The UK Exit: The consequences

By Dr. Ahmed Adamu

Picture sourced from masterinvestor.co.uk

The UK were in some ramifications out of Europe already, different currency, different visa, and different people and culture. Immigration policy is the major UK compliance to the union policies, which allowed citizens of poor European countries to overflow the UK seeking for better economic life. Some British would not want too much flow of people into their country, especially of those they consider poor people. The British rather prefer to relate with people from developed countries even within the Europe. So with the exit of UK from Europe, UK will now marginalise the poor European countries in its diplomatic and economic engagement. They will now relate with the developed European countries like France, Germany, Switzerland, Netherlands, Spain etc in a relax manner.

The UK exit from Europe will send large number of the cheap labour forces out of the country, as so many will not fulfill the new UK immigration policy. This will create scarcity of labour in some sectors, especially small skilled labour sectors. Other legal immigrants from other parts of the world will now have to choose among jobs. This will push the labour cost high, which will cause inflation.

Many people who would have freely fly in to UK to spend their money will not be able to do so. This will reduce the demand of the Pounds Sterling, causing it to depreciate relative to Euro and US dollar. Many business will collapse do to the resultant reduction in aggregate demand. The economy will then shrink.

Many of the UK businesses in other European countries will no longer be profitable, or will have to be repatriated. Many of the British air transport businesses will incur losses or may have to close down. The supply of commodities and products from the Europe will reduce as suppliers will find alternative destination of their raw materials. The alternative destination of European commodities will likely be the Paris. So businesses will migrate to France, making the French economy more competitive than the UK's. The UK will face huge reduction in food supply leading to food inflation.

The football stadium may not be that filled again, as the cost and hurdles of coming to UK will increase for the Europeans, so people will rather stay at home and watch matches even with slow motion pictures. The revenue and taxes from sport clubs will reduce. The overall revenue of the government from transportation, education, tourism, VAT, and Taxes will reduce.

With the ongoing European football tournament, one will wonder if England, Wales, Northern Ireland and Scotland will ever play in European tournament again. Or if Leicester City and Arsenal will play the European champions league this year. Anyway, they will, as the UK will not change its geographical locations yet.

The UK has send message to the world that you are better alone. The regional unities that have been promoted across continents are discouraged by this move. Bigger and influential countries in other unions may start thinking the same. This exit is a move to marginalise developing countries. Even though the votes were not inclusive as majority of Scottish and Welsh would have prefer to remain. The English will always have their say and their way.

The UK will survive of course, but difficult survival. However, the referendum has once again showed the strength of the constitutional democracy of the UK, and that the people's voice matters more than anything in governance. The unnecessary Cameron's decision to resign was not a surprise, because he will not be responsible for the aftermath of the decision he was not responsible for and didn't advocate for. He will allow those that promote the agenda to handle the ramification.

Still on UK exit: The Scottish tend to be more accomodating and willing to integrate, but their voices did'nt matter in the referendum. That is why Scotland will repursue their independence so that their voices can matter. This hold same for Northern Ireland. When you go for simple majority, you are bound to be exclusive. The best way is to take the regional voting average. And when 28% of the British didnt vote, the 3% difference is marginal. A sensitive once in a generation voting like this require more than 70% majority. Many British were taken by surprise and some regreted voting to leave. So, they must be given the second chance if they demand for it. If UK eventually divorced EU, then the UK must divorce Scotland at least. So, UK will be disintegrated if it disintegrate from EU. The myth that UK being dragged behind by the slow growth pace of poor European country cannot be true. The UK financial contribution to EU is lower than the benefit it drives from the union. The perceived security vulnerability can be addressed without the need to disintegrate. Already, the UK's allies are shocked and not happy with the leave outcome. The Russia will now have more influence in the EU, as its major competitor exited. The US has lost its puppet in the EU. The trillion dollars lost in financial market has already outweight the financial saving for not contributing to the EU. Dr. Ahmed Adamu,

Petroleum Economist and Development Expert,

Pioneer Global Chairperson of Commonwealth Youth Council,

University Lecturer (Economics) at Umaru Musa Yar'adua University Katsina.

