Nigeria Content Online

Chidinma Okoro has been unemployed since she got laid off in September last year. Her husband’s previously thriving business has struggled for a few years. This made Mrs Okoro’s contribution all the more critical for the family. With school fees due, things had become quite desperate. She then heard about a friend who had sold some of her gold and received a handsome amount for it.

Mrs Okoro gathered three gold chains-one of them broken, two pairs of earrings, and one half of a pair, five gold pendants and some old fashioned pieces that she hardly ever wore. The dealer weighed up her haul and gave Mrs Okoro N360, 000.

She was overjoyed, as they now had enough money to take care of their immediate needs. It is at such economic crossroads that people often sell little used but valuable jewellery to help to settle their bills and debts.

For those who keep gold jewellery, selling it at this time is all the more tempting with adverts all over the Internet and with gold dealers beckoning. The offers are so appealing. Before you decide to go ahead, carefully consider some of these issues.

How much is your jewellery worth?

Unfortunately, many desperate consumers are getting fleeced. Adverts tend to publish phrases like “highest prices guaranteed”, “best prices paid”, “competitive prices” to attract clients; buyers often appear reluctant to reveal what they will pay per ounce or gramme of gold. There is usually a wide variance between a fair price and what the seller actually receives. Indeed, if you take gold jewellery of the same weight and karat to a number of dealers, you will be surprised at the number of different offers.

Have at least a rough idea of what your jewellery is worth before you approach potential buyers. Start by obtaining the current spot price of gold, to at least give you some idea of what to expect, otherwise, you run the risk of accepting a ridiculous offer that doesn’t really reflect the true value of your pieces.

Who will buy your gold?

Trade your gold through reputable and reliable jewellery dealers who have been in the business for some years; they are likely to be more transparent in their dealings as they have a reputation to protect. In the alternative, you can choose dealers with good customer ratings, or who come highly recommended by your usual jeweller or trusted friends.

Protect your gold Secure your expensive gold jewellery in a home safe, bank safe deposit box, or other protected location. It is a good idea to properly insure your jewellery for its full value so you have additional protection against loss from theft or fire. To do this, you will usually be required to purchase additional coverage from your insurance company through an endorsement. In this regard, be sure to keep receipts and any documents or certificates safely, with an additional copy stored on file or in an alternative location as an extra precaution. These will be important should you ever have to make a claim.

Is jewellery a good investment?

In the traditional sense of investing, a good investment is one which appreciates steadily in value over time. Jewellery is a bit like a new car; you tend to lose value the moment you drive it out of the car show room. Second-hand jewellery usually attracts much less than its initial value. The overall value of jewellery must also take into account more subjective elements, such as the design or style, fashion trends and the skill or workmanship involved in crafting the pieces. The mark up on jewellery can be so significant as all these elements are included in its cost. This all makes gold jewellery a very worthwhile gift, but not necessarily an ideal investment. One should thus be cautious when purchasing gold jewellery for investment purposes.

Research has shown that gold does add some stability to a diversified investment portfolio consisting of the traditional asset classes, including cash, bonds, mutual funds and stocks. Some advisors even go as far as recommending that a balanced portfolio should include between 5 and 10 percent allocation to gold. Commodity prices tend to be volatile and gold is no different so it is important to spread your risk.

There are various ways of investing in gold. These include: investing directly through the purchase of certified gold coins or sovereigns, gold bullion or bars, or indirectly through shares in gold mining companies, gold based mutual funds, or Exchange Traded Funds (EFT), which are a most popular vehicle for investing in gold. This provides a convenient way of owning the metal as you don’t keep physical possession of it, and as such do not run the attendant risks. Yet one has the flexibility of being able to sell and readily convert it into cash.

Investing in gold has been a widely accepted financial practice for thousands of years. In recent times, as investors all over the world have seen their asset values plummet, from real estate to stocks, it is no surprise that with gold hitting record levels of over $1,400 per ounce, even the most conservative and traditional investors have begun to look to this metal as a good alternative. Gold jewellery has been a convenient and enjoyable way to preserve wealth and is a means to transfer that wealth through generations in a form that has, not only monetary value, but significant sentimental value as well.

