Thinking Aloud on Scotland and Nigeria

Of course there must be some kind of link between the recent referendum in Scotland and Nigeria. Or is there? Well, if there isn’t, let’s find one.

In reality, a Yes vote would have made it easier to draw parallels with Nigeria (especially the Niger Delta) – it’s hard to imagine which parts of Nigeria would vote to remain as one country if the vote were put them freely today. But that is mere speculation. Where I think there are interesting parallels to draw is in the structure of the countries and how they are run.

First, a simple equation (apologies, if this comes across as patronising) – England + Wales + Scotland = Great Britain + Northern Ireland = United Kingdom. The UK has no states. Scotland has a parliament, Wales and Northern Ireland have Assemblies, Scotland has a Parliament, England has nothing in particular. They all have varying powers – Scotland’s Parliament for example has what is called the Scottish Variable Rate (SVR) which allows them to adjust income tax up or down by 3%. They have never used this power which the other ‘countries’ don’t have ergo, wherever you work in the UK, you pay the same amount of tax. At least for now. There are other varying powers – Scotland can control the NHS in Scotland in a way that no other ‘country’ can.

It gets worse (or better, depending on how you view such a system) as the chart below shows:

Budget spending and tax receipts visualised

 

 

The chart above is self-explanatory and shows that the biggest source of government revenue is Income Tax and National Insurance. The oil revenues from the North Sea will fall under Corporation Tax which makes up 9% of the total revenues (This partly explains why Scotland is only 8% of UK GDP).

What is unusual about all this is that all that money – with the exception of council tax – is collected centrally. You will not find any other G7 country with a system like this. It is odd and quite frankly it’s a mess. Even council tax which is collected at the local level is strictly policed – councils are free to reduce the rates as low as they want but any increase has to be within set limits. Councils can also raise money from things like parking fees and fines but to prevent this from turning into a cash cow, they are again restricted from spending money raised from roads on any thing other than roads i.e. you can’t use money raised from parking fees and fines to collect waste. At least in theory. Even things like the annual filling of potholes during winter is controlled by the central government – in years when the winter is worse than expected and there are more pothole fillings required, the central government has to ‘find’ extra money to give to the councils.

So what do all the elected politicians all over the country outside of Westminster do? They collect allocations based on all kinds of formulas and spend it. The central government holds a strong hand at all times given that almost no region can survive on local taxes alone. So it’s quite easy to punish those who don’t toe the line especially when it comes to capital expenditure. This is completely different from America where you will find, say, different sales tax rates from one state to the other – across the UK it’s all 20% VAT.

In Scotland, this led to situation where different statistics were being quoted by each side during the whole independence debate. For those who wanted to vote Yes, the favoured stat was that Scotland paid more in tax per head (£10,000) on average than the rest of the UK (£9,200). For those who wanted to vote No, the favoured stat was that Scotland received £12,300 per head in public spending (allocations) than the rest of the UK which got £11,000, on average. For 2 years, both sides flung these numbers at each other. Northern Ireland pays the least in taxes but gets the most in spending while London gets less than it pays in taxes back as spending. You start to get the picture of how the numbers eventually add up.

How can a developed economy like the UK run such a centralised system where all the money flows up and then back down again? Surely, giving more powers to the regions and councils would be a no brainer? Well, it’s not that clear-cut. The fact that the UK has no constitution makes it even more messy because powers (and the money that comes with power) are handed down from the central government on a case by case basis. For example, if you consider London to be a state within the UK, it only got a Mayor in 2000 after a referendum in 1998 in which the voters said Yes to the idea.

So other cities should get Mayors too no? In 2012, the 11 largest cities in the UK were asked, via referendums, if they wanted to have their own Mayors (one city, Doncaster, already had a Mayor and was asked if it wanted to keep or abolish it). The results are below:

Screen Shot 2014-09-19 at 23.44.02

Only one city, Bristol, voted to have a Mayor. Doncaster also voted to keep its existing Mayor. All the other cities said no thanks. To be fair, the Mayors would have started with minimal powers that mostly covered transport policy – London only has powers to raise 12% of the money it spends every year, the Mayor has to fight for funding from the central government for almost everything else. But given the ‘muddle through‘ nature of government described above, Mayors would surely have gotten more powers over time.

The same year, the government tried to allow cities elect their own Police and Crime Commissioners. This time it descended into farce with a cumulative turnout of 15% (Merseyside in Liverpool had a 12% turnout). There were numerous stories of polling stations that did not see a single voter on election day. And it’s not just a recent thing either – In 2004 the government planned referendums in the North East, North West and Yorkshire areas to ask the people if they wanted their own regional assemblies with limited powers on various matters from the local economy to the environment. The referendums were supposed to be held one after the other but by the time the first one was held in the North East and 80% of voters voted against having regional assemblies, the government did not bother holding the 2 others.

Why would people reject the opportunity to have government closer to them? Again, I can only offer a simplistic answer – British people, for some reason, have a deep suspicion and hatred of politicians that is almost comical to observe. As far as people were concerned in those elections, they were being asked to create new politicians and they responded by voting No or staying at home. The Royal Society for the Protection of Birds has more members than all the main political parties combined. It’s hard to think of a class of people who are held in lower esteem than politicians (perhaps only journalists are despised more).

 

If you are a Nigerian, what I have written above might be surprising or amusing or both. First of all, the way we organise ourselves is written down in a constitution (regardless of how often we like to test its limits). A few days ago, there were stories in the papers of Lagos state internally generating N384bn in 2013. This money comes mainly from income tax and various other things like advertising signage etc. Imagine if Lagos had to send all that money to Abuja and then have it given back to it? At the moment, that’s what happens with VAT and even that is a source of annoyance that continues to be tested in court. Most Nigerians are rightly frustrated by states that generate no revenues and just wait for a monthly allocation from Abuja to the extent that IGR is now a useful measure of performance of state governors. That is to say, the UK system is unthinkable for a country like Nigeria.

So what happened in Scotland? The Scots are a proud people with a long and illustrious history. At different points in time, they have fought the English and either won (e.g Bannockburn) or lost (e.g Falkirk). Since the end of the ‘excitement’ of Empire (which the Scots contributed disproportionately to), there hasn’t been much to excite anyone in the UK. Today’s battles are over mundane things like tax rates and where to park nuclear weapons that are very unlikely to be used anytime soon.

When you have a history like the Scots do, the idea of having your taxes flow up to Westminster and then handed back to you based on some Barnett Formula must get really irritating after a while. What is so special about Westminster that my money has to go there before coming back to me? That is to say, the Scots are quite different from those other parts of the UK that rejected Mayors, Regional Assemblies and Crime Commissioners. Even though they currently have the most powers of any region in the UK, they want more. The problem, and where I disagree with the Independence movement, is that they would always have gotten more powers if they wanted it without tearing the Union apart in the process and caricaturing the rest of the UK as enemies of Scottish progress. Indeed, all the main parties were falling over themselves to promise them more powers if they voted No and those conversations will begin soon.

What does this all mean? The obvious one is that, if you accept that the UK is a developed economy, then there is more than one way to get to that point for a country. I cannot imagine any Nigerian looking at the UK and saying ‘the system seems to work well for them so maybe we should have a more centralised system too’. Derivation for the Niger Delta currently stands at 13%. The only direction that can move in is for it to increase. Or imagine the chaos of a Nigeria without a constitution?

Also bear in mind that if you point to any working federal system around the world today, the British almost certainly had a hand in creating it. Yet, as Scotland has just shown, the UK is only now trying to figure out the whole business of federalism for itself.

Like I said, I am just thinking aloud but one thing is for sure, if we ask for more federalism in Nigeria we should be prepared for how it can yield wildly varying outcomes in different parts of the country. If you give more powers to local governments, half will seize the opportunity to do good things with it while the other half will squander it and make things worse than they were. Some will want more, others will want less. If you give some parts of the country more powers, it might even lead to them wondering why they cant have everything and be in charge of their own destinies.

There are no ‘neat’ countries anywhere and part of being a country involves taking from one place to give to another. This will happen whether you are a federal system or a highly centralised one.

FF

 

P.S

Many political unions subsist on creative ambiguity.  That is, if the right question were posed, and the citizenry forced to answer it definitely, political order might spin out of control.

All praises of democracy must be embedded in a broader understanding that a) formal questions can be destructive, and b) we cannot be allowed to pose questions without limit, at least not questions which require explicit, publicly verifiable, and commonly observed answers.

Once a question is posed very explicitly, and in a manner which requires a clear answer, it is hard to take it off the table

The quotes above are taken from Tyler Cowen’s blog and it really made me think. Democracy is a funny thing – It is supposedly the will of the people but to keep it going, there are some questions which must not be asked.

Selah

Matters Arising: The Ponmo and The Logo

The Ponmo

A rather delicious debate has broken out on the internet over the government’s alleged plans to ban the consumption of ponmo (cow hide) by Nigerians in a bid to boost the leather industry.

Vanguard have gone with the headline ‘FG set to ban Ponmo‘  which does the job of sensationalising the matter but this is an example of the government’s reputation preceding it. We know they like to ban things and slap tariffs on them, so it’s not too far-fetched to think they have ponmo in their sights now. Here’s what the Agriculture minister, Akin Adesina supposedly said:

I also commend NIAS for its advocacy and public enlightenment programs on Radio and Television that promote value addition in Livestock, as against sale and consumption of primary products alone, particularly with the issue of curtailing the widespread consumption of hides and skins as Kpomo which ought to be tanned into leather for a very high dollar return to the farmer and Tanneries.

