Sunday, November 4, 2012

The political intrigues in Nigeria’s oil sector probes

Ribadu's choice to head the Presidential Task force on Petroleum Revenue was controversial as some members of the civil society felt an unpopular President was trying to win popular support on the credibility of the well-respected former anti-corruption fighter.  Ribadu has lived up to his  profile with the controversy his report has generated, first with the way to report was leaked to the media ahead of its release and the open disagreement among his  committee members on Friday when the report was submitted to the President.
President Goodluck Jonathan. 

The leakage of the Ribadu report was actually what forced President Goodluck Jonathan to personally request that the Ribadu committee report and two other committees that have had their report ready but have been unable to submit to the Minister of Petroleum Resources who set up the committees, hand in their reports to him personally.

The three different committees besides The Ribadu Special Task Force on Petroleum Revenue are the Dotun Sulaiman Committee on good governance and global best practices in the NNPC and the Kalu Idika Kalu committee on the nation’s refineries.

The report of the three committees have been hanging in the Minister’s office for several  months after the committees finished their reports without any clear idea of when they will be able to submit to her officially.
The Minister was apparently reluctant to receive the reports of the three different committees set up to probe and make recommendations on various aspects of the Nigerian petroleum industry.

But the leakage of the Ribadu Task Force report to the media triggered the President into damage control mode forcing him to accept the report of the committees which high level intrigues were in process to undermine their recommendations.
Diezani Allison Madueke, Nigeria's Minister of Petroleum Resources

The expectation is that the recommendations of the committees if implemented by the President will significantly change the current power structure in the oil and gas industry forcing out entrenched interests that have fed fat on the current anomalies in the sector. It is these entrenched interests in the Ministry and the Nigerian National Petroleum Corporation (NNPC) that are doing everything in their powers to ensure that the committees report do not see the light of the day or are discredited.

Though the current uncertainty in the oil and gas sector is holding back billions of dollars of new investments, entrenched interests in the sector are basically not bothered since the uncertainty favours their continuous rape of the sector.

  The current challenges in the sector revolve mainly around the desire of the Petroleum Minister and top executives of the NNPC to remain the power brokers in the sector despite clear signals that the best way to go for the oil sector is less of government interference, proper regulation of the oil sector and a clear business plan for running the Nigerian National Petroleum Corporation (NNPC) and its various subsidiaries.

The power play has not only  stalled the outcome of the various committees set up by the President and Minister in response to last January’s protest and call of the reform of the Nigerian oil sector but also the Petroleum Industry Bill (PIB) currently before the National Assembly may have fallen victim of these intrigues. The current PIB before the National Assembly is not the same as that prepared by the Udo Udoma committee set up by the President to draft PIB, sources familiar with the original recommendations of the committee say. The final report got to the national assembly without the knowledge of the committee, sources say.

Critical recommendations of the committee, like a more independent Department of Petroleum Resources (DPR), which would have seen the emergence of a strong autonomous regulatory body for the oil industry was watered down resulting in the recommendation of two weak regulatory bodies, one for upstream and another for the downstream and stronger control by the Minister of Petroleum Resources in the draft bill before the National Assembly.

“The boards of the two regulatory bodies have just been reduced to that of budget proposal and implementation. They have no real powers” said an oil industry source.

Also recommendations that removed most of the discretionary powers of the Minister in the Oil and Gas sector were ignored for more discretionary powers by the Minister.  The implication is the PIB which would have seen the emergence of a more business oriented NNPC has not materialized in the current PIB.
The second committee, the Kalu  Idika Kalu committee has also seen the Minister acting contrary to its recommendations concerning the refineries. The committee had recommended that the way forward was for the nation’s refineries to be sold and that if any Turnaround Maintenance (TAM) were to be done at all before the sale, it should not cost more than $500 million, sources say. The Minister of Petroleum Resources has however moved to repair the refineries at a cost of $1.6 billion well above the committee’s recommendation. It is also understood that the Minister may have delayed receiving the report of the committee.

Sources also say the Ribadu Committee was leaked to the media after several efforts to officially present the report to the Minister failed. Even after the report was leaked in the media, the Minister came out questioning sections of the report stating that the government is still studying the report.

A look through the Ribadu report however shows that the NNPC and the Ministry were actively contacted throughout the process of preparing the reports and their reaction to all the issues raised incorporated into the report.

A third committee, the Dotun Sulaiman Committee charged with designing a new corporate governance codes for ensuring full transparency, good governance and global best practices in the NNPC and other oil industry agencies  was completed months ago but the committee was unable to officially present it to the Minister. The committee’s recommendation will essentially see a more independent NNPC with less control from the Minister’s office; say sources that have seen a copy of the report.

A common thread running through the reports of all the committees’  set up to probe the power sector is the needed for transparency and less government interference in the sector, say sources that have seen the reports. This will significantly reduce the influence of the Minister and ensure a more properly regulated oil industry.

“What we envisaged with the current reform in the oil industry is a more independent regulatory role for the DPR like the National Communication Commission (NCC) in the Telecoms sector and the Nigeria Electricity Regulation Commission (NERC) in the electricity sector. Unfortunately, that is not what we are getting” a second source in the oil industry said.

The challenge with the current oil industry reforms is that NNPC and the Ministry has been left to lead the reforms. It is like asking the Power Holding Company of Nigeria (PHCN) to lead the reforms in the electricity sector or asking NITEL to lead the reforms of the telecommunications sector. They would have just used the process to entrench themselves in the sector rather than pursuing meaningful reforms that will lead to growth of the sector. That is what the NNPC is doing, said an operator in the oil industry.

Apparently, the reports were meant to die in the process flow but that has failed. Now that the recommendations are in the public, hopefully the President will be bold enough to implement the recommendations. 

 A slightly different version of this article was published in BusinessDay

Tuesday, October 9, 2012

Nigeria: the debate should not be about an oil benchmark but fading oil power

Nigeria still remains the dominant crude oil producer in the West African region, but the country has clearly lost its monopolistic claim of being the sole producer in the region. All around West Africa, new crude oil reserves are being discovered almost on a monthly basis. Ghana, Ivory Coast, Chad, Mauritania are among the few West African neighbours where crude oil in commercial quantities have been discovered in the last few years. In 2010 and 2011, commercial quantities of crude oil were discovered in Sierra Leone, Ghana, Niger, Cameroon, Gabon, and Angola. 

