Exit, Voice And Loyalty: Aviation In Nigeria

In December 2012, the great economist, Albert Otto Hirschman passed away. By all accounts, the man had lived a truly remarkable life and in April of this year, the Princeton Professor, Jeremy Adelman published a very well received biography of Hirschman – Worldly Philosopher: The Odyssey of Albert O. Hirschman. The book is 760 pages so if that’s not your cup of tea, it’s worth reading Malcolm Gladwell’s review of the book in the New Yorker. It’s a really good piece. Or your money back.

Hirschman lived all around the world and spoke Italian, French, German and English. He worked in Europe, Africa, America and South America and he wrote about 9 books and countless papers in his time.

Of all his books though, the most popular one was Exit, Voice and Loyalty. The book is about the 3 different responses people come up with to decline i.e. exit, voice and loyalty. Hirschman used a simplified example to explain this point:

Consider a publicly funded school where the quality of education declined. Quality-conscious parents would increasingly remove their child to a privately funded school, given that they are relatively indifferent to the cost. A price-conscious parent, being similarly indifferent to the quality, would not notice that decline. At some point then, the school would know there was a problem, having been abandoned, but have no parents left who cared sufficiently about the quality to point to exactly where it had failed, locking the school into that state. Hirschman notes that in this and similar fields (“connoisseur goods”), a “tight monopoly could be preferable”, preventing parents from moving. This would be better for the school, if not the child, by keeping an active voice among the parents

You don’t have to agree with his ideas, compelling as they may be, but what is most interesting here is that Hirschman’s most popular book was inspired by something he saw in… Nigeria.

He was in Nigeria around 1965 doing some development economics work on ‘Railway Modernisation and The Bornu Extension’ when the idea for the book came to him. He concluded that the railways were getting worse because the most vocal customers – companies who needed to move good across the country – were abandoning the railways and shifting to trucking their goods on the roads. He also noted this behaviour in middle class Nigerians who voted with their wallets and bought cars or traveled by road. The problem was of course compounded by the fact that the railways were government-owned and as such didn’t care about the loss of revenues.

Fast forward to 2013 and yesterday on twitter I saw the following tweets from Professor Pat Utomi:

The distance from Lagos to Akure is around 300 kilometres or 3 hours on a decent road. Make no mistake about it, this is the road that the Agagu family were avoiding when the recent Associated Airlines plane crashed. It’s a terrible road and I remember the last time I passed through it – September 2009 when I attended Gani Fawehinmi’s burial – my heart was in my mouth the whole time.

I’ve seen the contract for this particular road described as ‘the greatest work of fiction ever written’ (although some say that accolade belongs to the East – West Road in the South South).

So if vocal Nigerians fled the railways for the roads, it’s not too ludicrous to extend the argument and say the same subset of Nigerians have since fled the roads for the air.

Exit.

The trouble now is that there is nowhere else to run to when the airspace is no longer safe. So it’s time for…

Voice

What has been most troubling about the recent #StellaGate revelations is why exactly she chose the Nigerian Civil Aviation Authority (NCAA) to make these purchases. This is the body charged with air safety in Nigeria and by definition ought to be independent of government interference. To be clear, spending $1.6m on two cars for a minister to ride around in luxury is theft and a terrible scandal but why didn’t she use FAAN or any other agency under her ministry to do the deed? Taking money from NCAA is actively compromising the safety of people who fly around Nigeria everyday.

I have 2 possible answers to this.

1. The man in charge of NCAA, Captain Fola Akinkuotu was put there specifically for things like this i.e. to be her crony. People say the man is qualified for the job, but I am not convinced. This how he describes himself:

My name is Captain Fola Akinkuotu; I am the Rector of International Aviation College, Ilorin, which is the newest aviation college in Nigeria. I have been in the aviation industry most of my life. I will definitely say over 40 years in the industry. I started out as an aircraft engineer and I became a flight engineer and a pilot. I have flown in most of the airlines in Nigeria and I have over 13,000 hours of jet time. I have been in various things; I have been an instructor; a VIP pilot, I flew the Pope in 1997. I have done my bit

However this is how his LinkedIn profile describes him:

Screen Shot 2013-10-19 at 11.19.16

It’s certainly not my job to update his public profile for him. He is a public official and he should be able to do that himself. So it will be useful to know why his CV has gaps from 1992 – 2000 and from 2003 – 2009. That is at least 14 years missing from the last 21 years. If his public profile is an accurate reflection of his experience, why is he in charge of air safety in Nigeria? Is he just there to make it easier for the minister to buy luxury cars at inflated prices?

2. The second possible reason is that she chose the NCAA because it is ‘hidden’ in the budget. Looking at the section on Aviation in the 2013 budget, the NCAA is not one of the bodies that receives an appropriation in the budget (It’s not in the Ministry of Transport either)

Screen Shot 2013-10-19 at 11.33.03

In other words, this is a perfect place to hide graft or to put it another way; the NCAA is a revenue generating agency of the government (one of 54 such agencies) that contributes to the government purse as opposed to being sustained by allocations. Bear in mind that we were never meant to know about this. Someone took a risk to leak this to the public otherwise we would be none the wiser.