I expect that competent regulations acceptable by all stakeholders will be developed so as to give credibility that our set standards for food safety are being implemented which will boost value addition

Reading that, it seems to me that they are going to make it harder for people to sell ponmo under the guise of health and safety. The whole point being that when people find it hard to sell the cow hide as food, they will then sell it as leather instead. Given how cheap ponmo is, presumably it will be more profitable to sell it on as leather. The question then is, why are people selling it as food when they can make more money selling it as leather? Why do they need to be goaded by government to make more money?

I suspect the answer is that there isn’t much of a market for cow hide as leather out there ergo, eating it makes more sense. But there’s another side to this debate I want to focus on.

In 2011, Professors Esther Duflo and Abhijit Banerjee published a very interesting book called Poor Economics which sought to change the way we think about solving poverty. They went out there and talked to poor people and lived among them. In other words, they did the work and they know the thing. They also founded the Abdul Latif Jameel Poverty Action Lab which is a remarkable repository of information and research on fighting poverty around the world.

To understand poverty and what it means, the first step is to know and understand that it means a restriction of choices. You might live in a country where there are various kinds of goods in the market but if you are poor, those choices don’t exist for you. This affects the way people behave when they find themselves with some level of choice. Here’s a section from the book that explains the point better:

Screen Shot 2014-09-10 at 13.06.17

Precisely.

Ponmo tastes nice. And in a world where choices are restricted to things like garri which don’t taste very nice, ponmo assumes the role of a delicacy i.e an adornment and crowning glory on what would otherwise be a very dreary food affair. Understanding this is quite important because it tells you in advance where your policies are likely to come up against stiff resistance. That using cow hide as leather is better for the economy and jobs and GDP is not a fact that speaks for itself. People who live with restricted food choices on a daily basis are bound to see it as an assault by the government.

Taste is very important. This explains why, despite decades of negative campaigning and ‘de-marketing’, the consumption of ponmo is still going strong. It has been called all sorts of names from useless to nutrition-less but there is no evidence anywhere on record that anyone has stopped eating ponmo because it has no nutritional value. There is more to life, believe it or not, than eating nutrients.

I confess my bias on this topic – the sight of a pot of vegetable soup with a surfeit of ponmo accoutrements, such that it is impossible to dip into it without harvesting several pieces, greatly excites me. This much maligned ponmo can in fact be the piece de resistance in a properly designed meal.

I think the Honourable Minister should leave this one alone.

The Logo

I left Nigeria in early 2004. I admit that things have changed a lot in that time. I try to visit as often as I can and can see some of the changes myself.

One of the last things I did before leaving Nigeria was to register for the national ID card in 2003. There was a registration stand near where I lived at the time and I still remember the Sagem machines that were used. The story of how that ID card project went kaput is well-known. Suffice to say we never had the ID cards after billions were spent on it by the Obasanjo administration.

This short history thus makes me rather amused that now that there’s another ID card project starting, all the complaints seem to be about the MasterCard logo that will be on the card. Premium Times called it a ‘scandalous outrage‘ while one Is’haq Moddibo Kawu writing in the Vanguard went as far as calling it ‘slavery‘. [Sidebar: Anyone who equates anything, let alone an ID card, with slavery, needs to have their head examined as a matter of urgency].

Like I said, I am amazed at the confidence Nigerians are showing over this. If people are complaining about the logo, it appears to me that they consider the fact that they will actually get an ID card as a foregone conclusion. Where is this confidence coming from? It is like a man with no job complaining that a new car released by BMW does not come in his favourite olive colour. We have tried a couple of times to have an ‘ordinary’ ID card and we have failed spectacularly at it. This time around, we are going a step further by merging a payment card with an ID card – something rather innovative globally – and people are complaining about the logo at the back? Wonders.

It is not everyone who automatically knows that Visa cards start with the number 4 while MasterCards start with ‘5’. This is one reason why payment cards always carry logos on them. I am yet to come across any payment card that does not carry the logo of the card issuing company on it. Or perhaps the problem is that its MasterCard? Would it also have been a ‘scandalous outrage’ if it was the Verve logo on it? Maybe, maybe not.

But the more important questions are being ignored. How is an ID card supposed to work in a democratic country? There are not many free societies – Nigeria is nominally one – where ID cards are used. If ID cards are introduced, it naturally invites people, especially the police to start asking for them at every turn. This is the first step towards something like a police state and is the reason why they always seem to fail when they are tried in a country with entrenched rule of law.

How will ID cards work with other existing legal documents? Not everyone drives so maybe the driver’s licence is not universal enough as an example. But what if you have a driver’s licence, will that be good enough? What familiar spirits will ID cards unleash in our security agencies?

The questions are many and I have not seen one shred of evidence that suggests that the project is guaranteed to be a success.

The thing that makes it interesting is the very aspect that people are complaining about – the payment card. For the first time, a significant number of people might have a direct financial relationship with their government without the need for a middle man. This is something that is taken for granted in advanced countries but is still a big deal in Nigeria. Even the sharing of stomach infrastructure during election season is always done through a middleman – e.g the market women leader – who extracts a heavy transaction cost in the process.

We should be asking serious questions about how this project will work, how data will be stored, who will be responsible for what if things go wrong and how much this will cost.

Making noise about the logo on the back of the card does not qualify as a serious question.

 

FF

On Osun: Is Dagunro Really That Different from Tete?

Yoruba people, in song and proverb, like to make much of the difference between tete – an amenable to the palate type of vegetable that’s easy to eat – and dagunro – a coarse type of vegetable that carries thorns on its stems. The warning goes that you shouldn’t be so silly as to eat dagunro the same way you eat tete or you’ll have yourself to blame.

Take it away Ogbeni

In the video, Ogbeni and his supporters are issuing the explicit warning, presumably to the PDP, that dagunro (Osun) should not be eaten the way tete (Ekiti) was eaten. In the end, they were proved right with Ogbeni’s rearguard action to win re-election.

But what can the APC learn from this victory?

The APC’s model of winning elections is clearly unsustainable.

This is why it is losing more than it is winning lately. Consider the facts about Osun:

Nuhu Ribadu defeated GEJ there by 60-40 in the 2011 Presidential election. The APC (then ACN) swept all the State House of Assembly, Senate and House of Reps seats in the same general elections of 2011. If you know a fiercer campaigner in Nigeria today than Rauf Aregbesola, please point them out to me. As much as he may have had some misguided policies in his 4 years in office, he definitely got many things right. Osun state is almost certainly the APC’s strongest state in Nigeria. A friend who was part of a ‘fact finding delegation’ from Oyo state to one of Ogbeni’s campaigns said they were incredibly inspired just by watching him, especially after he rode on top of a bus for 20 kilometres (I did not see a single photo of him inside a bus during the campaign, he was always on top of it).

All of that went into beating an ex-jailbird who will probably go to his grave with the smell of a high-profile murder never departing from him. I quibble with the votes he racked up in Ife which flattered his final result, but leave that aside – he was beaten 57-43. What if Aregbesola didn’t campaign as hard as he did? It’s a real warning that if any of those perfectly lined ducks had moved, the state could have been lost.

Technology 

This is still not being used enough. For a party that is seeking to overturn an established order, it really has no choice but to do this. Over at the FTF we did some very simple stuff on the day of the election (more on this later) and the response was quite interesting. Of course if this played any role in the election result, it could not have been more than 0.0001%. The work had already been done by then. Still, there are plenty of low hanging fruits to be plucked. But it cannot be a scatter gun approach.

The battle now moves to Adamawa. I am a Man United fan and I know what it feels like to go through a terribly predictable season punctuated with the occasional false high of beating Arsenal 1-0 at Old Trafford. Enough said.

The Ogbeni Coalition and Party Loyalty

The man seems to be assembling what is clearly some kind of Bourdillon-free coalition that is tested and trusted to deliver elections if only in Osun state. But then everyone needs a strong base from which to launch a bigger ambition. He convinced Serubawon (Isiaka Adeleke) – which turned out to be a very good move and ‘Prince of Peace’ (Olagunsoye Oyinlola) – which turned out to be a waste of time – to join him from the PDP. I doubt these people came over because of Bourdillon but it will be a test of his own clout to see how he manages these very inflated egos.

Staying with defections and as an aside – do we overrate defections in our democracy at the expense of loyalty? There are plenty of people in the PDP and APC who have remained loyal inside the party even after not getting what they want. There are many who will never defect to another party no matter. Yet, people who cross carpet dominate discussions about our ‘nascent’ democracy which in turn increases cynicism among voters who feel they are all the same anyway.

Cynicism when dealing with politicians is always recommended but as with everything, moderation should be the watchword. By signalling to politicians that bad behaviour is expected of them and not raising the status of those who remain loyal enough, we are lowering the cost of the very thing we hate. If you let a politician know that you expect bad behaviour from him, he will ‘deliver’.

I don’t have data but how much does defection pay anyway? Would be nice to compare the number of elections won by politicians immediately after defecting to a new party with those of all others. The most high-profile one I can think of was Isa Yuguda in Bauch in 2007 who lost his party’s ticket, crossed over to another party, won the election and then crossed back to the PDP. But many people who do so regularly lose both ways, most notably an Ondo Senator who was part of 3 parties in the run up to the 2011 general election, losing 2 primaries and one general election in the process.

 

Given all these what are we to make of the much hyped difference between dagunro and tete? I think that, like many other Yoruba proverbs, the distinction needs to be updated for a modern reality. Indeed we live in a time of genetically modified foods being as mainstream as mainstream can be. A motivated scientist will not take too long to modify dagunro so it grows without thorns. And then what? It will be eaten like tete very easily, catching those who were relying on the status quo never changing, badly off guard. A few years ago, the thought of self driving cars would have been laughed out of the room, but here we are today. Assumptions are there for the taking for those who rely too much on them.

