Tuesday, December 4, 2012

Nigeria: A Review of the 2013 Budget Proposal


Every year, since 2009, I always look forward to reading or listening to Nigerian Presidents present their budget proposals to the national assembly, because they generally appear hopeful, fruitful, economically and socially progressive, and geared towards moving the nation in the right industrial direction. However, when one begins to analyze the allocations to specific ministries and priority departments, one is quickly demoralized and left wondering if there exist a genuine commitment to truly moving the country forward, or was it just as Shakespeare will say:  ‘a tale told by an idiot, full of sound and fury, signifying nothing’.

Since mid-2011, I have been in possession of a copy of the administration’s final report of the Transformation Agenda (2011 – 2015), and have been reading it piece-meal and comparing its recommendations to the budget proposals of 2012 and 2013 since then, and some things don’t seem to add up. One reads and hears the concerns and promises of the administration on power, security, and infrastructure; yet, year after year, the allocations to these and many other national priorities are mostly used up on recurrent expenditures. Subsequent Nigerian governments speak promisingly of dragging the nation, kicking and screaming, into a modern, corrupt-free era; yet, in practice, very little serious efforts are exerted towards keeping that promise.

Again, I have read and reviewed the fund allocated to critical government ministries and departments instrumental in transforming a nation from a Third world status to an industrialized nation, given the government’s Millennium Development Goals and Vision 20-20-20 program, and genuinely wonder at the seriousness of the government’s commitment to laying the necessary foundations future administrations can build upon towards transforming the country into a modern economic power – something long expected of an entity richly blessed with both human and natural resources.

 Agriculture & Rural Development – N81.4b
The first step towards industrialization for any nation is to be able to feed its population from its domestic food production; that leaves room and resources to invest on other priority projects. Now, granted that agricultural production is best left to the private sector, but since most of the fertile lands are under the control of the federal government, the ability to farm these lands by the private sector is severely hampered by bureaucratic bottlenecks and corruption. In order to experience serious growth in this sector, governments at every level must hand-off most of these fertile lands and, like Kwara state under Bukola Saraki, lease them on a long-term basis to both local and international food-producing companies to farm them within regulatory guidelines designed to ensure food and consumer safety and the meeting of international production standards.

Beyond land lease and necessary safety regulations, government should also invest on facilities to increase food storage and preservation, while leaving the research and development of high crop yields to the farmers, in partnership with universities and other private research institutions. This eliminates any reason for the continuous existence of federal universities of agriculture.

In the 2013 budget proposal, the amount allocated to Agriculture and rural development seems adequate; what government needs to do is eliminate departments with duplicate responsibilities, so as to shift funds from recurrent to capital expenditures.

Police – N319.65b
This is a problem sector for me to comment on without being partial, because I am in support of state and local police. The national police have been more of a tool of repression and oppression than resolution of internal national security problems; they are more of enablers of problems that providers of solutions. The Nigerian police have never successfully solved any major crime, prosecuted any high-profile criminal, or provided internal security when it is needed most. This leaves one wondering the reason for its continuous existence, except to do the bidding of politicians and private citizens who can afford their services.

Yes, reasons of inadequate working equipments have been advanced for the continuous failure of the police to carry out their responsibilities to the nation. Unfortunately, when and where they have the necessary tools of trade, they have still fallen short. Another readily advanced reason for police failures in Nigeria is low pay and insufficient training. With all the implemented recommendations by the National Police Commission, there has been no comparative improvement in police services to the nation, except in petty bribery.

It is very obvious that the 2013 budget allocation to the national police will not make any difference in the level of performance of their duties, because about 80% of the allocation will be spent on recurrent expenditures; thereby, leaving little for capital expenditures. This will ensure a continuation of the legacy of inadequacy of equipment and training.

 Defense – N348.91b
Nigeria, the largest country in black Africa with abundance of natural and human resources, needs a strong modern military and intelligence unit. In order to achieve that, it needs to invest in modernized training and military strategy. What it does not need is a continuation of the culture of investing in out-dated and outmoded refurbished equipments it has no maintenance facilities for. For example, the Nigerian military has a squadron of old MiG jets it cannot maintain rotting away in airfields and hangers; tanks and ships dating back to the Second World War era litter naval bases and garrisons. What the country need is to invest in the weapons of the war strategies of tomorrow, which is away from conventional warfare strategies; on developing short and medium-range missiles and air defense radar systems; on drones and preventive and proactive air strike tactics, and form military alliances with nations committed to helping in providing the necessary training to improve the performances of the uniformed staff.

