Explainer: what are 'tax havens'?

Tax havens such as the Cayman Islands, Switzerland, the British Virgin Islands and Panama have a few key things in common.
Tommaso Faccio, University of Nottingham
The Panama Papers leak sheds some light on the intricate ways in which the wealthy can exploit secretive offshore tax regimes. As well as charging minimal or no tax to residents and non-residents, the main characteristics of tax havens are their lack of transparency and effective information exchange.
As the leaked files of Panama-based law firm Mossack Fonseca show, these havens are used by individuals and companies to stash their cash, away from the prying eyes of civilians or investigators. This is not necessarily because their money has been obtained illegally. In the case of public figures such as politicians, for example, they may want to keep the size of their wealth a secret or hide from their electorates that they or their relatives are legally minimising their tax. To do so, they hide their identity using a number of complex legal mechanisms.
Whether it is a wealthy entrepreneur or a drug trafficker, the tricks used to make their affairs hard to trace are pretty similar. It all starts by incorporating a “shell company” (or a “letterbox company”) in an offshore tax jurisdiction, using the services of a law firm such as Mossack Fonseca. These companies have the outward appearance of being a legitimate business but in reality are just empty shells. They manage the money they receive and hide who owns it. The management is made up of lawyers and accountants, whose only role is to sign documents and allow their names to appear on the company’s letterhead.

Mossack Fonseca’s Panama office. EPA/Alejandro Bolivar

The money is received by this shell company from people who wish to hide these funds from tax authorities and the wider public. Very few questions are asked about the source of this money, which can then be used by the shell company to carry out legal activities such as investing in real estate – or illegal activities such as bribing a government official.
The ownership of these shell companies can be easily transferred, through the use of bearer shares and bonds, whose ownership belongs to the person that holds the physical stock certificate. These were abolished in the UK in 2015 and the US government stopped selling bearer bonds in 1982 in a bid to increase transparency. They allow large sums of money to be moved around easily, with full anonymity.

Lack of transparency

The Panama Papers investigation by the International Consortium of Investigative Journalists have already put Iceland’s prime minister, Sigmundur Davíð Gunnlaugsson, under serious pressure. ICIJ has documents that show how his wife owned a British Virgin Islands shell company called Wintris Inc that held millions of dollars in bonds in the three major Icelandic banks, which collapsed in 2008. In 2009, Gunnlaugsson entered parliament but failed to declare his wife’s ownership of Wintris. The electorate was none the wiser due to the lack of information exchange between the British Virgin Islands and Iceland, which ensured that this information was not available.

Sigmundur Davíð Gunnlaugsson Frankie Fouganthin/Wikimedia Commons, CC BY-SA

It is not illegal to have dealings with a tax haven – and in fact there can be very legitimate reasons to conduct business there, such as investing in a hedge or mutual fund. And tax havens are often used by business people in unstable countries where they are at risk of “raids” by criminals or their governments.
In spite of this, the lack of transparency and lack of information exchange can also be used for illicit purposes, including money laundering, bribery, corruption, tax fraud and other illegal activities. Because the beneficial owners of a company are kept secret, the proceeds of crime can be hidden or used for nefarious purposes without any authorities being able to trace it. If law enforcement and other competent authorities had access to beneficial ownership information, they could “follow the money” in financial investigations involving suspect accounts or assets held by corporate vehicles.
The lack of effective information exchange is ensured through secrecy laws that prevent overseas tax authorities from accessing information on the complex structures located in tax havens. A number of countries have bilateral Tax Information Exchange Agreements (TIEA) with tax havens, which enable their governments to enforce domestic tax laws by exchanging, on request, relevant tax information. However, Panama has only signed one TIEA (with the United States).
Panama is far from alone in this business. According to the 2015 Financial Secrecy Index for 2015 compiled by the Tax Justice Network, Switzerland, Hong Kong, the US, Singapore and the Cayman Islands are the top five jurisdictions for secrecy and the scale of their offshore financial activities.
In 2013, The Economist estimated that around US$20 trillion could be stashed in offshore accounts worldwide. Much of this may be used for legal activities – but until there is full transparency and information exchange between tax havens and overseas tax authorities, it is impossible to determine what is the extent of the illegal tax evasion and other criminal activities these tax havens facilitate.

Tommaso Faccio, Lecturer in Accounting, University of Nottingham
This article was originally published on The Conversation. Read the original article.

Nigeria to be among top 10 global economies - Experts

Linda Thomas-Greenfield

The United States has said that Nigeria’s estimated middle class of 50 million people will help grow the country into one of the top-ten global economies by 2050.

It, however, expressed doubts that much of the billions of dollars looted from Nigeria in the last decade would be recovered.

The US Assistant Secretary, Bureau of African Affairs, Linda Thomas-Greenfield, stated this in Washington ahead of the meeting of the US-Nigeria Bi-National Commission, which took place yesterday.

She said: “In case anyone has any doubts on the extent of Nigeria’s importance in Africa and the world… Nigeria’s population is projected to reach 400 million by 2050, overtaking the United States counand becoming the third most populous country in the world. The median age in Nigeria is 18. Nigeria is Africa’s largest economy and Africa’s largest oil producer. The country’s middle class of roughly 50 million people is expected to help grow the country into one of the top-ten global economies by 2050.”

Thomas-Greenfield stressed the importance of Nigeria to the world when she said: “These statistics paint the picture of a country with enormous potential and opportunities ahead of it, yet daunting challenges it must tackle in order to succeed. There is cause for cautious optimism at this juncture and the United States looks forward to doing everything we can to partner with Nigeria to seize the moment.

“Why is it so important that we seize the moment? It’s simple: we need a strong, proactive Nigeria, because it’s in Nigeria’s interest, the region’s interest and it is in the world’s interest. Importantly, it is in the United States’ interest, as well. And so, the question in front of all of us today is: What can we do to support a strong, proactive and prosperous Nigeria?”

She, however, noted that despite Nigeria’s size and resources, the United Nations estimated in 2011 that 54 per cent of the country’s population lives on less than $1.25 a day and 16 per cent of children die before reaching their fifth birthday, largely as a result of preventable diseases.

