NigeriansTalk https://nigerianstalk.org Are we listening? Mon, 11 Sep 2017 06:10:06 +0000 en-US hourly 1 https://wordpress.org/?v=4.8.2 18788531 Reflections On Q2 2017 Domestic Output Numbers https://nigerianstalk.org/2017/09/11/reflections-on-q2-2017-domestic-output-numbers/ https://nigerianstalk.org/2017/09/11/reflections-on-q2-2017-domestic-output-numbers/#respond Mon, 11 Sep 2017 06:10:06 +0000 https://nigerianstalk.org/?p=12181 A set-piece was missing from the national response to data released (last week) by the official bean counters to the effect that domestic output grew by 0.55% (on an annual basis) in the April-June period. It still is something of a surprise that no one thought it fit to organise interdenominational prayers at mosques (on Friday) and churches (the following Sunday) to commemorate this happy fact. Otherwise, the hubbub around the data and its near-term import for the economy was fully justified. Six quarters of an economy in full retreat and of domestic inflation dashing forward at a fierce clip mean that for the better part of the incumbent administration’s stay in office, the “poor and vulnerable” segments of our population have come a cropper.

Given that the administration came into office on the back of this constituency’s frustration with the failure of the previous administration to democratise the gains from economic growth, the economy’s recent poor performance was always going to hurt the Buhari administration. How much succour the new numbers provide the Buhari government is moot, though. For prices of goods and services are still rising by more than 16% annually. Worse, food, an essential part of the “poor and vulnerable’s” shopping cart, has been rising much faster. What little chance there is of businesses investing in the economy in a way that supports increases in the current levels of employment (and hence, of stronger consumer spending) is held back by the government’s humongous appetite for borrowing. The monetary authority’s desire to maintain the real rate of return on naira-denominated assets, only compounds this process. Consequently, high local borrowing costs worsen already fraught conditions for doing business locally.

Add to all this the fact that a growth rate of 0.55% is not likely to move the needle of an economy with population growth more than 3% annually, and you begin to get a sense of the tasks before the managers of this economy. A task that we have spent the last two years in fierce debate over. A task, which unfortunately was always going to be met in the breach once the Buhari government persuaded itself that with Nigeria in the best of all possible conditions under its husbandry, all is for the best.

Even at that, the output numbers recently released by the National Bureau of Statistics (NBS) are a cautionary tale of sorts. We may have emerged from recession, but in doing so, we were only able to persuade growth in 14 of the economy’s 46 activity sectors. Trade, telecommunications & information services, and real estate sectors all saw output fall. Together, these sectors account for more than a third of domestic output. Agriculture, this government’s poster child, and the recipient of innumerable central bank-led funding initiatives, grew a lot less in the second quarter than it did in the first quarter. Despite the sound and fury that has accompanied OPEC’s efforts to keep global crude oil prices elevated, the second quarter output numbers for the crude petroleum and natural gas sector did signify much. The sector did very well — not just in absolute terms (up by 17.24% on the first quarter of the year), but especially relative to the deep funk that it fell into in the third quarter of last year (the oil sector was up 13.26% on the rate recorded in the corresponding quarter of 2016).

In other words, the moral of the story told by the output numbers for the second quarter is that the economy has been a beneficiary not so much of government’s programmes to lift it out of the rut it was in, but simply of improved crude oil sales, and at higher global prices. Put differently, despite the muscular efforts of proponents of the incumbent administration’s successes in office, we still have not done anything to strengthen the economy’s resilience to external shocks, nor enough to boost its capacity to cater to the needs of a larger part of its people. If government programmes failed to properly support the economy’s growth ambitions, could they have hurt it? The evidence from the manufacturing sector’s performance in the second quarter of the year would seem to suggestive a tentative “yes” as the answer to this question. The NBS reports real GDP growth in the second quarter of this year of 0.64%, 0.72% “lower than the rate recorded in the preceding quarter”.

Critics of the Central Bank of Nigeria’s (CBN) intervention in the foreign exchange markets in support of a “healthy” naira have long described it as an arbitrary usurpation of the functions of what is arguably the economy’s most powerful tool for adjusting to external shocks. The CBN, on the other hand, routinely points to the real sector’s foreign exchange funding needs in defence of its policy. If, despite the monetary authority’s best efforts in this regard the real sector continues to tread water, is it time, then, to reverse the policy and let automatic adjustments to the price mechanism allocate domestic resources?

Yes, would have been an obvious (and immediate) response, but for a peculiarly Nigerian conversational device. Despite the CBN’s illustrious work trying to keep the naira in fine fettle, see how the real sector has fared. Imagine how much worse its fortune would have been if it were denied the CBN’s life-support?

An interesting counter-factual this seems at first blush. Problem is that it assumes what must be proved as part of its set of proofs.

