Ongoing Konkere Wars – An Update

Quick post.

As you know, this blog has decided to provide rolling coverage, at no charge to readers, of the ongoing drama around cement in Nigeria. I do this purely out of the Christianity (or what’s left of it) in my heart, so you don’t need to thank me for it.

If you are not up to speed – Part 1 of the War began with the mysterious ‘glut’ in the market. Hostilities were soon renewed by the belligerents after a brief period of peace, this time over ‘standards’. While battle raged, I decided to take a look at the numbers for cement production in Nigeria. They were so alarming that I was compelled to exercise my right as a citizen of the Federal Republic, guaranteed under the constitution, to write an open letter to any minister of my choice. Then a really smart reader sent me more information that added context to my letter and increased our understanding of the Nigerian cement ‘market’.

Again, as you may have guessed, I have my ‘sauces’ embedded everywhere inside the Federal Government of Nigeria and its agencies and one of them has very kindly sent me a presentation by the President of COREN [Council for the Regulation of Engineering in Nigeria] to stakeholders in the construction industry, put together by SON.

[Sidebar: Yo SSS, if you are reading, I was only joking about having people embedded. I don't want anyone delaying me in the hot airport when next I am in Nigeria. Thank you kindly]

Forgive the style of the presentation, but it contains plenty of useful information that improves the quality of the debate currently going on over cement standards. If both sides are now fighting each other with facts and empirical evidence, then that is a much better thing than the dodgy stats that have been deployed before now.

The presentation is below. Here’s hoping that facts and logic win at the end of the day and Nigerian consumers get a better deal out of the market. Read to the end.

Final REPORT ON CEMENT QUALITY IN NIGERIA

 

FF

 

P.S Message to SON: Audite et alteram partem

Response to My Open Letter: An Insight Into Nigeria’s Cement ‘Market’

A friend read my open letter to the Finance and Trade Ministers and sent me an email.

I have nothing personal against Dangote (not like it matters) so it’s important to share whatever (superior) information I have especially as cement seems to be the economic topic du jour.  I’ve posted his email, with permission, below, unedited.

—————————————————————–

I think that’s a brilliant attempt at driving change in the cement industry. However, I think rather than comparing Dangote to these global guys, look much closer to home to see why the local market is distorted. Dangote, if you ask me is a brilliant capitalist in the mould of Rockefeller & J.P Morgan etc. The Nigerian cement market is your classic oligopoly featuring Dangote, Lafarge WAPCO, Ashaka (which is owned by Lafarge) CCNN, BUA and Unicem (Again partly held by Lafarge and Holcim, whose merger means they could potentially own three cement coys) and other puny players like Ibeto who import.

The table below showcases the gross margins of cement producers in Nigeria that are listed on the NSE over the last five years:

Screen Shot 2014-04-16 at 23.11.38

 

Notice Dangote has consistently high gross margins which is an insight into direct costs. Now local cement prices are the same for all players or broadly in range. Indeed Dangote’s prices were for some time slightly lower than peers until perhaps recently. 

Still he’s always had higher gross margins. Why?

The key driver of costs for local cement players at gross margin level is energy costs. Other players predominantly use LPFO which for a reason I can’t fathom is expensive to source locally. However, Dangote uses gas to fire his kiln at his cement plants thus he’s already at an advantage across all his shiny new plants except BCC, Gboko (which is why he rarely uses it).

Gas prices in Nigeria as you know are fixed and remain well below international prices (depending on who you speak to <$2). Which explains why not much investments in gas infrastructure until recently thanks to the gradual MYTO thingie. Anyway you can see why Dangote is much more efficient. Add to the mix that his plants are all more recent vs. ageing plants at CCNN and Ashaka. 

WAPCO seems to be catching up with their new plant which is gas powered. WAPCO was recently in the news about selling power to the grid but their older plants still use LPFO due to poor gas pipeline infrastructure issues. Most manufacturers now produce electricity using gas - Nestle, FlourMills, Dangote etc

Broadly speaking, you can clearly see why other players have no incentive to slash their prices as they stand to lose more than Dangote. Logically, he should slash it and force loss making firms to exit the industry.

My theory – what we have is implicit collusion which causes all cement producers to leave prices at current levels and enjoy high profits. Entry barriers to the industry are high enough so we can all stay comfortable as long as no one slashes. This means whoever drives the most volumes ends up market leader which is why Dangote always goes BIG! His efficient plants means profits are bulkier.

Screen Shot 2014-04-16 at 23.17.25

Next table is EBIT margins which gives a sense of operating efficiency. Again who’s the monster here, Dangote. Why? 

Again part of this reflects the feed through from gross margin levels but whatever Dangote is doing he’s ruthlessly efficient. OPEX includes stuff like distribution. Now I’m talking margins which mean he’s good at getting things out per unit of sales than other guys. Some of this reflects geography (my theory) – he’s centrally located vs. WAPCO; who are concentrated in the South West , CCNN; North West, Ashaka; North East and Unicem; South South.

Screen Shot 2014-04-16 at 23.24.51

Screen Shot 2014-04-16 at 23.25.33

Lastly is the PBT and PAT margin.

Look closely now – before taxes his margins are already 45%. Now the tax credits push him above 50%. Nigeria has a policy which I remembered being taught from undergrad days called Greenfield Tax Holidays. It’s real. You build a new factory and any incomes earned on that new factory is tax free for five years. It’s not Dangote alone who enjoys this. Several other companies enjoy it but it’s only on new factories. So if 50% of your sales come from your new plant, only 50% of incomes earned there are taxable. Dangote’s plants are all largely brand new. Voila! His tax holidays.  WAPCO last year also got a huge jump in earnings as it began benefitting from tax holidays on its new Latabaku plant.

But now to the economics. Dangote enjoys those high prices because he knows other players have no incentive to slash theirs or they would be on zero margins. All he has to do is work on efficiency and expand volumes to get fat profits. This is where my thesis of implicit collusion comes in. His getting fat implies other less efficient firms are allowed to survive on those high prices.

Rather than your Keynesian sounding idea which requires the firm hand of government – which runs contrary to the free market doctrine I associate with you – I would clamour for a competition commission as this is Nigeria, that process of having a website and doing lotteries still sounds arbitrary to me. I don’t think markets are bad, I think markets fail every now and then and thus we need visible regulation or system of rules to fix them. What would happen in other climes is that a competition commission steps in and decides ‘hey guys you’re colluding. We think prices should be down here’. After that hefty fines are handed out and prices adjust downwards which will force smaller loss making firms to either get bought up or liquidate. Currently we have equilibrium at an undesirable level, we need to invent that wheel to force everybody down.

I think long term what will happen is that there will be fewer players maybe just 2. Most countries have just few players. Lafarge has been mulling merging Ashaka and WAPCO for sometime. But you know our people, they keep resisting fearing Lafarge will close down the factory in Gombe. I wonder what will happen now that Lafarge and Holcim have merged. Dangote knows this well which is why he’s aggressively expanding capacity to meet demand for the whole country so that when that time comes to slash prices it will be on his terms. This is your classic price leadership in Oligopoly outcome – standard in economic texts. I watch the sugar industry and I’m seeing the same thing playing out there as well. But the cement industry is some years ahead of this.

Dangote enjoys his high margins from gross levels largely not from taxes. Over the next 2-3 years this will lapse. His sugar business pays statutory 32%, no holidays there. I think Dangote is what happens when regulation is lax not that he’s some serial cheat. He’s the natural result of market failure. He’s exploiting the fact that others won’t slash prices.

NB: on the tax issue which a lot of people are getting worked up about – do you know how much taxes Nigerian banks pay? Hint: Sanusi was railing against the current banking model of getting cheap deposits at zero to 3-4% and investing in govt securities of over 10%. Why? Govt securities are tax free. Nigerian banks tax rates are nowhere near 32%.You can check it.

If you look closely at the Nigerian economy, everything is rigged: gas prices, petrol prices, school fees, exchange rate – the biggest subsidy of all and implicitly cement prices. We abhor competition because it creates price volatility. Yet, to unleash our economy we must break out from this mindset and move to a market based system. That change however is something we are not prepared for as you remember from the fuel subsidy protests. So it has to be gradual. 

I’m sorry I had to write this long thesis I hope it helps shape your solutions. Ironically today I was watching CNBC and the South African Competition Commissioner was saying cement is one of the most collusive industries globally. It does not need the players to do any cloak and dagger stuff all they need is some equilibrium that suits everyone which is guaranteed by high entry barriers.

Imports can work but I believe Nigeria is not at the time now. We still peg our currency implying everyone gets an implicit subsidy on imports and our size as well means imports have a negative effect on reserves.

——————————————————————–

First off, thanks to the person who sent this to me [He wants to remain anonymous]

Let’s try to unpack some of that.

1. If the above theory is true (and I think it’s very sound), then the problem is rather different from what I thought it was.

‘Entry’ and ‘exit’ are compulsory features of any functioning market. Some people will always die and leave the market. But if profits rise for the survivors, that will attract new players into the market again. And so on. To enter the market, you have to do something better than those who are already there.

Does the fact that Kodak went bankrupt mean that people are taking less photos? No. In fact, human beings are taking more photos than ever before but Kodak has exited the photo market and new people – like Sony – have entered. This is how capitalism in a market system is supposed to work and improve lives.

2. What has happened in the Nigerian market is a really annoying situation. Rather than kill off his competitors by pricing them out of the market, Dangote lets them stay alive to help him make as much profits as he can.

Looking at those numbers above, if Dangote drops prices by say 15%, CCNN will die in about 10 minutes and Dangote will make up the drop in revenues by selling more cement. In such a situation, will Nigerians have less cement to buy? No. In fact they will buy more cement due to the lower prices. And life will go on.

3. But if Dangote uses price and efficiency to kill off the inefficient players in the market what happens? Well, we know that technology is improving all the time and we also know that Dangote’s plants are between 1 and 5 years old. Meaning that if you build a new plant today, you have a chance to beat him at efficiency and thus price. Again, this will be to the benefit of consumers, which is the whole point of production.

Instead, prices are kept high enough to sustain people who should either invest in new plants or exit the market. In short we have one kind of fake competition going on. If those weaklings die, it cannot be long before new players (or new plants) enter the market which will put the incumbents (esp Dangote) on the defensive.

In China, the government uses force to improve efficiency in the market – it simply shuts down small inefficient players or forces them to merge with others. As at 2012, there were around 3,000 (yes, 3,000) cement manufacturers in China and the top 10 producers combined, controlled less than 25% of the market. Some regions have now started to ban any new cement plants to reduce overcapacity and pollution.

In that kind of market, you can imagine that fixing prices will be very difficult.

In Nigeria, Dangote controls close to 70% of the market and as stated above, we have only 3 players really.

4. This theory explains the ongoing war over cement grades I think. Rather than eliminate competition by bringing down prices, I reckon Dangote wants to drive them from the market while keeping prices high (and maybe higher). Why?

He’s currently in the middle of his African expansion so he will extract as much profits from the Nigerian market as he can before the referee blows the whistle on this game.

5. But all these shenanigans can go on partly because importation of cement is banned. I still think that my recommendation on allowing imports will work precisely because I am almost certain it won’t happen. Dangote has so much capacity to cut prices [I understand that even at N500/50kg bag he will make profits on his cement] that if the Nigerian government were to allow imports, there’s no way he would sit around and watch. He’d simply drop prices low enough to make importation pointless. Job done.

6. Just to clarify – I think Dangote’s zero taxes are a symptom not a cause of the problem. It is merely rubbing salt into an open wound. Certainly, no law has been broken in not paying taxes and the tax holidays have a place in encouraging people to invest in the economy.

7. Here in the UK, in January 2012, the Office of Fair Trading referred the cement industry to the Competition Commission for investigation. After a 2 year investigation, the CC concluded that the market was not competitive enough and there was some sort of collusion/co-ordination going on.