According to her, “Nigeria has also struggled to provide adequate and reliable power to its citizens despite its vast natural resources, with only 45 per cent of its citizens currently having access to electricity.” In addition, Thomas- Greenfield stated that massive corruption has resulted in Nigeria losing billions of dollars every year, especially in the last decade alone.

“Although much of this money that has been siphoned off will likely never be seen again, imagine the impact that this money could have had on Nigeria’s infrastructure and economy,” she stated.

She said that despite these challenges, the US believes there is cause to be optimistic about Nigeria’s prospects, particularly in the aftermath of last year’s elections.

Thomas-Greenfield said: “Nigerians have newfound optimism and an opportunity to set their country on a path to capitalise on its nearly unlimited potential. The election was a first and major step toward Nigeria fundamentally altering its course – and the country today stands at a crossroads.”

The US top official stressed that if Nigeria implements sound policies, the country has potential to regain its role as a strong and effective global player, a leader on the African continent, and an engine of economic growth throughout West Africa and the continent.

Her words: “We want to partner with Nigeria – its people and its government – to make that a reality, and we want to work with Nigeria on issues of global importance such as climate change, nuclear security, sustainable development, strengthening collaboration on global health priorities, and countering violent extremism.

“We are also supporting efforts by Nigeria’s Economic and Financial Crimes Commission (EFCC) and the judiciary to investigate and prosecute complex corruption cases. We have engaged religious communities, who are a very powerful force in Nigeria, to join in the fight against corruption. Corruption will be fought not just through technical assistance, but through widespread social change.”

She said that despite these challenges, the US believes there is cause to be optimistic about Nigeria’s prospects, particularly in the aftermath of last year’s elections.

The perils of relying on oil as the only resource for development

Workers prepare pipes to service an oil well. Reuters/Shamil Zhumatov

Astrid R.N. Haas, International Growth Centre
Developing off the back of one natural resource is risky for any country. It makes them reliant on external conditions beyond their control, such as global demand and supply. Since June 2014, global oil prices have fallen by more than 70%. Consumers are happy. Oil producing nations are not.
One example of this is South Sudan. It is the world’s youngest nation, having gained independence from Sudan in 2011 after more than 20 years of war. Commercial oil was discovered in 1979 by US company Chevron in what was then one country, Sudan. The main oil reserves are located along the border between Sudan and what is today South Sudan, with an estimated 75% of the oil reserves found on the South Sudanese side. The refinery and most other infrastructure necessary to sell and export the oil are located in Sudan.
When South Sudan gained independence, the two countries negotiated a fixed fee for each barrel of oil produced. The total fee was set at about US$25 per barrel. At this time, the oil price was about $100 per barrel. This was sufficient for the country to make a healthy profit from oil production. Its oil revenues made up more than 95% of government revenue. But by agreeing on a fixed fee South Sudan carried the full risk of an eventual slump in oil prices. The country is still in an estimated $2 billion of arrears to Sudan for the transit fees since 2011.

Internal disputes add to oil production issues

Two major domestic factors compounded the hard times South Sudan faced as a result of the fall in oil prices. First, in January 2012 there was a dispute over the unpaid transit fees with Sudan. This resulted in South Sudan halting oil production, which in turn meant the supply of oil and the country’s main source of revenue fell quickly. Oil production was eventually resumed. Second, in December 2013 a civil war broke out in South Sudan, which led to a renewed shut down of some oil production. In March, the Ministry of Petroleum and Mining in South Sudan said it did not expect oil production to ever reach even half the peak levels it did in 2010.
New negotiations with Sudan have allowed for flexible fees that can rise and fall with the global price of oil. This new negotiation does not affect South Sudan’s outstanding arrears, and has come at a time when the country has, to a large extent, depleted its foreign exchange reserves. At current oil prices and production, it is estimated that South Sudan is earning less than $5 per barrel.
As a result of civil war, South Sudan’s spending went up as its revenues from oil decreased. By October 2015, the government was only able to finance about one-third of its budget from its own revenue. To finance the remaining budget, it started borrowing from the Bank of South Sudan. Initially the bank was able to finance government spending from accumulated reserves. As these were depleted, from about $2 billion at independence to $60 million by October 2015, the bank had to start printing money.
The additional South Sudanese pounds circulating in the economy have severely affected the exchange rate and overall inflation. Current macro-economic indicators estimate that inflation in South Sudan has reached 202.5%.
South Sudan is not the only oil dependent economy that is suffering from the fall in oil prices. There are lessons the young nation can learn from countries such as Angola and Nigeria. If it does not diversify its economy the risks of fluctuating oil prices will continue to mark its development path.

Lessons from other African countries

In Angola, a special cabinet meeting was called recently to discuss the country’s economic problems. Oil makes up 95% of Angola’s export earnings. Participants at the meeting noted the large decrease in the availability of foreign currency, expected to be 50% less compared with 2015 because of the fall in oil prices. This resulted in the devaluation of the kwanza and double-digit inflation figures.
In Nigeria, a much larger and slightly more diversified economy, the fall in oil prices is also taking its toll. Newly elected President Muhammad Buhari experienced a déjà vu situation marked by the fall in oil prices after he became president. On the day of his election the price per barrel stood at $64. When he was sworn in eight months later it had fallen to $32 per barrel. In Nigeria, like Angola, oil revenues make up 95% of export earnings and 70% of total government revenues.
There are ways that countries can manage their natural resource wealth and become less susceptible to external forces.
Botswana, for example, is a country that has managed its resource wealth considerably better. It discovered diamonds in 1966 but has largely avoided many of the challenges now facing oil-dependent economies. One of the major factors that contributed to Botswana’s success is that it remained fiscally prudent even after diamonds were discovered. Botswana resisted the temptation of increasing spending as a result of the new-found wealth. Instead, it continued to adhere to principles of good budgeting, using its national development plan as a template. This resulted in the country having the highest per-capita growth in the world over several decades.
But even Botswana’s growth is not without risk, as 75% of its export revenue is made up from diamond sales.
The major lesson for South Sudan is that aside from prudent management of wealth derived from their oil, it is imperative that countries undertake increased efforts to diversify their economies. They must move away from being overly reliant on the export of just one resource. As the case of Botswana has shown, this will also take strong and well-run institutions. If South Sudan successfully manages to do this, it will not be as vulnerable to external risks of the world economy, such as the fall in oil prices.


