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

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.

Affordable and efficient energy supply is essential for enhanced welfare and better development outcomes. However, African states suffer from huge deficits in energy generation and distribution, resulting in unreliable power networks, frequent power outages and expensive tariffs. In a bid to improve efficiencies through interconnectivity and reduce energy development challenges at the national level, sub-regional power pooling initiatives have become increasingly popular in Africa. The idea behind creating power pools is to encourage cooperation among countries, through linking excess capacity in one country where power is produced more economically, with excess demand in another country that can benefit from cheaper imports.

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The COVID-19 pandemic has had a debilitating effect on the Nigerian economy. Specifically, the combination of lockdown measures and the global slowdown of economic activities led to the contraction of Nigeria's GDP by 6.1% in the second quarter of 2020, thus inducing the country's second recession within five years . Nevertheless, it is noteworthy that the pandemic occurred amid prevailing economic vulnerabilities.

This policy brief examines the pre-existing economic vulnerabilities, evaluates the Nigerian government's responses to the pandemic with regards to achieving a green and more diversified economy, and develops a new agenda and strategies for sustainable growth and economic transformation.

While the African Continental Free Trade Area (AfCFTA) provides opportunities for regional financial sector development, it also poses a real test for the continent’s financial system. The ability of Africa’s financial sector to perform the crucial function of facilitating economic growth and integration, at the required scale to support the capacity of small firms to benefit from the single African market remains shaky. In terms of opportunities, the elimination of inhibitive regulations under the AfCFTA is expected to ease cross border trade, enable capital and information flow, attract greater foreign and intra-continental investments, potentially increase capital funds, and provide a much larger customer base for financial institutions to serve. This potential new market base includes traditionally excluded micro, small and medium enterprises (MSMEs) that constitute a large share of the African economy. MSMEs are expected to be a major catalyst for increasing intra African trade and shared economic growth. However, the constraint to MSME financing is a major threat to the success of the AfCFTA as effective economic integration and development depend on easily accessible and affordable capital. This brief therefore advocates for urgent implementation of harmonised financial sector policy reforms across the continent to eliminate these funding constraints, and allow for a more supportive business environment.

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