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THISDAY, THE SATURDAY NEWSPAPER • OCTOBER 22, 2016
PERSPECTIVE Nigeria Stumbles Into Q4 Lukman Otunuga
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rolonged periods of depressed oil prices have punished most oil export dependent countries in 2016 with Nigeria being no exception. When one factors in that the nation receives over 90% of export and 70% government revenues from oil which is currently struggling below $50 a barrel, it could be understood why the world’s second largest economy in Africa has entered a technical recession. This has been a rough year for the economy with the CBN taking action on various occasions from the Naira de-peg, to raising interest rates to record highs in a bid to reclaim some stability. Despite the attempts, unemployment still lingers around 13.3% while inflation skyrocketed to 17.6% in August consequently enforcing additional pressures on the nation already engaged in a painful battle with falling oil. It has become increasingly clear that Nigeria’s illness can be diagnosed as oil reliance, but the cure can be found in diversification. The Naira continues to be exposed to downside risks as the terrible combination of oil price volatility and Dollars potential resurgence amid US rate hike expectations entices sellers to attack. With sentiment towards the Nigerian economy still somewhat bearish in the shorter term, further declines could be expected in the local currency as the natural forces of supply and demand determine its equilibrium value. It should be kept in mind that the ongoing forex scarcity which continues to pressure the Naira has created a firm foundation for bears to install repeated rounds of selling. There exists a possibility of the Naira strengthening in the longer term but the currency remains heavily exposed to external risks in the short term. From a technical standpoint, the Naira is heavily bearish and this negative momentum could open a path
Adeosun towards 500 and potential higher against the Dollar on the black market exchange. While the effects of the Naira floatation can be displayed with the sharp drop in currency value and rising inflation, this has also bolstered foreign investment towards the nation. Since the introduction of the flexible foreign exchange regime, almost $1 billion has entered the country from foreign direct investments with further inflows expected if the Naira continues to decline. Market participants may focus on the pending inflation figures for September which could provide additional clarity over if the Central Bank of Nigeria takes further action in 2016. With the economy still under pressure, the CBN may be entangled in a three-way battle with attaining growth, curbing inflation while also retaining some credibility. There have been many discussions over the record high-interest rates of 14% repelling
business to borrow consequently obstructing GDP growth, but with central bank caution remaining a recurrent theme, the CBN may be on standby before taking action in November or December. Nigeria is in need of capital to boost its economy and this has sparked talks of the nation selling its national assets to calm investors, curb currency speculations and potentially stabilise growth. With the government receiving very little from depressed oil prices and the obstructions in the south depleting production even further, selling the assets could be a solution in the short term. Many have been against the idea of relinquishing the assets and have labelled it as a quick fix which could leave the nation under further pressure in the longer term. With oil prices trading below $50 and the persistent uncertainty over the conflict in the south of Nigeria weighing on sentiment, this may be an unfavourable period to offload oil assets. When coupled with the state of the economy, the government could find itself in a position of weakness when selling potentially receiving a deal well below the true value. The world’s second largest economy in Africa faces a dilemma between selling its national assets and borrowing externally to retrieve enough investments to jumpstart growth. It should be kept it mind that diversification and reinforcing infrastructure need capital which the nation does not possess consequently creating a situation where a decisive decision must be taken. While Nigeria may be commended on its efforts to boosting foreign exchange investments via the floatation and tax reforms to bolstering government revenues, this is still far from the 15 billion needed to fuel its structural transition. The African Development Bank, IMF, and even China have all offered loans to help reinvigorate growth but it seems that the nation has decided to think things through before potentially taking action in 2017. Despite the current gloom and doom,
the longer term outlook for Nigeria still looks quite encouraging with the biggest challenge being how the nation weathers the uncertainty and external risks in the short term. With a population of over 180 million and fertile lands, agriculture could be the miracle pill which brings Nigeria back to health. Once the nation can feed its people, the surplus could be exported which could provide the revenues needed for the government to reinvest back into the economy. If the infrastructure is reinforced then tourism could receive a welcome boost as safer roads magnetise tourists to the nation. Nigeria’s untapped maritime is a hidden gem that has been estimated to generate roughly N7 trillion annually if properly managed and could be one of the attributes which reflate the economy. The resources needed for Nigeria to steer away from oil dependence are present and the key may simply be proper management and time. As Q4 commences, Nigeria may be slightly pressured if oil price volatility and a resurgent Dollar punishes the Naira further. Although OPEC shocked the global markets last week by deciding on an agreement to mitigate the oversupply woes, oil still remains somewhat pressured potentially trickling back to oil export nations. If the Federal Reserve decides to raise US interest rates in December then both the Naira and Oil could be vulnerable to heavy losses as bears install repeated rounds of selling. There could be an increasing focus on key domestic economic reports such as inflation, unemployment, and GDP for further clarity on how the Central Bank of Nigeria may jumpstart growth. This is a very critical time for Nigeria and although diversification is the key for the nation to transition away from oil dependence, many will be observing where the funding will come from. –Otunuga is Research Analyst at FXTM.