Astrid R.N. Haas, Country Economist for South Sudan and Uganda, International Growth Centre
This article was originally published on The Conversation. Read the original article.

Why developing countries are dumping investment treaties

Uma Kollamparambil, University of the Witwatersrand
Bilateral investment treaties have been a source of political controversy in recent years. This is clear from the alarming increase in the number of disputes between investors and governments.
The treaties create an unequal distribution of rights and obligations between developed countries, which are the source of most foreign direct investment, and developing countries, which are mainly recipients. They lead to the increased risk of litigation and have a negative impact on the net benefit of investment to recipient countries.
Investors have initiated a large number of cases against countries that have bilateral investment treaties. Moreover, the benefit of these treaties in attracting foreign direct investments is not seen to compensate for the litigation initiated against these countries.
This is why there is a growing view that the traditional model for bilateral investment treaties needs a review. This must focus on developing a new generation foreign investment policy framework. This should, along with promoting foreign investment, also enable recipient countries to regulate foreign direct investment in line with their public policies.

What treaties were designed to do

Bilateral investment treaties provide for international arbitration of disputes between investors and governments. Arbitration can happen at the World Bank’s dispute settlement body, the Stockholm Chamber of Commerce or the International Chamber of Commerce in Paris.
Alternatively there is an ad-hoc tribunal set up under the United Nations Commission on International Trade Law. The World Bank’s body accounts for 62% of all cases, the UN’s for 28%, Stockholm’s for 5% and others, including the Paris-based organsisation, for 5%.
Cases that go to the UN body are registered publicly. This is not the case in other forums. And parties to a dispute before the UN body could until recently invoke rules that allow proceedings to be kept secret. This has been changed.

Most cases handled by the World Bank’s dispute settlement body are brought against countries with investment treaties. Reuters/Jonathan Ernst

The number of bilateral investment treaties has grown from about 500 in 1980 to 2,923 in 2014. This is attributed to the competition between developing countries for foreign direct investment which, in turn, is driven by the belief that these investments promote economic growth. They do this by helping recipient countries narrow the gap between domestic savings and the size of capital they need for investment. Foreign direct investment also opens the door to the latest technology and enables developing countries to plug their economies into global export networks.
Cases before the UN body grew from 5 of 12 new arbitrations in 2000, to 12 of 14 in 2001, and a striking 15 of 19 in 2002. There were 38 cases pending in the World Bank body based on alleged violations of bilateral investment treaties in April 2003. There was a tenfold increase in just over ten years, rising to 436 cases by December 2014. This clearly points to the increased number of cases handled by the World Bank body since the proliferation of bilateral investment treaties.

Why countries thought treaties were a good idea

In the absence of a multilateral framework, bilateral investment treaties were seen by developing countries as a way to signal that they were a safe destination for investment.
So far, quantitative studies have concentrated on analysing the impact of the treaties on promoting foreign direct investment. The conclusions are not unanimous. Recent studies indicate that treaties merely affect the direction of investment inflows, not the quantity. This suggests that multinational corporations route their investments through countries like the Netherlands, which have clauses in their bilateral treaties that favour investors.
It’s therefore not surprising that in recent years bilateral investment treaties have been a source of political controversy. At least 45 countries and four regional integration organisations are revising or have recently revised their model agreements. The aim has been to include provisions on pre-establishment commitments (that ensure National treatment and Most Favoured Nation treatment of investment) and sustainable development-oriented clauses.
South Africa terminated its treaties with the Netherlands, Switzerland and Germany in 2014. It has since given notice that it will terminate its treaties with Belgium, Luxembourg, Spain and Indonesia. South Africa is replacing these treaties with the Promotion and Protection of Investment Act.

Undue risk on host nations

After the explosive expansion of these treaties in the 1990s, there has been a reduction in the number of new ones. This has been brought about by the realisation that traditional treaties put undue risk on host nations without obligating investors to contribute to development requirements.
The number of cases settled through arbitration has increased dramatically from 50 cases in 2000 to 608 cases in 2014. The gravity of the situation is clear from the large number of claims made by investor litigants that put host states under serious fiscal strain.

Legitimacy questioned

Literature on the impact of bilateral treaties on arbitration cases is mostly qualitative, dealing with either anecdotal cases or legal analysis of treaties. These studies have highlighted the inconsistencies and contradictory awards by tribunals. This in turn has led to the legitimacy of awards being questioned.

South Africa’s Trade and Industry Minister Rob Davies is replacing investment treaties with legislation. Reuters/Ruben Sprich

Other studies have pointed out additional factors that contribute to deficiencies in the system. These include a lack of transparency, high costs and concerns about the qualifications of arbitrators.
An overwhelming majority of disputes between investors and governments are initiated by investors from developed countries (North) against developing countries (South). This is despite the fact that North-North foreign direct investment accounts for a bigger share of global foreign direct investment compared with North-South foreign direct investment.
Poor judicial processes and other idiosyncratic characteristics of developing countries may explain this anomaly. But to establish whether this is caused solely by bilateral treaties one would have to control for other factors that may contribute to it.

Our study

Analysis of investment dispute cases handled by the World Bank’s dispute settlement body shows that most of the cases brought by investors are against countries with treaties. Moreover, the net benefit accruing to countries with treaties is substantially lower than for countries without.
Our analysis confirms the need for developing nations to be wary of the risks associated with traditional treaties whose sole concern is the protection of investors.
Our findings confirm the correctness of the call by developing countries for a new foreign investment policy framework. This should promote foreign investment and also enable developing countries to regulate investment in line with their domestic public policy priorities. Social and developmental interests of the host developing countries must be included in treaty negotiations.
The United Nations Conference on Trade and Development’s Investment Policy Framework for Sustainable Development is a step forward. A new generation of investment treaties must balance investment policy and the development strategies of host countries while ensuring responsible investor behaviour.

