Conglomerates are unique. They operate at the upstream level and are very unique species in markets. They make critical infrastructure investments which help to unlock values and opportunities in economies. The reward is that they become centrally critical that everyone depends on them to operate. As that happens, they impose tax – the Conglomerate Tax – on the economy as they have accumulated capabilities to redefine policies in their favors. Conglomerate Tax is global; you can read more about it here.
For all the talks of startups in Nigeria, the reality is that nations need conglomerates because their sizes help them to make critical investments. For example, Dangote Refinery can help fix some challenges in the transportation sector through efficient supply of fuel in the economy. When you have many of them, your economy does better. That means, you have companies with capacities to tackle serious market frictions. Yes, as conglomerates do so, they get huge rewards: they become tax collectors on the economy. And they do keep those taxes with lots of goodies from governments.
This is the reason why Dangote Group can get favorable forex on dollars while the trader in Aba does not register in government’s radar. Dangote Group is fixing real market frictions which government wants to see solved at the upstream level while the trader is “who cares’ because his trade is commoditized, operating at the downstream.
That is at the heart of why somecompanies receive government benefits while others do not. Today, the U.S. government shared the goodies with Apple because it wants Apple to make Mac Pro in Texas. Yes, it waived many import duties from China, for Apple, because Mac Pro has to be built in America. If you run a small startup in Texas, and asks for those waivers, the U.S. government will not bother because the problems you are solving in the economy are not in the upstream, as of now.
People, as you grumble over Dangote’s favourable treatment from the government, relax and get over it. Dangote’s problem is that he is the only one at his scale in Nigeria. By the time he is done with the refinery, the rules will be changed to favour him. People will forget how it was before him; yes, those fuel crises. Interestingly, if you do exactly what he is doing in other domains, government will do the same for you, provided you have scale and can solve real frictions government wants fixed. That is the nature of capitalism! Apple and America showed it today for Mac Pro.
Apple will continue to manufacture its Mac Pro computer in Austin, Texas, the company announced today, just days after the Trump administration granted the company tariff exemptions for Mac Pro components made in China.
The U.S. Trade Representative last week granted 10 of the 15 exemptions that Apple requested, Bloomberg reported. Apple CEO Tim Cook today credited the Trump administration for the company’s decision to keep assembling the Mac Pro in Texas.
“We thank the administration for their support enabling this opportunity,” Cook said in a statement
“Eden is a tech-enabled service that puts your home’s chores on autopilot. It’s a superior answer to the question of an inferior lifestyle. If you’ve ever wanted better services for things like your Laundry, meals, house cleaning, equipment maintenance, etc. then you have silently prayed for Eden.”
This is how the CEO and Co-Founder of Eden, Nadayar Enegesi described the new invention. Enegesi led other twoex-engineers of Andela, Prosper Otemuyiwa and Slim Momoh, to develop the TaskRabbit for house chores.
Eden was developed on gig economy to provide quality home services for people who have a very busy schedule, by connecting them to the actual service providers they need for tasks.
Eden works by giving you a well-trained home concierge (we call them Gardeners), who handles your home’s chores while you go about your day.
You tell us about your home needs.
We assign you an Eden Gardener.
Your Gardener takes over all your home’s tasks.
You monitor the status of the chores on your app and leave feedback where necessary.
“If you are a Nigerian, you understand that things are just unnecessarily difficult. Buses are hot creaky metal death-boxes that could catch fire at any moment. You need to queue to join the queue that connects to the queue to get your voter’s card, driver’s license and international passport photographs. You enter a ride-hailing taxi so you can get stuff done on the go; only for the driver to ask you for directions.” Enegesi said.
It is in a bid to make life easier for people who can afford it that Eden was developed, so that they can hire professionals to take care of these tasks.
The founders explained that the services can be used with little budget. And there is hope and plan to get it across the African continent in no time.
“We have studied this phenomenon and used those insights to create a blueprint for our idea of sustainable African cities.
