Ifeanyi Uddin

There are more fun ways to spend one’s afternoon than in the company of four egg-heads, eachwith very strong views on the direction in which the Nigerian economy ought to be headed. Thursday last week was one such day – it was not so much that the respective directions favoured by each of my interlocutors were mutually exclusive, it was the vertigo generated by the sheer depth of the arguments each marshalled in defence of their positions. Early in the week, the National Bureau of Statistics (NBS) had (and way ahead of its own advertised schedule) released data for April’s inflation numbers. This conclave that I was privy to attend had been convened to try and put meaning to these numbers. Part of the immediate challenge was that the central bank’s (CBN) rate-setting committee (the MPC) would be meeting for two days, beginning this Monday. There was a bank treasurer at the meeting; and his assignment was putting a finger on the possible direction of the policy rate after the MPC’s meeting. Remember that more and more, banks have put off new lending, preferring instead the assured yields from fixed rate instruments, as the coupon on treasury bills have risen in response to the CBN’s increasingly less accommodative stance.

The inflation numbers released by the NBS were not of much use. The All Items Index – that’s everything, or put in the more familiar lingo, the “headline numbers” – moved (on a year-on-year basis) from 12.1% in March, to 12.9% in April, reinforcing concern that despite the CBN’s best efforts, inflation expectations are far from properly anchored. But what was the main driver of domestic prices? There was a strong case to be made for food prices. Even the NBS admitted in its report that relative scarcity of some food products (“especially yams and other tubers”) “due to the drawdown from the end of year harvest” was the main cause of “the rise in the food index”. Still, on a yearly basis, the food index dropped from 11.8% in March, to 11.2% in April. So despite its volatility, and all of that, the headline numbers must have responded to a much stronger stimulus than the food index.

Which is okay in a very technical way. For in truth, the MPC’s best efforts should be concentrated by the core inflation rate, rather than the more volatile headline numbers. Back-out food prices and you get the NBS’ “’All items less Farm Produce’ index which excludes the prices of volatile agricultural products”. Again, the NBS accounted for the “rise in the ‘Core’ index” by“higher price levels in major divisions that compose the index”. But in truth, on a year-on-year basis, April-on-March, the core index dropped from 15% to 14.7%. Now, this is where the arithmetic got interesting. On a yearly basis, both the core and food indexes dropped in April from their March numbers. But then the headline numbers trended up. What was driving what? Or was I missing something?

Doubtless, there’s some statistical explanation for this quirk. But it is doubtful that the MPC can wait to square this circle before deciding at its meeting this week what to do with the policy rate. At this point, there is only one direction towards which the policy rate should be heading: and that is up. This is not just an acknowledgement of inflation numbers remaining sticky on the wrong side. It is equally about the rising national debt. Much has been made of the fact that currently, the national debt-to-GDP ratio stands at a modest 17% – manageable in other words. But, as recently indicated by the presidency’s request to the national assembly, this government’s borrowing requirement is uncomfortably high. Does it matter too that three-quarters of the resulting spend is “hand-to-mouth”? Maybe, maybe not! But it is important that in estimating the public debt, outliers like AMCON’s N4.7tn, and the sundry debts of government’s departments and agencies are properly reflected.

That way, the measure of the domestic economy’s fragility is clearer. All of these negative numbers are being recorded at a time when the oil price is strong on the global markets, domestic liquidity isn’t rising, and the exchange rate is strengthening. Obviously, with numbers this bad, we have exhausted all the buffers needed to ride the next shock to the economy.

Rosanwo Babatunde

“Organized crime threatens peace and human security, violates human rights and undermines economic, social, cultural, political and civil development of societies around the world.” ~ UNODC

In the last century, organised crime has drawn a lot of attention globally, with its transnational dimension as the main focus. According to Howard Abadinsky, an American professor of criminal justice and legal studies, organized crime is a non-ideological enterprise involving a number of persons in close social interaction, organized on a hierarchical basis, with at least three levels/ranks, for the purpose of securing profit and power by engaging in illegal and legal activities. There is a blurry line in identifying the perimeters of organised crime; members of such networks may be involved in legal activities that serve as potential covers for their activities.  The Interpol defines an organised crime group as any group having a corporate structure, whose primary objective is to obtain money through illegal activities, often surviving on fear and corruption. Several academics, countries and global institutions have gone on to define organised crime in several contexts.

Organized crime is usually associated with drug trafficking, human trafficking and murder. Several global indices have been applied to discuss and understand the context in which these activities thrive. There is a much broader concern today in tackling these activities, with focus moving away from the traditional mafia thinking to a global trend across several countries. It is not surprising to find internet scams classified as organised crime – commonly known in Nigeria as yahoo-yahoo. The FBI states that the face of organized crime has changed, and the threat is broader and more complex than ever with an estimated $1 trillion illegal profit per year. New trends include:

• Russian mobsters who fled to the U.S. in the wake of the Soviet Union’s collapse;
• Groups, from African countries like Nigeria, that engage in drug trafficking and financial scams;
• Chinese thugs, Japanese Boryokudan, and other Asian crime rings;
• Enterprises based in Eastern European nations like Hungary and Romania.

