The Future of Crude Oil, Saudi Aramco the World’s Richest Oil Company Proposes an IPO, and what the NNPC can learn from the move.

Last week Saudi Arabia hinted the world that it might be taking Saudi Aramco, the state owned Oil Company and the richest oil company in the world generating more USD$1 billion a day to the stock market to float an IPO.

So why is Saudi Arabia proposing to float an IPO in the States owned oil company said to be the most secretive company in the world worth trillions of dollars. The country is obviously the biggest player in the global oil market, a strategic ally of the United States and most favoured oil market for the United States with insider information and assurance on oil purchase. Founded in 1933, Saudi Aramco popularly known as Aramco is a Saudi Arabian national petroleum and natural gas Company based in Dhahran, Saudi Arabia, the story is that of discovery and development of the greatest energy reserves the world has ever known and the rapid transformation of Saudi Arabia from the desert kingdom to modern nation state.

For years Saudi Arabia has always protected its share of the global oil trade even if it means not cutting down on production to increase market price when prices fall in the international market. It is becoming clearer and clearer by the day that crude may never hit the 3 digit figure again……obviously not for years to come and not looking elsewhere for foreign earnings will spell doom for the kingdom and a serious threat to its monarchy.

The richest and the most secretive company in the world has woken up to the fact that going public and retracting the economy may be the only way out of their present situation, they have woken up and seen the market dangers ahead and their corporate survival will depend on a new strategy. The shift in environmental and resources strategies has ultimately forced the Saudis to consider new strategies of survival as the old strategy can no longer be sustainable.

When the lead global player holding the largest reserve of crude oil in the world decides to take a bold step and change directions, then the world should know and read meanings to this strategic move that the future of crude might never be the same again.

Living in Opulence!

With a population of about 28 million people and a GDP of USD$746.2 Billion and the 19^th largest economy in the world with an average GDP growth of 3.8%, Saudi Arabia has one of the highest GDP per capita in the world with a figure of USD$24,161 boasting of a whopping 16% of the world’s total petroleum reserve.

Saudi Arabia is the largest exporter of crude oil with the petroleum sector accounting for 80% of its budget revenue, 45% of GDP, and 90% of export earnings. As of 2014, Saudi Arabia had a labour force of 11.22 million people with 80% of its labour force as non-nationals, which means of this number, 8.98 million are foreigners working in Saudi Arabia and only 2.3 million of Saudi nationals about 8% of the population actually works, with the government being the employer of majority of the working population. Everything is subsidized in Saudi Arabia, from food to petrol, to electricity, water and education, which eventually has its burden on the economy.

The Problem!

With a sluggish economy built around crude oil and holding a strategic alliance with the United States in crude sales, the global oil sales can best be described as a global chess game where every move is geared towards killing the queen which in this case represents the price. Oil prices have collapsed by 65% from about a year and a half ago, while this has created a positive outcome for the American consumers because of the reduced pump gas price, it has thrown countries like Saudi Arabia, Nigeria, Brazil, Venezuela, Russia and Iraq into economic chaos. With the end of sanctions in Iran, it will further add a devastating blow to the dwindling oil price, China which is the world’s second largest economy and world largest importer of crude oil has also seen a slowdown in its economy which has further reduced the demand for crude in the international market, and hence the supply now heavily outweighs demand.

The fall in the global demand and price created a budget deficit of 15% of the GDP for the Saudi Arabia in 2015 of about USD$98 billion with a total deficit standing at USD$100 billion. Though having a USD$650 billion in its foreign reserve, the IMF warns that the country could run out of money within 5 years if it does not tighten its expenditures and find new ways of raising money.

So what’s the Plan?

With the fear that crude prices may never hit USD$100 again, the Saudi’s have acknowledged that the economy must change, and people have to be made to work rather than living in opulence and putting the burden on the state. Prince Muhammed bin Salman, the powerful prince and son of the King has that the first stage of the blue print will be for fiscal consolidation to help eliminate the budget deficit.

Floating of IPO in Saudi Aramco, the national icon and the world’s most valuable company which will allow the Saudis to open its books to the world, this will help the Saudi nationals know exactly how much Aramco make in profit yearly which has always been a center of debate on the Royals expenditure.

Increase prices of petrol, electricity and water which is still heavily subsidized, new taxes of 5% VAT, introduction of SIN taxes, diversify from the oil boom by boosting private business and introducing market driven efficiencies, getting the state out of all but its essential functions from health and education to state own companies, privatization and private provisions of public services, complete or partial privatization of dozen agencies and state own companies including national airlines, Telecoms, and power generation.

The Future of oil!

One of the political and economic reasons why the global oil price has plunged from USD$110 in 2014 to a record low of about USD$30 is because the Saudis are determined to protect their share of the global oil trade. Ordinarily, applying the laws of demand and supply, oil producing countries were supposed to cut down on supply to maintain an appreciable market price, but the politics of protecting market share and the fear of losing such market share if the prices increase has made countries like Saudi Arabia continue to produce at normal capacity.

The country enjoyed a budget surplus in the past from the oil boom which has been slowing down lately and creating a budget deficit, in 2006, there was a budget surplus of 19.9% of the GDP, 29.8% in 2008, 11.6% in 2011, and 13.6% in 2012. There was budget deficit of 5.38% in 2009, 2.3% in 2014, and a whopping 15% in 2015. Revenue this year is expected at USD$137.1 billion down from USD$162.2 billion in 2015 further creating a budget deficit if appropriate measures are not put in place.

NNPC and the Nigeria’s oil Future!

The Nigerian government must start to come to terms with the fact that the future of oil may be coming to an end and must start looking for alternatives in generating funds for the country. Though the sale of oil will continue but at low prices with an uncertain future which might not be sustainable for the income that will be required to run the economy. It is becoming clearer by the day that you cannot project the growth of your economy and the projected income on a resource that is a buyers market.