This whole mess should alarm anyone who flies regularly in Nigeria – is this what air safety is all about? That the body in charge of safety is merely a conduit for theft of public money? Resources are very limited in Nigeria so this is money that should have gone towards equipment or training or inspection that has gone towards providing even more luxurious travel for someone who by the account of Yakubu Datti, the resident clown at the Aviation Ministry, is ‘successful and well established’?

People who can afford to fly in Nigeria are by definition middle or upper class. Tickets are not cheap – a random Arik flight from Lagos to Abuja (return) from December 11th to 14th is currently priced at N40,641- of which N23,055 is ‘taxes and fees’ (I’m sure some of these fees go towards funding the NCAA…in other words you may have directly paid for the BMWs). This is a lot to pay for people to then fool around with lives.

My instincts are for people to simply stop flying until serious changes are made in how air safety is regulated in Nigeria – when the airlines get hit in the pocket, they will put pressure where pressure needs to be put. But this is a non starter with Nigerians who fly regularly.

How will I get to Abuja from Lagos for my meetings? The roads are even more dangerous

How about when I need to be in Port Harcourt, Lagos and Abuja in the same day?

Be realistic, avoiding air travel in Nigeria leaves you with no choice

And so on. This is all fine. But surely we can all agree that things cant continue like this? How about organizing a once a month boycott of airlines on the second Monday of every month? Surely if this is planned in advance, people can arrange their travel to reduce the impact of this? What is surely unacceptable is for people to pay N40,000 or more for local flights and then shrug their shoulders and say there’s not much they can do about demanding safety.

The first thing to do here is demand independence for the NCAA. And this can only happen when you have someone who isn’t there just to do the minister’s bidding. After yesterday’s disgraceful press conference by Capt. Akinkuotu, I am afraid there’s no evidence that he is someone who can stand up to a rampaging minister when she asks for BMWs. The purchase of the BMWs happened under his watch. He is now telling disgraceful lies to cover it up. He has to go.

The absolute most important thing about aviation is safety. A single crash can destroy an airline’s reputation overnight. The Minister can have everything else in aviation but turning the NCAA into a toothless agency is one corruption too much. People need to demand that she has absolutely no say whatsoever in who is appointed to run the agency – Nigerian or foreigner.

But I don’t live in Nigeria and it wont be long before someone insults me for ranting from the safety of London.

In the meantime, safe journey as you fly.

FF

Addendum: I didn’t think it was important, but a couple of people have pointed out that I didn’t say anything about the 3rd leg of the equation – loyalty. According to Hirschman, ‘loyalty holds exit at bay’ i.e. it is most important for the firms in question to use. Since we are talking about aviation, one of the best examples of this is the use of frequent flyer miles by airlines to keep their customers. Imagine you have been collecting miles with British Airways for many many years and standards started to decline. Exit is not really an option to you at that point so you are forced to use voice to demand an improvement.

We are nowhere near there yet – where airlines respect customers enough to make changes when it is demanded but it is undoubtedly where we need to go.

Top Top Secret: Lagos – Ibadan Expressway On Paper

What you are about to read is top top secret. My secret ‘sauce’ sent me the plans for the Lagos – Ibadan expressway rehabilitation and I promised that even if I shared it, I will swear my readers to secrecy.

I take it I have your word that you wont tell anyone what you are about to read? Yes? Ok

1. The total cost for the road has been put at N167bn or roughly $1bn. The length of the road to be ‘reconstructed, rehabilitated and enhanced’ is 127.6km.

2. The road, for the purpose of this RRE (Reconstruction, Rehabilitation, Enhancement) has been split into 2 sections as follows

Section 1: From Old Toll Gate, Oregun/Ikosi-Ketu, Lagos State to Shagamu Interchange, Ogun State. The total length of this portion of the road is 43.6km and has been awarded to Julius Berger Nigeria Plc for N70,753,387,798.42. Completion time is set at 48 months.

The work on this section will include reconstruction of the existing 2 lanes as well as adding a 3rd lane after which the road will be 15.2m wide on each side, including outer and hard shoulders. There will also be an interchange around the Redemption Camp as well as, interestingly, 5 overhead pedestrian bridges. Apparently there are currently 10 existing bridges on this section of the road so JB Plc will also be required to ‘maintain’ them and also ‘install’ 2 weigh bridges (bear with me, I’m quoting from the top top secret document).

Section 2: From Shagamu Interchange, Ogun State to Ojoo Interchange, Oyo State. The total length of this portion of the road is 84km and has been awarded to Messrs Reynolds Construction Company (RCC) Nigeria Limited for N96,303,444,055.63. Completion time is set at 48 months.

This section of the road will not be expanded to 3 lanes apparently and so the road will be 11.85m wide on each side. There also wont be any pedestrian bridges or new interchange on this section however, the contract includes the maintenance of 12 bridges and the installation of 2 weigh bridges.

3. To save money on the project, there will be a 45 metres Right Of Way in both directions from the middle of the road for the first 10km of the road from the Lagos end (as this is the most built up end). After that, the Right of Way increases to 60 metres from the middle of the road. It is estimated that this will cost N10bn to compensate people who will need to have their properties removed for the road.

I am hoping that unnecessary lawsuits from property owners will not delay the road but this is Nigeria so you never know.