Diezani Allison Madueke-Nigeria's Minister of Petroleum Resources 

Discoveries have already been confirmed in Liberia, while explorations are on-going in Togo, Mauritania and even Benin republic. The West African Coast has become a crude oil coast with significant discoveries and more expected. Outside West Africa, East Africa, especially Kenya and Uganda are all positioned to become major producers of crude oil within the next one to two years.

With proven crude oil reserves of about 36 billion barrels, Nigeria is like a giant compared to its neighbours in the crude oil store but then Nigeria also has the largest mouths to feed compared to its African neighbours. Angola has a population of about 18 million but with proven crude oil reserves of about 13 billion barrels, an average of 722 barrels per head. Nigeria on the other hand has a population of about 160 million with proven reserves of 36 billion, an average reserve of 225 barrels per head. 

So Nigeria has more reserves but it has more mouths to feed and therefore should be prudent in managing the revenues that come from those reserves. That, however, seem not to be the case with the constant bickering between the National Assembly and the Presidency over an appropriate benchmark price for crude oil revenues rather than an appropriate beyond oil strategy.

With the increasing discovery of crude oil reserves all over Africa, Nigeria’s proven reserves buried underground are becoming less valuable. Simple economics teaches us that the more the quantity of any commodity, the less the price. With increasing number of countries joining the crude oil producing club, and most of these countries having more crude oil than they actually need, not only does it reduce the number of countries that Nigeria can sell crude oil to, but also increases the number of countries in the market to sell crude oil.

The oil outlook looks even bleaker when the fact that the US is increasingly becoming less dependent on external crude oil is thrown in. The Energy Information Administration (EIA), the US agency which provides data on US energy consumption notes that only 45% of petroleum consumed in the United States were imported in 2011, the lowest since 1995.

The EIA gives different reasons for the decline in US consumption of foreign crude oil. The reasons include, the economic downturn after the financial crisis of 2008, improvements in efficiency, changes in consumer behaviour and patterns of economic growth, increased use of domestic biofuels (ethanol and biodiesel), and strong gains in domestic production of crude oil and natural gas plant liquids, expanded domestic supplies and reduced the need for imports.

Efficiency, changes in consumer behaviour, substitution of petroleum products with biofuel and increased crude oil production in the US are permanent changes that will likely see the world’s largest consumer of crude continue reducing its consumption of the product. There are analysts who expect the US to eventually become a net exporter of crude oil soon maybe as early as 2013.

In 2011, Nigeria supplied just 10% of US crude oil needs compared to an average of 20% a few years ago. China and other Asian countries have moved in to fill the drop in demand from the US, however, with potential supplies coming from many other sources, the natural trajectory for future crude oil prices is a downward spiral. Many agree that tensions in the Middle East accounts largely for current price levels.
But while the dynamics of the crude oil environment is changing fast, Nigerian leaders seem stuck in lethargic past unable to take the necessary steps to take maximum advantage of its current crude oil resources or diversify its economy from over dependence on a volatile product.

Nigerian leaders seem not to be reading the writing on the wall. Current crude oil prices, which bring in 80% of government revenues, are not sustainable in the very short term. There are analysts estimating that a steep fall is likely very soon with projections that it may fall as low as US$ 30. True. There are alternative forecasts that even see crude oil prices rising, fuelled by demand from China and India assuming both countries sustains their current economic growth rates.

But the uncertainty over the future direction of crude oil prices certainly makes it a slippery platform for Nigeria to continually benchmark its economic future. There is an urgent need for a post oil boom strategy. Any sustained drop in crude prices, as it happened in 2008, when prices dropped to as low as US$ 40 per barrel, would certainly plunge the country into a financial crisis with current external at US$41 billion reserves able to cover export for just eight months and portfolio investments in Nigerian bonds reaching significant levels.

The debate that Nigerian leaders should be having should not be about an appropriate crude oil benchmark but a debate about the best strategy to diversify the Nigerian economy from its over dependence on oil revenues and what incentives should be in place to maximize our current crude oil and gas reserves before they become less valuable commodities in international trade. 

first published in BusinessDay of October 09, 2012

Saturday, September 15, 2012

The lost memo on banning foreign medical trips for Nigerian public officers

In April, Nigeria’s Minister of Health, Professor Onyebuchi Chukwu made a bold announcement  that he is considering sending a memo to the Federal Executive Council (FEC) meeting to ban public officers going abroad for medical treatment.
President Goodluck Jonathan 

It is not clear if this memo was ever sent to the FEC.  Perhaps, next time the media meets with the honourable Minister, they have to remind him of his lost memo. Hopefully, he will not be embarrassed answering the question considering the President’s wife is currently said to be on a medical trip abroad.

Obviously, despite billions spent, the health facilities in Aso Rock are still not comparable to health facilities in Germany, Saudi Arabia and all the other places staff and residents of Aso Rock fly to at the slightest sign of head or belly ache.

In the last five years, from 2008 to 2012, a total of N4.15 billion has been spent by the Presidency to provide healthcare facilities in Aso Rock.  Going by the nature and amount of expenditure, the State House Medical Centre (SHMC) should be one of the best equipped hospitals in the world.

Drugs and medical supplies bought for the SHMC in Aso Rock consumed N1.69 billion in the last five years. In this year’s budget, the Presidency made a provision of N314 million for drugs and medical supplies. This was just 21% below the N402 million spent in 2011.

The presidency also spent N901 million purchasing different medical equipment in the last five years. The SHMC should be one of the best equipped medical centres for dialysis, considering the items bought in the last five years.

In 2008, for example, the Presidency spent about N6.8 million on the provision of a dialysis centre. It also spent N127 million on procurement of equipment for a medical laboratory, dental laboratory, physiotherapy, pharmacy, surgical, O&G, paediatrics, and ophthalmology.