It has now decided to increase competition in the market by creating a 5th player through forcing Lafarge and Hanson to sell some of their plants to a new entrant. You can find the 103 page report released in January here. What’s amusing is that all drama is happening in a market where the manufacturers operate at around the 7% PAT margin with a 25 year time frame to make a return on investments in new plants.

When people hear ‘free markets’ they tend to think of something with no rules. But a free market actually means that the rules are clear and apply to everyone equally to ensure competition and consumer protection.

So you have the OFT constantly watching markets to ensure nothing funny is going on (sometimes its very hard for consumers to see what’s going on) and if it finds anything, it asks the Competition Commission to investigate and apply sanctions as appropriate.

There is also a Competition Appeal Tribunal to which Lafarge and Hanson have applied to challenge the ruling of the Competition Commission [I think I support the cement manufacturers here because they have been under watch and investigated 3 times in the last 10 years or so and Lafarge has already been forced to sell some plants a few years ago. They barely make profits and demand for cement crashed after the recession and has not recovered since. Perhaps the UK is an example of 'extreme' regulation, but you get the point]

This is broadly the kind of structure you will find in more advanced economies.

We are nowhere near that level yet but a couple of days ago, someone sent me this link. The government is currently taking submissions on a competition policy. I will send in a contribution and if you can, you should too. I don’t know how long it will take to draft the policy and then get it through the NASS (elections are coming and people will lobby against it).

In short, it looks like these high cement prices will be here for a while. Change is hard. Change in Nigeria is even harder.

It really is in the government’s hands to remedy the situation if it wants to. But I think there is now enough information in the public domain for consumers to keep the pressure on those who matter.

I hope you haven’t been depressed by this long post? The problem is more serious than I even imagined it to be.

FF

An Open Letter to Ngozi Okonjo-Iweala and Olusegun Aganga

Honourable Ministers,

I write to you as someone with a lot of frustrations about the way Nigeria works (or doesnt) for the vast majority of its citizens. I tend to concern myself mostly with economic matters as I believe that economic freedom comes pre-loaded with many other benefits for a country and its people.

First the Facts

I have spent a lot of time lately looking at the model we have chosen for our industrial development using Dangote Cement as a lightning rod. The more one looks at the numbers and the reality of the situation, the more disturbing it is.

I have put together a comparison of Dangote Cement’s profits and the world’s largest cement manufacturers spanning Asia, Latin America, North America and Europe. You can find it here on iCloud or Google Docs. The numbers, without mincing words, are frightening. A Nigerian government policy is aggressively picking the pockets of its citizens by forcefully reducing choice in the market. This has inevitably led to us having the highest cement prices in the world.

Screen Shot 2014-04-15 at 10.55.13

The Chinese are the most efficient cement manufacturers in the world; their profits after tax as a percentage of their revenues comes to less than 18%. Globally the average profit ratio is around 6% (brought down by lower margins in Europe). Dangote Cement has a 52% profit ratio, 3 times the most efficient manufacturers in the world. If Dangote Cement were to sell the same amount of cement as the world’s biggest manufacturer, at the current rate, it would make more profits than the top 4 makers in the world, combined.

Whereas people in Vietnam can buy cement at $67/tonne, Nigerians are condemned to paying $263/tonne for the same product. The argument that the cost of doing business in Nigeria makes things more expensive does not square with the fantastic profits that Dangote Cement is making. Both – high profits and high business costs – cannot be true at the same time.

It feels as if Nigerians are being punished for a crime that remains unclear. It gets worse – only 5% of Dangote Cement is owned by Nigerians so the level of participation in these fantastic profits are extremely limited. If and when a further 20 – 25% of the company is floated on the London Stock Exchange, and this forceful extraction of profits from Nigerians continues, we may well end up with a perverse situation where poor Nigerians will be enriching pensioners in the rich world via their pension funds who will undoubtedly invest in the company.

In taking out $1.2bn in profits from the Nigerian economy in 2013, Dangote Cement put back $43m into the economy via wages and salaries to its employees. Most painful of all, it paid nothing in taxes in the last year (or the year before) due to the various government incentives it continues to benefit from as a ‘pioneer’ company. Without these incentives, it would have contributed somewhere in the region of N70bn to the Inland Revenue as taxes. My workings I linked to earlier show this starkly – the company which sells the least amount of cement, makes the most profits and pays no taxes. All of this sits beside your stated objective to boost tax revenues as a percentage of our newly rebased GDP. Will you go after ordinary Nigerians and small businesses while leaving these huge gaps in your fiscal policy?

It is one thing to allow a loss making company get a breather from the tax man while it finds its feet, it is quite another to waive taxes while a private company rakes in the profits.

How Did We Get Here?

Whatever it is this cement policy was designed to achieve, it is hard to believe it was designed to impoverish Nigerians in this way. The reality has so far deviated from the intention that it will be difficult for you to justify keeping the status quo.

How do we square having the highest cement prices in the world with having a housing deficit of 17 million homes? This cement policy will undermine whatever you do elsewhere, especially the recently launched NMRC. It goes without saying that cement is a vital input with its real benefits in what it is used to achieve. If Dangote Cement employs 20,000 workers, then we can be certain that cheaper cement will create this number of jobs in housebuilding alone in a matter of days. By making cement the beneficiary of such lavish treatment, you are essentially driving the economy with the handbrake on.

I know people who are building their own homes at the moment and it is a painful stop-start affair because of the sky-high costs involved. While cement is not the only obstacle to building your own home (land use laws also lie in wait), is there any reason why government should so blatantly be adding to the problems in this way?

Policy Change – Catherine The Great’s Example

Often times, policy makers openly commit themselves to a policy in a way that makes a u-turn politically expensive even when the results of that policy clearly show it to be counter productive. This is made worse when the policies are ‘popular’ when first proposed. Not many would have argued with a policy that encouraged local production of cement with all the benefits that come with it, at the time it was proposed.

But when we find ourselves in a situation where we are producing cement for cement’s sake, what to do?

I am reminded of a story about Catherine The Great when she ruled Russia in the 18th Century. Early in her reign, Catherine had strongly and publicly supported the banning of Jews from being allowed to immigrate into Russia and confining them to what was then known as the ‘Pale of Settlement‘. Given how Jews have always been discriminated against, this was undoubtedly a popular policy position at the time. Not only were they considered as weirdos (on account of their religion which non-Jews didn’t understand), they were also middlemen minorities with a habit of rising above any discrimination to gain a stronghold on the local economy.

Alas, as time went on, the cost of this policy became evident because Jews played an important commercial role in the places they had been banned from. Even people who hated them had been happy to do business with them. At a time when technology was not this available, people were the most important asset in an economy.

Catherine was then faced with the dilemma of having to reverse a counter productive policy while continuing to appear as a strong, decisive and popular leader. So she came up with a plan communicated in a famous letter she sent by courier to George Browne, the Governor General of the Province of Riga at the time:

Screen Shot 2014-04-15 at 11.35.49

That was not all. Being bilingual, she added the following words, in German, at the end of her letter:

If you don’t understand me, it will not be my fault. The President of the Guardianship Chancellery wrote this letter himself, keep this all secret.

In summary – Catherine The Great banned Jews from Russia. Catherine The Great also created a loophole that allowed her to break the very law she had passed and continued to ‘support’ in public, going as far as writing in German just in case the letter somehow leaked to the public.

Just as she cleverly avoided mentioning the word ‘Jew’ in her letter (she used ‘some merchant people’ instead) so did her immigration officials ‘scrupulously avoid any reference to Jewishness or Judaism’ when handing out passports.

Long before Bill Clinton came up with Don’t Ask Don’t Tell (another policy workaround) as a way of allowing gays to serve in the American military, Catherine The Great had done it.

I share this story to illustrate a simple point – policy makers are never short of options no matter how difficult the situation is and no matter how ‘publicly’ committed they are to the status quo. Indeed Deng Xiaoping famously moved China away from Communism to a market economy by cleverly declaring that – “it doesnt matter whether a cat is black or white, as long as it catches mice“.

Whatever you do, this policy of restricting imports while handing Nigerians over to Dangote Cement (and Lafarge) to be stripped of their little wealth cannot be allowed to continue. Yes, it is a key part of our Industrial Revolution Plan and the government is clearly proud of what Dangote Cement has achieved. But enough is enough.

A Simple Recommendation

So how can the government eat this policy cake and continue to have it? You will undoubtedly have your own ideas if you wish to change course or ‘adjust’ the policy.

But my concern here is for the average Nigerian to ensure that our cement prices trend towards the global average. Even halving prices will do wonders for construction and create the jobs we desperately need. Here they are in a few simple steps:

1. Resist the temptation to award licences for anyone to import cement. This will merely transfer wealth from one set of people to another at the expense of Nigerians. Given that cement is an input, the goal is to get the commodity into the hands of Nigerians as directly as possible. Whatever is built with the cement will remain in Nigeria, it cannot be taken out of the country.

2. You set some rules or standards on the exact type of cement we want in the country to boost housebuilding. For example, we can say we want only 32.5 and 42.5 grade given that these are the ones used to build residential homes. Thus the policy change will allow Portland Type xxx Cement in Grades 32.5 and 42.5 into the country. You can also restrict the brands allowed to, say, the top 15 – 20 manufacturers in the world.

3. You do not have to set a volume of imports. Instead have a target price in mind. Given that prices are currently $640/tonne, we should realistically be aiming for at least $200/tonne (N640 per 50kg bag). This will still be very expensive compared to other parts of the world but it will be major boost to our economy in terms of jobs. The NBS has shown itself to be capable of price monitoring in the last few years. You can enlist them to do this job.

4. There are several ways to do this next step but here’s my idea. A shipping container carries roughly 3 tonnes of cargo. Set this as the minimum or ‘unit’. Now, anybody who wants to buy cement will simply go on a website (you will set this up pretty easily) and apply for a minimum of 1 unit and a maximum of 2 units i.e. 3 to 6 tonnes. The ‘anybody’ in this case is very important because you have to ensure the benefits, as much as possible, accrue to those who want to use the cement to build houses as opposed to middlemen. In fact, you can exclude extant manufacturers from this explicitly, with the threat of sanctions if they try to game the system.

5. You can either review each application individually or simply use a lottery system to determine who gets the ‘permit’ (I truly hate this word but I don’t have any other one to use). One application per person in a year, multiple applications not allowed etc. People can be encouraged to club their orders together to make up the minimum amount.

6.  Once an application has been approved, the person can then be issued a ‘permit’ allowing them to import their allocation within a 3 month time period after which it will lapse if not used. You can ask for information on what brand they are planning to import as well as what country they are importing from beforehand. When prices hit the level you desire, you simply stop handing out the ‘permits’. If they start to rise again, you hand out some more. Ultimately, you will have the whip hand in the market.

 

It isn’t more complicated than what I have written above, at least to my mind. The whole point is to force down prices so we can create jobs and disperse the benefits as widely as possible. I stress the point – forcing down prices in this manner does NOT mean that Dangote Cement will lose its investments in the Nigerian market. The huge profits it is currently making suggest there is plenty of room for price cutting. It will simply make fewer profits not none at all.

You say you want inclusive growth? You say you want to reduce poverty? You say you want to reduce the cost of building a 3 bed house in Nigeria from $50,000 to the $26,000 it costs in India?

Well, this cement policy is directly standing in the way of these things that you want to achieve. There are many other self-inflicted policy wounds throttling the economy. But beat this one – the Big Kahuna as the Americans say – and the rest looks easy.

Your move, Honourable Ministers.

FF

Unrelated Matters

You guys heard about Anhui Conch (AC) or nah? No? I thought so. Anyway you’ve come to the right place. The picture below should give you an understanding.

