n the Nigeria land of plenty; the biggest airline, Arik Air, with domestic and international routes monopoly among Nigerian own airlines, has been 'nationalised' by the Federal Government. With sincerity, the swift acquisition was what was expected from a quintessential progressive Federal Government. There may be more to the sudden takeover.
The reasons for the alleged failure of Arik Air epitomise the entrepreneurial immaturity of many Nigerian private sector operators to establish and manage specialised, big companies and heavy industries efficiently. A good number of those parading as billionaires in the country with earnings from purportedly trading business only in disguise of tax and duty waiver, embezzled and laundered public funds are not equivalent to private entrepreneurial success. The acid test is in owning and managing efficiently specialised, big companies and heavy industries devoid of embezzled and laundered public fund.
Today, the only success story in Nigeria economy is from the banking industry. This is largely due to the right strategy adopted by Charles Soludo, the Governor of Central Bank of Nigeria (CBN) in 2004 - 2009, to put the banking industry on strong foundation. His efforts were reinforced by enabling laws, adequate systems of control and appointments of the right people to manage the banks. The real sector of the economy; which is suffocated more by corruption, inordinate monetary policies of the CBN, weak fiscal measures and financial management of the Federal Governments; is not able to follow the success from the banking industry.
The Government may have moved in to acquire Arik Air for its own reasons. Some of these as stated by Assets Management Corporation of Nigeria (AMCON) was to prevent the airline from collapse; to keep the entity a going concern; to protect its creditors and to save jobs. In effect, was Arik Air repossessed by the Federal Government through AMCON because of actual heavy debt burden or it was for some reason more than those stated? Many other businesses were like this taken over by the Federal Government through AMCON. Aero Contractors which is among these, five years on, is still in the hand of AMCON. The commercial banks that were largely owned by southerners were similarly seized by Sanusi, the then CBN Governor in 2009 - 2014. The banks were never given back to the original owners despite their readiness to recapitalise the banks.
On conspiracy theory and from precedents, the northern led Federal Government may have rushed in to takeover Arik Air, using the above incognita excuses, because the major owner is from the South of the Country. Arik Air might have been taken over to merge it with Aero Contractors, which is already seized, to become the proposed new National Airline. Northerners are not much prominent in entrepreneurship but depend largely on public appointments where they make easy money. The more available public ownerships the more appointments for them. In as much as some public ownerships are desirable in the country, airline business should not be among them. In charge of the Federal Government, northerners always want to lay their eggs on southerners' nest and with the tendency to sabotaging their efforts.
Looking at what happened in the banking industry during the Yar'Adua Government and Sanusi as the Governor of the CBN and now the appointment to the key and strategic Federal positions in the current Buhari Government, which are loaded in favour of the North in contravention of Federal Character principles, Arik Air may have been politically hastily 'nationalised'. Not sooner the takeover of Arik Air, a northerner who was a Deputy Managing Director at Arik Air has been appointed by AMCON to be the Chief Executive Officer of Aero Contractors. Was he not part of the purportedly failed management at Arik Air? Such failure can be ignored or rewarded as long as the person is from the North. Today, why are there so much discontents in the rest part of the country?
All the public corporations and other Government establishments that were privatised by the Peoples Democratic Party (PDP) Governments over their sixteen years in power have failed to get off the ground. If the Federal Government is genuinely apprehensive about failed or struggling big and strategic entities in the country, it should revisit all the privatisations carried out by the PDP Governments. The new owners of the privatised establishments are not able to manage them. Many of them have stripped the establishments of their assets and vanished with the billions of Naira.
Before privatisation of the Electricity Corporation, the country has at least had electricity to maintain at least half operating capacity but only to augment with generators for the other half. Today, with full privatisation of the Electricity Corporation, for many days or even weeks, the country often has zero electricity but only to rely on generators for 100% electricity. This is as a result of unnecessary privatisations in the county; privatisations that were put in the hands of infantile ownerships that are not financially and managerially capable of operating specialised, big companies and heavy industries.
As many Nigerian entrepreneurs are not yet ready to handle significant privatisation of specialised, heavy companies and industries, some of the PDP Government privatisations desire to be taken back into public ownership fully or partially. As I have said many times, The Generation and Transmission aspects of our Electricity Corporation should be taken back into public ownership. It is only the Distribution aspect that should be fully privatised. Also, the Cable aspect of our landline telephone, NITEL, should be fully in public ownership. Also, it is only the Distribution aspect of it that should be fully in private ownership. We do not need to be told that without adequate electricity and landline telephone, which new technology, high and cost effective productivity depend, we are not going anywhere economically.
Some would argue that it was the failure of the public sector to manage efficiently and successfully that led to the premature privatisations that were carried out in the first place. Efficient management is not the monopoly of the private sector but the choice of the right people to manage and establishment of adequate systems of control; whether in the public or private sector. An example is France. Today much of the specialised, big companies and heavy industries in France are public owned. The French public establishments are well managed, efficient and successful. Today, the public establishments snatch up privatised major companies in other countries, such as those in the United Kingdom.
Within the huge unrealised economic potential of Nigeria, which is about 80%, there is ample business opportunity and enough business in the country for the Nigerian entrepreneurs. The problems of our economy and country are not inadequate or shortage of fund but the misuse and mismanagement of the available fund. Some of the problems of the Nigerian entrepreneurs are self-inflicted while others are as a result of weak management. Adequate cashflow is the life blood of a business. The going concern of a business is not actually in its profitability, especially if the profit is not represented by available cash. The sooner the Nigerian entrepreneurs realise this the longer they shall remain in business.
