Last week, I was opportune to watch Chimamanda Adichie’s Technology, Entertainment, and Design Conference (TED) presentation titled: The Danger of a Single Story1. Although she made the presentation at the TED conference sometime in July 2009, it wasn’t until last week Friday 3rd of December, 2010, when a friend shared the link to the presentation online that I had the privilege of listening to this brilliant Nigerian writer speak about an issue as sensitive as presenting a one sided view of a subject.
It was an intellectually packed speech filled with real life illustrations of her personal experience; I was also impressed because it was no doubt both incisive and instructive in its depth, so much so that I had to ponder upon it thoughtfully for over 24hrs before I could muster a response to it. As she illustrated with her personal stories of her childhood reading and writing experience, Fide (her family house help), her college experience in America, and her Mexican travel experience.
There is no doubt about the fact that when a particular story is associated with a particular person or group, there arises a danger of misconception of that person or group which may eventually lead to negative stereotypes or otherwise as the case may be. As Miss Adichie puts it in her presentation: “Show a people as one thing, as only one thing over and over again, and that is what they become.” Prof. Hans Rosling of the Karolinska institute and founder of Gapminder.org also alluded to the dangers of a “single story” in his own TED conference presentation by making reference to what he called “pre-conceived ideas” which has its origins from the single story.
In as much as we revile the single story because of its unfortunate negative flavour as it concerns us, what if that single story did a wonderful public relations stunt for us by portraying us positively? The flavour of the single story is inconsequential to me at this point. What Miss Adichie did not address in her speech is the origin of the single story, which is akin to dealing with the fruits of a problem rather than dealing with the roots of the problem.
In my view, the danger lies more significantly in the origins of the single story, which is the “dominant story” rather than the single story itself. The dominant story gives birth to the single story; it makes it impossible to have a balanced assessment of any situation. Using a simple analogy of a two plates weighing scale, if one side is loaded with a substance of more weight than the other side, the inevitable consequence is that the scale is tilted to the side bearing more weight than the other, and thus, the weightier substance is held to more significance than the other.
This simple analogy explains the negative perception attached to a country like Nigeria, which is routinely perceived as corrupt, anarchic, unpredictable and stagnated, and it is simply because the majority of stories that emanate from Nigeria are negative. How will Nigeria’s politics and democracy not be viewed as a sham, in spite of the well intentioned efforts of a few good men like Gov. Fashola of Lagos State, when his elected colleagues in other states and Nigeria’s national assembly are busy robbing Nigeria blind?
The particularly spectacular case of Nigeria’s Senators and Law makers (legislator) who without an iota of conscience award themselves ridiculous salaries and bonuses, which was even recently corroborated by the governor of Nigeria’s central bank when he stated that Nigeria’s national assembly with less than 800 members, consume about 25% of the Nigerian government’s recurrent budgetary expenditure per annum. It is on record, that the average Nigerian senator or legislator2, earn more money (both salary and ridiculous allowances) than Mr. Barack Obama, America’s president.
This democratic robbery is being inflicted on a country which has over 70% of its citizens living on less than $1 a day, a country with an employed minority of workers with a minimum wage of about $120 per month3. It is only natural that when the single story is of the negative flavour, that we be embarrassed and discomforted by it. This is a denial inspired reaction to the embarrassment of the single story.
I believe that if the single story is properly harnessed, it can serve to illuminate on salient and critical issues concerning a subject. It is in our best interest to appreciate our single story and do something about it, if it is not an impressive story rather than attempt to suppress with other less significant story, if Fide’s family was creative, then why hadn’t that creativity been transformed to wealth for his family? Why was the poverty still there? Rather than appreciate their creativity, if we were so concerned, then we should be thinking of interventions that will transform that creativity to prosperity, rather than trying to balance or counter the poverty story with a creativity story. This is tantamount to trying to force an unbalanced scale into an artificially balanced position.
Phillip Emeagwali, Prof. Wole Soyinka et al, are highly vaunted Nigerians renowned for their scholarly achievements, but we must not forget in a hurry, that are an infinitesimal minority, in our efforts to present Nigerians as academic achievers, shall we now continually trumpet their achievements in an effort to suppress the endless tales of woes emanating from Nigeria’s educational system, which now witnesses a mass exodus of young Nigerians seeking quality education in destinations as near as Ghana and the Republic of Benin?
In our well intentioned efforts to gain a more balanced perspective of a subject, we risk to arrive at the “celebrations of mediocrity” associated with recognizing small achievements. The danger as I have stated before lies in the dominant story which gives birth to the single story and it will be a grand mistake to attempt to suppress the single story without interventions that will eventually eliminate the dominant story. In the single story, we find an illuminator that should help us re-order our priorities.
Bibliography:
1. Chimamanda Adichie: The danger of a single story, TED Conference, 2009 http://www.ted.com/talks/lang/eng/chimamanda_adichie_the_danger_of_a_single_story.html
2. What a Senator Earns in Nigeria - Do or Die Affair N 29 479 749 Per Year, Nairaland, http://www.nairaland.com/nigeria/topic-276078.0.html
3. Nigeria sets big jump in minimum wage after strike, Reuters, http://www.reuters.com/article/idUSTRE6AO35N20101125
Monday, December 6, 2010
Tuesday, November 30, 2010
Captive Country: The Nigerian Conundrum.
One of the Nigeria’s greatest sons, Herbert Macaulay, wrote that the dimensions of the colonial masters looking after the interests of Nigerians were “algebraically equal to the length, breadth and depth of the white man's pocket."
Regrettably, that attitude still applies today but replace the white man with Nigerian politicians.
It is very doubtful that Herbert Macaulay would have foreseen the day that Nigerians would be denied the basic rights of life - education, healthcare, personal security, the right to elect, and not select, their leaders and the pursuit of happiness - by fellow Nigerians. It is obvious to all that our leaders have failed to deliver time and time again on any of these as more than 100 million Nigerians still live in penury (Obi Igbokwe, 2009).
In the 80’s, Nigeria’s military ruler of that time was criticized by the late king of Afrobeats music; Fela Anikulapo Kuti in a song titled “Beast of no nation” for his acerbic criticism of the average Nigerian. He lyrically spoke these words “Mek you hear dis one… War against Indiscipline o Nah Nigerian government ooo, dem dey talk o my people are useless, my people are senseless, my people are indiscipline.”
The dictator may have been insensitive and careless with his verbal bashing of the Nigerian then, but taking a retrospective look at Nigeria and the Nigerian today, one may be tempted to agree that those stinging words nearly accurately describe the reality of the typical Nigerian, and thus you will be left with no other choice than to ponder if there is anything wrong with being a Nigerian. Perhaps the reason why the late Anikulapo Kuti found those words unpalatable is because as humans, there is a proclivity to ostracized truth and virtue at the slightest opportunity. This habitual inclination is shared by all humans, irrespective of race, religion, sex or any other differentiating factor, so the Nigerian should not be perceived as holding the bragging rights for it.
This is not an attempt to disparage the Nigerian, but rather, to take a contemplative look at Nigeria and the Nigerian, x-ray his mindset and ultimately to try to grasp why progress in Nigeria only seems to be by sleight of the hand. It may sound a bit extreme but judging the trend of events as they unfold in Nigeria, I hold the view that it is either Nigeria will continue in this endless loop of progressive stagnation or it may eventually retrogress in such a manner as to confine this straggling nation of disparate nationalities to the pages of history books.
In today’s Nigeria, we have a paradox in progress, looking back at the last ten years of pseudo democratic governance in Nigeria, we observe that while all the major indices used to gauge the health of a country’s economy has witnessed remarkable improvement for Nigeria, the corresponding indices used to measure the quality of life of the human being, in this case the average Nigerian citizen has been on a consistent decline. From life expectancy, to infant and maternal mortality, to the number of people living on less than $1 a day, the performance is no doubt disturbing. For those of us intimately familiar with Nigeria, we are well aware that the major cause of death in the country today is not malaria or the dreaded HIV/AIDS, but hardship and suffering caused by chronic and endemic poverty across the country. Today, Nigerians are dying of hunger and diseases that could be cured with as little as $10.
The Nigerian government agency charged with the responsibility of collating national statistical data puts unemployment rate at about 19.7%, which is astronomically high by any standard, however, I consider this figure is as a joke and not a true reflection of the joblessness in Nigeria today, all that is required to find it lacking in correctness to take a tour of Nigeria’s most important commercial city (Lagos) on a normal work day and you will be shocked by the large army of jobless people of working age loitering the streets with little or no hope of getting a job anytime soon. Bearing in mind that Lagos is Nigeria’s most vibrant, commercial and cosmopolitan city, where everything seems to happen, where job seekers from every nuke and cranny in the country converges in search of the proverbial “greener pasture” and if Lagos is so unemployed, you can only imagine what goes on in the other smaller towns across the country, perhaps they would be more correct if they called it the employment rate. Take a cross country drive around Nigeria; lying before you is a vast expanse of idleness and dormant capacity.
Nigeria’s politicians, with their mercantilist ruling style, extract more from the people than they ever give to them. In more than 10 years of uninterrupted democratic rule, the country’s citizens have found themselves worse off than they were in the past. Nigeria is a country struggling to become a nation, in its quest; it has found itself beholden to powerful forces that continue to undermine its efforts at making appreciable progress. The twin forces of religion and ethnicity constitute the dorminant factors, with corruption in the most recent times also emerging as a major contender, as it reinforces its lethal grip on the health of the country by serving as a huge drain on the meager resources of the Nigeria.
A third world country with majority of its citizens living in abject poverty that still finds it comfortable to spend millions of dollars to finance Christian and Muslim pilgrimages to Jerusalem and Mecca, yet there are frequent religious crisis which claims hundreds of lives year on year across the country, makes me to wonder the rationale for government patronage and financing of religious extravaganzas knowing fully well that religion is supposed to be a private affair. But it is clearly evident why governments in Nigeria patronize the religious establishment, because they use religious leaders to achieve a measure of control over their followers and also to manipulate such ignorant followers.
The same control and manipulation structure is used by governments through the so called traditional rulers, Obas, Emirs, the Sultan, Igwes etc scattered across the length and breadth of Nigeria. Needless to say, realising their power and importance in the scheme of things in Nigeria, the religious leaders and traditional monarchs now form a parallel power block in Nigeria, trying hard to maintain their hold over their sphere of influence, because they understand that the only way they can remain relevant and maintain government patronage is if they can maintain their grip on their geographic power base. Thereby continually undermining the Nigerian state to ensure their survival. In modern Nigeria, these parallel and informal institutions have no relevance, how do you integrate monarchs and religious leaders into a system supposed to be founded on government of the people, for the people and by the people? Or a religious leader who thinks he is the rightful representative of God upon the earth and thus not subject to questioning? Institutions which by their very nature are absolute and totalitarian. With their unchecked strength and continued relevance, the Nigerian state has been left in tatters, carved up into fiefdoms and spheres of influence which continue to grow stronger. And because, we continue to wallow in self denial, we refuse to confront the most significant, albeit shadow structural issues that continue to undermine the modern Nigerian state.
The contribution of the cabals both in Nigeria’s business and political environment is also noticeable. Nigeria’s business environment, which is supposed to provide the main engine of growth for the economy has become a captive of influential business men with political ties and politicians who also have numerous business interests. Electricity, road and rail transport, and the oil and gas sectors are the major victims of these cabals who operate with “Mafioso business plans”. Nigeria’s business environment is under siege of the cartels, the generator and diesel business cartels ensure that electricity generation and distribution on the national grid never works; thereby ensure that what we have in this country is a run economy, virtually everybody or company owns at least one generator, in some cases you find households owning a backup generator to serve while the main generator is down. The refined petroleum products import cartel ensure that Nigeria’s four refineries that which in the 80s and early 90s operated optimally, are today ghost towns, producing at barely 20% of installed capacity, the haulage business cartels with their tens of thousands of trailers and tankers ensured that the Nigerian Railway
Corporation, which used to be Nigeria’s largest and most prestigious employer of labour in the 60s and 70s is today a completed dead organization, in spite of all efforts to rehabilitate it. Geopolitics teaches that the foundation of a national strategy is the existence of a nation. This is an obvious fact, but there is something that needs to be pointed out in within Nigeria’s boarders, we have people living in it who call themselves Nigerians, but the reality on ground is that Nigeria is a state with many competing nationalities, living in a chaotic order difficult to resolve. The average Nigerian sees himself first as a Christian/Muslim or being affiliated to one ethnic group (which has one monarch as its head and sole authority), this has made submission to the collective interest of the Nigerian state difficult or nearly impossible, ever wondered why zoning of the presidency or the so called federal character (which seeks a representation of all the ethnic groups in government and national appointments) hot issues in Nigeria today? It is imperative that these structures be dismantled as a matter of urgency. There is hardly any room for a middle of the road approach or a compromise for a side by side existence for them and Nigeria. Religion is a private affair and, it must remain so.
This is not to say that Nigeria cannot evolve a sense of nationhood and identity. The truth is that such things take a long time to create and rarely emerge peacefully. In Nigeria’s reality, these powerful forces continue to make the creation of a Nigerian nation difficult if not unachievable simply because it does not serve their self interest; Nigeria’s case is made even more difficult because of high attrition amongst its people. This explains why corruption thrives because institutions meant to punish the corrupt are already captive to forces. The same goes for democratic and governance. Apart from these macro factors, the “not my business” attitude adopted by the average Nigerian citizen has only helped to aggravate the situation; it has helped to sustain corrupt and unaccountable leaders in power.