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Democracies And Lower-Order Institutions https://nigerianstalk.org/2017/09/04/democracies-and-lower-order-institutions/ https://nigerianstalk.org/2017/09/04/democracies-and-lower-order-institutions/#respond Mon, 04 Sep 2017 06:55:52 +0000 https://nigerianstalk.org/?p=12177 You do not have to be partisan in the debate (on social media, last week) over whether the annulment by the Kenyan Supreme Court (also last week) of the result of presidential election in that country was the first of its kind on the continent, to agree that it was, nonetheless, a landmark event. The annulment by the Babangida administration of the results of the 1993 presidential election in Nigeria was an inbetweener of sorts: final results had not yet been (officially) announced (unlike the one in Kenya); and given that the incumbent government was a military one, it was also a quasi-coup d’état.

Then, there was the military coup that put paid to the first multi-party elections in Algeria (since attaining independence). Concerned that the Islamic Salvation Front (FIS) was going to win the December 26, 1991 parliamentary elections, the army set in train a long and bloody civil war. But even then, much of the hope (in Nigeria) around a resolution of the impasse that followed what has come to be known as the “June 12” elections rested on the judiciary. As it has done, now and again, in other jurisdictions where the overweening ambitions of caudillos have regularly threatened the rights of citizens lower down the pecking order.

Increasingly, therefore, across developing economies transiting from authoritarian to liberal democratic governments, much of the emphasis on defence of popular rights is shifting from the previous concern with the conduct of regular elections, and the battery of third party institutions organised to ensure that such elections are free and fair to considerations of the independence of the judiciary. Whereas, previously, the ability to choose one’s government was considered a high-order right, it has become clear that lower-order institutions have a constructive role to play in the enthronement of this right. The vulnerabilities of a democracy are not solely from errors of commission (as in when would-be monarchs interfere with the proper running of the process). There are, increasingly, also threats to governance from the quotidian exercise of the institutions of the state (look no further than Donald Trump’s America). Confirming the fact that the successful management of a democracy is not about regular elections only.

Despite the media focus on the happenings in Kenya last week, in a way, across key swathes of the developing world, courts delivered judgements that point to new levels of maturity in these parts. The constitutional court’s decision in Guatemala to over-rule President Jimmy Morales’s expulsion of Iván Velásquez was simultaneously a clear statement on the boundaries of presidential powers in a democracy, as it was a vote for clean politics. President Morales took exception to the International Commission against Impunity in Guatemala’s (CICIG) — a UN-backed body, which Mr. Velásquez heads — decision to open investigations on the funding of his party the National Convergence Front (FCN).

In India, the supreme court faced a challenge of a different order. Again, much of the media focus on Indian courts, last week, was as excited about the boost to women’s rights from the ban on the “triple talaq” (which, until the verdict, made it easy for men to divorce their wives by uttering the Arabic word for “divorce” three times), as it was by the emphasis on equality before the law purportedly reinforced by a state court which found Ram Rahim Singh guilty of rape. Of greater moment though, was the Indian supreme court’s finding that “privacy” is a key part of all the many liberties that a democracy argues as basic to our collective humanity. Put this way, there is no stronger let on hubristic government than one where the laws are described and operated with broad attention to protecting individual rights.

Ironically, while privacy is important for the enjoyment of those rights without which our humanity is considerably diminished, if not completely negated, the standards by which this concept must be enforced loosen in their application to those who would govern. Therefore, Uhuru Kenyatta’s response to the Kenyan Supreme Court’s ruling fell short of the acceptable. Even in the English language rendition, the narrative around 6 people putting the kybosh on an election in which millions cast their vote was far from a positive take on the outcome. It, therefore, mattered that the Law Society of Kenya came out unequivocally on the Kenyan president’s response in Swahili to the court’s decision.

Uhuru Kenyatta’s characterisation of the Supreme Court of Kenya as crooks or scoundrels, and his threat to fix the court once he’s re-elected are vulnerabilities that elections often fail to fix. They are not often enough, on their own, in jurisdictions with multiple fissiparous tendencies to lead to damaging vote loss. Accordingly, failings of this type make the strongest case for strengthening lower order institutions in frontier economies such as ours.

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Of Social Media, Hate Speech, And A Resurgent Big Brother https://nigerianstalk.org/2017/08/28/of-social-media-hate-speech-and-a-resurgent-big-brother/ https://nigerianstalk.org/2017/08/28/of-social-media-hate-speech-and-a-resurgent-big-brother/#respond Mon, 28 Aug 2017 06:05:14 +0000 https://nigerianstalk.org/?p=12173 When (last week) the federal government gave new guidance on its heightened intolerance of “hate speech”, and a part of the Nigerian Army revealed that it is assiduously monitoring social media for infringements of the right to free speech, two fundamental, and three common errors were once again present.

Of the first set of errors, the failure to provide reassurance over how data collected through the army’s snooping will be managed, stored, protected and used, is arguably the most severe. In an age in which digital footprints are all over the place, data governance arrangements cannot be treated in a slapdash manner. Then, there is the less obvious matter of what qualifies as “hate speech”. Even in the U.S. where political correctness has evolved around aspects of this notion, the intensity of ongoing culture wars would suggest that except in its narrowest construction, this phrase might often constitute a hurdle to free speech. In our example, a weak criminal justice system invites us to criminalise aspects of our social interaction with utmost care.