The 2012 budget shows that the presidency spent about N93 million on a Dialog+Haemodialysis machine with an option for automatic blood pressure measurement. It also bought a Diapact CRRT (whatever that means), an acute dialysis machine, a modular one water reverse osmosis system (for up to 10 dialysis machine with pre-treatment) a comfort therapy dialysis chair, and a bedside table for dialysis chair

The Presidency also spent some money on a central sterilizing building for the State House Medical Centre and also bought a magnetic resonance imaging machine, and converted an existing mortuary(?) into an MRI room, offices, conveniences, medical records and common room for its medical officers.

But while the State House Medical Centre has been equipped with the state of the art medical facilities, which unfortunately fail to meet the medical needs of its exotic occupants, the non-exotic Nigerian on the street is faced daily with poorly equipped hospitals plagued by strikes from frustrated medical personal and lack of drugs.

While  rich  Nigerians can afford a trip abroad to take care of their headaches and other medical issues, the many poor die daily from commonly preventable diseases. Life expectancy in Nigeria at 48 years ranks among the lowest in the world, comparable only to war torn countries. The chance of a child born in Nigeria celebrating his fifth birthday is one of the lowest in the world. The Nigerian child is seven times more likely to die before the age of five than an Egyptian Child and twice more likely to die than a Ghanaian Child. 

Nigerians, who can afford it, spend an average of $200 million yearly travelling abroad to seek medical treatment. Basically, they are spending this money to escape death. 

However, it should be unacceptable that a public officer, spends public money, that should have gone into providing medical facilities locally, to go abroad for medical treatment for common ailments. This is double jeopardy for the ordinary Nigerian.

This is why the Minister’s memo to ban public officers spending public funds for foreign medical treatment is important. Unfortunately, that memo will remain lost in transit if the President, who is to approve the memo, has his wife abroad undergoing treatment for “belly ache” despite the state of the art medical facilities in Aso Rock. 

For an interesting piece on why Nigerians seek medical treatment abroad  read Outbound Medical Tourism

Saturday, September 1, 2012

On Barth Nnaji’s resignation

I must say I am one of those who feel highly disappointed by the forced resignation of Nigeria’s former minister of power, Barth Nnaji.  I am not alone. His resignation has been a subject on social media with a good number of people expressing disappointment at his resignation. 

Barth Nnaji-Nigeria's former Minister of Power 

The disappointment has mainly been because most Nigerians have for the first time seen a dedicated commitment by a minister to make an impact in the perennially underperforming power sector. The clear evidence that he was making progress was not just the fact that most Nigerians were beginning to experience improved power supply in their homes but the powerful labour unions in the power sector were beginning to feel uncomfortable.

The entrenched interests in the Nigerian power sector in collaboration with some compromised staff of PHCN who have made their fortunes from the misfortune of Nigeria’s power situation suddenly realized that their days were numbered with the progress Nnaji was making in the power sector. Power was not only improving but the various timelines set for selling the successor companies to the dissolved PHCN was being adhered to strictly. Unlike before, it was obvious that the status quo in the power sector was about to change permanently.

His sudden resignation has however put the whole process under jeopardy, no matter what the government may want to say about it not affecting the whole exercise. Personally, I think the reason given for his forced resignation was lame. I see nothing wrong with what has been made to look like a wrong doing in some media.

I have had the privilege of going through some of the best codes of ethics and best practices from highly respected professional bodies and in all  conflict of interest situations, what is required is disclosure first and avoidance second.

From media reports, It was Nnaji that informed the committee that a company that undertook a contract for his company in the past was involved with the bid for some of the power assets and that also Geometric, which we all know was run by Nnaji before he became power minister was part of a  Eastern Nigeria Electric Company consortium bidding for the Eastern Nigeria Distribution Company.

Global best practice in this situation is disclosure of this potential conflict of interest, which Nnaji did. There is absolutely nothing wrong with those companies bidding for the power assets. A company that is technically qualified and financially capable to bid for power assets does not stand disqualified because it worked for the power minister in the past. Also, disclosing that Geometric was part of a consortium bidding for a  stake in Enugu Electricity Distribution Company was the right thing to do. The other action was ensuring that he abstained from the selection process of the successful bidders for Eastern Nigeria Electricity Distribution Company which from media reports, he did. 

 What was expected of the minister was not to be part of the decision making process in the bid evaluation involving the companies that could generate potential conflict of interest. From media reports, he also did that when he informed the technical committee evaluating the bids that two companies that were distantly related to him are taking part in the process and excused himself from the process.  As far as I can see from media reports, Nnaji met all the requirements of transparency and fairness that are supposed to be met in a process like this.

Wrong doing can only be ascribed in this situation if it can be proven that he may have passed information to any of these companies that are related to him that was not passed to other bidders and the companies have emerged without submitting the best bids.  From my reading of media, reports, I have not seen any such accusation.  In the US, Dick Cheney was the Managing Director of Halliburton before becoming Vice President of the US, and that did not stop Halliburton from winning contracts from the US government while he was the Vice President.

It is important that we do not hold public officers to impossible standards if we want to get credible people in the private sector to go into governance. Nnaji was not expected to close his private company down just because he wants to work for government. He took all the right actions he was supposed to do in such a situation by placing his shares in Geometric in a blind trust. This could explain why he found out only at the evaluation stage that his company was also involved in the bid. With a blind trust, he is not supposed to know what his company was doing while he is a minister.

It is really sad that, one of the acknowledged good hands in the current administration has been forced to resign. I sincerely hope, his resignation does not open the loophole for those who do not desire the success of the whole power reform programme to   compromise the process for their selfish end. There are still critical challenges ahead for the power reform process.  The greatest challenge is continuity. Bankers who are going to ultimately provide the finance to successful bidders are already concerned about the sustainability of the whole power reform process if it is not concluded within the lifespan of the current administration. Most bankers would definitely be reluctant to open their books to successful bidders if the whole process is not concluded before the 2015 elections.

The last time Obasanjo left and Yar Adua took over, the NIPP projects were all suspended, resulting in bad loans which created one of the excuses the Central Bank of Nigeria (CBN) needed to take over some banks. Nigerian banks may not want to take that risk again and the sudden resignation of Nnaji only shows that the risks associated with Nigeria’s power reforms are very real.

It would really be sad if the power reforms are derailed again. Succeeding with the power reforms may be Nigeria’s best chance to redeem its economy and remain as a nation. 

Monday, August 27, 2012

Does Nigeria need a N5000 note?