Critical Review of Government Social Intervention Programmes

By Dr. Ahmed Adamu

It is a welcome development that the government planned to spend N500 billion to implement its social intervention programmes to ease the economic condition in the country. Without going deep into the detail of these programmes, this article raised some issues that need to be addressed to ensure effectiveness and inclusiveness of the programmes. The opportunity cost of this investment is the additional investment in the power sector. So for not investing the money in the power sector, there must be compelling efficiency and higher multiplier effects from these social interventions. So, this article aims to maximize the returns from these interventions by raising some issues that required to be reviewed.

There are some perceived flaws associated to these programmes, which if not addressed will undermine the success of this intervention. First, the Government shall not be hasty in implementing programmes without proper preparations. Too much pressure to do something now or to score political credit can make government to make bad decisions. It is better to make it better than to make it quick.

The first issue is regarding the application process, which is online. Online applications are not always transparent and can give room for unnecessary exploitations, as the computer cannot ascertain the validity of the information provided. Many young applicants who may not be qualified to participate in these programmes will apply and eventually be selected. This means that, some youths who may already have jobs or are already engaged may still exploit these opportunities, and there by denying others who are in serious economic hardship the chance. This causes distortion or misplacement of resources, and will not enable achievement of the set objective.

To address this problem, there is need for a comprehensive Survey that will report on the poverty and unemployment demography in the country before implementing such programmes. There should be a specific database that covey status information of the poor youths clustered based on gender, state, location, physical ability, marriage status, age, qualification, etc. These data should be independently collected to genuinely ascertain the economic conditions of the respondents. The local and traditional institutions should support in ascertaining the information provided by each respondent. This will enable the government to plan for each individual how much he/she may be required to be helped to get out of poverty. The database will collect information on the persons’ preferred level of support and areas of intervention.

With the help of this database, the programme will be more targeted, and specific individuals will receive the suitable and preferable support. Each amount will be allocated strategically based on the information available. Consequently, the participants will not be forced to embrace new economic venture, as they are being supported in their chosen economic activity. This will enable appropriate placement of the resources and will make it more inclusive and easily trackable.

There is also need for some approved indicators and targets that can be used to assess the impact of the investment on each individual. Some of these indicators could be the money spent per day, quality and number of meals per day, clothes, health, etc. The development of the database and evaluation of the project can easily be implemented while engaging other members of the society. For example, University staffs and their students can help in collecting this database and tracking success in each ward. The academic staffs are reliable since they have proved their integrity for effectively discharging a more sensitive responsibility of returning election results in the last elections. So, they can be trusted to compile and report this database and develop the targets and indicators, as well as to track success of the programmes.

Another issue relating to the online registration process is its exclusivity. Online applications automatically exclude those who cannot have access to computer or internet, or the required skills to operate the computer. There are graduates who still cannot operate computer or use internet. There are high chances of ineligible youths registering for this programme, which means youths who are doing well economically may still want to exploit this opportunity and deny other qualified youths the chance, as earlier highlighted.

So, it is better to make the registration offline, just like the voters registration process. This will make it inclusive as youths who may not have the money to buy internet data or do not have the computer operating skills can still be registered.

The programmes also gave more emphasis to graduate unemployed, rather than non-graduate unemployed who have less chances of becoming employed. 500, 000 graduate unemployed will benefit from these programmes and only 100,000 non-graduate unemployed will benefit from it. The proportion should have been equal at least, by adding more slots for the non-graduate applicants. The programmes were well crafted to provide skills for the unemployed, which is commendable. The Nigerian economy requires more of skilled and efficient labour forces, which will help in transforming the economy. Therefore, the graduate applicants should be strongly encouraged to apply for skilled based training, rather than just teaching training.

