Endowed Chairs

The practice of ‘endowing a chair’ in a University or institution of higher learning goes back a very long way and is now culturally established in many countries in the world. Some say the practice began in the Roman Empire with Marcus Aurelius.

To explain it simply – a wealthy person for one reason or the other decides to give money to a University as an endowment. Usually the gift is to a specific field or topic of research, say robotic engineering, to use a random example. However the money isn’t simply given, it is endowed. That is – say the rich guy gives the school $10m. He can then reasonably expect that if the money is invested very conservatively, it should generate returns of say 3% every year ie, $300,000 every year.

Let’s say the going salary for a decent Professor is $100,000 per annum which can be paid out of the $300,000. A decent research assistant can be hired for $50,000 per annum. There’s still $150,000 to play with which can be spent on research and maybe even hiring another assistant for the Professor. The key thing to note here is that the actual $10m is not spent. The original endowment is made to work and whatever returns from it is then spent.

These are random examples and is by no means the only way academics are paid in the western world. To illustrate the point, here’s a random list of the highest paid professors in America I found from a Google search. Roughly half of them are chaired professors as described above.

To take it further, my interest is economics and some of my favourite professors I’ve learnt the most from (on the internet) are chaired professors. Professor Tyler Cowen is the Holbert L. Harris Chair at George Mason University and Professor Dani Rodrik is the Ford Foundation Professor of International Political Economy at Harvard, to name just two.

Here in the UK, one of the most prestigious chairs is the Lucasian Professor of Mathematics at Cambridge University which began in 1663 with a donation by Henry Lucas. Today, the chair counts Isaac Newton and Stephen Hawking as professors who have held the chair.

Earlier this year, the hedge fund billionaire, John Paulson endowed Harvard University’s School of Engineering and Applied Sciences with $400m. The school will now be renamed after him and part of the money will go toward building a new campus as well. Remember, the $400m is not going to be spent lau lau – it will be made to work. This is how Harvard came to have a $33bn endowment that paid out $1.5bn for the University’s use in 2013.


The point of all this is to show that this is a clear and established system of funding universities that has been in place for thousands of years. It is a system designed to be as sustainable as possible and does what it says on the tin – expand the frontiers of knowledge. I am able to learn from professors over the internet who are paid from such endowments even though I don’t have a clue who endowed them. It also means that funding for Universities doesn’t suddenly dry up because someone no longer has money to ‘donate’ as they used to every year.

Bearing all of that in mind, I saw this interesting story in the Nigerian papers this morning:

The Vice-Chancellor of Kano State University of Science and Technology Professor Shehu Alhaji Musa, has disclosed that the university  Chancellor, Alhaji Aliko Dangote, has pledged to recruit 15 professors for the university.
He explained that the aim of the business mogul to recruit the professors  in the university is to boost the science and technical educational in the state.

The Vice-Chancellor, Professor Musa told journalists in his office in Wudil, Kano yesterday that, “Dangote also pledged to pay their salaries if recruited as part of his contribution for the improvement of education in the university.”

According to him, the chancellor of the university would also construct 15 houses for them in the university and promised to support the university with industrial borehole to boost portable water supply.

Professor Musa added that Dangote also donated the sum of N100 million  cash to the university which was used to address some of the challenges militating against its smooth operation.

Have a nice day


National Carrier: Bad Ideas Die Hard In Nigeria


I like President Buhari. I remain a fan of the man. That said, for someone like me who believes in smaller government, I have always known that supporting Buhari carried the risk of supporting dirigisme. Whatever – politics is like a christmas hamper anyway; it is not everything inside the hamper you will like or find useful.

But even at that, hearing that Nigeria wants to ‘launch’ an airline (again) just makes you shake your head. The first part of the comments attributed to the President make all the sense in the world:

Our airports are the windows through which people see our country. Anybody coming into the country will likely come through the airports.

“If we cannot secure and maintain our infrastructure, it will reflect very badly on us

Nobody can disagree with the above – our airports, especially MMIA, are truly terrible. The bar is very low – all we have to do is make sure that the airports are not glorified zoos and we would have achieved something in life.

But then the second part of the story, attributed to the Perm Sec in the aviation ministry is where it all goes messy:

The President is quite concern about lack of national carrier for now and he has directed the ministry to look into the possibility of having a national carrier as soon as possible.