The announcement by the Central Bank of Nigeria (CBN) to introduce N5, 000.00 notes and coin the lower denominations of N5, N10, and N20 has received a lot of criticism from the Nigerian public already.  The criticism has mainly revolved around the fear that the higher note will cause inflation.
Cartoon by Asukwo: Source BusinessDay 

The CBN has however argued that there is no evidence that higher denomination can cause inflation, arguing that inflation is caused by increase in the volume of money in circulation rather than by the denomination of the money in circulation.

What I am going to do in this opinion piece is to look critically at the CBN argument. Would the new CBN denomination policy cause price increase in commodities and services in Nigeria?

First, as argued by the CBN, Nigeria would not be the first to coin  lower currency denominations. The CBN is proposing to coin the N5, N10 and N20 and introduce N5000.00 notes. Denmark has coins in the same range as being proposed by the CBN, while Japan and South Korea have coins in the range of 50, 100 and 500. Japan and South Korea also have a 5000 and 10,000 note. So it could be argued that the CBN is not doing something that has not been done in some other part of the world. The difference however is that these countries also have very advanced cashless payment systems so these notes are hardly ever seen physically.

So are Nigerians right in being apprehensive about the introduction of N5, N10 and N20 coins? If the characteristics of a good payment system are taken into consideration, then Nigerians have every reason to fear that the coinage of the lower denominations would be inflationary. A good payment system is expected to be efficient, convenient and low cost for the users of that payment system.

Would coining N5, N10 and N20 be efficient, convenient and low cost for Nigerians? The answer is most likely no. As the CBN admitted during the introduction of its cashless policy, 90% of banking transactions are below N150, 000.00 and that Nigeria is largely cash oriented society unlike Denmark and Japan or South Korea.

This is largely true as most transactions in Nigeria are carried out in the informal market, where a good proportion of individual transactions are done under N1000.00 in the open market. Most market women hold huge amount of money in porches tied around their waist, from where they dish out money for items or as “change” for purchased items. Coining the N5, N10, N20 notes would mean that these women would no longer find it convenient to hold these monies in the way they are used to holding it for ages.  This will affect the millions of informal market women who will suddenly find that holding this amount of money is no longer convenient.

These informal market participants would be forced to adopt the next higher currency note, N50 in order to restore the convenience that has been denied them with the lower coins. This would lead to price increases.  No amount of education as planned by the CBN would make Nigerians adopt the massive use of these coins because it is inconvenient, the informal market is huge and significant amount of transactions still take place with these lower end currencies. Coins are meant for low value transactions so where higher currency values are forced into this bracket, the most likely result will be avoidance of transactions that would create the inconvenience of using coins.

At the other end of introducing N5, 000.00 notes, there is a chance that pricing of commodities and services would be adopted to suit the higher denomination. This may be done by merchants to encourage convenience in paying for goods and services and to avoid the issue of having to give change for the higher denomination.  The most likely pricing strategy would be to migrate all prices that are closer to N5000.00 say within the N3000 to N4500 range to N5000.00 to avoid the inconvenience of having to give “change.”

There is also the strong argument of the higher denomination being against the cashless policy of the CBN. Higher denominations would encourage users to demand it for higher value transactions. It is however possible that the high cost of transactions for cash withdrawal by the CBN may discourage this trend. So the question is, why is the CBN introducing a higher denomination currency if there are already policies in place to discourage its use?

The argument that it would lower cash processing cost by banks is also lame since the cost of printing and processing coins is far higher than that of notes. The implication is that the CBN will spend more to introduce a set of currency with low demand. That would amount to waste of funds and increase cost and inconvenience for banks.

Perhaps, the most important issue that the CBN would have to deal with when it introduces the N5, 000.00 notes will be counterfeiting. In a largely informal economy like Nigeria, it would not be surprising if the N5, 000.00 note becomes the counterfeiters gold. There is a real possibility that the N5, 000.00 notes are counterfeited and circulated widely in the informal economy since the cost of counterfeiting would be less than the value that would be derived from circulating the fake currency.

The whole idea of the CBN currency restructuring exercise is against its own cashless policy which it has pursued vigorously since the beginning of the year. It would have made more sense if the CBN had continued to fine tune the cashless policy, make it more acceptable and workable, as that is the global trend, than derail its own policy with its latest initiative. 

Monday, July 16, 2012

Boko Haram: The Devil's Alternative

There is a current call for the Federal Government to negotiate with Boko Haram, a sect that has made the killing of other Nigerians a call to duty. 
 Goodluck Jonathan, President Federal Republic of Nigeria. 

On the basis of this call for dialogue, the new NSA is said to making moves to start a dialogue process with Boko Haram.

The premise for negotiating with Boko Haram seems to be the fact that when Niger Delta militants carried out a series of violent attacks against the Nigerian state, dialogue was eventually used to resolve it.

But, perhaps, the very faulty resolution option adopted by the Federal government for the Niger Delta crisis may be blamed for the Boko Haram monster the nation is currently facing.

When a government makes it a policy to reward violence, the natural response is more violence.  It is called positive reinforcement. When a positive action is rewarded, it creates a tendency for more positive actions, when negative action is negatively rewarded, it deters negative action but when the negative action is positively rewarded, it creates more negative action. 

The creation of a punishment system for negative behaviour in any society is as hold as humanity itself. This will not be changed in Nigeria. Unfortunately, the Nigerian government, since 1999 seem to have adopted a policy to reward insurgency with lucrative concessions to those who dare to rebel against the state. Asari Dokubo, Gani Adams, Government Tompolo are just a few Nigerians who have made fortunes from carrying guns against the state. 

Niger Delta militants carried guns against the Nigerian state, the government rewarded them with a very expensive peace plan that is costing the nation billions and is not sustainable in the long run. We all know it is a peace built like castles in the air, existing only because of the thriving bunkering business in the region, the monthly unearned income being paid out to former militants and the lucrative contracts to a few warlords that should be chilling in Nigerian prisons.

