A multi-million dollar Nigerian satellite launched in May 2007 has been shut down to prevent it spinning out of control and damaging others in orbit.
Chinese-built NigComSat-1 cost the African oil producer $340m (£228m).
The Nigerian government said insurance would pay for a replacement and Nigerians should still be proud of the country's satellite programme.
NigComSat-1 was launched 18 months ago to much fanfare from the government, but it has been mired in controversy ever since.
On Tuesday, controllers shut the satellite down because it was having problems with its power supply, the government announced.
The satellite was meant to provide communications for government agencies and broadband internet.
The satellite was limited because the type of frequency it used was disturbed by clouds in the atmosphere, and did not work properly in Nigeria's rainy season or during the Harmattan, when clouds of dust blow down from the Sahara.
The satellite also operated on frequencies already allocated to other companies and interfered with other providers' equipment.
But Information Minister John Odey denied the satellite was not worth investing in.
"No technology can be a waste of money," he said.
"It is a worthy investment, and Nigerians should see it as desirable. It has served a purpose and will continue to do so." he said.
Local media initially reported that the satellite had "gone missing".
But on Wednesday Minister of State for Science and Technology Alhassan Zaku told journalists it had lost power and had to be "parked, like you would park a car".
"If it wasn't parked and it lost all its power there would be no energy to even move it and it would be like a loose cannon and would keep rolling about and hit other satellites in the orbit," he told reporters.
According to analysts, Nigeria has made nearly $2 trillion in oil revenues over the last 30 years, but its population are mostly poor.
Africa's most populous nation lacks basic infrastructure like power and water, and many Nigerians thought the satellite showed the government did not have its priorities right.
The news that the satellite could not get enough power to run has led to jokes that, as one e-mail doing the rounds put it: Nigeria has "exported its electricity generation problems to space".
Monday, November 17, 2008
Thursday, November 6, 2008
U.S. Republican vice presidential nominee Alaska Gov. Sarah Palin didn't know Africa was a continent .....
Fox News reports that U.S. Republican vice presidential nominee Alaska Gov. Sarah Palin didn't know Africa was a continent and did not know the member nations of the North American Free Trade Agreement -- the United States, Mexico and Canada -- when she was picked for vice president.
Unbelievable, Palin didn't know Africa was a continent and did not know the member nations of the North American Free Trade Agreement. She's disgrace to the America Politics. I think she would have been more incompetent as a vice president than Dan Quayle, seriously even my 4 year old knows that Africa is a continent. She must be banned from entering any country in Africa. She's sore loser for real.
I was outraged by her apparent ignorance on questions given on the Department of Homeland Security naturalization test (which is given to High School Student in US social studies classes), but the bottom line is McCain picked her and showed both leaders overwhelming ignorance and as such incompetence to run a country. So McCain, not Palin should be held responsible.
Unbelievable, Palin didn't know Africa was a continent and did not know the member nations of the North American Free Trade Agreement. She's disgrace to the America Politics. I think she would have been more incompetent as a vice president than Dan Quayle, seriously even my 4 year old knows that Africa is a continent. She must be banned from entering any country in Africa. She's sore loser for real.
I was outraged by her apparent ignorance on questions given on the Department of Homeland Security naturalization test (which is given to High School Student in US social studies classes), but the bottom line is McCain picked her and showed both leaders overwhelming ignorance and as such incompetence to run a country. So McCain, not Palin should be held responsible.
Monday, November 3, 2008
Nigerian Foreign Minister Ojo Maduekwe has called for an emergency meeting of the African Union to discuss the violence in eastern Congo
Nigerian Foreign Minister Ojo Maduekwe has called for an emergency meeting of the African Union to discuss the violence in eastern Congo, a Nigerian newspaper reported on Monday.
Maduekwe said the fighting had become a threat to African peace and security which threatened to further impoverish the continent by diverting attention away from development needs
n offensive by Tutsi rebels loyal to renegade General Laurent Nkunda, and killings and looting by Congolese army troops, have created what foreign relief workers call a "catastrophic" situation in eastern Congo's North Kivu province.
A ceasefire declared by Nkunda seems to be holding but tens of thousands of civilians have been displaced. U.N. officials fear they have left unprotected camps and are roaming the bush, seeking safe shelter, food, water and care.
Maduekwe made the call for a meeting of the AU's Peace and Security Council during a visit to Indonesia to discuss the possibility of commuting a death sentence passed against 18 Nigerians convicted of drug trafficking, This Day said.
Maduekwe said the fighting had become a threat to African peace and security which threatened to further impoverish the continent by diverting attention away from development needs
n offensive by Tutsi rebels loyal to renegade General Laurent Nkunda, and killings and looting by Congolese army troops, have created what foreign relief workers call a "catastrophic" situation in eastern Congo's North Kivu province.
A ceasefire declared by Nkunda seems to be holding but tens of thousands of civilians have been displaced. U.N. officials fear they have left unprotected camps and are roaming the bush, seeking safe shelter, food, water and care.
Maduekwe made the call for a meeting of the AU's Peace and Security Council during a visit to Indonesia to discuss the possibility of commuting a death sentence passed against 18 Nigerians convicted of drug trafficking, This Day said.
Tuesday, October 28, 2008
Nigeria "no hope in sight for the restoration of radar coverage at the Murtala Mohammed Airport, Lagos"
There are no spare parts for the repair of radar coverage at the Murtala Mohammed Airport, Lagos.
A former Chairman of the Ministerial Committee on Airspace, Mr. Sam Akerele, said that the airport radar, which had developed fault, was about 30 year old, and as such, its spares were no longer being manufactured. According to him, what is currently being done is to get it cannibalised locally, but that a permanent solution will be for the country to fast track the completion of the Total Radar Coverage of Nigeria project.
The TRACON project, which was conceived in 2001, and was awarded in 2003 with a completion period of 18 months, had suffered various setbacks due to funding and other constraints.
However, the Federal Government, set December 2009 as the new deadline to complete the TRACON project. The government had paid N9bn as balance to Thales of France, the firm handling the project.
A former Chairman of the Ministerial Committee on Airspace, Mr. Sam Akerele, said that the airport radar, which had developed fault, was about 30 year old, and as such, its spares were no longer being manufactured. According to him, what is currently being done is to get it cannibalised locally, but that a permanent solution will be for the country to fast track the completion of the Total Radar Coverage of Nigeria project.
The TRACON project, which was conceived in 2001, and was awarded in 2003 with a completion period of 18 months, had suffered various setbacks due to funding and other constraints.
However, the Federal Government, set December 2009 as the new deadline to complete the TRACON project. The government had paid N9bn as balance to Thales of France, the firm handling the project.
Saturday, October 25, 2008
Wednesday, June 4, 2008
New operator, Etisalat, unfolds qualities that will change competition
Vanguard Online Edition - Wednesday, 04 June 2008
Vanguard Online Edition - Wednesday, 04 June 2008
Tuesday, June 3, 2008
Who Should Provide Public Infrastructure in Nigeria
Introduction
Satisfactory provision of those basic structures and facilities that support positive economic performance requires massive financial commitments, ability to work around the difficulty in benefit-split as well as handle the attendant high externalities. Public infrastructure touches on a wide spectrum of basic amenities which enhance the capacity of economic agents to conveniently engage in productive activities with less stress. The absence of these amenities or their un-optimal provision can equally result in complete seizure of production at economic unit levels. According to the United States National Infrastructure Improvement Act of 2006 these amenities include water supply and distribution system, wastewater collection and treatment facilities, surface transportation facilities, mass-transit facilities, airports and airway facilities, resource recovery facilities, waterways, levees and related flood-control facilities, docks or ports, school buildings and solid-waste disposal facilities. Of course electricity and communications make the infrastructure list given the Nigerian context. Provision of these amenities can be through a variety of ways which comprises: government ownership with government management, government ownership with private management, public-private ownership and joint management, private ownership and management, community provisioning etc. Oftentimes, in most developing and under-developed countries such as ours, owing to the established pattern on provision, government has always been called upon to provide these infrastructures. The most touted reason is the size of funds required. The result is that infrastructure provision has been largely characterized by government ownership and management.
Usually such source of provision has always been tied with regulation which rather than improving efficiency and lowering prices, actually produced contrary effects. The results become the entrenchment of monopolies characterized by the wastage of valuable resources in trying to maintain the monopoly status. New ideas, new and better ways of conducting exactly same business or activity are oftentimes suppressed, and consequently in the absence of competition cause severe quality deterioration. There is nothing to show that competition cannot only survive but actually produce better results in business activity areas where legal monopolies have been entrenched. The deregulation experience particularly in the area of telecommunications in Nigeria has proved that it is possible. No one holds the government fully accountable anymore for poor quality telecommunications service.
While Nigeria is still largely dependent on public provision and only beginning to follow the path of private provision, Indonesia and Thailand have been on sustained gravitation towards full private provision of public infrastructure services much earlier. Nigeria, on the other hand has been quite slow in promoting private provision and management. The resulting consequences have been that businesses are considerably offsetting the deficiencies in publicly provided infrastructure services by making huge expenditures in providing them by themselves. My candid view is that government's role should be shrank so much that it is only limited to defining the terms of fair play among competitive private bidders/providers without being intrusive and obstructive. The power of entrepreneurship driven by market competition spurs growth and positive economic performance much more than the direct regulation of government and should therefore be allowed to champion the cause of sustainable provision of private infrastructure.
Adequate Infrastructure is Key to Economic Growth
The president just like many other Nigerians recognizes and laments the level of infrastructure deterioration in the country which "remains the greatest impediment to economic growth" and which will require between $6 and $9 billion annually to solve. The deficit in infrastructure provision is very much a significant factor behind the comparatively higher cost of doing business in Nigeria relative to other countries. It equally underscores the declining rate of capacity utilisation, as well as lower quality of life for majority of our population. The reason for this is that strong growth is always a function of adequate and well functioning infrastructures that underscore both the production and free flow of goods and services within and outside the country.
Infrastructure investment, or capital, consists of large capital-intensive projects, which in most countries are largely publicly owned and regulated, and which also provide the backbone of the production and distribution system. They are often regarded as the wheels of economic activity because of the crucial role they play in providing the bulwark upon which production and distribution stands. A weak foundation cannot satisfactorily support a superstructure. Therefore without adequate infrastructure, economic activities which is invariably the superstructure cannot be successfully stand. The contrary is true. America is a good historical example. In the early days of its existence, the construction of canals and turnpikes, railroads during the first half of the nineteenth century, significantly spurred trade and development. Consequently, huge financial commitments in electricity and telephone networks equally facilitated modernization which after a little time, significantly enhanced the productivity of the average American worker. With good infrastructural base, development is both easily attainable and sustainable. Several examples abound. Adequate electricity availability ensures optimal use of modern technologies and processes. Computers can rarely be used beyond certain hours on battery without electricity to support it and give a more enduring life. So it is with big manufacturing plants. Transport infrastructure such as roads and rails permits efficient movement of goods and services across locations to where they can best be used. By so doing it facilitates exchange which is fundamental to economic growth. So it is with water, without which many production processes will be hampered such as making of soft drinks, certain pharmaceutical products etc. Efficient infrastructure development underlies the integration of the national economy and helps in spreading its benefits. For instance, the adequacy of good roads, water and electricity infrastructure in certain remote areas can serve as an incentive to attract certain levels of industrial activities in such places. In that wise, infrastructure provision facilitates investment in less developed areas. The many benefits are innumerable and can go on. It is therefore important to see how infrastructure provision is central to poverty elimination. With electricity, farmers in rural areas can easily process their harvested cassava roots into gari flour. Welding and related crafts which are typical of the rural and sub-urban economies will spring up. Infrastructure provision is therefore fundamental for successful rural transformation and agricultural development. Inadequate infrastructure conditions on the other hand has deleterious effects on health, education and the capacity of local producers.
Infrastructure is much better in industrialized countries and is one of the major reasons for the economic differences between them and the developing countries as they are naturally empowered to be more productive. The impact of infrastructure inefficiencies in Nigeria has been severe and has lasted for several decades and is reflected in constrained domestic growth, impaired international competitiveness, and poor foreign investment.
State of Nigerian Infrastructures (selected cases)
On average, virtually all aspects of Nigeria's infrastructure is in deplorable condition. The power sector for instance is marked by low generating capacity relative to installed capacity. At present electricity generation ranges from between 2,500 megawatts to about 3,000, even with the inclusion of three gas-powered independent power projects in the Niger Delta region, while estimated national consumption is in excess of 10,000 megawatts. Potential demand in the next few (say three) years is estimated at about 15,000 megawatts. Saddening enough is that Nigeria is endowed with massive reserves of hydro energy, petroleum reserves and one of the largest gas reserve. Government policy for the sector during the 1980s and the 1990s and until recently did not properly anticipate national needs. For example, the last major electric generation installation in Nigeria was in 1990 when the shiroro power station was commissioned. Since then no new units have come on stream and none of the existing ones have had a major overhaul for 15 years. The kainji Hydro electric plant in operation since 1968, for instance, was designed to generate 960mw of power out of its 12 turbines, but only 10 of those turbines have been installed. Today the kanji plant can only generate 760mw of power. The per capita consumption of electricity is 0.054kw only about 5% of our hydro electric capacity has been developed.
Table 1: Existing Power Station Projects: http://www.martinoluba.com/publications.jsp
Recently, the government mandated a committee with creating a blueprint for raising power generation capacity to 6,000 megawatts in the next 18 months and 11,000 megawatts by 2011. Following the recommendations of the committee, the Nigerian government appears to be interested in substantially reducing its role in power provision while creating a major role for the private sector. By this move if pursued conclusively the successes achieved in the GSM telecommunications area will be repeated. But the challenge remains the how of attracting the investing public. Who wants to make equity investment in government in government owned projects? Only very few indeed because the profitability incentive which is behind the investment in the first instance is absent. The GSM experience shows that Nigerians are willing to pay higher rates for critical infrastructure provided they get value for their money. What currently obtains (and has been happening) is situation where government's electricity-tax collecting authority generally collects tariffs without the provision of any electricity.
On the other hand, our roads are begging to be saved across the entire country. The south east- south west road network for instance evokes the most heart-rending picture of the extent of damage and deterioration that are the features of our roads. In the past decade or earlier, it takes about three hours to travel from Lagos to Benin. In recent times, this can take as long as six hours if there is no slight obstruction. Motorable roads that are well maintained is critical for the smooth and efficient exchange of goods and services across different parts of the country as the rural areas and hinterlands are also connected. The length of roads in Nigeria is about 195,200 kilometres out of which about 15.3% is paved. About 28% of these paved roads are bad and un-motorable. How can our road infrastructure optimally support economic growth when it is obvious that the totality of road network within a country, approximates the degree of mobility of people, goods and services within the same country. The quality of the roads in turn shows the extent to which people, goods and services can easily move across the country.
