Policy and Economic Review

The global economic environment is decidedly more risky and the chances of a second developed world financial crisis are clearly elevated! In its recent World Economic Outlook (WEO) released in September 2011, the IMF warns that “the global economy is in a dangerous new phase” due to the convergence of slower recovery in advanced economies and “a large increase in fiscal and financial uncertainty which has been particularly pronounced since August”. Uncertainty derives from sovereign debt concerns in Europe-Greece, Portugal, Ireland, Iceland and Spain initially, but concerns now include Belgium and even Italy-and worries that European banks and financial system could be affected as they hold the bonds of these countries. Only Britain and Germany are not been mentioned and even then British banks may themselves be tarred in the event of sovereign default. Meanwhile oil and commodity prices appear to have peaked since April in the case of oil, and February for some food prices. Oil prices have declined for six straight months, with OPEC basket going below $100 per barrel for the first month close since February while the FAO food price index stood at 231 points in August, down from February peak of 238. The IMF WEO reviewed global growth prospects for 2011 and 2012 down to 4% with the structure of uneven growth between developed economies (1.6% and 1.0%) and developing and emerging economies (6.4% and 6.1%) projected for the next two years. The Fund states that risks are clearly to the downside! In spite of declining oil prices, lower global growth prospects, falling foreign exchange reserves and clear pressure on our exchange rates, the federal government released the Medium Term Expenditure Framework (MTEF) for 2012-2015 in which oil prices were projected at $75 per barrel and exchange rates at N153/$ for 2012-2015. This was at a time the CBN was already selling dollars at close to N155/$! The MTEF however factored in supposedly less optimistic scenarios for oil prices at $70 and $65 per barrel. Cynics may describe the three scenarios-$75, $70 and $65 as all optimistic scenarios!!! The last time oil markets fell in 2008, they reached below $40 per barrel! In concluding that risks were to the downside, the IMF noted there would be vulnerabilities in some emerging economies-in my view Nigeria would be one clear possibility. As we were reminded in 2008, slower growth in developed economies means slower oil demand, which implies lower oil prices. The Nigerian economy remains structurally dependent on oil prices for government revenues, foreign exchange reserves and exchange rates! As oil prices fall, while oil importing nations rejoice, Nigeria experiences an oil price shock. We may be in line for another one if current oil price patterns persist! The CBN increased the Monetary Policy Rate to 9.25% on September 19 and shocked markets on October 10 with another increase, this time by 275 basis points! The CBN sticks to its stubborn (and perhaps emotional) rigidity concerning flexibility around exchange rates as it seeks to battle inflationary pressures. If CBN had taken the counsel of the IMF in terms of exchange rate flexibility and discouraging one-way bets against the Naira several months ago, perhaps the bank could have avoided its current exchange rate/interest rate quagmire! In the event, CBN has provided generous dollar subsidies to capital flight, export of corruption proceeds, currency speculation, foreigners, traders and consumption! The only worthwhile beneficiaries of this huge subsidy are manufacturers who constitute only 4% of GDP!!! Meanwhile a N15 margin has emerged between the official CBN rate and all other rates, providing an irresistible incentive to “round-tripping” and fuelling additional surge in foreign currency demand!!! The country has gone through eighteen months of extraordinarily high post-recession oil prices without a single dollar of additional savings, frittered away to the above-listed categories of lucky beneficiaries. Someday someone in CBN or the National Economic Management Team (NEMT) will recognise an unsustainable exchange rate management strategy!!! The economy however continues to grow above 7% with the star sector being telecommunications consistently over 30%; other high growth sectors include solid minerals, building and construction, hotels and restaurants, wholesale and retail trade, and real estate all between 10.4% and 12.3%. The problem remains that growth is not inclusive because of the structure of our economy (growth is dominated in weighted terms by sub-modern agriculture dependent on rainfall patterns, crude oil exports with no domestic value chain, and trading in imported goods; sectors which can generate jobs are either too small in GDP terms of growing too slow) and unemployment at 21.1% is too high. But policy appears to be rising to the challenge. The outlines of a sensible agriculture policy is emerging; power sector road map implementation appears to be proceeding; governance is beginning to look more competent; and there is leadership on the economic front. The financial sector has been a drag on private sector performance and may have boosted unemployment since industry turmoil appeared in 2009, but then resolution appears to have been achieved through nationalisations and the recently-concluded recapitalisations and mergers. We hope the industry will now be left alone to experience stability and growth, and to play its role of economic intermediation.