Further down the path laid out earlier, the first of the three common errors committed by the Buhari government last week, is the tendency to depict social media as necessarily injurious to our social fabric. Despite the success with which illiberal governments across the world (from Turkey through Egypt) are doing this, this sentiment is not necessarily true. Useful analogies are with financial services, retail, and telecommunication. What the ubiquity of access to the internet has allowed in these spheres is in the dispersal of information, the speed of its delivery, and access by purveyors of information to a much broader market.

In the event, consumers’ ease of access to these services/products, and convenience of use has been enhanced. Social media has done no less for the dispersal of information. True, there is “fake news”. As indeed, there are hackers constantly seeking to gain unauthorised access to online bank accounts every day. And online retailers, especially those whose portals let in third party merchants, constantly battle with ensuring that knock-offs are not peddled on their websites.

But “fake news” did not start with social media. Much of it used to be dismissed as rumours when all we had to rely on for information were either television, radio, or the morning papers. It mattered then whether you had heard it on the BBC, just as we then went on to disparage as the result of “radio e l’eje” all such reports as were not repeated by trusted sources. All that social media has done, therefore, is broaden access to all reports — both true and false — and deliver them in real-time.

This, on the other hand, is only a bad thing for folks who imagine that a democracy is only about regular visits to the poll by the electorate, and the voting into office, usually for a four-year period, of government. If the end of each electoral cycle is nothing but the culmination of ongoing conversation amongst different parts of the electorate, then any medium that lubricates such dialogue is essential to the sustenance of democracies. Beyond this, there is the duty of accountability to the electorate that incumbent governments bear, and which is strengthened by the people’s ability to converse amongst themselves.

Incidentally, the incumbent federal government’s knee-jerk reaction to the supposed excesses of social media comes at a particularly low point in its fulfillment of this duty of accountability. Much of the bad press that has come its way over the last couple of months has owed entirely to its unwillingness to break clean with concerned parts of the populace on the nature of the ailment that has had the president of the country more out of office than in power. There may well be merit to the claim by supporters of the government’s position that it is no business of the electorate what the state of health of their president is so long as the economy is working. However, against the fact of 5 consecutive quarters of shrinking domestic output growth, this argument goes about in search of a decent leg to stand on.

Either way, no crime has yet been committed. Where, however, there is evidence of breach of the right to speak freely, either because such breach impugns undeservedly the reputation of another (a civil matter, really), or threatens the cohesion of the state (although criminal, this is more a symptom of structural weaknesses in the design/management of the state, which admit of stronger, but different nostrums) it is always the case that existing laws often suffice to deal with these. Admittedly, social media is new. But that does not mean we need to device more draconian means for policing users, and their usages, often committing scarce resources (as in the case of an army that so needs both signal and human intelligence on ongoing breaches of security) to this purpose. Or that we need always to pass (new) harsher laws.

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Owning Africa’s Narrative On “Big Media” https://nigerianstalk.org/2017/08/21/owning-africas-narrative-on-big-media/ Mon, 21 Aug 2017 06:21:46 +0000 https://nigerianstalk.org/?p=12166 Last week two distressful incidents struck different parts of the world in very different circumstances. Barcelona saw the Islamic State claim a terror act on a favourite tourist haunt which had the perpetrator plough his van through a road thronged with pedestrians. Sierra Leone, on the other hand, was visited by a huge mudslide which washed away homes on the edge of its capital. An involvement with humanity does mean that one is that much reduced each time the bell tolls to announce another’s death.

Accordingly, it borders on the irresponsible to hazard emotional equivalence in such situations. It ought not to matter how great the death toll is, if we are each diminished by another’s death. Yet, it was not just that for each life lost in the Catalan capital, Freetown lost 35. It is as much a function, too, of how difficult life has been of late for most Sierra Leoneans — one of the world’s more forlorn locations, and only just emerging from the ravages of the Ebola virus and (before that) a war that eroded the country’s already thin capacity for self-government. In part, however, the enormity of the disaster in Sierra Leone is an abiding symptom of the failure of the state in these parts.

Whereas, concerted policing efforts in Western Europe and North America (and, to be fair, considerable ineptness on the part of would-be terrorists) have made the motor vehicle the terrorists’ preferred weapon of choice. And the ubiquity of the vehicle and the anonymity it confers on its driver have made events like the one at Las Ramblas almost impossible to prevent. In Africa, much of the provenance of disasters such as took place in Sierra Leone reflect our leaders’ poor ordering of domestic priorities. Which circumstance, read differently, means that most of the natural disasters that the country suffers from, may, with proper governments in place, have been prevented, or made less punishing to the people.

Off this background, a part of the discussion of these two events on social media had me scratch my head most vigorously. At the heart of the conversation online was the way both disasters were treated by what one of the discussants called “big media”. Apparently, the likes of CNN had not only given much more airtime to the incident in Europe, but had put a slant on its Sierra Leone reportage that was “less than acceptable”. According to this friend of mine, writing on Facebook, “Every time they (big media) talk about Barcelona they play this sombre track and show us how world leaders and superstars sympathise with Spain. They show us the Eiffel Tower going dark for the victims. Everybody is sad. Flowers, pictures, memories. They manage to evoke public sympathy no doubt.