Ogbeni Rauf Aregbesola deserves all the commendation he can get for coming out on top in this battle but for the APC as a whole, there is no rest. There is so much work to be done by the party which faces a mortal danger of being annihilated in next year’s general elections, giving the PDP an implausible bigger vote share than it has now. A useful opposition party is such a critical part of the democratic furniture that we cant afford to have a hopelessly weak one. This is why some countries pay parties with tax payers money to oppose the government elected and funded by taxpayers. Here in the UK as an example, Her Majesty’s Leader of The Opposition, gets a salary rise from roughly £65k to £140k when h/she’s elected opposition leader to bring him/her in line with the Prime Minister.

A big shout out to all those who made the victory possible, but the work is still very plenty.

FF

Boom Time?

This will be the high point of my day, it’s all downhill from here” – Lester Burnham, American Beauty

 

Given that when it comes to government revenues, we are an oil based economy, what kind of times do we live in? The numbers suggest we are in an economic boom, regardless of what the reality ‘on ground’ might be.

I thought to do a comparison of Obasanjo’s first term in office and GEJ’s first 4 years in office viz oil prices and government revenues:

1999 – 2003

chart

The dates I used are from May 29th, 1999 to May 28th, 2003. In June ’99, oil prices touched $15.86 while the highest point was September 2000 when prices hit $33.15. As is evident from the chart, prices fluctuated quite a lot in those 4 years – indeed the high and low points happened within almost a year of each other.

Think of it another way – oil prices closed at $21 at the end of 1999 so if legislators were going to budget based on that for 2000, it would have been a bit of a mess because within 5 months (May ’00) prices had dropped below that high point. Perhaps this uncertainty is what caused that government to save money like it did and not really spend on big infrastructure projects.

2010 – 2014

chart (2)

The dates used here are from May 6th, 2010 when GEJ officially took over and July 31st, 2014. The lowest point of the period was in that same May when prices were $70 per barrel i.e. since GEJ came to office, prices have never been lower than he met them. The high point was in March 2012 when they hit $125. Other than that, from the graph you can see that prices have been fairly consistent around the $100/barrel mark.

I am not sure any Nigerian leader has enjoyed this kind of boom before. As an example, the chart below is for the IBB years – August 1985 to August 1993:

1985 – 1993

chart (3)

 

Can you guess what that sharp rise in 1990 one is? (Hint: Pius Okigbo report). In October 1988, oil prices hit a low of $12 and in October 1990, they hit a high of $36.

Barring a miracle, GEJ will be re-elected as President in February 2015. It’s worth thinking about what his second term might look like just in case his oil price luck runs out changes. It’s possible for things to get even better than they currently are. The chart below is for Obasanjo’s 2nd term as President:

2003 – 2007

chart (4)

 

The direction of travel is unmistakable – the lowest point of $26 was in May 2003 and the highest point was in July 2006 at $74.

With all that mind, here are some random thoughts:

1. Can you name any major project being carried out by this government that is not being funded by a loan or grant? From 2nd Niger Bridge to all the various airports being built. This is a genuine question as I am sure there are some big projects funded with oil revenues but which aren’t so obvious.

I tried to use a FoI request to work out how much foreign aid and loans were being used to fund the budget but so far there’s been no response.

2. In March 2011, GEJ signed the new minimum wage of N18,000 per month into law, up from N11,000 per month. What is often not understood is that organised labour got the government to maintain the difference between the bands after the new minimum wage came into effect. The effect of this was to almost double all salaries.

This partly explains why the Finance Minister was complaining recently that the FG’s wage bill had risen from N857bn in 2009 to N1.8trn this year – the bulk of that increase would have happened post the new minimum wage. She says the wage bill is for 1.2 million workers but the workers themselves say there are only 870,000 of them in the work force. But note that they do not dispute the N1.8trn being spent only on who it is being spent on. Whatever the truth may be as to the actual number of workers – we are spending around 38% of the budget on less than 1% of the population.

3. Bear in mind that the planned budget deficit for this year is almost N1trn (it could be more, it could be less) and there was only one surplus month between May 2013 and June 2014 i.e. a month where the government spent less than it earned.

4. Given that the bulk of government’s revenues still come from oil revenues and its finances are at full pelt at the moment, what do you think might happen if oil prices were to fall to say, $75 for around 6 months? Or what if we cant sell as much crude as we normally would? Certainly not that far-fetched – it’s getting harder to sell our crude quickly on the international market (partly due to the Americans not buying as much as they used to). By the 3rd week of July, around one-third of the August cargoes remained unsold.

As a business owner, will you be willing to pay more taxes to support the ‘Transformation Agenda’ if oil prices start to drop? Definitely worth thinking about.

Update

A couple of people have taken me to task about comparing 1999 – 2003 dollars with 2014 dollars without using a base year. So I have inflated the 1999 – 2003 numbers to 2014 dollars. For example, $1 in 1999 would be worth $1.42 today, $1 in 2000 would be worth $1.38 today and so on.

So taking that into account to update the numbers, you get a chart like the one below:

 

Screen Shot 2014-08-07 at 12.21.37

Apologies for the dodgy looking chart but you get the gist – the low point of June 1999 which was $15.86 back then would be worth $23 today, around a quarter of current prices while the high point of September 2000 which was $33.15 back then would be worth $46 today, around half of today’s prices. In other words, comparing the first 4 years of both terms means that the current government is doubling the best revenues that the Obasanjo government ever managed.

 

FF

Spot The Difference

Much noise has been made and continues to be made about Nigeria’s magic auto policy. By the way, I found what I think is a copy of the policy at the National Automotive Council’s website here. Nothing new in there except that I found an admission that prices will rise (page 105) even though the government continues to deny it. There’s also a lot of exclamation mark usage as if to drive home the point. But that is neither here nor there.

So a few days ago, the Director of Policy and Planning in the National Automotive Council, Lukman Ahmed, gave Nigerians this wonderful news:

The National Automotive Council on Tuesday announced that plans had advanced for about 30 vehicle manufacturing plants to open business in the country.The Director, Policy and Planning, Lukman Mahmud, said this was in line with the Federal Government’s plan to ensure local production of vehicle components begins in-country.The arrangement would ensure the distribution of vehicle parts through the Nigerian automotive industry at competitive prices, to create employment opportunities for the people.Prior to the introduction of the National Automotive Industry Development Plan by the Federal Government in 2013, the country had 14 existing plants at different locations in the country.According to Mr. Mahmud, the provision of incentives and protection to the industry under the new auto policy persuaded 16 fresh companies to establish their assembly plants in the country.

This is fantastic news indeed. Especially because many countries are dying for this kind of investment. As I have said previously, some countries actually bribe car manufacturers to come and setup plants in their country. In terms of investments, a vehicle manufacturing gig is one of the best ones a country can hope to have. It’s not just the jobs it creates, but the quality of those jobs as well. Workers get trained in very useful skills and a single vehicle plant can be the economic lifeblood of a town for decades. Here in the UK, if you take Nissan out of Sunderland, devastation is what you will get in its wake.

Yet Nigeria, simply by publishing a document, is now in danger of being overrun by so many manufacturers who want a piece of the action. The fact that Toyota felt the need to publish a disclaimer in the papers need not detain us here. They are simply haters who wont know a good investment if it landed on their lap.

photo (2)

 

Be that as it may, I want to do a quick comparison around the world of investments in car plants just so we know what we are getting in Nigeria. That way if, God forbid, things don’t go according to Aganga’s plan, we can at least know where things went wrong.

As we know, Nissan has been the first out of the blocks to start ‘making’ cars in Nigeria under the ‘Proudly Nigerian’ slogan. Thankfully, when carmakers announce new plants in a country, they tend to issue a press release about it which summarises their plans and what they hope to achieve. With that in mind, let’s sample some Nissan announcements.

On y va Brazil

In January Nissan announced a new engine plant in the Resende Industrial Complex in Rio de Jainero [emphasis mine]:

Nissan will invest R$140 million in the construction of the engine plant and will generate approximately 200 direct jobs. The industrial unit will use an existing building adjacent to the Vehicle Plant and will begin its activities with the production of the 1.6-liter, 16V I-4 flexfuel engine, with 111 hp and torque of 15.2 kgfm – when using ethanol – one of the most efficient in the Brazilian market.

Also this bit

The local production of engines makes the project of Nissan’s Industrial Complex in Resende a complete center. With investments totaling R$2.6 billion (U.S. $1.5 billion), the industrial unit will be one of Nissan’s most sustainable in the world, and will originate in 2014 two Brazilian cars: Nissan March and Nissan Versa.

On y va Thailand

Only a couple of weeks ago, Nissan announced its second plant in Thailand to produce the Navara:

Nissan today announced the opening of its second production plant in Thailand. The new plant will be a production hub for the NP300 Navara, Nissan’s new generation pickup truck, destined for export to 45 countries around the world. Thailand is a key market for Nissan, an integral part of their growth strategy in Asia. The country now boasts two plants and an R&D facility, and is increasing in importance as the company’s Asian hub for exports and manufacturing. Nissan has invested 3.7 billion Thai Baht ($116m) in the 580,000 square meter facility, bringing with it 2,000 new job opportunities. Full production capacity is expected to reach 150,000 units per annum.

Also:

Nissan has also invested 162 million Thai Baht in the new plant’s zero discharge program, and will recycle all industrial wastewater through the Reverse Osmosis (RO) process. Nissan will continue to provide training to subcontractors and employees to raise the awareness of waste management and resource reduction

On y va Mexico

In June, Nissan announced an alliance with Renault and Daimler to build a new plant in Aguascalientes, Mexico:

Renault-Nissan CEO Carlos Ghosn and Daimler CEO Dieter Zetsche announced today that their companies have agreed to establish a 50:50 joint venture, the business entity that will oversee construction and operation of the new plant in Aguascalientes in north-central Mexico. The new plant will be built in the immediate vicinity of an already existing Nissan plant and will have an annual capacity of 300,000 vehicles when fully ramped up.