Again, with the bulk of the 2013 defense allocation expected to go towards recurrent expenditures –salaries, housing, pensions, and uniforms – the Nigerian military will continue to be inadequately prepared to defend her in times war and internal crises.

 Healthcare – N279.23b
 This is one of the four most critical problem sectors a nation must solve before it could advance into the 21st century; along with power, security, and infrastructure.

Understandably, healthcare, like, agriculture, is best left in the hands of the private sector, with necessary rules and regulations designed to protect the consumer. However, where governments elect, at any level, to provide healthcare to its people, it must ensure sufficiency of facilities, drugs, and equipments; along with necessary safety and security measures. This has not been the case in Nigeria since 1985. Several administrations have largely ignored the saying that “a healthy nation is a wealthy nation”, and have approached the problem of adequate and effective healthcare provision half-heartedly and as a political tool. It has become fashionable for government officials at the highest level, and wealthy Nigerians, to invest estacodes and business profits on healthcare facilities in foreign countries of Europe and the Americas than towards developing a good system here in Nigeria. The frequency with which these officials and business men travel overseas for minor health problems is a testimony to the level of neglect to this critical sector of Nigeria’s advance into an industrialized nation.

Government has the option of doing one of two things here; either it completely deregulates the health sector and leave it in the hands of private experts, or refocus attention on healthcare with a sincere and serious commitment to ensure its success in not just provision but efficiency of such services at all levels. To achieve this will require an upward review of the 2013 budget allocation. If, on the other hand, it decides that the private sector is better able to handle healthcare, government must provide the same guidelines that exist in those countries its senior officials and business friends find attractive. In this case, the N279.3b allocation is adequate.

 Education – N426.26b
In a real democracy, national governments do not establish and run universities, appoint presidents or chancellors of those universities, or involve itself with the salaries of the university staff; Unfortunately, Nigeria is not a real democracy. Acceptably, as part of protective measures and to ensure expanded access, government may involve themselves in provision of education (or healthcare), these involvements are usually temporary. For a national government to continue running secondary and tertiary institutions, after fifty years of independence, is absolutely crazy. The time has long gone for the federal government to hands-off these schools, universities, and colleges and give them to the states in which they are situated. This move will free up funds to invest in primary education, loans and grants to needy university students in the science and engineering fields and research facilities.

Government should focus on promoting and encouraging private universities, technical colleges, and those that offer online first degree programs in non-science courses which follow strict accreditation guidelines set by the National Universities Commission, failing which such accreditation will be withdrawn. So far, for as much money as the government has spent on education in Nigeria, the return on such huge investment has been largely minimal, except in some committed private institutions.

Power – N74.26b
If the 2013 budget allocation of N74.26b for the power sector is for the connection of generated powers to the national grid, running the PHCN, and finalizing the privatization process of the sector, then the amount is adequate. Power generation, like healthcare and agricultural production, is best left in the hands of the private experts, with governments retaining the exclusive right to grant licenses and outline operating guidelines designed to protect the interest of the consumer. It should also reserve the right to revoke the operating licenses of low- or non-performing companies. States, who wish to set up their own power-generating entities, or enter into joint ventures with the private sector, should be encouraged to do so without federal funding, or federally-guaranteed loans.

The central government should not be doing any more than facility inspections and regulatory supervision in this sector by 2016.

Works – N183.5b
“We know that Nigerian are disturbed about that state of our major highways” – President Jonathan.

Disturbed is putting it mildly. The presidency of anyone who takes up residence in Aso Villa is judged by his/her achievements on roads, electricity, and security; for the president to say that Nigerians are “disturbed’ shows that he has not traveled by road in a very long time, and clueless of the state of our federal and state roads.

