This is a keynote speech at the Nigerian Pension
Industry Strategy Implementation roadmap retreat
by Babatunde Fashola on Jan 21 2016. Read
below...
Ladies and Gentlemen, we are gathered at
a historic time to discuss an important
matter.... Some may see a Pension
Conference, but I see more. I see a future
for Africa, led by Nigeria, using the
resources of the people to build a future
that includes the people.
It is not a vision or an idea. It has gone beyond
that. It is a journey, one that started a while ago
when the Pension Reform Act was signed into
Law.
That journey started with the coming together of
some Nigerian minds. Minds like that of
President Olusegun Obasanjo and Mr Fola Adeola.
It has been nurtured by the dedicated hands of
men and women who have served in the pension
commission who are represented by the current
Director- General Mrs Chinelo Amazu- Anohu. It
has reached a major milestone from where it
must reinvigorate itself .
The tools for that reinvigoration have been
provided by our legislators in the Amendment
they passed into in 2014. The success of this
phase of the journey now rests with you and I.
And this is why we gather.
In the letter of the Pension Commission inviting
me to be a Keynote Speaker at this event, no
topic was assigned.
However, some paragraphs of the letter which I
have excerpted provide some directions as to the
thinking of the organizers and I will share them
with you:
a “Two of the most strategic
themes, positive that returns (on investment)
and visible (measurable) impact on the
economy”
b. “creating solutions to the binding
constraints that Nigeria faces in developing
“bankable projects” in infrastructure and real
estate that pension funds can invest in…”
c. “While the pool of Pension Funds
are a veritable source of capital, lack of
suitable investable vehicles with low risk
profiles and sufficient comfort continues to
hamper the drive to make visible economic
impact”
It seems to me that the key words such as
“positive real returns”, “visible impact on the
economy”, “bankable products…that pension funds
can invest in”, “low risk profile and sufficient
comfort” makes it easy to create my own topic
“Overcoming the Challenges and Managing the Risks
and Constraints that Inhibit the Investment of Private
Capital and Funds in Nigeria’s Infrastructure
Landscape in Order to Make a Visible Economic
Impact”.
In seeking to address this topic, which I hope
accords with the objective of the organizers, I will
attempt to be empirical by a case study
discussion where I will review some of the public
infrastructure that have been funded by private
capital, and I will do some comparisons of what
the Pension Funds are achieving in other
economies.
In this way, I hope to highlight the differences
between us and those economies, and in that
way, make my recommendations about what we
should be doing.
The History of Pension Funds in Nigeria
It is impossible in this kind of forum to
exhaustively deal with the issue of Pension Funds
and its management in the Nigerian public
service.
What is appropriate is to highlight the largely
unsuccessful initiatives that have been
characterized by such brand names as the
National Provident Fund (NPF) and the National
Social Insurance Trust Fund (NSITF).
Those brands represent the era when pension
was only the responsibility of the employer,
What simply happened was that from a failure of
governance, coupled with lack of funds as a
result of planning deficiency, and sometimes
incompetence, pensioners faced a life of
uncertainty after a lifetime of service and at a
time when they had become frail, unable to work
or earn income and often then left disappointed
by a system that had taken all they had to give.
It is sad a story that is written on so many faces
characterized by many living and dead people
whose lives tell the story of anguish.
It is a chapter of Nigeria’s story that is perhaps
best forgotten, but regrettably they cannot yet be
consigned to history because there are still debts
to be paid, there are still beneficiaries who are
owed, there are still Nigerians, who gave a lot,
almost everything under a defined benefit scheme
that is yet to give them benefit.
The current pension regime, whose managers are
the organizers of this event happily have a better
story to tell. It is a story of mutual contribution,
where the employee and the employer share the
responsibility of planning for the tomorrow .
It is a story different from the past, where the
funds are safe and have exceeded N 5 Trillion.
It is a story of better management.
It is the starting point for this discussion because
there is a hard lesson here.
If people put their money into what they believe
in, it is likely to serve them better.
The old scheme where there was no contribution
by the employee perhaps reduced their role as
stakeholders but does not justify the
mismanagement.