Oh dear. This bad idea never goes away. There are always people who get excited at the thought of a ‘national carrier’. What exactly it is about a guaranteed waste of money that excites people remains a mystery to me. Why not just fold the money into paper planes and throw them in the air? Or burn it? The overall effect will be the same.


Whenever the debate comes up, people are quick to point to countries that appear to have successful airlines – Ethiopia, Singapore etc – and ask why Nigeria too cannot do it. The numerous failures from around the world are never mentioned. The chances of failure are far higher than success. One should not reason from an outlier.

The video above is of Lee Kuan Yew addressing a Singapore Airlines pilots strike in 1980. The man (LKY) almost single-handedly built Singapore Airlines from scratch and made it what it is today. And he had good reasons – Singapore had no choice but to be open to the world as an entrepôt. The airline was just one part of this plan. The second part was building Changi Airport at a cost of $1.2bn plus shutting down the old airport which had cost over $600m to build. It is said that when he visited America and landed at Boston’s Logan airport, he noticed that most of the approach of the plane was over water i.e. planes flying over people’s homes was minimal. Expanding the old airport would have meant flying over people’s homes to get to it. So he shut it down and built Changi near the edge of the city. He is on record as saying the money he spent building Changi is one of the best investments he ever made.

 You will not find any quote attributed to LKY about his ‘concern at a lack of a national carrier’ motivating him to set up Singapore Airlines. It was always a business decision for him from day one and in the early years he was always threatening to shut down the airline if they made losses. You can understand why he was irritated in that video.

All this was classic LKY – going around the world and copying the best ideas he could find then ruthlessly and honestly implementing them in Singapore. It also tells us what it takes to have a successful airline especially when you look at the Gulf carriers as well – you need to spend huge sums on having a hub airport as well for the airline to have any serious chance of being a useful investment.

When you ask Nigerians why they want a national carrier, it is always about ‘pride’ or how the sky feels empty without any aircraft flying Nigerian livery. Or it is about how Nigeria is ‘losing’ billions of naira yearly to foreign airlines. This money can always be given to a Nigerian airline so that it can create 500,000 jobs in Nigeria (it’s always 500,000 jobs).

But what is the problem being solved here? There is none. There is no scarcity of seats on planes for people who want to travel out of the country. You might not like the price of the ticket but that is another matter entirely – I like the Aston Martin DB7 but I do not like the price they are asking for it. There is not much I or Aston Martin can do about this for now.  But if you want to travel out of Nigeria today, you will find tickets to buy and go anywhere you want to go, subject to the visas in your passport.

If you’re burning with patriotism so much that it makes you hate foreign airlines, Arik is also a choice for you as long as you do not mind flying in tears. With the eye watering amount of money it owes to the Nigerian government via AMCON, it is effectively a national carrier anyway. There is no problem whatsoever crying out to be solved here. Solutions abound already. 

Yes, the Ethiopians seem to be doing it (with airlines, what you see is not always what you get), but what about the South African Airways which has lost almost $300m in the last 2 years? Or Kenya Airways which announced the biggest corporate loss in the country’s history last week of $257m? Or Air India that is losing money on every route where it is flying the Dreamliner and had to be bailed out with $5.8bn in 2012? For every ‘success’ you find among national carriers, you will 5 or more utter failures and money pits.


Let’s talk to ourselves as Nigerians – what is it you have seen in the history of your country that makes you think it can successfully run an airline without bankrupting the country in the process? We are not Singapore, no point lying to ourselves. Ordinary joint venture with Virgin the last time around, the Nigerian directors attended board meetings for one reason only – to demand free tickets for their wives and girlfriends. And that is not even half the story.

A national carrier will need plenty of government subsidies for a number of years for it to get off the ground. The way Nigerians approach such things is that the subsidies then become the incentive of the whole game i.e. they will avoid making profits so as to ensure the subsidies are never withdrawn. If you don’t believe me, look at Nigerian Railways and the ridiculous pricing of their tickets. What they tell you is that the tickets are priced low for the sake of ‘the masses’. But these prices guarantee that the whole enterprise is unsustainable so government allocations continue to flow every year.

But there is something even more sinister at play here. Who is asking for a national carrier? Or who are the people likely to loudly support this idea? It is definitely not the market woman hustling to get by daily or the farmer facing an uncertain harvest. It is the Nigerian middle classes who are experts at capturing government for themselves. This played out very vividly 4 years ago when the then Aviation minister, Stella Oduah, was fighting the foreign airlines for cheaper business and first class tickets. The richer you are in Nigeria, the better your chances of capturing government to hand you subsidies. Indeed, until the recent introduction of ‘luxury taxes’ in the dying days of the Jonathan government, business and first class flyers paid lower taxes on their tickets than those flying in economy.

