Archive | February, 2015

“Speaking with One Voice”: Nigeria’s Sovereign Wealth Fund

25 Feb

David O. Kuranga, Ph.D. The author is the Managing Director and Principal of Kuranga and Associates, a full-service investment, political and economic risk consultancy, and asset management firm that specializes in Africa. He is also the author of The Power of Interdependence with Palgrave Macmillan Press.

“Nigeria’s” Sovereign Wealth Fund, became operational in 2013, with 1 billion USD in seed capital. The fund has become a damaging and embarrassing self-inflicted wound to Nigeria’s efforts to cast itself as an investment friendly destination. Its structure, operation, and philosophy have nothing to do with Nigeria and shockingly it continues to undermine and ridicule Nigeria’s efforts to rebrand itself. The overall impact of the fund to Nigeria is so damaging that it would be better if the billion dollars was embezzled into the private accounts of corrupt officials and stolen than for it to exist and be constituted and operated in the manner that it now does. The fund is run by Uche Orji. The stated objective of the fund is to establish itself as a leading sovereign wealth fund globally while “playing a role in Nigeria’s economic development”. The fund has been placed under the custodianship of JP Morgan, a US based international bank. The “Nigerian” Sovereign Wealth Authority is yet to explain why it selected a US bank to be the custodian of the fund at a very high cost as oppose to the several major Nigerian banks that could have been selected at a much lower cost. Nigerian’s should understand that Nigerian banks are custodians to over 20 billion dollars of Nigerian Pension funds so there is no question that they can deliver the services required to be a custodian of the mere 1 billion dollar sovereign wealth fund. Also interestingly enough, it is this same JP Morgan who has been raking in tremendous fees from “Nigeria’s” Sovereign Wealth Fund, that has threatened the Central Bank of Nigeria repeatedly to remove Nigeria’s sovereign debt bonds from its global bond index, a move that would cause Nigeria’s borrowing costs to skyrocket and would severely cause the naira to crash in value possibly even collapse. Even if JP Morgan was a Nigerian bank, it is clearly not an institution that should be rewarded in anyway with the exclusive custodianship contract with the “Nigerian” Sovereign Wealth Authority.

By using the US Bank JP Morgan, what is the Nigerian government telling global capital investors when it bypasses Nigerian banks and pays a much higher price to place its money under the custodianship of a US bank? Does this communicate to global capital investors that Nigeria is a safe place to invest? Does this tell foreign multinational businesses that are seeking to create subsidiaries in Africa that Nigeria is safest and best place in Africa to invest? Does it tell foreign business leaders and investors that they can safely use Nigerian banks and do business in Nigeria and with the rest of Africa from within Nigeria? Do the actions of the Nigerian government do anything but tell global investors that there is something so seriously wrong with Nigeria that even its own government does not trust its banks to do its business? Let there be no mistake about it, the decision by Nigerian officials to use JP Morgan as the custodian of the “Nigerian” Sovereign wealth fund, paying exorbitant fees to do so, bypassing fully qualified Nigerian banks that would charge less, is an act of treason. All those responsible for it should be banned from occupying any public office in Nigeria for the rest of their lives. There is no excuse, no justification, and no tolerance for this kind of conduct to occur in Nigeria ever again. If Nigeria were China, these officials would be executed on the spot. Why should the Nigerian people allow anyone to get away with such a brazen public disdain for our country, completely dragging the entire country in gutter, an collecting a salary for it in the process?

As if this is not bad enough, the first investments of the “Nigerian” sovereign wealth fund was to invest 50 million dollars in US treasury bonds, and 150 million dollars in US corporate bonds. The 50 million dollars was given to UBS Bank to invest in US treasury bonds on behalf of the “Nigerian” sovereign wealth fund. The 150 million was given to Credit Suisse and Goldman Sachs to invest in US corporate Bonds on behalf of the “Nigerian” sovereign wealth fund. Uche Orji the Managing Director and CEO of the “Nigerian” Sovereign Wealth Authority before he became CEO, was a portfolio manager at JP Morgan and Goldman Sachs, he later became a VP and Managing Director at UBS Bank. I guess it is coincidental that so far every act the “Nigerian” sovereign wealth fund has taken has given lucrative business to Mr. Orji’s former bosses at JP Morgan, Goldman Sachs, and UBS. Only Credit Suisse does he not appear to have a previous visible working relationship. It is not clear what Mr. Orji plans on doing after his tenure as the MD/CEO of the “Nigerian Sovereign Investment Authority (NSIA), but from his actions as head of NSIA I am sure he would be welcomed back with a lucrative job at any of his former employers as well as Credit Suisse. Despite the obvious and glaring conflicts of interests with respect to Mr. Orji as MD/CEO, what do the investment decisions of of the NSIA tell international investors about the investment worthiness of Nigeria given that its own fund run by NSIA made its first set of investments in the US? How does NSIA’s investment record encourage international investors and give them confidence that investment in Nigeria will bring them solid returns? Do the investment decisions of NSIA do anything but tell investors that there is something so seriously wrong with Nigeria that even its own sovereign fund run by NSIA does not trust an believe in it as an investment destination? Any fool, any grade school child can see how utterly ridiculous all of this is. In China, the South Africa, India, Russia, Brazil, even Cuba, somebody’s head would be rolling by now. So why do they get away with this here in Nigeria?