But the real story is about contribution, paying
your share; and it takes me to the next point
which is diversification and the relevance of
diversification to our subject.
Diversification
For over 3 (Three) decades we have mouthed the
need to diversify our economy in order to open up
more sectors for productive activities, income,
economic growth and jobs.
But we failed to follow through because of oil
resources. It was quick and bountiful income even
though there were boom and burst cycles.
Every time the cycle burst, we scampered, and
promised to diversify, we take tentative steps, we
feel pain. We do not endure, and it is easy to
escape because not too far on the horizon is a
boom in oil prices and we go back to an old life.
Remember 1970s up to 1976; remember the early
1980s and the burst. Remember the late eighties
and Gulf War boom, remember the 1990s and the
drop, remember the period of 2009-2014 when oil
sold for over $100 per barrel for almost 5 years.
What did we do? We went on a spending spree.
Politicians promised everything free.
Everyone got a wage increase, sometimes up to
80% (minimum wage from N 7,500 – N 10,000
raised to N18,000.00). Did our income as a
Nation increased by 80%?
As we sought after free health, free education,
free fuel, free housing and free everything, we
refused to confront the reality that life is not free.
It was difficult to get private capital into critical
sectors of our economy like infrastructure. Private
capital and fund managers were not going to
invest funds entrusted to them in infrastructure if
we wanted to use them for free.
As a people, we were willing to pay for these
services outside our country but demanded that
they be provided for free in our country.
The new pension fund has shown what can
happen if people resolve to contribute and pay
their way.
Health insurance is another area that can open up
access to top class health service for even the
poor , if people are ready to contribute and save
for their well being.
Insurance will give them a choice and access to
the best medical service when they need it.
It will give them a second highway away from
public health service, which even with its best
intentions cannot provide every service free
(examples).
But today’s reality is that we are in another cycle
of burst. Oil prices have crashed from over $100
per barrel and is now hovering around $30 per
barrel and there is a real chance that it will fall
lower.
Put very simply, our main source of revenue has
taken a big blow. This household has lost its
bread winner.
However, it is not without options. It has assets,
it can raise money, it has savings such as the
private money belonging to pensioners, but it
cannot be used like oil money.
Whatever is used must return.
This calls for a new attitude. There is no free
money.
Ladies and gentlemen, I have news for you.
After 3 (three) decades of prevaricating about
diversification, diversification has walked into the
front door of the Nigerian household.
We must either embrace it, with a new attitude,
or idle in agony and anguish until when hopefully
the price of oil will rise again, as it will surely do.
The pension funds, which are under the
management of pension funds administrators will
not go into roads, rail, housing, hospitals or
universities unless we change our attitude.
Attitude Change
As I said earlier, I intend to be empirical. So
instead of prescribing what to do, I will simply
share the experiences we are all familiar with and
leave us with the options first to make rational
choices, and also to be agents for change in the
areas where we can influence others.
In the course of my public service, I have been
privileged to be involved in getting private capital
to operate in areas that were once the sole
preserve of government and I will share the
experiences and the results.
a. Lekki-Epe Expressway
This is a 60km road in the eastern axis of Lagos
State that was built in the 1970s and has
scarcely seen any maintenance.
Potholes had taken over its surface, the
population it was serving was growing daily and
neither Lagos State Government had the funds to
rebuild it and the Federal Government at the time
was not interested even though oil income was
increasing.
Accidents were claiming lives regularly and
nothing seemed to offer a solution until the Lagos
State Government in 2005 signed a concession
with a private group of financiers.
They were very skeptical of many things not the
least our political environment and behaviour.
We had previously nationalized assets of
investors in the oil and gas sector and other
sectors before.
Investors don’t like that and they don’t forget.
But their sense of entrepreneurship if nothing else,
keeps them from staying away. In spite of risks
they sometimes come back when they think the
waters have calmed.
But they do so with conditions, which they hoped
will mitigate risks, especially political risks.
They are used to and trained to deal with
business risks, but often unprepared to deal with,
and frequently unable to deal with politically
induced risks.
In the Lekki-Expressway, after doing their traffic
studies, satisfying themselves that the business
was “bankable” (which is what the organizers of
this event are looking for) they asked the Lagos
State Government to pass a law; in effect to tie
the hands of the next government that the
concession will not be cancelled.