And we have not even talked about those who will steal the place dry. Yes, we are hopefully entering an era where stealing stupidly and with impunity will be greatly reduced. But why risk such an experiment? It is better not to find out if Nigerians are now able to stay in the same room with money that does not belong to them without the money disappearing. Maybe some day in future but I doubt if that day has arrived yet.

Given the depressing challenges facing Nigeria at the moment, do we really want our President running after some petty thieves who will be looking for ways to fly their girlfriends for free at the expense of the rest of us? I think not.

Let us bury this bad idea once and for all and spend our time thinking about policies that actually make life better for Nigerians. Bad ideas suck out life from the space where serious issues are being debated. They are a sideshow and end up wasting everyone’s time.

Mr President, if you are looking for ideas that can transform people’s lives and start the hard task of beating back poverty from our shores, Professors Abhijit Banerjee, Esther Duflo and several others have a truly exciting idea that they have tested in 6 countries with very very encouraging results.

Their paper is here

Thank you for listening. Don’t give in to the devil. Airline business is bad market.


Alhaji Putin and The Nigerian Government: Here We Go Again

Apologies if you do not share my irritation at this madness but this shit makes my blood boil.

I have all the respect in the world for Prof Osinbajo for his intellect and his person. But this Dangote matter is deeply offensive and it speaks to who we are as a country and why we are the way we are. It also tells us why Nigerians instinctively hate ‘capitalism’, something that has been the most powerful anti-poverty system known to man in history.

This brand of whatever it is that is being practiced in Nigeria is NOT capitalism and it is not morally defensible on any level. In many cases, it is economic terrorism against the Nigerian people sanctioned by the Nigerian government itself.

What Is Capitalism?

People often think capitalism is about ‘capital’. No it isn’t. It is knowledge upon knowledge upon knowledge. That is how it improves people’s lives around the world.

My son who is almost 6 years old only knows that toothpaste comes in rubber tubes. It makes sense that way because it is less messy and toothpaste tube can have lots of nice designs on it to make brushing more appealing to children.

But it was not always so. 20 years or so ago, toothpaste regularly came in aluminium tubes. And it had all sorts of problems. Getting out the final 10% of toothpaste in the tube was a headache – by the time you rolled and squeezed it, it would cut open at the sides and could give you cuts if you were not careful. The design on the tube also faded after a while especially if the tube had been stressed to get it all out.

The knowledge of everything wrong with aluminium toothpaste tubes is contained inside rubber tubes today. We arrived at rubber tubes after finding out that aluminium is not the best way to sell it. My son cannot see this but I can.

Even better, as this improvement in toothpaste has happened, its cost has not gone up and millions of people who used to use sticks and herbs to brush their teeth now use toothpaste instead. Toothpaste is now at the point where we can conveniently take it for granted.

The next step in this journey of getting the toothpaste out of the tube perfectly is the development of something known as Liquiglide. You might not know that this problem exists yet, but when the solution arrives on the market, you will appreciate it. A more efficient toothpaste tube will help the toothpaste makers make more money and be able to lower prices in future.

If people think about capitalism in this way, they will come to appreciate it and demand more of it. An iPhone today that costs $750 would have cost $3,000 to put together in 1990. We can now do so much more with our lives because of the way that capitalism improves products and makes life better. We are also more knowledgeable and can pack more of such knowledge into our lives – Prof Ricardo Hausmann makes the point that a bachelor’s degree at Harvard has always taken 4 years to complete for centuries now and yet we know for a fact that people today know far far more than people knew in the 17th century.

Nigeria Turns Things On Its Head

I have written several times about how Aliko Dangote manipulates the media and the government in a way that allows him transfer wealth from the Nigerian people to himself.

The most annoying response I get is when people try to compare him to Rockefeller or the other ‘robber barons’ (who did not rob anybody). The most obvious answer to people who make this ridiculous claim is that Rockefeller, Ford, Carnegie, Walton all made money by bringing prices DOWN – I repeat DOWN. Things that were previously unaffordable to millions of people were made mainstream by these guys. Ford was motivated by a desire to make cars mass market and he was successful. Even when Rockefeller was tried for anti-trust, there was not a single person who made the argument that he was bad for consumers. This was why, after the American government broke up his companies, he got richer – again I repeat, richer. He had created so much value that was locked inside his companies such that if money was his sole motivation, he would definitely have broken himself up before the government did.

