A Week in Nigeria: 27 September

Highlights from Reuters coverage of Nigeria over the last seven days

The interest rate cut announced by Godwin Emefiele was the second of the year

In this week’s round-up: central bank cuts main interest rate in surprise move, general strike looms, Buhari to send long-awaited oil reform bill to parliament and pandemic forces Nigerians to embrace digital banking.

• Nigeria’s central bank cut its benchmark lending rate on Tuesday by 100 basis points to 11.5% in a surprise move aimed at stimulating growth in Africa’s largest economy. Nigeria’s economy, badly hit by the coronavirus pandemic, contracted 6.1% in the second quarter and now faces a possible recession in the third quarter, with the government expecting the economy to contract by as much as 8.9% this year. Low oil prices have also taken their toll on the continent’s top producer, which relies on crude sales for 90% of foreign exchange earnings. Central bank governor Godwin Emefiele said six of the 10 members of the monetary policy committee voted for the cut, one for a 50-point reduction and three for holding the rate. Loosening monetary policy “would complement the bank’s commitment to sustaining the trajectory of the economic recovery and reduce the negative impact of COVID-19”, he told a news conference. Emefiele said the cut aimed to force banks to lend to help the economy despite rising inflation. He said inflation was mainly due to supply side constraints, adding that cheaper credit to the domestic economy would stimulate growth. The central bank has said it aims to maintain inflation within a target range of 6% to 9%. But annual inflation rose in August for the 12th successive month to a more-than two-year high of 13.22% as the pandemic disrupted the supply of goods and services. In May, the bank cut the rate by 100 basis points to 12.5% — the first reduction since March 2019 and the largest since 2015. The bank’s monetary policy committee voted to hold the rate at its last meeting in July. Tuesday’s rate cut came as a surprise to many analysts. “Given Nigeria’s budgetary pressures, creating an environment that is more conducive to local financing of the deficit is understandable,” said Razia Khan, chief economist for Africa at Standard Chartered bank. “There will be no immediate inflation relief, however well-intentioned the policy.” The naira could weaken on the black market next week, we reported in the weekly look ahead at African currencies.
• Citing four sources familiar with the matter, we reported that President Muhammadu Buhari has signed a long-awaited oil-reform bill and it will be formally presented in the Senate as early the coming week. The legislation has been in the works for the past 20 years, and the main laws governing Nigeria’s oil and gas exploration have not been fully updated since the 1960s because of the contentious nature of any change to oil taxes, terms and revenue-sharing within Nigeria. But reforms and regulatory certainty became more pressing this year as low oil prices and a shift towards renewable energy made competition for investment from oil majors tougher. The alignment of both chambers with Buhari’s All Progressives Congress party has also given the reforms the best chance of passage in years. Buhari officially signed the bill late last week, and his team has already been building support for it in the National Assembly.
• Nigeria’s main labour unions said they will begin an indefinite strike from Monday to protest an increase in power and petrol prices after a meeting with the government two weeks ago ended in a deadlock. The Nigerian Labour Congress, which represents millions of workers across most sectors of Africa’s biggest economy, including parts of the oil industry, plans to embark on a general strike starting next week, leader Ayuba Wabba said. A reversal of the petrol and power price hikes would avert the strike, Wabba said in a statement. Nigeria cut costly subsidies this month to allow the petrol price to move with the market and hiked the power tariff. President Muhammadu Buhari has said the increases were crucial because the country could no longer afford the subsidies. The country has been under pressure for reforms from international lenders such as the World Bank to qualify for budget support loans after the novel coronavirus triggered an oil price crash that slashed the government’s income. Cheap fuel prices have long been seen by many in Nigeria as a benefit of living in an oil-producing country. Previous attempts to eliminate subsidies were scuppered after riots ensued. The country’s airports could shut down on Monday as four key unions said they would also join an indefinite nationwide strike. The signatories included National Union of Air Transport Employees, the National Association of Aircraft Pilots and Engineers, the Air Transport Services Senior Staff Association of Nigeria and the Association of Nigeria Aviation Professionals. Trade unions have said the increase was ill-timed because the coronavirus pandemic had created economic hardship, with businesses forced to cut jobs. A recession also looms after the economy contracted in the second quarter. Nigeria has been struggling to boost revenues to fund its record high budget after a crash in the price of oil, its main export. In February, the government raised the VAT to 7.5% from 5% to boost tax revenues, seen as among the lowest in the world. The unions said the hike would worsen inflation, which is in double digits, and could erode a recently agreed national minimum wage.

