This is a keynote speech at the Nigerian Pension Industry Strategy
Implementation roadmap retreat by Babatunde Fashola on Jan 21 2016. Read
below...
Ladies and Gentlemen, we are gathered at a historic time to discuss an important matter....
Some may see a Pension Conference, but I see more.
I see a future for Africa, led by Nigeria, using the resources of the people to build a future that includes the people.
It is not a vision or an idea. It has gone beyond
that. It is a journey, one that started a while ago when the Pension
Reform Act was signed into Law.
That journey started with the coming together of some
Nigerian minds. Minds like that of President Olusegun Obasanjo and Mr
Fola Adeola. It has been nurtured by the dedicated hands of men and
women who have served in the pension commission who are represented by
the current Director- General Mrs Chinelo Amazu- Anohu. It has reached a
major milestone from where it must reinvigorate itself .
The tools for that reinvigoration have been provided
by our legislators in the Amendment they passed into in 2014. The
success of this phase of the journey now rests with you and I. And this
is why we gather.
In the letter of the Pension Commission inviting me to be a Keynote Speaker at this event, no topic was assigned.
However, some paragraphs of the letter which I have
excerpted provide some directions as to the thinking of the organizers
and I will share them with you:
a “Two of the most strategic themes, positive that returns (on investment) and visible (measurable) impact on the economy”
b. “creating solutions to the binding
constraints that Nigeria faces in developing “bankable projects” in
infrastructure and real estate that pension funds can invest in…”
c. “While the pool of Pension Funds
are a veritable source of capital, lack of suitable investable vehicles
with low risk profiles and sufficient comfort continues to hamper the
drive to make visible economic impact”
It seems to me that the key words such as “positive
real returns”, “visible impact on the economy”, “bankable products…that
pension funds can invest in”, “low risk profile and sufficient comfort”
makes it easy to create my own topic “Overcoming the Challenges and
Managing the Risks and Constraints that Inhibit the Investment of
Private Capital and Funds in Nigeria’s Infrastructure Landscape in Order
to Make a Visible Economic Impact”.
In seeking to address this topic, which I hope
accords with the objective of the organizers, I will attempt to be
empirical by a case study discussion where I will review some of the
public infrastructure that have been funded by private capital, and I
will do some comparisons of what the Pension Funds are achieving in
other economies.
In this way, I hope to highlight the differences
between us and those economies, and in that way, make my recommendations
about what we should be doing.
The History of Pension Funds in Nigeria
It is impossible in this kind of forum to
exhaustively deal with the issue of Pension Funds and its management in
the Nigerian public service.
What is appropriate is to highlight the largely
unsuccessful initiatives that have been characterized by such brand
names as the National Provident Fund (NPF) and the National Social
Insurance Trust Fund (NSITF).
Those brands represent the era when pension was only the responsibility of the employer,
What simply happened was that from a failure of
governance, coupled with lack of funds as a result of planning
deficiency, and sometimes incompetence, pensioners faced a life of
uncertainty after a lifetime of service and at a time when they had
become frail, unable to work or earn income and often then left
disappointed by a system that had taken all they had to give.
It is sad a story that is written on so many faces
characterized by many living and dead people whose lives tell the story
of anguish.
It is a chapter of Nigeria’s story that is perhaps
best forgotten, but regrettably they cannot yet be consigned to history
because there are still debts to be paid, there are still beneficiaries
who are owed, there are still Nigerians, who gave a lot, almost
everything under a defined benefit scheme that is yet to give them
benefit.
The current pension regime, whose managers are the
organizers of this event happily have a better story to tell. It is a
story of mutual contribution, where the employee and the employer share
the responsibility of planning for the tomorrow.
It is a story different from the past, where the funds are safe and have exceeded N5 Trillion.
It is a story of better management.
It is the starting point for this discussion because there is a hard lesson here.
If people put their money into what they believe in, it is likely to serve them better.
The old scheme where there was no contribution by the
employee perhaps reduced their role as stakeholders but does not
justify the mismanagement.