No surprise, Nigeria is listed by the FBI as one of the countries evolving the new trend of organized crime across the world. The notorious scam emails have definitely not helped this perception. Nigerian organized crime is known for forged documents, human trafficking (with Italy as a major destination) as well as arms trafficking. The trends of extortion, kidnapping and other criminal activities with similar patterns cannot be attributed to individuals or one-off activities. My concern borders on the murder index used in organised crime analysis, very much an activity within the borders of a country. The correlation between large scale violence, unresolved murders and police response brings up an interesting angle to recent murders in the Nigerian state. In the last 12 years, the attorney general of the federation and the personal secretary of a state governor were murdered. The list of unresolved murders is countless. In countries where the numbers of unresolved murders are on the increase, it has been discovered that the community and/or citizenry have lost faith in the police force; hence information flow to the police is limited.

No accurate data is available for the number of murders in Nigeria; however citizens and journalists have taken it upon themselves to relay such information via social media and related platforms. Screening through daily blackberry broadcasts from serial broadcasters in Nigeria to twitter feeds and my information network, there is hardly a day without a suspicious death report. Countries like Mexico and Honduras have openly berated their security agencies for corruption and colluding with organized crime groups over criminal activities in their countries. This may or may not be the case in Nigeria but the Nigeria Police does not have adequate resources to investigate murders nor keep data of prevalent murder cases across the country. There are several efforts by the police to report murder as armed robbery, in order to present themselves as an effective force by covering up their lapses.

Killings are not only politically motivated. There are revenge killings, violent disputes over controlled territories and properties, repression of political opponents and street gangs. I don’t have statistics to back the extent to which organized crime may be operating in Nigeria, especially with regards to murder. Murder by organized crime is however prevalent in societies where corruption thrives, where checkmating the interests of corrupt individuals and groups is met by stiff opposition which results in calculated assassinations of incorruptible officials. It would be in the interest of the state to connect the dots.

Another dimension to the activities of organized crime groups is that they act as beneficiaries of cash rewards for executing hits – implying that there are individuals or groups paying for their services. Detailed and accurate information on these activities in Nigeria is an essential prerequisite for designing appropriate responses especially involving collaboration between security agencies. A state rife with social inequality, social injustice and economic impoverishment, coupled with the absence of the rule of law, is a fertile ground for organised crime.

While advocating a better police force (though not the primary focus here), the availability of identity data also plays a pivotal role in addressing organized crime activities. In several countries official identification is no longer through a physical representation but a series of numbers and other information stored as a unique data set. In the wrong hands this information can be criminally employed but in the right hands it is useful for tracking criminal activities. Basic data starts from having a credible birth and death registry

Nigeria is a signatory to relevant international treaties on combating organised crime and human trafficking however much is left to implementation and domesticating such. There are no straight forward solutions to the challenges of organized crime and murders yet it poses a serious threat to our existence as one nation, cardinal reforms must be carried out in our judiciary while the rule of law becomes the order of the day.  The Nigerian Police must be equipped and trained to pierce the perimeter of secrecy surrounding organized crime by recruiting the best hands to join the force. Other social factors i.e. family pressure, marginalisation/alienation, national identity crisis, conflict, ethnicity and weak state which largely influence the birth of organised crime will be examined in subsequent articles.

Thirty years ago, I swear, not just were these parameters qualitatively different. They were far better! The public works department (later the ministry of works and housing) did not embark on a road project without extensive soil sampling and detailed testing across the planned route. Roads were thus easier on the steering wheel, and took far longer to burst out in the vicious acne that our roads are pockmarked with today. ECN (NEPA’s first incarnation) was sufficiently customer-savvy to announce its maintenance schedules well ahead – on television, on radio, and in the local newspaper. And the poles through which the last mile of electricity from the mains got to our houses were numbered, ensuring that if at the end of the planned maintenance, somehow light didn’t come on on schedule, you could call ECN/NEPA, andmaintenance men, ladder and all, they’d show up in a matter of minutes. Life was predictable!

Imagine my mortification, then, when just last week, in discussion with a much younger friend, this Arcadia was challenged with more passion than I was familiar with! Her argument that over the period since my halcyon days, and now, the trend growth rate of the economy has moved up was well met. If one can account for how subsistence, rain-fed agriculture could drive such sterling growth rates for so long, then, a lot of our current problems would emanate precisely from our inability to democratise the gains from this higher growth levels. Not just have the gains been privatised by an increasingly smaller elite,but in most cases, they’ve been moved off-shore, ensuring that the much bruited about growth has happened without significant evidence of economic development locally.

