Monday, February 01, 2016

The Banter: Between fighting Corruption and fixing the Economy

Arguments in Nigeria soon assume personal proportions. Every argument is personalized and the admonition to keep things objective anywhere is rather unattainable. We must find out who said something, their political leanings, what he does for a living, his tribe and the tribe of his spouse before we can ever make any form of judgement. So when the Former Nigerian President, Obasanjo wrote to the Senate disparaging them for wanting official cars , the argument was not whether he made sense, but rather that he had no moral right to make that judgment. How could a man who was formerly accused of sleeping with his daughter-in-law make any form of moral statement?
Let us take the issue of the war against corruption as against fixing the economy. One cannot make any comment about these things without being labelled a PDP lover now wailer or an APC apologist now hailer. Nothing is looked at objectively anymore. But beyond the political hysterics from both parties and the various manifestations of personalities, the issues are both salient and serious. Between fighting corruption and saving the economy, where must the present government of Nigeria actually concentrate its efforts. There has always been a case for a middle ground. An approximation, a division of attention between the economy and fighting corruption.

Today, I introduce a different perspective of looking at the problem. The structural perspective. This calls for looking at the issue from a wider and more holistic perspective. Instead of asking, how we can tackle corruption, we can ask instead, why corruption is endemic. Instead of asking how we can tackle the dwindling economy, we can ask why our economy is wired the way it is. The answers we get from this structural approach will be quite illuminating. Apart from this, even if the present government can actually tackle corruption by sending all the 'corrupt' people to prison, it might not really tackle the problem in the long run. Just four years of bliss and the flood gates will open once more. The president's last foray with power ought to have taught him this. When Obasanjo saw that he could not stay in power for another term, he looked for a worthy successor, someone who would not fritter away all the economic gains. He found his man in Ya'radua. Yar'adua's eventual demise shows how useless such political permutations can be.
What I am saying is that it is folly to build governance around any individual, just as it is stupid to personalize any argument about the country's future. I would like to read and share as many articles as I can lay my hands on, of writers and thinkers who have been able to rise above pedestrian personality bashing to actually elevate the quality of the discourse. There are various ways of taking a structural stand of course and I hope it will get you to think outside the box.
Here I present an article by Olisa Akukwe.
Nnamdi Okose
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FACTS DONT LIE (REIGN OF ERROR)
By Olisa Akukwe
In 2006, a song that was part salsa, part hip-hop hit the airwaves with resounding resonance, globally. "Hips don't lie" by Shakira, the Colombian singer went on to sale 16 million copies over the last 10 years.
I borrowed the title of this week's epistle from Shakira's song. Facts, like Hips, are evidence based. They don't lie.
Nigeria has been for far too long a society where opinion trumps facts; quota trumps merit; nepotism trumps justice and many times tribes trump truth. This has to change. It is important for Nigerians to deepen their understanding of economics because it affects us all. Nigerian youths need to ask more penetrating questions in the run-up to the next elections. Indeed they need to start asking those questions today. That is the only change we can achieve.
ON THE ECONOMY:
Babatunde Fashola, a super-minister in the APC government and a former, rather competent, governor of Lagos state told pension experts on 22nd Jan 2016, that this Govt is working to diversify the economy. They clapped. He blamed lack of diversification as the main cause of current malaise. The facts does not support Fashola's assertion.
The data collected by National Bureau of Statistics show that Nigeria's economy is already diversified. The almighty oil contributes barely 10% of our GDP. In fact the often maligned Trade contributes more than oil to our GDP.
Let's examine them. At the end of 2014, the year of the so-called peak oil price, crude oil and natural gas contributed about 9.616 trillion Naira to the GDP, 10.67% of the total. Meanwhile at the same period, Agriculture contributed 15.812_trillion Naira (17.5% of GDP) and Trade contributed 15.704 trillion Naira (17.42% of the GDP). The Telecom sector's contribution at 7.424 trillion Naira (8.23%) was very close to the oil contribution. So the constant assertion that the economy is undiversified is hogwash. We may simply be talking of deepening the private sector or expanding the diversification.
One of the greatest mistakes repeated by successive Govts in Nigeria is not understanding the greatest asset within any govt agency. They think it's money. Its not. The greatest government asset is data. From births to deaths, and every other thing in between. Data is the core asset of government agencies and parastatatals. If only they knew.