I must admit that, lately, I am no longer familiar with the responsibilities of the Ministry/Department of works; however, back when the desire to achieve success reigned supreme in our ministries, agencies like the Public works Department (PWD), under the Ministry of Works, was responsible for ensuring that our roads and rail lines were in good state. Now, even with an infrastructure trust fund, public-private partnership agreements, and federal and state road rehabilitation agencies, I am at loss as to what the current duties and responsibilities of the Ministry of Works are. If it is housing construction, the government has no further business beyond granting subsidized loans and ensuring housing technical construction requirements are met.

Currently, our federal, state, and local roads are not fit for horses and buggies to ride on, not to talk of vehicles. A nation that has dreams of greatness without motorable road and railways, steady power, efficient communication and healthcare systems, and security is wallowing in a utopian pipe dream. With the current state of Nigerian roads, this ministry does not deserve to exist, let alone get a budget allocation.
Conclusion
Like previous budget speeches before it, the plans laid out by the President in the 2013 budget waxes nostalgically hopeful; however, going by the history of the many before it, by the end of 2013, Nigerians will be left scratching their heads and wondering what went wrong. When that happens, government, as it always does, will produce a slew of reasons why the 2013 budget plans and proposal was a colossal failure. We will all be witnesses to that day.

Sunday, November 11, 2012

Why Did The Republican Cookie Crumble?

This question has been asked and answered in many different ways by political analysts, historians, election experts of every race and gender, media personalities of every station and group, and religious groups of every divide. Even foreign nationals have offered opinions of what went wrong, and every one of these groups and faiths are right in their answers to this troubling question that will, for years, leave the Karl Roves, Herman Cains, the Koch brothers, news analysts from Fox News, Rush Limbaughs, and the TEA partiers of this great country scratching their heads in disbelief.
So many things that sounded right and strategically correct to the Republican Party were, in the end, what spelled its failure in the November 6 elections. Starting from the Congress, the party decided after the 2010 elections to adopt the “No to everything, except ours” stance; in doing so, they denied many Americans the opportunity to get jobs, even if temporary. The rhetoric of its leader in the senate, staking his political career on making Obama a one-term president, instead of working to create jobs and stem the adverse economic tide, did not go down well with the majority of African-Americans.

The presidential candidate, Mitt Romney, though a very religious and upstanding man was a stranger to the 99-percenters who saw him as an aloof rich man who has never experienced what it feels like to live without; so, it was hard to see him as compassionate and caring. His ever-changing views or stands on immigration, abortion, healthcare, education and foreign policy left many wondering if he can ever stand for something. Efforts by his advisers to explain him away as a dynamic realist, who is adaptable to changing beliefs of the general society, was not adequate to convince many voters. 

His much-touted business credentials, which he staked his campaign success on, lacked enough substance to convince voters of his experience; especially, when that expertise involved buying up failing companies, cleaning them up – meaning loss of jobs, in many cases- and selling them off to both local and foreign companies. Most of the few of such companies his firm ran, ended up going bankrupt, to his financial benefit and detriment of the employees. Compounding his problems was the fact that the same healthcare program he initiated and passed in Massachusetts, and copied by the Obama administration, was opposed by his campaign, leaving likely voters more confused as to the sanity of his judgment in passing the same law in Massachusetts.
On constitutional rights and liberties, the party preached a return to the Bill of Rights –not that these rights were ever taken away, yet opposed the rights for Americans to choose whom to marry, where to live, what to do with their pregnancies, whether to use contraception or not, and what health programs are right for them. While Evangelicals were opposing the imposition of Sharia laws by Mullahs in Pakistan, Waziristan, Iran, and Afghanistan, they strove to impose biblical laws on every American, without acknowledging the similarity of their actions to those of the Mullahs. They opposed abortion, yet passed laws that denied wellness and preventive care to women at state levels. They preached and pursued the right of every eligible American to vote, yet went extra miles to ensure that those same eligible Americans were denied or frustrated out of the right to vote.

