Taxes of Bow-Tie

Special taxes should be introduced on luxury items so that there will be more revenue to provide goods and services for the generality of the people.

And to cater for those who are not gainfully employed in terms of making sure that every child in Nigeria attends schools.

The statement above was credited to Dr. Abraham Nwankwo, Director General of Nigeria’s Debt Management Office (DMO) and the quiet member of the trifecta in the Nigerian government that used to be the Axis of Bow-Tie (SLS has since left government leaving only Akin Adesina and Nwankwo).
Whenever I hear someone is trying to raise taxes, my ears perk up – I’m a low tax kinda guy and I prefer that taxes must be justified and actually bring in revenue. I even proposed a PJ-BAD tax on private jets a couple of years ago, a Pigouvian Tax.
By floating the idea of a tax on luxury items, Dr. Nwankwo guarantees that the tax will be popular among Nigerians, most of whom don’t buy luxury items anyway. The problem comes with the second part of his statement – that the taxes will be used to do all sorts of wonderful things like unemployment benefits and sending kids to school (never mind that we already have an education tax in Nigeria).
I’m afraid I have not so good news for Dr. Nwankwo – if this is how anyone is planning to fund education or a social welfare programme, then it means kids are not going to go to school. The simple reason for this is that a tax on luxury items is a tax on behaviour and if you tax behaviour, behaviour will change. Of course, if the purpose of the tax is to change behaviour, then by all means tax that behaviour until people change. A good example of this is taxing petrol to get people to drive less in order to reduce pollution.
So, you tax luxury items because you think there’s a need to reduce that kind of consumption if it causes negative externalities in society. That is fine. If you set the tax high enough, the offending behaviour will disappear along with the tax revenues.
But people in government never stop getting excited at the prospect of taxing something to raise revenues. Indeed Dr. Nwankwo hints at this as well:
But the emphasis is that we do not have more borrowing space because GDP has increased; we do not service debts with GDP, but with revenue and revenue is suffering some setbacks in terms of its sizeability to the GDP
The government desperately wants to borrow more money to meet revenue shortfalls but to do this it has to find more tax revenues fast to be able to service the debts. Things are starting to get hairy and there’s a limit to borrowing to pay back borrowing. It’s also embarrassing that we call ourselves Africa’s largest economy and we barely raise any taxes.
Back in 1990, America decided to implement a luxury tax to balance the budget under George H.W Bush. Things like jewellery, yachts, fur coats, private jets and fast cars were going to be taxed. So what happened?

In 1990 the Joint Committee on Taxation projected that the 1991 revenue yield from luxury taxes would be $31 million. It was $16.6 million. Why? Because (surprise!) the taxation changed behavior: Fewer people bought the taxed products. Demand went down when prices went up. Washington was amazed. People bought yachts overseas. Who would have thought it?

According to a study done for the Joint Economic Committee, the tax destroyed 330 jobs in jewelry manufacturing, 1,470 in the aircraft industry and 7,600 in the boating industry. The job losses cost the government a total of $24.2 million in unemployment benefits and lost income tax revenues. So the net effect of the taxes was a loss of $7.6 million in fiscal 1991, which means the government projection was off by $38.6 million.

It was such a failure that the tax was repealed in 2 years. America went from a next exporter of yachts to a net importer since the taxes made it cheaper to buy boats abroad and even leave them there.
It’s going to be interesting to see what kind of revenue generating taxes the government will cook up in the coming days, especially after the elections. But if its stuff like this, then it’s a waste of time. Most of the owners of private jets in Nigeria for example, already use all sorts of sophisticated ownership structures to avoid the jets being traced back to them. Beating taxes like this will be a walk in the park for them. Unless the definition of what is classified is ‘luxury’ is constantly changing, there is no way for such a tax to raise money sustainably.
So how should the government raise taxes? The answer is staring them in the face (see here) and the fact that this is not even being talked about suggests to me that the avoidance is deliberate. Almost all the local content companies in Nigeria do not pay any taxes due to them having ‘pioneer status’. The Task Force set up by the President on the petroleum industry (headed by Nuhu Ribadu), specifically flagged this problem (Page 19):
The Task Force was informed that at least five companies:
Allied Energy, Midwestern Oil & Gas, Brittania Oil Nigeria
Limited, Suntrust Oil Company Nigeria Limited; and Niger
Delta Petroleum Resources Limited have been granted
pioneer status by the Nigerian Investment Promotion
Commission (with others pending or undetected) for their
exploration and production activities.
The Task Force finds that the granting of pioneer status to oil
operators for an activity that is well established for over 40
years inappropriate. The loss of revenue from the grant of
pioneer status to oil operators is an avoidable loss and it is
recommended that any such further consideration be stopped
forthwith and the current ones set aside and or revoked.

