Saturday, August 13, 2016

Nigeria's Faltering Economy & Strategies to Reflate it

Economics is a very funny thing.. and I get the feeling that the team of President Buhari, especially the Osinbajo camp are getting frustrated with the way the situation in Nigeria is going from bad to worse, and their supporters are increasingly jumping ship.

It is true that they've done some common sense clean up, but the seeming addiction of the President's team to law and order, decree or ban approach to economic management have only worsened the situation not made it better. There is a place for law and order, but the economy especially that based on free market principles responds very badly to command and control. Freedom is the hallmark of a free market economy, and the Buhari team have done exactly the opposite of that which has led to the worsening situation.

Let us be clear here...Buhari did not cause the recession, but he could have at least tried to prevent it or at least soften the impact. I dare say the recession was already with us since last year if not for the residual spending of the free dollar rain at the exit stages of the elections. Nigeria has no budget for 2015 and PMB did not implement one. It was as such the highest level of economic and perhaps political malpractice not to come in with an economic plan on day one- and to wait 5 clear months to even have ministers in place. Which takes us to three facts that must underline this long post...

1. Psychology and language matters more than reality. The tone and body language of doom breeds doom. That is why people will be more optimistic and willing to spend when the leader presents a rosy outlook . Our President is always talking about oil price. Of course that is what investors and ordinary citizens will now focus on and will impact their behavior. What the president says matters. Oil was $55 on the day the President was elected, it is $46 today or thereabout. Big deal . It was falling, you knew it- we needed a plan around it to ensure the country was stable not excuses or bad policies like banning everything and "demand management" as the mugu in CBN calls it driving FDI down by 84% and inflation up by 300% even before the grudging acceptance of reality one year late. We have more than oil price going for us. A solid entrepreneurial base, large banking system (if TSA is tweaked), a consumption based economy (which even China will die for) and booming ports/transportation sector. We should promote what is going good in Nigeria. Oil is a poor commodity for the President to tie his emotions and speeches to. Enough already.
2. Velocity of money matters more than availability of money itself. When people trade and money change hands the economy grows. Idling money under TSA banked only at CBN (without a circulation capacity) or crushing trade by truly dumb foreign exchange policies and banning tactics crush the velocity of money and destroys the economy. To limit your intervention to bail outs and the budget funded eight months late is economic malpractice. We needed a stimulus package and an economic team to deliver it outside the inefficient civil service structure since May 30, 2015.
3. There are two sides to a balance sheet. OBJ inherited a poor revenue profile but also had a much smaller civil service with only half of the 700 plus parastatals we have today, which he quickly added to (so in some ways OBJoke created today's problems). Go and look at legislation between 1999 and 2003, and you will see a multiplication of federal agencies. Some needed, some not. This also led to increase in not just payroll but also overhead and cost of keeping up even as his successors perpetuated the reverse Midas touch by ballooning overhead and recurrent expenditure and spurious "capital projects" often directed to service the servicer (civil servants). PMB should have recognized this from day one and focused on taking the public service back to $30/bbl level. Instead we still operate a public service of $125/bbl minus some ghost workers. This ensures less money to drive velocity of funds changing hands vis capital projects, and more Doom.
So the doom cycle feeds itself...there is still room for correction, but we need those in the saddle to first admit we have a problem. We elected a Law and Order Ticket no doubt over the lawless ticket of criminals presented by PDP, but we expect more professional management that hews to the needs of the people - Jobs, Jobs, Jobs.

So here are some free ADVICE for Mr. President, VP and the new team...

1. You can reflate the economy by targeted infrastructure/stimulus  program that employs a bunch of people to rebuild our universities, roads , parks/stadiums and schools for example. But it is useless using the procurement process or the civil service. You need that money in the economy hard and fast- into local sub-contractors. Launch an office called Nigeria Works- out of Aso Rock under a special bill. Deliver the much needed jolt the economy needs. Unfortunately if it were May last year you probably will get a bunch of wads from the debt market but that market is probably closed now due to monetary missteps of the last one year led by the CBN governor you guys have somehow retained . Recommended size of rebuild is 5 trillion naira over 24 months. Use bonds to pay contractors- see what FDR did and copy-paste

2. You can reflate the economy by stop focusing on oil and gas and the impact of reduced price or production. Nigeria is more than oil and be more upbeat promoting the promise of the country. Promote technology investments and manufacturing especially (in designated FTZs/Industrial Parks with constant power guaranteed). Please fire the ComTech minister for good measure , and let's stop mismanaging the sector . There is an idea to use school uniforms alone to revive the textile industries long abandoned and employ tailors. Just do it...stop talking about it.