4. So where will the money for this road come from? The money has been split into 2 parts – N50bn and N120bn. A Special Purpose Vehicle (SPV) will be setup to manage the project i.e. all the relevant parties – FG, Ministry of Works, Ministry of Finance, The Infrastructure Bank (TIB) – to the project will be sort of shareholders in the SPV.

To set the ball rolling, the FG will fund the first part of the project i.e the N50bn through something called FGN Irrevocable Payment Undertaking (IPU). Essentially, what this means is that private sector financiers will put up the money now, while the government will repay it in 2014 and 2015 through the budget. This N50bn is being raised right now (and might have been completed even). I imagine the reason for doing it this way is because only N3bn was allocated to this particular road in the current budget so now that the government knows what its commitment will be, it can simply allocate the remaining N47bn over the next 2 years.

The second part of the financing – N120bn – will be provided purely by the private sector, at least that’s the plan. The idea is that once the contractors have been ‘mobilised’ with the N50bn and the project comes to life, it will be easier to raise money from private investors to complete it. [Personal opinion: I like this approach where the government sets the ball rolling with its own money before private investors come in. This is what I hated the most about the Lekki – Epe expressway where it was all private money from the get go].

5. An Operation, Maintenance & Tolling Company will be set up as part of the project. Wait, you thought there won’t be tolls on it? Dont be silly.

There is a National Tolling Policy that has apparently been developed and is waiting to be passed into law. This will provide the framework for how the FG will enter into tolling agreements with private companies or the conditions under which it will toll any road.

6. The tolls will be in the same place as before based on the plans – Magodo, Ogere and Ibadan. As this is a top top secret document and is likely to change, I am loath to share what the projected toll rates will be. Suffice to say, the plan is to increase them by 7% every 2 years. Also, heavy trucks will pay 5 times what cars will pay and there will be 6 different toll rates starting from motorcycles and graduating upwards.

All told, tolling will provide 95% of the revenues from the road with the Magodo toll projected to provide around 52% of the revenues based on volume of expected cars. [Personal opinion: The number of cars used to calculate the projected revenues look very very conservative to me. Indeed, if I’m not mistaken, the expected traffic is less than what was used for the Lekki – Epe expressway].

The plan is for the N120bn facility to be for 7 years but tolling will only commence once the road has been completed in year 2 i.e 2015. The first toll to commence will be Ogere while Ibadan and Lagos will start the following year in 2016.

7. The remaining 5% of revenues will come from advertising, billboards and such like. Telecoms companies will also be charged N500k per kilometre (increasing by 7% every 2 years) to lay cables on the road. Note that this will be on either side of the road and is per telecom firm so effectively, the revenues will be N1m per kilometre for cable laying.

Revenues are also projected from towing services and speeding tickets. Dear reader, if you are already salivating at the thought of throttling the throttle on this brand new 3 lane dual carriage way road, I urge you to reconsider. Except of course you have a particular desire to ensure the financiers make their money in less than 30 years. In which case, go ahead…match am. ‘Disobedience of traffic rules’ is also listed as a source of revenue. Enough said.

8. Specifically, the type of PPP being employed for this project is being referred to as DBFOM – Design, Build, Finance, Operate and Maintain. The main point to note about this arrangement is that the SPV never owns the road (it belongs to the FG) but only has the rights to the road and to collect revenues from it.

In total, the road will cost just around N201bn. This is because no interest will be paid on the first 2/3 years of the N120bn loan. Instead the loan will be rolled up as part of the capital and will then start to be repaid once tolling commences.

9. Finally, a maintenance schedule has been built into the project as follows

Routine Maintenance – Every year

Recurrent Maintenance – Every 3 years

Periodic Maintenance – Every 5 years

Small detail I also picked up – There will be 30 Mobile Policemen employed annually once the project starts it appears. But what I found interesting is that their salary is listed at N40,000 per month. Is this what MoPols earn in Nigeria? And we give them machine guns?

 

It’s tough to summarise a 122 page document that’s also very boring. But ‘boring’ is very good for things like this. A lot of work has definitely gone into the project so far which means all the while people have been waiting for work to start, some serious work has been going on in the background. The section on risks is several pages long and considers most of the things you’d expect including the hostility of people to tolling and compensating those whose properties will be affected.

But ultimately, this is a plan and is likely to suffer changes, delays and all manner of unforeseen problems – it’s difficult trying to project 30 years into the future anywhere let alone a country like Nigeria. If all goes according to plan, people should start seeing serious work begin on the road before the end of the year.

Based on what I’ve read, I am very hopeful. Touch wood. Alas our specialty is in snatching defeat from the jaws of defeat to say nothing of the demons having fun on the road in the face of all the churches and mosques there.

 

FF

 

 

ASUU Part Quatre: We Have An Agreement

Before you complain that Peter Jackson’s Lord of The Rings only had 3 parts, I have 2 words for you – The Hobbit.

First of all, shout out to the good man who dug up this agreement, scanned it and emailed it to me. As we say here in Blighty; you Sir, are the dog’s bollocks. Thank you.