Following the example of the proposed IPO by Saudi Government, NNPC should make every effort to go public and raise money through an IPO which will help the Nigerian State owned company raise money and be better managed. With a long history of corruption, going public, the NNPC will be better accountable to the people and government and it be difficult for corrupt government officials who may want to use the agency as their cash cow at the detriment of the state. Going public at this time will obviously help with increased prestige and visibility, improving its financial conditions and build a better trust between the NNPC and the Nigerian people.

With a bleak future price of oil, government should start to reconsider its strategy of the control of the NNPC which might no longer be sustainable on the long run for the economy.

Leadership, accountability, and the strategic role of followership……………..

“People shouldn’t be afraid of their government. Government should be afraid of their people”—–Alan Moore, British Author.

Africa, the second largest and second most populous continent, one-third (33.3%) of the world’s mineral reserve lies in Africa, two-third (66.6%) of global diamonds comes from Africa, the continent holds one-tenth (10%) of the global oil reserve. Africa is home to some of the rarest mineral resources in the world, the Uranium used in the atomic bomb on Hiroshima and Nagasaki was mined from the Democratic Republic of Congo as far back as 1944, the mineral Cobalt used in space shuttle flight is mined in large quantities from the Democratic Republic of Congo, the mineral Coltan used in cell phones and electronic products is mined from the Democratic Republic of Congo.

There are seven continents, arguably Africa can be said to be the richest of the six liveable ones, as at March 2013, the World Bank identified Africa as the poorest continent. In 2013, Africa was the world’s fastest growing continent with 5.6% growth in its GDP and expected to grow at an average of 6% from year 2013 to 2023. Africa has recorded growth throughout the continent and over one-third of Sub-Saharan Africa growing at 6% or higher. It is expected that with the current growth rate most of African countries will reach middle income status of USD$1,000 per year by 2025.

Apart from the rich and abundant mineral resources, of the 7.2 billion world population, Africa is home to 1.136 billion people. In 1950 with world population of 2.53 billion, Africa had just a mere 228.8 million people representing 9% of world population then, it has recorded an internal growth of 396% in 65 years which is an addition 907.2 million people making up 15.7% of the world population as at 2015, it was also the fastest growing continent in terms of populations. Europe with a population of 549 million and 22% of world population in 1950 and almost twice the population of Africa has only been able to add 194.1 million people in 65 years increasing the population to 743.1 million, a growth of just 35%.

In 1950, the population of Latin America and the Caribbean was 167.4 million and is 630 million as of 2015, an increment of 276% over 65 years, North America at 171.6 million in 1950 increased to 357 million as of 2015, recording 108% in 65%. The two continents of South and North America made up 13% of world populations in 1950. Asia had a population of 1.4 billion people in 1950 representing 55% of the world population then, it has grown to 4.4 billion in 2015 an addition of 3 billion people, 214% internal growth.

With an abundance of mineral and human resources, Africa has a working age group of 527 million which is expected to reach 800 million by 2030, it then means it is a continent with huge cheap labour potentials with average labour rate between USD$90 to USD$180 per month. So what is the excuse, challenges and problems that has continued to plague Africa and cease the continent from taking its rightful place on the global map? The most valuable of all resources any country or continent should boast of is its human resources which Africa seems to have in abundance. It is estimated that Africa will have a combined population of 2.4 billion people by 2050 of the projected 9.3 million world population and will represent 25% of global population while that of Asia will decrease to 54% from 61% in year 2000, Americas will represent 13%, and Europe 7%.

Investing in its population, Africa should be a power house of industries and manufacturing, the Asians and Latin America has been able to harness these potentials and have placed themselves on the road of industrialization by using the strength of population. For a people to have a sense of constructive followership they must have a strong, honest, purposeful, and inspiring leadership that will drive the moral of the people, it must be a leadership backed by actions that inspire others to dream more, to learn more, do more and become more as stated by John Quincy Adams, the sixth President Of The United States. The obvious truth is that Africa has not had good leadership, it is a continent that has been devoid of direction of what and where its goals and objectives should be, what it intends to do with the vast mineral and human resources at its disposal. Africa lacks accountability from its leadership and the people have never really been seen as people asking for it, they are more concerned about the present than a country and continent they will leave for the future generations.

Former South African President Thabo Mbeki in May 2015 while addressing Pan-African Parliament as the current chairperson on the High Level Panel (HLP) on the Illicit Financial Flows from Africa, his panel’s report had estimated that between USD$50 to USD$80 billion is stolen from Africa yearly by foreign firms through tax avoidance and fraud and this has cost the continent an estimated USD$1.4 trillion in illicit financial outflows in the last three decades perpetrated by foreign corporations and corrupt Africans.

Like a successful firm, every leader must know what its cash cow is and how to use the proceeds to develop other aspects of the business SBUs to generate greater profit for the company. Africa has its mineral resources as its cash cow but has failed to invest the proceeds to build a better society by empowering the people. Mao Zedong, China’s great revolutionary leader saw the power and potential of great number of population and positioned China by instilling work ethics and discipline to later become the world manufacturing powerhouse and industrial super power.

Nigeria, the classical example:

With a population of about 178 million, Nigeria is Africa’s most populous country and 8^th in the world with a 2.5% annual growth rate. One in every six African is a Nigerian, it is the largest exporter of crude oil in Africa and has the largest natural gas reserve in the continent. Nigeria with her newly rebased GDP in 2013 became the 26^th largest economy in the world and the biggest in Africa and at the close of year 2014 the GDP was estimated at USD$568.5 billion. It is estimated that the population will reach 440 million by 2050 and will make Nigeria the third most populous country after China and India, this will put Nigeria on the foremost centre of cheap labour in the world.

