Rice And Cannabis: Agric Ministry’s Version Of Events

Perhaps I should have spoken to my friend at the Agric ministry before I wrote my blog post yesterday. But I am not really a fan of the ‘African’ method of discussing public policy in private especially when there are a lot of information gaps.

Anyway, he sent me an email last night explaining the Ministry’s position and progress on the existing rice policy.

I just read your latest blog posting. Shame you didn’t make time to discuss the rice issue with me before framing your thoughts. There are many more issues which you did not touch in this write-up. I agree that an outright ban on rice importation makes no sense if you have a vibrant domestic production base. A lot is being done within the Ministry of Agriculture and in collaboration with key stakeholders in the rice sector; government, importers, large and small-scale producers and processors. We currently import about 2.1mMT of rice annually. This is the gap the Ministry is working to bridge by 2015. Last year, farmers grew an additional 1.1mMT of rice paddy during the dry season planting. The conversion ratio of paddy to grain is roughly 65%, meaning we produced about 715,000MT of rice during the dry season.

A heck of a lot has gone into refining the Rice Policy and I have attached two source documents for your perusal. One being the minutes of the last meeting held with rice stakeholders on refining the policy.

The Rice issue is complicated as most negative newspaper articles are sponsored by the guys who previously profited from rice importation. Evidently, it is not in their interest for the domestic rice production plan to work, but we are getting there.

Nigeria now harvests rice commercially during both main and dry seasons. Yields during main season is about 2.5/Ha and during dry season it is about 4-4.5/Ha. This season (main and dry) we estimate to grow 2.8mMT of paddy, which will yield about 1.8mMT of rice (mind you, we consume 2.1mMT of imported rice).

Only those who intend to poison the wells and scorch the earth would say the rice policy is not working. You will also see from the minutes of the meeting that we are reviewing the tariff structure.

Have a gander at the attachment

1. Slides for Feyi

I also received another document detailing the minutes of a meeting between the Agric Minister and RIPAN (Rice Producers Association of Nigeria). Unfortunately the minutes have not yet been made public so I cant share them. As soon as they are I will share them. I think there’s plenty of important information there. Suffice to say they are working on reducing the tariffs downwards from next year.

I don’t think it’s fair to add comments on the above again as I have already had my say. So do try to go through the attached document. It will only take you 5 minutes or less.

Do have a happy 2014.

FF

Why Nigerian Farmers Are Breaking Bad

Incentives matter. And I confess that whenever I see a basic economic law working as it should in Nigeria, it puts my mind at rest and helps to dispel that myth that ‘Nigeria does not follow any economic laws’.

When I was in Nigeria recently, I got talking policy with a few friends and how this government is seemingly obsessed with banning stuff or putting punitive tariffs on them in the name of boosting local production. The problem is that banning is always the first thing they do. Before any local capacity is added, they ban the thing. Given that we have been banning things since the ’70s at least, it is unclear why the government persists with this line of action even when it obviously don’t work. Usually the effect is nothing more than raising the price Nigerians pay and delivering a boost to smugglers and Benin Republic.

Specifically we discussed the rice policy and how people who have invested in rice processing mills are struggling to find paddy to mill. Yields are low and there is general scarcity.

But let’s use some simple numbers to show that Nigerians are rational afterall.

If you’ve been casually following the news, you will have noticed that the NDLEA have been actively seizing large amounts of cannabis from farms especially in the South West. Usually a big show is made of this with the bags lined up and burnt often with the state governor in attendance. They are ‘sending a message’ to cannabis farmers – we will find you and we will smoke your weed (not literally but you get the gist).

Here’s an example from last month in Oyo State:

Over 124,000kg of drugs has been burnt in the State since 2006. According to Giade, “in 2006, the Agency destroyed 2,000kg of drugs. The largest quantity of 80,050kg was destroyed in 2008 while in 2011, 27,400kg was also destroyed. Today’s exercise will bring the total quantity of drugs destroyed in the State since 2006 to 124,082.386kg

That is just one state. Roughly 2,500 bags of cannabis destroyed in 5 years. Bear in mind that these are the farmers unfortunate enough to have been caught. I am pretty sure Nigeria doesnt import cannabis so there is enough making it to the market. I will go as far as speculating that production hit a peak in 2008 which then attracted more farmers and then subsequently crashed prices the following year.