I think the first thing that struck me about this agreement is how strong ASUU are as a union. I wonder how other unions will feel if they see the kind of stuff ASUU managed to extract from government. Part of the reason for this, in my opinion, is immediately obvious when you look at the list of the people who negotiated for both sides. While the ASUU delegation was led by its President and senior members, the government side was led by Gamaliel Onosode and some other Professors and ex Pro-Chancellors. The highest ranking members of the negotiating team from the government side appear to be some civil servants who acted as ‘observers’.

This is not to invalidate the agreement of course – the government clearly signed it so they should honour it. But when you look at the composition of people purportedly negotiating on behalf of the government, ASUU were already 1 nil up even before anything was signed. Does anyone know why things were done this way? Was it that relations between government and ASUU had broken down to the point where they couldn’t sit round a table and trash out the issues? Not even a minister?

To the agreement proper – there were 4 main issues to be negotiated namely 1) Conditions of service [salaries] 2) Funding 3) University autonomy and freedom 4) ‘Other matters’.

Here are the highlights of the agreement as I saw them

1. ASUU asked for and got a special salary structure for themselves called Consolidated University Academic Salary Structure II (CONUASS). This CONUASS was further made up of 3 components – 1) CONUASS I [the previous one from 2007] 2) Consolidated Peculiar University Academic Allowances [CONPUAA] 3) Rent.

The CONPUAA was apparently to capture all the other allowances that they wanted but not captured in the CONUASS. Stay with me. The reason why they were allowed this was because the committee agreed that ‘Nigerian academics represent the critical mass of scholars in the society’ and as a result of this they ‘deserved unique conditions that will motivate them […] to attain greater efficiency’.

2. In exchange for this new pay, ASUU agreed to be of good behaviour and not do anything that disrupts the academic calendar to get whatever it wants i.e. no striking.

3. Next thing they did was to look at the countries where Nigerian academics frequently migrated to e.g Botswana, Ghana and other developed countries. Based on this they came up with a salary structure that would prevent this kind of brain drain. They called this Table 1. The highest salary anyone could earn based on this table was N7.5m per annum.

But ASUU then seemingly looked at the government’s condition and took pity on them because the government didn’t have a lot of money and then gave them some sort of ‘discount’. This gave birth to Table 2 in which the highest possible salary was N6m. The cynic in me thinks this was simply a clever negotiating tactic but I wasn’t there.

4. As far as I am aware from all of ASUU’s statements since the strike began, the government has complied with this CONUASS salary structure. Indeed it will be difficult for the government to not pay them the salary they agreed to. It is the next bit that seems to have caused all the problems and it’s easy to see why.

Something called Earned Academic Allowances was also agreed to by both parties. In essence, this was supposed to be a kind of piece-rate payment where ASUU members as academic staff were paid a fixed amount for each unit of work they did. So for supervising postgraduate students, a Professor was to be paid N25,000 per student while a Lecturer 1 and Senior Lecturer were to be paid N15,000 and N20,000 per student respectively.

For Teaching Practice/Industrial Supervision/Field Trips, a Professor was entitled to N100,000 per annum. Further, if a Professor did more than one field trip in a year, he would be paid separately for each one. Even though this money was for field trips, such an academic staff would be entitled to mileage and overnight allowance in line with government regulations. It’s unclear why, after being paid N100,000 for a field trip, the same person will then be entitled to mileage and overnight allowance. What is the definition of ‘field trip’ I wonder?

There was also Honoraria for helping to conduct exams internally or externally ranging from N45,000 for Master’s to N105,000 for Doctorate. For moderating external undergraduate or postgraduate exams, there was a separate honoraria ranging from N60,000 for 50 undergraduate students to N80,000 for more than 10 postgraduate students.

To encourage young academics to ‘further’, postgraduate study grants were to be given – N350,000 per session (up to a maximum of 2 sessions) for a science based masters and N500,000 per session (up to a maximum of 4 sessions) for a science based doctorate. The figures were N250,000 and N350,000 respectively for non science studies.

I am not too familiar with the intricacies of academia but another N200,000 was to be paid to external assessors for the position of Reader and Professor. Call duty and clinical hazard allowances were to be paid to those who qualified to them per existing government regulations.

It is unclear what a Responsibility Allowance is (at least to me) but a Vice Chancellor and Librarian were entitled to N750,000 per annum for this allowance while ‘all other officers’ were entitled to N150,000.

Excess Workload Allowance was to be paid per hour to teaching staff ranging from N2,000 per hour for a Graduate Assistant to N3,500 per hour for a Professor.

You can see the problem with these allowances – there is no way for the government to know how much they will cost in advance. They could cost N10bn or they could cost N100bn. Lecturers would simply submit the bills and the government would have to cough up the money. You can also see that ASUU played a clever hand by giving the government a ‘discount’ on the base salaries while loading up with all sorts of allowances elsewhere. For a lecturer earning say N3m per annum, it wont take much for he/she to earn an extra say 50% of that salary through all these allowances. The government isn’t there on the campus so it will simply get the bill to pay. And I have not even mentioned corruption.

5. There were other non-salary benefits in the agreement as well. Each academic staff was entitled to a car loan equivalent to his/her annual salary charged at 2% for administrative cost (stop laughing). They were also entitled to a car refurbishment loan for those who wanted to refurbish their old cars, again charged at 2%. At least with a car loan you get to see the new car if you want to, but refurbishment? That’s just money in the bush.

