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Impact of The Economy and Poverty on The Ease of Doing Business. ____Why government must look beyond just regulations!!..

As long as Poverty, Injustice and Gross Inequality persist in our world, none of us can truly rest”……Nelson Mandala.

With an average of 8,000 people being added to Extreme Poverty daily in Nigeria according to the World Poverty clock, and Nigeria’s subsequent move 24 points up the ladder on The Ease of Doing Business index from 169 in 2016 to 145 in 2017, Nigeria must look deeper and beyond the regulatory regime on The Ease of Doing Business and address the major factors that attract Foreign Investors into emerging economies if the country must benefit from the advantages of Foreign Direct Investments.

PICTURE 1

Foreign Direct Investments have different effects in an economy, which includes important avenue for improvement in the economy, increase in competitiveness, regional development, a major source of Foreign Capital Inflow which can help grow the economy, strengthen the local currency, create employment, and most important the transfer of technologies which can help propel a country to the world stage in manufacturing, become more competitive and further grows the economy.

While Governments around the world try to woo investors into their economy through easier regulations in the Ease of Doing Business, the same governments must look beyond the factors of regulations and at other factors which play a greater role in determining whether foreign investors will come or stay in their economies. Policies must be created around these factors and must not be tempered with, bipartisan politics is what will promote the positive results for the common interest of all. While Nigeria has concentrated on promoting the Ease of Doing Business through easier regulations, the country has neglected the most important factors that will attract foreign investors.

According to the 2018 Global Peace Index report, The Institute for Economics and Peace, a non-profit think tank that has authored the report for the last 12 years, outlines “The Economic Impacts of Violence: How the use of force hurts global economic output”. The 2018 Reports states that the Economic Impact of Violence in 2017 was $14.8 trillion in constant Purchasing Power Parity and roughly 12.4% of global GDP or $1,988 per person, with Syria recording an Impact of 68% of its GDP, Afghanistan 63%, South Sudan 49%, Central African Republic 38%, Somalia 30%, and Nigeria at 11% (equivalent to $150.2 bn) of GDP at Purchasing Power parity.

The Economic Impact of Peace goes beyond just affecting GDP growth, study shows that over the last 70 years, GDP per capita has been three times higher in highly peaceful countries compared to countries with low level of Peace. Countries with the largest improvements in peace also recorded 7 times higher per capita GDP growth than those that deteriorated the most over the last decade and would have added US$13.87 trillion to global GDP had the low peaceful countries achieved GDP growth equivalent to highly peaceful countries. When GDP Per capita is not increasing as it should be and population is increasing, it ultimately makes the country poorer and standard of living starts to fall.

While less peaceful countries experience economic stagnation, GDP per capita has grown on average by just one percent over the last 70 years resulting in economic factors such as high levels of poverty, unemployment, and inflation which are major risk factors for both political unrest and insecurity. As the low peace countries experience poor economic performance it leaves them more vulnerable to political instability and conflicts the very factors the multinational companies list as critical factor before investing in an economy, and according to the Global Peace Index, Nigeria falls within the very low peaceful countries.

PICTURE 2

Countries with higher level of peace have lower interest rates which ultimately helps financing in the domestic market attracting Foreign Investors compared to countries that have low levels of peace with higher interest rates which makes domestic financing expensive and in most cases leads to higher overheads and business failures. Inflation is on average three times higher and ten times more volatile in low peace countries than high peace countries and the reason why companies in developed economies rate low peace and unstable economies as high risk zones for businesses.

While all these factors play a critical role, they are all linked to low peace countries and studies shows that Foreign Direct Investment inflow are more than two times higher in countries with higher levels of peace relative to less peaceful countries and the GDP of least peaceful countries could increase by US$527 by 2030 if they were to grow at the same rate equivalent to the most peaceful countries.

In his Book “The End of Poverty” Prof. Jeffrey Sachs states that “The Destinies of the haves are intrinsically linked to the faiths of the have nothing at all, if we didn’t know this already it became too clear on September 11, 2001. The perpetrators of 9/11 might have been wealthy Saudis but is was in the collapsed poverty stricken state of Afghanistan they found sucker and sanctuary. Africa is not in the front line against terror but it soon could be”

As at 2016, the Boko Haram insurgency in North-Eastern Nigeria had claimed no fewer than 20,000 lives while about 1.8 million people had been displaced from their homes and communities grounding economic activities which not only affected the have nothings at all but also affected the faiths of the haves. The North East Nigeria Recovery and Peace Building Assessment (RPBA) team had announced in early 2016 that the impact of the conflict in the region had cost US$9 billion and also indicated that US$6 billion will be needed to perform recovery efforts in the region.

Even as Nigeria declares war on terror, we must not fail to understand the deeper cause of the instability, the truth is that the increased military surveillance and expenditure will not solve the problem unless we address the fundamental cause. Had Nigeria invested the increased expenditures it is using today on military surveillance and hardware to fight insurgencies and terror on developing the people, the story would have been different.

While carrying out the research, there were two major findings amongst countries where internal conflicts degenerates into terror afflicted zones, they were low education expenditure and high poverty rate. On January 14th, 2011, the Arab spring began in Tunisia which later spread to other Arab countries igniting mass protests, but the root cause were: Economic Mismanagement, Corruption, and Increasing Poverty which had reached their heights, today the consequences are still being felt in places like Libya and Syria where the situations have degenerated into full scale civil war with millions displaced and thousands killed seven years after.