Unfortunately our roads have been overwhelmed by myriads of problems which have substantially minimized their value. The road system is largely in disrepair and is not useable in any value-adding way. Traumatic traffic congestions are commonplace in the populous cities of the country. Aside long delays in the movement of goods, highway accidents and deaths are frequent. These include faulty designs, absence of drainage systems, washing away of pavements, fallen bridges, gullies/potholes as well as non-existent culture of maintenance. Collectively these undesirable road characteristics have clogged the stream of exchange of goods and services across the country as it has become expensive and more arduous to move products and services from producers to consumers, farm produce from rural to urban centers with lots of man-hour losses. Consequently, this weakens the purpose of desirable time bound, destination bound, cost bound and purpose bound operational efficiencies which should underscore effective transportation. Generally the conditions of our roads substantially affect the cost of production and overall national productivity.
The railway infrastructure evokes even more self-pity than the roads. As a country, we have not been able to improve upon railway system which we inherited from the colonialists. It is virtually moribund and archaic with no upgrade and maintainance. In the pre and post-independence era, Nigerian railway system actively supported economic activities as a bridge between the North and South. That no longer exists. Two decades ago we had 3,500 kilometres of narrow-gauge (1.067-meter) rail track. The system's basic elements were two main lines running inland from the coast: one, in the west from Lagos to Kano, opened in 1912, and the other, in the east from Port Harcourt to a conjunction with the western line at Kaduna, opened in 1926. Three major extensions were subsequently constructed. One was a branch line from Zaria to Kaura Namoda, an important agricultural area in the northwest, completed in 1929. The second was a branch from Kano to Nguru, a cattle-raising region in the northeast, completed in 1930. The third, a 645- kilometer branch from the eastern line to Maiduguri, was completed in 1964. A short spur to the mining area at Jos and two short branches from Lagos and Kaduna rounded out the system (Adejumo; 2006). Unfortunately, inadequate maintenance and funding and a host of other ancillary causes contributed to the severe deterioration of the Nigerian rail system. The many problems of the Nigerian railway system include poor communications, government interference with management structure, worn out infrastructure, under-funding, absence of maintenance etc.
On a more general note, Nigeria's infrastructure has almost totally crumbled. In many urban areas, water supply, sewerage, sanitation, drainage, roads, electricity, waste disposal are virtually non-existent. Maintenance of the partially existing ones is zero. All these are being compounded by the twin problems of rapid population growth and urbanization.
How Sustainable is Government Provision?
Many people are of the opinion that we need the state to provide public goods. The arguments usually posited to justify government provision often revolves around issues of adequacy of infrastructure provision particularly when huge capital outlay is required for which individual or market financial capacity cannot cope. Sometimes it follows the 'stimulationists' idea that increased public expenditure will stimulate consumption, aggregate demand and economic growth. Another reason includes the positive externalities and free-rider problems which are helpless in the face of the so-called market failure theory. Cited cases here include the provision of street lights or some other services which seemingly provide benefits to society over and above those that accrue to the individual. On the other hand, negative externalities may justify government intervention to reduce their occurrence. Then there is the issue of potential growth of natural monopolies requiring that government intervenes. All these arguments notwithstanding, in our very eyes as Nigerians, we see the consequences of government ownership and management of public infrastructure since Nigeria's independence in 1960. What has largely happened was that successive government's enabled the rapid deterioration of the infrastructures which were inherited from the colonialists and missionaries without replacing them with new ones or at worst keeping them the way they met them. In instances where attempts were made, such purported infrastructure projects served as mere conduits to enable the various regimes and their cronies detestably meaningful shares of the so-called national cake irrespective of how it hurt the economy. Government's scorecard can be put side-by-side with the evidential rapid progress made in areas where there have been private ownership and management. Economies run by private people are considerably more efficient in resource allocation and faster in achieving economic development than the ones that are not. The best areas for government should be those historically traditional roles of public policing, justice administration, defence of property rights, enforcement of contracts etc. It is therefore largely rhetorical to ask whether government provision of public infrastructure is sustainable. The answer from experience and evidence is a capital NO. But we may need to invoke additional substantiating evidence.
Market failure is an argument which is fast gaining intellectual disrepute because it lacks merit and is fallacious in that it is built on the wrong neoclassical premise of perfect market competition as well as interpersonally measurable utility scales. Perfect competition is in fact no competition. And utilities can only be subjectively - and imperfectly - measured by the individual concerned. Many scholars have shown that the market does not fail but is in a constant process of discovery. Thus many hitherto considered non-excludability backed reasons for government intervention shows that the market can actually resolve them on case-specific basis depending on their peculiar dynamics. Let us consider the case of street lights, its consumption can be tied to other goods that are excludable such as charging for its use at the entrance to the street. This really happens when for instance a community provides its own security. In some instances rates are sometimes collected at the points of entry. While the market failure argument is used to justify the possible intervention of government, even with vast literature which exists on the many imperfections of government in allocating resources, some economists and advisors still recommend government intervention to correct market failures without regard to the failure of government itself. Our governments have failed in meeting the infrastructure needs of the Nigerian people. If therefore an alternative provision-source is to be sought when there is the supposed market failure, an alternative provision-source ought to be sought now that it is evident that our government has failed. It is therefore in considering the many possibilities of government failure that full private sector intervention is recommended.
Entrenched public sector corruption particularly in Nigeria is a major factor distorting decision making and implementation processes as regards the acquisition of public sector assets. Government does not invest. Yet even in the acquisition of public assets, the primordial self interest motives of the various individual players comes up. Whereas the typical bribery incentive that characterize our system can on one hand lead to either increased quantity of infrastructure or huge spending on public infrastructure even when the resources may not be enough to conclude the projected asset acquisition or on the other hand account for the deplorable quality of built infrastructure. The US$16 billon purported spending on electricity infrastructure during the life of the previous administration is a good case. Many cases of impropriety and shocking revelations show the scale of corruption within the Nigerian public sector and clearly indicates that the Nigerian government is not a good candidate to be credibly entrusted with any further infrastructure development. Nigeria's government, police, civil services, and businesses are plagued by extortion, bribery, and other forms of corruption which undermines the capacity of government to successfully handle and deliver high quality infrastructure for the people. This is also not likely to be wiped off overnight as political corruption is not a recent phenomenon and has permeated the Nigerian state since its creation with many cases of official mis-use of resources for personal aggrandizement.
Aside that public provision serves as an incentive for increased large scale official corruption by presenting immense self-aggrandizement opportunities to government officials, it also puts pressure on public finances. In spite of the high possibility of mis-use of the budgeted project funds, there is the other side of crowding out of the important expenditure on the traditional areas where government has chances of performing better. One-tenth of the US$16 billion squandered in unseen power projects by previous administration could have been meaningfully deployed in the acquisition of infrastructure for policing and justice administration. Although there is no guarantee that this will equally be carried out without blemish. The need to review and redefine the role of the government and to evolve appropriate policy, legal, and regulatory frameworks for private sector participation in infrastructure development has become most urgent.
Furthermore, the joke that government is better in mobilizing huge capital required for large scale infrastructure has become even more ridiculous considering the trillion dollar transactions being packaged and executed by investment banks globally. The power of global financial interconnectedness makes it possible and even easier for the financial markets to raise massive amounts of capital in order to finance infrastructure acquisition requiring huge financial outlay. The Nigerian infrastructure can be and is suggested to be 100% financed and managed by the private sector, because the global financial system is proven to have the capacity and required flexibility to achieve all the expectations. As a matter of fact, Nigerian government on the contrary has been guilty of under funding infrastructure development due to either poor estimation of acquisition or maintenance costs or sheer mismanagement of funds allocated for such. However the huge size of abandoned projects points to the fact that the myth of government's inexhaustible capacity to handle projects requiring massive financial outlay is really giving way for more positive thinking. Government abandons its infrastructure projects - all things being equal - because it lacks the financial capability to finish it. This situation rarely arises in the case of the entrepreneur who is in pursuit of profit. The motive is clear: provide and maintain the infrastructure and reap attendant financial and other rewards. All stakeholders in the process are happy.
The telecommunications story is a rare case of the difference that can exist when private provision supplants government provision of public infrastructure. With a population of about 40 million people, Nigeria had approximately 18,700 telephone lines at independence in 1960. Telephone facilities had been established about 76 years earlier. Based on that that calculation, the telephone density was about 0.5 telephone line per 1,000. By 1985, the overall quality of service and telephone infrastructure had become so unreliable, congested, expensive and customer unfriendly. This caused the split of the then posts and telecommunications department into two: Postal and Telecommunications divisions. The telecommunications division was later merged with NET to form Nigeria Telecommunication Limited (NITEL), a limited liability company. By 2003, NITEL had about 500,000 lines which were available to more than 100 million Nigerians. The summary is that the available telecommunications infrastructure could not serve the Nigerian people. As a national carrier with sector monopoly, telecommunications services were punctuated with epileptic services and bad management.
This monopoly was broken with the deregulation of the sector which was marked by the granting of operating licences to GSM service providers as well as initiating the process of privatization of NITEL. With this step alone, more than 50% of Nigerians have access to GSM telephones in addition to other fixed wireless telephony. These have increased teledensity and made communication effective and efficient in Nigeria. At present a wide range of telecommunication services are offered in the country: Telephony; Telex; Cellular Mobile Telephony; Facsimiles; high speed data transmission telegraphy, Public pay phones etc.
The consequence of public provision oftentimes particularly is almost the assurance of government failure which therefore imposes tremendous hardship on businesses. Experience has shown that the hitherto considered government solution to the non-excludability and non-rivalrous consumption characteristics of public goods is in fact no solution, but additional and unwarranted burden on national economic enterprise. The response of businesses in Nigeria to deficiencies in government's provided infrastructure such as electricity, water, transport etc is to undertake significant expenditures to offset them. This naturally severely affects the prospects of these businesses as it has same type of damaging effect as income tax particularly in a multi-tax environment of ours. My paper on justifying resistance to tax payment in Nigeria is an eye-opener in that respect. Private substitutions for inefficient public service divert capital and raise costs. Marginal companies pay the greatest penalty and are often the first group to be forced out of operation. Unlike the big companies, the small companies that cannot provide their own infrastructure become victims. This hampers overall economic performance.
Are We Moving in the Right Direction?
Increasingly, Nigerians are able to identify with Adam Smith by observing that no two characters seem more inconsistent than those of trader and sovereign. The former representing the market based entrepreneur and the latter, the all-powerful government. It is obvious that humans on average are more careless about the wealth of others than theirs. This has also been evidenced over the many decades of the life of this country. Government ownership and management of infrastructure is characterized by negligent and wasteful outcomes because public employees are not substantially motivated by the commercial outcome of their actions whether positive or not. Evidences abound to support the fact that private firms are more cost-effective than public firms in the provision of goods and services. The direction of government in going private in the area of private provision of public infrastructure is welcome. The idea of the privatization-focused reform of the previous administration was indeed noble. But this nobility was flawed by the corruption that allegedly attended to them which made them fail the test of fair competition that should mark such activities. Fair play, openness and equality under clearly defined rule of law is most important for the market to truly exhale and yield abundant benefits. The absence of these characteristics charades and frauds prevail. But whatever the case, the way of the market is the only way to go. Although there are many caveats arising from the many so-called public-private partnerships in which there is merely a disguised ownership by the government or in which the partnership is burdened by government powers. Many variants of this relationship abound which still gives the government the leeway to impose itself on the ability of the market operating structure to deliver satisfactorily. Government has no business being in business and should not be involved in the so-called partnerships. Its role should be strictly limited to creating the enabling environment for competition on equal and fair grounds as well as the protection of private property rights.
Public-private sector business relationship is like a relationship between a tiger and a goat in some instances because many times, the government being the tiger can just turn-round and devour the goat by running foul of the terms and conditions upon which the relationship was based on in the first instance. It might also be outright reversal or cancellation of the business relationship at will without recourse to the partner. When this happens, the goat is devoured or severely wounded. Much of this have also happened in this country and nothing says that it cannot persist as the signs are replete even in this present administration. Recently, some airlines cried foul as they alleged that government was either reneging or violating the agreed terms and conditions under which they were to make use of Murtala Mohammed airport. The sovereign by its name can do anything and work away because its major instrument is coercion or the threat of it. Such relationships are also problematic. The power of the sovereign corrupts absolutely and in such relationships oftentimes corrupts the private sector in many ways. There is no doubt that sometimes such relationships are well intentioned. However the mixture of business with politics usually leads to corruption and offer incentives to the partnering private groups to latch on to the gravy train of government.
If on the other hand that the fear of natural monopoly rising from the dominance of most competitive firm under a market arrangement is the argument against market provision of public infrastructure, public-private partnership is even worse as it has more potentials for throwing up legal monopoly. Whereas naturally monopoly is efficient and driven by entrepreneurial energy because the underlying power which disciplines the private sector and makes it pay attention to customer service and efficiency is competition, natural monopoly has been proved to be characterized by inefficiencies because it is noncompetitive and tax- supported. Legal monopoly is all too often the result of government/industry partnerships. A public-private partnership that is intended to immediately within a very short period relinquish both ownership and management to market power can be allowed only to the extent that such transfers of ownership and management is 100% guaranteed and that it happens within a very short time period.
There is an increasing awareness and consequent global gravitation towards privatization of hitherto government owned infrastructure. This has caught us here albeit the alleged underlying fraud which underlay the process and made them less credible since such corruption weakens competition and undermines private property rights. The idea of privatization of hitherto government owned infrastructure affects the ownership as well as the management of these infrastructure. This also means that increases to the size of infrastructure available will be made by the private sector that is operating within the market governance contexts. Efficient and sustainable provision of infrastructure in Nigeria can really be achieved through the complete privatization of all government owned assets except those that are committed to the maintenance of law and order, making of laws as well as minimal executive operations. Lessons from many parts of the world have shown that even privatizing such infrastructure as roads would solve some of the problems endemic to public roads, namely, poor maintenance, high accident rates, congestion, and pollution.
Sufficient empirical evidences support privatization of hitherto government owned infrastructure because it increases efficiency and profitability. Complete privatization obviously has more benefits than partial privatization. Aside efficiency and profitability advantages, it equally offers many benefits to government itself. Privatization of infrastructure enables governments in a period of budget deficits and an environment of fiscal restraint to move major capital expenditures on new infrastructure off-budget or to capitalize existing infrastructure by sell-offs to the private sector. Another political attraction is the extraction of commitment over a range of policy related risks that are related to financial viability. For instance an ongoing commitment to maintenance of the infrastructure can be built into the privatization arrangement. Privatization generally permits employment creation in depressed labour markets without committing additional public resources to this objective.
How Do We Transit to Full Private Provision?
Private provision of public infrastructure is desired because of the high prospects of value for money which it engenders through the market mechanisms. The transition from public sector provision of public infrastructure in Nigeria to private provision requires the understanding of the fact that the public are desirous of value for money and therefore projects should create a genuine business opportunity, which is likely to attract a sufficient number of private parties and create an effective and competitive bidding process. This means that the level of government involvement in pre and post transitions will be non-intrusive and limited to creating a level playing ground as well as rules for competition among private sector participants.