But the real story is about contribution, paying your
share; and it takes me to the next point which is diversification and
the relevance of diversification to our subject.
Diversification
For over 3 (Three) decades we have mouthed the need
to diversify our economy in order to open up more sectors for productive
activities, income, economic growth and jobs.
But we failed to follow through because of oil
resources. It was quick and bountiful income even though there were boom
and burst cycles.
Every time the cycle burst, we scampered, and
promised to diversify, we take tentative steps, we feel pain. We do not
endure, and it is easy to escape because not too far on the horizon is a
boom in oil prices and we go back to an old life.
Remember 1970s up to 1976; remember the early 1980s
and the burst. Remember the late eighties and Gulf War boom, remember
the 1990s and the drop, remember the period of 2009-2014 when oil sold
for over $100 per barrel for almost 5 years.
What did we do? We went on a spending spree. Politicians promised everything free.
Everyone got a wage increase, sometimes up to 80% (minimum wage from N7,500 – N10,000 raised to N18,000.00). Did our income as a Nation increased by 80%?
As we sought after free health, free education, free
fuel, free housing and free everything, we refused to confront the
reality that life is not free.
It was difficult to get private capital into critical
sectors of our economy like infrastructure. Private capital and fund
managers were not going to invest funds entrusted to them in
infrastructure if we wanted to use them for free.
As a people, we were willing to pay for these
services outside our country but demanded that they be provided for free
in our country.
The new pension fund has shown what can happen if people resolve to contribute and pay their way.
Health insurance is another area that can open up
access to top class health service for even the poor , if people are
ready to contribute and save for their well being.
Insurance will give them a choice and access to the best medical service when they need it.
It will give them a second highway away from public
health service, which even with its best intentions cannot provide every
service free (examples).
But today’s reality is that we are in another cycle
of burst. Oil prices have crashed from over $100 per barrel and is now
hovering around $30 per barrel and there is a real chance that it will
fall lower.
Put very simply, our main source of revenue has taken a big blow. This household has lost its bread winner.
However, it is not without options. It has assets, it
can raise money, it has savings such as the private money belonging to
pensioners, but it cannot be used like oil money.
Whatever is used must return.
This calls for a new attitude. There is no free money.
Ladies and gentlemen, I have news for you.
After 3 (three) decades of prevaricating about
diversification, diversification has walked into the front door of the
Nigerian household.
We must either embrace it, with a new attitude, or
idle in agony and anguish until when hopefully the price of oil will
rise again, as it will surely do.
The pension funds, which are under the management of
pension funds administrators will not go into roads, rail, housing,
hospitals or universities unless we change our attitude.
Attitude Change
As I said earlier, I intend to be empirical. So
instead of prescribing what to do, I will simply share the experiences
we are all familiar with and leave us with the options first to make
rational choices, and also to be agents for change in the areas where we
can influence others.
In the course of my public service, I have been
privileged to be involved in getting private capital to operate in areas
that were once the sole preserve of government and I will share the
experiences and the results.
a. Lekki-Epe Expressway
This is a 60km road in the eastern axis of Lagos State that was built in the 1970s and has scarcely seen any maintenance.
Potholes had taken over its surface, the population
it was serving was growing daily and neither Lagos State Government had
the funds to rebuild it and the Federal Government at the time was not
interested even though oil income was increasing.
Accidents were claiming lives regularly and nothing
seemed to offer a solution until the Lagos State Government in 2005
signed a concession with a private group of financiers.
They were very skeptical of many things not the least our political environment and behaviour.
We had previously nationalized assets of investors in the oil and gas sector and other sectors before.
Investors don’t like that and they don’t forget.
But their sense of entrepreneurship if nothing else,
keeps them from staying away. In spite of risks they sometimes come back
when they think the waters have calmed.
But they do so with conditions, which they hoped will mitigate risks, especially political risks.
They are used to and trained to deal with business
risks, but often unprepared to deal with, and frequently unable to deal
with politically induced risks.