That report was submitted in 2012 and since then there have been more companies with ‘local content’ assets.

This debate on taxes has only just started and it’s going to be very interesting to see how the government approaches the issue.

We continue to observe

FF

Buhari The Ascetic

General Buhari has unwittingly kickstarted a debate about how to fund campaigns in Nigeria. To pay the N27.5m cost of the APC’s presidential nomination form, he revealed he had reached some kind of overdraft arrangement with his bank:

N27 million is a big sum, thankfully I have personal relationship with the manager of my bank in Kaduna and early this morning, I put an early call (and) I told him that very soon the forms are coming, so, whether I am on red, or green or even black please honour it, otherwise I may lose the nomination

The bigger issue here is not that he’s come to this kind of arrangement but that he seems to have left it till the last minute. He’s always known he was going to run for President so before declaring, he should have tied up this loose end with his bankers. Or perhaps he is only making the story public to let people know how he is funding the form-buying given how there have been so many stories of people offering to pay for him.

But surely Buhari has friends who can come up with N27.5m for him? And clearly, if N27.5m is a struggle, then a campaign that will cost probably N1bn is going to be an impossible task. The reason for this appears to be a simple one as he explained himself:

But I felt heavily sorry for myself because I don’t want to go and ask somebody to pay for my nomination forms, because I always try to pay myself, at least for the nomination

Ok fair enough – maybe he knows he is going to have to rely on people to fund his campaign proper and he’s trying to preserve some pride or honour by paying for the form himself; the very least he can do.

All of this brings us to another ‘What Exactly Do Nigerians Want?’ debate. I suspect that a decent chunk of the criticism of Buhari’s approach to funding his form-buying is coming from people who want to justify why they will vote for the current government to continue in 2015. Such people tend to spend an inordinate amount of time criticising every possible candidate that is lined up against the incumbent. We are approaching the amusing situation where the same people will criticise one candidate for being a thief and another one for not having money. This is all a welcome form of political entertainment.

We can find some interesting lessons from Indonesia where a man, Joko Widodo, from very humble origins has just been elected President, defeating Prabowo Subianto, the establishment candidate whose brother, Hashim Djojohadikusumo, is one of Indonesia’s richest men.

So how did Jokowi manage to raise more money than Prabowo? The chart below helps:

Jokowi

40,000 people is still quite small in a country like Indonesia with a population of over 250 million but clearly it was an achievement both in comparison to Prabowo and the novelty of it. Indeed, Prabowo himself initially mocked the idea of raising money from ordinary people:

Jakarta. After vocally criticizing Indonesian Democratic Party of Struggle (PDI-P) presidential candidate Joko Widodo for accepting campaign donations from the general public, Great Indonesia Movement (Gerindra) Party candidate Prabowo Subianto has begun doing the exact same thing.

“Prabowo and [his running mate] Hatta [Rajasa] harshly criticized the public donation scheme at first, but now, without a clear argument, they are doing the same thing,” Indonesian Civic Network (Lima) head Ray Rangkuti said on Saturday.

Joko and his running mate, Jusuf Kalla, have made Rp 40 billion ($3.38 million) since opening three bank accounts in their own names on May 29 for the purpose of receiving donations, becoming the first candidates in Indonesian history to do so.

Some 30,000 supporters have contributed so far, with the campaign taking in an average of Rp 2 billion per day.

Joko-Kalla campaign official Dolfie OFP said that Prabowo’s about-face indicated lack of a clear vision.