Within this construct, it makes sense that Porsche (the luxury car maker) would open its first showroom in Lagos in this century, and not in mine. Although, there is an understanding within which this development testifies to a new found affluence, this it does only in a negative sense: reinforcing the fact that less than 1% of our compatriots may properly enter this showroom. Indeed, less than 25% of us spend up to N320 naira a day on basic needs – inclusive of the needs of our spouses, children, and innumerable hangers-on!

It was harder, though, to ignore the net welfare gains from access to the mobile phone (dismal services and all) by the three-quarters of our nationals who subsist on less than US$2 daily. Come to think of it, in those days when a little over 500,000 Nigerians had access to and use of those black (and some off-grey) rotary-dial analogue phones, what were the options before the rest? Travel? This must have been burdensome, even with the railways working at full tilt. Post offices? Snail mail, was of course slow, and would have taken its toll on businesses. Add to this, the fact that, today, television and radio run 24-hours, and that the media have on-line presences that are updated real-time, and it is impossible to see how “yesterday” could have been better off with television (black-and-white) coming on at 5.00pm, and stations closing just before 12.00am. Multichoice and its satellite-TV based offering may not have a look-in here, for less than 100,000 households have access to this platform.

Clearly, therefore, in a world in which the GSM-based mobile phone is as ubiquitous as it is today, and with Nigerians some of the largest users of the mobile Internet, we exaggerate a great deal, all who claim that our “yesterday” was head-and-shoulders above “today”. More appropriate to argue instead that our sense of “yesterday’s” trajectory should have seen us further up the development path than we currently are. Put this way, “we” are right to disparage the “gains” that “today’s” youth revel in. They are too small crumbs off a table from which far richer pickings were promised!

Governor Sanusi Lamido Sanusi

My initial response to news reports that the National Assembly was looking to rein in the Central Bank of Nigeria (CBN), through an amendment to its enabling statute, was to wonder whether we are not about to throw the bath water away because a stroppy moppet would not take its bath. From the day he took office, Sanusi Lamido Sanusi (SLS) left few observers in doubt of his intention to run the office of governor of the CBN differently. What was most difficult to come to terms with was his readiness to air his opinion −a habitude most still cannot reconcile with the austere circumstances traditionally associated with the office. Even more disturbing was his willingness to plight his troth to one corner in any of the debates on issues around which we are yet to build a consensus as a people. The trouble in this was not, therefore, that he then became part of potentially divisive discourses. Nor that he held contrarian opinion even in such circumstances. Weighty though all these are in their separate rights, the bigger concern was largely that, this way, he ran the risk of diverting attention and resources from his “primary assignment” of maintaining price stability.

Did this matter, in the end? Arguably, the task of anchoring inflation expectations is as much the consequence of the central bank’s policy actions as it is dependent on the credibility of the bank’s leadership. On this measure, the jury will be out for a while yet. Inflation was at 11.2% as at June 2009, when SLS was appointed governor of the CBN. As at end-March 2012, the consumer price index was 12.1%. Farcical? Pedestrian, even! Given the volatility of domestic prices over the last three years, it is hard to make much of these numbers. There’s a huge space for the adverse influence of government spending on prices during this period. Just as the weather generally conduced to the good harvests, which had a beneficial effect on food prices.

But it is difficult to niggle at the fact that the CBN’s tightening of monetary policy over the past two plan periods was consistent with its mandate and in full accord with the literature’s prescriptions for central bank responses to rising prices. No less admirable was the 2009 stress test of banks, and the speed with which the CBN designed and implemented solutions to the identified lapses. Contentious then, and in parts, still subject to litigation, but the strength of the apex bank’s action lay in its ability to take the sting out of two complimentary (but potentially disruptive) events: the global financial and economic crisis; and the collapse of the domestic stock market.

How does the National Assembly’s current initiative with respect the apex bank address all of these? For starters, the strongest argument against any legislative action is simply put. It is not just inefficient, but it is wrong to design policy responses (especially laws) around individuals. There must instead, be a relationship between proposed laws, and intended increases in the commonweal’s net welfare. This was the primary goal of the 2007 CBN Act. For too long, a central bank in hock to the finance ministry, had contributed to the extensive macroeconomic policy displacement that the Nigerian economy had become a by-word for. Granting the CBN legal and operational independence was thus conceived as part of a new national financial architecture that saw monetary policy as a foil to the fiscal side. Has this experiment been successful? The degree of causation and correlation are always problems when interrogating economic phenomenon, but can we make anything of the fact that since the act came into force, the CBN has been to the fore and centre in efforts to reinforce the financial services sector from diverse external shocks?

Would the CBN be better able to do this, if as planned, the National Assembly removes the governor as the chair of the bank’s board, and subjects the bank’s budget to legislative oversight? In its favour, legislators have advocated these changes as necessary if we are to end the bank’s penchant for reckless spending, and for keeping secret budgets. The CBN, on the other hand, argues that its board has as much external members on it, as to meet the most exacting corporate governance standards, and that operational and legal autonomy does not mean its budgeting process is any less transparent.