In the Lekki-Expressway, after doing their traffic
studies, satisfying themselves that the business was “bankable” (which
is what the organizers of this event are looking for) they asked the
Lagos State Government to pass a law; in effect to tie the hands of the
next government that the concession will not be cancelled.
In other economies, a contract, which Lagos State
Government gave them, would have been enough; however, as I said,
investors never forget, so they asked for a law, which the State House
of Assembly passed.
But when we thought that will suffice, they then
asked for a “Federal Support Agreement”, which was akin to a sovereign
guarantee.
Of course Lagos and the Federal Government at the
time had different political colours and a Federal Support Agreement was
delayed by politics for 3 years.
During that time, prices changed, exchange rates
changed, many economic indices changed leading to cost impact, but
eventually one was signed, during the tenure of President YarAdua.
This meant that with the Federal Support Agreement, Nigeria’s Sovereign credit rating had entered the equation.
Regrettably, when the road was finally built, and
tolls were to be charged to repay the financiers, all sorts of informed
and misinformed players took centre stage.
There was no resistance during the painful period of construction when children had to wake up at 4a.m to get to school at 8a.m.
But as soon as the road was motorable and ready for use and Tolling ,
some sympathizers of the Federal Government of the day, on a political
front mobilized resistance to the payment of tolls.
They promised that if they were elected, they will cancel the toll.
That is not good news to investors.
I got all sort of letters from around the world.
Investors sent representatives from around the world to meet with us,
asking what was happening.
All lies were told against our officials after the road was built.
But we were undeterred. We bore the lies. We managed
the orchestrated protests. Some artistes were mobilized to pour red
paint on their faces and posted these on the social media as evidence to
incense people falsely that we had used violence to stop their
protests.
One newspaper falsely and recklessly carried a headline that our government had killed a person protesting illegal tolls.
That was the first and only time I used the coercive power of the State.
We deployed Policemen to the toll plazas. They were
instructed to allow protests which was legitimate, but they must also
protect those who were not interested in protesting and wanted to pay
tolls, because those who were opposed to paying had no right to obstruct
those who wanted to pay.
We begged, pleaded and held meetings for understanding.
We explained that those of us who enunciated the
policy were going to be affected by it as well. I drove through the toll
and paid, to show this.
In all of this, my biggest concern was not the road ,
it was Nigeria’s credit rating and the need to ensure that the project
did not fail.
What was at risk was now bigger than the road and the
Lagos State Government. It was a national reputation in the
international business climate.
I am happy to say that we preserved our country’s business integrity against all odds and I will do it again.
For me, the lesson of this story is that we must not
play politics with our economic survival. Investors want continuity of
policies, even if Government changes.
Our politics must therefore mature to the level where
we must refrain from campaigns that threaten to cancel contracts. We
will be poorer for it.
Even when we perceive that the government of the day has poorly negotiated a contract, threats of cancellation do not help.
What we may at the worst seek to do is to re-negotiate after elections are over where it is possible to do so.
If we compare the quality of service on the Lekki-Epe
Expressway where toll is paid to the Lagos-Ibadan Expressway where toll
has been removed, the choice is ours to make.
Is it cheaper to drive on a road free of toll, and spend 5 hours for a 1 (one) hour journey? If you calculate the fuel burnt in 5 hours of standstill traffic and the stress, you will see that the toll free is not free.
The Security Trust Fund
Another example of private capital in a public area reserved for government was in the area of security.
This is the primary responsibility of Government and
it is not an area of return in CASH for private business. But still
there were returns and I will demonstrate it.
Before we set up the Trust Fund in Lagos, there was a
State Police Command of about 103 (One Hundred and Three) Divisions
that were poorly resourced. No cars, no fuel, no uniforms etc.
Banks were robbed at least 3 (three) times a week
without capacity for response either by the Command or by the Rapid
Response Squad, which was the special unit set up to respond to violent
crimes.
They often get to crime scenes after the crime had been completed and the criminals had left.
I found out that this was deliberate partly and unavoidable partly.
It was deliberate to the extent that in a 2,000 strong squad to protect 18 million people at the time, they had only 37 rifles.
