NewsWest AfricaNigeria country focus: Playing monopoly

Thu,18Oct2018

Posted on Monday, 01 October 2018 12:26

Nigeria country focus: Playing monopoly

By Nicholas Norbrook in Lagos
 

French President Emmanuel Macron hits the stage with Tony Elumelu after visiting fela kuti’s shrine.  Photo: Sunday Alamba/AP/SIPAVested interests and cartels are major stumbling blocks for Nigeria's development. New faces, ranging from younger politicians to app developers and agriculturalists are striving to disrupt Nigeria's elites and buck the system 

 
Emmanuel Macron and Tony Elumelu stand side-by-side on a raised platform. In almost identical suits, the Nigerian banker sports a flamboyant red tie while the French president has chosen sober black. Elumelu’s foundation sponsors young entrepreneurs and several thousand of these acolytes gathered to listen in Lagos in early July. “Innovation is just about disrupting the insider,” says Macron, “and becoming part of the game”. 
 
Nigeria knows a thing or two about monopolies and oligarchs cornering the market. The British colonialists – like Lord Lugard, who ­welded the country together – got the ball rolling with the Royal Niger Company at the end of the 19th century. They set the stage for exploitative trading, a habit yet to be flushed out of the system. And, barely five years after independence, the 1966 coup set the groundwork for a series of ­politico-military elites who dominated the country: Yakubu Gowon, Olusegun Obasanjo, Muhammadu Buhari, Ibrahim Babangida, Sani Abacha. 
 
How do you break a monopoly?
 
Behind these concentrations of power is oil. The Nigerian economy buckles under the gravitational pull of crude. As the decades after independence progressed, factories fell silent and thriving farms were reclaimed by the bush. Rather than targeting the real economy, entrepreneurial eyes turn instead to Abuja, source of oil money. A slew of companies linked to politicians emerged, alongside state-owned enterprises captured by businessmen. The competitive struggle in business was about access to power, not providing cheaper products. A once-proud civil service was hollowed out by corruption, and the political and business elites focused on accessing loot.
 
And though much has changed since Fela sang, “If gun steal eighty thousand naira / Pen go steal two billion naira,” these trends are still in evidence today. While petty bandits roam, the major theft happens at the tip of a biro wielded by a politician or civil servant. 
 
Nigeria’s weak institutions mean that the state cedes control of the economy to vested interests and it struggles to maintain security. One area where a monopoly would be welcome is in violence. The government should be the only armed force in the country. Today, Nigeria has a thriving market in conflict. 
 
In the north, a deadly protracted Islamist militancy in the form of Boko Haram has been worsened by Al-Qaeda in the Islamic Maghreb and other regional Islamist groups. In the south, militants in the Niger Delta continue a low-grade insurgency, blending political grievances with criminal activity. In the Middle Belt and beyond, Nigeria’s most deadly conflict in the last 12 months pits farmers against herders whose cattle flee drought and spark conflict. Some 1,800 people have died in the clashes since January, says the International Crisis Group think tank.  
 
But Nigeria also has a history of disrupting its monopolies. Technology and youth are again challenging the status quo. In finance, agriculture, politics and in the streets, a new generation of Nigerians is turning up the pressure on entrenched elites and vested interests. 
 
So how do you break a monopoly? It can be from above with the great fist of the regulator, or from below.
 
Hunched around a couple of tables looking out over the Lagos suburb of Yaba from the sixth floor, a small team is hatching a plan. It is an animation project: a young girl wakes up, gets dressed. You slowly understand that – far from an innocent T-shirt – she is pulling on a vest laced with explosives. The film then quickly spools back to show what has led her to planning mass murder.
 
Hand slaps ring out, eyes brim with intensity. The team members bat ideas around as they discuss how to get the rest of the population better attuned to the desperate situations many face in the north-east. Walls sport sheets of paper on which are scrawled ‘Indifference’, ‘Poverty as driver’, ‘Religion’. “I have spent time in the north, in Kano,” says Olaide Olawuwo, an engineer. “The children are so hungry they watch you eat and carry off your plate if you are too slow.”
 
Poking the slush funds
 
Femi Longe, the organiser of this hack­athon at the Co-Creation Hub, punctures the euphoria with some penetrating questions that quickly reduce the team to incoherence. “It’s about getting them to focus on the execution and not just the idea,” says Longe. “Better to do this now before they get in front of the judging panel tomorrow and are asked, ‘Which of you can actually animate?’ and they have no reply.”
 
Longe recalls a similar hackathon that launched the non-governmental organisation BudgIT in 2011. For Oluseun Onigbinde, the founder of BudgIT, shining a light on exactly how the government spends its money and explaining this in plain language to ordinary voters was the way to harness democratic pressure and form a historic counterweight to political monopolies. 
 