Start of production is planned for 2017 with Infiniti models. The production of Mercedes-Benz brand vehicles will follow in 2018.

Daimler and Nissan will share the total investment cost for Aguascalientes of approximately €1 billion. The companies will add almost 5,700 jobs (including engineering, line workers and support staff) by the time the plant reaches full capacity, expected in 2021. In addition, a high localization rate will significantly increase the Mexican supply base

Also:

In November, Nissan opened the first stage of a US$2 billion manufacturing complex in Aguascalientes. This increased Nissan’s total capacity in Mexico to more than 850,000 vehicles annually

On y va Indonesia

In May, Nissan announced the opening of its second plant in Jakarta:

Nissan today inaugurated its new manufacturing facility in Indonesia. The second plant in Purwakarta, Indonesia, represents an investment of 33 billion yen (US$325m) and is a significant step forward for Nissan to become a leading brand in the country. The investment is also an important part of the company’s market expansion plan stated in its six year mid-term business plan, Nissan Power 88.

The 60,000 m2 facility includes body assembly, paint, trim and chassis operations. With the expansion, Nissan increases its production capacity in Indonesia from 100,000 units per year to 250,000 at full ramp-up. The new plant will generate up to an additional 3,000 jobs in the region.

On y va China

Two years ago, Nissan announced a new plant in Dalian, China under its joint venture programme with Dongfeng Motor Company:

Dongfeng Motor Co., Ltd. (DFL), Nissan’s joint venture in China, today announced it will build an all-new manufacturing facility in Dalian, Liaoning Province, China with an investment of up to RMB 5 billion (USD $800 million). The Dalian plant, scheduled to begin manufacturing NISSAN-branded passenger vehicles, will have an initial annual production capacity of 150,000 units by 2014, and will expand up to 300,000 units.

On y va Russia

Also in 2012, Nissan announced a new plant in St. Petersburg, Russia:

Nissan is targeting a 10% share of the rapidly growing Russian market by 2016 (up from 5.9% today) which will be achieved by tripling annual sales from the 2011 total of 161,000 units.

To support this, capacity at the St Petersburg Plant will double to 100,000 units in 2014FY The announcement follows last year’s capacity increase at the plant which currently manufactures the Teana sedan, X-TRAIL SUV and Murano crossover, to 50,000 following the introduction of a third production shift.

Nissan will now invest a further €167m to add 50,000 square metres of new production facilities, including Press and Plastics Shops. As well as bringing total plant capacity to 100,000 units, the expansion will enable St Petersburg to produce up to five different models simultaneously

On y va India

In 2010, Nissan started production at its new plant in Chennai, India. As usual, it announced it:

The plant at Oragadam, spread over an area of 640 acres, represents an investment of 45 billion Rupees ($990 million) and the capacity to produce 400,000 units per year at full ramp up. Today, the plant employs 1,900 workers and will reach 3000 in two years time. The company, along with its supplier park in Chennai, estimates a total of 6,000 jobs to be created in the region.

Ok I can see you rolling your eyes which tells me you are getting bored with all these. So one last one

On y va Portugal

Five years ago, Nissan announced a new plant in Aveiro, Portugal to produce car batteries:

Under the agreement with the Government of Portugal, Nissan will invest over €160 Million in the new facility and directly create 200 new jobs at the plant. This investment follows the announcement in November 2008 that Portugal will work with the Renault-Nissan Alliance to implement a zero emission mobility program from 2010. Within this plan, the Alliance will supply its electric vehicles from January 2011, and the Portuguese government will leverage an extensive network of 1,300 planned recharging stations that will be installed across the country over the coming two years

 

All the press releases are taken from Nissan’s websites. Feel free to click on the links. Now that we have been around the world and have a decent idea of how Nissan announces production in a country, we only need to compare these with their announcement in Nigeria. Apologies, but I will paste the whole press release from April this year below:

Nissan today became the first major manufacturer to build a car in Nigeria in response to the introduction of the new Nigeria Automotive Policy.

The inaugural vehicle, a Nissan Patrol, rolled off the production line at the Lagos assembly plant, marking a key milestone in the company’s continued wave of expansion into high-growth markets.

Nissan is targeting significant growth in Africa as the company builds momentum towards achieving its Power 88 goals, a commitment to reach 8% profitability by the end of fiscal year 2016. Elsewhere in the world as part of the high-growth markets strategy, plants have been opened in Mexico and Brazil with projects underway in Indonesia, Thailand and China. Last year Nissan announced it will be the first manufacturer to build cars in Myanmar, after the opening up of the economy in the south-east Asian country.

The first “built in Nigeria for Nigerians” Nissan Patrol follows the signing last year of a Memorandum of Understanding for vehicle assembly in Lagos between the Renault-Nissan Alliance and West African conglomerate Stallion Group.

Since then, preparing for production in Nigeria to global production standards has been achieved at a rapid pace, setting a new benchmark in responsiveness and organisational agility.

Takashi Hata, Nissan Senior Vice President and Chairman for the Africa, Middle East and India region said: “For Nissan, Africa is our strategic growth driver. Demand for cars is growing quickly in African markets as demonstrated by the first model being produced a mere seven months after the announcement of the new Automotive Policy. By acting quickly to begin production in Nigeria we are securing for ourselves first-mover advantage.”

Nissan South Africa Managing Director Mike Whitfield, who also heads up Nissan’s Sub Sahara Africa region, is delighted with the successful launch of the first Patrol. “Nissan was a pioneer in the foundation of the car industry in South Africa. Now we are once again at the forefront of manufacturing in Africa, this time in Nigeria where we see huge potential. We want to play our part in the economic growth of Nigeria and Africa.”

The rollout of the first Nissan vehicle comes shortly after confirmation that Nigeria’s booming economy has now overtaken that of South Africa. Africa’s most populous country is pivotal to Nissan’s mid-term growth plan, which seeks to double sales on the continent by FY2016, up from 110,000 units at the end of FY2012.

Nissan’s growth strategy in Africa gained momentum with the introduction this year of Nigeria’s new Automobile Industrial Policy, aimed at stimulating development of the auto industry in the country.

“We are grateful to the Nigerian government for implementing automotive legislation that is conducive to investment and that was instrumental in our decision to open an assembly plant in partnership with the Stallion Group, already our exclusive distributor in Nigeria,” added Whitfield.

Nissan anticipates vehicle demand to increase in this oil-rich country, which is seeing a rise in fast-growing industries including finance, retail, communications and film.

In addition to the Patrol, Nissan also plans to produce the Almera and NP300, starting in early May and followed by mass production in August. With these three models, Nissan aims to be a significant player

Hmmm. What’s going on here? Where is the money? From what we can see from all the examples above, a car plant is a serious investment and costs a lot of money. And Nissan never fails to tell you how much it has invested or plans to invest in the future. But these rules have been suspended in Nigeria – without investing anything, Nissan has managed to roll out cars ‘built in Nigeria for Nigerians’.

There is no mystery here – no investment has been made in the country. This auto policy has handed them a captive market without any upfront commitment from them in terms of hard cash. Nigerians should remember this in future when they are tempted to complain about ‘foreign companies ripping us off’. If you were Nissan, would you do different? Simply by removing the tyres before importing and then adding them back when the cars land in Nigeria, you have qualified as a ‘car manufacturer’ in Nigeria. Even the plant where this ‘assembly’ is going on in Lagos was already assembling buses long before the noise of this ‘auto policy’ started.

It’s not even the end of the world if things like this happen. Anyone is free to come and build cars in Nigeria without investing anything. Good luck to them. But to make a song and dance about how your ‘policy’ is causing a stampede of investors and then – adding insult to injury – raising tariffs on Nigerians in the name of this briefcase investment is completely ridiculous. When you see carmakers coming to invest in Nigeria, you will know. And the government will need to back up such investments with more than a badly written piece of paper.

As usual, we have turned a serious matter into a joke. Something which costs hundreds of millions of dollars in other countries has ‘transformed’ into a thing so trivial that 16 manufacturers are coming to Nigeria to just be littering the country with car plants. We know how this movie is going to end.

Left to Ifeanyi Ubah, Chief Cosmas Maduka is doing nothing more than ‘pure water business‘. But credit where credit is due, the man has been selling cars in Nigeria for a while and probably knows a thing or two about how the industry works. Recently he gave an interview to CNBC Africa on the ‘auto policy’ and after starting off by pledging his loyalty to said policy, he let slip his real thoughts on the thing. The video is here

Around the 4 minute and 20 second mark, you hear him say ‘we should not do things just to get attention‘ in reference to the auto policy. Or perhaps the minister.

Maybe this is what this is all about then. In which case, nothing much to worry about as the policy will probably die a natural death after the elections next year. Vote wisely because your vote will not be refunded if you hand it to anyone on the expectation that 30 car plants are going to start production in Nigeria.

 

FF

Simon Kolawole’s Watery Cement Argument

If you think the problems we create are bad, wait for our solutions” – Government

Simon Kolawole is back pushing his argument for the justification of phasing out 32.5 grade cement in Nigeria. In his latest backpage column for ThisDay, he tells us how a part of a building site behind his house collapsed last week Friday. As is the case when these things happen, it’s always a tragedy and people are injured if they are lucky enough not to lose their lives.

However, in record time, Mr. Kolawole has managed to investigate this building collapse in 48hrs and concluded that it was caused by low-grade cement (in fairness, he admitted later in the piece that cement grade is not the only cause of buildings collapsing). He then goes to throw a few jabs at people (like myself) who were opposed to banning 32.5 grade cement [emphasis mine]:

Recently, when I added my voice to the clamour for the standardisation of cement in Nigeria from 32.5 megapascals (mpa) to 42.5 mpa – which industry experts say is far better because of its setting strength, yield and adherence capability – I was shocked at the fierce opposition by some Nigerians. Not even evidence from across the world that 32.5mpa cement was going out of fashion could convince the critics. Some even rejected the proof that India and China had decided to entirely phase out 32.5mpa from the construction industry – either for plastering or concrete work.