“We imagine a complete redesign of society and the principles that drive it. We are creating new cultures, systems and processes to ensure that people who provide services are rewarded properly and the people who require those services receive the highest quality of service possible.”
The Eden app mediates between services providers and customers, following the method of e-hailing services.
The Nigerian tax agency (FIRS) is closing offices, seizing bank accounts and writing customers of “tax defaulters” with unbelievable energy that if Nigeria has deployed the same zeal in fixing electricity and education, we will have a better nation. I support FIRS on its mission but it needs to calibrate its secondary sources: the FIRS algorithm is not evidently fault-tolerant.
Yes, on Friday, a lady had her office locked up because FIRS did not believe her tax receipts. She drives a “big car” and by extrapolation, her company was making more money than she declared! Her plea that her husband bought the car was not accepted. Go figure.
Government will make marginal progress on tax receipts. But that will not fix anything as the economy is not growing healthy enough for tax to dent our debt paralysis. The question is this: what happens when all mechanics of tax collection have exhausted and yet nothing has improved the total receipts?
This is why I am projecting that Nigeria will devalue its currency in 2021. This devaluation will help offset internal debts we are packing now. Because our oil is sold internationally, government does not get the heat on devaluation since it still receives dollars which magically becomes a lot in a devalued naira. It uses the generated tons of naira to pay local bank loans, and other debt obligations.
This mindset which started since the new democratic dispensation began in 1999 is the biggest risk to Nigeria: continuous use of currency devaluation as a core monetary tool to adjust disequilibrium in the economy. The military juntas protected the naira more than the civilians (see plot). Before 1999, it was below N100 to US$1 for decades; since 1999, it has risen to N500 before settling at N350! I expect the naira to fall to N450 to one USD by Dec 2021.
naira devaluation since 1999 (official rates used)
Why is that possible? Government has disintermediated bank lending by making treasury bills (TB) a solid investment mechanism in Nigeria. My Nigerian bank practically did not want me to invest in TB because its own money did not have enough space (I guess). So, it changed its rules that I must instruct it, monthly, to invest in TB over the “perpetual instruction” I had previously issued. With no way to be sending letters to reinvest my TB, they returned the capital, and after a while, I moved that money to something else.
Here is the problem: if the Nigerian treasury pays you 14% at practically no risk, why would you as a bank invest in any company in Nigeria for say 17% with all the associated risks? So, as CBN jacks up the TB rates, investments in the real economy will keep dropping because anything but TB becomes unattractive. Of course, you do not pay tax on TB which means, compared with other sources of income, the effective returns could be close to 18%. Under that construct, any bank that invests in any other thing when there are treasury bills available in Nigeria, is not fiduciary responsible to its financial stakeholders.
With the economy not growing, now slower than the population growth, the government will panic in coming years to cover expenses. The panic will lead to currency devaluation. Unless Nigeria can magically grow economically at say 5% in GDP in coming quarters, the Naira will lose value to leading global currencies. Now is the time to plot your survival strategies!
The issue of scaling the sales and support of made in Nigeria products is very hard and authorities are getting exhausted with various approaches used to gain the trust of the Nigerian populace. As the GDP generated from locally made and sold products drops rapidly, there must be a way the vast stream of Nigerian SMEs who are producing locally made goods should benefit for their hard-work. But then, there is the problem that looms, it has shattered the hope of the common and average sized production companies locally. Whats the hope for made in Nigeria products?
According to Trading Economics, Imports to Nigeria surged 45.8 percent from a year earlier to NGN 1042 billion in June 2019, boosted by purchases of manufactured goods (100.5 percent); raw materials (38.5 percent); agricultural goods (1.6 percent) and solid minerals (86.9 percent). Among major import partners, purchases rose mostly from China (78.7%), India (70.2%), Japan (92.2%) and the US (181.6 percent); but fell from the Netherlands (-23.1%) and Spain (-34.6%). Imports in Nigeria averaged 234304.14 NGN Millions from 1981 until 2019, reaching an all time high of 2209385.78 NGN Millions in August of 2018 and a record low of 167.88 NGN Millions in May of 1984.