Uma Kollamparambil, Professor of Economics, University of the Witwatersrand
This article was originally published on The Conversation. Read the original article.

Nigeria needs a credible economic plan – not a confab : NOBEL LAUREATE PROFESSOR WOLE SOYINKA

Stephen Onyeiwu, Allegheny College

Nobel Laureate professor Wole Soyinka recently called for an emergency national conference on the Nigerian economy. This suggests that the economy is not only in dire straits, but headed toward a cataclysmic cliff. For an artistic and creative intellectual titan like Soyinka to dabble in the “dismal science” of economics portrays an urgency that can’t easily be ignored.
But how bad, really, is the Nigerian economy? And would a conference help?
On the first question it is worth noting that economic downturns neither surprise nor alarm economists. We believe that every economy that reaches the peak of the business cycle must eventually slow down. Sometimes they reach what is referred to as a “trough”, or the very bottom of the cycle.
Some economies are more resilient than others. They are able to minimise the impact of an inevitable downturn, as well as rebound quickly, mainly through sound economic management.
On the second, I do not recall any country that has solved its economic problems via an emergency national confab. There is nothing wrong with discussing a nation’s economic problems, but seeking solutions through a conference will be at best far-fetched, and at worst illusory.

How bad is it?

The Nigerian economy is indeed under severe strain. But not everything is as bad as it seems.
The country’s currency has suffered a steep slide, depreciating by over 25% in the past year. But analysts should be circumspect when they generalise about the impact of Naira depreciation.
Subsistence farmers across Nigerian villages who receive remittances from relatives abroad will find themselves unexpectedly awash with stacks of Naira.
Nor do subsistence farmers have to fret about the inflationary implications of a depreciating currency since they produce nearly all of their daily needs. Farmers who sell exported products like cocoa, palm oil, palm kernel, and groundnuts might even see a spike in the demand for their products, following changes in relative prices induced by a depreciating Naira.

Farmers who sell exported products like cocoa and palm oil might benefit from the depreciation of the naira against the US dollar. Reuters/Joe Penney

Ordinary folks don’t shop at mega supermarkets and malls like Shoprite. This means that they don’t need to worry about a spike in the prices of imported goods. This, in turn, will be a boon to local manufacturers who source their production inputs locally. This would be good for jobs and for government revenue. Don’t forget that China boosted its exports of manufactured goods by deliberately undervaluing the Yuan.
I’m also not perturbed by the inexorable decline in Nigeria’s GDP growth rate, from an average of 9% between 2000 and 2010, to the current 4%. Stellar economic growth in Nigeria occurred when a barrel of crude oil sold for more than US$100. Now that a barrel barely sells for $30, the country’s growth rate is expected to shave a percentage point or so from the current level.
The country’s anaemic growth rate isn’t my main concern. A major concern is the fact that Nigeria’s economic growth has never been inclusive and equitable.
When the country’s growth rate peaked in the 2000s, a 2014 report by the McKinsey Global Institute showed that only one-quarter of Nigerians benefited. The rest wallowed in abject poverty, which now stands at an alarming rate of 70% of the country’s population of almost 200 million.
And what about the country’s rapidly disappearing foreign reserves? Should I worry about that as well? No. Reserves in Nigeria have often been used to supply cheap foreign currencies to the Nigerian elite. They have used these for various unproductive activities and illicit financial transactions.
These include money laundering, medical tourism, acquisition of choice real estate in Dubai and other expensive cities, and lavish vacations.
There may be a silver lining to the depletion of Nigeria’s oil-driven foreign reserves from $54 billion in 2008 to the current level of roughly $28 billion. It has the potential of forcing the country to explore broader sources of foreign exchange, including the neglected agricultural sector, agro-processing and resource-based industrialisation.
Nigerian President Muhammadu Buhari has said he is worried that a depreciating Naira and a rapidly depleting foreign reserves will have a negative impact on unemployment. Economists estimate that joblessness is more than 50% – a more credible figure than the National Bureau of Statistics’ 9.9%.
I believe that many Nigerian youths have in fact given up looking for jobs. They have come to the bitter realisation that looking for a job in Nigeria an exercise in futility. They have become what labour economists refer to as “discouraged workers” – that is, unemployed people who have looked for jobs for years and have given up doing so.

How sound economic polices are made

Countries solve their economic problems when citizens willingly elect leaders that credibly promise economic renaissance, and then hold them accountable. When elected leaders fail to deliver they ought to be voted out of power, as the previous administration in Nigeria learnt.
When US President Barack Obama assumed office in 2009 he inherited an economy that was more distressed than Nigeria’s. He was saddled with a whopping $10 trillion in debt (or 72% of the GDP), and an unemployment rate of 10%.
But Obama did not call for an emergency national conference. He assembled an economic team and proposed an economic blueprint for extricating the economy from the doldrums. His massive economic stimulus program worked. Four years later he cruised into re-election.
Buhari and his administration have pledged to turn the Nigerian economy around. They have also undertaken to provide economic succour to millions of Nigerians trapped in extreme poverty.

Muhammadu Buhari needs time to turn Nigeria’s economy around. Reuters/Vincent Kessler

Let us give them a chance to articulate and implement their economic policies. There will be plenty of time and talking heads ready to dissect the administration’s economic performance come 2019.
Rather than call for an emergency conference on the economy, Soyinka should do what he does best: galvanise like-minded Nigerians and demand that all those who looted Nigeria’s treasury (especially the over $2 billion designated for arms purchase to fight Boko Haram) return their ill-gotten wealth.
Getting those stolen funds back and investing them productively in developing the agricultural sector, supporting small businesses, as well as providing microcredit to informal sector workers, would help cushion the effects of the slowdown in the economy, and perhaps lay the foundation for a diversified economy.

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Steve Onyeiwu is author of Emerging Issues in Contemporary African Economies (Palgrave/Macmillan, 2015).

