Guest Post: Move Over Quantitative Easing

I wrote a piece recently about how to bring down borrowing rates for Nigerians by using QE to bring down government’s cost of borrowing. The point of this was to get banks out of the (very profitable) game of lending money to the government and force them to move to lending to consumers. 

Well, lately government’s borrowing costs have been crashing but CBN didn’t do any QE. So how exactly did this drop in rates happen? I asked a very smart friend of mine to explain and he sent me the piece below. Enjoy


Move over QE, Hello Liquidity Easing

Over the last few weeks, the Nigerian yield curve has witnessed a spectacular collapse in the literal sense of the word, particularly at the short end of the curve where effective yields closed yesterday at 3.39% for the 91-day, 7.22% for the 182-day and 7.95% for the 364-day paper.

This resulted in surprising results at the Nigerian Treasury bill auction yesterday with the Debt Management Office (DMO) refinancing short-term maturing government debt at 5.8% (91-day), 7.9% (182-day) and 9.48% (364-day). For comparison in December last year, the DMO issued a one-year paper at an effective yield of 19% while for much of the year secondary yields were above 10%.


Nigeria: Yield Curve

The crash on the yield curve contrasts with the underlying fundamentals of the economy for several reasons.

Firstly, as an oil dependent economy, the collapse in oil prices means Nigerian debt is more risky and as such should demand higher premiums. Ditto the ratings downgrade by S&P this year, which lowered Nigeria’s credit rating to B+ from BB-, though notably, Moodys’ and Fitch left Nigeria unchanged.

Secondly, the implication of the lower fiscal revenues means that the Federal Government (FG) should borrow more this year, which given the dominant nature of FG debt in the domestic debt market should translate to higher yields as supply rises.

A third rationale for the argument over higher yields was monetary policy. With the NGN under pressure, the Central Bank of Nigeria (CBN)’s forward guidance at November 2014 MPC, where it announced a 100bps increment in the monetary policy rate to 13%, was hawkish. The goal of the apex bank was to keep domestic interest rates high so as to sustain foreign investor interest in Nigeria as higher rates, compared to other emerging markets, should attract foreign portfolio investors which will support the NGN. Towards this end, the usual tightening tool came to the fore: elevated issuance of OMO bills and deployment of all kinds of liquidity sucking tools to keep financial markets tight so that rates are high.

Recent Events

Fast forward to September 2015 and JP Morgan’s decision to oust Nigeria from its treasured EM bond index, which the American bank blamed on the new FX market system, the rationale for tightening suddenly floundered.  Amid a rapidly deteriorating economic picture with GDP growth sliding to record lows what then is the rationale for tightening?

Indeed, with the worst having occurred, the CBN it would seem decided there was no point stifling the domestic environment anymore to appease foreign portfolio investors. Indeed language from Nigerian policy makers changed tone afterwards, from one which took glory in Nigeria’s listing in global indices to one which basically said ‘eff these ineffable foreigners’, Nigeria for Nigerians!

As it was a liquidity squeeze that the CBN used to keep yields tight, so it was going to be a liquidity ease that would drive rates lower. Subsequently the CBN stopped rolling over maturing paper or bothering about excess liquidity, it simply let them mature. Then at the MPC, the apex bank delivered the first dovish policy since Sanusi began hiking rates in the fourth quarter of 2011 by reducing the cash reserve ratio to 25% from 31% previously. The result: liquidity levels began soaring over October with markets opening at one point over N1trillion naira.

The first signs were on the interbank / open buy-back which crashed to 0-1%. After slamming that market down, the ‘idle’ liquidity weighed on the short end of the naira curve dragging that yield down as well before pulling down bonds.

Interbank Rates

So What Next?