It was unavoidable partly because they barely had a
dozen vehicles in poor condition and there was no clear and predictable
strategy to get fuel.
Businesses closed at 7p.m and there was barely a night economy. So people worked only during the day, if they could avoid getting robbed.
The injection of private capital to support the
larger portion of funding provided by Government, the constitution of
the Board of Trustees, dominated by the representatives of the donors,
with a minority by Government, led to the procurement of 10 Armored
Personnel Carriers, 5 pairs of uniforms for over 2,000 officers, bullet
proof vests, 2,000 rifles, 2 million rounds of ammunitions, 200 patrol
vehicles at start, a regime of 25 litres of fuel per day.
The results were astonishing. Crime reduced by over
80%, no bank robbery for 2 years, no successful bank robbery until 2015
(7 years after).
A bustling night economy of 24 hours petrol stations,
drug stores, night clubs , hotels, supermarkets, shopping malls and
hospitality facilities unfolded and provided jobs for thousands.
This was the real return for the business community.
It might interest you to learn that private capital
has found a safe haven in the American prison service and in some states
the prison service is the 5th largest employer of labour topping malls and supermarkets which come 7th
in a survey of 20 highest employers. So if private capital is looking
for where to put money apart from roads, hospitals and bridges in
Nigeria, the prison system that is overcrowded, badly managed, and not
reformative is one area I will recommend. Clothing, feeding, drugs, and
pharmaceuticals are some of the spin-offs.
Education
Our “Adopt a School Initiative” where we opened a
structured platform for private individuals, and corporations to enter
into schools, which were hitherto the investment preserve of Government
and religious missions (Christians and Muslims) is another area of our
successful use of private capital coupled with government funding like
the World Bank supported Eko Project.
The “Adopt a School Initiative” was so flexible that
it allowed individuals and corporations to intervene according to their
resources in a classroom or an entire school.
Nothing was too small. You could give cash or
material or you could rebuild, refurbish or donate a school facility by
yourself, once we reached an agreement with you.
Again the results were spectacular. From a result
based performance where only 7% of students who sat for placement
examination to universities and other tertiary institutions secured
credits in 5 (five) subjects, numbers rose to 11%, 18%, 39%, 42% and 47%
between 2009-2013.
The Lagos-Ibadan Expressway
The Lagos-Ibadan Expressway is a story of what investors don’t like.
The FGN granted a concession to a private company (Company A) and later withdrew and cancelled it.
The FGN then entered into a construction and financing agreement with another company (Company B).
Company A went to court and got an order to cancel the financing agreement made with Company B.
As things stand, work has been stopped on the construction of the road.
The construction companies cannot get financing
because of the court order, so they have laid off about 2,000 Workers,
in an economy that has so much to do and needs to create work.
These 2 (two) companies are Nigerian companies
investing in Nigeria, which is a positive sign because the local
investors are the most important to any economy.
Regrettably, while not going into the merits and
demerits of the FGN’s cancellation of Company A’s “concession”, it sends
a not welcoming message to foreign investors if the decision was
without basis or influenced by politics, which I cannot comment upon.
If that was the case, as a foreign investor I will be
asking myself the kind of treatment that awaits me as a foreigner if
the Government does that to a citizen.
But that is only one half of the story.
The other half is judicial intervention in commercial cases.
Investors know that there will be disputes. They are
used to it and that is why they insert Arbitration Clauses because they
do not want disputes to drag too long in courts.
As far as the practice of law goes, my advise will be for judges called upon to decide commercial disputes to:
a. Act in a commercial and expeditious manner;
b. Refrain
from granting injunctive orders that will stop the business. A
worrisome number of power projects are caught up in protracted court
cases while the nation waits for electricity to drive the economy;
c. Focus on resolving the dispute without detriment to the business, and award damages instead to the injured party;
d. Decline
jurisdiction whenever there is an arbitration clause and refuse the
invitation which is frequently made, to set aside arbitral awards unless
there is a PATENT case for doing so;
e. Nigerian
judges must be encouraged to attend annual conferences of the
International Bar Association whenever possible, because they offer very
rich sessions in PPPs.
f. We
create a lot of arbitration businesses and opportunities, but we do not
take the benefit of it because we have developed anti-business
reputation for not respecting arbitral decisions;
g. Nigerian
universities, the Nigerian Law School and the National Judicial
Institute must compulsorily teach the law and practice of Public Private
Partnerships (PPPs) which is an emerging global area of practice.