A good number of Nigerians prefers to be sycophants and praise singers, than to demand service and accountability from public office holders, there is an urgent sense and desire for immediate and self gratification at the expense of the collective good. Funds meant to build or maintain a public infrastructure can be easily diverted in Nigeria; so far a few relevant persons can get a share of the booty, which also trickles down to a few lesser significant persons, who does the same in a pyramid structure. This pattern of greed, corruption, eye service and patronage has even compounded the already bad mess the country finds itself in, thereby making life worse for the average Nigerian.
No where in the world is Garret Hardin’s epic essay “the Tragedy of the Commons” so brazenly replicated as in today’s Nigeria. The country’s wellbeing is nobody’s business, pursuit of self and group interest reins supreme, and as it naturally follows in Hardin’s essay, when such self interest becomes paramount, the commons start to decline irreversibly. Nigerians need to start placing their collective interest above their individual or sectional interest, the reason why the rulers remain aloof to the responsibilities is simply because the followers have refused to demand service and accountability, there are many ways by which people can speak out and demand what is rightfully theirs, it doesn’t matter the methods they adopt, so long as it achieves the right results of ensuring good governance, prosperity and progress for Nigeria and Nigerians, as Deng Xiaoping said, “It doesn't matter if a cat is black or white, so long as it catches mice.” If we continue to defer, and the status quo continues, Nigeria will be the loser. That we are still one nation 50 years after independence is an act attributable to divine providence, it must not be taken for granted.
Regrettably, that attitude still applies today but replace the white man with Nigerian politicians.
It is very doubtful that Herbert Macaulay would have foreseen the day that Nigerians would be denied the basic rights of life - education, healthcare, personal security, the right to elect, and not select, their leaders and the pursuit of happiness - by fellow Nigerians. It is obvious to all that our leaders have failed to deliver time and time again on any of these as more than 100 million Nigerians still live in penury (Obi Igbokwe, 2009).
In the 80’s, Nigeria’s military ruler of that time was criticized by the late king of Afrobeats music; Fela Anikulapo Kuti in a song titled “Beast of no nation” for his acerbic criticism of the average Nigerian. He lyrically spoke these words “Mek you hear dis one… War against Indiscipline o Nah Nigerian government ooo, dem dey talk o my people are useless, my people are senseless, my people are indiscipline.”
The dictator may have been insensitive and careless with his verbal bashing of the Nigerian then, but taking a retrospective look at Nigeria and the Nigerian today, one may be tempted to agree that those stinging words nearly accurately describe the reality of the typical Nigerian, and thus you will be left with no other choice than to ponder if there is anything wrong with being a Nigerian. Perhaps the reason why the late Anikulapo Kuti found those words unpalatable is because as humans, there is a proclivity to ostracized truth and virtue at the slightest opportunity. This habitual inclination is shared by all humans, irrespective of race, religion, sex or any other differentiating factor, so the Nigerian should not be perceived as holding the bragging rights for it.
This is not an attempt to disparage the Nigerian, but rather, to take a contemplative look at Nigeria and the Nigerian, x-ray his mindset and ultimately to try to grasp why progress in Nigeria only seems to be by sleight of the hand. It may sound a bit extreme but judging the trend of events as they unfold in Nigeria, I hold the view that it is either Nigeria will continue in this endless loop of progressive stagnation or it may eventually retrogress in such a manner as to confine this straggling nation of disparate nationalities to the pages of history books.
In today’s Nigeria, we have a paradox in progress, looking back at the last ten years of pseudo democratic governance in Nigeria, we observe that while all the major indices used to gauge the health of a country’s economy has witnessed remarkable improvement for Nigeria, the corresponding indices used to measure the quality of life of the human being, in this case the average Nigerian citizen has been on a consistent decline. From life expectancy, to infant and maternal mortality, to the number of people living on less than $1 a day, the performance is no doubt disturbing. For those of us intimately familiar with Nigeria, we are well aware that the major cause of death in the country today is not malaria or the dreaded HIV/AIDS, but hardship and suffering caused by chronic and endemic poverty across the country. Today, Nigerians are dying of hunger and diseases that could be cured with as little as $10.
The Nigerian government agency charged with the responsibility of collating national statistical data puts unemployment rate at about 19.7%, which is astronomically high by any standard, however, I consider this figure is as a joke and not a true reflection of the joblessness in Nigeria today, all that is required to find it lacking in correctness to take a tour of Nigeria’s most important commercial city (Lagos) on a normal work day and you will be shocked by the large army of jobless people of working age loitering the streets with little or no hope of getting a job anytime soon. Bearing in mind that Lagos is Nigeria’s most vibrant, commercial and cosmopolitan city, where everything seems to happen, where job seekers from every nuke and cranny in the country converges in search of the proverbial “greener pasture” and if Lagos is so unemployed, you can only imagine what goes on in the other smaller towns across the country, perhaps they would be more correct if they called it the employment rate. Take a cross country drive around Nigeria; lying before you is a vast expanse of idleness and dormant capacity.
Nigeria’s politicians, with their mercantilist ruling style, extract more from the people than they ever give to them. In more than 10 years of uninterrupted democratic rule, the country’s citizens have found themselves worse off than they were in the past. Nigeria is a country struggling to become a nation, in its quest; it has found itself beholden to powerful forces that continue to undermine its efforts at making appreciable progress. The twin forces of religion and ethnicity constitute the dorminant factors, with corruption in the most recent times also emerging as a major contender, as it reinforces its lethal grip on the health of the country by serving as a huge drain on the meager resources of the Nigeria.
A third world country with majority of its citizens living in abject poverty that still finds it comfortable to spend millions of dollars to finance Christian and Muslim pilgrimages to Jerusalem and Mecca, yet there are frequent religious crisis which claims hundreds of lives year on year across the country, makes me to wonder the rationale for government patronage and financing of religious extravaganzas knowing fully well that religion is supposed to be a private affair. But it is clearly evident why governments in Nigeria patronize the religious establishment, because they use religious leaders to achieve a measure of control over their followers and also to manipulate such ignorant followers.
The same control and manipulation structure is used by governments through the so called traditional rulers, Obas, Emirs, the Sultan, Igwes etc scattered across the length and breadth of Nigeria. Needless to say, realising their power and importance in the scheme of things in Nigeria, the religious leaders and traditional monarchs now form a parallel power block in Nigeria, trying hard to maintain their hold over their sphere of influence, because they understand that the only way they can remain relevant and maintain government patronage is if they can maintain their grip on their geographic power base. Thereby continually undermining the Nigerian state to ensure their survival. In modern Nigeria, these parallel and informal institutions have no relevance, how do you integrate monarchs and religious leaders into a system supposed to be founded on government of the people, for the people and by the people? Or a religious leader who thinks he is the rightful representative of God upon the earth and thus not subject to questioning? Institutions which by their very nature are absolute and totalitarian. With their unchecked strength and continued relevance, the Nigerian state has been left in tatters, carved up into fiefdoms and spheres of influence which continue to grow stronger. And because, we continue to wallow in self denial, we refuse to confront the most significant, albeit shadow structural issues that continue to undermine the modern Nigerian state.
The contribution of the cabals both in Nigeria’s business and political environment is also noticeable. Nigeria’s business environment, which is supposed to provide the main engine of growth for the economy has become a captive of influential business men with political ties and politicians who also have numerous business interests. Electricity, road and rail transport, and the oil and gas sectors are the major victims of these cabals who operate with “Mafioso business plans”. Nigeria’s business environment is under siege of the cartels, the generator and diesel business cartels ensure that electricity generation and distribution on the national grid never works; thereby ensure that what we have in this country is a run economy, virtually everybody or company owns at least one generator, in some cases you find households owning a backup generator to serve while the main generator is down. The refined petroleum products import cartel ensure that Nigeria’s four refineries that which in the 80s and early 90s operated optimally, are today ghost towns, producing at barely 20% of installed capacity, the haulage business cartels with their tens of thousands of trailers and tankers ensured that the Nigerian Railway
Corporation, which used to be Nigeria’s largest and most prestigious employer of labour in the 60s and 70s is today a completed dead organization, in spite of all efforts to rehabilitate it. Geopolitics teaches that the foundation of a national strategy is the existence of a nation. This is an obvious fact, but there is something that needs to be pointed out in within Nigeria’s boarders, we have people living in it who call themselves Nigerians, but the reality on ground is that Nigeria is a state with many competing nationalities, living in a chaotic order difficult to resolve. The average Nigerian sees himself first as a Christian/Muslim or being affiliated to one ethnic group (which has one monarch as its head and sole authority), this has made submission to the collective interest of the Nigerian state difficult or nearly impossible, ever wondered why zoning of the presidency or the so called federal character (which seeks a representation of all the ethnic groups in government and national appointments) hot issues in Nigeria today? It is imperative that these structures be dismantled as a matter of urgency. There is hardly any room for a middle of the road approach or a compromise for a side by side existence for them and Nigeria. Religion is a private affair and, it must remain so.
This is not to say that Nigeria cannot evolve a sense of nationhood and identity. The truth is that such things take a long time to create and rarely emerge peacefully. In Nigeria’s reality, these powerful forces continue to make the creation of a Nigerian nation difficult if not unachievable simply because it does not serve their self interest; Nigeria’s case is made even more difficult because of high attrition amongst its people. This explains why corruption thrives because institutions meant to punish the corrupt are already captive to forces. The same goes for democratic and governance. Apart from these macro factors, the “not my business” attitude adopted by the average Nigerian citizen has only helped to aggravate the situation; it has helped to sustain corrupt and unaccountable leaders in power.
A good number of Nigerians prefers to be sycophants and praise singers, than to demand service and accountability from public office holders, there is an urgent sense and desire for immediate and self gratification at the expense of the collective good. Funds meant to build or maintain a public infrastructure can be easily diverted in Nigeria; so far a few relevant persons can get a share of the booty, which also trickles down to a few lesser significant persons, who does the same in a pyramid structure. This pattern of greed, corruption, eye service and patronage has even compounded the already bad mess the country finds itself in, thereby making life worse for the average Nigerian.
No where in the world is Garret Hardin’s epic essay “the Tragedy of the Commons” so brazenly replicated as in today’s Nigeria. The country’s wellbeing is nobody’s business, pursuit of self and group interest reins supreme, and as it naturally follows in Hardin’s essay, when such self interest becomes paramount, the commons start to decline irreversibly. Nigerians need to start placing their collective interest above their individual or sectional interest, the reason why the rulers remain aloof to the responsibilities is simply because the followers have refused to demand service and accountability, there are many ways by which people can speak out and demand what is rightfully theirs, it doesn’t matter the methods they adopt, so long as it achieves the right results of ensuring good governance, prosperity and progress for Nigeria and Nigerians, as Deng Xiaoping said, “It doesn't matter if a cat is black or white, so long as it catches mice.” If we continue to defer, and the status quo continues, Nigeria will be the loser. That we are still one nation 50 years after independence is an act attributable to divine providence, it must not be taken for granted.
Wednesday, September 15, 2010
Japan: Making the Sun Rise Again.
Overview:
Japan knows what to do to get itself back on track, it needs no advice from anybody, it has all the human resource required to identify and tackle its current problems. The Japanese know how to fix Japan and I have no doubt in their ability to get things right.
Those who know Japan, have an eternally abiding faith in the ability of the country to get out of mess, they say that the country always seems to shuffle its feet but then snaps into action when faced with a crisis. It did so in 19th century, adopting modern ways to avoid being colonized, and again after the Second World War. Japan was the world's second largest economy for 40 years. But the qualities that made it an economic power house in the 20th century: easy capital, big companies, excellent education, disciplined and efficient management, and stable lifetime jobs for male breadwinners- are out of fashion with the 21st century.
Japan's biggest obstacle today is itself.
In the recently released global ranking of Newsweek magazine’s 100 Best Countries in the World, Japan was placed a not quite impressive 9th position of the overall ranking. Except in the health category which Japan undisputedly holds the 1st position, it hovered around 4th to 10th position for other categories such as education, economic dynamism, quality of life and happiness.
Its reluctance to change has become has led to an anticlimax for this once economic power house. Just some few weeks ago, when the global media was abuzz with the news of China overtaking Japan as the world’s 2nd largest economy, the general mood in Japan was resignation and hopelessness, it is understandable why such mood can overtake a people once proudly revered for their once enviable achievements.
Despondency and resignation is only naturally expected after being faced with two lost economic decades characterized by a protracted deflationary cycle, declining growth and an aging population.
But we must also remember that "faith without work is dead". Without dramatic reform, Japan will slip swiftly to number four, five and beyond.
However, we still need to take a look at Japan to see if we can identify any new or hidden issues militating against efforts to revive this ailing giant. For this, we need to take a deep retrospective look at Japan through its remarkable history. Starting from the Tokugawa shogunate, the first and second Meiji restoration, the modern era, until the great wars that humbled an ambitious Japan and subsequently its re-emergence as a global economic and industrial power house, and finally, to the current economic challenges that has plagued it.
Historical timeline of Japan:
Since 1854, when the Tokugawa shogunate first opened the country to Western commerce and influence (Bakumatsu), Japan has gone through two periods of economic development. When the Tokugawa shogunate was overthrown and the Meiji government was founded, Japanese Westernization began completely. The first cycle was during Pre-war Japan, the second cycle was during the period of Post-war Japan.
In the Meiji period, Japan, under visionary leadership, inaugurated a new Western-based education system for all young people, it sent thousands of students to the United States and Europe, and hired more than 3,000 Westerners to teach modern science, mathematics, technology, and foreign languages in Japan (O-yatoi gaikokujin). The government also built railroads, improved roads, and inaugurated a land reform program to prepare the country for further development.
In tandem with its objective to promote rapid industrialization, the government decided that, while it should help private business to allocate resources and to plan, the private sector was best equipped to stimulate economic growth. The greatest role of government was to help provide the economic conditions in which business could flourish. Essentially, government was to be the guide and business the producer.
