fragile state.

The economic issues facing North Central and North Eastern Nigeria have largely been precipitated by security challenges. Other factors extending beyond these two geopolitical zones include adverse climatic and environmental conditions as well as the region’s human development challenges.

As was witnessed last year, large numbers of the rural population in Borno State sought refuge in various camps for internally displaced persons within the capital, Maiduguri, causing its population to swell. Amidst complaints and protests of poor welfare, the IDPs have nonetheless been left with little choice than to stay there, as many of the towns and villages in the countryside remain under threat of Boko Haram attacks. However, many towns in the region are coming back to life with the populations gradually returning, such as Gujba in Yobe State, Bama in Borno State and Mubi in Adamawa State, with commercial activities slowly returning to pre-insurgency levels.

While the insurgency in the North-East was being tackled, the clashes between Fulani herdsmen militia and local communities in the Middle Belt were still ignored, with  disastrous consequences. Whether it was in Agatu in Benue State or in various parts of Southern Kaduna, it followed a similar pattern: clashes of land and water are followed by either the Fulani herdsmen or the local communities attacking the other, and reprisals are on the rise. This is having a noticeable effect on farming output, and a region which is traditionally Nigeria’s food basket, is beginning to struggle to feed itself.

In addition to these security challenges,  herdsmen in the North-Western part of the country have had to grapple with cattle rustling, resulting in the loss of animal and human lives. It is very likely that the cattle rustlers are  the same armed robbers who pick especially on rural communities, killing dozens and carting away properties, mostly cattle and other livestock.

The combined effect of these security issues has led to large portions of abandoned farmland, as cultivators  have been displaced because of the insecurity -  key contributory factors to the current high prices of foodstuffs and the warnings of food shortage next year from the Federal Government.

In the North East, the military has fought the  Boko Haram insurgency with a great degree of success. However, Boko Haram, even with the loss of almost all of its captured territory, has demonstrated resilience and has shown a capacity to adapt to new circumstances, and attack small villages and military stations, and to also carry out suicide bombings in major urban areas successfully. The terrorists continue to utilise their keen understanding of the terrain, especially as the rainy season drew to an end, to inflict a lot of damage on the military, causing many deaths including that of celebrated war hero, Lt. Col Muhammad Abu Ali. His death was significant because he was responsible for some of the most successful offensive and defensive combat missions on the military side.

Critical is Abadam LGA in Borno which contains the towns of Kaokiri, Duguri, Maitele, Dumba, and Cheku Talia, which are still under the command and control of Boko Haram. These towns are close to the borders with Chad and Niger Republic, and serve as planning bases for the militants. For example, twin explosions on December 9 at a busy market in Madagali, an Adamawa town which straddles the border with Borno claimed scores, according to initial media reports.

Boko Haram has also waged successful attacks on places of worship and on the internally displaced persons (IDP) camps. Previous claims by the FG of a technical victory over the group has been sorely tested by these attacks and the fact that some of the major highways in the far north of Borno still require full military escorts for vital supplies to go through.

While the other North-Eastern states of Adamawa and Yobe that were effectively occupied in large parts by Boko Haram are now largely free, other states in the North Central and North West zones are faced with a rumbling pastoral conflict. The perpetrators of killings, in many cases, Fulani herdsmen, have gone unchallenged in many of the villages they have attacked. Over the course of 2016, they murdered men, women and children, and destroyed property, leaving in their wake displaced and scarred communities. For the most part, the government appeared not to have a solution to this crisis, and attacks have become an almost weekly occurrence in some of the most remote villages that are not adequately protected. This has called into question the role of the Nigerian Police in tackling urban and rural crime. In response, the Nigerian Army set up Operation Safe Haven to tackle this, but not with much success so far.

In the midst of all this Nigeria is facing yet another potential sectarian crisis  with the Islamic Movement of Nigeria (IMN), the Shi'a group. This threat, across such a vast space could be problematic, and could potentially overstretch the army so much that they are unable to contain it. The IMN have made efforts to show their spread, organising marches in locations as far as  Zaria, Kano, Kaduna, Bauchi, and marching on the National Assembly in Abuja. The state has met them, on each occasion, with force. At the start of December, a court ordered the release after a year of incarceration of the IMN's leader, Ibraheem Zakzaky, but as of the time of preparing this report, he remains in detention.