So how does this affect the price of crayfish in the market? For now it’s not likely going to mean much. It’s how long the depressed level persists. If the CBN follows through by firming up market expectations at the November MPC, then corporates are the most likely beneficiaries in the short-term. Thanks to the instrumentality of the FMDQ, corporate companies can now raise debt (short and long) in the market putting pressure on lending rates by banks to the segment. Banks will have to re-price loans lower over the next few quarters as corporates could easily test the market and with the risk-free government paper at depressed levels, the rates on the market could be much cheaper than banks.

However, in terms of scale and size, banks still face a problem on the asset side of their balance sheet, in particular following the TSA implementation in September. The FG will not be issuing as much as previously as fiscal cash management improves. Even worse next year, the zero COT charges go into effect, which alongside the loss of FX trading income means non-interest incomes are going to come under pressure. On the loans side, corporate Nigeria is currently struggling with weak revenues and cannot be a sustainable outlet for the idle funds. Inevitably, banks will have to go down the credit curve and start lending to the man on the streets in the medium term which means they will need to lower the terms i.e. interest rates.

The way things are set-up now CBN is everybody’s daddy, they’ve got the banks where they want them. A slight reduction in CRR would induce more of this liquidity easing. If the bank plays its cards right: avoid unwarranted OMO issuances and the government fiscal discipline improves, statements by leading APC politicians about driving down lower interest rates may not be a horse’s wish.


So there you have it. To summarise – the CBN has decided to leave money in the market instead of mopping it up as it normally does. All that excess money is now hustling to lend to the government. Laws of demand and supply have therefore taken over – the greater the supply, the lower the price. 

I thank my guest who prefers to remain anonymous. 


Cash And Carry Industrial Policy

“We are an import dependent economy” – This is what you’re likely to hear if you mention ‘devaluation’ to any Nigerian these days.

But assuming it’s true, how does Nigeria move from being such an economy to one that depends on exports for its living?

Here’s the concluding paragraph of my new piece over at Medium where I outline how Nigeria can possibly restructure its economy in the short to medium term:

Simply repeating that Nigeria is an import dependent economy is no longer enough. Wishing that the economy will somehow diversify itself is not the behaviour of serious people. The current fiscal challenge as a result of the collapse in oil prices ought to be a teachable moment for Nigeria. But it is not the first time oil prices have crashed and there is no evidence that anything was learnt the last time it happened.

The full piece is here. It’s a bit long but I hope it’s worth your time.

Please read and share



Writing On Medium

I’ve been experimenting with writing on Medium and I have to say it’s been a sort of addictive experience.

My latest post is on the state of education in Nigeria with particular reference to the disturbing material that kids are given to read. The concluding paragraph:

A state of emergency or something close to it is required for education in Nigeria. But everyone seems to know this already. Perhaps the problem so overwhelms our leaders that they would rather not bother with something where the payoffs are far into the future.

So for now, the best you can do is to watch your children are reading and watching

Read the full thing here

I also wrote something on Uber and Capitalism in Lagos as well as something on how to bring down interest rates as a response to Governor El-Rufai’s recent statements.

Check them out if you have the time! And if you want to get into writing, try Medium as a platform.


The Word On The Streets XIV: The Sponsored By Kindness Edition

Your correspondent is back in Blighty after a tour of Nigeria that took in Abuja, Kaduna and Lagos. Here be findings

1. I have good news to report! When I landed at Abuja Airport, it felt and looked incredibly normal. Dont take this for granted – In Nigerian airports, it is normal to see abnormal things. But this time, we moved from the plane to the immigration desk quietly and orderly (the trick appears to have been the new queue management systems that have been permanently nailed to the ground). The digital passport scanners have also been ditched for the manual process. Believe it or not, this system works far better than you might think.

Leaving from Lagos also felt very normal. They even have a new and well-lit duty-free shop there. The airport is still an eyesore but so is Miami airport in Florida where everything works. Pending the time when a new airport can be built, it’s not a bad idea to get things working.

