Archive | January, 2016

Oil Price Route Golden Opportunity for Nigeria to Lead Globally

13 Jan

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.

Even before sanctions on Iran are lifted, global oil prices have fallen to 30 dollars, with indications that prices are far from reaching their lowest levels. OPEC has agreed to keep pace with production, with leading members requiring that non-OPEC countries agree to reduce production before the block can agree to change course. Shale producers in the US, and non-OPEC countries are all behaving like “free-riders”. They all want the benefits of OPEC stepping in to regulate prices so that they can increase revenues, yet they do not want to carry their share of the load. Fixing the oil-price problem is a task that OPEC cannot be expected to do alone, after all the block only contributes about 40% of the worlds total oil supply. The remaining 60% is contributed by producers in many other countries, including Russia, China, Mexico, Canada, Norway, Brazil, Indonesia, Oman, USA, and many others, particularly in Africa.

As the current President of OPEC, Nigeria has the responsibility to do something to try and remedy the stalemate between OPEC and non-OPEC nations. If Nigeria does nothing, history will judge our country, and our failed leadership at a critical time in the world. Bridging the gap, will not be easy, and may not even be possible. For a deal to work, officials from Russia, China, Mexico, Norway, Brazil, Indonesia, Oman, and many other smaller producers all have to agree in principal to limit their production over the next 6-12 months. In addition, private shale firms in USA & Canada, who are all being hurt and even shuttered as a result of the collapse, must also come to the table and agree to verifiable production limits. The first step in doing this will be to bring everyone to the negotiation table. It is the responsibility of President Buhari himself, who insisted on making himself oil minister, along with his deputy Kachikwu, to set up this grand meeting between OPEC members, and other like-minded non-OPEC oil producers.

Given the failure and inability of the organization to address the issue of global oil prices over the last year under Nigeria’s leadership, or the lack thereof, the very existence of the organization is now at risk. What the media and western decision-makers and commentators have all tried to do is to place the blame at the doorstep of Saudi Arabia and other gulf oil producers. Everyday there is some “analyst” placing the blame of the global oil route and the responsibility to fix it on OPEC and particularly its more prominent members. What this does is ignore the role that private sector producers in the US, as well as decision-makers in other oil producing nations should rightfully play in resolving the situation, as they too are part of the problem. Nigeria’s oil minister, Kachikwu, recently indicated that a meeting of OPEC members may occur soon, it is not clear if he as the president of OPEC has made any attempt whatsoever to bring non-OPEC producers, both private and public, to table to try and collectively reach some kind of tentative agreement for at least 6 months.

Nigeria cannot resolve the crisis alone, neither should it be expected to. Still this is a golden opportunity for Nigeria to lead the world in this time of crisis. Breaking the stalemate will do a lot to change the narrative on the role of Nigeria and Africa in global affairs. As the current leader of OPEC, Buhari and Kachikwu must realize that OPEC’s failure is Nigeria’s failure, and their lack of global leadership at this critical juncture is totally unacceptable. A global agreement on oil may not be possible, but certainly a simple meeting to discuss the possibility of a temporary agreement between OPEC and non-OPEC oil producers seems very attainable given the anxiety among all major stakeholders. It is the prerogative of Nigeria to make this grand meeting happen, quite possibly even on Nigerian soil.

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 2015 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Dr.Kuranga

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

Why the Predictions of Devaluation in Nigeria?

8 Jan

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.

It seems not a day goes by in Nigeria anymore where there is not some institution, either domestic or international, or a prominent individual calls for the Government of Muhammad Buhari and the CBN to devalue the naira in the face of dwindling oil revenue. Many investors and watchers are even predicting that a devaluation will inevitably occur likely in the second quarter of 2015. Their rational is that the government cannot afford to defend the naira, given that oil prices are below $40 a barrel. The tragic flaw in this thinking is that it fails to realize that while oil has been the source of the overwhelming majority of government revenue in Nigeria, it never had to be.

As the IMF Chief, Christine Lagarde, recently pointed out in Abuja, precisely what I have been saying for years is that Nigeria has one of the largest untapped tax bases on the planet! Comparatively speaking, other African countries require their citizens and residents to pay far higher VAT tax rates than what is currently required of Nigerians, 3-8 times what is required of Nigerians. In addition, with the fast growth of the telecommunications industry, tax loopholes are allowing a large amount of revenue to escape the national coffers to tax havens. National telecom firms and tower operators operating in Africa’s largest economy, Nigeria, enjoy one of the weakest tax requirements and a very lax tax regime with massive loopholes. Further in a nation where the number of billionaires and millionaires has shot up at an alarming rate, progressive taxation redistribution policies are not only imperative at this stage, they are long overdue.