Countries that have become global economic leaders do not make these kind of decisions because they realize that you have to speak with one voice. When you say something, you have act on it. Your actions and your statements have to be the same. The most damaging voices bringing down Nigeria’s image globally are the voices of Nigerians. The most effective tools that block investment and global capital from reaching the Nigerian economy are the tools wielded by Nigerians themselves. Nigerian people own massive assets all over the world, occupy high positions, build and own infrastructure, and do tremendous things for other countries and for their people. In discretionary spending alone, Nigerians in diaspora have more resources than any collection of foreign investors that Africa has ever seen. If they all chose to invest their discretionary spare change in Nigeria, the country would be one of the greatest economic powers in the world today, no level of corruption or mismanagement could stop it. By giving the best of ourselves to foreign lands, and leaving our obligation to Nigeria behind, the collective of Nigerian’s in the diaspora do precisely what the NSIA is doing. An when we go home (if we ever do), in spite of our acts of treason, our people still embrace us as family. So why is it surprising that our public officials feel that they can get away with doing the same thing? Why is it that nobody in Nigeria says or does much to them about these glaring irreconcilable inconsistencies that would be massive controversies anywhere else? It is because sadly and unfortunately what these officials are doing is simply a reflection of us an who we are as people.

Moving forward, Nigerians as a people must learn to speak with one voice. When it comes to the development and progress of our country, our actions and our words must be the same. Certainly there is a higher standard of governance than what we currently have in Nigeria today, there is also a much higher standard of citizenship. Both the standard of governance and the standard of citizenship needs to rise nationwide. What I am seeing with the sovereign fund and NSIA is disgusting, it makes me sick to my stomach, I cringe, I yell and scream, but I am not in the mainstream in Nigeria. Our mainstream media in Nigeria praises NSIA for this foolishness and question almost nothing about this while the general public don’t even see this as a serious issue. While other country’s people would be outraged just like occupy Nigeria during the subsidy standoff, yet the reaction in Nigeria over this is muted. It is very clear that the core of the problem causing the general lack of accountability among public officials is within our society itself. If we want better governance we have to be better citizens. Those that are able are going to have to pay into our society and into our system so that others may have better opportunities. It is clear that the government is not doing everything it can, but neither are we. Go down unpaved streets in Lagos Island and you will see some of the nicest cars in the world parked there. Why is it that they are parked on an unpaved street? Yes, the local government did not provide sand and paving stones, but neither did the people who live on that street. Clearly from the cars they drive, they could collectively afford it. Yet they will all sit there night after night an blame the government for everything. We as a people are the cause and the solution to many of the issues Nigeria faces. No politician can deliver us, no government can replace the role its people. Moving forward, the Nigerian government is going to be primarily financed by we the people, not by our oil. We will have to contribute our resources for better governance, greater accountability, more jobs, more infrastructure, faster development, sustainability, and growth. Everyone will have to deny themselves, shoulder their cross, and get to work, joining in the struggle for the betterment of our country.

Kuranga and Associates Limited is an investment management advisory firm and an asset manager with a principle practice area of Africa. To learn more about Kuranga and Associates go to www.kaglobal.net. © Copyright 2014 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

David O. Kuranga; Ph.D.

Managing Director
Kuranga & Associates Limited
Phone: 212.363.0936
david.kuranga@kaglobal.net
https://kurangaandassociates.wordpress.com
http://us.macmillan.com/thepowerofinterdependence/DavidOladipupoKuranga

Making Nigeria Africa’s Financial Service Hub

24 Feb

David O. Kuranga, Ph.D. The author is the Managing Director and Principal of Kuranga and Associates, a full-service investment, political and economic risk consultancy, and asset management firm that specializes in Africa. He is also the author of The Power of Interdependence with Palgrave Macmillan Press.

Currently most Nigerian Banks are struggling with the fiscal crisis in Nigeria caused by crashing global oil prices over the last several months. Major Nigerian banks are among the most exposed banks in the developing world to the oil industry. Only Russian banks are having close to as much issue as major banks in Nigeria. Coupled with this, declining government revenue, which is 90% derived from oil, has cut into limited government reserves leaving the Nigerian Central Bank unable to inflate the value of the naira by injecting foreign capital. Over the last several months the Naira has collapsed to all-time lows falling below 200 to 1 dollar for the first time in history. It is fully expected that once the election is held, the central bank will allow the naira to decline further even below its low of 213 to 1 dollar. All of this has left policy-makers scrabbling to diversify Nigerian exports outside of the oil industry to reduce the nations reliance on the commodity. Similarly, the largest banks in Nigeria are adopting a conservative stance towards expansion and are scrambling to reduce their exposure to the oil sector.