3. You can reflate the economy by doing the hard job of restructuring the public service and also some divesting from NNPC to bring some private sector sanity to that place. NNPC especially can be used to reflate the stock market which has a lot of impact on private sector mentality. It can be listed/spurn as 4-5 companies organized by business units or 3 integrated companies organized by area around the refineries .

4. Send trapped TSA back to designated top tier banks, who should be allowed to lend a portion of TSA gross deposit with them (30%) through a special small business administration (SBA) type mechanism at concessionary rats of 5%. Track the 5-7 banks so used and enforce the pushing of these funds to people that need them for business. Promote active lending and good practice that partners the banks as well. So may be give 75% of the loan from TSA backing, while the bank uses 25% of its own money. For good measure, have banks tender for the opportunity to participate and thus gain TSA business.

5. Keep pushing on power, it will take time but it is worth it. But be aware of structural defects of the privatization reforms under the prior administration. It may be time for NERC to force consolidation of GENCOs and DISCOs (eliminating the NEBT bottleneck) even as it should look at allowing GenCOs to supply their DisCOs directly instead of going through the grid i.e. break the grid up.

In any case, keep pushing- keep trying. You asked for the job, you got it.

Wednesday, July 06, 2016

Who shall tell the President? Demons Marauding around the Economy

Another commentator had alerted the world to the danger ahead of Nigeria in her quest for market based economic policies. The demons vary, but one that keeps rearing is head is that which muddles up the policy waters, creating a narrative for a dangerous policy reversal that will leave all on its path destroyed. We can see the seeds in the undulating attitude of Mr. President, a forced convert to the gospel of appropriate pricing of Nigeria's forex regime, in the last 3 months. Mr. President is sending mixed signals and it is dangerous.

First we start with Quotable Quotes on all sides of the FOREX matter from Mr. President.... 
While speaking at an interactive session with Nigerians living in Kenya, President Buhari reiterated his stand on the devaluation of the Naira and strong currency restrictions saying he requires more convincing before agreeing to devalue the Naira. He said a devaluation of the Naira would “kill the Naira, cause higher inflation and hardship for the poor and middle class in Nigeria.” - January 2016 in Kenya
“The central bank has moved to introduce a greater flexibility in our exchange rate policy. These actions are a down payment on our people’s ability to succeed,”  June 16, 2016 (Wall Street Journal Essay) 
"President Muhammadu Buhari says he does not see any benefit  the country could derive from the devaluation of the naira." June 28, 2016 (Ramadan Fast Breaking with Business Community)
Since the experts surrounding Mr. President are yet to convince him, let us help him out with four points that perhaps the "experts" meeting with him can drop behind on a cheat sheet the next time they visit. It is simple:

1. By selling official reserve short, states are short changed on a monthly basis as dollar or forex income from oil is always converted at officially exchange rate to determine what is shared monthly. They cant pay salaries or pensions. People die. People suffer. We are poorer. Osun state for example that received 6 million naira in February could easily have received 4 billion naira, and would still have 1.5 billion naira in hand to pay March salaries. May be the President should listen to the governors and not the financial experts. They know the people are suffering and would keep him convinced.

2. By selling official exchange lower than market price, corruption is encouraged. As people who get it at officially low value will roundtrip- despite the President's threat otherwise. They gain, while state workers suffer because that money should have gone into official pockets not individuals. The profit of the crime is too great not to act on the arbitrage opportunity. Patriotism cannot trump economic common sense for private market actors.

3. By selling official exchange lower than market price, government is encouraging imports of certain items not discouraging it. By also creating certain items as favorite, you can create obverse incentive for those items to be imported even when not needed. Let us have a consistent import policy, of encouraging local production not importation. Higher exchange rate officially almost at par with private market puts all items on near equal footing and will make imports expensive

4. Higher official exchange rate will boost IGR in the short term especially after the slump. Duties is set to go up by 42% even as importation fell 40%. Essentially we can achieve net zero impact on national revenue. Under previous scenario, you will have importation fall due to economic crisis any way, but the IGR will stay low because exchange rate have been kept artificially low by under selling the forex in the official vault relative to those held in private hands.

