As-hoc corruption fight

Why are governments reluctant to leave office in Africa and why GEJ act of accepting defeat following an election will be an aberration. 

Fear of retribution and the need to survive is the driving force. Politicians in Africa are a dog eat dog bunch and have no sense of history or misinterpret history. The manner of the attempted arrest of Dusuki the immediate past NSA and just now the CSO to GEJ is troubling and the consequences far reaching. If you leave office, it must not be in your own volition. If APC intends to pursue its political opponents this way, they must guarantee their own future electoral victories. As Azikiwa once famously said, "no condition is permanent" and no one but Buhari must be aware of this life lesson. 

The only way to embed the fight against corruption is to encourage independent institutional action. The fight must be on standing order and not at the behest of current political leaders. If the fight is institutional and the fighters are civil servants and process led then it will be accepted to all and sundry. If you arrest former PDP governors for misuse of security votes APC former governors must also account for their security votes. Amechi bought a private jet while governor and Buhari used the jet during the election campaign. He, Amechi must account for his stewardship. 

The North produced most of the political leadership during the first Republic and were logically the most victims of the coup in 1966 yet the charge against the coup plotters were that Ibos from the East were not represented in the blood letting, easily forgetting they were not at the helm of national leadership. 

The point being our fight against corruption is politicalised and therefore doomed to failure. The fight is discriminatory and illogical. OBJ used the EFCC mainly against his political opponents. The fight has been on ad hoc basis not structural. There is no need for EFCC use the police CID, create special units to fight against politically exposed persons as they do in South Africa with their scorpion unit but within the police structure. No special court but have procedural rules for special cases. This way we all shout thief, thief and not just at persons who steal goats and chickens but also billions of Naira. 

I highly recommend this suggestion otherwise we will continue to chase our shadows.

River State, due process and public expenditure

The Rivers State Governor Mr Wike assumed office in May 2015, he claimed, and I accept, he had no co-operation from the preceding government of Rotimi Amechi. He therefore had no first hand knowledge of the state's financial wellbeing. He had no idea of the capital projects commissioned, progressed or completed. 

Less than a month in office the new governor felt the need to borrow N300 billion from the capital market and he wrote his desire to the PDP led House of Assembly. That House promptly approved the request by simple vote. That is the height of business as usual and abdication of responsibility by the House and abuse of process. There were no hearings on the terms of the loan, the need for the loan and assessing the debt profile of the state, the claimed capital project earmarked for the loan. 

How did the governor and his government get the figure of N300B. What process will this huge amount be dispensed. How will the state pay. If the concurrent and statutory obligations of the state is not being met how does this improve the situation. 

Remember the former governor upon taking office did a similar thing. He paid $150 million for the building of a new hospital within months of assuming office. When the contractor collected the money and the project failed, on national television, said he was not born a governor and described his error of judgement and wanton disregard for due process as teething problems. History does not repeat itself just silly men who occupy offices beyond their capacity. 

The people of Rivers state do not get off on this matter. What have they done to impress on their representatives about not doing their jobs.

Learning from Lagos - The Economist

Nigeria’s commercial capital is crowded, noisy, violent—and a model for the rest of the country

Surprisingly orderly these days

FOR a city that dubs itself the “centre of excellence”, Lagos has a lousy reputation. The mere mention of Nigeria’s commercial centre conjures images of crime, corruption and motionless traffic. The bodies of people run over in car accidents can be left on the street for hours and commuters in even the poshest parts of town are sometimes caught in shoot-outs between robbers and policemen. Little wonder then that in a ranking of the “liveability” of 140 cities by the Economist Intelligence Unit, a sister company of this paper, it sits in the bottom five. The besieged Libyan capital Tripoli scores higher, and war-threatened Damascus only fractionally worse. Its citizens are also an unruly lot: men urinate on the don’t urinate signs, people hawk by the don’t hawk signs and loiter by the no loitering signs.