When cannabis was destroyed in Ekiti a couple of weeks ago, the NDLEA chairman, Ahmadu Giade, had this to say:

According to him, the Agency had detected and destroyed 875 hectares of cannabis farm in Ekiti in 2013, advising that “we must explore every strategy to promote the cultivation of economic crops instead of cannabis

During another smoking exercise, the same NDLEA boss said:

It is sad and disturbing that most farmers are now abandoning food and economic crops for cannabis. This 1,404.27 hectares of land could have changed the fortunes of our agricultural sector if properly utilised

I am sad and disturbed that the NDLEA boss is sad and disturbed. Another report from July 2013 breaks down how widespread this ‘farming business’ is:

In data SUNDAY PUNCH obtained from the Head, Public Affairs, NDLEA, Mr. Mitchell Ofoyeju, on Friday, the agency said the plantations were concentrated in Ekiti, Ondo, Osun, Ogun and Oyo states.

It added that Delta and Edo states in the South-South top the list of states with the largest cannabis farms from other zones.

NDLEA said, of the 8,052 drug suspects arrested, North-West had the highest with 2,185.

This was followed by South-West, with 1,591; South-South, 1,480; North-Central, 1,230; South-East, 960; and North-East, 606.

The agency seized 233,700kg of narcotics in the year under review, with the South-South having the highest, with 106,676.716kg.

The South-West came second, with 94,036.265kg; North-Central, 14,472.309kg; North-West, 10,357.895kg; North-East, 4,548.268kg; and South-East, 3,608.309kg.

On the list of states with the largest volume of drugs seized, Edo led with 81,541.71kg. Ondo had 61,246.35kg; Delta, 23,418.48kg; Ogun, 8,469.99kg; Oyo, 7,232.08kg; and Ekiti, 6,685.23kg.

Kano State recorded the highest number of arrests, with 705 suspects – all males.

Shout out to my Yoruba people – they are planting the most according to the NDLEA but other regions planting less are suffering more arrests and seizures than the South West. Perhaps this is a skill that can be exported one day.

Finally I found the following paragraph in a report by the International Narcotics Board for 2012:

In 2011, the National Drug Law Enforcement Agency (NDLEA) of Nigeria seized a total of 192 tons of cannabis herb, which represents a 10-per-cent increase over the total in 2010. Also in 2011, Nigerian authorities eradicated a total of 918 ha of cannabis plant cultivation, compared with 593 ha in 2010. According to the Agency, that amount of cultivation is equivalent to a yield of 1,836 tons of cannabis herb

So the obvious question is – why are Nigerian farmers ignoring the clear risks and pressing ahead with cannabis farming? Clearly a lot of people are smoking in Nigeria but the same can be said of how people eat rice. So why aren’t our farmers planting rice instead? I remind you again, this is what was seized. What didn’t get seized is anyone’s guess.

I saw a long report about rice farming in The Vanguard newspapers today and I think I have the answer. It’s a long piece and it’s worth reading in full but let me quote the part that jumped out at me:

In one hectare, if there is no delay in rain and all goes well, about have 2. 5 tonnes of rice can be got from one hectare, that is about 100 or 50 bags.We use 25 or 50 kilo bags. We sell 25 kilo at N3, 500 and 50 kilo for N7, 000. So about N350, 000 can be realised as gross profit on one hectare but so many factors can reduce the profit on that.

Before the rice is harvested, the farm has to be weeded so as not to harvest weeds with it. About 10 people are needed to weed one hectare and they get N1, 500 per day. It takes about five days to weed one hectare. That is about N75,000 on weeding per hectare alone and there are many other expenses that are incurred.

So farmers need working capital to cover such expenses. So we keep imploring the government to provide access to finance so as to have mass production of food

Will you farm one hectare – roughly 15 plots of land – for N350,000 gross profit? This is assuming all goes well. And rice farming is back-breaking work as anyone knows.