“Then, they show Sierra Leone, and show us the red soil, grave diggers and mass graves, etc. Somehow, this tragedy is reported as yet another piece of news. Somehow, your eyes remain dry unless you are African. Most will focus on the poverty than they would the tragedy”.

From there, the conversation moved on to how Africa was not “owning” its narrative. Obviously, this requirement to repurpose “our story” is not simply a function of who the storyteller is. It seems also to be about the “metrics and standards” that educate such narratives. Even this dimension of the problem, we also have to domesticate. Arguably, there is a great deal of truth in all of these. But no more than in the response to the question “Why are tales of want and extreme suffering out of Africa invariably the result of acts of God, or (what is in the end, but the flipside of the same coin), acts of omission and commission by unusually inept governments?”

The truth is that the dominant narrative out of the continent is not positive. Of course, this is not the same as arguing that there are no positive stories out of the place. It is instead a different way of saying that those who pay for the news media in Europe and North America have come to expect a people to be governed according to certain basic principles. It is, thus, newsworthy when people are not thus governed, resulting in the kind of tragedy that befell Freetown last week, or when those who would challenge those governance norms strike out at innocent citizens, as happened in Barcelona.

In this sense, an essential requirement for “domesticating our narrative”, in order, that it plays well on media anywhere in the world, is to move our governance practices (both in the public sector, and especially in the private sector) past the median measure for “normal” countries.

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Who Has Culture Helped? https://nigerianstalk.org/2017/08/14/who-has-culture-helped/ Mon, 14 Aug 2017 14:23:17 +0000 https://nigerianstalk.org/?p=12160 That we make so much of our “culture” ought, on balance, not to be a problem. Given how little we’ve been able to collectively push the needle in other fields of human endeavour, it could be argued that this obsession with the quotidian rites and rituals that “define whom we are” is, indeed, therapeutic. The resulting sense of difference (and superiority over the “culturally illiterate”) that an obstreperous defence of our cultural practices confers on the cognoscenti must count for something. But for the slight inconvenience that these cultural practices also hurt.

Just the other day, a colleague’s wife lost her mother. Almost invariably, the quality of conversation with him went south from that day. As the internment day neared, he descended further into a funk so blue, words bounced off it. Igbos clearly place a huge premium on a male in-law’s duty. In the name of obligations imposed by his “culture”, my colleague then sought loans to give his mother-in-law a befitting burial; loans he’d not taken to send his kids to “befitting” schools.

At bottom, what passes for “cultural practices” here is simply confirmation of Thorstein Veblen’s arguments against the basis for “conspicuous consumption”: with marginal social classes spending themselves out of pocket just to keep up with the lifestyle of the “idle rich”. If beggared neighbours were the main outcome of this practices, it would have been okay. However, in more important ways, our cultural practices are a shorthand for much of the problems that beset us as an economy; in particular, the seeming lack of logic to much of what we do.

Take the insistence by the Ibibio that upon the death of a parent-in-law, sons-in-law must kill a cow. Until recent advances in the study of animal trypanosomiasis, the tsetse fly belt, which covers much of the parts of Nigeria from Auchi down to the Niger Delta, meant that the zebu (our cattle of choice) was not native to the Ibibio. A pacific beast, it’s unlikely to have forced its way onto their kitchen any other way. Apparently, there were cows of a different make up down south. Reportedly these were shorter and stockier — who knows, but that these were mutations which made them handle the tsetse fly scourge much better. Today, sadly, this fauna is all but extinct. And if they were not, being of a much slighter configuration, they would not have commanded the same cachet as would the sight of 10 magnificent zebus tethered in the compound of a recently deceased Nigerian.

How in the face of evidence so graphic a part of the country may continue to contend that the mass slaughter of zebus as part of the obsequies associated with the passing of certain categories of persons is a cultural practice, is mind-gobbling. But not more so than the twisted logic which emerges when you try persuading a younger Yoruba to call one older than him by his first name. an exegesis on how Yoruba culture is built on respect for elders and authority, and how this has been material in the advancement of the people then follows. As does the stammering and stuttering when you remind the same person that it was once de rigueur for younger Yoruba males to crawl on their stomachs, lizard-like, in deference to both age and authority.

How was the decision arrived at to hold on diligently to the one practice, while dumping the other, few have ever reflected upon. The Edo’s treatment of widows immediately after the death of their husbands is so obviously beyond the pale as not to deserve any comment. Across the debate about culture locally, a fatalistic thread runs through much of the argument in favour of retention of practices which once may have had uses, but are today both unsightly and non-functional. Because the same thoughtless conservatism runs through just about every other aspect of our lives, it is easy to see how we were bound to end up trapped in the many cul-de-sacs (political, economic, cultural, etc.) that now define us.

I have heard told that this failure is one associated with cultures that arose from agrarian social organisation. Industrialisation and the large premium it places on enumeration and rational thought was supposed to have cured much of these foibles. At which point the conversation runs into a chicken-or-egg dilemma. Our industrialisation efforts have been held back by pre-industrial mindsets across the country. Yet without rapid industrialisation we may not be rid of these mindsets soon.

