Regulatory Forecasts, Risks and People to watch in 2023
This is Nigeria. Anything you see, you take it like that.
An ode to Ambrosia Ijebu, a reputed industry insider, one of whom Twitter streets downed in late 2022.
Predicting the regulatory direction of a bunch of regulators in a highly volatile and uncertain place like Nigeria is tough business. So, the first rule to bear in mind this year is:
“This is Nigeria. Anything you see, you just have to take it like that.”
As we get back to the hustle and bustle of the new year, I think one of the fad things to do is to predict what could happen in a new year. Why is this cool? Well, you get to give yourself a self-aggrandizing pat on the back if you’re right on some things. But even more seriously, it’s perhaps the smart thing to do, because then you can plan in anticipation of what you expect. This is big business for investors and frankly any person doing some decent business or commerce.
For Nigeria, 2023 represents a big year, as it wraps up the Buhari-Led administration, and hopefully ushers in a new and better administration. 😒
Depending on the outcomes of the 2023 elections, I feel these are some of the areas and sectors of the economy (from energy, and banking to the fiscal, and technology sectors) to keep a keen eye on, as the year unfolds.
The 2023 Elections
As always, in all of Nigeria’s election cycle, election into positions cover the local to state and federal levels, for executive and legislative positions, as applicable. For obvious reasons, the Presidential elections remain the most popular in contrast to Governorship races, and legislative seats and this year is no exception.
Persons to watch
Several opinion polls have touted 3 major candidates, one of whom will emerge as the next President of the Federal Republic of Nigeria - Ahmed Bola Tinubu of the APC, Atiku Abubakar of the PDP and Peter Obi of the LP.
Notably, the three frontrunners have been involved in governance in one way or another, as of today, have published their respective manifestos. We will consider a brief summary of the approach of the individual candidates, with a view to capturing their position on some of the regulatory trends that we have opted to keep in our view.
While bearing in mind, that mostly nothing that comes out of a politician’s mouth can be trusted, I think it is an excellent exercise to try for posterity. Like one of his fellow pirates proclaimed to Benjamin Hornigold in the Netflix series, The Pirate Republic:
“Uncertainty truly is the enemy of enterprise.”
Our job, in view of the candidates, at Nigerian Regulations is simple. Provide a brief dispassionate and objective evaluation of how we think each of them will influence regulatory reforms around the economy, should they win.
This. Is. Not. Political. Advice.
Bola Ahmed Tinubu (All Progressives Congress)
A former two-time Governor of Lagos State between 1999 and 2007, and an APC stalwart. Tinubu’s underlying ideology, from several of his videos and from his manifesto, is based on a Capital-Heavy (raising and spending), and IGR-Driven Approach to governance. In simpler terms, Tinubu doesn’t signal that he thinks Nigeria may have a revenue/spending problem, and that for Nigeria to attain the economic growth needed, we may need to double down in raising finance to build infrastructure, and encourage other sectors which may stimulate growth.
What does this mean from a regulatory perspective? Perhaps more activity from the Ministry of Finance, Federal Inland Revenue Service and the Debt Management Office, and more.
My view: It’s hard to draw a straight line of reality between the proposed strategy of Tinubu and the current state of Nigeria’s budget (with an accumulated 22trn CBN overdraft, steeper budget deficit and a not-so-rosy foreign bond market.) We’ll see how things go.
Atiku Abubakar (Peoples Democratic Party)
A former Vice President of the Federal Republic of Nigeria, 1999 to 2007, and the PDP Presidential candidate. Atiku’s underlying ideology seems to lean more towards being a Pro-privatization/Restructuring Approach. In simpler terms, Atiku has made clear in certain instances and in his manifesto that he favours a more private-sector-led approach at rejigging Nigeria’s economy.
This approach may be largely underscored by public corporations and the government generally scaling back their involvement in Nigeria’s real economy today. Additionally, another radical ideology which Atiku seems to harp on, is the load-shedding objective for the central federal government, and moving some of these responsibilities to other subnational and local governments. Essentially, restructuring.
What does this mean from a regulatory perspective? Well, maybe some key activity from the Asset Management Company of Nigeria and perhaps the Bureau of Public Enterprises, among others.