One of the irresistible questions has to do with the sustainability of the programme, will these programmes be rolling over again? There is no clear sustainable plan yet. Some of the participants will be motivated by the monetary benefits attached to it, instead of the value addition of improving skills and work experience, and once the monetary benefits seized, they may likely abandon  their skills, and will start looking for other jobs that give them money. So, the programme should incorporate reorientation programmes that will change the mindset of the participants, so that they can value skills and self-reliance, not immediate monetary benefit. This will help them in using their acquired skills to set up owned businesses, without waiting for others to employ them again.

Specifically for the Teacher Corps Programme, the participants will be provided with some computing devices to help with their specific engagement and information for their continuous training and development. This particular innovation should be extended to the permanent teachers and existing workers in agricultural extension and health services. The permanent teachers who will train the Teacher Corps Trainees need to be trained on better teaching skills and improve their knowledge too, so that they can train the teacher trainees effectively.

The programme also should be accompanied with some policies that will recognise and professionalised small skilled labour. To avoid marginalisation and contempt of small skilled businesses, there is need to count those small skilled jobs as professional jobs and its wages regulated and/or standardised. This will attract more young people to acquire skills and engage in small skilled businesses. It will encourage and motivate the participants to stick to their acquired skills.

On the feeding programme, the government will have to consider feeding the teachers as well, as the teachers too are hungry. And once food is provided in the schools, then all the Almajiris will drop their bowls and join schools, but the question is, do the schools have the required infrastructures and manpower to accommodate the trooping new entrants, and will it be sustainable? If the feeding budget is for 100 pupils per classroom, once the feeding programme commenced, the number of pupils in classrooms may increase to 200, which bring about the question of whether government can spend extra to feed the increasing number of pupils in schools.

Another concern has to do with process of the feeding. Who will cook the food? How efficient and sufficient will the feeding be? We have seen in IDP camps where huge amount of money is spent on feeding, but the IDPs get little or nothing of the food. Even if this feeding programme must be implemented, the contract for cooking the food should be given to the poor parents to empower them, so that they can afford to sponsor the children for post primary school education.

I totally don’t think the feeding programme will help. The priority in the educational sector is not only the quantity but the quality. The feeding programme will virtually put almost all children back to school, but how many more classrooms, qualified teachers and infrastructures can government put to the schools. If there is no quality in putting people back to school, then the investment will be a loss as the spending will outweigh the resultant benefits. There are children of well doing parents, who get adequate feeding, and will still unnecessarily benefit from the feeding programme. So the feeding programme will subsidize even the middle class and rich parents. So, the investment in the feeding programme will be misplaced.

Generally, I recommend that the feeding programme be stalled or postponed, the money budgeted for this programme should be invested on the poor parents who cannot send their children to school or who cannot feed their school children. The problem was that children refuse to go to school because they have to hawk or help parents to bring money to the family. So, if the family is empowered economically, the children will be spared and will start going to school, and they will bring food to school. So, the objective should be to give job to the poor parents.

The government should train people how to catch fish, rather than giving them the fish. If the children receive fish today, during holiday or when they graduated, who will give them the fish? So, if the parents are empowered to catch fish, they can always give fish to their children.

Finally, the intervention programmes should invest in training young people in energy solution businesses, like solar panel production, installations and maintenance. There should be some selected young trainees who will be trained to engage in advocacies and training others for best practices in energy conservation. This will give them the skills to help address energy crisis in the country.

Dr. Ahmed Adamu,

Petroleum Economist and Development Expert,

Pioneer Global Chairperson of the Commonwealth Youth Council,

University Lecturer (Economics) at Umaru Musa Yar’adua University Katsina.