5. Ultimately the end result is that effective exchange rate is higher for all not lower as the existence of an official selling window underselling forex will put supply pressure on true market which will continue to over price the few forex left or sourced by round tripping. Few will buy at official rate, as we've seen for the past year and the psychology of low rate will be useless to the economic ruin of this reality because forex will be scarce for production, and an implicit cost for market interference will be paid for in distraction, and additional inefficiency of the dual sale window. Good news that BDC may get CBN dollars after all, it may help continue to narrow the gap between the new interbank window and the parallel window which has since collapsed.

Hope it is clearer to PMB now who is an unconvinced convert. Higher exchange rate is not the problem. Lack of infrastructure for production, corruption and obsession with mere figures is the problem. Japan is at 110 or so to USD, still didn't prevent it from being 3rd largest economy in the world.

You're what you produce, not your exchange rate. To help Mr. President further, and the naysayers...especially those that take the patriotic or "we are stuck" strategy of arguing against reality, we remember this talk..

 “those who can afford foreign education for their children can go ahead but Nigeria cannot afford to allocate foreign exchange for those who decide to train their children outside the country. We can’t just afford it. That is the true situation we are in.” - March 5, 2016 on Al Jazeera Interview

This is lose talk. Forex reserve of your country is not just what is held by CBN but what is held by private citizens in their homes and vaults.Hence, while the official reserve is held by the CBN with some foreign banks, or in its vaults- the national reserve is more relevant and that which is outside the control of the Central Bank will continue to determine the market price - which (exchange rate) can be exaggerated as it is now, if the full supply of the CBN is not brought to bear on this real market.

So if they source it from somewhere else, it is still part of the reserve available for import. And all you do is create room for black market by pushing demand into the shadows which creates corruption. The demand for forex - real or imagined- will be met at a certain price point, why then should Nigeria sells its official reserve held in CBN short priced compared to that held by private individuals, and then turn around to complain of lack of revenue:

To explain what the official reserve is:

The reserve is always shared. It is oil money converted monthly to naira. We print naira to back the reserve up. So it is not savings. It is just useful build up for purpose of imports. The only way to stop depletion as such is to reduce imports, which will happen when forex becomes more expensive as it is now under the new policy. If you sell to lowest bidder, then forex is cheap and everyone will import - causing the reserve to deplete. Get is now?

Thursday, May 26, 2016

On Fayose and Playing to Herdsmen Gallery

I think a lot of us are  just too young to remember how the civil war started. Violence yields nothing, and when violence is mixed with ethnic and political undertones it has to be a smoldering powder that every educated person must condemn unequivocally. When I watched Governor Fayose of Ekiti state make a fool of himself as usual when he visited Ikole, and then some pen pushers glorify his madness either on the altar of delayed federalism and/or ethnic interest I shook my head.

Fayose made statements like "his state", well he is just a governor (an usurper some of us think) and it is not his state. He has no right to stop economic activities by fiat and even his law if passed will be tested in the courts against the constitution and I can already tell you it will be struck down. If ranching is a solution, then the duty of the governor is to support that industry to inflame passion and call for inter ethnic strife and killing. That is just plain irresponsible . 

Ranching is not a bad idea but won't happen overnight, even as we work to harmonize cattle rearer and farmer positions across Nigeria. The only thing that will come out of Fayose's madness is death, hunger due to unemployment and high cost of beef in OUR state.

As an Ekiti man, and specifically an Ikole man (so this gets home and no need to cry more than the mourner)..this is not protection, this is lunacy. Omo ale Ni Fayose, ridiculing Ekiti people and our hard won brand for intellectualism and common sense. No one plays to the gallery with security. 