Now we are talking of similar “peace” with Boko Haram. First, it is not possible to dialogue with Boko Haram. Their demand is not contiguous with the existence of Nigeria as a nation.  Boko haram demand that “for Christians in Nigeria to know peace, they must accept Islam as the only true religion” rules out the possibility of coexistence with a large proportion of other Nigerians who do not share that faith and with a rightful claim to existence in Nigeria. You cannot negotiate away the faith of this other Nigerians or dilute their faith to make Boko Haram happy.
Destruction from a Boko Haram attack

Even more so, Boko Haram seems to practice a form of Islam that does not accommodate even other Muslims. The close shave of the Shehu of Bornu with death by bombs as practiced by Boko Haram on Friday is further evidence that Boko Haram simply has no respect for life. If they have a religion, it is a religion that worships death, not God. Many Muslims have equally died from the bombing campaign of Boko Haram as have Christians who they claim to be fighting against. The only dialogue that may suit Boko Haram therefore may be the death of every Nigerian and the creation of a Boko Haram Empire for them to live in peace with their bombs just because there is no one else to bomb.  

But even then, an enclave for Boko Haram will not give Nigeria peace. This is seen in places like Afghanistan, Somalia, and Pakistan where the existence of an enclave for fundamentalists have not stopped attacks on the neighbouring countries.  The enclave becomes a safe haven for attacks and the breeding ground for fundamentalist who cannot tolerate the existence of alternative thinking.

The logical conclusion that arises out of this situation is the painful acceptance that the only option available to the Federal Government is the defeat of Boko Haram in this fight against the Nigerian state. I said painful option, because it will mean the loss of more lives and the destruction of public property.  Terrorism anywhere in the world is never easily defeated. The NATO with all its powers and modern ammunition has not been able to stop terrorism in Afghanistan. US ran out of Iraq and Somalia. Terrorists are a tough bunch to defeat. I do not see it being different in Nigeria that before now, even basic crimes were difficult to crack.

However, the truth is that the government cannot continue to reward violence and expect to have peace. The earlier the Federal government realizes that there is no alternative B in this fight against insurgency, the earlier it would concentrate its resources in defeating this evil that has arisen among us.  

But maybe there is alternative B after all. This is for the Federal Government to accept that the task of maintaining the internal peace and the territorial integrity of Nigeria is now beyond its control. This will mean calling for a national conference and discussing the best way to restructure the nation or dissolve the Federation into more manageable parts. This is the devils alternative. 

Sunday, July 8, 2012

The God Particle and Nigeria

The news of the week in the international media was the discovery of the “God Particle” by scientists. Also referred to as the Higgs Boson particle, this particle is said to give other particles their mass, hence its reference as the “God Particle.”

To discover this god particle, scientists have had to build what is called the Large Hadron Collider (LHC), which is estimated to have costs £6.6 billion (N1.65 trillion). The LHC works by smashing protons, particles found inside atoms, to produce temperatures as high as four trillion Celsius, 250,000 times hotter that the centre of the Sun. The collision of the protons produces debris, which was then examined for the Higgs Boson particle.  

So on 4th. of July, why Americans were preparing to celebrate their independence, Scientists came out with the historic announcement that they have found the “God Particle” 50 years after Peter Higgs, a professor at Edinburgh University first proposed the existence of the particle. Interestingly, he was there to listen to the announcement.

According to the Telegraph, London, “The Higgs boson is the final piece of the Standard Model of Particle Physics, a theoretical model which describes the fundamental particles and forces that control our Universe.”
Finding the Higgs boson proves the existence of the Higgs Field, a force which provides fundamental particles - the building blocks of the Universe - with their mass. Without mass they would simply zip around the cosmos at the speed of light and never form into stars and planets. It is also the last missing cornerstone of the Standard Model of Physics, which explains what the Universe is composed of, according to the Telegraph.

Professor John Womersley, chief executive of the Science and technology Facilities Council, told reporters at a briefing in London: "They have discovered a particle consistent with the Higgs boson. “Discovery is the important word. That is confirmed. It's a momentous day for science."

Science discoveries usually make the news in the Western media. But the announcement of the discovery of the Higgs Boson had a celebrity touch. Perhaps, this is due to the huge amount involved in the experiment leading to the discovery and also the significance of the discovery.

Interestingly, Scientists are still very unclear about the practical implications of the discovery of the Higgs Boson particle. The Telegraph quotes Higgs as saying “It’s around for a very short time. “It’s probably about a millionth of a millionth of a millionth of a millionth of a second. I don’t know how you apply that to anything useful.

 “How you could have an application of this thing which is very short lived, I have no idea.”
But the Telegraph quotes Alan Walker, a colleague from the Edinburgh University School of physics and astronomy, as saying there had been the same uncertainty when the electron was discovered. So it may just be a matter of time before the discovery of the God Particle leads to new practical applications that change the way we live.

The news that made dominated the headlines in Nigeria; the same week the discovery of the Higgs Boson was being announced in London was the $3 million bribery scandal involving Nigeria’s House of Representatives. This news fought for front page attention with the usual news about the campaign of bombing being carried out in Northern Nigeria by the Boko Haram anarchists.

Less prominent was the news about the dwindling interest in Science by Nigerian students as reported by the Nigerian Guardian in a short story July 8, 2012. This story reported the lamentation by the Vice Chancellor of the Nnamdi Azikiwe University in Eastern Nigeria. The VC disclosed shockingly that of the 52,000 candidates that applied to the University for Admission, only 76 candidates offered to read Mathematics.  Also more than half of the 52,000 applicants offered to read courses in the Arts and Humanities.  Most likely, a good proportion of the remainder; will offer to read courses in the Business and Social Sciences leaving just a small fraction to read the sciences.

The pattern of student preferences is not surprising. Most students are responding to expected job market demands. We all know who gets the high paying jobs after University. Besides, it is also a factor of how well students feel prepared to tackle the challenges of studying science at the University. We all know most public secondary schools science labs are poorly equipped. It is not much different at the University level.

A survey among secondary school students in Nigeria may show that surprisingly a large proportion would have loved to read the sciences. So the obvious challenge is the lack of institutional encouragement and poor post study demand for those who read sciences in Nigeria. The marketing departments of most banks have a significant representation of graduates who made first class and second class uppers in sciences. For lack of good jobs that can give them living wages in their preferred fields, they now hawk financial services on the streets, a vocation that demands little intelligence.