This begs the question, really. Why should the CBN worry about legislative oversight of its budget, if it is currently comfortable with making “a formal report and presentation on the activities of the Bank and the performance of the economy to the relevant committees of the National Assembly” at semi-annual hearings? Conversely, the CBN Act’s provision that its “board shall consist of a Governor who shall be the Chairman” flies in the face of the central thinking in the CBN’s corporate governance code for banks:“The responsibilities of the head of the Board, that is the Chairman, should be clearly separated from that of the head of Management, i.e. MD/CEO, such that no one individual/related party has unfettered powers of decision making by occupying the two positions at the same time”.

Time, then to bring the CBN Act 2007 up to scratch?

The columnist this week is public policy analyst Abimbola Agboluaje.

Copyright/Source: AFP/Getty Images

I was delighted when I discovered that President Goodluck Jonathan handed the autobiography of Lee Kwan Yew, From Third World to First World, to members of his 42-persons cabinet. Nothing more inspirational to get our Ministers into Transformation mode. One of the most striking passages in the book is where Mr. Yew recounted how he ordered that the road leading from the airport to his office be spruced up – flowers, tarred roads, zero hawking – so that visiting investors to his then dirt-poor country would know that Singaporeans are hardworking and serious people who would ensure their investments flourished. The country’s GDP per capita is now higher than America’s and France’s. Airports may indeed tell investors almost all they need to know about a peoples’ quality of government and their resolve to escape poverty and count for something in the world.  The message Nigeria’s major international airport, the Murtala Mohammed in Lagos has for the visitor is unequivocal; we are unserious, in fact we are a joke. Power outages leave the airport dark and sweaty. Conveyor belts break down. VIP cars neglect the car park and crowd the entry and exit to the departure and arrival halls. Toilets don’t flush; visitors have to do it with buckets. A woman visiting for the first time was reported to have succumbed to tears during the hot wait for her luggage.

Just fifteen minutes from Nigeria’s international eyesore is the Muritala Mohammed 2, an airport built and maintained under a concession by a Nigerian company. MM2 is neat and cool with the sort of stores and restaurants international travelers are accustomed to. The CEO of Apple or General Motors will find very little to complain about flying through MM2. According to a leading Nigerian economic commentator, the new airport “was an eye opener as to what Nigerians could do if given the enabling environment”. Under President Obasanjo, a decision was reached to transform Nigerian air travel infrastructure through Public-Private-Partnerships under which investors would refurbish and operate airports. Private management of airports worldwide has driven growth in efficiency and jobs as investors funded information technology projects and retail space.  Net income has grown, allowing operators to cut landing charges for airlines. In Britain BAA, owned by the Spanish global infrastructure company Grupo Ferrovial, assumed full ownership and operation of the major airports after their complete privatization in the mid 1980s (when the British Airports Authority, equivalent of Nigeria’s state-owned operator, the Federal Airports Authority of Nigeria (FAAN), ceased to exist). The competition authority compelled BAA to sell some airports to avoid market concentration, thus creating an opportunity for Global Infrastructure Partners, led by Nigerian Bayo Ogunlesi, to buy Gatwick Airport and recently Edinburgh Airport from BAA.

Despite the policy pronouncement (to upgrade and operate Nigeria’s airports through PPPs) under President Obasanjo, the successor PDP governments reverted to the “tried and failed” method of full government ownership and operational control and the attendant contract bonanzas. The first post-Obasanjo Aviation Minister awarded a N6.4 billion contract just to refurbish electricity supply lines and purchase generators at the Muritala Mohammed International, a sum regarded as sufficient to build a small power plant. The current Minister is embarking on a N38 billion “remodeling” of Nigerian airports. Medium-grade rumours are already flying around regarding the quality of the remodeling design and the process of contract award. What Nigerians can see is a privately built airport that is befitting for anyone to fly through and government-operated airports that can’t even maintain air conditioners and toilets. Why should reasonable people assume that the latest FAAN contract bonanza will make any difference? After 12 years of near consistently high oil prices, Nigeria’s airports are as grubby as ever. FAAN, an agency which is yet to deny media reports that it spent a whopping N918 million on “staff training” in 2011, may also possess the uncanny gift of making billions of naira disappear with little to show for it that some FGN agencies have been revealed to possess. Do we always have to wait for National Assembly probes to discover avoidable waste of public funds?