How to square this cycle?

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A Few Things I Learnt From Cyril Odu – Feyi Fawehinmi https://nigerianstalk.org/2017/08/11/a-few-things-i-learnt-from-cyril-odu-feyi-fawehinmi/ Fri, 11 Aug 2017 11:46:44 +0000 https://nigerianstalk.org/?p=12155

During my recent trip to Lagos, I had the good fortune of having a meeting with Cyril Odu — current CEO of African Capital Alliance, Chairman of Union Bank Nigeria and all of that after 4 decades with Exxon Mobil Nigeria.

To say the man is a fount of knowledge about Nigeria will be to state the blindingly obvious — he easily pulls out dates from 1972 and 1977 like it happened only yesterday. I’m hoping that someday soon, I’ll be able to do a full and formal interview with him.

Bio of Cyril Odu taken from the African Capital Alliance website.

I’ve paraphrased some of his words.

How we got to the current structure of the Nigerian oil industry

During the early 1970s the primary goal of OPEC members was to secure complete sovereignty over their petroleum resources. Accordingly, several OPEC members nationalized their oil reserves and altered their contracts with major oil companies. In Saudi Arabia, they simply took over the top of the industry and left their American and foreign technical partners to continue running things as before. This partly explains why ARAMCO is one of the better run oil companies today. At the other extreme, the Libyans kicked out the oil majors and took over everything themselves. Indonesia opted for production sharing contracts with the oil majors.

Nigeria settled somewhere in the middle of these approaches with the Joint Venture Participating Model with the majors. Nigeria joined OPEC in 1971 and subsequently created Nigerian National Oil Company (NNOC), the precursor of NNPC which was created in 1977. Starting in 1973 Nigeria acquired 35% equity participating interest in the oil majors operated assets and gradually increased the equity stake to 60% by 1979. Note that the oil companies had already invested significant sums of money into exploration and production prior to government acquiring a participatory interest in their assets.

When you think about it, this was the beginning of the structure of the industry we have today with all the challenges, including government not able to meet its share of the funding requirement in a sector that can be self-financing, can be traced back to the method by which Nigeria nationalized its oil industry 40 years ago.

What was that time like?

I joined Mobil in July 1972 just as NNOC came on the scene. It was a time of great national pride — many people felt that Nigeria was on the cusp of something big and so a lot of young, bright people left the foreign oil companies to join the newly formed national oil company. Recruitment was easy for them as it was fueled by national pride.

Why didn’t I join the wave and move to the NNPC? I had just started on my career in Mobil and chose to stay because Mobil had shown they were willing to invest in me and my career. I had a career plan mapped out in front of me which involved working in different parts of the business, working in other countries UK, USA acquiring an MBA while on a work assignment abroad.

It paid off because I was able to have a long and very rewarding career with Exxon Mobil before retiring in 2012.

Is it that you can’t retire or you don’t want to retire?

After I left Mobil, Okey (Enelamah) and Dick (Kramer) asked me to come on board here (ACA) as some sort of consultant in the energy and finance services sector for the private equity firm in 2012. It sounded like a fun new thing to do so I thought why not?

Everything was going as planned until late 2015. Udoma Udo Udoma was nominated as a Minister which meant he had to resign as Chairman of Union Bank. ACA is an investor in Union Bank so I had been the firm’s representative on the bank’s board as a non-executive director. The bank needed a new Chairman and it fell on me to take the position. As if that wasn’t enough, Okey also got nominated as a Minister and had to resign as CEO. It then fell on me to take over the running of the firm.

So quite literally overnight, my workload here doubled. I thought I was coming here to do a relatively easy job as an adviser/consultant.…


It was a long and fun conversation and not even a tenth of it is captured here. But I thought it would be worthwhile to share these bits with his very kind permission.

FF

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Of Potemkin Villages and Market Economies https://nigerianstalk.org/2017/08/07/of-potemkin-villages-and-market-economies/ Mon, 07 Aug 2017 08:45:35 +0000 https://nigerianstalk.org/?p=12149 At the height of the cold war, two powerful armies eyeballed each other across the world’s main conflict theatres. Each bristled with enough munitions to destroy the world several times over. MAD, as a description of the stasis (mutually assured destruction) that developed on the back of this relationship did not quite do the situation enough justice. But as with most easily told stories, beneath the NATO-Warsaw Pact face-off ran a much more nuanced undercurrent.

At this level, the battle was, at the risk of being simpler still, one between liberal democracy based on market economies, and a collectivist approach to organising societies. The United States of America was the standard bearer of the former perspective, while the Soviet Union led the latter. The Chinese, though, were bit players for much of the 70 years from the Great October Revolution in 1917 to the eventual collapse of the Berlin Wall in 1989. However, despite the ruse of the Non-Aligned Movement, the Chinese largely played their part of the game on the Soviet side of the divide.

Forward back to 1979. Deng Xiaoping, Secretary General of the Chinese Communist Party, persuaded that it doesn’t matter what colour a cat is so long as it is a good mouser, launched “Socialism with Chinese Characteristics”. Opening Mao’s hide-bound economy to both domestic entrepreneurs and foreign investment, Comrade Deng launched policy after policy that helped China move more people out of poverty in a far shorter period than has been achieved in modern times. Today, China is the second biggest economy in the world by any measure, and continues to threaten an eventual overhaul of the leader — the United States of America.

