Author

Cees Harmon

Cees is a 15-year financial media expert with cognate experience spread over Newswatch and much more recently Businessday

Cees Harrington Harmon
Economy

Rebasing Nigeria’s Economy Overdue, Conservatively $1.7 Trillion

by Cees Harmon
written by Cees Harmon 10mins read

Contrary to the $494 billion gross domestic product (GDP) estimate of the Nigerian economy by the World Bank, a recent report posits that Nigeria’s GDP might be conservatively put at $1.7 trillion.

Dr. Akintoye Akindele,  Founder & Chairman of Platform Capital;  Founder & CEO of Duport Midstream; Founder, CEO & Chairman of Atlantic; Chairman of Unicorn; Co-Chair of WhiteSpaceX, Chairman of Diatom Impact, and Founder of Synergy Capital Managers & Advisers disclosed this recently while delivering a lecture titled: Betting Big on Africa. It was a presentation at the Africa Business Convention 2022.

Dr. Akindele, CFA said Nigeria’s GDP far exceeds $494 bn. He stated that some important informal sectors contributing to the Nigerian economy are not captured. He, therefore, called for the rebasing of the economy, having done so more than 10 years ago.

“New sectors have emerged: fintech has grown; same with media and entertainment, fashion, food, sports, and gaming have all grown. In essence, if we adjust this GDP today for real PPP gain, Nigeria’s GDP should be over $1trillion,” he said.

Akindele said technology, fashion, informal financial services and channels, agritech, renewable energy & solar systems, and many others have added in no small way to the Nigerian economy over the past 10 years.

He further argued that cash and liquid instruments are still the dominant means of exchange and trade. “The economy has, based on estimates, a larger informal market than the formal market that is yet to be captured in formal computations but generates billions of dollars in trading volume and value daily; money in circulation only accounts for 25 percent of GDP – further buttressing our point that we are bigger than we are aware when the value ascribable to real economic activity is brought on stream.

“Our conservative estimate of the real size of the Nigerian economy is $1.77 trillion,” he added.

On the wider analysis, Akindele said, “UNCTAD estimated intra-African trade in 2017 at $126 billion. How is this even possible? This means that on an average, an African country trades just about $2.34 billion with other African countries. This is impossible! The informal sector trade between border cities in border countries such as Nigeria – Benin; Ghana – Togo; Togo – Cote D’Ivoire, Tanzania – Kenya among many others is mostly not captured in this data. The daily volume and values of these trades alone is easily 10 – 20 times what is published and carried in poplar statistics and research houses.”

Harping on the potential for further growth of the Nigerian economy, Akindele said investment thesis that will drive inclusive economic growth in Nigeria in particular, and Africa at large has to be consumer-led, focusing on key sectors with investment themes and styles that would win simple, inclusive and consumer-led cost-effective, region agnostic ecosystem.

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anthonio gutteres
Economy

When Freedom Enslaves The Freed

by Cees Harmon
written by Cees Harmon 10mins read

There is no such thing in the world as unlimited freedom (carte blanche) relating to the activities of humankind that do not have repercussions. Unrestrained freedom usually comes with negative consequences, felt either as an individual or a collective.

Hence, in our quest for liberty, it is always important to balance that freedom with a sense of responsibility. That is where restraint in the exercise of our liberty is important.

History is littered with examples of freedom entrapping the freed, including the very tenets of democracy. As Luiz Fux, a justice of the Brazilian Supreme Court and former president of Brazil’s Superior Electoral Court put it in the context of fake news, “Sometimes the excessive concern with freedom of expression ends up violating a more important principle – the democratic principle.

But outside of the context of fake news, people and societies are becoming slaves of their own freedom.

For example, in many Hesperian nations, it is considered individuals’ fundamental human right to choose their gender. Hence with the science and technology available to do it, it has become common practice for individuals to opt to be the opposite sex. The upshot of that drift is that it inhibits procreation, hence population growth, with the consequence of threatening such countries’ welfare systems due to aging populations. That goes pari passu with the shrinking labour force. Ultimately, the economy is negatively impacted. And, depending on individual perspectives, such practices are fuelling moral decadence. Some try to be transracial, which comes with future health costs. Others make claims of being children, even though they are adults, and vice versa.   

Gun ownership in the West has become a pertinent issue for debate every year, especially in the United States where scores of lives are lost virtually on a daily basis either by commission or omission. That right to own guns is indeed curbing the freedom of many Americans, for example, as some fear going to certain neighborhoods. Also, it is costing state governments dearly in terms of litigations and compensating innocent victims of gun violence.

Freedom was taken to another extreme on January 6, 2021, on the US Capitol, the very heart and soul of US democracy, while a democratic process was taking place. Essentially, the exercise of freedom by mobsters was taken to such extremes that they attacked the very system that grants them freedom.

Unhinged and arguably irresponsible freedom of the media is partly to blame for the Rwandan genocide that occurred in 1994. It is scary today to fathom the degree to which social media can be a force for good or for evil. With the prevalence of fake news reverberating in every nook and cranny of the country on a daily basis, Nigeria’s orientation, law enforcement agencies, as well as legal system ought to be strengthened to deal with such marauding force. That call is especially directed at ethnoreligious chauvinism.    