There is the challenge of poor funding for public education and the reluctance and inability of parents to also pay higher fees for higher quality education. Quality education is expensive, a reality both the government and Nigerians are yet to accept. This does not necessarily mean that higher cost education is equal to higher quality education but good quality education is definitely not cheap. Well equipped laboratories are expensive. Quality teachers and lecturers will not accept non living wages. 

There are also lack of incentives to encourage science education. There are no scholarships and government backed student loans are also non existent. It is not also clear how  research activities in Nigerian public universities are linked to their public funding. How well linked is the promotion of lecturers to their achievements in research? 

The media also needs to play a critical role. What prominence does the Nigerian media give to scientific achievements in our universities? The media is quick to report sexual harassment, cultism and the politics of appointing vice chancellors in Nigerian universities. How well does the media give equal coverage to scientific discoveries in the universities? 

Does Nigeria need science education? Most definitely. Sciences of the God Particle may sound farfetched for the daily struggles of the average Nigerian.  The science of the Western world has moved to space exploration, but Nigeria still need the science that helps it conquer high levels of poverty.  For example, there are still many tropical diseases that western drugs have no precise answers yet or have overly expensive remedies.

The immediate question is how do change the culture of consumer worship to the worship of knowledge and understanding? We may not need to discover another God Particle; but we need to discover the science to conquer our immediate challenges. For example, how well do we understand the science of Nigerian corruption? 

Wednesday, June 6, 2012

Still on amending the Central Bank of Nigeria Act

The decision to amend the CBN Act by Nigeria’s house of assembly has been received with a lot of criticisms from the media. In my reading however, I have seen little or no attempt by the media to actually put before the public how Central Banks in other countries operate.  So in the next few paragraphs, I write on how the Central Banks of the United States of America (USA), Canada and Germany operate in relation to their financial systems.
Sanusi Lamido Sanusi, Governor, Central Bank of Nigeria

The equivalent of Nigeria’s Central Bank is the Federal Reserve Bank in the USA. Like Nigeria’s Central Bank, the Federal Reserve Bank is in charge of monetary policy in the US but unlike Nigeria’s Central Bank, it is not solely in charge of bank regulation in the US.   It is usually referred to as the Federal Reserve System because there are 12 other regional reserve banks in the US in charge of regulating banks within their regions.

The Federal Reserve Bank, commonly referred to as the “Fed” is responsible for regulating the US monetary system and monitoring the operations of Bank holding companies. The Fed is controlled by a seven man board chaired by the Ben Bernanke, who can be referred as the Governor of the Fed. The Board also has a Vice Chairman. The Seven members of the board are appointed by the President and confirmed by the US Congress.

The Chairman of the board is also required to brief congress twice yearly on its conduct of monetary policy and economic developments and prospects for the future.

The Chairman of the board is also required to appear before the Banking and Financial services committee of Congress on scheduled dates to brief it on key issues about the economy as well as submit a detailed report on the economy to congress before its appearance.

The Congress also sets the salaries of the board members of the Federal Reserve System. For 2012, the Chairman's annual salary is $199,700. The annual salary of the other Board members (including the Vice Chairman) is $179,700.

The Federal Open Market Committee (FOMC) is the monetary arm of the Fed. It is made of the seven members of the Fed Board and additional five members selected from the Presidents of the 12 regional Feds who rotate their positions on a yearly basis except the Present of the New York Fed who is a permanent member of the FOMC.

The US Department of Treasury, the same as Nigeria’s Ministry of Finance, also has regulatory powers over the US banking system through the operations of two agencies it oversees, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision, which regulate banks and savings and loans.  The Fed can also only offer financial support to failing banks with the collaboration of the Department of Treasury.

The OCC is responsible for licensing all U.S. banks and, more broadly, for ensuring the stability of the banking system while the Office of Thrift Supervision (OTS) is charged with supervising federally-licensed savings and loan associations, also known as "thrifts. The Federal Deposit Insurance Corporation (FDIC), with similar functions as Nigeria’s Deposit Insurance Corporation (NDIC) also has regulatory powers over the financial system while the Securities and Exchange Commission (SEC) regulates securities trading.

In Canada, the Bank of Canada does not have supervisory powers over banks. Instead, it acts as a lender of last resort, supplier of emergency liquidity to banks in distress, fiscal agent to the Canadian government and issuer of currency. The Bank of Canada is thus mainly in charge of monetary policy and financial stability. The actual regulation of banks is the function of the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC).

The highest financial regulatory organ in Canada is the Financial Institutions Supervisory Committee (FISC) comprising the Superintendent of the OSFI, Governor of the Bank of Canada (equivalent of Nigeria’s Central Bank Governor), Chair of the Canadian Deposit Insurance Corporation, Commission of the FCAC and the Deputy Minister of Finance. The FISC is chaired by the Superintendent of the OSFI, meets quarterly and reports directly to the Minister of Finance. It is also interesting that the Minister of Finance has the power to set the monetary policy of Bank of Canada with the approval of the Canadian Parliament.

The German Bundesbank
The Executive Board governs and manages the Bundesbank. It comprises the President (equivalent of the Central Bank Governor), the Deputy President and at four other members. The members of the Executive Board are appointed by the President of the Federal Republic of Germany. The President, the Vice-President and one other member are nominated by the Federal Government; the other three members are nominated by the Bundesrat (the upper house of Parliament representing the Federal States) in agreement with the Federal Government.

Banking supervisory functions of the German Central Bank is jointly shared between it and the German Financial Supervisory Authority (Bafin) which is under the supervision of the Ministry of Finance.  Bafin is an integrated regulatory body with supervisory powers over insurance and securities trading. The Bundesbank audits the banks but has to take its findings to the Bafin which takes the final decision on the outcome of the audits.

A look at most regulatory models around the world shows that it is a close collaboration between the Ministry of Finance, the Central Bank, other regulatory bodies with the parliament offering  oversight and accountability. Most Central Bank’s independence is more  restricted to carrying out monetary policy decisions but not necessarily in non-monetary functions like bank supervision and regulation.  It is important that this distinction is made in the current debate about the autonomy enjoyed by the Central Bank of Nigeria.

But as I noted in an earlier post, the debate should go beyond amending the CBN Act to how the financial sector is regulated in Nigeria.

