A post by a friend on the fiscal space of the Nigerian government. Enjoy!!


The Federal Government of Nigeria announced on October 2016 that it was going to borrow $29.9 billion (spread over three years) to finance the rebuilding of the nation’s decaying infrastructure and build new ones. The proposal has generated a lot of support and disaffection from various quarters. While some have called for its use to stimulate an ailing economy, others are contending that it amounts to mortgaging the future of the unborn, that whatever we need to finance development and stimulate growth can be sourced for without necessarily borrowing.

My task with this little piece is to present the data on Nigeria’s borrowing side-by-side the data on our ability to pay (economic growth) and give a summary of what I think based on evidence from data. Even though I agree with Prof. Akpan Ekpo that revenue and not GDP pays for debts, the later simply shows our capacity to pay…

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The real danger with a Trump Presidency


“Trade protection accumulates upon a single point the good which it effects, while the evil inflicted is infused throughout the mass. The one strikes the eye at a first glance, while the other becomes perceptible only to close investigation.”

― Frédéric Bastiat

Following the Brexit vote, I have decided to pen a post on the real dangers of a Trump Presidency not thoroughly discussed in non-economist circles.

Evidently, it seems Trump is a deeply flawed candidate with very few constructive policies socially and economically. Indeed, nearly all his proposed policies are very destructive.

This discussion will cover what is the most dangerous part of Trump’s policies, viz.: trade protectionism.

Trump’s protectionist trade policies as articulated on his website (link) make some very crude and erroneous assumptions about trade tariffs while being rubber-stamped by billionaire distressed investor, Wilbur Ross, and Peter Navarro, a Harvard-trained business professor at UC Irvine. (A documentary on China is below.) The assumptions on trade gains from tariffs have unanimously received no approval from economist of all stripes – whether right-leaning or left-leaning economists. Scott Sumner, a market monetarist, gives a very thorough dress down of the assumptions in the economic plan in this article. Tyler Cowen, a professor of economics at George Mason, blogging at Marginal Revolution, profiles Peter Navarro in a Bloomberg View piece. Paul Krugman, a trade expert and Nobel economist, also criticised both the GOP and Trump here and here.

A recent report from the Peterson Institute of International Economics (PIIE), an economic think-tank, looks at the implications of both Clinton’s and Trump’s trade policies and the effect on the US economy under several scenarios.

The PIIE report largely assumes that trading partners refrain from an all-out trade war with the US. Also, the countries that could punitive tariffs on their US exports could be potentially widened to other countries like Japan, Vietnam which could be welfare-destroying. If an all-out trade war were adopted, there could be debilitating effects on trade volumes, productivity, wages, employment levels (especially youth employment). Furthermore, such trade wars could poison international relations and lead to extremely nationalist politics with very deleterious effect on rearmament and military grandstanding.

Domestically, a slowing economy ensuing from wrong-headed trade policies could further strain race relations leading to nasty identity politics and more illiberal government policies. Although some US domestic producers may thrive under the veil of protection, the American consumer, accounting for 70% of the economy, will probably face higher prices for goods and services; hence, lower real (inflation-adjusted) income. The welfare effects would, in aggregate, be negative.

Since trade is a two-way street, restricting foreign imports necessarily means the restriction of US exports as foreigners do not earn the dollars from exports needed to buy US goods and services. Therefore, major US industries such as aerospace, higher education, business services, banking services, agriculture, tourism etc, may suffer as a richer world may be unable to buy US services, a sector that the US has an enormous competitive advantage in world markets. The resultant effect could be a drop in employment in those sectors and a drop in wages of those highly-skilled workers. Second order effects of the aforementioned result of trade protectionism could be a loss of jobs in non-export industries such as plumbing, restaurants etc. Other second order effects – international in this case – would be the impact on the price of commodities, which are the main exports of most developing countries with the debilitating impacts on the politics and economies of those countries. Several studies show a positive relationship between trade and productivity; hence, productivity may be adversely affected. Furthermore, there may potentially problems of misallocation of resources within the American economy compounding an already bad situation.

Politically, this could lead to more lobbying in Congress and perhaps, covert corruption by the winners to keep the status quo. Congress, already despised by the electorate, could become more beholden to vested interests with increased rent-seeking.

Finally, an unseen effect could be the potential for limited immigration of the world’s smartest minds to American firms and universities thereby putting American firms at a disadvantage to foreign competitors – and limiting innovation further depressing productivity years out.

In conclusion, while the supposed benefit of “winning” on trade and protecting jobs may seem compelling, upon closer inspection, it is a terrible idea for the US and the world.

Photo credit: Flickr/ Ivan Febri, used under a creative commons licence.

What I learned investing in 2015

investing plans

As 2015 draws to a close, I will like to share some of the lessons learned from investing in 2015. (I will not be mentioning the positions by name. I don’t seek to talk my book; I will prefer that the market discovers them.)

There is something called “being too early”

Baron Rothschild, the legendary 18th century financier, is credited with the saying,”Buy when there’s blood in the streets, even if the blood is your own.” This tends to be my approach regarding investing. I tend to buy in tranches and become more aggressive as prices tumble. I did this with a Nigerian bank which is constantly being trashed by Mr Market and has been effectively trading like a commodity. (The bank is trading at a low not seen in decades.) That bet hasn’t panned out yet. But I expect to make more than 3 times my original investment.