“This is inconsistency, they used to criticize Joko-Kalla when they opened the accounts, and now they did the same thing,” he said.

At the time, the Prabowo campaign maintained that the solicitation of public donations was an undignified approach to politics.

“[Joko-Kalla] claimed they wished to make Indonesia prosperous but instead they make their supporters suffer,” Prabowo-Hatta campaign legal affairs head Ahmad Yani said.

The campaign implied that a viable candidate should be wealthy enough to fund his own bid.

“The presidential candidate should be rich so his constituents won’t have to beg for money on the street, this is a social anomaly that lowers human dignity,” campaign official Suryo Prabowo said. “Why ask people to beg?”

But on Friday, the campaign announced that it would begin taking donations nonetheless.

Typical. People first say something is impossible until they see it is successful and then they start copying it. In the end, Jokowi raised 2.5 times more than Prabowo did (at least officially) to finish at around $3m raised directly from the public. The vast majority of that being small amounts of $100.

Not having money in Nigeria has never been a full barrier to political office in Nigeria. A few days ago, I sat with a friend who narrated to me how Aliyu Mu’azu became Governor of Niger state – a hilarious story of how the power brokers in the state couldn’t decide between themselves on a successor to Abdulkadir Kure and ended up with Mu’azu as the compromise candidate. It is unlikely he had much money at the time as he was apparently a civil servant. Of course today, he can probably afford to sponsor someone for the Presidency.

This is the way it has always been done in Nigeria – the Prabowo way. It is thus hard to understand why anyone will criticise Buhari for at least bucking this trend albeit in an uninspiring way.

And this brings us to the real issue with Buhari himself and his campaign – a lack of inspiration. He is undoubtedly popular and is by all accounts a decent man. But his inability to fully maximise his base and then broaden his coalition is a recurring theme of his campaigns so far. And this is a message for those around him. Even if he doesnt win (as is almost guaranteed), he can change Nigerian politics and campaign finance in a way that leaves a lasting legacy.

People often ask why Buhari has never groomed someone as a leader or successor. That is a somewhat harsh but valid question. But if he manages to run a truly people funded campaign, then he will have groomed thousands of successors all over the country who might be inspired to try the same thing.

FF

Lau Lau Fiscal Policy

The boom, not the slump, is the right time for austerity at the Treasury – John Maynard Keynes, 1937

Money is sweet to spend, especially when it’s other people’s money or it has ‘no owner’. A couple of months ago, I wrote about how Nigeria has been in Boom Time for the last 4 years with oil prices consistently above $100 per barrel since the current government came into office.

Given that Nigeria really has no say in the global oil markets – we cant really deliberately affect prices to our own benefit – the time was bound to come when the party music would stop. It appears that time has now come.

Here’s what the story of oil prices in the last 1 year looks like:

Crude Oil

It’s not yet a disaster of course; in theory it’s still above the price we based our budgets on this year ($79), assuming you believe the difference is being saved somewhere. The reasons for this fall in oil prices are numerous and beyond the pay grade of this blog but we can take one useful one:

(Reuters) – Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.

Some OPEC members including Venezuela are clamoring for urgent production cuts to push global oil prices back up above $100 a barrel. But Saudi officials have telegraphed a different message in private meetings with oil market investors and analysts recently: the kingdom, OPEC’s largest producer, is ready to accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.

The discussions, some of which took place in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto strategy of holding prices at around $100 a barrel for Brent crude in favor of retaining market share in years to come.

The Saudis now appear to be betting that a period of lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.

All the Saudis need to do to make that happen is to ignore OPEC and pump more oil until prices drop to the level they want. This is a high stakes game and the Saudis are battling for their own future. Aside from Shale Oil in America which threatens them, there are other long term problems they are trying to avoid as well:

After plunging below $35 during the 2008-09 recession, the price of Brent had recovered to $128 a barrel by spring 2012. The oil firms responded by pouring cash into all sorts of projects, from American shale to deepwater fields in the tropics. Analysts at EY, a consulting firm, estimate that the world’s energy companies are currently bankrolling 163 upstream “megaprojects”—those costing more than $1 billion apiece—worth a combined $1.1 trillion dollars. The majority, EY found, are over budget and behind schedule. Most big projects have been planned around the assumption that oil would stay above $100—a notion that in recent years has become an article of faith in the industry