Watch a sceptics view of Central Banking
Alan Greenspan speaks on monetary and fiscal policy

Sunday, June 3, 2012

Ben Bernanke’s Speech on Central Bank's Independence

As Nigerians continue the debate on the amendment of the Central Bank of Nigeria Act,  Ben Bernanke Chairman of the Federal Reserve System delivered a speech in 2010 defining the scope of  Central Bank independence.
Ben Bernanke, Chairman of the Board of the Federal Reserve System

See the link to the speech here

For those who may not have time to read the full speech, here is a brief on what he said about Central Bank’s independence.

Central Banks were largely able to deal with the financial crisis because they were able to make monetary policy decisions based on what is good for the economy in the longer run, independent of short-term political considerations.

Central bankers must be fully accountable to the public for their decisions, but both theory and experience strongly support the proposition that insulating monetary policy from short-term political pressures helps foster desirable macroeconomic outcomes and financial stability.

Transparency and accountability must go along with Central Bank independence

There exists a broad consensus among policymakers, academics, and other informed observers around the world that the goals of monetary policy should be established by the political authorities, but that the conduct of monetary policy in pursuit of those goals should be free from political control.

Political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.

He emphasizes however that he is “by no means advocating unconditional independence for central banks. First, for its policy independence to be democratically legitimate, the central bank must be accountable to the public for its actions”

Then he states that “the independence afforded central banks for the making of monetary policy should not be presumed to extend without qualification to its nonmonetary functions”

He lists some of the nonmonetary functions to include, oversight functions over the banking system.

In the conduct of its regulatory and supervisory activities, the central bank should enjoy a degree of independence that is not greater and not less than that of other agencies engaged in the same activities; there should be no "spillover" from monetary policy independence to independence in other spheres of activity.

Bernanke lists the range of activities that covers Central Bank’s monetary policy decisions that requires independence to include “Conventional monetary policy, which involves setting targets for short-term interest rates or the growth rates of monetary aggregates,  the central bank's discount-window and lender-of-last-resort activities”  

These activities involve the provision of short-term, fully collateralized loans to the financial system as a means of meeting temporary liquidity needs, reducing market dysfunctions, or calming financial panics.

Democratic principles demand that, as an agent of the government, a central bank must be accountable in the pursuit of its mandated goals, responsive to the public and its elected representatives, and transparent in its policies.

He list the ways in which the Federal Reserve has maintained transparency and accountability to the US Congress and public to include;

Frequent speeches and testimonies before congress on the economic situation and on the prospects for policy, submission of extensive reports to Congress twice each year on the economy and monetary policy

Also the Monetary policy committee of the Federal Reserve publishes a statement after each of its meetings that explains the Committee's policy decision and reports the vote on that decision. The FOMC also publishes the minutes of each meeting just three weeks after the meeting occurs and provides, with a lag, full meeting transcripts. 

In addition, the FOMC has begun providing the public a quarterly summary of Committee participants' forecasts of key economic variables and, more recently, their assessments of the longer-run values to which these variables would be expected to converge over time. 

Friday, June 1, 2012

I no longer wish to be called Goodluck Ebele Azikiwe Jonathan

His Excellency Sir, we have received your request for a change of name, that you no longer wish to be known and called Goodluck Ebele Azikiwe Jonathan, but now wish to be called Obama Otueke, in honour of the first black President of the United States of America and the first village in Africa where a child once walked shoeless but is now the President of the biggest black nation on Earth.

Goodluck Ebele Azikiwe Jonathan, President Federal Republic of Nigeria. 

Your Excellency, in line with your request on May 29, 2012 we immediately moved to make the requested change. We are writing this mail to intimate you of how we have progressed so far to ensure that all your past records align with your new name.

First, we have had to visit your primary school at Oloibiri, St Stephens and St Michael’s primary school which you left in 1969. We are sorry to tell you that the school could not trace your records. They claim that they do not have a very good record system and so it was almost impossible to trace your records and note your name change against it for the sake of future enquiries. The danger of not doing this is that when people make enquiries about you in future, you may not be recognised and this could be a tool in the hands of your political enemies who may say you never attended these schools.

We also visited your former Secondary School, Mate Dei High School, Imiringi. We had some luck here; they were able to trace your certificate and marked your new name against it. But you may need to visit this school, they would appreciate some generous donation from an illustrious alumni like you.

They, however, advised that you have to contact the West African Examination Council (Waec) to inform them of your name change. This is to ensure that your records with the examination body tallies with your new name.

 We visited the University of Port Harcourt where you had all your three degrees. They spent some time looking for your transcripts in the records office which was stacked full with files upon files. But they eventually traced all your transcripts and have noted your new name against it.

The difficult part of this assignment was in telling your parents about your change of name. We are afraid to say they did not take it kindly. Your Dad threatened to commit suicide if you give up the name that he has brought you up with, the family name that has brought you so much greatness.

This is the name, he insists, that has taken you from being shoeless to now having so many shoes. He refused to listen to reason and said that he will rather die than see you answer a new name.  Your Mother’s case was quite different. She was just silent as she shook her head repeatedly. All she said as we were leaving was that her enemies will not succeed.

We had to break the news to your dear Wife. She did not take kindly to it either. How can you wake up and suddenly dump a name that has brought you so much good luck, she asked. She even said that she is sure that the witches in the opposition party have confused your mind.

She raised several issues. What happens to her marriage certificate? What does she tell her friends? How is going to tell them that she is no longer Mrs Goodluck, that she is now Mrs Otueke?  Assuming she loses all the good luck that has come to her since she married Mr Goodluck, she wondered. God Forbid, she said. If there is any change of name, she will assume she is now a widow. She insists that her marriage certificate reads Mrs Goodluck and the contract says “till death do us part.” So any change of name means Goodluck is late and she is now a widow.  His Excellency, we are afraid to tell you that we did not make any progress with Her Excellency on this issue.

Finally, we had to let INEC and your party into your change of name initiative. INEC simply advised that the name on the ballot paper when you contested was Goodluck Ebele Azikiwe Jonathan and that is the name they recognise.  That if you have to change your name, then you may have to contest a new election based on your new name. Simply, you have to resign now and handover to the Vice President and contest the next election based on your new name. They insist that they have it on good record that a lot of Nigerians voted for you based on the Goodluck in your name. Without it, you would not have won the election, they insist. We advise that you may have to challenge their decision at the Supreme Court. 