According to the Broker, a think tank organization which carries out research to help policy makers with better decisions makings…. “Looking at inequality between countries essentially means looking at poverty. Research by internationally renowned experts like Paul Collier and Nicholas Sambanis has shown a strong link between the wealth of a country and the probability of it suffering from civil war.”

For instance, in the Democratic Republic of Congo, a senior officer’s salary is less than $100 a month and often goes unpaid. One of the commanders of a rebel group in the east of the country recalled the moment he was recruited: “I had spent five months in a training camp in Kinshasa with no salary. My family was going hungry. When [General Laurent] Nkunda began recruiting, I saw I didn’t have any option”. Ironically, The Democratic Republic of Congo is where 71% of the population lives in Extreme Poverty.

While the Nigerian government may enhance the regulations surrounding the Ease of Doing Business, the greater restrictions for companies coming to invest in Nigeria still remains Political Stability and Security. In 2017, the World Bank conducted a survey to know what CEO’s of multinational companies really want before investing in Emerging Economies which was published in the 2017/2018 Global Investment Competitiveness Report, Political Stability and Security was top on the list with 50% of the CEO’s holding it to be critically important, and only 2% saying it is not important at all.

PICTURE 3

Large domestic market size came second with 42% as critically important, while only 4% says it is not important at all. Legal and Regulatory Environment comes third with 40% saying it is critically important while 2% says it is not important at all. Macro-Economic Stability and Favourable Exchange Rates comes fourth with 34% and Available Talent and Skills of Labour comes fifth with 28%.

But the interesting thing is that all the indicator sets which makes up The Ease of Doing Business can’t function in a country that lacks peace, stability, and plagued by insecurity, eight of the eleven indicators have to do with procedures and time it will take to get things done, and a country that lacks peace or stability cannot guarantee that time frame, the North east as an example where when things starts to fall apart you can hardly get things done.

According to our findings, Nigeria has failed to focus on the major critical factor which will attract Foreign Investors despite its massive advantage of population and geographical location. Over the years the country has continued to witness security issues which has continued to plague its chances of attracting investors into strategic sectors like manufacturing. The simple truth is that as long as poverty and extreme poverty is on the rise the security challenges will not reduce. We may be able to subdue terrorism for a while but there are willing tools and people who poverty will push against their will and their very own consciences.

While Poverty and Extreme Poverty continues to increase as a percentage of population and threatens the stability of the country, the question has been why Nigeria has recorded economic growth over the years and poverty increasing at the same time. Today the Asian countries have continued to lift their citizens out of poverty and extreme poverty while recording economic growth, China is an example where almost 800 million has been lifted out of poverty from 1981 while the opposite is happening in Nigeria. If we have economic growth and at the same time increasing poverty then it means that something is wrong and we are probably operating the wrong economic model.

Economic Growth should lead to Economic Development, and Economic Development leading to better Human Development, but Nigeria has over the years recorded Economic Growth that has not positively impacted Human Development while creating poverty.

Sustainable Development!!……

According to the International Institute for Sustainable Development (IISD) Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. In conclusion, it is the Economic Development that is conducted without depletion of Natural Resources, it is an economic model that drives Education, Innovation, and Required Skills. It is then logical to conclude that we are not operating the right economic model.

Nigeria’s economic model is wrong and has not created wealth over the past 37 years as the creation of wealth comes from empowering the people through investments in Human Capital Development and helping reduce the number of people living in Poverty and Extreme Poverty and affecting the people positively leading to economic progress a better human development index. Nigeria has been operating an Expense Budget since the Mid-80’s rather than an Investment Budget, Investment creates wealth and not expense.

This can be seen on the Human Development Index where the country has stayed at the Low Human Development Quartile since 1990 despite recording economic growth and Expansion without being able to move up to the Medium Development Quartile whereas some countries have been able to move up from Low Human Development to Medium Human Development as they record economic growth, a scenario where the growth has been able to positively affect the population.

The Human Development Index is a composite index of life expectancy, education, and per capital income, it is no surprise that the index of life expectancy and education falls under Human Capital Development which when invested in leads to higher per capita income and this is where Nigeria has failed woefully and hence has remained at the Low Human Development quartile of the Human Development Index.

Countries that have sustained economic progress despite moving up the Human Development Index have managed to reduce their levels of violence and have escaped what has been termed the conflict trap: a tendency where countries with low income, low growth, and primary commodity dependence to remain trapped in a cycle of violence, political and economic instability. Economic instability is a known catalyst for political upheaval and social unrest which further reinforces poor economic performance.

Increasing Poverty!!……

In the 60’s, 70’s, and early 80’s Nigeria had a better standard of living than most Asian and African countries because of the heavy investments in Human Capital, especially Education which most Asian countries and African countries were not investing in, hence Nigeria had less people living in Poverty. In 1981 approximately 47% out of the population of 75.7 million people lived in poverty representing 35.6m people, by year 2000 the percentage had increased to 65% of the 122.3m people bringing the total headcount of people living in poverty to 79.5m people.