The biggest resources of the country is in its untapped human resources, yet the government has not seen it deem fit to develop this sector. The citizens themselves do not ask for more than they get because they have not been able to develop a strategic road map on how to hold government and public officials accountable for the dividends of governance and democracy. Nigeria is the only country where a governor of a state will go with an entourage and media coverage to commission a borehole of about USD$1,000 for a community while spending over USD$10,000 on itinerant and media coverage. The wastage and not being accountable to anyone has developed into impunity which the ordinary populace do not dare to question for fear of retributions.

Great societies are not only built by great leaders but also through the principles of good followers.

General Dwight David Eisenhower, the 34^th President of The United States, during his time as Supreme Commander of the Allied Forces that liberated Europe during World War II had made it clear that every unit of the arm forces had their role to play for the strategy put in place to defeat the Germans to be successful, no components of strategy works in isolation, the components must support and reinforce one another, for any strategy to succeed all its components must play complementary roles. The goals of the strategy must be defined, what products or services we are introducing to achieve these goals, what are the core activities that has to be performed and what value proposition are we giving to the society.

The strategy of building a great society does not only lie with leadership, the populace is a part of the strategy and if the populace refuses to play its strategic roles then the strategy is doomed to fail. The society must play over 50% of the core activities of making sure leadership works, for leadership will continue to fail if a society does not ask for greater standards and services to the people through accountability. A society that does not “Demand” the best from its leaders is a society fed with crumbs and leftovers, Nigerians have consistently allowed the leaders get away with impunity, they have over the years disenfranchised themselves from the active politics and resigned to faith that the Almighty God will one day come down to fight their battle while not knowing that the power of governance rests within their hands.

The best societies of the world today are those whose people used the ballot boxes to ask for accountability, they confronted the leadership when they perceive or know the interest of the greater society is not taken into account in leadership decisions, they bring the economy to a halt through protects and strike and they ask that justice must be served to those who have in one way or the or other robbed the system or broken the laws of corporate governance and ethics. It is through these processes that the populace can play strategic roles in shaping and demanding for accountability from leadership.

Most Nigerians don’t even know their rights, Nigerians have come to accept their rights as privileges because they have refused to demand for the right in the first place. Nigerians jubilate when a governor commissions a borehole for a community. For example, the populace can fight the jumbo pay of legislators by using their power of electorate, most Nigerians don’t know that a serving Senator or House of Representative member can be recalled. Within the 1999 Constitution of the Federal Republic of Nigeria, Chapter V, Part 1, Section 69, Sub-Section (a), on National Assembly it states:

National Assembly

 69. A member of the Senate or of the House Representatives may be recalled as such a member if –

 (a) “there is presented to the Chairman of the Independent National Electoral Commission a petition in that behalf signed by more than one-half of the persons registered to vote in that member’s constituency alleging their loss of confidence in that member”.

These are amongst the strategy that the populace can use in demanding for better governance and accountability from the government. The people must wake up and demand for accountability from the Executive, Legislative, and Judiciary both from the Federal and State level. The strategic ways the follower follow is as important to the success of governance as how the leaders equally lead, it is a complementary strategy of holding one another accountable for the deliverables expected from governance and the output expected from the investments of government on the people and society.

Nigerians must understand that the society has a great role in shaping good governance which can be compared to the same objectives of the actions of civil society in Global Governance. These roles must include strategies to promote a set of values that must demand from leadership: accountability, transparency, responsiveness, equitability, inclusiveness, efficiency, rule of law, participation and consensus oriented decisions.

Nigerians as a civil society can adopt the following measures in making sure that government and leaders are accountable to the society:

• Demand for Increasing Public Transparency of Governments Operations: The civil society should demand for an open government which will include projects of open data, e-participation, accountability and public contracting Websites.

• Monitoring and Reviewing Policies: The civil society must play the role of a watchdog to oversee policy formulation and implementation, reports must be studied, criticized and not just accepted, and must be ready to challenge the failure of ongoing policies.

• Seeking Redress for Mistakes and harms attributable to Regulatory Bodies: must be ready to drive norm change, official impeachment, reparation paid, institution reconstructed. The rights of the civil society can be exerted through to auditors, ombudsman, and legislative arm of government, courts, and the mass media. 

• Advancing the Creation of Formal Accountability Mechanism for Governance: The Civil society must encourage government discussions, need to strengthen mechanism of accountability by leveraging social media, public consultations and public events in which national agencies are accountable for what they plan with the budget and what they really do and how.

 The society as followers must acknowledge that to enforce accountability and good governance from the leaders the followers must play an important role in shaping a minimum standard required from leadership, in the same way leadership without direction and followers that cannot hold the leadership accountable results in disaster for the civil society, and for the followers to be able to demand accountability and good governance from leadership, the followers must exhibit the following qualities:

• Good Sense of Judgement: Even as followers take directions from the leadership of the society, they must have an underlying obligation to the society and country to do so only when the direction is ethical and proper. Followers must know the difference between directives given by a leader which they do not agree with and one that is truly wrong. Good judgement is critical to being a good leader but it is also as equally important in being the follower. 

• Education and Awareness: The civil society must be educated and aware of the task before them, people must be educated and aware of the task before them, they must understand and know their rights to fight for them, the awareness of policies and decisions in governance must be known, and to hold leadership accountable a fair knowledge of how things are done must be known.

• Honesty: When followers feel that the leaders’ agenda is flawed or not in the best interest of the society, followers must owe leadership an honest and forthright assessment what the leadership is trying to achieve and how. Good leadership are appreciative of constructive feedback.

• Show of Courage: Winston Churchill called courage “The Foremost of the virtues, for upon it all others depend”. Followers need to be honest with leadership and it takes courage to be honest. It takes courage to confront leadership about accountability and governance, hence it takes real courage to be a good follower.