On the economy, the plan offered by the Republican party to reduce the deficit and balance the budget, by cutting services without raising taxes, did not add up to any economic think tank, yet they stuck to it without detailed explanations on how to achieve this feat. Ironically, the services slated for cutting were the ones mostly beneficial to the so-called 99%, thereby portraying the party as anti-poor. It did not help matters that majority of the parties supporters were in the $1 million annual income bracket, which were mostly white males. Their stand against environmental regulation, though music to the ears of oil, gas, and coal businesses, was threatening to the future health of the residents of communities where these businesses are located.
The Republican Party itself, though not anti-immigration, allowed itself to be hijacked and represented by a group of very vocal TEA party anti-immigrant elements who dictated the party’s stand on the subject. Efforts by more moderate members of the GOP to clearly define its stand resulted in some candidates losing their positions on the ballot; leaving some candidates, including Mitt Romney, hesitant and conflicted on the subject. This clearly alienated the Hispanic, African and Asian voters.

To compound its immigration problems, GOP-controlled states, localities and communities embarked on anti-immigration housing, education, and healthcare ordinances that though well-intended, hurt businesses and services in those communities and divided friends and neighbors along racial lines, and against each other. Anti- immigration rhetoric and actions by GOP elected immigrants helped further cement this divide. In the end, came November 6, 2012, the damages were too many for the party and the people chose to stay with the devil they knew than the angel they could not rely on.
So, what lies ahead for the party? Good question. No one really knows; but one thing is clear, unless the party adapts to the fast-changing demographics, social and religious beliefs of the new generation of Americans, it will be extinct in less than two decades as a major party. It needs to shed its image as a whites-only, or rich-only party, as was very evident in its campaign audiences this election season, and rid itself of extremists in its midst. Yes, it might be easy for minorities and immigrants to win elective offices in the so-termed red states, but those token successes, as witnessed by the election of Ted Cruz in Texas to the senate, will amount to naught for a party that could become unelectable in two decades.

The GOP has a lot of work to do, if it wants to diversify its base and adapt to the new America representative of a genuine political salad bowl of the Democratic Party, and the time to start is now. It needs to shed some of the old guards still bent on preserving the Jim Crow mentality, and the new crop of ultra-nationalists invading its leadership at local and state levels. It needs to recognize and accept the reality that one does not close the door after one has passed through it into success; and to have straps to pull one up by, one has to have boots first.

Sunday, October 28, 2012


A Step in a Different Direction
 On October 23, 2012, history was made in the Gaza Strip as the Emir of the oil-rich Emirate of Qatar, Sheik Hamad bin Khalifa Al Thani became the first head or ruler of any country to visit the isolated strip since Hamas took control of its governance in 2007. This followed the 2006 parliamentary election in the Palestinian Authorities won by Hamas, but disapproved by the western countries which branded the organization a terrorist outfit.

As was expected from western countries and its loyalist and dependent friends, there were streams of condemnation and expressions of dismay; from Iran came disapproval, borne more out of being upstaged by the Emir and Qatar than of hatred for Hamas. From residents of the Strip came both vocal and physical expressions of joy, and the Hamas leadership exuded confidence that the visit was an indication of international acceptance, instead of mere tolerance. Washington, London, and Canada complained and expressed “dismay”; Africa and Central America wondered what the big deal was about a visit; Asia remained uninterested and unperturbed; The Muslim Brotherhood-controlled government in Egypt smiled and patted each other on the back; Israel kept a watchful eye on the skies and its borders with Egypt; and the rest of the Arab Gulf leadership exchanged glances and nodded in approval. That is generally how these things work in international relations.
The international community had advanced notice of the Emir’s visit, because it had been planned for a while, and, I believe, discussed by and among his friends in the West, and colleagues in the Gulf region;  tacit nods were given and advanced notices of responses forward through the back doors before the necessary security arrangements were put in place by Hamas and the neighboring countries, including Israel. In the case of Israel, an assurance that nothing untoward will happen along the bothers or skies of Gaza until the Emir is safely out of the area. Again, this is common practice in unique situations like the Emir’s visit to Gaza.