In the South East, the announcement of Operation Python Dance by the military, ostensibly to combat kidnapping and armed robbery during the Christmas holiday, was met with dismay by indigenes. For a region that is heavily militarised and densely populated, the operation was seen as a provocation by most, and we fear that given the history of animosity between the region and the military, something can easily go wrong.

However, it must be said that the southern states, particularly in the South-East and the South-West spent a good deal of 2016 dealing with the menace of kidnappers and militants. A report emerged in June that valued the kidnapping industry at over 2 billion naira per year. This security threat has discouraged investments, social and business activities in these regions. The threat of kidnapping extends beyond the South. The Kaduna axis has become a hub for a flourishing ransom  industry. There have been high-profile kidnappings such as the wife of the CBN governor, Godwin Emefiele as well as an ex-minister who was whisked away from the entrance of the residence of the DSS chief in the North West. Thus far, the security services have met with limited success, and in some cases, policemen have been caught participating in kidnapping rings.

In the Deep South, Niger Delta militants have waged a bombing campaign, targeting Nigeria’s economic lifeblood, oil. Various militant groups have laid claim to the destruction of crude oil pipelines, disrupting oil exports and supply. President Buhari has initiated consultation with the stakeholders of the region in an attempt to address the conflict, but the militants have since continued with their strikes and disruptions. The Nigerian army launched Operation Crocodile Smile, which is yet to record any significant  achievement, in part due to the nature of the terrain.

Finally, a food crisis is looming in the country, with a famine projected by both local and foreign observers in 2017. This, combined with rampaging unemployment and reducing options for the masses portends a huge security risk for 2017.

2016 Review – Oil and Gas

2016 was a challenging year for the Nigerian oil and gas industry. The year started with global oil prices dipping below $28/bbl, and there were genuine fears that it could dip to sub $20 levels. The chart below shows the monthly average of Brent which the Nigerian crude is priced to in the world markets. January was awful, dipping as low as $27 per barrel, and eventually closing at $29.78. As the year went on, prices did improve but no month traded an average north of $50. This caused significant cash constraint for the Nigerian government. The 2016 budget had to be based on a $38/bbl benchmark, compared with the 2014 and 2015 benchmarks of $77.50and $52 respectively.

The activities of militants in the Niger-Delta further compounded misery on the nation’s finances with a series of attacks on various oil facilities, Shell Petroleum and Chevron getting worse hit. The immediate aim of the various groups was clear – cripple the government financially and force them to the negotiation table. They began a series of well-planned and executed strikes at various critical oil facilities. On February 10, 2016 the Bonny-Soku Gas line was blown up, three days later they struck the very important 48 inch export line at Forcados leading to production shut-in of 300kbopd. It took the company several months to bring it back on stream but on June 3 the line was blown up yet again. May and June were pretty turbulent months with multiple hits on Chevron, Shell, Agip as well as NNPC facilities.

Peak production from the period was 2.14mbopd in January before the militants began blowing up everything within reach. At various times there force majeure was declared in more than one export terminal. The NNPC released figures in November which showed losses of about $420 million. All arising from the activities of the militants.

Nigeria also recorded the lowest rig count in the last decade in 2016. Hence not only were oil prices low and militant activity high, investments into the sector were not happening.

Efforts were made by the Nigerian Government to enter into dialogue with the leaders of the militants and indeed the leaders and elders of the Niger-Delta region which resulted in a ceasefire. This was short-lived however as by the time the year was drawing to a close, the militants were back blowing up more oil and gas installations.