My shock was: how can anyone reject a proposal to improve construction standards in Nigeria, with all these gory tales around us? Does it make any form of sense at all? I was glad that the blackmail and intimidation did not work. The House of Representatives has taken a position on the need to standardise cement in the country and the Standards Organisation of Nigeria (SON) has also signed on to it. Industry players are now finally shifting ground and accepting that they will now do the right thing. BUA, Ibeto Cement and Dangote Cement have all committed to upgrading cement quality. We don’t stand to lose anything

This is the typical watery stew argument that Mr Kolawole is fond of serving his readers in ThisDay. Yes, Simon, it makes sense. It’s interesting that people who opposed this move have now become ‘blackmailers’ in the book of Mr Kolawole. For having a different opinion? Wonders. Once you start hearing people say ‘there’s nothing to lose’, it’s a good sign that you are the one going to pay for the experiment, not them.

What is the ‘proof’ from China that he’s speaking about? It is true that in January of this year, the China Building Material Academy announced plans to phase out the 32.5 grade of cement this July. Why are they doing this? The answer to this question is very important because it helps to illustrate how Nigerians copy policies from one country and by the time it arrives in Nigeria, it is something completely different yielding the opposite result.

The first clue in answering that question is this recent tweet and chart from Bill Gates:

Screen Shot 2014-07-20 at 14.44.52

As statistics go, that’s one of the most staggering we’ve seen in recent times – in just 3 years, China used more cement than the US did in 100 years. How did this happen? A basic understanding of the Chinese economy lets us know that the Chinese have ‘over-invested’ in a lot of areas. The kind of investment that has gone on in China in recent years is unprecedented in human history. To achieve this kind of staggering cement output, they have been expanding output for years. No expensive degree in economics or business is required to understand that when a company invests $1 back into the business, that is $1 that cannot be consumed by shareholders. In other words, for the owners of the business, the more a company invests, the longer it takes for them to realise a return on their investment. The game gets longer and longer.

As at 2012, there were approximately 3,000 – yes, THREE THOUSAND – cement manufacturers in China of different sizes. This explains why the market is hyper competitive with rock bottom prices and massive output as illustrated above. No genius is required to know that the Chinese government is the biggest shareholder in the biggest Chinese manufacturers there. As an example, the table below shows the shareholders in the biggest manufacturer of cement in China, Anhui Conch [taken from their 2013 annual report here]:

Screen Shot 2014-07-20 at 15.04.21

The biggest shareholder is the state-owned Conch Holdings. No point going through all the other big players – the pattern will be the same. The SOE model of China invests in different companies and allows them to compete fiercely against each other.

So with all this information, here’s the actual reason why China is phasing out 32.5 grade cement:

Screen Shot 2014-07-20 at 15.08.34

 

This is the answer you will find almost everywhere – in an industry with 3,000 players producing a ginormous amount of cement, the government wants to reduce competition so it can start to make returns on its huge investments in the sector. Most of the smaller players in the industry produce 32.5 grade which is of course easier to manufacture. By getting rid of the smaller guys, the big guys who have spent enormous amounts to increase their capacity can gain a larger share of the market and deliver better returns. If Mr Kolawole has any other sources that show that 32.5 grade is being phased out in China over safety concerns, he should kindly share it and educate the rest of us.

This is how we Nigerians see a medicine that was used to treat depression successfully in one country and then bring it to Nigeria to treat malaria. For Mr Kolawole, it is enough that China is phasing out 32.5 grade cement. There is no need to interrogate further, Nigeria must do the same thing. ARE YOU A BLACKMAILER AND DENIER OF PROOF?! Or do you not want Nigeria to be like China?

And yet, not only are our industries completely different, the problems being solved are two completely different things. In Nigeria we barely have 2 serious players in the cement industry and one controls over 60% of the market. We are nowhere near the kind of market that should be reducing choice and competition for any reason at all. Until prices start to come down and cement manufacturers are no longer making 50% profit margins, we should look to increase competition. We have so many houses to build and complete.

Yet it does not matter to Mr Kolawole that he probably lives in a house built with 32.5 grade cement or works in an office built with the same 32.5 grade or the reality that 99.9% of buildings in Nigeria do not collapse. Something must be banned. And of course since Aliko Dangote has said it, how can it be wrong?

No doubt about it, even one collapsed building is almost always avoidable. But this should lead us to ask serious questions as to why many many buildings built with the same cement do not collapse and some do. How can it be the cement? The proof that Mr Kolawole is ignoring is how this whole move has been an elaborate puppet master scam. I have documented in a previous blog post how this all began with one ‘Tunde Ojo’ and a faceless coalition of civil society groups in the civil construction industry in February of this year. This ‘Tunde Ojo’ has since disappeared, along with his coalition, from the face of the earth. Nigerians are being strung along and of course people like Mr Kolawole do not want buildings to collapse near them.

This banning of 32.5 grade cement is the surest way to take a problem that affects a small number of people – each one a terrible tragedy – and spread it across the whole population. In the name of keeping Nigerians safe, their pockets will now be picked even more forcefully by the same people who are already selling them cement at 3 times average global prices. The deed is of course now done and there’s almost no turning back. But it’s useful to understand that even as powerful as government and its crony capitalists friends are, it still needs journalists like Mr Kolawole to shill for them with emotional arguments containing approximately 0% logic.

This is the real tragedy. When the government, business and regulator are all in bed together, the only hope is the press. No one is asking Mr Kolawole to accept or reject the argument against 32.5 grade. But for Pete’s sake, dig a little deeper into the arguments and let your readers come away from you more educated. What we are getting is an eagerness to ‘conclude the matter’ in favour of Aliko Dangote and co.

I wonder why….

 

FF

 

The Mekunu Revolution

I sent someone to a barber shop nearby just to hear what they are saying about my governor there. He said the barber was just complaining about how the governor is not giving them money. When they now pointed to a big school opposite his shop that the governor is building, he said ‘is it the school that we will eat?

That was a friend of mine who works in one of the South West states in Nigeria in the wake of Fayemi’s loss in Ekiti.

It is hard to escape the feeling that Fayemi’s loss has left a lot of incumbents feeling uneasy because they fear that the issues which toppled him are not unique to Ekiti. There is a Mekunu Revolution afoot and it threatens to consume any politician who stands in its way. But what is it all about? The answer likely lies in the way politicians have been reacting to whatever it is.

Fayemi himself kicked things off a month to the election which removed him from office by reversing his own reforms:

Ado Ekiti — Ekiti State Governor Kayode Fayemi yesterday went back on the decision of government to organise the controversial Teachers Development Needs Assessment (TDNA)for teachers in the state. Fayemi also announced the decision of his administration to commence payment of the 27.5 per cent Teachers’ pecuniary allowance.

Because it worked so well for Fayemi, Edo state has now decided to do the exact same thing:

Edo State Government has reversed the planned competency test for teachers in the state  and  recalled the 936 teachers whose names were deleted from the payroll over certificate discrepancies and age falsification.

This is depressing stuff. Presumably, the teacher who couldn’t read her own certificate last year when questioned by Oshiomole himself is part of the 936 teachers recalled:

Not to be left out, Governor Amosun in Ogun State has declared a ‘naira rain’ for civil servants who now have the bit between their teeth and are threatening to do him a Fayemi:

OGUN State governor, Senator Ibikunle Amosun, has approved car and housing loans for civil servants as a way of boosting their morale and efficiency at work. Amosun also  promised to implement 27.5 per cent Peculiar Allowance for teachers, as well as payment of outstanding allowances.

As anyone knows, this is as good as a gift to the workers. To further boost the productivity of these amazing civil servants who produce so much, Ogun State went ahead to build a dedicated market for them where they can shop in peace and quiet away from the Great Unwashed Masses:

‘Oja Irorun,’ a farm produce market for public servants constructed by the Ogun State government, has been established at the state secretariat, Oke-Mosan, Abeokuta.

The Head of Service, Mrs Modupe Adekunle, while declaring the market open, said it was an avenue for civil servants to shop with ease.  Mrs Adekunle noted that the market would be opened every Friday and would enable workers to purchase fresh farm produce, which would improve their healthy living.

In addition to all these there are the well worn complaints from Ekiti that Fayemi gave contracts to ‘outsiders’. This is now reverberating in Osun State where Ogbeni Rauf is being accused of hiring the ‘foreign’ Sam & Sara to set up the Omoluabi Garment Factory in Oshogbo to produce school uniforms. Sam & Sara, the complaint goes further, then went on to perpetrate the dastardly crime of hiring Igbos (who are not Nigerians) to staff the factory. To make matters worse, Ogbeni’s opponent, Senator Iyiola Omisore, unencumbered by any morals, scruples or underpants, has been playing up his ‘man of the people’ credentials by making sure he is photographed riding shotgun on a motorcycle, eating roasted corn and guguru (a derivative of corn, it must be noted).

photo (2)

Does it matter that the man is wearing what looks very much like an Audemars Piguet watch on his wrist? Afterall, the watches have a starting price of a mere £12,500.

What does this all mean for our democracy? I fear things are not looking good. For starters, the electorate seem to be sharply dividing into ‘the masses’ and ‘the elitists’ who cannot drink their coke without a dash of lime in it. The whole point of running for office is quickly boiling down to the question – na who grassroots pass?

