Monday, December 29, 2008

Lagos-Kano Rail Modernisation Project

The Federal Government recently suspended the proposed $8.3 billion Lagos to Kano railway modernisation project awarded to the China Civil Engineering Construction Corporation (CCECC) by the administration of former President Olusegun Obasanjo. This decision – one of many ‘reversals’ of Yar’Adua government – is seen as regrettable by the punter, however it might be a blessing in disguise as it offers an opportunity for a rethink. I’m however not under any illusion about why the project was cancelled.

Mr. Tanimu Yakubu, chief economic adviser to President Umaru Yar'Adua, told the committee probing the $8.3 billion proposed Lagos-Kano standard gauge rail line that the Chinese firm was in contravention of Section 54 of the Companies and Allied Matters Act (Cama), which prohibits foreign companies from doing business in the country without being legally registered in Nigeria. He said the President Yar'Adua-led administration considers the contract to be illegal because it was not presented to the National Assembly for ratification. While the official status of the project is yet to be disclosed, the status of the contract however needs to be clarified because the body language of Yakubu indicates that the contract is as good as dead.

My concern with the project has nothing to do with budget appropriation or registration of CCECC with the Corporate Affairs Commission (CAC). I consider the basis, need and justification for such a huge financial investment in upgrading a rail line between Lagos-Kano to be fundamentally flawed for various reasons.

Firstly, why do we have to procure rail engineering expertise from China? There is a fundamental difference between ‘human resources’ and ‘human capacity’. With its population size, there is no doubt in my mind that the Chinese have the resources to undertake any project (as seen in recently concluded Olympics). However, I’m not convinced that they have the capacity (in terms of skills) to design a ‘world class’ rail system. When you mention rail projects, we are not just talking about construction workers, but technical expertise in terms of planning, design and engineering. It is worth noting that the planning, design and engineering expertise for the recently constructed Beijing-Tianjing Intercity Rail was sourced from mainland Europe. Only contracts for civil construction and engineering supervision were limited to local Chinese firms. That says a lot about how much faith the Chinese have in its own expertise. I don’t think Nigerians are interested in ‘Made in China’ railways, or train parts from ‘Chinatown’.

Secondly, why spend such a huge amount of money on upgrading an existing rail line – converting narrow gauge track to standard gauge?

The Lagos-Kano rail line stretches to 11,315 kilometres and would run on double track. The speed limit will be pegged at 150 kilometres per hour. After the upgrade, it would take less than four hours to travel from Lagos to Kano. The project will also include construction of 39 stations and two workshops and would be run through independent power supply system. The Chinese also offered a five-year maintenance period. The entire project would cost $8.3 billion. Even though the Federal Government only paid the Chinese company a paltry sum of $250 million being three per cent of the entire total cost, instead of $1.356 billion, being the 10 per cent mobilisation fee promised, the company immediately moved to site, armed with the due process certificate for the payment made.

While this might look good on paper, the question needs to be asked about how many people will be travelling daily between Lagos-Kano to justify this investment. With a travel time of four hours, are we constructing a commuter or tourist rail network? For me, the rail line will only be useful for long distance travel. This in itself raises more questions than answers. How many people travel daily on this route? How many times a day is it expected to operate? Has there been any cost-benefit analysis undertaken for the project? I’m sure that if a cost-benefit analysis is undertaken, the numbers will definitely not stack up. Does the time savings to be achieved by converting narrow gauge to standard gauge worth $8.3 billion dollars in real terms?While I’m not totally against upgrading Nigerian railway infrastructure, I’m of the opinion that $8 billion earmarked for this project can be better spent. For starters, let me point out that there is nothing wrong with ‘narrow gauge’ rail tracks. While standard gauge is modern and used in most parts of the world, there are still many developed nations with narrow gauge rail tracks. While it might be better to build new rail tracks as standard gauge, the conversion cost is too expensive for most countries, hence the reason why it is still widely in use.

The Federal Ministry of Transport should be setting a strategic policy for rail development in the country, starting with a cleansing of the Nigerian Railway Corporation. Railway transport in Nigeria is inefficient and has hardly developed at all over the past 100 years compared to railways in the developed world. This is due both to maladministration by successive governments and to the lack of a functional transport policy ensuring a constant pattern of railway development.