For us Dr. Ibe Kachukwu has been the brightest star in all of the chaos that rocked the government in 2016. Crippling fuel scarcities at the beginning of the year were resolved, and there has been no scarcity since May. The minister of state for petroleum has also done some commendable work in restructuring the NNPC, and has brought about some level of transparency. He has led the drive for much needed investment in the sector. He has also faced the gas sub-sector with a draft National Gas Policy which aims to open up the Nigerian gas sector. His diplomacy was also critical in OPEC reaching a deal which has seen oil prices rise whilst Nigeria received an exemption from expected cuts in production.

Overall it was a tough year in the industry, with no significant FIDs reached, IOCs cutting jobs, challenges in repairing vandalized infrastructure to ensure oil kept flowing. But, Kachikwu gets top marks for keeping it going.

2016 Review – Jobs

From foreign exchange controls, the possibility of new and even more intrusive tax regimes on the horizon, to a wider credit squeeze to the wider economy, Nigerian businesses have been given several body blows by its own government in addition to facing the impact of three straight recessionary quarters in 2016. According to the National Bureau of Statistics, the number of people that were unemployed or underemployed increased from 24.4 million as of the end of the first quarter to 26.06 million persons in the second quarter. Further analysis of the report revealed that between the third quarter of last year and the second quarter of this year, the number of those that are unemployed has risen by 4.5 million. For the first quarter and second quarter of 2016, the NBS said an additional 1.45 million and 1.16 million people joined the labour force thus bringing the total number of those unemployed to 9.48 million and 10.64 million respectively for both quarters. The unemployment rate was recorded at 13.3 percent in second quarter of 2016, up from 12.1 percent in the three months to March, reaching the highest since 2009. Meanwhile, youth unemployment increased to 24 percent from 21.5 percent. As context, it is worth noting that the unemployment rate averaged 9.28 percent from 2006 until 2016 according to Trading Economics, reaching an all time high of 19.70 percent in the fourth quarter of 2009 and a record low of 5.10 percent in the fourth quarter of 2010, hardly stellar numbers by any standard, but certainly not as dismal as the 2016 figures have consistently been. Nigerian businesses have been forced to adjust to react to the new normal by shedding jobs –lots of them.

These cuts have been broad based and wide ranging. SBM Intelligence tallies of third-party reports and other data sources reveal job losses at about 495,000 across various formal sectors – a number which we believe significantly understates the extent of job losses in the economy, because of denials by companies. Some of the most significant cuts have been in sectors that have traditionally performed well since the country returned to democratic rule – banking, oil and gas and telecoms. After Nigeria’s commercial banks laid off an estimated 3300 employees in the first half of the year, investor anxiety rose about the health of the nation’s banking sector. Labour and Employment minister, Chris Ngige admonished big finance to “obey all laws of the land, including labour laws concerning redundancy.” The most biting cuts however, have been in Nigeria’s ailing manufacturing sector.

About 50 major manufacturing companies had either closed shop or relocated to neighbouring countries, at the cost of at least 180,000 jobs, according to the Manufacturers Association of Nigeria (MAN). The association stated that the foreign exchange controls by the Central Bank of Nigeria on 41 items on a now infamous ‘restrictions list’ have had the effect of crippling the sector. Two of the nation’s largest industrial employers, Erisco Foods, a tomato paste maker, and Innoson Manufacturing, a vehicle manufacturer, have announced wide ranging job cuts.  Erisco, once touted as a Nigerian success story has revealed plans to relocate to Ghana or even China. Another bright light in Nigerian manufacturing, steel pipe maker, SCC Nigeria Limited announced plans in November to close its 280,000 MT Ushafa plant amid slowing orders from clients even as the National Union of Iron and Steel Workers stated that over 3,000 of its members have lost their jobs since 2015.

2016 Review – Organised Labour

2016 was a year of failure for organised labour despite various groups embarking on series of industrial actions.  First, the Nigeria Labour Congress organised a Nationwide strike on 18th May with the following demands being made to the federal government:

i. Revert to the old PMS price

ii. Reverse the electricity tariff increase, make meters available to consumers and stop estimated billing

iii. Reconstitute the boards of PPPRA and NNPC

iv. Intensify the prosecution of all those involved in subsidy scams with a view to recovery and sanctioning of the culpable

v. Put in place enhanced local refining capacity within a specified period in place of endless importation

The strike action was a total failure as they got little buy in from Nigerians who hitherto had been suffering long hours at the petrol stations because petroleum marketers had failed to import, lift or supply PMS at the old price.