Historically, the priority of freedom of speech has been justified on both knowledge and democratic grounds. Following John Milton’s Areopagitica (1644), John Stuart Mill and others argued that the ‘free exchange of ideas was necessary for the advancement and testing of truth. Also, democratic theorists inspired by Jean-Jacques Rousseau have long insisted that unrestricted public deliberation and debate were essential to democratic legitimacy through the development, refinement, and expression of the ‘general’ will.

On the other hand, who should be trusted for saying the truth or doing what is absolutely right? Writing in the 18th century, Montesquieu observed that “In absolute monarchies, historians betray the truth because they do not have the liberty to tell it; in extremely free states, they betray the truth because of their very liberty for…each one becomes as much the slave of the prejudices of his faction as he would be of a despot.

Since, therefore, the absolute truths in words or actions are not guaranteed from imperfect humans, there should always be caution and limitations in the ways we exercise the same.

For many years, commentators argued that the rise of the internet and social media, by allowing a low-cost, easy entry, a way for information to be disseminated, would foster knowledge. For example, what might be described as “quasi-presses” reach large audiences without the intervention of the corporate giants that control the traditional media outlets.

While true, however, news filtering through such media is not subjected to robust debate, but rather a marked trend of ideology in which like-minded partisans isolate themselves in self-referential and reinforcing media echo chambers.

The speed and near simultaneity with which ideas can be spread (the phenomenon of “going viral”) in many respects makes social media communication akin to speeches made to an excited mob. All of this takes place without the intervention of a “responsible” editor, often anonymously, and without the informal social control that is characteristic of real, as opposed to virtual, social interactions. The volume of “fake news” is dramatically increasing while the capacity of citizens to distinguish true from false is decreasing, in part because the arbiters of truth have themselves been compromised.

Fittingly, the European Convention on Human Rights allows limitations on freedom of expression that is necessary for a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.

 Nigeria’s nascent democratic experiment naturally inspires the feeling of latent self-expression; and sometimes as a group, especially when it comes to ethnic and religious sentiments. As a nation of educated people, it goes with a caveat: MAY WE NOT ALLOW OUR FRE

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AfCFTA
Economy

Nigerian Roads And competitiveness In AfCFTA

by Cees Harmon
written by Cees Harmon 10mins read

The state of Nigerian roads poses an economic emergency because transportation of goods and services from producer to consumer constitutes the lubricant of the economy. And since more than 90 percent of transportation in Nigeria is done on roads, good roads are sine qua non to economic growth and development.

But it is obvious that the attention given to roads is not adequate to oil the economy. Many Nigerian roads are still not paved, which makes it harder to boost the transport industry.

Depending on the source of statistics, Nigeria can boast of between 193,000 and 195,000 kilometers of roads, segmented into Trunk “A”, Trunk “B”, and Trunk “C”.

According to the Infrastructure Concession Regulatory Commission (ICRC), Nigeria has about 195,000 km of road network out of which a proportion of about 32,000 km are federal roads while 31,000km are state roads; local government roads make up 132,000 kilometers, divided into 774 areas.

Out of this, only about 60,000km is paved, constituting 30.7 percent. Yet, of the paved roads, large proportions are in a very poor, unacceptable condition due to insufficient investment and lack of adequate maintenance.

It is this large portion of dilapidated roads, which make many impassable that inform other sources to contend that barely 28,980km (15 percent) is paved.

Considering the fact that Nigeria has ratified the African Continental Free Trade Agreement (AfCFTA), the state of the country’s roads has implications for competitiveness as the entire continent evolves into one market. The poor quality of Nigerian roads acts as a stumbling block to development in the country.

A World Bank assessment showed that road users bear the true cost of poor road maintenance in Nigeria. Essentially, bad roads mean that drivers spend more on their cars and road users spend more on transport fares. Transporting goods across the country also becomes more expensive, contributing to Nigeria’s long-term inflation problem. The effect is lower consumption of goods and services, especially in rural areas; and with a little over 50 percent of the population situated in rural areas, the effect on trade cannot be favorable.  

Further afield in the AfCFTA market, the bad roads situation in the country may engender reduced competitiveness for Nigerian goods, especially agricultural products consequent to transportation cost implications, as well as wastage consequent to long hours conveying perishable goods from farm to market.

So, increased investment in paving and maintaining roads would help mitigate high transport costs, which will trickle down to the effect of lower prices in the economy, particularly in hard-to-reach rural areas, and by extension, the wider AfCFTA market.

A World Bank working paper points to this precise effect, showing that by upgrading the primary road network connecting major cities, countries in Sub-Saharan Africa can increase regional trade by $250 billion in 5 years.

A highway network can be likened to the human cardiovascular system. Good pavement and minimal construction zones keep a local economy moving, healthy, and growing, but potholes and slow-moving construction projects are like plaques that render regional commerce sclerotic.

When interstate highways are pockmarked by rough, vehicle-ruining roads, it takes longer to deliver goods in and out of the region. Delivery vehicles will be damaged more often (flat tires, bent tire rims, broken axles, etc.) and need more repairs.

Labour and fuel costs increase when traffic moves slowly, due, simply too bad conditions, or lane closures during extended resurfacing projects – causing drivers, their goods, and passengers to endure more time per trip. For a promising and competitive AfCFTA market, slow delivery and high cost of goods owing to high transportation costs would easily put Nigerian businessmen and women out of competition.