The starting point of this transition is for the legislature to permit the immediate privatization of all hitherto owned government investments from steel rolling mills and power to government schools and hospitals and slim down the power of the executives to ensuring that rule of law truly prevails and private property rights are strengthened and protected. This will be supported by the review and removal of all laws and legislations that directly or indirectly work against the future privatization of any property of government that can ever possibly be more efficiently run by private people. Private people should be given franchises to construct and maintain roads and take tolls on them. Ditto for electricity generation, transmission and distribution as well as water supply. Examples as well as stupendous array of evidence show that Nigerian government can use the power of the market place to turn-around the appalling state of its infrastructure. Market innovations such as user fees and tolls provide substantial advantages to the society by requiring potential users to consider costs when they decide whether to use particular infrastructure type and by not using taxpayers' money. Moreover, the involvement of private ownership and franchises in infrastructure improves efficiency and reduces government's financial risk. Thus Hanke (2008) wrote: "most nations face daunting infrastructure problems. To solve them, well-tested methods of private provision must be embraced. Private infrastructure franchises that are properly designed and strictly policed hold the key for infrastructure provision". The technical details and situation-specific methodologies of infrastructure franchising are beyond the scope of this essay.
By Oluba Martin, Email: martin@martinoluba.com ; Mobile: 08033148722; http://www.martinoluba.com/publications.jsp
Satisfactory provision of those basic structures and facilities that support positive economic performance requires massive financial commitments, ability to work around the difficulty in benefit-split as well as handle the attendant high externalities. Public infrastructure touches on a wide spectrum of basic amenities which enhance the capacity of economic agents to conveniently engage in productive activities with less stress. The absence of these amenities or their un-optimal provision can equally result in complete seizure of production at economic unit levels. According to the United States National Infrastructure Improvement Act of 2006 these amenities include water supply and distribution system, wastewater collection and treatment facilities, surface transportation facilities, mass-transit facilities, airports and airway facilities, resource recovery facilities, waterways, levees and related flood-control facilities, docks or ports, school buildings and solid-waste disposal facilities. Of course electricity and communications make the infrastructure list given the Nigerian context. Provision of these amenities can be through a variety of ways which comprises: government ownership with government management, government ownership with private management, public-private ownership and joint management, private ownership and management, community provisioning etc. Oftentimes, in most developing and under-developed countries such as ours, owing to the established pattern on provision, government has always been called upon to provide these infrastructures. The most touted reason is the size of funds required. The result is that infrastructure provision has been largely characterized by government ownership and management.
Usually such source of provision has always been tied with regulation which rather than improving efficiency and lowering prices, actually produced contrary effects. The results become the entrenchment of monopolies characterized by the wastage of valuable resources in trying to maintain the monopoly status. New ideas, new and better ways of conducting exactly same business or activity are oftentimes suppressed, and consequently in the absence of competition cause severe quality deterioration. There is nothing to show that competition cannot only survive but actually produce better results in business activity areas where legal monopolies have been entrenched. The deregulation experience particularly in the area of telecommunications in Nigeria has proved that it is possible. No one holds the government fully accountable anymore for poor quality telecommunications service.
While Nigeria is still largely dependent on public provision and only beginning to follow the path of private provision, Indonesia and Thailand have been on sustained gravitation towards full private provision of public infrastructure services much earlier. Nigeria, on the other hand has been quite slow in promoting private provision and management. The resulting consequences have been that businesses are considerably offsetting the deficiencies in publicly provided infrastructure services by making huge expenditures in providing them by themselves. My candid view is that government's role should be shrank so much that it is only limited to defining the terms of fair play among competitive private bidders/providers without being intrusive and obstructive. The power of entrepreneurship driven by market competition spurs growth and positive economic performance much more than the direct regulation of government and should therefore be allowed to champion the cause of sustainable provision of private infrastructure.
Adequate Infrastructure is Key to Economic Growth
The president just like many other Nigerians recognizes and laments the level of infrastructure deterioration in the country which "remains the greatest impediment to economic growth" and which will require between $6 and $9 billion annually to solve. The deficit in infrastructure provision is very much a significant factor behind the comparatively higher cost of doing business in Nigeria relative to other countries. It equally underscores the declining rate of capacity utilisation, as well as lower quality of life for majority of our population. The reason for this is that strong growth is always a function of adequate and well functioning infrastructures that underscore both the production and free flow of goods and services within and outside the country.
Infrastructure investment, or capital, consists of large capital-intensive projects, which in most countries are largely publicly owned and regulated, and which also provide the backbone of the production and distribution system. They are often regarded as the wheels of economic activity because of the crucial role they play in providing the bulwark upon which production and distribution stands. A weak foundation cannot satisfactorily support a superstructure. Therefore without adequate infrastructure, economic activities which is invariably the superstructure cannot be successfully stand. The contrary is true. America is a good historical example. In the early days of its existence, the construction of canals and turnpikes, railroads during the first half of the nineteenth century, significantly spurred trade and development. Consequently, huge financial commitments in electricity and telephone networks equally facilitated modernization which after a little time, significantly enhanced the productivity of the average American worker. With good infrastructural base, development is both easily attainable and sustainable. Several examples abound. Adequate electricity availability ensures optimal use of modern technologies and processes. Computers can rarely be used beyond certain hours on battery without electricity to support it and give a more enduring life. So it is with big manufacturing plants. Transport infrastructure such as roads and rails permits efficient movement of goods and services across locations to where they can best be used. By so doing it facilitates exchange which is fundamental to economic growth. So it is with water, without which many production processes will be hampered such as making of soft drinks, certain pharmaceutical products etc. Efficient infrastructure development underlies the integration of the national economy and helps in spreading its benefits. For instance, the adequacy of good roads, water and electricity infrastructure in certain remote areas can serve as an incentive to attract certain levels of industrial activities in such places. In that wise, infrastructure provision facilitates investment in less developed areas. The many benefits are innumerable and can go on. It is therefore important to see how infrastructure provision is central to poverty elimination. With electricity, farmers in rural areas can easily process their harvested cassava roots into gari flour. Welding and related crafts which are typical of the rural and sub-urban economies will spring up. Infrastructure provision is therefore fundamental for successful rural transformation and agricultural development. Inadequate infrastructure conditions on the other hand has deleterious effects on health, education and the capacity of local producers.
Infrastructure is much better in industrialized countries and is one of the major reasons for the economic differences between them and the developing countries as they are naturally empowered to be more productive. The impact of infrastructure inefficiencies in Nigeria has been severe and has lasted for several decades and is reflected in constrained domestic growth, impaired international competitiveness, and poor foreign investment.
State of Nigerian Infrastructures (selected cases)
On average, virtually all aspects of Nigeria's infrastructure is in deplorable condition. The power sector for instance is marked by low generating capacity relative to installed capacity. At present electricity generation ranges from between 2,500 megawatts to about 3,000, even with the inclusion of three gas-powered independent power projects in the Niger Delta region, while estimated national consumption is in excess of 10,000 megawatts. Potential demand in the next few (say three) years is estimated at about 15,000 megawatts. Saddening enough is that Nigeria is endowed with massive reserves of hydro energy, petroleum reserves and one of the largest gas reserve. Government policy for the sector during the 1980s and the 1990s and until recently did not properly anticipate national needs. For example, the last major electric generation installation in Nigeria was in 1990 when the shiroro power station was commissioned. Since then no new units have come on stream and none of the existing ones have had a major overhaul for 15 years. The kainji Hydro electric plant in operation since 1968, for instance, was designed to generate 960mw of power out of its 12 turbines, but only 10 of those turbines have been installed. Today the kanji plant can only generate 760mw of power. The per capita consumption of electricity is 0.054kw only about 5% of our hydro electric capacity has been developed.
Table 1: Existing Power Station Projects: http://www.martinoluba.com/publications.jsp
Recently, the government mandated a committee with creating a blueprint for raising power generation capacity to 6,000 megawatts in the next 18 months and 11,000 megawatts by 2011. Following the recommendations of the committee, the Nigerian government appears to be interested in substantially reducing its role in power provision while creating a major role for the private sector. By this move if pursued conclusively the successes achieved in the GSM telecommunications area will be repeated. But the challenge remains the how of attracting the investing public. Who wants to make equity investment in government in government owned projects? Only very few indeed because the profitability incentive which is behind the investment in the first instance is absent. The GSM experience shows that Nigerians are willing to pay higher rates for critical infrastructure provided they get value for their money. What currently obtains (and has been happening) is situation where government's electricity-tax collecting authority generally collects tariffs without the provision of any electricity.
On the other hand, our roads are begging to be saved across the entire country. The south east- south west road network for instance evokes the most heart-rending picture of the extent of damage and deterioration that are the features of our roads. In the past decade or earlier, it takes about three hours to travel from Lagos to Benin. In recent times, this can take as long as six hours if there is no slight obstruction. Motorable roads that are well maintained is critical for the smooth and efficient exchange of goods and services across different parts of the country as the rural areas and hinterlands are also connected. The length of roads in Nigeria is about 195,200 kilometres out of which about 15.3% is paved. About 28% of these paved roads are bad and un-motorable. How can our road infrastructure optimally support economic growth when it is obvious that the totality of road network within a country, approximates the degree of mobility of people, goods and services within the same country. The quality of the roads in turn shows the extent to which people, goods and services can easily move across the country.
Unfortunately our roads have been overwhelmed by myriads of problems which have substantially minimized their value. The road system is largely in disrepair and is not useable in any value-adding way. Traumatic traffic congestions are commonplace in the populous cities of the country. Aside long delays in the movement of goods, highway accidents and deaths are frequent. These include faulty designs, absence of drainage systems, washing away of pavements, fallen bridges, gullies/potholes as well as non-existent culture of maintenance. Collectively these undesirable road characteristics have clogged the stream of exchange of goods and services across the country as it has become expensive and more arduous to move products and services from producers to consumers, farm produce from rural to urban centers with lots of man-hour losses. Consequently, this weakens the purpose of desirable time bound, destination bound, cost bound and purpose bound operational efficiencies which should underscore effective transportation. Generally the conditions of our roads substantially affect the cost of production and overall national productivity.
The railway infrastructure evokes even more self-pity than the roads. As a country, we have not been able to improve upon railway system which we inherited from the colonialists. It is virtually moribund and archaic with no upgrade and maintainance. In the pre and post-independence era, Nigerian railway system actively supported economic activities as a bridge between the North and South. That no longer exists. Two decades ago we had 3,500 kilometres of narrow-gauge (1.067-meter) rail track. The system's basic elements were two main lines running inland from the coast: one, in the west from Lagos to Kano, opened in 1912, and the other, in the east from Port Harcourt to a conjunction with the western line at Kaduna, opened in 1926. Three major extensions were subsequently constructed. One was a branch line from Zaria to Kaura Namoda, an important agricultural area in the northwest, completed in 1929. The second was a branch from Kano to Nguru, a cattle-raising region in the northeast, completed in 1930. The third, a 645- kilometer branch from the eastern line to Maiduguri, was completed in 1964. A short spur to the mining area at Jos and two short branches from Lagos and Kaduna rounded out the system (Adejumo; 2006). Unfortunately, inadequate maintenance and funding and a host of other ancillary causes contributed to the severe deterioration of the Nigerian rail system. The many problems of the Nigerian railway system include poor communications, government interference with management structure, worn out infrastructure, under-funding, absence of maintenance etc.
On a more general note, Nigeria's infrastructure has almost totally crumbled. In many urban areas, water supply, sewerage, sanitation, drainage, roads, electricity, waste disposal are virtually non-existent. Maintenance of the partially existing ones is zero. All these are being compounded by the twin problems of rapid population growth and urbanization.
How Sustainable is Government Provision?
Many people are of the opinion that we need the state to provide public goods. The arguments usually posited to justify government provision often revolves around issues of adequacy of infrastructure provision particularly when huge capital outlay is required for which individual or market financial capacity cannot cope. Sometimes it follows the 'stimulationists' idea that increased public expenditure will stimulate consumption, aggregate demand and economic growth. Another reason includes the positive externalities and free-rider problems which are helpless in the face of the so-called market failure theory. Cited cases here include the provision of street lights or some other services which seemingly provide benefits to society over and above those that accrue to the individual. On the other hand, negative externalities may justify government intervention to reduce their occurrence. Then there is the issue of potential growth of natural monopolies requiring that government intervenes. All these arguments notwithstanding, in our very eyes as Nigerians, we see the consequences of government ownership and management of public infrastructure since Nigeria's independence in 1960. What has largely happened was that successive government's enabled the rapid deterioration of the infrastructures which were inherited from the colonialists and missionaries without replacing them with new ones or at worst keeping them the way they met them. In instances where attempts were made, such purported infrastructure projects served as mere conduits to enable the various regimes and their cronies detestably meaningful shares of the so-called national cake irrespective of how it hurt the economy. Government's scorecard can be put side-by-side with the evidential rapid progress made in areas where there have been private ownership and management. Economies run by private people are considerably more efficient in resource allocation and faster in achieving economic development than the ones that are not. The best areas for government should be those historically traditional roles of public policing, justice administration, defence of property rights, enforcement of contracts etc. It is therefore largely rhetorical to ask whether government provision of public infrastructure is sustainable. The answer from experience and evidence is a capital NO. But we may need to invoke additional substantiating evidence.
Market failure is an argument which is fast gaining intellectual disrepute because it lacks merit and is fallacious in that it is built on the wrong neoclassical premise of perfect market competition as well as interpersonally measurable utility scales. Perfect competition is in fact no competition. And utilities can only be subjectively - and imperfectly - measured by the individual concerned. Many scholars have shown that the market does not fail but is in a constant process of discovery. Thus many hitherto considered non-excludability backed reasons for government intervention shows that the market can actually resolve them on case-specific basis depending on their peculiar dynamics. Let us consider the case of street lights, its consumption can be tied to other goods that are excludable such as charging for its use at the entrance to the street. This really happens when for instance a community provides its own security. In some instances rates are sometimes collected at the points of entry. While the market failure argument is used to justify the possible intervention of government, even with vast literature which exists on the many imperfections of government in allocating resources, some economists and advisors still recommend government intervention to correct market failures without regard to the failure of government itself. Our governments have failed in meeting the infrastructure needs of the Nigerian people. If therefore an alternative provision-source is to be sought when there is the supposed market failure, an alternative provision-source ought to be sought now that it is evident that our government has failed. It is therefore in considering the many possibilities of government failure that full private sector intervention is recommended.
Entrenched public sector corruption particularly in Nigeria is a major factor distorting decision making and implementation processes as regards the acquisition of public sector assets. Government does not invest. Yet even in the acquisition of public assets, the primordial self interest motives of the various individual players comes up. Whereas the typical bribery incentive that characterize our system can on one hand lead to either increased quantity of infrastructure or huge spending on public infrastructure even when the resources may not be enough to conclude the projected asset acquisition or on the other hand account for the deplorable quality of built infrastructure. The US$16 billon purported spending on electricity infrastructure during the life of the previous administration is a good case. Many cases of impropriety and shocking revelations show the scale of corruption within the Nigerian public sector and clearly indicates that the Nigerian government is not a good candidate to be credibly entrusted with any further infrastructure development. Nigeria's government, police, civil services, and businesses are plagued by extortion, bribery, and other forms of corruption which undermines the capacity of government to successfully handle and deliver high quality infrastructure for the people. This is also not likely to be wiped off overnight as political corruption is not a recent phenomenon and has permeated the Nigerian state since its creation with many cases of official mis-use of resources for personal aggrandizement.