Given that cannabis is a banned substance in Nigeria, you are not exactly going to find the price on Konga.com but I stumbled on this blog post from last year that put the price of 10 grams at N400 (please correct me on this if you have better information). So from a 50kg bag of cannabis you can get a staggering N1,000,000 even if we discount 50% at wholesale prices.

For the same 50kg of rice, the farmer in the Vanguard report says they get N7,000. This is an absolute brainer. And I imagine cannabis involves much less work.

All of these have policy implications in terms of whether or not the government is doing the right thing by slapping 110% tariffs on rice and even planning to ban importation totally in 2015. Will this really make Nigerians start farming rice more? Clearly the enemy is not just abroad, it is within as well.

A few days ago, Premium Times carried a report where they quoted extensively from one Mr. Akinola, the spokesperson of the Seaport Terminal Operators of Nigeria. It was very revealing to say the least. Read the whole thing but I will quote the part I found most interesting:

Before January 2013, rice importers paid a 60 per cent duty, but when it was increased to 110 per cent, importers shun Nigerian ports for neighbouring countries.

No rice vessel has berthed at any port in Nigeria in close to a year now. What that means is that government is losing revenue that the Customs should have collected.

The vessels just go to neighbouring ports where they will pay far less duty and the smugglers end up bringing the same rice into the country illegally,” he said.

He said that the policy has affected the revenue of the Apapa Command of the Nigeria Customs Service from rice import.

Mr. Akinola said the Command had so far collected only N11 million as duty on rice as against what it used to be.

The Area Controller of Apapa Customs said that rice was the highest revenue-earner for them, but this year, the Command collected only N11 million as import duty on rice.

In 2012 and 2011 about N138 billion and N135 billion respectively was collected as revenue on rice importation. You can see the monumental loss to the Nigerian government,” Mr. Akinola said

This is shocking stuff. The Nigerian government has thrown away (or given it to Benin Republic) almost $1bn in revenues in the name of ‘saving’ money on imports. The same rice is still finding its way into the country only now through the artificial line that we call our border with neighbouring countries. I want to call this the Laffer Curve in action but the collapse in revenues is so comprehensive that I think we need a stronger term for it.

This mess highlights the crazy way we tax and spend in Nigeria. Ordinarily, there should be a link between revenues raised from rice imports and what the agriculture ministry gets via its budget. I do not know of any country in the world where rice is planted on a huge scale and the government doesn’t somehow support its farmers. It is just too difficult and not profitable enough except you are doing it on an industrial scale or adding value at the milling end.

There is nothing to be afraid of from importing rice, we can actually eat our cake and have it. The problem is not that farmers don’t want to plant rice so banning imports is hardly going to solve the problem.

So here’s my policy recommendation in 3 easy steps

1. Return the tariffs to what they were and end all talk of banning rice in 2015. In fact I will slightly lower the tariff to 50% instead of the 60% it was before.

2. Direct the bulk of the revenues raised from rice imports to the agric ministry. I will say 80% at the very least. That’s N110bn based on 2012 figures. This money should be earmarked specifically for a rice programme.

3. Use the money to bribe farmers to plant rice by guaranteeing the amount they will get for any rice they plant. Some of the money should also be used to build storage for rice reserves. Farmers don’t have to be paid the same amount as cannabis as that crop has risk of arrest and destruction built into the price. But N7,000 cannot cut it. The ministry can experiment on an annual basis with the price to see how much production increases. Start at N9,000 then raise it by N1,000 every year until we get the production we are looking for.

There’s nothing strange at all about all this, governments do it all the time for different things like the UK government recently guaranteeing the price of nuclear energy for private investors to build nuclear energy plants in the country.

The problem with the method we are adopting is that it gets more and more expensive for consumers and does not increase efficiency. This is a lesson we can learn from Japan where rice is a political crop:

To protect its wildly uncompetitive farmers, Japan has erected one of the world’s highest tariffs: the duty on imported polished rice is 777.7%. Mr Abe’s surprise decision in March to bring Japan into talks on the Trans-Pacific Partnership (TPP), a free-trade grouping, has brought these duties under pressure. Even though a final deal on TPP is far from certain, the talks are still a powerful force for change.