Stephen Onyeiwu, Professor of Economics, Allegheny College
This article was originally published on The Conversation. Read the original article.

The trouble with the IMF: Missing one crisis is understandable, missing three is a disaster

OPINION BY

 Paul Ormerod 

The International Monetary Fund (IMF) has played a prominent role in world financial affairs in the post-Second World War period. In the 1950s and 1960s, its main purpose was to support the system of fixed exchange rates. Since then, its activities have evolved to embrace developing economies and both banking and sovereign debt crises.

The top ranked mainstream Journal of Economic Perspectives is hardly the place we would expect to read a strong criticism of the IMF. But in the latest issue, this is exactly what Barry Eichengreen of Berkeley and Ngaire Woods of Oxford have done.

They argue that the effectiveness of the IMF has many similarities with that of a football referee. A great deal depends upon whether the players and spectators perceive the referee as being competent and impartial. With this in mind, Eichengreen and Woods level charges against the IMF on several counts.

Perhaps the most serious is its track record in monitoring the world economy and warning of potential crises. Keynes, who was a great enthusiast for creating the IMF, envisaged that a key role would be as a “blunt truth teller”. Elected politicians may try to fudge and obfuscate, but the IMF should tell things how they really are.

It would be unrealistic to expect anyone to have anticipated and warned of the US sub-prime crisis, the global financial crisis and the Greek sovereign debt crisis. But as Eichengreen and Woods put it, “the IMF batted zero for three on these three events, which suggests that its capacity to highlight risks to stability leaves something to be desired”. Using a different analogy, if a doctor fails to spot the symptoms of a disease, why should we trust his proposed cure?

The IMF’s track record on cures for sovereign debt crises is the second point of criticism. Judging whether a debt burden is sustainable is another tricky problem. But the IMF has in general erred on the side of lending for too long and postponing the inevitable restructuring. This allows private investors to cut their losses, creating the infamous “moral hazard” problem. If you think the IMF will allow private lenders to escape, you will be more inclined to make a loan which is otherwise too risky. The Fund’s decision not to insist on Greek debt restructuring in 2010, allowing French and German banks to bail out, is a case in point. The overall effect is that, when the restructuring does come, it is more expensive and disruptive for the economy which the IMF is trying to save.

The authors’ criticism of the governance structure of the IMF is much less effective, however. For example, major decisions require an 85 per cent vote. America has 16 per cent of the votes and so has a veto, which they argue reduces the Fund’s legitimacy. But the problem with widening the franchise is that standards of behaviour vary enormously across the world, and Fifa is the example of what is likely to happen if every country has one vote. So on this charge, at least, things are better left as they are.

Paul Ormerod is an economist at Volterra Partners, a visiting professor at University College, London, and author of Positive Linking: How Networks can Revolutionise the World.

Nigeria: Eight Issues That Buhari's Economic Summit Must Address

DAILY TRUST

Economists, private sector players, labour leaders, policy analysts and all Nigerians who are concerned about the parlous state of the Nigerian economy are eagerly awaiting federal government's announcement of dates and modalities for a summit on the economy, which the President Muhammadu Buhari administration has agreed to convene.

Nobel laureate Professor Wole Soyinka had mid last month, while paying a courtesy call on the Minister of Information and Culture, Alhaji Lai Mohammed in Abuja, urged President Buhari to convene an emergency economic conference to enable experts brainstorm on how to turn the economy around.

A week later, the media widely reported a top government official saying the president had approved the convening of an economic summit for this week Thursday March 10 and Friday March 11.

Uncertainty, however, surrounded the summit holding on the given dates as the Presidency was, by yesterday, yet to issue modalities for the talkshop. The dates have not been confirmed, nor were names of participants announced.

This has, however, not dampened the enthusiasm that the summit possibility has set, as some economic experts and leading players in the private sector have been speaking with the Daily Trust on Sunday on the vital areas that should engage the concentration of participants at the summit.

The Daily Trust on Sunday aggregates the analyses of these experts to set an agenda for the proposed summit.

Diversifying the economy:

The consensus is that the summit should discuss extensively feasible ways of diversifying the country's economic base away from its monocultural crude source with a view to enabling effective budget implementation, now and in the future.

The president of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, told our correspondent that this will not only help in transforming the economy into a robust one, it will go a long way in addressing the economic challenges facing Nigeria.

To Professor Muhammad Munzali Jibril, a fellow of the Nigerian Institute of Management and former Executive Secretary of the National Universities Commission, the major issue should be how to diversify the economy. "It is gladdening that the government knows it is too risky to continue to rely on oil. We have to diversify into sectors such as solid minerals," Prof Jibril said.

Reforming the oil sector:

Oil business has been the mainstay of Nigeria's economy for decades, but it has actually been oily business, with reports of large scale corruption and crippling inefficiencies hampering results that should have strengthened the economy and produce visible development.

The Buhari administration says it has been reforming the sector, with one report last week that the behemoth Nigerian National Petroleum Corporation (NNPC) will be unbundled into 30 companies to enhance better results and good governance.

Experts said participants need to examine government's ongoing reform of the oil sector so the federal government can benefit from informed independent suggestions and advice to accelerate results.

Boosting power supply:

The huge shortfall in electricity supply has been a major contribution to the deplorable situation in Nigeria's real sector, in both manufacturing and agriculture, and consequently, in economic growth.

The issue of power supply ranks high for discussion at the conference. Participants will brainstorm on how Nigeria can boost its power generation within the short-to-medium term and on how that can be well transmitted and distributed so the result can drive the economy faster.

Reviving manufacturing:

One leg of the real sector that drives the economy of any nation, the country's manufacturing sector has been limping for decades. With the industrial/manufacturing base seriously weak, virtually producing nothing for local consumption, and for export to boost dollar earnings, the run on the foreign currencies that the only major export, oil, generates can't but be high, with its debilitating multiplier effects. Then, there is the high unemployment rate the sorry situation wreaks.

