Tuesday, August 04, 2015

The Emefielization of Nigeria's Economy

It of course took the international media to alert always docile Nigerians to the destruction of their own economy, when the Economist called out our Central Bank Governor cum social climber , Mr. Emefiele, in a bye line titled Toothpick Alert . As shameless as Nigerian dead brained elites class could be, Emefiele's response to a reasoned Economic argument was political and nationalistic, and held no intellectual water. True to type, he was answering the question by insisting that his policy of foreign reserve preservation was actually driven by a new found mandate of import substitution!

In an article, I recently wrote - Our Central bankers Have Gone Mad, I of course pointed out the emptiness of adopting a new mandate of import substitution (something totally within the realm of fiscal policy makers) as a monetary policy. In that article, I showed how the CBN was negating its 3 core mandate by engaging in economic escapism of defending the Naira that needed no such type of defense (more on what should have been done later). My dear friend, @DoubleEph further took the cloak off the complex subject matter in this recent blog of his on Naij.  It is worth reading here . While Feyi was waiting for the next Act, I dare say he need not wait. It happened already. The policy was dumb! And this policy is not without consequence..like:

1. Inflation & Economic Losses

  • HyperInflation Looms - http://www.knottedpost.com/news/nigeria-hyper-inflation-looms-as-central-bank-intensifies-forex-curbs/
  • Retailers feeling the heat - http://www.bloomberg.com/news/articles/2015-08-02/no-access-to-dollars-imperils-nigeria-retailers-stokes-prices
  • Food prices are rising - http://af.reuters.com/article/nigeriaNews/idAFL5N0YX4A520150611

2. Cost of Defending Naira - All these as Mr. Emefiele presided over transfer of Nigeria's hard earned reserve to speculators, the very ones he hates but who are beating him in the game, all in the name of defending the naira. Is that money not better spent to stimulate the economy? Heck, even import and add value is better than wiring funds to speculators overseas!

  • http://pulse.ng/money/cbn-apex-bank-spends-4-7bn-to-defend-naira-id3684700.html 
3. Pushing more Actors to Black Market - As explained by Feyi, the effect of the Emefielization of Nigeria's economy is more black market actors not less. Hence, the CBN governor is unwittingly creating more speculators by his actions. How dumb!

4. Destroying Nigeria's standing as Continental Center of Banking long term, as this policy exposes the uneven ideology of our economic managers. For investors, it is pretty scary!

Like a man set on a path of destruction and/or sabotage, Mr. Emefiele recent insistence that he is not done with Emefielization even at the risk of being wrong,  and followed up with its policy of rejecting dollar deposits implemented through the back door, confirms why most Bankers have zero respect for the man. Mr. Emefiele is not only an intellectual lilliputian, he is also adept at being stupidly stubborn at the detriment of the common man. Here he is answering a question that was never asked! Even if he thought that Naira should not trade below 200 naira to dollar parity, has he seriously explored the possibility that it is the perception of lack of supply not so much of high demand for dollars (driven supposedly by speculators) that is pushing the value of the naira down? When did currency speculation (otherwise called trading) even become a crime? Is this not a cardinal principle of free markets that assets should trade up and down as demand &  supply balances out? What is the unknown consequences of his pedantry interventions? 

Lets assume for a moment that Nigeria makes available exact same proportion of her reserve to FOREX trading. If a resource that accounts for 95% of our FOREX earnings is down more than 60%, then it makes sense for our currency to lose 50% of its value at least unless we devote more of our reserve to support it. Guess what that number will be (Aug 2014 to August 2015, looking at crude oil prices & naira value)? Well that will be 320 naira! It appears to me then that the 240 naira black market value was still more than fair to the naira, and any action meant to go after speculators was just pure scape-goating! The CBN and the Government should focus on the supply side not the demand!

How would the corrective measure to reversing a perception of lack, be to take panic actions that sends the very opposite signal (of reserve inadequacy) and thereby invite the bond hunters that will have no need for his banks to deposit when they lay siege on his currency? Would the right policy steps not be expansionary and not contracting? If the world thinks we are running out of dollars, would it not make more sense to figure how to increase the influx of dollars into the economy not restrict it? How does restricting exchange rate flows help expand the economy and source of FOREX beyond oil? Is his policy not killing Banking the one source of diversification in our economy? Nigerian banks were emerging regional and continental players, how does Emefielization help advance this beyond making foreign investors scared of our banking system and fleeing from our capital markets?

