Month: August 2015

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National Carrier: Bad Ideas Die Hard In Nigeria

 

I like President Buhari. I remain a fan of the man. That said, for someone like me who believes in smaller government, I have always known that supporting Buhari carried the risk of supporting dirigisme. Whatever – politics is like a christmas hamper anyway; it is not everything inside the hamper you will like or find useful.

But even at that, hearing that Nigeria wants to ‘launch’ an airline (again) just makes you shake your head. The first part of the comments attributed to the President make all the sense in the world:

Our airports are the windows through which people see our country. Anybody coming into the country will likely come through the airports.

“If we cannot secure and maintain our infrastructure, it will reflect very badly on us

Nobody can disagree with the above – our airports, especially MMIA, are truly terrible. The bar is very low – all we have to do is make sure that the airports are not glorified zoos and we would have achieved something in life.

But then the second part of the story, attributed to the Perm Sec in the aviation ministry is where it all goes messy:

The President is quite concern about lack of national carrier for now and he has directed the ministry to look into the possibility of having a national carrier as soon as possible.

Oh dear. This bad idea never goes away. There are always people who get excited at the thought of a ‘national carrier’. What exactly it is about a guaranteed waste of money that excites people remains a mystery to me. Why not just fold the money into paper planes and throw them in the air? Or burn it? The overall effect will be the same.

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Whenever the debate comes up, people are quick to point to countries that appear to have successful airlines – Ethiopia, Singapore etc – and ask why Nigeria too cannot do it. The numerous failures from around the world are never mentioned. The chances of failure are far higher than success. One should not reason from an outlier.

The video above is of Lee Kuan Yew addressing a Singapore Airlines pilots strike in 1980. The man (LKY) almost single-handedly built Singapore Airlines from scratch and made it what it is today. And he had good reasons – Singapore had no choice but to be open to the world as an entrepôt. The airline was just one part of this plan. The second part was building Changi Airport at a cost of $1.2bn plus shutting down the old airport which had cost over $600m to build. It is said that when he visited America and landed at Boston’s Logan airport, he noticed that most of the approach of the plane was over water i.e. planes flying over people’s homes was minimal. Expanding the old airport would have meant flying over people’s homes to get to it. So he shut it down and built Changi near the edge of the city. He is on record as saying the money he spent building Changi is one of the best investments he ever made.

 You will not find any quote attributed to LKY about his ‘concern at a lack of a national carrier’ motivating him to set up Singapore Airlines. It was always a business decision for him from day one and in the early years he was always threatening to shut down the airline if they made losses. You can understand why he was irritated in that video.

All this was classic LKY – going around the world and copying the best ideas he could find then ruthlessly and honestly implementing them in Singapore. It also tells us what it takes to have a successful airline especially when you look at the Gulf carriers as well – you need to spend huge sums on having a hub airport as well for the airline to have any serious chance of being a useful investment.

When you ask Nigerians why they want a national carrier, it is always about ‘pride’ or how the sky feels empty without any aircraft flying Nigerian livery. Or it is about how Nigeria is ‘losing’ billions of naira yearly to foreign airlines. This money can always be given to a Nigerian airline so that it can create 500,000 jobs in Nigeria (it’s always 500,000 jobs).

But what is the problem being solved here? There is none. There is no scarcity of seats on planes for people who want to travel out of the country. You might not like the price of the ticket but that is another matter entirely – I like the Aston Martin DB7 but I do not like the price they are asking for it. There is not much I or Aston Martin can do about this for now.  But if you want to travel out of Nigeria today, you will find tickets to buy and go anywhere you want to go, subject to the visas in your passport.

If you’re burning with patriotism so much that it makes you hate foreign airlines, Arik is also a choice for you as long as you do not mind flying in tears. With the eye watering amount of money it owes to the Nigerian government via AMCON, it is effectively a national carrier anyway. There is no problem whatsoever crying out to be solved here. Solutions abound already. 