The reality on ground is that this issue will only lead to more progrom and death, as Ikole borders huge husbandry states of Kwara and Kogi, and have benefitted economically from being a center of trade and commerce in cattle and yams. What is oncoming is clash and massive unemployment & economic depression for the already "left behind" who barely survive already. The consequences of his misadventure will soon be obvious

PS: People talking about death toll of recent clash between criminal herdsmen and farmers are just plain gullible. We have higher death toll from maternal deaths in our hospital and bad roads cause by corruption and even armed robbery than cattle rustling. The issue is just the right one for ethnic jingoist seeking to undermine Nigeria for their own narrow interest and distract the current government from its war against their looting- Fayose inclusive.

Tuesday, May 24, 2016

Dangote is winning again...cement, roads and taxes

So for those wondering what Dangote is really up to with that road deal he got, well here it is

1. Bought over 250 yellow machines (or Caterpillar) for his massive refinery, fertilizer , power and pipeline project in Lekki.
Site Plan of Dangote's Plant

2. Don't need to hire an Engineering, Procurement & Construction Contractor, so he partnered with one to create a new West Africa he found Saipem who was already having issues with the Federal Govt on Oil & Gas local content: win-win

3. To further vertically integrate his cement empire, why not just do a cement road construction demonstration - more expensive but more durable, and try it on a PPP sort of like basis while not necessarily making crazy money. Call it marketing. Fashola agreed like any economist would. Few tax breaks for free but great road? You kidding me? Even you will take it
Site of Dangote Refinery, Lekki FTZ in 2015

4. After this demonstration, expect Saipem-Dangote E&C to bid for road construction concession based on the demo- using Dangote Cement and more or less annuitizing his current income from cement (like fixed deposit) in form of tolls we will be paying on such roads

Some of the hundreds of Yellow Machines
Dangote bought for the Refinery Project
Please don't call this monopoly. It is just smart business strategy. But some Dangote cement stock.  

While most analyst have raised concerns about glut in the local market, Mr. Dangote definitely have his own ideas about where his cement should be used. The excess capacity building up in Nigeria is going into roads. You read it here first

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Saturday, May 21, 2016

Unintended Consequences and Unnecessary Pain

Unintended Consequences

Reading Punch Nigeria today, and one wonders if this subsidy removal policy is not beginning to have unexpected consequences. Punch had a story on consumers taking to public transport and abandoning their fuel guzzlers

Who said public policy cannot be used to shape private behavior? Let the season of waste in the midst of poverty end. Let us build a solid foundation for true economic progress. Our air will even be cleaner and cities more orderly. This fuel subsidy removal policy may have an environmental upside.Citizens now should also demand re-engaging our public transportation needs. They will pay more attention to infrastructure and force politicians to rebuild them. Instead of using fuel-guzzling SUVs fueled by wasteful subsidy to conquer bad roads, it is now cheaper to demand that roads be rebuilt by your politicians so you can use a small car and comfortable public transport.

Unnecessary Pain

The NBS figures didn't have to be this bad. Lots of inaction and bad action. We to entirely blame the previous administration is not exactly truthful. Many things could have been done to keep the nation away from recession given that the signs were clear and the economy was actually quite resilient. The government could have been assembled earlier, budget assembled quickly, quick action on subsidy taken, central bank policy path could have been different to take away the unproductive profiteering and flight of FDI & remittance due to the huge gap in exchange rage or ensure it doesn't even exist in the first place because of knee jerk reaction and monkey business pronouncements and lastly serious public sector reforms undertaken which by itself can be used to inject life to the economy by paying gratuities and pensions for those getting "packages"

To the right are growth rates depicted by quarter, up until end of last year the economy was resilient, so to blame the previous administration is actually not smart. APC came into office without a stimulus plan when a recession as coming. Obama passed his stimulus plan and package of reforms and spent the entire good will from getting newly elected on that. It paid off. Our own president spent it listening to sai Baba rankadede, and getting deceived by evil servants even to the point of thinking refineries were miraculously revived. This was the problem.

Never too late to fix it..start with changing direction on monetary policy as they've done on subsidy regime.

Tuesday, April 05, 2016

Nigeria's Persistent Fuel Crisis: Who wanna be a Magician?