2. The Law of IJGBs states that in any given Nigerian city, IJGBs will find themselves. I happened on a party in Abuja that was filled with IJGBs. Here’s how an IJGB friend explained it:

IJGBs tend to look for the same things when they go to a new city. Like I always look for the cafe when I go to a new town. That’s where I met most of these guys.

Note that IJGB status is calculated by a complicated formula that takes into account how long you were away for, how long you’ve been back for, the sustainability of your foreign accent and how far you’re willing to go to replicate the lifestyle you got used to abroad.

Almost all of the IJGBs at the party were working with the government in some capacity. I am still unsure how I felt about that.

3. The house that Ramalan Yero built cost N10bn or so he said. Driving into Kaduna for the first time in almost 25 years, I felt a little sad as to how the town was in such an obvious need of a facelift. To then get to the new Governor’s Office and see how the immediate past governor prioritised his spending was sickening.

The air-conditioning in much of the building did not work. Inside the governor’s office, I glanced up and saw several of the light fittings had had enough. A wall had cracked from top to bottom. Save for the well-appointed leather chairs in the governor’s office, it was hard to see where N10bn went.

4. There is an incredible amount of work to be done in Kaduna. Governor El-Rufai (Spoiler Alert: I’m a big fan of his, warts and all) was quite frank about this – ‘I barely get any sleep. Being a minister is a lot easier than this‘.

The Commissioner for Budget & Planning, Mohammed Sani Dattijo (as my man Triple A will say – he gets it, he’s one of us) said the same thing – ‘we are dealing with problems as basic as a single street having different names at different points’. There was no tea or coffee to offer me in his office though. Zero based budgeting means that spending has been cut by 60%.

The human capital of the state is lying prostrate on the floor – beaten down and run over. Kids hardly progress from primary to secondary school. A friend whose firm recently oversaw a recruitment exercise told me how people would bring their whole family to thank you simply for ‘giving them a job’. Yet, these people got the jobs after taking a test and passing an interview. But the idea that you can simply get a job on merit is almost unheard of that people are overcome with emotion.

But the Governor is a very serious person and has a decent team with him. There’s hope.

5. A couple of months ago, in one of my rants against Alhaji Putin, I wondered if a Nigerian cement manufacturer could move up the value chain and build 1,000 (affordable) houses for sale to the public.

I think I partly have the answer and it is the one I expected. I drove past the BUA Estate in Kado, Abuja and it looked to me like the whole estate of 208 duplexes was empty. First of all, no one is interested in building houses at the lower end of the scale. Driving round Ikoyi at night, the place is littered with empty ‘luxury flats’. And yet, there are many more being built. All over Abuja too, so many big houses sitting empty. The pricing is either ridiculous or there are not enough middle and upper class people to buy these homes.

It’s a sad situation because the need for low to medium cost housing is great. But when all the energy and resources are diverted to the high-end, it means that no one can be bothered to even start thinking about how to bring the cost of construction down – a critical part of the problem.

Someone took me to see a house in Abuja built by a guy who was apparently close to the last President. Very nicely done and in a nice mini estate too. Apparently, just before the elections, the guy was confident of selling each one for N250m (and he would likely have gotten away with it if the elections went differently).

Now he probably can’t find buyers for N50m.

6. Regarding the topic du jour, I overheard this

The British investigators have got her transaction history at Harrods and Hermes for the last 4 years. It comes to around $100m apparently. She is apparently one of the biggest collectors of Kelly bags in the world and there are some that were made exclusively for her.

‘What is a Kelly’ I hear you ask? Well, so did I and so I asked a friend who tends to know these things

Yes, there’s Birkin and Kelly both by Hermes and they are made in plebeian leather and can be made in ostrich, alligator skin etc for mega bucks.

Don’t say you don’t learn anything from Aguntasolo. Also this

When she wants to empower you, she had a way of doing it. She will just direct someone who has been disturbing her for something to go and see you and that whatever the two of you decide she will abide by it. It will now be left to you to use your church mind to determine how much to charge that person for the access to her.

