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

Nigeria: 1914-2014

There is no dispute about the facts of Nigeria’s progeny and birth. The country was created by Britain through Lord Frederick Lugard, and his mistress Lady Flora Shaw who christened it after River Niger. The British had secured imperial control over Northern and Southern Nigeria by a combination of force, fraud or deception-any contract entered into by parties in the manner the British obtained their colonial possessions in Nigeria would easily be nullified in any English courts for undue influence, lack of consensus ad idem, misrepresentation, fraud and/or coercion! When the British decided on the amalgamation of Northern and Southern Nigeria in 1914, they did not consult the kingdoms, tribes,empires and peoples contained therein for consent or approval-simply proclaiming it, much like a slave owner could donate, lend or otherwise deal with his human possessions. And there is no doubt that in reaching the decision, the interest of the natives was not a factor-the sole consideration was British colonial administrative and budgetary convenience. The British colonial office sought to balance the finances of the Northern Protectorate which was in debit, with the surpluses from the Southern Colony and Protectorate so that recourse to home treasury could be obviated. There was also some element of mischief, cynicism and cant-the Southern “lady of means” was being married off to the lesswell-off Northern bachelor in the hope that they would live happily ever after! It didn’t matter that the bride was unaware of the purpose and terms of the forced marriage and was allowed noopinionthereon! This is not to say that there were no relationships pre-dating colonialism or amalgamation between the peoples inhabiting the “geographical expression” called “Nigeria”-there is evidence of significant trade and cultural interaction for instance, between Yorubas and Northern Hausa, Fulani, Nupe, Kanuri and Ebira peoples. Islam, which had taken root in communities in Western and Central/Northern Nigeria was alsoa point of contact between those regions, and the advent of Christianity meant a further widening of the basis of relationships across Southern and Middle-belt/Northern Nigeria. The borders of pre-colonial empires had spread such that indigenes had encountered each other-Oyo as far as Dahomey, Benin and Ilorin; Fulani/Sokoto Caliphate as far as Northern Yorubaland, Kanuri’s to the east, and Tivs and other central Nigerian tribes had successfully resisted the Fulani Jihad; and the impact of Benin had been felt in Lagos. Yet while empires were in flux, Nigeria’s indigenous people remained independent of each other and never agreed to be joined or subjugated to any other ethnic groups. The British eventually stumbled through different constitutional arrangements into a barely tolerable option-a federal constitution comprising three regions, North, West and East, leading to another problem-the composition of the regions amounted to defacto internal colonialism of large ethnic minorities. The Western region contained Edo, Urhobo, Isoko, Ndokwa, Asaba and Itsekiri minorities later to become Mid-West with majority Yorubas; the North contained Benue-Plateau, Southern Kaduna and Kanuri ethnic minorities,religious minorities in Borno/Adamawa who were mainly Christian and animist,Yorubas in the old Ilorin and Kabba provinces; while Eastern Igbos dominated Niger-Delta and Calabar/Ogoja/Rivers minorities including large ethnicities like Ijaws/Kalabari andIbibios. The British were aware of these problems, but chose to paper over them and defer the issue till independence. The British also bestowed a defective federation in which the Northern region was credited with population figures larger than the two other regions combined, resulting in a Northern-dominated federal parliament and a presumption to domination of the emerging nation, which has remained a source of tension and instability in Nigeria till date! As a postgraduate constitutional law student in 1988, I wrote a paper on “Colonial Legacies in Commonwealth Africa” with Nigeria and Sierra-Leone as case studies-it was a shocking eye-opener of British gerrymandering designed to endow population figures, power structures, ruling political elite, regional disparities and other constitutional elements aimed at deciding the future of the new nations. Those legacies have by-and-large proved to be destabilizing to the prospects of these nations, as Nigeria so tragically illustrates. Thus Nigeria’s post-independence journey has been one of riots, crises over census figures, constitutional disagreements, coups and counter-coups, military rule, pogroms and civil disturbances, civil war, corruption, debt peonage, religious riots, post-election violence, regional, ethnic and religious politics, poverty, unemployment and now terrorism. I would argue that these can easily be traced to Nigeria’s faulty foundations! The national conference which opens this week, offers an opportunity to repair our faulty beginnings and construct a better, fairer, truer union. Only people of less-than-sound mental status will persist in the same behavior after one hundred years even though those actions have yielded only “sorrow, tears and blood”! I have no doubt that there is something fundamentally wrong with a structure and system that has produced 100 million people living in poverty; tens of millions who are unemployedand under-employed; about 50 million illiterates; massive infrastructural under-development in spite of spending (and stealing) over $600billion oil proceeds; where “Boko Haram” and “Fulani Herdsmen” kill hundreds of people, including children virtually every week; and where the nation’s immigration agency superintends the death of tens of young citizens seeking jobs due to corruption and incompetence. We can seize the opportunity of the national conference to correct Nigeria’s foundations or this article may turn out to be in remembrance of Lord Lugard’s“mistake” or unfolding monumental tragedy!!! Opeyemi Agbaje