In other economies, a contract, which Lagos State
Government gave them, would have been enough;
however, as I said, investors never forget, so they
asked for a law, which the State House of
Assembly passed.
But when we thought that will suffice, they then
asked for a “Federal Support Agreement”, which
was akin to a sovereign guarantee.
Of course Lagos and the Federal Government at
the time had different political colours and a
Federal Support Agreement was delayed by
politics for 3 years.
During that time, prices changed, exchange rates
changed, many economic indices changed leading
to cost impact, but eventually one was signed,
during the tenure of President YarAdua.
This meant that with the Federal Support
Agreement, Nigeria’s Sovereign credit rating had
entered the equation.
Regrettably, when the road was finally built, and
tolls were to be charged to repay the financiers,
all sorts of informed and misinformed players
took centre stage.
There was no resistance during the painful period
of construction when children had to wake up at
4a.m to get to school at 8a.m. But as soon as
the road was motorable and ready for use and
Tolling , some sympathizers of the Federal
Government of the day, on a political front
mobilized resistance to the payment of tolls.
They promised that if they were elected, they will
cancel the toll.
That is not good news to investors.
I got all sort of letters from around the world.
Investors sent representatives from around the
world to meet with us, asking what was
happening.
All lies were told against our officials after the
road was built.
But we were undeterred. We bore the lies. We
managed the orchestrated protests. Some artistes
were mobilized to pour red paint on their faces
and posted these on the social media as evidence
to incense people falsely that we had used
violence to stop their protests.
One newspaper falsely and recklessly carried a
headline that our government had killed a person
protesting illegal tolls.
That was the first and only time I used the
coercive power of the State.
We deployed Policemen to the toll plazas. They
were instructed to allow protests which was
legitimate, but they must also protect those who
were not interested in protesting and wanted to
pay tolls, because those who were opposed to
paying had no right to obstruct those who wanted
to pay.
We begged, pleaded and held meetings for
understanding.
We explained that those of us who enunciated the
policy were going to be affected by it as well. I
drove through the toll and paid, to show this.
In all of this, my biggest concern was not the
road , it was Nigeria’s credit rating and the need
to ensure that the project did not fail.
What was at risk was now bigger than the road
and the Lagos State Government. It was a
national reputation in the international business
climate.
I am happy to say that we preserved our
country’s business integrity against all odds and I
will do it again.
For me, the lesson of this story is that we must
not play politics with our economic survival.
Investors want continuity of policies, even if
Government changes.
Our politics must therefore mature to the level
where we must refrain from campaigns that
threaten to cancel contracts. We will be poorer
for it.
Even when we perceive that the government of
the day has poorly negotiated a contract, threats
of cancellation do not help.
What we may at the worst seek to do is to re-
negotiate after elections are over where it is
possible to do so.
If we compare the quality of service on the Lekki-
Epe Expressway where toll is paid to the Lagos-
Ibadan Expressway where toll has been removed,
the choice is ours to make.
Is it cheaper to drive on a road free of toll, and
spend 5 hours for a 1 (one) hour journey? If you
calculate the fuel burnt in 5 hours of standstill
traffic and the stress, you will see that the toll
free is not free.
The Security Trust Fund
Another example of private capital in a public
area reserved for government was in the area of
security.
This is the primary responsibility of Government
and it is not an area of return in CASH for private
business. But still there were returns and I will
demonstrate it.
Before we set up the Trust Fund in Lagos, there
was a State Police Command of about 103 (One
Hundred and Three) Divisions that were poorly
resourced. No cars, no fuel, no uniforms etc.
Banks were robbed at least 3 (three) times a
week without capacity for response either by the
Command or by the Rapid Response Squad,
which was the special unit set up to respond to
violent crimes.
They often get to crime scenes after the crime
had been completed and the criminals had left.
I found out that this was deliberate partly and
unavoidable partly.
It was deliberate to the extent that in a 2,000
strong squad to protect 18 million people at the
time, they had only 37 rifles.
