Read Babatunde Fashola’s Speech at the Nigerian Pension Industry Strategy Implementation roadmap retreat

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 N5 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 N7,500 – N10,000
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 5th 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 N70 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 N0.63K 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 renegotiation[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.