Steve Jobs 1955-2011

Nigerian society encourages cheapening of honours and lofty words-everyone is a “Chief”, “Alhaji”, “Honourable”, “Dr”, “elder statesman”, “chieftain”. Extraordinary words like “mega” “role model” or “icon” are so carelessly bandied as to become virtually meaningless. Every year hundreds of national honours, universities doctorates and traditional titles are offered usually to anyone who can donate large enough sums of money. When “Chief” became common, we created “High Chief” to differentiate the men from the boys! We have so devalued honour and achievement that it is often difficult to recognise true excellence. But like the Yorubas say, when you see an elephant you can not mistake it for anything else! Steve Jobs is the definition of the words “icon” and “visionary” yet he bore no title-he was simply Steve Jobs. My last obituary was for Tayo Aderinokun; alas Steve Jobs shared the same years of birth and death as Tayo, both deaths had links with cancer, and both were very wealthy men, within the context of their societies. I had a “relationship” with both men-Tayo was my boss in a professional banking environment; but like most citizens of the world, I only met Steve Jobs through his work at Apple Computers. I was however “intimate” with him as a business school professor teaching several of the many case studies written on the PC market, Apple and its truly iconic CEO. My first exposure to computers was not Apple products but the more conventional IBM, HP, Dell, Compaq and Sony personal computers and later laptops. Even though Jobs, his partners Steve Wozniak and A.C “Mike” Markkula and Apple Computers were industry pioneers, by the early 1990s, Apple had become more or less niche products leaders, restricted to devotees in graphics, design, printing, education and other markets where its strengths in graphical user interfaces, design dexterity and ease of use were highly valued. For corporate and professional users, especially in environments such as banking which depended on connectivity within the organisation and the outside world, Bill Gates, Microsoft and the IBM-compatible had basically wiped out Apple. Gates and Jobs had two differing visions of how the PC market would evolve and Bill Gates vision won overwhelmingly! Gates placed his emphasis on connectivity, open systems, the decoupling of hardware and software and a business model that depended on small, but regular annuity incomes. Jobs saw value in great design, productivity, differentiated products and large margins. When I started teaching business strategy in the early to mid-2000s, the case studies essentially cast Steve Jobs as a visionary who got it wrong in the PC market, drawing inspiration from industries (such as automobiles) where a superb product (say a BMW) earned premiums over less-differentiated cars, rather than looking towards perhaps telecommunications or broadcasting where value depended on the number of users and in the particular case of the then emerging technology market, their openness and interconnectedness. Many wrote off Steve Jobs, with Michael Dell of Dell Computers at one time mocking that Jobs should return money to shareholders and close down Apple! But in the event, the joke was on Dell (and we business school types!) as Steve Jobs re-invented himself in consumer electronics through the iPod and iTunes; then went back into computing and publishing with the iPad, and eventually to phones, through the iPhone! Jobs also had strong influence on other industries and companies-he founded NEXT when he was pushed out of Apple and eventually sold the company to Apple for $429million in 1997; he founded Pixar which produced animated films and had a serious impact on media and film industries, producing the popular “Toy Story” film series. Jobs later sold Pixar to The Walt Disney Company in a deal valued at $7.4billion in 2006 becoming Disney’s director and largest individual shareholder with 7% of the company’s stock. In 2010, Forbes estimated Steve Jobs net worth at $8.3billion, the 42nd wealthiest American and one of the richest men in the world. But Jobs significance was not in the amount of money he had in the bank. As he himself noted, “I was worth over $1,000,000 when I was 23, and over $10,000,000 when I was 24, and over $100,000,000 when I was 25, and it wasn’t that important because I never did it for the money“. Jobs was listed as primary or co-inventor on 338 US patents or patent applications for products and technologies as diverse as actual computer and portable devices to user interfaces (including touch-based), speakers, keyboards, power adapters, staircases, clasps, sleeves, lanyards and packages. His real essence was his typification of the American dream; creativity, innovation and the courage to follow his intuition; quest for perfection and desire to impact the world; ability to recover and rise again after every failure; and the final lesson that money can’t buy you health or life. In his words, “almost everything–all external expectations, all pride, all fear of embarrassment or failure–these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart”