In the early Meiji period, the government built factories and shipyards that were sold to entrepreneurs at a fraction of their value. Many of these businesses grew rapidly into the larger conglomerates. Government emerged as chief promoter of private enterprise, enacting a series of pro-business policies.
The development of banking and reliance on bank funding has been at the centre of Japanese economic development at least since the Meiji era.
In the mid 1930s, the Japanese nominal wage rates were 10 times less than the one of the U.S (based on mid-1930s exchange rates), while the price level is estimated to have been about 44% the one of the U.S.
Comparison of GDP per capita between East-Asian Nations and the U.S. in 1935:
Country GDP/capita, 1935$ (Liu-Ta-Chung [2]) GDP-PPP/capita, 1990$ (Fukao [1]) GDP-PPP/capita, 1990$ (Maddison [3])
U.S. 540 5,590 5,590
Japan (excl. Taiwan and Korea) 64 1,745 2,154
Taiwan 42 1,266 1,212
Korea 24 662 1,224
China 18 543 562
Oil crisis
Japan faced a severe economic challenge in the mid-1970s. The world oil crisis in 1973 shocked an economy that had become virtually dependent on foreign petroleum. Japan experienced its first post-war decline in industrial production, together with severe price inflation. The recovery that followed the first oil crisis revived the optimism of most business leaders, but the maintenance of industrial growth in the face of high energy costs required shifts in the industrial structure.
The subsequent result of the oil crisis was to increase the energy efficiency of manufacturing and to expand so-called knowledge-intensive industries. The service industries expanded in an increasingly post-industrial economy.
Structural economic changes, however, were unable to check the slowing of economic growth as the economy matured in the late 1970s and 1980s, attaining annual growth rates at only 4 to 6%. But these rates were remarkable in a world of expensive petroleum and in a nation of few domestic resources. Japan's average growth rate of 5% in the late 1980s, for example, was far higher than the 3.8% growth rate of the United States.
Despite more petroleum price increases in 1979, the strength of the Japanese economy was apparent. It expanded without the double-digit inflation that afflicted other industrial nations (and that had bothered Japan itself after the first oil crisis in 1973). Japan experienced slower growth in the mid-1980s, but its demand-sustained economic boom of the late 1980s revived many troubled industries.
Factors of growth
Complex economic and institutional factors affected Japan's post-war growth. First, the nation's pre-war experience provided several important legacies. The Tokugawa period (1600–1867) bequeathed a vital commercial sector in burgeoning urban centres, a relatively well-educated elite (although one with limited knowledge of European science), a sophisticated government bureaucracy, productive agriculture, a closely unified nation with highly developed financial and marketing systems, and a national infrastructure of roads. The build up of industry during the Meiji period to the point where Japan could vie for world power was an important prelude to post-war growth and provided a pool of experienced labour following World War II.
Second, and more important, was the level and quality of investment that persisted through the 1980s. Investment in capital equipment, which averaged more than 11% of GNP during the pre-war period, rose to about 20% of GNP during the 1950s and to more than 30% in the late 1960s and 1970s. During the economic boom of the late 1980s, the rate still hovered around 20%. Japanese businesses imported the latest technologies to develop the industrial base. As a latecomer to modernization, Japan was able to avoid some of the trial and error earlier needed by other nations to develop industrial processes. In the 1970s and 1980s, Japan improved its industrial base through technology licensing, patent purchases, and imitation and improvement of foreign inventions. In the 1980s, industry stepped up its research and development, and many firms became famous for their innovations and creativity.
Japan's labour force contributed significantly to economic growth, not only because of its availability and literacy but also because of its reasonable wage demands. Before and immediately after World War II, the transfer of numerous agricultural workers to modern industry resulted in rising productivity and only moderate wage increases. As population growth slowed and the nation became increasingly industrialized in the mid-1960s, wages rose significantly. However, labour union cooperation generally kept salary increases within the range of gains in productivity.
High productivity growth played a key role in post-war economic growth. The highly skilled and educated labour force, extraordinary savings rates and accompanying levels of investment and the low growth of Japan's labour force were major factors in the high rate of productivity growth.
The nation has also benefited from economies of scale. Although medium-sized and small enterprises generated much of the nation's employment, large facilities were the most productive. Many industrial enterprises consolidated to form larger, more efficient units. Before World War II, large holding companies formed wealth groups, or zaibatsu, which dominated most industry. The zaibatsu were dissolved after the war, but keiretsu—large, modern industrial enterprise groupings—emerged. The coordination of activities within these groupings and the integration of smaller subcontractors into the groups enhanced industrial efficiency.
Circumstances beyond Japan's direct control contributed to its success. International conflicts tended to stimulate the Japanese economy until the devastation at the end of World War II. The Russo-Japanese War (1904-5), World War I (1914–18), the Korean War (1950–53), and the Second Indochina War (1954–75) brought economic booms to Japan. In addition, benign treatment from the United States after World War II facilitated the nation's reconstruction and growth.
1980s
Throughout the 1970s, Japan had the world's second largest gross national product (GNP)—just behind the United States— and ranked first among major industrial nations in 1990 in per capita GNP at US$23,801, up sharply from US$9,068 in 1980. After a mild economic slump in the mid-1980s, Japan's economy began a period of expansion in 1986 that continued until it again entered a recessionary period in 1992. Economic growth averaging 5% between 1987 and 1989 revived industries, such as steel and construction, which had been relatively dormant in the mid-1980s, and brought record salaries and employment. In 1992, however, Japan's real GNP growth slowed to 1.7%. Even industries such as automobiles and electronics that had experienced phenomenal growth in the 1980s entered a recessionary period in 1992. The domestic market for Japanese automobiles shrank at the same time that Japan's share of the United States' market declined. Foreign and domestic demand for Japanese electronics also declined, and Japan seemed on the way to losing its leadership in the world semiconductor market to the United States, Korea and Taiwan.
Japanese post-war technological research was carried out for the sake of economic growth rather than military development. The growth in high-technology industries in the 1980s resulted from heightened domestic demand for high-technology products and for higher living, housing, and environmental standards; better health, medical, and welfare opportunities; better leisure-time facilities; and improved ways to accommodate a rapidly aging society. This reliance on domestic consumption also meant that consumption grew by only 2.2% in 1991 and at the same rate again in 1992
During the 1980s, the Japanese economy shifted its emphasis away from primary and secondary activities (primarily agriculture, manufacturing, and mining) to processing, with telecommunications and computers becoming increasingly vital. Information became an important resource and product, central to wealth and power. The rise of an information-based economy was led by major research in highly sophisticated technology, such as advanced computers. The selling and use of information became very beneficial to the economy. Tokyo became a major financial centre, home of some of the world's major banks, financial firms, insurance companies, and the world's largest stock exchange, the Tokyo Securities and Stock Exchange. Even here, however, the recession took its toll. In 1992, the Nikkei 225 stock average began the year at 23,000 points, but fell to 14,000 points in mid-August before leveling off at 17,000 by the end of the year.
1989 Economic Bubble: Enter the Lost Decades.
In the decades following World War II, Japan implemented stringent tariffs and policies to encourage the people to save their income. With more money in banks, loans and credit became easier to obtain, and with Japan running large trade surpluses, the yen appreciated against foreign currencies. This allowed local companies to invest in capital resources much more easily than their competitors overseas, which reduced the price of Japanese-made goods and widened the trade surplus further. And, with the yen appreciating, financial assets became very lucrative.
With so much money readily available for investment, speculation was inevitable, particularly in the Tokyo Stock Exchange and the real estate market. The Nikkei stock index hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. The rates for housing, stocks, and bonds rose so much that at one point the government issued 100-year bonds. Additionally, banks granted increasingly risky loans.
At the height of the bubble, real estate values were extremely over-valued. Prices were highest in Tokyo's Ginza district in 1989, with choice properties fetching over US$1.5 million per square meter ($139,000 per square foot). Prices were only slightly less in other areas of Tokyo. By 2004, prime "A" property in Tokyo's financial districts had slumped and Tokyo's residential homes were a fraction of their peak, but still managed to be listed as the most expensive real estate in the world. Trillions were wiped out with the combined collapse of the Tokyo stock and real estate markets.
With Japan's economy driven by its high rates of reinvestment, this crash hit particularly hard. Investments were increasingly directed out of the country, and Japanese manufacturing firms lost some degree of their technological edge. As Japanese products became less competitive overseas, it is believed that the low consumption rate began to bear on the economy, causing a deflationary spiral.
The easily obtainable credit that had helped create and engorge the real estate bubble continued to be a problem for several years to come, and as late as 1997, banks were still making loans that had a low guarantee of being repaid.
The time after the bubble's collapse, which occurred gradually rather than catastrophically, is known as the "lost decade or end of the century" (ushinawareta jūnen) in Japan. The Nikkei 225 stock index eventually bottomed out at 7603.76 in April 2003, moved upward to a new peak of 18,138 in June 2007, before resuming a downward trend. The downward movement in the Nikkei is likely due to global as well as national economic problems.
Japan’s problem are two fold: an intractable credit crisis which has inadvertently derailed the Japanese economy and a thinning labour force characterized by a fast aging population with a corresponding low birth rate that makes the prospect of replenishing the graying labour force harder to achieve.
The core problem of Japan is that it suffers from a gross misallocation of resources both financial and human. Japan has long kept the cost of capital low, to boost investment or help struggling companies. Since the financial crisis started, bureaucratic organs such as the Innovation Network Corporation (INC) of Japan and the Enterprise Turnaround Initiative Corporation (ETIC) have been allocated over $25 billion to revive ailing corporations. A good example of the misallocation of credit issue was the choice by ETIC of aiding a wireless operator which operates on archaic technology.
This is what can be described as “unnatural selection”, in Japan by agencies or lenders charged with the responsibility of providing credit to corporations that require funds. There exist perverse incentives for the allocating credit to needless sections of industry. The system almost guarantees that fresh capital goes to the losers of yester years. And because struggling companies rarely die, new ones do not form. Japan’s bankruptcy rate is half America’s; and the rate at which it creates new firms is only a third as high. Japanese venture capitalists are few. Japan’s bureaucratic allocation of credit seldom spurs animal spirits, instead it breeds zombies.
Japanese banks’ practice of continually extending credit to very weak or even insolvent firms. In Japan’s bank-centred economy, where banks often have the responsibility for corporate monitoring and governance, many lending decisions are strongly influenced by perceived duty to support troubled firms, rather than an objective, non-biased credit risk assessment, such as what is obtained in other developed economies. Both government policy and bank regulations in Japan actually encourage banks to keep extending credit to problematic borrowers, which is unofficially known as “evergreening of credit”.
Japanese banks fund firms to enable the firms make interest payments on outstanding loans, and thus avoid, or at least delay, bankruptcy. This practice allows the banks to have healthier “mirage” looking balance sheets, because the banks report fewer problem loans and make smaller loan loss provisions. The evergreening of bank loans for debt servicing purposes was widespread. With banks more likely to increase loans to firms with weaker financial health. With such practice widespread, banks had more incentives to extend additional credit to troubled firms with loans already outstanding as those same banks’ reported risk-based capital ratios neared their required capital ratios. What mattered most was the need to have a good appearance than the reality of best practices and adequate capital.
A second factor was, corporate connections made it even more likely that banks will extend such credit. Third, government-controlled banks were also more likely to increase loans to financially weak firms. Finally, the only firms that were not under pressure to evergreen loans to the weakest firms were non-affiliated, non-bank lenders. The evergreening of loans in Japan clearly insulated many troubled firms from market forces this may have prevented a bank credit crunch as at that time, instead it made economic problems worse by promoting the allocation of an increasing share of bank credit to many firms least likely to use it.
The pertinent question any observer would be forced to ask is: was there any regulator or were there no regulations to check such practices, or was there an apparent lack of foresight as to where such practices would eventually bring the Japanese economy to?
Japan had its own banking regulator as is definitely the practice. Forbearance by bank regulators had allowed the banks to neglect restructuring of non-financial firms.
Enter the Amakudari: “descent from heaven.”
The term’s literal meaning “descent from heaven” refers to the descent of the Shinto gods from heaven to earth. In modern usage, it refers to the upper echelons of civil service, the civil servants are seen as the deities, and the earth is the private sector corporations.
The amakudari phenomenon partly explains the apparent weakness of Japanese regulators and regulations from preventing the initial factors that led to the present economic woes faced by Japan. Amakudari is the institutionalized practice in Japan, where Japanese senior bureaucrats retire to high profile positions in the private and public sectors. The practice is inherently corrupt and it is a drag on efforts to break the ties between private sector and the state which prevents economic and political reform.
Reforming the reformer (scrapping amakudari)
The relationship that exists between these senior bureaucrats and their former junior colleagues who would have replaced them fosters blind loyalty such as what is obtainable in the ranks of mobsters. It is in Japan’s best interest to break the blind loyalty between the regulators and the regulators, efforts at reform should first target institutional and cultural practices that sustain the greater and familiar economic crisis.
Amakudari and any of its variant (e.g. Yokosuberi or “sideslip” that is retiring to jobs at other government organizations) should be completely abolished. Such practices have proven over time to promote risky business practices. Regulations and proactive regulators are essential to healthy economic growth and sustenance. Japan lacks both because of those the descended from heaven. It is only wise to shut the gates of heaven before Japan is finally ruined by these angels. This will provide the vital first step which would ensure that other measures being muted by experts and economists will eventually get to be fully implemented without prejudice or interference that has always sabotaged such expert opinions.
