₦airaland Forum

Katsumoto:
I apologise for the language in the first sentence of my post to you. I meant no offense.

Secondly, it appears that you are confusing Bank base rate with interest (coupon) on bonds.

It's all good.

I am aware of the difference between base rate and coupon rates. I brought in base rates as you referred to borrowing on the international market and bonds are just one of the many options available. Ultimately, there is some correlation between base rates and the price/cost of different debt/financing instruments etc, being sourced from a particular country or region.

So in essence, I don’t see how it would be possible for any kind of like-for-like finance (even plus other cost) to be cheaper in Nigeria with base rate at 6.25% than in the West with base rates below 1%.

Katsumoto:
I am sorry but that is a load of crap. There is a difference between bonds issued by a nation and corporate bonds. Sometimes, there is a 3% difference between American treasury notes and American corporate bonds. If Nigeria is issuing coupons at 7%, why do you assume that corporate, local government, or state issued bonds will also be issued at 7%? Or are you stating that the risk premium is 0% if the risk-free rate is 7% (in this case, the Nigerian coupon rate is the risk-free rate)?

Also, borrowing on the international market does not mean that your borrowing costs will be cheaper than borrowing in Nigeria. If Nigeria is borrowing at 7%, then at a minimum, other institutions will borrow at approximately 10% plus the additional higher cost of insuring your debt. No underwriter will underwrite a bonds issue without expecting insurance. If Western nations are paying insurance, then Nigerian institutions will pay higher insurance costs.

Obviously there is a difference between Corporate bonds and government (sovereign bonds in this case)! As I stated in my post 7% would be a benchmark not necessarily the rate at which corporate institutions would be able to issue their bonds. In Nigeria today, corporate bonds are virtually non existent given that government bonds are already at around 14% and these are more or less risk-free, at what rate would corporate bonds then be issued to compensate for the much more higher risk? So I won't expect this to be any different with international bonds i.e. there will definitely be a rate/price differential between sovereign and corporate bond issues originating from the same country!

Borrowing on the international market would definitely be cheaper than borrowing in Nigeria even with all the attendant cost you mentioned, that’s a no brainer really, even a new player in the finance scene in Nigeria would tell you that. Banks in Nigeria are still clamouring to attract international funds to finance big ticket projects and for onward lending to their customers for mortgages etc. Bank of England base rate is 0.5%, US Fed's is 0 – 0.25% and our own CBN's is 6.25% so how did you arrive at you conclusion??

Finally, you having a different opinion or understanding on an issue is fine, but you then subsequently calling someone else's crap is out of order, especially as it is obvious now that you are the one who don't have your facts right.

^^ You are quite right and I agree with you here, you seem to have grasped the essence of the bond issue - which is to open up Nigeria to the international bond market to assess cheaper funds. I doubt that the Nigerian govt really needs the $500m being raised here, but are looking to create an international appetite for Nigerian bonds and they had to come to the market with a decent amount and I guess $500m was just about right.

Currently the Nigerian govt issues bonds locally in Nigeria (naira) at up to 14%, the naira has not moved too much against the dollar in the last 5 years (apart from a deliberate action by the CBN a few years ago), so it makes sense to start raising funds in dollars at around 7% and set this as a benchmark for other corporate/private/governmental institutions in Nigeria who can now take advantage of this opening. The foreign exchange risk btw the naira and the dollar has been historically low, and can be quite easily managed and mitigated with the right financial instruments and clever planning, since the interest and the principal repayments in most cases would be generated in naira and subsequently converted to dollars.

The bottomline is - why borrow in naira at 14% when we can borrow in dollars at 7%??

.

skilo:
Well, the key thing is that Atiku erred by attacking a PDP budget as a PDP member wooing PDP delegates. That may be an own goal coupled with all his other statements. Atiku should concentrate on getting enough PDP delegates first and emerging the winner of the PDP Presidential primaries before he comes out to Nigerians with various claims or Programmes. I think his approach is wrong, putting the cart before the horse and currently fouling the polity. He seems too desperate for POWER and i am afraid. After all his spat with his ex boss OBJ, he betrayed his party and went to visit OBJ for may be support and now OBJ dey laff. As an accountant, from the outside perspective, which ever way you look at a budget presented, you wil have cause to find one fault or the other. It is only when you have sufficient knowledge and information about the budget presented before you can reasonably criticise. The rule of the thumb not withstanding. The President should also act with more maturity. Let the BEST RULE! WHETHER FROM NORTH, EAST, SOUTH OR WEST. WE WANT GOOD GOVERNANCE. ABI NO BE TRUE MY BROTHERS AND SISTERS?

