Tariff reform is often listed as a high-priority issue in Nigeria. In March 2020, the Nigerian Electricity Regulatory Commission (NERC) issued an order to transition from demand-based to cost-reflective and service-reflective tariffs. Consumers are now supposed to pay based on how long they receive electricity daily, divided into groups commensurate with the quality of services offered. After several delays due to COVID-19, this change finally took effect in September 2020.

Nigeria’s new tariff structure intends to deliver:

• Financial sustainability. Reduced tariff shortfalls are expected during the transition. In 2020, the Federal Government reportedly spent about ₦380 billion (US$960 million) on electricity subsidies to cover the shortfalls, but aims to reduce this to ₦60 billion in 2021.¹

FIGURE 1: Projected Revenue Requirement, Allowed Revenue Recovery and Tariff Shortfall in 2020 (Data was sourced from NERC, 2020).

• Improved service quality. Distribution companies (DisCos) will be assessed on the basis of availability (hours of supply), reliability (frequency and duration of interruptions), and quality (voltage and operating frequency). The re-designed tariffs aim to ensure that consumers who receive fewer than 8 hours of electricity per day do not see tariffs increase until quality improves. The more hours of service provided, the more cost-reflective, meaning DisCos are incentivized to improve service and transition to full cost recovery. DisCos are required to cluster customers with an agreed quality of service and a service-reflective tariff for each tariff band. Any service level agreement will also include compensation to consumers if DisCos fail to meet performance targets.

TABLE 1: The new service-reflective tariff bands (Data sourced from NERC, 2020).

Though some challenges remain:

• The metering gap. Only 38% of Nigeria’s 10 million active electricity consumers have meters to measure actual consumption and quality. The other 62% have been billed on estimations, although they will now receive capped bills to encourage DisCos to install more meters and reduce the risk to consumers of over-billing. NERC is discussing, with DisCos and meter providers, revisions to regulations and service level agreements to reduce the burden of over-estimated capped bills on consumers through more metering. The COVID-19 pandemic has however stalled the metering scheme and impacted the availability of imported components for local assembly of meters.
• The need for stronger transmission and distribution (T&D) infrastructure. Crumbling T&D infrastructure is a perennial issue in Nigeria. Constant faults and outages degrade supply quality and in turn dramatically lower revenues and customer confidence. The Transmission Company of Nigeria (TCN) has been directed to resolve bottlenecks at T&D interfaces, including frequent faults at the 132/33kV substations. DisCos are required to provide smart meters to their 11kV and 33kV feeders to send real-time data to the TCN for monitoring purposes. New tariff-quality linkages aim to provide a push to these measures.
• The COVID-19 pandemic. Nigeria is in recession, while government steps to alleviate the economic impact of the pandemic are further stressing the power sector. The financial strain of COVID-19 has impacted the purchasing power of consumers and decreased electricity demand across the economy. DisCos and other operators in the electricity supply value chain are also feeling the effects of inflation and exchange rate volatility. While service-reflective tariffs are a step in the right direction, the broader macroeconomic crisis will create major headwinds for the sector for the foreseeable future.

This article was first Published at Energy for Growth Hub

The Mambilla Hydropower project will be a complex of four dams and two underground stations in the eastern Nigerian state of Taraba. The Chinese Export-Import Bank is funding 85% of the US$4.8 billion cost, and when completed, the dam will be Nigeria’s largest power plant at 3,050MW. The project, in development for 55 years, is expected to be commissioned in 2027 if construction begins this year.

The project still faces obstacles

Key risk factors include:

• Network unreliability. Mambilla plans to use existing grid infrastructure to transmit generated power. Yet the country’s transmission and distribution infrastructure is insufficient and bottlenecks already routinely prevent evacuating power.¹ Exporting power to the West African Power Pool (WAPP) could partially alleviate this issue.
• Right of way settlements. Legal challenges over compensation settlements for land could delay construction.
• High financing costs… The Federal Government will owe a massive loan to China EXIM, in addition to the remaining 15% counterpart funding.
• …which will need to be repaid in a loss-making market. Nigeria’s electricity market lost a combined revenue of about ₦1 trillion (~US$2.6 billion) in 2019. About a third of these losses were due to unbilled or uncollected revenue, and the rest to generation constraints that the dam is meant to alleviate.²
• A market further stressed by COVID-19. Nigeria’s economy is in recession while project construction will likely face further delays by restrictions imposed to contain the pandemic.