It was unavoidable partly because they barely had
a dozen vehicles in poor condition and there was
no clear and predictable strategy to get fuel.
Businesses closed at 7p.m and there was barely a
night economy. So people worked only during the
day, if they could avoid getting robbed.
The injection of private capital to support the
larger portion of funding provided by Government,
the constitution of the Board of Trustees,
dominated by the representatives of the donors,
with a minority by Government, led to the
procurement of 10 Armored Personnel Carriers, 5
pairs of uniforms for over 2,000 officers, bullet
proof vests, 2,000 rifles, 2 million rounds of
ammunitions, 200 patrol vehicles at start, a
regime of 25 litres of fuel per day.
The results were astonishing. Crime reduced by
over 80%, no bank robbery for 2 years, no
successful bank robbery until 2015 (7 years
after).
A bustling night economy of 24 hours petrol
stations, drug stores, night clubs , hotels,
supermarkets, shopping malls and hospitality
facilities unfolded and provided jobs for
thousands.
This was the real return for the business
community.
It might interest you to learn that private capital
has found a safe haven in the American prison
service and in some states the prison service is
the 5 th largest employer of labour topping malls
and supermarkets which come 7th in a survey of
20 highest employers. So if private capital is
looking for where to put money apart from roads,
hospitals and bridges in Nigeria, the prison
system that is overcrowded, badly managed, and
not reformative is one area I will recommend.
Clothing, feeding, drugs, and pharmaceuticals are
some of the spin-offs.
Education
Our “Adopt a School Initiative” where we opened a
structured platform for private individuals, and
corporations to enter into schools, which were
hitherto the investment preserve of Government
and religious missions (Christians and Muslims)
is another area of our successful use of private
capital coupled with government funding like the
World Bank supported Eko Project.
The “Adopt a School Initiative” was so flexible
that it allowed individuals and corporations to
intervene according to their resources in a
classroom or an entire school.
Nothing was too small. You could give cash or
material or you could rebuild, refurbish or donate
a school facility by yourself, once we reached an
agreement with you.
Again the results were spectacular. From a result
based performance where only 7% of students
who sat for placement examination to universities
and other tertiary institutions secured credits in 5
(five) subjects, numbers rose to 11%, 18%, 39%,
42% and 47% between 2009-2013.
The Lagos-Ibadan Expressway
The Lagos-Ibadan Expressway is a story of what
investors don’t like.
The FGN granted a concession to a private
company (Company A) and later withdrew and
cancelled it.
The FGN then entered into a construction and
financing agreement with another company
(Company B).
Company A went to court and got an order to
cancel the financing agreement made with
Company B.
As things stand, work has been stopped on the
construction of the road.
The construction companies cannot get financing
because of the court order, so they have laid off
about 2,000 Workers, in an economy that has so
much to do and needs to create work.
These 2 (two) companies are Nigerian companies
investing in Nigeria, which is a positive sign
because the local investors are the most
important to any economy.
Regrettably, while not going into the merits and
demerits of the FGN’s cancellation of Company
A’s “concession”, it sends a not welcoming
message to foreign investors if the decision was
without basis or influenced by politics, which I
cannot comment upon.
If that was the case, as a foreign investor I will
be asking myself the kind of treatment that
awaits me as a foreigner if the Government does
that to a citizen.
But that is only one half of the story.
The other half is judicial intervention in
commercial cases.
Investors know that there will be disputes. They
are used to it and that is why they insert
Arbitration Clauses because they do not want
disputes to drag too long in courts.
As far as the practice of law goes, my advise will
be for judges called upon to decide commercial
disputes to:
a. Act in a commercial and expeditious
manner;
b. Refrain from granting injunctive orders that
will stop the business. A worrisome number of
power projects are caught up in protracted court
cases while the nation waits for electricity to drive
the economy;
c. Focus on resolving the dispute without
detriment to the business, and award damages
instead to the injured party;
d. Decline jurisdiction whenever there is an
arbitration clause and refuse the invitation which
is frequently made, to set aside arbitral awards
unless there is a PATENT case for doing so;
e. Nigerian judges must be encouraged to
attend annual conferences of the International Bar
Association whenever possible, because they offer
very rich sessions in PPPs.
f. We create a lot of arbitration businesses
and opportunities, but we do not take the benefit
of it because we have developed anti-business
reputation for not respecting arbitral decisions;
g. Nigerian universities, the Nigerian Law
School and the National Judicial Institute must
compulsorily teach the law and practice of Public
Private Partnerships (PPPs) which is an emerging
global area of practice.