Screen Shot 2014-04-04 at 23.36.05

That’s right, they are the world’s largest cement manufacturers by volume. They operate mainly in China though so that might be part of the reason they are not a household name across the world.

Anyway, they recently released their annual financial reports for the year ended 31st December 2013. You can find it here. To make things even better, the accounts were prepared under IFRS meaning that it’s a lot easier to compare them to any other IFRS account anywhere, basically. Even more coincidentally, Dangote Cement (DC) released their own annual financial reports a few weeks ago and you wont believe it but it’s for the same year ended 31st December 2013. And amazingly, their accounts are also IFRS. You can find it here.

So given that we have all this information, we might as well compare them no? Exactly. But accounting can be really boring so I’ve extracted the main numbers and converted them to US dollars using exchange rates from xe.com

Screen Shot 2014-04-07 at 19.24.47

AC has almost 11 times the capacity of DC from the earlier chart above but it sold $8.9bn worth of cement while DC sold $2.4bn. One way to look at the numbers above is to say that for every dollar of cement that AC sold, it cost 67 cents in raw materials to produce. For our own DC, every dollar of cement sold cost 38 cents in raw materials.

Now you can say that perhaps this means limestone and all the other things that go into making cement is much more expensive in China. Best way to check this is to fool around alibaba.com for Portland cement prices. You will find that prices go as high as $80 per metric tonne. This is not an exact science by any means but we can at least imagine that AC’s prices wont be too far off that range given they are the largest manufacturer. Based on reports in today’s papers, an equivalent metric tonne in Nigeria now goes as high as $640, nine times the price in China. I stress that this is a very rough calculation but I think we can make the point that cement in Nigeria is much much more expensive than in China which is the explanation for DC selling 1/10th of the cement that AC sold but made 1/4 of AC’s revenues.

I didn’t bother with all the other admin expenses and salaries etc. but you can see that by the time we get to the Profit before Tax, the gap between them has closed to roughly $800m due to AC having higher costs like bigger salaries ($433m, pg 33) compared to DC’s ($47m, pg 26). Anyway you look at it, AC must be employing a lot more people than DC, obviously.

So how much tax did each of them pay to the relevant authorities? Normally we would have to investigate the tax rates in each country before making a comparison but in this case it doesn’t matter. DC didn’t pay any tax at all on its profits due to the fact that it still has plenty of tax credits – ‘losses’ from previous years and govt incentives that it carried forward – left to use (it didn’t pay any taxes in 2012 either). AC on its part paid $459m in taxes to the People’s Republic.

Now that the government in Nigeria has ordered the Federal Inland Revenue Service (FIRS) to look for an extra N6.4trn in taxes on account of our newly rebased GDP, it might want to start by looking at all the tax breaks and waivers it hands out. Just a suggestion.

By the time we get to Profits after Tax, the difference between both firms is just over $300m – the 27th largest cement maker in the world makes almost the same amount of profit as the world’s largest which operates in a market of 1 billion plus people. This is good business I am sure you will agree.

One more thing I found interesting in the accounts (pg 11):

Screen Shot 2014-04-07 at 20.29.11

Regular readers of this blog, would have been following the ongoing Konkere Wars. Recall that the war broke out on account of the presence of ‘inferior’ 32.5 grade cement in Nigeria. Rumours that this grade of cement will soon be banned in Nigeria have been all over the papers. But from the above, not only did AC sell $2.5bn worth of this particular grade of cement, the product was slightly more profitable than the 42.5 grade.

32.5 grade cement is used mainly for residential construction so I reckon one can hazard a guess as to the kind of infrastructure development going on in China right now (my note on Chinese infrastructure is here).

Consumption is the sole end and purpose of all consumption‘ as Adam Smith once said. The Chinese seem to be making cement so it can be consumed by those who need to build stuff.

Anyway I thought the numbers were interesting enough to share. No need to thank me please.

——————————————————————–

Most people are familiar with Jim Crow laws in America and how they were passed to enforce racial segregation in public places in the US south starting in the late 19th century. Buses were of course public places and the state of Georgia was one of the first to pass such streetcar laws in 1891 while from 1900, various cities in Alabama started to pass such laws as well. It’s useful to note that before these laws came into being, blacks and whites had been sitting side by side on the buses and no one died.

Around about the same time Jim Crow laws were being passed in America, ‘Colour Bar‘ statutes were also being rolled out in South Africa (funny how bad ideas spread eh?). The whole point of these laws was to prevent blacks and Indians from competing with white labour in the market. These laws covered not just mining but also textile and construction.

One can leave these two stories here as we know how they ended. On December 1, 1955, Rosa Parks famously refused to give up her seat in the black section of the bus to a white passenger in Montgomery, Alabama (others before her had also shown defiance in various towns) and Jim Crow laws were eventually overruled by the Civil Rights Act in 1964 and the Voting Rights Act in 1965. In South Africa, apartheid, as state policy, came to an official conclusion in 1991 and of course Mandela became president.

But I like to discuss things from an economic perspective on this blog and the wise man I learnt much of my economics from once said ‘economics is concerned with what actually happened and not what anyone intended‘. So what happened after these discriminatory laws were passed?

Let’s go to Jennifer Roback’s ‘The Political Economy of Segregation: The Case of Segregated Streetcars‘:

The resistance of southern streetcar companies to ordinances requiring them to segregate black passengers vividly illustrates how the market motivates businesses to avoid unfair discrimination. Before the segregation laws were enacted, most streetcar companies voluntarily segregated tobacco users, not black people. Nonsmokers of either race were free to ride where they wished, but smokers were relegated to the rear of the car or to the outside platform. The revenue gains from pleased nonsmokers apparently outweighed any losses from disgruntled smokers.

Streetcar companies refused, however, to discriminate against black people because separate cars would have reduced their profits. They resisted even after the passage of turn-of-the-century laws requiring the segregation of black people. One railroad manager complained that racial discrimination increased costs because it required the company to “haul around a good deal of empty space that is assigned to the colored people and not available to both races.” Racial discrimination also upset some paying customers. Black customers boycotted the streetcar lines and formed competing hack (horsedrawn carriage) companies, and many white customers refused to move to the white section.

In Augusta, Savannah, Atlanta, Mobile, and Jacksonville, streetcar companies responded by refusing to enforce segregation laws for as long as fifteen years after their passage. The Memphis Street Railway “contested bitterly,” and the Houston Electric Railway petitioned the Houston City Council for repeal. A black attorney leading a court battle against the laws provided an ironic measure of the strength of the streetcar companies’ resistance by publicly denying that his group “was in cahoots with the railroad lines in Jacksonville.” As pressure from the government grew, however, the cost of defiance began to outweigh the market penalty on profits. One by one, the streetcar companies succumbed, and the United States stumbled further into the infamous morass of racial segregation.

For South Africa, we go to the book ‘Capitalism and Apartheid‘ by Merle Lipton (sorry no online copy or e-version anywhere) which tells us that even though only whites and ‘coloreds’ were officially allowed to work in the Transvaal clothing industry, by 1969, sixty percent of the workers in the industry were black (pg 42). In the 1970s, even though the South African government had thousands of civil servants devoted to enforcing color bar laws, businesses were regularly flouting their quota by hiring black workers such that the government had to launch crackdowns on businesses by fining and even shutting some down.

Then there was the famous Rand Rebellion of 1922. When the price of gold in the international market started to drop in 1921, the mining companies (who were already breaking the color bar laws) started sacking white workers (nearly 30% of whites were sacked) and hiring more blacks and promoting others.

Of course the white unions didn’t take this lightly and they went on rampage killing blacks which in turn forced the government to send out troops to quell the uprising, killing 200 people. Alas, that government was defeated at the next election and a more racist and extremist Afrikaner Nationalist Party was elected in 1924. This government tightened and expanded color bar laws and then introduced ‘waivers’ and zero tariffs for companies who employed whites only or kept black workers to a minimum.

 

It’s worth pausing to consider these stories. In both cases, racist governments were passing racist laws and yet businesses that were owned by whites (who were probably racists themselves) refused to obey the laws. Why was this the case? A simple answer is that  - racism is not discrimination.

Imagine that I hold racist views towards, say, Chinese people. Say I am sitting in my living room and on the news I see a Chinese guy paraded on TV for something like theft. I then start ranting at the TV that ‘bloody Chinamen come to this country and all they do is steal!‘ or something like that. That’s undoubtedly a racist thing to say. But in the time I am ranting the Wok U Like Chinese restaurant down the road from me has probably sold £50 worth of food. My racism does not affect their business in any way. Even if I stop patronising them, my racism is simply not enough to run them out of business and I will be depriving myself of Chinese food.

Now imagine that I am the HR Manager for a large bank. I now have the opportunity to ‘upgrade’ my racism towards Chinese people to actual discrimination by ensuring that the bank does not hire Chinese workers. I can get away with it (maybe for a while) but the problem is that the country does not have any laws that allow discrimination against Chinese people meaning that my competitors will continue to hire them. I have thus imposed a cost on my business because if there is a super talented Chinese worker who can add value to the banking business, he/she will automatically go to my competitor.

But what if I am friends with the Prime Minister or many MPs and somehow I get them to pass a law discriminating against Chinese people in the entire banking industry? Automatically, in theory at least, I have eliminated the cost of discrimination because no matter how good a Chinese worker is, nobody in the banking industry will be able to hire him – we are all level.

It is not that the streetcar owners or the mine owners were nice guys who loved black people (I’m pretty sure the British and Jewish mine owners in South Africa were racist). They were operating in a market where even if racism was free, discrimination was expensive. This is the inbuilt morality of a market system – it is difficult, if not impossible, for anyone to carry out their discrimination free of charge. Even where a cartel is formed, there will always be one nuisance who will break the agreement and try his luck on his own.

 

And here’s the moral of the story. The only way to get rid of the cost of discrimination or impose your will on the people is to get the government to back you. In a market system, you make money by doing what other people want, not what you want. But if you can get the government on your side, you can make money by doing what you want and not caring about what other people want.

In America, the government began to crackdown on streetcars who didn’t enforce segregation by arresting conductors i.e. using force. In South Africa as we just saw, not only was force used, the market was completely turned on its head when the government began rewarding discrimination via tariffs.

Many people in Nigeria will actively reject a market system and even go as far as supporting government policies that reward ‘businessmen’ who are doing what they like and making money from it instead of what consumers want. In a functioning market system, where the government doesn’t rig the game, until you introduce guns and force into the equation, people will always do whats best for them and even do business with people they totally hate:

Screen Shot 2014-04-07 at 23.19.48

Governments do not bear or even understand costs. So they are able to impose costs on others without understanding or caring about the implication of their actions. If you are angry that someone is ‘just making money off you’, the first thing you should do is ask yourself if you have a choice. If you don’t have a choice, the next question to ask is who is limiting your choice and how are they able to do it?

When we begin to ask these hard questions of our society, our economy and those who claim to be leading us by forcing us to buy things from those they have favoured, we will be on our way to dismantling all the frustrating structures that serve the few at the expense of the many. There are so many ‘markets’ that have been created by governments in Nigeria that do nothing to help the majority of people to participate in them.

By demanding for properly functioning markets in Nigeria, devoid of government interference (as much as possible), we will be protecting ourselves. It is the ultimate self-interest move.

A few weeks ago after the government slapped 63% tariffs on imported books, a group of publishers, who were completely blindsided by the move, took to twitter to tackle a special assistant to the finance minister. Bear in mind that Nigerians have lately been reading more books, including those by Nigerian authors. The market is working even in the face of piracy and other harsh conditions.

Anyway he then responded via a series of tweets out of which I have selected this gem:

Screen Shot 2014-04-07 at 23.58.00

Let me translate that into English – some producers who want to make money by doing what they (the producers) want, came to us and asked us to help them eliminate the thing that consumers actually want from the market. So we tariffed the life out of it. By the way, the use of the word ‘adjustments’ is almost poetic in this context.

