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Myself, I Do Not Want This Electricity in Nigeria

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Nigeria has closed a $20 billion agreement with Russia’s state-owned nuclear energy company, Rosatom. Representing Nigeria, Nigeria Atomic Energy Commission signed the deal with the Russian nuclear energy firm and the latter will build four plants for total capacity of 4,800 MW, Premium Times reports.

At a meeting in Abu Dhabi in October, 2017, Russia signed an agreement with Nigeria to build and operate a nuclear power plant, the first of its kind on the continent, as well as a research centre that would house a nuclear research reactor.

The agreement was a furtherance of a memorandum of understanding signed last year between the Nigeria Atomic Energy Commission, NAEC, and Rosatom for the construction of four nuclear power plants at the cost $20 billion (more than N6 trillion). The four plants will have a total capacity of 4,800 megawatts by 2035.

Anton Moskvin, Vice President for Marketing and Business Development, Rosatom Overseas (a subsidiary of Rosatom), and Simon Mallam, Chairman of NAEC, signed the agreement on behalf of Rosatom and Nigeria respectively.

I know nothing of the use of nuclear energy in electricity. I mean, I know nothing except what they taught me in Physics in secondary school. But I am concerned because Nigeria cannot even manage a simple goat farm. Now you want to manage reactors. What if budget is delayed for critical maintenance? I mean, our experience with Ogoni disqualifies Nigeria for going into this venture: for all the photo ops for years, government after government, Nigeria continues to neglect the Ogoni people. Who wants its people to suffer the same fate with nuclear if bad things happen?

This is my opinion as a private citizen who can only shout. It does not matter; it is democracy. But if you have access, tell government that if it has $10 billion for electricity, nuclear power is a wrong strategy. Here are simple reasons:

  • Cost and Value: If it commits to solar energy with $10 billion, it would get 10,000 MW over 4,800 MW nuclear would bring (I assume 1MW for $1 million which is pessimistic but reasonable).
  • Jobs: Solar energy is distributed and would create at least 100x jobs than nuclear. In other words, if nuclear could create 3,000 jobs, going through solar will give Nigeria 300,000 jobs in the process.
  • Safety: Solar energy is safer for Nigerian citizens. I think everyone would want it over nuclear energy.
  • Transmission: Nuclear power will not fix our transmission line problem. Technically, Nigerian electricity problem is not exclusively power generation to need nuclear energy. There are many gas power plants that can double capacities in Nigeria but the discos cannot receive the power to distribute to consumers because our transmission system is broken. A nuclear power deal does not fix that problem. We can have these four nuclear power stations producing and yet consumers will not have power. Solar, to a large extent through distributed design, would make the need of transmission system minimal since there could be many pockets of solar plants spread across Nigeria.

Please do not attack President Buhari and his party on this, this plan started in 2009. So, he is simply following the Nigerian business. Nevertheless, we do hope he helps us to stop it.

But its nuclear relationship with Russia did not begin until 2009 when both countries signed an intergovernmental agreement on cooperation in the field of the peaceful usage of nuclear technologies. Shortly after, another agreement was signed on cooperation in design, construction, operation and decommissioning of the Nuclear Power Plant and the Nuclear Research Centre housing a multi-purpose nuclear research reactor.

In 2013, Nigeria signed its Country Programme Framework (CPF), a five-year medium-term planning of technical cooperation between a member state and the International Atomic Energy Agency (IAEA) that identifies priority areas where the transfer of nuclear technology and technical cooperation resources will be directed to support national development goals

[…]

In May 2016, the Nigeria Atomic Energy Commission signed an agreement with the Russian government for cooperation in the construction of a centre for nuclear science and technology in the country.

They have not mentioned the nuclear sites but I can assure you that this may turn out to be a campaign issue in 2019 election at both the gubernatorial and presidential levels. No Nigerian would want nuclear facility in his or her community. If you think we would not care, you have not visited Federal Secretariat Abuja where most of the toilets have no running water. For nuclear reactors, not having that water can wipe a community. And that is why this deal is not good. This is perhaps the only type of electricity I do not want to use in Nigeria.