Here is someone trying to hold on to his very last dime to death instead of sowing and investing it, or even going after new source of income- does that even make common sense? That is suicide! This is exactly what Emefielization is! Economic Suicide. 

And even if the CBN had succeeded in stamping out speculators, at what cost to the economy? Is the lower GDP, Jobs, Productivity and loss in a major source of diversification truly worth it? Do no Harm- Destroying Banking Industry of Nigeria & Jobs, Contracting Economy as a Result of this feckless policy worth all the trouble? 

There is no doubt in my mind that Nigeria would have been better off with a more reasoned policy that does not call the attention of speculators. This policy will make FOREX available, work with Customs and Other agencies to ensure prompt remittances and stamp out smuggling thereby increasing intake, encourage intervention funds in Manufacturing, Agric and Export Oriented businesses even while lowering rate that will be stimulative - sending signals to speculators that no subsidy from the national reserve will go to them and their fools game, but the reserve will rather be devoted to stimulate the economy to generate more dollars to make the nation impermeable. This is what smart economists would do, not raise rates and start FOREX wars! 

I have heard some people blame the president because he did not have an economic team and Finance Minister. I say this is not too reasoned, because  this CBN Governor would have destroyed the best economic policy and his role is to stand in the gap while the President deliberates, not create a gap and make the economy worse. Look to Greenspan and Bernanke for example, as to what they did in the 2000, and 2008 recession even when the government was transiting from one party to another even as we just did in Nigeria. It is natural for appointments to take time, but it is not an excuse for the Central Bank to be stupid.

Conclusion: I know that the disciples of Emefielization are breaking out the glasses this week on the momentary crowning of the naira, as it contracts back to 210 naira on the parallel market, I will advise them to quickly file those glasses away! The market is about to exacts its revenge and it won't be pretty! And by the way, just about the time of publishing this, the reality was already dawning! Emefielization is a failure! May be the key lesson here is to never appoint a banker as a central banker, put an economists or a real business man in there, at least they understand how the world works beyond some phantom reason.

Shameless Plug: Interview on Impact Africa Radio, was released on Sunday. Thanks to TFAJ. Of course, I touched briefly on Mr. Emefiele's buffoonery! 

Sunday, May 31, 2015

First 7 Days - If I were President Buhari

So the weekend of festivities is over, and Abuja is beginning to acquire its quiet mien once again. When it is all said and done, the new President Buhari is inheriting a mess and a nation in crisis. There won't be much time to learn, even as the people will look to him to deliver on his promises very quickly. Petrol is scarce, the power grid has collapsed and salaries of workers have been left unpaid.

So I hear the people that given this mess, that we are bound to be disappointed by the President given the depth of the mess and his inability to do it all. I hear them, but I believe these things are doable and the direction of the President can even be known in 7 days talk less of 100 days. So my friends asked me what I will do If I were president, given my irritating optimism.  This blog post is a response to them. What will I do?

My 7 days Plan..

Today: I will announce the appointment of a seasoned technocrat (like Pat Utomi) as my SGF. His/She job is to within a week come up with the organization chart of the entire public service, excluding not even the minutest one. He/She has one week to deliver a draft a team and 21 days to deliver a final chart/report. I expect them to work on volunteer basis or as existing civil servants drawn from various agencies. Every file, every Ministry, every department, every agency, every commission or parastatal must be visited and staff strength recorded with a detailed job description on who is doing what and why. This is the prelude to public sector reforms.

I will publish my asset declaration, with that of my deputy. Will demand that anyone that I appoint do the same to have their appointments confirmed. 

Day Zero: I will give teeth to my campaign promise. Asset declaration and reforms.

Monday: I will announce the appointment of my media person, and require a daily briefing of the media by Aso Rock Villa. I will also institute the practice of monthly press conference. Leadership is 90% communication.