Dysfunctional at 51

Nigeria is not (yet) a failed state, but clearly failing and dysfunctional! Signs of system failure include inability of the state to protect its people and territory against sundry adversaries-regional militants seeking greater share of oil revenues; Islamic fundamentalists demanding a full Sharia state; armed robbers who take over public highways and banks; kidnappers who regularly and casually abduct citizens for ransom; an educational sector that has basically collapsed-most who can afford it (and many who can’t!) educate their children in countries as varied as UK, USA, Ireland, Canada, Ghana, Togo, Kenya, South Africa, Malaysia, Dubai etc and middle class families go abroad for medical treatment and simple health checks. The Judicial system does not work-litigation may linger for more than five years, and appeals to higher courts may elongate the process to decades; corruption subverts the state which has essentially been hijacked-apportioned for the benefit of those who paid nothing, but have basically converted the state for their own purposes! Policemen request, demand or plead for bribes on public highways; immigration officers solicit “gifts” from returning Nigerians and foreigners at airports; civil servants negotiate payments from citizens who require services from the state. There is no shared sense of common good and the only irreducible minimum is that the “national cake” must be shared equally in line with “federal character”, “zoning”, “rotation” and “consensus”. We cannot agree on anything-citizens’ perspectives are shaped not by any commonly-held values or national ethos, but by ethnic, religious, regional, state, or clan loyalties or alternatively personal interest. It is possible to reverse the process of state failure, but what worries me more these days is the all pervading dysfunction! Or perhaps that is just one more signpost down the road towards state failure!!! A system is dysfunctional when it doesn’t work normally or properly but contrary to normal design and expectations. Let’s examine some examples. Usually people with high risk appetite and entrepreneurial energy create businesses which generate economic activity and employment. Here entrepreneurial types become politicians! Only entrepreneurs will sell their houses and property in order to raise money to contest a party primary in which there are nine other contestants! And then borrow heavily to finance the actual election. Entrepreneurial energy is devoted not to business, but towards capturing a portion of the state. The successful “candidate” proceeds to earn stupendous return on investment, while the losers fight another day! In normal systems, contractors to federal, state and local governments should be business persons while civil servants are those with a passion for social services and administration but here most government contracts are executed by public officers, with the nominal contractors as mere stooges fronting for them. The same officers have responsibility for conceiving, costing and awarding the contracts and since they only can guarantee contract award and payment, they take the largest portion of the contract booty! The political scientist or constitutional lawyer will say the role of legislators in parliamentary democracies is making laws and providing “checks and balances” on the executive, but in Nigeria, legislators do make laws, but (as can be inferred from the relatively few laws passed by the National and State Assemblies since 1999) they may also be contractors as well, as illustrated by the Senate Education Committee and Rural Electrification Agency scandals. So instead of exercising “oversight” over the executive, a legislator may become co-conspirator in executive fraud. All these dysfunctional categories may indeed respond (with some validity perhaps!) that many journalists and newspaper columnists have become public relations consultants, and that much of what is said in newspapers and other media are paid for! The federal government insists on being in charge of every conceivable activity based on a defective constitution. You would imagine that federal authorities desire a long exclusive legislative list on which they alone legislate, as well as a concurrent list on which they can overrule state governments, because they actually intend to manage all those activities they have cornered via the constitution. Well wrong again! Virtually all federal agencies once deployed to the states are almost completely abandoned to state governors-police, customs, immigration, INEC, SSS and even military formations! Talk to any governor and you will understand that (except in cases where there is a political undertone) the notion of federal government is a myth in the states! State governors maintain and sustain virtually all federal institutions in their states, while ogas in Abuja “take care” of their budgetary allocations! There are other instances-state legislatures are de facto departments of state governors’ offices; governors recommend and “appoint” members of the federal cabinet; labour leaders posture for the benefit of naive members, while telling government privately to go ahead with any intended policy; many policemen are criminals; religious leaders are entrepreneurs and often the richest ones; many occultists are Pastors and Alhajis; Nigerians proclaim great religiosity but corruption is endemic; state governors ask for “true federalism” and then beg the federal government to take-over state universities and airports; NGOs are mechanisms for their founders and leaders to live comfortably; university lecturers and medical doctors are always on strike; police summarily execute armed robbers; SSS releases terrorists to Emirs! Nothing functions the way it was designed to work. Why are we surprised that Nigeria is failing?