1…2…3… Action

Cue my last post…

“Nigerians cannot pay the proposed electricity tariff increase”

“the increase is illegal”

“the failure of the Federal Government to fulfill previous promises in the power sector makes all these promises unbelievable”

You can read the rest of the ramblings of a labour leader here.

Sounds like the fuel subsidy union template was used again. Don’t worry there probably won’t be a strike this time. The back bone of the unions (hint-they are not poor) are not really bothered about this anyway.

Filed under: Random Thoughts, Electricity, Labour Unions, Nigeria

The funny thing about electricity prices

First a little background….

This is how prices work to drive investment; if too many people want to buy a commodity, yams for example, and there is not enough supply of that commodity in the market then the price of that commodity increases. A lot of buyers competing for too few yams means the yams will go to the highest bidder. Higher prices for yams. Yam sellers make lots of extra profits. These profits serve as a signal to investors. If the yam farmers are making excess profits then we should invest our money in producing more yams to grab some of these profits. These new investments in yams increase the supply of yams to the market closing the gap between the high demand for yams and the relatively low supply of yams. The key driver of new investments in producing yams is the original increase in the price of yam.

Back to electricity. We know what the supply of electricity in Nigeria is like. Too small. Really really small. Not enough to meet the demand in Lagos alone talk less of the entire country. What should happen to electricity prices? It should be sky high. Think of how much electricity would cost if you auctioned the little capacity we have to the highest bidders. Should be somewhere around N80 per kWh ( It was increased to N22? per kWh). The few businesses who generate electricity should be making a killing. Producing something that everybody wants but that is also very scarce. These high prices should drive investment into power generation which should prop up the weak supply leading to lower prices and so on….

I know this. The government ( who have crowned themselves the the sole price decision maker in chief – a big problem on its own) also knows this. But what have the done?

They have increased electricity prices but only by a little. Too little to make any difference. The new prices are still lower than much of west Africa. In other words investors in power can do better investing elsewhere. The result? Little or no new investment in power generation.

The problem is politics. Politics politics politics. The government cares more about the politics than actually providing electricity. They are scared of the reaction to prices with good reason too. The Falanas and other civil society groups already have their knives out. People cant afford it they say. All a bit odd when you consider the fact that anybody who has a private generator (yes even the poorest have generators nowadays) spends about N80 per kWh on private electricity generation.

Filed under: Random Thoughts

One funny thing about the fuel subsidy palaver

Actually two funny things about the fuel subsidy palaver. We have all read the news. The corruption in the fuel subsidy administration was monumental. Money literally vanished in the trillions. The house has asked certain marketers to refund billions and so on.

Here is the first funny thing. The house of assembly cannot force anyone to refund anything. It is beyond their job description. They can play politics and try to get some marketers but that’s the best they can do. Only the courts can really force the marketers to pay. My guess is that report will not stand up in court and most of the marketers will walk free. Why? You asked me to bring fuel. I brought fuel. You signed that you saw it. You paid for the fuel. I gave you the fuel. I left. Bullet proof case in almost any court room.

I am not defending the marketers or anything of the sort but the house cannot be investigator, judge and juror. Yes there was a lot of corruption and most of the marketers may be guilty but if the house can demand payments arbitrarily now then what stops them from demanding payments in the future when there is no valid reason?

On to the second funny thing. Very funny indeed. Subsidies are still being paid to most of the same set of marketers using the same administrative processes by most of the same administrators under the same supervision of the same NNPC. Who wants to guess the result at the end of the year?

Filed under: Random Thoughts

The illusion of one big happy family

Firstly, apologies for not blogging in a while. Blame it on the dissertation which simply refuses to write itself. Borrowing a line from a famous power minister; better days are ahead. Back to the post now.

I have been reading a lot of articles on government policies and something strikes me as odd. There seems to be the idea that Nigerians, or particular states, are one big happy family with the government as some kind of CEO/management board whose job is to do as opposed to regulate. Statements like we are building 8 new rice mills, we are investing in x new power plants, we are starting a new airline seem to be everywhere. It seems the governments have not learned from their past failures. They are still trying to do as opposed to trying to regulate. A simply analogy is a referee throwing away his whistle and putting on a Manchester united Jersey. Why?