Having completed my empirical effort at what has
worked and what has not worked, I will review
what some pension funds are delivering across
the world.
Pension Funds in Africa
Perhaps the appropriate starting point will be to
acknowledge that Pension Reforms are just
beginning to gain foothold across most of Africa
in jurisdictions like Nigeria, Ghana, Botswana,
Kenya and Uganda to mention a few.
But perhaps the biggest and most advanced of
the Pension Funds, especially in sub-saharan
Africa is the South African Pension Fund.
But while the sizes of these funds are happily
growing, and the number of contributors is
increasing, the impact in the quality of life on the
continent is not yet anywhere near minimum
globally acceptable standards.
The reason is not farfetched once we take a look
at where the funds are being invested.
The funds are largely invested in equities and
bonds, and in the case of Nigeria, so much of it
is held in Government bonds.
It is tempting therefore to argue that although the
pension funds contain contributions of the
working class they do not as yet penetrate
enough into giving value to the lives of the
contributors.
Across all of Africa, there is a visible
infrastructure deficit. No country to country rail
service across most parts, the highways that
connect most of the countries such as in the
ECOWAS region are in very poor shape and these
are roads that can easily be built, and tolled to
earn income to secure the return of pension
funds invested in building them.
Air travel is no better. Airports are not of the
quality of design and construction or efficiency
that are obvious in Europe.
These are places where pension funds can be
impactful.
An online publication of “Institutional Investors”
estimated that Sub-Saharan Africa’s ten largest
pension fund markets had approximately $310
billion in assets recently.
But while these funds are not serving the “REAL
SECTOR” of roads, bridges, hospitals, rails,
airports, fee paying universities, there is a
palpably visible poverty in most of these
countries, some of who gathered to seek funding
support in South Africa recently at the instance of
the Chinese Government who offered funding
support (loans) of $60 billion for all of Africa,
when 10 (ten) pension funds had $310 Billion to
invest.
Many of these countries are scurrying after
multilateral agencies looking either for aid or
loans, while sitting literally on a pot of money.
If Africa is poor today it is not because of a lack
of resources; rather it is likely a poverty of ideas
or the abundance of risk elevating attitudes, some
of which I have alluded to, such as judicial and
political, and these must change, as I will contend
in my conclusions.
It must be mentioned of course that the attitudes
that once mired pension funds management in
scandals and lack of transparency, had led to
very stringent legislative interventions that limited
the scope of activities that pension funds could
participate in.
For example, until recently, the Nigerian Pension
Fund Law limited the contributor from using part
of his pension to secure a mortgage.
How, one may ask is a person supposed to
finance or part finance ownership of a home if he
cannot use his own savings.
Happily the Amendment Act of 2014, has rectified
this by the provision of Section 89 (2) of the Act
which provision provides that:
“Notwithstanding the
provision of sub-section (1)
(c) of this section, a Pension
Fund Administrator may,
subject to guidelines issued
by the Commission, apply a
percentage of the pension
assets in the retirement
savings account towards
payment of equity
contribution for payment of
residential mortgage by a
holder of Retirement Savings
Account”.
In contrast to the mismanagement that used to
be the story of our own pension funds, the most
prolific of the pension funds in Africa, which is
the South African Public Investment Corporation
(PIC) has over $150 Billion assets under
management.
In Nigeria alone, they have $289 million in
Dangote Cement , $98million approved but yet to
be drawn for Notore Fertilizer, $230million in MTN
Nigeria, $270million in Erin Energy (formerly
CAMAC) and $150million in Mainstream Energy
Solutions (in the power sector of Nigeria).
By contrast, the question to ask is what is the
‘home based’ pension fund doing? If as I have
shown, the “visiting” pension fund from South
Africa has a total of $897million in our economy.