For housing loans, each academic was entitled to 8 times his/her annual salary to buy a house. After 6 years service, an academic would be entitled to a sabbatical leave. If this sabbatical was abroad, the university would pay the ‘transport’ costs for the academic, a spouse and up to 4 children. If hospitalised, an academic would be entitled to 6 months paid sick leave which could be extended for another 6 months.

Retirement age was increased from 65 to 70 and any one who retired as a Professor would be entitled to a pension equivalent to his/her final salary. Indeed even if the Professor retired before the retirement age of 70, he would still be entitled to the final salary pension provided he had served as a Professor for 15 years in a university.

University staff and their spouses as well as up to 4 children under the age of 18 were entitled to health insurance. There are various other benefits in the agreement but these are mainly standard stuff like maternity and 26 days leave.

What I find interesting is that while the section on pay was quite specific in what university staff were entitled to, as soon as you get to the other sections, everything turns to a ‘recommendation’. So for example it was recommended that the government spend N472bn on the universities in 2009, N498bn in 2010 and N549bn in 2011. Somehow, the Federal Government was also supposed to fund the State Universities (at least recommended to) on a per student basis i.e. N3.7m per student in total from 2009 to 2011.

Another recommendation was for the state and federal governments to spend a minimum of 26% of their budgets on education. Of this amount, at least 50% was to be allocated to universities. Bear in mind that this was a negotiation between ASUU and the FG – the primary and secondary school interests were not represented there but ASUU was effectively making a recommendation on how much they should get from the budget. In all this, there are 1.2m students in our universities while we need to find a way to get 10.5m children into school.

It was also recommended that the Education Tax Fund be changed to a Higher Education Fund i.e. solely for the universities, polytechnics and colleges of education. This would be hilarious if it wasn’t so scandalous – after taking 50% of the budget, the universities were to take 100% of the ETF as well. You couldn’t make it up but then, when you start negotiations from the premise that there is a critical mass of nation transforming scholars in our universities, this is not a surprise. I wonder if the mumu NUT who are threatening to go on strike in solidarity with ASUU know that ASUU don’t really give a toss about them.

Universities were also to access the Petroleum Technology Development Fund (PTDF) for the training and development of their staff i.e. more money for ASUU and government was to grant universities duty-free importation rights for educational materials. Given that even our churches have been known to terribly abuse such waivers in the past, this is amusing to say the least.

Where the agreement descends into outright farce is when it reaches the section on autonomy. Having demanded and obtained all the above things from the government, ASUU then proceeded to add insult to injury by asking that university autonomy and academic freedom should be ‘enhanced and protected’. Note that this agreement wasn’t exactly reached with smiles and good-natured banter – it came after a strike that eventually forced the government to the negotiating table. So ASUU were not only asking the government to give them as much money as they could demand with a straight face, they were asking to be left alone to spend it and run their affairs as they wish ranging from changing the laws impeding university independence to allowing them admit students as they saw fit. You want the government to look after you and your family by paying everything you want and you want the same government to grant you freedom and autonomy. Eh?

As I’ve said several times before – this dispute is all about pay and nothing else. The thing with recommendations is that they are just that; recommendations. You cant take someone to court for not following a recommendation. So it was up to the government to follow those parts of the agreement or not. But ASUU weren’t messing about with the parts that concerned them. The numbers were clearly specified which is why today they can say the government is owing them N92bn in earned allowances or whatever the figure is. It is also the same reason why the government feels it can throw N30bn at them and ask them to ‘manage’ it. Afterall its ASUU’s word against the government’s.

You hardly come across the word ‘student’ in the agreement at all. And there is nothing specific about infrastructure in there other than the large sums of money the government was supposed to give the universities. There are many people today making ignorant noises about government ‘honouring the agreement’ and even coming up with things that are not in said agreement as ‘ASUU’s demands’. There really isnt anything for anyone in here other than ASUU so personally I’d say, leave them to fight it out with government.

Who in Nigeria wont like free medical insurance for their family? This is why I get confused when the whole debate about education comes down to pay. Even if we had the best universities in the world, there will still be a case for paying our lecturers more. 99.9% of humans beings, when asked if they wanted more pay, will respond ‘Yes’. So why exactly is this the pillar on which the arguement always rests?

You can also see the sinister side of ASUU in the draft amendment bill with the way they were eager to tightly regulate the private universities via the NUC to protect themselves… going as far as recommending up to 5 year jail terms with no option of fine for anyone who so much as uses his property for the operation of an unapproved university.

Be that as it may, I think the government should honour this agreement. It should pay every last penny. That is the only way it might learn a lesson for the future. How you can send a team of ex-academics to negotiate with a team of academics on your behalf is beyond me. But hey, I don’t know what went down in those days. Once this strike is over, prepare for the next one because as sure as night follows day, it will come.

Ultimately this document shows the impossibility of reaching an ‘agreement’ after one party has forced a negotiation via hostage taking. There is absolutely no way in this life or the next we are going to have anything approaching education reform until we break out of this death spiral of strikes and pay deals. The conversation we need to have has not even begun at all. My suggestion will be that the government should just pay ASUU whatever it is it wants right now and then begin talks on university reform i.e. the lecturers need to be in class when negotiations start. That way, we can know what everyone really wants.