The guy is not a magician. He was being honest. He met 4 trillion of debt, mostly owed to cronies that supplied nothing and unverifiable but still legal debt cos NNPC staff were getting settled. The place is literally full of demons. From security guard to GGM, settlement is the culture of NNPC. The alternative was to ignore this and throw caution to the winds..but in the tight knit petroleum industry, it wouldn't matter. NNPC could not default on its "obligations" no matter how poorly contracted. In certain parts of NNPC, it requires 42 different officers/managers to approve an invoice. Just imagine that. Each an opportunity to "collect". 

In the Mean time, the entire asset of the organization was comatose. 30 of 33 depots/pump stations have not received product for years some since the time of Abacha and there was no plan to use them. Only about 720km of 5120km PPMC pipelines was even serviceable. 

(Side note: Even if refineries can work by miracle wand, they supply just half of Nigeria's needs meaning 900,000bbl is required to be supplied to them instead of their designed 450k bbl/day. It will mean that all federation crude will purely go to domestic consumption at under par prices.  This is a technical problem which a senate hearing cannot solve but have real consequences for the revenues of our 37 parasitic federating units. 😅)

Warri-Escravos pipeline that supplied crude to Warri and onward to Kaduna refinery have not been used in 5 years while PPPFM a crony company close to Diezani ripped Nigeria off on shipping contracts to deliver crude to Warri when it was not even producing.  So they deliver, evacuate and charged us for nothing for 3.5 years! PDP continued to import and abandon pipeline because the alternative was more expensive and they can make quick bucks. Imagine using ships to transport crude instead of pipeline. Using coastal jetties and trucking instead of depots connected with pipelines to the hinterlands. Addiction to Importing instead of refining when oil price were at its highest and we could afford to fix our refineries. Instead PDP racked up subsidy bills and allowed cronies to deliver phantom PMS for which they got paid for doing nothing. Others got dubious crude swap contracts that saw expensive crude being exchanged for a basket of products of dubious formula .

In short, All the operational choices were more expensive and equally unreliable. If an importing entity don't secure a ship for an international import cargo of petrol in minutes on a typical day, it takes another 2-3 weeks to get another one of similar spec as the market moves 2-3 weeks in advance and "subjects" get lifted as quickly as they appear (midstream terms - pardon me) . So one mistake or indecision and the entire country is screwed..even one by a starting junior officer acting for a boss on vacation. A simple decision on vessel programming suddenly determines if the entire country is thrown into panic buying and economy goes comatose because they (PDP) took the easy money route to plan our energy economy.  This is the country Obasanjo and PDP gave us..It started under him and he created the monster - to sponsor elections and win by all means. Lets be honest. 

Now the kicker..

And those guys have the money which translates into power to sabotage noble efforts to even fix this mess whose scope and magnitude you can't even begin to imagine. 

In reality, this long problem have an not so easy fix (thanks to union). Break up NNPC, spin off the business units and assets to private sector investors, et al. But even that requires time. Cleaning up the books and assets!

Another not so easy fix for the queues was to throw open the sea borders and allow anyone bring in fuel and sell at any price they wish. Similar to Kenya where they don't produce a drop of crude yet have no single line for petrol. Let's even make it temporary and remove duties to lower end user price . Make it the only product you can import for 18 months without duties until the refineries start working? But that was not an easy pill for Aso Rock Villa. The mentality of Petrol being the rights of Nigerians even if they have to die in scarcity and want persists. 

Now are you the magician? Solve this problem!

Saturday, March 19, 2016

A country of Minors

I said before, and I repeat that Nigeria is a country that major in Minors; but I'm beginning to think we are also minors. Minors throw tantrum, they blame others, they can't make decisions and follow throw. Minors are children, they're not matured. They feel helpless. Here are four reasons why I think we are exhibiting Advance Minors Syndrome (AMS). Think of it:

1. Ogbeni is to blame for not being able to pay salaries for borrowing when the FG insist on selling its dollar to Dangote for 197 naira indeed of 340, reducing Osun's take from 3.3bn to 1.7bn? Ok , Osun had 1.695 bn worth of debt, but at least 1.6bn will remain if we are not playing Ostrich with the Forex to pay salaries and fuel his helicopter 😂

Some of you are crying about the subsidy for the rich kids Vis CBN employment. The biggest subsidy is the undersold naira given to the richest among us. Yet some say we've been blowing grammar. Ok now. Complex as the issue may be, Nigerians sweat the small stuff while the big elephant is ignored.