My favourite economist, Thomas Sowell (as you may have guessed), likes to say that the amount of oil available in the world is determined by the ‘cost of knowing’. If the price of oil is high enough, people will go to the strangest places to look for it – the oil in Kurdistan is obviously a lot easier to pump from the ground than the one in Canada’s Tar Sands. Because prices have been so high for so long, people have been emboldened to go out and spend insane amounts of money looking for oil – the Kashagan oil field in Kazakhstan has so far cost $43bn (original budget was $13bn) and the oil hasn’t started flowing yet. If and when all these investments start to pump oil, then the Saudis would be in big trouble. This is what they are guarding against – they are trying to raise the ‘cost of knowing’ as high as possible so no one is crazy enough to go and start looking for oil in strange places.

This game is not for little children as you’d imagine. But what has Nigeria been doing all this while? Well, we know there’s hardly been any new investment in Nigerian oil for a while now due to uncertainty over non passage of the PIB and general persistent anyhowness.

We have also been spending the money in a Lau Lau manner. None of this is new of course, which is what makes it even more depressing.

Screen Shot 2014-10-14 at 11.06.50

I took the chart above from the excellent book – The Oil Curse by Professor Michael Ross. From 1969 to 1977, the price of oil increased by just under 400% while the amount of crude oil Nigeria produced in that same period increased by 380%. In dollar terms, Nigeria’s revenues went from $4.9bn to $21.5bn, adjusted for inflation. And yet, you can see how the government was growing faster than the economy in that same period from the above chart – government share of the economy more than doubled in the period.

One of the lovely things we did with the money in that period was the Udoji Awards. All that money was coming in and no one knew what to do with it, so we did the tried and tested thing – salary increases for everyone!:

Screen Shot 2014-10-14 at 11.27.47

We have a long history of Lau Lau fiscal policy in Nigeria, so one might expect that any government today would try to avoid toeing the same path. Listen to what Ngozi Okonjo-Iweala said last year in November:

The finance minister noted the factors that contribute to the rise in recurring expenses to include the very high salary increase that was agreed for public servants in 2010.

“A very high salary increase was agreed at 53 percent for public office holders. This singular act raised salary figures from about N800 billion to about N1.7 trillion,” she said

Right at the start of the oil boom, we were already spending the money. Part of the reason for that astronomical increase in recurrent expenditure was the minimum wage increase from N5,500 to N18,000 in early 2011. It’s easy to think that this was just about minimum wage but the clever thing that the NLC did was to get Goodluck Jonathan (who wanted to get elected) to agree to maintain the gap between the bands after the minimum wage increase. Say you were earning N16,500 when the minimum wage was N5,500. After the increase, your salary went up to N54,000. Everybody got a pay rise not just the lowest paid.

And the spending on salaries has not stopped. Everyone demands and gets something. Take this gem from earlier this year as another example:

Pension stipends received by professors and permanent secretaries will be augmented by the Federal Government when the new Pension Reform Act is eventually passed into law, investigation has revealed.

This development will enable them to continue to earn their full salaries in retirement even when they don’t have enough funds in their Retirement Savings Accounts, unlike other retirees under the Contributory Pension Scheme.

To be fair, GEJ will be enjoying his retirement in Otuoke by the time the full bill for this one comes in but it’s the little things that add up.

All of this brings us to where we are today. Heavy domestic borrowing with so much of government spending being financed ‘off balance sheet’ through grants and cheap Chinese loans. Major infrastructure projects are also being financed with private sector borrowing. The government does not seem able to ‘shake body’ and drop $1bn on a project. Jonathanism – the ideology which posits that it is possible to describe a bungalow as a skyscraper – is now going to be seriously tested.