By 2010, percentage living in poverty had further increased to 70% of the total population of 158.6m people, the headcount living in poverty increased to 111m, this means that between 1981 and 2010, a total of 75.4m had been added to poverty. The Percentage living in Poverty has remained at 70% ever since while population continues to increase thereby increasing the headcount of people living in poverty, by the end of 2015, headcount had increased to 126.8m out of a population of 181.2m. The worrisome part is that GDP has increased from $61.1 bn in 1981 and reaching an all-time high of $568.5 bn in 2014, an increase of $507.4 bn (830.4%), within the same period Nigeria added 87.9m people to poverty and by 2016 had added 94.6m people to poverty.

Today Nigeria can be said to be in a situation called the Poverty Trap….A mechanism which makes it very difficult for people to escape poverty. A poverty trap is created when an economic system requires a significant amount of various forms of capital in order to earn enough to escape poverty. When individuals lack this capital, they may also find it difficult to acquire it, creating a self-reinforcing cycle of poverty.

Looking back at the economy from 1981 to date, Nigeria has had both Economic Recessions and Economic Growth with Poverty Increasing at both times, so no matter what happens in the economy poverty continues to increase. As Poverty continues to increase, Crime, Social Unrest, and Corruption will continue to increase which can lead to both State and Regional Instability.

By 2016, China’s Economy had grown from $196bn in 1981 to $11.2 trillion in 2016 (5617%) lifting 789.5m people out of poverty, India’s Economy grew from $196.9bn in 1981 to $2.264 trillion in 2016 (1050%) and lifted 137m people out of poverty, Indonesia’s economy grew from $85.5bn in 1981 to $932.3bn in 2016 (990%) and lifted 78.7m out of poverty, Thailand lifted out 29.4m people with an economic growth of $34.8bn in 1981 to $411.7bn in 2016 (1083%), Malaysia lifted out 2.93m people with an economic growth, and Bangladesh lifted out 24.3m people.

How did the Asian countries who were behind countries like Nigeria in the 60’s, 70’s, and early 80’s able to make such a giant stride?…….it was because the Asian countries changed their economic model in the mid-80’s by investing in Human Capital Development thereby driving Sustainable Development, ironically from research it was the same time Nigeria started reducing its investments in Human Capital Development.

Reaching 5% of GDP in 1981, Nigeria continued to reduce its Education Expenditure from the mid-80’s reaching an all-time low of 0.76% (Less than 1%) in 1992 and it has remained below 1% ever since, while it continued to treat education as an expense rather than an Investment. Investing in Human Capital Development is what helps individuals create wealth by attaining their potentials and this has long been the economic model of the western world, this was what Nigeria did in the 60’s, 70’s, and early 80’s and why Nigeria was ahead of the Asian countries. Immediately Nigeria stopped the Asian countries started their massive investments in Human Capital Development, building sustainable development and growth which has led to the reduction of poverty across the region.

With abysmal investment in Human Capital Development, there is no meaningful investment in the people to create wealth, and as poverty increases corruption continues to increase as well….Poverty leads to Corruption and Corruption further reinforces Poverty leading to deeper Poverty, this is why the number of Extreme Poverty in Nigeria will continue to increase threatening peace and limiting foreign investments.

Effect of Increasing Poverty on the Global Peace Index and TI International!!…..

The increasing Poverty over the years has led to increased crime, social unrest, and corruption in Nigeria, with the Social unrest leading to both state and regional instability between 2012 and 2015 when Boko Haram insurgency unleashed terror on North-Eastern Nigeria. The Global Peace Index which measures Global Peacefulness through 1). The level of Societal Safety and Security, 2) Extent of Ongoing Domestic and International Conflicts, and 3) Degree of Militarisation, ranks countries annually on peace.

The number one factor which drives foreign investors’ confidence in an economy is Political Stability and Security, in 2008 Nigeria ranked 118 out of 163 countries in the Global Peace Index, by 2011 the country had moved down the ranking to 142, and by 2013 it had further moved down to 148, this was the same time Boko Haram terrorized the North-East of the country. By 2014 and 2015, Nigeria’s ranking reached 151 at the height of the insurgency, not surprisingly Foreign Direct Investments into the country started reducing after reaching its peak of $8.84bn in 2011 to $7.07bn in 2012 and reaching $3.13bn in 2015.

Poverty leads to corruption and corruption breeds social unrest which leads to insecurity, it is no surprise that almost all the countries at the bottom of the Transparency International Index are the same countries at the bottom of the Global Peace Index. Almost all the countries at the bottom of the Global Peace Index are the same countries on the Global Conflict Tracker, a platform which tracks all the major conflicts in the world and which affects The United States interests globally.

PICTURE 4

Since Political Stability and Security is the number one factor that determines the Ease of Doing Business, the same countries dominate the bottom of the Global Ranking in the Ease of Doing Business and are the same countries ravaged by Poverty and Extreme Poverty. Nigerian may have succeeded in reducing the insurgencies in the North-East and moving up the global ranking in the Ease of Doing Business by 24 points, from 169 to 145 but the question is will it be sustainable with the increasing Poverty and Extreme Poverty?.

If we must attract Foreign Investors we have got to reduce Poverty and Extreme Poverty, only then can Nigeria guarantee security, and to reduce poverty we have got to change our Economic Model from a mineral resource economy by building a Sustainable Economy which invests in Human Capital Development, by investing in Education it enables the people create wealth and improve their standard of living. Enhancing regulations is not what will bring in investors but a stable political and security environment will not only attract investors but attract long term investments and not just Foreign Portfolio Investments.