Russia, the rump of the former Soviet Union, on the other hand, may still be the U.S.’s only rival in terms of the number of ICBMs it can weaponise and deploy, but it is increasingly an economic tiddler. At US1.268tn, its annual output (2016 estimates) is much smaller than Brazil’s, Canada’s and India’s. Put simply, despite having been at the head of one of the most powerful military blocs in the run up to the 21st century, Russia is today basically a souped-up emerging market.

How come this change of fortunes?

Simple. While the Chinese embraced the market, foreign investment, new technologies, and foreign management styles, the Russians interpreted the loss of the cold war to their failed attempt at an earlier opening of their economy — Mikhail S. Gorbachev’s perestroika and glasnost — and sought instead an atavistic response. In Vladimir Putin, they found this response. A czar, able to allocate resources to his court, and projecting yesterday’s notion of power, the new monarchy in Russia continues to build its new space on Grigory Potemkin’s design for Empress Catherine II.

In this much narrow sense, both China and Russia are a cautionary fable for countries like ours still foraging for efficient paths out of underdevelopment. There are clearly few options more appropriate for the efficient allocation of scarce resources than the market. The opposite of this argument is that no matter how benign or wise a ruler is s/he is not always likely to succeed in choosing the best path for his/her society all the time. Unfortunately, whereas a market correction is often possible through adjusting relative prices, correcting for an errant autocrat is often a more expensive procedure.

That the market is impersonal enough to have many people drop off it is not in doubt. Nor is the point to be argued against that the market is often indifferent to the hardships that those who fall off its radar often suffer. Part of the shock of the resurgence in protectionist tendencies in the West is the result of the strength with which these latter points are made. But then, as the debate over healthcare reforms in the U.S. illustrate, the challenge of the sovereign in a market economy is not so much to impede the full functioning of the price mechanism. Instead, it is to build a safety net that gives all as occasionally fall victim of market forces a fighting chance.

In this sense, mankind could be said to have made giant leaps. For we tend to forget that poverty is a relative term. Compared with today’s affluent, much of mankind may be poorer. But against yesterday’s upper classes, a few of today’s poor are relatively well off. Our task as managers of economic spaces may, thus not be simply to close the gap between the rich and the poor. It might simply be enough to ensure that each generation of the poor can live much better than the preceding one.

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If Agriculture Is To Supplant Crude Oil As The Economy’s Engine https://nigerianstalk.org/2017/07/31/if-agriculture-is-to-supplant-crude-oil-as-the-economys-engine/ Mon, 31 Jul 2017 06:53:39 +0000 https://nigerianstalk.org/?p=12143 Arguably more interesting than the current state of the Nigerian economy are the conversations that have arisen on the back of its vicissitudes. One such especially insightful argument is the one that puts out agriculture as the solution to the economy’s current dependence on oil export earnings for much of its financing. By the way, this platform is also a natural extension of the “diversification as solution to the economy’s sundry vulnerabilities argument”. In one incarnation of this argument, the point is made (and without irony at that) that palm oil could be the new crude, if only the federal government was minded to pay heed to the sector’s needs.

To the point that by promoting agriculture, this way, we may simply be substituting an old dependence for a new one, supporters of this position indicate how much of domestic employment agriculture currently accounts for — about two-thirds! Thus, the argument continues, any investment in the agriculture sector that is able to drive up both capacity and productivity should result in net welfare gains across the economy. It should, in addition, strengthen domestic terms of trade in favour of our rural communities.

How much does it matters to this perspective that commodities’ prices move in lock-step? Accordingly, whether it is oil (palm or of the extractive variety), cocoa, or sesame seeds, exporters of primary produce are never going to sell more than there is a global appetite for their respective commodities. True, the pro-agriculture argument readily concedes. But isn’t the whole point of the planned reforms to the sector about boosting rural infrastructure (better inputs and roads to farm gates, better post-harvest processing, better storage, etc.)? Post-agriculture reform, therefore, considerable domestic “value addition” should help break the domestic industry’s link to the commodity cycle.

All well up to this point. Indeed, the latter focus on domestic economic linkages is essential if we are to break away from the current fixation with managing the naira’s external price (especially at some expense to its internal one). The case for agriculture along these lines starts to break down, however, when you consider that the sector uses up so much labour only because its management, techniques, and tools are antediluvian — rain-fed, subsistence (hoe-and-cutlass, etc.). If you consider that in those places where agriculture plays important roles (food-sufficient, and provider of key input into the domestic value chains) in the economy, a very small number of the population is engaged in the sector, then we clearly confront a different task order in any planned reforms to the sector.

Mechanisation on a very large scale, use of improved crop varieties, and advanced soil management techniques (all of which are essential to improving both capacity and efficiency in the sector), would all require changes to the way the economy as a whole is structured. At the very least, mechanics must be educated to levels where they can keep tractors (combine harvesters?) running optimally across the country. Local research institutes must be able to improve seedlings for local use, across the broad range of domestic farm produce. And agriculture extension facilities must be up to scratch.