Many rural areas are already hard to reach because they are far away from central cities and state capitals. Such areas are usually cut off because of the distance needed to cover to reach them, and also because the roads leading to these areas are not paved thereby making it much harder to access them. Consequently, these areas have challenges and limitations in getting essential goods, commodities, and services delivered to them. The difficulty in accessing these areas also reduces their chances for commercialization and industrialization.

When rural China was made accessible by improved road conditions, for example, it resulted in lower transport costs, which in turn resulted in increased household income. Rural areas saw increases in per capita consumption as a result of increased road investments which opened rural areas to domestic and international markets.

Imagine how many years of manhours, goods, and services have been wasted on the Lagos/Badagry road or the Mokwa-Bida-Lambata road that connects the South-west to the North due to neglect over the past decade.

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Gabriel Ogbechie
Economy

Indonesia Earns More From Palm Oil Export Than Nigerian From Crude Oil—Ogbechie

by Cees Harmon
written by Cees Harmon 10mins read

The founder, managing director, and chief executive officer of Rainoil Limited have said Indonesia earns more money from the export of palm oil than Nigeria earns from crude oil annually.

  • Crude Oil

He said this in an exclusive interview with The Alvin Report while making a case for Nigeria to look inward and change the narrative away from over-dependence on crude oil.

Citing agriculture as a huge opportunity to change that trajectory, he stressed that “Indonesia earns more from palm oil export than Nigeria from crude oil.”

For example, according to Statista, a U.S.-based statistics website, Indonesia earned $20.34 billion in 2017, $17.9 billion in 2018, $15.56 billion in 2019, and $18.45 billion in 2020 from palm oil export.

On the other hand, according to the Nigeria Extractive Industries Transparency Initiative (NEITI), Nigeria gets 35 percent of the sale of her crude oil and 65 percent goes to the international oil companies. In 2020, for example, Nigeria exported $48 billion worth of crude oil, 35 percent of which earned her $16.8 billion in revenue from crude oil.

He urged a rethink of the way the country does business, stressing, “We need to give attention to making the cake and remove our attention from sharing the cake. If we make a big cake nobody will bother much about having crude oil even if it’s there.”

Expressing confidence in a Nigeria with a bright future, the serial investor said he has fully developed 1,500 hectares of palm plantation in Delta State and is currently building an oil mill for the plantation.

He called on Nigerians to make long-term investments to grow the economy. He also expressed the need for the government to invest in infrastructure that encourages heavy-duty manufacturing and export, adding that Nigeria needs to invest more in ports.

He also called on the federal government to get the power sector up and running. He said once the energy sector is fixed, at least 40 percent of the unemployment crisis in the country will naturally vanish.

Commenting on the business environment of Nigeria, Ogbechie said he believes businesspeople need to learn how to run business in the environment they find themselves in and adapt to that environment, not always as things ought to be. He said there is no perfect situation as there will always be regulatory constraints in whatever business environment one finds himself in. He stated that business people need to define their boundary conditions and find the space in which to operate.

It may be recalled that at The Duke’s Economic Summit (virtual) held on April 24, 2020, one of the discussants, Dr. Tope Fasua, an economist, said “Nigeria is better off producing palm oil than crude oil.”

While that may have sounded queer to some people, palm oil is one veritable diversification potential Nigeria would do well to cultivate for herself as the price of crude oil on the international market remains unstable; and as the Indonesia experience proves.

Palm oil is not only used for cooking. It has several nutritional and industrial uses. Some of its nutritional uses include cooking oil, deep frying oils, margarine and spreads, bakery fats, cocoa butter alternatives, confectionery fats, ice-cream fats, infants nutrition fats, to name a few.

Some industrial uses of palm oil include cosmetics and personal care, soaps, candles, pharmaceuticals, lubricants and grease, surfactants, industrial chemicals, agrochemicals, coatings, paints and lacquers, electronics, leather, and bio-diesel.

There is no gainsaying the fact that Nigeria stands to gain much from this lucrative agricultural product, and indeed has the capacity to get its fair slice of the palm oil market internationally.

As a precedent, Nigeria has enjoyed a good share of the palm oil market before. According to the World Rain-forest Movement, oil palm is indigenous to the Nigerian coastal plain though it has migrated inland as a staple crop.

As of the early 1900s, Nigeria was producing all palm oil sold on the world market and it was considered a dominant source of foreign exchange. Up until the 1960s, Nigeria was the world’s largest producer of palm oil accounting for 43 percent of global palm oil production. Over-reliance on traditional production methods, excessive tapping of palm trees for palm wine, and the civil war (between 1967-1970) are factors that contributed to Nigeria’s inability to meet up with the global rise in demand for palm oil.

The Nigerian oil palm belt

The Nigerian oil palm belt covers twenty-four states, including all nine states of the Niger Delta (Akwa Ibom, Abia, Rivers, Edo, Imo, Ondo, Bayelsa, Cross River, and Delta). Within the oil palm belt in Nigeria, 80 percent of production comes from dispersed smallholders who harvest semi-wild plants and use manual processing techniques. Several million smallholders are spread over an estimated area ranging from 1.65 million hectares to 2.4 million hectares and to a maximum of 3 million hectares. The estimate for oil palm plantations in Nigeria ranges from 169,000 hectares (72,000 ha of estate plantations and 97,000 ha of smallholder plantations) to 360,000 hectares of plantations, according to a report titled: Palm Oil Value Chain Analysis in the Nigeria Delta.