Yes, the Ethiopians seem to be doing it (with airlines, what you see is not always what you get), but what about the South African Airways which has lost almost $300m in the last 2 years? Or Kenya Airways which announced the biggest corporate loss in the country’s history last week of $257m? Or Air India that is losing money on every route where it is flying the Dreamliner and had to be bailed out with $5.8bn in 2012? For every ‘success’ you find among national carriers, you will 5 or more utter failures and money pits.

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Let’s talk to ourselves as Nigerians – what is it you have seen in the history of your country that makes you think it can successfully run an airline without bankrupting the country in the process? We are not Singapore, no point lying to ourselves. Ordinary joint venture with Virgin the last time around, the Nigerian directors attended board meetings for one reason only – to demand free tickets for their wives and girlfriends. And that is not even half the story.

A national carrier will need plenty of government subsidies for a number of years for it to get off the ground. The way Nigerians approach such things is that the subsidies then become the incentive of the whole game i.e. they will avoid making profits so as to ensure the subsidies are never withdrawn. If you don’t believe me, look at Nigerian Railways and the ridiculous pricing of their tickets. What they tell you is that the tickets are priced low for the sake of ‘the masses’. But these prices guarantee that the whole enterprise is unsustainable so government allocations continue to flow every year.

But there is something even more sinister at play here. Who is asking for a national carrier? Or who are the people likely to loudly support this idea? It is definitely not the market woman hustling to get by daily or the farmer facing an uncertain harvest. It is the Nigerian middle classes who are experts at capturing government for themselves. This played out very vividly 4 years ago when the then Aviation minister, Stella Oduah, was fighting the foreign airlines for cheaper business and first class tickets. The richer you are in Nigeria, the better your chances of capturing government to hand you subsidies. Indeed, until the recent introduction of ‘luxury taxes’ in the dying days of the Jonathan government, business and first class flyers paid lower taxes on their tickets than those flying in economy.

And we have not even talked about those who will steal the place dry. Yes, we are hopefully entering an era where stealing stupidly and with impunity will be greatly reduced. But why risk such an experiment? It is better not to find out if Nigerians are now able to stay in the same room with money that does not belong to them without the money disappearing. Maybe some day in future but I doubt if that day has arrived yet.

Given the depressing challenges facing Nigeria at the moment, do we really want our President running after some petty thieves who will be looking for ways to fly their girlfriends for free at the expense of the rest of us? I think not.

Let us bury this bad idea once and for all and spend our time thinking about policies that actually make life better for Nigerians. Bad ideas suck out life from the space where serious issues are being debated. They are a sideshow and end up wasting everyone’s time.

Mr President, if you are looking for ideas that can transform people’s lives and start the hard task of beating back poverty from our shores, Professors Abhijit Banerjee, Esther Duflo and several others have a truly exciting idea that they have tested in 6 countries with very very encouraging results.

Their paper is here

Thank you for listening. Don’t give in to the devil. Airline business is bad market.

FF

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Alhaji Putin and The Nigerian Government: Here We Go Again

Apologies if you do not share my irritation at this madness but this shit makes my blood boil.

I have all the respect in the world for Prof Osinbajo for his intellect and his person. But this Dangote matter is deeply offensive and it speaks to who we are as a country and why we are the way we are. It also tells us why Nigerians instinctively hate ‘capitalism’, something that has been the most powerful anti-poverty system known to man in history.

This brand of whatever it is that is being practiced in Nigeria is NOT capitalism and it is not morally defensible on any level. In many cases, it is economic terrorism against the Nigerian people sanctioned by the Nigerian government itself.

What Is Capitalism?

People often think capitalism is about ‘capital’. No it isn’t. It is knowledge upon knowledge upon knowledge. That is how it improves people’s lives around the world.