Write to personalfinance@234next.com with your questions and comments. All letters will be considered for publication, and if selected, may be edited.

Nigeria’s expansive budget

We run an economy today that is based on budgeting. But, to a large extent, our culture does not encourage budgeting. In advanced economies that we are copying, if one lives on a monthly salary, it is difficult to expect one to share with members of one’s family, outside those in one’s nuclear family. In some instances, as one’s children attain the age of 18, parents would ask them to move out to get a council flat to live on their own.

There is nothing like: “Sorry, I was passing by and remembered my relation lives here and I said I should stop by to greet him”, and perhaps, expect that in appreciation of the courtesy, one would reach into one’s pockets to accommodate the unexpected visitor. From which budget is that going to come from?

That is why that, even from the federal level, government officials complain about the budget even before they begin to implement it, because what the executive submitted the lawmakers have gone to inject several other things for their selfish interests, thereby making it too expensive for government to manage within the limited resources available.

At individual level, it appears budgets are not meant to be followed. The point is that there are cultural issues that continue to militate against what we want to achieve both as individuals and as a nation.

The good news is that we can tinker with those cultural issues. But, the only way we can do that is to document those issues. Are we documenting the fact that our patronage and rent seeking culture can come between us and the achievement of the objectives of our national budgets?

Or are we aware that our culture is at the roots of the do-or-die politics that is playing out in our polity as a result of the prevalence of a patronage culture, whereby anyone that gets political appointment gets thousands of people hanging on his neck for one support or the other?

Role of corruption

Often we talk about corruption. Nigerians were not born corrupt. If we take the sample of seven year-old Nigerians today and compare with the opinions of their counterparts in Europe on corruption, the truth is that we are most likely going to discover that the latter would be more corrupt than the former.

Children in Europe are more exposed to television and other media, like the Internet, than their counterparts in Nigeria. So, at what point did we lose our innocence to become the most corrupt?

In 1927, Nnamdi Azikiwe went to work in one of the deepest coal mines in West Pennsylvania for six weeks. On coming out to collect his pay, the Janitor handed him only $294.95. He rejected it and threw a challenge at the white guy that he has been short changed. Despite threats to deal with him for his boldness to make such accusation, Zik insisted to have his correct pay. When he was allowed to do the calculation, it was found out that, indeed, about $200 was skimmed off his money.

Today, more than 94 years later, Nigerians, who are the direct descendants of Zik, are first treated in any part of the world as corrupt people, until proven innocent, while the descendants of that white Janitor, who wanted to defraud Zik in 1927, are seen as the epitome of anti-corruption and cleanliness. Yet, Nigerians are not saying anything to ourselves.

Nigerians are not corrupt. Being stupid might be the better word, because we see our leaders steal money from our treasures, monies they, sometimes, don’t need, and go to establish gigantic businesses that help develop other peoples’ economies, leaving the people to die of poverty.

Nigerians need to be more analytical and deeper in our though processes to inspire change.

Getting out of the economic woods

The ideal starting point is for all Nigerians to become less and less selfish and curb our ego. The difference between Nigeria and the advanced countries is the attitude of the citizens. One would not be known for the biggest houses one builds in one’s village when one is gone, but from the value of the sustainable work one did while alive.

We need to undergo a structural mental adjustment as a country to inspire a turnaround in our economy. What Nigeria needs to become a great country is just a few good men, who know what is right, and are ready to lead the change process, as not all Nigerians can change at the same time.

Living in poverty amidst wealth

Nigeria is not that rich, even in natural resources. The wealth of any country is not measured by the number of extractive resources it has, because the future does not belong to these countries that extract and export natural resources, but to those who think and control the wealth of knowledge.

As was documented during the time of the Dutch disease that those countries with natural resources, like crude oil, was likely going to ignore the other potentialities.

Today, as a result of oil, Nigerians have tended to forget the development of the most important resource – the human brain. That is why government continues to focus all its attention to explore, produce and export all the crude oil abroad, and use all the revenues to import refined products for our domestic consumption. What we do is that we import what we have and export what we do not need.

