Bungs

Last time I checked, Apple had $73.7bn in cash sitting on its balance sheet. This is a lot of money no doubt. Apple also has around 917m shares outstanding. Imagine now for a second that Apple decided to return this cash to its shareholders meaning for each share you own, you’d get something like $80. Broadly, you can expect such a move would be quite popular with a lot of shareholders. 

But what would such a move mean? By returning cash to shareholders in such a way, the management of the company would essentially be telling its shareholders that it cant think of anything better to do with the money so the shareholders might as well have it. It cant find a decent company to buy and it has also run out of ideas in terms of product development to spend it on. In fact the company’s management would be saying, we dont trust ourselves to spend this money wisely or profitably on your behalf, so we are returning it to you.

The story of how subsidies are born is not much different most especially poorly targeted subsidies like Nigeria’s fuel subsidies which ensures that Dangote the billionaire pays the same N65 per litre that Danladi the okada rider pays. Without even getting into the massive corruption around the administration of the subsidy, it is dead easy to make an economic argument as to why the subsidies need to go. Imagine if the govt had decided to subsidise the cost of sim cards when GSM came on stream in 2001 (Sim cards went for as high as N10,000 each), its safe to say the prices would not have dropped to the levels they are today where they sell for literarily next to nothing. The argument for letting the market decide prices can be made for practically any product out there. 

The ideal situation is never to have such subsidies in the first place, they dont make any economic sense. This is why those who are making economic arguments for the removal of subsidies are not doing anything special at all; the case for removal can be made in 30 minutes with a bit of patience to an innumerate market woman. 

 

Nigeria’s petrol subsidy came about as a result of an unwritten contractual agreement between the Nigerian people and their government. Essentially the subsidy is a bung. It is based on the understanding that the govt is useless and adds no value to the life of the average Nigerian. The Nigerian govt, half the time, is a criminal enterprise that exists purely for its own benefit. Where even a half decent government elsewhere will make a decent fist of fighting corruption, the Nigerian govt facilitates, enables and emboldens corruption. The case can stronly be made that if the govt was to cease to exist today, corruption will reduce in Nigeria dramatically. 

The govt has admitted that it has no response to poverty in the land other than to turn a blind eye to it. Indeed the task of counting exactly how many people are povery stricken in the land has been abdicated to foreign bodies, the Nigerian govt is unable to identify who is poor in Nigeria and who has been fortunate enough to escape the poverty trap. When it is asked to provide decent water supply to its citizens, it promises not to disturb anyone who builds a borehole for himself. This same understanding applies to electricity provision; we promise you improved power supply but in the meantime buy your own generators…if we fail, we fail. 

Weeping at the poor state of a federal road does not mean you should expect it would be fixed. You will need to drive slowly and carefully with a permanent prayer on your lips as you navigate those roads because if you are involved in an accident and you ended up in a government hospital, your passage to the other side will only be quickened. The list goes on and on.

In exchange for this gross abdication of responsiblity, not to talk of the grand larceny visited on the nation’s resources and sheer rape of anything of value meant for the common good, the govt offered the people the bung of petrol subsidies. ‘Take this below market price petrol in lieu of all the things we should normally be doing for you and in your name’ the govt said. Of course this was always a very lopsided deal massively in the govt’s favour but half bread is better than none. 

When looked at this way, you can then begin to understand that what the govt did on January 1st by removing fuel subsidies was a crude attempt to renegotiate this long standing social contract. Alas, all the reasons why the contract was signed in the first place are firmly in place. In fact so many other things have been sneaked into the agreement from the govt’s side. 

This is the part that the economists who are only interested in moving the numbers around cant argue. It is pointless reducing this matter to a purely economic argument because it was not an economic argument that originated it in the first place. In andvanced economies, subsidies are given to those segments of societies that the govt is practically helpless to do anything about. Free travel is offered to pensioners and under aged kids because, frankly there is no other way to get those people to move around freely given their incomes or lack of it. Etcetera.