What is this thing that we are doing in Nigeria in the name of capitalism?

The Conspiracy To Rob Nigerians

Last year I sat in a session at the World Economic Forum with my mouth wide open in amazement as President Jonathan said ‘Look at Dangote who is the richest man in Africa, without our policies, he would not be as rich today’.

Imagine my surprise at discovering that the Nigerian government had a policy of creating billionaires and I did not know about it.

This is how the Nigerian government helps to guarantee that capitalism will not work in the way that it should. The government might is used to protect rich people against poor people and ensuring that the wealth transfer from poor to rich continues unhindered. I thought we had reached ‘Peak Dangote’ under the last government but with the way things are starting under the Buhari, we are on our way to the same depressing shit.

At no point does anyone in the government stop and ask themselves the question – what does this guy (and his friends) do for the Nigerian economy exactly? Are they a net positive or negative? Further, those who have been expensively educated in Nigeria and abroad, capitulate like a pack of dominoes and toe the Dangote line, ascribing to him what he is patently not. Where questions ought to be asked, praise is given instead. Where capitalism and all the wonderful things it can do to improve lives should be ‘louded’, its evil twin – crony capitalism – is passed off as the real thing. And we wonder why Nigerians continue to reject things that can make their lives better.


If the Vice-President of the Federal Republic of Nigeria, duly elected by the citizens and consumers of Nigeria thinks it is ok to go all the way to Zambia to commission a Dangote cement plant (a few weeks ago, the CBN governor and sundry others went to Ethiopia to commission another cement plant), then questions, or posers as Nigerians like to call it will suffice

1. Which other country in the world where a lot of construction is going on has a guy who sells cement on their top 5 richest people list?

If you go to Dubai and wait 2 years before going back, you will see a visible difference there in terms of construction. They are using cement to do what cement is supposed to be used for i.e build things that everyone can see. So why don’t they have a ‘cement magnate’ on their rich list?

Same thing goes for China where the pace of building things is frankly breathtaking. Where is the ‘cement magnate’ in China?

What you will find instead is people who add value to cement among the richest people in those countries e.g Emaar, Nakheel, Dalian Wanda. To put it another way – it is like going to a country where a lot of cars are manufactured and the guy selling sand is the richest person in town because sand is used to make glass. There is still so much more value to be added – steel, design, architecture, wood, urban planning, finance etc – to cement before it can be useful to anybody or society.

So why is all the value in Nigeria being captured at this stage?

2. Can Alhaji Dangote build and sell 1,000 houses in Nigeria today? It’s a useful test to carry out. He makes the cement and sells it with obscene margins so why not ask him to build just 1,000 homes in Nigeria today and sell each one at a profit within a year?

I am confident that he cannot pull it off. But I will be happy to be proved wrong

3. All the major infrastructure in Nigeria was built when we were importing cement. All the bridges in Lagos including 3rd Mainland and bridges across the country were built with foreign cement.

The biggest infrastructural achievement of any Nigerian government in my lifetime is Abuja. It was built with imported cement.

So the question is this – since Nigeria started being ‘self sufficient’ in poverty, sorry cement, what has been built with it? It is pointless to have all this cement just ‘for show’ and to stop some imaginary jobs being shipped abroad. Cement is not for drinking garri – it is for building things which cannot be hidden.

4. At the very least – we should be asking how much tax Dangote pays to the country that has given him so much. Things have been banned for him. Policies have been written in his name. Waivers have been granted to him and many other businesses have been ruined for his sake.

So what exactly has Nigeria and Nigerians got out of the deal? Is it the 20,000 jobs he has created (half of which are ‘casual’ staff?). Is that the extent of our ambition as a nation?

The biggest beneficiary of Dangote Cement is Dangote himself. So why is the Nigerian government going to commission his plant for him in a foreign country? What is the business of the people who elected a government to serve them with a man who is making as much money as he can get away with at their expense?

5. What has been the contribution of Dangote Cement to the global body of knowledge of cement manufacturing? Has anyone come to Nigeria to learn how to make cement. Dangote Cement is by FAR the most profitable cement company in the world.

What is the secret sauce? Who has copied it? And why is it that this profitability goes side by side with eye watering cement prices that are padded with margins as high as 70%. What did Dangote Cement invent that brought about these kind of wonderful profits?