Security and Technology

In this column I have often reviewed several aspects of the failure of security policy and law and order in Nigeria, and one of the depressing aspects of our current security architecture and management system has been the absolutely outdated methods we have adopted especially in policing. Walk into any Nigerian police station and the first thing you notice is the absence of any equipment or implements that may be considered technologically advanced. There are no computers, scanners, no Wi-Fi or internet modems…there are no air conditioners even! Thank God for the mobile telecommunications revolution, all police officers today invariably have a personal mobile phone on them which facilitates their official work very significantly, but the authorities have done very little or nothing to leverage technology in policing on a systemic basis. If you ask for and peruse statement forms in our police stations, you would realize that they were probably designed more than five decades ago! Happily some of this may be changing. I had an opportunity in January to visit the ultra-modern Lagos State Command and Control Centre at Alausa, Ikeja and was glad that finally the Nigerian security establishment, starting as usual from Lagos, is beginning to understand the imperative of technology in modern security architecture. The Centre is an effort by the Lagos State Government, in conjunction with the police and other security agencies operating in the state, to adopt technologies and practices already in use in modern global megacities in policing and security management. It is a world-class security infrastructure including an expansive video wall with twenty-seven screens integrated with analytics software and linked with a vast network of solar-powered CCTV cameras installed across the state. Of course for these infrastructures to “talk” there is a communication backbone including transmission base stations, radio and fibre links and other components as well as back-up power. This initiative is a good example of sensible federal-state collaboration to enhance public welfare-one thousand cameras were procured and installed in Lagos by the federal government while the state administration has complemented these with hundreds of additional cameras. The state government is also reportedly in the process of deploying many more video cameras to ensure pervasive coverage of the state. The Command and Control Centre is of course the “brain” of the system-there is no use buying and installing cameras if you do not include the requisite communication links, analytics and video screens as well as trained and motivated personnel who are able to leverage the information so obtained for preemptive or detective policing and enforcement. It is also an example of excellent public-private partnership-the seed donation of N150million provided by telecommunications giant, MTN years back gave the Lagos State Government the impetus to deploy further resources towards constructing the control center. There is additional critical private sector input-the Call Centre which is integral to the Command and Control Centre’s operations is managed by a visionary and dynamic private sector institution. That Call Centre is in itself part of the strategic leverage of technology and communications towards bolstering security in Lagos State. Calls to the state’s emergency numbers-767 and 112 are received in the computerized Call Centre, from where they are transmitted to the relevant security or emergency management agencies for immediate follow-up action-all such agencies are physically represented in the same location for effective coordination and integration. Thus with the investments made by the Lagos State Government, what you now have is an integrated system including a call centre, an emergency telephone response system, video conferencing facilities (which enable coordination of multiple agencies and personnel-police, military, security and intelligence, traffic management, emergency agencies, civil defense, fire and accident/ambulance services etc.) and video surveillance system all enhancing public safety and crime prevention and detection in the state. There are other basic elements of this integrated strategy-the Lagos State Security Trust Fund (LSSTF) which enables the state bridge the chronic funding shortfall of the security agencies by the federal government leveraging state and private sector resources; the initiative towards registering citizens and residents in the state; improvement in street signage and house numbering which are still works-in-progress; and the 767 and 112 emergency numbers I mentioned earlier. There has been significant positive impact from these investments though I am not inclined to discuss details so as not to compromise the work of the security agencies. What is clear from the limited brief I received was that several crimes have already been detected leveraging the resources in this system. It is of course not yet uhuru! With these investments, Lagos now has one camera to every 10 square metres while New York and London have between 200 to 450 cameras over the equivalent territory, so clearly additional cameras are required-it would be useful if private institutions and residents, including estate associations procure CCTVs in their proprietary zones to complement public investments; personnel is critical-educated, trained and well-motivated policemen and other security officers who can think through the information provided and act appropriately and proactively; there remains a need to enhance quality analytics to process the images received in the command centre and spot unusual activity; and we must invest in intelligence to complement the technology leverage secured from the investments made.