Agree with you. Atiku is prepared to take on anyone that stands in his way irrespective of political affiliation or any affiliation for that matter! If he loses the PDP primaries, that still won't be the last we would hear from him!

The man will definitely go down as one of the shapers of a modern 'new' Nigeria!

Congrats to him and kudos to all those of us who had always supported him from day one without any tribal, religious or financial colouration! (A little kudos to the late comers as well  )

eku_bear:
One of Abuja or California. Take a guess which.

Hmmm. . . Is Abuja or California in the UK??

eku_bear:
^-- I found his statement surprising too.

There are these three Nigerian dudes I kick it with sometimes on the weekends. Here is a short description of each:

A) 27 yrs old, is one of the co-founders of a somewhat well-known tech startup (or at least, well-known within the social media/Web 2.0 world) out here that is considering an IPO.
B) 25 yrs old, founder of a web development company. Seems to be doing pretty well; has done work for some pretty big corporations.
C) 25, works for a biotech startup.

Granted, these guys don't necessarily speak Yoruba well and have lived mostly in the US rather than Nigeria, so maybe some might question their "Nigerianness." But overall, they are pretty good examples of entrepreneurship, I think.

Are these companies based in the UK?

Kobojunkie:
I think you should stick to speaking more on subjects you are more conversant with please. Other than that, I probably agree to a large extent with some of the other points you made.

Do you care to name a few of them in the UK?

Nigerians are simply very good at 'talking the talk' but not good at 'walking the walk'.

Using the UK again as an example, there are thousands of Nigerians working in IT in the UK and this has been for well over 10 years with a lot of them having attained senior positions and accumulated a vast amount of experience and expertise in various fields in IT, but till date we do not have a single Nigerian owned innovative small, medium or large scale IT or IT services company of any sort that I know of! Not even a small but up and coming one!

So definitely infrastructure, finance etc are not the issue, as these are plentiful in the UK.

One of the issues I believe is the Nigerian irrational obsession with education qualifications which results in a lot of our brightest brains spending the most creative years of their lives mindlessly seeking/pursuing that extra masters or phd degree, thereby killing any entrepreneurial spirit and abilities that they may have had, and which also makes it virtually impossible for them to go into any sort of business after piling up all these degrees but rather seek a white collar job that will 'befit' their qualifications.

Nigerians are also afraid, in fact, frightened of failure due to that syndrome 'what would people think of me if this venture fails?'. To be successful in business or any venture, you have to accept and prepare you mind that you may fail initially, but be resilient enough to try again and again and again and not give up at the slightest hiccup. Risk taking does not come naturally.

Even though mentally capable, Nigerians are happy to let someone else do the 'real' thinking and/or actions for us as this for some inexplicable paradoxical reason seems to mean 'we are having one up on them'  - 'using their brain' as it were.

Other potential issues are; unwillingness to see beyond today, a penchant for 'ready made things', happy to go with the jones, not wanting to get our 'hands dirty', 'bigmanism', too complacent in our comfort zone, social vices – spending too much time on a wide array of unproductive activities – too happy for our own good.

Infrastructure, electricity etc etc, are part of it, but not enough to explain this away. Nigerians living in the western world where this issues are non-existent are not very creative entrepreneurs either!

An example - in the UK the biggest wholesalers/suppliers of Nigerian foodstuff are the Asians! They even brand it with their own names! Nigerian Beans, Pounded Yam flour, Gari etc branded under Asian owned company names! How do you explain that!

^^^^ . . . those are the points exactly!

The 'opposition' will always attack any budget without being specific on how they would do things differently, and this happens the world over! UK, US, Germany etc!

So Mr Atiku, where are you going to find N1.33 Trillion in savings/cuts from

Atiku's economic team have done a good job breaking down and analysing the budget figures as the political 'opposition' are known to do.