Aside that public provision serves as an incentive for increased large scale official corruption by presenting immense self-aggrandizement opportunities to government officials, it also puts pressure on public finances. In spite of the high possibility of mis-use of the budgeted project funds, there is the other side of crowding out of the important expenditure on the traditional areas where government has chances of performing better. One-tenth of the US$16 billion squandered in unseen power projects by previous administration could have been meaningfully deployed in the acquisition of infrastructure for policing and justice administration. Although there is no guarantee that this will equally be carried out without blemish. The need to review and redefine the role of the government and to evolve appropriate policy, legal, and regulatory frameworks for private sector participation in infrastructure development has become most urgent.
Furthermore, the joke that government is better in mobilizing huge capital required for large scale infrastructure has become even more ridiculous considering the trillion dollar transactions being packaged and executed by investment banks globally. The power of global financial interconnectedness makes it possible and even easier for the financial markets to raise massive amounts of capital in order to finance infrastructure acquisition requiring huge financial outlay. The Nigerian infrastructure can be and is suggested to be 100% financed and managed by the private sector, because the global financial system is proven to have the capacity and required flexibility to achieve all the expectations. As a matter of fact, Nigerian government on the contrary has been guilty of under funding infrastructure development due to either poor estimation of acquisition or maintenance costs or sheer mismanagement of funds allocated for such. However the huge size of abandoned projects points to the fact that the myth of government's inexhaustible capacity to handle projects requiring massive financial outlay is really giving way for more positive thinking. Government abandons its infrastructure projects - all things being equal - because it lacks the financial capability to finish it. This situation rarely arises in the case of the entrepreneur who is in pursuit of profit. The motive is clear: provide and maintain the infrastructure and reap attendant financial and other rewards. All stakeholders in the process are happy.
The telecommunications story is a rare case of the difference that can exist when private provision supplants government provision of public infrastructure. With a population of about 40 million people, Nigeria had approximately 18,700 telephone lines at independence in 1960. Telephone facilities had been established about 76 years earlier. Based on that that calculation, the telephone density was about 0.5 telephone line per 1,000. By 1985, the overall quality of service and telephone infrastructure had become so unreliable, congested, expensive and customer unfriendly. This caused the split of the then posts and telecommunications department into two: Postal and Telecommunications divisions. The telecommunications division was later merged with NET to form Nigeria Telecommunication Limited (NITEL), a limited liability company. By 2003, NITEL had about 500,000 lines which were available to more than 100 million Nigerians. The summary is that the available telecommunications infrastructure could not serve the Nigerian people. As a national carrier with sector monopoly, telecommunications services were punctuated with epileptic services and bad management.
This monopoly was broken with the deregulation of the sector which was marked by the granting of operating licences to GSM service providers as well as initiating the process of privatization of NITEL. With this step alone, more than 50% of Nigerians have access to GSM telephones in addition to other fixed wireless telephony. These have increased teledensity and made communication effective and efficient in Nigeria. At present a wide range of telecommunication services are offered in the country: Telephony; Telex; Cellular Mobile Telephony; Facsimiles; high speed data transmission telegraphy, Public pay phones etc.
The consequence of public provision oftentimes particularly is almost the assurance of government failure which therefore imposes tremendous hardship on businesses. Experience has shown that the hitherto considered government solution to the non-excludability and non-rivalrous consumption characteristics of public goods is in fact no solution, but additional and unwarranted burden on national economic enterprise. The response of businesses in Nigeria to deficiencies in government's provided infrastructure such as electricity, water, transport etc is to undertake significant expenditures to offset them. This naturally severely affects the prospects of these businesses as it has same type of damaging effect as income tax particularly in a multi-tax environment of ours. My paper on justifying resistance to tax payment in Nigeria is an eye-opener in that respect. Private substitutions for inefficient public service divert capital and raise costs. Marginal companies pay the greatest penalty and are often the first group to be forced out of operation. Unlike the big companies, the small companies that cannot provide their own infrastructure become victims. This hampers overall economic performance.
Are We Moving in the Right Direction?
Increasingly, Nigerians are able to identify with Adam Smith by observing that no two characters seem more inconsistent than those of trader and sovereign. The former representing the market based entrepreneur and the latter, the all-powerful government. It is obvious that humans on average are more careless about the wealth of others than theirs. This has also been evidenced over the many decades of the life of this country. Government ownership and management of infrastructure is characterized by negligent and wasteful outcomes because public employees are not substantially motivated by the commercial outcome of their actions whether positive or not. Evidences abound to support the fact that private firms are more cost-effective than public firms in the provision of goods and services. The direction of government in going private in the area of private provision of public infrastructure is welcome. The idea of the privatization-focused reform of the previous administration was indeed noble. But this nobility was flawed by the corruption that allegedly attended to them which made them fail the test of fair competition that should mark such activities. Fair play, openness and equality under clearly defined rule of law is most important for the market to truly exhale and yield abundant benefits. The absence of these characteristics charades and frauds prevail. But whatever the case, the way of the market is the only way to go. Although there are many caveats arising from the many so-called public-private partnerships in which there is merely a disguised ownership by the government or in which the partnership is burdened by government powers. Many variants of this relationship abound which still gives the government the leeway to impose itself on the ability of the market operating structure to deliver satisfactorily. Government has no business being in business and should not be involved in the so-called partnerships. Its role should be strictly limited to creating the enabling environment for competition on equal and fair grounds as well as the protection of private property rights.
Public-private sector business relationship is like a relationship between a tiger and a goat in some instances because many times, the government being the tiger can just turn-round and devour the goat by running foul of the terms and conditions upon which the relationship was based on in the first instance. It might also be outright reversal or cancellation of the business relationship at will without recourse to the partner. When this happens, the goat is devoured or severely wounded. Much of this have also happened in this country and nothing says that it cannot persist as the signs are replete even in this present administration. Recently, some airlines cried foul as they alleged that government was either reneging or violating the agreed terms and conditions under which they were to make use of Murtala Mohammed airport. The sovereign by its name can do anything and work away because its major instrument is coercion or the threat of it. Such relationships are also problematic. The power of the sovereign corrupts absolutely and in such relationships oftentimes corrupts the private sector in many ways. There is no doubt that sometimes such relationships are well intentioned. However the mixture of business with politics usually leads to corruption and offer incentives to the partnering private groups to latch on to the gravy train of government.
If on the other hand that the fear of natural monopoly rising from the dominance of most competitive firm under a market arrangement is the argument against market provision of public infrastructure, public-private partnership is even worse as it has more potentials for throwing up legal monopoly. Whereas naturally monopoly is efficient and driven by entrepreneurial energy because the underlying power which disciplines the private sector and makes it pay attention to customer service and efficiency is competition, natural monopoly has been proved to be characterized by inefficiencies because it is noncompetitive and tax- supported. Legal monopoly is all too often the result of government/industry partnerships. A public-private partnership that is intended to immediately within a very short period relinquish both ownership and management to market power can be allowed only to the extent that such transfers of ownership and management is 100% guaranteed and that it happens within a very short time period.
There is an increasing awareness and consequent global gravitation towards privatization of hitherto government owned infrastructure. This has caught us here albeit the alleged underlying fraud which underlay the process and made them less credible since such corruption weakens competition and undermines private property rights. The idea of privatization of hitherto government owned infrastructure affects the ownership as well as the management of these infrastructure. This also means that increases to the size of infrastructure available will be made by the private sector that is operating within the market governance contexts. Efficient and sustainable provision of infrastructure in Nigeria can really be achieved through the complete privatization of all government owned assets except those that are committed to the maintenance of law and order, making of laws as well as minimal executive operations. Lessons from many parts of the world have shown that even privatizing such infrastructure as roads would solve some of the problems endemic to public roads, namely, poor maintenance, high accident rates, congestion, and pollution.
Sufficient empirical evidences support privatization of hitherto government owned infrastructure because it increases efficiency and profitability. Complete privatization obviously has more benefits than partial privatization. Aside efficiency and profitability advantages, it equally offers many benefits to government itself. Privatization of infrastructure enables governments in a period of budget deficits and an environment of fiscal restraint to move major capital expenditures on new infrastructure off-budget or to capitalize existing infrastructure by sell-offs to the private sector. Another political attraction is the extraction of commitment over a range of policy related risks that are related to financial viability. For instance an ongoing commitment to maintenance of the infrastructure can be built into the privatization arrangement. Privatization generally permits employment creation in depressed labour markets without committing additional public resources to this objective.
How Do We Transit to Full Private Provision?
Private provision of public infrastructure is desired because of the high prospects of value for money which it engenders through the market mechanisms. The transition from public sector provision of public infrastructure in Nigeria to private provision requires the understanding of the fact that the public are desirous of value for money and therefore projects should create a genuine business opportunity, which is likely to attract a sufficient number of private parties and create an effective and competitive bidding process. This means that the level of government involvement in pre and post transitions will be non-intrusive and limited to creating a level playing ground as well as rules for competition among private sector participants.
The starting point of this transition is for the legislature to permit the immediate privatization of all hitherto owned government investments from steel rolling mills and power to government schools and hospitals and slim down the power of the executives to ensuring that rule of law truly prevails and private property rights are strengthened and protected. This will be supported by the review and removal of all laws and legislations that directly or indirectly work against the future privatization of any property of government that can ever possibly be more efficiently run by private people. Private people should be given franchises to construct and maintain roads and take tolls on them. Ditto for electricity generation, transmission and distribution as well as water supply. Examples as well as stupendous array of evidence show that Nigerian government can use the power of the market place to turn-around the appalling state of its infrastructure. Market innovations such as user fees and tolls provide substantial advantages to the society by requiring potential users to consider costs when they decide whether to use particular infrastructure type and by not using taxpayers' money. Moreover, the involvement of private ownership and franchises in infrastructure improves efficiency and reduces government's financial risk. Thus Hanke (2008) wrote: "most nations face daunting infrastructure problems. To solve them, well-tested methods of private provision must be embraced. Private infrastructure franchises that are properly designed and strictly policed hold the key for infrastructure provision". The technical details and situation-specific methodologies of infrastructure franchising are beyond the scope of this essay.
By Oluba Martin, Email: martin@martinoluba.com ; Mobile: 08033148722; http://www.martinoluba.com/publications.jsp
Why do Nigerians insist on calling themselves CEO/MD?
There are so many articles and columns in this and other publications on the ‘art of management’ that you would think by now the message would have come across and Nigerian businessmen would be among the most advanced and enlightened possible.
After all is not every bookstand in Nigeria dominated by books written by international management gurus or published by the worlds leading business schools? Bookshops in Nigeria seem to have the largest ‘self help’ and business advice sections that I have ever seen. In fact, apart from religious tracts, this seems to be the most popular reading material in the country. I almost feel like some weirdo when I am seen reading a novel. So, does all this theoretical knowledge mean Nigerian managers are active proponents of the latest and positive techniques and styles? I hesitate to answer. However, I recently interviewed a fictitious Chief Executive Officer and Managing Director of a major Nigerian Company on how to run a business in Nigeria.
Why do so many Nigerians insist on calling themselves CEO AND MD? I suppose it leaves no one in any doubt about exactly who is the boss! Let me share it with you.
I was to conduct the interview at the Company HQ. Having arrived on time I entered the ‘outer’ office and filled in the visitors’ book, smiled at the mopol ready to gun down any assassins likely to burst in and nodded at the girl who was slumped over a computer keyboard. The PC seemed to have a screensaver stating that being a good Christian would ensure instant wealth and that a donation to some Pastor’s ‘God’s Way To Your First Billion Fund’ would accelerate the process. I was shown to an ‘inner outer’ office cum waiting room where I spent a very comfortable forty five minutes watching CNN with the five other people squashed on to the sofa. The smartly dressed Personal Assistant apologised for the delay and said that Oga would see me shortly. Sometime between shortly and longly I was ushered into the inner sanctum. A voice somewhere in the distance apologised for keeping me waiting and asked me to take a seat on one of the leather chairs. Eventually after the trek from his desk at the other end of the office whom we shall call ‘the Boss’ joined me. After a short wait when his PA had to run in and answer one of his six mobile phones we begun.
"Well, Keith, I am glad to have this chat. As you know I am a devotee of Peter Drucker and Tom Peters but it is important to remember these books are all very well but we should consider them in the context in which we operate. For example, in the last Harvard Review……. do you subscribe? You should, you know. Yes, in the last edition there was an article on ‘Managing by Influence’. Very interesting but obviously couldn’t work in our culture. I mean, my people expect me to behave like a CEO, like a Chief. They would be disappointed if I was to come down to their level. One has to consider my busy schedule as well. I simply don’t have time for extensive discussion and decision by consensus. If I let every manager have his say we wouldn’t get round to any conclusion. Whenever I can, I try to explain my decisions to help the younger managers develop and understand the process of business but I don’t really encourage them to question these things. After all it can be embarrassing for them if they don’t grasp the ideas quick enough and I have to put them in their place."
"The point is, Keith, and you have been here long enough to know this, is people here look up to strong leadership. My thirty years in business means I have the experience which younger people do not. It is very well for these young men to come back from Europe or the States with modern ideas but they simply can’t cut the mustard. That is obviously why so many of them don’t last. After a few months they are up and off, I wish them well. I don’t take all the decisions because I want to. In fact, they don’t understand the pressure this puts me under. After every foreign trip there are so many people waiting for me to agree this or that. Sometimes I think nothing gets done when I am not here but that’s just the way they look up to me. Occasionally I come back and some up and coming young man has done this or that without considering the consequences and I am forced to rescind the decision to save the company. But you know how it is, ‘Uneasy lies the head’ and all that."
"Yes, I certainly do agree that women should be an active partner in the business. Since I have been at the pinnacle we have recruited a number of females into senior positions. We have women in Human Resources and facilities management. I understand we now have a number of young ladies in the marketing department. No, I don’t believe we are ready for a female member of the Board. The point is you need consistency. I mean, most executive members of our Board have at least twenty five years experience in the company while we appoint Non-executives from the senior ranks of Nigeria, people who have been serving at the highest level for thirty or forty years. The distractions of family life and children make it difficult for a woman to achieve that. But, no, I don’t think that makes me anti-woman. After all didn’t I appoint my own daughter to run our Baby care Division?"
"Yes, running a major business in Nigeria is all about wisdom and experience. After all, without this I wouldn’t understand that our drop in Turnover is just cyclical and is a result of market forces out side our control and, of course, the economic decisions of Government. There is no need to make sudden changes. Operating in Nigeria is about holding your course and staying true to your philosophy. Some of the things our competitors have been doing are just gimmicks and pandering to fashion. Our less experienced managers can be seduced by this but it takes an older head to know this is a short term issue."