Sadly, the government is not leaving the door open for when the latest round of billions it is sinking in the airports disappear as usual and it decides to go back to the PPP strategy to make Nigerian airports look like airports rather than Molue bus terminals. In late March 2012, FAAN terminated the concession given in 2007 to the Nigerian company Maevis to install and operate an Airport Operations Management System (AOMS) despite a Federal High Court ruling directing both parties should go to arbitration.  The AOMS installed by Maevis at the cost of N7 billion (which the company says it borrowed from Nigerian banks) was one of the very few things functioning in the airport. Basically, the AOMS allows airlines using Nigerian airports to seamlessly capture, store and transmit passenger data between various operating centres and also accurately and transparently invoice airlines for landing charges and other services such as parking. Maevis is said to have invested in an enormous clean power centre and extensive cable laying to operate its data room, the boarding gates and the 62 check-in desks it installed when FAAN couldn’t provide the uninterrupted power required to operate the sophisticated data relay system. The concession enhanced passenger processing efficiency and security, thus Nigeria’s ability to meet AITA Simplifying the Business (StB) requirements. In a commando-type action, FAAN gained forced entry into Maevis’ data room, ejected staff and installed SITA, a Swiss Firm which it has given the contract to manage the AOMS. It is not clear whether SITA is using the equipment Maevis installed.

What is very clear is the message FAAN’s action sends to investors in Nigeria: we can destroy your investment in the twinkle of an eye regardless of what the piece of paper we signed, the law or the courts say. In short, you are bringing your money into a jungle. Of course, neither President Jonathan Goodluck nor the Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala will ever agree that this is Government’s message to investors. But it is a message that will surely cross the mind of any bank’s executive board when they have to take lending decisions on the $20 billion worth of privately financed projects that the Bureau for Public Enterprises recently announced is required to attain stable electricity supply in Nigeria. One hopes there isn’t a plan to follow FAAN in the energy sector, terminate power reforms and reinstate NEPA. Nigeria cannot afford a crisis of economic policy coordination which allows each of President Jonathan’s 42 Ministers to pursue policies that suit them or the self-interested bureaucrats advising them regardless of the FGN’s commitment to private-sector led development.  We have already seen the pathetic outcome of this poor coordination in January when careful, confidence-building planning of the petrol subsidy withdrawal was hijacked and replaced by a senseless orgy of full and front-page advertising. `In contrast to security challenges where everything is not under its control, the Goodluck administration would have only itself to blame if the impression of “cluelessness” comes to define its economic policy agenda.

FAAN has made both the President and Dr. Okonjo-Iweala look very much like circus directors by forcefully driving away a Nigerian concessionaire from a N7 billion naira investment despite a Federal High Court ruling that Maevis and FAAN take their dispute to arbitration in accordance with Article 15 of the Concession Agreement and the advice of the country’s Attorney General that FAAN abide by this ruling. If President Jonathan is to achieve anything meaningful, this circus has to be urgently transformed into coordinated policy making under the unambiguous leadership of the coordinating Minister. And there’s something else he must pick from Lee Kwan Yew’s book apart from the lesson on the state of airport as a sign of investment readiness-the courage to quickly show populist and self-serving officials (attributes that often go together) the door.

Abimbola Agboluaje runs Traject, a public policy consultancy. He writes from Lagos.

Unable to create risk assets as fast and profitably as they would have loved to (the economy, despite those mouth-watering growth numbers just does not have as big an appetite for risk its seems), banks have parked a lot of their funds in treasuries. It helps that the rates on offer have been positive (once you account for inflation) for a some time now – this has not happened in a while. So, with so much of their profit prospects running on the outlook for treasuries, and the latter, dependent on the CBN’s reading of the near- to medium-term trajectory of domestic prices, inflation numbers matter. March numbers were not in, permitting the ceaseless investigation of diverse scenarios. In the end, the consensus was that whereas, once, food prices were a major driver of domestic inflation, the effects of government spending on the rest of the economy was going to be the new driver going forward.

Need I enter a small caveat now? It is useful to remember that this same gathering had got the prognosis wrong on the eventual consequence of the January fuel price hike on the general price level. Still, I did not get a sense of the new consensus numbers undershooting as my treasurer friends tried to correct for their earlier bullishness. After all, the consumer price index in February (at 11.9%) had surprised by trending downwards on January’s 12.6%. So, this aspect of the conversation ended convinced that March’s inflation numbers will be slightly down on the February figure. Indeed, that the apex bank has done just enough to hold prices down over the current plan cycle.

Much of the colour commentary after this dwelt on the implications of the ensuing lower policy rates on the cost of servicing the federal government’s domestic debt. Of course, there was no doubt that if inflation expectations wavered, and the CBN cleaved to its tight monetary policy in response to this, the point will be reached where the managers of the fiscal side of the economy would try to muscle in on the monetary side. Committed as we are as a nation to keep borrowing to maintain our high recurrent spend the cost of domestic borrowing would become unsupportable the higher the policy rate moves.

In the event, the composite consumer price index (year-on-year) moved up marginally to 12.1% per annum in March from its 11.9% close the previous month. March-on-February, prices moved by 1.6%. According to the National Bureau of Statistics (NBS), domestic prices are still suffering from what you would describe as the third-round effect of the fuel price increase. Liquidity was tight in March, as disagreements between sub-national governments and the federal government over the size of the fuel subsidy stalled the allocation of the monthly subventions from the federation accounts allocation committee (FAAC). Add to this, the effect of the planting season on food prices, and you have northbound pressure on prices generally.