Over the weekend the Finance Minister made the following statement in Washington DC (emphasis mine):

She however said government will definitely not borrow to finance its expenditure. “There are three ways we can manage this; you can either go outside and look for resource, but we are not planning to do that. So I just want to make that clear. That is the pride we have. Ever since we have been managing the economy, we have not done that.
“What else we have to look at is our revenue and expenditure side to see how we are prepared. There are already some good news, because we are already ahead in trying to bring out some extra help from FIRS, we gave a target of half a billion dollars (N750bn).  I’m happy to announce to you that they have already hit N800 billion as at the end of the July.
“So we have to go back and encourage them even more, that is one of the measures to take. The other ways are on the expenditure side and this is where we have to plead; this is not a situation created by any one of us but all Nigerians should see openly, something that the DG Budget and I have been saying for quite some time is we have to be very careful to build up what we call a buffer. All of you know the buffer we have as excess crude account. We have to build it up so that if we experience any shock we can now use it.

I always remember being in church and Dr. Okey Onuzo preaching that anytime you open your mouth to make a strong vow, all the demons that were previously bored and fast asleep suddenly wake up excited at finding someone to test. Saying you ‘definitely’ wont borrow is a strong vow to make indeed. I also like her use of the word ‘encourage’ when what she really means is that we are going to send FIRS after Nigerians and businesses to collect as much tax as possible so we can continue to pay it to civil servants. And is it now that oil prices are crashing that you want to ‘build up’ the reserves?

This is the story of how so many countries become ‘customers’ of the IMF – they ignore Keynes and spend like there’s no tomorrow. Well, tomorrow is almost here.

And I did not mention corruption at all.

FF

Local Government Reform… Or Nothing

Given the recent noise about the #30PercentOrNothing movement, it’s a good time to revive one of the ideas I have been talking about for a number of years now.

Aside from the fact that we know how the 30 Percent movement will end (it will be co-opted by the PDP, money will change hands ending the whole thing in recriminations and name calling), there is a bigger danger in allowing it be the dominant movement for young people. Without mincing words, it’s a pretty stupid idea but if it becomes the youth organising movement du jour then almost automatically, all young people get to be thought of as stupid people unable to articulate anything that requires any kind of complexity.

So just in case the day comes and they say no one else said anything, I want to outline an idea to reform our local government system in a way that benefits, not just young people, but Nigeria as a whole.

Constitutional Amendment

The first thing to note is that Nigeria’s executive system of governance is almost exactly replicated at the LG level per the 1999 Constitution. So each LG has a Chairman, Vice Chairman and Supervisory Council made of elected Councillors. This is the hardest part of the plan I’m proposing as it involves changing the constitution, which is never the easiest thing to do in Nigeria.

There is no particular reason why the LG structure has to mimic the Federal one. We already have a system where our Senators are referred to as ‘Distinguished’ (American) while the Speaker of the House is referred to as ‘Right Honourable’ (British). There’s no better place to experiment with improvements in our democratic structure than at the LG level.

Here’s the big idea – scrap the role of the Chairman and Vice Chairman. That’s at least 1,548 politicians we can get rid of in one fell swoop. If each one currently costs us say, N30m a year in salaries and security votes, we can save N186bn over four years. Add the savings from corruption to that and the number is easily N1trillion (ok, I exaggerate).

System Change

So if we no longer have Chairmen and Vice Chairmen running the councils, how are the councils supposed to function? The answer is to simply move to a parliamentary system at LG level. We simply continue to elect Councilors as we currently do. But this time, once a full complement of Councillors have been elected, they will then elect a Chairman and Deputy among themselves by a simple majority. All spending and revenue raising decisions will be decided this way with the Chairman having the final word as normal in an executive system.

In effect, the Supervisory Council becomes the governing council of each LG and Council Leaders can be changed at any time by the Councillors using a vote of no confidence or anything similar.

Winner Takes Some

Part of the problem today is the binary system we have in place when it comes to elections in Nigeria. It just doesn’t make any sense to support any party other than the 2 main parties if you are serious about getting into power especially at the federal level. This then makes it very difficult to dislodge incumbents given that the winner takes all system increases the incentives to decamp. Our politicians, who were never men and women of principle or conviction to begin with, will happily sign up anywhere that guarantees them some kind of relevance for 4 years not to talk of proximity to the treasury.