"So, you must excuse me now. I have enjoyed our chat but I have someone coming in to help finish my Autobiography. I would have written it myself but I just don’t have the time. As it is we have to get it to the printers as the launching is in just a few weeks. The governor is from the same village as me so I am expecting him to be Chairman of the occasion. The Vice-Chancellor of the University was my junior in school so he will be there. In fact he has pledged to put it on the mandatory reading list of the Business Studies and Philosophy and Ethics courses so they will buy a few hundred copies. I do hope you will attend."
I can’t wait.
- businessday
After all is not every bookstand in Nigeria dominated by books written by international management gurus or published by the worlds leading business schools? Bookshops in Nigeria seem to have the largest ‘self help’ and business advice sections that I have ever seen. In fact, apart from religious tracts, this seems to be the most popular reading material in the country. I almost feel like some weirdo when I am seen reading a novel. So, does all this theoretical knowledge mean Nigerian managers are active proponents of the latest and positive techniques and styles? I hesitate to answer. However, I recently interviewed a fictitious Chief Executive Officer and Managing Director of a major Nigerian Company on how to run a business in Nigeria.
Why do so many Nigerians insist on calling themselves CEO AND MD? I suppose it leaves no one in any doubt about exactly who is the boss! Let me share it with you.
I was to conduct the interview at the Company HQ. Having arrived on time I entered the ‘outer’ office and filled in the visitors’ book, smiled at the mopol ready to gun down any assassins likely to burst in and nodded at the girl who was slumped over a computer keyboard. The PC seemed to have a screensaver stating that being a good Christian would ensure instant wealth and that a donation to some Pastor’s ‘God’s Way To Your First Billion Fund’ would accelerate the process. I was shown to an ‘inner outer’ office cum waiting room where I spent a very comfortable forty five minutes watching CNN with the five other people squashed on to the sofa. The smartly dressed Personal Assistant apologised for the delay and said that Oga would see me shortly. Sometime between shortly and longly I was ushered into the inner sanctum. A voice somewhere in the distance apologised for keeping me waiting and asked me to take a seat on one of the leather chairs. Eventually after the trek from his desk at the other end of the office whom we shall call ‘the Boss’ joined me. After a short wait when his PA had to run in and answer one of his six mobile phones we begun.
"Well, Keith, I am glad to have this chat. As you know I am a devotee of Peter Drucker and Tom Peters but it is important to remember these books are all very well but we should consider them in the context in which we operate. For example, in the last Harvard Review……. do you subscribe? You should, you know. Yes, in the last edition there was an article on ‘Managing by Influence’. Very interesting but obviously couldn’t work in our culture. I mean, my people expect me to behave like a CEO, like a Chief. They would be disappointed if I was to come down to their level. One has to consider my busy schedule as well. I simply don’t have time for extensive discussion and decision by consensus. If I let every manager have his say we wouldn’t get round to any conclusion. Whenever I can, I try to explain my decisions to help the younger managers develop and understand the process of business but I don’t really encourage them to question these things. After all it can be embarrassing for them if they don’t grasp the ideas quick enough and I have to put them in their place."
"The point is, Keith, and you have been here long enough to know this, is people here look up to strong leadership. My thirty years in business means I have the experience which younger people do not. It is very well for these young men to come back from Europe or the States with modern ideas but they simply can’t cut the mustard. That is obviously why so many of them don’t last. After a few months they are up and off, I wish them well. I don’t take all the decisions because I want to. In fact, they don’t understand the pressure this puts me under. After every foreign trip there are so many people waiting for me to agree this or that. Sometimes I think nothing gets done when I am not here but that’s just the way they look up to me. Occasionally I come back and some up and coming young man has done this or that without considering the consequences and I am forced to rescind the decision to save the company. But you know how it is, ‘Uneasy lies the head’ and all that."
"Yes, I certainly do agree that women should be an active partner in the business. Since I have been at the pinnacle we have recruited a number of females into senior positions. We have women in Human Resources and facilities management. I understand we now have a number of young ladies in the marketing department. No, I don’t believe we are ready for a female member of the Board. The point is you need consistency. I mean, most executive members of our Board have at least twenty five years experience in the company while we appoint Non-executives from the senior ranks of Nigeria, people who have been serving at the highest level for thirty or forty years. The distractions of family life and children make it difficult for a woman to achieve that. But, no, I don’t think that makes me anti-woman. After all didn’t I appoint my own daughter to run our Baby care Division?"
"Yes, running a major business in Nigeria is all about wisdom and experience. After all, without this I wouldn’t understand that our drop in Turnover is just cyclical and is a result of market forces out side our control and, of course, the economic decisions of Government. There is no need to make sudden changes. Operating in Nigeria is about holding your course and staying true to your philosophy. Some of the things our competitors have been doing are just gimmicks and pandering to fashion. Our less experienced managers can be seduced by this but it takes an older head to know this is a short term issue."
"So, you must excuse me now. I have enjoyed our chat but I have someone coming in to help finish my Autobiography. I would have written it myself but I just don’t have the time. As it is we have to get it to the printers as the launching is in just a few weeks. The governor is from the same village as me so I am expecting him to be Chairman of the occasion. The Vice-Chancellor of the University was my junior in school so he will be there. In fact he has pledged to put it on the mandatory reading list of the Business Studies and Philosophy and Ethics courses so they will buy a few hundred copies. I do hope you will attend."
I can’t wait.
- businessday
Nigerian billionaires: Cracking their Financial Codes
Scenario 1:
It was a sweltering Tuesday afternoon, 2.00pm to be precise. MoneyWise had gone to keep an open- ended but highly coded appointment with one of Nigeria's youngest billionaires in his office located on the last floor of the 10- story building somewhere in Central Lagos . This happens to be one of his several prime properties scattered in different parts of Nigeria.
The rule of the game was simple enough but well defined in advance: "Come into either my office or my house at any time and make your observations”. That particular afternoon, the second in three weeks, Moneywise was in the company of a young millionaire who has successfully broken into the highly protected circle of the billionaires club in Nigeria. At exactly 2.30 p.m, he sauntered into the office with a medium- sized black leather bag, smartly dressed in a dark suit and a white shirt without a tie. He simply waved to a couple of his visitors waiting at the sparsely furnished reception and moved on briskly into his office, not too far from the point. In about five minutes, his secretary, a very smart lady by all standards, stacked all the files containing documents meant for his attention and dashed to his office for briefing. In another twenty minutes, two of his male personal assistants went in along with two of the visitors at the reception. In about 10 minutes, through short but probing questions, he had managed to obtain what could be considered vital information on the state of his businesses which span construction, hospitality, and legal practice, among others.
One of the visitors had come to finalise a deal with the billionaire running into billions of naira. After his PA's had left, he requested that his visitors allow him to take a nap, which lasted about 15 minutes on his chair. His visitors were still around. In less than 10 minutes, he was through with his visitors, having perused and approved all the necessary proposals on his desk. He then moved around the offices, asked few questions from his staff and threw some little banter at them to enliven the environment. At that stage Moneywise left for Ikeja for another “see-it-to-believe-moment” at one his multi billion naira construction projects which is nearing completion. Surprisingly and without planning it, about one and half hour later a black Chevrolet Jeep entered into the construction site and the occupant happened to be our billionaire host. He exchanged greetings and disappeared in less than twenty minutes. Moneywise learnt later that he was actually on his way to Abuja to catch a high level appointment . He flew in his private plane.
Scenario 2:
It was exactly 1.15 am that Thursday. The venue was an exclusive bar located in Victoria Island and patronised only, by the affluent. In trickles they walked in quietly -all casually dressed-and in most cases without partners. There was so much excitement in the air. Most of the personalities that came in that early morning are known faces making big waves in the Nigeria's investment circles. At exactly 2.a.m, one influential Nigerian you cannot ignore, a billionaire publisher, came into the scene. The environment became charged with his presence. He moved briskly from corner to corner exchanging loud banters with virtually everybody in the bar. It was a fun- filled morning. Interestingly while the banters were on, mega deals running into billions of naira were also being discussed freely and in most cases sealed.
The MONEYWISE escort volunteers an insight: "That is the way it is. Most deals that cannot be discussed formally in the office setting are sealed here in less than few minutes. This is like a virtual but highly restricted club. You cannot get in if you don't know the code".
Background
The guided visits by MONEYWISE to the offices, homes and frequently visited joints and relaxation spots of Nigeria's affluent are some of the strategies employed to execute one of the most challenging project ever launched by the company since its inception four years ago.
It started with just a question from a Moneywise analyst about three months ago in one of the company's combined Boards of Analysts and Editors meeting:"Who is a billionaire in Nigeria?" The question appeared simple, initially, but it turned out a most difficult puzzle to unravel. After about three hours of clueless discussion and brainstorming , it was then unanimously decided that Moneywise should launch a project titled :"In Search of the Nigerian Billionaire''. The pan-Nigerian project which started two months ago has involved Moneywwise editors , analysts and satellite directors breaking into the highly restricted network of the Nigerian affluent using whatever means to unravel few puzzles:
* Who is the Nigerian billionaire?
* What do the Nigerian billionaires have in common?
* How did they make their money?
* How can an 'outsider' get into the club?
We reckoned that the project would probably take a year or more to conclude, but Monyewise just decided to serve you the background notes and insights generated in the first six weeks of this challenging but seemingly elusive search. We do not have a clue on what the conclusion would be and we have decided to be flexible enough to accommodate any suggestions and insight along the line that might help in the search.
In this very first of a 'Pride of Moneywise' series on Nigeria's wealthy citizens, we provide you with a researched analysis into the world of the rich and wealthy entrepreneurs the country has to offer. The ultimate goal is to begin the compilation of the Nigeria's Moneywise Billionaire List, a project that may take more than a year to completely verify and subject to the scrutiny of the public.The searchlight is on and few Nigerians who could fit into our definitions are being tacked. In this edition therefore, we lay the background thinking into how and why these individuals stand shoulders above the rest.
The Journey
Not too long ago, to be fabulously rich in Africa could mean just one thing - unrestricted access by an individual to plunder the National Treasury. In that light , the obscene wealth acquired by dictators like Nigeria's Abacha, and a few other maximum rulers easily propelled them, albeit undeservedly, into the ranks of the world's Ultra-Rich.
While there are still a sizable number of individuals and leaders in Africa who amass wealth illegally, being wealthy in recent times has come to be associated with accumulating wealth built on entrepreneurship, innovation, hardwork, calculated risk and all other positive and replicable attributes and wealth building principles. Being wealthy no longer means boasting a hefty bank account ; but generating wealth to service the rest of the society. One of the billionaires we had a chat with said: " You can not claim to be truly rich if many other less privileged people cannot trace their successes to your own success. I consider my self wealthy when I can see within my surrounding people who can attribute their own success stories to my helping hands. That is what I consider being wealthy or being a millionaire or billionaire or whichever name you chose to call the wealthy".
In a recently published edition of Forbes, the American Business Magazine, two Africans joined the hallowed ranks of the 450 richest people on the planet.
Rubbing shoulders with billionaires such as Bill Gates Runner-Up Larry Ellison, King Faud amongst others are Onis Sawiris and Nicky Oppenheimer. From the two extremes of the continent Egypt and South Africa respectively, they are worth a combined US$ 4.9 Billion.
Nicky Oppenheimer is the patriarch of the Oppenheimer Family, owners of the De Beers diamond empire in South Africa. With a dominant position in diamond production and marketing around the world, the Oppenheimer family have acquired wealth estimated at £2.8 Billion.
Onis Sawiris heads the Egyptian construction conglomerate Orascom. The group has diversified in to Mobile Telecoms throughout Africa and the Middle East, as well as Tourism in his home market of Egypt. These ventures have netted the family US$2.1 Billion.
Compared to other continents Africa is severely poorly represented, partly reflecting the failure of Governments across the continent to put their economies on a path of sustainable growth and unshackle them from the iron grip of the State. However as most Africans will point out the lack of billionaires is the least of the continents problems.
Here in Nigeria, we have a group of people who are referred to as billionaires because of their relative wealth compared to the norm or average, yet cannot be equated with the world's league of billionaires.These individuals whom Moneywise intends to feature, however, remain heroes to the rest of us because their wealth was derived largely outside of government patronage.
These individuals have, against all odds, built a financial base of sustainable wealth outside the usual 'tag' associated with Nigeria's wealthy few - 419, scams, scandals, inflated contracts, failed projects, insurance scams, credit card frauds, and government patronage to mention a few of the ill-gotten sources of wealth. They are, to all intents, role models for making, managing and multiplying wealth.
So, who is the average Nigerian billionaire? Can you identify one if you see him or her? Does he eat expensive meals or fast food? Does he drive latest-in-town cars, take expensive vacations, throws lavish parties, invests in designer clothes and perfumes,
Or does he resole his shoes, turn off the air conditioning when he leaves the house, treats his clothes with respect, constantly thinks about a need in the society he/she wants to meet and spend a lot of time at home with close friends and family?
Through interviews, visits and survey responses from a number of our growing band of billionaires, you would be surprised about the type of people that genuine billionaires really are. In most cases, you are likely to discover that they are entrepreneurs who make their money in the quietest way and only publicise themselves strategically when the need arises.
The COMMON DENOMINATORS
One of the most exciting aspects of the Moneywise search is the discovery that certain traits run through these billionaires like a thread. Some of their characteristics worthy of being highlighted include:
Thriving in adversity :
Gleaning from the stories of the billionaires under the Moneywise searchlight and as told by themselves in most cases, there is every reason to co conclude that they all seem to thrive in adversity or better worded , they have developed internal anchor that can sustain them when the storms of life knock.
Most of the self made billionaires featured have surmounted one shortcoming or the other. What qualifies them into the wealth club is their ability to constantly re-invent themselves to maximise or/and exploit opportunities which life presents them. A few have been known to go ahead and create the circumstances and situations that provide the wealth opportunity.
As one of them put it in a background chat with Moneywise: " Great souls are made through trials and difficulties . Real crown of life hardly comes towards an individual until he has gone through some fire'. What is however interesting is that most of them believe that inside what look like challenges are banquet of incredible opportunities. They have trained their mind to constantly ask for 'these seeds of benefits' in times of difficulties.
Sensitivity to business opportunities:
Most of Nigeria's wealthy people we have tracked so far have some uncanny ability to sniff business opportunities from afar. Such opportunities usually don't make sense to people around when they are being appropriated.
Creativity/Innovation:
Most of the Moneywise Billionaires are incredibly creative and can spurn out wealth out of anything and any circumstances.
Belief in the Invisible:
Moneywise search also revealed that some of the Nigerian billionaires believe in the power of divine intervention in the affairs of men. They believe that with divine backing there is nothing under the sun that can not be achieved.
Using other people's money:
Most the billionaires being tracked by Moneywise believe that to make real money you have to learn how to leverage other people's money. They have a common belief that there is nothing wrong in borrowing money. What is wrong is not using borrowed money for regenerative purposes .