Yet the city is a lot better now than it was two decades ago. Bola Tinubu, who became the governor of Lagos State when civilian rule was restored in 1999, remembers taking over a “slum”. “The traffic was chaotic. The infrastructure was disintegrating. There were mountains of refuse all over,” he recalls. “People were being murdered. Armed robbery was rampant. Dead bodies were picked on the street on average 10-15 times every week. There was no control of any kind.”

Lagos was rundown in the late 1990s because it was badly run. Rapid population growth, as rural migrants flocked to the big city, outstripped its infrastructure. No one really knows how many people live in Lagos: estimates range from 10m to 21m, but its congested roads and bridges have space for just a fraction of them.

Under military rule, the city was neglected by the central government. In 1991 Nigeria’s capital was moved to Abuja, an orgy of grandiosity built in the middle of the country to symbolise unity. Public spending followed the politicians there to pay for wide boulevards and marble-floored palaces. After the restoration of democracy in 1999 Lagos still found itself neglected, largely because its citizens had the temerity to vote for opposition parties, the forerunners of the All Progressives Congress (APC) that earlier this year unseated the incumbent People’s Democratic Party (PDP) that had run Nigeria for 16 years.

Mr Tinubu and his successor as governor, Babatunde Fashola, both say their efforts to reform were often frustrated by the PDP-led federal government. It failed to upgrade the main roads in the city that were under federal control, including one leading to West Africa’s biggest port. It delayed approval for an important train line that the state government was willing to pay for. “I don’t want to be understood as recriminating,” Mr Fashola says, “but I know things could have been better.”

Instead of relying on Abuja for funds, Lagos learned to generate its own. It created passable systems to monitor its own spending and squeeze taxes out of citizens not known for their eager compliance with such things. Internally generated revenue has risen to 23 billion naira ($115m) per month, from almost nothing a few years ago. That still amounts to only a few tax dollars per person. But the state has been able to borrow against that income to finance projects such as a much-needed bridge linking the upmarket areas of Ikoyi and Lekki. Moreover, its reliance on local tax collection has forced it to improve its services in order to attract businesses.

And in this regard it has done well. The state produces about $90 billion a year in goods and services, making its economy bigger than that of most African countries, including Ghana and Kenya. Much of Nigeria’s industry, which once thrived in the north, can now be found in the suburban manufacturing estate of Agbara. Cranes hang over the city and land is being reclaimed from the sea as developers rush to satisfy the vast appetite for property.

Seth Kaplan of Johns Hopkins University in Baltimore argues that whereas national elections in Nigeria are a squabble over petrodollars, local elections in Lagos favour candidates who show competence and pragmatism. The opposition’s success in managing Lagos played a big role in its sweeping victories in state and national elections earlier this year.

Now that the APC holds power in Abuja as well as Lagos, the city has a chance to do better still. Many hope its efforts will not now constantly be stymied by a ruling party afraid of being shown up.

It could also teach politicians in the capital a thing or two. One lesson is that it helps to foster a broad tax base, instead of just relying on oil (which provides more than two-thirds of the central government’s revenues). Better tax collection would make the budget less vulnerable to wild swings in the oil price. It might also lead to more accountable governance: people who pay tax tend to demand better services in return. Another moral is that better infrastructure boosts economic growth, and if you don’t have the money to pay for it upfront, you can get private investors to do so instead: witness Lagos’s toll-roads and bridges.

For badly run countries in other parts of the world, the big lesson of Lagos is that reforms in one big city can sometimes kick-start wider change.

CBN vs The Economist

In this week’s edition of The Economist, the magazine dared to say what many people have been saying for a while now – Godwin Emefiele, Nigeria’s Central Bank Governor does not inspire confidence in anybody.

As anyone who has been paying attention would have noticed – the CBN Governor has a magnificent obsession with Nigeria’s foreign exchange rate. At the beginning of this year he was defending the Naira with billions of dollars. That (unsustainable) strategy has since been abandoned. There is a new strategy every week these days.