The Sanusi Affair

The night before Sanusi Lamido Sanusi was fired, I received calls from highly-placed persons enquiring if there was any credence to information that Zenith Bank CEO, Godwin Emefiele was about to be named CBN Governor. The next morning as I headed to my Lagos Island office, I got a thunderbolt from a finance commissioner asking if I had heard breaking news of SLS’s suspension. Minutes later I got a call from CNBC Africa confirming Sanusi’s suspension (and designation of erstwhile Deputy Governor in charge of monetary policy, Dr Sarah Alade as interim Governor) and inviting me to their studios for a 12noon interview on the issue. And then all “hell” almost literally broke loose-a call from a conglomerate CEO and a quick mini-strategy session on developments; numerous calls and texts from domestic media and business leaders seeking perspectives; emails and a phone interview with BBC journalists; calls from ordinary Nigerians requesting insight and analysis-as I said on the CNBC interview which was to include Bismarck Rewane and a Citibank economist on phone from Johannesburg, the news was a bombshell! My basic take on the events surrounding Sanusi’s suspension have not changed from the summary I presented on CNBC Africa and on STV later same night and next morning-I had been aware for several weeks of the possibility of the suspension, but I hoped that both sides would find the maturity to allow the controversial departing governor’s tenure elapse given the short time left and the risks involved in a precipitate removal; indeed I was aware of queries to Sanusi over the CBN’s 2012 accounts over nine months earlier in May 2013 and hints from informed sources back then of his imminent sack, but I felt that since President Jonathan had so delayed action until Sanusi’s tenure was virtually exhausted, it no longer made much sense to take action on the matter; this was especially so as the presidency appeared to have allowed itself to be out-maneuvered by SLS and his strategists since any attempt to remove him would now be interpreted in public consciousness (locally and internationally) as a reaction to Sanusi’s “whistle-blowing” over the missing $50bn, $12bn, $10.8bn or $20bn that he alleged was missing at the NNPC! In the event, Sanusi probably gave the president no alternative but to remove him from office irrespective of costs and risks-the loss of presidential authority that may have resulted from a CBN governor in effect becoming an alternative government and totally disrespecting the office of president would have been a terrible precedent. The timelines confirm without doubt that weighty queries on the finances and management of the Central Bank were raised long before Sanusi’s “counter” allegations of fraud at the NNPC; it is probable, indeed likely that Sanusi having secured a breather leveraging Kano and Sokoto Fulani Emirate influence over a president desperate to secure important political IOUs towards 2015, then deployed his own ploy to immunize himself from the president’s inclinations. But as I have always insisted, whatever Sanusi’s motives in beaming the searchlight on NNPC finances, there is a reason he chose that organization-it has historically been the slush fund of Nigeria’s presidency and there is no reason to think that the Jonathan/Diezani Allison-Maduekwe management has departed from history-some suggestions indeed are that things may be much worse! My view therefore is that this is a case in which the grasses i.e. the Nigerian people have to focus, not on taking sides but on benefitting from this fight between the two elephants-the presidency and the suspended CBN governor! In my view the allegations against both sides are weighty and tangible and the Nigerian people must insist on both set of allegations being investigated, illuminated and clarified in a definitive manner and our objective must be to secure better transparency and accountability at both the CBN and NNPC thereby. We have always been aware of the opacity and excessive presidential and ministerial discretion in relation to the management of the oil sector, and I have personally being troubled by the absolute absence of restraints on the powers of the CBN governor especially under Sanusi. As I have said in media interviews on the matter, I do not support an unaccountable CBN Governor who refuses to be guided by the nation’s laws (such as the Banking and Other Financial Institutions Act and National Procurement Commission Act) and who is free to spend and donate billions of Naira for whatever purposes he deems fit based only on the approval of a board of which he is Chairman and Chief Executive!!! It would be interesting to see who some of the beneficiaries of the contracts and expenditure at the CBN (such as on business promotion) are!!! Our other goal must be to preserve the independence and autonomy of the CBN, irrespective of Sanusi’s fate. That autonomy can only be sustained if we appoint the right personalities to the CBN and if subsequent governors avoid politicizing their office and acting in a manner inconsistent with the traditions of the very sensitive office in the countries from which we copied CBN autonomy. In the circumstances in which Sanusi left the CBN it was important to re-assure the markets, as Sarah Alade’s appointment did, that the CBN would henceforth be managed in a professional manner and that monetary policy management would not change drastically or be subsumed to presidential decision-making. I believe the Senate confirmation process is designed to test nominees against the criteria of autonomy, independency and professional management of monetary policy. Opeyemi Agbaje