Unusual policy moves in Ethiopia; Nigeria & Ghana make other changes

Welcome back to the Vault. Here’s our bulletin on recent policy developments.

• Ethiopia makes currency policy change, foreign exchange reform and secures IMF funding
• Kenya Appeal Court deals striking blow to Ruto’s tax policy

Nigeria

o  Government reaches into bank vaults for share of FX windfall

o  New Guidelines for banks’ merger, recapitalization and share increment

o  Climate change on health policy emerges

• Data Vault: ICT Development Index 2024: Ranking of African Countries

In other news:

• Ghana considers changes to tax laws, in nod to foreign direct investors
• Property tax re-integration to kick off in Ghana.

Feel free to share your thoughts with us. We would also be pleased if you would visit our website for the latest policy briefs, and policy documents (e.g. laws, regulations, standards, guidelines, circulars, etc.). If you need insight into any key legislation, please tell us.

Ethiopia makes currency policy change, foreign exchange reform and secures IMF funding

Ethiopia has made significant policy changes, including floating of the birr currency and reform to the foreign exchange market (“FX”), as part of the country’s ‘sustained macroeconomic policy’. The moves, viewed as orchestrated by the International Monetary Fund (“IMF”), have been quickly followed by news of an agreement with the IMF for a USD3.4 billion financing programme.

Since 1994, the country’s central bank, National Bank of Ethiopia (“NBE”) has tightly controlled the birr’s value through interventions in the FX market. Within days of the currency float, the currency’s value plummeted by about 30%, mirroring Nigeria’s recent experience. Prior to the respective floats and IMF’s interventions, both countries had been grappling with high inflation and foreign currency shortages.

Regarding the foreign exchange regime, the NBE has also announced major changes such as:

• a shift to market-based exchange regime, whereby “banks are henceforth allowed to buy and sell foreign currencies from/to their clients and among themselves at freely negotiated rates” and with the NBE “only making limited interventions to support the market in its early days and if justified by disorderly market conditions”;
• opening of Ethiopia’s securities market to foreign investors, based on terms and conditions to be released in future;
• end of surrender requirements to the NBE, allowing FX to be retained by exporters and commercial banks;
• removal of import restrictions that previously prohibited 38 product categories;
• improvement of retention rules – allowing exporters to retain 50% of their FX proceeds, instead of the previous 40%; and
• allowance for residents to open foreign currency accounts, based on remittance inflows, transfers from abroad, FX-based salary or rental income, and for other specified cases, as well as the ability to use foreign currency accounts for foreign service payments.

Kenya Appeal Court deals further blow to Ruto’s tax policy

Only a few weeks after protests forced President Ruto to withdraw his controversial Finance Bill 2024 that was initially designed to raise circa Ksh 346 billion, Kenya’s Court of Appeal has upheld a High Court’s decision that key sections of the Finance Act 2023 were “fundamentally flawed” and, therefore, unconstitutional. The Finance Act 2023, like the ill-fated 2024 version, was divisive and attracted significant opposition. It introduced taxes on specified goods and services, and increased taxes on some others, including petrol.

The 56 parties that opposed the Finance Act in court (comprising civil society groups, companies, professional groups and individuals) argued that some sections of the Finance Act 2023 were introduced after public hearings and did not pass through key legislative stages. Both the High Court and Appeal Court found that 18 new provisions were introduced by Parliament without subjecting them through the entire legislative stages. They agreed that the omissions fundamentally impacted legitimacy of the Finance Act and declared that the Act is invalid.

The government, which is already contending with the reality of circa Ksh 946 billion deficit in the current financial year, has not indicated whether it will appeal the decision.

Nigeria

Government reaches into bank vaults for share of FX windfall

With a bloated debt profile, shrinking borrowing sources and struggling economy, the Nigerian government has taken a leaf from the books of Czech Republic, Sweden, Hungary and Lithuania by passing an amendment to the country’s Finance Act of 2023 to make it mandatory for banks to give up 70% of foreign exchange revaluation gains made by them since June 2023.

