Wednesday, July 23, 2014

Football as Economics

Columbian international, James Rodriguez was sold to AS Monaco in 2013 for 45 million Euros, but after his sparkling performance at the 2014 World Cup, just one year later, he is valued over 80 million Euros. Why? One of the foundational principles of economics is “demand” (“the desire for a particular good or service supported by the possession of the necessary means of exchange to effect ownership”) and “supply” (“the quantity of a good or service available for sale at any specified price”). In this case the good or service is the footballer; the demand is from the richest global football clubs including Real Madrid and Manchester United; and the supplier is AS Monaco, the player’s owner. Once the “price” (“what must be given in exchange for something expressed usually in terms of a quantity of money per unit of a commodity”) Real Madrid is willing to pay reaches a level acceptable to the supplier, a sale is feasible. Why is Real Madrid willing to pay such a high price for Rodrguez? That would have something to do with “value”-the worth of something to its owner comprised of either “value in use” (“the pleasure a commodity actually generates for its owner-excellent performances on the football pitch and commercial endorsements and other value-added transactions) or “value in exchange” (“the quantity of other commodities, usually money a commodity can be swapped for”- now said to be approximately 88million Euros, and may be expected to rise further if he continues his excellent form). In effect Rodriguez is similar to a security listed on a stock exchange (“a market in which securities are bought and sold” and even though unlike shares he can’t be physically divided into smaller units (!) (some footballers are indeed fractionally owned by multiple owners-recall the controversy over the ownership of Carlos Tevez and Javier Mascherano years back!), Rodriguez’ current sale and the previous transfer from Porto were “secondary market” transactions (“a market in which assets are resold and purchased, as distinct from a primary market in which assets are sold for the first time”). The primary market would typically be when a young player is sold for the first time, usually by his parents or a football academy! So players are “assets” (a business accounting term, representing items on the “balance sheet” of a company, owned by the company and with a monetary value”); while footballers are “current assets” which the business can readily convert to cash by selling or loaning them out, clubs also have “fixed assets”-stadia, land, buildings etc. as well as “intangible assets” including goodwill and patents. The clubs finance fixed, current and other assets through “liabilities” (“sums of money for which account has to be made such as bank loans, overdrafts and short term debts”) and “equity” (“the residual value of a company’s assets after all outside liabilities (other than to shareholders) have been allowed for”). The balance sheet is thus “a statement of the wealth of a business, other organization or individual on a given date”, containing a listing and value of its assets, liabilities and owners’ equity. Whenever teams have invested huge resources on fixed assets, their ability to buy expensive players may be constrained (example Arsenal) until liabilities are reduced, except if like Chelsea, PSG or Manchester City, owners can pump in fresh equity or related party loans to finance acquisitions. Arsene Wenger, being a good economist has simply acted rationally in his conservative procurement strategy over the last few years! And that brings us to “scarcity” and “choice”-the needs and wants of individuals, groups, firms (and football clubs!!!) exceed the resources available to satisfy them hence choices have to be made. The price mechanism (or socialism or other central distribution system, in football say in an amateur football league) helps to determine the distribution of scarce resources. It is because of scarcity, choice and the price mechanism that James Rodriguez is not going to Newcastle United or Athletic Bilbao, but to Real Madrid, the most prestigious global football club, with resources to purchase him at the post-World Cup valuation! Even if Newcastle could in theory muster resources to pay for Rodriguez, and he was willing to forgo the prestige of joining Madrid, a smaller team will have to consider the “opportunity cost” (“the value of that which must be given up to acquire or achieve something”) of expending all their resources on one “asset” with the “risk” (“a state in which the number of possible future events exceeds the number of events that will actually occur, and some measure of probability can be attached to them” as opposed to “uncertainty” in which the probabilities are unknown) of “impairment” through injury, cultural maladjustments, poor relations with team mates or coach or death!) when a “cost-benefit analysis” may suggest better value in buying six or seven very good players with such funds. The football “market” (“a market is created whenever potential sellers of a good or service are brought into contact with potential buyers and a means of exchange is available”) is affected by “globalization” (“geographical shifts in domestic economic activity around the world and away from nation states” or “the geographic dispersion of industrial and service activities and the cross-border networking of companies”) so players are sold across national borders with sports thus becoming an increasingly important component of “international trade” (“the exchange of goods and services between one country and another, which arises because of differences in relative costs of production between countries, and because it increases the economic welfare of each country by widening the range of goods and services available for consumption”)-the English Premier League for instance buys highly-skilled players from West Africa, South America and Continental Europe enriching everyone in the process! Like other economic activities, football leverages the four “factors of production”-land, labour, capital and entrepreneurship and where those factors are distorted (such as through age cheating, corruption, inadequate training and facilities, ineffective regulation or undue government control), the market may not attain its full potential! The market is highly developed and competitive though some may argue that the Spanish Liga resembles de facto “duopoly” (“two sellers only of a good or service in a market”) of Real Madrid and Barcelona until Atletico Madrid broke in this year; the English Premiership is an “oligopoly” (“a market which is dominated by a few large suppliers”) of Manchester United, Chelsea, Manchester City, Arsenal and Liverpool, while the German Bundesliga looks like a Bayern Munich “monopoly” (“a market in which there is only one supplier”), but that characterization may not be wholly accurate since all clubs actively sell or buy players even though the dominant teams tend to buy the most expensive items! *Note*All definitions are from The Economist’s Dictionary of Economics.

Wednesday, July 16, 2014

Football and Global Geo-Politics

I have always believed that strategic minded people can learn a lot from football, and I have previously written a two-part serial “Strategy Lessons from Football” on these pages. That series was later converted into a Business Strategy Technical Note which I used to teach business school classes and executive sessions. In recent years, I have seen further applications of football and sports generally, in economics and the just concluded World Cup has provided interesting insights in global geo-politics which I propose to examine in this article. My hypothesis is that the World Cup and indeed the overall structure of global football mirrors, explains and perhaps also predicts developments in international politics, economics and geopolitical strategy. The structure of global power is well known- Africa is marginal, a provider of raw materials and consumer of global products and technology. Africa’s resources are transferred unprocessed and in crude form to the developed economies and the continent has yet to find a successful, sustainable model for managing itself and transforming the lives of its people and nations. In spite of raw talent and abundant population, Africa sub-optimises. The West, essentially Europe and North America sit at the other extreme of the global power spectrum-dominant and imperial! With arguably lower pools of resources and talents, OECD nations deploy strategy, management, knowledge and technology, as well as an unemotional (you could say Machiavellian, but effective!) deployment of geo-strategic foresight to dominate Africa and the rest of the world. The West has exploited Africa through the ages–slave trade, colonialism, neo-colonialism, the structure of global trade, information and resource flows, and power projection to ensure that it always wins. South America is better than Africa- it has similar resources and human endowments as well as incredible talent, but suffers from the same inferiority complex in relations with the West, and like Africa, it never quite optimises its potential, perpetually missing the goal of global political and economic self-sustainability and leadership. Brazil, Argentina, Mexico, Columbia, Chile, Jamaica, Uruguay are permanently “countries of the future” in global development lexicon, always threatening to catch up and overtake the West, but never quite doing so! Asia is catching up with the West, but hasn’t yet quite turned global leadership or dominance into a habit. Singapore is prosperous, but too small to affect global politics; Japan is strong, but also simultaneously somehow weak and never quite there; ditto South-Korea-successful, but not quite important?; China in spite of newfound global economic power, is still ruled by a communist system that constrains the creativity and self-expression of its over one billion people, except in commerce and manufacturing; India is a growing global economy with a huge population, but culturally inward- looking and isolated… and the Arab world is pre-occupied with religion and conflict, and most of its human potential is repressed and denied opportunity by dictators, tyrants and mullahs! Didn’t the recent 2014 World Cup in Brazil display all of these global geopolitical stereo types? Africa sent five hugely talented teams to the contest- Nigeria, Ghana, Cote d’Ivoire, Cameroun and Algeria. The West Africans dominated the African contingent as Arab North Africa was engulfed in crisis and turmoil… in Egypt, Libya, Sudan while Algeria and Tunisia are just stabilising. The Middle East nations, minus the emerging Persian power, Iran whose pursuit of nuclear power in military geo-strategy mirrors the good account it gave of itself at the tournament, were absent! The South Koreans were enthusiastic and fast, but ultimately fizzled out, as did Japan. As for the African teams, not one fulfilled their early potential – Cote d’Ivoire’s largely talented team collapsed due to a lack of character and unity; Cameroun displayed gross indiscipline and lack of commitment; Ghana in spite of large talents and elaborate showmanship did not go beyond the first round; and both Nigeria and Algeria who did, duly slipped out without much ado in the second. The African teams, just like their countries self-destructed due to corruption, greed, lack of vision, commitment and ambition, weak technological capacity, and poor leadership! And most of the African teams, just like the raw materials and primary products we send into global markets, were made up of players playing mostly in Europe! Then let’s contrast South/Central America with Europe. South /Central America provided 7 out the 16 nations that qualified for the second round – Brazil, Mexico, Argentina, Chile, Costa Rica, Uruguay and Columbia, while Europe contributed six – Netherlands, Germany, Belgium, Greece, France and Switzerland. However, by the quarter finals, the arguably less-talented, but more technically-disciplined Europeans matched the more skilfully-endowed Latin Americans with four teams each. Further consider the four nations that got through to the semi-finals–powerful Germany, the de facto leader of Europe; Brazil the “B” in BRICS and an emerging economic super-power; Brazil’s neighbour and competitor, Argentina whose team included no black man, reflecting its historical effort to wipe out negroes from its history and consciousness; and Netherlands, a peaceful and prosperous European nation with very high standards of living. The display of German efficiency, precision and ruthlessness as they demolished Brazil 7-1 was typical of the “German Machine” and European superiority based on research and strategy, detailed planning and technical depth and industry; Brazil’s collapse was symptomatic of South American uncontrolled passion as emotional desire to win was not combined with tactical discipline and organisation resulting in erratic individualism and ultimately an unmitigated disaster. It is of course consistent with the geo-political dimensions of global football that it was Angela Merkel’s Germany, rather than Cristina de Kirchner’s Argentina that prevailed in the final, exploiting a 113rd minute lapse in Argentine concentration in a game the South Americans should have won in the first half. The Germans were true to geo-strategic form-compact, efficient, focused determined… and victorious. And now that America has realised the importance of football in projecting global power, we can expect intensified Yankee efforts to dominate the sport! And then you can expect the Chinese to follow suit!!!