The core of the solution to diversify Nigeria’s exports as well as reduce the exposure the nation’s largest banks to the oil industry are one in the same. Financial services are the primary export product that Nigerian policy-makers and decision-makers within banks, and residual financial institutions in the country should be focused on building. Nigerian banks have done a very poor job of building their services, including investment banking and asset management. In the consolidation of Nigerian banks spearheaded by the Nigerian Central Bank about a decade ago, little was done to encourage banks to diversify and build their services beyond retail banking and basic corporate banking. Today, the top banks in Nigeria are not among the major banks providing large Nigerian firms investment banking services. In fact their presence in investment banking in Nigeria is paltry compared to foreign investment banks that have come into Lagos, set up shop, and raked in huge profits under the noses of major Nigerian Banks. For example, when Seplat, a major Nigerian oil firm, conducted their $500 million USD IPO in April 2014, completing a dual listing on the Nigerian Stock Exchange and the London Stock Exchange, the only “Nigerian” participants were Standard Bank & Renaissance Capital, a South African Bank and a Russian Bank with major investment banking divisions operating in Nigeria. FBN Capital of First Bank of Nigeria, perhaps the most significant indigenous investment banking house among the major banks in Nigeria has not been involved in the overwhelming majority of major investment banking deals involving Nigerian firms. Even the Asset Management Corporation of Nigeria (AMCON), when soliciting advice in auditing and valuating Mainstreet and Keystone bank for sale, selected Citibank and Renaissance Capital as advisors, completely ignoring the possibility of utilizing a Nigerian firm. Since AMCON is owned by the government of Nigeria, the fact that even they bypassed Nigerian financial service providers says a lot about the state of the industry in the country.

Even worse, many of the largest banks in the country that are currently reeling in the wake of the oil crisis, either do not have investment banking divisions at all (which is ridiculous), or have divisions that are not in any way significant in the industry in Nigeria. In fact boutique investment banks in Nigeria have done better in the industry than many of the major banks in the country, including Greenwich Trust, BGL Securities, Chapel Hill Denham, and Vetiva Capital. As Nigerian banks seek to diversify away from oil, they are going to have to adopt a stance that if they want to lead in Nigeria and in Africa, they are going to need to corner not just the basic retail banking industry in Nigeria but also the investment banking and financial service industry including asset management. The Central Bank of Nigeria should have a major role in encouraging this development. Increasingly Nigerian firms are going to be listed on exchanges outside of Nigeria and are going to raise capital from international investors. When they do, major Nigerian banks should be involved. Foreign banks that have set up subsidiaries in Nigeria should not be completely having their way in exporting these financial services outside of the country for the few large firms that they choose to work with.

In addition to investment banking services, asset management services is not a major element in the overall business structure of major Nigerian banks. Some of the top banks have no asset management division or instruments for investors at all (which is ridiculous). Asset management, or the service of sourcing investment capital on behalf of institutional and individual investors is one of the single most important financial services in most modern and rapidly developing economies. Yet in Nigeria the industry lags far behind the top performers in Africa, yet alone the rest of the world. South Africa and Mauritius are by far the undisputed African leaders in the asset management industry, despite Nigeria being the largest economy on the continent. Major Nigerian banks are in-part to blame for this dynamic. They have not developed enough high-performing funds to market to global investors and have spent very little time and resources in positioning themselves as leaders in this area. Aside from this a number of smaller investment holding companies throughout Nigeria, that have proven very effective at investing with their own resources, have not set up funds and do not export their services to international investors that have been clamouring for their services and expertise in Nigeria and West Africa. Companies like the Honeywell Group, which has 10 divisions, but no asset management fund, would be able to launch several funds overnight in Nigeria on the basis of their investment record alone. Why do companies like this in Nigeria not have asset management divisions despite the massive demand for their services globally? Further why are there so few asset managers in Nigeria compared to South Africa and Mauritius. There are three key obstacles: 1) the SEC of Nigeria, 2) Over-regulation of Nigerian Pension Funds, 3) Lack of Support from Nigerian DFIs.

1. SEC of Nigeria
The SEC of Nigeria is among the most unprofessional and unproductive regulatory agencies in Nigeria as compared with their counterparts in other rapidly developing nations. Their standard of operation is reprehensible at best, and would never be tolerated in many developing nations that are seeking to become global leaders including the (BRICS), Brazil, Russia, India, China, and South Africa. It would take exponentially more time and resources for a well established firm like the Honywell Group to register an asset management fund with the SEC of Nigeria than it would take that same firm to register their fund in Mauritius and then turn around and do business in Nigeria. In fact many of the asset managers with offices in Nigeria are actually Mauritius registered companies, even those owned and founded by Nigerian nationals! This embarrassing dynamic is directly linked to the unprofessional nature of the Nigerian SEC that has created a major stumbling block to Nigeria’s most promising emerging export product. In order for Nigeria to meet its capital needs for development and growth the country requires several hundred new asset management funds to be established in Nigeria over the next 12-18 months. The existing banks in Nigeria that do not have asset management funds as of yet or only have a few, the diversified investment groups like Honeywell, high-performance microfinance banks, and boutique investment companies and investment banks that are already operating in Nigeria today are fully capable of bringing this many fund companies on-line in Nigeria during this time and begin exporting their financial services to individual and institutional international capital investors. This is by far the most promising export product Nigeria has today and it would take absolutely no time for these firms to convert Nigeria from being primarily an oil exporter to a financial service exporter. However, the SEC of Nigeria as-is, cannot facilitate this. It would be a miracle if they were able to get a handful of over-qualified applicants processed and registered in two years yet alone match the two month time-line achieved in most of the countries that are leaders in financial service exports. The Ministry of Finance and Ministry of Trade should be leading the drive to force the SEC to reform itself from the top–down in-line with this global standard. Asset management financial services have more promise and a quicker implementation time than any of the 13 products that the Nigerian Export Promotion Council and Ministry of Trade identified. Further there will not be enough capital to develop any of the other 13 export-oriented industries without first having a massive increase in financial service exports. So the fact that the Ministry of Trade continues to do very little to enhance this area given the reality on the ground is unbelievable. Moving forward, the number one agenda of the Ministry of Trade over the next 12-18 months should be to get all potential financial service exporters registered as Nigerian funds and do a road show along with the Ministry of Finance throughout all global financial centers to solicit international clients on their behalf.