Yet, and for personal reasons, I feel this is all sadly very wrong. I am by no means a rich man today (infact if you were to offer me some money today, I will happily relive you of it) but only a few years ago, I experienced what it felt like to be desperately poor. I was raised by my mother, almost single-handedly, and anyone who grew up in the same shoes will know how difficult, and often impossible, that task is. While I was in University in Nigeria, my Mother went through a terribly difficult financial period where my ability to continue going to school was under serious threat. In the end, an Uncle came to our rescue and the evil day was averted. Perhaps you might not be reading this blog post if things had turned out differently.

Yet, what I remember vividly from that whole period was how that desperate financial situation turned my mother and I against each other. I felt she wasn’t doing enough to find the money and she of course felt I wasn’t appreciative enough of her efforts. And on and on it went until a resolution was found. This is what I know poverty does to you – it turns you against whoever is near you and stops you from thinking properly. Come with me to the book of Proverbs, the 15th verse of the 15th chapter [Amplified], the first part:

15 All the days of the desponding and afflicted are made evil [by anxious thoughts and forebodings]

The emphasis is mine because ‘foreboding’ is exactly the word to use to describe the kind of poverty I knew. If it goes on for too long, people begin to think it is permanent state of affairs and cease to think about tomorrow. I recall reading a story some years ago which tried to explain why the January 2010 earthquake in Haiti killed 220,000 people. One of the reasons given was that there was so much foreboding in the country long before the earthquake that people could not be bothered to put basic fortification in their homes. Something was bound to come and kill them anyway so why not spend the money on something else?

When you begin to hear people asking if they are to eat the roads and schools provided for them, you are seeing a dangerous sense of foreboding. In our case as a nation, this foreboding has been caused by years and years of mindless theft and squander of our commonwealth by people who pretend to be our leaders. What the ‘common man’ sees is a system awash with naira and dollars and he cant seem to find a way to lay his hands on any of it. The people no longer want schools; they want money in their pocket. They do not really care if a school or road is built properly – they want it to be built by a local contractor who will ensure they get some of the money. All this requires is for a politician to promise to do these things and he will get a hearing.

Predictably, where leadership is required, our politicians, who had no convictions to begin with and have spines made of chocolate, have utterly capitulated. Was there no reason in the first place why construction contracts were given to reputable (the other name for ‘outsiders’) firms? A bad contractor is a bad contractor, period. This is an opportunity for governments to crackdown on those who do terrible jobs and use that as justification for the decisions they make. Is there no cost to bad teaching? Why were the reforms instituted in the first place? Is there any more evidence required for teaching reform than looking at the shambolic state of our education which does not equip anyone to solve the problems facing us as a nation. And surely, there are people who have benefitted from these reforms – where are they to act as cheerleaders for it?

It is not that ‘the masses’ are stupid and do not know what they are doing. Far from it. I think that those who exchange their votes for money know exactly what they are doing. There is a foreboding and the people want to take their payment upfront or perhaps ‘eat their seed corn’. Why be patient with a politician who promises reform when chances are that he is lying and stealing anyway? There will be no tomorrow.

Where is this Mekunu Revolution leading us? I do not know for certain but I doubt it’s a very good place.

But the biggest message in all of this is that we now have a pretty good idea of how the vast majority of the population are against any kind of meaningful reform even if they all have different reasons for their opposition. Once upon a time, Baptists and Bootleggers in America were on the same side supporting alcohol prohibition too, as implausible as it sounds.

We can remain like this as a country for many many years to come.

FF

 

Corporate Affairs Commission – Satan’s Embassy

I am not feeling in a particularly nice mood so I am not obliged to be generous or polite – the people who run Nigeria’s Corporate Affairs Commission are the First Born Sons of Satan (FBSS). They are the Devil’s Ambassadors in Nigeria carrying out his work for him.

The Vanguard carried a long story today about how the utter shamelessness of this organisation and how it cannot successfully run a tap let alone a bureaucracy. It is the story of how a body has chosen to be unreformable and will regress to the mean no matter how many times you try to change it. Completely smashing it is the only solution.

Make no mistake though – this is not anyhowness. That is a different phenomenon on its own. There is a bureaucracy at its worst – existing for no other reason other than to generate more bureaucracy ergo, any attempt to reduce some of this bureaucracy is resisted.

Barely two years after it was commissioned by the Minister of Trade and Investment, Mr. Olusegun Aganga, the 24 hours registration of businesses by the Corporate Affairs Commission, CAC, has collapsed due to technical hitches occasioned by server failure.

As a result, business registration now takes between one to three months, while business name availability search takes more than one week

No, there is no server failure anywhere. Not at all. In fact, nothing has failed. The system is working precisely how the FBSS want it to work – it is a characteristic of a bureaucracy to ‘make work’ where there is none. There is no Fermat’s Theorem to solve – simply putting a lot of these things online will cut the time to do register a company considerably and make things easier for everyone.

So why haven’t we managed to put the CAC’s processes online? It is not for lack of trying. Here’s what the World Bank said in the Doing Business Report a few years ago:

 

CAC Screen Shot

For nearly a decade, the FBSS have been resisting going online. Perhaps they have had no electricity since then. But the clue as to the reason for their behaviour is plain to see – even when they ‘experimented’ with going online, they still wanted people to come down to their office to complete the transaction ‘online’. Is this because you cannot collect a bribe online? Is it because you need physical interaction to facilitate a lot of corruption? I don’t know, you tell me.

One of the most annoying things about the Trade and Investment Minister, Olusegun Aganga, is that he has a habit of announcing things to much fanfare and newspaper headlines and then moving on to the next thing. As if, things are supposed to work by magic.

While unveiling the 24 hours business registration in November, 2012, the Minister of Trade and Investment, Mr. Olusegun Aganga said that, “The target is to ensure that companies are registered within two hours and to institute a vibrant and transparent companies’ registry, where services will be user-friendly.”

He had also at the time directed that a complaints register be opened for anyone who is not able to get his company registered within 24 hours. This he said was to show that, “We mean business and that we care about our customers.

If the FBSS have resisted online registration since 2005, defeating this 24 hour ‘announcement’ would have been no more than a cake walk for them. If Aganga cared about making business registration easier, he would not have left it to simply an announcement especially when the thing never worked for more than 5 minutes.

And this is the most ironic part of the piece:

This is also leading to loss of revenue on the part of CAC because any availability search initiated is paid for and if a particular name is not available, a client may have to pay again to initiate another search. The implication is that the more names they search for, the more money they make but now that availability takes like three weeks, it means they will generate less revenue from name search

We can assume that one of the main reasons why people register a business is to make money. Yet the people charged with being gatekeepers to this very business registration process are not interested in making money themselves. It’s not so difficult to conduct a name search if people are motivated to do it, yet the FBSS drag their feet and do it at their own pace (they also close to the public at 2pm everyday…no doubt after doing massive work). Their incentives are clearly elsewhere.

Why is business registration so important? The answer is in the failure rate of businesses. The benefit to society only materialises when those businesses start to make money, pay taxes and employ people. None of these is guaranteed. Instead, what is almost certainly guaranteed is failure – perhaps only 3 out of every 10 new businesses will survive past their second year maybe. Or to put it another way, to get 3,000 successful businesses, you need to register maybe 10,000 of them and be prepared for the vast majority to end up as failures.

By handing control of this process to the FBSS, we are preventing the necessary failure that leads on to success from happening. This is why making it easier to do business is such an important reform for countries. Beyond the actual reforms, it is a signal as to what kind of society a nation wants to be. Signalling that you are open for business is telling would be entrepreneurs that its ok come and fail so you can succeed. Instead what are we doing?

Screen Shot 2014-06-30 at 23.46.31

Almost every indicator worsened from 2013 to 2014. On Starting a Business, where the FBSS hold sway, we dropped down 8 places on the rankings. With Kenya launching mobile company registration today, it is almost certain that we will do worse next year.

People who stand in the way of doing business really are the children of the devil. They are economic Boko Haram. The thing they are preventing from happening is the greatest known antidote to poverty in the history of man. We need to wake up and resist this madness.

And we haven’t even spoken about the ridiculous costs of registering a business -charging a fortune for the privilege of having your business registered in 2 or 3 months.

Assholes

 

FF

 

Parsing The Ekiti Handwringing

A loss like Kayode Fayemi’s in Ekiti on Saturday was bound to generate plenty of commentary and analysis. Predictably, people want to nail down ‘why’ he lost given that he was quite popular on social media and in ‘elite’ circles.

I am not sure I know exactly why he lost, but some of the reasons being thrown around can be examined as a way of adding to the discourse. I am not sure some of the theories out there cut it and here’s why

Fayemi did not share money and even when he did, it was too little, too late 

This is one of the most common theories floating around and it is certainly true, give or take the odd embellishment. The people wanted ‘stomach infrastructure’ but Fayemi was too ‘tight fisted’ and didn’t cater to that need. By the time he realised and started sharing the money (that Fayose was presumably sharing liberally), it was too late and the tide had turned against him irretrievably.

The implication of this is that you cant afford to be stingy as an elected official in Nigeria. Even more worrying, it doesn’t matter how many roads you construct or projects you commission, if you don’t attend to this stomach infrastructure, the people might tell you to come and ‘carry the road’ you built for them. Also, if you have been stingy for long and you suddenly start bringing out the rice and money near the elections, the people will turn up their noses at you.

This explanation makes a lot of sense but it has one problem and that problem is Peter Obi.

You will struggle to find an Anambra man who thinks that Peter Obi didn’t perform while in office. The man generally served his state well and the people recognised that. But the ‘complaint’ you will hear from most people is that he was ‘tight fisted’ and never shared ‘money for boys’. More interestingly, if you followed the news in the final months of his governorship, you would have noticed the Naira rain he embarked upon – everywhere he went, he was donating one large sum of money or the other. My usually reliable ‘sauces’ tell me that he finally brought out the big guns, to the tune of N3bn, in the final few weeks of the campaign and shared it to get his protegé, Willy Obiano, elected. I’m told that Obiano had the mind to cancel some of the last-minute contracts Obi awarded before he thought the better of it. Obi never borrowed money and his ‘tight fistedness’ meant that he had cash to spend when he needed it.