Wednesday, July 9, 2014

Understanding Ekiti

I like Governor Kayode Fayemi. I think he’s a good man who is in politics with the right preparation and for the right reasons, and I respect his intellect and role in NADECO. I consider him a candidate for socio-political leadership in Western Nigeria and I do not think that his public life is over, especially if he sticks to his inclination to be graceful in defeat and to rise above hurt and disappointment arising from his loss to Ayo Fayose in the Ekiti elections. Unlike many in his party however, I am not very surprised at the outcome. As the elections approached, my informal survey of sources in Ekiti (and I do have several!) yielded surprising outcomes-a large number of politicians in Ekiti are NOT in the ACN/APC, the result of several migrations over time particularly under former Governor Niyi Adebayo, the primaries that selected Fayemi and the exit of Opeyemi Bamidele; APC’s edge didn’t derive from the political class, but ordinary people due to the hang-over of its perceived affiliation with Awolowo’s legacy; given its support base, the party was particularly vulnerable if it alienated itself from the “masses”; many politicians who had left AD/ACN/APC were bitter, with several accusing the group of institutionalizing nepotism and occultism in the state’s politics; many Ekitis had concluded, rightly or otherwise that they were marginalized due to governance by “imported” politicians-Niyi Adebayo (from Lagos!) and Fayemi (from Ghana!!!). Many suggested it would be difficult for Fayemi to win re-election even though initially (before the PDP primaries) names like Dayo Adeyeye and Senator Ayo Arise appeared favourites. This was in spite of Governor Fayemi having governed fairly creditably-I carried out an empirical evaluation based on research and objective cross-cutting criteria on behalf of a socio-political group in the region that confirmed an above-average performance. However voters are not analysts and take “cultural” and emotive factors into account-the power mongering of some of Fayemi’s appointees; open exercise of political power by his wife; popular disaffection with his mentor, Niyi Adebayo; execution of most contracts by contractors from Lagos; the governor’s aloof and “elitist” disposition; alienation of students, workers and teachers; and overall a perception that the government is not aligned with their needs and priorities. They may also have recoiled from a perception, probably wrongly of excessive control from the APC leader, Bola Tinubu who compounded matters by insulting Yoruba Obas. I think the governor also made a severe misjudgment in deploying violence against opponents as the elections drew nearer and the scale of the challenge clearer. Ekiti people are stubborn (I know (!); they are my in-laws!) and would never be intimidated into submission. And then there were macro factors, principally around the APC, its national leadership and political direction. I mentioned earlier that the APC franchise in Ekiti does not derive from the political elite, who are almost equally divided between APC and PDP (and to some extent, Labour), but from its positioning as party of “mekunu” and perceived progeny of Awolowo progressive politics. I suspect Ekiti voters needed to be re-convinced that beyond rhetoric, that progressive disposition remains! I also doubt that Ekiti voters and the wider Yoruba electorate are persuaded of the merits of the de facto alliance with the Fulani aristocracy, which appears to have a dual purpose-restoring Fulani political hegemony and making the APC leaders minority shareholders in national power and resources. It is not evident to Western Nigerian voters that the alliance was concocted on the basis of their interests! These reservations may have been further accentuated by the menace of “Boko Haram” and perceptions that it represents a Northern Muslim strategy to intimidate the country into handing power back! I am a student of strategy whose process can be broken into three simple parts-ascertaining your current state; determining your desired future position; and creating (and executing) a pathway from current state to desired future. Communication is very important in convincing stakeholders on the need for change and the vision, strategy and strategic intent. However all strategy fails if assessment of current status is faulty, and if propaganda, complacency, prejudice, self-interest, over-confidence, arrogance, hubris or sycophancy distorts the strategists’ view of reality! Propaganda is better deployed to aid strategy realization based on an accurate depiction of reality. In my view it is simplistic and counter-productive to insult Ekiti people as having voted on the basis of bags of rice. Yoruba are proud and independent-minded people! If they were inclined to voting on the basis of cheap inducements, they wouldn’t have resisted the NPC/”Demo” alliance in the first republic; or the NPN’s vastly larger war chest in the second! Did the ACN win back the region through bribery in 2011? Didn’t Obasanjo’s PDP have the larger financial resources to outbid the opposition? The Yoruba eat the food of those they love, and when they don’t like you they may take your money, eat your food and snigger behind your back! No politician spent more money than MKO Abiola in the 1979 effort to make his wife, Simbiat an NPN Senator in Abeokuta; she lost her deposit! When he came back in 1993 as a presidential candidate having realigned with the people, they voted overwhelmingly for him! The APC was vulnerable in Ekiti; a popular, populist, rabble rouser was available to exploit those vulnerabilities! The APC is actually lucky that it has advance notice that it may be out of sync with voters in an area it presumes to be in its pocket. If the party does not use the notice period wisely, it may have to invent more creative explanations than “stomach infrastructure” in 2015! Opeyemi Agbaje

Wednesday, July 2, 2014

Letter from Cambridge

I left Lagos on a Virgin Atlantic flight on Friday June 27th. My wife had left the previous morning. I was seated in “premium economy”-the section on Virgin flights where those who would like to fly upper class but can’t afford it are! I have long stopped regarding flying in business class as luxury-it is virtually a necessity especially on trans-Atlantic flights given my work schedule, stress levels and the acute inconvenience sitting in economy has become. I fly business whenever I can afford it, when the trip is business-related (and invariably paid for) or when I’m just too tired to absorb the squeeze of economy. This time I don’t feel rich enough so I go premium economy. An airline official politely informs me she will like to change my seat in order to seat a family together. I consent and move my belongings to the re-assigned seat where I happen to be next to Senior Toye! At Igbobi College once a senior, always a senior(!) even though he was just one year ahead of me more than thirty years ago! When I look back at the seat I left however I find two white men! Were they a family (these days, two 45 year old British men can be a couple!!!) or did the airline play a fast one on me? The young, male, black, air “hostess” is obviously gay and since my friend is wearing a pink shirt, he gets a lot of attention from the steward! I put reflections on the “progress” of western civilization out of my mind and concentrate on the book I’m reading-“Slavery, Terrorism and Islam” by Peter Hammond, and occasional conversation with my neighbor. We duly arrive Heathrow and I refocus on my mission to England. It was a nice and comfortable flight and I make a mental note to fly Virgin Atlantic more often. I had decided to go to Cambridge by coach. My daughter has been at the University of Cambridge for the last three years and is graduating the day after my arrival. She has been a remarkable student-Nigeria’s best student in WAEC School Certificate Examinations in 2009 with straight As in all eight subjects offered; prize winner during her a-levels at probably Britain’s best girls school, Wycombe Abbey; and admission to read law at the venerable Cambridge University. Her graduation is an epoch for our family and we are proud, but most importantly grateful to the one who made it all possible, the Almighty Father. I’m additionally happy because those fees are over for now, at least in respect of Simisola! The coach ride to Cambridge is three hours long, but pleasant. I take note of the towns and villages we pass along the way. I wanted this “last” journey to Cambridge by coach precisely for that purpose. My most memorable trip to America has been the 14 hour drive from New York to Chicago with my elder brother years ago. I arrive Cambridge at night and I join my wife at the local Holiday Inn. Soon my two UK-based daughters join us and we have a family dinner before the graduand leaves for her Cambridge Hall for the last night of her undergraduate years. That night I reflect on the pleasurable coach ride from Heathrow to Cambridge and the 14 hour drive through five US states and wonder why we can’t do the same on Nigerian roads? Why were the roads good throughout the trip? How come we didn’t come across any police checkpoints? Or local government revenue collectors, armed robbers or vast traffic hold-ups? Why can’t we organize our country and our lives in Nigeria and Africa? And why do we have to spend so much money sending our children to school in other countries? I fell asleep very happy at the grace of God upon my family, but wondering why our country has so spectacularly frittered away God’s abundant grace upon our land? And reflecting on God’s scattering of those building the Tower of Babel-Does God by any chance regard Nigeria as a similar tower of man’s vanity? The next morning we join the procession into the Senate Hall at Cambridge, everyone displaying their invitation cards before admittance. Four colleges are graduating students that morning and we are lucky my daughter’s college, Fitzwilliam is going first. I am shocked to find out that we are the only black family in the hall and we are conspicuous in our difference! Simisola is the only black or African of the 150 or so students graduating from Fitzwilliam College and she estimates that perhaps one percent of Cambridge students are black! There are numerous Chinese, Indians, Asians, Jews, Americans and Europeans, but only one African! I have a similar experience when I attend the annual Strategic Management Society meetings in Europe or America-only 3% of attendees are from Africa! I am reminded that Africa is not sufficiently generating the quality of knowledge required to transform the continent, and may be peripheral in global thinking for another fifty years! The ceremony itself is short, but full of history and tradition-students come out in groups of four so that each can hold a finger of the College Praelector, Professor Sir Anthony Bottoms; each student steps forward, bows and kneels before the College Master, Nicola Padfield; who recites a short sentence in Latin admitting the graduate to degrees; and receives the certificate from a nearby official. Each graduate performs this ritual and the ceremony is over-no speeches! We take photographs outside on the lawn and then proceed to Fitzwilliam College grounds for lunch. My younger daughter is passing out from her a-levels studies about twelve days later, so it makes sense to take a family holiday in Paris before returning to Winchester for Fiayo’s school leaving! Unfortunately my son, Tofi misses out-he’s in university in the US taking summer courses.