Taking risk and relying on intuition:
One thing that most of the billionaires being tracked by Moneywise have in common is that they take quite a lot risks and in most cases such risks, though calculated are propelled by what most of them describe variously as 'gut's feeling', 'intuition', and sixth sense.
Networking:
Without exception all the billionaires being tracked by Moneywise are master networkers. They have developed the habit of extracting value and money from every interactions they initiate or that are tossed on them. Most of them network in the most unusual hours and they are found in joints where some of them sneak in and out sealing mega deals at the speed of light. Moneywise encountered few of the billionaires at pubs like Cigar bar, Robert, Marco polo and few other choice rendezvous located mostly in Victoria Island and Ikoyi. As our millionaire escort puts it: "it is like a virtual club; if you don't belong to the class, you cannot break in'. Popular faces at these ‘relaxation points’ include Tony Elemelu of STB/UBA, Oboden Ibru of Oceanic Bank, Obaigbena, and many others.
Heart in the business:
Moneywise search also revealed that most of the billionaires especially those among them who are entrepreneurs personally supervise the running of their businesses. They do not consider any detail too trivial to ignore. For instance, those who are close to Otunba Mike Adenuga say: "You cannot sneak into Adenuga's business empire without passing through him". People say he personally recruits every staff that comes into the business and this system appears to have worked incredibly for him.
Reading:
Many of the billionaires under the radar of Moneywise read voraciously and speedily implement nuggets they pick from whatever materials they are studying. Elumelu, for instance, does not hide his admiration for Jack Welch book. He was said to have brought several copies of Jack Welch book: What I learnt Leading great Company and Great People and given to his key managers to digest. Nuggets picked from the book are said to have influenced the management principles being practised by Elumelu. Those who are close to Alhaji Aliko Dangote also say he is a compulsive reader who is keen on quickly implementing whatever he learns from a book . "It is not uncommon to see Aliko getting all his managers together in a retreat to dissect a book and map out to implement the nuggets picked from them", a close watcher of the business man told Moneywise.
The paradox
While income per person grew at 3.3% a year between1956 to 1966, the average figure has been below 0.02% in the whole period since the 1973 oil price rise. In fact, despite the over $225 billion estimated earnings in about 30 years of oil exports, the average per capita income today of around $290 is no higher than what existed before the oil boom, though in the early 1980s, it reached $1,000. Available statistics indicate that about half of the population live below the poverty line and most of the 'quality of life' indices are pointing downwards. It appears ironic that in a country with such an array of rich people, the majority cannot access basic decent living standards.
If that were to be true, why should anyone bother about the rich list? Why should we bother?
If you have been following our series on 'The Richest Man in Babylon' published in the SUN newspapers, you will realise why it is important to study the rich as a basis for understanding what sets them apart from the rest. If not for any other worthwhile reason, perhaps to satisfy your curiosity that they are 'flesh and blood' like you. To know why things are the way it is with you and why you need to take action today to elevate your lot.
Hitherto, the rich and mightY did not see any economic justification (and perhaps rightly so) in increasing their wealth (a key task of the wealthy) by investing in production, service and works in Nigeria. The figures simply did not add up. More so, the country was pre-occupied with a scramble for access to oil (and increasingly, gas) money and how much can be taken out to more investment friendly environments to multiply wealth. It is ignorance to assume that any one would have invested in an environment that was so insecure; the return would most certainly give a negative yield.
Thus, most members of the class of millionaires and billionaires created at this time did not have their foundations in enterprise locally. Money made through whatever means simply got siphoned off via different ways. When that was not forthcoming, we simply invented scams that helped create today's 419 culture.
At the height of this madness, an unpublished government inquiry report estimated that at least 7% of oil production revenue simply "disappeared" from official coffers. Up till now, no formal explanation has been provided for the government inquiry report, which, in 1994, claimed that we could not trace the whereabouts of $12.2 billion, largely received in extra oil income during the 1991 Gulf War. The London Times reported that Western diplomats estimate that, since the early 1970s, Nigerian leaders have amassed personal fortunes totaling $217 billion in foreign, mainly Swiss and Lebanese, banks. Nigeria during this period meanwhile accumulated about $37 billion foreign debt which was only recently paid off by the present administration. The Times estimated that a former head of state, Abacha, accumulated $5.8 billion during his nearly five years in power. The government of President Olusegun Obasanjo has recovered only a small fraction of it.
Damning enough, this older generation of leaders benefited from the brief oil boom Nigeria. They enjoyed free education; free health care, moderately good standard of living, strong economy, etc. The only legacy to wealth they have left behind for the present generation is predicated on wealth through swindles, 419, scams, thuggery, violence and chaos. There has never been a more pressing need to begin to x-ray the lives of the rich and wealthy. This exercise, we hope, should help bring about.
for the full report and case studies including Jim OVIA, Jimoh IBRAHIM, Cecilia IBRU, Wale BABALAKIN, Tony ELUMELU, Kase LAWAL and Nduka OBAIGBENA...turn to the Moneywise Weekly Newspaper Edition 23.
It was a sweltering Tuesday afternoon, 2.00pm to be precise. MoneyWise had gone to keep an open- ended but highly coded appointment with one of Nigeria's youngest billionaires in his office located on the last floor of the 10- story building somewhere in Central Lagos . This happens to be one of his several prime properties scattered in different parts of Nigeria.
The rule of the game was simple enough but well defined in advance: "Come into either my office or my house at any time and make your observations”. That particular afternoon, the second in three weeks, Moneywise was in the company of a young millionaire who has successfully broken into the highly protected circle of the billionaires club in Nigeria. At exactly 2.30 p.m, he sauntered into the office with a medium- sized black leather bag, smartly dressed in a dark suit and a white shirt without a tie. He simply waved to a couple of his visitors waiting at the sparsely furnished reception and moved on briskly into his office, not too far from the point. In about five minutes, his secretary, a very smart lady by all standards, stacked all the files containing documents meant for his attention and dashed to his office for briefing. In another twenty minutes, two of his male personal assistants went in along with two of the visitors at the reception. In about 10 minutes, through short but probing questions, he had managed to obtain what could be considered vital information on the state of his businesses which span construction, hospitality, and legal practice, among others.
One of the visitors had come to finalise a deal with the billionaire running into billions of naira. After his PA's had left, he requested that his visitors allow him to take a nap, which lasted about 15 minutes on his chair. His visitors were still around. In less than 10 minutes, he was through with his visitors, having perused and approved all the necessary proposals on his desk. He then moved around the offices, asked few questions from his staff and threw some little banter at them to enliven the environment. At that stage Moneywise left for Ikeja for another “see-it-to-believe-moment” at one his multi billion naira construction projects which is nearing completion. Surprisingly and without planning it, about one and half hour later a black Chevrolet Jeep entered into the construction site and the occupant happened to be our billionaire host. He exchanged greetings and disappeared in less than twenty minutes. Moneywise learnt later that he was actually on his way to Abuja to catch a high level appointment . He flew in his private plane.
Scenario 2:
It was exactly 1.15 am that Thursday. The venue was an exclusive bar located in Victoria Island and patronised only, by the affluent. In trickles they walked in quietly -all casually dressed-and in most cases without partners. There was so much excitement in the air. Most of the personalities that came in that early morning are known faces making big waves in the Nigeria's investment circles. At exactly 2.a.m, one influential Nigerian you cannot ignore, a billionaire publisher, came into the scene. The environment became charged with his presence. He moved briskly from corner to corner exchanging loud banters with virtually everybody in the bar. It was a fun- filled morning. Interestingly while the banters were on, mega deals running into billions of naira were also being discussed freely and in most cases sealed.
The MONEYWISE escort volunteers an insight: "That is the way it is. Most deals that cannot be discussed formally in the office setting are sealed here in less than few minutes. This is like a virtual but highly restricted club. You cannot get in if you don't know the code".
Background
The guided visits by MONEYWISE to the offices, homes and frequently visited joints and relaxation spots of Nigeria's affluent are some of the strategies employed to execute one of the most challenging project ever launched by the company since its inception four years ago.
It started with just a question from a Moneywise analyst about three months ago in one of the company's combined Boards of Analysts and Editors meeting:"Who is a billionaire in Nigeria?" The question appeared simple, initially, but it turned out a most difficult puzzle to unravel. After about three hours of clueless discussion and brainstorming , it was then unanimously decided that Moneywise should launch a project titled :"In Search of the Nigerian Billionaire''. The pan-Nigerian project which started two months ago has involved Moneywwise editors , analysts and satellite directors breaking into the highly restricted network of the Nigerian affluent using whatever means to unravel few puzzles:
* Who is the Nigerian billionaire?
* What do the Nigerian billionaires have in common?
* How did they make their money?
* How can an 'outsider' get into the club?
We reckoned that the project would probably take a year or more to conclude, but Monyewise just decided to serve you the background notes and insights generated in the first six weeks of this challenging but seemingly elusive search. We do not have a clue on what the conclusion would be and we have decided to be flexible enough to accommodate any suggestions and insight along the line that might help in the search.
In this very first of a 'Pride of Moneywise' series on Nigeria's wealthy citizens, we provide you with a researched analysis into the world of the rich and wealthy entrepreneurs the country has to offer. The ultimate goal is to begin the compilation of the Nigeria's Moneywise Billionaire List, a project that may take more than a year to completely verify and subject to the scrutiny of the public.The searchlight is on and few Nigerians who could fit into our definitions are being tacked. In this edition therefore, we lay the background thinking into how and why these individuals stand shoulders above the rest.
The Journey
Not too long ago, to be fabulously rich in Africa could mean just one thing - unrestricted access by an individual to plunder the National Treasury. In that light , the obscene wealth acquired by dictators like Nigeria's Abacha, and a few other maximum rulers easily propelled them, albeit undeservedly, into the ranks of the world's Ultra-Rich.
While there are still a sizable number of individuals and leaders in Africa who amass wealth illegally, being wealthy in recent times has come to be associated with accumulating wealth built on entrepreneurship, innovation, hardwork, calculated risk and all other positive and replicable attributes and wealth building principles. Being wealthy no longer means boasting a hefty bank account ; but generating wealth to service the rest of the society. One of the billionaires we had a chat with said: " You can not claim to be truly rich if many other less privileged people cannot trace their successes to your own success. I consider my self wealthy when I can see within my surrounding people who can attribute their own success stories to my helping hands. That is what I consider being wealthy or being a millionaire or billionaire or whichever name you chose to call the wealthy".
In a recently published edition of Forbes, the American Business Magazine, two Africans joined the hallowed ranks of the 450 richest people on the planet.
Rubbing shoulders with billionaires such as Bill Gates Runner-Up Larry Ellison, King Faud amongst others are Onis Sawiris and Nicky Oppenheimer. From the two extremes of the continent Egypt and South Africa respectively, they are worth a combined US$ 4.9 Billion.
Nicky Oppenheimer is the patriarch of the Oppenheimer Family, owners of the De Beers diamond empire in South Africa. With a dominant position in diamond production and marketing around the world, the Oppenheimer family have acquired wealth estimated at £2.8 Billion.
Onis Sawiris heads the Egyptian construction conglomerate Orascom. The group has diversified in to Mobile Telecoms throughout Africa and the Middle East, as well as Tourism in his home market of Egypt. These ventures have netted the family US$2.1 Billion.
Compared to other continents Africa is severely poorly represented, partly reflecting the failure of Governments across the continent to put their economies on a path of sustainable growth and unshackle them from the iron grip of the State. However as most Africans will point out the lack of billionaires is the least of the continents problems.
Here in Nigeria, we have a group of people who are referred to as billionaires because of their relative wealth compared to the norm or average, yet cannot be equated with the world's league of billionaires.These individuals whom Moneywise intends to feature, however, remain heroes to the rest of us because their wealth was derived largely outside of government patronage.
These individuals have, against all odds, built a financial base of sustainable wealth outside the usual 'tag' associated with Nigeria's wealthy few - 419, scams, scandals, inflated contracts, failed projects, insurance scams, credit card frauds, and government patronage to mention a few of the ill-gotten sources of wealth. They are, to all intents, role models for making, managing and multiplying wealth.
So, who is the average Nigerian billionaire? Can you identify one if you see him or her? Does he eat expensive meals or fast food? Does he drive latest-in-town cars, take expensive vacations, throws lavish parties, invests in designer clothes and perfumes,
Or does he resole his shoes, turn off the air conditioning when he leaves the house, treats his clothes with respect, constantly thinks about a need in the society he/she wants to meet and spend a lot of time at home with close friends and family?
Through interviews, visits and survey responses from a number of our growing band of billionaires, you would be surprised about the type of people that genuine billionaires really are. In most cases, you are likely to discover that they are entrepreneurs who make their money in the quietest way and only publicise themselves strategically when the need arises.
The COMMON DENOMINATORS
One of the most exciting aspects of the Moneywise search is the discovery that certain traits run through these billionaires like a thread. Some of their characteristics worthy of being highlighted include:
Thriving in adversity :
Gleaning from the stories of the billionaires under the Moneywise searchlight and as told by themselves in most cases, there is every reason to co conclude that they all seem to thrive in adversity or better worded , they have developed internal anchor that can sustain them when the storms of life knock.
Most of the self made billionaires featured have surmounted one shortcoming or the other. What qualifies them into the wealth club is their ability to constantly re-invent themselves to maximise or/and exploit opportunities which life presents them. A few have been known to go ahead and create the circumstances and situations that provide the wealth opportunity.
As one of them put it in a background chat with Moneywise: " Great souls are made through trials and difficulties . Real crown of life hardly comes towards an individual until he has gone through some fire'. What is however interesting is that most of them believe that inside what look like challenges are banquet of incredible opportunities. They have trained their mind to constantly ask for 'these seeds of benefits' in times of difficulties.
Sensitivity to business opportunities:
Most of Nigeria's wealthy people we have tracked so far have some uncanny ability to sniff business opportunities from afar. Such opportunities usually don't make sense to people around when they are being appropriated.
Creativity/Innovation:
Most of the Moneywise Billionaires are incredibly creative and can spurn out wealth out of anything and any circumstances.
Belief in the Invisible:
Moneywise search also revealed that some of the Nigerian billionaires believe in the power of divine intervention in the affairs of men. They believe that with divine backing there is nothing under the sun that can not be achieved.
Using other people's money:
Most the billionaires being tracked by Moneywise believe that to make real money you have to learn how to leverage other people's money. They have a common belief that there is nothing wrong in borrowing money. What is wrong is not using borrowed money for regenerative purposes .
Taking risk and relying on intuition:
One thing that most of the billionaires being tracked by Moneywise have in common is that they take quite a lot risks and in most cases such risks, though calculated are propelled by what most of them describe variously as 'gut's feeling', 'intuition', and sixth sense.