The problem with all these numbers is that they speak to a volatility in domestic conditions, which the roseate statistics on the economy with which we are more familiar appear ignorant of.

Richard Aisubeogun

There is clear mismanagement, fraud and abuse of due process in the way Nigeria’s aviation agency is run

“…Nigeria has all the fundamentals to be one of the BRICs… when we take care of several of the constraints… holding our economy back…we are going to be in the low double digits and that will parachute Nigeria into the BRICS…” says Dr. Ngozi Okonjo Iweala, the Harvard-educated Nigerian Finance Minister and co-ordinating Minister for the Economy in a BBC interview, confirming Nigeria’s aspiration to join the league of the BRICS, the association of powerful emerging developing countries. She identifies access to power and electricity as one of the constraints holding back the economy, which President Goodluck Jonathan’s transformation agenda would focus on addressing. It is in a bid to increase economic growth and development commensurate with an emerging power status that the Nigerian government has embarked on reforms and deregulation in the downstream sector of the oil industry and in the power sector. While at surface level, these policy reforms appear to be aimed at increasing efficiency and transforming the economy, the inconsistencies and contradictions inherent in the execution of the policies have created not only confusion but bear some semblance of fiscal conservatism with the potential to create more political challenges for President Jonathan.

As part of a transformation agenda unveiled shortly after victory in the 2011 general elections, President Goodluck Jonathan began reforms aimed at rejuvenating the power sector and the petroleum industry, both of which constitute the very backbone of the Nigerian economy and both of which have been bedevilled by immense challenges. Both sectors are plagued by corruption, fraud and lack of transparency – ills which dog most of Nigeria’s public sector – and are dominated by a cartel of importers. In the case of the power sector, inefficiency and corruption have culminated in poor service delivery – peak output is just over 4,000MW, with per capita power consumption just 3% that of South Africa – manifesting in Nigeria’s infamous power outages and other perennial power problems believed to be perpetuated by a cartel of importers of electricity generating sets on which the bulk of Nigerian households and businesses. In the petroleum industry, a cabal of exclusive fuel importers are believed and identified to be benefiting fraudulently from fuel subsidies at the expense of the masses.

Anti-fuel subsidy removal protesters in January 2012. Lagos, Nigeria

Responding to the urgency for reform to tackle corruption, institute transparency and a departure from a culture of “subsidizing consumption” rather than subsidizing production – in the words of the Central Bank of Nigeria (CBN) governor, Sanusi Lamido Sanusi — the downstream sector of the oil industry was “deregulated” on New Year’s Day 2012 with the removal of fuel subsidies. The decision was greeted with opprobrium and a public backlash culminating in massive street protests and strikes which paralysed the economy while it lasted, though the government later backtracked and partially restored the subsidies. The recent announcement that deregulation of the power sector would lead to an upward review of electricity tariffs by up to 88% effective April 2012 has also been met with considerable opposition and some protests though hardly on the scale of the fuel subsidy removal proportions.

Child beggars in Maiduguri, North-East Nigeria

The most obvious contradiction within the implementation of these reforms is the strain placed on ordinary Nigerians many of whom live on less than $2 a day while the extravagant remuneration packages of political office holders such as the N1billion feeding allowance for the Presidency and a recent purchase of ultra modern SUVs for federal lawmakers remain intact. It is worth remembering that Nigeria, a resource “rich” country despite its tremendous oil revenues and an economic growth rate averaging 7 to 8% per annum remains on the lowest rung of global development indices. Infant and maternal mortality rates remain abysmally low while unemployment rates hover at around 24% (unofficial unemployment figures are much higher). Recently, the Nigerian National Bureau of Statistics (NBS) reported that the percentage of Nigerians living in absolute poverty rose to 60.9% in 2010, compared with 54.7% in 2004, while the Central Bank of Nigeria governor predicts an increase in poverty levels. The increased scrutiny of the national budget by ordinary citizens has further highlighted these glaring contradictions in the wake of a realization that the State provides barely any social benefits to citizens vis-a-vis the extravagant remuneration packages of political office holders.

To compound matters at such a critical time, the little social safety nets to cushion the effects of deregulation — which in the best of times places immense pressure on ordinary citizens — have been withdrawn. The Subsidy Reinvestment and Empowerment Programme (SURE) unveiled in January to  monitor the petroleum subsidy savings funds and to ensure effective implementation of projects from the funds was scrapped by Jonathan just a month later, on the basis of it being “unrealistic”. Analysts are of the opinion that in the face of dwindling revenues, especially after the costly 2011 general elections, the most expensive in the nation’s history, and the various leakages which characterize government and public sector operations, the government is “broke” in the words of former federal minister and now chieftain of a key opposition party, Mallam Nasir El-Rufai. Rolling back the little state benefits at the expense of ordinary citizens seem like austerity measures to the general public, by a government eager to cut costs and raise revenues.