Capitalism is a moral thing, at least to me. It is pointless otherwise. It is a powerful tool to fight the indignity of poverty that consigns people to a miserable existence. Yes, people get rich out of it but they have to do this by giving consumers what they want.

This process breaks down when a pretend capitalist is able to team up with the government in a way that allows him/her to give people what they do not want and make a fortune while at it e.g cement.

The Nigerian government, elected by the people, should stop insulting its citizens with the irritating and ceaseless exaltation of Dangote as the physical manifestation of destiny. Let him make his money, he already has enough of it. But leave the Nigerian government out of it. A new government elected on a change mandate should not be succumbing to the Dangote virus so easily.

What is the worst thing that can happen if Nigeria starts importing cement again? Prices will come down and more things will get built creating thousands of jobs in the process. And Dangote will get poorer.

I know what I will choose if that package was on offer.


*I’ve written this in a lot of irritation and I cannot be bothered to edit for grammar. Any errors are regretted.


CBN vs The Economist

In this week’s edition of The Economist, the magazine dared to say what many people have been saying for a while now – Godwin Emefiele, Nigeria’s Central Bank Governor does not inspire confidence in anybody.

As anyone who has been paying attention would have noticed – the CBN Governor has a magnificent obsession with Nigeria’s foreign exchange rate. At the beginning of this year he was defending the Naira with billions of dollars. That (unsustainable) strategy has since been abandoned. There is a new strategy every week these days.

The latest one however has to do with banning the use of the official foreign exchange market if the purpose is to import a list of 40 items ranging from toothpicks to Indian incense.  It didn’t stop there – it went further to say import of those items cannot be funded by buying forex from Bureau de Change or proceeds from exports i.e. if you sell your goods abroad, you can’t use the forex you earn to import any one of those banned items.

In short, the only way to fund the import of those items is by sourcing dollars from the black market. You can go through the recent press releases from the CBN and the message is clear – it is cracking down on use of forex for anything it does not like.

Why is the CBN doing this? It is trying to ‘defend’ the value of the Naira. It feels that the demand for forex is too much and as such is trying to reduce the demand. The way to buy dollars in Nigeria is of course to exchange it for Naira. The point of trade is that you give up something less valuable to you in exchange for something you consider more valuable. All the people demanding dollars have Naira which at that point in time, is not very valuable to them. The more people do this, the higher the value of the thing they want which in turn reduces the value of the thing they are willing to give up for it.

The moral of the story here is that the CBN’s actions clearly show that it is determined to stop the devaluation of the Naira. By denying people dollars to buy toothpicks from South Africa, it is telling them to use their Naira to set up a toothpick manufacturing plant in Nigeria instead.

And so we come to the gist of what The Economist said in its article – this is a very strange way of stopping the import of items you feel can be produced locally:

Economists find the policy baffling. Central banks usually prop up their currencies if they are worried about inflation, or allow them to devalue to depress imports and stimulate exports. Nigeria, by contrast, appears to be set on achieving both an uncompetitive exchange rate and higher inflation

We know that toothpicks can be produced in Nigeria. The technology is not complicated to the point that Nigerians cannot do it. The reason why it is being imported is that it is obviously cheaper to do so.

Imagine that the exchange rate is N200 = $1. Now, due to poor infrastructure, insecurity, police harassment and of course high cost of generating power, it costs N1,000 to produce a box of toothpicks in Nigeria i.e. $5. But in America where the roads are good, there is 24/7 electricity, policemen don’t demand bribes on the highway and the technology has advanced to very efficient levels, you can produce a box of toothpicks for $2. Add another $1.50 for shipping the toothpicks to Nigeria and clearing it at Apapa Port. By the time you add a profit element, it is still possible to sell the toothpicks in Nigeria for $4.50 i.e less than it will cost you to produce it in Nigeria. If you’re a businessman, this is a no-brainer. Manufacturing is stressful and Nigeria can be very unpredictable. You don’t have to be ‘unpatriotic’ to opt to import instead of manufacturing – it makes business sense.

But remember that the businessman who is importing the toothpicks can only sell them in Nigeria in Naira. Using the above exchange rate, a box will be sold for N900 ($4.50 * 200) as opposed to the N1,000 it would have cost to produce it locally.