Networking:
Without exception all the billionaires being tracked by Moneywise are master networkers. They have developed the habit of extracting value and money from every interactions they initiate or that are tossed on them. Most of them network in the most unusual hours and they are found in joints where some of them sneak in and out sealing mega deals at the speed of light. Moneywise encountered few of the billionaires at pubs like Cigar bar, Robert, Marco polo and few other choice rendezvous located mostly in Victoria Island and Ikoyi. As our millionaire escort puts it: "it is like a virtual club; if you don't belong to the class, you cannot break in'. Popular faces at these ‘relaxation points’ include Tony Elemelu of STB/UBA, Oboden Ibru of Oceanic Bank, Obaigbena, and many others.
Heart in the business:
Moneywise search also revealed that most of the billionaires especially those among them who are entrepreneurs personally supervise the running of their businesses. They do not consider any detail too trivial to ignore. For instance, those who are close to Otunba Mike Adenuga say: "You cannot sneak into Adenuga's business empire without passing through him". People say he personally recruits every staff that comes into the business and this system appears to have worked incredibly for him.
Reading:
Many of the billionaires under the radar of Moneywise read voraciously and speedily implement nuggets they pick from whatever materials they are studying. Elumelu, for instance, does not hide his admiration for Jack Welch book. He was said to have brought several copies of Jack Welch book: What I learnt Leading great Company and Great People and given to his key managers to digest. Nuggets picked from the book are said to have influenced the management principles being practised by Elumelu. Those who are close to Alhaji Aliko Dangote also say he is a compulsive reader who is keen on quickly implementing whatever he learns from a book . "It is not uncommon to see Aliko getting all his managers together in a retreat to dissect a book and map out to implement the nuggets picked from them", a close watcher of the business man told Moneywise.
The paradox
While income per person grew at 3.3% a year between1956 to 1966, the average figure has been below 0.02% in the whole period since the 1973 oil price rise. In fact, despite the over $225 billion estimated earnings in about 30 years of oil exports, the average per capita income today of around $290 is no higher than what existed before the oil boom, though in the early 1980s, it reached $1,000. Available statistics indicate that about half of the population live below the poverty line and most of the 'quality of life' indices are pointing downwards. It appears ironic that in a country with such an array of rich people, the majority cannot access basic decent living standards.
If that were to be true, why should anyone bother about the rich list? Why should we bother?
If you have been following our series on 'The Richest Man in Babylon' published in the SUN newspapers, you will realise why it is important to study the rich as a basis for understanding what sets them apart from the rest. If not for any other worthwhile reason, perhaps to satisfy your curiosity that they are 'flesh and blood' like you. To know why things are the way it is with you and why you need to take action today to elevate your lot.
Hitherto, the rich and mightY did not see any economic justification (and perhaps rightly so) in increasing their wealth (a key task of the wealthy) by investing in production, service and works in Nigeria. The figures simply did not add up. More so, the country was pre-occupied with a scramble for access to oil (and increasingly, gas) money and how much can be taken out to more investment friendly environments to multiply wealth. It is ignorance to assume that any one would have invested in an environment that was so insecure; the return would most certainly give a negative yield.
Thus, most members of the class of millionaires and billionaires created at this time did not have their foundations in enterprise locally. Money made through whatever means simply got siphoned off via different ways. When that was not forthcoming, we simply invented scams that helped create today's 419 culture.
At the height of this madness, an unpublished government inquiry report estimated that at least 7% of oil production revenue simply "disappeared" from official coffers. Up till now, no formal explanation has been provided for the government inquiry report, which, in 1994, claimed that we could not trace the whereabouts of $12.2 billion, largely received in extra oil income during the 1991 Gulf War. The London Times reported that Western diplomats estimate that, since the early 1970s, Nigerian leaders have amassed personal fortunes totaling $217 billion in foreign, mainly Swiss and Lebanese, banks. Nigeria during this period meanwhile accumulated about $37 billion foreign debt which was only recently paid off by the present administration. The Times estimated that a former head of state, Abacha, accumulated $5.8 billion during his nearly five years in power. The government of President Olusegun Obasanjo has recovered only a small fraction of it.
Damning enough, this older generation of leaders benefited from the brief oil boom Nigeria. They enjoyed free education; free health care, moderately good standard of living, strong economy, etc. The only legacy to wealth they have left behind for the present generation is predicated on wealth through swindles, 419, scams, thuggery, violence and chaos. There has never been a more pressing need to begin to x-ray the lives of the rich and wealthy. This exercise, we hope, should help bring about.
for the full report and case studies including Jim OVIA, Jimoh IBRAHIM, Cecilia IBRU, Wale BABALAKIN, Tony ELUMELU, Kase LAWAL and Nduka OBAIGBENA...turn to the Moneywise Weekly Newspaper Edition 23.
Friday, March 7, 2008
The Basics of Investing in Stocks or Funds
What's a stock?
First, let me answer this question: What is a share of stock?
Corporations sell shares of stock to raise cash to fund their operations. The first time that a company sells its shares is termed its initial public offering (IPO). Most companies make additional stock offerings from time to time to raise additional funds.
When you buy stock, you are buying ownership in the underlying corporation. For instance, if XYZ Corporation has issued 100 shares, and you buy one share, you have purchased a 1% ownership stake in XYZ.
Once a corporation sells its shares, it doesn't receive any direct benefit if its share price goes up further (although its executives may hold shares and thus be motivated to try and increase the share price -- hopefully by making the company more profitable).
The intermediaries
The first step in buying shares is deciding who will help you buy them. The most likely middle-man is a stockbroker, of which there are two main types:
- Full-service brokers offer financial planning and advice on selecting investments such as stocks and mutual funds. They usually have offices you can visit, and an individual broker is usually assigned to each customer. Full-service brokers are the most expensive way to buy shares. You'll typically pay around $70 to buy or sell a batch of shares, compared to $20 or less with a so-called discount broker. That can be money well spent if you don't have the time or interest required to manage your portfolio on your own.
- Discount brokers cater to investors willing to do their own research and make their own investing decisions. Most don't have local offices -- they typically operate online or over the phone -- and don't offer investing advice. Because their trading commissions are low, discount brokers are a good choice if you pick your own funds and stocks. Some brokers, such as Charles Schwab, straddle the line between full-service and discount, operating branch offices and offering some financial advice. Click here to learn how to pick a stockbroker.
Funds versus stocks
There are two basic ways to invest in the stock market: You can buy stocks of individual corporations, or you can buy mutual funds.
The balance of this column deals with mutual funds. In my next column, I'll describe how to buy stocks.
Mutual funds invest the pooled funds of thousands of investors. By investing in mutual funds you gain the advantages of professional management. Because most funds hold dozens, if not hundreds, of stocks in their portfolios, investing in funds also gives you automatic diversification.
That is an important advantage. Even if you're a gifted stock-picker, inevitably something unexpected will happen that will sink the share price of one of your stocks. Such an event could be a disaster if you only own a few stocks, but would be no big deal for a mutual fund holding a hundred or so stocks.
Mutual funds often specialize in specific market niches, such as small companies, health-care stocks, fast-growing companies, etc. You can buy mutual-fund shares directly from a fund company -- such as Fidelity Investments or the Vanguard Group, which offer a variety of fund types -- or through a stockbroker.
Even if you use a broker, you are actually buying from the mutual-fund company itself. The funds are technically freestanding companies. They create new shares when investors buy more fund shares than they sell, and eliminate shares when more shares are sold (redeemed) than bought.
Stock prices rise or fall depending on investor demand. If more people want to buy a stock, its price typically goes up, and vice versa. But mutual-fund share prices reflect the value of a fund's holdings, not supply vs. demand.
Most mutual funds establish minimum purchase requirements. Once you own a fund, you can usually add to your holdings in smaller increments. For instance, the Vanguard 500 Index (VFINX, news, msgs) fund requires a $3,000 minimum initial investment. After that, you can add to it in $100 increments.
What you pay
Unlike individual stocks, where you can trade any stock listed on a major stock exchange through any broker, no broker makes all mutual funds available to its customers. They pick and choose.
But most brokers have more than enough funds to meet an investor's needs. By using a broker, you'll only get one statement each month showing the performance and balances in each of your funds. It's also convenient when you want to sell one fund and buy another, as you will have a much wider selection to choose from.
However, that strategy may be more costly if your broker charges a transaction fee to trade the funds you've selected.
Some funds levy charges known as loads, essentially sales commissions that the fund pays to the financial advisor or stockbroker who sells you the fund. Funds that charge such fees are called "load" funds, and those that don't are "no-load" funds."
Loads can be charged when you buy (front-end loads) or when you sell (deferred loads). Front-end loads, typically 5.75%, are subtracted from your funds right away, reducing the amount that actually gets invested and your gains over the long term.
Those loads eat into your investment gains, so there is no reason to buy a load fund unless you are relying on a financial advisor or broker to help you pick funds. In theory, it's that advice you're paying for.
Managed funds vs. index funds
Managed funds employ a fund manager, who picks the stocks he or she thinks have the best chance to rise in price.
By contrast, index funds attempt to match the composite investment gains of all stocks making up a particular category, such as large companies, small companies or technology companies. Or, in some cases, to match the investment gains of the entire stock market.
Since, in theory, fund managers wouldn't choose obvious losers, you'd think that most managed funds would readily outperform index funds. But that's not necessarily the case. Sometimes they do and sometimes they don't. The relative performance of managed funds vs. index funds depends on the particular index and time period that you analyze.
Here are two no-load managed funds that have consistently outperformed the overall market over the past five years:
- Fairholme (FAIRX, news, msgs): a blend of small-, mid- and large-cap stocks in both the value- and growth-priced categories.
- Kinetics Paradigm (WWNPX, news, msgs): mostly mid- and large-cap stocks in both the value- and growth-priced categories.
- Fidelity Select Medical Equip/Systems (FSMEX, news, msgs): a blend of mid- and large-cap growth-priced stocks in the health-care industry.
Here are two no-load index funds:
- Wilshire 5000 Index Portfolio (WFIVX, news, msgs): It emulates the Wilshire 5000 Index ($TMW.X, news, msgs), which essentially tracks the entire U.S. stock market.
- Vanguard Small-Cap Index (NAESX, news, msgs): It emulates the Russell 2000 Index ($RUT.X, news, msgs), which tracks small-cap stocks.
Index funds vs. exchange-traded funds
Within the index fund category, you have another choice: traditional index funds vs. the new kid on the block -- exchange-traded funds (ETFs).
The primary difference between exchange-traded funds and conventional funds is that ETFs trade just like stocks. You pay the same commissions you would for buying or selling stocks, and there is no limitation on trading activity.
For that reason, active traders prefer ETFs. However, because you pay a commission every time you buy, ETFs are not suitable for investors who want to invest on a regular basis -- say, monthly (a smart strategy known as dollar-cost averaging.)
Here are two index funds available as ETFs:
- Diamonds Trust (DIA, news, msgs): It tracks the Dow Jones Industrial Average, a group of large, established companies chosen by the editors of The Wall Street Journal.
- NASDAQ 100 Trust (QQQQ, news, msgs): It tracks the Nasdaq 100 Index, which in turn tracks the 100 largest nonfinancial stocks listed on the Nasdaq stock exchange.
Buying and selling mutual funds
Many mutual funds have similar names, so it's best to use ticker symbols when you research and trade mutual funds.
Unlike stocks, where you specify the number of shares you want to buy or sell, for mutual funds, you usually enter the dollar value that you want to trade. If you're using a discount broker, most give you -- on their Web sites -- a way of seeing the minimum purchase requirements and applicable transaction fees when you enter a fund's ticker symbol. (Our Easy Fund Screener has similar information.) When you buy, you must specify whether you want dividends and capital-gain distributions from the fund credited to your account in cash or reinvested in fund shares. Dividends are profits paid by companies to their shareholders, in this case, the fund. A fund realizes capital gains when it sells shares of a stock whose price has gone up. Most investors choose to reinvest the distributions.
Conventional mutual funds (not ETFs) trade only once daily, after the market closes. If you miss the deadline for the day you enter the trade, your transaction will be processed after the market closes on the following day.
When you sell fund shares in a regular brokerage account, your broker will tell you whether you've realized a gain or a loss on the sale. You will have to pay taxes on any gains (unless the shares are held in a tax-deferred account like a 401(k)). Your year-end brokerage statement should show your total gains or losses for the year and how to report them on your tax return. Click here for more information on how to minimize the tax bill on your investments.
Mutual funds are a good way for beginning investors to get into the market. After you've got your feet wet, you may want to move on to individual stocks.
Wednesday, January 23, 2008
Grameen Bank: Micro-Lending and the battle against world poverty
In the past century the World Bank has poured staggering billions of dollars in loans, grants and other aid into the Third World, with not very much to show for the money except some turgid infrastructure projects. Even these bureaucrats concede that most of the money they have lent out has bypassed the poor.
Who should fill the vacuum? Can the private sector reduce poverty?
It can, and it reveal is the Grameen Bank, the brainchild of Muhammed Yunus, formerly an economics professor at the Chittagong University in Bangladesh. Yunus showed the World Bank how to fight poverty--at a profit.
The Grameen Bank started in 1983 by lending amounts ranging from just $30 to $200 directly to poor people in Bangladesh. Applicants didn't have to be able to read or write; no collateral or credit check was required.
The bank's strategy was to lend money to entrepreneurs (or would-be entrepreneurs) who needed only a few dollars to buy supplies and tools. Borrowers might make bamboo chairs, sell goats' milk or operate rickshaws.
By avoiding the usurious interest rates of local moneylenders--often 20% a month--many of these villagers finally broke out of poverty. Their small businesses grew, and thousands of borrowers now own land, a home (often using a $300 Grameen house loan) and even a cell phone (through Grameen Telecom).
By now, the Grameen Bank has made millions of these tiny loans, totaling $2.5 billion. Note that Grameen is a for-profit, private-sector bank that charges interest of 20% per year. Amazingly, Grameen's loss rate is about 2%, largely because borrowers are bound together in small, local groups. If anyone in the group defaults, no one else may borrow more. That's a powerful incentive.
You could call this social collateral. The strategy has been used by other micro-lenders in the Third World, and in a way it is reminiscent of what went on in small building-and-loan societies generations ago in the U.S., in which borrowers and savers all knew one another.
Total number of borrowers is 7.34 million, 97 per cent of them are women. Grameen Bank does not require any collateral against its micro-loans. Since the bank does not wish to take any borrower to the court of law in case of non-repayment, it does not require the borrowers to sign any legal instrument.
Although each borrower must belong to a five-member group, the group is not required to give any guarantee for a loan to its member. Repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into repayment problem. There is no form of joint liability, i.e. group members are not responsible to pay on behalf of a defaulting member.
Successful Grameen borrowers are not starving, and neither are their children. Most of the Grameen Bank's 2,468 branches are profitable, though marginally. According to the company October 2007 report, it works in 80,257 villages. Total staff is 24,703.
Total amount of loan disbursed by Grameen Bank, since inception, is Tk 347.75 billion (US $ 6.55 billion). Out of this, Tk 313.11 billion (US $ 5.87 billion) has been repaid. Current amount of outstanding loans stands at TK 34.64 billion (US $ 504.26 million). During the past 12 months (from Nobember’06 to October'07) Grameen Bank disbursed Tk. 50.27 billion (US $ 733.60 million). Monthly average loan disbursement over the past 12 month was Tk 4.19 billion (US $ 61.13 million).