2. Ocholi's driver is to blame for overspeeding, but who is to blame for the massive craters that destroyed the tires on Kaduna-Abuja road? The FRSC guy gave a presentation and then put fixing the bad road as the last item when Fashola was seating in the room. 9 months after swearing in, we are deceiving ourselves!

3. Vandals are to blame for power outage and system collapse , when we are yet to point to exactly which installation was vandalized? Truth was we celebrate misinformation.  We told them when celebration ensued  late last year that the combination of weather and rains is making their day. Now that the heat is up, and our under invested transmission system is collapsing in response, they're blaming unnamed vandals. Who is deceiving who?

What happened to just being truthful and actioning a plan to decentralize the transmission system in 9-18 months while we build 100 MW (all sources welcomed) in every state? This is what we promised, lets do it!

4. Lastly, we've blamed the petrol scarcity that started before the strikes on the unions? Only in Nigeria! Now that we are 10 days after the strikes and the queues are refusing to disappear how about we admit we made a grave error in not moving fast enough to reform the sector? How about we look at the very premise of price control (when petrol prices are at historic lows) and explore if this is smart policy or dumb policy?

Oh no! Too hard! A nation of minors.

Sunday, February 14, 2016

False Devaluation Debate of Emefiele and Buhari's Budget Excuses

The problem with Emefiele is that he is majoring in minors. The real problem of Nigeria is not devaluation vs ostrich policy. Devaluation has already taken place- the act of sending medical bills to parallel market is an act of devaluation. The selling of official rate to Hajj and pilgrimage folks is an act of economic subsidy of unproductive activities. Hence the debate is a false one. The real solution is revaluation.

The mechanism of forex demand and supply of Nigeria today is faulty. Emefiele however lacks the intellectual depth or the boldness to address this salient fact. There is no real forex "market" in Nigeria, where 90% of supply is dominated by one player - the Central Bank. This should not be so. The solution to Nigeria's problem as such is simple - and this will actually lead to a single rate market, and that rate will neither be 200 nor 345. It will be somewhere in between and enable banks and industry to focus on what matters instead of the nonsense going on now- growing production instead of worrying about exchange rate .

This solution is in constitution. All consolidated revenue should be distributed to all constituent bodies in the manner in which they were received. If they were received in dollar, yen, pounds et al- they should be distributed in that manner. This frees the CBN from the headache of being the sole market maker. Dollar and other currencies will be in the hands of 37-800 players who can trade it for naira or not with banks whom they will bank with who won't in turn distinguish these deposits or inflow different from normal exporters as it were and will be able to then stimulate a true forex market free from Emefiele fiat and market distorting nonsense. This is the structural solution that a compromised nonetheless intellectually Lilliputian CBN governor can never provide. You can't give what you don't have. Emefiele reflects the president that chose him.

PS: As I said earlier the independence of central banks was enshrined in central banking doctrine in the 1900s based on the reality that given the tough monetary decisions necessary to maintain a balanced economy, politicians should not drive both fiscal and monetary policy. In fact, it is in their interest to be insulated from it. Emefiele however has exposed the President by his inability to be independent because he is criminally exposed. The tail is now wagging the dog!

The only group benefitting from the current Emefiele Regime of fire brigade and jujitsu management of our monetary policy are the banks. Already denied the easy money of fixing government money via TSA with implicit carried interest of 8-25%, Emefiele have provided his buddies almost a 80% carried interest in Forex. I have friends that work in the industry and they confirm this. The forex policy have negated the potential effect of TSA which would have forced banks to lend to the real sector to stay in business. Now it is only their treasury department that are working- churning dollars supposedly allocated to manufacturers to round tripping - with no positive impact on the economy but their wallets. Nigerians need pitch forks and knives to deal with Emefiele and his band of bandit bankers!