The National Association of Resident Doctors in teaching hospitals was the second union to embark on a nationwide strike in the past year. Their strike began on 20th June to protest the refusal of the government to pay 10 months salaries for some of its members, and improve their working conditions. The federal government decided to play hard ball and released a circular on 21st June communicating the sack of all striking doctors. The association promptly called off the strike and returned to the negotiating table. Also in June, the Joint Health Sector Union went on a 7-day warning strike to protest against the federal government’s jettisoning of agreements.

A month later the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) went on strike to protest some issues including the following:  poor state of refineries; continued importation of petroleum products; reforms in the oil industry, the restructuring of the NNPC and   the non-passage of the Petroleum Industry Bill (PIB). The strike action was called off within a week.

With respect to the academic community, 2016 was a relatively quiet year, though there were several threats by the Academic Staff Union of Universities (ASUU) which eventually embarked on a week-long warning strike in November, and the Academic Staff Union of Polytechnics which had earlier threaten to embark on a nationwide strike in August but claimed later on that the federal government had begun showing “signs of seriousness.”

In all one can say the Buhari administration had the upper hand over organised labour in 2016. Only time will tell if the trend continues.

2016 Review - Politics and Democracy

2016 saw a reversal of many gains made in the electoral system in the 2015 general elections. There were several elections which were declared inconclusive with electoral violence in the lead up to and during the vote.  However, there were noticeable improvements in the Ondo and Edo polls  which occurred in the last quarter of the year.

Key political events in 2016 include the troubles in the National Assembly with the leadership of  the Senate vigorously contested in different courts and at the Code of Conduct Tribunal as well as the accusations of the House of Representatives  leadership by the former chairman of the Appropriations  Committee , Abdulmumin Jibrin which led to his suspension. The end result of this was uncertainty in the legislature and precious little movement on the important work of passing much needed bills into law, including critical ones like the Petroleum Industry Bill.

President Buhari’s political goodwill has fast eroded and the ruling party has been rocked with factionalism and infighting within and outside the government, at the national and sub-national levels. The President himself has been accused by no less a person than his wife of alienating the party faithful responsible for his victory and surrounding himself with “newcomers”, an accusation that is echoed by other members of the APC.

The PDP has not fared well in its new role as the opposition. It failed to win any new states and has lost Ondo in 2016. The decision to invite factional chairman, Ali Modu Sherrif into the party has turned out to be a terrible one in hindsight. The party’s factions have instituted multiple court suits on this matter, and the infighting has prevented any concerted and coordinated approach to providing a robust opposition to the APC, which has given ample opportunity for them to do so. The PDP goes into 2017 significantly weaker.

The fight against corruption moved into relatively uncharted territory over the course of the year. In October, the Department of State Services entered the homes of some senior members of the Nigerian judiciary – including two Supreme Court judges - in a coordinated, nationwide raid which culminated in a host of arrests, the institution of bribery and corruption charges against them (which brings up important questions about human rights and the Judiciary’s potential conflict of interest in trying some of its own) and breathless media commentary on what it means for the executive’s effort at ensuring clean and responsible governance in Nigeria. It is worth noting that the actions of the secret police received near unanimous condemnation from the legal community. By November, the DSS raided the offices of select bureau de change operators in Lagos and Abuja in a belated and desperate attempt at keeping a lid on spiralling forex rates at the parallel market, an action which the administration said was done in the “interest of national security” and in concert with the central bank. These two events proved the current administration’s growing appetite for deploying its intelligence apparatus into controversies that many observers feel should be within the ordinary jurisdiction of the police (judicial corruption) or financial regulators (BDCs). The expanded role of the DSS in 2016 stoked continued fears that the administration was undermining two of the key cornerstones of constitutional democracy – the commitment to separation of powers and judicial independence, and its electoral commitment to abiding by the rule of law.