Wednesday, June 25, 2014

The Emerging APC (2)

I published the first instalment of this article on February 27, 2013 intending to write the concluding parts as the emergence of the All Progressives Congress (APC) fully crystallised. I also made commentaries on the APC in subsequent articles-“Nigerian Political Party System” Parts 1 and 2 (September 18 and 25 2013) and “Person of 2013” (January 15, 2014). I considered my comments on the APC and the political party system as friendly advice, but I do not think the articles made a convivial impact on the recipients judging from the subtle and not-so-subtle responses from the politicians and their “intellectual wing”! In “The Emerging APC” I wrote that “The incipient APC however appears to be the first serious challenge to the PDP’s hegemony-if the planned merger of the ACN, CPC, ANPP and elements from the All Progressives Grand Alliance (APGA) and Democratic Peoples’ Party (DPP) is successfully consummated and the emerging entity is internally cohesive, prospects are that the PDP will face its toughest battle yet in 2015!” hinting at the absolute necessity for the APC leaders not to sacrifice internal cohesion as they sought to build a large party that could challenge the PDP. In the same article I warned that “there will yet be fights over control of party structures and positions; and there will be severe jostling over selection of electoral candidates; the party runs the risk of presenting controversial candidates and inheriting voter prejudices and perceptions”. The recent party conventions (and the earlier entry of the defecting “new” PDP governors has somewhat destabilised several state chapters of the party (Ogun, Kano, Benue, Adamawa, Sokoto, Edo, Kwara, etc.) and aspects of its national structure. I also noted in that article that “the emerging party will face strenuous efforts at sabotage, from outside and within; and it could itself self-destruct!” In “Nigerian Political Party System” Part 1, I wrote that “it is not certain what the merger of all these disparate elements into the APC would produce-the party could re-create a social democratic grouping with progressive credentials or less cheerfully a form of sectarian-populist fascism could emerge.” In this quote, I was already (as far back as September 2013!) anticipating the fact that the emerging APC was making itself vulnerable to charges of sectarianism in its composition and leadership and dissecting the options the group faced as being one between genuine progressive social democracy and what I characterised then as “sectarian-populist fascism”. It doesn’t seem obvious to me (and probably to most objective Nigerians!) that the party chose true social democracy! I stressed this point further asserting that the party “…has a window of opportunity to position itself as qualitatively different from the PDP by focusing on policy and integrity, and putting its best foot forward. It is not evident that APC will do this, as it concentrates on attracting defectors from the PDP and risks pushing unviable options to the electorate.” In my view, the APC has so far chosen the short cut to power rather than the rigourous but sustainable path of building a formidable ideas-based, policy-defined, progressive social democratic party! I subtly lamented this in the second part of “Nigerian Political Party System” thus, “…we are yet to evolve a political party system in its normal characterization in which there are clearly defined parties with contrasting visions, ideologies and policy platforms and with stable membership and programmes. Instead the parties have fluid and fluctuating members... and there is very little discussion around policy and ideology”. Sadly there was no intelligent response, even from the self-characterised “intellectual wing” of the APC! Indeed someone sought to justify the undiscriminating composition of the APC based on the UK Liberal Democrats alliance with the Conservative Tory Party! Let us hope that the outcome of all elections the liberal democrats have subsequently participated in does not predict the fate of the APC! When a party has a base of supporters which it has cultivated based on some ideological standpoint, it cannot presume to still retain that support whenever it has or is perceived to have abandoned that platform without permission or consent of its base! I believe I also expressed (what I later discovered to be) widely-held reservations over the APC’s non-ideological evolution through other less-public mechanisms within the presumed base and support system of the party. I re-assert that view that the APC may be punished by its base for leaving what they may consider to be the substance while chasing elusive shadows (“arodan” I believe is what the Yorubas call such enterprise!). In “Person of 2013” in which I reviewed economic and political developments in the last year, I noted that “politically the most significant development was the creation of the All Progressives Congress, the opposition coalition which, in spite of its many limitations, promises to make our politics more competitive. It is a pity that its success in deepening political competition was probably somewhat undermined by the cynical manner in which it seeks to inherit, through a wholesale political “organ transplant”, the heart and soul of the PDP!” I went further to state that “Asiwaju Bola Tinubu would clearly be the pre-eminent political actor of 2013 forging APC out of disparate interests and challenging PDP’s political hegemony. It is debatable if he hasn’t sacrificed his new grouping’s credibility as a truly “progressive” party in the process and may be taking some of his core constituencies for granted, but his impact on Nigerian political development in this dispensation has been huge.” I hope the APC’s loss of Ekiti in its first electoral test under that brand name (following on its precursor’s similar loss in Ondo) is not the first sign of a political base taken for granted!!!

Thursday, June 19, 2014

The Nigerian SWF

Sovereign Wealth Funds (SWF) are state-owned investment funds typically (though not exclusively) funded through revenues from commodity exports or foreign exchange reserves held by central banks which invest in real and financial assets-stocks, bonds, real estate, infrastructure, precious metals or alternative investments such as private equity and hedge funds. The term “sovereign wealth fund” was reportedly first used in 2005 by one Andrew Rozanov in an article titled, “Who Holds the Wealth of Nations?” in Central Banking Journal, even though such funds have existed for over a century. The number of SWFs has however dramatically increased in the 2000s. While some nations’ SWFs may be said to be discretionary to the extent that they are funded from non-commodity budgetary surpluses and the nations have little or no debt, the logic of sovereign savings is more compelling for nations (such as Nigeria) who are dependent on raw material exports such as oil, copper or diamonds given the volatility and unpredictability of their prices and exhaustibility of the resources. SWFs may thus be for savings, stabilization, economic or even strategic objectives. According to some figures I obtained on-line attributed to the Sovereign Wealth Fund Institute, assets under management of SWFs increased for the fifth year running to over $5.78trillion in 2013 with an additional $7.2trillion held in other sovereign investment vehicles such as pension reserve funds, development funds and state-owned corporations funds, and $8.1trillion in other foreign exchange reserves thus indicating that SWFs and their associated sovereigns potentially control over $20trillion of global investible resources. Many of the major global SWFs subscribe to the “Santiago Principles”-a set of 24 voluntary guidelines jointly formulated by the IMF and the International Working Group of Sovereign Wealth Funds (IWG-SWF) now replaced by the International Forum of Sovereign Wealth Funds (IFSWF). The key objectives underpinning the Santiago Principles are maintaining a stable global financial system and free flow of capital and investment; ensuring compliance with regulatory and disclosure requirements; investing on the basis of appropriate economic, financial risk and return considerations; and ensuring transparent and sound governance, controls, risk management and accountability in SWFs. The Nigerian SWF known as the Nigerian Sovereign Investment Authority (NSIA) was established by an Act of the National Assembly and Presidential Assent in May 2011 to receive, manage and invest in diversified portfolio of medium and long term assets, revenues received from the federal, state and local governments of Nigeria as well as the federal capital territory. The NSIA has an acceptable and sensible fund structure comprising a Nigeria Infrastructure Fund (NIF), Future Generation Fund (FGF) and The Stabilisation Fund (TSF) ensuring that the fund meets economic (infrastructure finance), savings and stabilization objectives. The FGF which pursues savings and growth for future generations receives 40 percent of NSIA funding; same as the NIF which invests in domestic infrastructure projects (including up to 10percent of its funds in social infrastructure in underserved sectors or regions); while TSF receives 20percent of NSIA resources for provision of a buffer against macroeconomic instability. In terms of governance, the NSIA’s 55 person Governing Council represents the ownership and stakeholder groups in the fund-the President, 36 state governors, ministers of finance and national planning, Attorney General of the Federation, CBN Governor, Chief Economic Adviser, Chairman of Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) and twelve individuals representing private sector, civil society, youths and academia. However while the Governing Council and the NSIA board were constituted with regard to the ownership and stakeholders in the Fund, the same cannot be said for its management, especially top management! Unfortunately the NSIA has been bogged down in ceaseless controversy and litigation as the governors remain implacably opposed to its operations and funding. To the best of my knowledge, no additional resources have been transferred to the fund since the initial $1billion seed capital funded from the so-called “Excess Crude Account”. I support the concept of a SWF for Nigeria. As I noted earlier, given our acute dependence on oil and the risk factors consequent thereon-budgets, foreign reserves, exchange rates, inflation and even domestic liquidity and purchasing power are all substantially dependent on oil earnings-sovereign savings are a necessity and not a luxury for Nigeria! However Nigeria is a federation and our SWF must recognize that essence in its fund ownership structure, governance and management. Funds held in the SWF must be held in trust for the owners, with the title to the fund resources clearly ascertainable at all times, and the management of the NSIA must reflect the ownership diversity and interests since there is no doubt that the quality of human resources required to properly manage such a fund reside in all parts of the country. Meanwhile the president and state governors must show the right vision and statesmanship to negotiate a sustainable existence and funding for the Nigerian SWF-a fund of $1billion would not serve the savings, infrastructure financing and stabilization needs of a $510billion economy!