Having completed my empirical effort at what has
worked and what has not worked, I will review what some pension funds
are delivering across the world.
Pension Funds in Africa
Perhaps the appropriate starting point will be to
acknowledge that Pension Reforms are just beginning to gain foothold
across most of Africa in jurisdictions like Nigeria, Ghana, Botswana,
Kenya and Uganda to mention a few.
But perhaps the biggest and most advanced of the
Pension Funds, especially in sub-saharan Africa is the South African
Pension Fund.
But while the sizes of these funds are happily
growing, and the number of contributors is increasing, the impact in the
quality of life on the continent is not yet anywhere near minimum
globally acceptable standards.
The reason is not farfetched once we take a look at where the funds are being invested.
The funds are largely invested in equities and bonds, and in the case of Nigeria, so much of it is held in Government bonds.
It is tempting therefore to argue that although the
pension funds contain contributions of the working class they do not as
yet penetrate enough into giving value to the lives of the contributors.
Across all of Africa, there is a visible
infrastructure deficit. No country to country rail service across most
parts, the highways that connect most of the countries such as in the
ECOWAS region are in very poor shape and these are roads that can easily
be built, and tolled to earn income to secure the return of pension
funds invested in building them.
Air travel is no better. Airports are not of the quality of design and construction or efficiency that are obvious in Europe.
These are places where pension funds can be impactful.
An online publication of “Institutional Investors”
estimated that Sub-Saharan Africa’s ten largest pension fund markets had
approximately $310 billion in assets recently.
But while these funds are not serving the “REAL
SECTOR” of roads, bridges, hospitals, rails, airports, fee paying
universities, there is a palpably visible poverty in most of these
countries, some of who gathered to seek funding support in South Africa
recently at the instance of the Chinese Government who offered funding
support (loans) of $60 billion for all of Africa, when 10 (ten) pension
funds had $310 Billion to invest.
Many of these countries are scurrying after
multilateral agencies looking either for aid or loans, while sitting
literally on a pot of money.
If Africa is poor today it is not because of a lack
of resources; rather it is likely a poverty of ideas or the abundance of
risk elevating attitudes, some of which I have alluded to, such as
judicial and political, and these must change, as I will contend in my
conclusions.
It must be mentioned of course that the attitudes
that once mired pension funds management in scandals and lack of
transparency, had led to very stringent legislative interventions that
limited the scope of activities that pension funds could participate in.
For example, until recently, the Nigerian Pension
Fund Law limited the contributor from using part of his pension to
secure a mortgage.
How, one may ask is a person supposed to finance or part finance ownership of a home if he cannot use his own savings.
Happily the Amendment Act of 2014, has rectified this
by the provision of Section 89 (2) of the Act which provision provides
that:
“Notwithstanding the provision of sub-section (1)
(c) of this section, a Pension Fund Administrator may, subject to
guidelines issued by the Commission, apply a percentage of the pension
assets in the retirement savings account towards payment of equity
contribution for payment of residential mortgage by a holder of
Retirement Savings Account”.
In contrast to the mismanagement that used to be the
story of our own pension funds, the most prolific of the pension funds
in Africa, which is the South African Public Investment Corporation
(PIC) has over $150 Billion assets under management.
In Nigeria alone, they have $289 million in Dangote
Cement , $98million approved but yet to be drawn for Notore Fertilizer,
$230million in MTN Nigeria, $270million in Erin Energy (formerly CAMAC)
and $150million in Mainstream Energy Solutions (in the power sector of
Nigeria).
By contrast, the question to ask is what is the ‘home
based’ pension fund doing? If as I have shown, the “visiting” pension
fund from South Africa has a total of $897million in our economy.