The seniority and gender issues
Japanese society is one deeply built on respect and age based seniority. This has made Japan lose its knack for getting the best out of its human capital. Despite the superb literacy of its people, the cultural requirement of respect for seniority means that promotions go to the older, not the most able. Young executives with good ideas refrain from speaking up. Retiring presidents are also kept as chairmen or advisers, making it hard for the new boss to undo his predecessor’s mistakes. A rising executive at a big trading house says he was counselled by his seniors to keep his views hidden if he wanted to get on. Half of Japan’s talent is squandered. Only 8% of managers are female, compared with 40% in America and even China’s 20%. A manager at one of Tokyo’s biggest conglomerates says that 70% of qualified job applicants are women, but fewer than 10% are hired, since the work conditions may require visits to factories and mines, where they might perspire in an unladylike way.
Japan is also remarkably “racist” it maintains one of the purest race on earth with very few inter racial marriages. Japan is also not favourably disposed to foreigners and migrants. This has deprived it of the cheap labour offered by migrant workers seeking better living conditions. Instead, it has had to outsource manufacturing to other locations that offer cheap labour, whereas it could have exploited such cheap labour within its boarders. Bosses grouse that the young Japanese eschew overseas posts; even a foreign-ministry official confides that Japanese diplomats prefer to stay at home.
In an attempt to kick-start the Japanese economy again, the government of Japan took a cue from industrial-policy books of old. The trade ministry released a comprehensive new “growth strategy” which identified scores of vibrant sectors meriting government assistance, from overseas construction to attracting medical tourists and migrant workers. The report called for hundreds of reform, very extensive reform in some cases. But the bureaucratic egg heads responsible for drafting the report were promptly drafted to other jobs just a month later. Leaving observers in doubt about the sincerity of the government to implement the outcome of the reports.
This is a clear example of how the old static and “changeophile” Japan scuttles the new. Japan knows what is best for it.
References:
1.Fukao, Kyoji (2007) (PDF). Real GDP in Pre-War East Asia: A 1934-36 Benchmark
Purchasing Power Parity Comparison with the US. http://gpih.ucdavis.edu/files
/Fukao_Ma_Yuan.pdf.
2.Liu, Ta-Chung (1946). China's National Income 1931-36, An Exploratory Study.
The Brookings Institution.
3.Maddison, Angus (2003). The World Economy: Historical Statistics. OECD
Development Center, Paris, France. http://www.theworldeconomy.org/publications
/worldeconomy.
Japan knows what to do to get itself back on track, it needs no advice from anybody, it has all the human resource required to identify and tackle its current problems. The Japanese know how to fix Japan and I have no doubt in their ability to get things right.
Those who know Japan, have an eternally abiding faith in the ability of the country to get out of mess, they say that the country always seems to shuffle its feet but then snaps into action when faced with a crisis. It did so in 19th century, adopting modern ways to avoid being colonized, and again after the Second World War. Japan was the world's second largest economy for 40 years. But the qualities that made it an economic power house in the 20th century: easy capital, big companies, excellent education, disciplined and efficient management, and stable lifetime jobs for male breadwinners- are out of fashion with the 21st century.
Japan's biggest obstacle today is itself.
In the recently released global ranking of Newsweek magazine’s 100 Best Countries in the World, Japan was placed a not quite impressive 9th position of the overall ranking. Except in the health category which Japan undisputedly holds the 1st position, it hovered around 4th to 10th position for other categories such as education, economic dynamism, quality of life and happiness.
Its reluctance to change has become has led to an anticlimax for this once economic power house. Just some few weeks ago, when the global media was abuzz with the news of China overtaking Japan as the world’s 2nd largest economy, the general mood in Japan was resignation and hopelessness, it is understandable why such mood can overtake a people once proudly revered for their once enviable achievements.
Despondency and resignation is only naturally expected after being faced with two lost economic decades characterized by a protracted deflationary cycle, declining growth and an aging population.
But we must also remember that "faith without work is dead". Without dramatic reform, Japan will slip swiftly to number four, five and beyond.
However, we still need to take a look at Japan to see if we can identify any new or hidden issues militating against efforts to revive this ailing giant. For this, we need to take a deep retrospective look at Japan through its remarkable history. Starting from the Tokugawa shogunate, the first and second Meiji restoration, the modern era, until the great wars that humbled an ambitious Japan and subsequently its re-emergence as a global economic and industrial power house, and finally, to the current economic challenges that has plagued it.
Historical timeline of Japan:
Since 1854, when the Tokugawa shogunate first opened the country to Western commerce and influence (Bakumatsu), Japan has gone through two periods of economic development. When the Tokugawa shogunate was overthrown and the Meiji government was founded, Japanese Westernization began completely. The first cycle was during Pre-war Japan, the second cycle was during the period of Post-war Japan.
In the Meiji period, Japan, under visionary leadership, inaugurated a new Western-based education system for all young people, it sent thousands of students to the United States and Europe, and hired more than 3,000 Westerners to teach modern science, mathematics, technology, and foreign languages in Japan (O-yatoi gaikokujin). The government also built railroads, improved roads, and inaugurated a land reform program to prepare the country for further development.
In tandem with its objective to promote rapid industrialization, the government decided that, while it should help private business to allocate resources and to plan, the private sector was best equipped to stimulate economic growth. The greatest role of government was to help provide the economic conditions in which business could flourish. Essentially, government was to be the guide and business the producer.
In the early Meiji period, the government built factories and shipyards that were sold to entrepreneurs at a fraction of their value. Many of these businesses grew rapidly into the larger conglomerates. Government emerged as chief promoter of private enterprise, enacting a series of pro-business policies.
The development of banking and reliance on bank funding has been at the centre of Japanese economic development at least since the Meiji era.
In the mid 1930s, the Japanese nominal wage rates were 10 times less than the one of the U.S (based on mid-1930s exchange rates), while the price level is estimated to have been about 44% the one of the U.S.
Comparison of GDP per capita between East-Asian Nations and the U.S. in 1935:
Country GDP/capita, 1935$ (Liu-Ta-Chung [2]) GDP-PPP/capita, 1990$ (Fukao [1]) GDP-PPP/capita, 1990$ (Maddison [3])
U.S. 540 5,590 5,590
Japan (excl. Taiwan and Korea) 64 1,745 2,154
Taiwan 42 1,266 1,212
Korea 24 662 1,224
China 18 543 562
Oil crisis
Japan faced a severe economic challenge in the mid-1970s. The world oil crisis in 1973 shocked an economy that had become virtually dependent on foreign petroleum. Japan experienced its first post-war decline in industrial production, together with severe price inflation. The recovery that followed the first oil crisis revived the optimism of most business leaders, but the maintenance of industrial growth in the face of high energy costs required shifts in the industrial structure.
The subsequent result of the oil crisis was to increase the energy efficiency of manufacturing and to expand so-called knowledge-intensive industries. The service industries expanded in an increasingly post-industrial economy.
Structural economic changes, however, were unable to check the slowing of economic growth as the economy matured in the late 1970s and 1980s, attaining annual growth rates at only 4 to 6%. But these rates were remarkable in a world of expensive petroleum and in a nation of few domestic resources. Japan's average growth rate of 5% in the late 1980s, for example, was far higher than the 3.8% growth rate of the United States.
Despite more petroleum price increases in 1979, the strength of the Japanese economy was apparent. It expanded without the double-digit inflation that afflicted other industrial nations (and that had bothered Japan itself after the first oil crisis in 1973). Japan experienced slower growth in the mid-1980s, but its demand-sustained economic boom of the late 1980s revived many troubled industries.
Factors of growth
Complex economic and institutional factors affected Japan's post-war growth. First, the nation's pre-war experience provided several important legacies. The Tokugawa period (1600–1867) bequeathed a vital commercial sector in burgeoning urban centres, a relatively well-educated elite (although one with limited knowledge of European science), a sophisticated government bureaucracy, productive agriculture, a closely unified nation with highly developed financial and marketing systems, and a national infrastructure of roads. The build up of industry during the Meiji period to the point where Japan could vie for world power was an important prelude to post-war growth and provided a pool of experienced labour following World War II.
Second, and more important, was the level and quality of investment that persisted through the 1980s. Investment in capital equipment, which averaged more than 11% of GNP during the pre-war period, rose to about 20% of GNP during the 1950s and to more than 30% in the late 1960s and 1970s. During the economic boom of the late 1980s, the rate still hovered around 20%. Japanese businesses imported the latest technologies to develop the industrial base. As a latecomer to modernization, Japan was able to avoid some of the trial and error earlier needed by other nations to develop industrial processes. In the 1970s and 1980s, Japan improved its industrial base through technology licensing, patent purchases, and imitation and improvement of foreign inventions. In the 1980s, industry stepped up its research and development, and many firms became famous for their innovations and creativity.
Japan's labour force contributed significantly to economic growth, not only because of its availability and literacy but also because of its reasonable wage demands. Before and immediately after World War II, the transfer of numerous agricultural workers to modern industry resulted in rising productivity and only moderate wage increases. As population growth slowed and the nation became increasingly industrialized in the mid-1960s, wages rose significantly. However, labour union cooperation generally kept salary increases within the range of gains in productivity.
High productivity growth played a key role in post-war economic growth. The highly skilled and educated labour force, extraordinary savings rates and accompanying levels of investment and the low growth of Japan's labour force were major factors in the high rate of productivity growth.
The nation has also benefited from economies of scale. Although medium-sized and small enterprises generated much of the nation's employment, large facilities were the most productive. Many industrial enterprises consolidated to form larger, more efficient units. Before World War II, large holding companies formed wealth groups, or zaibatsu, which dominated most industry. The zaibatsu were dissolved after the war, but keiretsu—large, modern industrial enterprise groupings—emerged. The coordination of activities within these groupings and the integration of smaller subcontractors into the groups enhanced industrial efficiency.
Circumstances beyond Japan's direct control contributed to its success. International conflicts tended to stimulate the Japanese economy until the devastation at the end of World War II. The Russo-Japanese War (1904-5), World War I (1914–18), the Korean War (1950–53), and the Second Indochina War (1954–75) brought economic booms to Japan. In addition, benign treatment from the United States after World War II facilitated the nation's reconstruction and growth.
1980s
Throughout the 1970s, Japan had the world's second largest gross national product (GNP)—just behind the United States— and ranked first among major industrial nations in 1990 in per capita GNP at US$23,801, up sharply from US$9,068 in 1980. After a mild economic slump in the mid-1980s, Japan's economy began a period of expansion in 1986 that continued until it again entered a recessionary period in 1992. Economic growth averaging 5% between 1987 and 1989 revived industries, such as steel and construction, which had been relatively dormant in the mid-1980s, and brought record salaries and employment. In 1992, however, Japan's real GNP growth slowed to 1.7%. Even industries such as automobiles and electronics that had experienced phenomenal growth in the 1980s entered a recessionary period in 1992. The domestic market for Japanese automobiles shrank at the same time that Japan's share of the United States' market declined. Foreign and domestic demand for Japanese electronics also declined, and Japan seemed on the way to losing its leadership in the world semiconductor market to the United States, Korea and Taiwan.
Japanese post-war technological research was carried out for the sake of economic growth rather than military development. The growth in high-technology industries in the 1980s resulted from heightened domestic demand for high-technology products and for higher living, housing, and environmental standards; better health, medical, and welfare opportunities; better leisure-time facilities; and improved ways to accommodate a rapidly aging society. This reliance on domestic consumption also meant that consumption grew by only 2.2% in 1991 and at the same rate again in 1992
During the 1980s, the Japanese economy shifted its emphasis away from primary and secondary activities (primarily agriculture, manufacturing, and mining) to processing, with telecommunications and computers becoming increasingly vital. Information became an important resource and product, central to wealth and power. The rise of an information-based economy was led by major research in highly sophisticated technology, such as advanced computers. The selling and use of information became very beneficial to the economy. Tokyo became a major financial centre, home of some of the world's major banks, financial firms, insurance companies, and the world's largest stock exchange, the Tokyo Securities and Stock Exchange. Even here, however, the recession took its toll. In 1992, the Nikkei 225 stock average began the year at 23,000 points, but fell to 14,000 points in mid-August before leveling off at 17,000 by the end of the year.
1989 Economic Bubble: Enter the Lost Decades.
In the decades following World War II, Japan implemented stringent tariffs and policies to encourage the people to save their income. With more money in banks, loans and credit became easier to obtain, and with Japan running large trade surpluses, the yen appreciated against foreign currencies. This allowed local companies to invest in capital resources much more easily than their competitors overseas, which reduced the price of Japanese-made goods and widened the trade surplus further. And, with the yen appreciating, financial assets became very lucrative.
With so much money readily available for investment, speculation was inevitable, particularly in the Tokyo Stock Exchange and the real estate market. The Nikkei stock index hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. The rates for housing, stocks, and bonds rose so much that at one point the government issued 100-year bonds. Additionally, banks granted increasingly risky loans.
At the height of the bubble, real estate values were extremely over-valued. Prices were highest in Tokyo's Ginza district in 1989, with choice properties fetching over US$1.5 million per square meter ($139,000 per square foot). Prices were only slightly less in other areas of Tokyo. By 2004, prime "A" property in Tokyo's financial districts had slumped and Tokyo's residential homes were a fraction of their peak, but still managed to be listed as the most expensive real estate in the world. Trillions were wiped out with the combined collapse of the Tokyo stock and real estate markets.
With Japan's economy driven by its high rates of reinvestment, this crash hit particularly hard. Investments were increasingly directed out of the country, and Japanese manufacturing firms lost some degree of their technological edge. As Japanese products became less competitive overseas, it is believed that the low consumption rate began to bear on the economy, causing a deflationary spiral.
The easily obtainable credit that had helped create and engorge the real estate bubble continued to be a problem for several years to come, and as late as 1997, banks were still making loans that had a low guarantee of being repaid.