The answer is obvious, that is why we are here,
that is why my host in their invitation spoke of “…
suitable investible vehicles with low risk profiles and
sufficient comfort…” as the reason that “…continues
to hamper the drive to make visible economic
impact” in the letter to me.
Ladies and gentlemen, I have news for you. Those
investible vehicles exist.
They are in roads that can be tolled, like housing,
the 4th Mainland Bridge, the Coastal Road linking
several coastal states from Lagos to Bayelsa ;
the new seaport in Lekki and Badagry, the refinery
by Dangote, Ajaokuta Steel, a petrochemical plant
in the Niger Delta; the broken textile mills in the
North and South of Nigeria that require new
equipments and disciplined fiscal, technical and
organizational management; prison in each of the
6 (six) geopolitical zones of Nigeria that can help
strengthen our justice system and decongest the
colonial prisons we have kept as relics of our
own sense of justice; they are in hostels for
students in Nigerian universities, embedded power
plants in the universities, most of which have
teaching hospitals and provide an opportunity to
power education and healthcare and the list is
endless.
It is as long as we can imagine. The time for it is
now. This is the biggest opportunity to act
towards diversification rather than sloganize
about it.
This is the time to show that our Nation and our
National economy is bigger than the challenges
posed by the dwindling oil prices. This is the time
to diversify and change the face of our economy
once and for all.
But the risks that stand in the way are caused by
us and they must be changed by us.
As I have pointed out, the list of assets to invest
in is almost limitless.
Let me share with you some of the preliminary
data coming out of the preparatory work we have
commissioned on Housing Economies and impact.
One block of 12 (Twelve) flats will require about
93 workers multiplied by 40 Blocks amounting to
3,720.
Each block will require an estimated number of
the following materials:
225 mm block 13,395
150 mm block 17, 430
100 mm block 450
Binding Wire 33 Rolls
Nails 50 Bags
This does not include Roof timbers, sharp sand,
cement, granite, paint, windows, Tiles, and other
finishes.
This is where the real economic impact that local
Pension Funds seek lies.
This is where they must go in funding housing
construction to address supply.
We are working not only on the design of the
Housing, but also on standards of doors ,
windows and other fittings to unify sizes and
provide incentive for mass production.
We are also working on the quantities of
materials so that all producers, suppliers,
financiers will know to put their money.
All of these will be completed before the end of
Quarter One 2016 and make public.
Our ministry is determined to use our mandate to
diversify the Nigerian economy and create
opportunities for inclusion for those who want to
work.
“The economic impact” that the organizers of this
event seek to achieve with pension funds will be
phenomenal not only in growth per GDP,but in
inclusion by jobs for construction and
maintenance.
Foreign pension funds have taken the leap of
faith with mouth watering rewards, in spite of our
attitudes. They have taken the risks and earned
the rewards. It seems to me that if we wait for
rewards to be assured without confronting the
risks which we ourselves create it puts us in a
position that I can only describe this way: “should
we sell Nigeria or own Nigeria?”
In the few instances where we have embraced the
risk, we have not only managed them, we have
returned with rewards.
Imagine if we did not allow private capital into
the newspaper business by licensing private
newspapers, banks, telcos, radio and TV stations?
Imagine life without Vanguard, ThisDay, The
Nation, Champion, and others and the people they
now employ. Where are the once state owned
newspapers today?
Imagine the competition and choice that banks
like GT, Access, Skye, Zenith and others brought
to the industry; and the people they employ along
with technology they have embraced such as
ATMS and others. Would we still be queuing with
tally numbers?
Imagine the breathtaking work that brands like
Intercellular, Multi-Links, Glo, Econet, MTN
brought to our communications? Would we still
be waiting for NITEL to provide ring or dial tone,
or be carrying files with hundreds of pages of
telephone bills to reconcile payments?
Imagine life without radio stations like Cool FM,
Silverbird, TVC, Wazobia and several dozens
across the Nation, the people they employ and the
choice of information that they give? Compared
to only NTA that used to close at midnight.
It was private capital, and competition that forced
these changes and created expanded
opportunities for jobs.
Ladies and gentlemen, my comparisons are done.