Projected disbursement for 2007 is Tk 65.00 billion (US $ 930 million), i.e. monthly disbursement of Tk 5.42 billion (US $ 77.50 million). End of the year outstanding loan is projected to be at Tk. 40.00 billion (US $ 572 million). Loan recovery rate is 98.35 per cent.
Yunus' success has inspired hundreds of other micro-lending operations worldwide--including at the World Bank.
The Grameen Bank is powerful proof that the private sector can perform most of the World Bank's functions. There is a renaissance occurring in private charity. Credit innovative organizations like Habitat for Humanity, which can catch the imagination of the public; and credit the huge fortunes that have been created by the current bull market. With the Bill and Melinda Gates Foundation, for example, Bill Gates has finally shoveled some of his money out into the world. Many more bull market moguls will be giving money away. The next 50 years will see tens of trillions of dollars in wealth pass from one generation to the next, and a fair amount of this will go to charities.
The World Bank should not overlook a most important lesson: The World Bank is a puny force in fighting poverty compared with the private sector. It should limit itself to encouraging developing nations to provide the infrastructure (private property rights, sound money policy, limited government) necessary for private markets and independent charities to flourish.
Victor Adedoyin
Who should fill the vacuum? Can the private sector reduce poverty?
It can, and it reveal is the Grameen Bank, the brainchild of Muhammed Yunus, formerly an economics professor at the Chittagong University in Bangladesh. Yunus showed the World Bank how to fight poverty--at a profit.
The Grameen Bank started in 1983 by lending amounts ranging from just $30 to $200 directly to poor people in Bangladesh. Applicants didn't have to be able to read or write; no collateral or credit check was required.
The bank's strategy was to lend money to entrepreneurs (or would-be entrepreneurs) who needed only a few dollars to buy supplies and tools. Borrowers might make bamboo chairs, sell goats' milk or operate rickshaws.
By avoiding the usurious interest rates of local moneylenders--often 20% a month--many of these villagers finally broke out of poverty. Their small businesses grew, and thousands of borrowers now own land, a home (often using a $300 Grameen house loan) and even a cell phone (through Grameen Telecom).
By now, the Grameen Bank has made millions of these tiny loans, totaling $2.5 billion. Note that Grameen is a for-profit, private-sector bank that charges interest of 20% per year. Amazingly, Grameen's loss rate is about 2%, largely because borrowers are bound together in small, local groups. If anyone in the group defaults, no one else may borrow more. That's a powerful incentive.
You could call this social collateral. The strategy has been used by other micro-lenders in the Third World, and in a way it is reminiscent of what went on in small building-and-loan societies generations ago in the U.S., in which borrowers and savers all knew one another.
Total number of borrowers is 7.34 million, 97 per cent of them are women. Grameen Bank does not require any collateral against its micro-loans. Since the bank does not wish to take any borrower to the court of law in case of non-repayment, it does not require the borrowers to sign any legal instrument.
Although each borrower must belong to a five-member group, the group is not required to give any guarantee for a loan to its member. Repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into repayment problem. There is no form of joint liability, i.e. group members are not responsible to pay on behalf of a defaulting member.
Successful Grameen borrowers are not starving, and neither are their children. Most of the Grameen Bank's 2,468 branches are profitable, though marginally. According to the company October 2007 report, it works in 80,257 villages. Total staff is 24,703.
Total amount of loan disbursed by Grameen Bank, since inception, is Tk 347.75 billion (US $ 6.55 billion). Out of this, Tk 313.11 billion (US $ 5.87 billion) has been repaid. Current amount of outstanding loans stands at TK 34.64 billion (US $ 504.26 million). During the past 12 months (from Nobember’06 to October'07) Grameen Bank disbursed Tk. 50.27 billion (US $ 733.60 million). Monthly average loan disbursement over the past 12 month was Tk 4.19 billion (US $ 61.13 million).
Projected disbursement for 2007 is Tk 65.00 billion (US $ 930 million), i.e. monthly disbursement of Tk 5.42 billion (US $ 77.50 million). End of the year outstanding loan is projected to be at Tk. 40.00 billion (US $ 572 million). Loan recovery rate is 98.35 per cent.
Yunus' success has inspired hundreds of other micro-lending operations worldwide--including at the World Bank.
The Grameen Bank is powerful proof that the private sector can perform most of the World Bank's functions. There is a renaissance occurring in private charity. Credit innovative organizations like Habitat for Humanity, which can catch the imagination of the public; and credit the huge fortunes that have been created by the current bull market. With the Bill and Melinda Gates Foundation, for example, Bill Gates has finally shoveled some of his money out into the world. Many more bull market moguls will be giving money away. The next 50 years will see tens of trillions of dollars in wealth pass from one generation to the next, and a fair amount of this will go to charities.
The World Bank should not overlook a most important lesson: The World Bank is a puny force in fighting poverty compared with the private sector. It should limit itself to encouraging developing nations to provide the infrastructure (private property rights, sound money policy, limited government) necessary for private markets and independent charities to flourish.
Victor Adedoyin
Tuesday, January 15, 2008
Currency abuse: Hard nut to crack for CBN (Central Bank of Nigeria)
C URRENCY abuse in Nigeria is still a hard nut for the Central Bank of Nigeria, in spite of the fact that the CBN Act 2007 clearly identified it as a punishable offence.
Sections 20 and 21 of the Act, which was amended in line with the new developments in the financial sector, said, “In order to stem the abuse that the naira is constantly subjected to; increase the active life of naira notes and coins; and promote confidence in their usage as medium of exchange, refusal to accept the naira; trading in naira notes and coins, spraying of the naira; and all such abuses have been criminalized and appropriate sanctions imposed.” Damaging the currency in the various ways stated, and more, according to the CBN, is punishable with six months imprisonment, or a fine of N50, 000.
While some Nigerians feel that the apex bank is only playing its part in a national comedy, others say that it is an infringement on their rights as citizens of the country.
Those in the former category are of the opinion that apart from folding the naira roughly and tucking it into hidden areas, which can be corrected, other forms of abuse outlined by the CBN, has become part of the Nigerian culture.
It will be a Herculean task to get Nigerians detached from the culture of spraying money at parties because that is the real fun involved in it, they say.
In fact, many people confidently throw ‘talk-of-the-town’ parties, even when their incomes do not support this because they know they will recover much of it, if not all, at the venue when they are sprayed with different denominations of the naira.
And in spite of claims of high poverty level in the country, the poorest of Nigerians will not let go of this habit, even if he has to go on an empty stomach for weeks after that.
This seems to give weight to the arguments of those who insist that Nigerians are not poor, but cannot just get their priorities right.
A university lecturer who talked on the condition of anonymity said, “I think it is just one of the ways poor Nigerians ‘offload tension’ in a country where one has to sweat to get everything done. If all the money I have for the weekend is N10,000, and a friend is throwing a party, I don’t mind changing N8,000 into crisp notes and having the fun of my life at that party.
“Even if I have to go hungry the next day, I would have made myself happy. It is one of the ways Nigerians avoid high blood pressure. Let the government get the economy rolling first. That is when they can talk about flimsy things like the abuse of the naira.” According to Dr. Rele Badmus, a marketing consultant and motivational speaker, it will really take a lot to prevent people from abusing the naira, especially by spraying it.
She added, “It has become part of living.
For instance, I have been tagged a miser.
And this is because I refuse to spray at parties, not because of the law, but because I don’t just believe in such.
“Nigerians have even taken the habit beyond the shores of the country by spraying hard currencies in parties abroad.
While some whites look at those who do so as insane, others try to emulate their friends by attempting the act.
The law may not also go down well with musicians, who entertain guests at functions.
If the law holds, they will have to make do with only their professional charges, when in fact, most of them depend more on what they get on the dancing floor.
It is said that some musicians even demand to have a list of those to attend a function before they seal the deal.
God help the celebrant if they check through the list and find nonentities who can hardly feed themselves much more, spray generously.
Those who say that it is an infringement on their rights argue that they can choose to do whatever they wish with their hard earned money.
But the Director, Banking Supervision, CBN, Mr. Ignatius Imala, discards this as not reasonable, saying that hard earned money cannot be spent anyhow.
Responding to questions at the end of the Bankers’ Committee meeting on Friday, he said, “It is all part of the campaigns against wrong dealings, just like in the case of money laundering. It is not an infringement on anyone’s rights. In fact, it is the other way round because this act affects the economy. If you want to give someone money, issue a cheque or put it in an envelope.” However, the negative economic effects of currency abuse far outweigh cultural or selfish considerations.
Apart from the huge costs of replacing mutilated notes, and the artificial scarcity created by those who hawk crisp notes, spraying lavishly at parties lures people to crime.
Imala noted that the naira had been so abused that it had become the carpet on which people walked, saying Nigerians had better detached themselves from a bad culture or face the music.
He noted some people argued that there could be ‘decent spraying’ that should not attract a penalty.
He said, “What can be decent about spraying? What are you trying to show? Are you spraying money because you think you have a lot of it and, therefore, the only way to handle it is to spray it and not put it in an envelope?
“In fact, I think that it is only the person who does not have so much that will be spraying to attract attention and get people to believe that he has arrived. The person who has plenty of it will not do that. How much will he spend?” However, despite the seriousness of the CBN on this issue, and the enacted law, Nigerians still see it as a comic story.
If not, it will have been in the news that an offender has been nabbed and punished accordingly, they say.
Asked how many people had been arrested since the law was made, Imala said the job of the CBN was to come out with a policy that would benefit the people and the economy at large.
“Thank God, we have gone to the extent of enacting the law. The CBN cannot come out with a policy like this, make sure that it is enacted and also enforce it. It is the duty of the law enforcement agency to enforce that. May be when you have the opportunity to interview the police, you can ask them how far,” he said.
And as the CBN director advised, the Lagos State Police Public Relations Officer, Mr. Frank Mba, was contacted on the phone on Saturday and asked if any arrests had been made, so far, in that respect.
His short response was, “Not to my knowledge.” So, can the CBN go far with this law? Time will tell, observers say.
Yemi Kolapo @ Punch Newspaper
Sections 20 and 21 of the Act, which was amended in line with the new developments in the financial sector, said, “In order to stem the abuse that the naira is constantly subjected to; increase the active life of naira notes and coins; and promote confidence in their usage as medium of exchange, refusal to accept the naira; trading in naira notes and coins, spraying of the naira; and all such abuses have been criminalized and appropriate sanctions imposed.” Damaging the currency in the various ways stated, and more, according to the CBN, is punishable with six months imprisonment, or a fine of N50, 000.
While some Nigerians feel that the apex bank is only playing its part in a national comedy, others say that it is an infringement on their rights as citizens of the country.
Those in the former category are of the opinion that apart from folding the naira roughly and tucking it into hidden areas, which can be corrected, other forms of abuse outlined by the CBN, has become part of the Nigerian culture.
It will be a Herculean task to get Nigerians detached from the culture of spraying money at parties because that is the real fun involved in it, they say.
In fact, many people confidently throw ‘talk-of-the-town’ parties, even when their incomes do not support this because they know they will recover much of it, if not all, at the venue when they are sprayed with different denominations of the naira.
And in spite of claims of high poverty level in the country, the poorest of Nigerians will not let go of this habit, even if he has to go on an empty stomach for weeks after that.
This seems to give weight to the arguments of those who insist that Nigerians are not poor, but cannot just get their priorities right.
A university lecturer who talked on the condition of anonymity said, “I think it is just one of the ways poor Nigerians ‘offload tension’ in a country where one has to sweat to get everything done. If all the money I have for the weekend is N10,000, and a friend is throwing a party, I don’t mind changing N8,000 into crisp notes and having the fun of my life at that party.
“Even if I have to go hungry the next day, I would have made myself happy. It is one of the ways Nigerians avoid high blood pressure. Let the government get the economy rolling first. That is when they can talk about flimsy things like the abuse of the naira.” According to Dr. Rele Badmus, a marketing consultant and motivational speaker, it will really take a lot to prevent people from abusing the naira, especially by spraying it.
She added, “It has become part of living.
For instance, I have been tagged a miser.
And this is because I refuse to spray at parties, not because of the law, but because I don’t just believe in such.
“Nigerians have even taken the habit beyond the shores of the country by spraying hard currencies in parties abroad.
While some whites look at those who do so as insane, others try to emulate their friends by attempting the act.
The law may not also go down well with musicians, who entertain guests at functions.
If the law holds, they will have to make do with only their professional charges, when in fact, most of them depend more on what they get on the dancing floor.
It is said that some musicians even demand to have a list of those to attend a function before they seal the deal.
God help the celebrant if they check through the list and find nonentities who can hardly feed themselves much more, spray generously.
Those who say that it is an infringement on their rights argue that they can choose to do whatever they wish with their hard earned money.
But the Director, Banking Supervision, CBN, Mr. Ignatius Imala, discards this as not reasonable, saying that hard earned money cannot be spent anyhow.
Responding to questions at the end of the Bankers’ Committee meeting on Friday, he said, “It is all part of the campaigns against wrong dealings, just like in the case of money laundering. It is not an infringement on anyone’s rights. In fact, it is the other way round because this act affects the economy. If you want to give someone money, issue a cheque or put it in an envelope.” However, the negative economic effects of currency abuse far outweigh cultural or selfish considerations.
Apart from the huge costs of replacing mutilated notes, and the artificial scarcity created by those who hawk crisp notes, spraying lavishly at parties lures people to crime.
Imala noted that the naira had been so abused that it had become the carpet on which people walked, saying Nigerians had better detached themselves from a bad culture or face the music.
He noted some people argued that there could be ‘decent spraying’ that should not attract a penalty.
He said, “What can be decent about spraying? What are you trying to show? Are you spraying money because you think you have a lot of it and, therefore, the only way to handle it is to spray it and not put it in an envelope?
“In fact, I think that it is only the person who does not have so much that will be spraying to attract attention and get people to believe that he has arrived. The person who has plenty of it will not do that. How much will he spend?” However, despite the seriousness of the CBN on this issue, and the enacted law, Nigerians still see it as a comic story.
If not, it will have been in the news that an offender has been nabbed and punished accordingly, they say.
Asked how many people had been arrested since the law was made, Imala said the job of the CBN was to come out with a policy that would benefit the people and the economy at large.
“Thank God, we have gone to the extent of enacting the law. The CBN cannot come out with a policy like this, make sure that it is enacted and also enforce it. It is the duty of the law enforcement agency to enforce that. May be when you have the opportunity to interview the police, you can ask them how far,” he said.
And as the CBN director advised, the Lagos State Police Public Relations Officer, Mr. Frank Mba, was contacted on the phone on Saturday and asked if any arrests had been made, so far, in that respect.
His short response was, “Not to my knowledge.” So, can the CBN go far with this law? Time will tell, observers say.
Yemi Kolapo @ Punch Newspaper
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