The issue is not whether or not Nigeria has an immediate alternative to oil to fund the state, defend the Naira, and sustain development and growth, the issue is whether Nigeria’s political leadership has the wherewithal and moral decency to implement the policies that they have a fiduciary obligation to implement. It is actually quite shocking that Lagarde had to issue a call to the Nigerian legislature to raise tax rates. The issue of national financing solutions should have been the most important issue on the agenda for the legislature. Senators and representatives, if they were competent and responsible, should have already tabled numerous proposals from various members to progressively raise taxes, prevent corporate tax evasions and close loopholes for multinationals and others. Instead their debates have been on the composition of a cabinet, how many millions they want to waste on themselves and new cars, and other seemingly mundane issues to distract the public. Constitutionally the legislature did not have to wait on the president to submit a budget proposal, if they were competent and responsible, they could have developed their own. If the legislature had already put in motion plans to implement tax increases as is needed, Lagarde would have said nothing, or at best applauded their efforts. In this by global standards, Nigeria’s new legislature as it stands, is a colossal failure, both institutionally and individually.

The Executive through the Federal Executive Council, presented a budget light on details as to how it intends to generate the large sum of non-oil revenue that it projects. Minister of Planning and Budgeting, Udoma, has not been clear about what the review of taxation policy will focus on or what it will look like, he only hinted that it would focus more on those who can afford to pay according to Juliana Taiwo-Obalonye of Sun News. Still to date, the FEC and Udoma have not been clear and forthcoming as to how the State will generate so much money outside of oil revenue. Some commentators have called it Buharinomics and voodoo. Rather than setting forth a clear path for the country, the President and the FEC, have given a vague dimly lit blue-print that does not convince anyone that they will actually be able to deliver on their budget “projections” that contains some serious differences from previous Nigerian budgets yet they cannot explain in detail how they will do that. Specifically, how will the Nigerian government raise so much money outside of oil?

The only firm answer from the FEC has been from the Minister of Finance, Kemi Adeosun, who has indicated decisively that her role will be to plug holes in the revenue-generating agencies of government. Her plan involves ongoing audits of the revenue-generating agencies, and establishing a single account that all must pay into including greater oversight from her office. What is not clear to anyone is how much money the government is projecting to raise from this? In addition, the president has made fighting corruption and chasing looted funds his main anthem and primary focus. Similar to Adeosun, President Buhari, has never stated how much money the government has recovered, and has provided no realistic projections so that analysts can gauge the health of the governments finances in view of his anti-corruption drive.

As analysts continue to predict an inevitable devaluation of the naira, it is not because of a lack of solutions, but inherent failure on the part of the national legislature and federal government of Nigeria to convince anyone that they have what it takes to get the job done. The current market conditions in Nigeria and lack of investor confidence in the fiscal stability of the nation and capital flight, is a harsh indictment on the state of the nation’s leadership.

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 2015 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Dr.Kuranga

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

Is Taxing Nigeria’s Rich The Best Way to Fight Corruption?

7 Jan

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.

Since Nigeria’s oil revenue has declined by almost 2/3 since the collapse in the price of Brent Crude, focus has shifted on increasing taxes, stopping mismanagement and leakages, and chasing down current and past corrupt officials. While the latter two issues are of major concern, the first issue on increasing taxes, primarily on Nigeria’s elite, may be the best means to ensure that corruption and mismanagement in Nigeria is brought under control. It has been shown in numerous studies that “countries with the higher levels of corruption may have smaller volumes of government revenue and domestic tax revenue.” (Hwang, JOURNAL OF ECONOMIC DEVELOPMENT 161 Volume 27, Number 2, December 2002

The rationale behind this correlation is that when economic and social elite are involved in financing the state to a greater degree, they have a vested interest in what the state does with their money. In the case of Nigeria where at times over 70% of government revenue came from oil, economic elite had very little stake in the mismanagement of government. If Nigeria’s economic and social elites were made to pay a much larger portion for financing government including the excesses and extravagances of Nigeria’s political elite, perhaps they would become a bit more vigilant in combating corruption. Nigerian elites live in very close circles, they attend each others weddings and parties and witness first-hand when public officials are flying first-class, staying in high-end hotels, buying cars or building homes in their neighborhoods that they know political elites can ill-afford with their legitimate sources of money. It is our economic and social elites that have a first-hand front-row seat to corruption in Nigeria, not the EFCC.

Imagine a scenario where the elite in Nigeria every year were paying the bulk of the exorbitant legislative and executive allowances or were paying for the luxury car fleets, homes, and other illicit spoils of the political elite, do you think they would just sit there and smile and continue to fraternize and party with them and remain silent? Or perhaps would they begin to start exposing what we all know has been going on and start exposing the political elite both past and present for squandering the public resources, which would largely be coming from the pockets of Nigeria’s economic and social elite. If Nigeria really wants to reign-in corruption and mismanagement, they need to enlist the nation’s economic and social elite in the fight. The only way to do that is to make sure that they have a greater financial stake in the outcome, namely ensuring that a large portion of what political elites steal comes from their pocket. Accordingly, Taxing Nigeria’s Rich, is not only the among the best means to quickly diversify Nigeria’s revenue base and arrest the economic freefall the country is now in, it may also be the best means to win the corruption fight once and for all.

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 2015 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Dr.Kuranga

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