It now remains only for me to conclude by
making recommendations which I concede may
not be exhaustive, but which I believe will begin
our journey of change that will reduce the risk
and increase the appetite of our local pension
fund administrators to get their feet wet and test
the waters in the place we call home.
I have identified 5 (five) areas about which I will
make recommendations namely: (1) politics, (2)
Governmental action, (3) socio-cultural, (4) Legal,
and (5) judicial.
While each of these areas is itself capable of
being the subject of a keynote speech, I will
attempt to be brief and succinct in making only
highlights of the topical issues.
1. Politics
Very often, concessions, PPPs and private
ownership of public assets are complex,
sometimes misunderstood transactions that some
people view with suspicion.
Some of the perceptions that influence these
complexities, misunderstanding and suspicion
arise from the fact that people sometimes begin
to question why they should begin to pay for
services that government used to provide for free
or at a subsidy.
For example, today, the cost of self generation of
power by residents, using their own generators,
buying diesel or petrol, and sometimes adding
inverters to augment, is estimated between N48
to N 70 Kw/h.
There are already at least 7 (seven) cases in
different Federal High Courts in Nigeria. 3 (three)
are in Lagos, 1 (one) is in Abuja, 1 in (Umuahia) ,
1 (one) in Owerri and 1 (one) in Awka.
The curious thing is that even manufacturers
have taken up some of these cases as plaintiffs,
as if they themselves have maintained the same
price of their finished products.
The truth is that Tariff is about price and if the
raw materials like Gas, power plants , spare parts,
Labour etc have gone up the price of the finished
product cannot be the same.
If the price of the product is not right there is no
incentive to produce more of it.
This can only result in scarcity and high prices .
It is simple economics.
Without the right tariff there will be no power
because it is now in the control of entrepreneurs.
It is left to us to make the rational choice of
paying the right tariff which is cheaper than
generating ourselves at between N48 Kw/h to
N70 Kw/h.
In similar vein,people pay averagely N7,000.00
(Seven Thousand Naira) per tanker of 11,000 litre
of water, approximating to N 0.63K per litre of
water, which is not treated, but they will question
a decision to produce water at a commercial rate
of about N0.35K per litre of water and insist that
it must not sell for more than N0.15K per litre, in
spite of the fact that the water is at least treated
with chlorine which sells at N600.00 (Six Hundred
Naira) per kg .
This state of affairs has been the fertile theatre
of deception for some unprepared and fly by-night
politicians who mount the soap box and threaten
to cancel existing concessions once voted into
power.
What they do not understand is that they are
sending out messages that no investor wants to
hear.
They are raising risk to private capital on a
political front which investors seldom understand.
They understand financial and return on
investment risk but are seldom equipped to deal
with political risk.
Even outside the political class, those who ought
to know display shocking ignorance.
In response to the recommendation to raise
tariffs to competitive market rates, the Punch
Newspaper in its editorial of December 22, 2015
Edition said:
“…Fashola…should not
hesitate to explore the option
of revoking existing contracts
to pave the way for foreign
companies with the relevant
expertise and financial
capacity to deliver the good.”
The question I ask is this, if we needlessly cancel
concessions granted to our own people, what
incentive and assurance do we give to “outsiders”
to invest if the investment of our own people is
not secure in their land?
If you consistently horsewhip your own children in
your home, why should I let my own children visit
your home?
2. Governmental Action
Closely related to political risk, but slightly
different from it is Governmental action.
Whereas the former occurs during the campaigns
and the quest for political power, the latter is
often the follow up to the acquisition of political
power.
Newly formed governments begin a review of all
contracts signed by their predecessors, cancel or
frustrate them even when they are performing.
They do so under one guise or the other. The
previous government has done something wrong,
they did not adequately protect the interest of the
people and so on.
What they do inadvertently, is to create a climate
that diminishes the sanctity of contracts,
negatively affecting the ease of doing business.
It is a practice that is particularly prevalent on
the African continent and I argue that in some
part contributes to our continental deficiency of
infrastructure.
I am not saying that government must not
terminate non-performing contracts. Indeed these
are rights that are standardly provided in all well
drawn contracts.