Cultivation of oil palm

Cultivation of oil palm serves as a means of livelihood for many rural families and indeed the farming culture of millions of people in the country. The reference to oil palm as a crop of multiple values underscores its economic importance.

Palm oil production remains a major vocation in many communities. It involves hundreds of thousands of poor producers and tens of thousands of poor processors.  It provides income for many farmers and their dependents. This connotes that an efficient and strong palm oil sector in Nigeria will enable the poor to be part of the solution to the poverty challenge through the provision of employment and a means of livelihood. There are numerous ways in which oil palm production could be deployed to boost employment opportunities for the people.

And to think of it, many think of only one product of the palm tree. Oil palm is made of essential components, namely: the fronds, the leaves, the trunk, and the roots which are used for several purposes ranging from palm oil, palm kernel oil, palm wine, broom, palm kernel cake, and many more.

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Economy

Heads Up On Bandaging The Bleeding Naira

by Cees Harmon
written by Cees Harmon 10mins read

The rate at which the value of the naira has been battered over the past six years is historic, to say the least. Over the period, the value of the local currency has eroded by more than N350 naira. And the trend seems to be inexorable.

Professor Tayo Bello of the Department of Private and Commercial Law, Babcock University, predicts that the dollar will exchange for N800.00, and more than N1,000.00 for the pound sterling by December.

No doubt, the loss of value of the naira goes hand in hand with inflation, which in turn has implications for the welfare of Nigerians.

Hence, you are in good company reading what aficionados had to say about the hemorrhaging of local currency recently at a webinar forum organized by The Alvin Report and Nairametrics.

The forum was laced with some of the brightest minds that did justice to the topic: The Hemorrhaging Naira: Way Forward.

Tope Fasua, economist and chief executive of Global Analytics Consulting Limited, who set the ball rolling, largely viewed the problem through the lens of perception. He caveated that a unified exchange rate is never going to happen as he stressed that there is hardly any unified exchange rate between the parallel and official markets in any country. He said 50 percent of the value of any currency is based on perception, and that individuals were entitled to their individual freedoms to bargain whatever rates they were willing to exchange their money for.

He said the black market will continue to exist. He argued that Nigerians’ understanding of economics must evolve as there is no grounding point for saying that the country’s currency must be determined by demand and supply.

He also stated that one of Nigeria’s problems is that we seem to have an innate belief that the naira is rubbish. Fasua added that 50 percent of the value of a currency is based on perception—if you think your currency is rubbish it will be rubbish, which is a self-fulfilling prophecy.

Stressing that the issue of the value of the naira is based on perception, he alluded that Ghanaians value their currency more than the dollar, which is different from what obtains in Nigeria and paying off for them.

He cautioned that there is information asymmetry when it comes to the price of money. “If we allow the currency to be determined by demand and supply, there is only one way, down, because the naira is up against the currencies of some of the most economically diversified countries in the world, such as the USA. He also cautioned that if you fix your currency it will move against you because it will be shorted. He added that if you borrow too much your currency will fall.

The economist said devaluing the naira cannot have any positive effect any longer because the price is determined by Nigeria. He cited the Marshall-Lerner condition, which states that currency devaluation will only lead to an improvement in the balance of payments if the sum of demand elasticity for imports and exports is greater than one.

He also said Nigeria needs to have a good economic complexity index, which is a holistic measure of the productive capabilities of large economic systems, usually, cities, regions, or countries, which looks to explain the knowledge accumulation in a population and that is expressed in the economic activities present in a city, country or region.

Fasua, although earlier stating that there can never be a unified exchange rate, said BDCs constitute part of the problem of the hemorrhaging naira because some people profit from it, which is corruption because such people put demand pressure on the naira.

But beyond perception, Fasua picked on the issues of diversification and productivity. Beyond the government, Fasua said individual Nigerians must ask themselves what we are producing. He added that diversification should not be mouth talk but must be followed by action. He said for currencies to be strong there must be fundamentals.

He said FDI is the better investment to have, not hush money. He added that the CBN should expand illegible transactions, which will meet the supply for forex.

Fasua had blamed the security situation in the country as having a run on the economy because the situation stalls investments. He stated that the government has been investing a lot of money to support the people in the form of palliatives but that has not translated to productivity, which also has a toll on the naira because that all that money is in the system and chasing the dollar, which is also contributing to the naira hemorrhage.

Ascribing the hemorrhaging of the naira to the entire Nigerian project, Fasua advised that the naira not be fixed to any currency as that would be a recipe to short the local currency.

He also said Nigerians should stop the self-fulfilling prophecy that the naira is worth nothing. He said with that attitude the naira would lose value.

He also queried the idea of over-borrowing and devoting 95 percent of the revenues accruing the government going to the servicing of debt, warning that it would be dire if multiple creditors have the payments due at the same time.

Jimi Ogbobine, head, Agusto Consulting, on the other hand, viewed the hemorrhaging naira through the lens of fundamentals. He said as the rate of a country’s inflation rises, the value of the naira will fall. He said the inflation rate drives the value of the currency down. Jimi charged that we are fixated on the exchange rate, not the bottom line, which is inflation.

He said with high inflation, investors’ expectation on yield is higher as smart money is looking for yield above the rate of inflation; otherwise, it is a loss on investment. He said giving higher yields is the way to go. Otherwise, investors will hedge against inflation. He said more Nigerians are trying to hedge against an eroding naira into the US dollar because of high inflation rates.