The time after the bubble's collapse, which occurred gradually rather than catastrophically, is known as the "lost decade or end of the century" (ushinawareta jūnen) in Japan. The Nikkei 225 stock index eventually bottomed out at 7603.76 in April 2003, moved upward to a new peak of 18,138 in June 2007, before resuming a downward trend. The downward movement in the Nikkei is likely due to global as well as national economic problems.
Japan’s problem are two fold: an intractable credit crisis which has inadvertently derailed the Japanese economy and a thinning labour force characterized by a fast aging population with a corresponding low birth rate that makes the prospect of replenishing the graying labour force harder to achieve.
The core problem of Japan is that it suffers from a gross misallocation of resources both financial and human. Japan has long kept the cost of capital low, to boost investment or help struggling companies. Since the financial crisis started, bureaucratic organs such as the Innovation Network Corporation (INC) of Japan and the Enterprise Turnaround Initiative Corporation (ETIC) have been allocated over $25 billion to revive ailing corporations. A good example of the misallocation of credit issue was the choice by ETIC of aiding a wireless operator which operates on archaic technology.
This is what can be described as “unnatural selection”, in Japan by agencies or lenders charged with the responsibility of providing credit to corporations that require funds. There exist perverse incentives for the allocating credit to needless sections of industry. The system almost guarantees that fresh capital goes to the losers of yester years. And because struggling companies rarely die, new ones do not form. Japan’s bankruptcy rate is half America’s; and the rate at which it creates new firms is only a third as high. Japanese venture capitalists are few. Japan’s bureaucratic allocation of credit seldom spurs animal spirits, instead it breeds zombies.
Japanese banks’ practice of continually extending credit to very weak or even insolvent firms. In Japan’s bank-centred economy, where banks often have the responsibility for corporate monitoring and governance, many lending decisions are strongly influenced by perceived duty to support troubled firms, rather than an objective, non-biased credit risk assessment, such as what is obtained in other developed economies. Both government policy and bank regulations in Japan actually encourage banks to keep extending credit to problematic borrowers, which is unofficially known as “evergreening of credit”.
Japanese banks fund firms to enable the firms make interest payments on outstanding loans, and thus avoid, or at least delay, bankruptcy. This practice allows the banks to have healthier “mirage” looking balance sheets, because the banks report fewer problem loans and make smaller loan loss provisions. The evergreening of bank loans for debt servicing purposes was widespread. With banks more likely to increase loans to firms with weaker financial health. With such practice widespread, banks had more incentives to extend additional credit to troubled firms with loans already outstanding as those same banks’ reported risk-based capital ratios neared their required capital ratios. What mattered most was the need to have a good appearance than the reality of best practices and adequate capital.
A second factor was, corporate connections made it even more likely that banks will extend such credit. Third, government-controlled banks were also more likely to increase loans to financially weak firms. Finally, the only firms that were not under pressure to evergreen loans to the weakest firms were non-affiliated, non-bank lenders. The evergreening of loans in Japan clearly insulated many troubled firms from market forces this may have prevented a bank credit crunch as at that time, instead it made economic problems worse by promoting the allocation of an increasing share of bank credit to many firms least likely to use it.
The pertinent question any observer would be forced to ask is: was there any regulator or were there no regulations to check such practices, or was there an apparent lack of foresight as to where such practices would eventually bring the Japanese economy to?
Japan had its own banking regulator as is definitely the practice. Forbearance by bank regulators had allowed the banks to neglect restructuring of non-financial firms.
Enter the Amakudari: “descent from heaven.”
The term’s literal meaning “descent from heaven” refers to the descent of the Shinto gods from heaven to earth. In modern usage, it refers to the upper echelons of civil service, the civil servants are seen as the deities, and the earth is the private sector corporations.
The amakudari phenomenon partly explains the apparent weakness of Japanese regulators and regulations from preventing the initial factors that led to the present economic woes faced by Japan. Amakudari is the institutionalized practice in Japan, where Japanese senior bureaucrats retire to high profile positions in the private and public sectors. The practice is inherently corrupt and it is a drag on efforts to break the ties between private sector and the state which prevents economic and political reform.
Reforming the reformer (scrapping amakudari)
The relationship that exists between these senior bureaucrats and their former junior colleagues who would have replaced them fosters blind loyalty such as what is obtainable in the ranks of mobsters. It is in Japan’s best interest to break the blind loyalty between the regulators and the regulators, efforts at reform should first target institutional and cultural practices that sustain the greater and familiar economic crisis.
Amakudari and any of its variant (e.g. Yokosuberi or “sideslip” that is retiring to jobs at other government organizations) should be completely abolished. Such practices have proven over time to promote risky business practices. Regulations and proactive regulators are essential to healthy economic growth and sustenance. Japan lacks both because of those the descended from heaven. It is only wise to shut the gates of heaven before Japan is finally ruined by these angels. This will provide the vital first step which would ensure that other measures being muted by experts and economists will eventually get to be fully implemented without prejudice or interference that has always sabotaged such expert opinions.
The seniority and gender issues
Japanese society is one deeply built on respect and age based seniority. This has made Japan lose its knack for getting the best out of its human capital. Despite the superb literacy of its people, the cultural requirement of respect for seniority means that promotions go to the older, not the most able. Young executives with good ideas refrain from speaking up. Retiring presidents are also kept as chairmen or advisers, making it hard for the new boss to undo his predecessor’s mistakes. A rising executive at a big trading house says he was counselled by his seniors to keep his views hidden if he wanted to get on. Half of Japan’s talent is squandered. Only 8% of managers are female, compared with 40% in America and even China’s 20%. A manager at one of Tokyo’s biggest conglomerates says that 70% of qualified job applicants are women, but fewer than 10% are hired, since the work conditions may require visits to factories and mines, where they might perspire in an unladylike way.
Japan is also remarkably “racist” it maintains one of the purest race on earth with very few inter racial marriages. Japan is also not favourably disposed to foreigners and migrants. This has deprived it of the cheap labour offered by migrant workers seeking better living conditions. Instead, it has had to outsource manufacturing to other locations that offer cheap labour, whereas it could have exploited such cheap labour within its boarders. Bosses grouse that the young Japanese eschew overseas posts; even a foreign-ministry official confides that Japanese diplomats prefer to stay at home.
In an attempt to kick-start the Japanese economy again, the government of Japan took a cue from industrial-policy books of old. The trade ministry released a comprehensive new “growth strategy” which identified scores of vibrant sectors meriting government assistance, from overseas construction to attracting medical tourists and migrant workers. The report called for hundreds of reform, very extensive reform in some cases. But the bureaucratic egg heads responsible for drafting the report were promptly drafted to other jobs just a month later. Leaving observers in doubt about the sincerity of the government to implement the outcome of the reports.
This is a clear example of how the old static and “changeophile” Japan scuttles the new. Japan knows what is best for it.
References:
1.Fukao, Kyoji (2007) (PDF). Real GDP in Pre-War East Asia: A 1934-36 Benchmark
Purchasing Power Parity Comparison with the US. http://gpih.ucdavis.edu/files
/Fukao_Ma_Yuan.pdf.
2.Liu, Ta-Chung (1946). China's National Income 1931-36, An Exploratory Study.
The Brookings Institution.
3.Maddison, Angus (2003). The World Economy: Historical Statistics. OECD
Development Center, Paris, France. http://www.theworldeconomy.org/publications
/worldeconomy.
Monday, June 21, 2010
Business 2.0: Business and Enterprise Going Micro
It first started with Microfinance, and then it forayed into Microinsurance. The general idea has been to harness the potentials of piecemeal financing schemes to better the lot of people who find themselves at the periphery of the mainstream economies of most developing countries.
Most people at the bottom of the economic pyramid in most societies have somehow been excluded from enterprise and the formal economy by a potent combination of factors which includes: lack of technical and administrative expertise, finance and access to markets.
This has had the unfortunate consequence of stunting their economic growth and caging the aspirations of social upliftment from the bottom of the pyramid (BoP), thereby forcing most of their micro enterprise into administration or being left to struggle with the inevitable prospect of folding up just a few years after starting out in business.
However, things are beginning to look up for most of these micro entrepreneurs with the advent of microfinance and microinsurance.
According to Wikipedia, microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services.
More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers." Wikipedia Microfinance
The microfinance movement has rapidly taken root globally and has become a global movement especially among social entrepreneurs who see it as a veritable tool to eradicate endemic poverty.
Those who promote microfinance generally believe that such access will help poor people out of poverty.
On the other end of the table, microinsurance as it is also described by Wikipedia is “insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes.” - Wikipedia Microinsurance
Microinsurance can be a very useful tool in ameliorating the suffering and hardship people at the BoP are often exposed to by the unfair realities and circumstances of life.
As Manuel Bueno discussed in his recent blog posting, microinsurance aims to help low-income people manage risk and reduce their vulnerability to shocks.
A useful examples of how microinsurance has helped poor people in need is the unfortunate case of Monica Kirunguru, a poor Kenyan woman who’s husband was hospitalized and eventually died.
Microfinance and microinsurance hold immense potentials as major tools for combating poverty, and if their potential is properly harnessed, the world could witness a dramatic revolution which would see the next billion rising from the BoP to the middle income level on a global scale.
Most people at the bottom of the economic pyramid in most societies have somehow been excluded from enterprise and the formal economy by a potent combination of factors which includes: lack of technical and administrative expertise, finance and access to markets.
This has had the unfortunate consequence of stunting their economic growth and caging the aspirations of social upliftment from the bottom of the pyramid (BoP), thereby forcing most of their micro enterprise into administration or being left to struggle with the inevitable prospect of folding up just a few years after starting out in business.
However, things are beginning to look up for most of these micro entrepreneurs with the advent of microfinance and microinsurance.
According to Wikipedia, microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services.
More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers." Wikipedia Microfinance
The microfinance movement has rapidly taken root globally and has become a global movement especially among social entrepreneurs who see it as a veritable tool to eradicate endemic poverty.
Those who promote microfinance generally believe that such access will help poor people out of poverty.
On the other end of the table, microinsurance as it is also described by Wikipedia is “insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes.” - Wikipedia Microinsurance
Microinsurance can be a very useful tool in ameliorating the suffering and hardship people at the BoP are often exposed to by the unfair realities and circumstances of life.
As Manuel Bueno discussed in his recent blog posting, microinsurance aims to help low-income people manage risk and reduce their vulnerability to shocks.
A useful examples of how microinsurance has helped poor people in need is the unfortunate case of Monica Kirunguru, a poor Kenyan woman who’s husband was hospitalized and eventually died.
Microfinance and microinsurance hold immense potentials as major tools for combating poverty, and if their potential is properly harnessed, the world could witness a dramatic revolution which would see the next billion rising from the BoP to the middle income level on a global scale.
Friday, June 18, 2010
Thursday, June 10, 2010
Nigeria: A Travesty of Democracy
The quiet of the night was punctuated by the deafening sound of my neighbour’s electricity generating set. Power cuts have become an expected part of our daily life; it’s no longer fashionable owning one of such devices as necessity has made it mandatory to own one.
With nationwide electricity generation down to a mere 3000 megawatts for a nation of over 150 million inhabitants, alternative energy sources have come to stay as a large chunk of the population have resorted to the acquisition of such properties to supplement the epileptic electricity supply from the incumbent national supplier.
The situation with electricity generation and distribution in Nigeria today is just one of the many ills that plague the land, a superannuated national grid that served the purpose of 50s Nigeria. Decrepit infrastructure cuts across all sectors of national life.
Nigeria’s road networks are in a horrible state, rail infrastructure has been comatose since the 70s, violent crime and kidnapping is on the rise as the national security agencies have no idea on how to curb the menace.
The nation seats on an ethnic and religious fault line that threatens to tear it apart. Nigeria continues to record impressive macro economic growth which never seems to reflect on the quality of life of its citizens at the bottom of the economic pyramid.
With over 70 percent of its citizen living on less than $1 a day, and faced with no form of social security, the brutal hardship has reduced life expectancy to a record low of less than 47yrs.
The summary of it all is that Nigeria as a nation seems to be in a funk, perpetually fumbling and wobbling from one crisis to another, like fraternity jerks on some cheap steroids.
With all of these failings of the Nigerian state, it becomes more startling when one realizes that in that last 11yrs of its 50yrs sovereign life; Nigeria has been run under a democratically elected government.
One wonders, especially as one looks back with nostalgia at Nigeria’s past years, we painfully note that Nigeria has been in a constant state of deterioration, one observes, though arguably that (based on certain indices) that things have actually gotten worse.
Corruption has reached all time highs; the political class with much impunity appropriates the nation’s wealth to themselves. They have developed the unfortunate habit of legislating self serving laws which endangers Nigeria’s nascent democracy, the last leadership vacuum that was created by the ill health and eventual demise of late President Umar Musa Yar’Adua presented them with an opportunity to display grandiose rascality and criminality on a scale that shocked global and local observers. Even the developed world’s intelligentsias were impressed by such conspiracy and opprobrium.
Ironically, Nigeria is endowed with immense human and material (natural) resources sufficient to make it a global industrial and economic power. Nigeria’s potentials have unfortunately refused to become anything more than potentials. Once gloriously referred to as the Giant of Africa, now such claims have been reduced to mere sarcasm.
Nigeria’s political elite, who have stirred the ship of state for the past 11yrs are far removed from the reality of the nation in which they live. They are Nigeria’s celebrities (not the Nollywood actors and actresses that ply the trade of entertainment), title hugging freaks who love the limelight and relish in the mediocrity in which they have left the nation.