What they have failed to tell us is how they would reduce the recurrent expenditure below the figure of N3.2Trillion they quoted. . . how much they would reduce it by. . . what and what items they would either cut or remove entirely from the budget. . . how exactly in detail they would finance the shortfall. . . in a nutshell they should produced their own 'budget' for 2011 so we can do a like-for-like comparison and see which one makes more economic sense!

Eziachi:
I am sure you will still have a ready made excuse to avoid a debate with other presidential candidates when the time comes, probably you will want Jonathan to debate with ECOWAS leaders after the main election. The debate Obama, Clinton and present VP had before the election was because they were senseless morons over there in America?

I believe Jonathan will debate when the time is right - after the primaries with other presidential aspirants from other political parties! President Obama will most likely NOT debate any one from the Democratic party in 2012 to get the party's ticket! Gordon Brown, Tony Blair, George Bush as incumbents did not debate anyone from their political parties to carry on as the flag bearers of their parties. Someone mentioned Gbenga Daniels trying to organise a debate for the current aspirants for Governorship, he himself wont have engaged in any debate within his party when he was vying for a  second term in 2007!

If Yaradua was still alive today would Atiku or anyone else in the PDP be challenging him to a debate regarding the forthcoming PDP primaries?

Jonathan has nothing to debate with Atiku at this stage. If Jonathan wins the PDP primaries, then he can debate other presidential aspirants from other parties including Atiku if he chooses to cross carpet again to another party to vie for presidency.

@mikeansy

I would have agreed with you if it were any of the other aspirants on the PDP platform. I do not see the Atiku team going for such a debate to 'really' discuss national issues, but most likely an opportunity on a grand national scale to reinforce their irrational 'zoning' propaganda and heat up the polity even more! If it were someone like Bukola Saraki that was asking for this then it would make more sense!

The Atiku team have already shown how they play with the way they schemed IBB out under the guise of 'northern consensus candidate' when from all indications now, Atiku was already pre-ordained to be the consensus candidate, so their intentions in this case is certainly not as honourable as they are making it out to be.

Jonathan is currently the President, he does not have to devalue himself by doing a pdp primaries debate, I am pretty certain Obama will not partake in any sort of Democratic party presidential primaries debate in 2012!

There is absolutely no need for Jonathan to get into any debate with anyone right now, the debates should be after the primaries and should be between the presidential flag bearers of the various political parties! This is an arrogant approach from the Atiku team, in effect creating the impression or taking it for granted that the PDP primaries is representative of the total wishes of all Nigerians.

Debates within political parties at this level is not the norm, Jonathan should not fall for it.

For real?!

Before you pay corporation tax you have to have made a profit! If majority of companies in Nigeria, both small, medium and large are barely keeping afloat, what good is a reduction in corporation tax from 30% to 10% to these companies with virtually non-existent profits??

You really can't take anything away from this man! He comes across genuine and a true patriot.

This is sheer wickedness from Jonathan! Why did he keep quite all this while and let them all make a fool of themselves over zoning before delivering these savage blows? 

Without OBJ's support in 2007 Yaradua would never have gotten the ticket. Odili would most likely have clinched it. In 2003 Atiku was going to challenge Obj at the primaries before he was persuaded otherwise (NOT by zoning argument), Rimi and Gemade prominent Northerners contested against OBJ in 2003, so where is this zoning argument coming from?? If the PDP zoned the presidency to the South in 2003, then the only eligible candidates that should have been allowed to contest the PDP primaries should have ALL been Southerners!

'Zoning' of the PDP Presidential ticket in 1999 to the South, specifically the SW was the brainchild of IBB to appease the SW due to his annulment of the 1993 elections and a vain attempt to rewrite a positive history for himself and to leave the door open for him to step back in - definitely not any sort of patriotism or 'collective' zoning agreement as he is trying to paint it to be.

Bukola Saraki's spin doctors are doing a catastrophic job here. . . how on earth was such a ridiculously ludicrous statement allowed to be issued? . . .which in effect says "In Kwara state there is NO ZONING, it is a level playing field, may the best man/'woman' win - but at the federal level there MUST be zoning to enable me get the presidential ticket".

Bottomline form Jonathan "Nigeria is not a one party state. You cannot zone what you don't have yet, once you get it, then you can begin to zone". It is definitely Jonathan's for the taking now.

