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Monday, April 24, 2017

Technology Start Ups in Nigeria: how, why and where?

      Now a day, when the term Start ups is mentioned the first thing that come to mind is Silicon valley in the United States which as technology hub come to being sometime in early 1970s. The name Silicon itself originated from the silicon transistor which serve as the building block of transistors use in making computers. It started with two to three companies and decades later it becomes what it is today, the world largest technology hub. In this set up is found a unique combination of technological know how and business acumen, with seed capital provided by venture capital firms. Today celebrated internet celebrities such Mark Zukerberg, Sergey Brim, Steve Jobs, Bill Gates, Jeff Bezos and numerous other less well known started as computer/internet enthusiast who possessed good ideas without the needed capital and entrepreneurship skills to transform them into money. It was the venture capital firms that came to their aids by providing capital and entrepreneurship skills needed to create today giants such as Facebook, Apple, Google, Yahoo, Amazon, LinkedIn, Twitter, Cisco Systems, Hewlett Packard, Adobe, Intel to mention just a few. Today, Silicon valley has the highest concentration of millionaires and billionaires per head in the United States itself. This phenomenon of establishing Start Ups is fast spreading around the world. In a very recent global innovation ranking released by World Economic Forum, smaller countries like Switzerland, Israel, and Finland were put ahead of US which came fourth in how fast countries are innovating. This show how countries around the world are competing to stay ahead in term of technological innovation.

   Nigeria need it own Silicon valley with its combination of young technology geniuses and venture capitalists. Internet giants such as Facebook, Google and Transport companies like Uber have realized the potentials of Nigeria in this field and are working hard to get there first. The recent visit to Nigeria by Mr Zuckerberg is a clear signal of the potentials Nigeria has in this direction taken into consideration the abundant talents and huge population we have. Up till now Nigerian government does not have a clear blueprint on how to make Nigeria the technology hub of Africa. At the level of state governments, what are they doing to develop this sector? Virtually nothing, with the exception of Lagos where the concentration of various kind of businesses and talents led to the start of one to two start ups here and there, there is not much to show. It take combination of academia, businessmen and government to produce something akin to Silicon valley in Nigeria. Ideal places for such combinations in Nigeria will include Lagos, Ibadan, Abuja, Kano, Kaduna, Enugu and Portharcourt. Many countries around the world have established their own Silicon valley like hubs, India, China, Israel, Pakistan, Russia, Brazil to mention just a few.Young Nigerian entrepreneurs such as Oscar Ekponimo base in Abuja uses technology to bring wasted food to the hungry through his new software application Chowberry. People like Oscar Ekponimo are not few in number in Nigeria, there are hundred others waiting to be discovered. Nigeria shall learn from the example of Israel where government provides part of the money invested by venture capital firms in new start ups. In Pakistan young technology enthusiast are provided with free working tools, office location, and internet access to start developing there talents.

Saturday, April 22, 2017

Economics of Whistle Blowing: what next for Buhari!

      Because of the recent importance professional economics attached to corruption related matters, there is today a large body of literature on economics of corruption where corruption is rigorously study and analyzed. There is current change in academic scholarship from the era when economists saw corruption as a research topic for scholars of sociology and political sciences, to now when corruption is seen as very important in understanding the economics of developing countries of the world. There is no way one can understand economies such as that of Nigeria without delving into matters related to corruption. Here in Nigeria the most talk about issue is the new Whistle-blowing policy of President Buhari, the rate at which corrupt government officials are being exposed on daily basis, more especially the amount of money being discovered is alarming. Since coming to  office in 2015 President Buhari has made fighting of corruption the epicenter of his government activities. According to some government sources, Billions of Naira of stolen government fund have been recovered. But, of more immediate impact on people understanding of this government war against corruption is the whistle-blower policy which empower citizens to report any case of corruption to secrete phone numbers operated by the federal ministry of finance, from where government official will take the case and investigate. The new campaign has help in making government efforts to close leakages in its sources of revenue and ensure financial discipline. In just about four month of the start of the policy over 80 billions Naira of stolen money has been found due to the policy.

      There is wide spread believe that effective anti corruption war spur economic growth. The fight against graft in China, south Korea, Taiwan and Chile was instrumental in their economic successes. Nigerian government need to engage with its business community as they are very important in the present arrangements. It is a known fact that our business men have in the past collaborated with corrupt public officials to launder stolen money. Foreign investors are another important source of corruption, where they spread the ill practice from one country to another with the expertise of some one who has been in the business for a long time. But, government must be careful and very intelligent in it fight so as not to scare away foreign investors from coming into the country as this will have an adverse effect on economic growth. For example, according to some analysts poorly executed war on corruption in China has caused the country lost of about 1.5% of gross domestic product (GDP). Here in Nigeria, the epicenter of corruption (in the entire system) is the public service where enriching one self from government funds is seen as the norm. How much Buhari war against corruption is  contributing towards pulling Nigeria out of recession is not yet made public by federal government. But, figures from IMF and Nigerian Bureau of statistics show the economy is moving away from recession gradually.