But the benefits would be enormous

Besides creating thousands of jobs directly, and enabling the growth of many more through more reliable energy services, Mambilla will have a number of additional benefits:

• Low carbon electricity. 3GW of hydropower from the dam will help Nigeria achieve its Vision 30:30:30 (30% renewable energy and 30GW capacity by 2030). An operational Mambilla power plant can contribute to this goal by providing about 4.7 billion kWh of low-emissions electricity a year.
• Increased regional trading. Power from Mambilla could be partially exported through the WAPP, a group of 14 member countries and 27 national utilities.³ The WAPP can help optimise Mambilla’s generation capacity by facilitating economies of scale through a wider market with more investment capacity, improving regional market competition at wholesale and retail levels, and ensuring electricity supply security in the region. Building this market could save US$5-8 billion dollars per year regionally.⁴
• Alignment with the Presidential Power Initiative (PPI). Mambilla aligns with the PPI, a broad partnership with the German firm Siemens to resolve existing challenges in the power sector and increase electricity supply. The PPI targets a grid capacity of 25,000 MW by 2023 and prioritizes addressing constraints at the transmission and distribution networks.
• Non-power benefits. The planned size of the project was increased in 2012 to allow for greater direct-use through irrigation and farmland development to improve agricultural production and food security. The project will consist of four dams that will control the flow of the Donga River and will also contribute to agriculture, manufacturing, and tourism by helping to control flooding, improve irrigation, and promote recreational activities. States like Benue and Taraba can benefit significantly from these positive spill-over impacts to relieve their socio-economic and security problems.

Conclusion

The Mambilla project is currently conducting site surveys, sensitization, enumeration, skill acquisition, capacity building programs, and preparation for compensating affected groups. The federal government just attributed N425 million of the 2021 budget for Mambilla’s construction, upholding its commitment to contribute 15% (US$870 million) of the cost.

Despite Mambilla’s current progress and government funding, it remains to be seen if it will be completed by the seven-year projection, as access to budgeted finance as well as a possible change in administration in 2023 poses significant risks to slow construction.

This article was first published at Energy for growth hub

On January 1, 2021, the long-anticipated African Continental Free Trade Area (AfCFTA) became a reality. The benefits of creating a single African market under the AfCFTA are wide-ranging and potentially revolutionary. By reducing tariff and non-tariff barriers to intra-African trade, the initiative could boost regional exports by 29 percent and income by 7 percent between 2020 and 2035. There is also optimism that greater access to a larger market base could reduce production costs and lead to greater economies of scale for local producers and exporters.

But AfCFTA’s potential might not be fully realized without stronger digital connectivity and effective policies that (1) promote the free flow of data and information across member states to facilitate knowledge sharing and collaboration and (2) reduce trade integration costs and address existing structural barriers to intra-regional trade in Africa.

How digitalization can help to address structural barriers to trade in Africa

At the most basic level, AfCFTA is governed by five operational instruments (an online negotiating forum; a digital payment system; the monitoring and elimination of non-tariff barriers; the African Trade Observatory (ATO); and rules of origin), all of which require effective digital connectivity to be successful. More importantly, developing the continent’s digital sector is crucial for economic integration and could help address some long-standing structural trade barriers while ensuring that the gains arising from the AfCFTA are equitably shared. Examples of how strengthening the digital economy can break down these barriers include:

• Digitalization ensures optimal trade and business processes resulting in cost reduction. The use of digital technologies can reduce transaction costs such as search costs, language barriers, and coordination of logistics that are associated with traditional delivery channels. Greater adoption of digitalization in customs’ management and procedures can also improve regulatory inefficiencies to speed up transit and clearance of exports; this could reduce additional export costs like demurrage charges to suppliers. As the experience of the COVID-19 pandemic indicates, business adaption and resilience to shocks are more enhanced with access to digital platforms.
• Faster and easier information flow for improved participation in the global supply chain: Digital platforms have proven particularly useful in connecting potential buyers and sellers in multiple jurisdictions and eliminating burdensome processes in the value chain. Digitally sharing information about regulations and standards among market actors, and allowing better knowledge of consumer preferences, increases access to trade opportunities. Greater availability of market intelligence through big data analysis can make it easier for African suppliers to increase their participation in global value chains beyond just providing raw materials and inputs.
• Greater access to markets, especially for small enterprises which make up the vast majority of firms in most countries:In Nigeria, for example, 95 percent of firms fall into the category of micro and small enterprises. These businesses generally have less capacity in terms of financing options and digital skills to adapt their business operations to compete in the regional and global markets. Indeed, in Nigeria only 18 percent of micro and small enterprises are even aware of AfCFTA, compared to 67 percent of medium-scale enterprises. Digital technologies can increase the economic access of the disadvantaged groups, including those operating in the informal sector and in rural areas by removing barriers to business expansion while promoting the development of more efficient services for the continent’s rapidly growing consumer class. In addition, digitalization could promote access to fintech credit facilities, crowdfunding, and other less stringent funding and payment options for small-sized export firms to improve their capacity to expand and serve a larger customer base. E-commerce platforms also provide less costly opportunities to build and accumulate verifiable digital presence and track record which can increase such firms’ ability to attract new domestic and foreign business partners and customers.

Despite the vast potential and importance of digitalization for regional integration, digital development remains low across Africa. The problem is notable in two crucial areas: digital penetration and data governance framework. The capacity to address these challenges will determine the AfCFTA’s success. We briefly highlight the critical issues along these areas.

Digital penetration and preparedness are still very low in Africa

Access to the internet remains limited in Africa, with 47 percent of the continent’s population able to access the internet, compared to a global average of 63 percent. The quality of digital infrastructure is also poor, with slower 2G still accounting for 59 percent of the available mobile technology generation mix and 4G penetration at just 6 percent of the mix. It is therefore unsurprising that most African countries are inadequately prepared to leverage the global digital revolution.

To gauge the implication of this on the AfCFTA, which is expected to be facilitated mainly through online transactions, we measure the correlation between an index of digital preparedness among African countries, and an index measuring the commitment and readiness for AfCFTA. Figure 1 suggests a positive relationship, which implies countries with weaker starting positions on the digital preparedness index are more likely to be left behind as benefits from the AfCFTA accrue to better-prepared countries.

Figure 1. Relationship between Digital Preparedness and Readiness for AfCFTA

Disruptions caused by COVID-19 have already highlighted the importance of better digital connectivity across AfCFTA members. The AfCFTA Phase II negotiations, which were forced online due to the pandemic, were slowed by connectivity problems and concerns about the security of online discussions. Given that governments continue to experience difficulties digitally connecting with one another, small and micro firms and households undoubtedly face more severe challenges.

The absence of national and regional data governance frameworks is a problem

Supporting greater cross-border economic activities on the continent will lead to increased cross-border data sharing. It also requires greater harmonization on how AfCFTA members govern the use of data and digital systems like payments and digital identity, and greater coordination on issues such as taxation of digital platforms and industrial policies aimed at supporting digital entrepreneurs.

Since trust is a prerequisite for ensuring uninterrupted cross-border digital interactions, a clear data governance structure at the national and regional levels is needed. Such laws are required to allay fears related to protection of citizen’s constitutional rights, including the rights to privacy, data protection, and freedom of speech.