They live a life of opulence comparable with what is obtainable in the oil rich “Emiraties” of the Middle East, Nigeria’s health care system isn’t even good enough for them as they routinely fly abroad for trivial medical check ups, their children attend the best schools abroad (this makes them feel unconcerned about the state of Nigeria’s educational system) and they own choice assets abroad.
And things got this bad in the last 11yrs of democracy in Nigeria!
Democracy is generally acknowledged to be a political form of government carried out by the people either directly or by means of elected representatives of the people; simply put: a government of the people, for the people and by the people.
The question that begs for answer in the Nigerian case is: is Nigeria actually practicing democracy?
The question, if subjected to rigorous academic scrutiny comes up with interesting answers, yet the reality the stares us rudely in the face is the failure of Nigeria’s political economy to deliver on the promises of democratic governance.
Ironically, Nigeria’s last presidential election was a sham characterized by massive electoral fraud. This partly explains why the politicians of our land don’t see any reason why they should be accountable to the electoral; after all our votes didn’t count in bringing them into office.
As societies evolve, different forces intertwine among different civilizations and ideologies which lead to the dynamics and metamorphosis of societies that eventually lead to the transformation of humanity. Democracy is one of such transformational forces. Even though there is no universally imposable definition of democracy, equality and freedom non-rivalrous and non-excludable from the generally accepted principles of democracy.
These principles are reflected in all citizens being equal before the law and having equal access to power. In democracies, the freedom of citizens is generally secured by legitimized rights and liberties which are protected by the constitution.
Nigeria’s democracy in its current state is a travesty of democracy. The basic constituents of a democracy are missing from the Nigerian reality.
Nigeria’s case can be partly explained; considering that democratic governance is a system not traditionally rooted within the larger cultural heritage of the Nigerian. It is more or less alien.
Nigeria, a nation with over 250 ethnic groups dating back to 100s of years past, with their own unique complexities and ancient systems of governance which still run parallel to its modern institutions of governance (most of them were monarchial and authoritarian in nature). Quite regrettable is the fact that these parallel institutions and systems are still very much active and hold sway over the modern institution, in many cases trumping their powers and thus rendering them impotent.
Nigeria finds itself in dire straits, and if this situation remains unchecked, Nigeria’s democratic experiment might be truncated by other contending forces as has been the case in the past. One of such potent forces capable of scuttling Nigeria’s democracy has always remained the threat posed by the military establishment. In the past there have been numerous military interventions, such incidence led to the unfortunate militarization of the Nigerian polity which consequences still remains in present day Nigeria.
The line between religious and tribal interests as against the common good of the Nigerian state is blurred. There is an urgent need for the separation of such parallel interests from the functions and duties of governance at all levels in Nigeria.
With nationwide electricity generation down to a mere 3000 megawatts for a nation of over 150 million inhabitants, alternative energy sources have come to stay as a large chunk of the population have resorted to the acquisition of such properties to supplement the epileptic electricity supply from the incumbent national supplier.
The situation with electricity generation and distribution in Nigeria today is just one of the many ills that plague the land, a superannuated national grid that served the purpose of 50s Nigeria. Decrepit infrastructure cuts across all sectors of national life.
Nigeria’s road networks are in a horrible state, rail infrastructure has been comatose since the 70s, violent crime and kidnapping is on the rise as the national security agencies have no idea on how to curb the menace.
The nation seats on an ethnic and religious fault line that threatens to tear it apart. Nigeria continues to record impressive macro economic growth which never seems to reflect on the quality of life of its citizens at the bottom of the economic pyramid.
With over 70 percent of its citizen living on less than $1 a day, and faced with no form of social security, the brutal hardship has reduced life expectancy to a record low of less than 47yrs.
The summary of it all is that Nigeria as a nation seems to be in a funk, perpetually fumbling and wobbling from one crisis to another, like fraternity jerks on some cheap steroids.
With all of these failings of the Nigerian state, it becomes more startling when one realizes that in that last 11yrs of its 50yrs sovereign life; Nigeria has been run under a democratically elected government.
One wonders, especially as one looks back with nostalgia at Nigeria’s past years, we painfully note that Nigeria has been in a constant state of deterioration, one observes, though arguably that (based on certain indices) that things have actually gotten worse.
Corruption has reached all time highs; the political class with much impunity appropriates the nation’s wealth to themselves. They have developed the unfortunate habit of legislating self serving laws which endangers Nigeria’s nascent democracy, the last leadership vacuum that was created by the ill health and eventual demise of late President Umar Musa Yar’Adua presented them with an opportunity to display grandiose rascality and criminality on a scale that shocked global and local observers. Even the developed world’s intelligentsias were impressed by such conspiracy and opprobrium.
Ironically, Nigeria is endowed with immense human and material (natural) resources sufficient to make it a global industrial and economic power. Nigeria’s potentials have unfortunately refused to become anything more than potentials. Once gloriously referred to as the Giant of Africa, now such claims have been reduced to mere sarcasm.
Nigeria’s political elite, who have stirred the ship of state for the past 11yrs are far removed from the reality of the nation in which they live. They are Nigeria’s celebrities (not the Nollywood actors and actresses that ply the trade of entertainment), title hugging freaks who love the limelight and relish in the mediocrity in which they have left the nation.
They live a life of opulence comparable with what is obtainable in the oil rich “Emiraties” of the Middle East, Nigeria’s health care system isn’t even good enough for them as they routinely fly abroad for trivial medical check ups, their children attend the best schools abroad (this makes them feel unconcerned about the state of Nigeria’s educational system) and they own choice assets abroad.
And things got this bad in the last 11yrs of democracy in Nigeria!
Democracy is generally acknowledged to be a political form of government carried out by the people either directly or by means of elected representatives of the people; simply put: a government of the people, for the people and by the people.
The question that begs for answer in the Nigerian case is: is Nigeria actually practicing democracy?
The question, if subjected to rigorous academic scrutiny comes up with interesting answers, yet the reality the stares us rudely in the face is the failure of Nigeria’s political economy to deliver on the promises of democratic governance.
Ironically, Nigeria’s last presidential election was a sham characterized by massive electoral fraud. This partly explains why the politicians of our land don’t see any reason why they should be accountable to the electoral; after all our votes didn’t count in bringing them into office.
As societies evolve, different forces intertwine among different civilizations and ideologies which lead to the dynamics and metamorphosis of societies that eventually lead to the transformation of humanity. Democracy is one of such transformational forces. Even though there is no universally imposable definition of democracy, equality and freedom non-rivalrous and non-excludable from the generally accepted principles of democracy.
These principles are reflected in all citizens being equal before the law and having equal access to power. In democracies, the freedom of citizens is generally secured by legitimized rights and liberties which are protected by the constitution.
Nigeria’s democracy in its current state is a travesty of democracy. The basic constituents of a democracy are missing from the Nigerian reality.
Nigeria’s case can be partly explained; considering that democratic governance is a system not traditionally rooted within the larger cultural heritage of the Nigerian. It is more or less alien.
Nigeria, a nation with over 250 ethnic groups dating back to 100s of years past, with their own unique complexities and ancient systems of governance which still run parallel to its modern institutions of governance (most of them were monarchial and authoritarian in nature). Quite regrettable is the fact that these parallel institutions and systems are still very much active and hold sway over the modern institution, in many cases trumping their powers and thus rendering them impotent.
Nigeria finds itself in dire straits, and if this situation remains unchecked, Nigeria’s democratic experiment might be truncated by other contending forces as has been the case in the past. One of such potent forces capable of scuttling Nigeria’s democracy has always remained the threat posed by the military establishment. In the past there have been numerous military interventions, such incidence led to the unfortunate militarization of the Nigerian polity which consequences still remains in present day Nigeria.
The line between religious and tribal interests as against the common good of the Nigerian state is blurred. There is an urgent need for the separation of such parallel interests from the functions and duties of governance at all levels in Nigeria.
Ajo: Banking for the unbanked and financially underserved populace at the Bottom of the Pyramid (BoP).
With more than half of the adult population unable to access retail banking services, the introduction of microfinance banking by the Central Bank of Nigeria (CBN) was welcomed by Nigeria’s development partners and the general populace.
However, this laudable concept was soon caught in the thorns of an inefficient Nigerian economic system and hijacked by money bags, having failed to capture its target market – ‘the poor’.
Tunde Lemo, the then deputy governor of the Central Bank, confirmed last year that some of these microfinance banks are simply ostentatious, with some of them having holidays abroad as part of their executive remuneration.
“With a package like this, how do such banks hope to reach out to those not using any bank and alleviate poverty, which are the main reasons for setting them up?,” Mr. Lemo had queried.
Within 3 years of operation, 90% of Nigeria’s Microfinance banks folded up. The Central Bank insists that every microfinance bank should have a minimum reserve of N20 million (about $130,000), while the National Deposit Insurance Corporation (NDIC) insures each depositor for a maximum of N100, 000 ($670), regardless of the amount of money invested.
Experts have identified the problems of microfinance banks in Nigeria to be similar to those of commercial banks. Some of these include severe under capitalization, extremely high levels of non-performing loans, insider lending, lack of transparency, inexperience and supervision, meager capital base, loss of customers’ confidence, and most significantly is the high overhead cost.
They have also expressed fears that the sector might collapse soon if the operators did not change their strategy.
It is in recognition of the unique challenge that Microfinance banking has faced in Nigeria that this article decided to investigate the functioning of a traditional model rooted in the Nigerian system.
In Nigeria’s multicultural society, deeply embedded within its shadow private sector, there exists a micro credit scheme little known to people outside the shores of Nigeria.
This informal banking and micro credit scheme has thrived and is even practiced beyond the national boarders of Nigeria (as far as Ghana).
An attempt will also be made to dissect the anatomy for the education of the uninformed that are yet to be acquainted with the knowledge and the workings of such a scheme.
It is also intended to investigate the possibilities of extending such a scheme beyond its current rudimentary setup in order to enhance its efficiency as a more viable strategy at enhancing the economic upliftment of the next billion still stuck at the bottom of the economic and social pyramid.
In our multi ethnic environment, it is know by different monikers among the various ethnic groups that make up the population of Nigeria, among the Yoruba, it is called “Ajo”, and among the Ibo (even in Ghana) it goes by the name “Susu” .
These two names serve as the most common names by which it is known, however, in the English language, it is simply known as “Thrift collection”. Let us for simplicity use the word Ajo to identify the scheme.
The anatomy of Ajo:
Ajo is a simple thrift collection based informal financial service, wherein the thrift collector/operator goes about to collect small deposits of funds from the clients on a daily basis. Ajo collectors are one of the oldest financial groups in Africa. Even though the origin of Ajo is quite murky at this time.
Based largely in Nigeria, they provide (for a small fee) an informal means for low income Nigerians to securely save and access their own money, and gain limited access to credit, a form of microfinance. Money looked after for an individual by an Ajo collector is held in accounts in formal banking sector.
The deposits collected from the client is determined from the beginning of each new monthly cycle by the client and sustained at the predetermined rate till the end of that particular cycle, it is at the discretion of the client to decide how much he/she can deposit on a daily basis.
The contribution is fixed around a 31 day calendar per month and at the completion of each monthly cycle, the depositor retrieves the funds minus a service charge equivalent to one day deposit which is usually for the first day deposited.
For a client who chooses to make a daily contribution of $1, at the end of 31 days, he is entitled to get back $30 from the Ajo operator, $1 fee is retained for the services of the operator.
A unique feature of the scheme is the loan apparatus which is technically interest free and has a nearly non-existent default repayment rate when compared with the very high loan defaults associated with the contemporary microfinance banking system we have in operation today in Nigeria.
Features of Ajo:
· The fundamental foundation for the Ajo business is built upon Trust and Relationship
· It is not recognised or regulated by government, there is virtually no form of institutional oversight body supervising thrift collection operators, it practically operates in the shadows of Nigeria’s financial services regulatory institutions (The Central Bank of Nigeria, Nigeria Deposit Insurance Corporation etc. are not in the know of the activities of these local financial services.
· The only form of regulation or supervision available in the domain of the thrift collector operators is usually of the informal trade unions (which serve to regulate the activities of members who volunteer to be a part of the unions, the activities of these unions are usually unorthodox, anti-competitive and pose unpleasant barriers to free market entry by new entrants)
· Majority of their clientele base is of the low income class drawn from the base of the pyramid.
· The fixed daily contribution which is required to be maintained at that rate till the end of the monthly cycle is determined at the discretion of the client.
· To start a thrift collection business, an intending Ajo operator usually requires minimal funding (start up capital required is usually of the logistics and administrative type) to enter into this line of business – high dose of passion and commitment usually serves as more strategic incentive to convince prospective clients into patronage than financial power.
· The business requires minimal overhead/operational cost for day to day business activities, because they avoid many of the excessive costs already being incurred by the modern microfinance banks, which has become their major albatross.
· The Ajo collection business in its purest form is not financed or operated using bank credit facilities.
· There is higher confidence and trust among Nigerians at the BoP in the Ajo collector operator than they have in the modern microfinance banks (from ethnographic surveys and focus groups interviews conducted)
· It serves as a reliable and constants source of micro credit for people at the BoP
· An Ajo operator usually operates on a micro-clientele base of usually around 50 to 100 clients per operator, this small scale enables them to effectively relate and supervise on an intimate base with clients rather than what is obtained in microfinance banking sectors (one on one relationship between operator and client)
· Most operators have been in business for considerable amount of time ranging from 5 years to over 25 years (from focus group interviews organized), in some cases, there has even been generational change as was with the case of one respondent who actually inherited the business from the mother after she passed away.
· Low staffing, at most, most Ajo operators employ 2 to 3 additional staffs who usually are family members, they are remunerated by cash, vocational training and are allowed to work conveniently for about 2 to 3 hours daily, this enables them keep other jobs, attend their vocational training etc. this helps keep staff cost low.