Why would the Emir of Qatar, a friend and supporter of the West, choose to visit a strip of land run by an organization branded as terrorists by his good friends and business partners? Well, the answers are two-fold; Qatar has a lot of money and, as they say: when money talks, bullshit walks. Two, the Israeli-Palestinian peace talks, as widely expected, is dead and an embarrassment to the West which is obviously incapable of solving this perennial problem. Not comatose, but dead as a door knell, and a face-saver was badly needed. The Emir’s visit, even though disguised as a project-commissioning trip, is an introduction of a different direction to the mess that has been the peace talks, and an attempt to convince the Hamas organization to embrace the path of peaceful co-existence not just with Israel, but with the Fatah organization which controls the rest of the internationally-funded concentration camp called Palestine.
Frequent clashes with Israel since 2007 has left the Gaza Strip starved of economic and social improvement; Hamas have spent meager resources repairing damages and burying their dead in Israeli hands than providing basic needs for their people. The international community, even the nations with deep pockets like Qatar and Saudi Arabia, is growing weary of contributing funds to repair frequent Israeli damages in the area, and a concerted effort by Israel to dislodge Hamas from the Strip could result in an all-inclusive war that will involve Hezbollah, Syria, Al-Qaeda, and Iran. So, what is the next option? A slow, but calculated diplomatic shot in the arm, by those who could, to draw Hamas away from Iranian influence, wean it away from a psyche of violence beneficial to no one, and a path to peace and good neighborliness.

Will it work? It might, for these reasons; Hamas does not want to continue to be seen by its 1.7 million residents of Gaza as a failure. It is by now convinced that an unwinnable tit-for-tat with Israel is not the right course to continue. Also,  it wants to prove to the rest of the Palestinian citizenry that it is capable of providing a better government than Fatah, and diplomatically, that it could work the field like anyone else. Most importantly, Hamas has recognized that the Muslim world has bigger and varied problems demanding immediate attention today than the Palestinian situation. Therefore, a nudge in a different direction could be a positive thing.
It would be easy to dismiss the Emir’s visit to Gaza as an isolated event, if there is no follow-up by any other national leader; however, it is expected that with the Muslim Brotherhood running things in Egypt, and keeping the border to Gaza open with guaranteed safe passage, many more leaders of different nations will follow in the Emir’s footsteps; and, depending on intensity of efforts by the Hamas security service to clamp down on dissident groups who continue to lob home-made rockets into Israel, many more countries will pledge needed funds to rebuild Gaza and create a vibrant economic and social life that does not have to depend on tunnels to import cars and spaghettis to the Strip.

It is believed that Western nations will continue to encourage such visits and pledges from behind closed doors, not only because it would reduce the region’s dependence on severely depleted UN funds, but allow them to focus on more serious issues as Iran’s nuclear program and what it means for the region; Syria after Al Assad; and Libya and Egypt after the Arab Spring.
We all must have to wait and see if what happens in the region going forward from October 23, 2012 will be a step in the right direction for both Hamas and the Palestinians.

Saturday, September 15, 2012

Convention 2012: A Case of Two Very Different Crowds


Throughout the GOP primaries leading up to the convention proper, I had observed, and been bothered by the lack of diversity in the crowds that attend the rallies. Aside from Newt Gingrich and Ron Paul, none of whom were serious contenders to begin with; the rest of the field, especially Mitt Romney and Rick Santorum, consistently pulled crowds of almost 99% white audiences with a handful of blacks and other minorities. In contrast, during the campaigns of both Bushes and John McCain, the attendant crowds were more mixed and broad-based than what we are witnessing in the GOP today. Curious minds are right to wonder what happened from 1988 to this day.

One reason, at least from 2008, was the emergence of a black presidential candidate who drew almost all the black voting population, who were determined to elect the first black US president, and a considerable percentage of Hispanic and Native Americans who feel a kinship with Blacks, in terms of their social status in America. Secondly, the emergence of the TEA party fringe of the GOP, after the 2008 elections, and their anti-government, anti-poor, anti-social services, and pro-business-or-nothing rhetoric turned off a lot of minorities who mostly populate the government workforce at all levels, and are less likely to own businesses than their white counterparts.

Compounding the party’s problems were the ultra-conservative arm who took control of the party and grew more vitriolic, hateful, derogatory, and explicitly divisive in their messages. Their fierce and unrelenting attacks on the poor, women, gays and lesbians, immigrants, and avowal to either eliminate or drastically cut government services that benefit the poor were not endearing to a huge voting sector of the public. The poor, immigrants, and minorities – not the two wars we have been fighting for over ten years - were consistently blamed for the economic downturn the nation has been mired in for five years now, and accused of living free on the government hog. They advocated agendas that will remove the rights of women to determine their health and well-being; drive them back to the stone age, where they will revert to being barefoot and pregnant in the kitchen; sadly, in most cases, with the support of rich and powerful women.