However, I tried catching a falling knife with some exposure to a Canadian oil exploration & production firm in the Alberta tar sands. The company seemed (and is still) cheap from a valuation perspective. However, the value of the firm has kept on falling in tandem with oil. In hindsight, I think, waiting a little longer to see a turnaround in the oil market from larger bankruptcies, a weaker loonie (the Canadian dollar), and Fed tightening would have meant that I could pick up these securities at cheaper prices. I am quite confident in the next 3-5 years I can make a multiples on my money.

Lesson: Be careful when buying falling knives; a much more systematic averaging into positions over months is a better strategy.


Be wary of high-fliers and firms without moats

Some years back, I took a position in a high-flying tech stock listed in London. To cut the long story short, after some activist investors agitation, the company directors admitted to cooking their books. Hence, the firm has stopped trading. In hindsight, I should have taken into account other factors such as its economic moat – the entrenched competitive advantage of the firm – in my valuation of the firm. The company’s stock had being marching higher more than tripling in a few years.

Lesson: Be careful when looking at firms; consider their economic moat in your valuation of a firm; ALWAYS take activist investors seriously as they bring in new information which could change the intrinsic value of the firm.

In all, I have grown wiser and I keep learning a lot.

Wishing everyone, happy holidays and a productive New Year.


Photo credit: Flickr/ Wirawat Lian-Udom, used under a creative commons licence.

Oil’s collapse: A boon to Nigeria’s economy

Nigeria's National Assembly building

Nigeria’s National Assembly building

With the halving of the price of a crude oil from $100/barrel, the cry has been one of an economic crisis for Nigeria’s economy. Oil accounted for about 65% of the federal government’s revenues in 2014, according to the IMF. The oil revenues distributed from the federal level to the states contribute significantlyto the budget of most of the 36 state governments.

Already, the Buhari government has set out to weed out corruption from the system. (A Herculean task, which arguably, he will fail to win due to the structural nature of the problem – except through deep institutional reforms.) The fiscal and monetary authorities would like to project the image that, “if only corrupt amongst us are locked away in prisons, the country will soon be on sounder economic footing.” The numbers tell a different story. For instance, if Buhari gets to rid the civil service off “ghost workers,” and recover the stolen billions of dollars from corrupt government officials, he may be able to recover a few billions of dollars. This is a few billions off a budget projected to be aboutNGN4.5 trillion (about$22.5 billion; NGN1 = $200) this fiscal year according to Bloomberg. Already, two-thirds (NGN3 trillion or $15 billion) of the federal budget will go to recurrent expenditure – payments to federal workers and the administration of federal agencies – to officials with a median low productivity. This simply constitutes a drain on finite public resources. For a developing country such as Nigeria with dire human and physical capital deficits, this is not a sustainable way to run the country in the long run. In contrast, the government will spend a meagre 12% (around NGN500 billion or $2.5 billion) of its budget on capital expenditure according to Bloomberg.

Faster economic reforms and creative thinking could help fill the vast deficiencies, which the various tiers of government cannot fix. Fixes such as empowering the judiciary; computerising government services; empowering entrepreneurs to thrive and build value-creating ventures (Nigeria ranks consistently close to the bottom in the annual World Bank’sEase of Doing Business report). Embracing a more open economy free from unnecessary embargos and tariffs; removing the oil subsidy; and beefing up the physical and human capital of the country will also go a long way.

A failure to admit that the oil market has changed – something, which seems to be the doctrine in the corridors of power and the media – will lead to the continuation of the half-hearted reform policy in the country. To borrow a term from David Einhorn, the investment manager at Greenlight Capital, the “motherfrackers” in the US shale industry may lead to the shrivelling of Nigeria’s oil industry and the economy if serious reforms are not in the offing.

The collapse in oil price does not seem to be a short-term blip, but instead, a long-term change in the oil market. Only deep structural reforms and a rejection of the going back to the bad old days of the military, will deliver strong long-term growth in economic growth, development, and living standards of Nigerians.

Photo: wuse/Flickr, used under a Creative Commons Licence.

What makes some countries urbanize without industrializing?

Despite the relatively lack of industrialisation in the some of the aforementioned countries, it is key to note that wage levels and career opportunities tend to be better in urban areas than in rural areas – even for low-skilled people.

The article below gives a good perspective about urbanisation in some developing countries that do not follow the past experiences obtainable in developed economies.

An Africanist Perspective

…. Kuwait, Gabon, Saudi Arabia, Libya, Algeria, Angola and Nigeria are as urbanized as Uruguay, Taiwan, South Korea, Mexico, Malaysia, South Africa and China respectively, and yet the former countries have not industrialized to the same extent as the latter. This raises several questions. Where do the cities in Angola, Nigeria, and the others come from? Why have so many cities in today’s developing world never been factory cities, in stark contrast to the historical experience of today’s developed countries? If these cities have a different origin, does it matter for economic development?

We show that conditional on income per capita, urbanization rates are unrelated to the share of resource exports in GDP or the share of manufacturing and services in GDP. Urbanization is a function of income per capita across all countries.

However, the composition of urban employment differs starkly between resource-exporters and non-exporters, holding constant income levels and…

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