The answer is obvious, that is why we are here, that is why my host in their invitation spoke of “…suitable investible vehicles with low risk profiles and sufficient comfort…” as the reason that “…continues to hamper the drive to make visible economic impact” in the letter to me.
Ladies and gentlemen, I have news for you. Those investible vehicles exist.
They are in roads that can be tolled, like housing, the 4th
Mainland Bridge, the Coastal Road linking several coastal states from
Lagos to Bayelsa ; the new seaport in Lekki and Badagry, the refinery by
Dangote, Ajaokuta Steel, a petrochemical plant in the Niger Delta; the
broken textile mills in the North and South of Nigeria that require new
equipments and disciplined fiscal, technical and organizational
management; prison in each of the 6 (six) geopolitical zones of Nigeria
that can help strengthen our justice system and decongest the colonial
prisons we have kept as relics of our own sense of justice; they are in
hostels for students in Nigerian universities, embedded power plants in
the universities, most of which have teaching hospitals and provide an
opportunity to power education and healthcare and the list is endless.
It is as long as we can imagine. The time for it is
now. This is the biggest opportunity to act towards diversification
rather than sloganize about it.
This is the time to show that our Nation and our
National economy is bigger than the challenges posed by the dwindling
oil prices. This is the time to diversify and change the face of our
economy once and for all.
But the risks that stand in the way are caused by us and they must be changed by us.
As I have pointed out, the list of assets to invest in is almost limitless.
Let me share with you some of the preliminary data
coming out of the preparatory work we have commissioned on Housing
Economies and impact.
One block of 12 (Twelve) flats will require about 93 workers multiplied by 40 Blocks amounting to 3,720.
Each block will require an estimated number of the following materials:
225 mm block 13,395
150 mm block 17, 430
100 mm block 450
Binding Wire 33 Rolls
Nails 50 Bags
This does not include Roof timbers, sharp sand, cement, granite, paint, windows, Tiles, and other finishes.
This is where the real economic impact that local Pension Funds seek lies.
This is where they must go in funding housing construction to address supply.
We are working not only on the design of the Housing,
but also on standards of doors , windows and other fittings to unify
sizes and provide incentive for mass production.
We are also working on the quantities of materials so that all producers, suppliers, financiers will know to put their money.
All of these will be completed before the end of Quarter One 2016 and make public.
Our ministry is determined to use our mandate to
diversify the Nigerian economy and create opportunities for inclusion
for those who want to work.
“The economic impact” that the organizers of this
event seek to achieve with pension funds will be phenomenal not only in
growth per GDP,but in inclusion by jobs for construction and
maintenance.
Foreign pension funds have taken the leap of faith
with mouth watering rewards, in spite of our attitudes. They have taken
the risks and earned the rewards. It seems to me that if we wait for
rewards to be assured without confronting the risks which we ourselves
create it puts us in a position that I can only describe this way: “should we sell Nigeria or own Nigeria?”
In the few instances where we have embraced the risk, we have not only managed them, we have returned with rewards.
Imagine if we did not allow private capital into the
newspaper business by licensing private newspapers, banks, telcos, radio
and TV stations?
Imagine life without Vanguard, ThisDay, The Nation,
Champion, and others and the people they now employ. Where are the once
state owned newspapers today?
Imagine the competition and choice that banks like
GT, Access, Skye, Zenith and others brought to the industry; and the
people they employ along with technology they have embraced such as ATMS
and others. Would we still be queuing with tally numbers?
Imagine the breathtaking work that brands like
Intercellular, Multi-Links, Glo, Econet, MTN brought to our
communications? Would we still be waiting for NITEL to provide ring or
dial tone, or be carrying files with hundreds of pages of telephone
bills to reconcile payments?
Imagine life without radio stations like Cool FM,
Silverbird, TVC, Wazobia and several dozens across the Nation, the
people they employ and the choice of information that they give?
Compared to only NTA that used to close at midnight.
It was private capital, and competition that forced these changes and created expanded opportunities for jobs.
Ladies and gentlemen, my comparisons are done.