• Loyalty to the Course: Good followers must remain loyal to the course and must not be swayed by religion, ethnicity or tribal sentiments, they must be seen as people demanding accountability for the greater good of the society at large and not for a specific section, tribe or religion of people.

• Ego Management: Good followers demanding accountability must know that it is not about them but about the greater good of the society so they must be ready to put any personal interest aside that might jeopardize the common interest of the society.

Leadership will always overshadow the followers but there are no leadership without followership, Nigerians must be ready to ask and demand for accountability if they want to make the society a better place. Followers play a critical role in shaping good governance through accountability by asking for increasing public transparency of governance operations, by monitoring and reviewing policies, by seeking redress for mistakes and harms attributable to regulatory bodies. These will be achieved through mechanism and strategies like demanding for accountability, advocacy, public education activities, fueling political debates, and show of courage to confront wrong decisions.

When a leader fails to interpret the economic data of reality

When a man does not understand the fundamentals of economics and management he can never make sense of the disaster trailing his pocket, and that was the sad story of GEJ and his administration….he was a leader that didn’t understand and know the fundamentals of power of statistics in economics. With a recent interview at the National Democratic Institute in The United States of America on Tanzania and Nigeria, while trying to exonerate himself and his administration from corruption, it clearly showed that the past president still does not understand the fundamentals of the nation’s economy.

With Data and statistics you can always measure everything and speak with facts!…

Yes there have been corruption in Nigeria in the past but no regime or government has been so callous to destroy what was on ground and the opportunities afforded at a particular time.

Let’s go back!….

In 1980 Nigeria’s GDP was just USD$64.2 billion, by 1990 the GDP was rebased and the new official GDP was USD$262.6 Billion. This was a stunning 309% increase over 10 years with an annual average of 30.9% increments. Between 1990 and 1999 the economy only grew at an average of 2% per year making it the most stagnant period after the economic growth of Nigeria between 1980 and 1990. What we suffered during this period was the consequences of the wasteful years of IBB and his economic woes.

In 1999 when Gen. Abdulsalam handed over power to President Olusegun Obasanjo there was only USD$4 billion in the Foreign reserve, between 1999 to 2007 when OBJ left, he had built up the foreign reserve to USD$60 Billion and leaving another USD$40 Billion in the Excess crude oil account. So in essence between the foreign reserve and the Excess crude oil account, Nigeria had USD$100 Billion.

Remember that within this period too, OBJ through his Economic team was able to pay off The London Club and Paris Club debts.

By 2013, Nigeria once again rebased her GDP and the new figure was USD$509 Billion which meant the economy grew by 94% in 13 years, with an annual average growth of 7.2% surpassing the world average. In fact Nigeria’s economic growth was only third next to China and India….

Between 2003 and 2004 the economy grew at an average of 10% when Nigeria introduced the GSM phone earlier and its subsequent expansions and the massive concentration of the economy in the service sector.

Note:

OBJ concentrated the efforts of his administration on the Macroeconomics sector…..that is: by shoring up our dollar reserve, paying off our foreign debts and diversifying the economy from the resource sector to the service sector we can reduce the rate of the dollars before concentrating on the microeconomics sector.

The Microeconomics sector will need the reduced rate of the dollars to develop because it will have to import the various machines and equipment it would need for small scale industries to start operating.This was clearly shown in the dollar rate then, when Soludo assumed office the Naira was N147 to the dollar and by the time he left office with all the Macroeconomics they had solved the Naira had reduced to N117 which was a massive plus for the microeconomics sector.

When GEJ came into government, he was able to sell crude at an average price of USD$110 per barrel for 5 years with the budget pegged at USD$76 per barrel which meant more than doubled the profits Nigeria was earning from crude sales.

THE BAFFLING QUESTIONS:

OBJ’S years in office was marred by corruption which he tried to cub….but OBJ was able to do those things that he did despite the fact that crude oil was not that expensive then, so where did all the money go?……

In 2014, Federal Inland Revenue Service (FIRS) generated about N4.6 Trillion and the Nigerian Customs about N1 Trillion, between the Nigerian Customs and FIRS Nigeria generated about N5.7 Trillion yet our Budget for the year was N4.6 Trillion, leaving us with N1 Trillion budget surplus.

In the same year, on OPEC website Nigeria sold Crude oil worth about USD$90 billion and using the equivalent of the Naira value then will give us about N13.9 Trillion. So between the NNPC crude sales, the FIRS and the Nigerian Customs, Nigeria generated about N20 trillion in 2014 alone….other ministries and government agencies that generate revenues have not been added.

If the resources were well utilized during GEJ’s years we won’t be in this mess today!….Prof. Charles Soludo once wrote that within the GEJ’s years the Foreign reserve should have hit between US$120 to USD$ 130 Billion and the Naira Value increased against the dollar to about N70 to N80 if the economy was well managed and that’s the absolute truth. And he went on to say about N30 trillion had been wasted under the GEJ administration, only those who know how to read figures and economic trends will understand his theory.

When GEJ left office Nigeria had barely USD$ 35 billion in the Foreign reserve with all the money in Excess crude oil account gone!…… If the economy had been better managed we will not be suffering what we are going through today……Sanusi Lamido Sanusi clearly warned of the dangers ahead in 2010 when they started depleting the foreign reserve.

Exactly how IBB destroyed the economy in the 80’s when the economy grew at an average of 30% per year between 1980 and 1990 and the consequences of the after effect of what we suffered in the 90’s is resurfacing again because of the carelessness of one man!……..

Brace yourself……….2016 will be tougher!