What I am saying is that contracts cannot be
terminated or frustrated on trumped up reasons
simply because a new government does not like
the affiliation of the holder of the contract.
It weakens the economy, it frustrates enterprise
and leads to poverty and unemployment through
job losses, loans taken from banks are
endangered and the knock on effect is more than
we often can see on the horizon, because the bad
word spreads around the global investment
community very quickly like wildfire.
Yes it may be the case sometimes, that the past
government did not act in good faith, or even
compromised or was even negligent. The answer
is not cancellation, if the contract is performing.
The answer is re negotiation[OF1] .
You can invite the holder of the contract, confront
him with evidence of compromise, bad faith or
recklessness, and this is easy to get if there is
diligence, and you propose new terms.
This I think will enhance the reputation of the
state or country or continent for honouring
contracts and it is music to the ears of investors.
Even then , I say, it must be sparingly resorted to,
once the contract has been signed and is
performing.
This is the business friendly route. It is one thing
to mouth slogans of being business ready and
business friendly. It is quite another thing to
practice it.
3. Socio-Cultural
There are many variants and manifestations of
this but I will cite only one example which is our
cultural outlook to land, especially land owing
families and government.
Unlike the first world, we still cling to bare land
and ownership for itself, without understanding
that it is no more than a factor of production and
capital formation.
All communities that have clung to ownership of
land for no reason other than the fact that they
do not want to lose it, have invariably been
characterized by poverty.
First they do not welcome visitors to their land,
including surveyors. Without surveys, title to land
cannot be created.
Land that is not titled and measured, cannot be
valued and is therefore not useful for investment.
Without investment, there is no development, no
jobs, no prosperity.
I will cite only one example to make my point.
Most of what is Victoria Island today, and the
entire Oniru Estate, belongs to the Oniru
Chieftaincy Family. They are a forward looking
land owning family who have welcomed visitors,
allowed surveys and titled their land.
It is no wonder that some of Nigeria’s prime real
estate, banks, hotels, toll road, offices and multi-
billion dollars land assets are located there.
The examples of the other attitude are replete
and living evidence of how we have perpetrated
old cultural beliefs to our own detriment and
prosperity.
Those who are ready to sell their land to
investors, and guaranty safety of title, or use
their land to buy equity into businesses will
attract more investment and prosperity.
4. Legal
As it stands today, it seems to me that the legal
regime for regulation of privatization of public
assets can do with some reform.
On a general note, let me use the opportunity to
call for the re-invigoration of the National Law
Reform Commission with the mandate to focus
vigorously on the reform of our body of laws.
As things stand, many new laws have been
passed since the return of civil rule in 1999 and
they need to be harmonized for ease of access to
update the last reform carried out around 1990
when the Laws of the Federation 1990 was
presented.
If an example is required, Lagos State
Government revised its laws in 2003 and recently
presented an updated version by its Law Reform
Commission in 2015.
Specifically as far as privatization and concession
of public assets is concerned, it will require the
immense skills of very experienced legal
practitioners to carefully navigate through the
provision of at least 5 (five) general laws in order
to be able to give sound advice to any investor
who seeks advice.
These laws are (1) Infrastructure Concession
Regulatory Commission Act; (2) Public Enterprise
(Privatization and Commercialization) Act; (3)
Pubic Procurement Act; (4) Debt Management
(Establishment) Act; and (5) Utilities Charges
Commission Act.
If the concession is in respect of a road for
example, one will then have to look at a 6th
(sixth) law, the Federal Highways Act.
I should not be mistaken for suggesting that it is
impossible to have a successful privatization, as
we have seen with telecoms and lately power, but
it seems very clear that things can be a lot better
by law reform and harmonization, and the
challenges that road concessions have been beset
with cannot be divorced from the complexities of
the legal regime.
Indeed, we probably will not be having this kind
of discussion if the Pension Reform Act had not
been recently amended. So it is amendments that
open up the space for expanded business
enterprise and ease business efficiency that I
have in mind.
It might delight investors to hear that our
Ministry has commenced an internal review of
these laws and the Federal Highways Act, with a
view to making recommendations to the Ministry
of Justice to consider and effect some changes.
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