The Digital Royal Family

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Digital marketing is like a palace occupied by four different key people which make up a royal family – The Digital Royal Family.  I am using the ancient Igbo Kingdom of southeastern Nigeria in this analogy. You need to understand how the members of the royal families interact with one another, and the kingdom, in order to build the architecture of a solid digital marketing engagement. The citizens of the kingdom are the (digital) users.

Content is King: The words of kings rule over kingdoms. Those words are kings. You must invest to develop great contents to have success over the citizens (the users).

Digital advertisement is Queen: Sometimes the message of the king needs to go far. Digital advertisement makes that happen. In the ancient Igbo kingdom (Nigeria), the best “lost” secret is the one the queen has heard. (Do not be too hard on me for this one; men also  speak with reckless abandon, but in the ancient Igbo tradition, women were not allowed in the Obi especially as men decide to wage wars or make important decisions. Obi is the heart of the palace where the king receives the most important dignitaries. The most important tradition, the breaking of the kola nut, happens therein.  The hardest decisions are usually made there after libations to the gods and ancestors for direction. The chief priest, the seer of the community, in direct communication with the gods, by tradition consecrates kings there. Of course, the king does share news with the queen.)

Mobile is Prince:  Unpredictable and wild and always on the move. That is the prince, processing and utilizing the messages that come across. Picking those messages, he moves with agility to other kingdoms building partnerships for his future kingdom when the king  joins the ancestors.  The words of kings are promises of the princes because they inherit those words. He goes far, freer than the king who is tethered by tradition to his kingdom. The prince takes the contents far, amplifying the message, on behalf of the kingdom.

Social is Princess: She makes everything glow, amplifying the message, unbounded and unconstrained. Because sooner or later, she departs to another kingdom as a bride to another prince, she makes the messages stick. By her ability to move from one kingdom to another, she knows a lot. She makes great impacts in any kingdom because she is born for two kingdoms. She unites traditions and becomes a symbol to make peace because her children are named Nneka (the mother is mightier). And when her son returns to the father’s palace, on visit, and during public occasions, he would be served wine specially because he is a son to the daughter (nwa Ada).  In the breaking of kola nut, the zenith of traditions, the kids are also honored as elders beckon “anyi nwere nwa ada ebe a” [Do we have a son of a daughter here?]. This makes sense because if war should break out, the young man, who is a prince in her mother’s new kingdom could in future come to defend the land of her mother. Also, if his own kingdom falls to wars, he can run to his mother’s place and be accorded most rights. That symbiotic relationship is possible by the social princess who is the only person that can unite kingdoms by moving from her father’s kingdom to another one. She scales everything and she is vital in kingdoms. In short, without the princess, kingdoms die and tension rises. She makes it possible for most kingdoms to be linked, by marriage, making sure no one fights recklessly.

Of course, when the message is right, got to the citizens, and everyone heard it the right way, there would be celebration in the kingdom because the king spoke and the citizens liked the words, and they took action. That is how digital marketing works.

My 2018 Playbook for Nigerian Telcos

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The year 2017 could not have gone so quickly in the Nigerian telecommunication sector. Largely, it was not a dance party for many of them. Despite the official declaration that Nigeria was out of recession, it was not yet uhuru for the telcos. As MTN continues to pay down its fines (over regulatory compliance issues on SIM card registration), Etisalat Nigeria lost its major investor and became 9Mobile. The regular noise from India was not very encouraging for Airtel which has seen its African businesses under high-voltage shock as pockets of its business in some markets continue to lose money. Glo kept its standard of largely sub-par service delivery intact.

Yet, they overcame and 2018 is here. The push to 30% broadband penetration in Nigeria continues. Here are some simple things they could do in the industry to make this 2018 better.

Cross-platform Development: This is the only way they can grow and expand the pile. From deepening and supporting services in finance, agriculture, logistics, among others, telcos have to band together to do better. The win-win model must be part of the collective strategy and the concept of co-opetition (cooperating even when competing) must be in their hearts. Imagine if the telcos come together to build a blockchain infrastructure to power Nigeria’s commerce and industry in this emerging area.