Nature of loans:
o Loans are usually for longer term clients for whom the operator has become reasonably familiar with
o The time frame for qualification for the loans usually is 1 to 3 years depending on several intrinsic factors.
o The loans offered are non collateral based.
o Non-repayment/default for loans is rare and in some cases loans might be rescheduled but they are never underwritten or declared as bad loans,
o The amounts loaned varies with each client, it does not exceed the monthly contribution capacity of individual clients, e.g. for a $30 per month client, he/she is entitled to $30 loan to be repaid in one month or rescheduled to the next month in a worst case scenario, whereas for a $300 per month client, he/she is also entitled to $300 per month on unified repayment terms basis for all clients. In essence, the loans made out to clients do not exceed the monthly contribution capacity of the client in question.
o The loan is usually advanced as an upfront for a new month, and then the client is required to commence with a daily repayment cycle for which the client is expected to complete repayment of the loan by the end of the month.
o The loan is technically interest free, since the Ajo operator only takes the 1 day service fee attached to the daily contribution, no extra charge is attached to loans offered to clients.
Challenges:
· Improper book keeping and accounting structure poses a major challenge
· Skepticism about eventual government interference, which is often attached to the fact that governance in this part of the world is more often than not a rent seeking enterprise and the fear that possible imposition of taxes might actually force operators to review their business models which might eventually lead to higher costs to the clients.
· The informal unions usually impose anti competitive rules, they also restrict domain of operation for Ajo operators, and they create artificial barriers to market entry for prospective entrants.
· The death of an operator in some cases may literally translate to the end of the business, this is however synonymous with most single ownership businesses run on a subsistent scale.
· The possibility of operators actually eloping with the funds of the clients, although rarely reported among clients interviewed also creates trust issues; this was what primarily led to the formation of the trade unions to check the activities of Ajo operators.
The next part of this paper intends to compare the Ajo scheme to the modern microfinance banking (MFB) as it was introduced in Nigeria.
The Ajo scheme has operator in the shadows of the formal banking system for long. It has recorded significant success, at low operation cost and has displayed higher efficiency in getting much needed micro-credit to those who badly require it.
It has also shown much resilience as there has been a minimal default rate among borrowers.
We intend to compare Ajo to MFB in Nigeria and drawn upon the strength and weakness thereof to propose a new model for micro credit service offering the unbanked and the underserved at the BoP in Nigeria.
However, this laudable concept was soon caught in the thorns of an inefficient Nigerian economic system and hijacked by money bags, having failed to capture its target market – ‘the poor’.
Tunde Lemo, the then deputy governor of the Central Bank, confirmed last year that some of these microfinance banks are simply ostentatious, with some of them having holidays abroad as part of their executive remuneration.
“With a package like this, how do such banks hope to reach out to those not using any bank and alleviate poverty, which are the main reasons for setting them up?,” Mr. Lemo had queried.
Within 3 years of operation, 90% of Nigeria’s Microfinance banks folded up. The Central Bank insists that every microfinance bank should have a minimum reserve of N20 million (about $130,000), while the National Deposit Insurance Corporation (NDIC) insures each depositor for a maximum of N100, 000 ($670), regardless of the amount of money invested.
Experts have identified the problems of microfinance banks in Nigeria to be similar to those of commercial banks. Some of these include severe under capitalization, extremely high levels of non-performing loans, insider lending, lack of transparency, inexperience and supervision, meager capital base, loss of customers’ confidence, and most significantly is the high overhead cost.
They have also expressed fears that the sector might collapse soon if the operators did not change their strategy.
It is in recognition of the unique challenge that Microfinance banking has faced in Nigeria that this article decided to investigate the functioning of a traditional model rooted in the Nigerian system.
In Nigeria’s multicultural society, deeply embedded within its shadow private sector, there exists a micro credit scheme little known to people outside the shores of Nigeria.
This informal banking and micro credit scheme has thrived and is even practiced beyond the national boarders of Nigeria (as far as Ghana).
An attempt will also be made to dissect the anatomy for the education of the uninformed that are yet to be acquainted with the knowledge and the workings of such a scheme.
It is also intended to investigate the possibilities of extending such a scheme beyond its current rudimentary setup in order to enhance its efficiency as a more viable strategy at enhancing the economic upliftment of the next billion still stuck at the bottom of the economic and social pyramid.
In our multi ethnic environment, it is know by different monikers among the various ethnic groups that make up the population of Nigeria, among the Yoruba, it is called “Ajo”, and among the Ibo (even in Ghana) it goes by the name “Susu” .
These two names serve as the most common names by which it is known, however, in the English language, it is simply known as “Thrift collection”. Let us for simplicity use the word Ajo to identify the scheme.
The anatomy of Ajo:
Ajo is a simple thrift collection based informal financial service, wherein the thrift collector/operator goes about to collect small deposits of funds from the clients on a daily basis. Ajo collectors are one of the oldest financial groups in Africa. Even though the origin of Ajo is quite murky at this time.
Based largely in Nigeria, they provide (for a small fee) an informal means for low income Nigerians to securely save and access their own money, and gain limited access to credit, a form of microfinance. Money looked after for an individual by an Ajo collector is held in accounts in formal banking sector.
The deposits collected from the client is determined from the beginning of each new monthly cycle by the client and sustained at the predetermined rate till the end of that particular cycle, it is at the discretion of the client to decide how much he/she can deposit on a daily basis.
The contribution is fixed around a 31 day calendar per month and at the completion of each monthly cycle, the depositor retrieves the funds minus a service charge equivalent to one day deposit which is usually for the first day deposited.
For a client who chooses to make a daily contribution of $1, at the end of 31 days, he is entitled to get back $30 from the Ajo operator, $1 fee is retained for the services of the operator.
A unique feature of the scheme is the loan apparatus which is technically interest free and has a nearly non-existent default repayment rate when compared with the very high loan defaults associated with the contemporary microfinance banking system we have in operation today in Nigeria.
Features of Ajo:
· The fundamental foundation for the Ajo business is built upon Trust and Relationship
· It is not recognised or regulated by government, there is virtually no form of institutional oversight body supervising thrift collection operators, it practically operates in the shadows of Nigeria’s financial services regulatory institutions (The Central Bank of Nigeria, Nigeria Deposit Insurance Corporation etc. are not in the know of the activities of these local financial services.
· The only form of regulation or supervision available in the domain of the thrift collector operators is usually of the informal trade unions (which serve to regulate the activities of members who volunteer to be a part of the unions, the activities of these unions are usually unorthodox, anti-competitive and pose unpleasant barriers to free market entry by new entrants)
· Majority of their clientele base is of the low income class drawn from the base of the pyramid.
· The fixed daily contribution which is required to be maintained at that rate till the end of the monthly cycle is determined at the discretion of the client.
· To start a thrift collection business, an intending Ajo operator usually requires minimal funding (start up capital required is usually of the logistics and administrative type) to enter into this line of business – high dose of passion and commitment usually serves as more strategic incentive to convince prospective clients into patronage than financial power.
· The business requires minimal overhead/operational cost for day to day business activities, because they avoid many of the excessive costs already being incurred by the modern microfinance banks, which has become their major albatross.
· The Ajo collection business in its purest form is not financed or operated using bank credit facilities.
· There is higher confidence and trust among Nigerians at the BoP in the Ajo collector operator than they have in the modern microfinance banks (from ethnographic surveys and focus groups interviews conducted)
· It serves as a reliable and constants source of micro credit for people at the BoP
· An Ajo operator usually operates on a micro-clientele base of usually around 50 to 100 clients per operator, this small scale enables them to effectively relate and supervise on an intimate base with clients rather than what is obtained in microfinance banking sectors (one on one relationship between operator and client)
· Most operators have been in business for considerable amount of time ranging from 5 years to over 25 years (from focus group interviews organized), in some cases, there has even been generational change as was with the case of one respondent who actually inherited the business from the mother after she passed away.
· Low staffing, at most, most Ajo operators employ 2 to 3 additional staffs who usually are family members, they are remunerated by cash, vocational training and are allowed to work conveniently for about 2 to 3 hours daily, this enables them keep other jobs, attend their vocational training etc. this helps keep staff cost low.
Nature of loans:
o Loans are usually for longer term clients for whom the operator has become reasonably familiar with
o The time frame for qualification for the loans usually is 1 to 3 years depending on several intrinsic factors.
o The loans offered are non collateral based.
o Non-repayment/default for loans is rare and in some cases loans might be rescheduled but they are never underwritten or declared as bad loans,
o The amounts loaned varies with each client, it does not exceed the monthly contribution capacity of individual clients, e.g. for a $30 per month client, he/she is entitled to $30 loan to be repaid in one month or rescheduled to the next month in a worst case scenario, whereas for a $300 per month client, he/she is also entitled to $300 per month on unified repayment terms basis for all clients. In essence, the loans made out to clients do not exceed the monthly contribution capacity of the client in question.
o The loan is usually advanced as an upfront for a new month, and then the client is required to commence with a daily repayment cycle for which the client is expected to complete repayment of the loan by the end of the month.
o The loan is technically interest free, since the Ajo operator only takes the 1 day service fee attached to the daily contribution, no extra charge is attached to loans offered to clients.
Challenges:
· Improper book keeping and accounting structure poses a major challenge
· Skepticism about eventual government interference, which is often attached to the fact that governance in this part of the world is more often than not a rent seeking enterprise and the fear that possible imposition of taxes might actually force operators to review their business models which might eventually lead to higher costs to the clients.
· The informal unions usually impose anti competitive rules, they also restrict domain of operation for Ajo operators, and they create artificial barriers to market entry for prospective entrants.
· The death of an operator in some cases may literally translate to the end of the business, this is however synonymous with most single ownership businesses run on a subsistent scale.
· The possibility of operators actually eloping with the funds of the clients, although rarely reported among clients interviewed also creates trust issues; this was what primarily led to the formation of the trade unions to check the activities of Ajo operators.
The next part of this paper intends to compare the Ajo scheme to the modern microfinance banking (MFB) as it was introduced in Nigeria.
The Ajo scheme has operator in the shadows of the formal banking system for long. It has recorded significant success, at low operation cost and has displayed higher efficiency in getting much needed micro-credit to those who badly require it.
It has also shown much resilience as there has been a minimal default rate among borrowers.
We intend to compare Ajo to MFB in Nigeria and drawn upon the strength and weakness thereof to propose a new model for micro credit service offering the unbanked and the underserved at the BoP in Nigeria.
Cartels in Nigeria: How They Divide and Run the Markets
On a Saturday morning, I was on a visit to a neighbour’s house, on arrival, I took advantage of the crude gym implements at his place to flex my muscles, just 10 minutes into the session, and my practice was interrupting by some marauders who introduced themselves as the local union of commercial gym operators.
Whose job it was to ensure the smooth operation and regulation of their line of business within the geographical space that made up our neighbourhood.
That isolated incidence and the argument that ensued almost led to violence and this has informed my decision to write this piece about Nigeria’s business environment; its unofficial regulators and regulations.
They operate with much impunity. This has led to the kidnap of Nigeria’s markets by the cartels that dot the entire business landscape of Nigeria.
The Nigerian economy is one of the few in the world that encourages cartels to hold the consumers and even the regulators hostage.
When issues related to the nefarious activities of such cartels are tabled for deliberations on a national level, there is often the temptation to ascribe the immense powers of these cartels to an evil cabal responsible for sustaining the powers of such cartels.
Essentially, such conspiracy theory may be founded considering the moral bankruptcy of Nigeria’s political economy, these has aided them to maintain their stranglehold on Nigeria’s markets.
However, an often ignored reality is that the tendency for "cartelism" is a syndrome that is hard coded in the DNA of the average Nigerian (in business or social interactions), the mindset here is to form cliques that would run things as an elite group thereby insidiously oppressing others.
This mentality cuts across all strata of the social echelon in Nigeria and is very much prevalent at the BoP.
One of the major obstacles faced by a prospective investor in the Nigerian economy is the existence of unnecessary and outlandish artificial barriers created either by rent seekers within the national/regional regulatory authorities or individuals/groups who constitute themselves as authorities within their sphere of illegal influence.
Somehow, they manage to gain legitimacy and hence impose their reign of caprice on all and sundry.
The scope of operation of most cartels in Nigeria follows a basic path: control the market, maintain an executive that imposes levies on their members and controls market entry, upward regulation of price (prices are hardly influenced by market forces of supply and demand), creating artificial barriers for market entry (for prospective investors who desire to enter the market), and anti competitive tactics (such as predatory pricing) etc.
A major consequence of these antics is that consumers are often held to ransom and made to pay arbitrary prices for goods and services.
The experience at my friend’s personal gym gives a tip of the whole mass of what the cartels do to run down market efficiency and competitiveness in Nigeria.
If the commercial gym service operators offered better quality of service, surely they wouldn’t have any need to fear my friend’s pro bono service as people are often willing to pay for quality service.
We all agree that competition is the primary catalyst for innovation, technological advancement and economic development; therefore if meaningful progress must be achieved in Nigeria’s market place and economic landscape.
The promotion of competition should remain be a major policy tool, irrespective of the current cultural or accepted behavioural patterns in our political and business space.
Nigeria’s government has in the past attempted to arrest this situation, for the records; six times the government tried and six times it failed, although they claim that they could point out the exact reasons why these efforts met a brick wall.
I believe that the problem is in two folds, first the fact that it is encoded into the character of the average Nigerian business person to tow the part of mediocrity – here, innovators are an exception and often few (and so try their best to set up protective measures against possible competition that would rout out slapdash business ethics)
And second the monumentally weak governance institution that exists in Nigeria has made the reign of feudal lords and artificial spheres of influence thrive either in business or politics.