So what gives? Why was Fayemi’s stinginess and last-minute money sharing punished so severely while Obi seemingly got away with the same ‘crime’? Aside from the obvious fact that Peter Obi is not Kayode Fayemi, I think the answer lies elsewhere in a more fundamental law of politics. I will proceed to name this F’s Law of The Opponent In Front Of You. You’re welcome. This law simply states that all electoral strategies and tactics are subject and subordinate to the opponent you are facing.

One of the most reliable tricks politicians, especially incumbents, have used to win elections since time immemorial is to label their opponents as ‘outsiders’. If you can successfully paint your opponent in an election as an outsider who is different from the majority of the electorate, you will be on solid ground. As an example, the frontrunner in the Indonesian presidential slated for July 9th, Joko Widodo, has recently been battling charges that he is a closet Christian. In the world’s largest Muslim country, this is a deadly ‘crime’ indeed and as such Jokowi has been scrambling to have his photo taken with popular Imams and releasing pictures taken when he went on the hajj.

Where Peter Obi and APGA could label Chris Ngige as an ‘outsider’ sponsored by ‘Bourdillon’, this tactic probably wont have worked with Fayose given that GEJ is not unpopular in Ekiti. If anything, the outsider tag was more likely to stick on Fayemi himself. But perhaps trying to label your opponent an outsider by tying him to GEJ might work in a state like Kano where GEJ is much more unpopular. Or perhaps not.

The point is that ‘stinginess’ is not a fatal flaw in a politician. Fayemi was not the worst governor in the world so even this sin could have been forgiven by the voters given a different opponent in different circumstances. So the message to any politician currently opening the treasury to flood voters with stomach infrastructure in a bid to win the next election – it might work, it might not work. It all depends on the opponent you will be facing and the atmosphere under which that election will be contested.

Fayose is popular with the masses

This is the one most people agree on. Fayose eats corn and banana with the ‘masses’ by the roadside. He knows his way around the streets and the people love him etcetera etcetera. One would think that popularity is all that’s needed to win elections in Nigeria these days.

In the 2007 gubernatorial elections in Ekiti, Fayose threw his ‘popularity’ behind the ANPP candidate, Yinka Akerele, who leveraged all the popularity and gallantly came third. After this, he moved to the PPA and then the Labour Party. In the next governorship election he threw his weight behind the ACN and openly campaigned against the PDP who still won the rerun election. Finally in 2011, he moved back to the Labour Party where he used his popularity to contest the senatorial election. He came a distant third. It was after this he moved back to the PDP from where he won last Saturday’s election.

The man’s a maverick, no doubt about that. But he’s also ‘anyhow’. And an anyhow candidate needs a solid structure to translate whatever talents or popularity he has into electoral victory. To put this victory down to Fayose’s ‘popularity’ is to miss a couple of important points.

First, Adamu Mu’azu’s appointment as PDP Chairman has been the political equivalent of replacing Shola Ameobi with Ruud Van Nistelrooy. I was joking with a friend earlier today that the APC should have gone to court to stop GEJ from replacing Bamanga Tukur as PDP Chairman. Not only has he stopped the PDP bleeding, he has infused it with new energy and put them back on the front foot. Observing him at the World Economic Forum in Abuja last month, he was everywhere talking to everybody. When he wasnt holding hands with someone gisting and walking briskly, he had his arms around their shoulder talking directly into their ears. Those who know him say he is full of cunning and if you spent years running succesfully from Ribadu and his EFCC, then you must have some useful political skills indeed. Putting the power of a newly invigorated PDP machine at the service of Fayose played a crucial role in converting whatever latent popularity Fayose had into victory at the polls. It doesnt happen automatically.

Secondly, political fashions are notoriously easy to misinterpret. Many politicians across the world have gotten elected purely by portraying themselves as the opposite of X, where X is a currently hated politician. Would Barack Obama have defeated George W. Bush in 2000? It is doubtful given that Bush won by being more folksy than Al Gore who people thought came across as too Professorial. 8 years later, Americans were tired of Bush’s folksiness and bad grammar and Obama the well spoken law Professor was in fashion inspite of the charges of elitism and arugula eating levelled against him. Francois Hollande campaigned against Nicolas Sarkozy in 2012 by telling the French people that he was ‘Mr Normal’, in contrast to Sarkozy who often acted like he was crazy.

There is a tide in the affairs of men,

Which taken at the flood, leads on to fortune.

Omitted, all the voyage of their life is bound in shallows and in miseries.

On such a full sea are we now afloat.

And we must take the current when it serves, or lose our ventures

It’s hard to imagine that a candidate is ‘permanently popular’ anywhere. They go in and out of fashion and the smartest ones are those who take the current when it serves. The people of Ekiti had come to dislike Fayemi and his style of governance. They were tired of his ‘elitism’, real or imagined. Tomorrow they may come to desire elitism once again. It’s the nature of democracy and the way voters like to change their minds every so often.

To paraphrase the immortal words of Ice-T – Fayose didn’t choose the game, the game chose him. To take Fayose’s victory as some kind of Iron Law which repudiates elitism is an interesting conclusion if not hilarious.

The scale of Fayose’s victory

This aspect of the outcome is curiously being treated by many people as something normal. As if, incumbents always lose elections so heavily in Nigeria to the point of losing every single local government in their state. I remember during the 2011 guber elections in Nigeria. I had voted in Lagos and the results were more or less a formality for Fashola who was quickly announced as the winner. But in Oyo state, getting out Akala was never a walk in the park. I kept texting a friend in Ibadan to ask if the results had been released and in the end an Army General was drafted in to escort the final set of results to INEC’s office.

You don’t just beat an incumbent in Nigeria. No matter how bad the person was and even the most uncharitable people wont say Fayemi was the worst Governor in Nigeria’s history. It’s a big job and incumbents go down kicking and screaming. So how did this happen in Ekiti?

The one thing most people can agree on is that INEC did an excellent job on Saturday. A few changes were made which made things like ballot snatching a waste of time. Around 2pm, a friend who was in Ekiti said ‘it’s over. Fayemi has lost…he’s losing everywhere’. And that is exactly what happened – he lost everywhere.

If this was all down to INEC’s improvement, then the logical next question to ask is – how many governors have been losing elections in Nigeria in reality but manage to return to office using the power of incumbency? If Fayemi could lose in every local government, then it is safe to say many governors in the past have also lost every LGA in their state. Yet, this is the first time we have it on record as this happening.

If INEC keeps up this level of performance, then we can expect many many incumbents to lose elections spectacularly next year. Voters will vote out many politicians ‘for the fun of it’ or to test their new-found powers.

So what does this tell us? Was Fayemi uniquely bad as a governor? Or was he the pioneer of a new trend we are going to see a lot more of? If it’s the latter as I suspect it is, then in a few months time, this defeat will be overtaken by much bigger ones.

 

I don’t know exactly why he lost. I suspect it’s a number of things and not just one thing. But I know that a lot of reasons being given don’t quite cut it and many will learn the ‘wrong’ lessons from this. But what do I know.

Sorry I made you read nearly 2,000 words without giving an answer.

FF

 

Who Pays The Taxes Around Here? Not Seplat

First let me state a couple of points

1. I hate taxes. I am from the school of thought which defines taxation as the art of plucking the goose with the least amount of hissing. So you will never catch me arguing for higher taxes (except when there’s an externality that needs to be dealt with or bad behaviour corrected). Nevertheless, I think that what is worse than taxation is a system that allows different people to play by different rules. If taxes are levied at a 99% rate, I can live with them insofar as some people are not finding a way to game the system and end up paying only 10%.

2. I don’t really understand the oil and gas business. My knowledge of how things work there is perhaps no more than basic. So part of my reason for writing this post is to learn some more. I invite you to use the comments section under this post.

Industrial Development Act

Nigeria has something called the Industrial Development Act which was passed to encourage investment in the country. If you build a new plant or industry, you get exempted from paying taxes on it for a number of years. This is a good thing of course because if a company had a choice between investing in say Kenya and Nigeria and Kenya does not offer such incentives, then this law can easily swing things in Nigeria’s favour.

But rather than speculate, let’s quote from the law itself as amended in 2004:

Pioneer conditions

1Publication of list of pioneer industries and products and issuing of pioneer cer- 
tificates

(1) Where the President is satisfied that-

(a)       any industry is not being carried on in Nigeria on a scale suitable to the eco-
nomic requirements of Nigeria or at all, or there are favourable prospects of
further development in Nigeria of any industry; or

(b)       it is expedient in the public interest to encourage the development or estab-
lishment of any industry in Nigeria by declaring the industry to be a pioneer
industry and any product of the industry to be a pioneer product,

That’s from Section 1 of the act. Pretty straightforward to interpret that this is something that should apply to new industries in the country i.e. something we are not currently doing but we want to or something we are doing but not enough. So we can safely conclude that a pure water manufacturing company should not be able to get pioneer status based on the letter and spirit of that law.

So far so uncontroversial. If we move down to Section 10 of the law, we see how long the pioneer status is supposed to last for:

10. Tax relief period

(1) The tax relief period of a pioneer company shall commence on the date of the
production day of the company, and subject to sections 3 (6) and of 7 (2) of this Act, the
tax relief period shall continue for three years.

(2) The tax relief period of a pioneer company may at the end of the three years be
extended by the President-

(a)      for a period of one year and thereafter for another period of one year com-
mencing from the end of the first period of extension; or

(b)       for one period of two years.