There have been some initial steps: At a regional level, the African Union (AU) initiated a Convention on Cyber Security and Personal Data Protection in 2014. However, it is still pending ratification, as only eight countries have assented. More recently, the AU, alongside other development partners, developed a digital transformation strategy for the region. The strategy’s objective is to serve as a roadmap in harnessing digital technologies to promote a fully integrated and inclusive digital society by 2030, with the hope that it improves the welfare of Africa’s population. Since the strategy is relatively new, it is premature to assess its effectiveness. Despite these regional action plans and convention, a robust and coordinated regional data governance framework to ensure seamless data interoperability is lacking.

The United Nations Congress on Trade and Development (UNCTAD) reports that a significant number of African economies have yet to enact legislation to safeguard digital transactions and data use (figure 2). And due to countries’ varying digital maturity levels, most African countries that have or are drafting data protection laws are adopting different rather than harmonized strategies, risking market fragmentation. Enforcement capacity, financial and human resources, and reliable institutions to support a well-functioning data governance environment are also lacking in most countries.

Figure 2. Number of African countries that have adopted digital protection-related legislation

Source: UNCTAD E-Commerce Legislation Index - April 2020

The way forward

To increase the competitiveness of the African digital economy and maximize the potential of the AfCFTA, governments, non-state actors, and development institutions should collaborate to ensure the speedy implementation and enforcement of data governance policies and laws that guarantee trust, transparency and increase digital inclusiveness.

Beyond ensuring security of data flows, it has become extremely critical to build the soft and hard infrastructure for a well-positioned African digital economy, through expanded access to digital technologies, wider internet adoption, improved public expenditure on information communications technology infrastructure, and a more conducive regulatory environment for private sector investments in the sector. The African Development Bank’s Programme on Infrastructure Development for Africa (PIDA) is one vehicle to achieve this. However, it will require a stronger linkage to AfCFTA for better trade facilitation and a more supportive legal framework. This could be in form of providing guidelines on minimum standards, a shared pool of resources, and a timeframe for effecting harmonized interventions especially for countries that are lagging in growing their digital economy. Further, at the country level, digitalization must become a top development priority for governments, with necessary policy reforms and budgetary allocations to accelerate digitalization and deliver on shared prosperity that the AfCFTA promises.

This article was first published at Centre for Global Development

With the passing into law of the reformed Company and Allied Matters Act (CAMA, 2020) which replaces the CAMA 1990 Act, Nigeria is uniquely positioned to be in the top 20 of doing business rating globally by 2030. At this time when the African Continental Free Trade Area (AfCFTA), one of the world largest Continental Trade Area (CTA)- with 54 African member nations signed,  the reformed CAMA Act could be a big boost to the Ease-of-Doing-Business (EoDB) for Nigerian Micro-Small and Medium Enterprises (MSMEs) to flourish under a competitive environment. This piece highlights some of the critical changes which the new CAMA Act introduces to the principal framework regulating the business climate in Nigeria and how it could promote MSMEs to be competitive under the AfCFTA.

Background of Companies and Allied Matters Act in Nigeria

Companies and Allied Matters Act (CAMA) is one of the critical pieces of legislation which enhances better business climate and promotes Micro, Small and Medium Scale Enterprises (MSMEs). The Act provides a regulatory framework for how businesses should be carried out in the country.The CAMA 1990 Act, which repeal CAMA act of 1968 reshaped the business environment of Nigeria in the 90’s. CAMA 1990 was passed into law to establish the Corporate Affairs Commission (CAC), providing for the incorporation of companies and incidental matters, registration of business names and the incorporation of Trustees of certain Communities, bodies and Associations. The Act was promulgated to repeal the Companies Act of 1968. However, in the last 30 years of promulgation into law, the Nigerian corporate landscape has transformed with global and regional demand for business integration. Hence, the CAMA 1990 Act was heavily hamstrung by several provisions of the Act which limits modern business practices in the light of national and global reforms. 

