NIGERIA: After the budget is signed, better news about the numbers | Africa Confidential

Wednesday, June 21, 2017

by Business Council for Africa

By Patrick Smith
Editor of Africa Confidential 

We start in Nigeria on a rare high note – at least on the economic plane – and then go to Tanzania, where President John Magufuli's government is stepping up his campaign of resource nationalism. In South Africa, President Jacob Zuma is also playing the resource nationalist card while in Germany, Chancellor Angela Merkel sees great potential for a more constructive relationship between Europe and Africa.

NIGERIA: After the budget is signed, better news about the numbers
In stark contrast to the febrile political climate, the economic data in Nigeria are looking at their most positive since President Muhammadu Buhari came to office two years ago. Some of that is due to longer-term trends: oil prices have strengthened and production is up while investment in farming and agro-processing is beginning to pay off.

Shorter term factors are also helping. Vice-President Yemi Osinbajo signed the 7.44 trillion naira (US$23.6 billion) budget for 2017 on 12 June and that will release disbursements from the government's capital spending programme of N2.2 trn., a record figure. As those disbursements – many on roads, power stations and social investment – sluice through the system, they should create jobs and boost incomes, giving a much-needed lift to local economies across the federation. Of course, much will depend on how the spending is managed.

Both international and Lagos-based market analysts are putting out increasingly upbeat analyses of the country's economic prospects, much of them based around the combined effects of more spending on infrastructure, far higher agricultural production and the launching of Aliko Dangote's 500,000 barrel-a-day oil refinery and petrochemical plant next year. After 18 months in the doldrums, the Nigerian Stock Exchange is bouncing back, registering gains week after week.

Yet there are plenty of questions about the better data. For example, inflation fell to 16.25% in May, its lowest figure for a year. Food prices, however, remain extremely high across the country and are rising at a faster rate than the baseline inflation figure.

This matters because for many families, food is the biggest item of expenditure. Higher local food prices seem to be linked with the growing volumes of food that is being exported to Nigeria's neighbours, which has created some local shortages. In the medium term, higher food prices could encourage more people to go into farming.

Another concern is what happens to the naira-dollar exchange rate. As better economic news trickles out, along with big government disbursements, the naira has strengthened: the parallel market rate is currently N367=US$1. It remains an open question whether the strengthening of the currency reflects the more positive economic mood or is just a function of the government's releasing hundreds of millions of dollars. For now, officials in Abuja say their much criticised exchange rate policy has been vindicated.

TANZANIA: President Magufuli's new claims against Acacia Mining presage tougher resource nationalist measures
After giving full support to a committee which claims that the state has been losing hundreds of millions of dollars in mining taxes and royalties, President Magufuli is set to extend the scope of his campaign of resource nationalism to the oil and gas sector.

This follows the release of a government committee report on 12 June concluding that Acacia Mining had failed to declare some 40% of its production to the authorities. 'These people are ruthless,' Magufuli said in a live broadcast of the release of the report, '…They have taken all the gold and other minerals but revenues, taxes, they didn't pay.' The committee's conclusions extend across the entire mining sector, although Acacia is in the government's sights in the short term.

The report recommends that Acacia and the government should open arbitration on what it says are outstanding dues; this should be handled by Tanzania's courts, it adds.

For its part, Acacia denies all wrongdoing but is taking the report extremely seriously. 'Acacia remains open to further dialogue with the government regarding these issues and continues to assess all its options.' Top company officials met with Magufuli's team after the report came out last week and talks are continuing.

SOUTH AFRICA: Nationalist Mining Charter draws fire from the companies
With his new mining charter, Mines Minister Mosebenzi Zwane, a close ally of President Jacob Zuma, is trying out a similar blend of local politics and resource nationalism in South Africa.

Launched on 15 June, the Charter stipulates that all mining companies in the country should ensure that 30% of their shares are held by black South Africans (that's up from current threshold of 26%), and they should award 80% of their spending on services to black-owned companies and ensure that over half their top management are black. It would also end the 'once-empowered, always-empowered' principle that allows a mainly white-owned company to comply with ownership rules by selling its equity to black investors, even if they later sell it on to other white investors.

Zwane's Charter has predictably prompted loud criticism from the big mining companies, which say they will challenge it in court. No one expects it to get passed into law in the short-term but it could prove smart politics for Zuma's allies, who are under pressure to put their 'radical economic transformation' agenda into practice.

For Zuma, the spectacle of his ministers battling with big mining companies might – temporarily – distract attention from the legions of corruption allegations that he faces in connection with his own business friends. The row over the Mining Charter is surfacing just as the African National Congress prepares for its big policy conference next month.

And in December, the ANC will hold its leadership elections. The two frontrunners for the party presidency are Zuma's ex-wife, Nkosazana Dlamini-Zuma, and Deputy President Cyril Ramaphosa. And every ANC member knows that Ramaphosa made his fortune from astute investments in the mining sector during the first round of black economic empowerment, which is now seen as having done little more than enrich a small elite.

AFRICA/GERMANY: Chancellor Merkel calls for revisions to EU-Africa trade deals
The Afro-German partnership is going from strength to strength after a conference and a series of bilateral meetings in Hamburg earlier this month. As host of the Group of 20 most industrialised countries next month, Germany wants to push Africa up the agenda. In fact, only one African state, South Africa, is a member of the G-20.

Trade and investment, not aid, dominate Germany's revived relations with Africa, although by some measures, Berlin is also the biggest giver of non-tied development assistance to Africa.

The Africa push is led by Merkel, who has already established a reputation for a more open-minded view on migration than many of her European counterparts. Cynics says this is more about Germany's requirements for labour than high moral principle.

Now Merkel has joined the two issues: she is calling for more focus on trade and development in Africa as a means to reduce the numbers of people trying to navigate the perilous waters of the Mediterranean between Libya and southern Europe. Last week, Merkel told fair-trade campaigners in Hamburg that she understood their complaints about the trade treaties between the European Union and Africa. She said the EU-Africa summit due to be held later this year should discuss how to renegotiate them.

In London last week, Ghana's Finance Minister Ken Ofori-Atta said that his country had been given fast-track membership of the Germany-Africa trade partnership scheme and would be accessing over $200 million in trade development credits. He said that Germany's apprenticeship programmes for high-level technical education offered a viable solution to the skills mismatch in his country.

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