7. Random conversation with a friend

Me: Are you ok to meet at Otres in Lekki for 6pm?

Him: Why do you want to give your money to Uduaghan?

Because food is political, we went to Freedom Park instead

8. There are several reasons why power supply had recently improved (before last week’s vandalisation over land issues at Egbin). Met up with one of my Ogas and he gave one explanation that made some sense to the amateur economist in me when I asked why pipeline vandalisation (one of the reasons for the power improvement) had reduced

The Atlantic has been full of VLCCs (oil tankers) full of Nigerian crude oil for several months now with no buyers since this whole oil price crash. That means that there is not much incentive to go and blow up a pipeline, put it in a small boat and then transfer it to a tanker. That outlet is no more there.

Makes sense to me. Vandalisation is market driven. Which means if oil prices start to go back up, the vandals will be back in business.

Much as power has recently improved, things are so bad that Nigeria has not even begun to think about expanding electricity supply beyond those who already have a connection. DISCos are bleeding and still havent figured out how to minimise the losses arising from collections. The tariffs don’t make much sense so you have some DISCOs rejecting power from the GENCOs – up to 900MW/day at some point.

A friend at Ikeja DISCo summed it up

You will go to a house where there is only one meter and when you reach the address you will find like 10 flats sharing that one meter. So what we are trying to do now is to meter the shege at every point from the transmission lines to the houses so we know where losses are occurring.

9. Hung out with a Nigerian bank executive

You guys on twitter don’t realise that the whole exchange rate stability we have now is a complete myth. Emefiele has achieved this stability by completely shutting down the interbank market. There is so much unmet demand for forex just waiting to be filled [Me: I think he said around $3bn]. In 20 years or so, we have never had the CBN this omnipresent in the forex markets. JP Morgan never even said anything about devaluation. Their only requirement was to have liquidity in the market and that liquidity is just no longer there. Once he settles Foreign Portfolio Investors and some local guys like Dangote, the rest of you can go and hang.

Funny thing is if you remember in 2008, the Nigeria gained around 20% and in those heady days, people were talking of the Naira going to N100 to $1. Nobody complained about the markets back then. Now that the market is saying something different, we don’t like it.

I’m paraphrasing but you get the gist.

10. Overheard some gist about a big Nigerian bank. Let’s call it Da Furst

They are already giving guidance that their loan write downs this year will be between N70bn and N80bn. And the majority of that was money they lent to Omokore and Atlantic. And they never learn. That’s how they lost a fortune lending to Seawulf too. Sebi that Oritsemeyin rig rotting away at Marina was part of that deal.

Conversation shifted to another oil and gas company. Let’s call it Oh Wan Dough

This is October and they still havent released their 2014 results. I am hearing the loss they made is around $500m. They have been going around calling analysts and reporters trying to soften them up for when the results come out so that they wont be too harsh on them.

A friend gave me a lift home one night and as we drove past a big building on the corner of  Osborne and Alfred Rewane roads in Ikoyi that has been under construction for a while, he said

That building was one of the loans that sank First Inland Bank. The owner was a director there.

All of these seemingly unrelated things give an insight into how the Nigerian economy is run once the lights go out.

11. Back to the issue of the same road having different names at different points, I mentioned it to some friends in Lagos and their response was that I did not need to go Kaduna to see that. Here’s one of them

I remember last year Valentine’s day. I wanted to send flowers to my wife’s new office. I know number on that same road so I just told the driver to look for number 27 using the name of the road I know for number 13. That’s how the guy started going up and down and couldn’t find it. Apparently that same road has different names at different points. And this is in Ikoyi o.

Just being able to organise ourselves in Nigeria is proving a real challenge. This then feeds into making it really hard to transfer something that has worked elsewhere to Nigeria.

