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ECONOMY: Prime Agenda For Mr. President

By Les Leba
I recall that, Late President UmarYar’Adua (God bless his soul) crystallized a 7-Point Development Agenda, which unfortunately, failed to impact positively on the social welfare of the critical mass in our country. Some critics believe that Yar’Adua would have done better if he focussed on two or three critical areas of deprivations for urgent attention and remedy.

Thus, President Jonathan’s agenda for the next four years must take cognizance of the above observation; Jonathan should identify two or three arrowheads and recognize and underscore the positive linkage effects, which could evolve cross the board on successful implementation of these key objectives.

Most critics would readily agree that the immediate welfare of our people would be significantly lifted, if the government gets its act together in the area of power supply in an ambience of a rapidly improving economy. A significantly enhanced power generation, transmission and distribution facility would bring untold relief to households and families as well as provide a reliable and relatively inexpensive platform for entrepreneurial growth and consolidation that would help revive the presently comatose industrial landscape.

Delivery schedules for works and services would be more specific and reliable, and energy costs, which may account for over 20 per cent of production costs, would tumble significantly. Increased economic activity would raise level of employment, and also raise government revenue from taxes and rates. Pressure brought on households by unreliable power supply and the resultant strife and discord with often times, tragic consequences would be also greatly minimized across the land.

President Jonathan is undoubtedly familiar with these expectations and has vowed to tackle the shortages in the power sector; to this end, there are ongoing plans to unbundle and privatize components of the existing behemoth called PHCN.

Regrettably, however, there appears to be little motion towards the ultimate objective! The scenario is rather reminiscent of the situation with licenses issued to about 20 applicants for the establishment and operation of refineries; not surprisingly, not one single private refinery is on ground after over four years. The reason for such non-performance is not farfetched! The element of subsidy and an unreliable payment schedule of the price differentials from investors’ selling price will continue to remain a stumbling block in the quest for private refineries in Nigeria.

Alas, same fate may also await successful privatisation of the power sector, as potential bidders cannot be comfortable with imposition of controlled or nationwide uniform tariffs or accommodation of a price subsidy agenda! President Jonathan must look at our game plan for the successful introduction and operation of mobile phones. If I remember correctly, each of the licensees willingly paid a non-refundable participation fee of about $250m; this entry requirement alone earned government a cool $1bn or so.

In addition, the licensees were responsible for their set up costs and over the years, invested billions of dollars into their operations. Government has, in turn, benefited from corporate taxes as well as personal income taxes from increasing number of Nigerians, who in one way or the other are involved in this business. The same game plan is also possible for the power sector. The shortfall of almost 20000 megawatts in our power generation requirement present great business opportunity for investors!

In the last six years or so, over $18bn so far spent barely succeeded in increasing existing capacity from less than 3000MW to 4000MW! Meanwhile, 2011 federal budget is just about $30bn. In the light of our historical costs, we may need to spend over 50 per cent of budget to raise generation capacity by just another 1000MW with minimal funds leftover for recurrent or infrastructural enhancement!

It is generally recognized that government-run utilities engender substantial wastage and inefficiency; so, it seems paradoxical that government continues to pump billions of dollars into the same power sector it seeks to privatize! A more realistic and businesslike approach would be to facilitate entry for international investors with deep pockets, who see the huge market gaps in the Nigerian power sector as potentially very lucrative opportunity. Such investors would indeed be willing to even pay an initial entry fee for the joy of a license to generate, transmit and distribute power in a huge captive market for a carefully defined period that would enable them earn a good yield on their investment.

No doubt, industrial communities in Lagos, Kano, Rivers, Delta, Imo and Oyo states would be prime targets for investors. Alternatively, states on their own or in concert with contiguous states could cooperate to attract investors for the provision of their power needs. Any surplus power generated by such arrangements can be sold through a national grid without prejudice to oversight activities of a national energy regulatory commission, which would serve as a custodian of best practices and standards and prevent exploitative pricing!

This arrangement will be a win-win outcome for all stakeholders, and the power needs of most industrial centres in the country would be oversubscribed within 2 – 3 years. Commerce and industry will thrive with significant linkage impact for further industrial production and economic growth with a huge drop in the level of unemployment! In the process, respective governments will earn additional revenue from increasing corporate and personal taxes, while erstwhile billions of dollars annual allocations to the power sector can be deployed into improving social welfare, particularly in the areas of education, health, water and security.