2016 Review – Power

2016 was supposed to be a transitional year for the power sector in Nigeria. At the end of 2015 the problems that faced the sector were well known. The issues included inadequate fuel supplies (primarily natural gas) for some power generation stations and a constrained transmission network that were limiting the amount of energy that could be delivered to households as well as a shortage of installed meters which left plenty of power consumers paying electricity bills for inaccurate, estimated consumption. In addition, electricity tariffs that were too low meant that distribution companies (Discos), responsible for ultimately delivering electrical power to end users, could not adequately pay for electricity they purchased from power generation companies (Gencos). Discos also complained of almost 200 billion naira in unpaid bills from mostly government and its agencies, severely hampering cashflow and ability of the Discos to invest.  The combination of these issues meant that power supplied to households continued to be inadequate, consumers were frustrated with bills for estimated consumption, and operating companies in the sector were increasingly reluctant to make investments required to improve service delivery.

The power minister, Tunde Fashola, recognized most of these issues in his inaugural media briefing in December 2015, and provided an initial overview of his approach to solving them. In a detailed policy speech in May 2016, he refined those ideas and set out a roadmap to solving the issues in the industry. Strangely, the roadmap was lacking in specific milestones or timelines, a clear attempt by the minister to avoid being held to account for missed milestones or slips in schedule of the roadmap. Unfortunately, the end of 2016 sees the industry largely in the same position that it was at the end of 2015 despite best attempts by stakeholders to resolve the issues. Inadequate power, frustrated consumers and unpaid bills continue to be the hallmarks of the sector.

Gas supplies to power plants that had been steadily increasing at the beginning of the year dropped by a massive 55% from 734 mmscf per day in January to 327 mmscf per day in June and remained limited through most of the year due to the bombing of pipeline infrastructure in the Niger Delta region by the Niger Delta Avengers militant group. The incidents have not fully abated, despite a seeming truce reached between the federal government and the group, further inhibiting the amount of electrical power that can be delivered to households.  Improvement in the transmission network has also been marginal. Transmission Company of Nigeria, the Federal Government of Nigeria owned operator of the transmission network, needed about 205 billion naira in 2016 to fund grid reinforcement and expansion projects. However, only 30 billion naira was provided for the company in the 2016 budget. Even as the year comes to an end, it remains unclear how much has actually been released by the treasury. Promised funding from the African Development bank of about 61 billion naira over two years remains undisbursed. Notwithstanding the commissioning of key transmission projects in Ikot Ekpene recently, efforts to remove constraints in the transmission network have to be stepped up by significantly increasing funding to TCN.

Another key action taken in 2016 included a 45% increase in the average tariffs in February 2016 for most classes of consumers. However, the price increase was not enough given analysts estimated that a price increase of about 70% was required to meet desired objectives. The shortfall was to be financed mainly with subsidy from the federal government. This did not materialise due to falling oil receipts. A back up plan to acquire loans from commercial banks also fell flat because the inefficiencies in the privatised power sector has made the Deposit Money Banks unwilling to provide loans to Gencos and Discos. Simply put, electricity firms will have a tough time convincing a bank credit committee about the viability of their business.  The devaluation of the naira in June and the accompanying scarcity of forex has made what was a difficult position even worse for power sector operators  who saw an increase in the dollar benchmarked cost of electricity purchased by the Discos from Gencos as well as in increase in the cost of importing meters and other equipment.

Closely related to the issue of low electricity tariffs is the lack of adequate metering. Despite a promise by all Discos to install a total of 851,000 meters before the end of 2016, only about 161,000 (about 19%) had been installed  at the end of November. Discos planned to achieve their metering targets by raising loans from the bank which would be paid back gradually through a cost reflective tariff. However, this has proven difficult to achieve largely as a result of two reasons: low tariffs and huge debts. This ‘old’ debt was incurred when the new Disco operators raised loans to pay the federal government for majority stakes in the Discos during the privatization process.

2016 Review – Education

Education is in a bad state in Nigeria, and has been deteriorating long before 2016. The curriculum is poor and unresponsive, teachers are unmotivated and lack the required skills. This shows in the results.