The private sector had clamoured for a reformed CAMA because the economy has changed, there are new parameters in the way of doing business both domestically and internationally. As a result of this, the need for public-private partnership in promoting sustainability in the business climate of the country after several attempts to review the CAMA 1990 was inevitable. Also, technological innovation in the business sector had propelled for collaboration for a new legislation that would align with global business practices. The signing into law of the CAMA 2020 has raised hope for the private sector with the recent regional trade integration (AfCFTA). However, without effective monitoring and implementation, this new reform especially in promoting MSMEs which are drivers of growth in developing nations would never fulfil its purpose. 

Figure 1.

Source: World Bank Group- Doing Business Reports

Nigeria had never been ranked in the global top 50 economies by the Doing Business report of the World Bank since inception, but the country had a steady EoDB score as shown in Figure 1. Also, Nigeria is reported as one of the 20 improvers of the ease in doing business among others- Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, and India.

The impact of CAMA 2020 Act in the Ease of Doing Business

The objective of the reformed CAMA 2020 Act is to promote legislation for regulatory quality and efficiency which would enable efficient EoDB for Nigerian businesses in general, and MSMEs in particular. MSMEs are the engine of growth for most developing nations. As can be expected, without reforms for enabling business environments to sync with global business evolution, most businesses may shut down due to economic and environmental shocks. It follows logically that without reforms in a rapidly changing global market, most firms-MSMEs especially may not survive beyond the unanticipated COVID-19 pandemic.

Specifically, the reformed CAMA 2020 Act among other things, made the starting and running of business more seamless and less expensive by operationalizing electronic platforms that integrate the tax authority and the Corporate Affairs Commission (CAC). Considering that Nigeria is largely dominated by Medium and Small-Scale Enterprises (MSMEs), making business registration or company incorporation easier will bring in more businesses into the formal space. This also will enhance tax revenue for the government.  The Act has 870 sections and divided into 7 parts as against 612 sections in the repealed Act of 1990. 167 sections were completely new, while 91 sections were modified.

 Some of the major alterations made to the Act which directly promote the ease of doing business in Nigeria compared to the repealed Act and its implications on EoDB are highlighted in Table 1 below:

Table 1.

The amendments made in the CAMA 2020 Act may positively impact the EoDB in Nigeria especially at this time when the AfCFTA is implemented. Although, the Act had factored in new methods while embracing technological changes in the business world. It is expected that without practical implementation of the CAMA 2020 by the CAC, the country’s business landscape would not catch up with international business practices. Therefore, it is hoped that the practical administration of the new CAMA will help ease the strain of doing business, and will enhance productivity and promote ease of doing business in Nigeria.

The Nigerian education system is deep into crises on multiple fronts, including in areas of access and quality of education. However, the recent spate of mass kidnappings of schoolchildren arguably represents the gravest existential threat and crisis to the education system. In less than three months between December 2020 and March 2021, more than 600 children have been kidnapped while in school, in three separate incidents

More worrisome is the fact that the heightened insecurity is predominant in northern Nigeria, which is already the most educationally disadvantaged region. Of the estimated 10.5 million out-of-school children in the country, 69 percent come from the North, where cultural practices and economic deprivation limit children’s active participation in school, particularly females. The Boko Haram crisis, with its debilitating effects on economic and education systems, is also heavily concentrated in the region. Now, with the spate of recent school kidnappings, community and parental trust in the education system could shrink significantly, and the problem of access to quality and equitable education could become severely amplified. Furthermore, with the Nigerian education system still recovering from the devastating effects of the prolonged school closure from COVID-19, adding insecurity concerns to the basket of challenges could lead to its irrecoverable collapse.

Nigerian policymakers, school leaders, and communities must effectively and creatively come together to help reverse the current economic and education dynamics to avoid a catastrophic collapse.