The President and His Budget

The President should please start over, by assuming the first step in reorganizing the government was cutting down ministries Vis his newly appointed ministers to 24. Now ask the ministers to set the agenda, look through their ministries for who can implement it among current staff, examine existing agencies and parastatals and examine their viability and sustainability - recommend the ones to stay, go or merge, and then prepare a budget to fit the mission and the staffing.  Where staff are redundant by the exercise, launch a national retraining and redeployment program with part of the savings to not only engage them but boost the economy Vis investments, cooperatives and entrepreneurship. On the national level introduce serious ICT policy and shared services  mentality in ICT, Facilities and Building use by MDAs and vehicle use to cut cost.  Also constitute the NATIONAL PROCUREMENT COUNCIL and enforce uniform & sensible pricing and standards. A deep look at our foreign missions and if we need that many must also be undertaken . Time to tighten our belt!

Sunday, January 10, 2016

Nigeria's Unique Federalism, its Unintended Consequences and the Middle Road

The field of political economics is often underestimated, when trying to understand the nature of nations and the socio-political environment of her people. Politics is intricately tied to economics, because more often than not - it drives it. This is why context on this blog in discussing Nigeria and her economic development must be given in view of our her politics - past and present.

Speaking about the past, nearly all the economic problem Nigeria is grappling with today - high corruption & leakages, public sector and infrastructure deficit, heavy dependence on a single resource and resulting unemployment, foreign exchange crisis and potential recession in face of dwindling global oil prices, as well as the lurking monster of insecurity - can be traced to her political structure. 

Nigeria's political structure is unique in the world. Federalist by name, it has a supremely strong central government that touches every facet of lives of her citizen, is by far the largest spender in the economy and employer as well, and is definitely the single largest stumbling block to the economic progress of her people. Under civilian rule, even though State Governors have equally received unique supreme powers within their states, their influence is extremely limited by the purse which is still by and large controlled by the Federal Government who controls the National Oil Company i.e.  NNPC - the number one money spinner in the country.

The unique structure of NNPC is food for thought. Here is a company owned by Nigeria, not just the Federal Government, but whom 36 of its 37 shareholders have no say whatsoever in how it is run. The state governments are all at the mercy of what NNPC managers who report directly to the President have to say. The Federal Government of course plies NNPC into its own purse, and state governors only get peanuts when it is all said and done.

But there is a reason why it is so...

Why Centralization?

The political history of Nigeria was one foundationally built on regionalism and devolution, true federalism and self determination but wrongly structured to favour the Big 3 at independence. The British handed over Nigeria to the Big 3 tribes of Nigeria, who went ahead to explore the very precipice of disintegration by never agreeing to doing anything right while trampling on the rights of Nigeria's vast minorities of 347 ethnic groups or more. Of course this led to the Civil War, where millions were slaughtered and ushered in an era of military led democracy - where the national was made unitary in all but name in line with military tradition of centralization.

Military tradition however only says half of the story. The lessons the Generals that fiught and won the civil war was to eliminate any form of regionalism and dissent by empowering Nigeria's Minorities by creating many states (from 3, now 36) and by making those states subservient and dependent on the central government for existence to foster national unity. Some of these states were also in fact created to be not just be dependent but to be totally unviable, as the Federal Government heavy dependence on oil ensured the vast non-oil states had the agriculture, mining and manufacturing economy destroyed in favour of Oil, Oil and more Oil. This was the end that justified the means..but there is no free lunch in political economics.

No Free Lunch

The first structures that was naturally centralized and accepted so were the security forces. Every gun totting or uniformed security or paramilitary agency in Nigeria was now controlled by the central government to prevent occurrence of Biafra War. States were no longer to be trusted with securing their local environment. Today, Nigeria reap this in whirlwind with constant inter-ethnic crises, Boko Haram terrorism and Niger Delta militancy. Policemen from grassland regions are sent to creeks as Federal Police and fail woefully at it. Our intelligence agencies became paper tigers, as the local population refuse to give information because they had no serious connection to the hinterlands. Police, Customs and even Prison Officials were housed in Barracks away from the local population they protect or work with, because they were subject to nationwide promotions and postings, and this was a practical provision for that reality irrespective of the fact that it undermines their work. Police were occupiers not friends of the populace.