Further, our First Past The Post (FPTP) system further entrenches the binary system which makes smaller parties that might be driven by ideology or issues completely unviable. Which means that if we reform the LG system as stated above and continue with FPTP, the benefits will be negligible at best. We need a ‘winner takes some’ kind of system. The issue is how to go about it.

New Zealand uses a system called Mixed-Member Proportional system. The name is complicated enough, to say nothing of the actual voting system. Nevertheless, the sample ballot paper below gives an idea of how it works

NZ MMP

I think we could use something simpler that eliminates the need for 2 votes. The key is that the outcome will be determined by proportionality. Each party will have candidates contesting councillor-ships as normal. But the parties will have a list of candidates maintained internally or however else i.e. the people who actually get to be councillors after the vote will be determined by the party based on the votes they get in the election.

Let’s say in Ondo West LGA there are 100 voters. At the end of the elections, the results were as follows:

Labour Party – 40

PDP – 28

APC – 16

UPN – 12

NPN – 4

Also imagine Ondo West LGA has 10 Councillors and the Labour Party won the vote in every Ward in the LGA. Under the current system, the Labour Party will have all the Councillors even though 60% of the voters in Ondo West LGA technically voted against it. In most other countries, there is a threshold a party must reach before it can win a share of the seats available. In New Zealand you have to get 5% of the vote while in Sweden, you need 4% of the vote to get into the Riksdag. We already have a threshold requirement in Nigeria – a candidate must score 25% of the votes in 2/3rds (24) of the states of the country to be elected as president or 2/3rds of LGAs to be elected as governor.

If we set the bar at 5% of the vote for this system, then every party will get at least a seat except NPN, based on the results above. Thus we simply need to divide 10 seats among the first 4 parties based on their share of the vote. The Supervisory Council of Ondo West LGA will then look like this:

Labour Party – 4 seats (40/96*10)

PDP – 3 seats

APC – 2 seats

UPN – 1 seat

 

The calculations can be done in different ways but the results should be the same as above mainly. The question of which actual Councillor gets to sit on the council will be left to the party to decide but it must be someone whose name was previously submitted to INEC as a candidate. Or it could be decided by INEC based on which wards the candidates scored the highest number of votes from – either way, it’s just details. Voters will continue to vote how they vote now and parties will campaign as they currently do. The Labour Party will also have control of the council and will almost certainly produce the Council Leader from one of its 4 Councillors.

And This Concerns Young People How?

So how does this change in system concern young people? Well, for one it makes it much easier to get into the business of governance – the threshold is only 5%. More importantly, there will be less pressure to join one of the big parties as a matter of course. Parties can be organised around as narrow issues as possible – you can have a party of only young people or whatever. As long as you can sell your organising principles to a threshold of voters, you will get into governance.

For me personally, as someone who is sympathetic to the APC as things stand, I will certainly not bother with them anymore if we had such a system. I will instead be minded to form my own party with people who believe broadly in the things I believe in – Free enterprise (making doing business as simple as possible), simple, clear and low taxes and fiscal conservatism (no borrowing to pay salaries and never running a budget deficit for more than 2 years). You will also not be obliged to have a ‘national presence’ as is currently required. For example, given that I am happily an elitist as defined in Nigeria today (anti-stomach infrastructure), I will start my party in Eti-Osa LG in Lagos specifically in Lekki area where all the people who talk as if they have hot food in their mouth live.

The whole point of this is that it allows young people (who are interested) to take what’s possible without waiting for them to given ‘something’ based on no more than the benevolence of the current politician in office or a viral hashtag.

Taste The Power

An LG isn’t that useless, believe it or not. There are useful constitutional powers that can be used to improve people’s lives as opposed to the current system where the Chairman turns up to share money once every month and then disappears again. Here’s what the 4th Schedule of the 1999 Constitution says:

  1. The main functions of a local government council are as follows:

(a) the consideration and the making of recommendations to a State commission on economic planning or any similar body on -

(i) the economic development of the State, particularly in so far as the areas of authority of the council and of the State are affected, and

(ii) proposals made by the said commission or body;

(b) collection of rates, radio and television licences;

(c) establishment and maintenance of cemeteries, burial grounds and homes for the destitute or infirm;