Most foreign investors would rather invest in economies with high level of peace, a lower return on investments where long term sustainability of business can operate than investing in a country where there is low level of peace and higher return on investments. This is why investors tend to concentrate their Greenfield investments in countries with high level of peace and the countries ultimately benefit from technology transfers compared to countries with low level of peace where investors are more interested in short term investments through FPI’s and cash in on high returns due to high interest rates and investments are not really beneficial to the people in the real sector of the economy where it would have made much impact.

As Poverty and Extreme Poverty increases we should expect increase in social unrest and insecurity in the future, and as Nigeria leads the world in Extreme Poverty with 44.3% of its population and 70% living in Poverty, the country might just be building up both state and regional instability in the future repeating what happened between 2012 and 2015 and investors will avoid investing in the economy no matter how good the regulations are in the Ease of Doing Business and the reasons why the government must look beyond just regulations.

This article was written by Roman Oseghale and published by BusinessDay Nigeria on the 10th of October, 2018. See centre spread on the attachment below.

BusinessDay 10 Oct 2018-1

 


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Nigeria as Largest Rice Producer in Africa!…Harnessing Nigeria’s Comparative Advantage.

NIGERIA OVERTAKES EGYPT AS THE LARGEST RICE PRODUCER IN AFRICA WITH 4 MILLION TONNES A YEAR!

—-While we thank President Buhari for his policy, Nigeria must harness its comparative advantage to truly become number one!

The news of Nigeria becoming the largest producer of rice in Africa was made known by the Director-General, Africa Rice Centre, Benin Republic, Dr. Harold Roy-Macauley. According to Mr. Roy-Macauley, Nigeria now produces 4 million tonnes a year to overtake Egypt.

When I first read the news my initial reaction was:….Should we be celebrating or shouldn’t it be a time of Sober Reflections!

Egypt was basically producing an average of 4.3 tonnes annually but because of its harsh weather conditions caused by extreme heat, and Egyptian Government’s new policy of preserving water resources, annual rice output reduced by 40%, thus pushing Nigeria to the number position.

A quick comparison between Nigeria and Egypt will help you understand my line of thoughts!!..

EGYPT!!…

POPULATION: 97.55 million (2017 Est.)

LAND SIZE: 1.01 million Sqkm.

But 90% (909,000 Sqkm) of Egypt consist of desert areas, roughly almost the size of Nigeria. Which means Egypt only has 101,000 Sqkm of arable farmland for both population and crop yields. Little or no Agriculture takes place in the desert regions. The two main deserts being the Libyan desert and the Arabian desert.

ANNUAL RAINFALL:

20mm (0.79 inches) and 200mm (7.87 inches) of Annual Rainfall along the Narrow Mediterranean Coast. But south to Cairo, the average drops to nearly 0mm (0.00 inches) of Rainfall in the central and the Southern parts of the country.

ACCORDING TO THE UNITED STATES DEPARTMENT OF AGRICULTURE (USDA): Commodity Intelligence Report: 2015/2016

Egypt 2015/16 Rice Production: Yield Reduced by Extreme Heat.

SUMMARY!!!!….

USDA estimates 2015/16 Egyptian rice production at 4.0 million tons milled (5.8 million tons rough). Although Egypt planted a record 0.8 million hectares, production was lower than the five-year average of 4.3 million tons milled (6.2 million tons rough) due to poor yields. During August 2015, temperatures were abnormally high, even by Egyptian standards, causing damage to crops, particularly rice. The extreme heat accelerated crop development, reducing grain size and weight. Rough rice yield for 2015/16 is estimated at 7.25 tons per hectare (MT/Ha), a 25-year low, 28 percent below last year’s record 10.10 MT/Ha, and 22 percent below the 5-year average.

NOW LETS LOOK AT NIGERA!

NIGERIA!!..

POPULATION: 191 million (2017 Est.)

LAND SIZE: 923,763 Sqkm

There are no actual desert areas except Sahel in the extreme Northern parts of the country. This means agriculture can take place and food crops can be grown in every part of the country.

ANNUAL RAINFALL:

SOUTHERN PART: Well above the 2,000mm (78.7 inches) average rainfall totals giving for tropical rainforest climate worldwide. Over 4,000mm (157.5 inches) of rainfall received in the coastal regions of Nigeria and around the Niger-Delta regions.

SOUTH EAST: Rest of South East Receives Between 2,000 to 3,000mm (118.1 inches) of rainfall annually.

CENTRAL NIGERIA: Rainfall averages between 1,100mm (43.3 inches) to 2,000mm (78.7 inches).

EXTREME NORTH: Average of 500mm (20 inches) of rainfall.

We got so comfortable through easy policies that we imported everything and it slowly killed the economy!!….Only good leaders help you discover and tap your potentials and Capacity!!..but sometimes it comes through drastic decisions and measures which through persistence and perseverance the goal is achieved, President Buhari should should continue through his policies to promote local cultivation of rice while banning importation.

While Egypt as a whole has a population density of 84 people/Sqkm because of the size of the country and 90% being desert….majority live in the 10% habitable places along the Mediterranean with Cairo having a population density of 46,349 people/Sqkm compared to Lagos which is the most densely populated state with about 6,871 people/Sqkm.

I remember vividly the words my white colleague in Nigeria once told me: “I don’t understand what is wrong with you people, you have the right weather from January 1st to December 31st and you can’t do anything with it, do you know that during winter everything shuts down in Europe”

Nigeria’s Economic Power lies in its comparative advantage and we must learn to use it if are to survive as a nation!!..