Ogbobine said Nigeria does not over-import, but under-exports. Nigeria should export more. If people want to seek services and goods abroad, they should go. But it should reflect the price.

Tackling the root of the problem, he said Nigeria needs to give attention to the drivers of inflation, which includes running a chronic budget deficit. According to him, “We are increasing the money supply to fund our budget deficit. Monetary supply spending without a fundamental increase in production will only increase inflation.”

He also urged the government to harmonize exchange rates to attract foreign direct investment (FDI). He added that people will bet if the gap is widened.

On his part, Segun Akanji, the Divisional Head of Strategy, Heritage Bank blamed the hemorrhaging naira on the institutional void. He said institutions are not strong, which causes corruption, which in turn causes crime.

He said the country needs strong policies, which should help us determine price, premium, and return. He also queried the country’s balance sheet, which he said is not strong. Akanji said a strong balance sheet should give confidence to investors.

He stated that the CBN needs to relook at its balance sheet with international assets. “The CBN balance sheet is too nairanised. There need to be some international assets,” he said. “Bring in international institutions to facilitate financial clearing so that we have sitting capital, not transit capital.

He said Nigeria has lost its productive base, adding that Nigeria should build trade and productivity while employing sophisticated trading instruments and financial solutions. He also queried that Nigeria is a transit asset economy. He said Nigeria should create employment and enhance production.

Akanji also said not selling dollars to BDCs is a good step that has ended badly because whereas the BDCs are bad, the CBN has not provided enough forex, and corrupt people are taking advantage of it by round-tripping. He said the BDCs should be regulated.

Akanji added that Nigeria needs to imbibe international financial instruments and regulations that would add value to the markets and the economy. He stressed the need to create a financial hub that would allow for dollar clearing.

He said the Treasury Single Account (TSA) is a wrong policy because the government is too big to be having all the money in the CBN to freeze.

“We need an A-team to manage our economy. We need to advance into beneficiation for Nigerian products and bring global standards to enhance employment,” he added.

“Make policies light. Kill corruption. When that is done people will have hope. Once there is hope and a means of doing the right things people will stop doing the wrong things.  Once it gets easier here people will stay home and work. And the local currency will gain value,” Akanji summed

If Fashola, an attendee, expressed disappointment that no instruments are being traded on Nigeria’s oil, hence no value addition. About policies, she said, “Nothing is going to move forward as long as policy directions are not clear. No one wants to invest in uncertainty. Uncertainty drives away everything.”

Olumide, who joined the webinar from the U.S. bolstered Segun Akanji’s submission and added that the result of our weak institutions is our lack of ideals.

Segun Akintemi supported the argument of Dr. Tope Fasua, who had mentioned corruption as one of Nigeria’s biggest issues right now.

Ernest Edgar who joined the webinar from Canada stressed that there must be balancing acts between fiscal and monetary policy. He buttressed Tope Fasua’s argument that perception of a currency contributes to stability. He added that stable policies are necessary to drive perception.

Oluwa Shobowale however treaded cautiously, saying assumptions are always wrong when put side by side with analytics. He said we can’t draw conclusions of the causes of the hemorrhaging naira without subjecting those assumptions to analytics. He observed that every time there is an announcement made by the CBN governor the currency loses value. He said there are many variables that do not correlate. If assumptions can stand the test of analytics then we will know what to tackle. Or we may be tackling the wrong problem.

Olumide Wanwayor, on his part, said bad policies are killing exports. He said it is expensive to export out of Nigeria, which affects the value of the naira. “Why are people paying dollars for services in Nigeria?” he asked.

Promise George, who works for the Bank of Industry (BOI), said industrialists are discouraged because of the bad investment environment and resort to importing finished products, which put pressure on the naira.

Nonny Ugboma, who joined the webinar from the United Kingdom, said Nigerians need to create value and not extract value.

Aminu Gwadebe, the president of the Association of Bureau de Change Operators of Nigeria (ABCON) said as long as the government continues to have a monopoly of diaspora remittances there will always be problems.

The forum ended on a note of yearning for more regular meetings as such.

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Economy

Happynomics: Why Are Nigerians Beginning To feel Unhappy

by Cees Harmon
written by Cees Harmon 10mins read

In 2010, a global survey conducted by Gallup Poll rated Nigeria as having the happiest people on earth. The poll found Nigerians to be the most optimistic in the world in their outlook for 2011. It also found that the most optimistic people mostly live in low-income countries such as Nigeria, Afghanistan, Iraq, Kosovo, Peru, and Bangladesh.

By the mention of such diverse cultures as Afghanistan, Kosovo, Iraq, Peru, and Bangladesh, discredits the notion that Nigeria topped the poll because of the ‘positive confession’, or, as the late music icon, Fela Kuti put it, ‘suffering and smiling’ culture. Indeed, happiness is possible even in lack.

In the 1970s, in the tiny Himalayan Kingdom of Bhutan, the country’s economy was coming under major scrutiny. By most measures, gross domestic product, national income, employment, and so on, Bhutan was growing sluggishly. So the king of Bhutan did something unusual. He decreed that from then on Bhutan’s progress would be measured not against those traditional economic yardsticks, but against its Gross National Happiness.

What that Bhutan king did might have seemed an unconventional response to outside criticism, but he had struck upon an idea that would grow into an important, increasingly respectable study, that of happiness economics. It is a subject many people can relate to. That is why happynomics has become an important topic in economics over the last two decades.