So much mouth service has been paid to boosting manufacturing, especially in providing the enabling environment and funds that are vital to make easy manufacturing possible. The summit will have to critically discuss why previous policies could not produce the desired results, and proffer feasible solutions that will be useful for the Buhari administration in solving the manufacturing riddle.

Doing value-added agriculture:

The other leg of the real sector that has also suffered from mere mouth service from previous administrations. Experts advised that participants must, however, not stop at formulating suggestions on how to achieve successful farming, they must link their effort to industrialization to make farming have any meaning in economic development.

An economist, who spoke with our correspondent in Abuja but wouldn't give his name, explained, "When you talk of diversification into agriculture, it is not for production per se but for the agricultural chain value, which is processing."

The economist mentioned Ghana as an example that is into agriculture and mining, being producers of cocoa and gold, but have not really benefited from revenues because it lacks the more rewarding value-added processing end.

"Hence, no nation should depend on production alone; by-passing manufacturing which involves adding value to raw materials is dangerous," he stressed.

Exploiting and processing solid minerals

The Buhari administration has been reiterating its commitment to exploring non-oil sectors to generate revenue as oil cash dwindles.

The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yussuf, considered the summit as an opportunity to deliberate on the solid minerals sector in the effort to diversify the economy.

But as the economist who spoke with our correspondents pointed out, exploiting Nigeria's vast solid minerals for production without beginning to put in place the processing mechanism towards industrialization, revenue generation and employment opportunities will be fruitless. So participants at the summit will need to brainstorm on both production and processing.

The Naira - Devalue or not?

Financial analysts are not agreed on the best way to handle the naira as its value plunges in the parallel market due to scarcity of the dollar to prop it up. President Buhari has repeated at many fora he is averse to devaluing the currency officially.

The summit will have an interesting session deliberating on the Naira value, with the participants disagreeing and agreeing. Positions that will help in determining how to handle the naira are expected at the end of the day.

"Participants will have to take a hard look at the value of the currency," Dr. Abdul-Alimi Bello, President of the Kaduna Chamber of Commerce, Industry, Mines and Agriculture (KADCCIMA) posited.

Boosting IGR - Taxes, etc

Participants have been advised to spend time on areas that will help President Buhari in generating revenue to implement the 2016 budget, as well as build infrastructure, especially in power, roads and rail beyond 2016.

The president has been particularly advised to include experts from the private sector on taxes. Some who spoke with the Daily Trust on Sunday argued that the president needs private sector contributions on how he can widen the tax net so much so it can provide funds to entirely implement the budget - and more - every year.

Victoria Onehi, Simon Echewofun Sunday, Francis Arinze Iloani, Kayode Ogunwale and Mohammed Shosanya

America’s most successful cities, states and firms are leaving the rest behind

THE ECONOMIST

Inequality between states has risen for most of the past 15 years

IN THE Nuvotronics factory in Durham, North Carolina, small is beautiful. The firm, founded in 2008, uses a process resembling 3D printing to make miniaturised radio chips for jets and satellites. Typically, such chips are the size of a chocolate bar; Nuvotronics’s widgets are smaller than a breathmint. Such innovation is lucrative; every kilogram saved makes a satellite $15,000 cheaper to launch. Nuvotronics is part of a cluster of high-tech firms that has increased Durham’s GDP per-person by 28% since 2001. By the same measure, North Carolina as a whole grew by just 3% over the same period. Durham’s success reflects an emerging trend: high-flying cities, and the successful firms they contain, are detaching from the rest of the economy.
Cities have long been the most productive places to do business, because they bring firms, customers and workers closer together. A banker in New York is only a taxi ride away from her clients; a new restaurant there immediately has 8.4m potential customers on its doorstep. Where clever people congregate, innovation results.
For the most successful cities, these advantages seem to be getting bigger. In 2001 the richest 50 cities and their surroundings (dubbed “metropolitan areas” by statisticians) produced 27% more per head than America as a whole. Today’s richest cities make 34% more. Measured by total GDP, the decoupling is greater still, because prosperous cities are sucking in disproportionate numbers of urbanising Americans. Between 2010 and 2014 America’s population grew by 3.1%; its cities, by 3.7%. But the 50 richest cities swelled by fully 9.2%.
Durham, whose population grew by about 7% in that period, provides some hints as to what makes a place flourish. The city thrives on its proximity to three top universities—Duke, North Carolina State and the University of North Carolina. Far-sighted planning in 1959 led Durham and its close neighbours, Raleigh and Chapel Hill, to establish a research park between the three cities. The idea was to coax the universities’ boffins into business ventures. It worked; today 50,000 people work at site. Graduates flock there, often starting firms themselves.
Unlike much of America, the area has not shied away from infrastructure investment. The gleaming Raleigh-Durham airport was renovated over the last two decades, with a helping hand from local businesses. The roads are well-maintained, if a little crowded. Bill Bell, the city’s mayor, hopes to develop a light-rail system for the city; in 2011 voters approved a sales-tax increase to help pay for it.
Investment has also revitalised a deprived downtown area. For most of its history Durham made tobacco and textiles. When those industries went into decline in the latter half of the twentieth century, they left a vacuum in the city. But over the past decade the gap has been plugged. The tower of the old American Tobacco factory, emblazoned with the “Lucky Strike” logo, still stands—but the factory is now a “campus” featuring bars, restaurants, and the kind of tech firms where staff ride around on scooters. The city’s performing arts centre, located across the road, is one of the four best-attended theatres in the country. Mr Bell says public-private partnerships are to thank for much of the investment.

Durham is unusual for its failure to drag up North Carolina’s per-person growth. The state’s tanking labour force participation rate, which at 61% is grim even by American standards. Elsewhere, the presence—or absence—of rich cities determines states’ economic fortunes. States containing one of today’s richest 50 cities grew 13% in per-person terms since 2001. The eighteen (mostly southern and south-western) states without one managed growth of just 7%. As a result, inequality between states has risen for most of the past decade-and-a-half (see chart).
Rich cities typically attract successful, growing firms. Nuvotronics is young, employing fewer than 100 staff, and only moved to Durham in 2013. But the city also hosts well-established firms like Cree, which makes LED lighting, and giants like Quintiles, a consultancy which works on pharmaceutical trials.