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PDP Electoral Decisions Causing the Stock Market to lose Billions in Hours

As the February 23rd, 2019 Presidential and Federal legislative elections results continue to trickle in and the APC in clear lead as at Monday February the 25th, 2019, the People’s Democratic Party, PDP on the same Monday February 25th, 2019 through its National Chairman, Uche Secondus, in a press briefing claimed the results being announced were in favour of the ruling Party, the All Progressive Congress, APC.

Factors Affecting Investment Decisions

The Chairman claimed the results are filled with “Irregularities” and therefore, “Incorrect and Unacceptable”. He stated that “Our collation centres have the original results from all the polling units in the country. That is from where are going to reclaim our results.”

“The results are incorrect and unacceptable to our party. Officials of the APC working with INEC have decided to alter results to affect our people. This must now be resisted by every well-meaning Nigerian. “INEC must live up to its responsibility. They are under pressure. We have the facts and when the time comes, we begin to release them.”

This singular message unknown to many Nigerians would have passed a shockwave to investors in a country where security is very fragile during elections. In 2017, the World Bank conducted a survey on Multinational Corporations Executives on factors affecting investment decisions in developing economies, and top on the list was Political Stability and Security, with 50% of the CEO respondents stating Political Stability and Security as Critically Important, and 37% stating they are important, of all the 10 factors considered, Political Stability and Security was the most crucial on the list.

As at Tuesday the 26th, February 2019, the Stock market was already reacting to the threat of Political Instability should the election results be contested with market capitalization of listed equities on the same day February 26th, shedding N85 billion (0.69%) in six hours of trading, the market capitalization opened at N12.194 trillion and by close of day was N12.109 trillion.

While some analyst claim that it was because the opposition party, the PDP did not win, they must look at the crucial factors which guide investments and investors decisions, and uncertainty in Political Stability where a major political party heats up the polity may lead to breakdown of law and order which can lead to insecurity and causing investors to lose billions, hence they see the sensible thing to do as quickly liquidating their investments and moving the funds out of the economy, and this can further compound economic situations for the country.

The country at this time must assure investors of its political stability and security and the PDP and APC as the major political parties must be seen to play the role of reassuring confidence in the economy. Heating up the polity will lead to further liquidation of investments from the Stock exchange which will lead to high demand of the dollars, driving up its price as investors move out their funds out of the economy.

 


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PDP Electoral Decisions Causing the Stock Market to lose Billions in Hours.

As the February 23rd, 2019 Presidential and Federal legislative elections results continue to trickle in and the All Progressive Congress (APC) in clear lead as at Monday February the 25th, 2019, the People’s Democratic Party (PDP) on the same Monday February 25th, 2019 through its National Chairman, Uche Secondus, in a press briefing claimed the results being announced were in favour of the ruling Party, the All Progressive Congress, APC.

Factors Affecting Investment Decisions

The Chairman claimed the results are filled with “Irregularities” and therefore, “Incorrect and Unacceptable”. He stated that “Our collation centres have the original results from all the polling units in the country. That is from where are going to reclaim our results.”

“The results are incorrect and unacceptable to our party. Officials of the APC working with INEC have decided to alter results to affect our people. This must now be resisted by every well-meaning Nigerian. “INEC must live up to its responsibility. They are under pressure. We have the facts and when the time comes, we begin to release them.”

This singular message unknown to many Nigerians would have passed a shockwave to investors in a country where security is very fragile during elections. In 2017, the World Bank conducted a survey on Multinational Corporations Executives on factors affecting investment decisions in developing economies, and top on the list was Political Stability and Security, with 50% of the CEO respondents stating Political Stability and Security as Critically Important, and 37% stating they are important, of all the 10 factors considered, Political Stability and Security was the most crucial on the list.

As at Tuesday the 26th, February 2019, the Stock market was already reacting to the threat of Political Instability should the election results be contested with market capitalization of listed equities on the same day February 26th, shedding N85 billion (0.69%) in six hours of trading, the market capitalization opened at N12.194 trillion and by close of day was N12.109 trillion.

While some analyst claim that it was because the opposition party, the PDP did not win, they must look at the crucial factors which guide investments and investors decisions, and uncertainty in Political Stability where a major political party heats up the polity may lead to breakdown of law and order which can lead to insecurity and causing investors to lose billions, hence they see the sensible thing to do as quickly liquidating their investments and moving the funds out of the economy, and this can further compound economic situations for the country.

The country at this time must assure investors of its political stability and security and the PDP and APC as the major political parties must be seen to play the role of reassuring confidence in the economy. Heating up the polity will lead to further liquidation of investments from the Stock exchange which will lead to high demand of the dollars, driving up its price as investors move out their funds out of the economy.

 


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The Nigerian Economy, Poverty, and The Ease of Doing Business.

______Why Nigeria Must Reduce Poverty to Attract Foreign Investors

Nigeria must invest in Human Capital Development if it must guarantee peace and security to attract Foreign Direct Investments which is the critical factor CEO’s of Foreign multinationals consider before investing in Emerging Economies. IntelServe Inc. CEO restates this on Channels TV.

With Increasing Poverty, and Extreme Poverty it is certain that crime and insecurity will increase and this will threaten investments into the country. Though the country may have moved up 24 points in the Ease of Doing Business from 169 in 2016 to 145 in 2017, Security still remains the critical factor in attracting foreign investors, Government must stem the flow of people into extreme poverty daily which currently stands at an average of 8,000 daily.