2. PenCom & Nigerian Pensions Regulation
Nigerian Pensions are among the most over-regulated sectors in the country and in the world. Much of the over 20 billion dollars held in Nigerian pension funds remains idle despite the dire need for investment capital in infrastructure and high-growth profitable industry in Nigeria. The fact that Nigerian firms are conducting IPOs that foreign pensions are investing in and making substantial returns while Nigerian pensions are prevented by regulation from participating is nonsensical. It is a known fact that the industry in Nigeria is highly-overregulated yet deregulation has moved at a snails pace. The reforms of the Nigerian Pension Commission in 2014 is suppose to address some of these issues. With the country starved for investment capital and the dire need for infrastructure and development project funds, the pace of deregulation should pick up. The Nigerian public needs to understand that as they have no jobs, inflation is increasing, and austerity measures are kicking-in because there is no money, the pensions funds have over 20 billion dollars that is sitting there in naira, losing value as the currency devalues, and collecting dust. Needless to say, the financial service and asset management industry in Nigeria is hindered because the overregulation of PenCom has left that capital inaccessible. It is very problematic when a prospective Nigerian asset manager is trying to pitch their asset management services to a foreign pension fund while the equivalent pension fund in Nigeria is prevented by regulation from investing capital with them. The foreign pensions will understandably wonder why are Nigerian pensions staying away if this is a good investment opportunity? Accordingly in order for the industry to be marketable internationally, Nigeria must get its own house together to help its asset managers have greater success as they venture out for global capital. Moving forward the long over-due deregulation of Nigerian Pensions that passed into law in 2014 needs to support Nigerian asset management and financial services. Just as with the SEC, both Ministry of Finance and Ministry of Trade should push harder with PenCom.

3. Nigerian DFI’s
Despite the fact that financial services is among the largest industry in developed nations, and is one of the key sectors that pushes a developed nation into developed status, Nigerian DFI’s by strictly interpreting their mandates do absolutely nothing to support development of the financial services industry in Nigeria. The Nigerian Export-Import Bank (Nexim), who’s core mandate it is to support non-oil exports cannot accord a single measure it has to support an indigenous Nigerian asset managers, despite this being the most promising non-oil export product that the country has. Bank of Industry of Nigeria (BOI) does not even consider financial services as an industry. According to them and their narrow interpretation of their mandate, only manufacturing is worthy of their consideration, despite the fact that the financial service industry by far eclipses manufacturing in total economic output in every modern and developed economic power in the world. They fail to realize that a vibrant financial service industry inherently supports and finances manufacturing and export-oriented industry. If they had the foresight to leverage their limited resources with asset managers that focused on manufacturing and/or export-oriented industries, they would achieve far more in 1 year than what they have done over the last 5 years. Moving forward Nigerian DFIs and the policy-makers that oversee them can no longer afford to ignore the symbiotic partnership that these intuitions need to develop with the financial service and asset management industry.

Moving forward policy-makers in Nigeria today need to realize that it is not enough for Nigeria to declare itself as the largest economy in Africa, it needs to be Africa’s leader in all relevant industries, especially financial services. Nigeria should not only host the continents largest banks, it should also have most effective and the largest number of investment banks and asset management funds. The firms that are able to do this are in Nigeria today and they are the most promising exporters for Nigeria. Thus by pushing them to the fringes instead of making them the primary focus the Ministry of Trade and Finance along with the Central Bank of Nigeria have handicapped the Nigerian economy from expanding at the pace it could have over the last 5 years. They are responsible for the narrow mandates of the DFIs, the incompetence of the SEC, the slow pace of deregulation of PenCom, and in part the lack of diversification within Nigeria’s major banks. If you start to compare these officials and their performance by placing them alongside their counterparts in other major emerging economies in the world, you will begin to see clearly that they are failing Nigeria miserably. Unfortunately for Nigeria, the technocratic policy-makers in the country are held to an internal standard, one that compares them to the past officials that held their post. As long as they perform slightly better on the job than their highly corrupt and often unqualified predecessor they are heaped with praises and accolades. They sit in ivory towers surrounded by bubbles of “Yes Sa! Yes Ma!.. aides and associates” who shield them from having any substantive interaction with the disillusioned public. This culture of baseless praise of a persons position rather than their performance in that position, only serves to propagate the cancer of incompetence pervading throughout the nations economic decision-makers at all levels in both the private and public sector. While the private sector pays the price for their failures because bank stock prices have plummeted and some banks like Diamond Bank may not even survive. Further they (Nigerian banks) are being beaten badly by foreign investment banks and asset managers that have come in after them and set up shop in the country. On the other side, the public sector continues to rot internally as they are being surpassed by their international counterparts abroad as a result of their failure and incompetence, yet its the Nigerian public that pays the price, while the officials that are responsible make off handsomely. Its this same cancer of incompetence that affects our armed services and greatly impacts the ability of mainstream Nigerian media to question and expose gross incompetence among economic and political decision-makers. More than ever the Nigerian public needs to reject the baseless praise that mainstream Nigerian media heap on certain public officials and reject the overemphasis of corruption in public discourse because now its only a distraction that helps to shield incompetent public officials from the scrutiny of far worse and far more costly decisions that they have made. It is Nigeria’s destiny to become Africa’s financial service hub, but the Nigerian people have to put this disease, this cancer of incompetence that is weakening the nation, in remission.