I will use the later part of this day to meet with my service chiefs. I will fire them after the meeting but require they remain in service, and deployed to the war front against Boko Haram. I will appoint my own chiefs, and ask that the entire defense house move physically to Maiduguri and Baga before end of week. 

I will announce the appointment of the National Security Adviser, who will be charged to immediately proceed to lead the exercise of cleaning up the intelligence agencies and counter terrorism organization of armed and intelligence services. 

I will announce the new head of the EFCC, as well as my choice of Attorney General of the Federation. Draft of the  Guidelines reinforcing the independence of EFCC to investigate financial crimes including corruption will also be issued, while a counterpart legislation to enforce it by law released for public comments. Goal is to send this as the first bill to the new National Assembly. 

First Full Day in Office: Anti-Corruption and Security are priority.

Tuesday: I will meet with PwC and Deloitte to discuss their report. I will immediately empanel an audit committee of young accountants and energy professionals, not more than 7 to immediately find the sources of leakages within NNPC, ID whom to be prosecuted for  sharp practices including spending without appropriation. Charge is to deliver report by end of June. I will announce the immediate dissolution of NNPC Board and Management, and deploy a team of 5 trusted technocrats, to manage the behemoth in the interim with a public declaration that we are looking to reform it and that the new management is temporary and should expect no further appointment in the industry. This will be inserted in their engagement contract.

Later this day, I will inaugurate the National Procurement Council (NPC), led by persons in the caliber of Dr. Oby Ekwensili, and totally non-partisan. Members will be known no-nonsense persons, with proven commercial skills to out negotiate anyone. Good mix of gender and generations as well. Their charge is to use an e-procurement platform to be piloted in key MDAs of Presidency, FCT and Education by end of June. All new contracting in governments should also effectively stopped, until the NPC take off properly. Ongoing contracts will continue under the old process.

To assist the NPC, a separate audit committee (with inter-agency participation) on all outstanding federal infrastructure projects will be empaneled. The goal is to audit all existing direct Federal Contracts, and ID what the liabilities are and what it will take to finish them within 9-12 months except the recurring ones. Special focus of the committee will also be on infrastructure projects and not more..no witch-hunting will also be allowed. All projects awarded must be assumed to be appropriately awarded and efforts to bring them to final close should be made.

A new CTO for Nigeria will be announced to coordinate technology projects across the FGN from the Presidency. The CTO will drive the e-governance project for the NPC even though he/she will be free to tackle other ICT needs for the smooth running of the government. Another immediate task for the CTO is to automate logistics and travel booking for the public service with focus on eliminating waste and excesses.

Day Two: It is all about the Economy. Energy, Infrastructure and Procurements

Wednesday: A special session with the VP will be held discussing judicial and law enforcement (including prison) reforms. VP will be publicly charged to bring reforms to judiciary, specifically to create  a professional office of prosecutors with Federal Prosecutors being professional lawyers, and appointment subject to Senate approval; legislation to be developed. This will also remove prosecutorial powers from all investigative agencies including Police and EFCC. Also, court procedures to disallow adjournments in criminal cases, and ensure simple stop-start like the US will be developed for roll-out within 2-3 months.

A meeting with the Chief Justice will be appropriate. To lead by example, I will go to his office. And reinforce the independence of judiciary. Immediately reconstitute the Federal Judicial Service Commission and appoint the 5 out of 8 persons that the President can select with the purpose of leading the clean up of the Judiciary, including firing corrupt judges and selecting eventually an outside (non-career) Chief Judge and slew of judges to shake up the judiciary. 

Later tonight the IG of Police (and his cohorts) will be retired, and a series of intended police reforms (plan to eliminate barracks) to make it more local and federal will be announced. An activist and professional police acting head will be appointed to manage the transition and announced reforms. The National Police Council will be convened for the first time since 1999, with the purpose of advancing Police Reforms with states as partners. The Ministry of Police will also be dissolved and staff redeployed to Police Council Office, Police Service Commission and Ministry of Internal Affairs.

Police Reforms Announced: A special Devolution of Policing Commission of party big wigs and security experts will also be inaugurated to work out the logistic modalities for creating State Police from the Nigeria Police, FRSC and Civil Defense Corps, as well as laws to create Federal Investigative and Enforcement Bureau to replace the National Police, and to be placed in the Ministry of Justice alongside the EFCC. The Mobile Police Force will remain National, and maintain regional emergency footprints and patrol of Federal Highways. 