Since 2014, BudgIT has been tracking the implementation of every item in the national budget. Parliamentarians get ‘funds for constituency’, but most of the money is used as a slush fund. BudgIT checks whether schools or roads are built as promised and chall­enges lawmakers publicly. 
 
Recent examples include a N41m ($110,000) youth centre designed to empower young people that Muhammad Umar Jega, a lawmaker from Kebbi State, did not ­deliver. BudgIT also reported that ­children were sitting under a tree ­rather than in the N12m classrooms that Senator Sani Mohammed had promised for Niger State.
 
One senator was so agitated about BudgIT’s questioning that he published the letter he had written to the agency contracted to do the work “asking the agency to account for the funds because BudgIT is on his case,” says Longe, “which is not typical in this part of the world.”
 
The tech hub of Yaba has been home to much more than just BudgIT, including companies that increase economic competition rather than political pressure. Paystack, a payment platform, moved out of Yaba to Ikeja a few years ago, into Silicon Valley-style offices, complete with a bathtub full of many-coloured soft balls. Whether you jump in a Taxify cab, order a Domino’s pizza or, shortly, pay your toll on the Lekki expressway, that payment is handled by Paystack, which now handles about 15% of online payments in Nigeria.
 
Democratisation of luck
 
Paystack is playing an unseen role in Nigeria’s economic life: conferring credibility. “We find that our customers look to Paystack as almost a seal of verification, knowing how thoroughly we take the process,” says Emmanuel Quartey, Paystack’s head of growth. 
 
And with its relentless focus on helping businesses – through an Amazon-style approach to customer service – Paystack has made itself ‘sticky’: attractive to Nigerian companies used to dealing with Nigerian banks, who traditionally only devote time and care to their blue-chip clients.
 
This idea of helping revitalise an ecosystem starved of opportunities by big business is what Tony Elumelu is referring to when he says that supporting start-ups is about the “democratisation of luck”. Where business barons across every sector take chunks out of consumers with cartel-style pricing, these new fintech upstarts can provide services such as payments and small loans at a more ­competit­ive rate. 
 
Labs & Ware founder Ayooluwa Odutayo is a Tony Elumelu Foundation grantee. He received some business training and $5,000, which he used to buy a laptop and hire an engineer. “I’m a self-taught coder,” says Odutayo. “Now I have rented my own office space, and I’m training up three interns.”
 
One critique of start-up optimism – aside from the fact that Silicon Valley is hoovering up Nigerian tech companies and that funding is concentrated into a very small number of firms – is that a majority of start-ups are simply squabbling over the discretionary spending of a small minority.
 
But some start-ups are shifting para­digms and could help restructure the economy away from its oil dependency. Farmcrowdy, launched in 2015, created a crowdfunding platform to finance legions of small farmers. It splits the profits with the investors and the farmers. Instead of handing the farmer the money, Farmcrowdy buys seeds and fertiliser in bulk, also providing soil testing and advice.
 
And word has got out among the farming community: “We worked with about 2,000 farmers last year,”, says Onyeka Akumah, Farmcrowdy’s chief executive. “This year, in six months we’ve already touched 7,000.” 
 
Though it is popular to deride Nigeria’s governments, successive administrations have been taking agriculture more seriously. The country is now producing nearly 6m tonnes of milled rice, just 1m tonnes short of its national consumption, having nearly doubled production in a few years. 
 
This matters because it gets to the heart of a nationwide problem: traders make the lion’s share of profits. For decades, acquiring the licence to import a commodity was a licence to print money. As a result, Nigerians pay much more for basic goods and services – much as Mexicans have paid handsomely to turn telecoms monopolist Carlos Slim into one of the world’s richest men.
 
Protection good and bad
 
In South Korea in the 1960s, General Park Chung-hee faced the same problem. He started by throwing the heads of big conglomerates into jail, then incentived others to compete, offering protection and subsidies. In Nigeria, however, in the early 2000s, protectionism had less lofty goals. Faced with raising money for ­political campaigns, general-cum-president Obasanjo granted business baron Aliko Dangote government support – such as exclusive import licences – in exchange for setting up cement production in the country. 
 
Whether this has helped Nigeria save money is debatable: Bloomberg reports that the average global margin for cement companies is around 17%. Dangote Cement clears 42%. Financial expert Feyi Fawehinmi explains that while it may sound nice to compare Asian-style industrial support and what Nigeria has done, that misses an essential point: “In Nigeria, the same government that protects businesses from outsiders protects them from insiders as well. But in China, though cement companies were protected from the outside, internally there were about 2,000 companies, and there was brutal competition.”
 
The Nigerian government is yet to have the tough conversations about this. For his part, agriculture minister Audu Ogbeh agrees that ‘sunset’ clauses should exist on the import substitution policies that are currently pumping up rice production. “You can’t keep doing protectionism forever because then you create other challenges,” he says.
 