The phasing out of gentan should spur rice production, allowing prices to fall at last. That in turn should encourage small landowners to hand over their paddies to be farmed by larger operators, says Takeshi Niinami, the government’s chief adviser on the reform. Another of Mr Abe’s plans is to create new agencies in each prefecture to gather farmland from smallholders, consolidate it and lease it in larger chunks to companies. The combination of the two new policies could halve the cost of growing rice from an average of ¥16,000 ($160) a 60kg sack to just ¥8,000, says Mr Niinami. At those levels, Japanese rice could hold its own against imports, and even make inroads in export markets.

That gentan policy began in 1971 and is now proving impossible to remove. But Shinzo Abe, who is working, is on the case. Japanese consumers are paying ridiculous amounts of money just to keep a dwindling group of farmers happy.

Too often the debates about economic policies in Nigeria take on a zero sum approach – to have local industry we must stop imports. There’s never a middle ground. This encourages the government’s itchy fingers to reach for the banning and tariff levers as the first step. My good friend Olusegun Aganga first raised tariffs to 70%. Then he announced that the coming Made in Nigeria cars will cost as little as N1.2million. Simple logic makes you wonder – if these new cars are going to cost N1.2m, why do you need high tariffs to discourage imports again?

Please if you know these people in government, appeal to them to calm down with all this banning. We all want Nigeria to develop and there’s no need treating Nigerians as if they are the enemy because they buy things from abroad.

Happy new year

FF

My Books Of 2013

I didnt read as many books as I would have liked to this year so making a list of my books of the year is actually easy, rather unfortunately perhaps as I have no idea what I missed out on.

Nevertheless, here goes.

The Book That Ticks The ‘Fiction’ Box

I really really struggle to read fiction. But I try to read at least one a year. ‘Technically’ this is fiction…I think.

The Testament of Mary by Colm Toibin was a joy to read. Jesus Christ had a decent number of women around him as we know so the question is – why didn’t any of these women tell their stories? ‘Patriarchy is old’ as a friend of mine put it. There really is no reason why we don’t have a female perspective of the gospels other than the fact that men were the ones in charge.

This is what this book tries to rectify. And it’s really good. It simply tells the story of Jesus from the point of view of a mother who is dealing with an ‘unruly’ child. Like any mother, she’s worried he will get himself killed…which is exactly what happened.

It will only take you a couple of hours to read but it’s definitely worth it.

TOM

The Book Aganga Should Read

Perhaps if the Honourable Minister were to read The New Industrial Revolution he would calm down a bit with gra gra policy making.

The first thing that hit me after going through the book was fear. I tend to read stuff like this with Nigeria at the back of my mind so it made me really scared wondering how much we need to do to connect into an increasingly complex global economy beyond just selling natural resources and goods with no value added. But then it also made me aware of the huge opportunities that abound in today’s world. The more complexity, the more new people are able to enter the game. It is chock full of interesting facts by an author who travelled the world to write the book.

An example – The BMW plant in Oxford here in the UK where the Mini is produced manufactures 200,000 in a year. Of that number, in a given year, only about 8 will be exactly the same, if at all. Pause and think about that.

If you like detail like that about the global economy, you’ll like this. Incidentally, Nigeria has an Industrial Revolution Plan but to the best of my knowledge, just like the auto policy, it remains a secret document

NIR

The Book About Government

I thoroughly enjoyed Mallam Nasir El-Rufai’s The Accidental Public Servant. It is only one side of the story, his side, but it’s a good version of events. The man obviously took notes while he was in government and was always going to tell his story.

I keep saying it, but the best part of the book for me was towards the end as his career in government came to end and his description of the transition to private citizen. The system we have built ensures that, for those who are made of weaker stuff, the bulk of their time in government is spent ‘thinking’ about their time out of office i.e. stealing to ensure they don’t suffer later. Or ‘existential hysteria’ as the novelist Teju Cole recently described it. And we Nigerians are as guilty in this regard as our politicians are with the way we lavish ludicrous praise and ‘loyalty’ on them while in office and then turn around to dump them once they are out of.

It is not only politicians who are simply in it for themselves. We the people are too.

This book remains a worthy addition to the discussion on how government works or more accurately, doesn’t work in Nigeria. Here’s a piece I wrote based on something I read in the book.