The Nigerian Naira has been on a free fall lately and the CBN not able to do anything about it, at a point it even hit N280 to a dollar with a lot of Nigerians complaining and blaming the new government, the economic reality of world events shows that the increasing strength of the dollar is not peculiar to Nigeria alone and the world may be bracing for a tougher 2016.

In 2014, with the fall in oil prices, the International Monetary Fund (IMF) reduced its prediction for the world economic growth for 2015 from an estimated 3.8% to 3.5%, a reduction of .3% in total world GDP with Nigeria’s GDP growth reducing from the initial 7.3% projected growth to 4.8%, a reduction of 2.5% and was still the third highest only next to China at 6.8% and India at 6.3% growth and compared to South Africa, Africa’s second biggest economy which grew by only 2.1%. This meant that despite the fall in global oil prices, Nigerian’s economy was still projected to do well above world average, Nigeria was seen as Africa’s engine of growth.

Sub-Saharan Africa’s GDP was projected to grow at 5.8% through 2015 from 5.1% in 2014 surpassing that of the world average and only next to that of emerging and developing Asia that was projected to grow at 6.6%. The European Union projected to grow at 1.8%, Latin America and the Caribbean at 2.2%, Middle East, North Africa, Afghanistan, and Pakistan at 3.9%, with the United States and Canada at 2%.

The Bad News!…….

At the closing end of 2015, the world GDP did not meet the reduced adjusted figure of 3.5%, in fact the world GDP grew by 3.3% and it is project amidst all the global economic chaos to reduce further in 2016 with a projected growth of 2.7% with Sub-Saharan Africa reducing from 5.8% growth in 2015 to 3.5% growth in 2016, this means that the economy of Sub-Saharan Africa will shrink by a whopping 2.3% in revenue and the world as a whole shrink by 0.6% in growth. Apart from America in 2016, the forecast is that the year will be another year of repair, recovery, reform and risk for most countries. (The Economist, 2015)

The Federal Reserve of United States has been speculating that it would increase interest rate for some time, it finally confirmed this last week and further driving up the value of the US dollars in the international market. Why this is so: A strong economy will attract investment from all over the world due to the perceived safety and the ability to achieve an acceptable rate of return on investment coupled with low inflation rate. So the increase in interest rate will cause a massive flow of dollars back into the US economy with corporations, multinational and individuals buying up dollars worldwide to re-invest in the US economy causing disruption in demand and supply of the dollar in the international and local markets.

The second factor is the fall in global oil prices which has also reduced the amount of petro-dollars for oil producing countries like Nigeria, Saudi Arabia and Brazil. With less dollars now coming into these economies and corporations and multinationals moving money back to re-invest into the US due to increase in interest rates, most economies that depend on the petro-dollars as their main source of foreign exchange will face serious challenges in 2016.

The Signs are here!……….

Saudi Arabia……..Saudi Arabia hikes petrol prices by 40% at the pump

With a fall of more than 60% in global oil prices since mid-2014 to below USD$40 a barrel, Saudi Arabia is facing its biggest budget deficit in history of USD$90 billion, the government of Saudi Arabia has had to increase petrol pump prices by 40%. Public revenues are the lowest since 2009 when oil prices dived as a result of the global financial crisis. Saudi income for 2015 was 15 percent lower than projections and 42 percent less than in 2014. (Aljazeera, 2015)

Brazil……Brazil’s Fall: Disaster looms for Latin America’s biggest economy

Brazil, South America’s biggest economy is scheduled to host the Olympic Games in August of 2016, but there is serious doubt if the country can meet up as the country faces political and economic disaster. Fitch became the second of the three big credit-ratings agencies to downgrade Brazil’s debt to junk status on December 16^th, 2015. Brazil’s economy is projected to shrink by 2.5% to 3% in 2016 not so different from 2015. Brazil’s problems is even made worse as its political differences has made it almost impossible to tighten up its expenditures which has been riddles with massive corruption in the petroleum sector over the years. (The Economist, 2015). The currency, the Brazilian Real, has dropped to its all-time low since its introduction two decades ago, as at September 23^rd, 2015 the currency had lost 35% of its value against the dollar with CNBC describing it as “This Currency’s Collapse is astounding”. (Yang, 2015).

South Africa……South African Rand: 2016 Will be Tough, 3 finance ministers in one week

Barclay’s 2016 forecasts confirms the South African rand is predicted to struggle in 2016, the country has had to replace three finance ministers in one week to find a way to stabilize the economy from its current free fall by restoring confidence to the market, but the move seem not to be working as planned. The currency is struggling in the current global financial market which is characterised by losses in the commodity market. The Rand fell to its all-time low losing over 35% of its value to the US dollars since January with investors withdrawing from the SA economy. (The Economist, 2015).

Mexico……Mexico’s Peso Falls to Record Low against Dollar

The Mexican peso has also been recording a free fall against the US dollars, the currency has devaluation of about 18.3% since January of 2015, dropping to an all-time low since 1993, and the Mexican government revaluation as a rout in commodities followed an auction of oil blocks that many analysts declared a failure. A decline in crude prices discouraged demand when Mexico took its first step toward dismantling the state oil monopoly. (BloombergBusiness, 2015).

Canada…..Canadian dollar recovery will have to wait

The Canadian dollar is at more than an 11-year low versus its U.S. counterpart, Unemployment was 6.6 per cent in November 2014, but 7.1 per cent this year, recent Canadian data, compared with the same figures released in late 2014, show the economy is in significantly worse shape now.

The Others……

The Chinese has had a slow economic growth which has also affected a lot of their trading partners, and their currency, the Euro has had its share of the economic woes but the bottom line still remains most of these countries saved for the rainy days when the oil prices were high. Japan has lost 15.6% of the value of its currency to the US dollars since January 2015, some may say it’s not high but to the Japanese economy it is a massive devaluation.