It now remains only for me to conclude by making
recommendations which I concede may not be exhaustive, but which I
believe will begin our journey of change that will reduce the risk and
increase the appetite of our local pension fund administrators to get
their feet wet and test the waters in the place we call home.
I have identified 5 (five) areas about which I will
make recommendations namely: (1) politics, (2) Governmental action, (3)
socio-cultural, (4) Legal, and (5) judicial.
While each of these areas is itself capable of being
the subject of a keynote speech, I will attempt to be brief and succinct
in making only highlights of the topical issues.
1. Politics
Very often, concessions, PPPs and private ownership
of public assets are complex, sometimes misunderstood transactions that
some people view with suspicion.
Some of the perceptions that influence these
complexities, misunderstanding and suspicion arise from the fact that
people sometimes begin to question why they should begin to pay for
services that government used to provide for free or at a subsidy.
For example, today, the cost of self generation of
power by residents, using their own generators, buying diesel or petrol,
and sometimes adding inverters to augment, is estimated between N48 to N70 Kw/h.
There are already at least 7 (seven) cases in
different Federal High Courts in Nigeria. 3 (three) are in Lagos, 1
(one) is in Abuja, 1 in (Umuahia) , 1 (one) in Owerri and 1 (one) in
Awka.
The curious thing is that even manufacturers have
taken up some of these cases as plaintiffs, as if they themselves have
maintained the same price of their finished products.
The truth is that Tariff is about price and if the
raw materials like Gas, power plants , spare parts, Labour etc have
gone up the price of the finished product cannot be the same.
If the price of the product is not right there is no incentive to produce more of it.
This can only result in scarcity and high prices . It is simple economics.
Without the right tariff there will be no power because it is now in the control of entrepreneurs.
It is left to us to make the rational choice of
paying the right tariff which is cheaper than generating ourselves at
between N48 Kw/h to N70 Kw/h.
In similar vein,people pay averagely N7,000.00 (Seven Thousand Naira) per tanker of 11,000 litre of water, approximating to N0.63K
per litre of water, which is not treated, but they will question a
decision to produce water at a commercial rate of about N0.35K per litre of water and insist that it must not sell for more than N0.15K per litre, in spite of the fact that the water is at least treated with chlorine which sells at N600.00 (Six Hundred Naira) per kg .
This state of affairs has been the fertile theatre of
deception for some unprepared and fly by-night politicians who mount
the soap box and threaten to cancel existing concessions once voted into
power.
What they do not understand is that they are sending out messages that no investor wants to hear.
They are raising risk to private capital on a
political front which investors seldom understand. They understand
financial and return on investment risk but are seldom equipped to deal
with political risk.
Even outside the political class, those who ought to know display shocking ignorance.
In response to the recommendation to raise tariffs to
competitive market rates, the Punch Newspaper in its editorial of
December 22, 2015 Edition said:
“…Fashola…should not hesitate to explore the
option of revoking existing contracts to pave the way for foreign
companies with the relevant expertise and financial capacity to deliver
the good.”
The question I ask is this, if we needlessly cancel
concessions granted to our own people, what incentive and assurance do
we give to “outsiders” to invest if the investment of our own people is
not secure in their land?
If you consistently horsewhip your own children in your home, why should I let my own children visit your home?
2. Governmental Action
Closely related to political risk, but slightly different from it is Governmental action.
Whereas the former occurs during the campaigns and
the quest for political power, the latter is often the follow up to the
acquisition of political power.
Newly formed governments begin a review of all
contracts signed by their predecessors, cancel or frustrate them even
when they are performing.
They do so under one guise or the other. The previous
government has done something wrong, they did not adequately protect
the interest of the people and so on.
What they do inadvertently, is to create a climate
that diminishes the sanctity of contracts, negatively affecting the ease
of doing business.
It is a practice that is particularly prevalent on
the African continent and I argue that in some part contributes to our
continental deficiency of infrastructure.
I am not saying that government must not terminate
non-performing contracts. Indeed these are rights that are standardly
provided in all well drawn contracts.