Kuranga and Associates Limited is an investment management advisory firm and an asset manager with a principle practice area of Africa. To learn more about Kuranga and Associates go to www.kaglobal.net. © Copyright 2014 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

David O. Kuranga; Ph.D.

Managing Director
Kuranga & Associates Limited
Phone: 212.363.0936
david.kuranga@kaglobal.net
https://kurangaandassociates.wordpress.com
http://us.macmillan.com/thepowerofinterdependence/DavidOladipupoKuranga

Taxing Nigeria’s Rich

12 Feb

David O. Kuranga, Ph.D. The author is the Managing Director and Principal of Kuranga and Associates, a full-service investment, political and economic risk consultancy, and asset management firm that specializes in Africa. He is also the author of The Power of Interdependence with Palgrave Macmillan Press

The national and state governments in Nigeria are facing a massive shortfall in government revenue due to the crash in global oil prices and the failure of the government to save and increase reserves during the past 4 years of record high oil prices. Questions are now being raised as to the credit worthiness of Nigeria going forward as the naira is collapsing to record lows and Nigerian capital markets are among the worst performers in the world. The blame for this falls squarely on the current administration whom despite record high oil prices over the last several years, has not managed to increase but rather have actually depleted the nations reserve account. Even though they cite minor development projects as the reason, many of the projects were facilitated in part by borrowing and not by actual spending. Still regardless of whether the claims of eye-popping corruption are true, the core problem and the height of incompetence in the current administration, particularly in the ministry of finance, is that despite its claims to the contrary, the government at all levels has done very little to diversify its revenue.

________
…over the last 5 years, Nigerian government, at the national, state, and local level has failed to collect over 100 billion dollars in revenue…
_______

Given that the rich in Nigeria have become richer over the last decade, and that the current inflation caused by the collapse of the naira is disproportionately going to hurt those at the lower-end of society, redistributive revenue generating taxation policies are long overdue. The fact that policymakers and the finance ministry has not moved swiftly to do so already is borderline treason, given the dire fiscal predicament that they know Nigeria faces today. I wrote earlier about the need for state and local governments to utilize parking meters to generate revenue from motorists who park on public streets; (SEE: kurangaandassociates.wordpress.com/2015/01/29/nigeria-loses-over-10-billion-dollars-annually-in-parking-revenue/), in addition to these fees the federal and state governments should have already implemented taxation measures targeting the wealthy in Nigeria and built up savings to close the gap caused by potential shortfalls in oil prices like we see today. What is important is that redistributive taxes target the ultra rich and not the general public.

What are some tax policies that Nigeria should use to target the rich and diversify its revenue? This is a question that nobody running for political office in Nigeria should be allowed to ignore. The answer lies in dissecting and targeting the lifestyle of the ultra rich. Among the key lifestyle activities that the wealthy engage in throughout Nigeria, is the practice of building massive opulent homes. Many times elites compete to see who can build the biggest home on the block or in the town. In times like these, the federal and state governments have an obligation to the people to generate revenue from these elite practices to avert the kind of fiscal crisis Nigeria is facing. In New York City, one of the wealthiest cities in the world, any home that sells for over 1 million US Dollars is subject to a “Mansion Tax”. The same is true in many cities and in a number of countries throughout the world including in The City of London. New York State in 2014 reported tremendous revenue from taxing homes that sold to the upper 1% of their population; (SEE: http://nypost.com/2014/03/20/mansion-tax-produces-geyser-of-revenue-for-new-york/). In Nigeria today, there are a plethora of homes and condominiums that have been bought and built by the elite that would parallel the prices of high-end homes in London and New York. Homes valued over a certain threshold throughout Nigeria should be subject to the same tax measures that homeowners in the United States and the United Kingdom deal with. Nigerians would not be surprised to learn that many Nigerian elite are actually paying these taxes in those countries where they own second, third and sometimes 5th and 6th homes. Specifically in the Nigerian context, mansion taxes should apply to any Nigerian who; 1) Owns a home over a certain value that places them in the top 5%; 2) Owns multiple homes within Nigeria; and 3) Owns a home abroad as well as a home inside of Nigeria. Stiff penalties should be leveled on any among the elite who fail to declare their status or attempt to bury their ownership of multiple residences anywhere on the globe. Mansion taxes should be leveled at the time of purchase, and paid annually for current owners.