Day Three: It is all about the Judiciary and Police. The Blitz continues.

Thursday: I will start the day by announcing that the Presidential Fleet is to be retired and immediately transferred to the Bureau of Public Enterprises for a competitive disposal within 3 months.

A series of cost saving measures for the government will also be announced:

  • Ban on First or Business Class travels by government officials - civil, elected or appointed
  • Voluntary cut of President and VP salary to 2.3 million per month, and submission of proposal to RMAFC to set this limit as proposed highest pay in the nation, with NO allowances. 
  • Investigation of use of overhead account to meet emolument already monetized, and an active claw back of salaries of senior public officials and officers where determined for January 2015 to date.
  • Ban on overseas training, and directive to Head of Service to create an harmonize Training Directorate to ensue 100% local training in the civil service
  • Suspension of all overseas scholarships, except those under the Amnesty Program
  • Cancellation of Pilgrimage  Sponsorship by the Federal Government. An appeal to religious leaders to leverage Pilgrimage Commissions as platform to raise funds from corporates and individuals. Pilgrimage Commissions will essentially become Public Private Partnerships with CAN and NSCIA. Transition committees to be empaneled to get their staff off government payroll by end of June or transferred out to other arms.
  • Decisive new Policy to be gazetted to limit numbers of support staff by political appointees i.e. Ministers. This will also include prescription of equivalent grade level at which they will be paid to civil service levels.
  • Announcement of a revised budget to exclude petrol subsidy and overhead to National Assembly. National Assembly budget to be radically shrunk, as well as budget of Presidency, and overhead in supplemental budget to be released for public comments.
  • Announcement on ban on the use of convoys by ALL public officers. Every public official is entitled to one car, and driver with a single mobile police orderly except the President, Vice President, Senate President, Speaker, Chief Justice & all Judges in Court of Appeal and Supreme Court, and their equivalents as well as Attorney General, and heads of sensitive security agencies who must however maintain small details as appropriate with no noise making.
  • A new salary structure to be submitted to RMAFC will be announced by the President, as well as a constitutional push to limit public pensions of previous public officers and exclude military heads of states or interim heads will be passed. Such push will include Governors and their deputies at state level

A whistle blowing website is to be launched, to ensure that individuals can anonymously report anyone found violating these policy announcements. All cases will be referred to EFCC and Head of Service, or appropriate agencies for treatment.

At the end of the day, I will fly commercial to Lagos, Port Harcourt and Jos to inspect existing prisons. In the same vein, I will announce the need to immediately set up large special prisons to replace existing ones. The Vice President will be directed to work out to modalities of setting up 6 regional major prisons to be sustainable with the private sector; procurement on PPP basis will be administered by the new procurement council.

The day will end by a trip to Maiduguri and meeting with the Generals on field in the new Defense HQ.

Day Four: It is all about the message. The goal is to project strength and integrity

Friday: The end of first work week will kick off by inaugurating the National Assembly. In my message to the body, I will restate my commitments to Security, Anti-Corruption and Job Creation.

Later today, I will announce the realignment of the federal bureaucracy along the lines of 19-20 Ministries, and a desire to limit the size of government while improving efficiency.

I will announce the creation of the General Services Bureau to number and track all 100% owned federal physical assets including phones, tablets, vehicles and buildings :except ammunitions - and ensure maintenance and replacement. The GSB will be housed within the Presidency, and an initial mixed team of auditors and engineers will be empanelled to kickstart the GSB with the goal of first IDing all assets and then tracking them using technology: RFIDs, GPS, GIS Maps among others. Valuation of the assets will be a key term of reference, and the body is to work closely with SGF who is drawing up the org chart to ensure all agencies including NNPC and CBN are covered. All government physical assets (except ammunitions) will be transferred to the ownership of GSB at the end of the exercise. ALL MDAs, are to transfer their assets upon completion or acquisition to GSB through a new policy to be gazetted.