 

Are all these things – Apartheid South Africa, Jim Crow America, book tariffs and Dangote Cement – related?

Who knows? This blog itself exists in a marketplace of blogs so it is hard for me to make you believe anything you don’t want to.

FF

 

Protecting Nigerians From The Purveyors of Poverty

Thomas Sowell likes to say that you cannot know whether a policy is a success or failure without knowing what the person behind the policy set out to do in the first place. So a policy ‘merely’ being a failure might be a success from the point of view of a devious person who designed it to be so.

Today’s papers are full of stories about how Nigeria is refusing to sign the Economic Partnership Agreement [EPA] between the European Union and the 15 ECOWAS countries. According to our friend, the most popular government minister on this blog, Olusegun Aganga, Nigeria raised ’10 Questions’ which have not been answered. These questions, according to him, centre around the protection of the Nigerian economy from the marauding Europeans, hell bent on a second colonisation [Ok he didn't say that, I made it up].

Take it away The Guardian:

The Federal Government has declined to sign the trade liberalisation agreement being pushed forward by the European Union, under the  Economic Partnership Agreement (EPA) with Economic Community Of West African States(ECOWAS),after due consideration of its impact on the economy.

The government had earlier expressed reservations over the pact,due to vital clauses in it that could be harmful to the nation’s economy.

Aganga, defender of the Nigerian economy, went on:

The EPA agreement was not even ready for endorsement by the Heads of State and Government. During the meeting last week, Nigeria raised 10 objections to what was presented to us and the Summit of Heads of State ratified it.

Consequently, a committee from Nigeria, Cote D’Ivoire , Ghana and Senegal looked at the issues raised by member states, particularly Nigeria, and came up with a proposal. When we went into the meeting, the whole idea was to endorse it, but of course, we had various reservations concerning the agreement based on our model and the feedback we got from our private sector.”

He added: “One major reservation was that the way the agreement was done, which of course they expected us to sign, would not be in the overall interest of the Nigerian economy over the long term. For instance, in the area of market access, the EU wants us to open our market by 75 per cent over a 20-year period.

This appears harmless because over the first five years, there will be no major impact because they will open all their doors for us to export to Europe. However, the problem here is that currently, we are not exporting much to Europe and so the benefit will not be significant.

I will come back to the section highlighted above but one more thing he said:

The minister explained that, given Nigeria’s current condition as an import-dependent economy, it would be counter-productive to completely open its doors [Me: You can see the clever code switch here - opening your doors gradually up to 75% over 20 years has been 'transformed' by Aganga into 'completely'for imports without first of all developing its industrial sector to compete globally, especially in those sectors where the country has comparative and competitive advantage as provided in the Nigeria Industrial Revolution Plan recently launched by President Goodluck Jonathan.

Another major point we raised was that those items that were in Category D, and excluded in the 25 per cent, should include those areas and sectors that we want to develop in line with the Nigerian Industrial Revolution Plan. Some of those areas are already under Category C and D, meaning that they are the sectors that the EU wants us to liberalise imports. If we do that, it will have a very negative impact on the NIRP.

Nigeria is the biggest country in the ECOWAS and we are already producing some of those goods that they want us to liberalise their importation. Also, what this means is that, not now, but from 2025 to 2026, based on the items that have been included and excluded, there will be significant loss of revenue to the government. There will be loss of jobs, investment and loss of even the ECOWAS market,”he said.

Aganga, however, stressed that it was important to remain as one unit in the ECOWAS region, saying that “even if they import those items into our neighbouring countries, they will end up in Nigeria and this will have negative impact on the Nigerian economy. So, it is important for us to work together as ECOWAS members and not to allow EPA to divide us.

 

It’s important to quote him at length for context and also because these are the people in charge of the Nigerian economy, presumably working hard to deliver a better life for Nigerians.

Here are some points about the EPA in question:

1. Negotiations on this agreement have been going on for 14 years starting with the Cotonou Agreement. If people have been arguing over this matter for 14 years, then it’s not unreasonable to conclude that the negotiations have been tough. Nevertheless, on 24th January 2014, both sides announced that a ‘major breakthrough’ had been reached and they were now ready to sign the agreement.

2. In terms of value and rules and regulations, the EU is the largest single market in the world – there are 500 million people in it. In 2010, the EU imported €2trn worth of goods and services from across the world and exported €1.8trn worth of stuff.

3. When negotiations on the EPA started, the EU wanted ECOWAS to open up 80% of their market over a period of 15 years. After plenty of back and forth, this was compromised to 75% of the market (the most sensitive 25% of the economy can be excluded) over a period of 20 years. Normally, based on WTO rules, there shouldn’t be any sectors exempted from a free trade agreement but special consideration was given to the economic development of West Africa thus allowing the exemption of some sectors.

4. The EU, under a programme called EPA Development Programme, will also provide around €6.5bn from 2015 – 2019 to help boost the capacity of African countries to take advantage of the EPA.

5. In January, before the agreement was reached, the EU also agreed to stop all export subsidies to companies exporting goods to West Africa. This is especially in the area of agriculture.

6. On the other side of point 3 above – ECOWAS countries get full and immediate access to the EU market i.e. no quotas, no tariffs, no duties for goods produced in West Africa to enter any of the EU countries. I am almost certain that rather than provide support for companies that want to export to the EU, the Nigerian government levies export tariffs on them instead.

7. Finally, the EU has EPAs in place with practically every region in the world. It is not just an ECOWAS thing. There is also a huge one called the Transatlantic Trade and Investment Partnership being negotiated between the EU and the USA.

 

Now it’s fine to disagree with the terms above but surely no reasonable person can say steps have not been taken to protect the weaker party in this agreement. Also, one should not focus on the potential dangers to the detriment of the positive aspects of the agreement – the EU is a rich market and getting free access to it should undoubtedly create opportunities. Other parts of Africa that already have EPAs in place can point to real results that have been achieved. Based on the SADC-EU EPA for example, all export quotas on Botswanan beef have removed meaning that local cattle rearers can export as much beef as they want to the EU. The real issue should be government policies that boost the capacity of African companies to take advantage of these opportunities.

From Aganga’s comments above, he claims Nigeria is refusing to sign the agreement to protect the Nigerian economy and its people. Nigerians should no longer take these statements at face value. They ought to be examined whether they are genuine or no more than a pile of hot piffle. On my part, I can tell you who needs to be protected from who. Oh yes, I can.

The Nigerian people need to be protected from the Enemies of Enterprise, nominally known as the Nigerian government. Just yesterday the Communications Minister. Mobola Johnson revealed the following:

Speaking on claims by data service providers on the deployment of 4G LTE, she said the claims by Smile Communications Nigeria Limited and others are accurate.

She urged Nigerians not to be sceptical about their promises to deliver true 4G LTE technology services, adding that a worrisome trend in the industry currently is the fact that out of every kobo spent on the rollout of infrastructure by the operators, 70 per cent goes to taxes and levies

You can slice or dice it however you want, but the reason why internet penetration and quality phone access remains a headache today in Nigeria, is because the Nigerian government has willed it to be so. The same people who conspired to destroy education are now standing in the way of internet and mobile phone access that can change people’s daily lives for the better.

The Nigerian people need to be protected from the Purveyors of Poverty who have conspired to give us a cement ‘policy’ that cannot be described as anything other than picking the pockets of Nigerians at gunpoint. This cement policy has given us Dangote whose founder is now the richest black man in the world worth $25bn via a policy that aggressively transfers wealth from Nigerians to a handful of people by restricting choice in the market. Nigerians buy cement at 3 times what it can be obtained for elsewhere while Dangote has the biggest profit margins of any cement producer in the world – double the margins of Chinese producers who are the most efficient on the planet. All of this has produced an earth shattering 20,000 jobs which you will agree with me is what is stopping the Nigerian economy from totally imploding. Oh, this same company is still enjoying ‘pioneer status’ and has billions of Naira in tax credits yet to claim.

These are the people who Aganga is protecting not the Nigerian people. This is the ‘feedback from the private sector’ that he is referring to because free trade will expose who has been scamming who in the Nigerian economy.

I ask you to carry out a simple experiment when next you leave your houses for work or you are moving around anywhere in Nigeria. Take a note of all uncompleted buildings you see. Count how many you see in a day be they uncompleted houses or offices. Ignore the ones where work is going on and just focus on the ones that have obviously been abandoned for a long time. Report your findings in the comments below.

We have a deficit of 17 million homes in Nigeria today. Let us even forget the homes that need to be built from scratch – just consider the jobs and boost to the economy if some of those uncompleted buildings can be finished. Yet we celebrate ‘Made in Nigeria’ cement that is directly contributing to this mess we find ourselves in. How many buildings will suddenly become viable for completion if Nigerians are able to buy cement at the same price that people in Asia can buy it? You tell me.

The Nigerian people also need to be protected from the Traducers of Trade who speak from both sides of their mouth. Just last night I saw this tweet from the Finance Minister, Ngozi Okonjo-Iweala:

In January, everyone in the Nigerian government from the President to his ministers and aides gathered together to launch the Nigeria Mortgage Refinance Company [NMRC] scheme. Plenty of noise was made about this programme as a flagship policy that will, wait for it, ‘transform’ Nigeria. I wrote an explainer about it at the time. It’s a useful policy that can do good for us, ceteris paribus.

But have a look at this World Bank document. From design to funding, the World Bank almost singlehandedly produced that policy for the Nigerian government. The government barely put any funding into it (they are too busy making money disappear). So when the Finance Minister makes such a statement above, who exactly is she talking to and what is she saying?

This is not some benign thing – it is how capitalism and trade have become a slur in Africa over the decades. Leaders have systematically drawn up a false equivalent that trade and capitalism is something people (usually white) do to Africans to take over their wealth and resources. A minister who is happy to take the credit for World Bank work on one hand and then deliver an ‘ominous warning’ about the same people in the next breath is but a variant of the Champagne Socialist – champagne for me, socialism for you.

It is very important to protect Nigerians from the Injurer of Industry who send out one policy that is doomed to fail in the morning and are shocked, shocked I tell you, when it fails in the evening. They ban things in the morning and are full of righteous indignation when smuggling increases in the evening. They slap punitive tariffs on rice which cost the government at least N300bn in lost revenues – money that is then borrowed via bonds and left for the next generation to worry about. This policy, according to the Nigerian Customs, has also cost 19 lives of customs officers.

Does it matter that the rice tariff policy has failed? Does it matter that they have now abandoned the Cassava policy? Does this stop them from doing the same damn thing elsewhere? Of course not – that is why they want to replicate the foolishness on cars.

Most of all, the Nigerian people need to be protected from the First Born Sons of Satan who have no qualms about profiting from the mess of unemployment they have created. In other countries with high unemployment, the governments are frightened of any kind of gathering of jobless young people. Not so in Nigeria – our government is bold enough to gather thousands of unemployed youths in stadiums around the country to try their luck for jobs that have probably been distributed among Very Important People already.

It has the gall to kill 16 of these young people while the President adds insult to injury by chastising the minister responsible with no more than a finger wag.

 

What is the worst that will happen if the Nigerian government signs the EPA? Nigerians will have access to cheaper and better quality goods from Europe. No doubt this – voluntary exchange – is a terrible thing indeed.

But this piece is not about calling on the government to sign the agreement – they will have to as some ECOWAS countries are already breaking ranks to sign it. If the goods get to Ghana, then all bets are off as they will surely find their way into our ‘protected economy’.