Petroleum Pipeline Vandalism in Nigeria: Implications, causes and solutions

By Dr. Ahmed Adamu

Vandalized petroleum pipeline

It took Nigeria seven years to subjugate Boko Haram militancy in the north eastern part of the country, and this cost lives of many gallant soldiers and innocent lives, it also cost the country huge amount of money. It caused instability and economic downturn as resources that would have gone for critical sectors were directed toward fighting the insurgency. Now, with relative peace in the North-East and restoration of democratic veracity in the country, one will think the country is on the brink of stability and prosperity. Alas, the re-emergence of the Niger Delta Militancy has cast doubt once again on the ability of the current administration to overturn the socio-economic downturn in the country due to the extensive implications of the ongoing petroleum pipeline vandalisms and destruction of facilities by the Niger Delta militants.

IMPLICATIONS

The effect of this militancy is multidimensional, and include, but not limited to the followings:

1.       Revenue: The Petroleum sector contributes around 98% of the Nigeria’s foreign earnings, as such the country’s economy hugely rely on income from petroleum exports. Any shock in the supply of the petroleum will directly affect the country’s economy. As a result of the recent petroleum pipeline vandalisms, the government revenue drastically reduced by 25%. In the third quarter of 2015, the government revenue was N994.02 billion, and in early this year, it came down to around N746.99 billion. This is a reduction by N247.03 billion in just three months. This monetary loss resulted by the vandalism could have been sufficient to share N1 million each to 250,000 young entrepreneurs in the Niger Delta area. Unfortunately, this is entirely lost, and by extension led to other social cost.

Alternatively, we can look at the volume of the petroleum production to quantify the implication of these vandalisms per day. For example, at the end of the first quarter of 2016, the daily oil production in the country reduced to 1.4 million barrels of crude oil, falling short by 800,000 barrels of the estimated average daily production of 2.2 million barrels. Using the oil price of $50 per barrel, this means that on daily basis Nigeria lose $40 million, which is equivalent to N10 billion daily as a loss.

The effect of income reduction has extended to the feeble state governments, most of whom were recently rescued. And now, they had to share the lowest allocation in recent years. The state governments shared N281.5 billion in May 2016, which is 28% lower than what they shared in the month of May last year. So, the revenue reduction as a result of the vandalism will again affect the Niger Delta states.

2.       Political: The reduction in income will entirely affect the implementation of the 2016 budget, and government will have to prioritise and leave other projects. This will reduce the performance of the current administration. The political implication will be that the people will be disappointed given the higher expectation on the current administration, and voters may try other options in the next election. An average Nigerian has high tendency of blaming government for his plight, and with the current economic hardship, the government is becoming helpless especially at state levels. The implementation of the expansionary fiscal policy will be less effective, which will make the economic recovery even stickier. The popularity of the current administration will reduce if this continues.

3.       Expenditure: The cost constructing and laying down of petroleum pipeline in any oil and gas venture is huge. It will cost $82,000 to construct a gas pipeline per kilometre in Nigeria, which is equivalent to N20 million. Now, for every one kilometre vandalism, the government will have to spend N20 million to reconstruct and it may take long time to fix depending on the enormity of the destruction. This will add to the overall government expenditure in the petroleum sector and undermines its expenditure in other sectors.

4.       Default in Contractual obligations: Some of the Petroleum Fiscal Regimes require contributory payments to operator who fund the petroleum production on behalf non-operating partners in JOAs. Nigeria has so far being unable to answer operated cash calls of $7 billion as contributory payments to oil and gas operators for the risks and cost incurred in petroleum production in the country. And this was caused by reduction in the government petroleum revenue and increase in petroleum expenditure as largely caused by vandalisms in recent months.

The expensive LNG business is hugely affected. Some of the LNG supply are time, volume and destination specific, and once the contract is signed the entire risk is on the supplier. These pipelines vandalism has reduced supply of gas to the NLNG plant in Lagos, which may delay fulfilment and add to the cost and risks of the business on the Nigerian government.

5.       Environment: The aftermath of most of the petroleum pipeline vandalism are associated with environmental costs due to the oil spillage or gas emission or explosions. These cause both water and air pollution, which affect the health and economic activity of the affected community. This externality is costly and may not easily be quantified. The activity of reconstructing the damage facilities also adds to the pollution.