Sadly, 2016 seems to have raised the bar on our backwardness in education.

We started on a poor footing with the February 13, 2016 sack of thirteen Vice Chancellors of universities, the mass sack of the governing councils of universities, and the dissolution of the government boards of universities. This action was a reminder of the military days.

When President Muhammadu Buhari apologized for this action, he said, “We gave a blanket order which we had to rescind when we said all boards are suspended or dissolved. We had to go back and lick our vomit in terms of university boards because we found out that according to their laws, they cannot choose Vice Chancellors unless the Boards sit down, interview prospective candidates who wants to be VCs. So, there is nothing wrong in saying sorry and going back on your decision. So, we said sorry and allow all the universities to continue with their boards.”

In 2016, several universities were shut due to agitation about the poor state of ‘Municipal services’. The Academic Staff Union of Universities (ASUU) went on a one week warning strike during the year. Of course, several Nigerians continue to send their children abroad for higher education. The former governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi, said, “there are about 71,000 Nigerian students in Ghana paying about $1 billion annually as tuition fees and upkeep, as against the annual budget of $751 million for all federal universities.”

It seems the situation has worsened.

2016 also saw the licensing of some new universities. Then some university administrators were accused of, and had court cases related to corruption

There were a lot of policy changes by the several MDAs in education. The most notable was from JAMB about admissions into universities. The saddest happening in education in Nigeria in 2016 was the lowering of the cut-off marks for admission below 180 marks, out of 400. This is perhaps the worst we have had.

Primary education remained backwards in Nigeria,  we still have the worst performances in the world in having out of school children. In 2016, our primary education system was ranked the worst in the world, for the second year running!

Globally, there are 61 million children (typically aged 6-11 years) who are not enrolled in school. Six countries are home to more than one-third of all out-of-school children: Nigeria has 8.7 million out-of-school children of primary age, followed by Pakistan (5.6 million), India (2.9 million), Sudan (2.7 million), Ethiopia (2.1 million) and Indonesia (2.0 million).

There are a few silver linings. Some state governments have seen flashes of encouragement. Oyo State for example developed a new education Policy. Lagos started massive reforms in libraries, and has started coding camps for children. Kaduna passed a law to made education compulsory while some states are working with UNICEF on the  Female Teachers Scholarship Scheme. Sokoto declared a state of emergency in education, and for the first time in Nigeria, passed the Right to Education as a law.

However the Local Government system, the owners of the public primary education system have chosen generally, to remain backwards.

It is noteworthy that the Nigerian education policy was released in 2004. Till date, we have neither built on it, nor made an attempt to develop one. How do we develop with an outdated education policy?

Summary of 2017 predictions

•          Nigeria will reach a deal with Niger Delta militants in 2017, but investment in the oil and gas space will remain constrained.

•          Some IS remnants may make their way to ISWAP, leading to faction fights within Boko Haram, more violence to civilians, and an elongation of the insurgency.

•          The pastoral conflict in the Middle Belt will intensify, communities will band together to resist these attacks, or in some cases, groups will take the laws into their own hands further affecting economic activity, and increasing costs.

•          IMN will evolve into the early stages of open insurgency at some point in 2017.

•          There will be at least one mass pro-Biafra rally in the South-East which will end in a bloodbath.

•          Kidnapping and armed robbery will escalate, and more policemen will be involved.

•          More attacks by cattle rustlers and bandits on herdsmen and villages in the North-West.

•          If Nigeria is able to pay, the Donald Trump administration will ignore the Leahy Act and sell weapons to us.

•          The Boko Haram insurgency has changed the face of the North East as during re-population, people will seek security in numbers. Small villages will struggle to get people to return.

•          Oil price gains will be short term, and will end 2017 around 2016 year end levels.

•          If the OPEC deal holds through the end of Q1, Nigeria could come out of recession by Q2.

•          In early 2017, the CBN will have access to more dollars and will attempt to increase supply to drive the exchange rate down. However, when the oil price plunges again, the FX situation will worsen and the parallel market rates will cross the 500 naira mark and close the year closer to 600 naira to a dollar.