For Nigeria to attract Foreign Investors, the Government must guarantee peace and security, and to guarantee peace and security it must reduce poverty, to reduce poverty it must invest in Human Capital Development to create wealth. Poverty is a threat to Peace and Security.


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China’s Strategy of “Predatory Lending” and the Recolonization of African.

_________Why The Mounting Debt to China is Dangerous for Africa!

Xi Jinping on Africa

With the rise of economic prosperity in China over the last two decades, China is flexing its muscles internationally and lending to nations that are unable to fund national projects, while the projects may look very promising to the countries where they are being offered, China may have other motives as it sinks billions into Africa countries.

While China may be trying to build both economic and political influence in the Africa, Africa is a rich source of mineral resources for China’s rapidly growing economy. With Africa’s emerging market growing at a fast rate, China is bound to benefit from the growth having locked itself into the economy through lending to various countries and governments, many have argued that Africa is the next frontier, the underdeveloped continent seeking attention, while it has the fastest growth in both youth and overall population.

As at 2015 with a population of 1.136 billion, Africa accounted for 15.7% of the world population of 7.2 billion people, Africa’s population is set to hit 2.4 billion by 2050 and the continent will account for 25% of the 9.6 billion people, a stable middle class that will increase from 123 million in 2015 to 1.1 billion by 2060. Africa is a huge market waiting to be explored, so access to abundant mineral resources for its manufacturing in China and a huge market to sell its finished products is key to Chinese Economic Growth.

Today Africa is estimated to contain 90% of the entire world supply of Platinum and Cobalt, two-thirds of world manganese and 35% of the world’s uranium, and half of the world’s gold supply. Nearly 75% of the world’s coltan is in Africa, the major important mineral component used in electronic devices including cellphones. As a leading cell phone manufacturer, according to statistics, over 1 billion cell phones was produced in China between 2014 and 2015, but between January 2017 and June 2018 cell phone production had increased to 2.086.1 billion, China needs a constant flow of mineral resources to meet it demand and Africa is its target.

To meet its furniture demands in furniture, the Chinese are also championing the deforestation of Africa, in 2017, the Environmental Investigation Agency (EIA) a Non-Governmental Organization based in the United States released a report “The Rosewood Racket China’s Billion Dollar Illegal Timber Trade and The Deforestation of Nigeria’s Forest” the report chronicles how 40 containers of scares Rosewood trees are shipped put of Nigeria daily. The trees are cut down, converted to logs and leaves North-Eastern Nigeria everyday through Shagamu and eventually shipped out from Apapa port by the Chinese, the 40 containers are said to be equivalent to 5400 logs and 2,800 trees daily.

China is massively devouring Africa’s mineral and Natural resources, and to go to the same China for loans might spell doom for the continent, especially with China’s predatory lending style…

So What is Predatory Lending?…… and The Chinese Strategy?

Predatory Lending includes any unscrupulous actions carried out by a lender to entice, induce and assist a borrower in taking a loan that carries high fees. A high-interest rate, strips the borrower of equity or places the borrower in a lower credit rated loan to the benefit of the lender.

Predatory lending typically occurs on loans backed by some kind of collateral, so that if the borrower defaults on the loan, the lender can repossess or foreclose and profit by selling the repossessed or foreclosed property. Lenders may be accused of tricking a borrower into believing that an interest rate is lower than it actually is, or that the borrower’s ability to pay is greater than it actually is.

The lender, or others as agents of the lender, may well profit from repossession or foreclosure upon the collateral, and one of the big concerns around Chinese loans is the debt-trap diplomacy where the Chinese government will pressure countries that can’t pay into exploitative deals. In most or all cases, the repayment of loans is never the intent of the lender but how to takeover assets or collaterals of the borrower knowing full well that the borrower will default.

The Worries!!!….

On March 6th, 2018, the former US Secretary of States, Rex Tillerson stated that Beijing “Encourages dependency using opaque contracts, predatory loans practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth, Chinese investment does have the potential to address Africa’s infrastructure gap, but its approach has led to mounting debt and few, if any, jobs in most countries.”

Africa's debt to China

With the US lawmakers and government warning about Chinese Predatory lending in Africa and its subsequent effect on future economic growth of the continent, Sub-Saharan Africa’s debt to GDP is rising, in the 1980’s African economies were crippling under sovereign debts which alienated most of the countries from the global financial system in the mid-90’s.

In 2005, the rich lender nations reached a solution to forgive the loans of heavily indebted poor countries of which 30 were African countries from the World Bank, IMF, and African Development Bank. By 2008, median debt level to GDP was about 23%, and by 2012, Sub-Saharan African median debt level had risen to 30% of GDP and with subsequent borrowings increased to over 50% of GDP by 2017. Many fear that the debt level is getting worrisome and that most Sub-African countries will default on repayment and these are the countries holding most of the mineral and natural wealth of Africa.

A report written in 2016 by Deborah Brautigam, a professor of international political economy at John Hopkins, estimated that Chinese banks, contractors, and the government lent approximately $86 billion to Africa between 2000 and 2014 and about $29 billion of that was loans backed by natural resources.