Nigeria is in a crisis situation and in Crisis situations you take tough and decisive measures other than that you might find yourself in a total collapse of the economy. Those blaming President Buhari for taking these tough and decisive measures must study crisis management and read about how Brazil’s indecisiveness is pushing the country and South America’s largest economy into a deeper sink hole and mess.

The oil Prices might fall further…..

With the depressed market oil prices caused, it is said, by the US and Saudi Arabia not cutting back on production when demand has fallen and the removal of the sanctions against Iran which begins to disappear January 1, 2016. Whether America likes it or not, Europe was going to unilaterally nullify the sanctions in 2016, as they want the trading partner back. There will be a flood of infrastructure sales to Iran in exchange for cheap crude for Europe. Iran has more than 500,000,000 barrels of high grade crude already loaded and ready to ship the moment the sanctions expire. The price of crude may drop to $30 a barrel in the first quarter of 2016. If this all comes to pass the Naira and other currencies from the petro-dollar economies may fall even further posing greater challenges for these economies.

Of Corporate Governance and Ethics,……….Why Nigerians should stop complaining about the fines imposed on MTN and Guinness Nig. Plc.

You break the rules, you pay the fine!…………..

Nigeria is any investors’ haven, with a population of almost 180 million and growing at an average of 2.5% annually. Nigeria has a middle class of 23 million making up about 4.1 million households, the largest in Africa and is projected to add an additional 7.6 million middle class household in 16 years. Nigeria has a Return on Investment (ROI) of 36% compared to 6.6% global average and ranked 4th in the world on ROI. Nigeria is a power house for Multinational Corporations.

Africa has for long being a place where Multinationals break the rules and regulations on Corporate Governance without any consequences due to weak laws, corrupt government officials, international pressure on governments, and the exertion of Corporate Power to subvert justice. Billions of dollars leaves the Nigerian shores every year as in profit to the countries of origin of the operating multinationals without a substantial Corporate Social Responsibility (CSR) to the countries where they make the billions.

MTN Nigeria….Communications, South Africa

In 2001 MTN came into Nigeria with a prospect of 10 million Nigerian customers, within 5 years MTN had 32 million customers, though operating across Africa and the Middle East, Nigeria still remains its biggest single source of profit. (The Economist, 2014). In 2013 MTN posted a worldwide revenue of USD$12.9 billion with Nigeria being the highest contributor of 35% of the total revenue, giving the Nigeria share to be USD$4.52 billion. The worldwide Profit after Tax was USD$2.81 billion.

The USD$5.2 billion MTN fine at the present exchange rate only represents 115% of its average revenue in Nigeria and more than 100%.

Guinness Nigeria Plc…….Alcoholic Beverage, United Kingdom

Guinness Nigeria, a subsidiary of Diageo Plc of the United Kingdom, was incorporated in 1962 with the building of a brewery in Ikeja, the heart of Lagos. The brewery was the first outside of Ireland and Great Britain. Products includes Beer Brewing, Bottling and Marketing of Guinness Foreign Extra Stout, Harp Lager, Malta Guinness and other Beverages. In 2013, the company recorded a total revenue of USD$790.1 million, with profit for the year being USD$76.54 million. (Guinness Nigeria Plc. 2013)

The N1 billion fine imposed on Guinness and at the present exchange rate represents 0.63% of the company’s average revenue and less than 1%.

Europe and North America, the law is supreme!

The calculus of crime

Assessed against this methodology, even apparently hefty fines look pretty weak. Recent big penalties, GlaxoSmith-Kline 10.8% of revenue, Abbott Laboratories 12.3% of revenue, BAE Systems 2.1% of revenue, and Barclays 0.5% of revenue have been far lower than a crime calculus of this sort would suggest is needed, even allowing for the fact that some firms, like Barclays, get discounts for co-operating with the authorities. Britain looks particularly lenient. Its antitrust laws impose fines of up to 10% of revenues; American regulators levy penalties of up to 40%, and the European Commission goes up to 30%.

In some cases companies have been made to pay more than 100% of their annual revenue as penalty, depending on the magnitude of such crimes.

While people are crying wolf in Nigeria, let’s look at some of the fines imposed on Multinational Corporations abroad on the breach of Corporate Governance.

1. Abbot Laboratory………Pharmaceuticals
Crime: Promoted anti-seizure drug Depakote for unapproved usage
Revenue: USD$4.7 billion, Fine Imposed: USD$1.5 billion, Percentage of fine to Revenue: 32%, eventually negotiated to USD$500 million representing 12.3% of revenue.

2. Johnson & Johnson………Pharmaceuticals
Crime: Illegal marketing of anti-psychotic drug Risperdal and other medications
Revenue: USD$9.7 billion, Fine Imposed: USD$2.2 billion, Percentage of fine to Revenue: 23%

3. Halliburton………Energy
Crime: Bribing Nigerian officials
Revenue: USD$1.1 billion, Fine Imposed: USD$579 million, Percentage of fine to Revenue: 50%

4. Intel………Technology/Telecoms.
Crime: Paying manufacturers to favour its products over those of its rivals.
Revenue: USD$4.4 billion, Fine Imposed: USD$1.45 billion, Percentage of fine to Revenue: 33%

5. UBS……….Finance
Crime: Sham accounts destroying documents, tax evasion.
Revenue: USD$2.2 billion, Fine Imposed: USD$788 million, Percentage of fine to Revenue: 35%

6. Siemens……….Technology/Telecoms.
Crime: Kickbacks and Bribes to win contracts in Iraq, Venezuela, Bangladesh, Israel and Russia.
Revenue: USD$8.2 billion, Fine Imposed: USD$1.6 billion, Percentage of fine to Revenue: 19.5%