•          The 2017 budget performance will be just as poor for capital spending, as the 2016 budget has been.

•          Expect continued direction of FX policy for political reasons from Aso Rock.

•          Power tariffs will be increased again in 2017, but not by much as government will want to avoid a political backlash. This will mean that the FG will end up subsidising the Gencos. We will not meet the 10,000 MW mark.

•          Food costs will continue to rise, and Nigeria may resurrect the 1980s era regime of essential commodities.

•          The hollowing out of Nigerian manufacturing and job losses in the wider economy will continue well into 2017. N-Power and other such schemes will have a limited effect on the job numbers.

•          As the FIRS struggles to meet revenue targets in an environment of dwindling economic activity and the tax amnesty it has given elapses, it will go all out to collect tax and prosecute defaulters aggressively.

•          The government will be left with no choice but to increase the price of petrol. The unions will react, this time with the support of the people, and the opposition, both the official opposition, and that within the APC will take advantage of this, denting President Buhari's popularity even in the North East and North West.

•          MTN Nigeria's listing on the NSE will do little to positively impact the market. The ASI will continue to decline through 2017, but at a slower rate.

•          The appetite for AMCON to intervene in bad banks will be reduced in 2017.

•          Prosecutorial agencies will continue to exhibit a trend where they interpret their establishment laws to arrogate new powers to investigate and prosecute targeted politically exposed persons.

•          The gains made in vaccination and roll back of illnesses like malaria and infant diseases will be negatively impacted as the medicine shortages increase.

•          The PDP will enter terminal decline in 2017.

•          Following political realignments in the APC, a cabinet reshuffle will happen that will reflect new political realities. The dismissed ministers will be the scapegoats for government failures.

•          There will be further use of state security agencies to settle the more pronounced political scores in 2017.

Conclusion – What life will look like for the average Nigerian?

2017 is a year that will start off tough for the Nigerian state and we have not seen signs that the current government understands this, or has taken cognisance of this in their planning. It appears to us that the government has pinned all of its hopes on oil prices rising. While we predict that this will happen in a short window and provide some respite, this will be short-lived especially considering the fundamental crisis of confidence the government’s actions and policies have created in 2016. This, coupled with the instability that the security issues will create makes the outlook for the Nigerian state a gloomy one.

2017 is a year in which the average Nigerian will be forced to cut down. The key mantra will be to conserve cash, and cut down on excess spending as things get tighter. Where payments can be structured so that they can be made in instalments over time, most will vigorously pursue this option in order to manage cash flow. Opportunities will present themselves to pick up assets for below market prices as people try to raise money, and it is those who have conserved their cash that will be in a position to take advantage of such opportunities.

It will be important to attempt to create, and grow, additional streams of income as we predict that there will be more job losses. Key investments in enhancing job skills and alternate skills will be important as employees seek to improve their productivity and raise the chances of retaining their jobs.

Safety and a security consciousness will become the watchword as we crime such as kidnapping and armed robbery will rise as people become more desperate to make ends meet.

The urbanization trend will continue, driven by security concerns as well as economic pressures, and delivering goods or services to the growing urban population who typically move to the fringes of the urban centres initially will provide such opportunities.

The average Nigerian will also find healthcare more challenging and will need to be wary of fake drugs. Maintaining a healthy and fit lifestyle to avoid illness will be an advantage.

Disclaimer

The data contained in this report is only up-to-date as at Thursday, 8 December, 2016. Some of it is subject to change during the natural course of events. SB Morgen Intelligence cannot accept liability for any errors or omissions that may follow such events which may invalidate data contained herein.

Our researchers employed such methods as one-on-one interviews, desk research, focus groups discussions and polling to collate the available data. Our editors sifted through the data and prepared the report, using various proprietary tools to fact-check and copy edit the information gathered.

All forecasts were built using data from a variety of sources. A baseline of accurate and comprehensive historic data is collected from respondents and publicly available information, including from regulators, trade associations, research partners, newspapers and government agencies.

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