But by far the bigger change must be to rural-urban terms of trade. If the goal of a more efficient agriculture sector would result in 3% of the working age population producing all of the sector’s output post-reforms, then we would have to deal with the challenge of finding useful employment for close to 67% of our current workforce. Now, this is a lot of hands to be left idle. And as both Boko Haram, the restiveness in the Niger Delta region, and a resurgence of separatists’ sentiments in the Southeast show, if the economy is loth to find gainful employment for any number of our youth, a less benevolent employer would lend them a helping hand.

If it is to be of any use, much of the new employment should open in urban areas. It thus matters that the current bias against “rural-urban migration” amongst our policy wonks must be addressed for the harmful fiction that it represents. Beyond that, though, urban industry and services will have to endure reforms as thorough-going as in the agriculture sector, if they are to soak up the excess labour released from the newly-reformed rural areas. In a roundabout way, then, we do not just return to the now familiar refrain that government must bring down business costs across the economy if it is to see significant appreciation in output growth. We are also invited to re-emphasise the relative importance of social investment in leveraging any such reforms.

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Why? (Yam and Wood) – Feyi Fawehinmi https://nigerianstalk.org/2017/07/26/why-yam-and-wood-feyi-fawehinmi/ Wed, 26 Jul 2017 06:22:09 +0000 https://nigerianstalk.org/?p=12133 A couple of days ago, The Guardian Nigeria committed a serious act of journalism with an excellent multimedia story on the wood industry and market in Lagos. If you haven’t read it yet, leave what you’re doing and read it here now.

It’s an example of what is not being done by the Nigerian media — bringing stories to life in a way that educates the reading public. Well done to Yemisi Adegoke who wrote the story and Yinka Obebe who took the photos.

But I want to talk about a part of the story that I found incredibly disturbing. I will quote the relevant parts at length:

But in the midst of the rags-to-riches stories lies something more troubling — the growing number of issues that threaten the very survival of the business. The rise of the cost of business is squeezing profit margins at all levels, with the sawyers who invest the money to finance the operations especially feeling the pinch.

‘’Economically, things are not the same in Nigeria again,’’ says Goodluck Pemi. “Everybody is complaining about one thing or another and the cost of the business is higher. Even feeding is expensive and wood workers can finish a bag of garri in a week because we eat a lot of eba.”

Bad roads, poor infrastructure and little governmental support also don’t create the best environment for the market to continue growing, as well as outdated machines.

And

But perhaps the biggest concern lies with the wood origins. ‘’Somewhere near Ijebu-ode, around ’81, 82, 83, when I had the opportunity to be there, you would see seeders planted by the Europeans. But today, that place has been destroyed completely,’’ Akolo shares.

Deforestation in Nigeria is a serious problem with the UN reporting that Nigeria is one of the top ten countries in the world with the highest rates of deforestation. As a nation, Nigeria relies heavily on wood, particularly for energy, but loses about 350,000 to 400,000 hectares of land a year, to deforestation. Further rapid deforestation could prove devastating. “Government says ‘to cut one tree, you plant three’ but we don’t do that. We only cut and we don’t plant. Our forests are going.” While Akolo worries, Pemi says, “You can’t go out of it (leave the job). It is better to stick to it and manage what you have in your hand than staying idle.” But for how much longer will this business survive?

Last month, America’s NPR did a story on Nigerian yam farming and the various challenges with it. Here’s the part I want to talk about [emphasis mine]:

But in the past few years, Nigeria’s yam yield has dropped to its lowest level in two decades, according to the United Nations, even though the area of land under cultivation is rapidly rising.

“For a large number of farmers, seed yam is a big problem,” said Robert Aseidu, West Africa research director for the International Institute of Tropical Agriculture (IITA), a nonprofit research organization based in Nigeria. “It’s only now that we’re seeing how big a problem this could become.”

The trouble stems from the way yam is grown by Nigeria’s small farmers. New tubers grow directly from planted pieces of old ones, rather than from seed. Traditionally, farmers will set aside the more measly yams from each harvest to use as seed yams for the next season, and take the bigger ones away to eat or sell. Having a big enough harvest to be able to keep your own seed yams is a mark of a farmer’s competence; buying them at the market is considered bad luck.

At the same time, yams are clonal, meaning that each tuber is genetically identical to its “parent.” So farmers are essentially planting the same yam over and over again, with none of the routine genetic mutation that typically occurs between generations to help ward off pests and diseases. And because farmers tend to set aside the worst yams as parents, they’re unintentionally practicing a kind of anti-Darwinian “survival of the scrawniest.”

“When you have this recycling over so many years, then they keep accumulating pests and diseases, and then productivity keeps reducing until you get to a stage where it’s no [longer] economical to plant anything,” says Beatrice Aighewi, a yam specialist at IITA.

What is going on here? There is no other way to describe this other than a purely destructive culture. In that same article about wood business, the traders talk about how they buy jeeps and build houses from the proceeds of the business. The wood ‘venture capitalists’ spend at least N3m on each expedition. The business is profitable. So why can they not secure their own future by reinvesting just a small part of their proceeds in planting trees to ensure, if not them, their kids have something to make money off in future?