• At least 28 people were killed on Wednesday when a gas tanker exploded in the central Nigerian state of Kogi and started a blaze, a road safety agency official said. Bisi Kazeem, spokesman for the Federal Road Safety Corp (FRSC), said nine children were involved in the accident, which happened opposite a petrol station along Lokoja-Zariagi highway in the state. State governor Yahaya Bello said in a statement the accident led to loss of lives and destroyed many vehicles, properties and other valuables in the tanker fire. Traffic accidents are common in Nigeria, where roads are bad and safety standards poor.
• British prosecutors launched an attempt to confiscate £30.8 million ($39.3 million) from a London lawyer who assisted Nigerian politician James Ibori in looting and laundering funds from the oil state he governed. Bhadresh Gohil was convicted in 2010 of 13 counts of money-laundering and other offences linked to his role in the case of Ibori, who was governor of Delta State in southern Nigeria from 1999 to 2007. Gohil was sentenced to 10 years in prison. Then a partner at a firm in the London district of Mayfair, Gohil had helped Ibori channel stolen funds through shell companies and offshore accounts, and buy assets such as an English country house and a $20 million private jet — although police caught up with the men before the jet was delivered. Gohil also masterminded a fraud in which $37 million in fake consultancy fees was stolen from two Nigerian states in connection with the sale of their stakes in a telecoms company. With its highly developed financial and legal services industries, Britain has long been a favoured destination for people seeking to launder dirty money. Banks have been fined and scandals revealed by leaks such as the FinCEN and Panama papers, but it remains unusual for direct beneficiaries such as Ibori and Gohil to be held to account. Ibori was extradited to Britain in 2011, and in 2012 was convicted of 10 counts of fraud and money-laundering and jailed for 13 years — a rare instance of a senior Nigerian politician serving time for plundering public funds. Britain hailed the case as a landmark in the fight against corruption and pledged to return stolen funds to Nigerian state coffers. But confiscation proceedings against both Ibori and Gohil have dragged on for close to a decade, repeatedly delayed by appeals and complications.

• The head of Poland’s Auschwitz Memorial wrote to Nigeria’s president offering to serve part of a 10-year jail term handed to a 13-year-old boy for blasphemy. Piotr Cywinski requested a pardon for Omar Farouq, who was accused of making blasphemous statements during an argument and sentenced by a sharia court in Nigeria’s northern Kano state last month. If a pardon was not possible, Cywinski said he and 119 other volunteers would take on the boy’s punishment and each spend a month in a Nigerian jail. As the director of a memorial to a place “where children were imprisoned and murdered, I cannot remain indifferent to this disgraceful sentence for humanity,” he said in the letter to President Muhammadu Buhari, posted on the Memorial’s Twitter account. Two spokesmen for Nigeria’s president declined to comment on the unusual intervention on Saturday. The presidency has not commented on the sentence that was condemned by rights groups. The U.N. children’s agency UNICEF last month said the sentence was “wrong” and went against international accords that Nigeria had signed. A special adviser to the governor of Kano said he had seen the letter on social media.

• And we reported on how social distancing restrictions have caused lengthy queues at banks that have pushed cash-loving Nigerians to embrace digital banking services, with the long waiting times exacerbated by restrictions on the amount of dollars that can be withdrawn. A new breed of digital banks, without physical branches, say they have had a boost due to the pandemic. Kuda Bank, a digital-only bank launched in August 2019 with 500 customers, said it tripled its daily adoption of customers in a trend that began during lockdown in Nigeria’s main cities — Lagos and Abuja — from late March until early May. The bank’s chief executive officer Babs Ogundeyi said it had taken on around 3,000 customers a day from April, compared with just under 1,000 a day before. “We expect the growth to remain,” said Ogundeyi, adding the pandemic forced many to overcome concerns about the safety of online transactions in a culture where a fear of financial internet scams has made people wary of abandoning cash. Uzoma Dozie, CEO of Sparkle, a digital bank launched in June 2019, said the digital only business model was more cost-effective. “Seeing the impact of COVID and the fact that we might see a second wave or other pandemics tells us that we need to build resilience into our businesses, and that means being digital,” he said. Nigeria’s traditional banks have also seen an increase in digital transactions. Local bank Fidelity said 87% of transactions in the second quarter of this year were made on its digital platforms, compared with 82% in the whole of 2019. Guaranty Trust Bank said the number of people making payments using codes sent via text message rose between December and June from 6.1 million to 6.7 million. Peter Mushangwe, a banking analyst at ratings agency Moody’s, said Nigerian banks were “pursuing digitalization quite vigorously” in a bid to attract more deposits to increase the proportion of their income from fees as income from interest makes up around 70% of their total income.