Memo to Godwin Emefiele

I will not attempt to be unduly prescriptive in this memo-you are a first class banker of many years standing and you have worked in one of Nigeria’s most successful financial services groups for over two decades getting to the top thereof. My preferred approach will be to raise issues which I believe you will have to address and suggest what I think the critical variables are. I believe as governor of Nigeria’s Central Bank, you will have every resources at your disposal to enable you set the right policies once the right questions are asked. I will outline first what you are NOT as CBN Governor as recent developments may have obscured the role and implications of that position! You are not a politician, philanthropist or media celebrity! Neither are you a leader of an NGO or social activist. You are supposed to enjoy autonomy from the executive especially in relation to monetary policy and financial sector supervision, but you are not an alternative or parallel government! You are certainly not an ethnic, religious or regional crusader. And you are no longer a staff of Zenith Bank! You are now charged with managing Nigeria’s reserve banking and monetary policy, contributing to its economic development and supervising its financial sector. In this role I believe the key underpinnings are or should be achieving sustainable economic development and diversification; dealing with Nigeria’s socio-economic crisis of poverty, unemployment and inequality; and growing a safe, strong and competitive financial sector that discharges its primary role of financial intermediation and economic development. Given this background, I completely endorse your initiative to focus on employment as a key macroeconomic variable to be tracked by the bank and its monetary policy committee and commend your recognition that growth and employment along with stability perhaps, but certainly not stability alone and for its own sake should be the primary goals of macroeconomic policy in our current context. I also understand why you seek the other objectives you outlined in your inaugural speech-reduced interest rates; strong foreign currency reserve buffers; stable exchange rates; and probably low inflation as well. The problem as I’m sure you understand is that macroeconomic management involves difficult trade-offs and the agenda you have outlined will clearly involve you and the Bank having to make some tough ones, sooner or later! It certainly will be difficult for you to simultaneously reduce interest rates, maintain exchange rates at current levels, and “aggressively” grow external reserves! It is probably impossible so to do! I suspect that you may have to choose which of these objectives you are willing to sacrifice and to what extent in the weeks and months ahead. The substantive questions you have to answer are whether current exchange rates are sustainable and how? What is the cost and opportunity cost of keeping exchange rates and inflation at current levels? Is our reserves management strategy sensible and optimal given that reserves have largely been dissipated to support the currency? How can we boost economic growth and make it more inclusive? What policies within the ambit of the central bank can help generate large scale employment and reduce poverty? I wholeheartedly support your strategy of supporting micro, small and medium enterprises based on the aforesaid. I have for instance advocated that banks and financial institutions may be encouraged to voluntarily (or otherwise!) agree to increase lending to SMEs such that each bank’s lending to that category of borrowers must be equivalent to their share of deposits. I am reluctant however to endorse specific programmes you will adopt to encourage lending to MSMEs until you unveil their details because I am wary of a situation in which the central bank becomes a retail lending institution or active participant in the retail lending process. The role of the bank must in my view be leveraging policy and appropriate instruments to influence the flow of finance to such targeted sectors. In terms of sectors I share your desire to see increased flow of capital into some sectors-power, oil and gas, agriculture, health and manufacturing. My personal priorities are growing housing and mortgages; sustaining and deepening agriculture reforms and manufacturing; and boosting local and international investments in solid minerals, construction and hospitality sectors. I am particularly interested in these sectors in addition to some of those you outlined because of their potential for large scale employment consistent with your priorities. My reservation in terms of not turning the CBN into a primary lender who distorts financial markets (and potentially becomes a source of moral hazard) however applies to whatever mechanisms you decide on for targeting sectors. In relation to sectors, I wonder whether it is within CBN’s remit to consider the competitiveness of our economic sectors as I fear the slow but steady emergence of monopolies and oligopolies within many sectors. I have written of the need for a competition law and policy regime to prevent monopolies and anti-trust behavior in Nigerian markets. I will also suggest that you revisit the merits or otherwise of the Soludo proposal to pay allocations to sub-national entities in foreign currency. With regard to financial sector supervision, I am quite impressed with your resolve to grow sector-specific specialization within the central bank as a tool for improving risk management and supervision in the industry as well as your intention to strengthen risk-based supervision. The most important challenge of the CBN is relation to financial sector supervision is actually to match the high standards the regulator often sets for the industry with equivalent efficiencies and innovation in the bank itself. The other recent trend which I hope you will reverse is the inclination of the last two governors to dictate the strategy of all banks within the industry from the central bank. The financial sector regulator’s role is to impose minimum regulatory standards and enforce them not to standardize firm strategy and create a homogenous and undifferentiated industry!

Maya Angelou 1928-2014

“All my work, my life, everything I do is about survival, not just bare, awful, plodding survival, but survival with grace and faith. While one may encounter many defeats, one must not be defeated” It was Bill Clinton that introduced the world to Maya Angelou in 1993 when she read her poem, “On the Pulse of Morning” at his presidential inauguration. Clinton has been described, with justification, as “the first black President” of America in spite of his evident white ancestry for the compassion and genuine friendship he brought to his relationship with the African-American community during his Presidency. One may in fact assert that Clinton was closer to the pulse of black America than Barack Obama! Maya Angelou’s words that inauguration day were poignant as she connected America’s difficult history of slavery, segregation and discrimination with its promise of unity and reconciliation, “…So say the Asian, the Hispanic, the Jew/ The African and Native American, the Sioux, / The Catholic, the Muslim, the French, the Greek/ The Irish, the Rabbi, the Priest, the Sheikh,…The privileged, the homeless, the Teacher. /They hear. They all hear/ The speaking of the Tree.// You, who gave me my first name, you/ Pawnee, Apache and Seneca, you/ Cherokee Nation, who rested with me, then/ …You, the Turk, the Swede, the German, the Scot .../ You the Ashanti, the Yoruba, the Kru, bought/ Sold, stolen, arriving on a nightmare/ Praying for a dream.//Here, root yourselves beside me.//I am the Tree planted by the River,/ Which will not be moved.//… History, despite its wrenching pain, / Cannot be unlived, and if faced/ With courage, need not be lived again.” Born Marguerite Annie Johnson in St. Louis, Missouri, second child of Bailey Johnson, doorman and Navy dietician and Vivian Baxter Johnson, nurse and card dealer, Angelou was nicknamed “Maya” by her older brother and appeared to derive “Angelou” from an entertainment branding-inspired tweaking of her first husband, Tosh Angelos, a Greek electrician’s name. Her parent’s marriage ended when Maya was 3 years old, and she was sent to her grandmother who exceptionally prospered during the great depression and Second World War. Angelou’s life was a pot pourri of occupations and activities-fry cook, street car conductor, prostitute and Madame, night club dancer and performer, opera cast member of “Porgy and Bess”, coordinator of Southern Christian Leadership Conference (SCLC), journalist and writer in Africa, civil rights and decolonization activist, actor, writer, director and producer, teacher and university professor, author and lecture circuit speaker! According to Wikipedia, a reviewer wrote about Maya Angelou’s eclectic, eventful and complicated life that “to know her life story is to simultaneously wonder what on earth you have been doing with your own life and feel glad that you didn’t have to go through half of the things she had”! At eight she was raped by her mother’s boyfriend who was subsequently murdered, probably by Maya’s uncles. She remained mute for five years, her young mind feeling responsibility for the villain’s death but in that period developed a passion for books and literature, and her ability to listen and observe the world, as well as her exceptional memory. Angelou’s life reinforces the notion that one is likely to learn more by silent observation and introspection. Angelou, who never obtained a university degree, went on to become a reputable author and poet, global personality, professor and recipient of America’s highest civilian honour, the Presidential Medal of Freedom! After the rape, she returned again to her grandmother where she met a teacher and family friend, Mrs Bertha Flowers who helped her speak again and introduced her to the works of Charles Dickens, William Shakespeare, Edgar Allan Poe, Douglas Johnson and James Weldon Johnson and black female artistes like Frances Harper, Anne Spencer and Jessie Faucet. In 1957, Angelou produced her first music album, “Miss Calypso” which inspired a film “Calypso Heat Wave” in which she sang and performed. In 1960 she met Martin Luther King, became SCLC’s Northern Coordinator and acted as a fund raiser and organizer for civil rights causes. She moved to Cairo with a South Africa lover, working as a journalist, and when the relationship ended, to Ghana as an administrator at the University of Ghana and editor and writer. She met Malcolm X in Accra and returned to the US to help him build an “Organisation of Afro-American Unity” but sadly Malcolm X was assassinated shortly thereafter. In another tragedy, Martin Luther King Jnr was killed on her 40th birthday in 1968 after she had teamed up with him. Maya Angelou wrote seven autobiographies-“I Know Why the Caged Bird Sings” (1969); “Gather Together in My Name” (1974); “Singin’ and Swingin’ and Getting Merry Like Christmas” (1976); “The Heart of a Woman” (1981); “All God’s Children Need Travelling Shoes” (1986); “A Song Flung Up To Heaven” (2002); “Mom & Me & Mom” (2013). She also wrote several books of essays, poetry, two cookbooks, many plays, movies and TV shows and received by some reports up to 50 honourary doctorates. In 1981 she became a university teacher at Wake Forest University, Winston-Salem, NC and lifetime Reynolds Professor of American Studies. President Obama awarded her the Presidential Medal of Freedom in 2011. She earned several Grammys, Pulitzer and Tony nominations, a National Medal of Arts and a Lincoln Medal. In spite of poor health and advanced age, she was working on another autobiography focused on her experiences with national and world leaders when she died on May 28, 2014 at 86.

Wednesday, May 21, 2014

The Evolution of Boko Haram (3)

This columnist has written at least six articles dedicated to “Boko Haram”-“The Evolution of Boko Haram” Parts 1 and 2 on February 1 and 8, 2012; “Johnnie Carson, the US and Boko Haram” on April 18, 2012; “The Malian Jihad” on January 23, 2013; “The Politics of Boko Haram” on April 10, 2013; and “Amnesty and Emergency” on May 22 2013 and other articles treating the issue in part and on social media. Through all these, my position hasn’t changed-the phenomenon has religious, political, economic, social, military and global dimensions and appeasement is unlikely to resolve the crises. Boko Haram (BH) is motivated by extremist religious ideology and seeks to overawe Nigeria’s secular constitution in favour of an Islamic Caliphate governed under fundamentalist Sharia. Socio-economic conditions in the North generally and North-East in particular facilitate religious demagoguery-poverty, unemployment, illiteracy and ignorance, decades of tolerance for sectarian politics combined with hegemonic aspirations and an inclination to deploy violence for political ends, and a large, “un-parented” and uneducated youth population bereft of skills and employability whose only social conditioning has been through a bankrupt “Almajiri” system. National politics since 1999, particularly demise of late President Yar’adua and the regionalized 2011 presidential contest encouraged a climate suitable for transmutation of what was until 2011 a localized band of religious miscreants with links to regional politicians into a national terrorist organization with the objective of destroying an unwanted presidency. Given these facts, the debate over whether Boko Haram is religious, political or otherwise is silly, nonsensical and pointless! The group is explicitly religious, has patently political objectives, exploits abject socio-economic conditions and weak governance, and is able to leverage a politico-religious narrative of marginalization of faith and region! The US and Western nations have been in denial regarding BH and made utterly faulty and escapist diagnosis and prescriptions for resolving the matter-Johnnie Carson wanted Nigeria to appoint more “Northerners” to “important” positions (unaware (?) that except for the presidency (which they had until then disproportionately dominated), Northern Muslims occupied many of the most important positions in the land-Vice-President, ruling party chair, Chief Justice, Representatives Speaker, CBN Governor, Ministers of Defense, FCT, Foreign Affairs and Education, NSA, Inspector General, Attorney General, Head of Service, Court of Appeal President etc.) and to create a Ministry of Northern Affairs; Hillary Clinton refused to designate Boko Haram a Foreign Terrorist Organisation (FTO) on the faulty logic that doing so would alienate the North (curious given official Northern position that the group represented neither Islam nor the North); and Obama and Cameron tried their best to pretend not to notice BH even when it bombed the UN office in Abuja, Churches, newspaper houses and markets! Till date we retain several wrong assumptions about Boko Haram-that most of the terrorists are infiltrators from neighbouring countries-Niger, Chad, Cameroun, Mali, even Somalia etc.-but the more empirical observation may in fact be that Nigeria is now the epicenter of a West and Central African terrorist network that may in future destabilize other countries. I will not be surprised to find for instance, that the inspiration, funding and logistics for the failed Jihads in Mali and Central African Republic may have partly or substantially emanated from Nigeria. No one doubts that BH has now linked up with Al Qaeda and Somalia’s Al Shabab! Another error has been discussing “Boko Haram”, “Ansarul” (the Malian-related, more internationally-focused brand of Boko Haram) and “Fulani Herdsmen” (the domestic terrorism franchise for the Middle-Belt of Nigeria) as though they were separate groups! Recent evidence confirms as I have always suspected that all are one and the same! Two other facts are evident-the Nigerian state will be wise to investigate the linkages to Sudan in Nigerian terrorism. The media expose by a retired ambassador, Bola Dada and the recent escape of Nyanya bombing suspect, Aminu Sadiq Ogwuche to that country suggests that Sudan plays a significant role in nurturing Nigeria’s Islamic fundamentalists!!! More troubling is the likelihood that elements in the armed forces and security services may be involved in sabotaging operational strategies and information in the war against BH! Nigerian soldiers evidently believe so, going by the mutiny against the now withdrawn GOC in Maiduguri, Major General Ahmadu Mohammed!!! The internationalization of the “war” against BH in the aftermath of the Chibok school girls’ abduction and involvement of US, France (which thankfully achieved a breakthrough in regional cooperation incorporating Nigeria, Cameroun, Chad, Benin and Niger), Britain, China and Israel may be useful in addressing the problem. On the other hand, the development may signal the weakening of the Nigerian state and its possible decline! The critical question Nigeria and the international community avoids confronting is “who provides the funding and logistics for Boko Haram, Fulani Herdsmen and other terrorists groups operating in Nigeria?” Does anyone really believe that “Imam Shekau” is the “leader” of the group that has been tormenting our nation for the past three years? (I am inclined to the DSS position that Shekau is a “title” and “identity”, just like “Abu Qaqa” and is really a dispensable image rather than substantive leader) How does Shekau, who operates in the border regions of the North-East record and upload his videos and transmit them to AFP? How do the Hilux vans, rocket launchers and arms and ammunition deployed by Boko Haram get to Shekau and his men? We know where the foot soldiers of Boko Haram are, but who are the brains and wallets of Boko Haram, and where are they? While we ponder these questions, Nigeria’s President Jonathan confirms that Boko Haram has now killed twelve thousand innocent citizens!!!