The frequent and unnecessary cash withdrawal from the businesses for personal uses by the Nigerian entrepreneurs or major owners do not allow their businesses to maintain adequate cashflow and have sufficient fund to meeting their debts obligation. For this, their businesses always short of cash. As a result, they always fail to pay their bank loans, trade creditors, small scale contractors and staff salaries on time or do not even pay at all.
The stagnant and unaccountable informal sector that form about 40% of Nigeria economy has not been able to graduate to the formal sector of the economy largely because of the similar ways the traders use their cash and leaving not enough to replenish stocks. Most of the times they are not able to continue the same level of trade or even go out of business altogether. If you spend your money unnecessarily without making provision for you to continue your trade; do you expect to eat your cake and have it? All the above are also the practice of many State Governors in the country, who appropriate the fund of their States to themselves, and why they always owe many months if not years of salaries and accumulate huge debts' arrears.
The bulk of air travel ticket sales are always in cash. Arik Air could not have been unnecessarily short of fund let alone has shortage of cash to honour its debts obligation. From the reasons given so far for the Federal Government acquisition of the airline, it is obvious they are self-made business tragedy. They emanated generally from weak and wrong cashflow management. Taken Arik Air's one hundred per cent safety record into consideration, which gives Nigeria aviation international credit and respect; the Federal Government ought to have injected some bailout fund into the airline, order an improve management and adequate systems of control and allow the company to continue as a private concern.
However, the Federal Government should put in place some economic monetary policies and fiscal measures to helping the Nigerian entrepreneurs to ameliorate their generally self-made management problems and to run their businesses efficiently. The Federal Government should always monitor the Nigerian entrepreneurs for their life style, any unnecessary, unusual and frequent cash withdrawal from their businesses. Professional bodies should be dispatched to so advise the States, Local Governments and the traders at the informal sector of the economy about prudent cashflow management.
The Naira should be restored as a convertible currency at the foreign exchanges. Its auction should stop. The Government is here free to set the economic and realistic foreign exchange rate of the currency. The system should be a manage float with parameters within which the currency can freely float, plus and minus. The Government should abolish the domiciliary bank accounts system in the country. In as much as the commercial banks can hold some of their funds in foreign currencies for some cash transaction, individuals and non-banking companies have not the actual need to holding bank accounts in foreign currencies nor conduct domestic transactions in foreign currencies.
Measures should be in place to reduce minimum lending interest rate from the current 14% to below 5%. The CBN does not need high minimum lending interest rate to curtail bank lending and maintain low inflation. The commercial banks do not need high minimum lending interest rate to making huge profit. Today, in many advanced countries of the world minimum lending interest rates as set by their central banks are between o% and 1%. Their inflation rates are generally under 2%. Yet they have strong economies and their banks make huge profit every trading period. In Nigeria, inflation rate is currently 18%. We have a weak economy.
Normally, the commercial banks and loan companies do not and are not expected to set their actual lending interest rates uncontrolled and above the higher of fixed 5% rate or 25% of central bank minimum lending interest rate. For this, in the advanced countries with between 0% and 1% minimum lending interest rates; their commercial banks' lending interest rates are always under 5%. In our country, Nigeria, with a minimum lending interest rate of 14%, the commercial bank lending interest rates should not be more than 17.5%. Their interest rates are currently between 25% - 35% or higher, depends upon which bank you approach. If we are able to peg the minimum lending interest rate at 5%, the commercial banks should not be allowed to set their lending interest rates above 6.25% (5% +25%). But who controls the commercial banks and loan companies in their exorbitant lending interest rate charges in Nigeria?
The abnormal high minimum lending interest rate of 14% in our country today has nothing to do with the decision to improving our economy. The abnormal interest rate is there to serve some interest groups in the country. There are the Federal Government and banks who trade their funds with each other in the Naira auction market. Many of the key and influential people in the country have huge fund of which much is in deposit bank accounts. These people do not want to invest in businesses nor engage in any businesses. The only way for their money to be yielding sustainable returns for them is through high interest rate. They are always able to dictate to those in power and in positions of authority to do their bid to serve their interests. There is not always consideration for the economy of the country in the decision.
Another aspect of the endeavour for our entrepreneurs to sustain their businesses and maintain sustainable economy for the country is through good cash management. This starts from cashflow budget, which they must not only prepare but must be followed. Cashflow budget would enable them to know their cash requirement at each point in time They should always arrange loans or bank overdrafts to meet their cash requirement at the time of cash shortfall. Entrepreneurs and their businesses should be able to pay their creditors when the debts are due. They must pay their staff salaries and small scale contractors each month without any arrears. When they do not have the ready cash to meet their obligations, they should be able to pay at least through their arranged bank overdrafts.
As non-payments and weak cash management have serious implication for society and economy of the country; the Federal Government should make it unlawful and a criminal offence for any employer who does not pay small scale contractors and staff salaries monthly. The commercial banks are there and should be there for the businesses. In as much as these are applicable to the private sector, they should also be compulsory for the public sector. There should not be prohibitive minimum lending interest rate in the country. The Nigerian entrepreneurs should be compelled to employ the right people to manage their businesses and always establish adequate systems of control. A business should have maintenance schedule; service, repair or replace equipment, plants and machineries when due and not when it too late or not at all. These are normally embedded in cashflow budget.
To know more about this author; read his forty-page Presidential manifesto for the 2015 general election from his website; apiainternational.co.uk, and his previous articles that were published here on this column. He did not release the manifesto before the general election nor participate in the election for certain reasons.