In developed countries, transport policy is dynamic and changes responsively accordingly to technological trends in the transport sector. Efforts should be focussed on developing rail network in sub-regional areas. There is likely to be more patronage demand along Lagos-Ogun-Oyo, PH-Warri-Enugu and Minna-Kaduna-Abuja corridors. The Lagos Rail Mass Transit project should be supported by the FG with funds and be extended to Ogun State as part of the Lagos Mega City Project. The transport infrastructure in our major cities should be fixed as a matter of priority.

Even if the FG decides to go ahead with the project as it is, who will be responsible for operation and maintenance? Is it the ‘paralysed’ Nigerian Railway Corporation? Only God knows what goes on in the NRC nowadays. The organisation has proven beyond every reasonable doubt that it is incompetent to move the nation rail system to the next level.Until the government comes out in the open to tell us its official position on the project, we can only keep asking ourselves, where to from here…, ?

Saturday, December 13, 2008

Corruption Incorporated

At a function held recently for the Nigerian High Commissioner to Australia, HE Professor Olu Agbi by the Nigerian Community Association in Queensland, the High Commissioner noted the damage done to Nigeria’s image overseas as a result of internet scams, and steps taken by the EFCC and the government to tackle this menace.

It is common knowledge that the name Nigeria is now synonymous with financial and economic crimes. There is a joke in the UK that, if you tell a police officer that a lady has just been raped, and you suspect the rapist to be a Nigerian, he will say – ‘it is impossible’, but you mention credit card fraud, fake documents etc, further investigation into the suspects nationality will be a waste of time - as you can be sure that a Nigerian is involved.

Having lived in the UK for while, I was used to reading about stories on Nigerian fraud in the media almost every month. However, it came to me as surprise when after just two days in Australia, one of the national television stations ran a programme on some Nigerians trying to scam a family in Sydney. These guys were exposed by an undercover journalist who played along with these guys as an accomplice.

The Nigerian internet fraud has grabbed some much headline is Australia, that one of the state police authorities now organise a yearly symposium on fraud, which is titled ‘the Nigerian internet scam’. The event attracts a large audience from financial institutions all over the world, and it costs about $300 to register for the event.Some people, including the High Commissioner are of the opinion that victims (called ‘mugu’) of internet scams are accomplices themselves, because they want easy money and looking to reap where they did not sow. I’m however not interested rationalising this argument.

In tackling this problem, the High Commisioner noted that the EFCC is currently looking to have a bill passed through the parliament that will make owners of cybercafés accountable for activities undertaken in their premises. In effect, the onus is on a cybercafé to monitor what a customer does with their computer. So I will expect managers of cybercafés to ask their customers for names of email recipients and contents of their email, etc. This for me is total nonsense! Any legal expert who is responsible for helping to draft such a legislation should be sent back to re-write is LAW101 exams. How such legislation will stack up against a legal challenge beats my imagination. It is only in the Nigerian parliament (which is full of clowns and jokers) that such legislation can be passed.

Instead of the government to address the root cause of internet fraud in Nigeria, they are busy legislating silly policies. We need to ask ourselves why desire to perpetuate fraudulent activities is waxing stronger among Nigerian teenagers. Unfortunately, there is a current generation in the society today, who do not know that an individual can be ‘successful’ by doing legit business. They believe you either have to be a politician or 419ner to be wealthy. Can you blame these kids? You can’t because they have no role model and they see is glorification of 419ners, and institutionalised stealing in government. The days of hard working businessmen such as Timothy Odutola, Amzat Adebowale are long gone.

Also, the government somewhat now believe that 419 scam is the greatest criminal offence one can commit. But the issue is can one crime be described to be greater than the other? What about the politician and civil servants put in position of trust and authority but who have continued to launder the nation’s resources? Are these not the same people sitting in the parliament, responsible for passing stupid legislations such as the one described earlier? The truth of the matter is that we are all bunch of hypocrites as a nation. We are quick to condemn the 19yr-old boy trying to defraud westerners from the shanty cybercafé in downtown Lagos but ‘glorify’ the pot-bellied politician stealing from his luxurious apartment in Abuja.