What lends credence to this argument is the government’s haste in deregulating without outlining concrete frameworks for the purported reforms and the administration’s perceived reluctance in apprehending and prosecuting the powerful interests behind most of the leakages, cronyism and corruption in both the oil and power sectors. The government’s lavish recurrent expenditure and its perceived lack of transparency while citizens are burdened with increased costs of living have further eroded the already fragile public trust in government. The fact that various government agencies cannot agree on the official amount spent on fuel subsidies in 2011 – The Minister of Finance, quoted N1.3trillion, the Minister for Petroleum quoted N1.5trillion and the CBN governor quoted N1.74trillion – for instance further highlights the transparency deficit.

It is not all doom and gloom though, as there might be genuine reasons to be optimistic. The recent House of Representatives investigative panel on the petroleum industry indicate some seriousness on the part of the government to address the rot and fraud in the sector. The appointment of former anti-corruption tsar, Mallam Nuhu Ribadu, the pioneer chairman of the Economic and Financial Crimes Commission (EFCC) to head a Petroleum Revenue Special Task Force established to “enthrone transparency and accountability in the petroleum industry” provides concrete basis for optimism. In addition, the relative successes scored by the Police Force and the State Security Services on the security front in capturing the mastermind of the Christmas day bombings and in apprehending the spokesperson of the dreaded Boko Haram sect, Abul Qaqa could boost critically needed investor confidence especially in the power sector.

Finally, the successes of these reforms depend to a great extent on the government’s ability to boost not just investor confidence but more importantly, inspire and rebuild trust amongst ordinary Nigerians. This can be achieved by foremost exerting the needed political will in tackling the powerful, entrenched corrupt interests constraining the transition from genuine intentions for reform to concrete, tangible actions. This could entail allowing the various committees, task forces and existing anti-corruption agencies the free rein to act accordingly without undue political interference and most importantly for the government to be more open, transparent and consistent in the implementation of its reform policies. These would be steps forward in assuring ordinary Nigerians and the wary middle class that President Jonathan’s reforms are not austerity measures disguised as deregulation.

Resource control takes its roots in the oil-producing Niger Delta, where they have been advocating that the entire oil revenues should be given to them, and by extension, that each state should retain the revenue from its soil, which is their resource. It seeks to increase the income accruing to them via the derivation principle from 13% to as close to 100% as possible.

Fiscal Federalism, on the other hand, involves changing the tax policy of Nigeria so that states, not the Federal Government, benefits from Value-Added Tax (VAT), which is the tax paid by companies on good and services produced. This is in order to make them economically independent and boost their internal economies via more production.

So what then is the difference? On the surface, they both seem to be achieving the same purpose, which is putting more money into the pockets of states. However, the multiplier effects of each policy are what set them apart.

Resource Control focuses mainly on revenues from oil mining, and does not wean Nigeria of our single-product economy, which should be the main focus of our national economic policy. This is because tying economies strongly to oil production is very risky considering the volatility in global oil prices. What is $100/barrel today could easily be $60 barrels tomorrow, especially with the coming on stream of new producers who are not members of the Organisation of Petroleum Exporting Countries (OPEC), the oil cartel which imposes production limits on its members in order to maintain as high an oil price as possible.

Secondly, an oil industry, though yielding great financial profits, does not employ as many people as expected. This is because the petroleum industry is highly automated. As a matter of fact, according to John Ghazvinian in his 2006 book, Untapped: The Scramble for Africa’s Oil, of the $20bn then spent annually in the entire African oil industry, only $5bn was actually spent in Africa. Even with the present Local Content Act and the proposed Petroleum Industry Bill, it still will not be able to solve our unemployment needs.

Lastly, the conventional rule of governance asks that governments earn their money largely from taxation, which is what an economy focused on an extractive industry does not achieve. All the government has to do to make money is to sink more oil wells and sell new acreages, rather than work to spur more business through the creation of a viable environment. The lack of dependence on tax revenues ends up making governments less responsible to the people, and in fact, makes them more autocratic, according to Thomas Friedman’s First Law of PetroPolitics, which my fellow blogger, Joachim MacEbong applied to the Nigerian context and concluded rightly that every Nigerian should pray for an oil price crash.

In the end, with resource control, nothing really changes apart from the fact that there will be more money in state government’s hands. We cannot even conclude that the level of governance will increase with more money, considering the fact that the states to benefit most from resource control have been receiving the highest federal allocations with little to show for it. This just smartly plays into a geo-political strategy of ‘we oil money’.

Now this is where Fiscal Federalism differs from Resource Control. With Fiscal Federalism, the emphasis is on earning revenues via tax on goods and services produced within the state. This means that the more business activity in the state, the more money they shall earn. When states are largely weaned off federal allocations, they will then be forced to look inwards and develop their economies. Nigeria is a nation that is blessed beyond measure, in natural as well as human resources. This fact has never been in doubt. In my travels around this country, I continue to encounter massive potentials which are not being harnessed, because there is free money coming in and also because there is no incentive to do so, since it is the FG that will earn their VAT money.