Telecom Committee: The leading telcos (possibly would become three if 9Mobile goes) must work hard to form a stronger lobby group. What they are facing at state levels with rights of way and multiple taxations cannot be solved individually. Besides Association of Telecommunications Operators of Nigeria (ATCON), I expect MTN, Glo, 9Mobile and Airtel to have another lobby group with capacity to exert real influence in the states. A good playbook to copy is the Bankers Committee. The Telecom Committee must be innovative in battles it takes with regulators so that it does not alienate customers. Yet, it needs to win some key ones it needs. The regulator, Nigerian Communication Commission (NCC), should be seen as a regulator and an ally since without them, NCC itself will fail. Playing that ally card could help them to get some critical supports they need to thrive.

Diversify into New Sectors: Agriculture will be huge as Buhari Administration is focusing on it. I know the data we have consumed in farms as we work on Zenvus in northern Nigeria. The telcos must invest in new markets because the typical big-markets may actually be loss-making. They continue to push promos to customers with multiple SIM cards. Yes, Nigerians wait for the telco with the best promo and switch to a new one afterward. Once that one ends, they switch to the next promo in line, cascading race to the bottom. But in agriculture, farmers are business-people and are focusing on bringing IT into agriculture. The Telecom Committee has a strategic role to assist because in that redesign agriculture will be a growth sector. This diversification goes beyond agriculture to other areas like education and health.

Leading telcos in Nigeria (source: latest solution)

Mobile Virtual Network Operator (MVNO): Though NCC will likely decide if telcos have the capacity to anchor MNVOs, it may be time for the telcos to explore how they could sell services in bulk to MVNOs. MNVOs will provide cashflow to invest in innovation and growth. This is one of the biggest telecom businesses in U.S. where companies like AT&T and Verizon have MVNOs that differentiate with services even when relying on infrastructure provided by telcos like AT&T. Yet, this may not be an absolute decision of the telcos to make as NCC will surely like to run the show as typical in Nigerian regulation. The Telecom Committee may consider pushing for MNVOs if they feel confident they have excess capacity to sell. MVNOs will help them reach some cities which the telcos are not interested since MVNOs are usually not nationwide brands: they are assigned areas they can do business. And usually, they win with customer service.

4G Deployment: The telcos have promised 4G but are yet to deliver in practical forms. They need to get the 4G services to in the nation. The fact is this: without broadband, Nigeria will stall in the advancement we expect in AI and other emerging technologies areas like IoT (internet of things). Now is the time to make this 4G happen at scale. Without affordable 4G, some emerging services in security, education and health would stall. So, it is very strategic to deploy 4G – Nigerians are waiting.

Innovation on Data: The business is about data right now. But data will not make telcos improve their revenues if the data is not “transformed”. I do think they need to innovate on the data they have. That innovation on data will provide the path to building platforms. There are many things they could do. I noted one in the Forum today. Besides, home automation, home security and energy management would benefit on this data innovation. The telcos can drive some of these areas through strategic partnerships.

OEM-Focused Partnership: The telcos in Nigeria have focused on gaming, quizzes and the typical things you see being promoted via SMS. Those things are leisure. And they are okay. But for the telcos to see new growth, they have to invest and partner with OEMs that make physical things which need Internet to work at scale. Think of companies like Nest (the Nigerian version), Ring (security) and more. They need to push investments in those areas because they could sell more data if those succeed.

Nigeria’s Lost Taxes to Mauritius

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Port Louis, capital of Mauritius (Tourism, Mauritius)

Since I wrote the piece suggesting that Nigeria could redesign its tax policy, the conversation has largely focused on the nation’s obvious need to boost its tax revenue. In other words, a country that needs more tax revenue cannot be offering tax-holiday. That makes sense, except that focusing on the apparent short-term tax revenue losses would cost us the opportunities of the future. Here are two things to consider:

Mobility of Knowledge: In a knowledge-based economy, knowledge is a key factor of production. Unlike in the industrial-age era where it was hard to move some factors of production (like raw material), knowledge is very mobile. The key thing Uber, Google and Facebook export to the world is knowledge. The mobility of knowledge makes it possible for most of the leading technology companies to decide the jurisdictions where revenue receipts would be recognized for tax purposes. In other words, if they earn revenue in Nigeria, they could book the revenue in Cayman Islands which is a tax haven. What has happened is that Cayman Islands is assumed to hold the intellectual property of the company and must be compensated for that. Every country has structures designed to enable local subsidiaries of entities to compensate the original IP holders through royalties, IP licensing, and rights.