6.       Investment: At this important economic turning point, when Nigeria needs more investment in other sectors of the economy, the pipeline vandalisms add to the country’s business risks and sends bad signals to potential investors, not necessary in the petroleum sectors, but other sectors. So, there will be reduction in capital transfer to the country. This will weaken the effectiveness of the country’s economic diversification programme.

7.       Energy: From the beginning of this year to date, the total electricity generation has reduced on average by 30%, and this was caused by the sharp reduction in the gas supply to the power plants as a result of these vandalism. The gas powered plants provide up to 80% of the country’s power generation capacity, and they are operated mainly with gas. Any shock in the supply of gas will make these expensive power plant redundant, which will affect their viability and put the nation in darkness. The vandalism has contributed to making cost of production more expensive due to the electricity shortages that it caused. This is tantamount to discouraging local entrepreneurs and reduce their efficiencies. It will also lead to inflation as energy is an integral part of the factors of production. Any reduction in the supply of electricity will add to the cost of energy in production, as producers have to spend extra for autonomous energy supply.

8.       Refining output: With the recent deregulation of the downstream petroleum sector, the petroleum pump price has increased up to N145 per litre. However, for a litre of petrol refined and transported within Nigeria, it can cost as low as N60/ per litre. Efforts have been made to revive the existing refineries in the country so as to improve local supply and reduce cost of petrol. However, the operation of this refineries have drastically reduced as the supply of crude oil to the refineries have reduced due to the oil pipeline vandalism. This made the refineries redundant, and make the country rely more on the imported refined petroleum, which will eventually lead to further depreciation of Naira.

CAUSES

Now, one will be curious to know what motivates these militants to engage in this kind of activity that is tantamount to national destruction. So, before addressing the problem, there is need to identify the causes:

The militants are not asking for money or amnesty, they are only asking for sovereign state. They don’t want to belong to Nigeria again. But, what make them want to have a separate nation? Maybe, they think, they are politically irrelevant within the current country settings or they think someone from their region is more deserved to rule the country. The current leader of the country defeated the former president who came from the Niger Delta area, some believe that, it is a deliberate attempt to scuttle the current administration that defeated the candidate from Niger Delta. This is just a theory, and it has not been substantiated yet.

It is apparent that the militants have political motive, and is likely that they act on their own to protect the interest of some of their leaders and agitators from their region. These leaders may not have to give them orders. The representative of the region in the central government, Hon. Rotimi Amaechi lacks the command to convince the militants, because, he is considered a political sell-out.

The current administration is committed to arresting some of the former leaders of the Niger Delta agitators, prominently Mr. Tompolo, for alleged corruption in some petroleum contracts during the last administration, and despite some bloody attempts to arrest him, the government was not able to achieve that yet. The government accused him of diverting the sum of N45.9 billion belonging to the government during the last administration. However, Mr Tompolo said, it was a legitimate contract and due process was followed before he was granted the contract to protect petroleum facilities in the region, and his services were effective as there were no vandalisms or destruction at that time. If there is any question regarding the legitimacy of the contract, he said, the Economic and Financial Crime Commission (EFCC) should summon the government officials that granted the contract first. So, Mr Tompolo felt aggrieved that his Business bank accounts were frozen, and he thinks that he is innocent and the government owes him.

Mr Tompolo has an unyielding command among the armed agitators and militants in the region, and by seeing that the government is against their idol, the militants don’t need command from him to retaliate. And for them to see their mentor humiliated unduly, they rather separate from the country. There are anticipations that more leaders from the region are likely to be arrested and tried for corruption charges. The militants will do everything to protect their leaders or retaliate. That is why they first attack, because, attack is the best way of defence.

It was not coincidence that few weeks after declaring Mr Tompolo wanted, the vandalism resurface in the region. So, the vandalism is aimed at avenging the harassment on their leaders.