What I am saying is that contracts cannot be
terminated or frustrated on trumped up reasons simply because a new
government does not like the affiliation of the holder of the contract.
It weakens the economy, it frustrates enterprise and
leads to poverty and unemployment through job losses, loans taken from
banks are endangered and the knock on effect is more than we often can
see on the horizon, because the bad word spreads around the global
investment community very quickly like wildfire.
Yes it may be the case sometimes, that the past
government did not act in good faith, or even compromised or was even
negligent. The answer is not cancellation, if the contract is
performing. The answer is renegotiation[OF1] .
You can invite the holder of the contract, confront
him with evidence of compromise, bad faith or recklessness, and this is
easy to get if there is diligence, and you propose new terms.
This I think will enhance the reputation of the state
or country or continent for honouring contracts and it is music to the
ears of investors. Even then , I say, it must be sparingly resorted to,
once the contract has been signed and is performing.
This is the business friendly route. It is one thing
to mouth slogans of being business ready and business friendly. It is
quite another thing to practice it.
3. Socio-Cultural
There are many variants and manifestations of this
but I will cite only one example which is our cultural outlook to land,
especially land owing families and government.
Unlike the first world, we still cling to bare land
and ownership for itself, without understanding that it is no more than a
factor of production and capital formation.
All communities that have clung to ownership of land
for no reason other than the fact that they do not want to lose it, have
invariably been characterized by poverty.
First they do not welcome visitors to their land, including surveyors. Without surveys, title to land cannot be created.
Land that is not titled and measured, cannot be valued and is therefore not useful for investment.
Without investment, there is no development, no jobs, no prosperity.
I will cite only one example to make my point.
Most of what is Victoria Island today, and the entire
Oniru Estate, belongs to the Oniru Chieftaincy Family. They are a
forward looking land owning family who have welcomed visitors, allowed
surveys and titled their land.
It is no wonder that some of Nigeria’s prime real
estate, banks, hotels, toll road, offices and multi-billion dollars land
assets are located there.
The examples of the other attitude are replete and
living evidence of how we have perpetrated old cultural beliefs to our
own detriment and prosperity.
Those who are ready to sell their land to investors,
and guaranty safety of title, or use their land to buy equity into
businesses will attract more investment and prosperity.
4. Legal
As it stands today, it seems to me that the legal
regime for regulation of privatization of public assets can do with some
reform.
On a general note, let me use the opportunity to call
for the re-invigoration of the National Law Reform Commission with the
mandate to focus vigorously on the reform of our body of laws.
As things stand, many new laws have been passed since
the return of civil rule in 1999 and they need to be harmonized for
ease of access to update the last reform carried out around 1990 when
the Laws of the Federation 1990 was presented.
If an example is required, Lagos State Government
revised its laws in 2003 and recently presented an updated version by
its Law Reform Commission in 2015.
Specifically as far as privatization and concession
of public assets is concerned, it will require the immense skills of
very experienced legal practitioners to carefully navigate through the
provision of at least 5 (five) general laws in order to be able to give
sound advice to any investor who seeks advice.
These laws are (1) Infrastructure Concession
Regulatory Commission Act; (2) Public Enterprise (Privatization and
Commercialization) Act; (3) Pubic Procurement Act; (4) Debt Management
(Establishment) Act; and (5) Utilities Charges Commission Act.
If the concession is in respect of a road for example, one will then have to look at a 6th (sixth) law, the Federal Highways Act.
I should not be mistaken for suggesting that it is
impossible to have a successful privatization, as we have seen with
telecoms and lately power, but it seems very clear that things can be a
lot better by law reform and harmonization, and the challenges that road
concessions have been beset with cannot be divorced from the
complexities of the legal regime.
Indeed, we probably will not be having this kind of
discussion if the Pension Reform Act had not been recently amended. So
it is amendments that open up the space for expanded business enterprise
and ease business efficiency that I have in mind.
It might delight investors to hear that our Ministry
has commenced an internal review of these laws and the Federal Highways
Act, with a view to making recommendations to the Ministry of Justice to
consider and effect some changes.