Wednesday, May 14, 2014

Chibok, WEFA and #BringBackOurGirls

In the wake of GDP rebasing, what was meant to be Nigeria’s “coming-out party”, the World Economic Forum for Africa (WEFA) held in Abuja from May 7-9, 2014 was over-shadowed by Nyanya bombings 1 and 2 on April 14 and May 1, and the global #BringBackOurGirls campaign over the 234 Chibok school girls abducted by “Boko Haram” also on April 14. What could have been our moment of glory became less glory and more embarrassment due to a combination of cynical deployment of “political terrorism” and government naivety and incompetence. President Jonathan’s governing credibility suffered massive domestic and global erosion and his administration was left looking callous, insensitive and detached from reality! The Nigerian government’s shocking tolerance (even inoculation borne out of timidity, political naiveté and apparent internal sabotage) and ambivalence for terror, kidnapping and death by “Boko Haram” and “Fulani Herdsmen” since 2009 came home to haunt at its most vulnerable moment-with global media attention focused on Nigeria for WEFA 2014. The sensible hypothesis has to be that terror was deployed as an instrument of political strategy in Nigeria and an out-of-touch and distracted government fell right into it! Government dithered and vacillated over appropriate responses to Boko Haram terrorism when it started in 2009 and only after 4,000 people were dead years later, and massive destruction wrought by the bloodthirsty terrorists that a state of emergency was declared in the North-East in May 2013. At a point the Nigerian government was actually persuaded (along with the US State Department under Hillary Clinton) that its best interest was served by not designating Boko Haram a Foreign Terrorist Organisation (FTO) apparently on the contradictory logic that doing so would alienate the North from the Nigerian and United States governments. That logic made no sense since leading Northerners had stressed over and over again that Boko Haram represented neither Northern Nigeria nor Islam! It was only after severe escalation and Clinton left the State Department that the US declared the terrorist group a FTO! Ditto “Fulani Herdsmen” which killed thousands across central Nigeria for several years before a serious military onslaught was authorised just weeks ago! In 2014 alone, Boko Haram has murdered an estimated 2,000 additional citizens plus a rising death toll from mysterious “herdsmen” who carried AK 47s and in at least one case in Benue State, allegedly chemical weapons! The combined casualty from both groups (the military now say they were really one group (!) which like a multi-product company adopted two different brands for different geographical markets-“Boko Haram” in the North-East and “Fulani Herdsmen” in Central Nigeria) may now have topped 10,000 unfortunate Nigerians in less than five years!!! In the particular case of the Chibok schoolgirls’ abduction, it seems evident that security agencies convinced the Presidency that the abduction may have been an opposition (Borno State Government) hoax to stop its Kano PDP rally and derail its political momentum prompting initial nonchalance and absence of a robust military response. It also appears that the military may have been (deliberately?) tardy in its response perhaps an indication of frustration over perceived politicisation of terrorism and may have subtly ignored Chibok to demonstrate its unhappiness, except of course if the army simply lacked the men and materials to respond appropriately. The President’s comments in his media interview two weeks after the abductions; his wife’s public comments; and statements by leading government people, including Akwa Ibom Governor Akpabio all suggest they were not convinced an abduction really took place. No one expected the matter to degenerate into a global campaign! Today there seems to be no doubt that 276 girls were actually captured by the Islamic terrorists and 234 remain unaccounted for. It also seems clear that the abducted girls were predominantly if not entirely Christians while most of those who were reported to have “escaped” may have been Moslem girls released by the terrorists. The saga raises questions about the integrity of our security infrastructure and the quality and veracity of intelligence and information reaching the presidency. It also calls to question the role of the National Security Adviser, Inspector General of Police and Defense Minister, as well as army GOC in the region in compromising the safety and security of our citizens and bringing this country to global disrepute. The President in particular has been advertised on the global stage as “derelict” in his responsibility to protect our citizens and his global reputation has been greatly dented. It remains to be seen how #Chibok234 and #BringBackOurGirls will affect the 2015 elections, but it is clear that President Jonathan may have lost a “few” votes. On the other hand, elections are still several months away and he can still win some back! Beyond the unfortunate Chibok affair, the WEFA Abuja 2014 appears to have gone reasonably well in the circumstances. Global investors will shrug off outrage over the Chibok affair and quietly continue investing (in Southern Nigeria (!) unfortunately, until terrorism ends) while aid money will accelerate the trend towards the Northern half. According to news reports, 1070 business and political leaders from 70 countries attended WEFA with the Chinese pledging additional $10bn credit (totaling $30bn) plus additional $2bn in China-Africa Development Fund (totaling $5bn) and a coastal rail project in Nigeria; development partners committed $2bn into Nigeria’s power sector; and agriculture commitments for Nigeria reached $4bn. For now however, the priority must be ensuring that each and everyone of the 234 girls who remain with Boko Haram are returned to their families.

Wednesday, May 7, 2014

The Ironsi Syndrome (Repeat)

General J.T.U Aguiyi-Ironsi the unintended beneficiary of Majors Ifeajuna and Nzeogwu’s abortive coup of January 15, 1966, took power largely unprepared for its political and administrative implications. Outside the barracks and battle-field, he was out of his elements! Adewale Ademoyega in his book, “Why We Struck” wrote that Nzeogwu and himself quickly christened Ironsi’s a “do-nothing government”, described him as “non-revolutionary and reactionary” and noted that Ironsi’s primary governing strategy was the “ill-conceived notion of placating the Northerners”. His job admittedly wasn’t easy given prevailing circumstances! Max Siollun in “Oil, Politics and Violence: Nigeria’s Military Coup Culture 1966-1976” noted “as the pattern of killings in the January coup emerged, Northern soldiers became increasingly enraged by the murder of their two most senior politicians…and their four most senior soldiers by Igbo officers”. Being Igbo, Ironsi betrayed guilt complex in relations with the North and resorted to appeasement. Siollun documented Ironsi’s dilemma-“if Aguiyi-Ironsi bowed to Northern pressure and immediately tried the Majors, he would face a backlash from Southern officers, many of whom held sensitive military posts. If he went with Southern opinion and released them, he might be faced with a mutiny by Northern soldiers…Aguiyi-Ironsi was caught between the proverbial rock and a hard place…it proved impossible to keep both sides simultaneously content.” Both Lt. Col David Ejoor and “Black Scorpion” Benjamin Adekunle also stated they didn’t envy Ironsi’s position! Ironically even though Ironsi’s Supreme Military Council (SMC) eventually scheduled public trial of the mutineers for October 1966, he would be dead and buried before then! Ironsi appointed relatively junior Lt. Colonel Yakubu Gowon as Army Chief of Staff “based on a desire to redress the imbalance caused as a result of the killings of officers of Northern origin” but “however his good intentions were mistaken in certain quarters and he was seen as a weakling who sought to over-appease the Northern elements in the army and by implication, the Northerners in general” (General Phillip Effiong, Ojukwu’s eventual deputy in “Nigeria and Biafra: My Story”) Brigadier Ogundipe had been under the impression that he was summoned back from abroad to head the army and was initially unsure what his responsibilities at the “Supreme Headquarters” were. Effiong says, “in retrospect, it could be argued that this (Gowon’s appointment) was Ironsi’s palpable mistake”. Ironsi also appointed Kam Salem as Police Inspector General and M. D Yusuf as Head of Police Special Branch (Intelligence) placing his entire security in Northern hands!!! Ironsi’s personal orderly and bodyguard and one of his ADCs were also Northerners! In spite of appeasement however, Northern anger rose, rather than ebb! Apart from a desire to see the mutinous officers punished, the North was incensed by two other Ironsi decisions-planned rotation of military governors and battalions, and the infamous Decree 34 which purported to unify the civil services of the regions and federation. Even though all members of the SMC took part in these erroneous decisions, Northern leaders took it as Ironsi’s Igbo conspiracy to enslave the North! According to General Alexander Madiebo, General Officer of the Biafran Army, (“The Nigerian Revolution and the Biafran War”) “the plot to overthrow General Ironsi’s government was slow, deliberate and systematic” and Siollun concurs that “plotting by the Northern officers was carried out almost openly” with Lt. Colonel Murtala Muhammed, then Inspector of Signals and Majors Martin Adamu and Theophilus Danjuma as leaders. Danjuma and Lieutenant Walbe were part of Ironsi’s security detail!!! Madiebo believes that the plot was hatched at Ahmadu Bello University and executed by academics, civil servants, politicians and military officers of Northern origin. Madiebo agrees that Ironsi “aspired to rule successfully by compromise. For this reason, he tried to placate those who sought to destroy him and took no action on various substantiated reports available to it concerning plans to overthrow it”. Many senior Northern officers openly called for a coup, particularly Murtala Muhammed and Hassan Katsina. Muhammed openly called Ironsi a “fool” and Katsina declared that when Northerners were ready for their own coup, it would be very “bloody indeed” and conducted in broad daylight! Northern participants at a platoon commanders’ course in Kaduna (including one Lieutenant Abacha!) sent an anonymous letter to Gowon warning senior Northern officers to act or else they would; restiveness of Northern rank and file prompted a security review led by Ogundipe but no pre-emptive action was taken. A meeting of Emirs and Chiefs in June 1966 demanded abrogation of Decree 34 and return to the pre-coup regional status quo; punishment for participants in the January coup; and no investigations must be conducted into the May 1966 riots in which up to 3,000 Southerners were killed. These demands demonstrated that Ironsi’s emboldened adversaries now recognised he could be pushed around without consequences!!! On June 19, 1966, based on very credible reports of an imminent coup, Madiebo rushed to Lagos to inform Ironsi, who responded by inviting Gowon, Kam Salem and MD Yusuf to listen to Madiebo’s account. The three gentlemen naturally denied the report and Madiebo was chastised for rumour-mongering! In Madiebo’s words, “Ironsi had lost his last opportunity to survive by asking the very people who were alleged to be plotting to overthrow him to investigate their plot and report to him”. By July 29, 1966, Ironsi was dead and Gowon succeeded him!!! *Columnist’s Note-This article was first published on July 25, 2012. It is repeated by inspiration.