Conservative Republicans, under the pretext of supporting the provisions of the constitution, and state laws, gave tacit support to heinous crimes and state legislations designed to disenfranchise women and minorities, disband state union workers, destroy industry unions, and institute racial profiling in counties. To be poor and homeless became disdainful, even though most Republicans are poor and on welfare; the bible quotations were used as justification for hateful crimes against gays and lesbians. Women in Republican-controlled states used their offices to push laws that will deprive fellow women of health and well-woman care, just because they were poor.

Conservative, GOP-leaning pastors openly preached hatred against other religions and cultures; radio and TV stations and personalities upped the ante with hateful and derogatory messages and name-calling that deeply polarized not just the races, but the genders as well. The Black president, and by extension, all blacks were blamed for everything that ails the country today; and some republicans in Congress did not help stem the divide with their public vow to ensure the president did not win a second term. All of these, inadvertently, pushed minorities further away from the GOP, in spite of the reality that a minority stands a better chance of winning elective office as a GOP than a Democrat anywhere in the South today. Unfortunately, that would have meant buying into, believing, and practicing the hateful and divisive message of the GOP conservative wing. That is how we got to where we saw ourselves with two conventions showcasing two parties, one for mostly white America, and the other for everyone else.

It was personally troubling to notice a smattering of blacks and other minorities that graced the GOP convention, compared to the sea of mixed race and cultures at the Democratic event a week later. For a party which was responsible for some major civil rights laws benefiting blacks and minorities to allow itself to be hijacked and dictated to by TEA party constitutionalists, Puritans, ultra-conservative far-rightists, and anti-social elements is bad enough; but for its candidates to go along with this divisive agenda, just to win primaries, spells doom for this party of Lincoln. Eventually, these self-styled Puritans and conservative elements (though there is nothing conservative about their behaviors) will help drive minorities further away from the GOP, eventually turning it into either Le Pen’s Nationalist Party, or Hitler’s Nazi party.

The choice is up to the GOP leadership.

Monday, August 27, 2012


Nigeria's 2012 Olympic Fiasco

On August 12, the London 2012 Olympics came to a close, leaving Nigeria – the most populous black nation in the world, and the third largest economy in Africa – without a medal; not even a wooden one. To some, especially those on the outside looking in, it was a shocking outcome; however, for those who are well-versed in the internal workings of this ever soon-to-be-great nation, it was an expected end to an inglorious beginning.

Let us look at the nation’s social downward slide to the Stone Age since 1979 when it returned to democratic rule following a long term of military dictatorship, to this day:

1.       Today, Nigeria has less motorable/tarred roads per 1000 kilometers than it had in 1979

2.       Though it has more healthcare facilities in terms of numbers than in 1979, it has less functional healthcare capacity today.

3.        Nigeria has much less pliable rail lines and far less trains today than it had at the inception of the Shagari regime in 1979.

4.       Though it has more universities and other institutions of higher learning today than in 1979, it has much less quality educated graduates today; therefore, less advanced labor force for the years ahead.

5.       The nation boasts more sporting facilities, health clubs and gyms today, both public and private, than in 1979; but much less pool of quality sports athletes to draw from today.

6.       It has a larger and deeper pool of young, talented soccer players today than it ever had in 1979, yet much less regional, continental, and international glory to show for it.

7.       Nigerian governments both at local, state, and national level, have laid miles of water pipes triple the size of 1979, yet there are fewer volumes of water flowing through those pipes today than did back then.

8.       The nation has much more court houses, and judges,  today than it did in 1979, but disposes much less cases today per 100 criminals.

9.       Nigeria has more advanced power-generating equipments and technical know-how today than in 1979, yet it generates much less power than it did in that year per 1000 citizens.

10.   It has much more human capital today (about 48% of its population are still in the labor force age bracket of 15-45) than in 1979, but much less productivity today.