Conversely, to quell public anger and stave off any uprising, the Saudi Arabian govt recently announced all manner of bungs and subsidies to its citizens totalling an eye watering $120bn. This is in addition to heavily subsidised petrol which sells for N22 per litre in the Kingdom. The Saudi version of the Nigerian contract isnt much different – in exchange for these bungs, the people grudgingly agree not to turn on the massive corruption, nepotism and fecklessness in what passes for the Saudi govt. Keep an eye on the Kingdom for whenever the govt decides to withdraw some of those bungs. It wont be pretty.

So just like in the case of a cash rich company deciding to return cash to its shareholders, when a govt throws these bungs at its people, it is admitting that it is easier for it to give away the money than to use it to build the kind of society where poverty is reduced to the barest minimum with people able to find a way for themselves. 

There is absolutely nothing about the present govt that suggests that it is indeed time to renegotiate this long standing social contract. Things are in fact getting worse. This is why the argument has quickly moved away from a question of N65 to a situation where everyone is now scrutinising the budget line by line. Predictably, they are finding things which they do not like at all. It is rather ironic that the one item that has really angered the public is the N1bn budget to feed the President in 2012. Of course in a budget of N4.3trn, N1bn is not even a drop in the ocean but what does it matter? The message is clear; how can you want to renegotiate this contract when all the reasons why we signed it in the first place are still there? Are you not still as useless as you were the day we signed it? This one thing that we got from a very lopsided deal against us is the thing you want to take away now?

 

Does it therefore suprise anyone that the govt allowed the subsidy arrangement to get out of hand so much that it can no longer quite afford to pay the subsidies at current levels? Take for example the chart below

While the Nigerian people were going about their duties, what the Nigerian govt ought to have been doing is keeping an eye on the gap between the actual retail price and the govt approved price and then adjusting accordingly upwards to keep the cost of the subsidies in check. To an extent President Obasanjo understood this and kept raising prices during his 8 years in office. 

But even this simple task was bungled by a govt that was too busy perhaps looting the treasury to adjust prices upwards. Instead, what President Yar’Adua did was to declare another big bung to compensate for his massively rigged elections in 2007. Presumably rigging elections was not expressly stated in the original contract so prices were reduced to N65. Now we are at a point where the gap between the real price and the bung price is at historical levels. Add to that the fact that the govt itself has now encroached on the people’s bung by turning it into a conduit for moving funds to its friends and loved ones – the number of approved marketers jumped from 58 in 2010 to 128 in 2011. I understand President Jonathan was advised in 2010 to increase the govt price but he refused as he had an election to win. Now he wants (and badly needs) to catch up by removing everything in one go. (My personal opinion is that even if the subsidies are removed today, they will return in one form or the other in the next 2 years)

 

This is why this is beyond a fight to have petrol back at N65. If there is going to be a renegotiation of the contract where we are bribed with N65 petrol in exchange for a totally useless govt, then its open season and EVERY aspect of govt is now in play. We can now query any and every aspect of govt spending as well as the debilitating levels of corruption that it tolerates which makes it practically impossible for anything to work in the country. 

 

This is why a support and demand a return to N65 per litre as a starting point for any negotiations. It is the least amount of ‘good faith’ you can get in an agreemen which is built essentially on bad faith. There is no divine right to buy petrol at N65 – indeed if the Niger Delta were to break away from Nigeria today, no one in Lagos, for example, would be able to buy petrol for less than N180 per litre I imagine.

This is why I support the guys at Enough is Enough Nigeria as we try to steer the conversation away from a simplistic one about what is the optimal price point for petrol. If we are going to renegotiate the contract, lets do it properly. Those who say we should let this go and fight for other things are also missing the point the way I see it. The govt removed the subsidies because it needed the money, let’s not fool ourselves over this. If govt projected it would need N1trn in 10 years time, it wont be asking for it today. If it wants the money now, well then now is the best time to renegotiate the contract. Not tomorrow after we’ve handed over the money. No one was getting good governance at N65 per litre so we are not looking back lovingly at that price yearning for a return to the good old days. 

This is not a crisis to be wasted.

FF

 

 

Cut The Waste: Squeezing Water from The Rock

The inability of the Nigerian govt to make any sacrifices whatsoever has become perhaps the most annoying and irritating thing about the whole ‘Occupy’ movement. Here we have a govt that is prescribing exceedingly bitter medicine to the populace but has refused to so much as even taste the medicine before applying. 