Nigeria has an agency of government that does just that, approving for the foreign entities to repatriate the money back. Visit National Office for Technology Acquisition and Promotion(NOTAP) and learn what they do. Simply, they manage these issues of technology IPs acquisition and transfer. So, consider a scenario where Google Nigeria has earned revenue in Nigeria, NOTAP makes it possible for Google Nigeria to pay Google International through a jurisdiction it has designated for the technologies used in Nigeria. This is vital because Google search engine was not invented in Nigeria, and even though Google Nigeria is selling adverts to Nigerian companies, it does not own the technology. That acquisition and transfer of IP is what Uber, Facebook and others do with subsidiaries globally. It is legal and is a key part of commerce and industry. Private innovation is not a human right: it has to be paid by anyone that wants to use it.

For Cayman Islands, the intellectual property it is holding is great, and if you register there and move your firm to its domain, it gets the benefits.

 Google is continuing to benefit from an EU rule that is being phased out. The company disclosed that it moved $19 billion of profits in 2016 to a Bermuda shell company via several Irish subsidiaries to avoid taxation in Europe. The so-called “Double Irish” and “Dutch Sandwich” move loses its tax-free status after 2020.

Contrast this with what happens in the mining industry (an industrial age sector), you would agree that it is different. You cannot ship the core raw material like coal, and that makes it harder to move the jurisdictions where tax is recognized. Yet, while the technology to mine that coal can be paid, the system is not driven by knowledge. That makes it very cloudy, making it harder to use tax incentives to shape it. No company is going to relocate easily because the availability of raw material is a key factor in the location of the companies. Tax incentive is abused easily in this area because of the opaque of the operations.

I am not saying that Nigeria should become a tax haven. I am simply noting that tax policy works effectively in a knowledge-based economy unlike in the industrial-age where some factors of production are not as mobile.

Yes, my proposal to offer a ten-year tax-holiday to venture capital firms can work because what is involved, unlike in the industrial-age where taxes could be abused, is knowledge. That could be effectively managed.

Mauritius: Most of the venture capital firms operating in Nigeria are incorporated in Mauritius (or at worst outside Africa), a known tax haven. Yet, some of the VCs and PEs (private equity firms) do most of their businesses in Nigeria. But since Nigeria taxes only profit, they do have the right to ask NOTAP to approve for them to ship most revenue to Mauritius thereby reducing the taxable profit. Once that happens, the money leaves the country and within weeks return, un-taxed. So technically, Nigeria gets nothing while Mauritius where these companies are based (legally) gets the glory (the tax there is low I must add). All you need is a post office box with no requirement to have operations in Mauritius to become whole to use this scheme.

Mauritius, indeed a paradise (Tourism, Mauritius)

Yet, I am not trying to say that our government is not aware of this. The problem is that as typical in Nigeria, we rarely engineer policies to change behavior in big ways. If we offer this deal, great things would happen and most of the firms would operate in Nigeria, and even if they have to leave, at the expiration of the incentive, ten years would be enough for us to seed the VC sector.

  • Government should offer new VC (venture capital) firms in Nigeria a ten year tax incentive on profits if they have asset base of at least $50 million and will deploy the capital in Nigerian startups within 10 years.
  • Offer new VC firms in Nigeria the opportunity to repatriate 100% of profit within ten years. That will help the country to attract foreign investors to make Nigeria home.