Filed under: Random Thoughts, Nigeria, Politics, state governors

A short note to the aviation minister

A quick note on two issues.

First the threat to BA and Virgin Atlantic over alleged unfair pricing. As it turns out flights from the UK to Accra are cheaper than flights to Lagos which is also cheaper than flights to Abuja. But so what? Is it unexpected? There is a much larger and richer population in Lagos compared to Accra which should translate to higher demand for flights. Higher demand should translate to higher prices unless there is some increase in the number of flights. Same can be said for Abuja. Higher demand but with a lot less flights. Again we should expect higher prices not because BA or Virgin Atlantic is ripping anybody off. Can prices go lower? Probably. How? By getting more flights into Abuja and Lagos. The price of flights from the US to Lagos has crashed over the last few years primarily because there are a lot more flights. I am yet to understand how banning BA and Virgin hence reducing the number of flights into Lagos and Abuja could somehow lead to reduced prices. A ban will simply result in much higher prices for the other airlines who don’t get banned.  If they are somehow prevented from raising their prices then there will simply be no flights and the bulk of people will probably have to make their way to Accra.

This is the important point I want to make: IT IS NOT THE JOB OF GOVERNMENT TO DETERMINE WHAT A FAIR PRICE IS. You think we would have figured that out by now.

The second issue is the cancellation of the contract with Maevis on the running of some airports. I don’t know all the details. It is always a bad sign when a government acts as accuser, judge and juror. The arbitrary cancellation of contracts sends a bad message to investors. “Contracts are only valid if we say so or until we leave office”. The message to investors: don’t do business with us. We will change our minds later on.

 

Update: Turns out taxes are a lot higher in Lagos and Abuja compared to Accra. $60 in Accra as opposed to $316 in Lagos for a typical flight to London. Really

Filed under: Random Thoughts, airline, aviation, concessions, Nigeria, price

Debates in Development: Comments

Last thursday I attended a development conference hosted by the Development Research Institute at New York University. The conference was centered around finding answers to what works in development. This conference was partially hosted by Bill Easterly who is a fierce critic of “top down” development policies. Policies that center around a person, presumably from the World Bank or Columbia, figuring out what works. A classic example of this is the millennium village project. You can read more about it here. The project represents a typical “top down”, presumably well thought out development project but does it actually work? Do the millennium villages actually reduce poverty? A couple of speakers gave evidence to the contrary. The case for the millennium villages is also not helped by the apparent lack of transparency from the organization behind the project.

So what actually works? Turns out its very difficult to figure out which development projects and ideas actually generate the desired impact in reality. The flavor of the month in figuring out “good” development projects centers around the use of randomized controlled trials (RCT’s). These are basically experiments aimed at identifying a cause and effect relation between development projects and development outcomes. If results from these trials are positive then they are supposedly good ideas and can be applied elsewhere

This method of experimenting with projects before wide application also sounds good in theory. There are however issues with this approach. It is very expensive and takes a long time to get results. A typical RCT costs millions of dollars, requires highly skilled and very scarce scientists, and takes about 3 – 4 years to get results. Is it really practical to spend so much time, effort and scarce resources ( the scientists) on these experiments? Prof. Easterly likens it to using gold to make kleenex.

There are also technical issues with RCT’s. The context of the experiment itself is very important. Just because an experiment worked in country A does not mean it will work in country B. The context also seems to be constantly changing. An experiment which worked in 2006 may not work in 2012 even in the same community. The sample sizes used in most RCT’s also seem to hardly ever be large enough to make the conclusions consistent. All these call into question the long-term usefulness of RCT’s as a strategy for development. But what alternative is there?

The trial and error method may be a credible alternative. A change of emphasis by governments and international institutions from trying to figure out solutions to empowering entrepreneurs to try their individual ideas. A dumb solution finding system. A bunch of entrepreneurs all working towards the goal of making profits are more likely to figure out sustainable ways to generate profits and wealth than governments and the like. Most of these entrepreneurs will probably not succeed but the few that do will lift more out of poverty than most government or international institution led projects could hope to. Entrepreneurial activity, after all, is the driver of development in most of the rest of the world. The recent progress in the reduction of poverty in Rwanda and Uganda have not been driven by international development polices but by the entrepreneurial activities of coffee farmers and distributors (Andrew Rugasira, Founder and Chairman, Good African Coffee, Uganda was present at the conference). Trade not aid is fast becoming a slogan for development activists perhaps highlighting a change of attitude. This trial and error method carried out by entrepreneurs probably stands a better chance of reducing poverty than traditional development projects.