      Considering the devastating impact corruption has on Nigerian economy, it is high time for Nigerian universities to introduce courses on Economics of corruption. This will help students of Economics, Business Management, Finance, and Accounting to know more about corruption. I can give an example here of what happened in the United States after the collapse of the Energy giant Enron, some business schools immediately started running courses on corruption related matters including students' visits to prisons in order to highlight to them the consequences of their future actions or in action. Finally, to make the current successes being recorded by President Buhari anti-corruption efforts sustainable, government must introduce an effective Whistle-blower protection framework. This will go along way in encouraging other people to come out and tells the true concerning the whereabouts of looted government funds. Buhari's government shall rise up to the expectation and expose all past leaders who contribute in installing Nigeria's corruption culture as well as put things in place to cleanse our national assembly off rotten members in order to pave way for effective legislation against corruption. Someone has described the two chambers of the national assembly as 'chambers of corruption'. But, whatever policy Buhari put in place it shall be done carefully and intelligently, i will suggest that people shall be encourage to vote-out the present governors, corrupt senators and members of house of assembly.

Tuesday, April 18, 2017

Questions on Nigerian Stock Exchange profitability

      Looking at the huge losses incurred by investors in Nigerian stock exchange (NSE) after the 2009 financial crisis, many professional investors were asking the important question of whether it was possible to make money by investing in the market. Since 2009 to date, the performance of the market has been moving up and down making the market one of the most volatile in the world. Beta as measure of investment volatility in the market has been high over the period, while profits paid (in form of dividend and capital appreciation) has not been high enough to compensate for the high risk. Considering the current unpredictability of Nigerian foreign exchange management system operated by CBN, how safe is it for a foreign investor to include Nigeria in his portfolio? Added to this is the fact that Buhari's government is yet to have a complete blueprint on ways to manage Nigerian economy in the face of dwindling revenue. According to conventional finance models, such as Capital Assets Pricing Model (CAPM) developed by Sharpe and others, and Arbitrage pricing theory (APT) developed by Stephen Ross, return to any investment is payment for non diversifiable risk. And, an investment is good only when it is able to earn an investor reasonable return with minimum risk. Taken the above into consideration, investment in the Nigerian stock exchange will look unattractive to investors. Of course, this is actually what has been happening over the years as the level of investments in the market keep falling.Though, the market has recovered some of its mojo, but it is yet to return to it pre-crisis level.

    Like other African stock exchanges, with the exception of South Africa's, Nigerian stock exchange is segmented from other major stock exchanges in the world. This has important implication, it means that Nigerian stock exchange is  good for inclusion in international investment portfolios created by various fund management companies and other global investors - since lack of integration means the market does not move together with the rest of the world markets. Hence, Nigerian stock exchange will be perfect for portfolio investment. But, on the other hand, lack of integration means absence of efficiency and underdevelopment of the market. Here the simple lack of efficiency will among other things means poor service provision, high cost of transactions and bureaucracy. Thus, foreign investors who decided to include the market (i.e. NSE) in their portfolio must be cautious and calculative. While segmentation of the market will provide opportunity for realizing non diversifiable risk as assumed by finance theory to be provided by any good portfolio. It is also argued,  under CAPM and APT models, that higher beta (due to volatility of the market) and high cost of transaction (due to lack of efficiency) will mean risk is high in the Nigerian stock exchange. In summary, looking at things from the portfolio diversification point of view, Nigeria stock exchange is good for investors looking to gain from investing in African stock markets. While from the perspective of efficiency and predictability of returns, Nigerian stock exchange look unattractive.

Saturday, April 15, 2017

2017 Budget: An Observation

    When President Buhari made 2016 budget presentation to the national assembly he apparently was unaware of the politics and corruptions that went with passing of budgets through the two chambers of our national assembly. Mr President state of mind might have been formed under the impression that the budget would be scrutinized diligently and pass over to him in due course to start the implementation of it recommendation. Alas, our honorable parliamentarians had different idea on mind. By the time the budget was pass it was already middle of the year, people in budget office (including the director) have lost their jobs, national assembly was in crisis due to budget padding, and Nigerian economy was on the brink of recession. Up til today, 2017 budget has not reached implementation level, and 'if' and 'when' it is ready for implementation what shall the world expect from it? According to the minister of finance about N1 Trillion worth of projects have been executed in the 2016 budget, a record in the history of Nigeria corrupt budgetary process. Is this a glimpse of what to expect in 2017 budget as Buhari government continue to pump money into capital projects? Already one can noticed the increase in number of infrastructural projects being undertaken by this government from roads, railways, power to airports buildings, as well as increase in commitment toward human development and social projects.

    In term of budgeting for development, Buhari government can learn from the example of China, Malaysia, Singapore and South Korea in the 1980s and 1990s. How they were able to maintained rapid economic growth with equity? According to authors of 'the East Asian Miracle', they combined rapid demographic changes with dynamic agricultural sector and rapid export base. They also maintained macroeconomic stability with human capital investments, strong institutions and effective legal framework. so far Buhari has shown his old conservatism in managing the Nigerian economy in the mids of cash crunched and falling global oil price. One area that Buhari is doing well is in creation of strong institutions and legal environment to ensure corruption free atmosphere for rapid economic growth and development. Looking at the borrowings arrangements of his government over the next two years one can rightly say that Buhari government would not back away from deficit budgeting. Deficit budgeting is not bad in itself in as much as the borrowed money is put into most productive sectors of the economy that will quickly facilitate the creation of conditions necessary for smooth repayment of the loan and the general development of the economy. My advice to this government is that it shall find it priorities and focus on them as time is of essence.