TAPS

The Book That Is A Shifter Of Paradigms

By a country mile, Joe Studwell’s How Asia Works was my book of the year. What an absolute firecracker. The author is not a nice guy and doesn’t suffer fools gladly (you will notice this in interviews he grants to the press) so not a single prisoner was taken in the writing of the book.

The most important thing that this book taught me is that for a leader who wants to take his country to the next level in development, it is important to absolutely hate poverty. You must dislike it to the core of your being and then use everything at your disposal to fight it. Another lesson is that the greatest gift the successful Asian countries had was a gift for copying and copying well. They would send people around the world to find ideas and then synthesize everything into what they found to be the most workable.

I wrote a review here earlier in the year. Dont sleep on this book. So many things I took for granted in terms of development were thoroughly challenged and defeated by the evidence I found here.

HAW

The Book That Answered A Lot of Questions

If like me, you’ve always hated statistics or had stat teachers who you never liked, help is at hand in Michael Mauboussin’s The Success Equation. This was one of my most enjoyable books ever and completely changed the way I feel about statistics. I will definitely read it again.

More to the point, this book opened my eyes to a lot of things I have taken for granted. What is luck and what is hard work? You’ll be surprised at how much of a role luck plays in most success stories. But luck isn’t something to feel bad about or hate others for. You almost certainly wont get lucky just by sitting at home…you need to be out there to get lucky.

Looking through my Kindle, I realise this is the book in which I made the most notes. Chock full of wisdom from an author who knows his subject matter very well

TSE

The Book That Makes You Realise You Only Know Half The Story

When it comes to slavery and colonialism, most minds are already made up. But what I found in John Darwin’s Unfinished Empire was a thorough account of how the whole thing went down. Mr Darwin is no slouch and he is as even-handed as it’s possible to be on this subject matter – not defending the British, simply presenting the case as it happened.

There are of course lots of interesting stories in there featuring Nigeria including how when the British first landed in Lagos, they were kept at bay on their ship for weeks to the point of starvation till the Nigerians (or whatever you choose to call them) had pity on them and sent them food. As you can imagine, the story didn’t quite end that way.

If you are looking for how the story of slavery and then colonialism happened from a global point of view and not just Nigeria’s, you should read this. It’s an education. Or perhaps a re-education. But leave it alone if your mind is already made up.

UE

The Book I Want To Keep To Myself

I only came across this book a couple of days ago while strolling across twitter. Checked it out and the premise looked good so I bought it. The word that comes to mind about The Business Solution To Poverty is ‘refreshing’. If you are tired of the whole story of ‘Poverty in Afreekahhh..please donate £5 to make a child’s life better‘, this is the book for you.

Unlike Dambisa Moyo’s Dead Aid which did a great job of criticising the whole aid model, this one criticises in a gentler way but then, recommends very practical solutions for businesses to make the lives of poor people better. No seriously, it actually tells you how to set up a business, what kind of business, to serve the world’s poorest in ways that can transform their lives. And no, you are not being asked to do it from the goodness of your heart – these are businesses that will make you money targeting the 2.7billion people who live on $2/day.

The authors – Paul Polak and Mal Warwick – are people who have actually done this type of thing. So this is not some unmarried hustler giving you the lowdown of how to find marriage in 3 easy steps.

2014 is the year when I want to put a lot of plans into place in terms of taking charge of my own destiny business wise so this book came at the perfect time. I really don’t want you to read it because it might give you the same ideas it gave me.

Adobe Photoshop PDF

That’s it. I must do better in 2014 and fight the disease that is Tsundoku in my life.

Wishing you a very Merry Christmas and a prosperous and healthy New Year. Afterall, dead men don’t read books.

FF

Last Word On Cars: My Selfish Reason For Disliking This ‘Policy’

I have been ‘harassed’ on a couple of occasions recently as to my opposition to this new auto ‘policy’. Naturally I’ve also been asked as to what my own is with Aganga, the ‘brains’ behind the new policy. So I will write about this one last time…

It is painfully clear that there is no intellectual framework whatsoever underpinning the current administration’s Transformation Agenda. It means different things in the hands of different ministers or governors. So Abba Moro, Internal Affairs Minister, can claim that his ministry’s decision to charge job applicants for the privilege of applying over the Internet is as much ‘in line with the transformation agenda’ as the Agriculture Minister’s various Value Chain programmes. The Transformation Agenda is thus like a very big tent where at any time one might find communists, libertarians, socialists and even socialites.