Now that I have sufficiently poisoned your mind, you may read the agreement for yourself by clicking the link below

FG And ASUU Agreement 2009

FF

Park Well – Cars And Mr Chung

They have come again:

Aganga disclosed that the national automotive policy will further encourage local manufacture of vehicles, adding that car import takes the biggest share of the  country’s foreign reserves followed by machineries.

The minister, speaking on the advantages of the new policy, said the Industrial Training Fund (ITF) is working with car-maker, Cena of Brazil, to open automotive training centres in Nigeria while two Nigerian universities have agreed to commence degree programmes in auto-mechanical engineering, all in a bid to provide adequate local manpower for the industry.

Nigeria, with 38 million middle class, is expected to benefit greatly with the creation of over 700,000 jobs.

“Council also approved that government should direct that all vehicle purchased by government should be from the local assembly plants unless it is specialised nature and National Automotive Council (NAC) have certified that it is not produced in Nigeria”.

“The council approved that the approved recommendation should be backed by appropriate legislation to give comfort to investors that there will be no abrupt change in policy”.

He explained that the policy was drawn over the last nine months and had the input of the National Automotive Council (NAC) and foreign car manufacturing giants like Toyota and Nissan that are expected to soon start announcing their specific investments in the country.

Leave aside for a minute that Aganga is a serial over-promiser and chronic under-deliverer. Nigeria wants to make cars and hopefully reduce/stop importation of cars. Given that this is not the first time we will launch a policy like this, can we somehow pull it off this time?

This is also worth noting:

He informed that government would put in place appropriate tariff regimes to discourage car importation and encourage local manufacturing.

The minister disclosed that the new policy would run as a 10-year plan and would be reviewed every five years, adding that Nigeria and Bangladesh were among the few countries without national automotive policies.

In short, the Nigerian government is going to do that thing it likes to do – ban things so that we will start making them locally.

I think we’ve gone past the point of believing that some document will solve our problems in Nigeria – the country is littered with action plans and failed government policies. What might be novel and useful is checking out what other countries did to get to where they did.

So finally I have an excuse to share a story I have been wanting to for a minute.

The year was 1974 and Chung Ju-yung had used his mouth to make a promise that would have been tough to deliver on. Ordinarily it wont have been the end of the world but in this case, the person he made the promise to was none other than General Park Chung-hee, strongman of South Korea at the time and all round maximum ruler.

A bit of background – one of the things General Park first did when he seized power was to ‘refurbish’ a special prison where he planned to jail entrepreneurs who didn’t toe the line of national development. General Park wasn’t playing – before he came into office he had already written a book/pamphlet on national development outlining his vision and how South Korea could create a ‘miracle on the Han river’. He had made up his mind he was going to use businessmen to achieve his development goals so he worked out the kind of whip he was going to hold over them.

Korean businessmen were made to sign agreements that contained lines like ‘I agree to forfeit my assets to the government if I do not contribute to national development‘.

Back to Mr Chung. The guy was a born hustler. His parents were dirt poor peasant farmers so he was the archetypal self-made millionaire. He also wasn’t afraid of starting something he knew absolutely nothing about – he started Hyundai without being anything remotely like an engineer or construction expert. General Park’s policy at the time was to support local businesses by protecting them from foreign competition with protectionist policies and giving them loans to expand. But there was a catch.

Once you got government support, you had to export. This was the whip hand that Park held and his main reason for seizing assets or even throwing businessmen in jail. It was absolutely compulsory. You had to agree to export a certain number of whatever products you were manufacturing before you could obtain any government support. Bear in mind, at this time South Korea was a rather poor country and nowhere near what we know today. So if you could get government help to grow your business, it was useful indeed.

In 1974, Mr Chung’s Hyundai had barely started making cars but General Park had decided that he wanted the country to start producing ‘citizen cars’ – they had already had pretty successful policies in the ’60s of making various car parts and kits so it was time for the real deal. This was where Mr. Chung made his crazy promise. He told Park that in his first full year of car manufacturing, 1976, he would export 5,000 cars. At this time he hadn’t manufactured a single car.

The local market was never going to be a problem because the government set car prices and it set them very high – given that the domestic market was protected, Koreans didn’t really have a choice but to pay.

Mr Chung had a British manager – George Turnbull – working for him at the time and his promise to Park was so ridiculous that he didn’t tell him (Turnbull) what he had done until manufacturing started the following year. It was a silly promise to make as they were nowhere near ready to export their cars. But they had to make those cars and they had to export them.

When production started, Chung confessed to Turnbull what he had promised Park. Turnbull was incensed. But there was no way out. As soon as the cars started coming off the production line, trouble started. A worker would try to open a door and the handle would come off. After 2 weeks in the sun, the paint would fade completely. Some of the parts were held together by glue. There were brake problems. There were steering problems. There were engine problems.

But Park was never going to go to jail so they started looking for countries they could export the cars to. The government had set a price of $5,000 per car for the local market but Chung and co could set their own price for the foreign market. Given that the cars were rubbish, they decided to export them at a heavy loss for $2,200. But who was going to buy the pangolos? I guess you know where this is going.