Some states may not be ‘A’ grade opportunities for investors because industrial and commercial opportunities in those states may not be currently obvious. However, part of the erstwhile billions of dollars allocations for power can be applied to supply the power requirements of the predominantly agrarian communities in such states in partnership with private sector providers of appropriate technology for rural electrification.

However we must recognize that in order for President Jonathan to adopt such a successful strategy and liberate our people from the clutches of the shadows of darkness, there must be a benign interpretation of the constitutional provision that “limits the states power for generation, transmission and distribution of electricity only to areas not covered by a national grid system within that state” As one can imagine, this provision is the major deterrent to a seamless and commercially sensible approach to the resolution of power inadequacy in Nigeria. It is unlikely that ebullient investors’ response to the Nigerian telecom market would have been possible if service providers were compelled to limit their transmission to those areas where the inebriate national carrier, NITEL, was not already present!

So, the options for President Jonathan in the power sector are clear; we can continue to pump billions of dollars as we have always done annually into the power sector with minimal impact, while we plod on the endless rocky path to privatization or we can unbound our latent energies as a “country and plot a painless route to power sufficiency using OPM (other people’s money) and experience, in line with 21st century’s best practices in investment strategies, particularly for economies with abundant growth opportunities such as ours!! “Our people say, “Shine your eye”!

In addition to provision of adequate power supply, Nigerians will expect President Jonathan to also concurrently create an enabling environment for an economic turnaround and sustenance of increasing prosperity in the land.

To the critical mass of our people, this would mean more job opportunities, stable purchasing power of incomes with stable prices, affordable and available mass transit and housing schemes, reasonable security of life and property and well-provisioned educational and health institutions.

Alternatively, industrialists and commercialists would require bourgeoning consumer demand, with reasonably priced and regular power supply, low rates of inflation and interest rates, (preferably at lower single digit levels), and of course, a stable, also preferably market-determined exchange rate regime.

If President Jonathan can satisfy all above expectations, he would have created the erstwhile elusive enabling economic environment! The prospect of success might appear daunting as the causative factors of spiraling inflation, high cost of borrowing, depressive level of unemployment, stunted industrial growth, corruption and insecurity are hazy in public consciousness. It is not generally understood that these are products of the poor quality of our monetary and fiscal policies.

So, if President Jonathan’s administration must succeed, he must chart a radical and sensible departure from existing monetary and fiscal policy framework, which have failed to deliver our aspirations for a conducive enabling economic environment, inexplicably, in spite of vastly improved export revenue. We recall that in 2008, in spite of best-ever export revenue Nigeria began to be listed amongst world’s poorest nations.

This was no accident but was in consonance with a monetary and fiscal model that deepens poverty with increasing wealth; unless Jonathan changes this framework, predictably, spiraling inflation and unemployment will continue its upward trajectory and the industrial landscape would remain severely challenged.

Fortunately, the solution for our economic turnaround simply requires the recognition of the principles of basic simple market dynamics in operation of our monetary policy model. Even the ubiquitous market woman knows that the price of a commodity will rise with supply shortages and fall with surplus supply in a free market; thus, where prices rise in spite of evidence of supply surplus, the likelihood is that market price is distorted by hoarding or other such deterrent or intervention to normal market dynamics. The resultant distortion will create inefficiency, privileged profiteering and ultimately market collapse!

The destabilizing effect of such market distortion is evident in our foreign exchange market; inexplicably, we find, for example, that naira exchange rate comes under downward pressure whenever we fortuitously earn increasing dollar revenue, which become ultimately available for allocation to constitutional beneficiaries. Thus, with our current monetary policy model, dollar earnings are captured or hoarded by our Central Bank and naira allocations substituted for dollar-derived revenue at an exchange rate that is unilaterally determined by the CBN. This cash exchange is the poison in our economy, as increasing dollar revenue are substituted with increasingly bloated naira allocations, which flood the money market with cash every month and vastly extends the capacity of banks to expand credit to levels which could instigate spiraling inflation.

President Jonathan would, therefore, have to stop CBN from its current practice of naira substitution for dollar revenue and insist that dollar components of monthly allocations must be paid with the instrument of dollar certificates. This singular act will create a chain reaction that would tame inflation and interest rates to lower single digit, and also stimulate industrial production and increase employment. It will also remove the specter of increasing annual debt burden of over N600bn and oil subsidies amounting to another N600bn with opportunities for a per litre petrol tax! It is unlikely that President Jonathan’s economic strategy will succeed if this simple step is not taken.

Save the Naira, Save Nigerians!


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