11.   There are more manufacturing companies in Nigeria today than there were in 1979, but much less products are manufactured today. Rather, these companies re-package products from Asia and Europe for sale in Nigeria

12.   In 1979, Nigeria’s GDP and GNP, in relation to its population, had a much higher human development index than it does today, even with a much higher and faster rate of technological advancement today than in 1979.

13.   Though Nigeria had much fewer elementary schools and teachers in 1979 than today, the ratio of students to teachers in our elementary schools today is much higher, even with triple the number of available elementary schools.

One can go on and on, but I am sure you get the picture.

                While Nigeria may be an economically progressive nation, it is sliding back to the Stone Age in terms of provisions of social amenities to its citizens, because the windfalls of its economic success is not being properly harvested and invested in social infrastructures meant to improve the lot of the people. That is why, in 2012, a nation like Nigeria, with its entire natural and human resources will invest the sum of N2.3b in its Olympics preparation and come away from London with nothing more than shopping bags from Harrods and Mark and Spencer. That is the Nigeria we have today, and the same one we will see in Rio come 2012.

                The London 2012 Olympics reminds us, once more, that when one fails to plan, one plans to fail. It has been Nigeria’s motto for many years. While other countries have been adopting one or more sports even and working tirelessly to improve on it, Nigeria has elected to adopt ALL sports events and improve on NONE. As is always the case, when we suffer these colossal failures, a committee of inquiry will be set up to investigate why we failed- the fact that we all know why we failed is not even a factor. At the end of these investigations, promises will be made but never kept, and come the next time (in this case Rio 2016), the powers that be will wait till a month to the event to release funds for trainings that should have begun 12 months prior. Is that the conduct of a nation that wants to progress? A resounding NO!

                One thing is clear in life; you can only win if you want to win. Medals in Olympics are not awarded by Transparency International and, as one Nigerian writer pointed out, there are no medals given out for corruption. If Nigeria wants to win medals in the biggest event on the international stage, it will have to move from “wanting to be” to “being” a force to reckon with.

Sunday, July 22, 2012


DOES SMALL BUSINESS TAX BREAKS REALLY LEAD TO JOB CREATIONS?
Since the Republicans took over the House and many states in the 2010 mid-term elections, their message has remained giving tax breaks to small business owners to spur economic growth and, subsequently, create more jobs. They have based their insistence on renewing the Bush-era tax cuts for everyone, including the proverbial 1 percent, on this claim. Many lay Americans, including from the Democratic Party, seem to be buying into this theory, even when there is no concrete evidence to prove such as a fact. On the other hand, many have made the case that small businesses, for whom the tax break is directed at, do not create enough jobs to affect the unemployment rate; rather, the Fortune 500 companies are the ones that need such breaks, because for every 100,000 jobs created in a month, these conglomerates are responsible for 80%, or 80,000.

I have remained skeptical of the Republican Party’s claim on this tax break issue, and have taken pains to review and analyze the many –if any – ways such tax largess can spur job growth. Of course, no two economists can agree on a theory, and even where they do, each arrives at the same destination or conclusion through different directions. To help me, and, hopefully, many others like me understand this theory, I am going to try to look at it through a fictitious company called ABC Delivery Services; a family-owned hotshot delivery company considered a middleclass business entity.
Below is a snapshot of annual business/financial report of ABC Delivery Services:

ABC Delivery Services
Ten vans @ $35,000 annual gross income per van =
$350,000
Wages and salary @ $25,000/year per driver =
$250,000
Service/repairs @ $2000/van per year =
$20,000
Insurance coverage @ $1000/year per van =
$10,000
Miscellaneous expenses @ $500/van per year =
$5,000
Total expenses
$285,000
($285,000)
*Profit before taxes
$65,000
*Federal business tax @ 35%
($22,750)
Profit after tax
$42,250
**Profit before tax
$65,000
**Federal business tax @ 25%
(16,250)
**Profit after tax
$48,750
Extra revenue from tax break
$6,500
*Without tax breaks
**With tax breaks of 10%

For better understanding of this analysis, all other financial reporting requirements that might complicate the pros and cons of a tax break have been, purposely, ignored. Also, we will assume that the net profit is also the owner’s annual salary; he has a family of five; two twin teen college sophomores, a wife who works in the business, a high school teenage daughter,  a mortgage and a car note. While acknowledging that this is not typical of every small business family, one would agree that many of such businesses exist in situations similar to this one. We will also assume, for the purpose of this analysis, that the federal business tax rate is 35% and the allowed tax break is 10%, reducing the business tax rate to a flat 25%. Now, how does our fictitious small business owner contribute to job creation?