Filed under: Random Thoughts, Development ideas

I win, you win, we all win…for now

The latest version of youth empowerment scheme 2.0 has spit out some results. The winners of the FG’s Youwin program were announced last night. Youwin is a plan to provide seed money to about 1200 entrepreneurs with ideas or already existing projects. The idea is to promote entrepreneurship and business.

Yes you are thinking what I am thinking. Who chose the winners and how were they chosen? I don’t know but that is not really a relevant question. Can the government pick businesses that will succeed in the market even if they genuinely tried to? Now that is the question. The answer is probably not. If I was a betting man I would bet on 95% of the chosen businesses becoming non existent by 2015. Governments aren’t very good at picking winners in the market and we know that. Could the government have used the Youwin money for something more efficient. An extra power plant, part of a new highway or any other public project?

Ah I promised to stop being so cynical about Nigeria. I guess on some level it is better if resources go to entrepreneurs with ideas than to politicians with Swiss bank accounts.

Filed under: Random Thoughts, entrepreneurship, Nigeria, Youwin

Waiting to pounce

The recent killing of the British and Italian hostages in the failed rescue mission in Sokoto raised more questions about the security crisis. Perhaps more surprising was the denial by Nigerian terror group of the year, Boko Haram, of any involvement in the kidnapping and eventual killing. This got me wondering…. just how many armed and trained groups are out there?

I know of at least three, Boko Haram, OPC, who went to great lengths a while ago to show its might, and MEND. There are probably other armed groups out there. The Niger Delta no doubt has a few groups besides MEND. MASSOB may claim they are armed but who knows. Boko Haram may be the most popular group in the north but there may be others.

The only thing really keeping these groups from rising up and forcefully taking control of whatever territory they occupy is not good will but the presence of a much larger and stronger Nigerian military. The military may not be the most efficient in the world but they are big enough to act as a check on these groups. I wonder what would happen if the formal Nigerian state for whatever rnoteason ceases to exist and its military as well.

Filed under: Random Thoughts

In search of justice

It has been all over the news. Former governor James Ibori pleaded guilty to corruption charges in the UK. What struck me though is how difficult it is to remember any politician who has been convicted in Nigeria with a significant jail term. Seemingly corrupt politicians almost always get off the hook when tried locally. Those who manage to get convicted get a simple slap on the wrist.

Seeing as we have apparently outsourced education and healthcare should we consider outsourcing our legal system? Might serve as more of a deterrent than our 2 years in jail for stealing billions.

On a more serious note we (or you the senators and reps) really should consider liberating the EFCC and ICPC from the federal government. That seems to be the major handicap. Oh and the courts and judges too.

Filed under: Random Thoughts, Corruption, EFCC, Nigeria

Are things worse than we think?

I spent the weekend working on an alternative measure of economic activity for Nigeria. Something different from the regular run of the mill GDP. One new option is to measure economic activity by monitoring night lights from space. The basic idea is areas with more illumination at night are assumed to have more economic activity than areas with less illumination. You can read more about it here. It is a good alternative because it is mostly unbiased and can measure activity not just for countries but for smaller administrative districts. I have only compiled it for the entire country and will do the same for state and local governments soon.

Something very interesting shows up when comparing this alternative measure of economic activity to official GDP data. The graph below plots GDP and the light intensity index from 1992 to 2009. The graph speaks for itself.

I know what you are thinking. This probably has something to do with the NEPA situation. Comparing the light intensity index with data on net electricity generation in Nigeria from the Energy Information Administration show that this falling economic activity is not really about electricity. There is a relatively large improvement in electricity generation from about 2000 with no effect on economic activity.The light intensity index also takes into account other sources of night light that are not associated with NEPA. Light from private generators and even kerosene lanterns. This implies that NEPA alone is not responsible for the falling light intensity numbers.

Interesting stuff. If this light intensity index is actually a good measure of economic activity then those poverty numbers released last week actually make sense.

Filed under: Random Thoughts, Economic activity, Electricity, GDP, Light Intensity, Nigeria