Judging by the 2012 budget, the govt has simply continued from where it left off in 2011 with its snout firmly in the trough of public expenditure…spending like there’s no tomorrow. So we can expect that if the President were to travel to say the London Olympics later this year, he will go with a delegation of 400 people or more as he did to Perth, Australia for the Commonwealth Heads of Government Meeting in October 2011. This is untenable and has to stop. Whatever it is that has made fuel subsidy ‘unaffordable’ for Nigeria surely suggests that EVERY single item of govt expenditure is now open to scrutiny for cutback opportunities.

Along with the guys at CCHub and Enough is Enough Nigeria, I am going to be doing a series of posts on specific items of govt expenditure that can be cut. I invite you to join in and make your recommendations too. I assure, you will be spoilt for choice once you begin to go through the budget detail. Hopefully we can get enough ideas and recommendations and then make demands to the govt to swallow its own medicine. 

 

The Presidency

In the 2012 budget, the presidency has been allocated the sum of N18,344,524,169 covering all sorts of things from the President’s feeding to ‘welfare’ packages to ‘provision of infrastructure’ (N324m) and all manner of inscrutable nonsense. 

Well here’s an idea, what better place to start rhe cutting of govt expenditure than at the Presidency? If the President leads by example on this, then he can assume the moral authority to force others to take the bitter medicine too. So here’s my proposal for slashing that N18bn expenditure on the Presidency down to zero. 

It’s safe to assume that most of the activities around the Presidency centre around Aso Rock, the seat of power. Now I’ve never been to Aso Rock and have no idea what it looks like beyond what I’ve seen on TV and read in the papers. But I imagine that Aso Rock is a grand and fanciful place with lots of rooms and doors and meeting rooms. I also imagine it can hold quite a number of people at any given time.

 

The Idea

My idea is simple: we turn Aso Rock into a mini tourist destination. Dont laugh please. Here’s how it would work.

• First of all, the govt will set up a private limited company called say, Aso Rock Management Company Nigeria Limited. The running of this company will be handed over to private professionals and at some point should be floated on the Nigerian Stock Exchange. This company will then be in charge of all expenditure relating to the Presidency excluding the salaries of civil servants. It will be a ‘self contained’ company i.e. it will only be able to spend what it makes. So no more govt budgets for watering gardens or feeding the President and his family or buying scanners. All such expenses will now be handled by ARMCNL.

• On any given day, there will be 3 sessions. Each session will involve a 90minute tour of Aso Rock. There will be an early morning session, an afternoon session and a late evening one. Each session will be restricted to a maximum of 100 people who must all book in advance either over the telephone or on the internet.

• The idea here will be to charge an admission fee that is relatively cheap and affordable to ensure that you can get people in the door. So I propose an admission fee of N4,500. Once you go online or call the telephone line, you will be told the available dates and what sessions on that day still have spaces. You give your details and are then given say 24hrs to make your payment either online or at the bank. Once this is done, you will get a text message with a unique code and you will be told to come along with your passport, drivers licence or any other acceptable ID on the day.

• People can be picked up from a specific location/car park where they will be frisked before getting on the bus. Once they get to Aso Rock proper, they will be frisked again and this time around you will be asked to drop all bags, phones and cameras. This is very important: people must not be allowed to take any devices that can take pictures or recordings with them. 

• The group of 100 can then be split into 2 groups of 50 each with each group assigned a tour guide and say 2 official photographers. They will then be taken around the Villa covering every possible place that security would allow with the exception of places like the President’s bedroom. As the tour moves along, if anyone wants to take photographs, they just signal to one of the photographers in their delegation and the person snaps away. The delegation should be allowed to enter the FEC meeting room and even sit down on the chairs there. 

• Now, if you want to sit on the President’s chair in the FEC room and take a photo, that would be N8,000 for a printed copy and N12,000 for digital copies. Swagger has a price as those who want digital copies obviously want to use it as their profile picture on Facebook and Twitter. If possible people should be allowed to see the President’s office if available and take pictures for N20,000 only. 