As nations and individuals, almost all of us are richer and healthier than ever before. However, this wealth has gone hand in hand with a malaise of discontent. Those in rich nations have been getting less and less happy over the past 50 years.

Traditional economics does not have a satisfactory answer for this. Since the time of Adam Smith, wealth has been assumed to be the key measure of a country’s progress. It is for this reason, and the fact that money is easy to measure, that economists have tended to concentrate on measures such as gross domestic product, unemployment, and a handful of other social measures such as life expectancy and inequality.

Happynomics is about the links between wealth and happiness. Everyone wants to be happy – and most advertisers try to persuade us that the secret of happiness is the next thing we will buy. But we know that long-lasting happiness usually depends on many deeper things: friendship, strong family relationships, good health, personal fulfillment, and so on.

It is hard to be happy if you have many worries about money, too little or too much. In fact, great wealth brings many pressures of its own. Once basic needs have been met, happiness does not usually go on rising in direct proportion to personal income.

Lower-income does not necessarily lead to greater unhappiness – especially if everyone you know is in the same situation, and there is no severe hardship such as the threat of losing a home. People adjust, and enjoy simpler lower-cost things in life.

Pursuing happiness seems to have yielded definite results in Bhutan.  Since taking up the gross happiness index, the country has grown at a remarkable rate by even conventional economic terms. In 2007 it was the second fastest-growing economy in the world, all the while managing to increase its gross national happiness. In an effort to sustain people’s contentedness, there have been decrees that 60 percent of the country should remain covered in forest, while tourism, which apparently undermines happiness, is capped each year. Money is redistributed from rich to poor so as to help eliminate mass poverty.

These efforts to make Bhutan happier seem to have borne fruit. According to a survey in 2005, only 3 percent of people reported not being happy, while almost half the population said they were very happy.

But such surveys can often be vague, unconvincing, and difficult to compare empirically. Happiness is far more difficult to measure than, for instance, levels of wealth or life expectancy, and it is this that has caused its neglect in economics. However, recent advances in brain scans have helped neuroscientists identify which part of the central nervous system is most stimulated by happiness, and the findings have helped add a layer of scientific credibility to measures of happiness.

In recent decades, economists and psychologists have, for the first time, started measuring, in earnest, people’s happiness in long-term studies. The conclusion they have come to is that although one’s happiness increases as one go from being poor to rich, the level of contentedness starts to drop off as one gets further from the poverty line. According to Richard Layard, a British economist who specializes in happiness economics, once a nation’s average salary goes beyond $20,000, income rises stop making people happier and gradually make them less content. In economic phraseology, there are diminishing returns of happiness beyond that point.

That is what Richard Easterlin, one of the pioneers of the study, calls a ‘hedonic cycle’: once you get rich you get accustomed to it very quickly, and soon take such a standard of life for granted. Moreover, research from the field of behavioral economics has shown that once our basic needs are fulfilled we start to measure our contentedness based, not on our absolute wealth and achievements, but in competition to others. The old adage that one is happy with one’s salary provided it is higher than one’s wife’s sister’s husband’s has a definite basis in psychology.

Such findings are a pointer to the fact that a 24-hour-news-and-celebrity culture, with the lifestyles of the rich, beautiful and famous constantly advertised, is likely to undermine people’s contentedness yet further.

Interestingly, since 2012, when Denmark overtook Nigeria in the global happiness index, Nigerians have had a steady southward rating, with the most recent position being 116 out of 155 countries polled.

What may have altered Nigerians’ sense of contentment and optimism about the future? Whereas there is a limit at which increasing wealth adds little or no value to one’s pursuit of happiness, there is a point at which sheer lack of life’s necessities induces discontent.

For example, frequent worries about the rising costs of necessities such as food, shelter, clothes, transportation, health service, children’s education, security, to name a few, are evidently weighing heavily on Nigerians’ innate pursuit of happiness. Especially spates of insecurity that straddle the length and breadth of the country, which seem to be a new reality, dim Nigerians’ outlook about the future.

The idea that a country’s progress should be measured against its happiness did not, in fact, begin in Bhutan in the 1970s. In 1776, Thomas Jefferson laid down that Americans should be entitled not just to life and liberty, but also to the pursuit of happiness. Jeremy Bentham, the 19th-century inventor of the philosophy of utilitarianism, said that humans should strive for the ‘greatest happiness of the greatest number’.

Nigerians are inherently happy people. Under the right conditions, they can reclaim their coveted state of contentment. But clearly not with 17 percent inflation and 33 percent rate of unemployment!

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The Thrust of Obaseki’s N60bn Print Money Revelation
Corruption

The Thrust of Obaseki’s N60bn Print Money Revelation

by Cees Harmon
written by Cees Harmon 10mins read

The trading of words over the last week between the governor of Edo State, Mr. Godwin Obaseki, and the federal government, as well as the reaction of the public about the printing of as much as N60 billion to top up allocations to the states for the month of March bring to the  fore certain implications about the Nigerian economy.

It is to state the obvious that if a government prints money faster than the growth of real output it reduces the value of money, and this invariably causes inflation. Governments often resort to printing money when they cannot finance their borrowing by selling bonds.

If the governor’s allegation is anything to go by, that augurs danger for the economy. Considering the fact that Nigeria’s inflation rate for the month of March, as revealed by the National Bureau of Statistics, rose to 18.17%, from 17.33% recorded in February 2021, injecting N60 billion into the economy is ominous.