It is about asking questions about the judgement of the people who claim to be making decisions on our behalf. Nigerians need to ask how exactly it is that these people claim to be acting in our best interests. Aganga claims that the EPA is not compatible with his National Industrial Revolution Plan [NIRP]. Where is the NIRP? It is in the same place that the automobile policy is – on his laptop. Only one copy. This is why no one has seen it. But as Dr Nonso Obikili showed recently, the only thing revolutionary about this NIRP is that it has ‘revolution’ in its name.

The government should tell us who exactly they are protecting us from, what the risks of exposure to these persons are and what alternative plans they have in place to ensure we are not being given Made in Nigeria cement in place of bread.

If a 20 year period is not enough to gradually open 75% of your market and you are already worried about the government losing revenues in 2026 on account of trade, then the Nigerian people need to be protected from the poverty you are planning for them. The only danger ahead is the utter lack of vision with which you are boldly marching into the future. Is the future so zero sum to them that they are already resigned to the idea Nigerian companies will not be able to take advantage of opportunities presented to them by untrammelled access to the European market? We cannot afford to be led by people who think this way.

During the auto debate, I made the point several times that the Mexican car industry manufactures 3 million cars a year while employing 500,000 people. None of those cars are ‘Mexican cars’. They are the Toyotas and VWs and so on. Today Mexico is also the world’s largest exporter of flat screen televisions. These things have been made possible by the North American Free Trade Agreement [NAFTA] that was signed in 1994, when Bill Clinton was President. At the time it was signed, Mexican officials were dreaming and hoping that they could reach $10bn in exports per month. Today, Mexico exports goods worth on average $1bn per day made possible by a trade agreement with its richer neighbours.

Enough of policies that trap us in poverty in the name of protecting us from marauding traders. It was trade that made the Magnificent Tang Dynasty. It was trade that made the 8th Century Arabs. It is trade that continues to make America – including the trade in culture. If the Nigerian government has stumbled on a new model of broad-based wealth creation, it should tell us so we know where we are going.

 

My current obsession these days is trying to find out what happened to Africa and Nigeria in the late 70s in terms of economic direction. I am trying to understand how, when Britain under Thatcher, America under Reagan and even China under Deng started to move towards market economies, Nigeria and other African countries were fooling around with nationalisation of oil and other companies. We are now at a stage where the Nigerian Labour Congress, in 2014, is threatening fire and brimstone if the government privatises a company that provides catering services to airlines. It is important to ask how the government came to own such a company in the first place.

We need to understand how it all happened because here we are again – nationalisation being replaced by insularity. Things are being banned, tariffs are being raised, free trade is being warded off, the economy is being ‘protected’. Self sufficiency – the surest path to poverty – is what is on the lips of every government official.

Who wants to wait another 30 years to look back ruefully and wonder why we didn’t do things differently? Not me.

FF

 

 

 

Re: Achebe’s Influence on African Literature

So someone dug up this rather interesting piece by Helen Rittelmeyer on how Chinua Achebe influenced and continues to influence African literature till today. If only for originality, it’s a very refreshing take on something I have strong biases about.

Be sure to click on the link above and read the whole thing.

Anyway, was discussing it via email with a couple of friends and one of them – let’s call her Omo Baba Printer – sent me her comments. With her permission, I am sharing them here. There’s also a cameo by another friend of mine – let’s call him Omo Baba Ibadan.

——————————————————————–

Omo Baba Printer: Well, I think it is a very interesting article.  Rare to read something this original and well thought through. However, I’d say I’m only in agreement with about 60% of it.

 

a remarkable distinction to bestow on an author who published his first novel in 1958 and his last novel (bar one late-in-life flop) in 1966, and who in the last decades of his life published little apart from a handful of essay collections and a meandering war memoir. - 

OBP:True. I own all of Achebe’s work and while Things Fall Apart is great.  The rest of his novels feel quite same-y in terms of themes and a bit mediocre.  They are not bad novels, but there’s nothing special about them.  One of them is a bit funny – Man of the People, but I’d never recommend the other books particularly highly.

 

the American novel has evolved through a multitude of vogues and phases while the Anglophone African novel has, for the most part, remained as it was when Achebe launched it: unremarkable in its prose, flat in its characterization, anti-Western in its politics, and preoccupied with the confrontation between tradition and modernity.

OBP: True.  One issue I have with African novels is how relentlessly depressing they are. But this is  another good point. Everything is about how African tradition is fighting Western modernism.  We are so obsessed by it, it is unreal.  It’s like nothing else is going on in our lives other than this battle.  There is almost always a white character who is patronising and doesn’t really get the culture and either gets his comeuppance or is taught how to understand us by a helpful native – that’s if he or she isn’t just presented as a total shitbag.  Achebe is really awful with this.  His white female characters are quite misogynistically written.  He clearly felt that white women were whores and African women purer or more chaste.  Unfortunate.

My non-African partner has read more global literature especially non-Western novels than I, and we had this discussion.  He said for much contemporary African fiction, when he reads one it’s like he’s reading the same story over and over, almost in the same way we remember a time every Naija movie was about polygamous households.

Unless you break out of the genre, and go to stuff like Ben Okri.

 

It was a deliberate collaboration between Achebe, his publishers, and Western multiculturalists that made it that way, to serve the personal interests of the first two parties and the political interests of the third.

OBP: False.  I am always sceptical when I read about these conspiracy theories. People simply do not sit down in offices and plot how to infiltrate the recommended reading of the general public, or genocide, subjugation of Ndigbo, 9/11, etc.  It’s just not how bad things happen.  They are more by accident than by design.  I agree that this may be the end result, but I doubt that it was deliberate.

Aguntasolo: I definitely agree with this. Indeed, if the Francophone writers turned out the way the author claims, it almost certainly wasnt the intention of the French. It just happened.

OBP: I think a lot of what this writer is saying is biased by their own particular interests.

They are clearly the sort of person who likes to read Salman Rushdie or even Will Self.

Such a person will look down on Achebe and prefer a Soyinka (who I believe to be completely inaccessible to the general population anywhere in the world) Clearly only someone who liked the “highbrow” would claim Teju Cole was the best known African author in America and not Chimamanda Adichie who does not even get a mention.  Cole’s writing is just completely different, so evidently there is more than one type of fiction but for a continent of 1 billion people, this  is simply nowhere near enough.

But she is definitely right that Soyinka is easily the more cerebral of the two – but he has a Nobel Prize in Literature to show for it, so wrong to say he is not as well known.  Those who like highbrow know Soyinka, the majority who need easier novels will prefer Achebe. Simples.  Achebe has simply catered to the mass market while Soyinka is doing luxury writing.

Interestingly the writer talks about Francophone African authors who to be fair I don’t believe I have ever come across.  This is sad. There should be more translations.  But Africans are bad at linking up with each other in so many ways – trade, road networks and now I realise in literature too.  I’ve read more by Russian authors than French African ones because Europeans have made the efforts we have not to translate each other’s works.

The reviewer also claims Anglophone Africans don’t do humour.  We definitely do, just not very much. E.g. Secret Lives of Baba Segi’s Wives is quite funny.  But we don’t do humour consciously.  The subtlety in African humour is fast appearing to be a lost art.  Certainly I know there is a lot of humour in Yoruba language and Yoruba literature, but it may not translate well.

 

The other influential tastemakers were the literary reviewers, and they too brought certain expectations to African literature which proved restrictive. Early reviews had praised Things Fall Apart for being “an authentic native document, guileless and unsophisticated” (New York Herald Tribune) and “written neither up nor down” (Times Literary Supplement). The stubborn identification of “authentic” with “guileless and unsophisticated” led to a perverse situation where simplistic but bad African writing was considered more praiseworthy than anything that seemed to be, as the TLS put it, written up. -

OBP: Two words: Amos Tutuola.

I read Tutuola I got the sense it had been published in the same way someone would publish a book because a monkey had written.  Wasn’t any good and well below the level expected of a feted author… but wait… A MONKEY wrote it!

Omo Baba Ibadan: A bit harsh on Amos Tutuola. The guy was a house boy and told an interesting story in a simple and unique style. His abilities were limited and he made the best of it. I don’t think anyone holds him as an example of cerebral writing of even decent grammar and certainly not a great author. He was simply a guy who told an interesting story.

OBP: He should have written in Yoruba. I didn’t think the story was that interesting. Couldn’t even finish it. Is it harsh? Probably, but nobody writing like that would get published today.  It now just remains as an example of “primitive African writing”. I don’t like it

——————————————————————–

I thought that was worth sharing. I have removed the normal £1/comment charge so its free to comment on this post if you want to :)

FF

Rhetoric Matters – Lessons From Innoson and Bollywood

I’ve written about Innoson recently, so it was quite nice to see a long interview with Chief Innocent Chukwuma in The Vanguard this last weekend. It’s a very interesting interview that I think is far more important than the kind of ‘testimonies’ that are more common in Nigeria today. 

The piece is delightfully long so I am going to pick out the things I found most interesting.

Apprenticeships and True Federalism

He was interested in reading engineering at the university. While he waited for his result he decided to report to the medicine store of his elder brother, Gabriel to occupy his time. He immediately discovered that he had a natural talent for trading. When his result came out he was unable to make the grade required for him to go for further education. By then, he had made up his mind to be a businessman, anyway.

His elder brother wanted him to learn how to trade on motorcycle parts. He was given to Chief Romanus Eze Onwuka, who became his Master. Eze Onwuka is otherwise and more popularly known as Rojenny, the founder of the first private sports stadium in Nigeria. Rojenny Stadium is located at Oba, near Onitsha

Last year, 530,700 young Germans started apprenticeships in the country. In the same year, just under 500,000 Germans started a University degree. The German apprenticeship system is legendary and so many countries have tried to copy the model with varying degrees of success. During my MBA, I had a German classmate who never went to University but instead completed his ‘degree’ via an apprenticeship with Siemens.

When a policy is that successful, you instinctively know that the policy/law trailed extant behaviour i.e. the policy would have arrived to support something that was perhaps a cultural practice. Indeed, the roots of German apprenticeships can be traced as far back as 1300 to the guild system of trades.

Today one can look at the German system that pays €650 per month to apprentices and marvel at the ‘genius’ of policy making in that country. Yet, the system would surely have started not much different from what Mr Chukwuma described above with government policy arriving much much later to lock and institutionalise the practice. A policy has a greater chance of being successful if it gives state backing to something people are already used to doing (this is why banning things in Nigeria hardly ever works).

I don’t know what the Igbo apprenticeship system is like today but at some point government policy should have stepped in to back it up and turn it into an institution. But the diverse nature of Nigeria means that the way apprenticeships work in the South East is different from how they operate in the South West or North so a one size fits all policy would never have worked (another thing that kills policy making in Nigeria).

In short, this is the kind of thing we need proper federalism for.

Jack Be Nimble, Jack Be Quick

At every juncture that Innoson broke new grounds, he was always led to it by necessity. The old sayings that necessity is the mother of invention, and that in every crisis there is opportunity fit his circumstances like a glove.

For instance, in 1984 when the military intervened and introduced an economic regime that led to scarcity of all categories of goods, many companies closed down. Leventis and other companies were no longer able to supply goods and Innocent had to look for greener pasture in Asia.

He went to Taiwan and applied the same business principles he had used to win over Rojenny in Nigeria: honesty as the best policy. His Taiwan partners started giving him credit sales. The banks in Nigeria started scrambling to loan him money because he never defaulted and his business was booming

For me this was really refreshing to read because it is the same trajectory of success you would normally get in most other countries – where you start has absolutely no bearing on where you will end. Today Mr Chukwuma is settled as an industrialist – given the size of the investments that have gone into his businesses now, we can safely predict that in 10 years time he wont be selling pure water or making jeans.

But the early days were characterised by him doing all sorts of different things as the opportunities came to him. Whereas back then he was at the mercy of crazy government policies and having to react to them as quickly as he could, today he can more easily influence government policies.