It is a general belief that the last PDP government ruined Nigeria via corruption. In fact, the last PDP government may have wrecked our public finance because of corruption, but they left the economy vastly better than they met it.
The PDP governments from 1999-2014, have been the only government(s) in Nigeria to consistently increase per-capita income. Data that goes back to 1960 show that our per-capita income in 1969 was 1000 dollars. In 1999 (after 39 years), it was 1200 dollars. In other words it increased by 10 dollars per annum!
From 1999 to 2014, PDP governments tripled per capita income to about 3500_dollars. That is about 143 dollars per annum. Even if we exclude changes from GDP rebasing, it comes to about 2500_dollars by 2013 (before GDP rebasing). Data!!
This brings me to an important differentiation. There is a huge difference between public sector and the economy as a whole. Even though public sector is part of the overall economy and affects it; in Nigeria public sector is less than 8% of GDP. What the NBS data is telling us is that even though past PDP governments enshrined public sector corruption, and the GEJ government may have wrecked public finance, they grew the economy more than ANY government in the history of Nigeria. Facts don't lie!
The fixation of Buhari and APC on chasing Dasuki et al, while shutting down the economy, is fundamentally flawed. The public sector contribution to GDP was 7.36% at the beginning of 2015. It makes no sense to stifle the rest 92% of the economy just to put public finance in order. If the emerging trends are anything to go by, the public finance may even be in worse tatters by end of 2017. If the government had deployed technology to prevent corruption, and astute diplomacy to recoup some stolen wealth; while keeping the economy open without capital and import controls, Nigerians would have already been reaping the democracy dividends promised them.
The much ridiculed GEJ had incredibly successful Agriculture policies. The billionaire middle men in fertiliser distribution, were put out of business by simple but smart deployment of technology by the smooth-talking past Agriculture minister. Our national food import bill dropped from 6.3 billion dollars to 4.3_billion dollars, between 2009 and 2013.
It is also good to remember that the high oil price under the last government also necessitated high subsidy payment. About 10 billion dollars was spent on subsidy. Some people believe about a fifth of that was lost to corruption.
Now that oil price have come down by 2/3, the current government does not spend any money on subsidy. Or rather should not. The landing cost of a litre of PMS today 30 Jan 2016 is N67.69k. The pump price is N86.50k. In fact the cost of landing is increased by N5 due to storage, NPA and Jetty depot levies etc. Otherwise it would have been N62.71k. The extra N5 between freight+cost and landing price is essentially monopoly cost.
From Landing to dispensing at the filling stations, in this current no-subsidy regime, N19 is added to the cost per litre. This is a 22% added to the cost of gasoline between landing and retail sale. About 40 million barrels of PMS is consumed daily. About 10,000 trucks, owned by about 30 individuals control the transportation of PMS. less those moving through pipelines. A N3.05 margin is assured on each litre of PMS moved by this transporters. Plus N4 per litre bridging fund. That can easily come to about N280 million Naira margin daily, for truck owners.
The downstream petroleum sector needs comprehensive liberalisation. From Storage, to transportations, jetties, filling station operating requirements etc. Currently it is oligopolic.
Bridging funds need to be abolished. We can't both eliminate subsidy and have subsidy at the same time. PMS should not sale the same price in Warri and in Tangaza. Beef does not sale same price in Dutse and Enugu. The petroleum ministers should take note. Adding 22% between landing cost in Apapa and dispensing at Ajah or Gwagada is pure baloney! Lagos citizens and residents bear the cost of tankers blocking road, damaging the road, causing accidents and razing houses/shops etc. Yet they are made to buy the gasoline same price as Folks in Damaturu.
Some of these were reforms the past PDP governments failed to tackle. Either due to vested interest or hysterical opposition.
IMPORTS:
Contrary to accepted wisdom, Nigeria is not over-dependent on imports. Services constitute more than half of our GDP. We need imports, like any other country. Our imports consume about 12.45% of our GDP, one of the lowest in the world!
World Bank Data shows that import as GDP % in Australia is 21.4%; in Canada 32.5%; in Benin republic 45.1%; in Botswana 43.3%; in China 18.9%; in Ghana 48.9% and UK 30.3%. Just to mention a few countries. Nigeria has one of the least import to GDP ratio of all countries. Data!!