FCTCouncil Defends Power to CollectTenement Rates Olawale Ajimotokan in Abuja
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he Abuja Municipal Area Council (AMAC) has insisted it has the constitutional backing to collect the contentious tenements rate from house and business premises owners. AMAC Chairman, Abdulahi Adamu Candido, echoed this view at a media parley in the wake of the pronouncement of the National Assembly Committee on FCT that the council should cease from further collecting the rates from the public. Candido insisted that the local government Act of FCT 2006 and the Taxes and levies (Approved list of collection ) Act 2004, as well as the AMAC Tenement rate collection Bye Law 2012
also lay underlined the council’s claim. He said he would defend the constitution of the Federal Republic of Nigeria and also appealed to all institutions and individuals occupying offices to strictly respect. He said that AMAC had the power to collect, demand and enforce compliance in respect of to the payment of tenement rates within the area under the coverage of the council in accordance of Section 7 and 10 the fourth schedule of the Nigeria of 1999 as amended. Candido also referred to previous judicial pronouncements, particularly the judgement delivered by Justice D.Z Senchi of the FCT Federal High Court on February 27, 2013 and the Appeal Court ruling made on May 12, 2014 in the Abuja Division, that
expressly recognised and validated the legality of AMAC as a tier of government constitutionally and statutorily empowered to collect tenement rates within the area under the coverage of the council. “As far as the municipality of Abuja is concerned, it is only AMAC that is mandated by the law of the land to collect tenement rates. We swore to defend the constitutional responsibility and will explore talks with the National Assembly that recently suggested the stoppage of this collection. There is no organisation and institution that can protect the sanctity of the constitution than the National Assembly,’’ he said. Candido similarly objected to the policy initiated by a former Minister of Federal Capital Territory, Malam Nasir
El- Rufai, outlawing the council from collecting tenement rates. He said the policy is arbitrary and in violation of the constitution. He also said the then minister intimidated and arm-twisted the previous administrations into arrangements that were against the interest of the council. He insisted the council was not under any obligation to respect the law unilaterally imposed by an individual, adding that the federal law is supreme and above personal and institutional interest. ‘’We respect the authority of persons and the offices but the supremacy of an individual cannot be above the constitution of the land. My administration is not under any obligation to bow to the laws set by one person, ’’ Candido said.
FIRS Shuts Companies Over N368m Tax Debt
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usiness activities were, on Thursday, grounded in some companies in Lagos, Enugu and Abuja, as the Federal Inland Revenue Service (FIRS) enforcement teams closed their premises over tax debts totaling N368.11 million. In Yaba, Lagos, the office of Courteville Business Solutions Plc, was shut over a
tax debt of over N313 million. A company official told the FIRS team that he was aware of the company’s debt, but not sure of the exact amount. He explained that the company’s Group Managing Director was not available to clear up the matter, an explanation ignored by the enforcement team which ordered staff to vacate the office building for it to be sealed.
In Enugu, the office Afri-Hub, an Information Communication Technology firm, situated at the Institute of Management and Technology, was similarly shut. The company owes N2.54million. The agency’s enforcement team led by Ruth Mandeun said the exercise was not a witch-hunt, but to recover tax debts.
In Abuja, two engineering firms were shut-down at Apo by the FIRS. HeriProm Engineering limited was sealed for owing N32.3million. Equally sealed was the office of De-Tither International Limited, which has a tax liability of N20.2million, made up of income tax, withholding tax and education tax from 2008 to 2013.