Paddy_lo is now officially my buddy (good thing you decided to steer clear of N-------g )

Export earnings and Govt. revenues are a function of the overall GDP of the country. You can likened GDP to 'Turnover' i.e. the Turnover of every sector of Nigeria's economy. When Nigeria is referred to as a 'Mono-product' economy, this refers to our exports NOT our overall GDP. Canada produces around 3.3 million barrels of oil a day - a million more that Nigeria, but this represents less than 5% of GDP!  

The disparity in income (and consequently tax revenues) between the oil sector and other sectors in Nigeria is borne out of the fact that other sectors, even though having much larger 'turnover' than the oil industry, are not all being run effectively and efficiently, being characterised by high costs and overheads, low productivity leading to very low or nil 'profitability' - in fact losses in a lot of cases. The agricultural sector produces a huge turnover, but this is spread amongst millions of small scale and peasant farmers who constitute a bulk of Nigeria's labour force, around 65% in this case, meaning the income then earned by these farmers barely reaches the tax-free allowance that every Nigerian is entitled to - so what exactly would the govt. tax here?

For govt. tax revenues from other sectors to increase and suppass those from the oil industry, these other sectors have to be overhauled to enable them operate efficiently and optimally, with infrastructure and power being given priority treatment. This will lead to us producing far in excess of domestic needs, substantially increase 'profitability' of these sectors, enable us to expand our 'portfolio or basket' of export goods and services, boost our foreign exchange earnings and make Nigeria a 'multi-product economy' and a significant trading nation.

Onlytruth:
paddy_lo

I followed the argument between you and Beaf; it was interesting.

While I was going through your interesting statistical charts, the wise words of the late Dr Chuba Okadigbo during the second republic (when he was Shagari's adviser) quickly came to mind.

He said and I quote, "Statistics is like the bikini. What it reveals is interesting, but it is what it does not reveal that is intriguing". 

Could it be true that oil only contributes about 16% to the Nigerian GDP? I truly pray! Though practical things about
Nigeria seriously challenge that.

Can anyone show me statistics about federal government sources of revenues - total tax amount, sources of tax and rates of taxation?

If oil contributes more than any other sector in tax revenues, then it can be reasonably assumed that oil contributes more to the GDP; afterall, is the GDP existing in isolation of the FG taxation?

Critical thinking or analytical reasoning is required here to get to the truth.

I cannot be intimated or hoodwinked with statistics.

Heck, I can come up with mine! 

The figures are indeed more or less correct. Government revenues are based predominantly on tax (and royalties). Tax is only due on profits made and not revenue. The oil industry generates very huge profits on its revenue and thus brings in a disproportionately high amount of tax revenues compared to other sectors of the economy. The agricultural sector in Nigeria that accounts for over 40% of the GDP barely just covers its cost, leaving a small pittance for the millions of small farmers and their families to live on; hence this sector produces very minimal tax revenues.

A good example would be Ford Motor Company and Microsoft:

Last year Ford had revenues of $118 billion and profits of $3 billion.
Microsoft in the same year had revenues of $58 billion and profits of $15 billion.

Microsoft with about half of Ford’s revenues produces 5 times the profits of Ford and subsequently would generate for the various US govts. about 5 times the tax revenues as Ford.

Nigeria’s oil industry in this instance can be likened to ‘Microsoft’ and the agricultural and other sectors ‘Ford’.

I find myself agreeing with paddy_lo here again. . . (we have to do something about his 'irrational' anti-Sanusi stance though ).

When I hear people say Nigeria is 'rich' and then point to our oil revenue, I find that very laughable. . . about $30 - 40 billion a year or so from oil for a country of 150 million people?!! Do they realise that the US produces close to 10 million barrels a day compared to our 2 million? You hardly hear any comments about that, the US even ends up having to IMPORT another 10 million barrels a day to meet domestic demand!

Make no mistake - Nigeria's economy is growing and growing fast, power, security and other infrastructural issues are gradually been tackled, with rapid development expected in these areas in the near future. This growth though is not going to be from oil and gas - they would be enablers in some form, but private sector initiatives in agriculture, manufacturing, telecoms ('Main One' and 'Glo 1' as examples), mining, financial re-engineering e.t.c, would be the major driving force here.

It may suprise some that Nigeria will have little or no oil to export in the not too distant future. . . as every single drop will be consumed internally!. . . further down the road we would most definitely become an OIL IMPORTING Nation! - unless other energy sources become available. Of course by the time we get to this stage there will be daily long queues at Nigerian Embassies worldwide (not too, too far off though).