In addition to homes, the elite in Nigeria have developed an affinity for high-end foreign cars. Every known luxury car can be found in Nigeria. Luxury vehicle taxes should be leveled upon the owners of these luxury vehicles of all kinds. In addition, Nigerians who own a large collection of vehicles should also face similar luxury vehicle taxes. The only exemptions to the multiple vehicles should be given for those who purchase the Innoson Vehicle, that is a 100% Nigerian-owned automaker that manufactures indigenous cars in Nigeria. Those purchasing foreign vehicles, or those distributed by foreign subsidiaries, should pay luxury taxes annually for each additional car per household. In addition to cars, owners of yachts, leisure aquatic boats including jet skis and speed boats, owners of private aircraft (no matter where they are domiciled and registered), should be required to pay luxury taxes and fees for all those who seek to use these items as a mode of transport in Nigeria. No longer should the elite be allowed to cruise through Nigeria’s waters, streets, and skies, in their uber high-end toys, without paying into the system to support those among the general public forced to watch them and dream. Anyone owning, using, and/or operating these luxury items in the country without declaring, registering, and paying the luxury taxes associated with their ownership and/or authorized use within the country on an annual basis should face heavy fines and possible seizure of their illicit luxury items.

Going beyond luxury homes and modes of transport, the elite in Nigeria have developed an insatiable taste for luxury consumer goods, all of which should be taxed. Luxury goods like champagne, wine, tobacco, and other high-end imported brand-named foods, designer cloths, shoes, jewelry, furniture, satellite broadcast television, and foreign movies that elite often prefer over their local equivalent, should all be subject to luxury taxes. Nigerian elite throw huge celebrations for weddings, birthdays, and seasonal events, that are loaded with the consumption of luxury items that are beyond what the average Nigerian could afford with their wages in a year. To make matters worse, the elite are known to hire magazines and news papers to come and take pictures of them at these celebrations and to publish them in the press and online so that the rest of the public can see that they are that much better off than them. No longer should the general Nigerian public have long-faces when they see the extravagances of the ultra rich, many of whom are linked to past officials known to have been involved with exploitation and theft of public funds, because they will have something to smile about knowing that these elite will be paying luxury taxes on many of the excesses that they consume at their celebrations. Luxury taxes and fees should also be applied to luxury services like business class flights, especially those going outside of the country, and among elite that no longer even fly commercial airlines. In addition, households that employ more than 2 household helpers should also be required to pay household employer taxes and registration fees depending on how many employees their household retains. Failure to register and declare any of these should result in heavy fines that exceed the taxes by at least 7 times.

The final major elite consumption item is gambling and gaming. Increasingly Nigerian youth and elite engage in betting and gambling, primarily on football matches, but also in other areas. It is a common practice throughout the world to curb these activities and to generate public revenue from leveling substantial taxes on those who engage in them and the companies that sponsor it. This is an area for substantial revenue in Nigeria, that would target even those who would not be considered among the elite. Those in society who practice betting and gambling clearly demonstrate that they have disposable income so the state must cash in also. There is some general collection of revenue on this already but there is plenty of room to increase it.

The question remains how much money would Nigeria generate from a wave of progressive luxury taxes on the country’s upper-class? There are about 5 million people in Nigeria that these measures would particularly target, this includes the country’s elite and their ex-patriot counterparts living in Nigeria. A collection of luxury taxes should hit-up each member of the upper-class by an average of 2000 dollars a year at the minimum. This would still put taxation of the rich in Nigeria well below most of the world and nowhere near what you would find in London, New York, Paris, Los Angeles, Atlanta, and Toronto where many Nigerian elite also reside. Still this would give the country over 10 billion dollars in additional revenue to increase federal government savings and make-up for shortfalls due to oil price fluctuation. If you couple the projected revenue from these redistributive policies, and the amount of revenue that state and local governments could potentially generate from parking meter initiatives I discussed earlier, over the last 5 years, Nigerian government, at the national, state, and local level has failed to collect over 100 billion dollars in revenue. This by far exceeds the loss in revenue due to the collapse in the price of oil, and by all accounts, also exceeds the amount lost over the same time from even the wildest possible claims of corruption and mismanagement in the entire government. This just goes to show that the biggest problem in Nigeria today is not the collapse of oil prices as the administration claims, or even corruption as the opposition would have you believe, but rather it is the complete and total incompetence among policy-makers and administration officials at all levels, that have failed to diversify public revenue.