Indeed, before he became an oil baron, John D. Rockefeller was an accountant. The ability to spot opportunities and seize them – taking the current when it serves – is a skill on its own. And it is a pattern that you’ll find in the most successful people across the world.

I’ve previously referred to the Nigerian government as the enemies of enterprise and traducers of trade. You always have to run your business on the assumption that the people in government are totally brain-dead and can be relied upon to do something to destroy your business. See the recent 62.5% tariffs on books as an example.

Sadly, until we can get to the point where society at large is strong enough to resist government’s madness, being nimble will always be a requirement to doing business successfully in Nigeria.

Talkin’ Bout A Revolution

I found out that the motorcycles from Leventis were expensive because they were only able to pack forty units into a 40-foot container. Because of the experience I had in motorcycle spare parts, I went there and asked them to strip it down to pieces.

That way I was able to pack over 200 units of motorcycles into the same 40-foot container, while others were packing 30, forty pieces. I will bring the spare parts down here and couple them manually. Because of my experience in motorcycles I found it very easy.

You’ll often hear of how very successful people stumbled on a simple insight that handed them a profitable opportunity. It is said that Rockefeller was watching men manually offloading barrels of oil off a train when the idea of a pipeline to transport the oil came to him.

In the case of Henry Ford, he did the revolutionary thing to double his factory workers salaries to $5/day when the market rate for their labour was $2.25/day. This has been greatly misunderstood to mean that Ford wanted to pay his workers enough to afford the cars he was making. But was this the case?

In the year before he raised wages, Ford hired 52,000 workers but actually never had more than 14,000 workers at any point in time. In other words he had huge staff turnover. Given that this was factory work, he must have been spending a fortune training workers only for them to leave after a few months. By raising wages significantly – beyond what his competition could cope with – he got rid of this problem while saving costs and increasing production from 170k to 202k cars the year after the pay rise.

Looking at what Mr Chukwuma did now – it does look obvious. But then the question to ask is why didn’t Leventis do it?

Impulse Control

He has been using it [Peugeot car] and the car is still good. When it becomes old he will pick up an Innoson car. He doesn’t have to throw away the car now

I have recently been reading The Triple Package by Amy Chua and her husband Jed Rubenfeld. It’s a really fascinating book that I cant recommend highly enough. One of the three things they highlight as recurring traits in successful groups is ‘impulse control’ – the ability to reject/resist the dominant cultural narrative in your society. So for example if you live in a society where the prevailing narrative is to live and enjoy the moment, paradoxically such a society will reward you for doing the exact opposite i.e. being frugal and saving for the future.

Or as Rudyard Kipling famously put it – if you can keep your head when all about you are losing theirs [...] yours is the earth and everything that’s in it.

I doubt that he suddenly became this way – it must be something he has had with him for a long long time in his business career and now, even when he can afford to splurge, he can still control the impulse to buy a Bugatti. People like him always manage to have seed capital to start something new if they need to.

The Robots Are Coming

I know that a businessman always wants to reduce cost. Reducing cost is good. But there are some costs I don’t want to reduce. There are certain things we must give a human being to do. People are looking for work. They are begging you for work.

You have work but you decide to give to a machine. I don’t want to do that. The land where I built the motor factory in Nnewi was given to me free by the community just to make sure that I employ people.

Now if I decide to use automatic where will the people work?

This bit of the interview was quite interesting. When I wrote my earlier post, I talked about using export markets as the ultimate industrial learning. The thing is that the ‘costs’ he is referring to are not just the salaries paid to the people assembling the cars (Vanguard noticed that everything was being done manually in the factory). If your competitors are automating processes and you are still operating manually, your costs are much larger than just the salaries you are paying your staff.

Whereas they can run their factories for much longer with practically zero mistakes, you will have to deal with human errors and lower efficiency. As admirable as it is that he wants to provide employment to as many people as he can, the moment Innoson becomes a global company, all bets are off and he will have to do as everyone else is doing to compete.

Furthermore, it is not always the case that technology takes away jobs. Yes, in some obvious ways, jobs will disappear but as the economist Tyler Cowen points out in his book ‘Average Is Over‘ – whereas it requires less than 100 people to support an F-16 fighter jet for one mission, a Global Hawk Surveillance Drone requires 300 people working in the background to make its mission possible. In this case, fighter jet pilot jobs have been ‘demised’ obviously, but technology has created even more opportunities that were not there before.

Mr Chukwuma need not be too worried – he will always create jobs. The problem to solve is that as his business grows and requires newer and more advanced skills, he can find the talent locally. To this end, he will have to invest in education and training such as partnering with the local University to ensure he has a steady supply of talent.

Or just build his own school even.

Why Rhetoric Matters

I liked this interview for many reasons. To turn Nigeria into a serious country, we have to consciously celebrate counter cultural people who go against the grain by manufacturing things in a country where it is more fashionable to be ‘into oil and gas’.

It’s also important to see that there is absolutely no magic to the man’s success other than sheer hard-work, street smarts and delayed gratification. There is no evidence that he ‘tithed’ his way to his achievements either or the wealth of sinners being forcefully and spiritually transferred to him.

It’s very important to elevate stories of those who played the long game and got rewarded for it to the front page. The less we hear about people throwing 40th birthday parties costing billions when we have no idea what it is they invented to make their fortune, the better. These things corrupt the body fabric of a nation.

One fascinating economic research I came across recently is by an Indian Professor, Nimish Adhia. He trawled through Bollywood movies starting in the 1950s and tried to plot the characters of heroes and villains.

What he discovered was that as economic liberalisation started to take hold in the country (especially after the Licence Raj reforms in 1991), the good guys in Indian films started to change from government officials to business men. Simultaneously, the bad guys changed from factory owners to policemen. Try to watch the whole video below if you can.

Especially around 11mins; you will see a clip from a movie called ‘Guru’ with the protagonist giving an impassioned speech in court.

The things a society talks about has serious effects on shaping the culture and attitudes of the people. The more normal it becomes to see (Hi Nollywood) and hear stories of people who did nothing more than build a business from ground up, the more people see that as a viable road to travel.

So shout out to Mr Chukwuma and Vanguard for doing this. More please!

FF

The Konkere Wars Part II: Starring Alhaji as V. V. Putin

Fellow Nigerians, It is with much sadness that I have to write this piece.

You will recall that in late 2012, there was an outbreak of hostilities in Nigeria’s ‘nascent’ cement industry. This compelled me to write The Konkere Wars in January 2013. Shortly after, there was an outbreak of peace and the belligerents sheathed their swords. Alas, this peace was not solidified and only a few months ago we began to witness sabre rattling in the industry. War is afoot yet again.

Whereas the last dispute was the ‘War of The Glut’, this new conflict can be subtitled the ‘War of The Standards’ (WoTS). Let us examine the points as best as we can.

1. It is impossible to understand Nigeria without an appreciation of the role that faceless organisations play in the polity. Whereas it can take up to 3 weeks to register a legal company, a faceless organisation can be established, for any purpose whatsoever, in a maximum of 8 minutes. They are like special purpose vehicles except that they appear and disappear a lot quicker.

In the same way that it is impossible to chronicle the origins of World War I without including Gavrilo Princip, we cannot talk about WoTS without talking about ‘Mr. Tunde Ojo’. Who is he? Well, I don’t know, so you tell me. All I know is that he is the spokesman for a ‘coalition of civil society groups and professional bodies in the construction industry‘.

In the first week of February, this group burst on to the scene claiming they were going to start a campaign for the standardisation of cement production and importation in Nigeria. Specifically they said they wanted the government to enforce ’42.5 grade’ as the standard in Nigeria i.e. anything below this should be banned.

This ‘press release’ (I don’t know what else to call it) was carried by virtually all the newspapers at the time. Here is the ThisDay version. It was pretty much the same in all the newspapers as a quick google search will show you:

A coalition of civil society groups and professional bodies in the construction industry is set to launch a major campaign for the standardisation of cement production and importation.

Specifically, the coalition said it would call on the relevant authorities to initiate actions to make 42.5 grade of cement the standard product in Nigeria.

It noted that nearly all the cement manufacturers and importers in the country are in the habit of taking advantage of the lax regulation and lack of enforcement to vary their pigmentation in favour of the lower grade cement (32.5), which in most cases, is used in building works, and seen to be partly responsible for building collapse.

Speaking on the development, the coalition’s spokesperson, Mr. Tunde Ojo, blamed the Minister of Industry, Trade and Investment, Mr. Olusegun Aganga, for alleged complicity with manufacturers and vowed to mobilise block makers nation-wide against manufacturers and importers of poor quality cement

You can read the rest of the story at the link which goes into a bit of ‘technical’ detail about cement grades.

2. Another important thing to understand about Nigeria is the long standing and inextricable link between Nigerian journalism and the brown envelope – our journalism never met a brown envelope it could refuse. Once a faceless organisation has been launched, it can then be ‘brown enveloped’ into all the newspapers for prominence. This will explain why such a report was carried by all the newspapers for more than a week. It even became the subject of editorials in The Sun and Daily Independent and articles in The Vanguard (the exact same article appeared in ThisDay).

As I am told, it is not very hard or expensive to get a matter to ‘trend’ in our newspapers like this. And it is clear the newspapers were simply regurgitating what they had been fed without doing any checks or investigations of their own.

3. One week after the coalition announced its arrival on the scene, Ekanem Etim, the sales and marketing director at Dangote Cement called for regulation of the Nigerian cement industry to ward off the ‘threat’ from the coalition:

Dangote Cement is a key player in the industry and believes that Nigeria deserves the best. The SON approved 42.5mpa grade upon domestication of cement production and we believe the standard should not drop and upheld it.

“We believe we have to give back to the society so that the incidence of building collapse can be tackled and the use of poor building materials stemmed.”

According to Etim, the 42.5mpa cement grade possesses higher strength capability and can be used for concrete structures and columns, while the 32.5mpa grade can only be used for certain aspects of building construction like plastering and rendering, among others.

He added that over the last few years, the company had been engaged in educating block moulders and other cement users on the appropriate use of the product.

Etim called on SON to step in so that substandard cement would be taken off the market and the manufacturers would held responsible for the quality of their products.

He said, “How come during the import era, we were all compelled by the regulatory authorities to bring in 42.5mpa grade, but since 2012 when importation was banned, the same regulatory authorities are condoning the production of 32.5 grades?

“If SON says the standard is 42.5mpa, then every manufacturer should abide by that decision. To that extent, we believe that compliance is better so that Nigerians can get the best from what we produce

Who can argue with that? No sensible Nigerian can resist any moves that will put an end to buildings collapsing in Nigeria.

The ‘pressure’ was building. And something needed to be done.

4. A bit of digression to explain the Putin reference in the title of this piece. Vladimir Vladimirovich Putin – Liberator of Crimea – has been in charge of Russia for the better part of the last 14 years. One way he has held on to power is by ensuring that Russians never have a viable alternative to him. To this end, he has the habit of creating fake political parties and candidates to run against him periodically. Even dictators like to show some respect to democracy by giving off the appearance of a ‘fair’ competition.

Here’s an example from The Economist:

And the Kremlin debars any plausible opponents. Three of the men running against Mr Putin—Gennady Zyuganov of the Communist Party, Vladimir Zhirinovsky, the clown nationalist, and Sergei Mironov, the leader of Just Russia, a party initially created by the Kremlin as fake competition for Mr Putin’s United Russia—have for years been in the business of losing elections. The only fresh face is that of Mikhail Prokhorov, a liberal business tycoon. He actually has his own agenda, but was allowed to run despite this handicap because his support is seen as very narrow

Or as the writer Teju Cole recently put it:

Screen Shot 2014-03-18 at 19.18.50

5. Still staying with Putin. We have seen how the bureaucracy in Russia has broken all known speed records in its efforts to grant the people of Crimea their desperate wish to be part of Russia. Things that would normally take months if not years, all of a sudden only take a matter of minutes. 

