Archive for March, 2012

WE ARE PAYING MORE

A few years back we heard the argument that African countries pay three dollars for every one dollar borrowed from the Western nations. This is true not only for sovereign debts but even for individuals.

 
Think of housing for example, if I pay 1500000 naira (about 10000 dollars) pay annum (now this is for the so called privileged middle class) as rent, I have no value after one year of living in the house. My counterpart overseas can use the same amount to pay for his mortgage for a better house. If I want to be as smart as smart as my guy, I go for the same mortgage but at what price? 16 to 20%?, he gets his own at below 5%. The reality is that the interest for me at that high mortgage rate will discourage me! And mind you am assuming that you have a good job for the banks to look at you in the first place. What about the duration of the so called mortgage here, 15 years!, implication is that the yearly or monthly payment will be so high that when you look at the cash flows and compare the amount you use to service the loan to the actual amount that pays off the principle amount your conclusion will easily discourage you. So why is my guy over there able to get his mortgage at less than 5%? Because my fathers and grand fathers in government have stolen all the money, dumped them in their overseas bank accounts where it offers cheap source of funding for their mortgages!! As if that is not enough my present and past governments also thinks its wise to put our foreign reserves in overseas banks thereby increasing the ability for those governments to give their guys cheap mortgage and other subsidies like agriculture which we cry for in this part of the world. At the last count, I thought we were getting smarter when Soludo said Nigeria was going to give some local banks opportunity to manage our foreign reserves. I haven’t heard much about that lately even though I wonder whether if the local banks would have opted to retain the funds in-country and simply manage the money in their offshore accounts. Can somebody tell me why we cant take out destiny into our own hands, if we cant prosecute and repatriate our stolen wealth, we can at least repartriate our foreign reserves and let it be a source of cheap funds for our economy! Talking about interest free banking, Sanusi, this can be your source of funding!
 
Now let nobody tell me I don’t have economic background because even those that have, did not know the meltdown was coming or even they knew did not know what to do to stop it or how to recover when it happened, so we are all guessing here! Spain today is rescheduling there debths and heaven have not falling. They have far better infrastructure than us, yet we paid over 18 billion dollars! to exit world bank debth at a time I heard debt servicing cost us less than 300 billion naira yearly, today we have about 372 billion naira to service both internal and external debt in 2012 revised budget. I have heard argument that it would have been better if we had invested that amount in infrastructure that will generate jobs than pay back in one fell swoop! I tend to agree we them
 
Think of the security, access to low interest rate mortgage will give our government workers. If a civil servant knows he is investing by paying for mortgage for his housing he will be more disciplined (at least in theory) than if he knows that if his landlord kicks him out today he has nothing left. The mortgage he can cash out any day and can even make profit! We can then focus on other areas for reasons why corruption thrives in our society.
 
Automobiles is another area that pains me as we are left to use tokunbo’s that damage out environment and sap our pockets in the name of frequent and high cost maintenance. A guy over their gets a brand new car, again on “note”  at very low interest rates (they never pay cash for anything!!), uses it for four to five years or even ten years when the value is almost zero for the insurance companies, my guy here then imports the car to Naija. My brother buys this same old but nice looking car for say 1700000 naira (10000 dollars) and goes for thanksgiving service that God has blessed him with a “kpocha kpocha”. The guy the car was bought from overseas meanwhile uses the money for down-payment of his new replacement car. Give my guy in Naija two years and he is back for another thanksgiving, this time for God saving his life from a gastly motor accident. If its not his tire that got burst, then its the other oncoming tokenbo! Meanwhile he may have spent say a quarter of what he bought the car on maintenance and lost thousands of man hours in a mechanic workshop. The guy overseas will not have any need to visit mechanic for the 4 to ten years he will use the car except for routine servicing. Now who is paying more!  We have not even talked of the amount spent on fuel the highly inefficient tokenbo!
 
Even though the amount involved in purchasing a car is modest compared to that of house, our mediocre culture has so much impoverished us that we think so small. We rather go for the cheap tokenbo than adding just a little more to buy a new car. That is assuming we do not have access to loans. Added to that, is the culture of our driving rather large cars to announce our arrival than small ones that are functional. By the way, I just bought one tokenbo SUV as I write, not out of ignorance but out of fear of being seen as rich if I have to drive in a brand new car in an environment that is struggling and thus becoming a target for kidnapers! Agreed there are cultural and societal peculiarities that must be respected but the bottom line is that some kind of thought on economics should play a part in our choices.
 
Just like automobiles, all electronics we use come at very high premium compared to other parts of the developed worlds. Why do I have to pay three times for a flat TV than it is sold in the USA even when this product is not manufactured in the USA just as it is not manufactured in Nigeria. Refrigerators, household items, etc all cost three or more than their costs abroad. Is it the shylock business man, or the heavy duty the government imposes without any alternatives to these products that is causing this disparity in price between US and Nigeria, after all Nigeria is close to Asia where these things are manufactured (even if under US patents) than US. The 100% duty on new cars has helped to hick the cost of new cars when the alternative like Peugeot is not competitive. So like tokunbo cars, Nigeria becomes a dumping ground for cheap electronic and other consumer goods
 
reverse the trend, I will begin with the monetary policy handlers. Our foreign reserves have to be repatriated back to the country. Let the right framework be put in place to ensure we manage the funds properly. Sanusi is already doing well in this direction. The overseas countries where we domiciled these funds have shown they are not better in their handling of the global meltdown. These funds will drive this economy and we will not need any foreign investor to invest in our stock markets before they can pick up. With these funds here, the foreign investor will follow the funds down here like ants follow sugar! Today we talk of Nigerian content fund to enable indigenous companies execute the highly capitalized investment in the oil industry. How much is in this fund? I don’t have the figures but am sure it may not be enough to drill one deep offshore well that will cost over 100 million dollars.
 
We have the capacity and people to drive these mega box businesses, be it oil and gas, agriculture, construction. Thank God for the Dangote’s so we can’t say we don’t have the entrepreneurs that can drive big business. Another of such gurus needs to be encouraged and if possible patronized to drive mega construction to compete and learn from Julius Berger, and another to go into petroleum refining. Even the numerous refining families in Bayelsa can be encouraged to perfect their home grown refining technology; all the government needs to do is to regulate their source of crude and spec of the production, and collect tax. After all there was no reported fuel scarcity in Biafra.
 
As we build up to adequate power supply for the country, other enabling business climate needs to be in place. Tax holidays may be necessary. Even if the government does not gain immediately from tax, the fact that its people are employed will be a necessary incentive. The federal might needs to be channeled towards projects that have good potentials, irrespective of who originated such a project. Tinapa must be encouraged to work, the trade free zone can attract manufacturers to reduce costs of otherwise imported goods. Calabar and other ports must be upgraded and patronized to attract activities to drive the coastal areas instead of concentrating everything in Lagos.
 
Finally our orientation as a people must also change, so that we can think big, be it in our conceiving developmental projects or in personal finance. The era of a sitting governor or president only thinking of projects that can be completed in his four year term should be over. Mega, sustainable projects take time, resources and courage from great big-thinking men! I dear Nigeria to arise from mediocrity, think and dream big like other nations!
 
Peter Obidike wrote from p_obidike@yahoo.com
 
18TH March 2012
 
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