@ EzeUche

Good stuff.

@paddy_lo

Am going with some of your flow here. . .

For those saying size/population does not matter, you only have to look at the BRIC countries - min population 140m, max 1.3 billion, translating to over 40% of the worlds population.

The old world order no longer holds; the era where small commercially and technologically aware countries control the vast majority is drawing to a close. The new economic titans that are now emerging have now realised what huge advantages their pop. gives them, coupled with a rediscovered entrepreneurship makes this a potent combination in this new world order - commercial, business or technological know-how where it is lacking, can now be easily bought-in.

This is why, for example, almost every major corporation in the world are outdoing themselves to get a foothold in China. These are the markets of the future.

NAIJAKING1!! . . .bravo! bravo!

Another potentially 'brilliant' move from the 'genius' Sanusi .

Most of our reserves are still in dollars. If the yuan is 'pegged' to the dollar, does it then matter if some of the current dollar reserves we have are denominated in yuan? . . . as the yuan will mirror every move the dollar makes i.e zero gain or loss against the dollar.

The 'ingenuity' of this move would become apparent if China eventually allows its currency to 'roam free'. Based on the 40% undervaluation of the yuan that has been stated above, won't this 'instantly' turn to a 40% dollar gain for holders of the Yuan??

^^^ Agree with you. What beats me is why our political leaders seem to be falling over themselves to get Ghana to change/soften it's policies especially regarding Nigerian businesses in Ghana.

Nigeria's population is almost 60% of West Africa's and about 15% of the whole of Africa! This is one of the fastest growing economies in the world right now, even still managed 7% last year(in spite of all the odds), a fast growing middle class, abundant human, agricultural and mineral resources - Nigeria has the resources and the market to grow exponentially without even having to really look outside initially! What market is Ghana intending to sell its products into? It would amount to economic suicide for any country, especially in Africa, to ignore or rub Nigeria the wrong way.

The Nigerian Govt. seems to have it's thinking on this issue back to front. Nigeria is an economic juggernaut that is set to explode unto the world stage in the very near future - some savvy investors already recognise this - others should remove those 'preconceived scales' off their eyes and get in early.

^^^ Good analysis.

I do actually expect Nigeria's GDP (Nominal not just PPP) to surpass South Africa's before 2023, most definitely by 2020. The Nigerian economy still grew by about 7% last year; this is without electricity, good roads, rampant corruption e.t.c. The power issue should improve dramatically over the next 2 years, we should also see more due diligence and protection for investors and then we would begin to see mid-teens (13 - 17) double digit growth!

In Nigeria almost everyone is a potential 'entrepreneur' with a huge market to swallow up whatever is produced internally. The opportunities are boundless - Agriculture, Agro-processing, manufacturing, light industry, transport just name it. If we even only focus on import-substitution and processing of our raw materials before export this alone would have a huge significant impact on the GDP, not to talk about developing the potential available in other sectors that have been virtually untouched.

The next 2-5 years would be particularly interesting times for Nigeria.

@tkb417

I know, I was refering to a thread on the SA refusing Nigerians visa.

Standard Chartered Bank is a British financial institution, 'Standard Bank' though is South African (they have some past history together but are now operating seperately).

"A British foremost financial institution, Standard Chartered Plc, has joined other international organisations that have predicted that Nigeria will become Africa’s biggest economy by 2023.

According to the Regional Head of Research for Africa, Standard Chartered Bank, Razia Khan, “assuming South Africa grows by four per cent and Nigeria by seven  per cent, Nigeria will become the larger economy in 2023.”

According to her, Nigeria has a population of more than 150 million, three times as many as South Africa.

Moreover, about 42 per cent of that population is under the age of 14, compared with 31 per cent in South Africa. She stressed that the size of Nigeria’s domestic market, its oil and gas reserves and sales of bank stakes had been attracting investors, including banks such as Standard Chartered and Africa’s largest, Standard Bank Group Ltd, to the country."

http://www.tribune.com.ng/index.php/news/6569-nigeria-ll-be-africas-biggest-economy-by-2023


'No wonder' they don't seem too excited about giving Nigerians visas to go and watch the world cup .