You can see where this is going – the ability to import toothpicks for cheaper than it costs to produce locally relies on that N200 to $1 exchange rate. If the Naira loses value against the dollar and drops to N230 to $1, all of a sudden it will now cost you N1,035 to import that box of toothpicks. It becomes cheaper to produce it locally (for the sake of this simple argument, we assume that everything required to produce the toothpicks is available locally). If you agree that the reason anyone will import toothpicks in the first place is because it is cheaper to do so, it follows that when it is no longer cheaper to import, the person will stop doing it. And if the demand for toothpick remains (people are unlikely to switch to using their fingernails), then there will be money to be made by supplying it to them.

This is not some untested economic theory by the way – as I wrote previously here, devaluing a currency and keeping it undervalued is a tried and tested strategy for industrialisation. The most recent example of this is China who for decades has kept its currency undervalued (combined with massive infrastructure spending) to keep its producers competitive.

But what the CBN is trying to do is keep the exchange rate at N200 to $1 (in the example above) and then telling people to simply stop importing. It wants them to be ‘patriotic’ and instead manufacture and sell in Nigeria for N1,000 – an 11% increase on the N900 people are paying for the imported ones (the inflation part of The Economist’s argument). There are very few places in the world where such an approach makes ‘sense’. Nigeria is one of them.


Amazingly, in 24hrs, the CBN has responded to the Economist’s article via a press release. It is never a good sign when the response is longer than the original article itself. By the end, we still do not really understand why the CBN is trying to strengthen the Naira at the same as it is claiming to be discouraging imports:

The CBN believes that Nigeria cannot attain its full potentials by importing anything and everything. For far too long, this trend has significantly weakened the operating capacities of our industries, but now is a good opportunity to begin a reversal. Although the article hastily derides this idea as lacking in economic foundations, it is the same principles upon which many other countries do not allow importation of certain products.

Once you believe that ‘the devil is abroad’, it will determine how you react to the situation. The CBN continues to ‘believe’ that importing is what is killing our industries. It follows then, that reducing or banning imports will resuscitate the industries. The question of why people choose to import in the first place is always conveniently ‘unlooked’. Importing simply happens because Nigerians are ‘unpatriotic’.

They say no one deceives themselves like the woman who has only child but when asked how the child is, she replies ‘which one of them?’. The problems are hard and will take a long time to tackle but the best time to start is now. It is sensible to import into Nigeria today. You need to be mad to try to produce most things in the country. That is why people collect all the ‘intervention funds’ provided by the government and buy Range Rover Autobiography with it.

Interestingly, the same Economist addressed the underlying issues about a month ago (emphasis mine):

FOR Muhammadu Abubakar, life is an uphill struggle. Farming in Nigeria is tricky at the best of times. Only the brave or the downright crazy would think of dealing in a perishable product like milk.

On his ranch on the dusty fringes of Kano, the biggest city in Nigeria’s north, he faces a daunting array of problems. The electricity grid is hopeless. So, at the gateway, two generators splutter away 24 hours a day. Diesel sets Mr Abubakar back about 1m naira ($5,100) a month. “We’ve had two hours of power in three days,” he says. “There’s no option.”

There are no good cows for sale nearby, so Mr Abubakar’s company, L&Z Integrated Farms, plans to start importing its own. There are no good seeds for fodder; he brought in cuttings on a commercial flight from Kenya. There is no mains water, so he must drill boreholes to irrigate his fields. Fertile land has a tendency to turn to dust. He has to train his own staff to use complicated machinery. Plenty of batches get spoilt along the way. By the time it is processed, a litre of milk has already cost about 320 naira (£1) to produce.

Then the milk has to get to market. “Three or four years ago we used to fly our milk down to Lagos,” he says. “It cost a fortune. The milk would spoil sitting in the airport. We had to pay off customs. It was a nightmare.” Nowadays, the firm uses costly refrigerated trucks instead. Drivers must brave day-long journeys on disintegrating roads. Each truck requires about 200,000 naira ($1,000) in opaque licence fees every month. Even when those are paid, local authorities send thugs out to get more.

“They make you buy new paperwork,” one trucker says. “We probably pay 3,000-4,000 naira (roughly $15-$20) every journey. ”When the milk finally arrives on supermarket shelves, it costs around three times what it would in Europe. Cheap long-life imports sell for less than half the price of local milk. Nigeria spends roughly $1m a day on imported milk powder, according to Sahel Capital, a private equity group which recently invested the same amount into Mr Abubakar’s business in the hope of changing that.