One of the countries they sold them to was Nigeria (along with Peru, Saudi Arabia and Ecuador so don’t feel too bad). According to Turnbull ‘In Nigeria, someone pulled off the roof like peeling off a banana’.

It took Japan’s Toyota 32 years to export 10million cars. It took Hyundai 28 years to do the same. This is the definition of industrial learning. Those numbers were not just about a 4 year difference – Korea was much poorer than Japan, to say nothing of Japan being its former colonial overlord. After those early mistakes in 1974, by 1987, the Hyundai Excel was the top imported compact car in America. In fact, by 1977, Chung threw a big party for Turnbull and his other British managers, thanked them for their service and said ‘ we will take it from here’ (he was very wary of joint ventures and all that sort of thing as he felt it slowed down their development)

But there is another very important point. At no point under Park was there only one car manufacturer. There was Kia and there was also Shinjin (some of these companies existed long before Park seized power but their car manufacturing mostly began under him). Each one was held in by export discipline and as such there was never any chance of the government being held to ransom. If a firm was acting the fool, the government simply forced it into bankruptcy and moved on.

Contrast this with Malaysia under Mahathir Mohammed aka Dr. M. Proton Motors was established in 1983 as the sole car manufacturer and the government gave it all kinds of support including protecting the domestic market but never bothering with forcing it to export. Have you seen or heard of their cars? I didn’t think so.

This thing is not easy.

It requires an incredible amount of discipline and a strong hand of the government not just to protect but to discipline. You can immediately see that the Nigerian one is going to be a joke but I will be delighted to be proved wrong. Whereas the Koreans developed a system for eliminating losers – Shinjin was bankrupted by the government – we have perfected the art of picking ‘winners’. These winners are usually losers but the government backs them anyway for as long as possible and they never improve.

You can bet your bottom dollar that we will get the first part of the equation right – we will protect the local market by raising tariffs on imports and outright bans. But for the second part? No chance. You can already see the signs – government is promising to patronise local manufacturers to ‘stimulate’ them, as if this is something that has not tried before. What sort of feedback will that give to the manufacturer? Absolutely none. If you have a guaranteed customer in the government in a protected market, even if you want to improve, you simply cant because you will only get fake feedback (Zinox?). The Koreans were never going to be selling cars at a loss to countries like Nigeria indefinitely. They had to start making a profit or else the government would force them into bankruptcy or a merger. And the only way they could do this was to quickly improve quality such that they were then good enough for Europe and America.

But our government believes that we have a ‘huge’ and ‘lucrative’ market and as such producing for the local market is all you need. But this hardly ever works because as soon as businessmen and government get cosy in the name of ‘policy’, laziness sets in and the costs of their increasing inefficiencies is passed to the Nigerian consumer not to talk of the amount of time they then spend forming cabals to eliminate competition.

I haven’t seen the Automotive Industrial Policy Development Plan that the government just announced (I cant find it anywhere on the internet) but I am ready to bet against it. Aside from the fact the minister promoting it is a joker, we simply lack the discipline to pull off this kind of thing. All that will happen is that Nigerians will end up paying more for imported cars and smuggling via Benin Republic will greatly increase.

But this time, I want to lose my money.

FF

Tim Harford* Explains The New CBN Forex Guidelines

Guy, how far? All the papers this morning are reporting that CBN has banned the importation of foreign exchange? I know we import a lot of things in Nigeria, but we dey import money before?

Don’t mind our newspapers. Because of the way the word ‘ban’ is used in Nigeria, people will read the papers and think you are no longer allowed to bring forex into the country. That’s not the case.

So wetin happen? Because you dey talk, your mouth dey move but I no hear anything o

Well the CBN announced 5 new forex policies last week. So its not just a case of something was banned or not

[Grabs chair] Oya start from the first one furstofall

Firstly it has suspended the system it used to sell forex to the banks. It was known as WDAS. This has now been replaced by RDAS

Wada Nas? That Abacha Special Duties guy still dey?

WDAS means Wholesale Dutch Auction System. A bank will collect requests from its customers who want to purchase forex. It will then take the total amount to the auction where CBN will sell the forex to them. For example, 100 customers of a bank might say they want $100,000 each. The bank will then go to the auction hoping to buy $10m from CBN. But CBN used to sell a certain amount of money every week and there would be plenty banks competing (with their customers’ requests) competing for the forex on offer by CBN.

So the only way for CBN to sell the forex is through an auction system. It will offer the money at a certain price say N160 to $1 and anyone who wants to buy at that amount will buy or it will reduce its asking price to N158. Until all the money on offer is sold. The auction holds every week and the CBN announces how much it will be selling in advance. For example, the CBN offered $400m in the last auction in September

This thing be like market. How come I never knew about it? Na coded something? I for like go hustle see if I fit buy dollars na

Notice the name is ‘Wholesale’? It is not an open market where anyone can come and buy. So only banks are allowed to come and buy on behalf of their clients.

So why are they changing it and to what?