Beyond Venture Capital

It takes the understanding of markets to offer policies. If Nigeria redesigns its tax policy, we could get more done. As I have noted that even our education system can benefit. There is nothing that cannot be changed through a smart tax policy. The United States government just did a big one under President Trump. A key element of that tax policy is to encourage U.S. companies to bring their offshore profits back to U.S., instead of leaving them outside the country, primarily to avoid the U.S. relatively high tax rate.

If Company A wants to start a factory in Owerri Nigeria and needs to train 1000 people in the areas it does business. It can ask Federal University of Technology Owerri to do that training, providing the manuals and documents required. It will fund it say with $3 million for three years. FUTO may integrate the program in its curricula (NUC may need to approve). FUTO has received funding, expanded its program and at the same time graduating students that will likely have jobs when they finish. Brilliant!

For Company A, it has moved the non-core training out to focus on its business, knowing that whenever it wants talent, FUTO is preparing them. Then on that $3 million, Nigerian government allows it to deduct it, non taxable. Simply, the revenue where that money has come will not be taxed because it has been used to do good to the society. Just like that, the company has saved money and at the same time assisted FUTO to deepen its programs. That is an incentive which does not exist right now, and Nigeria needs to update our tax system to make it possible.

Today, what is possible is to deduct that $3 million as an expense, meaning that it is recognized in the tax book as pure business. That is not enough as the resulting balance will be taxed accordingly. In U.S. that $3 million is treated differently, offsetting not just its expense but other areas the company might have experienced losses. So magically, you use donation to make-up. That is why giving is financially good, under some circumstances, for both the recipients and the givers.

All Together

Policies work and Nigeria experienced that during the golden age of our entrepreneurship. Under the military rule of former President Ibrahim Babangida (IBB), Nigeria made many policy moves, starting in 1986. The impact is huge – between 1987 and 1992, some of the finest (old) technology and (modern) financial institutions in Nigeria were founded. In my analyses, I have zero’d in on Second-Tier Foreign Exchange Market (SFEM) which made it possible for banks to make huge profits on foreign currency transfer/trading, as catalytic. That era gave us many banks; some samples of companies starred during the time have become category-kings in their sectors. In short, the phrase “New Generation Banks” came into the lexicon during that era.

  • Diamond Bank Plc – born 1990
  • Zenith Bank –  1990
  • Fidelity Bank – 1988
  • GTBank – Jan 1990
  • (STB for modern UBA) – 1990
  • Access Bank – 1989

While many of the financial institutions created in that boom collapsed, some survived. Technically, that is how it works: Amazon is alive but many startups perished during the 2000 stock market collapse in U.S. Nigeria needs to create Diamond Banks, Zenith Banks, and GTBanks of the future. A smart tax policy would make that possible by making capital available.

Comments on Linkedin

A LinkedIn user: Mauritius has an effective corporate tax rate of 3% (15% corporate tax rate for income generated in Mauritius with a 80% tax credit for foreign tax paid). Nigeria’s corporate tax rate is 30% for WORLDWIDE income generated. No off sets. Foreign resident companies are taxed at 30% but for only profit generated from income in Nigeria. 30% tax on global income is tough and to an extent a breach of fiduciary duty owed to shareholders when other more tax jurisdictions are offered. In addition, a start up has limited income and instead of tax credits or incentives has to pay taxes early on against the sickly initial income stream makes 30% tax rate tough. You combine this with both legal and political risk, as an investor at least mitigating one controllable risk to enter Nigeria makes sense.

Fixing Nigeria’s Lackluster Venture Capital Funding

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I wrote on LinkedIn that a new trend is emerging where some foreign investors come into Africa, and offer one (unbelievable) key condition to some local fintech companies before they invest: you must move your operations to United States and re-incorporate as an American firm. The investors are helping themselves, and technically operationally supporting the companies, since running a fintech from U.S. offers a startup higher “credibility”, and access to further funding, over running one from most African cities.

Also, all the industry compliance certifications are easier for U.S. entities to acquire when compared to the challenges of getting them while in places like Lagos, Nairobi and Accra. The implication is that if you are operating in U.S., you move at a faster speed than if you are in Africa. That provides a clear competitive advantage to outrun your local competitors as you work to fix market frictions in Africa.