NOTE: Jointly owned assets with private sector will be excluded from GSB direct administration, but will later be audited for valuation and information purposes. 

I will end the day by announcing the appointment of National Economy Adviser, to serve as counterpart to EFCC Head and National Security Adviser on Job Creation. The NEA will head the new Job Creation Office in the Presidency, charged with scoring jobs created by government spending and explore linkages in government to realize jobs in the private sector while managing various intervention projects and programs in Agriculture, Mining, Infrastructure  and Technology to help the private sector create the 12 million jobs promised. NEA will work with CBN and various development agencies in Nigeria and Overseas, as well as existing Funds including ETF, PTDF and Local Content Fund.

Will end the day by securing the resignation of the CBN governor and announcing the nomination of a new one. A major policy thrust of the new CBN is to change the color of naira notes to catch thieves hoarding them, and redenominate to remove big notes from circulation. Yes, 1 dollar indeed will become one new Naira!

Day Five:  This is firm up day, ensuring the agencies that will deliver the reforms are in place.

Saturday: Will spend the day visit Internally Displaced Persons centres across Abuja and surrounding. With Television Camera in tow, I will focus on the plight of the needy and visit hospitals. It is very likely I will fire the head of NEMA on public camera and announce an interim head who will work with international donor agencies to bring succour to the needy badly in need of it. My wife will be in tow for full effect, and the cause of the IDPs will be her cause, even as she will not have an official office or budget, but raise her own funds with lean budget and little flamboyance. 

Day Six: This is the day of mercy and soft stuff. But even more important to end a blitzering week on this note. 

There you go, now you know my first seven days and perhaps the next 93 days and perhaps 4 years have become clearer. The first few steps gives an indication of where the journey man will end!

Thursday, April 09, 2015

Election Season..Fever

It has been almost two weeks now, and the idea of change is finally sinking into the Nigerian psychology. Regardless of how Saturday's Gubernatorial races go, it is clear that Nigeria is never going to remain the same again...

During this period, I had my lows and my  highs..I'm dedicating this blog post to celebrate the high...here is

Day in the life of Michael: 1. Wake Up check emails 2. Put on my co-founder hat and treat LoftyInc Allied Partners Limited​ business 3. Take calls from one or two concerned clients of Wazobia Investments in North America 4. Jump in the bath; all my day planning and best strategies come from this 30 mins everyday tradition 5. Kitted up, and Kissed my love, Abiola Anu Coker-Oluwagbemi​ and laid hands on the Bobo of the whole universe -prayed for him and a better Nigeria for him to grow up in 6. Swooch to the closest McDonalds for Hot Chocolate & Apple Pie 7. Take 2-3 calls from political associates, trying to check on Nigeria and the sanity of those of us trying to change it 8. Respond to another round of emails this time related to a mid-size energy company of which I'm director; we had to fire our HR Exec. Oh well! 9. Get tempted, open up my LoftyInc email and behold, three tech start-ups in our portfolio need help. I call, and offer it 10. Hungry for Lunch, but feels like end of day - off I go- this never ends. 11. On the way, take 2-3 calls from partners of one or two stealth Energy start-ups/SPVs of which I'm part 12.Take a call from a Cameroonian company of which I'm director - they need direction too on a developmental project we're undertaking. 13. In between finishing lunch, and engaging folks on Facebook and checking news on Twitter, I took call from Wifey- short but sweet. 14. Return to the office, need to send out this 150 page engineering business plan report to a multinational client; so I put on my technical and business hat on full throttle. Thank God for PVAMU and UofH..lol 15. Phone ring...it is GMB's Personal Assistant..okay... 16. I got inspired, and penned a 1000 word essay for NVS and NIA 17. My work got interrupted by AfriLabs emails - I'm a Board member, so I have to treat some strategic issues from the Secretariat. 18. GMB Calls...we talked for 5 minutes 19. I still need to finish this report (Bobo needs to eat abi?), so back to it..wrote more, and tied things up..will finish tomorrow. 20. Did that just happen? Did I talk to General M. Buhari? Yes I did! 21. On my way home, Dad calls- he never fails...True story. #inspired #lifeisnotaboutwhatyouget #vivaNigeria

Tuesday, January 20, 2015

Nigeria's Economy Forecast- 2015

In as much as I'm probably the most optimistic person you will find about the economic fortunes of Nigeria, it is always prudent to point out that Nigeria's success stories have been inspite of her national government - which has badly managed the economy on a whole lot of fronts to be honest. Indeed, the economy have grown largely due to state level governments (thank God we practice federalism like US) and probably faster in opposition controlled states starting with Lagos.