The latest one however has to do with banning the use of the official foreign exchange market if the purpose is to import a list of 40 items ranging from toothpicks to Indian incense.  It didn’t stop there – it went further to say import of those items cannot be funded by buying forex from Bureau de Change or proceeds from exports i.e. if you sell your goods abroad, you can’t use the forex you earn to import any one of those banned items.

In short, the only way to fund the import of those items is by sourcing dollars from the black market. You can go through the recent press releases from the CBN and the message is clear – it is cracking down on use of forex for anything it does not like.

Why is the CBN doing this? It is trying to ‘defend’ the value of the Naira. It feels that the demand for forex is too much and as such is trying to reduce the demand. The way to buy dollars in Nigeria is of course to exchange it for Naira. The point of trade is that you give up something less valuable to you in exchange for something you consider more valuable. All the people demanding dollars have Naira which at that point in time, is not very valuable to them. The more people do this, the higher the value of the thing they want which in turn reduces the value of the thing they are willing to give up for it.

The moral of the story here is that the CBN’s actions clearly show that it is determined to stop the devaluation of the Naira. By denying people dollars to buy toothpicks from South Africa, it is telling them to use their Naira to set up a toothpick manufacturing plant in Nigeria instead.

And so we come to the gist of what The Economist said in its article – this is a very strange way of stopping the import of items you feel can be produced locally:

Economists find the policy baffling. Central banks usually prop up their currencies if they are worried about inflation, or allow them to devalue to depress imports and stimulate exports. Nigeria, by contrast, appears to be set on achieving both an uncompetitive exchange rate and higher inflation

We know that toothpicks can be produced in Nigeria. The technology is not complicated to the point that Nigerians cannot do it. The reason why it is being imported is that it is obviously cheaper to do so.

Imagine that the exchange rate is N200 = $1. Now, due to poor infrastructure, insecurity, police harassment and of course high cost of generating power, it costs N1,000 to produce a box of toothpicks in Nigeria i.e. $5. But in America where the roads are good, there is 24/7 electricity, policemen don’t demand bribes on the highway and the technology has advanced to very efficient levels, you can produce a box of toothpicks for $2. Add another $1.50 for shipping the toothpicks to Nigeria and clearing it at Apapa Port. By the time you add a profit element, it is still possible to sell the toothpicks in Nigeria for $4.50 i.e less than it will cost you to produce it in Nigeria. If you’re a businessman, this is a no-brainer. Manufacturing is stressful and Nigeria can be very unpredictable. You don’t have to be ‘unpatriotic’ to opt to import instead of manufacturing – it makes business sense.

But remember that the businessman who is importing the toothpicks can only sell them in Nigeria in Naira. Using the above exchange rate, a box will be sold for N900 ($4.50 * 200) as opposed to the N1,000 it would have cost to produce it locally.

You can see where this is going – the ability to import toothpicks for cheaper than it costs to produce locally relies on that N200 to $1 exchange rate. If the Naira loses value against the dollar and drops to N230 to $1, all of a sudden it will now cost you N1,035 to import that box of toothpicks. It becomes cheaper to produce it locally (for the sake of this simple argument, we assume that everything required to produce the toothpicks is available locally). If you agree that the reason anyone will import toothpicks in the first place is because it is cheaper to do so, it follows that when it is no longer cheaper to import, the person will stop doing it. And if the demand for toothpick remains (people are unlikely to switch to using their fingernails), then there will be money to be made by supplying it to them.

This is not some untested economic theory by the way – as I wrote previously here, devaluing a currency and keeping it undervalued is a tried and tested strategy for industrialisation. The most recent example of this is China who for decades has kept its currency undervalued (combined with massive infrastructure spending) to keep its producers competitive.

But what the CBN is trying to do is keep the exchange rate at N200 to $1 (in the example above) and then telling people to simply stop importing. It wants them to be ‘patriotic’ and instead manufacture and sell in Nigeria for N1,000 – an 11% increase on the N900 people are paying for the imported ones (the inflation part of The Economist’s argument). There are very few places in the world where such an approach makes ‘sense’. Nigeria is one of them.