If you look at the election campaigns of both major parties, none of them have presented concrete and specific policies to diversify state revenue in any meaningful way, which is the single biggest problem the state faces today. The opposition is parading around pretending to be less disposed to corruption than the incumbent, and that eliminating corruption alone is a panacea for all Nigeria’s woes, while the ruling party is trying to convince the public that the current predicament is out of their control and that nobody can do anything better than them. The conduct of campaign events among the major parties looks like a circus orchestrated by playful groups of infantile characters clamouring for their chance to play with the microphone. All the while, mainstream Nigerian media continues to broadcasts and cover this nonsense and allow policy-makers and political candidates at all levels to run around throughout the entire campaign season without even delivering a legislative agenda with clear cut articulated policies to address the shortfall in government revenue. Neither the existing administration nor the leading opposition has provided a legislative agenda or campaign platform to address the issue. Mainstream Nigerian media have instead relegated themselves to whining about whether or not a candidate will attend their debate. Why they have not demanded that each party provide them with a legislative agenda so that they can publish and broadcast it to their readers and listeners is inconceivable. I am not aware of any candidate for the senate or the house of representatives that has been required by media to provide them with actual pieces of legislation they have drafted to address the core problem of government revenue should they be elected. Executive governors, finance ministers, and legislative leaders are all given a free media pass an allowed to speak around policy issues on programs and in interviews, give public statements, and publish open letters and criticisms without EVER articulating legislative policies they have developed to CHANGE the current budget shortfall.

The embarrassing juvenile conduct of the mainstream political parties in Nigeria, making a mockery of the political process by refusing to provide legislative agendas and definitive policy initiatives to address the core problem of diversifying state revenue demonstrates unequivocally that they are both unfit to govern. The refusal of mainstream Nigerian media to demand answers from policymakers and the political candidates that seek to replace them in an election year is a dereliction of their fiduciary responsibility to the public. No state in the federation run by either the ruling party or the opposition has managed to resolve the issue of diversifying state revenue despite having the time and the capacity to do so. The federal government, in the executive council and the legislature, is filled with personalities that are more preoccupied with being called “honourable” and drawing salaries and massive allowances from the federation accounts than they are with delivering honourable solutions to the nations problems. They attempt to give the public the impression that they are doing everything they can while in reality what they are doing is merely scratching the surface of what they could actually do given the time and resources at their disposal. Even with the collapse in oil prices, even with massive unchecked corruption and mismanagement, the real shortfall and deficiency, the real problem in Nigeria’s governance is political incompetence among policy-makers and executive administrators at all levels and the unholy alliance they have with mainstream Nigerian media to propagate this failed system bound to fall well short of the global standard of good-governance.

Moving forward, Nigeria cannot afford to continue to rely on oil to finance the state. There are a myriad of ways that states all over the world without oil pay their bills and finance their development, almost none of these methods have been implemented in Nigeria despite the vast potential for their implementation and use. Even though the private sector in Nigeria has developed and diversified itself, making Nigeria the largest economy in Africa, the state in Nigeria continues to lag far behind in its failure to develop an increase its sophistication to generate revenue and promote fiscal stability in-line with global standards. The obsession with political corruption among the general public at this stage is becoming a distraction from the staggering and mindboggling incompetence of even the most celebrated public officials. The fact that the minister of finance had the audacity to brag about increasing federal public revenue by just half a billion dollars in a year when she with sweeping economic powers had the ability to push for more than 20 times that through a diversified set of policies, shows how low standards truly are in Nigeria; (SEE: 1) https://www.youtube.com/watch?v=UeJLf9XwPec; 2) http://www.channelstv.com/2015/01/27/tax-remittance-nigeria-records-150bln-naira-revenue/). Its very easy to bring up corruption, and just as easy for finger-pointing and denials to dominate the political narrative, especially when mainstream media allows it. Yet when you start to focus on the real issues of policy, which is the gross incompetence among policy-makers at all levels, from all parties, it is not that easy for anyone to deny whether or not they implemented a policy that they should have. It is equally difficult for political candidates to deny whether or not they proposed an actual policy alternative. As crazy as it may seem, the Nigerian public now needs to focus more on political policy than on political corruption and demand their media outlets do the same.

Kuranga and Associates Limited is an investment management advisory firm and an asset manager with a principle practice area of Africa. To learn more about Kuranga and Associates go to www.kaglobal.net. © Copyright 2014 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

David O. Kuranga; Ph.D.
Managing Director
Kuranga & Associates Limited
Phone: 212.363.0936
david.kuranga@kaglobal.net
https://kurangaandassociates.wordpress.com
http://us.macmillan.com/thepowerofinterdependence/DavidOladipupoKuranga

Both Buhari & Jonathan Propose Deficient Economic Policies

3 Feb

David O. Kuranga, Ph.D. The author is the Managing Director and Principal of Kuranga and Associates, a full-service investment, political and economic risk consultancy, and asset management firm that specializes in Africa. He is also the author of The Power of Interdependence with Palgrave Macmillan Press.

The leading candidate of the APC opposition party, General Muhammadu Buhari, unveiled his economic policies for Nigeria on February 2nd, should he prevail in the upcoming March 28 presidential election. We already know that the economic agenda of the incumbent Jonathan-led administration continues to fail miserably in export diversification, and perhaps more importantly in promoting state revenue diversification. These failures, after being in power for 5 years, leaves Nigeria facing an unprecedented economic crisis with the heavily oil-dependent state struggling to cope with the sharpest decline in crude oil prices, falling to less than 50 dollars from its previous high of over 100 dollars 6 months ago. What we did not know definitively until February 2nd, and later on February 26th when he spoke at Chatham House, was how a Buhari-led APC opposition would differ substantially to rectify the current predicament. From what was presented at the statehouse in the Lagos Island Marina yesterday, there was no major policy shift from the Nigerian opposition leader. In fact they agree on everything, from the privatization of the power sector, on infrastructure, the need to increase manufacturing, and invest in mining and agriculture in Nigeria. The blue print presented by the opposition standard-bearer had little if any differences from the incumbent.