That said, Nigeria face some significant economic headwinds brought by these years of federal government mismanagement which states cannot possibly help head off or balance. But most public analysis of Nigeria's strenght have been wrong projecting optimism despite clear indications to the contrary:  skewed optimistic based on the last few years of performance. So for the next 2-3 years, macroeconomic factors - more on this later- flowing out of mismanagement (of crude oil revenues, tax policies, infrastructure policies and monetary policy) may now come to hunt us regardless of our latent strengths.
The interesting thing is that the only possible way to head off this disaster is a change in government, and reality on ground is that there is s 52-48 chance the opposition will actually win the elections of February 14 - again contrary to this report. So this might be good for Nigeria, but will not eliminate completely the upcoming pain.
A more nuanced view of the upcoming elections here from former US Ambassador to Nigeria - http://africanarguments.org/2015/01/19/nigeria-time-for-more-international-community-attention-and-action-by-johnnie-carson/

Speaking of macroeconomic factors:
  • The foreign reserve is $30 billion plus, but it has fallen 50% in less than 6 months. Many state governments could not even meet their payroll in December. The entire reserve will not be available to defend the naira and the dwindling price of crude oil has not bottom just yet as OPEC is not budging
  • Speaking about depreciation; the official depreciation was 12% but nobody trades official dollar. The parallel informal market went as far as 25-35% depreciation by EoY 2014. I exchanged the $$ at Lagos Airport for 200 naira to 1 USD; it used to be 160 naira up until October.
  • Furthermore, the MPC have been very political especially since the new governor replaced a previous one that blew the cover off a $20billion scam by the President's men. So MPC have not depreciated the naira prior to the election as much as it should and have instead been defending the naira with the dollar reserve. Expect that to change quickly once the election is over - either way and regardless of who emerges victor.
  • As a proof of my point and to counter deflationary impact of fuel imports, the official price of gasoline was cut by 10% this week when world prices have moved down by more than 40%. This is because of the discount imposed devaluing the naira, and the fact that a country that produces 2.5 million barrels of crude oil, still depend on import (80%) to meet her local demand due to comatose state owned refineries crippled by corruption. The good thing is that entrepreneurs are now taking cue and will soon cut off the dependence on the government or imports ( http://www.bloomberg.com/news/2014-11-17/dangote-says-nigeria-lagos-refinery-to-start-by-mid-2018.html ) but the use of arcane subsidy schemes can distort the market and discourage investment. Change of guard can help this cause as well.
  • While I don't expect post-election violence, this cannot be written off and remains a huge risk on the economy; banks as a result are experiencing outflow into election financing or flee to quality outside the country due to this as well as devaluation fears.
In sum total, wait until March ending to decide and until after May 29 to put your money to work. I have significant exposure to Nigeria equities, but I won't buy just yet until some degree of certainty in policy direction is restored after the election. The greatest risk to any foreign investor remains the uncertain valuation of the currency due to economic mismanagement by the Feds.
The best sectors to invest in Nigeria remain the consumer and technology sectors. It is however best to utilize domestic funds for this purpose.
Impact of Crude Oil Price Drop on Nigeria Indigenous E&P
Do you think the price drop is temporary or will be externed? On one hand, I will like to think it will be extended given prevailing general wisdom, but we have to remember other key drivers of oil price i.e. geopolitical forces (an imbalance of supply from Libya or Iraq or Russia can increase pressure on the market without warning) and net increase in world demand due to economic growth (a 6-9 months sustained lower price of crude oil will inevitably lead to economic growth in China and South America which will lead to higher net demand and then higher price)
I think we will be very lucky to see prices stay below $60 until summer. But I also don't think we will see $100 any time soon. Best median price is $55, and I hope Nigerian small producers are using something discounted to this figure to manage their books


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