But nature’s abhorrence of a vacuum is well documented, so a loose ‘framework’ can now be observed when it comes to the Agenda. Once a sector has been earmarked for ‘transformation’, the first thing is for government officials, one after the other, to reel out frightening statistics showing the folly of what Nigerians have been doing. Once you hear ‘Nigerians spend billions of naira importing xxx every 2 hours’, you know that transformation is afoot. The next step will be to paint a picture of an alternate reality where if only Nigerians would stop importing said product, millions of dollars in foreign exchange would be saved and hundreds of thousands of jobs will be created. Who can quarrel with job creation? The final step will then be to either ban the product in question or introduce punitive tariffs on it to ‘discourage’ its importation and ‘encourage’ its local production. It’s all very simple and it doesn’t really matter whether or not it works – since something needs to be done, banning is something, and therefore it must be done.

But this simplicity in policy making has been taken a step too far by Olusegun Aganga, the Trade and Industry Minister, with his National Automotive Policy. All the boxes have been ticked – Nigerians spent N1.05 trillion importing cars in 2012. A total of 1.4 million jobs will be created under the policy in the short to medium term. Punitive tariffs of 70% – double the previous amount – have been introduced on fully built cars. Transformation is coming.

In the last few days, the government has sent out signals that it will soon review downwards the 110% tariff on imported rice it introduced at the beginning of the year. Other than acting as a stimulus to the economy of neighbouring Benin Republic and enriching border officials, the tariff on rice has been a woeful failure. The amount of rice imported into Benin Republic has gone up from 200,000 tonnes last year to 2 million tonnes since the Nigerian tariff came into effect, a ten-fold increase. No, the Beninois have not suddenly discovered a taste for parboiled rice. This is the consequence of rushing for the tariff and ban economic levers as the answers to everything. Even with the ban on fruit juice importation, you will be shocked at how much is being produced in Nigeria (less than 5% currently).

Where Is The Policy?

It gets worse. The minister has refused to make this policy public. He and his team are apparently still working on it, yet it has been backdated to October 3rd as its effective date. How did the Federal Executive Council and the Minister of Finance let this happen?

It’s perplexing to see people making claims that Nissan’s recent announcement that it was to set up a plant in Nigeria is a sign that the ‘policy’ is working. What policy? Perhaps if the Minister were to make this policy public, we might come to see whatever Nissan saw in it but note that no figures in terms of investment size were announced and the investment is ‘in expectation of final approval’ of the policy.

 From Whence Cometh The Jobs?

Where are these fantasy car-making jobs Aganga is claiming going to come from? The Mexican auto industry (manufacturing and spare parts) employs 579,000  producing just over 3 million cars annually. But that is not even the story – over 80% of the cars manufactured in Mexico are exported. Toyota’s plant in the country exports 99% of the cars manufactured there. Ford exports 96% of the cars it manufactures in Mexico. Honda is the company that sells the highest proportion of its production in the country, exporting only 60% of the cars it makes there. Unless you are a developed economy or perhaps China, the only way to sustain the level of jobs Aganga is dreaming of is to manufacture for export. Indeed, Nigeria currently imports around 100,000 new cars every year.

The question that is now begging to be answered is – what exactly does the minister want to achieve with this policy?

  1. Does he want to create jobs?
  2. Does he want a made in Nigeria car?

The policy answers to those questions are different and the only one that can be usefully answered with high import tariffs is 3. i.e. do we want a Made in Nigeria car? The Koreans did this quite smartly. Given that they needed to break into foreign markets with their cars (of questionable quality at the time), their only option was to compete on price initially by selling their cars abroad at a loss. To compensate for this, the government then protected the local market and making Koreans pay double the price at home. But the Korean carmakers were only given this protection if they met export targets.