Attracting the right companies matters because America’s firms, too, are diverging. In the past two decades returns to investment at the most profitable 10% of firms have more than doubled by one measure, defying low interest rates in the economy as a whole. But returns for middling performers have increased only a little (see chart). A recent paper by Jason Furman, a White House economist, and Peter Orszag of Citi, a bank, says this could be because the best firms are gaining market power (think of Apple’s dominance of the smartphone market). A report by the McKinsey Global Institute attributes the divergence to the varying pace of digitisation across industries. Highly digitised industries such as technology, media and professional services—the type of work found in successful cities—have benefited from the juiciest increases in margins. Digital laggards, such as the health care and retail industries, are doing less well.
This bears directly on the inequality which matter most: wage inequality. Two recent studies suggest that the most of the increase in wage inequality over the last four decades is explained by wage gaps between firms rather than within them. A secretary will probably earn more working for Goldman Sachs than working for the local plumber; it is more lucrative to be a programmer at Facebook than in a corporate back-office. That means that bringing high-skilled workers to an area is not enough to guarantee high wages; the right firms must come to town too. Mr Bell says Durham is becoming more discerning about which firms it tries to lure.
The end of mediocrity
In 2013 Tyler Cowen, an economist at George Mason University, predicted in his book “Average is Over” that the fortunes of both people and places would become more polarised. Ambitious and talented workers, he argued, would want to work in a relatively small number of cities and regions. These vibrant clusters would then benefit from increasing returns to scale, cementing their advantages. Mr Cowen’s predictions are already coming true. While successful cities grow, almost 60% of rural counties are shrinking in population. With America’s shale and manufacturing industries suffering the pull of successful cities is getting greater still. And for cities, bigger probably does mean better. 

Economic woes basically our fault - PRESIDENT MUHAMMADU BUHARI

Nigeria only has itself to blame for its current economic troubles, President Muhammadu Buhari said in an interview broadcast on Saturday, criticising previous governments for an over-reliance on crude revenues.
Africa’s biggest oil producer and leading economy has been struggling with the slump in global crude prices for nearly two years, which has slashed the majority of government revenues.
The country’s junior oil minister last Thursday said some oil-producing countries, including Russia, would meet in Moscow on March 20 to discuss a way out of the slump.
Asked if the world’s biggest supplier Saudi Arabia and policies of the Organization of the Petroleum Exporting Countries had hit smaller producers, Buhari told Al-Jazeera English OPEC had to “act together to save the situation”.

Countries, including Nigeria, “have to live by” market forces, he said, ruling out a Nigerian withdrawal from the body.

But he added: “OPEC as an organisation has to be mindful of economic conditions in each member country because that will influence that country’s ability to go along with OPEC decisions.
“Nigeria, we were unable to diversify our economy, hence we are much more disadvantaged by the lower oil prices and OPEC may try to help us out but really, it’s basically our own fault.”
Buhari, who took office in May last year, has made reducing Nigeria’s reliance on crude revenues a key plank of his economic policy alongside ending decades of corruption and impunity.
But those efforts have been hamstrung as cash-flow problems caused by the global oil shock as well as previous administrations’ failure to save crude revenue when prices were high.
Buhari again said he would not devalue the naira currency or lift strict foreign exchange controls that critics say have strangled investment and growth in the import-dependent country.
“Nigeria can only afford to live within its means.”

FALL IN THE VALUE OF NAIRA: LOOKING INWARD IS THE ONLY SOLUTION - Experts

Some experts have advised Nigerians to look inwards and develop areas of the country’s comparative advantage to reduce demand for foreign exchange.
They made the suggestion in separate interviews in a nationwide survey.
They offered the suggestions against the backdrop of sliding exchange rate of the naira in the parallel market.
While the naira exchange rate has remained stable against the dollar at the official market at N197.50 to the dollar, it has been depreciating significantly at the parallel market.
The naira exchange rate depreciated to as low at N390 to the dollars at the peak of the foreign exchange crisis about two weeks ago at the black market.
It is currently being traded at between N310 to N320 to the dollar at the black market.
Mr Aliyu Rinji, a lecturer at the Department of Banking and Finance, Kaduna Polytechnic, advised the Federal Government to embark on massive enlightenment campaigns on the importance of patronising made-in- Nigeria goods.
He said there was urgent need for the Federal Government to encourage Nigerians to partronise locally produced goods to reduce the demand for dollars and other foreign currencies.
The lecturer said that the measure was also necessary to encourage manufacturing companies to produce more goods for local consumption and export.
“If we stop patronising foreign goods, the demand for dollars will reduce, thereby giving our manufacturing companies the opportunity to provide jobs to the teeming numbers of unemployed persons in the country.
“But as long as we continue to depend on foreign goods, we will continue to demand for dollars to import foreign goods.
He also stressed the need for government officials to support the campaign for patronage of made-in-Nigerian goods in an effort to encourage our local industries to remain afloat.
“The campaign against the use of foreign goods such as shoes, textile materials, furniture and other goods should be supported by all government officials.
Mr Abiola Alli, a financial expert in Ibadan, also said that Nigerians should patronise made-in- Nigeria goods, while the government should ensure the economy was genuinely diversified.
Alli, a former Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Oyo State Chapter, said that 70 per cent of foreign exchange earnings were from oil and whatever affected oil would affect foreign exchange earnings.
He said that high percentage of goods used by Nigerians was imported from other countries, including raw materials used by local industries.

Alli said that local manufacturers and businesses bought foreign currencies to transact business and this invariably determined price of goods and services.