China's Loan to Africa

Of the total debt of about $453 billion Sub-Saharan Africa owes in external debt stocks, Sub-Saharan Africa has borrowed $136 billion from China, which the Chinese government extended to Africa from year 2000 – 2017, that is 30% of Sub-Saharan total external debt stocks, and with the new $60 billion loan approved recently by the Chinese government, Africa’s debt to China will increase to almost $200 billion.

While China’s influence and loans continue to increase in Africa, Trade balance has also been skewed in favour of China, in 2015, China’s Export to Africa was about $150 billion in mostly finished goods while Africa exported about $38 billion worth of goods to China with majority being raw materials and unfinished goods. In 2016 Chinese Export to Africa was $88 billion and only imported $40 billion from Africa.

China’s long term strategy is to outdo the western world in its loans and grants to African, using them to buy influence and position itself to access the abundant mineral and natural resources, including the gain of geopolitical influence.

The Takeovers!!!……and the Future Takeovers

The Chinese predatory lending spreads across not only Africa but other poor countries as well, in 2010, China invested $1.5 billion to build the Hambatota port in Sri Lanka, and when the country couldn’t repay the debt, Sri Lanka signed a 99-year lease of the port with a Chinese state-owned company to service some of the billions it owed.

Recently it was reported that Zambia was in talks with China over a possible takeover of the country’s electricity company, ZEWASCO, after defaulting on loan repayment, and possible takeover of the Kenneth Kaunda International Airport also belonging to Zambia should they fail to meet their debt obligations with China, though government has refuted the claims but many claiming the takeover bid to be true.

Recently a lawmaker in Kenya addressed the house warning the government of the impending disaster ahead claiming if Kenya does not wakeup the country will end up selling its national assets to China, 66% of Kenya debt is to the Chinese. China constructed the Lamu Port in Kenya fr $16 billion, and Kenya is set to default in three years’ time unless they can pay 1 million Kenyan shillings per day. Lamu Port is the biggest port in east Africa and will be handed over to the Chinese for 99 years. The challenge will be when a major importer  and exporter of your mineral resources take over your port.

Of the $136 billion loan given to Africa since year 2000, Angola which is mineral and natural resource rich country accounts for $42 billion. Angola used oil as part of its collateral for loans from China and as oil prices plunged, it found itself with more oil flowing to China for debt repayment and less to sell in the international market to plug budget deficits. It also means that to make their money, Western Oil companies which manage Angola’s production with exports of 1.8 million barrels/day will take more for their investments and services.

In 2017, Djibouti leased land to China for $20 million per year after lending billions of dollars to an heavily indebted Djibouti and the country unable to pay back the loans, China has used the land to set up its first oversea military base just a few miles from a US naval base which is the only permanent US military facility in Africa.

The story is the same across Sub-Saharan Africa for most countries that have courted China in loans for development, from Sierra Leone to Liberia, from Ghana to Nigeria where the Chinese are building the railways and some other major projects, and from Djibouti to Zimbabwe which many believe will soon start defaulting on its loan with China. While the loans are given, no cash is given to the countries, China executes and builds the projects using labour, materials, and equipment from China and undermining if there are available labour in those countries.

Most Asian Countries are starting to understand the predatory lending of China and are taking steps at cancelling such loans, they include Malaysia, Philippines, and Singapore who have recently cancelled some loans they see as being predatory.

With China using the debt-trap diplomacy on Africa and Africa’s debt increasing daily to China, African countries may well be positioned in the future to be recolonized through China’s strategy of Predatory Lending, but the worrisome part is the first colonization of Africa was through the use of force, while Africans basically used debt to entrap themselves this time around.


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Are Nigerians Benefiting From Democracy or is Democracy Simply Robbing and Impoverishing Them?

___The 2018 Budget, Between President Buhari and The National Assembly…A Critical Look at Data

“As long as Poverty, Injustice and Gross Inequality persist in our world, none of us can truly rest”……Nelson Mandela

In 1981 with a population of 75.7m people and 47% living below the poverty line, Nigeria had 35.6m people living in Poverty. By year 2000, a year after the Country had returned to democracy rule and with a population of 122.3m people, percentage living in Poverty had increased to 65% bringing the total headcount of people living below the poverty line to 79.5m people.

But something happened in the early 2000’s, The Federal Government in trying to cub the growing rate of Poverty, introduced The Poverty Alleviation Program (PAP) and by 2004 with a population of 135.4m people, Poverty as a percentage of population had reduced to 54.4% and headcount reduced to 73.7m people. This means that between 1981 and 2004 a period of 23 years, Nigeria added 38.1m people to poverty, an increase of 107%.

___The 2018 Budget, Between President Buhari and the National Assembly....A Critical Look at Data

In 1981 Nigeria’s GDP was $61.1bn and in 2004 GDP was $87.85bn, between 1981 and 2004 the GDP never went above $87.85 bn, in fact it reached its all-time lows between 1981 and 2004 with $20.7bn in 1986, and $21.35bn in 1993. So between 1981 and 2004 (23 years), Nigeria’s GDP only appreciated by $26.75 bn, an increase of 43.8%.

But in 2004, The Poverty Alleviation failed because the root cause of increasing poverty was not addressed which is investments in Human Capital Development and Infrastructural Investment to help the people create and generate wealth, rather government gave money to the people which was not sustainable.