This is very different from the Mexican strategy (mentioned earlier). The Mexicans wanted jobs and not necessarily a Made in Mexico car. Ergo, they simply needed to pitch incentives (cheap and highly skilled labour) to established carmakers to come and set up in Mexico. There is no need for high import tariffs given that it’s not Mexicans who will be buying the cars. So while Mexico answered question 1, South Korea answered question 2 (and 1). By end of 2014, it is expected that BMW, Toyota, Mercedes Benz, Nissan, Honda, Mazda and Volkswagen would have started work on new plants totaling $8bn in value ($6bn has already been announced this year).

What about Thailand which is a (quiet) car making hub in Asia? Here’s The Economist:

In 2012 production reached 2.45m vehicles of which 1m were exported. This made Thailand the 7th largest car exporter globally.

The rise of Thailand’s car industry is no accident. After Asia’s financial crisis in 1997 the country did away with much regulation in the sector; unlike in India or Malaysia, foreign firms do not need to enter joint ventures with local partners. Thailand’s Board of Investment offered generous incentives to produce eco-friendly cars. The government cut the corporate tax rate from 30% to 20%, below that of Indonesia, Malaysia and even Vietnam.

On top of all that came investment incentives after the floods and a first-time car-buyer scheme, which gave a further boost to domestic demand. In 2012 Thailand again became the biggest car market in South-East Asia with 1.44m vehicles, after having lost the pole position to Indonesia the previous year.

Simply slapping tariffs on imports and then expecting magic to happen is the lazy man’s approach to policy making. If we want to create jobs, then there is no need to punish Nigerians with tariffs. To create anywhere near the amount of jobs to make a difference, we have to manufacture/assemble for exports. If we want a Made In Nigeria car, then surely tariffs will come last not first.

Where Are The Incentives?

In 2012, the UK government gave Nissan almost £10m towards the £125m cost of expanding its factory in Sunderland; the state of Kentucky in the USA this year offered Toyota $147m in tax incentives to expand its car plant there to create just 570 jobs.

Interestingly, Aganga claims that the South African former Industry minister worked as a consultant to Nigeria when the ‘policy’ was being drafted. Stallion Motors also made it known that all the auto dealers went on a ‘retreat’ to South Africa with Aganga to discuss the policy before it was made public. Keeping that in mind, read this article from South Africa’s Mail & Guardian and ponder this question – have the South Africans sabotaged Aganga’s ‘policy’ with dodgy advice? While we are slapping tariffs of 70% on cars, the South Africans have theirs frozen at 25% until 2020. Perhaps the argument will be that we are at different stages of the production cycle but it will be interesting to watch if this our ‘policy’ ends up as a gift to the South Africans.

Other countries are thinking the same thing. Unless you are China or a developed country, you cant assume your local market will be big enough to sustain car production. Here’s Indonesia:

Indonesia is hoping to follow in the footsteps of Thailand, which has used favorable government policy and infrastructure to attract investment and become one of the world’s biggest sources for vehicles, especially pickup trucks.

“We want to multiply our auto-manufacturing production to become an export hub for at least some of the signature models,” says Indonesian Trade Minister Gita Wirjawan. “We definitely can catch up [with Thailand], particularly with tax facilitation and supportive regulations we already, and will, have in hand.”

No Hiace With No Finance

How is it that over 1 million new cars were sold in the Indonesian market in 2012, ten times the amount sold in Nigeria? The short answer is that 70% of the cars purchased in Indonesia are done with bank finance. This is a crucial reason why Nigerians buy only 100,000 new cars annually but buy 400,000 second hand cars. To reverse that ratio, finance has to be made more readily available. Indonesian law requires buyers to only put down 30% of the car’s cost (it used to be as low as 10% but the govt increased it to ‘cool’ down the market) to purchase a new car – 25% for motorcycles). Even if you block imports, the only way to boost local demand for the new cars you dream of manufacturing is to ensure finance is widely available. There is afterall a reason why Mercedes Benz has a banking licence across the European Economic Area, which allows it to provide finance to its customers. You can visit BMW Bank’s website here if you understand German.