Other types of farming are equally fraught. Nestlé finds it cheaper to bring starch in than to buy it locally. Olam, a Singapore-listed agribusiness, says that processing costs up to 30% more than in other countries. Mukul Mathur, who heads its Nigerian business, says that moving a container from Kano to Lagos costs as much as from Lagos to Osaka, though the distance to Japan is 13 times greater.

Of course the CBN did not respond to this one.



P.S This November 2014 article by Professor Ricardo Hausmann cannot get old. I share it with everyone I know – it addresses the issues currently afflicting Nigeria. 

P.P.S If you want something more technical, here’s a 2007 paper by Professor Dani Rodrik where he argues that an undervalued currency is associated with rapid economic growth in developing countries. 

Anonymous Sauces Explain The N7trn Deficit

“Weapon no be groundnut, but deficit fit turn to debt” –

Goodluck The Jonathan, First of His Name


Let us assume Omo Baba Olowo (OBO) earns N10m annually. He plans to spend N5m on a new car; N2m on rent; and wants to spend N1m per month on small things like buying champagne at Sip, presents for his supermodel girlfriend (Baby Girl), food, petrol in his car and other normal expenses. Since he budgets an income of N10m and an expenditure of N19m, you can say the budget has a deficit of N9m. Now, OBO needs to find N9m from somewhere, so he asks his father Baba Olowo for an advance on his inheritance and gets N5m, But the money is still not complete, so he goes to a bank and borrows N4m.

All is well, so OBO is calm and happy.  In this case, OBO runs a budget deficit of N9m but carries a debt burden of N4m.

The following year, OBO now earns N20m, but since he doesn’t need a car, he moves to a bigger place that costs N4m and buys his baby Girl a N3m engagement ring. He still spends N1m per month so he can drink at Sip and post pictures on Instagram, and also spent N1m repaying part of the bank loan he took.

You can see that earning more money cannot be a bad thing; OBO now has a zero deficit budget, but owes N3m.

Now how does this affect the price of fish in the market? The Chairman of the APC Transition Committee, Ahmed Joda, suggested in an interview with Daily Trust over the weekend that the Federal Government is carrying a deficit of N7 trillion and not the N911 billion contained in the 2015 budget:

We were told at the beginning of the exercise that the government was in deficit of at least N1.3 trillion and by the end people were talking about N7 trillion

According to the previous government, the FGN expected to earn N3.7 trillion in 2015 and spend N4.6 trillion; like OBO, this means it needed to borrow N900 billion to fund the deficit. However, the government is already owing N11 trillion, so the additional deficit of N900 billion will now take the government’s debt to N12 trillion.

How Did We Get To N7trn?

It all seems fairly simple, so where did the N7trn come from? According to the handover notes received from the outgoing government, the Chairman of the APC Transition Committee is suggesting the previous government suppressed the level of debt it carried and has now transferred those rotten tomatoes to the Buhari Government. He didn’t provide a breakdown, but my friend was a waiter serving drinks at the hotel where the committee met and he gave me some interesting details:


Ministries can duplicate costs, especially with the Finance Ministry.At first glance, you can see contractor payments account for over 50% of the total amount. Interestingly, the widely circulated interim report of the Transition Committee estimated N800bn was owed to contractors. However, as my sauce says this estimate was revised, using numbers submitted by the ministries in their handover notes.

He was kind enough to share an interesting breakdown of the numbers with me (at great risk to his life). I have reproduced it without editing:

Gbese on Fleek

Points to note on the figures above:

  1. These were the numbers submitted to the Transition Committee in the handover notes. The outgoing government did not provide any ageing on the debts. That is, it is not yet known how old these liabilities are. This will determine how contractors are paid e.g being issued bonds to receive their payments in 24-36 months time when Nigeria’s finances are hopefully healthier.
  2. A detailed list of the contracts was also NOT provided so it is possible that there is some double counting going on in the above numbers.
  3. Some of the balances may also be disputed and some contracts may be cancelled or terminated. No documentation was supplied to show whether the contracts were executed to specification.
Debt or Deficit?

So, now we know where the figures have come from, we need to answer the second question; is this debt or deficit?

The position of the Government seems to lean towards an urgent need to clear these obligations within one budgeting period for a number of reasons. I heard one contractor laid 4,000 casual staff off, because he was being owed billions of Naira and unable to pay salaries. Therefore, the government believes paying contractors will not only keep people in jobs, it will reflate the economy, and ensure outstanding projects are completed.