Central Bank of Nigeria governor, Godwin Emefiele, in a statement recently alluded to the fact that central banks of other countries facing similar economic crisis print money, as Nigeria does, to support their government.

“If you understand the concept of printing of money, it is about lending money. There is no need for all the controversy around money printing as if we are going into the factory to print naira and then distribute on the streets,” the CBN governor said.

“Most countries of the world today are confronted by not just the health crisis from the COVID pandemic but also the economic crisis. I keep saying this, it would be irresponsible of the central bank of Nigeria or any central bank to stand idle and refuse to support its government at this time. Whatever we do in Nigeria is being done in any clime,” the governor added.

Emefiele, however, cannot be arguing in this case as though for a form of quantitative easing, which is done in a very serious recession, when demand falls so much that it is possible to increase the money supply without creating inflationary pressure. (If we consider quantity theory of money MV=PT. V, the Velocity of circulation falls in recession, a central bank may need to increase money supply just to avoid deflation) So, usually printing money causes inflation. But, in periods of falling velocity of circulation (the number of times money changes hands), printing money doesn’t necessarily cause inflation. The credit crunch causes a fall in the velocity of circulation.

It is also to state the obvious that printing money reduces the value of a country’s currency. Inflation reduces the value of domestic securities making international investors leave the economy. Injecting N60 billion into the economy is a bad idea when the naira is losing value almost weekly.

So, although the federal government has flatly denied printing N60 billion to top up allocation to states for the month of March, the very thought of the act leaves economists, and indeed, the larger public on a qui vive, even though it is common knowledge, as accentuated by Obaseki that Nigeria is in huge financial trouble. The governor expressed worry that the country has continued to borrow despite unclear means of refunding payments.

The main point of interest from Governor Obaseki’s allegation, however, is captured in his concern when he said, “So we have run a very strange economy and strange presidential system where the local, state and federal government, at the end of the month, go and earn salary. We are the only country in the world that does that.

“In another year or so, where will we find this money that we go to Abuja to share every month? Last month, we got FAAC for March. The federal government printed an additional 50 to 60 billion to top-up for us to share,” he said.

The thrust of Obaseki’s earth-shaking revelation is that it does not make economic sense for the federal government to keep spoon-feeding states every month with allocation. The antithesis is the norm in working federations.

The extant system makes states shillyshally and laid back, which contributes to states sleeping on their potentials because they can be sure of a federal government that can even go as far as borrowing money to feed their economic lackluster.

If the states did not look up to Abuja for the monthly allocations they would look inward and make wiser economic decisions; the governors would be more accountable, and a development competition would evolve among states, to the benefit in the form of speedy development of the federation.

The extant system is impeding development. Oil money is no longer a sure banker.

So, instead of flaying Obaseki for revealing that the federal government printed N60 billion last month to share among states, the federal government should accept the hard message: states need to become economically independent of the federal government. That’s the way to go; that’s the way to turn the fortunes of Nigeria around.

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Economy

Nigeria Can Breathe Life Into Her Humongous Dead Assets

by Cees Harmon
written by Cees Harmon 10mins read

Peruvian economist, Hernando de Soto, has argued that many of the world’s poorest families are so, merely because they do not have legal rights to their property. 

According to him, a family may live in the same small shack in the favelas near Rio for years, but because only informal property and legal rights have been developed among the poor, they are at the mercy of criminals and vigilantes (who may attempt to steal or destroy their home) or the government (which may attempt to drive the shantytown dwellers elsewhere).

De Soto argued that the solution is to give those poor people legal rights to their properties. In that way, they will not only have the incentive to take more care of them, but will also be able to borrow cash by using their homes as a guarantee. He said the total value of homes owned by the poor in the developing world is more than 90 times the total foreign aid given to these poor countries in the past 30 years.

De Soto’s perspective is well in sync with a recent report by PricewaterhouseCoopers (PWC), the second-largest professional services network in the world, that in order to hasten the economic recovery process, Nigeria must unlock her dead assets, which is estimated to be valued at $900 billion. 

PWC says Nigeria  holds as much as $900 billion (N369 trillion) worth of dead capital locked up in residential real estate and agricultural land, including federal government’s abandoned properties estimated at N230 billion.

Dead capital refers to  unregistered real property, and is considered lost value because the landholder is unable to transfer or leverage the  property to borrow or access capital.

Taking into consideration PWC’s report, $900 billlion is circa two times Nigeria’s GDP. The figure gives credence that Nigeria’s  failed ambition of Vision 20, 2020 was achievable. How so?

According to the Economist Magazine, Nigeria was the 31st largest economy in the world in 2020, five positions down from when the country rebased its GDP in 2014, when GDP stood at $506 billion at 26th position. But attaining the 20th position then, would require Nigeria stepping up by just $200 billion.

As of today, Turkey basks in the position of the 20th largest GDP in the world at $795 billion, which presents to Nigeria a more uphill task of attaining that 20th position as she has to rise from a lower position compared to seven years ago.

But assuming Nigeria gave life to her $900 billion dead assets, the country does stand a good chance of doubling her growth in the fashion of the likes of China and India.

Much of the success of that would depend on legislations at the federal and state levels.