Between 2004 and 2010 (6 years), Nigeria’s GDP exploded from $87.85bn in 2004 to $369.1bn in 2010, an increase of $281.25 bn and percentage increase of 320.2%, but the interesting thing was that poverty as a percentage of population also increased to 70%, and with a population of 158.6m people in 2010, the headcount living below the poverty line increased to 111m, an increase of 33.3m people in just 6 years.

While Nigeria rebased its economy in 2013 with GDP at $510bn and reaching an all-time high of $569bn in 2014, Poverty as a percentage of population still stood at 70%. As at 2018 and a population of 198 m people, percentage living in Poverty in Nigeria still stands at 70% which means that about 138.6 m people are living in poverty in Nigeria. This means that between 2004 and 2018, a period of 14 years, 64.9m people were added to poverty, increase of 88.1% in 14 years. And between 2004 with a GDP of $87.85bn and 2018 with a GDP of $406bn, Nigeria’s GDP has increased by $318.15 bn, a percentage increase of 362.2%.

Countries With Extreme Poverty

PRESIDENT BUHARI AND NASS

While the President had submitted a budget to boost infrastructure, and use the investment as a fiscal policy to help grow the economy, it is imperative to note that Nigeria has been operating an Expense Budget and not Investment Budgets since the Mid-80’s (Majorly recurrent expenditure) which has made it almost impossible for its citizens to grow wealth since investment in Human Capital Development and Infrastructural Developments are what helps the country create and generate wealth.

Since coming into office, the President has continued to Increase Capital Expenditure as a percentage of the Budget, from 23.8% in 2014 and 15% in 2015, Capital Expenditure has stood at 30% of the Budget since 2016. But the 2018 budget which has taken 7 months to approve by NASS, the legislative arm of government has cut N347bn in the allocations to 4,700 projects from the original budget summited to them and introduced 6,403 projects of their own which amounts to N578 bn, as usual funds are allocated as constituency allowance for projects but they are never executed, as in some cases to be seen to have done something, the projects are so over bloated that even an idiot knows they have been ripped off.

The President had stated that some of the Strategic National/Regional infrastructure which the NASS had cut funding from which was supposed to help the country included the Mambilla Power plant, Second Niger Bridge/Ancillary roads, The East-West Road, Bonny-Bodo Road, Lagos-Ibadan Expressway, and Itakpe-Ajaokuta Rail Project. Others include Abuja arterial roads and Mass Transit Rail Projects, the Rehabilitation of the United Nations building, Interventions in the Health Sector which included Tertiary Health Institutions, Provision of Security Infrastructure in the 104 Unity Schools, Federal Government National Housing programme. Take off grant for the Maritime University, Enugu Airport, Export Expansion Grant and Special Economic Zones/Industrial parks.

While NASS is cutting down on funding of critical projects that will grow the economy and reduce Poverty, they are increasing their budget to put money in their own pockets. NASS through Statutory Transfer has increased its budget by N14.5bn from N125bn to N139.5bn. These are major reasons Poverty will never reduce in Nigeria because funds meant to grow the economy are directed to end up in people’s pockets.

COMPARING NIGERIA TO OTHER COUNTRIES…….

“Poverty is the absence of all human rights. The frustrations, hostility and anger generated by abject poverty cannot sustain peace in any society”……Muhammad Yunus

Nigeria is the only Emerging Economy in the world where GDP is increasing and Poverty is also increasing, between 1981 and 2016, other countries that have recorded economic growth have succesfully reduced Poverty. China while recording economic growth has lifted 789.5 million people out of Poverty, Indonesia has lifted out 78.7 million people, Thailand has lifted out 29.4 million people, Bangladesh has lifted out 24.4 million people, Malaysia has lifted out 2.93 million people, and India has lifted out 137.2 million people, but Nigeria added 90.4 million people to poverty between 1981 and 2016 alone and a total of 94.7 million from 1981 to 2018.

While the President wants to invest in Infrastructure to help Nigerians and the Nation build Wealth and get out of the Poverty Trap, the National Assembly world rather Nigerian’s continue to live in Poverty while they divert funds into their own pockets.


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Nigeria and the Poverty Trap: How Lack of Government’s Investment in Public Education has Entrapped Nigerians in what is called the Poverty Trap.

Nigeria, Education Expenditure, and the Poverty Trap.

Between 1981 and 2016, Nigeria’s GDP grew from $61.1bn to $405bn reaching an all-time high of $569bn in 2014. Yet from 1981 to 2016 Nigeria added 90.4 million people to Poverty which has continued to increase to date.

On the 25th of May, 2018, I had a session on Channels TV on why we have had increasing “Economic Growth” over the years and why Poverty in also growing creating what is called the Poverty Trap for citizens of the country.

Economic growth should lead to Economic Development and further lead to Human Development, while Nigeria has had Economic growth over the years, it has not led to both Economic Development and Human Development.

Main while other countries that have recorded Economic Growth have succeeded in reducing poverty over the same period. China has lifted 789.5 million people out of Poverty, Indonesia has lifted out 78.7 million people out of Poverty, Thailand has lifted 29.4 million people out of Poverty, Bangladesh has lifted 24.3 million people out of Poverty, Malaysia has lifted 2.93 million people out of Poverty, and India has lifted 137.2 million people out of Poverty.

Find out how government’s lack of investment in Education (Human Capital Development) and how school fees has plunged the average family in Nigeria into what is called the Poverty Trap and Economic Stagnation for the country.

Watch the complete session and understand why Poverty will continue to increase in Nigeria despite increasing economic growth.