Also, paying outstanding cash calls to oil companies is important if Nigeria wants to develop new fields, especially for the much-needed boost in gas supply. The other issues like salary payment, subsidy arrears and the North East redevelopment plan are immediate needs that need to be funded.

This means the FG will probably ask its Finance Ministry to prepare a supplementary budget that will look like this:

Deficit Final



Remember, the country already owes N11trn and if we need to borrow N7trn more, it will take our total debt exposure to N18trn – roughly 18% of GDP.

So, to answer the second question, the APC Transition Committee is suggesting if the FG writes a new budget today, it will show a deficit of N7trn, which could increase Nigeria’s debt to N18trn, depending on how the deficit is financed.

While our debt/GDP ratio is not bad compared to similar countries, the real problem might occur when we work out how to pay these debts. Currently Nigeria spends over 20% of its income servicing debts; if we add another N7trn in fresh debt, this could mean we will spend over 30% of our revenues paying creditors.

Now, imagine OBO spending 30% of his next year’s income to pay his debts, it means things like champagne at Sip and that fancy apartment must be removed from his expenses. For Nigeria it means a lot of non-essential expense lines must disappear: fuel subsidy, huge legislative costs, bloated workforce etc.

If the three things noted in the caveat to the contractor debts above happen, the FG might reduce contractor debts from N4trn to N1.5trn (nothing suggests this is possible, but we are allowed to hope and pray a little).

If this happens, the deficit will drop to N4.4trn. Not bad, but still needs some work.

This is where yesterday’s post on Mr Wang is very useful. Imagine we have our own Mr Wang, who can either get corrupt people to lose their ill-gotten wealth through a transparent legal process or just come to submit those assets after being shown what a prison cell looks like.

If our version of Mr Wang does a great job, he might raise another N2trn for the government, leading to this type of budget:

Deficit New

If we end up with this type of deficit, then hope springs eternal. It means the government can now finance this using a number of available options:

BUDGET SUPPORT FACILITY: The government can take the planned budget support facility from the World Bank and African Development to shore up its funding gap. This facility was originated by the previous government, but I was told the lenders stalled on disbursement till the new Government was in place.

Result: $2bn or N400bn

NLNG Dividend: The NNPC claims the committee working on the alleged unremitted dividend from the Nigerian Liquefied Natural Gas Company.  The Inter Ministerial Task Team has operated like a cross-breed between a tortoise and snail up till now, maybe the arrival of a new sheriff will quicken this reconciliation.

Result: $11bn or N2.2trn

Securitization: The government can release cash by pledging a portion of future payments from guaranteed revenue sources. For example, the government could pledge a share of guaranteed revenues from annual operational levy paid by GSM operators; dividend and taxes from NLNG; and a percentage of NNPC’s share of crude oil sales (remember those 445,000 barrels sent to domestic refineries?). Since these are guaranteed revenue streams, lenders will be quite pleased to provide debt upfront.

Result: $5bn or N1trn

Sale of Equity in Selected Assets: I’m no expert but those who know suggest NNPC/NPDC stake in those JV assets might be worth about $30 billion. The Government can sell 20% of its stake to investors and host communities to raise immediate revenues and also reduce the FG’s future cash call burden on these assets.

Result: $6bn or N1.2trn

Fiscal Responsibility Act: Section 21 Section 21 of the FRA states that: “Notwithstanding the provisions of any written law governing the corporation, each corporation shall establish a general reserve fund and shall allocate thereto at the end of each financial year, one-fifth of its operating surplus for the year.” Of course, most of the MDAs pretend this Act was never passed and continue to keep their surpluses in Ghana Must Go bags. If enforced, MDAs like CBN, NIMASA, BOI, NPA, TETFUND, FAAN, JAMB and WAEC can add some “change” to Government’s coffers.

Result: $1bn or N200bn


The options above can yield N5trn. But then, this is all on paper and reality will be far harder.

I certainly don’t envy Muhammadu Buhari, but if you’re his friend, perhaps you can whisper the words of Guiseppe Garibaldi in his ears; “a bold onset is half the battle.”


The above was sent to me by a mysterious sauce. I don’t even know how they got my email address but here we are. It’s a useful summary of where Nigeria currently is financially and where it needs to go.

As usual on aguntasolo.com, we like to thank people who contribute wisdom for the edification of the body politic (what does this even mean?), so join me in thanking them