The new system is RDAS – Retail Dutch Auction System. CBN is worried that the demand for forex is being driven by ‘fake’ economic activity especially money laundering and politicking. The RDAS is similar to the WDAS but now banks will have to ‘show their workings’ i.e. they will have to show the details of the person on whose behalf they are ordering the forex. In short, CBN will be collecting more information to enable it monitor what exactly is going on. In short it is tightening the rules on how forex can be bought.

So even as this one na retail, guys still no fit show there?

No

 Ok, the second one

The second change is mainly for people who travel abroad and use their Nigerian debit cards to make payments and purchases. Previously the maximum you were allowed to spend on your Nigerian debit card outside the country in one year was the equivalent of $40,000. Now CBN has raised this to $150,000.

That one na for people wey get money to spend. No time abeg. The 3rd one

This is the one that has caused all the ‘ban’ headlines. In the past, authorised dealers were allowed to import foreign currency notes into the country as part of their business. This is what the CBN gave them the authorisation for. But now CBN is saying ‘even though we have authorised you to import forex, you still have to tell us before you import the forex’.

In short, CBN doesn’t really trust the people it has authorised so it wants to micro-manage their operations. So authorised dealers now have to seek permission before importing. Of course this means that permission can be denied otherwise CBN won’t be doing this.

Now they will have to fill an application form and send it to Abuja for approval. This will obviously cause delays and a lot of paperwork so we have to wait to see how it works out

We like paper for this country sha. Why dem no fit use internet do all this kind thing? Me I no sabi use the thing but my 3rd born talk say nothing wey you no fit take internet do. Anyway, na dem know. 4th one?

This one is a bit confusing. Think of a hierarchy in how forex is bought and sold in Nigeria. At the top of the hierarchy is CBN. CBN sells to authorised dealers. Authorised dealers sell to Bureau de Change. Bureau de Change sells to regular people like you and me. Levels dey.

Currently ADs (authorised dealers) can sell a maximum of $250,000 per week to BDCs (Bureau de Change). Remember in the first point I mentioned that it’s the ADs who carry all the requests to the CBN auction? Now CBN has said that ADs have to carry out checks on the BDCs they deal with to make sure they are genuine. It has recently revoked the licences of 20 BDCs because it says they were being used for money laundering.

I’m guessing this means that if an ADs doesn’t check its BDCs and CBN finds something wrong, it can sanction the AD.

But what makes it slightly more confusing is that BDCs are now required to render weekly returns (more paperwork) on all the money they buy and sell directly to the CBN. So even though BDCs don’t deal directly with CBN, they still have to ‘show their workings’ to the CBN every week.

Hmmm…e be like CBN wan catch thief o? So if AD say ‘my BDC asked me to buy $10m for them’ and BDC submit return wey show say na only $5m dem collect, that is to say shirt don dey wear the AD be that?

Something like that….perhaps

 E remain one more change abi how many we don talk now?

Yes, the final change is the one that affects you, me and everybody else directly. I believe one of your brothers is in America?

Yes e dey America. Wetin concern CBN with that one?

I am sure he sends you money through Western Union and you collect it in dollars? Now CBN has said you can no longer do that. When you receive money through Western Union or Moneygram or any other such service, you will only be able to collect the money in Naira. Previously, people would collect the amount in dollars and go and change it at a better rate by themselves on the black market.

[Tears Shirt] Say wetin happen?? The banks will now use this as an opportunity to cheat me! This Sanusi sef, na everything the guy see e go squeeze? Wetin we do am?

I am sorry about this and you are right, the CBN Governor appears to enjoy squeezing things but I’m afraid this policy is now in effect.

The bank will now pay you the money at the ‘Interbank Rate’ for that day. All banks have now been told to clearly display the daily exchange rates in the banking halls in a way that everyone can see it. So if you want to collect Western Union and you enter one bank and see N158 to $1, you can check two or three other banks to compare rates before deciding where to collect from.

The CBN says its Consumer Protection Department will make sure people are not cheated by banks but we wait to see how this works.

This thing don spoil my belle. I dey go abeg….sebi na 5 things you talk? Later

Sorry I counted wrongly, there are actually 6 changes and as a trader, this last one affects you.

I no even know who confuse pass between you and CBN. Oya wetin? If na bad thing, I no wan know o

I am sure you are familiar with e-Form M?

I don hear person mention am before…

It is the form filled by importers who want to pay their suppliers abroad by bank transfer. The maximum amount you can pay in this way is $250,000. The good thing about this is that you can do it online and just submit the invoice with it.

Going forward however, you will need to submit the shipping documents within 90 days of making the payment. Again, the CBN is tightening the rules to make sure that people don’t transfer money abroad in the name of buying goods that never arrive.

 

So I go send the high sea papers to CBN?

No, you will submit it to your bank (AD) but if you refuse to submit the shipping papers, the AD must report you to CBN or else it will be sanctioned.

So always make sure you submit the shipping papers to your bank as soon as you receive them so no one gets into trouble.

Ok guy, you don talk 6 now. I swear even if e remain, I no wan know. I dey go house. We go dey talk another time. Na kuku everyday these people dey change their rules.

I have finished

 

*This blog post was inspired the man who turns Micro-economics into a mass market commodity, Tim Harford.

I have unashamedly copied his style – imitation being the sincerest form of flattery and all that. His latest such post is here (for the UK).

FF