I used Uber to get around quite a bit in Lagos. The rating system has definitely made drivers very polite. All the guys I rode with were courteous and decent (they get a bonus if you give them a 5* rating). But the challenge is often getting them to come to you. You put in a street and the map sends them somewhere else. This happened a couple of times so I quickly learnt that immediately after booking, you call the driver and confirm that he knows where he’s going.

Some of the confusion is political of course. I was chatting with someone who was describing a house in Ikoyi on ‘Temple Road’. I happened to have been there a day before and it was described to me as ‘Olu Holloway’ (former Temple). So I mentioned to her ‘do you mean Olu Holloway? And she said ‘we never call it that. It will always be Temple to me. None of all that political nonsense’.

Organisation. Order. Sounds simple enough but not in Nigeria.

12. Never had such a nightmare using my UK cards in Nigeria before. Or maybe my memory is hazy. Turns out all my debit cards are Visa and Nigeria does not like Visa. Everywhere I tried to use them, they were declined – online or offline.

Went to eat at Tulip Bistro in Abuja and when it came time to pay, the card was declined. Had to then walk quite a distance to get cash from a machine. This was all the more annoying because the what I ordered was apparently raw hot pepper with a side of prawns and pasta. My mouth is still on fire as I type this.

But the most annoying card experience was when I was checking out of my hotel in Abuja. I have a random MasterCard that I got to use for whenever I travel. I handed it to the guy and he tried it a couple of times – both times it was declined. He then asked me if it was a foreign card and I said yes. So he went to bring another PoS machine. Without telling me, he proceeded to convert the amount from Naira to USD (using a rate in his head) and then entered the USD amount into the machine. I was distracted at the time and so just entered my PIN into the machine.

Anyway the machine wasnt sure if it was processing or declining. That card has an app on my phone so I thought to check and indeed the payment had gone through. I then asked him what he had done and he said he converted the bill from Naira to USD using a rate of N179 as he could only enter the amount into that particular PoS in USD. I was incensed. I kept asking me to show me where he got that rate from and all he could say was ‘that is the rate we are using‘. They will be hearing from me on TripAdvisor.

Really not sure what is going on but it worries me a lot when I see signs of economic isolation in Nigeria. Why on earth is it now impossible to use foreign Visa cards in Nigeria?

13. This point is dedicated to all the things I heard about the people behind Atlantic Energy but which I’m not at liberty to disclose.

I pray Nigeria does not see their kind again. But I am not too optimistic about my prayer being answered.

And Now A Word From Our Sponsors…

Social media has greatly enriched my life. It allows me read as much as possible on a daily basis and also helps me sharpen my points of view. But it is in the people it has allowed me meet that I take the most pleasure.

Someone I hadn’t previously met physically invited me into their home for lunch. Another friend helped me arrange a driver to Kaduna from Abuja. I asked the driver to turn up at my hotel at 7am and he called me at 6.59am to say he was outside. He was so courteous that I was minded to pay him more than he demanded as I suspect he didn’t want to charge me because of the person who sent him my way. People bought me food in Abuja, Kaduna and Lagos. One fine day in Central London in December 2013, I went out to get my lunch at a McDonalds. A guy came up to me and asked me if I was Aguntasolo and we both laughed over it. I now call him my friend and a big part of what I’m hoping to do in Kaduna is because of him.

Yes, yes… I know what you are going to say – ‘It’s because you don’t live in Nigeria and you were only around for a short period‘. But so what? All it means is that people have reserves of kindness but will only transact in it when it is safe to do so (See Prof Alvin Roth here. Point 2). I’m a free market capitalist – red in tooth and claw – but I’m also a sucker for kindness; the one that ordinary people transact in at the ground level on a daily basis, unforced by any authority. I do not love Nigeria as it is. I love what it can become and it is because of the endless supply of people I’ve come to meet who can make it happen.

The Word On The Streets is sponsored by Kind People.

It’s best to leave you with the words of one of the greatest moral philosophers the world has seen this side of Plato. Here



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.