The earlier post on Thailand talked about a ‘first time car-buyer scheme’. Although the scheme back-fired with a lot of defaults, the Thai govt spent $2.5bn on the scheme to revive car making in the country after the floods in 2011. This is important to note because I am not aware of the Nigerian government committing a single dollar to boosting local demand for cars. If car making is so important to the government, why don’t they back it up with cash?

Or here’s an idea – why not grant established car dealers like Stallion and Elizade licenses that allow them to offer consumer credit or finance? The government can then underwrite this in some way to boost local demand. It’s of course a tricky exercise because cars are not really assets but a government that is motivated by the bigger picture will see this as a price worth paying.

We already have some useful demand – we can safely say that 99% of people who buy second hand cars in Nigeria do so for cost reasons and not because they are collecting vintage cars. In other words, those 400,000 second hand cars sold annually can easily be turned into new cars with decent finance available. Who doesnt want to drive a car with less potential for headache? And if my friends are anything to go by, this trend is already taking hold. If Nigerians start buying 500,000 new cars a year with accessible finance, then car makers will take notice and initiate conversations with the government on setting up in the country.

Here’s a report from last year on Indonesia:

The world’s top car makers are in the middle of an expansion spree in Indonesia, battling for a piece of the world’s next auto hub.

Toyota Motor Corp. tm +0.94% and other Japanese auto makers have dominated the Indonesian market for decades. But General Motors Co. GM +2.76% , Ford Motor Co. F -0.24% , Tata Motors Ltd. ttm +1.77% and others are trying to wedge their way in. They have plans for new plants, new models or new dealerships, aimed at reaching the emerging middle class in Indonesia.

Toyota on Wednesday said it would invest $200 million in Indonesia beyond expansion plans announced last year. Bloomberg News

Toyota on Wednesday said it would invest an additional $200 million beyond expansion plans announced last year, lifting its Indonesia capacity to 230,000 vehicles annually by 2014. That would more than double today’s output.

With overall Indonesian auto sales expected at nearly one million vehicles next year, the country is becoming one of the world’s largest car markets. More important, its low auto-ownership rate means Indonesia—the world’s fourth most-populous nation, behind China, India and the U.S.—could be one of the world’s last great growth markets.

Damaging The ‘Brand’

Why do I feel so strongly about Aganga and even used strident language when talking about him? I have personal and selfish reasons for doing so. I work in financial services in London and I have been privileged to have learnt some very valuable lessons in my short career so far – among which is the respect for contracts underpinned by the rule of law stretching all the way back to the beheading of Charles I (one day I will write about this)…and most importantly why you shouldn’t sign anything until all the fine points are sorted.

I have also met and worked with some of the sharpest Nigerians I have ever met here. Today you might find exceptionally good Nigerians, average Nigerians and not so great Nigerians working out here i.e. the distribution of Nigerians in the City is as normal as anyone else. This makes me think about the first set of Nigerians who must have broken into the city. They must have really applied themselves so exceptionally to the point where it is no longer a requirement for Nigerians to be twice as good as everyone else just to get a job. This applies to many other areas of life – Jackie Robinson was so incredibly talented as the first black player in Major League Baseball in 1947 that today black players don’t have to prove themselves as much as he had to do back then.

Aganga has not enhanced the reputation of Nigerians who work out here since he went into government. In fact, knowing Nigerians, there will soon be a heavy reputational discount on anyone going into government from Goldman Sachs or London’s financial services for that matter – when the policy fails as it’s bound to, they will say ‘it was that man that came from London/Goldman Sachs that did it’. There is nothing special about his approach to policy making at all. You don’t need to hire someone from abroad to introduce tariffs on imports – it has been the ideology du jour in Nigeria since the 1970s. The bill for government’s policy failures is always handed to Nigerians. I cannot see any useful improvement in business registrations in Nigeria since he became Minister – our rankings in the Doing Business Report have worsened under him.

To the extent that you can call London’s Financial Services a ‘brand’, Aganga has been the worst possible Ambassador anyone could have asked for. He’s bad for business. You get?Today it’s cars but tomorrow it could be anything. This gra gra policy making style that seeks to announce results before the game is even played is not new. And to see someone who ought to know much better being at the forefront of that in this government….really saddens me.

But I’m done with this matter. No more blog posts on cars. I promise

FF