Dr. Sam Amadi, Lecturer at Baze University, and former chairman of the Nigeria Electricity Regulatory Commission (NERC), quoting Joe Studwell describes the process in his book, How Asia Works: Success and Failure in the World’s Most Dynamic Region, and argues that “the evidence of what occurred in China, Japan, Korea and Taiwan is powerful: good land policy, centered on egalitarian household farming set up the world’s most impressive post-war development stories”.

Amadi goes on to say, “Nigeria took a different approach that deprived the rural people of their land resources and handed it to nobles through the instrument of the trusteeship of the state governor. The Land Use Act consolidated neo-feudalism, especially in northern Nigeria and frustrated revolutionary pressures through conservative lawmaking. The entrenchment of mass poverty, a result of conservative role of law, is one of the drivers of the current lawlessness.”

It is arguable that Nigeria’s locked up $900 billion dead assets are a consequence of inclement land use laws, laws that have entrenched poverty over the decades.

Many Nigerians who would like to invest do not have access to capital because they do not have the required documents to present as collateral for loans.

The slow issuance of certificates of occupancy (C of O) across the country encumbers property owners from approaching financial institutions to use their property as collateral to access loans for investment.

Finding the political will to act and unlock Nigeria’s dead real estate assets will have a transformative impact on the lives of Nigerians.

This is the time to act.

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Column

Nigeria’s Frequent Fuel Price Flux, Prognosis

by Cees Harmon
written by Cees Harmon 10mins read

The price of fuel has been a niggling and touchy issue in Nigeria over the decades since the 1980s and counting, not least because every increase affects the prices of goods and services in most parts of the country, and by implication, livelihoods.

The recent northward and ratcheting trends in fuel price of fuel come difficult to imbibe for many Nigerians considering the fact that COVID-19 has caused loss of jobs, salary cuts to many, slowdown of business activities, to name just a few. It is noteworthy that relentless double digit inflation has been a steady upward trend over the years also.

Presently, Nigeria’s labour unions are locked horns in negotiations with the federal government, not as whether to, but as to how much the price of fuel should be increased, given the current landing cost of N190.00.

Coupled with that, a salient unit of the Nigerian economy, the country’s labour market is undergoing a structural shift, which requires that large segments of the country’s labour force learn new skills.

However, fact be told, the federal government simply has no choice this time around but to relinquish interest in fuel subsidy if it must make any impact in diversifying and growing the economy. No thanks to COVID-19, government revenues have taken a southward trajectory for the large part of 2020. Hence, any alternative action or inaction would mean borrowing money to meet recurrent responsibilities or, some recurrent responsibilities would not be met in the coming months, and probably years.

Interestingly, removal of fuel subsidy partly formed the basis of the International monetary Fund’s (IMF) revised GDP growth projection for Nigeria for 2021.

That the federal government wants to absolve itself of subsidy interest means there is no guarantee that the price of fuel will remain static for the unforeseeable future. The price of petroleum products will be determined by the forces of supply and demand. And with global economic rebound in the offing consequent to hope of getting the coronavirus under control soon, coupled with OPEC+ production limit for member nations, crude oil prices are almost certain to see a northward trend.

Since Nigeria currently refines insignificantly compared to her daily demand of fuel, the price of petroleum products will be determined by prices on the international market, which will largely be determined by crude oil prices, which, in turn, are being determined by prophylactic and therapeutic solutions to the coronavirus pandemic. When major economies become fully open, demand for crude oil will remain bullish.

Given that prognosis, and cautious reopening of major economies around the world, the price of Brent crude on the international market was $63.00 per barrel as of last Friday, with likely gradual increases from time to time, which means the pump price of fuel in Nigeria may continue to be readjusted from time to time, especially considering the fact that summer in the Western Hemisphere is around the corner when demand for fuel will push up prices, ceteris paribus.

An earlier spat between Nigeria Labour Union and the federal government to reduce the price, sequel to further jacking of price of the commodity to N170 had arm-twisted government to settle at N162 per liter, albeit temporarily.

On the other hand, with the promised take-off date of the Dangote Refinery, readjusted to 2022, the federal government will have the leeway and muscle to apply moral suasion on the company, and other private investors either to leave the price of fuel at N162 per liter, in which cases, government will be able to subsidise the sale of crude oil to Dangote Group and others by supplying at a discount for fuel to the local market, crash the price for the local market, or continue to allow the forces of supply and demand to determine the price of fuel.

That may be the likely scenario if the federal government sells crude oil to the likes of Dangote at international rate.

It is only subsidy on local production of fuel that will assuage or serve as a buffer from that additional painful happenstance on Nigerians.

Happily, Nigeria recently witnessed the commissioning of a 5,000 barrels/day private refinery in Imo State. It is hoped that such private sector driven investments will continue.

It may be recalled that Dangote Refinery, which is currently more than 80 percent complete, is designed to more than double supply Nigeria’s current daily demand of petroleum products.

That’s not all, it may also be recalled that BUA Group recently signed an agreement with Axens of France for the supply of process technologies for its upcoming 10 million tonnes per annum mega refinery and petrochemicals facility to be sited in Akwa-Ibom.

Other modular refineries are coming on board soon to serve the local market.

So, the mix of progress on the development of COVID-19 vaccines, government action, as well as the speed of completion and coming on board of local private refineries will determine the northward, southward or stagnancy of fuel price in Nigeria over the next one year.

This prognosis does not take into account the likely impact the long-expected Petroleum Industry Act will have on the price of petroleum products.

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