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.

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!!!

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

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.

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!!!

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!