Let us see. At the 35% tax rate, his after-tax profit is #42,250, which is considered the fruit of his labor, and his to dispose with as he pleases. Now, given that it will cost him about $20,750 to buy and equip one more Ford Econoline; $22,000 for a start-up driver, and $3500 for service/repairs/miscellaneous/insurance, he cannot expand his business, or employ anyone. Obviously, he has not been able to add another van or driver, since he bought a home, and the children started coming. He had spent the last twelve years paying off the business loan he used to start off the business, and he has sixteen more years to go on his mortgage, which cost $1080 a month overall.
Looking at the second scenario with a 10% tax break, we see an increased net profit of $6,500, increasing his total annual profit from $42,250 to $48,750. What, if anything, could this family business do with the $6,500 tax windfall? A few things that has nothing to do with job creation; that family vacation trip they have been putting off for some years; the back porch they have been dreaming of; a Jacuzzi the wife has been wishing for; a down payment, along with a trade-in, on a new truck; put the entire amount in a college trust fund for the daughter; a new roof, re-doing the kitchen, or buying new energy-efficient appliances for the house; so many things needing financial attention. They might decide to save the money towards an expansion, which will take about six years of savings, all things being equal. So, at this rate, it will take ABC Delivery Services about six years of saving the windfall of their tax break to create one fulltime job. I am sure another economist out there will come up with a creative way this company can hire one extra person with a $6,500 tax break; after all, someone invented credit default swaps.

What happens in those six years? Stagnation! Suppose business picks up to a point that each van starts bringing in an annual gross income of $50,000, instead of the previous $35,000? This will put ABC Deliveries in the $500,000 small business bracket; with all previous expenses remaining the same, the company’s financial outlook will be different? But, will it be able to create jobs? Let’s see:
I have re-created the scenario for ABC below at a different income/profit level, while maintaining the same tax rates, 35% and 25%, respectively, and keeping expenses, or variable costs, at the same level. Even at this revenue level, there is not enough increase in tax windfall to support hiring of additional driver, if one was to buy a new or used van. The only improvement is a reduction in the number of years, all things being equal; it will take to save the entire windfall to expand the business –two years.

  

ABC Delivery Services
Ten vans @ $50,000 annual gross per van =
$5000,000
Wages and salary @ $25,000/year per driver =
$250,000
Service/repairs @ $2000/van per year =
$20,000
Insurance coverage @ $1000/year per van =
$10,000
Miscellaneous expenses @ $500/van per year =
$5,000
Total expenses
$285,000
($285,000)
*Profit before taxes
$215,000
*Federal business tax @ 35%
($75,250)
Profit after tax
$139,750
**Profit before tax
$215,000
**Federal business tax @ 25%
($53,750)
**Profit after tax
$161,250
Extra revenue from tax break
$21,500

So, for ABC Delivery Services to add and pay for a new employee and purchase another van, it will have to wait every two years. From the above, it is obvious that for a tax break for small businesses to create jobs, one has to be operating at a certain revenue bracket, and certain wage rate for a 10% break to be effective enough. If ABC were paying its drivers minimum wage, sans health insurance and 40(1) k, it would still not be able to expand at the $350,000 gross revenue rate, but could do so annually at the $500,000 rate. We would not, at this point, consider the effect of a possible expansion on the annual revenues of the existing vans, because it has not happened yet.
To the bigger question of whether tax breaks to everyone making less than $250,000 helps spur economic growth, the jury is still out on that. But one thing we will have to review is how much did the Bush stimulus package of $600 to $1200 some years ago, depending on your filing status, improve the overall economy? Before you answer that question, consider the fact that most of the immigrant beneficiaries of that stimulus package remitted at least half of it to relatives outside the US, and half of the other half used it to catch up on mortgage and credit card bills.

In conclusion, my advice is that governments, legislators and the general public not pay much attention to this Republican theory without performing a thorough analytical review.