STEPS TO MAKE SCHOOLS SAFER AGAIN

Targeted kidnapping of schoolchildren began in 2014 with the mass abduction of 276 female students in Chibok by Boko Haram insurgents. That event was ideologically motivated, and designed to extort concessions from the government. Recently, abductions have become more profit-driven, involving organized and unorganized criminal groups. The profit dimension to the kidnappings can easily complicate Nigeria’s security problems, as they could become more frequent given the high level of poverty and youth unemployment in the region amid the stark absence of legitimate economic opportunities. If education is to survive, it is crucial to urgently change the current dynamics and make schools safe again. This crisis requires swift and comprehensive action, both in prevention and supporting victims to minimize long-term damages. While the scope for improvement is vast and complex, here we outline four focus areas that—if addressed—might garner meaningful traction toward avoiding future school kidnappings and averting the further dismantling of education in Nigeria’s North.

1. Comprehensive threat assessment of schools in the entire Northern region, with subsequent closures and relocation

In all areas of the North, even those removed from the Boko Haram-controlled Northeast, numerous armed groups are increasingly seeing the potential to “cash in” on insecure schools through a “kidnap and ransom” approach. Conducting a threat assessment in all areas of the country deemed vulnerable to such armed groups—including evaluating the location of the schools, their relationship to the surrounding communities (through consultations with local traditional leaders), and the state of their infrastructure—should be a first step to assessing which schools are most at risk. Institutions determined to be unsafe should immediately be shut, with contingency plans in place to facilitate temporary alternative learning arrangements (here the lessons learned during the COVID-19 crisis may be useful), together with strategies for relocating students to safer environments. Preventing more kidnappings should be the priority, not only for the welfare of potential future victims, but also with a view to salvaging any remaining public confidence in the safety of schools and avoiding further insecurity-related dropouts, which Nigeria’s education system can ill afford.

2. The development of a strong community support network to ensure affected communities are not left behind

Children and their parents who fall victim to armed kidnapping groups cannot be left unaided. Ensuring that they mentally recover from their trauma should be a central tenet of any intervention strategy that seeks to limit the adverse impacts of kidnappings on education. Children need strong community support networks tailored to the needs of children in conflict zones, including the training of teachers to help students recover from traumatic experiences and a greater availability of guidance counselors experienced in assisting trauma victims. If children are not to become permanently disillusioned with education, the fostering of positive emotions through affirmative training and building happier school-associated memories is crucial.

3. A reevaluation and revamping of the Safe Schools Initiative

The Safe Schools Initiative (SSI) was launched with much fanfare in the aftermath of the globally publicized abduction of the Chibok girls by Boko Haram in 2014. After a promising start—including several tens of millions of dollars pledged by a coalition of the Nigerian government, international donors, and Nigerian business leaders; a plan to relocate students in high-risk areas; and strategies to strengthen education in camps for internally displaced persons (IDPs)—it remains unclear how impactful the program has been so far.

While evidence of SSI’s success is lacking, this should not automatically lead to a disregard of its main principles. A reevaluation of its strong points, including its emphasis on the training of school staff to deal with emergencies and a focused extension of the initiative beyond the original scope for only the BAY states (Boko Haram mainly operate in Borno, Adamawa, and Yobe states), should be examined. The SSI was originally designed with the aid of international organizations such as UNESCO, and the government should not shy away from leaning on the foundations of a program that, if well-managed and sufficiently funded, could be effective in the North.

4. Addressing the long-term insecurity threat

The importance of dealing with the surge of economically motivated school kidnappings directly in schools cannot be understated. However, it is naive to assume that a school- or community-level intervention could suffice in the long run. Nigeria continues to suffer from perennial multipronged insecurities ranging from terrorism—there were at least 1,600 terrorism-caused deaths in the 11 months between January and November 2020—to the violent, ethnically tinged herder-farmer communal conflicts over agricultural land, which kill several thousands of people yearly. Without a comprehensive strategy to deal with the persistent state of violence, including a coherent plan to regain control of Nigeria’s “ungoverned spaces,” imagining a safe space for education is difficult.

Schools are only safe in so far as the larger society is safe. Nigerian policymakers, school leaders, and communities must effectively and creatively come together to help reverse the current economic and education dynamics to avoid a catastrophic collapse.

This Article was first published on Brookings