Everybody repeats the mantra of import dependence, including CBN and Presidency, without checking and comparing. No country survives for long without imports. Our imports-to- GDP ratio is less than China's import-to-GDP ratio.
As a matter of fact, imports have helped us moderate inflation over the past 16 years. Without the benefits of disinflationary trends in China, US, India etc our headline inflation would have been much higher. How could Nollywood have boomed without ever falling prices of VCD & DVD players, as well as CD burning machines? How could the music industry generate hundreds of billions of Naira without the massive penetration of cheap music stereo and personal listening devices? Without cheap Chinese feature and smartphone, how would the surging mobile Internet thrive and make fabulous money for the likes of Linda Ikeji, Bella Naija etc? But CBN felt that a policy of import control targeted at small, hapless, traders is proper.
Let's look at the import issue from another perspective. How come the falling commodity prices is not bringing down prices in our local markets? Price of gasoline has fallen 24.18% globally and only 1% in Nigeria. Rice fell about 13% globally, but is up 30% in Nigeria. Beef fell by 27.98% globally, but it is going up in local markets here. The government is always screaming fall in oil price. Why is fall in commodity price not affecting domestic markets, but fall in oil price is?!
The real reason our domestic commodity prices are very high is government policies. Primarily tariff regime. If some of these imports were not clamped down or tariff set very high, we will be able to 'import' the fallen global prices, despite the drop in oil prices, helping to moderate inflation. I am sure that domestic rice producers can produce rice at global competitive prices, if they have access to single digit financing, scale production, motorable access roads, no custom or police extortion on the road, predictable transport price etc. These are all within government responsibility. But the elites rather prefer using tariff to transfer burden to the common man, rather than cut into their potential embezzlement funds.
Mrs Iweala increased domestic rice price by over 50% in her first tenure under Obasanjo, after she embarked on tariff-mandated import-substitution of rice. Likewise Aliko Dangote had a 60% profit margin in his cement venture, under Obasanjo, due to government high cement import tariff. We bore the cost of his becoming a multi-billionaire, with high cement price in those years.
Instead of using high tariff to keep out foreign products, government needs to apply transparent, targeted subsidies, especially in the Agric sector. We are tired of bearing the cost of creating state-sanctioned billionaires.
CAPITAL CONTROL:
The current government adopted a policy of capital control, as soon as it came into office. It had the effect of effectively drying up foreign and domestic investment. It drove portfolio investors to flee from the stock market, with consequent loss of near 2 trillion value. It distorted market signal
After the damage has been done, and the Naira had collapsed in the real market, CBN retreated partially. Revenue from Oil may have fallen to about 35 billion dollars, from about 88 billon dollars peak. But if the domestic asset prices have adjusted in real time, foreign and domestic investors would have eagerly bought assets in Nigeria through FDI or portfolio investment. The naira slide would have steadied at a much higher value than now. The markets were factoring in a price of 220-230 to the dollar, as the maximum slide before capital control was imposed. The capital control sent the worst kind of message.
The dollar in dorm accounts were reported to be about 30% of bank assets in 2014. Under Sanusi, dollar accounts were treated as quasi-saving. Nigerian banks exposure to the oil industry in foreign currency is estimated at about 11 billion dollars. Some of those loans are non-performing or in NPL territory. Capital control alarmed the foreign lenders, with further downgrading of our credit rating.
Even as our export prices lost over half its value, foreign transfers from Nigerians in diaspora was on track to surpass the 21 billion dollars reported in 2013. But capital control effectively skewed this trend. UN estimates that 1.2 million Nigerians live in developed economies. With proper economic policies and legal frame work, transfers from Nigeria emigrants can surpass 50 billion dollars; more than what was lost in declining oil price.
Unlike oil money though, those folks won't allow monies earned in the hardest of circumstances to be siphoned by greedy politicians. This may explain part of the reason the government keeps bemoaning the shrinking oil revenue, instead of opening the economy, removing government from the commanding heights of the economy and being transparent.
I simply took time to puncture some reign of error subsisting as conventional wisdom. In the coming days, I will pen a much shorter piece on government revenue.

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