My view: Many are skeptical about the ultimate play of privatization, as the former VP is said to have a complicated history with the privatization of public assets. Personally, I have no problem with the privatization of some public utilities in Nigeria, that function abysmally under government supervision. But that’s just me. On restructuring, its implementation is probably gonna ruffle a few feathers, and there is a lagging concern about the balance of new responsibilities and resources to meet those responsibilities.
Peter Obi (Labour Party)
A former two-time Governor of Anambra State between 2007 and 2014, and the LP candidate. Peter Obi’s underlying ideology from many of his engagements and manifesto seems to centre around the Austerity governance/Pro-industrialization Approach. In simpler terms, Obi has made it clear to an extent that he thinks Nigeria’s public spending is wasteful, and can do with some deliberate pruning. He has likewise harped on his thinking around the utilization of Nigeria’s non-oil resources, particularly the agricultural sector to promote Nigeria’s exports.
What does this mean from a regulatory perspective? We could see Executive Orders collapsing some MDAs into each other, and an imposition of fiscal measures aimed at reducing overhead costs of governance. We may also see a promotion of pro-export policy direction from the Ministry of Finance, the Central Bank of Nigeria, and the Ministry of Trade, etc.
My view: I think it’s audacious, yet necessary to plot austere measures for the Nigerian economy. However, within the context of the planned fuel subsidy removal, it may be a political hard pill to swallow, in introducing even more austerity controls into traditional institutions like the Nigerian Civil Service. On exports, perhaps the question of (in)security may be the elephant in the room on how successful this aim will be.
The Big Question: Who will win the Nigeria Presidential Elections come February?
The question throws up a lot of uncertainty. And instead of answering, I think I will point the attention of readers to a series of factors that underlie some of the polls and unstructured surveys I’ve seen, and leave it for you to decide.
As we close down on the election date, what are the key factors that may influence either of these candidates’ winning (or not)? A- Advantage, D- Disadvantage.
Tinubu: APC incumbency (A), Religion Factor (D), Ethnic (A).
Atiku: North main-character/Ethnic pull (A), PDP party in-fighting-G5 (D).
Obi: Populism (A), Religion Factor (A), Structure (D).
What Do You Think?
Energy Sector
Trends to watch
Resumed full capacity oil operations: For a long time in 2022, Nigeria’s oil revenues were pretty much ‘lost’ to high-level crude theft and vandalism. It got quite bad at one point that we lost our position as Africa’s top oil producer to Angola and war-torn Libya. Consequence? NNPC no longer remitted petrodollars to the FAAC, and CBN had no access to petrodollars to meet Nigeria’s FX earnings quota. Nigeria’s CBN found it hard to settle receipts for imports or meet dollar requests. But having resumed full crude oil production operations sometime late last year, it is hoped that NNPC’s operations improve and remove Nigeria’s FX headache, for one.
Stears’ prediction on how energy markets in Nigeria will move in 2023, points to more of a mixed bag of, could be great (if Putin keeps Putining and China opens up), or could be grim (if the predicted recession hits global economies this year).
We shouldn’t forget, our main reason for asking this, is whether the much needed petrodollars start flowing into Nigeria’s coffers once again. We will learn why this is important below.
Possibly more botched oil deals? Remember NUPRC-NNPC-SEPLAT-EXXON and their dainty dance in 2022? Well, we just might be seeing more of that this year, who knows? NNPC is still very much active in the oil markets’ space, as a private sector participant and it’s not beyond them to stick their hands into more deals this year. Or maybe they are much better behaved nowadays. New year, new me?
50% CIT on tax on gas companies. New taxes, who dis? The Finance Bill, 2022, passed by the Senate, but yet to be signed by the President, introduces a 50% Companies Income Tax charge on gas flaring companies. Although, the legislature claim that it is aimed at encouraging climate-friendly commitments at COP26 and COP27, the tax raise has been roundly condemned as a classic way of discouraging investors in Nigeria’s oil sector. At a time when we enacted the PIA, discouraging FDI into the same sector with high taxes seems more like getting a nice haircut before the head is chopped off ('scuse my language).