During the last administration, the government signed a contract with the militants that they will drop arms and stop vandalism in return for pipeline protection contracts. With the coming of this new government, this contract was cancelled, and the pipeline protection is now saddled with the Nigerian army. Despite the presence of Nigerian army in the oil production region, the militants still vandalise pipelines, because, the creek is their home, and they can navigate and ambush soldiers. The militants can even stay inside water for three hours and some believe that they use magic in their fight.

So, the justification of this fight from the militant perspective is that, their leaders were granted the contract through due process, and now the contract is reversed and their leaders are hunted for crime they did not commit. This to them, is a breach of the contract terms, and as such the condition of peace cease to exist as well, and they will have to avenge. That is why they have no further confidence on the government and the country.

With the economic hardship and unemployment in the region, it is very easy to recruit and brain wash new members in the struggle. Even though, some of the leaders are literate, but they leverage on the illiterate ones to add more forces. And it is very easy to convince new recruit by preaching political and economic isolation of the region, due to apparent infrastructural deficit and poverty in the region.

SOLUTION

So, knowing some of the causes, we can easily draw the solutions:

The government must plan for short term, midterm and long term measures. In the short term, the previous contract signed by the previous administration should be revisited with a view to identify exaggerated figures and suspicious clauses, and then sign a reviewed contract within weeks. The government must drop all charges against Mr Tompolo, and reinstate his business accounts. If government still find any foul play in the execution of the previous contract, should invite government officials from the previous government for inquiries. In addition, heavy military power has to be deployed to prevent any further destruction.

In the midterm, the President must personally meet with the influential agitators from the region. The President should not rely on the regional representatives in his cabinet, he must engage with the former president and invite all the agitators for a peace talk. The president must agree not to arrest or try anyone of them for any crime committed in the past. The president should consider some political appointments to few of their respected leaders, whom they listen to. In return, they must drop arms and help the Nigerian army protect the pipelines and other petroleum facilities. The President should use power to convert enemies to loyal friends.

Any special consideration for the militants has to be done moderately and strategically not to promote violence for economic benefit. The special consideration will have to be through investment in education, agriculture, and environment to increase the inclusive economic participation of the young people from the region. The Amnesty programme of President Yar’adua was very effective and it has addressed the economic motive of the militancy. The current vandalism is politically motivated, so there is less need of monetary investment on the militants.

There is need for general awareness and campaign for social cohesion and tolerance, as well as regional integration. The six regions are integral part of each other, and the young generation must appreciate the contribution each region give to achieve the Nigeria of today.

There is need for awareness to understand the national and international laws of land and natural resources. All minerals and natural resources on land and in sea belong to the Nigerian state, not to any particular state or region. And the sea where the oil and gas operation take place belong to the Nigeria, because, nobody can own a sea except the government. Nigeria is lucky to own a longer nautical miles in the sea because of its wider land mass. So, even the north that contribute 72% of the land mass, which resulted to wider sea ownership to Nigeria, cannot claim ownership of the petroleum deposit in the sea. So, petroleum resources within the country’s territory belong to Nigeria exclusively. 

The theory that groundnut money were used to build oil wells may not be substantiated, as the beginning of petroleum industry in Nigeria was based on concessionary fiscal system, where international oil companies invest their money in exploration, development and production of the petroleum resource. Commercial discovery and production of oil was first made in 1956 in Oloibiri (in present Bayelsa state) by Shell D’Archy, not by Nigerian government.

In the long-term, the Nigerian economy must be independent of petroleum sector, to avoid being vulnerable to any shock in the sector. Alternatively, petroleum deposits can be explored in other parts of the country to diversify its sources of supply. Development of renewable energy sources can be another option.

It is just my opinion!

Dr. Ahmed Adamu,

Petroleum Economist and Development Expert,

Pioneer Global Chairperson of Commonwealth Youth Council,

University Lecturer (Economics) at Umaru Musa Yar’adua University.