There are examples of muscular, top-down monopoly-busting in other parts of the economy. Obasanjo opened up the government-run communications monopoly to competition by licensing new mobile-phone operators in 2001. In 2009, then central bank governor Lamido Sanusi ended the impunity in the banking sector, where cartel-style misbehaviour caused a rapid build-up of toxic assets. “It was a crazy period,” recalls Ikechukwu Umeh, who was a stockbroker back in 2008 and lost his job due to the crisis. “Bank CEOs were buying up shares using their own money to pump the stock price,” he explains.
 
Local content winners
 
Just as the era of monopoly-busting US president Theodore Roosevelt in the early 1900s saw a flowering of capital, Nigeria’s banking sector is now more resilient and productive. The banks are financing the real economy – witness the recent announcement by Fidelity Bank on arranging $120m in financing for Temile & Sons Development Company, a shipping firm.
 
Finally, some monopolies have been tackled top-down with industrial policy. With the passing of the Local Content Act in 2010, Nigeria weakened the foreign dominance of the oil sector. One clear winner of this has been LADOL, the logistics hub company that won a tender from France’s Total to do the final engineering work on the deepwater Egina platform.
 
Sitting opposite the Apapa docks, Egina looms like a skyscraper lain on its side. At 330 metres, it is one of the biggest vessels in the world and will shortly be pulled out to the deep seas to add an additional 10% to Nigeria’s current oil production.
 
“LADOL provides a 50% cost saving because we have this fully integrated model, where we as a Nigerian company are carrying out services that previously you would have had to fly in people from abroad to achieve,” says Amy Jadesimi, LADOL’s managing director. “That’s where I think LADOL has been particularly disruptive.” 
 
Others boosted by the drive for more Nigerian ownership in the energy sector were indigenous oil producers like Seplat. It is supplying gas to the Azura power plant, one of the few bright spots in Nigeria’s dysfunctional power sector. The so-called ‘diesel cartel’ is working hard to keep Nigeria dependent on small generators. 
 
It is a classic example of how Nigeria’s elite has created a market, cornered it and relentlessly gouged citizens. The process started with the weakening of the refineries under Babangida and Abacha. Successive administrations have privatised and invested, without tackling the heart of the problem: fuel and power shortages benefit those in power.
 
These various cartels remain a millstone round Nigeria’s neck. Take the port at Apapa for instance. A forbidding column of heavy trucks and tankers snake out of the port and far along the Oshodi-Apapa Expressway. The slow speed at which containers get processed at the ports is testament to the rent extracted at every painstaking step of the way, adding massively to the cost of goods and services. 
 
President Buhari arrived in office in 2015 with anti-corruption promises. “I will try to ensure that there is responsible and accountable governance at all levels of government in the country,” he said during his inauguration. And there has been some progress in tackling pervasive government corruption. The Treasury Single Account, proposed by Goodluck Jonathan, was fully implemented by Buhari. It puts all government revenue in a single account at the central bank, helping to identify those who fail to remit their revenue. Gone are the days when every ministry and department has its own opaque bank account.
 
But Buhari, 75, has missed many opportunities – and not just in failing to fight the concentrations of power that lead to abuse. Nigeria has 10 million children out of school, ‘leading’ the world, followed by Pakistan at five million. Nigeria also has more people living in extreme poverty than India, according to a report by US think tank the Brookings Institution.
 
New faces in politics
 
Meanwhile, younger leaders are keen to disrupt Buhari, the last of his cohort in the ageing politico-military elite. Senate president Bukola Saraki, 55, is emblematic of the next generation of politicians who feel it is their turn to lead. Buhari’s team knows that Saraki is a threat, and have spent the last year trying to pin a corruption charge on him, which eventually was shot down by the courts in early July. 
 
A wave of defections hit Buhari’s All Progressives Congress in July and August. New faces, less tarnished by scandal, such as former House of Representatives speaker Aminu Tambuwal, are touted as future leaders. Both Tambuwal and Saraki have rejoined the opposition People’s Democratic Party.
 
A more vibrant private sector, with new dynamics in tech and agriculture, are providing hope. Encouraged, civil society is trying new tricks to amplify accountability. In this sense, the elections in February 2019 are an important flag post in a broader evolution. Things won’t change overnight, but change they must. 
 
This article first appeared in the September 2018 print edition of The Africa Report magazine
 
 
 
 
 
 
 


Subscriptions Digital EditionSubscriptions PrintEdition

FRONTLINE

NEWS

POLITICS

HEALTH

SPORTS

BUSINESS

SOCIETY

TECHNOLOGY

COLUMNISTS

Music & Film

SOAPBOX

Newsletters

Keep up to date with the latest from our network :

subscribe2

Connect with us