My son who is almost 6 years old only knows that toothpaste comes in rubber tubes. It makes sense that way because it is less messy and toothpaste tube can have lots of nice designs on it to make brushing more appealing to children.

But it was not always so. 20 years or so ago, toothpaste regularly came in aluminium tubes. And it had all sorts of problems. Getting out the final 10% of toothpaste in the tube was a headache – by the time you rolled and squeezed it, it would cut open at the sides and could give you cuts if you were not careful. The design on the tube also faded after a while especially if the tube had been stressed to get it all out.

The knowledge of everything wrong with aluminium toothpaste tubes is contained inside rubber tubes today. We arrived at rubber tubes after finding out that aluminium is not the best way to sell it. My son cannot see this but I can.

Even better, as this improvement in toothpaste has happened, its cost has not gone up and millions of people who used to use sticks and herbs to brush their teeth now use toothpaste instead. Toothpaste is now at the point where we can conveniently take it for granted.

The next step in this journey of getting the toothpaste out of the tube perfectly is the development of something known as Liquiglide. You might not know that this problem exists yet, but when the solution arrives on the market, you will appreciate it. A more efficient toothpaste tube will help the toothpaste makers make more money and be able to lower prices in future.

If people think about capitalism in this way, they will come to appreciate it and demand more of it. An iPhone today that costs $750 would have cost $3,000 to put together in 1990. We can now do so much more with our lives because of the way that capitalism improves products and makes life better. We are also more knowledgeable and can pack more of such knowledge into our lives – Prof Ricardo Hausmann makes the point that a bachelor’s degree at Harvard has always taken 4 years to complete for centuries now and yet we know for a fact that people today know far far more than people knew in the 17th century.

Nigeria Turns Things On Its Head

I have written several times about how Aliko Dangote manipulates the media and the government in a way that allows him transfer wealth from the Nigerian people to himself.

The most annoying response I get is when people try to compare him to Rockefeller or the other ‘robber barons’ (who did not rob anybody). The most obvious answer to people who make this ridiculous claim is that Rockefeller, Ford, Carnegie, Walton all made money by bringing prices DOWN – I repeat DOWN. Things that were previously unaffordable to millions of people were made mainstream by these guys. Ford was motivated by a desire to make cars mass market and he was successful. Even when Rockefeller was tried for anti-trust, there was not a single person who made the argument that he was bad for consumers. This was why, after the American government broke up his companies, he got richer – again I repeat, richer. He had created so much value that was locked inside his companies such that if money was his sole motivation, he would definitely have broken himself up before the government did.

What is this thing that we are doing in Nigeria in the name of capitalism?

The Conspiracy To Rob Nigerians

Last year I sat in a session at the World Economic Forum with my mouth wide open in amazement as President Jonathan said ‘Look at Dangote who is the richest man in Africa, without our policies, he would not be as rich today’.

Imagine my surprise at discovering that the Nigerian government had a policy of creating billionaires and I did not know about it.

This is how the Nigerian government helps to guarantee that capitalism will not work in the way that it should. The government might is used to protect rich people against poor people and ensuring that the wealth transfer from poor to rich continues unhindered. I thought we had reached ‘Peak Dangote’ under the last government but with the way things are starting under the Buhari, we are on our way to the same depressing shit.

At no point does anyone in the government stop and ask themselves the question – what does this guy (and his friends) do for the Nigerian economy exactly? Are they a net positive or negative? Further, those who have been expensively educated in Nigeria and abroad, capitulate like a pack of dominoes and toe the Dangote line, ascribing to him what he is patently not. Where questions ought to be asked, praise is given instead. Where capitalism and all the wonderful things it can do to improve lives should be ‘louded’, its evil twin – crony capitalism – is passed off as the real thing. And we wonder why Nigerians continue to reject things that can make their lives better.