7. Pfizer……………Pharmaceuticals
Crime: Misbranding painkiller Bextra and promoting it for unsuitable uses.
Revenue: USD$8.6 billion, Fine Imposed: USD$2.3 billion, Percentage of fine to Revenue: 27%

8. British Petroleum BP………….Energy
Crime: Gulf of Mexico Oil spill.
Revenue: USD$30.6 billion, Fine Imposed: USD$34 billion, Percentage of fine to Revenue: 110%

9. Eli Lilly & Co………….Pharmaceuticals
Crimes: Marketing of anti-psychotic drugs Zyprexa for non-approval uses.
Revenue: USD$4.3 billion, Fine Imposed: USD$1.42 billion, Percentage of fine to Revenue: 33%

10. Samsung……………Technology/Telecoms
Crimes: International Price Fixing on DRAM memory chips.
Revenue: USD$9.4 billion, Fine Imposed: USD$300 million, Percentage of fine to Revenue: 3%

11. Timewarner……………Media
Crime: Deceiving Investors about the details of a merger with AOL
Revenue: USD$1.3 billion, Fine Imposed: USD$2.4 billion, Percentage of fine to Revenue: 192%
12. Boeing……………Defence
Crime: Contracting scandal
Revenue: USD$2.2 billion, Fine Imposed: USD$615 million, Percentage of fine to Revenue: 28%

13. American International group (AIG)…………..Finance
Crime: Improper accounting, bid-rigging and skipped payments to state workers compensation fund.
Revenue: USD$14 billion, Fine Imposed: USD$1.6 billion, Percentage of fine to Revenue: 12%

14. Shell………….Energy
Crime: Damage to land in the Niger Delta, Nigeria.
Revenue: USD$26.3 billion, Fine Imposed: USD$1.5 billion, Percentage of fine to Revenue: 6%

15. Prudential Finance……Finance
Crime: Deceptive Trading
Revenue: USD$3.4 billion, Fine Imposed: USD$600 million, Percentage of fine to Revenue: 17%

16. Bank of America…………..Finance
Crime: Allowed a select group of traders to make ‘improper traders’ including after 4pm market close.
Revenue: USD$16.4 billion, Fine Imposed: USD$676 million, Percentage of fine to Revenue: 4%

17. AstraZeneca………Pharmaceuticals
Crime: Illegally marketed anti-psychotic drugs Seroquel for unapproved and unsafe uses.
Revenue: USD$8.1 billion, Fine Imposed: USD$520 million, Percentage of fine to Revenue: 6%

While Corporations are being made to face the full weight of law in developed market, most are clamouring for the safe landing of multinationals who have broken similar rules in Nigeria. Behavioural changes are the most difficult to achieve, and this difficulty is often underestimated. The dangerous assumptions is that if something makes sense then companies will fall in line and change their ways of doing business to conform with the new or existing demand. Unfortunately, this seldom happens as easily as anticipated. Companies do not fall in line simply because they do not either have the skills for the change or the rules are not in their best interest. Most of the above cases did not just happen but were influenced by the populace who are the market and customers, they pushed for the law to be enforced.

Example was the trouble in the North Sea in September 1991 when Shell UK, a member of the Shell Royal Group of Companies wanted to sink its Brent Spar, a large oil storage tanker facility and loading Bowie, a cylinder that stood 463ft high more than twice the height of Big Ben and weighed about 14,500 tons. Since the company could not justify the refurbishing that the facility needed, they decided to decommission the Spar. While the company had to find a way to dispose the Spar, they never chose the best option of recycling but chose what was economical viable to them at the expense of the environment.

Shell UK decided to sink the Brent Spar with all the sludge contained in it, Shell UK a powerful Multinational Corporation and using Corporate Powers had influenced the regulatory body to overlook the environmental impact of their decision. It took the intervention of Greenpeace International an NGO with global interest on preserving the environment, Greenpeace through confrontations, protects, and boycott of Shell’s products forced Shell to step down from their decisions after months of face-offs. We must play our parts and help government enforce laws and in most cases where government are not living up to the standard, we must push and make sure such laws that breach Corporate Governance and Ethics are enforced, and we must not be seen making excuses for these corporations.

While we might argue that the fine is huge, there is always room for negotiations, most of the companies listed above negotiated their fines, it will surely set the tone for future business ethics, and companies will know that government has woken up to their responsibilities.

Nigeria, identifying the right Leadership between the intelligent and the ability to wield power

“Franklin Roosevelt was a great leader. He saw how to use the levers of power to affect change” —— Pete du Pont

What sets a leader apart is not that he has power, but that he has the wisdom and maturity to use the power wisely, choosing between an intelligent person who cannot wield power and a person who can wield power has always been a major mistake in the ascension to power in most corporate and political settings causing a major setback and in some cases a total collapse in the business activities, leadership positions or government as a whole. You cannot separate leadership from the ability to identify and appropriate the use of power, but the followers must trust the use of such power, the followers must be able to identify and see clearly that it is not just enough for the leaders to exercise such powers, they must see the power as being used to protect freedom and give all people hope for the opportunity to see the fruit of their own labour.

When such powers are eventually used to protect the people it develops into trust and such trust builds the general output of any organization or country, the trust is a critical factor between the leader and the followers, it is a form of chemistry that cannot be explained in lay terms, it is only explained in the submission of total will of the followers to the direction of the leader knowing and believing without doubt that his instructions represents the general interest of all.

The intelligent has almost in all cases risen to the height of an organisation or government through their ability to fashion out theoretical solutions to problems, they are quick in following some of the best models of solving challenges and problems theoretically, they are seen as fashioning out ways to combat problems with formulas not minding the human psychology of resistance, ego, indifferent and personal interest.