***

Amazingly, in 24hrs, the CBN has responded to the Economist’s article via a press release. It is never a good sign when the response is longer than the original article itself. By the end, we still do not really understand why the CBN is trying to strengthen the Naira at the same as it is claiming to be discouraging imports:

The CBN believes that Nigeria cannot attain its full potentials by importing anything and everything. For far too long, this trend has significantly weakened the operating capacities of our industries, but now is a good opportunity to begin a reversal. Although the article hastily derides this idea as lacking in economic foundations, it is the same principles upon which many other countries do not allow importation of certain products.

Once you believe that ‘the devil is abroad’, it will determine how you react to the situation. The CBN continues to ‘believe’ that importing is what is killing our industries. It follows then, that reducing or banning imports will resuscitate the industries. The question of why people choose to import in the first place is always conveniently ‘unlooked’. Importing simply happens because Nigerians are ‘unpatriotic’.

They say no one deceives themselves like the woman who has only child but when asked how the child is, she replies ‘which one of them?’. The problems are hard and will take a long time to tackle but the best time to start is now. It is sensible to import into Nigeria today. You need to be mad to try to produce most things in the country. That is why people collect all the ‘intervention funds’ provided by the government and buy Range Rover Autobiography with it.

Interestingly, the same Economist addressed the underlying issues about a month ago (emphasis mine):

FOR Muhammadu Abubakar, life is an uphill struggle. Farming in Nigeria is tricky at the best of times. Only the brave or the downright crazy would think of dealing in a perishable product like milk.

On his ranch on the dusty fringes of Kano, the biggest city in Nigeria’s north, he faces a daunting array of problems. The electricity grid is hopeless. So, at the gateway, two generators splutter away 24 hours a day. Diesel sets Mr Abubakar back about 1m naira ($5,100) a month. “We’ve had two hours of power in three days,” he says. “There’s no option.”

There are no good cows for sale nearby, so Mr Abubakar’s company, L&Z Integrated Farms, plans to start importing its own. There are no good seeds for fodder; he brought in cuttings on a commercial flight from Kenya. There is no mains water, so he must drill boreholes to irrigate his fields. Fertile land has a tendency to turn to dust. He has to train his own staff to use complicated machinery. Plenty of batches get spoilt along the way. By the time it is processed, a litre of milk has already cost about 320 naira (£1) to produce.

Then the milk has to get to market. “Three or four years ago we used to fly our milk down to Lagos,” he says. “It cost a fortune. The milk would spoil sitting in the airport. We had to pay off customs. It was a nightmare.” Nowadays, the firm uses costly refrigerated trucks instead. Drivers must brave day-long journeys on disintegrating roads. Each truck requires about 200,000 naira ($1,000) in opaque licence fees every month. Even when those are paid, local authorities send thugs out to get more.

“They make you buy new paperwork,” one trucker says. “We probably pay 3,000-4,000 naira (roughly $15-$20) every journey. ”When the milk finally arrives on supermarket shelves, it costs around three times what it would in Europe. Cheap long-life imports sell for less than half the price of local milk. Nigeria spends roughly $1m a day on imported milk powder, according to Sahel Capital, a private equity group which recently invested the same amount into Mr Abubakar’s business in the hope of changing that.

Other types of farming are equally fraught. Nestlé finds it cheaper to bring starch in than to buy it locally. Olam, a Singapore-listed agribusiness, says that processing costs up to 30% more than in other countries. Mukul Mathur, who heads its Nigerian business, says that moving a container from Kano to Lagos costs as much as from Lagos to Osaka, though the distance to Japan is 13 times greater.

Of course the CBN did not respond to this one.

FF

P.S This November 2014 article by Professor Ricardo Hausmann cannot get old. I share it with everyone I know – it addresses the issues currently afflicting Nigeria. 

P.P.S If you want something more technical, here’s a 2007 paper by Professor Dani Rodrik where he argues that an undervalued currency is associated with rapid economic growth in developing countries.