In a bid to boost local sales and production, President Muhammadu Buhari directed the Central Bank of Nigeria to block food importers’ requests for foreign currency in a bid to boost local agriculture in Nigeria.
It is a continuation of a policy that the president began after coming to office in 2015, when he banned the use of foreign exchange to import dozens of items including the staple food, rice. Since then, domestic production has increased, but the policy has been criticised for not taking the low capacity of local farmers into consideration. The policy has also coincided with a rise in food & product prices, which has been blamed on insecurity in some of the country’s main food producing areas.
To enable you understand this issue, lets consider the following pointers:
What is Made in Nigeria Product?
A made in Nigeria product is a product (goods or even services) that is produced locally in Nigeria. This means that the product (goods or services) was not imported. The materials used for the production of such goods and services were obtained locally.
What are the Challenges of Made in Nigeria Products?
For the average to the large sized Nigerian production businessess, there worries are numerous. They include:
Corruption
One of President Buhari’s top priorities is to root out corruption. A recent poll conducted by NOIPolls and LEAP Africa revealed that 85% of adult Nigerians believe that the prevalence of corruption in the country is responsible for the bottlenecks that characterize the difficulty of doing business in Nigeria. Reasons given for the prevalence of corruption in Nigeria included weak government institutions (24%) and poverty (18%). Well-connected business people gain from anti-competitive practices that shield Nigeria from market forces. The Government of Nigeria has sought to address corruption through the Economic and Financial Crimes Commission (EFCC), the Independent Corrupt Practices and Other Related Offences Commission (ICPC), and the Extractive Industries Transparency Initiative.
Power Supply
A lack of a consistent access to reliable power costs businesses and the economy as a whole. Even with access to energy, unreliable power makes operating a business even more challenging than usual. Nigerian business and manufacturing enterprises experience power outages. As a result, firms lose sales revenues in the informal sector. Where back-up generators are limited, losses can be as higher. These losses have severe consequences for the health and growth of the wider economy, not to mention the dramatic impact in achieving other development objectives outlined by the sustainable development goals (SDGs).
Owners of small businesses in Nigeria seem to have adapted to the poor power and epileptic power supply in the country as they have resorted to alternative forms of getting electricity to power their businesses. Those that suffer most now are the SMEs and the micro operators that rely on generators, more so now that the fuel is not even available, their problems have been compounded. With a remarkable increase in operational cost and poor purchasing power of consumers, the manufacturing companies have had to lay off thousands in the last six months, with about three million still to go.
Selling Platforms
The average size and even large size Nigerian business relies on the facial selling pattern where the goods are bought at a cash rate during market sessions. The whole world are leveraging on different marketing schemes to help boost their business presence. Unfortunately, many SMEs who are into production of made in Nigerian goods are yet to catch the cruise.
The selling platforms such as Jumia, Konga, and even Amazon does not fully feature Made in Nigeria products as their strong points. Why? Policies, intents and objectives differ with respect to individual e-commerce companies. The platforms do not recognize the average Nigerian business on the streets. The average Nigerian production companies are in awe, as they see fellow citizens purchase foreign products that they can produce with more superiority and style.
Finally a Hope for Made in Nigerian Products!
The e-commerce scene is pretty much dominated, but there is a new kid on the block that promises to bridge the gap between foreign and made in Nigeria market. Launching on October 1st, Keanyi is the first indigenous e-commerce marketplace to sell strictly only made-in-Nigeria products! With a large database of vendors they seek to garner, it will definitely become a force to be reckoned with.
Currently, there are some vendors on the new platform. In time, the sore story of the poor selling process faced by Nigerian indigenous companies will become a history. Until then, we can only be optimistic as to what the future hold for Keanyi?—?Our Own!
Conclusion
The need to patronize made-in-Nigeria goods cannot be overemphasized as it is one major way to economic growth and development. The economy of any nation grows rapidly when locally made goods are promoted through patronage, first by its people then through export.