‘Posers’

If the Vice-President of the Federal Republic of Nigeria, duly elected by the citizens and consumers of Nigeria thinks it is ok to go all the way to Zambia to commission a Dangote cement plant (a few weeks ago, the CBN governor and sundry others went to Ethiopia to commission another cement plant), then questions, or posers as Nigerians like to call it will suffice

1. Which other country in the world where a lot of construction is going on has a guy who sells cement on their top 5 richest people list?

If you go to Dubai and wait 2 years before going back, you will see a visible difference there in terms of construction. They are using cement to do what cement is supposed to be used for i.e build things that everyone can see. So why don’t they have a ‘cement magnate’ on their rich list?

Same thing goes for China where the pace of building things is frankly breathtaking. Where is the ‘cement magnate’ in China?

What you will find instead is people who add value to cement among the richest people in those countries e.g Emaar, Nakheel, Dalian Wanda. To put it another way – it is like going to a country where a lot of cars are manufactured and the guy selling sand is the richest person in town because sand is used to make glass. There is still so much more value to be added – steel, design, architecture, wood, urban planning, finance etc – to cement before it can be useful to anybody or society.

So why is all the value in Nigeria being captured at this stage?

2. Can Alhaji Dangote build and sell 1,000 houses in Nigeria today? It’s a useful test to carry out. He makes the cement and sells it with obscene margins so why not ask him to build just 1,000 homes in Nigeria today and sell each one at a profit within a year?

I am confident that he cannot pull it off. But I will be happy to be proved wrong

3. All the major infrastructure in Nigeria was built when we were importing cement. All the bridges in Lagos including 3rd Mainland and bridges across the country were built with foreign cement.

The biggest infrastructural achievement of any Nigerian government in my lifetime is Abuja. It was built with imported cement.

So the question is this – since Nigeria started being ‘self sufficient’ in poverty, sorry cement, what has been built with it? It is pointless to have all this cement just ‘for show’ and to stop some imaginary jobs being shipped abroad. Cement is not for drinking garri – it is for building things which cannot be hidden.

4. At the very least – we should be asking how much tax Dangote pays to the country that has given him so much. Things have been banned for him. Policies have been written in his name. Waivers have been granted to him and many other businesses have been ruined for his sake.

So what exactly has Nigeria and Nigerians got out of the deal? Is it the 20,000 jobs he has created (half of which are ‘casual’ staff?). Is that the extent of our ambition as a nation?

The biggest beneficiary of Dangote Cement is Dangote himself. So why is the Nigerian government going to commission his plant for him in a foreign country? What is the business of the people who elected a government to serve them with a man who is making as much money as he can get away with at their expense?

5. What has been the contribution of Dangote Cement to the global body of knowledge of cement manufacturing? Has anyone come to Nigeria to learn how to make cement. Dangote Cement is by FAR the most profitable cement company in the world.

What is the secret sauce? Who has copied it? And why is it that this profitability goes side by side with eye watering cement prices that are padded with margins as high as 70%. What did Dangote Cement invent that brought about these kind of wonderful profits?

 

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Capitalism is a moral thing, at least to me. It is pointless otherwise. It is a powerful tool to fight the indignity of poverty that consigns people to a miserable existence. Yes, people get rich out of it but they have to do this by giving consumers what they want.

This process breaks down when a pretend capitalist is able to team up with the government in a way that allows him/her to give people what they do not want and make a fortune while at it e.g cement.

The Nigerian government, elected by the people, should stop insulting its citizens with the irritating and ceaseless exaltation of Dangote as the physical manifestation of destiny. Let him make his money, he already has enough of it. But leave the Nigerian government out of it. A new government elected on a change mandate should not be succumbing to the Dangote virus so easily.

What is the worst thing that can happen if Nigeria starts importing cement again? Prices will come down and more things will get built creating thousands of jobs in the process. And Dangote will get poorer.

I know what I will choose if that package was on offer.

FF

*I’ve written this in a lot of irritation and I cannot be bothered to edit for grammar. Any errors are regretted.