Don’t get me wrong, I’m not condoning cyber crime or exonerating their accomplices. However, the point is that the government should tackle the root cause of this problem by creating jobs, social welfare system and improve quality of life. An idle hand they say is the devil’s workshop.And if they choose not to, glorification of internet scams by the likes Olu Maintain has also just began…..

Monday, December 8, 2008

Global Recession and The Nigerian Economy

The CBN Governor was quoted in the Nigerian media today saying that the Nigerian economy could slow but cannot enter into ‘recession’. His words, I quote from Guardian newspapers “the global system is in a recession and from all indications, the Nigerian economy will not be in a recession. What could happen is that the rate of growth could be reduced but this will not make us slide into a negative growth rate for three consecutive quarters that would officially lead the economy into a recession".

To say the least, I’m disappointed that a statement of this nature is attributed to a man who is supposedly responsible for setting the monetary policy for a nation of 180 million people. I’m not an ‘Economist or pretending to be one, however it is right to say that the chain of events on the global economic scene has left the so called financial/economic experts ‘clueless’. The fact remains that; no one can categorically predict the future of its local economy not to mention the world economy. The world is now a global village that no country no matter how small is immune from this global crisis. The impact of the crisis will only be limited by the level of exposure.

Let’s remind ourselves, the economic crisis started in the US sometime last year as a result of the ‘sub-prime’ lending boom that later went burst! This quickly translated into decline in house prices in the US housing market. When everyone thought the problem was only in the US, then came the crash of Lehman Brothers (which I will describe as the September 11 attack on Wall Street), and the world economic landscape changed for good (?). Currently, the US, Asian, and European stock markets are struggling, house prices have been on steady decline, credit facilities for personal and business have almost dried up, oil price dipped from $147 to $40 per barrel. As I write the biggest car manufacturers in the US are on the verge on collapse, with about 3 million jobs at risk. So, the impact of the reckless lending to innocent residents in small towns in America is now affetcing every part of the economy, in almost all parts of the world.

So why this commentary? It is worth noting that no one predict these problems 12 months ago (even Prof. Soludo). For example, the Australian economy had a $17.5 billion surplus last year, the UK housing market was at its peak, major oil producers were making phenomenal profit as a result of increased energy demand from places like China and India. On the local front, Nigeria was stashing funds away in its excess crude account (but not invested in any infrastructural development).

I’m interested to know the basis upon which Prof. Soludo made this assertion. How can he say that an economy that is 95% dependent on proceeds from crude oil is not at a risk of recession. The govt is already struggling with 2009 budget as a result of the dip in oil price. What will happen if oil price returns to 1990 price of $22 per barrel? I guess all those ‘Mallams’ doing ‘ran ka de de’ will go and find other jobs to do.Prof. Soludo keeps on saying the recent capitalisation will help the country starve off the risk of economic downturn.

While I agree that the bank capitalisation is arguably the best thing that happened to the Nigerian banking system, I fail to agree that this will be enough for the reasons I noted earlier. For argument sake, are US or European banks not well capitalised?From my point of view, the fundamentals of the Nigerian economy are very ‘weak’. We are all aware of the recent events in the Nigerian stock market. Some will say, the market correction was needed as the value of some of the stocks are overpriced, hence the need to remove the so called ‘circuit breakers’. But it highlights what can happen when there is lack of confidence by investors, as also been noticed in the western world. The lack of key infrastructure to support growth like energy, transport etc will have a major impact on how the economy develops in the medium to longer term if this global crisis persists. Instead of the government to pump money into key infrastructure, there were busy paying off external debts and stashing money in foreign reserve.

Don’t get me wrong, I’m not saying paying off our foreign debts was a bad idea. But, of what purpose is the debt repayment to the lay man on the street, when he cannot feed his family?So Prof. Chukwuma Soludo instead of boasting that the economy cannot go into recession because of your bank capitalisation, it will be better if you tell us how you intend to shore up the economy through sustained investment in infrastructure. Because at the end of the day, nobody really knows……