According to credit rating agency, Agusto & Co., this retroactive step is expected to rake in ₦1.75 trillion to the government treasury. They estimate that banks earned ₦2.5 trillion from foreign currency-related income in 2023. Key developments that led to this action are highlighted below:

• In June 2023, the Central Bank of Nigeria ceased operation of separate windows in the official foreign exchange market and identified the Investors & Exporters (I&E) window (also known as the Nigerian Autonomous Foreign Exchange Fixing (NAFEX)) as the avenue for all relevant transactions to be conducted. Instead of fixing the rates of exchange, value of the Naira was left to determination by market forces. At implementation, the official exchange rate versus USD was less than N500. By June 2024, the exchange rate was circa N1500 to 1 USD.
• Due to the sharp devaluation of the Naira, Nigerian banks holding foreign currency assets experienced significant profits. These gains stemmed from converting foreign currency transactions into Naira at the new, higher exchange rate, as well as from selling off foreign currency assets or settling foreign currency debts.
• While banks profited significantly from the Naira’s devaluation due to their foreign exchange holdings, manufacturing and other productive sectors suffered substantial losses from the weakened currency

The government says it plans to distribute the extraordinary income that the banks received when the current administration loosened its grip on the FX market and will dedicate the income received to important public services.

New Guidelines for banks’ merger, recapitalization and share increment

In response to the central bank’s directive for Nigerian banks to increase their share capital, as well as ongoing efforts by banks to comply with the directive, the Corporate Affairs Commission (Nigeria’s companies registry) has issued new guidelines for recapitalization of banks and other financial institutions.

In its public notice dated 26th July 2024, the commission released requirements for incorporation of new entities (that may emerge from the recapitalisation process) and increase in share capital (either via private placements, rights issues and / or offer for subscription). The guidelines also specify requirements for mergers but upgrades or downgrades of licence authorisations do not require any filings with the commission. See link for the commission’s public notice.

Climate change on health policy emerges

Nigeria’s Ministry of Health and Social Welfare has finalized a policy document that is targeted at the growing impact of climate change on delivery of healthcare services in Nigeria.

During the National Stakeholders Validation Workshop on Nigeria’s Climate Change Health Vulnerability and Adaptation Assessment Report held in Abuja recently, Dr. Chukwuma Anyaike, Director of Public Health at the Ministry of Health and Social Welfare, stressed that a policy document that addresses increasing health complications that arise from climate-related events such as flooding, as well as impact of climate changes on healthcare facilities, is necessary.

Following the validation workshop, an official launch of the policy document is expected to take place in due course.

In a similar vein, the Kaduna State Government of Nigeria has announced approval of its Climate Change Policy 2024, which aligns with the Federal Government’s National Climate Change Policy (2021 – 2030). According to a statement from the Governor’s office, the policy:

• focuses on public education, monitoring systems, and sustainable development initiatives to prepare the state for future climate challenges;
• aims to reduce emissions, enhance climate resilience, and integrate climate considerations into state planning; and
• provides a comprehensive framework to address the impacts of climate change and aligns with the national and international climate goals.

Data Vault: ICT Development Index 2024: Ranking of African Countries

The latest report from the International Telecommunication Union (ITU)  shows progress in ICT development among 47 African countries. Libya, Morocco, and the Seychelles lead the pack within the continent, with Libya jumping to first place due to more mobile internet use. The top 10 also include Mauritius, South Africa, Algeria, Botswana, Tunisia, Egypt, and Gabon. Africa’s average score rose to 50.3, a 3.7-point rise from last year. Despite improvements, there’s a big gap, over 66 points, between Libya and Chad, highlighting both progress and ongoing challenges in connectivity in low-ranking countries.

Other News

We’re also tracking some events in the news.

Ghana | Government to review tax system for greater FDI

Ghana’s Deputy Minister of Finance has hinted that the country’s tax system is being considered for review, as part of his country’s incentives to attract greater foreign direct investment and ensure that the business community enjoys doing business in Ghana.

The minister also disclosed that the e-levy and COVID-19 levy are both under consideration in the government’s bid to ease pressure on taxpayers.

Ghana | Plans to reintroduce integrated property tax system underway

The Ghanaian government has revealed plans to consolidate data held by various agencies as part of its implementation measures for re-introduction of the property tax system.

The Minister of Finance, Dr Mohammed Amin Adam, says the consolidation plan will revolutionize the property data system, in addition to improving the efficiency and accuracy of the property tax system. The Finance Ministry is now expected to continue engagements with the Ghana Revenue Authority and other stakeholders for an effective implementation of the various policy, regulatory and administrative measures.

Before you go…

What policy and insight do you seek?

Whether you are a government official, civil society organization, or researcher, our repository provides comprehensive access to public policies, regulations, and guidelines across Africa. We provide insights and intelligence on these regional policies and regulations for research, advocacy, policymaking, and investing.

Get in touch with us here: <mailto: team@policyvault.africa>.

Want more?

Visit www.policyvault.africa to check some of our recently published insights, which provide you with deeper analysis and context of matters at the intersection of public policy and current events.