People, money is dripping into Africa-focused startups. Last year, about $170 million was invested in 201 of such startups. Generally, the continent recorded 28% year-on-year on startup investment dollars while the number of startups which received funding grew by 32%.

Fintech leads all sectors while the NKS (Nigeria, Kenya and South Africa) were dominant on total deals. But note that not all deals are reported and also most of the companies classified as African companies are actually U.S.-based firms with (majorly) operations in Africa.  Real native African companies continue to struggle while the offshore African companies crack millions of dollars in funding.

That does not mean it is all bad; I just want you to have that in mind as you look at the data and plots. A new trend started last year where the investors come with the money and ask you to RELOCATE all the team to Silicon Valley and then make the original African city a business development office. Very unfortunate.

Yet, investors have to do what they have to do. To change that, I have proposed a ten-year tax-free incentive to venture capitalists in Nigeria. Nonetheless, congrats to all: native and offshore African startups. Now, go and win

You cannot fault the investors and the startups: what they are doing is very strategic and for many of us, we would do the same thing. Patriotism is not necessarily a business strategy especially when there are many competitors pursuing the same customers. Yes, any small advantage helps. Yet, there is a grave financial risk to nations like Nigeria and Kenya where most of the fintechs in their domains are foreign incorporated or re-incorporated. Simply, the tax money stays outside Africa, and the accumulation of wealth is not domiciled in Africa especially when the companies can apply the usual tax reduction/avoidance schemes typical in global technology space. They use those schemes to reduce tax obligations by moving receipts domain to lower tax jurisdictions. It is a double whammy for Africa: your talent has moved offshore and the tax money will not come even though the wealth is generated in your land.

Solution to Relocating African Tech Firms

One way we can stop this technology drain is to use tax policy to entice the foreign investors to do real FDI where they invest and possibly support the local firms to stay in Africa. The key is to deploy smart tax incentive to make Africa more exciting to both local and foreign investors. And if we do that, we would not just keep African firms here but could attract foreign companies to move and operate within Africa. As I have noted, Silicon Valley was built by men (and women) and our governments must put out policies to galvanize and seed our opportunities.

If you go back to history, you will notice that there was nothing like Silicon Valley before Shockley invented the transistors and legends like Gordon Moore made the two words “Silicon Valley” something iconic. So, Silicon Valley became because men made it happen. And U.S. government had a major role: the co-Founder of Intel Corp Gordon Moore worked on his post doctoral research in the Johns Hopkins University Applied Physics Lab under a U.S. government funded project. When he moved back to California to co-found Intel Corp, that government project had provided real practical insights to him. Those were catalytic in starting Intel.

One of the key enablers of the new City was the on-boarding of investors who came to seek opportunities. Sandy Hill Road, Menlo Park (California) became a street into the future of the world where many investors made homes, investing in game-changing startups. Those companies saw opportunities and came, and they also seeded new opportunities. It became a positive continuum which remains till today.

To create such enablers in Nigeria, I propose the following specifically for the VC sector:

  • Government should offer new VC (venture capital) firms in Nigeria a ten year tax incentive on profits if they have asset base of at least $50 million and will deploy the capital in Nigerian startups within 10 years.
  • Offer new VC firms in Nigeria the opportunity to repatriate 100% of profit within ten years. That will help the country to attract foreign investors to make Nigeria home.

If we have this type of incentive, we will see many VC funds making Nigeria home to explore opportunities in Nigeria and continental Africa. That influx of capital will have many multiples of benefits to our economy, our people, and the Nigerian technology space. Most especially our tech firms will stay home.

Yes, we have a tax problem but the VC industry is not going to fix that for us since it is not one of the areas where we have been unable to appropriately collect taxes. There is no tax avoidance in the sector because none exists at the moment in the VC sector. The goal of this incentive is to explore how to deepen our capabilities to ensure that future companies are created in Nigeria. Our Vice President has been working on improving the business ecosystem in Nigeria; making it easier for startups to receive capital would go a long way. A new tax regime for investors, especially at the early stages, would be strategic for the nation.