The question has always been on the forefront, how to we pick the next leader or who do we give the leadership role to within an organization or more importantly in government. So between two people who have risen in ranks and are contending for the top job of any organization, between the very brilliant who knows the theory solutions and who cannot wield power and the averagely intelligent who can wield power, who should the organization or country hand over the mantle of leadership.

Most people recognise power as the ultimate control that the leaders at the top of the organizations or government exerts from their positions as being the overall boss down the hierarchy. To think power starts and stops at the formal authority is the biggest mistake most organizations and governments make in picking their leaders, the leadership born from formal authority is just a title attached to an office, without knowing the principles of power itself and how to combine it with the office and title often leads to failure with the consequences as loses borne on the organization or government which in most times results in billions of dollars before the damage is realised

A leader who cannot wield power can be likened to a soldier going to war without his rifle and hoping to stand before the enemy and order them to surrender. The greatest of leaders are those who with their intelligence can also wield power or those in spite of their intelligence are able to wield power. After all some of the Fortune 500 companies and governments that have gone bankrupt or near bankrupt was not because the CEOs or government leaders were not Ivy League graduates but because they lack the style of leadership on how to use power. The leaders and CEOs who had taken over the mantle of leadership to revive the situations were in most cases graduates from the average universities who have trained themselves on the use of power.

There is power at every level of leadership which leaders can access but most fail to recognise them and are often underutilized. A leader might have more power within an organization or government than his subordinate, but if the subordinate wields it more effectively he might exercise more influence within that organization or government, that is the reason some junior staff are more loyal to the managers or general managers than to their CEO’s or heads of parastatals are more loyal to ministers and governors than to the presidency.

The power of position, this is the power that is derived from a person’s title or position within a group, organization or government

The power of charisma, this is style or persona used by a leader to generate influence and used to accumulate power.

The power of relationships, through formal and informal networks both inside and outside of their organizations, a leader is able to build influence and power.

The power of information, Information is power and those who have firsthand information often use it to their own advantage, this form of power is generated through the use of evidence deployed to make an argument and often when it is right you gain favor and appreciation either through from boss or followers.

The power of expertise, this is the intelligent mind, it is the power and influence that one builds through developing, communicating and knowing some special knowledge known only to you or being a genius at using theories to solve challenges or problems.

The power of punishment, this is the ability of a leader to use his position to discipline and to sanction for failure to conform to standards or expectations.

The power of reward, when a leader has the ability and capacity to identify or reward individuals for their efforts and results.

When the top job is given to the intelligent man that cannot wield power

Psychology has it that people are mostly attracted to people who exhibits the traits which they lack, the danger of bestowing the top job whether in an organization or government to an intelligent man who cannot wield power is as dangerous as losing the whole treasury. With time what happens is the leader gather around himself powerful individuals to help him exert the power which he so desires to run the organization. The intelligent in most cases is power derived from expertise, who has been elevated to power of position which often results from rising in ranks of the organization and government, they are often seen as an individual who should not be denied the position because he has worked so hard. The bitter truth is there are different levels of power and the ultimate power of any organization or government lies with the man at the very top.

Very soon what starts to happen is those individuals that help him exert the power he craves for starts to use it to their won advantages, he soon finds it difficult to confront them on any wrong doing since he needs them and their support to achieve his results, for men will always find the opportunity to better their own cause unless they find themselves under a strong leadership to be honest. What eventually happens is the gradual breakdown of law and order as each person he relies on builds their own loyalist within the organization or government. The leader who originally lacks the power of punishment, power of charisma, and power of relationship slowly loses grip on the power of information as people shift their loyalty to the new power block within the organization or government who now exerts more influence through the maximum use of power gained from their new positions.

To gain favor or buy back loyalty most leaders resort to the power of rewards, this is where the organization or government starts to lose money, undue rewards is given to gain favor, and those who are paid for favor soon become sycophants who will never tell the truth but only what the boss wants to hear and still owes their loyalties to those who still hold the influence within the organization or government. A classic example is the past president Dr. Goodluck Ebele Jonathan who was seen as a PhD holder though not out rightly intelligent, he could not wield power.

When the top job is given to the man who can wield power though averagely intelligent.

The averagely intelligent leader but has the capacity to wield power, he is seen as a n nonsense leader, the leader those who lack integrity and honesty dread to work with. The leader though not the smartest person around knows that the only way to accomplish his goals is to enlist the services of intellectuals to work with him. He knows he has full control, he knows the bulk of work stops at his table and he will take the blame for any failure which he is always ready to own up to. He knows his integrity is at stake and he is not ready to compromise it. He would rather push himself and his team to the limit in order to achieve their aims.

He delegates responsibilities and hold everyone accountable, he is not the mean spirited leader, he must exhibit emotional intelligence to a high degree but also make everyone understand that the results expected is the reason they are occupying their positions. Through his power of position he passes down a message that he is in charge and he is not ready to compromise that position. Those he has chosen to help lead are called to high standards because he has control over the power of punishment. So each leader within the organization knows that there is consequences for wrong doings and are always on their toes to do what is right and to call others to the same standards.

The leader exhibit such power of charisma which ultimately pulls people to him and this helps him in building an amazing influence and this influence develops into the power of relationship, people want to associate with him, not just because he is the leader but because there is a connection between them, he has been able to develop a bond of loyalty. This bond of loyalty is the ultimate step to the power of information, those loyal to you will always furnish you with the right information and will never withhold anything from a leader they see as representing their interest. They know whatever they withhold will definitely affect them too on the long run. With the trust the performance becomes unconditional and both the leader and the followers give their best. There must be trust within power to get maximum performance, and with a common vision, attention is focused and it will be a natural process which will boost output and of course this allows the leader the ability to use the power of reward.

The ability to wield power by a leader ultimately affects the performance of people within the organization or government that is why a person can be so successful through performance under one leader and is a failure under another leader while performing the same task.