The position of your party was not that much different from that of INEC. They also insist that what sold you to them was the Goodluck in your name, that your new name cannot win an election. They would therefore be reluctant to field you in the next election if you chose to go ahead with your new name.

Your Excellency, so this is how far we have gone with the request for change of name. We are yet to contact all Nigerian embassies abroad, all other country embassies, all other foreign head of states and all international bodies like the UN, African Union, ECOWAS and all others that have known you by your old name of your decision to change your name. They will also have to effect changes in their records to that effect.

Your Excellency, changing your name at the age of 55 is not an easy task to accomplish. Considering all you have achieved in such a short life. We have attached a detailed budget of the financial implication of this name change. However, we kindly advise that dealing with the human implication is beyond our capacity. So we advise that you talk with your wife, parents, children, friends, INEC and your party. Hopefully, you will be able to convince them about your intention. 

Monday, May 28, 2012

Beyond amending the CBN Act

Following the opening of a public debate on the autonomy of Nigeria’s Central Bank, I will like to do a follow up on my earlier blog post that touched on the autonomy of the Central Bank of Nigeria (CBN). 

You may read the earlier blog post here

In that blog post I had argued essentially that in the name of granting autonomy to the CBN, we may have inadvertently placed too many powers in the hands of governor.
Sanusi Lamido Sanusi, Governor, Central Bank of Nigeria. 

Globally, there have been a lot of regulatory reforms in response to the global financial crisis. These reforms have been on how financial institutions operate and how financial regulators regulate. 

In Nigeria, there has been more of a reform of how financial institutions operate with little on how financial regulators regulate.
The current move by the house to amend the CBN act, if that is all it is about, then will fall far short of what the Nigerian financial system needs. The challenge with the Nigerian financial system goes beyond a cosmetic amendment of the CBN act.

There are critical questions about the Nigerian financial system that need to be addressed. These questions include asking if the current highly fragmented regulatory system is really working for the Nigerian financial system? Why is the Shadow banking system in coma despite the existence of several licensed operators in the sector? Why is the insurance sector in coma and why is it that the only time the insurance industry showed some promise was when banks went into the insurance business? Why are banks thriving why all other financial institutions are not? How do you harness the whole financial system, banks and non-banks for the benefit of the economy?

The single act of just amending the CBN Act will not deal with the bigger issues faced by the Nigerian financial system. What we need is complete approach to reforming the Nigerian financial sector. This would involve reforms that include transparency in financial services, accountability, consumer protection and efficient competition in the financial system.

In the raging debate over the proposed CBN amendment act, there has been the consistent argument that it would interfere with the independence of the CBN. However, if the purpose of the bill is to balance independence with accountability and transparency in the operations of the CBN, then the proposed amendment could actually enhance the capacity of the CBN to efficiently manage the Nigerian economy but not enough to make the Nigerian financial system work for the Nigerian economy. So far media reports have not revealed the full details of the reform other than argue that it is meant curtail the independence of the Central Bank of Nigeria.

But a look at the UK financial regulatory system shows that even the Bank of England (BoE) does not have complete autonomy.

The Governor of the Bank of England (BoE) which is equivalent of Nigeria’s Central Bank Governor reports to a supervisory body for the BoE called the Court of Directors (CoD) chaired by an independent chairman different from the governor of the BoE appointed by the Chancellor of the Exchequer, equivalent to Nigeria’s Finance Minister.  The CoD is responsible for managing the day to day activities of the BoE except the formulation of monetary policy. The CoD delegates its functions to  the Governor of the BoE which has to give account of its operations to the CoD.

The CoD is made of 12 members appointed by the HM Treasury, and includes the governor of the BoE, two deputy governors and nine non-executive directors appointed for three year tenure each. The nine executive directors are appointed from different sectors of the economy including the banking industry.  To ensure, the accountability of the board, they are subject to an effectiveness review by an independent external body on an annual basis.

The CoD operate through different committees one of which is the Committee of the court (Nedco) made mainly of the Chairman of CoD and the non-executive directors of the committee and its main role is to review the performance of the BoE against its objectives and strategy. The bank also has the Financial Stability Committee (FSC) made up of the Governor of the BoE, two deputy governors and four non-executive directors of the CoD and a representative of the HM treasury. The committee is saddled with considering and approving all actions that are needed to preserve financial stability.

Other committees of the CoD include the Financial Policy Committee (FPC), Remuneration Committee and the Audit and Risk Committee. The new Bank act 2009 and a proposed new Financial Services Bill put the BoE effectively in charge of ensuring financial stability of the UK Financial system.

However, there are still specific areas like bank resolution options that involve the use of public funds that the 2009 UK banking act ensures that BoE can only act with the express collaboration of the HM Treasury equivalent to Nigeria’s ministry of finance.

In terms of direct accountability to the parliament, the BoE annual reports are first presented to the UK parliament before they are presented to the public. Also BoE has to attend the UK House of Commons Committee on the Treasury, equivalent to Nigeria’s House Committee on Finance, regular hearings on its inflation and financial stability report. This helps the committee members to question the BoE rational for arriving at its monetary policy decisions.

The House Commons committee also organises hearings for new member appointment into the MPC and the FPC though it has no power to reject the appointments.

Most readers may ask if it is possible to replicate this elaborate system of controls and balances in Nigeria, monitored by politicians without it being abused for personal gains. The answer lies in a quotation from the UK House Treasury Committee report which states that “accountability processes for monetary policy, built around published minutes, individual votes, regular evidence sections at the Treasury committee and pre-appointment hearings show that it is possible to create effective accountability structures while at the same time removing politicians from day to day decisions”

In essence, it is possible as along as  the process is made  transparent through mandatory disclosures of all processes. 

However, amending just the CBN act is not enough. There need to be a debate on the regulation of the whole financial system and whether the current fragmented regulation is appropriate for the Nigerian economy. The amendment of the CBN act can be the trigger for such a debate. By the way, the UK financial services bill will put the regulation of the insurance sector and other financial services under the BoE. 

For more on the governance structure of the BoE click here