Biggest risk - Fuel Subsidy Removal
Buhari’s administration has made quite the chivalrous promise to remove the fuel subsidy, on behalf of the next administration, 1 month after he leaves office - June 2023.
For context, this is not the first time a Nigerian President has attempted to remove the fuel subsidy which the IMF and other reputable financiers have asked us to remove as it is not financially prudent. It remains to be seen whether the next administration will accept this grand romantic gesture from Buhari when they take the helm by May 2023. I’m betting on another postponement!
What Do You Think?
Banking Sector
Trends to watch
Regulatory Sandbox Implementation: Late last year, the CBN surprised with a notice announcing the implementation of its Regulatory Sandbox launched sometime in 2021. You can find a copy of the onboarding announcement here and the deadline for application of startups who wish to participate in the programme is February 1, 2023.
I find the Sandbox programme implementation interesting, as it will probably show us a few ropes around how regulations, and innovation interrelate. Perhaps, the successful execution of CBN’s program will also encourage the Securities and Exchange Commission to implement its own program as well, this year?
Naira Redesign Implementation: The CBN’s Naira Redesign Implementation, and the attendant cash withdrawal limit have been off to a dramatic style, since the closing out of 2022. While the deadline for the phasing out of the old currency notes is slated for January 31, 2023, I’d bet that the deadline gets postponed.
Domestic Card Scheme: The CBN plans to execute its domestic card scheme by January 16, 2023. What’s the plan with this, honestly, I’m not sure yet. You can access more details on the planned release here.
Biggest risk - Multiple Foreign Exchange Rate Removal
One popular recurrent question through the electoral campaign of the several Presidential candidates has been the question of Nigeria’s multiple foreign exchange rates. Which has been cited as one of Nigeria’s pariah factors for FDI investors. Ironically, the Presidential candidates, while responsible for appointing a CBN Governor, are not allowed to interfere with the policy formulation of the CBN. But considering how the current administration have wielded an influence over the CBN, I’m afraid of how things may indeed pan out, should a President want to influence this kind of policy.
What Do You Think?
Technology Sector
NITDA Bill, 2022: The NITDA Bill was made available last year and was supposed to be deliberated on at a public hearing, but I guess it was overtaken by events and could not be passed. You can access a copy of the proposed law here.
Possible Cryptocurrency Regulation/Taxation? One of the proposed amendments under the Finance Bill 2022, is the taxation of the sale of digital assets, including cryptocurrencies, under Nigeria’s Capital Gain Tax regime. I find this inclusion interesting, especially in the context of the continued restriction by CBN of banks and financial institutions from dealing with cryptocurrencies. Although Punch reports that there is a possibility that the CBN develops a framework for Stablecoins, we are not aware of when this will be executed.
Is the proposed taxation of activities that are de facto illegal, another example of the disconnect between the fiscal and monetary authorities in Nigeria, or this is a signal that Nigeria is warming up to an eventual acceptance of treating crypto as assets, whose disposal can be taxed? Assuming cryptocurrencies are classified as assets/securities to be regulated under the SEC, in the amendment to the Investment and Securities Act, may throw up the question of the legality of the CBN superimposing its backdoor restrictions on Nigerian financial institutions. We probably will be able to answer this question more clearly, once we access a copy of the Investment and Securities Bill, 2022. Unfortunately, I don’t have a copy of that yet. Please share if you have it.
What Do You Think?
The Unknown Unknowns
Remember the first rule. This is Nigeria. Anything you see, you just have to take it like that. We predict, and Nigeria can really just do whatever it likes. One factor we can keep in mind is how the elections loom large this year.
I’m hoping the attendant social unrest that comes with elections doesn’t become too major but I have a running theory that not much productive gets done in an election year. For context, Buhari at one time took 6 months before appointing Ministers to their portfolios. Will the indecision of another President be a factor, for what to expect in terms of regulatory developments?
Is the election year a good thing, because regulators are too busy trying to keep their jobs, so much so they don’t have the headspace to disrupt the flow of business with regulations here and there? I’ll test that theory as well this year.
In the meantime, let’s keep our fingers crossed and see what 2023 has in stock.
GET YOUR PVC and Exercise your voting rights! Cheers.