Wednesday, April 30, 2014

Negative Scale

In economics, scale is implicitly assumed to be a good thing-when economists talk about “economies of scale” they refer to “factors that cause the average cost of producing a commodity to fall as output of the commodity rises” (Dictionary of Economics-The Economist) as the marginal cost of producing additional items falls. They may be talking about “internal economies” which accrue to firms due to technological factors such as large fixed plants and machinery, specialization, research and development or non-technological factors such as market power in procurement, inventory management or distribution; or “external economies”-ancillary services of benefit to all firms in an industry e.g. availability of skilled labour, infrastructure, supply chains, business associations or clusters etc. Scale economies are often presented as the explanation for predominance of large firms in contemporary global economies. However economists have also developed the concept of “diseconomies of scale”-the “increase in long –run average costs which may set in as the scale of production increases” (op cit.) due to differing optimum scale of different processes within a production process; problems of administration and coordination; and logistics and/or other costs which may offset scale economies of production at large production facilities. In short (and this is somewhat counter-intuitive but true), there can be too much of every good thing, even regarding economies of scale! Business and military strategists have similarly traditionally assumed that scale is always a good thing-the expectation being that the bigger firm will prevail in competitive markets or that the bigger army will defeat a smaller army. Both of these assumptions have been proven to be wrong with Clayton Christensen’s theory of disruptive innovation been an implicit acknowledgement of the ability of nimble innovative “disrupters” to change the industry’s power structure and the Vietnam war reminding strategists that a smaller, well-motivated and well-led army may deploy asymmetric strategies and defeat better-equipped and larger armies. The Bible of course records the epochal defeat of the Philistine giant soldier, Goliath by David! This article is however based not strictly on economics, business or strategy, but around my observations about a peculiarly Nigerian phenomenon which I have characterized as “negative scale”! In Nigeria, we do not solve problems or deal with difficult issues until they attain “negative scale”!!! Anyone familiar with the state of telecommunications services in Nigeria before 2001 will understand why telecommunications sector reform was by-and-large uncontroversial. For fifty years or more, we had a telecommunications monopoly that provided at the most 400,000 telephone lines for a country of 100 million people…yet we managed! We paid exorbitant amounts to secure those fixed NITEL lines and the “090” mobile phones of its mobile subsidiary MTEL, yet we adjusted; some of our people even carried Thuraya satellite phones (and felt they had by so doing elevated themselves above the rest of us) …yet we persevered! Then one day the NITEL exchanges started catching fire-Ikeja, Apapa, Lagos…etc. The matter had attained negative scale and we moved to solve the problem. Why did we have to wait until the power sector situation became completely untenable before we wrote the power sector policy in 2001; enacted the Electric Power Sector Reform Act four years later (!); and suspended its implementation till 2010 before President Jonathan launched the Power Sector Roadmap? Of course because the matter had to reach negative scale before a minimum consensus could be agreed on what to do about it! Why have we waited until public education and health services completely collapsed before we thought it was necessary to do something serious about it? Indeed some will argue that we are yet to react to the state of education and healthcare in Nigeria with the kind of emergency responses the situation really calls for-did we not notice when the pass rate in schools certificate exams fell to 70%... 65%... 60%... 55%... 50%... 45%... 40%... 35%... 30%....why did we wait until the situation had become completely equivalent to a failed education sector before we started responding? How come no one noticed when the poverty rate in Nigeria moved up from less than 30 percent to about 70 percent over a three decade period? How come until youth unemployment officially approached 40% did policy makers begin to talk about unemployment? Do we have to have an insurrection before our elite realize that current inequality and social exclusion is probably unsustainable? Why have we generally ignored the failures in infrastructure, security, healthcare, civil service, unemployment, poverty, policing, and other areas of national life until they reached “negative scale”? It is the way we have reacted to “Boko Haram” and “Fulani Herdsmen” that best illustrates the incapacity of the Nigerian political leadership and economic elite to forge consensus and take action on any matter, no matter how grievous until the matter attains catastrophic levels! The Nigerian government did not impose a state of emergency on the North-East epicenter of “Boko Haram” until the terrorists had killed over 4,000 people and crimes against humanity were officially proclaimed by the International Criminal Court. The opposition scarcely commented on “Boko Haram” during the first three years of the terror upsurge except to seek political advantage therefrom and even opposed imposition of emergency rule in the region. Until a few weeks back, the Nigerian government tried its best to ignore the curious and deadly phenomenon of so-called “herdsmen” who carried AK47s, committing ethnic cleansing and genocide as they killed people across the entire central Nigeria and beyond in 50s and 100s! Perhaps Nigeria itself is an example of “diseconomies of scale” or in my peculiar characterization, “negative scale”!!!

Wednesday, April 23, 2014

Biblical Economics

How consistent or divergent is the Bible with conventional economics? Are there coherent theories around economics and finance in scripture that could be applied to modern society? I suggest that at least ten fundamental principles of “Biblical Economics” can be identified:- God is the source of economic prosperity: The Bible affirms (in Psalms 24: 1 and 1 Corinthians 10: 26) that “The earth is the LORD’s, and the fullness thereof…” and in Deuteronomy 8: 18, “But thou shall remember the LORD thy God: for it is he that giveth thee power to get wealth…” The implication of this is that prosperity is sustained only on God’s conditions-“seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you” (Mathew 6: 33). What then will we make of the reality that wealth is more likely to be obtained from the evil sources in today’s economy? The Bible implies that while wealth procured from evil means may bring anguish and lack sustainability, “The blessing of the LORD, it maketh rich, and he added no sorrow with it” (Proverbs 10: 22). The Bible counsels against undue materialism-“the love of money is the root of all evil (1 Timothy 6: 9-10) warning that “no one can serve two masters;…You cannot serve God and mammon” (Mathew 6: 24). Abundance not Scarcity: While contemporary economics is founded on the notion that resources are limited and scarce, the Biblical view is that God cannot be limited-he is the sovereign God who created all things, and who can do all things and can give his children all things! When God put Adam and Eve in the Garden of Eden, they lacked nothing and had all things in abundance, until they disobeyed and brought scarcity into the world. With the recompense of Adam’s sin by Jesus Christ, Christian believers could operate under a revived dispensation of abundance since God can add “all” things once his “kingdom” is obtained. Jesus Christ declared “I am come that they might have life, and that they might have it more abundantly” (John 10: 10) and Ephesians 3: 20 proclaims “Now unto him that is able to do exceedingly abundantly above all that we ask or think…” Stewardship of Talents and Resources: If God gives abundance and wealth, rather than our cleverness or dexterity, we are necessarily “trustees” of that wealth for HIS higher purpose. Christ’s parable of the Talents implies that our resources and talents are held as stewards with a concurrent responsibility to manage them to the benefit of the Kingdom. While God could and did give everything, we are “to lay up for yourselves treasures in heaven” i.e. our worldly possessions were less important than our souls and after-life and “from everyone who has been given much shall much be required” (Luke 12: 48). Sowing and Reaping: In Genesis 8: 22, a fundamental economic principle is established-“As long as the earth endures, seedtime and harvest…will never cease”! I have argued that this is the source of economic cycles-boom and bust; growth and recession seasons that recur persistently in human economies. The most popular example comes from the Bible itself-the seven years of plenty and then famine in Joseph’s Egypt. Man stands to profit from understanding economic cycles, macroeconomic principles, and political economy! While the Israelites benefited from the economy of seasons, they suffered for not projecting political scenarios-for then arose in Egypt, a King who knew not Joseph!!! This principle establishes the nexus between actions and consequences-hard work and success, policies and development outcomes, investment and prosperity, and socio-economic behavior and social conditions. Five Causes of Poverty-Laziness, Trial, Punishment, Social Injustice or Affliction: The Bible prescribes diligence and skill as (ant)idotes to poverty (Proverbs 10:5, 12: 11 and 12: 24). There are numerous scriptures in which poverty is the consequence of slothfulness-“He becometh poor that dealeth with a slack hand: but the hand of the diligent maketh rich…” (Proverbs 10: 4-5); “…a little sleep, a little slumber, a little folding of the hands to sleep: So shall thy poverty come…” (Proverbs 6: 10-11); Job’s life is evidence that it could be trial from God; Deuteronomy 28 suggests that a man’s “field”, “basket” and “store” could fail due to God’s sanctions; several scriptures imply poverty could become widespread because the rich and powerful oppress the poor; and people could be poor because of diabolical powers and spiritual wickedness in high (and low) places! Spiritual Blessings, then Physical Wealth: The Biblical perspective is that God first ordains things spiritually before they are manifested physically. King Solomon’s wealth was preceded by a promise from God; same with Abraham, Isaac and Jacob-it is the blessings of the Lord that “maketh rich”. Economics has a rather different sequence though not composition-wealth is a consequence of the correct application of the “factors of production” and wealth then results in human satisfaction. Giving Precedes Receiving (More): Acts 20: 33-35 says “It is more blessed to give than to receive” and 2 Corinthians 9:7 proclaims (to the joy of Church treasurers!!!) “God loves a cheerful giver”! Throughout the Bible, God rewards those who sacrifice their possessions-Abraham and Solomon being prominent examples Save and Invest: The Bible urges Christians to save-“Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” Ecclesiastes 11: 2 (See also Proverbs 6: 6-8 and 21:20). The essence of the parable of the talents however is that saving is not enough, investment is critical. Christians are counselled to take investment risk-“cast your bread upon the waters…” (Ecclesiastes 11: 1), based on wisdom, knowledge and understanding as well as the grace and leading of God. Our women must invest too-“she considers a field and buys it; from her earnings, she plants a vineyard” (Proverbs 31: 16) Leverage What You Have: The most important question potential entrepreneurs ask is how do they know what business they should go into? My “consultant’s prescription” is same as the Bible’s-“What is that in your hand?” as God asked Moses! I typically urge people to start from what they know, love or are passionate about, their “hobbies” even. The Bible says “whatever your hands find to do, verily do it with all your might” (Ecclesiastes 9:10) Obey God’s Laws and Keep Your Hands Clean: The Bible expresses a causal relationship between obedience (to God’s commandments) and success, and disobedience and failure. There are specific stipulations in the Bible that relate to economics, business and finance including repaying your loans (Psalm 37: 21; not lending to the poor and brethren at punitive or excessive interest rates (Proverbs 28:8); avoiding guaranteeing debts (Proverbs 11: 15 and 22: 26-27); refraining from hoarding and excessive profits (Proverbs 11: 26); not engaging in bribery and corruption (“oppression makes a wise man mad, and a bribe corrupts the heart”-Ecclesiastes 7:7 and Amos 5: 12); paying taxes (Mathew 22: 17-21 and Romans 13: 6-7); paying employees’ wages promptly (Deuteronomy 24: 14-15, Leviticus 19: 13 and 1 Timothy 5: 18) and avoiding false measures and fraud (Proverbs 11: 1 and 20: 10, Leviticus 19: 35).