Take this example from the New York Times from just a week after Russia entered Ukraine:

Russia’s takeover of Crimea is already so complete that commercial flights to Kiev from the region’s main airport, located outside Simferopol, the regional capital 50 miles from Sevastopol, now leave from the international terminal instead of the domestic one as they did until last week. The shift suggests that Kiev and the rest of Ukraine are now classified as foreign territory

As long as the end result is known ahead of time, everything else is a mere formality. This is an important point as we will soon see.

6. Last week, Dangote Cement Group announced that it had launched the higher grade 52.5N cement into the Nigerian market. Even if you don’t understand what this means, you can at least see that 52.5 is a bigger number than 32.5. In cement, big is better than small.

This world record-breaking achievement was widely covered in the newspapers:

To contribute to the arrest of the problem, allegedly caused by the preponderance of lower grade (32.5) of cement in the market, Dangote Cement announced the completion of the calibration of its factories across the country to produce 52.5 grade of the product. With this, the company becomes the first cement company in Africa to achieve the feat.

For about two months, major concerns had been raised by various interest groups, over the standardisation of the essential product. Stakeholders had warned that the prevalence of 32.5 cement grade in the market was a major cause of building collapse in the country, threatening to stage protests against cement manufacturers who produce the lower grade of the product.

I don’t know how easy it is to calibrate factory production, but what Dangote Group managed to achieve in just 2 months sounds spectacular indeed.

That was not all. The Group Managing Director of the company, Devakumar Edwin, explained further:

However, the Group Managing Director of Dangote Cement plc,  Devakumar Edwin, told journalists in Lagos that they had further demonstrated their commitment to delivering high quality and safe product to Nigerians by raising the quality bar beyond the high grade of 42.5 cement to a much higher grade of 52.5.

He said the company had commenced the production of the cement grade from all of its three plants in Ibese, Ogun State, Gboko, Benue State and Obajana in Kogi State.

Edwin said the cement giant had scored another first as the 52.5 grade of cement was being produced in Africa for the first time, thus attesting to the resolve of the company to be a leading international producer of the essential product.

Basking in the euphoria of the new achievement, Edwin disclosed that the new cement grade, which had been certified by the Standard Organisation of Nigeria (SON), conforms to the requirements of NIS 444-2003 and other relevant standards, would sell for the same amount as the lower grade 42.5 type.

The GMD stated that it costs more to produce the 52.5 grade but that Dangote Cement decided to sell at the same price in the interest of its customers and so as to make it affordable

If I am not mistaken, this is what is known as going above and beyond the call of duty. Not only did they exceed the call of the civil society groups, they magnanimously kept it at the same price. Greater love hath no company ever shown for its country.

7. So to recap – Mr. Tunde Ojo (I assume he’s a man) arrives from nowhere and shakes up the Nigerian cement industry. Newspapers are falling over themselves to tell us how important what he’s saying is. The biggest player in the market comes out to defend its reputation and ‘floods’ the market with a higher grade than is required.

All that is left is for the regulator to come out and ‘do something’. They did not disappoint. Just yesterday, the Standards Organisation of Nigeria (SON) announced that it was commencing a review of cement standards in Nigeria. Here’s how The Guardian reported it:

THE Standards Organisation of Nigeria (SON) Monday, commenced a process to review the standards of locally produced cement, as part of measures to address current raging controversy over quality of the essential building material being produced by the nation’s manufacturers as well as the rising profile of building collapse.

With the aid of a technical committee comprising of manufacturers, civil society organisations, academia, regulatory agencies and other stakeholders, the SON hopes to develop reviewed standards regulating the composition and conformity criteria for common cement alternatively known as the NIS 444-1:2003

An impressive technical committee has already been put together to ensure that the review goes according to plan.

There is more:

Although, a review process in developed climes is expected to take at least 36 months, the SON noted that it hopes to complete the process sooner than the timeline considering the prevailing situation of building collapse in the country.

Indeed, various stakeholders in the industry recently, raised concerns over the production of 32.5 grade of cement in the country, against the 42.5 grade, which SON earlier approved for imported brands, while some have begun a local production of higher grades of the product

You can see the alacrity with which the bureaucracy is moving. I don’t want to speculate but I suspect that that 36 month timeframe will be compressed to around 14 minutes for SON’s review.

Note also that Mr. Tunde Ojo has since disappeared from the scene. The work is almost finished.

Today, ThisDay also reported that manufacturers are now ‘fretting’ following SON’s announcement of the review:

It was a tension-soaked atmosphere yesterday in Lagos as the technical committee convened by the Standards Organisation of Nigeria (SON) began the review of cement standardisation in the country, with the primary objective of ensuring that only cement that guarantees safety of buildings and human lives is produced and sold in Nigeria.

The Chief Executive Officer of Lafarge Cement WAPCO, Mr. Joseph Hudson, Group Managing Director of Dangote Cement, Devakumar Edwin, Managing Director of UNICEM, Olivier Lenoir, and a representative of Ibeto Cement, all present at the technical committee review meeting, were visibly apprehensive over the possible outcome of the process.

Bearing in mind that depending on how the committee votes at the end of the session, the lower grade 32.5 cement may be eliminated from or restricted in the Nigerian market, cement manufacturers seemed to make their last ditch efforts to ensure that experts present at the meeting understood their points of view.

Just by reading the article, I can feel the tension, not to talk of those in the industry.

Dr. Joseph Odumodu, Director General of SON, did not mince words when giving the Technical Committee its marching orders:

We have seen a lot of building collapse in the country and we know that most of these have caused avoidable deaths and we cannot allow it continue. So in this meeting, we expect to get expert technical insights on the way forward in standardisation of cement.

The media has been awash with varied information about different classes of cement and so to bring succour to Nigerians, we have brought together a critical mass of knowledgeable experts to provide direction on the issue.

Many questions have been asked by Nigerians that need answers. To be sure, there is no substandard cement produced in Nigeria because we have cement standards well elaborated in the country. But there are  issues that must be addressed. For example, SON has established that people in the country, who go to the market to purchase cement for one construction activity or the other, do not actually know what they buy from the market.

“When the whole controversy began, we embarked on a basic survey and administered questionnaire to different people who are stakeholders in the building and construction industry, asking basic questions and the response revealed that the people did not actually know what they were buying from the market. When they get to the market they just ask for a cement and at best they ask for a particular brand name of cement. This invariably leads to misapplication of the product and to check this unfortunate situation, we have put this committee together.

I highlighted some lines above to remind you of how Mr. Tunde Ojo has been in this matter.

From point 6 above, we know who is NOT fretting. Before the exam, someone has already passed. So we can guess that the end result of this SON review will be to effectively reduce competition either by banning some players or increasing their costs. Both will have the same effect.

What Next?

The obvious question to ask is if 32.5 grade cement is really inferior to 42.5 or 52.5. Does using 32.5 grade really lead to building collapse? I am by no means a cement expert but simply looking around the internet tells me that 32.5 grade cement is sold openly on the market around the world i.e. it is not an illegal product.

What this suggests is that the 3 different grades have different uses not that one is superior to the other. Obviously, the type of cement needed to build a bridge cannot be the same strength required for building a house.

32.5 grade cement is for regular construction i.e. building houses and general use by consumers. 42.5 is mainly for precast work while 52.5 is for heavy-duty usage.

Here’s an education paper by Cemex in the UK which explains the differences between grades. It’s full of jargon so go straight to pages 7 and 8:

The standard strength class is the strength that will be achieved at twenty eight
days by a prism of cement, sand and water of a fixed composition tested in a
prescribed manner. There are three strength classes 32.5, 42.5 and 52.5. The
appropriate standard lists the exact requirements for determining the class and the
permitted range of strengths within each class

Nowhere will you find that 32.5 is ‘low grade’ while 52.5 is the ‘standard’.

It also begs the question as to why SON has mobilised such a ‘high powered technical committee’ to investigate something that can easily be found on the internet. There really is nothing to find here – 32.5 grade cement is not an illegal product, neither is it sub-standard. Indeed, using 52.5 grade cement for regular housebuilding might be problematic as I am made to understand.

The End

I love capitalism. I really do. But nothing is more painful than crony capitalism. Because not only does crony capitalism cheat consumers, it makes people who should normally be fans of capitalism – and all the wonderful things it does – become enemies of it.

When people start to believe the game is rigged, they start to hate the game and ask for a new game entirely. We should be wary of this. With the privatisation of the power sector for instance, we are slowly moving toward a private sector led economy in Nigeria. This should be a very good thing but we are seeing here an example of how easy it is to rig the game ultimately against consumers who will, rightly, feel that they exist simply to make some people rich. Even the regulator meant to protect Nigerians is openly in the pocket of the producers.

Nigerian cement is already one of the most expensive in the world. Anything that reduces competition must be resisted.

What exactly is the point of made in Nigeria cement when we have a 17 million housing deficit? Think about that.

FF 

P.S The Economist recently started a Crony Capitalism Index. There’s a long and interesting article which explains the index and crony capitalism in general. It’s here

The Acronyms of Power – A Movie About Electricity Reforms (1988 – 2014)

Anyone will tell you Nigeria is crying out for structural reforms. Some, like the Finance Minister, Ngozi Okonjo-Iweala, have hinted at just how difficult reforms are with her book Reforming The Unreformable. Thankfully, the difficulty doesnt stop anyone from attempting reform. The problem is a bit more, what’s the word now, mundane.

Power reform can be classed as a pretty much successful government reform so let’s use that as an example. When did it all begin? It might surprise you that it all started under IBB. This suggests that as far back as 1985 – 1993, at the highest levels of the Nigerian government, people knew that government simply couldn’t run our power sector anywhere near optimally. Also, the IBB government may have been influenced by the wave of privatisation that was being pushed by Margaret Thatcher in the UK (which began in 1979).

So some dates below. It’s possible I miss something out so please use the comments to let me know

1989 – 1993 – IBB

Decree 25 of 1988 had been passed the year before. This decree established the Technical Committee on Privatisation and Commercialisation (TCPC). I cannot remember correctly if he was the first ever Chairman of the committee, but I do recall that Dr Hamza Zayyad ran the TCPC for much of the time under IBB. The first thing the TCPC was to do was to ‘commercialise’ NRC (railways), NEPA and NITEL i.e. get them to start operating like businesses even if they were to remain government owned.

But Nigeria had nowhere near the kind of private sector we have today that can mobilise capital in the way that we have seen recently. So whatever was done was obviously limited.

1993 – 1999 – Abacha (and Abdulsalami)

This one was funny. Decree 78 of 1993 established the Bureau for Public Enterprises (BPE) presumably to take over from the TCPC. But nothing - absolutely nothing – was privatised in this period. The decree listed over 120 companies to be privatised (including power companies) but nothing was done. In other words, whatever was gained under IBB (82 companies privatised and others ‘commercialised’) was either halted or reversed under Abacha (we’ll excuse Abdulsalami for being distracted with the hot potato of power in his hand).

As you know, General Sani Abacha was recently honoured as part of the centenary celebration. As bad as that honour was, what makes it even funnier is this excerpt from the statement released by the government justifying the award:

The Federal Government also said Mr. Abacha oversaw an increase in the country’s foreign exchange reserves from $494 million in 1993 to $9.6 billion by the middle of 1997; and reduced the external debt of Nigeria from $36 billion in 1993 to $27 billion in 1997.

Mr. Abacha, the government noted, had brought all the controversial privatisation programs of the Babangida administration to a halt, reduced an inflation rate of 54 per cent inherited from the Ibrahim Babangida administration to 8.5 per cent between 1993 and 1998, while the nation’s primary commodity, oil, was at an average of $9 per barrel.

This is LWKMD-esque indeed. For setting us back 5 years or even more, we gave him an award. Genius.