• On Wednesdays for the afternoon session, the admission fee can be raised from N4,500 to say N7,000. Why? Because those in that group will get to meet the cabinet after the FEC meeting and shake hands with them. Pictures with a minister will cost N10,000 only (NOI will be N12,000 but Labaran Maku will be free) and Mr President will instruct his cabinet to dedicate at least 1 hour after each FEC meeting to meeting and greeting people. Let it be their acceptable sacrifice. 

• I remember reading in TELL magazine during the Abacha years that Aso Rock had a mini zoo where tigers were kept. Are they still there? This is another money making opportunity. Will you like to feed a tiger? Let’s say cured meat is thrown into their cage for them to eat, anyone who wants to do this will be charged N1,000 only ‘per throw’. A throwing picture will be N2,000 for a printed copy and N3,500 for digital copies. All reasonable efforts will be made to ensure the tigers are captured in the photos.

• Once the tour is over, people will then go to the desks and select the photos they want (after collecting their bags and belongings) and pay for them. Once this is done they will be transported back to the car park location where they were picked up from. 

• Other streams of revenue can be explored. For example, when making a booking, a guy can request a ‘proposal package’. This will be N45,000 only and include both digital and printed photos. This package is for men who are coming with their girlfriends and would like to propose to them inside the Villa. This proposal can be done in the President’s office or the FEC meeting room. A complimentary rose and/or bottle of champagne will also be supplied. 

 

Now this might all seem a bit silly but the point is that it is easy to spend N295m on purchase of residential furniture when you dont have to work for it and the money is simply being allocated to you. Quite frankly, it is the manner of fools to spend money without generating any wealth to replace it or even worry where the money is coming from. 

The accounts of ARMCNL can be published on the internet every year for everyone to see. A target of 3 years should be set to float it on the stock exchange so that when it starts making excess profits it can return some of those to Nigerians by way of dividends. 

Opening up Aso Rock in this way will also help to bring ordinary Nigerians closer to the seat of govt and let us see the opulence our leaders live in. This cannot be a bad thing for our democracy can it?

 

The Numbers

So what can kind of revenues can be generated from something like this? The first thing to understand is that once you tie expenditure to independently generated revenue like this, a lot of costs will suddenly dissapear. Think of it as the removal of subsidies for the Presidency; in the same way that removal of petrol subsidies will stop the smuggling of petrol across the border, this can stop at least half of the current budget of the Presidency. There will no longer be an excuse for buying furniture every year for ridiculous amounts or to borrow the govt’s line, perhaps private investors will then be willing to come and invest in furniture for the Presidency to be repaid over a period of time.

Aso_Rock.xlsx
Download this file

So there’s N2.5bn to be generated for running Aso Rock from a very conservative estimate of just 766,500 visitors in a year. Bear in mind that according to official figures (page 16), the state rooms in Buckingham Palace were opened for only 67 days of the year to March 2010 and managed to attract 402,000 vistors in that time. 

But a drop from N18bn to N2.5bn is a huge one I hear you say. Well, cry me a river. Ultimately, if the management of Aso Rock want to spend N300m on furniture, it is up to them to find ways to generate it.

 

Conclusion

When it comes to cutting waste in govt, it’s not enough to just reduce certain types of expenditure. As much as possible certain things need to be completely excised from the budget and public spending. I think funding the President’s feeding and all other appurtenances from the public purse is something that needs to be stopped especially as he’s being paid a salary never mind the black hole that is the security vote. 

In the grand scheme of things, N18bn is not a lot of money when we are looking for at least N1trn to save but I believe that starting from the presidency will carry with it what Americans like to call ‘the power of the grand gesture’. If the president leads the way in making such a sacrifice, then it becomes very easy to cascade down to other levels of govt.

We need a complete change of ideas about how public money is spent in Nigeria and perhaps this debate which began with the removal of fuel subsidies will lead us down the path of righteousness in govt spending.

If you want to spend N1bn on feeding yourself, have the decency and courtesy to at least generate it yourself and not force everyone else to go hungry in the process.

 

FF

 

I hope to do more of these as the days go by and I hope you’ll get involved too. The full budget for 2012 can be found here. Get your knife and cut stuff. Happy carving