Naturally, the banking and economic sector was the next victim of this centralization mentality. Nigeria's Central Banking developed a unique blend of profiteering and focus on big and mega profit making machineries in import licenses to feed the rapacious appetite for imports as the country made untold profits from oil. The direction of flow of money to the national treasury was also reversed; gone were the days when states contributed to the Federal Government (FGN), now the Federal Government allocated and handed monies to them from oil earnings. To do this and to maintain its power, instead of distributing money in the currency it was earned (mostly dollars), the FGN printed naira and kept the dollar in its "reserves", ensuring it became a virtual monopolistic source of foreign currency (exchange). This gave room for runaway devaluation, consequent inflation as the nation depended on imports as artificial scarcity in foreign currency was created even as too much naira was created.  Simple demand and supply theory. 

The allocation scheme described above instead of contributory, is unique to Nigeria. And blame the soldiers and their insistence on strong central government for it and the other problems - unintended consequences that it has created.

Is there a middle road?

Understanding this political economic history of Nigeria is essential to making practical arguments for her reforms - understanding her history. There is a reason why Nigeria's elite class will look the other way when strident calls for restructuring and "true federalism" are made. These reforms may create even bigger problems if they're not carefully handled. That that from someone that was once in the federalism or nothing camp. Age and I guess experience should teach us better and we can find a middle road.

Nigeria may be far off from the federalist days of regional governments with massive powers, but it can have a more balanced political economy it can do that is obvious from this essay. Devolve some powers creatively - state police for example, de-emphasize central bank monopoly on foreign currency by distributing (yes allocating) revenue in the source currency, purposefully move the country and economy away from oil by divesting and listing NNPC who should be given a more balanced board to reflect its 37 shareholders. Politically speaking, demanding more accountability from sub-national governments will also go a long way in recreating the much needed balance that Nigeria craves.

Tuesday, January 05, 2016

2016 - My View has Changed!

Happy New Year to all my readers. Even if you happen to stop here to kaka, it is okay. 2016 is already shaping up to be an interesting one. Breezed in home on New Year's day to an excited SMS from colleagues congratulating me on a new appointment which needed verification. Be it as it may, there was no alert - just hard work. The reward of hard work seems to be more hard work. Ask Fashola. I'm starting the year off elected as the brand new chairperson of AfriLabs, the network of incubators and accelerators in Africa. My headquarters of course will remain Abuja, and I'm looking forward to using this bully pulpit to attract jobs and technology investments to Africa and of course Nigeria. Wish me well.

Another wave of messages came from comments on the last article on the budget I dropped before the New Year. It is an interesting read...hopefully, someone is reading. I prefer this NIA version to the SaharaReporters version that needed some work. 

This page has been somewhat haphazard in the past 3-5 years largely because those have been building period. While I come in here to express my views every now and then, it has largely taken a back seat to my public commentary persona on such platforms like Sahara Reporters, Nigeria Village Square and NigeriansInAmerica. The proliferation of social media outlets also mean you're more likely to hear from me on the fly on my Facebook Page and Twitter Page (@busanga) than on this blog. But I think I will turn a fresh page in 2016. There will be a new view on here. This pages will be dedicated in bringing to bear the web of relationships and endeavours I have woven in the past five years; the breadth of which is wide- spanning inclusive but obviously not limited to technology and entrepreneurship development (AfriLabs, Wennovation), Energy Development (NCDMB, Amazon Energy), Project & Business Development (LoftyInc), and Health and Safety (OHSEC) as well as political.

We will still continue to explore expanding the horizon on this pages, highlighting projects and exploring themes on monthly basis that provides answers to the burning question of: how do we develop Nigeria? Please join me on the journey.

What are we reading?

Books are still of peculiar interest on these pages. My reading palette have no changed much in the last few years. May be I read a whole lot more electronic (kindle) books, and my hard book collection have slowed but I still try to do 4-6 titles every year, and loads of articles in between with Fortune, Bloomberg and IEEE Spectrum. I will continue to share on these pages. The toughest read of 2015 got to be "God's Bankers" - it is about the Vatican Bank and money laundering by the world's largest Church. Thrilling details but one can get lost in the weeds of Pius this and John Paul that who used to be Vitrolli Magarati or something like that. I finished it off on the 31st of December after many months of tough reading. Best read though was Straight to Hell, about Investment Banking deviance - in this instance an expat point of view in SE Asia, instead of the same old boring Wall Street gist. You should  pick it up. Biggest disappointment? Putin's Kelptocracy. I couldn't even finish reading beyond a chapter. Poorly written and blabbing. I need my money back.


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