Here we have states within a state, institutions within institutions and economic blocs within the larger economy, a very complicated and often Byzantine maze for anyone to easily navigate.
Some of such cartels that hold hostage Nigerians at the BoP include:
· National Union of Road Transport Workers (NURTW) and the Road Transport Employers Association of Nigeria (RTEAN) – responsible for the motor park touts/extortionists popularly called agberos
· Motorcycle Operators Association of Lagos State (MOALS) – the motor bikes that are often employed by people at the BoP as a form of self employment initiative to provide public transport within cities across Nigeria. MOALS is the notorious Lagos State chapter that makes life difficult for people trying to enter the trade; they maintain their own touts that go on an extortion spree targeting individual operators.
· Barbers and Hair stylists associations scattered across cities in the entire federation of Nigeria
· Vulcanizers (local name for automobile tire repairers) and automobile mechanic technicians association.
· Gym owners association
· Tailors and fashion designers association
The list is endless; any new trade that comes into existence is followed by a union or association of similar trade operators whose ultimate goal has always been market control.
At the top echelon of the society, the cartels in operation are the more noticeable Major Oil Marketers Association of Nigeria (MOMAN) the rice and cement cartels, the diesel cartels, cartels controlling the sales and imports of salt, sugar and other major staples, the nefarious hard drugs cartels etc.
The solution to the cartel dilemma is a systematic and simultaneous elimination of parallel institutions that run alongside the established and recognised governance institutions, followed by a strengthening of the existing governance institutions.
These parallel institutions continue to thrive by ensuring that regulatory agencies and other governmental institutions of the state remain inefficient and weak.
Considering the strategic importance of having free and fair competitive economy, competition policy has a significant role to play in promoting competitiveness and growth.
This has led to the increasing concern that besides seemingly weak sector-specific laws on competition in Nigeria, efforts to have a competition law for Nigeria has failed.
Previous efforts are chronicled below. None has been given a serious attention.
Draft Bill 1:
Federal Competition Bill 2002 - A bill for an Act to set-up federal competition. To provide the necessary conditions for market competition and to stimulate creative business activities, protect consumers, and promote the balanced development of the national economy by prohibiting restrictive contracts and business practices that substantially lessen competition and regulating the abuse of dominant positions of market power and anticompetitive business combines, and to establish the Federal Competition Commission for the effective implementation and enforcement of this bill and for matters connected therewith. This is in an Executive Bill sponsored by the Federal Government through the Bureau of Public Enterprises (BPE). This draft bill was presented as an executive bill to the Senate in 2002.
Draft Bill 2:
National Anti-trust (Prohibitions, enforcement, etc) Bill 2004: An act to regulate and prohibit unfair competition and unreasonable combinations in restraint of commerce, industry and trade, including monopolies, trusts and interlocking directorates, for the purposes of maintaining and strengthening the free enterprise system, ensuring unrestrained competition, and establishing a level playing field, in business in the federation, and to make provision for other matters relating thereto. This bill was sponsored by Hon. Halims Agoda and others and presented to the House of Representatives in 2004.
Draft Bill 3:
Competition (Anti-trust) Bill 2007-sponosred by Hon. C. I. D Maduabum. Presented to the House of Representatives in 2007. First reading was on September 5, 2007. No second reading till date.
Draft Bill 4:
Nigerian Trade and Competition Commission Bill 2008 - The bill was sponsored by Senator Joel Ikenya. First read on November 6, 2008. Referred to Joint Committee on establishment and Public Service matters, Judiciary, Human Rights and Legal matters, and Commerce.
Draft Bill 5:
Nigerian Anti-trust (enforcement, miscellaneous provisions, etc), 2008 - A bill for an Act to prohibit monopolies to trade, commerce or industry, to regulate the business activities of companies and trust with regard to restraints in trade or commerce, to establish the anti-trust division for the purposes of enforcing the provisions thereof and to foster the sustenance and development of a free market system, and secure the practice of a fair and open market system, etc.
The bill was sponsored by senators Heineken Lokpobiri and F. K. Bajomo and was first read on April 23, 2008. It was never read a second time.
Draft Bill 6:
Competition and Consumer Protection Bill 2009. On April 22, 2009, late President Umaru Musa Yar'Adua presented before the Federal Executive Council (FEC) a bill that seeks to promote the welfare and interests of consumers and provide them with competitive prices and choices.
It also seeks to regulate monopolies, merger and acquisitions and all forms of business combinations and prohibit restrictive business practices, which prevent, restrict or distort competition or constitute the abuse of a dominant player in the market.
Approval of the bill was differed till another date to enable council members sort-out grey areas in the bill and for proper harmonization with the existing sector-specific regulatory laws.
At a national training workshop on competition policy in Abuja penultimate week, the general Coordinator of Consumers Empowerment Organisation of Nigerian (CEON), Mr. Adedeji Babatunde identified political economy constraints in implementing competition regimes.
Some of these, he listed as lack f consensus amongst the relevant government ministries, departments and agencies on the competition commission; low awareness of benefit of competition law for the country in the political circle; possible hostility from large business (state monopolies that were privatized, at the beginning of the privatization process, which are weary that the competition law is designed to weaken their position in the sectoral markets.
One way of achieving this is to ensure that the people employed to run such regulatory agencies and competition authorities would be people committed and passionate about making positive impact and transforming Nigeria’s market place to becoming more open, free and driven by fair playing practices, not government lip service as they have done in the past years.
Whose job it was to ensure the smooth operation and regulation of their line of business within the geographical space that made up our neighbourhood.
That isolated incidence and the argument that ensued almost led to violence and this has informed my decision to write this piece about Nigeria’s business environment; its unofficial regulators and regulations.
They operate with much impunity. This has led to the kidnap of Nigeria’s markets by the cartels that dot the entire business landscape of Nigeria.
The Nigerian economy is one of the few in the world that encourages cartels to hold the consumers and even the regulators hostage.
When issues related to the nefarious activities of such cartels are tabled for deliberations on a national level, there is often the temptation to ascribe the immense powers of these cartels to an evil cabal responsible for sustaining the powers of such cartels.
Essentially, such conspiracy theory may be founded considering the moral bankruptcy of Nigeria’s political economy, these has aided them to maintain their stranglehold on Nigeria’s markets.
However, an often ignored reality is that the tendency for "cartelism" is a syndrome that is hard coded in the DNA of the average Nigerian (in business or social interactions), the mindset here is to form cliques that would run things as an elite group thereby insidiously oppressing others.
This mentality cuts across all strata of the social echelon in Nigeria and is very much prevalent at the BoP.
One of the major obstacles faced by a prospective investor in the Nigerian economy is the existence of unnecessary and outlandish artificial barriers created either by rent seekers within the national/regional regulatory authorities or individuals/groups who constitute themselves as authorities within their sphere of illegal influence.
Somehow, they manage to gain legitimacy and hence impose their reign of caprice on all and sundry.
The scope of operation of most cartels in Nigeria follows a basic path: control the market, maintain an executive that imposes levies on their members and controls market entry, upward regulation of price (prices are hardly influenced by market forces of supply and demand), creating artificial barriers for market entry (for prospective investors who desire to enter the market), and anti competitive tactics (such as predatory pricing) etc.
A major consequence of these antics is that consumers are often held to ransom and made to pay arbitrary prices for goods and services.
The experience at my friend’s personal gym gives a tip of the whole mass of what the cartels do to run down market efficiency and competitiveness in Nigeria.
If the commercial gym service operators offered better quality of service, surely they wouldn’t have any need to fear my friend’s pro bono service as people are often willing to pay for quality service.
We all agree that competition is the primary catalyst for innovation, technological advancement and economic development; therefore if meaningful progress must be achieved in Nigeria’s market place and economic landscape.
The promotion of competition should remain be a major policy tool, irrespective of the current cultural or accepted behavioural patterns in our political and business space.
Nigeria’s government has in the past attempted to arrest this situation, for the records; six times the government tried and six times it failed, although they claim that they could point out the exact reasons why these efforts met a brick wall.
I believe that the problem is in two folds, first the fact that it is encoded into the character of the average Nigerian business person to tow the part of mediocrity – here, innovators are an exception and often few (and so try their best to set up protective measures against possible competition that would rout out slapdash business ethics)
And second the monumentally weak governance institution that exists in Nigeria has made the reign of feudal lords and artificial spheres of influence thrive either in business or politics.
Here we have states within a state, institutions within institutions and economic blocs within the larger economy, a very complicated and often Byzantine maze for anyone to easily navigate.
Some of such cartels that hold hostage Nigerians at the BoP include:
· National Union of Road Transport Workers (NURTW) and the Road Transport Employers Association of Nigeria (RTEAN) – responsible for the motor park touts/extortionists popularly called agberos
· Motorcycle Operators Association of Lagos State (MOALS) – the motor bikes that are often employed by people at the BoP as a form of self employment initiative to provide public transport within cities across Nigeria. MOALS is the notorious Lagos State chapter that makes life difficult for people trying to enter the trade; they maintain their own touts that go on an extortion spree targeting individual operators.
· Barbers and Hair stylists associations scattered across cities in the entire federation of Nigeria
· Vulcanizers (local name for automobile tire repairers) and automobile mechanic technicians association.
· Gym owners association
· Tailors and fashion designers association
The list is endless; any new trade that comes into existence is followed by a union or association of similar trade operators whose ultimate goal has always been market control.
At the top echelon of the society, the cartels in operation are the more noticeable Major Oil Marketers Association of Nigeria (MOMAN) the rice and cement cartels, the diesel cartels, cartels controlling the sales and imports of salt, sugar and other major staples, the nefarious hard drugs cartels etc.
The solution to the cartel dilemma is a systematic and simultaneous elimination of parallel institutions that run alongside the established and recognised governance institutions, followed by a strengthening of the existing governance institutions.
These parallel institutions continue to thrive by ensuring that regulatory agencies and other governmental institutions of the state remain inefficient and weak.
Considering the strategic importance of having free and fair competitive economy, competition policy has a significant role to play in promoting competitiveness and growth.
This has led to the increasing concern that besides seemingly weak sector-specific laws on competition in Nigeria, efforts to have a competition law for Nigeria has failed.
Previous efforts are chronicled below. None has been given a serious attention.
Draft Bill 1:
Federal Competition Bill 2002 - A bill for an Act to set-up federal competition. To provide the necessary conditions for market competition and to stimulate creative business activities, protect consumers, and promote the balanced development of the national economy by prohibiting restrictive contracts and business practices that substantially lessen competition and regulating the abuse of dominant positions of market power and anticompetitive business combines, and to establish the Federal Competition Commission for the effective implementation and enforcement of this bill and for matters connected therewith. This is in an Executive Bill sponsored by the Federal Government through the Bureau of Public Enterprises (BPE). This draft bill was presented as an executive bill to the Senate in 2002.
Draft Bill 2:
National Anti-trust (Prohibitions, enforcement, etc) Bill 2004: An act to regulate and prohibit unfair competition and unreasonable combinations in restraint of commerce, industry and trade, including monopolies, trusts and interlocking directorates, for the purposes of maintaining and strengthening the free enterprise system, ensuring unrestrained competition, and establishing a level playing field, in business in the federation, and to make provision for other matters relating thereto. This bill was sponsored by Hon. Halims Agoda and others and presented to the House of Representatives in 2004.
Draft Bill 3:
Competition (Anti-trust) Bill 2007-sponosred by Hon. C. I. D Maduabum. Presented to the House of Representatives in 2007. First reading was on September 5, 2007. No second reading till date.
Draft Bill 4:
Nigerian Trade and Competition Commission Bill 2008 - The bill was sponsored by Senator Joel Ikenya. First read on November 6, 2008. Referred to Joint Committee on establishment and Public Service matters, Judiciary, Human Rights and Legal matters, and Commerce.
Draft Bill 5:
Nigerian Anti-trust (enforcement, miscellaneous provisions, etc), 2008 - A bill for an Act to prohibit monopolies to trade, commerce or industry, to regulate the business activities of companies and trust with regard to restraints in trade or commerce, to establish the anti-trust division for the purposes of enforcing the provisions thereof and to foster the sustenance and development of a free market system, and secure the practice of a fair and open market system, etc.
The bill was sponsored by senators Heineken Lokpobiri and F. K. Bajomo and was first read on April 23, 2008. It was never read a second time.
Draft Bill 6:
Competition and Consumer Protection Bill 2009. On April 22, 2009, late President Umaru Musa Yar'Adua presented before the Federal Executive Council (FEC) a bill that seeks to promote the welfare and interests of consumers and provide them with competitive prices and choices.
It also seeks to regulate monopolies, merger and acquisitions and all forms of business combinations and prohibit restrictive business practices, which prevent, restrict or distort competition or constitute the abuse of a dominant player in the market.
Approval of the bill was differed till another date to enable council members sort-out grey areas in the bill and for proper harmonization with the existing sector-specific regulatory laws.
At a national training workshop on competition policy in Abuja penultimate week, the general Coordinator of Consumers Empowerment Organisation of Nigerian (CEON), Mr. Adedeji Babatunde identified political economy constraints in implementing competition regimes.
Some of these, he listed as lack f consensus amongst the relevant government ministries, departments and agencies on the competition commission; low awareness of benefit of competition law for the country in the political circle; possible hostility from large business (state monopolies that were privatized, at the beginning of the privatization process, which are weary that the competition law is designed to weaken their position in the sectoral markets.
One way of achieving this is to ensure that the people employed to run such regulatory agencies and competition authorities would be people committed and passionate about making positive impact and transforming Nigeria’s market place to becoming more open, free and driven by fair playing practices, not government lip service as they have done in the past years.
Subscribe to:
Posts (Atom)