Thursday, January 24, 2008

It is the Economy, Stupid!

To read the Nigerian press you would think that if we caught all the people that stole money and cleared the Senate of so called 419 lawmakers we would be in paradise and all problems resolved. Across the continent of Africa we have spent the greater part of the last century on battles around governance, accountability and political credibility. Try as we might as Kenya shows along with Zimbabwe, Nigeria even South Africa our politics is driven by the desire to consume and the addiction to control. We have largely assumed that if we get the politics and governance right the economics will follow this is in spite of the example of the Chinese.

We are now watching the so called credit crunch play out in the West with little or no analysis of its consequence for Africa. This is the same continent where intra- Africa trade still constitutes less that 10% of all trade. It is the same continent where capital flight i.e. money leaving the continent is far more significant than those that is coming back. The millions spent on sending people to study in UK and the US, the never ending holiday shopping sprees to London, Dubai and New York, the salting away of millions into foreign accounts. The Nigerian banks have now joined in this foolish pursuits by advertising perpetually on CNN for millions of dollars to what avail? Who are they really directing this adverts too? what is their return on such adverts when they are supposed to be investing in their economy especially SMEs in Nigeria. As this credit crunch takes hold think about its effects a little.

The sup-prime mortgage debacle will affect Nigerians abroad than most groups because they went into the buy to let property market far more that most nationalities. In the UK the middle class Nigerians who tried to spread their wealth creation through property investment are now scrambling to sell and pay mortgages as the value of houses start to drop. It also affects others not in the sub prime but maxed out on credit cards and other financial facilities. All these will have profound dampening effect on Remittances which have been quite a supplement to Foreign Direct Investment in the past five years.

It is also the case that many people are migrating back to Nigeria as a result of the dynamism that the policies of the last government started to create. It is the irony that the same policies are now being reversed every day destroying business assumption and generating economic uncertainties. For example a friend of mine who invested his life savings in Cassava Flour processing because of the Government directive on incorporating a percentage of cassava flour in bread is now facing ruin because of a recent reverse by the new government. As this people return they also face a labour market that is not meritocratic nor is it transparent enough with credible system of redress. In all the economy has not even opened up enough to accommodate the returnees.

The Nigerian stock market which registered the fourth largest growth in the world last year is also not organised to capitalise on the problems in the west since it takes forever to administer transactions. It is known you can wait over a year for your certificate reducing the possibility of transacting shares quickly and consistently.

Finally there are governments all over the continent who do not grasp the interdependent nature of the economies in this epoch. It is with concern one views the Nigerian government bogged down to inane dialogue about rule of law when the economic strategy is neither apparent nor is it consistent. It is time for a more considered dialogue about our economies and more importantly how we will make sure that we turn this commodities boom into a sustainable catalyst for growth before the `recession in the West destroys key elements that are making it happen. Wake UP!

Ire O


Ololade said...

Omoluwabi agba!

I read your blog all the time...Wish you could update more often, but I guess that your universe is as crowded as ever... please keep disrupting our complacent zones of thought, and offering that alter/native perspective thats the 'other' of our usual modes of thinking. You Rock! Oke'badan a gbe wa o!!

Ire o!

The other Omoluabi (aspiring)

Soul said...

I think you have a few sweeping statements here Omoluwabi.

I'd repesctfully diagree with this one:
"The sup-prime mortgage debacle will affect Nigerians abroad than most groups because they went into the buy to let property market far more that most nationalities"

There are far more Asian super lanlords than there are Nigerians in the buy to let scheme, and they have been milking it for yonks before we got in there to get our slice of the pie.

Personally, I'm hoping the market crashes. the prices are over inflated and don't really offer much value for money. I see a correction looming on the market and it's about time.

You mentioned Nigerian banks advertising and I even though this is a lsight tangent, I wondered if you have ever heard of First save..

which at present is offering the highest interest rate to savers in the UK on instant access Internet Only accounts.

What's the big deal? and why mention it? i hear you ask...
Well firstsave is the UK subsidiary of (yeah, you guessed right) The first Bank of Nigeria.
so isn't this nigeria taking the bulls by the horns and venturing into foreign markets to get a piece of the pie?
Isn't this diversification? Something different from 'the old' routine?

oh and something else ironic, the bank offering the second highest rate is ICICI (An Indian contingency)
Seems the world is tilting on it's axis slightly.... no?

Onibudo said...

Soul, it is almost inevitable that sweeping statements are used to make broad points but I take your perspective on a couple of points because the unique positions are significant. I thank you for highlighting First Bank but they are not in fact one of the culprits here. in fact I fail to see how advertising in broad markets like CNN et al exposes them to the niche market that is Nigerian Diaspora and also wonder what is the return on investment on this. however I agree with your broader point that there is a market that should be encouraged. However you miss my key point which is that the domicile economy of Nigeria which is at the cusp of growth should be more aggressively served.

On the subprime mortgage stuff I suppose my point is about the relative % . the numbers of Asians vis the % in the subprime and when they entered it versus Nigerians. However what is most important is the general points . Your points are very well made and add to my perspective on the issue. thanks

Soul said...

I hear you.
I did read you carefully, maybe I could have been a little more careful so as to fully understand what you are saying.

the reason I raised the issue of First Bank's Subsidiary, was to throw into the mix the diversification being employed.
A decade ago, all we did was sell oil, sell knowledge and put the money in foreign banks.

This shows a little forward thinking... no?.

On the subject of the #'asians' and when they entered the market, well.. all the younger asians I know where given part of their deposits by their parents, which in a way makes stuff even worse for them, because they placed higher deposits in order to get the property and many bid outrageously at auctions, knowing that they had their own peeps for building work.
I know many but I still can;t give you a scientific breakdown of the numbers.

I appreciate your attempt to further breakdown your logic for me.
Nice one Onibudo.
One day, we'll work together.
One day soon.