I cannot even begin to fathom the economic boom we will have once states are forced to look inwards to raise revenue. There will then be policies directly targeted at making sure industries grow. The illusion that some states will die in such a system because ‘they have no natural resources’ is very wrong. Each state can build its economy according to its comparative advantage: be it agriculture or services or mining. As long as people exist in a location, wealth can be created. All that will matters will be that businesses and jobs are being created and tax revenue is well-earned and well-spent. This means that if Rivers State, an oil-producing state, has its oil taken to Lagos State and refined, it is Lagos that earns money from it through VAT. Such will then make Rivers work to attract refineries to the state. We would have then moved from being merely a primary producer but also added value to the raw material. In such a system, it might not even the oil producing states that will be the richest. For example, in the USA, where fiscal federalism is practiced, Texas despite having the largest oil industry in America is only second to California in terms of GDP.

Beyond that, governments shall then have a true responsibility to their electorate, knowing that a failure in governance would make them easily lose businesses and tax revenue to other states. We can see a clear example in Lagos State, which generates up to 60% of its budget from tax revenues. It has had to make sure that people see results from their paying tax in order to justify the government’s collecting. It is also true that in such an environment, people are more willing to fight corruption rather than just accepting it as a way of life.

Lastly, Fiscal Federalism will force states to compete in order to develop economically. In that situation, emphasis within states and their governments for jobs and school admissions will be on qualifications and merit, not on ethnicity and religion as it is commonplace today. Sentiments cannot survive in the face of true competition. This will then force a true integration of the Nigerian peoples.

It is my candid opinion that Nigeria will never reach its economic heights with the economic structure we operate today. We have to change it so that states can individually develop their economies to the benefit of themselves and all. That can only be achieved by Fiscal Federalism

Picture: Christopher Furlong/Getty

Ever since the details of the 2012 budget were released, Nigerians have been treated to a lot of comedy and melodrama regarding the budget items. Besides the perennial lop-sidedness of our budgets with regard to the capital expenditure being less than the recurrent expenditure, a closer look has revealed that even some of the capital expenditure items are either bogus or grossly inflated.

For weeks, the outcry was about the amount of about N1bn allocated to the Presidency for the feeding of the families of the President and the Vice-President, in addition to N957m for miscellaneous expenses and a combined N466m for refreshment, honoraria and sitting allowances. This is just a few of the items from the full budget details, as it is filled with lot of spurious projected expenses. The full budget can be downloaded from www.budget.com.ng.

These inflations and crazy projects are not limited to the Presidency alone, but extend to almost every ministry, department and agency of the Federal Government. Almost daily since the start of this year, we have been treated with headlines screaming out the extravagance of our government, either through inflated projects or even projects whose mere existence are puzzling. It has ranged from the Niger-Delta Development Commission (NDDC’s) budgeting N1.5bn to ‘fumigate’ their 15-storey headquarters in Port-Harcourt, to the National Sports Commission’s N1.2million to open or ‘maintain’ a Facebook account. This is not to even mention that MDAs gradually smuggled in an extra N1trillion worth of projects, on top of the existing N4.7trillion overall budget.

This gives us an insight into how our system allows for corruption to take place within the government. When there are such inflated or vague allocations in our budget, it makes it quite easy for public officials to pocket it and claim that the said projects have been executed or said items purchased. This is even made worse by the fact that the office of the Auditor-General of the Federation, which audits the entire Federal Government, is under-funded with only N300m allocation. How then can they have oversight over government spending and detect irregularities and fraud?

I have always believed that the first step to preventing corruption in our government is to close loopholes through which public funds disappear. We have to start by making sure government funds are spent on the barest necessities. Each expenditure must be justified by need and potential benefits, and it must be paid for competitively. The illusion that governments cannot go broke, and as such, can afford to continue to dish out money for projects like a lottery has to stop. It only provides the incentive for corruption. I cannot even begin to imagine the impact the monies allocated for this white-elephant and inflated projects would have if they are re-directed towards necessary social services such as education and health, or even towards infrastructure such as roads and power systems.

Even more, we have to strengthen the oversight functions of the necessary bodies. I have to commend the various Senate committees for painstakingly going through the budget proposals of the MDAs under their purview and speaking out against some of the ridiculous intended projects. But it must not stop there: they must also make sure that each of these projects is justified not just in terms of cost, but also in terms of necessity.

Also, the office of the Auditor-General of the Federation must be sufficiently empowered in terms of funding and personnel to be able to speedily and comprehensively audit the accounts of the entire Federal Government.

We also have to thank the existence of the Freedom of Information Act, which has made every detail of the budget available in a public domain, and has empowered every citizen to have knowledge of how our money is spent. We must not be silent with these facts, but must make our discomfort with this spending known. Let us apply pressure in the right places.

If we desire to stop and prevent corruption, we must make sure this system is not flawed as to allow stealing of public funds easy and even encouraging.

This budget, as it is presently, must not pass!