So the maximum period for pioneer status is 5 years. Again, nothing controversial here. Let’s skip some more legal jargon and go to Section 16 to see what exactly this pioneer status does for a company:

16. Profits exempted from income tax

(1) Subject to the provisions of subsection (2) of this section and section 17 (6) of
this Act, where in the application of Parts IX and X of the principal Act, a statement is-
sued under section 14 (4) of this Act has become final and conclusive, any profits shown
by that statement shall not form part of the assessable profits or total profits of the pion-
eer company for any year of assessment and shall be exempt from tax under the principal
Act.

(2) The Board may, in relation to any statement issued under section 14 (4) of this
Act, declare that the whole or a specified part of the profits is not in dispute, and any such
undisputed profits shall be exempt from tax under the principal Act pending the statement
becoming final and conclusive.

I highlighted the section above for emphasis. Once you have been granted pioneer status, after fulfilling the necessary conditions, you don’t pay any taxes on the profits you make in the 5 year period of the pioneer status (assuming the initial 3 years is extended). The best example of a company using this pioneer tax status is perhaps Dangote Cement:

Screen Shot 2014-06-21 at 13.57.35

Looking at the numbers above (page 3 of the Dangote accounts) you see that rather than pay any taxes, the company actually got a tax credit as a result of the new cement plants like Obajana that it built. This is how the system works. In the case of Dangote, we know for a fact that cement production in Nigeria has increased as a result of his investments and he has built new plants that weren’t there previously.

For a quick primer on the IDA, click here (PDF).

Seplat

Which brings me to the purpose of this post. Seplat was in the news recently when it raised $500m on the London and Lagos Stock Exchanges. It’s one of, if not the most, successful beneficiaries of Nigeria’s Local Content Act which has been transferring assets in the oil industry to Nigerians to allow them participate and grow their skills.

Seplat acquired 45% of 3 oil-producing assets from Shell and Agip namely OMLs 4, 31 and 41 in July 2010 when they were producing around 18,000bpd. My rudimentary knowledge of the O&G industry tells me that the difference between an OPL (where the P is for Prospecting) and an OML (where the M is for Mining) is that an OML is one that is already producing oil i.e. all the exploration and investment has been done and the oil is already coming out of the ground. In other words, buying an OML is like buying a shoe that comes with socks inside it, if you like. An OPL on the other hand has not produced any oil but it is a given that there is oil in the asset i.e. plenty of investment is required to get the oil flowing.

I’m told, reliably, that not only did Seplat buy the OMLs, it even ‘bought’ Shell staff as part of the deal. That is to say, it was handed the keys to the working asset along with people who had experience operating it. This is not to say that Seplat has not done anything since purchasing the assets – it has increased production in the fields mainly by boosting community relations which in turn has greatly reduced the piracy challenges that Shell was finding difficult to manage in those sites.

 

Having said all that, let’s go to page 28 of the investment prospectus the company released to investors when it was preparing for its IPO:

Screen Shot 2014-06-21 at 14.24.28 This is very interesting to say the least. Upon acquiring these assets, Seplat somehow obtained pioneer status on them. Think back to the spirit of the act above on how a company gets pioneer status and then apply to that a company buying working assets and simply continuing a business that was already in operation. How exactly does this work? As you can see from the extract above, the company is exempted from every possible tax it would normally be liable for.

Indeed we can see the effect in the company’s 2013 accounts (page 18):

Screen Shot 2014-06-21 at 14.37.27

From 2012 to 2013, profits increased by 45%. In 2012, the Nigerian government collected taxes on these assets to the tune of $95m. By 2013, these same assets that generated tax for the government had somehow become ‘pioneer’ and ended up paying a big fat zero in taxes. Zilch.

Alhamdulillahi.

What is going on here? I have no idea, but maybe you do. It is indeed difficult to understand how an extant company that was previously paying taxes to the government somehow ‘transformed’ into a pioneer company that pays no taxes.

Tax To GDP Ratio

Why does all this matter? Well, one consequence of rebasing our GDP to $510bn is that it has exposed how little the government is collecting in taxes as a share of GDP. Indeed, the Finance Minister said it in April that this percentage – tax to GDP – declined from 22% to 12% following the rebasing:

But now with this recalculation, our revenue to GDP ratio is 12 per cent and our non-oil revenue ratio to GDP is four per cent, which means that we live worse than before.

“As you know, our revenue ratio to GDP before was 20 per cent, just about in the middle of the emerging market economy, not as good as the 22 per cent that we want to be.

“For tax revenue to GDP, we now have to redouble our efforts to get back to the 20 per cent ratio at least to where we were before,” she said.

What this means is that there is a lot more tax out there to be collected which is a no brainer given the amount of work that needs to be done in Nigeria in all spheres of our development. If you’ve been following the news recently, you will have noticed that every other day the Federal Inland Revenue Service (FIRS) is embarking on one ‘crackdown’ or the other in the name of boosting the government’s tax collection. A random example from last week was when the FIRS carried out ‘enforcement activities‘ against NICON Hotel and NICON Insurance over the companies’ failure to pay N90m it owed in taxes. In the days and months ahead, we are going to be seeing more of such ‘crackdowns’ especially because the Nigerian government has only managed one surplus in the last 13 months – everything it earns, it spends and then borrows more. The deficit – the extra the government had to borrow on top of what it earned – for the first 4 months of the year alone stood at N430bn. The tax forgone from Seplat is at least N15bn (assuming it paid the same tax for 2013 as it did in 2013).

Conclusion

Who pays the taxes around here? Is it the little guy who gets harassed by FIRS and has his business shut down for not paying a couple of millions? I haven’t bothered to check any of the other local content guys but I am almost certain that I will find the same arrangement there. The pioneer status is now evidently meaningless and is something that can be obtained by interpreting the laws very loosely. As I said earlier, I have no problem with anyone not paying taxes as long as the option is available to everybody and not just some connected people. Can we all be pioneers and not pay any taxes? If that’s the case, sign me up!

This is just one aspect of the byzantine laws that are so easily abused in Nigeria. There are waivers and there are concessions that have been abused in the past. All these things increase the government’s desperation for revenues and that in turn contributes to the harsh business environment of Nigeria where all sorts of government agencies turn themselves to parasites on small businesses with all sorts of taxes and levies.

But maybe this is all fine and Seplat is indeed a pioneer company? So what have I missed?

FF

*P.S Thank you to the person who helped me with information in writing this post. You know yourself.

 

 Addendum

Someone sent me some interesting comments but wants to remain anonymous. They raise some very interesting points I missed out.

I wanted to fill you in on some areas that you may find interesting:

1. The IDA which you referred to, is actually a subsidiary legislation to the Companies Income Tax (CIT) Act.  It makes several references to “The Principal Act” which it then defines as the CIT Act. So technically, the tax exemptions in the IDA only relates to companies liable to CIT, rather than Petroleum Profits Tax (PPT).  Also, the powers granted to the President or Executive Council to exempt companies from tax (which is what the IDA was enacted to accomplish) is in line with Section 23(2) of the CIT Act.  No such powers are given under the PPT Act.

2. So why does a company taxed under the PPT Act enjoy Pioneer Status from the IDA (a CITA subsidiary legislation)?  Well strictly speaking, it shouldn’t, based on the above point.  And this was the FIRS’ position on the matter until sometime last year, as far as I know.  What changed?  It received a directive from the Presidency that it should honour the Pioneer Certificate issued to oil and gas companies by the NIPC.

3. I must say that there are arguments that could be made for the NIPC to grant a pioneer certificate to an O&G company (I must admit they are not water tight).  For instance:

  • The original pioneer list provided in the IDA can be expanded by the Executive Council.  The powers of the Council in the IDA has been granted to NIPC (See Sections 22 and 23 of the NIPC Act).
  • The NIPC a long time ago (nobody knows exactly when) expanded the pioneer list to include “Mineral Oil Prospecting and Production” and “Petroleum” as pioneer industry and pioneer product respectively.  You can find a full list on the NIPC website.
  • The presidential directive may have legislative backing.  Section 51(1) of the FIRS Establishment Act subjects the FIRS to the general direction of the Minister of Finance.  The provisions of this Act takes precedence over those of the PPTA (which has no provisions of tax exemption powers, like I mentioned in 1 above).
  • A Pioneer Status Incentive (PSI) Regulation was issued in January 2014 by the NIPC.  It provides that an applicant must have incurred a capital expenditure of N10million (small change abi?).

4. You missed out on something interesting, which adds to the question on how an extant company suddenly becomes a pioneer one.  The PSI Regulation also provides that an application must be submitted within one year of the applicant’s commencement of commercial production.  The IDA (Section 6(1)) also has something similar.  You would think that this should fall within a commencement years of the business.  However, the NIPC, in practice, gives a discretionary waiver of the timeline for this application.  Therefore, whenever you apply, you may get it. And the tax relief period will commence on the date of the Production Day certified by the Federal Ministry of Industry, Trade and Investment.

5. From what I know, Seplat was one of the O&G companies to obtain pioneer status only recently.  A few others have obtained same in the past. I know one that has even come out of its 5 year pioneer period. Seplat most likely needed it to make their prospectus smell a lot nicer.  So they joined the band wagon.  I guess their case is more popular because they went public.

6. Finally, there are strong rumours that the Government is reviewing its policy on granting pioneer status to indigenous O&G companies, as it is causing a serious decline in revenue from PPT.  You mentioned that Seplat’s pioneer period commenced on 1 January 2013. Isn’t it odd that it commenced last year when they only obtained the certificate this year?  As you may be aware, PPT is paid in installments in advance, so it already paid a significant amount of its 2013 tax.  Now they are requesting a refund.  They might just be the harbinger of a policy reversal.