What happens to public investment in electricity? A hint from far away…

I have gone on and on recently about the need for a proper electricity pricing system to open the doors to private investment in electricity. But what about public investment? Besides the fact that the government doesn’t have nearly enough money to fix the electricity problem, what happens to the little they spend?

This article sums it up nicely.

Bottom line: the government probably isn’t going to give you constant electricity anytime soon.

Filed under: Interesting Links, News Stories, Electricity, Nigeria, public investment

You can lead a horse to water but…

I read this very interesting piece yesterday about a guy who is trying to work his way around the CBN’s new cashless policy. The article highlights one of the major problems with top down policies; if people don’t want them they will spend time and money trying to avoid them.
A lot of top down policy makers in Nigeria don’t try to understand why people behave the way they do before forcing policies down their throats. In this particular case why do businesses still insist on carrying out transactions in cash? Okafor suggests it may have something to do with tax avoidance. It may be something else.
I think the idea behind encouraging cashless transactions is a good one. Hopefully the CBN is flexible enough to adjust as people try to work around it.

http://www.thenationonlineng.net/2011/index.php/news/37948-nigerians-devise-new-methods-to-beat-cbn-cashless-economy-policy.html

Filed under: News Stories

Who actually benefits from fuel subsidies?

My article in yesterday’s business day newspaper

http://businessdayonline.com/NG/index.php/analysis/commentary/30447-who-really-benefits-from-fuel-subsidies

 

Filed under: News Stories, Crude Oil, Economics, Nigeria, Petroleum, Subsidies

Progess (maybe) but I hope that is not it.

Electricity “reforms” continue with the planned sale of 11 distribution companies. The FG had previously said that they would announce an electricity reform blueprint by the end of august. I am hoping that this is not all they plan to announce.

That being said, what difference will selling of the distribution companies make? For starters it should improve the efficiency of these companies. Get ready to pay your bills on time. It should also reduce distribution losses in the system. Less distribution losses means more profits for the companies and private companies LOVE profit.

I’m not entirely sure who will determine the rates that the final consumers pay. I hope its not the distribution companies because if it is then we will have a few expensive suprises in store. The only thing worse than a state monopoly is a private monopoly.

At the end of the day the sale is progress although it is not a fix to the problem. Addressing the pricing issues and the monopolistic tendencies is what I am really waiting to hear about. Think about it like taking panadol when you have malaria, it helps but it is not going to cure you.

Filed under: News Stories, Random Thoughts, Electricity, NEPA, Nigeria, PHCN, Reform, Tariffs

Is helping really helping?

Ethics bomb: Would you trade your job for cheaper drugs? Its actually not so difficult once you really think about it.

Global Malaria Fund

Filed under: News Stories, Malaria, Nigeria, Policy, UN

Hey we are are broke. No wait, we are not.

Hey we are broke! No wait, we are not broke. Ok you are not broke, you are insolvent. Well we are only insolvent because of the money you owe us and have not paid. But you owe us more than we owe you. You do? Hold on let me ask the CEO you just fired, maybe he knows. If he doesn’t the guy before him will know.

Can you figure out what I am talking about?

We are broke

No we are not

Filed under: News Stories, Economics, Nigeria, NNPC

“Ban all Imported Milk”……….

At the blue corner we have the consumers of milk both big and small who argue that this ban will possibly force them to shut down their factories and lead to milk becoming too expensive for the common man. At the red corner we have the domestic farmers who propose that “if milk is banned, someone is going to bring the money to fund local production of milk”.
At the referees corner we have the government and it seems they are leaning towards banning all imported milk. I know a bunch of 17-year-old introductory micro students who would disagree.
So what will happen if imported milk is banned? First off the price of what we call milk will go way up (seeing as we produce only about 0.1% locally) and will stay up. Will the ban boost local production? Marginally and only marginally because the ban will not stop the local farmers from having to use generators for electricity. It won’t fix the roads which they have to use to transport their goods and it definitely won’t improve the security on their farms all of which are reasons why local production is so low in the first place. It might be a good time to become a smuggler though. Lots of money to be made.

Even though there is room for TEMPORARY trade restrictions to boost local production, what ultimately matters is the cost of producing locally compared with the cost abroad. I can suggest one thing that would probably boost local production a lot more than the (alleged)ban, NEPA.

Filed under: News Stories, Random Thoughts, bans, Economics, Nigeria, Policy, Politics, Tariffs

Bail out No. 2

Hold your horses. It’s not what you think it is. This time it’s for the airlines. The CBN announced a 500bn naira bail-out package for the airline industry. The rationale of the CBN is a default by airlines will put more pressure on the banks and could put the banks under even more stress (I think).

Why are airlines failing? The bottom line is that current prices charged by airlines are too low to sustain the rising costs of operating an airline. Those 5000 naira flights to Lagos come to mind. In the short run this problem should be resolved by some airlines shutting down or at least scaling back activity. This should lead to an increase in the price of air travel and should put the airlines back in some decent shape. However if you throw in the fact that an airline that cannot break even can borrow from a bank then this would delay the process. Maybe even make it worse. The airlines that take loans to sustain their airline will force prices to remain at that low level  and force other airlines who previously were not willing to run at loss engage in this practice of using loans too. However this cannot go on forever. Sooner or later loans have to be repaid which brings us to where we are today.

A 500bn naira bailout has the same effect as loans. It keeps the prices in the airline industry artificially low by allowing airlines who should shut down or at least scale back activities remain in business. In a sense it only postpones the inevitable. Then again that might be one of the incentives behind the CBN’s actions. Just make sure it doesn’t go down during my tenure right?

Why should we care? Well economics tells us that if for some reason prices are artificially low, we could improve social welfare by allowing prices to “get back to equilibrium”. Some people will gain and some will lose but we will be better off as a whole. More worrying however is the CBN’s intervention in the real economy. History and theory tell us that it usually ends with no feasible impact on the economy and higher inflation. Something we should be very worried about.

Filed under: News Stories, Random Thoughts, Airlines, Bail Out, Banks, CBN, Economics, Subsidies

Funny way to boost nursery school enrollment rates

I just read a very interesting article on a joint attempt by the Anambra state and UNICEF to help improve nursery school enrollment rates. They selected 806 women from 38 communities which had higher school drop-out rates and , here is the funny part, gave them tv’s, dvd players, generators, popcorn machines, baking ovens and equipment for making soap. Basically all you need to watch tv all day long. Well in fairness you might make the soap to wash up afterwards.

The real question is how this intervention is expected to increase nursery school enrollment rates. If anything it should be expected to reduce enrollment rates and maybe increase drop-out rates too. Nothing like 6-hour Nigerian movies to distract you from school right? It would be interesting to see what happens to these selected communities over a couple of years and compare them to communities that do not recieve any tv’s.

You can read the original news item Here.

Filed under: News Stories, Random Thoughts, Anambra, Education, Nigeria, Policy, Politics, UNICEF

Looking for a reason to vote in 2011?

Are you looking for a reason to vote in 2011? How about this one?

Still think you should not care?

Filed under: News Stories, Nigeria, Politics