Ticket to Mecca — One way

In the article about yams, the farmers talk about making money from a good harvest and then using the proceeds to go on pilgrimage to Mecca. So why on earth are they replanting the worst of their yams? In both cases, their businesses are literally dying before their very eyes and they are seemingly incapable of breaking out of a clearly destructive pattern?

Why?

The oyinbo man planted trees many decades ago. You know he planted them. You are cutting them down. You know the oyinbo man has left. The trees you are cutting down are providing you with enough money to buy a jeep. Do you not want more jeeps? Or do you not want something for your children to cut down? Yet you cut them down without replacing them and then spend the money killing yourself with enjoyment?

Why?

As I wrote in my last piece in The Guardian, we urgently need social scientists in policy making in Nigeria. It is impossible for a country to make much progress under these conditions. Are we going to sit around waiting for the EU to throw some money at tree planting to replace the forests that we have turned to jeeps? Tree planting is surely not that hard — I see them planting them every time here. You stick them in the ground and allow nature do the rest.

A lot of the problems afflicting Nigeria today are in the head. Yes, Nigerian leadership has been and is currently hopeless. But there is a problem here that can only be fixed by getting inside the heads of Nigerians and zapping these destructive neurons.

FF

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Re-purposing The Discussion Around The National Debt https://nigerianstalk.org/2017/07/24/re-purposing-the-discussion-around-the-national-debt/ Mon, 24 Jul 2017 09:38:42 +0000 https://nigerianstalk.org/?p=12127 Two weeks ago, the federal finance minister was reported to have argued against further borrowing by her government. Speaking at a business forum in Abuja, Mrs. Kemi Adeosun apparently said that “We cannot borrow any more, we just have to generate funds domestically enough to fund our budget and mobilise revenue to fund the necessary budget increase”, or some words to this effect. At about the same time, in a section titled “Deteriorating public finances in Sub-Saharan Africa”, the World Bank (“Global Economic Prospects – A Fragile Recovery – June 2017), described the region’s “interest-to-revenue ratio” as “sustainable, helped by the high share of concessional borrowing”. Nigeria, however, was a notable outlier, with the “federal government’s interest-to-revenue ratio (rising) from 33 percent in 2015 to 59 percent in 2016”.

Thus, almost overnight, the domestic discussion around the Buhari administration’s burgeoning appetite for borrowing has moved to the fore and centre of national concerns. Interestingly, in making this transition from a staple of “experts’” rumination to the top of the chatter across speakeasies’ and shebeens’, this theme looks to have dropped a familiar denominator: the size of the economy. Some have even argued that it is the absence of this denominator from popular discussions of the economy’s domestic debt burden that has made the latter topical. In essence, our large (and growing) public debt no longer looks manageable without the now familiar reference to the (large and compensating) size of the economy.

There is a pachyderm in the room, all right. Unsure, at this point, whether it is a hippopotamus, rhinoceros, or an elephant, there is no doubt that it is large and its eventual effect potentially ruinous. True, we are back to that point, 12 years ago, when similar worries over the sustainability of the country’s external debt burden persuaded the Obasanjo administration to negotiate a Policy Support Instrument with the Paris Club of creditor nations that included “debt cancellation estimated at US$18 billion (including moratorium interest) representing an overall cancellation of about 60% of its debt to the Paris Club of around US$30 billion”.

We are also at the point, 10 years ago, where the threat of “fiscal dominance” was a sufficient worry to persuade government to strengthen the Central Bank of Nigeria (CBN) by granting it both goal and tool independence. Fiscal dominance arises when poor fiscal policy leads to a huge debt burden (as in our present circumstance), and when worries over the cost of servicing the domestic portion of this debt is big enough to prevent the monetary authority from raising interest rates to deal with exchange rate pressures (again, as is currently the case with the CBN’s rate-setting mechanism).

Within this context, ought we to worry that estimates of central bank lending to the federal government over the last 2 years is circa N7tn? Does it matter that the Central Bank of Nigeria may have become the single biggest holder of sovereign domestic debt instruments? And how? Besides, with arguments at the beginning of the year that by the second quarter, domestic price increases should soften (as the base effect from structural price increases in the first quarter of 2016 wore off) proving heroic, should we worry that sticky domestic prices are now simply the consequence of too much money chasing after far fewer goods?

Onerous, though, all of these burdens may be, they pale in comparison with the picture that emerges when we bother to confront the fact that all that we have borrowed in the last 24 months have not been used to boost the economy’s productivity, nor increase its production capacity. Instead, as I recently argued, under the last two federal administrations, the economy’s supply curve has slipped leftward inexorably and very sharply. We are then confronted with the prospects, over a medium-term that will soon be on us, of paying down both principal and coupon on this borrowing binge off a near comatose economy.

Would it matter that by the time we start re-paying these debts global interest rates may have resumed their northwards movement? Maybe not for “concessional borrowing”. Still, a less accommodative global monetary policy space will take its toll on this economy in months to come.

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