Wednesday, April 16, 2014

The Socio-Political Christ

The natural tendency of people is to isolate Jesus Christ as a spiritual phenomenon. However he lived as a human being within a family and society, and in a polity in which there were rulers, governors, judges, the practice of politics and the exercise of political power. Given that Jesus Christ was offered to us as a complete and comprehensive example, there must be socio-political aspects of his life from which we can draw lessons and inspiration even for these contemporary times. Easter offers us an opportunity for reflection on this intricate issue in addition to our celebrations of the death and resurrection of the author of our faith. The first thing that strikes me in the context of this discussion is that the powerful people in his society always tried to destroy Jesus Christ-and this was right from his birth, even before he uttered his first words in ministry! When Herod heard from the three wise men about the birth of someone who was “born King of the Jews”, the Bible records that he was “troubled” and devised a scheme to kill the young messiah and indeed ended up massacring innocent babies in an attempt to truncate the life of Jesus. Why would a King be “troubled” about the birth of a child, except that he immediately understood that the Kingdom foretold would threaten his power base. This opposition from the “powers-that-be” dogged Christ all through his life and indeed led to his crucifixion. What that tells me is that because darkness and light, according to scriptures are irreconcilable, a true Church which is fulfilling its divine mission will always face opposition from the kingdoms of the world. The converse of that may be that any Church which persistently receives the approbation of corrupt kings and powers must ask itself whether it is fulfilling the mission of the father! Another obvious insight from Christ’s life and work was that the focus of his ministry was the “multitude”-or what you may describe in today’s language as the “masses”! He was not unduly focused on the rich and powerful, indeed asserting that it was easier for a camel to go through the eye of the needle than for a rich man to enter the Kingdom of God! He was driven by compassion for the poor, sick, broken-heated, weary, weak and vulnerable-that is why he fed the five thousand; healed the sick; raised the dead; delivered the afflicted; and restored hope to the distraught and helpless. His beatitudes is perhaps his most recognized “mission statement” and it reveals very clearly his “target audience”-“Blessed are the poor in spirit…Blessed are those who mourn…Blessed are the meek…Blessed are those who hunger and thirst for righteousness…Blessed are the merciful…Blessed are the pure in heart…Blessed are the peacemakers…Blessed are those who are persecuted for righteousness’ sake…” If Jesus Christ lived in Nigeria today, there is no doubt who his focus will be-the 60-70 percent of our people living in poverty; the 25 percent of our people who are unemployed; the millions who can’t afford a good education, decent healthcare and the simple pleasures of life. His friends were the under-privileged-fishermen, artisans, women (in that time, women were a marginalized group), children and young people (“let the little children come unto me; for theirs is the Kingdom of heaven”), despised people like tax collectors, sinners, those delivered of witchcraft (!), even the convicted thief obtained Christ’s friendship right on the crucifixion ground! Jesus famously declared that he came not to those who were upright and therefore not in need of salvation, but to the sick who needed healing. Of course the dominant theme of his life’s work was love, charity, fellowship…for him the great commandment of all was to love God with all our heart, soul and mind…and the second was to love our neighbours as ourselves! Jesus Christ would have been saddened by wars, terrorism, murders, ethnic and religious warfare and all other divisions that arise out of the absence or deficit of love. The parable of the Good Samaritan suggests that even though Christ did not necessarily seek to abolish nationalities and peoples, he envisaged the possibility of universal love and brotherhood and the prospect of peace and reconciliation between “Jews and Gentiles”! Yet as much as Jesus espoused peace and reconciliation, he was also a revolutionary and the powerful people in his time considered him a “troublemaker”! He himself declared, “Do not think I came to bring peace on earth. I did not come to bring peace but a sword”! He drove out the traders and thieves from the temple; he railed against the Pharisees and other “principalities and powers” of his time; he had little patience for the hypocrisy and false piety of the religious people and was loud in his condemnation of the social, political and religious establishment. I have no doubt that if Jesus Christ suddenly emerged in Nigeria today, some of our religious elite will not recognize him and would promptly reach an alliance with the politicians to crucify him a second time! Jesus was a strong leader, though he was not a politician. People voluntarily submitted to him-John the Baptist who could have argued that he came earlier; the twelve disciples who had no apparent reason to follow an unknown carpenter; the 70; his followers; the large multitude; and through the ages to this day, the Church. The life of Jesus Christ illustrates the fact that true leadership is not based on power, wealth, or position, but influence. He taught his disciples that “whoever desires to become great among you, let him be your servant” establishing the principle of servant leadership. He also re-inforced the concept of rule of law (“I did not come to destroy the law, but to fulfil it”) and instituted the separation of Church and State-“Render therefore to Caesar the things that are Caesar’s, and to God the things that are God’s”.

Wednesday, April 9, 2014

Nigeria Vision 26: 2013

Nigeria’s “Vision 2020” goal was to become one of the top twenty global economies by output measured by gross domestic product (GDP) by 2020. For some time now, it hasn’t seemed as if Nigeria would achieve that seemingly audacious objective given that we lost some time to a period of economic inertia under Yar’adua and then entered the 2011 elections cycle before policy settled down a bit under the substantive Jonathan presidency. Well now, the recent GDP rebasing exercise means that by mere statistical adjustments and better measurement of our economic activity, Nigeria has become the 26th largest economy in the world and biggest African economy by 2013, and may now be on course to our Vision 2020 target considering our GDP growth rate post-rebasing averaging 6.4%. GDP rebasing does not imply any increase in national income and productivity. Indeed GDP contrary to lay men perceptions is not a measurement of income, but of economic output and production within an economy. GDP rebasing doesn’t alter our current poor performance in terms of poverty, unemployment and inequality. If a family was poor before the rebasing, it remains poor; the fellow who did not have a job, remains without one; and our wide inequality between the rich (indeed very rich) and the poor persists. In short GDP rebasing doesn’t change the material conditions of individuals, homes and firms within the economy. What the rebasing however does is to give us a more accurate picture of the current state of our economy. It presents a more credible and contemporary report of the state of sectors and overall activity within the economy. Indeed Nigeria’s GDP rebasing clarifies some previously unresolved incongruities in our economy-for instance why the large global telecommunications companies and sector analysts under-estimated the potential depth and size of the sector pre-digital mobile license auction in 2001or why per capita GDP appeared somewhat larger than previously thought. I do not see why Nigeria’s GDP re-basing should attract any controversy. It is a commonsense measure consistent with global best practice that simply updates our assumptions and templates for measuring our level of economic output. Continuing to use a base year of 1990 to quantify output in Nigeria contrary to global convention of rebasing at least every five years would have been irresponsible and incompetent. On the other hand, no one earns any plaudits for merely re-basing GDP just like no one receives commendations for using a time piece that correctly tells the time! I also do not see why anyone should politicize the exercise, positively or negatively. We simply now know the reality about the size of our economy, which is a good thing. Having said that, there are potential benefits from the GDP rebasing generally and in the particular context of Nigeria-we would now have better economic data for policy analysis and planning. The size and global ranking of Nigeria’s GDP means we acquire increased strategic stakes within the context of the global economy, for instance the case for Nigeria being a BRINCS (Brazil, Russia, India, NIGERIA, China, South Africa) economy is probably compelling in the light of us becoming a $510billion economy. The fact that there is more accurate information about sectors and output is good for potential investors, and I mean both international and domestic investors. Financial markets would probably take more interest in the Nigerian economy given our new GDP figures and there are benefits of size (and strategic stakes) in the real politick of global economics, finance and diplomacy. Note however that I said “potential” benefits-GDP rebasing on its own will not deliver these benefits; we will have to position policy and the investment climate to realize these benefits. Investors may take more interest in our economy as a result of GDP rebasing, but they may yet defer investment if the appropriate reforms to improve competitiveness and the investment climate are not implemented. So other factors remain relevant-infrastructure, purchasing power, ports and customs procedures, corruption, labour markets, judicial system, securing title to property and obtaining building approvals, human capital, security etc. Most importantly the skeptical and cynical response to GDP rebasing by ordinary Nigerians sends a powerful signal to policy makers and the economic elite about the dangers of unemployment, poverty and inequality-large segments of our population simply do not consider themselves stakeholders in our economy. I hope their cynicism does not evolve into anger and deep disgruntlement (it probably has already) and mutate into revolutionary fervor! There are substantive insights and implications from the revised GDP figures-the services sector (financial services, ICT, trade, accommodation and food services etc.) now accounts for over 52% of output; with industry contributing 25% and agriculture down to 22%. The new data suggests that the level of manufacturing output was previously under-counted and is now 7% of GDP while we are not surprised that telecommunications is 8.7%. The data suggests a higher level of economic diversification than under the now obsolete GDP series with many more sectors coming into relevance. The figures illustrate how dismal our tax collection is (tax/GDP of 12%) and that our capital markets remain relatively shallow (NSE market capitalization is stated as 15.5% of GDP). On the other hand, debt sustainability ratios have improved significantly. The most important insight from the new GDP figures is that even though our GDP is 26th largest globally, per capita GDP places us No. 121.