The financial expert said that current depreciation of the naira against international currencies had made Nigerians poorer.
He called on government to diversify the productive base of the economy to encourage other sectors to produce more for local consumption and export.
Alli advised the Central Bank of Nigeria (CBN) to forestall any policy summersault that would increase the sufferings of Nigerians.
He also called on the state governments not to rely on the monthly federal allocations, but to look inwards and make genuine efforts at generating revenue.
“They should turn around our tourism sites and boost their activities to increase revenue.
“It is high time foreigners came here to watch, we have always gone to their land to watch with money too,” he said.
Mr Ajomiwe Ezuma, a Port Harcourt- based financial analyst, said government should intervene by implementing aggressive economic policies to shore up the value of the naira.
“I think that diversification of our economy, using agriculture as the mainstay, will also assist to shore up the value of the naira.
“Nigeria has the potential to feed West Africa with rice, yam, cassava and cocoa yam. We need to aggressively grow these crops, feed the nation and then export.
“Government can also increase cocoa production and it will also serve as foreign exchange earner for the economy,” he said.
Ezuma said these were achievable objectives because the country was blessed with good weather and soil to turn the country back to full scale agriculture as the main stay of the economy.
He said that he believed that Nigeria could learn from the experience of Israel, South Africa, Brazil and China which used agriculture to boost their economies.
Mrs mary Musa, an economist in Kaduna, said that Nigeria should look inwards and focus on areas where the country had comparative advantage over others
“Since oil price fall is the major cause of the naira fall, I suggest we should embark on agriculture where Nigeria is endowed with so many cash crops like ground nut, soya beans, palm oil and rice, among others,’’ she said.
Mr Sunny Nwosu, a financial expert in Lagos, advised government to be more serious on the issue of economic diversification, stressing that the nation’s agriculture potential needed to be harnessed to boost revenue generation.
According to him, government should come up with good policies on agriculture and support farmers with loans at low interest rates to develop the sector.

Dangote Cement production to hit 80mmt

Dangote Cement production in Africa is expected to hit 80million metric tons in 2017.

Speaking at the 38th Pre-Convocation Lecture of the Ahmadu Bello University Zaria on Friday, President of the Group Alhaji Aliko Dangote said the Dangote Cement has production operations in eight African countries including Nigeria, with investments at various stages in another ten countries.

“In Nigeria we have three cement plants with a combined installed capacity of 29.25 million MT per annum. The Obajana Cement Plant in Kogi state is the largest cement plant in the world with a current capacity of 13.25 million MT.

“The Ibese cement plant in Ogun State has combined installed capacity of 12 million MT while the Gboko plant has installed capacity of 4 million MT,” he said.

The theme of his speech was: The role of entrepreneurship in national development: The story of the Dangote Group.

He said: “In 2015, six new plants commenced full operations (Tanzania, Cameroon, Ethiopia, Senegal, South Africa and Zambia) while 12 MOUs for a total contract sum of over $4 Billion were signed.”

Mr. Dangote said: “We are currently building a new 6 million MT plant in Itori, Ogun State among several other new projects, and by the time we complete all our existing Africa projects in 2017 we will have a total installed capacity of 80 million MT.”

He said he was honoured to have been chosen to deliver the 38th Pre-Convocation Lecture of this great citadel of academic excellence, Ahmadu Bello University (ABU), Zaria, named after one of Nigeria’s revered patriots, the Sardauna of Sokoto and former Premier of the defunct Northern Region, Alhaji Sir Ahmadu Bello.

He said entrepreneurship is the leading vehicle of job creation and economic growth all over the world. As such, countries pay special attention to the needs of entrepreneurs by creating strong infrastructural frameworks, conducive policy and regulatory environments, and strong legal protections.

According to him, some of the identified major causes of unemployment in Nigeria include inadequate infrastructure (particularly epileptic power supply), lack of access to finance, shortage of technical skills and difficult regulatory environment.

He said the Group was currently working on other huge investments that include rice and sugar production, as well as a petroleum refinery projects, and electricity power plant.

He therefore called on institutions like ABU to move out of their comfort of their traditional environment and work more actively with institutions, groups and individuals.

80% of Nigeria’s revenue goes into debt servicing – IDB

The Resident Representatives of IDB in Nigeria, Abdallah Mohammed Kiliaki, who made this known during courtesy visit to the Chairman of the Senate Committee on Local and Foreign Debts, Senator Shehu sani, lamented that the amount is very high when compared to other countries.

Kiliaki explained that ‎Nigeria’s Debts GDP ratio is low at 17 per cent, but resources being used to pay the debts are enormous going by percentages taken on yearly basis.

He said: “‎My visit is very crucial because we need to look at the debt profile of a country before we give new a contractual sort of financing.

“We also work closely with the International Monetary Fund and the World Bank to ensure that our financing has the required threshold of grant financing, which is normally 35 per cent, but at the same time there were financing that is not a burden to a country to the extent that the debt may not be sustainable.

“When talking about unsustainable debt, it means that a country or a borrower is unable to pay.

“So we take very serious note of that.

“When you look at the debt GDP ratio of Nigeria, it is very low.

“It is very low.

“It is 17 per cent compared to Italy and other countries, which is about 150 per cent, while that of the United States is about 100 per cent.

“But there is a caveat: it is true that debt to GDP ratio is low but when you look at the amount, the revenue to debt servicing ratio, the amount of money that the government is collecting, the revenue of the government vis-a-vis the ratio to the total debt, I think Nigeria pays about 75 to 80 per cent of its revenue to service debt.

“So, this is very, very high compared to other countries where they use just 10 per cent.

“Debt to GDP ratio is low.

“Meaning that that there is capacity to borrow.

“At the same time, the domestic resources to service those debts, the ratio is quite high.

“What that means is that one, the government of Nigeria needs to expand or mobilise additional resources through taxation by broadening the tax base but at the same time we as lenders, financiers, we need to reconsider our conditions of financing.

“Meaning that we should try as much as we can to extend to Nigeria financing that will not make it difficult for the country to pay its debt.

“There is a role that the government can play and there is a role that we as financier can play.”

In his remarks, Senator Sani declared that Nigeria’s total debts presently stand at $60 billion.

He implored bank and other multilateral financial institutions to stop propping the country into taking more loans on account of its low ratio of debts servicing to GDP.

He said that what is 17 per cent today may, if needed control measures are not applied, go up to 77 per cent and invariably returning the country back to where it was before 2006 when the London and Paris Clubs wrote off a substantial part of her foreign debts then.