1999 – 2007 – Obasanjo

The whole thing came back alive in this period. Previous decrees had made provision for the establishment of a National Council of Privatisation (NCP) but never seemed to happen. It finally happened in this period. In 2000, the Electricity Power Implementation Committee (EPIC!) was established. One year later, EPIC delivered the National Electric Power Policy (NEPP) which in turn took another 4 years to become the Electricity Power Sector Reform Act 2005 (EPSRA). This was the big one – it made power reform the law of the land meaning that from here it could be delayed but not denied.

EPSRA broke up NEPA into 11 DISCOs, 6 GENCOs and one Transmission Company (TCN). It also transmogrified (apologies Igodomigodo) NEPA into a public holding company called PHCN. All of these were the first steps to the eventual sell off of these companies.

If these companies were to be privatised, then they needed to be regulated being utilities. The smart people who wrote EPSRA made provision for the National Electricity Regulatory Commission (NERC) and this was established in 2005.

By the way, in 2004, the National Integrated Power Project (NIPP) was launched as a way of government stabilising power supply while the power sector was going through change. This was no more complicated than government building fast track power plants (7 gas-powered plants around the gas-producing states in total) to boost supply. The first funding of $2.5bn was released from the Excess Crude Account (ECA) in 2005 (back in those days we could shake body and drop billions of dollars). The Niger Delta Power Holding Company (NDPHC) was established to hold the assets of the 7 NIPPs (even I am getting tired of these acronyms).

Things were going according to plan. Life was good. We were unstoppable. You could excuse us if we took time out to kiss the sky even.

So if you are President Obasanjo who managed to achieve all these things, who do you hand over such a delicate legacy to?

2007 – 2009 – Yar’Adua

Imagine this whole being a baton, the final leg was to be run by Yar’Adua. What was required of him was to sell off the companies. The framework was already in place and all the hard work had been done. So what do you if you are Yar’Adua? You suspend the process for 2 years.

For reasons that remain unclear till today, Yar’Adua went hostile to the reforms and all sorts of probes into the power sector began. by 2007, NDPHC had already spent close to $3bn and had close to another $2bn in letters of credit out of its almost $8bn commitments i.e. even though Yar’Adua suspended funding to them, work continued using the $2bn from letters of credit. There was much strife in the land and after so much noise, the Yar’Adua government released another $5bn+ from the ECA to continue the work.

Yar’Adua claimed that Obasanjo wasted $10bn ‘with little or nothing to show for it’. Dimeji Bankole and the House said it was even higher – they put their figure at $16bn (no one knows how they arrived at this figure. Jonathan’s later probe put the total amount spent at $3.08bn). Whatever the figure was, the ‘polity’ was sufficiently ‘heated’ guaranteeing that no sensible debate could be had. There was so much probing going on and people were being fingered here and there as culprits behind the theft of this (imaginary) money.

Yar’Adua died

2010 – 2013 – Jonathan

After pausing for breath in the previous 2 years, President Jonathan kick started the process. I will speculate that he had an advantage here – the NCP is traditionally headed by the Vice President so he would have been familiar with the process to an extent while Yar’Adua was President. He knew what exactly needed to be restarted.

If you are following, you will remember that what was left to do here was to sell of the DISCOs and GENCOs, finish the NIPPs and hope for the best. He set up the Presidential Task Force on Power (PTFP) and the Presidential Action Committee on Power (PACP). President Jonathan headed PACP while Barth Nnaji, the former power minister, headed PTFP. The job of these two bodies was to implement EPSRA fully so a body like Nigeria Bulk Electricity Trading (NBET) was incorporated in July 2010.

Much of the rest of the process is recent history so I wont bore you with the details but suffice to say that the sale of the DISCOs and GENCOs was finalised in November 2013. The NIPP project resumed and have been mostly completed. The plan was always for the government to stabilise power supply with the NIPPs but some of this has now overlapped somewhat. In any case, buyers have been found for the 10 NIPPs and they now have 6 months to come up with the money. The FG has sold 80% of the NIPPs for a total of $5.8bn suggesting they were worth $7.3bn. Just by looking at the figures above, you can see we’ve lost some money on the deal but let us be thankful.

After some needless quarrelling with Manitoba, TCN also seems to have stabilised (if we take silence to mean that everything is going ok). It’s all out of the government’s hands now so what’s left is for the new owners to run the companies like serious businesses. This can only happen if they deliver power of course and get customers to pay for said power.

In The Final Analysis

If we take Decree 25 of 1988 as the starting point of all this, it’s taken us 26 years (7 of which were totally wasted) to get to a reasonable point in the process where we can say we’ve wrapped it up. I don’t want to sound mean but in that time, the reform has had to be rescued from near death by ‘death’ itself (Abacha and Yar’Adua). There have also been so many times when we have taken the gun of reform, loaded it with bullets, pointed it at our own foot and then fired it. Given that we lack strong institutions, reforms are very much still subject to the whims of the Oga At the Top (OATT) and which side of the bed he wakes up on. Even if he cant kill the reforms, as we have seen, he can certainly delay it.

But most of all, what this shows is that the whole thing is a process that, given our general bad behaviour, is almost impossible for one person to complete. Let us take EPSRA in 2005 as the point of no return for the process – it has taken almost 9 years after that point to finish up the work. It is best to have something to work with when you come into office i.e. government, for the sake of Nigerians, ought to be a continuous exercise.

Which brings me to the final point. In April 2000, President Obasanjo constituted the Oil and Gas Sector Reform Implementation Committee (OGRIC) headed by Professor Rilwan Lukman. The job of these guys was basically to restructure the whole damn oil sector. The NNPC is a deadlier beast than NEPA and it wasnt until 2007 that the National Oil and Gas Policy (NOP) was published. One year later, Lukman’s OGRIC came up with a ‘final’ document that was to be submitted to the NASS i.e. the EPSRA for the oil industry. This is what has come to be known as the Petroleum Industry Bill (PIB) today.

There are similarities with EPSRA – the PIB seeks to commercialise and break up the NNPC into various bodies as a first step towards privatisation. It will also create new regulatory bodies for the oil sector just like EPSRA created NERC for power. Oil and gas is above my pay grade so I will leave the details to the experts. What I do know is that Yar’Adua didn’t pass the PIB in 2008 (obviously) and Jonathan changed it in 2012. As we speak, it continues to gather dust in the NASS.

Now we know that the stakes are higher for oil and gas and NNPC is more complex than NEPA so it’s not unreasonable to imagine that it will take at least 10 years to properly implement the PIB from whenever it is passed – give or take another anti-reform President dying in office. It will not be done by Jonathan certainly and it may not even be done by whoever succeeds him. But take heart, by that time our oil industry may have been gutted by shale oil, electric cars may have become mass market, every African country may have discovered oil or some other technology may have arrived to disrupt the whole thing. In short, reform will become by force and we will have no choice.

If we want to get anything done, we need to start early and be in a hurry.

FF

P.S This is by no means a complete account of the power reform process. I have glossed over a few things but you get the gist. I have used so many sources to write this that I am unable to put them all in here. Sorry. But they were all from Google (if that helps).

Mr. Wendell Simlin

Perhaps it is worth putting all the points of this ‘case’ in a blog post. So here goes.

First off, if every Nigerian was forced to be in one of two camps – ‘pro’ or ‘anti’ Sanusi Lamido Sanusi, it’s safe to say I’d firmly be in the ‘pro’ camp. I like the man. That’s my bias. So when I see news stories making wild allegations against him, I tend to give them a second look. As an example, a few weeks ago, ThisDay newspapers reported that CBN awarded a N9.5bn contract to a bankrupt firm, Dermalog. I thought this was odd and within 30 minutes of looking around the internet, I found the story to be 100% false – not even 1% true. ThisDay has since deleted the original story but published this apology/retraction a couple of days later.

So last week when a journalist friend of mine mentioned that her online paper had received an email making very strong allegations of the religious kind against SLS, I asked her to please forward me the email which she did. I was keen to see what the new gist was about and if it was true. Here’s what followed.

The email was sent out by one Wendell Simlin with the email address wendellsimlin@yahoo.com. We (I will use ‘we’ because I shared the email with a couple of friends and we sniffed around it together) then did some checking around the email. To be clear, I have always been suspicious of the President’s Special Adviser on New Media (I wont dignify him be typing his name in this piece). To my mind he has always been a duplicitous character skilled in the dark arts. But we didn’t do anything special at all. Just basic checks around the email and crucially, the attached word document.

1. A simple google search of Wendell Simlin turned up a Facebook page with only one photo. The photo had about seven people in it, including the SA New Media (it has since been deleted). Is this enough evidence to say it was him? Of course not.

2. Do you know how to check an email’s header? Go to this link which shows you how to do it in a few clicks. Again, this is nothing complicated at all. When we checked the email header, it pointed to an IP address in the Kubwa area in Abuja. The ISP was Galaxy Backbone, which provides most of the internet hosting services to the government. On its own is this enough evidence? No.

3. Searching around Facebook again pointed to a long standing ‘relationship’ between Mr Simlin and the SA going back to at least 2010 spanning ‘pages liked’ and threads commented on. Enough evidence on its own? I doubt it.

4. The final piece in the puzzle however was that Mr Simlin typed out the allegations against SLS in the body of the email but then included the same text in a word document and attached it to the email. Again, nothing ‘technical’ was done here – it was as simple as opening the attached word document and right clicking to pull up its properties. There it was – his name as the author and person who last saved it on Hewlett-Packard computer (this is automatically done when you use your computer to generate a document).

Now a lot of noise has been made around this part of the evidence namely ‘anyone can type a word document and change the name’. This is true. But it is also simple to check out – all those who received the original email with the attachment have carried out the same check and found the exact same properties. Perhaps I have so much time and hatred for this guy that I went out of my way to edit the properties with his name but it is tough to explain how I did that with the original recipients given that I wasn’t the one who sent out the email.

5. Furthermore, an online newspaper, Premium Times, who have received official emails from the SA in the past have checked out previous email headers from him and compared it to this particular one from Wendell Simlin. They matched i.e the emails were sent from the same computer/location.

Perhaps each of the above items is not enough to convincingly prove that it was him. Perhaps. But it is very difficult to argue against all of the evidence taken together.

All of that is hardly the story though. There are very worrying issues thrown up by this matter. The first is that the email to smear SLS with Boko Haram was sent by an aide to the President just a day after 59 school children were massacred in a school in Yobe. At a time when even the most hardened Nigerians were saddened by the atrocity, someone somewhere in the Presidency thought it a good time to score political points by directing suspicion towards an ‘enemy’ of the President who has already been suspended from office and charged with very serious offences.

Secondly, religious baiting is a very dangerous thing to do in Nigeria. More than 100 people died over a matter as trivial as a Miss World competition in 2002. Once the religious touchpaper has been lit in Nigeria, no one really has any control over it and many lives will be lost before people calm down. The email sent out by the SA was dripping with Islamophobia and also contained outright lies and smears not just against SLS but against Alhaji Mutallab – a man who reported his own son to the American authorities when he noticed extremist tendencies in him.

In any other country, this would be a sacking offence and possibly worthy of prosecution. But not only has the SA in question here kept completely silent, he is actually writing articles where he hints that online critics of the government might be ‘satan’ afterall. All of this is amusing but hardly surprising. He works for a government that not only recently gave Sani Abacha an award, it actually went out of its way to justify the awards on the grounds of his wondrous achievements as Head of State.

We’ve sent a formal complaint (along with all the evidence) to a government minister but I am not sitting here holding my breath that he will be so much as censured. It is what it is. We are also exploring other avenues to make formal complaints. He is afterall paid from the public purse.

But it’s important to make the point that just because you remain in your job and you can keep quiet about the matter, presumably till it dies a natural death, does not mean those who accused you are fools.

FF