(d) licensing of bicycles, trucks (other than mechanically propelled trucks), canoes, wheel barrows and carts;

(e) establishment, maintenance and regulation of slaughter houses, slaughter slabs, markets, motor parks and public conveniences;

(f) construction and maintenance of roads, streets, street lightings, drains and other public highways, parks, gardens, open spaces, or such public facilities as may be prescribed from time to time by the House of Assembly of a State;

(g) naming of roads and streets and numbering of houses;

(h) provision and maintenance of public conveniences, sewage and refuse disposal;

(i) registration of all births, deaths and marriages;

(j) assessment of privately owned houses or tenements for the purpose of levying such rates as may be prescribed by the House of Assembly of a State; and

(k) control and regulation of -

(i) out-door advertising and hoarding,

(ii) movement and keeping of pets of all description,

(iii) shops and kiosks,

(iv) restaurants, bakeries and other places for sale of food to the public,

(v) laundries, and

(vi) licensing, regulation and control of the sale of liquor.

  1. The functions of a local government council shall include participation of such council in the Government of a State as respects the following matters -

    1. the provision and maintenance of primary, adult and vocational education;

(b) the development of agriculture and natural resources, other than the exploitation of materials

(c) the provision and maintenance of health services; and

(d) such other functions as may be conferred on a local government council by the House of Assembly of the State.

How una check am? Not too bad I think. Devil is of course always in the implementation but the fact remains that under a current system where LG Chairmen are appointed on the whim of the governor, we will never really know what an LG can do in terms of national development in Nigeria.

If this works, we can even move the voting system upwards to the State Houses of Assembly…but please don’t mention this part yet because you need the HOAs to agree to the constitutional change to make this happen. If they feel this threatens them, they wont pass it.

I don’t think young people are a special class of people who need special treatment like you would disabled people (or maybe they are). What is most important is that whatever changes we make to Nigeria must generally benefit the country as a whole and move us forward.

No one is going to make these changes of course but like I said, I am putting my thoughts out there so that, come the revolution, when they are rounding up people to be shot for starting a silly hashtag, I can honestly say I tried to make them see reason.

 

FF

Thinking Aloud on Scotland and Nigeria

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

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

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

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

Budget spending and tax receipts visualised

 

 

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

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

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

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

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

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

Screen Shot 2014-09-19 at 23.44.02

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

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

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

 

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

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

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

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

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

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

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

FF

 

P.S

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

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

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

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

Selah

Matters Arising: The Ponmo and The Logo

The Ponmo

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

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

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

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

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

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

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

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

Screen Shot 2014-09-10 at 13.06.17

Precisely.

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

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

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

I think the Honourable Minister should leave this one alone.

The Logo

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

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

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

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

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

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

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

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

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

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

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

 

FF

On Osun: Is Dagunro Really That Different from Tete?

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

Take it away Ogbeni

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

But what can the APC learn from this victory?

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

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

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

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

Technology 

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

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

The Ogbeni Coalition and Party Loyalty

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

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

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

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

 

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

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

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

FF

Boom Time?

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

 

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

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

1999 – 2003

chart

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

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

2010 – 2014

chart (2)

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

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

1985 – 1993

chart (3)

 

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

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

2003 – 2007

chart (4)

 

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

With all that mind, here are some random thoughts:

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

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

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

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

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

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

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

Update

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

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

 

Screen Shot 2014-08-07 at 12.21.37

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

 

FF

Spot The Difference

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

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

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

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

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

photo (2)

 

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

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

On y va Brazil

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

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

Also this bit

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

On y va Thailand

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

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

Also:

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

On y va Mexico

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

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

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

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

Also:

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

On y va Indonesia

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

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

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

On y va China

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

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

On y va Russia

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

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

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

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

On y va India

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

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

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

On y va Portugal

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

FF

Simon Kolawole’s Watery Cement Argument

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

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

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

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

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

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

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

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

Screen Shot 2014-07-20 at 14.44.52

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

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

Screen Shot 2014-07-20 at 15.04.21

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

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

Screen Shot 2014-07-20 at 15.08.34

 

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

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

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

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

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

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

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

I wonder why….

 

FF