The primary difference that Buhari and the opposition are campaigning on, is his stance and “record” on corruption that continues to plague Nigeria. They assert that because they are “less corrupt” than the ruling party that they are better suited to deliver on the same promises that the incumbent has made. In this Buhari is known as the only major former military head of state that did not enrich himself while he was in office. He made sweeping reforms to rid the state of corruption while in power and had succeeded in improving the countries imbalance of trade. Buhari was overthrown by one of his deputies, Ibrahim Babangida, who is known as the most corrupt leader in Nigeria’s history. Just last month in January of 2015 Buhari proudly sat in Babangida’s residence in front of reporters and accepted his endorsement for the upcoming presidential election in February 14, 2015. To historians, academics and observes alike, Buhari’s record on corruption is mixed at best. While it is clear he did not enrich himself as many of his military colleagues, he overthrew a democratically elected government and replaced it with a military one. In two years he was overthrown by one of his fellow generals, who ruled for almost a decade in one of the most corrupt governments on the planet, who then annulled another election and handed power to another corrupt military regime. So even on corruption, where Buhari is viewed as strongest, several serious questions remain. If Buhari had not overthrown a democratic government in 1983, would Nigeria have experienced 20 years of oppressive and corrupt military dictatorships? Even further, since Buhari did not give up power willingly but rather was overthrown after just 2 years, would he have sought to enrich himself later-on during his tenure if he had continued to rule? Also given that Buhari is leading a united opposition party that has openly welcomed former members of the ruling party who defected, including serving governors and lawmakers, how much less corrupt is the opposition APC than the ruling PDP? Are we to assume that no corrupt members of the PDP defected to the APC given the mass defections that occurred? And if that were true was the PDP as corrupt as Buhari and the APC leaders assert? Or if not, is the opposition APC party as anti-corrupt as they purport to be? If so “what fellowship hath light with darkness?” If you watch the campaign trail, the closest governor to Buhari is former PDP strongman Rotimi Amaechi of Rivers State who defected to the opposition just a year ago but is now the Director General of his campaign, while the key APC opposition governors who have been members of the opposition all along, namely Adams Oshiomhole and Babatunde Fashola of Edo and Lagos States respectively are clearly outsiders in his “court”, particularly Oshiomhole who many believe should have been the VP nominee.

In the actual arena of policy, just like the incumbent, the opposition continues to ignore the primary importance of; 1) building diversified means of financing government beyond oil and, 2) diversifying exports by overhauling Nigeria’s financial services to facilitate higher levels of FDI from wider variety of capital investors in Nigeria. While it is nice to say we will invest more in mining, agriculture, and manufacturing etc. the questions remains, where is this investment capital going to come from? With oil prices declining and the central bank struggling to maintain the benchmark valuation it set for the naira, the Nigerian currency, it is not clear where Buhari and the opposition plan on getting capital to make these investments. Even if they resolve that problem, it will take a substantial amount of time to get these industries to the level that they will be making any visible impact on the Nigerian economy in terms of jobs and growth. This is particularly true for mining and some of the manufacturing proposals. The neglected financial services sector in contrast would take very little time to establish because the infrastructure for the industry already exists in Nigeria. In addition, with a robust financial service sector, which includes a larger pool of domestic asset managers bringing in diversified capital investment from all parts of the world, the opposition would have an answer to the initial question of where they plan to raise the capital to make investments in Nigerian industry, mining, and agriculture.

Moving Forward if the opposition hopes to distinguish itself from the ruling party they are going to have to do more than present a sketchy history and demonstrate some concrete policy differences. Especially if the APC prevails in the upcoming presidential election, Nigerians may be disappointed to learn that the outcome of an APC led federal government in Nigeria will yield few tangible differences given that the party and its flag bearer is yet to present any concrete policy objectives that differ substantially from the incumbent. Among the core issues that Nigeria faces, is inept policy makers working within a culture that rewards and praises bureaucratic inefficiency and incompetence from the top-down. Economic policy, and the bureaucratic agencies and officials charged with development are at the heart of the matter. Despite the hopes and promises, without concrete divergent policy objectives to correct this, it is highly unlikely that the election of a directionless opposition is going to do anything better.

Kuranga and Associates Limited is an investment management advisory firm and an asset manager with a principle practice area of Africa. To learn more about Kuranga and Associates go to www.kaglobal.net. © Copyright 2014 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

David O. Kuranga; Ph.D.
Managing Director
Kuranga & Associates Limited
Phone: 212.363.0936
david.kuranga@kaglobal.net
https://kurangaandassociates.wordpress.com
http://us.macmillan.com/thepowerofinterdependence/DavidOladipupoKuranga