It is, however, dispiriting to know that we obviously have been growing other countries’ economies through our over-dependence on imported goods, especially those which have local substitutes. Nigeria can easily experience a breakthrough in the quest for local content development and a stable, strong and advanced economy if Nigerians would patronize made-in-Nigeria products.
These days, I just pity the Nigerian Electricity Regulatory Commission (NERC). Listening to the big boss as he makes a case on the future of Nigeria’s electricity sector, you will hear a man who is at a crossroads on policy.
The Nigerian Electricity Regulatory Commission (NERC), says no tariff increase has been approved by the commission yet. In a statement, Usman Arabi, NERC’s General Manager, Public Affairs, on Friday said it was still consulting with stakeholders. He said that the commission wished to notify the public that no tariff increase had been approved by the commission contrary to the impression in some quarters.
“However, the commission in the discharge of its statutory responsibilities enshrined under the Electric Power Sector Reform (EPSR) Act, shall continue to undertake periodic reviews of electricity tariffs in accordance with prevailing tariff methodology.
“In all instances of such reviews and rule-making, the commission shall widely consult stakeholders and final decision shall be taken with due regard of all contributions,” he said.
Yes, NERC is at war with everyone. It had promised a decent market-based reflective tariff, and investors showed up for the privatization program. (Sure, the process was not evidently optimal but that is now a past tense.)
The lack of cost-reflective tariffs is discouraging investments in the ailing Nigerian electricity sector, a firm involved in power generation in the country has said.
Azura Power, which in 2018 delivered Nigeria’s first privately-financed power plant in Edo State, has acquired a new power plant in Senegal, investing funds an official of the company says would have been deployed in Nigeria.
The Managing Director of the company, Edu Okeke, confirmed the development to PREMIUM TIMES on Thursday after closing the deal for the Tobene power plant in Senegal. Located in Taiba Ndiaye, 90 kilometres northeast of Dakar, the capital of Senegal, the 115 MW plant started operations in 2016.
Then after the process, the court ruled “Not Here” – this tariff is illegal in this land and cannot stand. Simply, get back to the “old tariff”. Unfortunately, with the current tariff, many investors do not see a long-term value creation opportunity in Nigeria. Of course the government is managing the paralysis – but the slumber will be long!
I heard that Siemens is coming; we welcome Siemens. But electricity challenge in Nigeria has never been about generation. The problem remains distribution and that means the ability to collect money from people that still believe that electricity should be free because it is one of the rights enshrined the Nigerian Constitution. Of course, nothing like that.
The Federal Government of Nigeria has signed a partnership deal with the German Government and Siemens AG. The presidency announced the partnership this afternoon as a step in addressing the epileptic situation of power supply in Nigeria. The deal, which is designed to take effect in 2 phases, has a target of 7, 000 megawatts of power generation by 2021, (the 1st phase) and subsequently, 11, 000 megawatts by 2023, (the 2nd phase). President Muhammadu Buhari stated that the initiative has become necessary in the face of helplessness of Nigerians with current power supply infrastructure
Do not think too far – the tariff for potable water in a state in South South geopolitical region in Nigeria was last reviewed in 1987. Yet, the state is looking for investors to provide potable water in the state! I saw the document and wrote to the project manager, and asked him if he could get the state to update the water rates. The response was typical – “The government cannot increase rate because it will be politically sensitive”. Of course, nothing happened, and no investor thought there was anything there.
Our leaders must find a way to engage Nigerians honestly on open conversations to move the nation forward. From electricity to potable water to healthcare services, unless there is decent revenue factor in the equation, it will be hard to move from the miry clay on the provision of basic services.
And the legal institutions need help and only the National Assembly can help them by updating the laws to avoid confusions in markets. Yes, the updates will help to engineer reflective costs that will make services become available as investors are attracted by the opportunities therein to participate. This does not mean that Nigerians should be priced out. Yet, Nigeria cannot also afford to price investors out. A win-win is needed on these services on cost.