Wednesday, April 2, 2014

Poverty and the Flow of Capital (2)

I have emphasized the critical role of capital as a factor of production, productivity, wealth creation and poverty reduction and stressed drawing on Hernando de Soto’s writings on “dead capital” in “The Mystery of Capital”, the negative implications of sub-optimal deployment and circulation of capital which is endemic in poor and under-developed economies. In particular in the case of Nigeria, I identified four “sectors” and one socio-cultural “force” which militate against the effective flow of capital within our economy and which in my view, are significant contributors to the phenomena of poverty, unemployment and inequality in our society. These “sectors” are government/politics-prevalent corrupt and rent-seeking nature of our polity ensures that public resources are diverted to whoever succeeds in “capturing” power thus marginalizing the poor and powerless; banks/financial system-receive deposits from rich, middle-class, average, and poor customers, but by-and-large lend only to large corporations and the (very) rich thus denying SMEs (not to mention micro enterprises) capital for building their businesses; crony capitalists/oligopolistic and monopolistic firms-charge higher prices than are economically justifiable, offer less-efficient products and services than would obtain in competitive markets and based on their alliance with or incorporation in the first group (government/politics-their initial and often sustaining profits are typically from economic rents transferred from the public sector) are beneficiaries of a prebendal, possibly fascist or even feudal political economy; and large religious organisations-receive voluntary or induced “taxes” from their members (and increasingly from government/politicians as well!) and not being established or structured to act in economically efficient manners, often spend huge resources in ways that erode the productivity of capital for instance by building inordinately large auditoria, buying fleets of expensive cars or acquiring private jets costing millions of dollars, while shirking the critical role they could play redressing social ills. The socio-cultural factor in my hypothesis are destructive aspects of culture and lifestyles that prevent capital accumulation-frittering away resources on marriages (introduction, engagement, “wine-carrying”, “alaga-ijoko”, wedding, reception, thanksgiving etc.!!!), funerals, child naming, chieftaincy, birthday and other celebrations; deploying scarce capital towards death rather than life and enterprise (a professor friend once wondered why in our society, if an unemployed young graduate asked family members to contribute N250,000 towards a business idea, he was unlikely to get any response, but double that amount would surface within days if the young man’s father were to drop dead!); investing huge resources in expensive cars and dormant houses while sometimes failing to pay children’s school fees or maintaining aged parents; our inclination to discourage local production in favour of everything foreign thus exporting not just capital, but jobs…!!! The list of our capital and (domestic) productivity destroying patterns of behavior may be in-exhaustible!!! You will notice that in all these, no one has necessarily set out to do anything sinister or evil to society-everyone is simply acting in their own selfish interest or according to “culture and tradition”. Politicians seek power and privilege; banks lend to the safest and most profitable segments of the market; businesses try to maximize profits; faith institutions seek as much donations as possible, the faithful try to live by the injunctions of their faith; and our people are caught in a culture more suited to traditional pre-metropolitan societies while living in 21st century internet age economies! What we lack are visionary leaders who can transform culture and society like Lee Kuan Yew did to Singaporean society substituting an ethos of excellence and productivity for old Confucian fatalism and docility; and institutions that can moderate behavior in manners defined by an enlightened sense of common good. I have already hinted at what I think the solutions should be. Government should define as its primary responsibility the protection of the poor and helpless rather than the rich and powerful, who in any event are well-placed to protect themselves. We need a fundamental paradigm shift in politics and government that places the welfare of ordinary people at the centre of policy. Economic success would in such a paradigm be measured in terms of human development, poverty reduction, life expectancy, quality of public education and not just growth in gross domestic product and our politics and government must become more egalitarian and less-prebendal! I would advocate a self-regulatory policy by banks and other financial institutions that undertakes to channel as a minimum whatever percentage of their deposits is sourced from MSMEs back into credits to such enterprises while eliminating prohibitive transaction charges against small or retail customers. As I mentioned in the earlier instalment, we need a robust competition and anti-trust law and policy regime to roll-back the emergence of oligopolies and monopolies across economic sectors and ensure that our markets are fair and competitive. Religious institutions will continue to receive funding from adherents. But those responsible for appropriating those resources must become socially sensitive and economically savvy, and this is consistent with their duty to God and man, as they are indeed trustees of societies’ “talents” and must manage them in a manner that makes economic sense and is socially responsible. I will like to see religious organisations setting up microfinance banks, venture capital and private equity funds, technical and skill acquisition centres, industrial parks, technology-incubation centres, universities of science and technology, polytechnics, schools and hospitals such that they become agents of social justice, economic productivity, equality, opportunity and egalitarianism rather than allies of a corrupt, uncaring and oppressive state.

Wednesday, March 26, 2014

Poverty and the Flow of Capital

My recent three-part series, “Why Nigerians are Poor” was an attempt to distill my thoughts on poverty, unemployment and inequality over the past several years for the benefit of policy makers and the general public. I continue today with a focus on another aspect of Nigerian poverty-our sub-optimal deployment of capital and how it perpetuates endemic poverty in our society. Hernando de Soto in his seminal book, “The Mystery of Capital” emphasized the central role that capital plays in economic productivity and development noting that “great classical economists such as Adam Smith and Karl Marx believed that capital was the engine that powered the market economy…the principal part of the economic whole” quoting Smith to the effect that “capital was to be the magic that would enhance productivity and create surplus value”. He argued that “the lifeblood of capitalism is not the internet or fast-food franchises. It is capital. Only capital provides the means to support specialization and the production and exchange of assets in the expanded markets. It is capital that is the source of increasing productivity and therefore the wealth of nations”. De Soto worried about “dead capital”-“assets that cannot be used to their fullest” i.e. capital that is not optimally active and productive and estimated that about $9.3trillion (as at 2000) dead capital lay in real estate held but not backed by legal title owned by the poor in third world (Nigeria included) and former communist economies. Other manifestations of dead capital cited by him include agricultural crops not backed by deeds and businesses not supported by incorporation and limited liability. As I reflected on de Soto’s concerns over the years, I have recognized that Nigeria has a worse problem with capital than he conceived in his book! We have four socio-economic “sectors” which capture capital and prevent its optimum deployment to generate economic productivity, create wealth and alleviate poverty. These are government and politics; banks and the financial system; crony capitalists/monopolies and oligopolies; and religious institutions. There is a fifth “force” which destroys capital and that is our culture and lifestyle. I will examine each of these in turn. Government in Nigeria is not primarily a system of offering social services to the citizenry, especially the poor. It does not by-and-large provide security for the common man; and it fails to prevent breach of its laws, especially by the rich, strong and powerful. In short, Nigeria’s governments do not perform, at least not successfully the critical functions for which governments and thus politics were established. Instead politics is essentially a vehicle for seeking capture of state resources which are obtained primarily from extractive resources. It is not a co-incidence that the richest Nigerians are present, past or “present-continuous” office holders and their friends, agents and associates. Nigeria’s corruption is offensive not just because it denies the public services and infrastructure, but because it subverts the flow of capital, putting enormous resources in the hands of a few, who then hide those resources in physical,monetary or other assets within or outside the country, turning resources which should have generated wealth for all into essentially “dead capital”!!! The Banks lend money of course and in theory circulate capital-the problem is who or what they lend to! They lend to government in form of treasury bills to fund government operations (recall what happens to government resources discussed above); and to big corporations, multi-millionaires and billionaires, shutting out small and medium enterprises from the asset side of the financial sector even though their deposits are a significant component of the liability side. With this cycle of exclusion, it is not at all a mystery that Nigeria has created billionaires in units and poverty in hundreds of millions!!! This defective structure of capital (mis)allocation is compounded by our practice of crony capitalism! Our most successful businesses are in reality an extension of the phenomenon of state capture earlier highlighted. Crony capitalism (which tends to result in the creation of monopolies and oligopolies) is not based on economic competitiveness, but transfers of economic rents from government to its cronies in the private sector. The poor then suffer a “double-whammy”-publicly-owned resources are cornered by a few entrenching their poverty; and the emerging uncompetitive market structures mean they pay more for goods and services! The solution is to enact a robust competition law and policy regime!!! Finally much as I am reluctant to say this, the economic reality is that big religious institutions secure huge financial and other assets (in effect taxes on their members) which are often deployed in ways that erode economic productivity and therefore entrench poverty and deprivation. I understand of course that people must fulfill the financial obligations of their faith, but it is important that religious leaders are socially sensitive in deploying such accumulated capital. What is wrong for instance if such groups request their chapters to set up universities, polytechnics, secondary and primary schools, hospitals, hospices, technical and skills acquisition schools etc. in large numbers such that the social value of their activities offsets the economic cost of sequestered capital! Finally we have destructive aspects of culture that destroy capital formation-excessive amounts spent on weddings, funerals and other celebrations, even by the poor; the tendency to consume foreign-made items whether food, football clubs, holidays, clothes, education, medical treatment, furniture, wine and spirits, and shoes! A huge amount of capital would be released for wealth creation and economic productivity if we reform many aspects of our lifestyles!!! Opeyemi Agbaje