United States produces 8.5million barrels of oil a day, and not one single barrel is sold abroad. They are stored in giant reservoirs for the rainy day. Recall the recent oil spill in the Gulf of Mexico which attracted a lot of global attention by environmentalists. But, what happens in the Niger Delta, as a result of decades of oil exploitation? The western companies have devastated the environment and left the people permanently devalued, just because the technology to explore and produce the crude oil belongs to them.

What if Nigeria did not have oil?

Perhaps, if Nigeria didn’t have oil we would not have governors driving around in official convoys of more than 25 bullet-proof SUVs.

If Nigeria did not have crude oil, probably our expectations would have been managed better. Not only should we manage our expectations from political office holders, who always believe they should be seen as demi-gods, but also the expectations from even the common man in the streets. With that we can focus more on things we can do to make our country a great place, rather than what we can get from our country.

When we look at the way things are going in Nigeria and compare with what is happening in other climes, one is convinced that we are heading for extinction. It is very easy to set us against ourselves.

Nigerians may be laughing over the crisis in Libya and Egypt today. But, if anyone wants to cause a serious upheaval in Nigeria, all that needs to be done is to go to a few markets to amplify a claim of what one religious group has done against another, or one tribal sentiment against another tribe, and the country would collapse on its head in minutes.

When countries want to develop, either to stay at the top or rise, they don’t spare any expense to go at it. No resource is too costly for them to remain at the top.

Sharia banking and the legal question Societies develop on the basis of trust. When trust disappears, fear creeps in and society goes back to that state that Thomas Hobbes describes as ‘short and brutish’.

If there was trust, one would not need to talk about whether Sharia banking is in the constitution or not, because often we tend to be so fixated about constitution.

From the finance perspective, Sharia banking is a product of financial diversification. The Islamic Bank of Britain has branches all over the country and there is no furore about it, as we have in Nigeria. Islamic banking is growing around the world, and Nigeria cannot afford to be left out from the numerous benefits.

We need to have more instruments in the banking industry. If we say we want to become the financial hub of the region or continent, we cannot have the kind of bland banking we have here to get there. We need alternatives for business, beyond collecting deposits and giving loans at huge interest rates.

Nigeria reflects African economy

The sad thing is that a lot of these things about Nigeria also apply to the development in most African countries, especially sub-Saharan Africa. It is not about how others have helped under-develop Africa, but what we have been doing wrong within. The truth is that except we right the wrongs, or the rest of the world correct the wrong they have been doing to Africa, then we cannot make progress.

If we stop being corrupt and undisciplined, and we still live in a global society where the influences of foreign countries can disorganise all our imaginations and calculations, then we won’t get there. If, suddenly, all the foreign countries forget about their personal interests for African countries to make progress, and we don’t change our ways, we wouldn’t also make progress.

We have got to a point where things have become so bad that we must start to solve all the problems at the same time. It is not enough to say, let’s start with fixing energy, because even if there was adequate supply of electricity today and the structures remain unchanged, we probably would not know what to do with it. It is so bad that just fixing that alone would not solve a lot of problems. That is why government has spent about $16billion in that sector since 1999, yet not enough result.

Africa needs to be Crushed

‘Crushed’ is an acronym for the strategies one believes Nigeria, nay Africa, needs to take, if it must get out of the cycle of underdevelopment. It is the title of my latest book: Crushed: Africa’s Tortuous Quest for Development, which has highlighted those fundamentals that are lacking in the continent’s quest for development.

C stands for courage. We need to have the courage to curb corruption.

R stands for being realistic and reasonable in terms of our ambition and the things we can achieve as a nation. It also means that we need to accept responsibility for the things we want to achieve for our lives.

U stands for unity, without which we are finished. This is something we do not have. We can mouth it, but our actions and pronouncements daily shows that we are not ready to be united as a people.

S stands for Strategy. It is not enough to wish or pray we should be great. Yet, it is not enough to merely work for greatness. We should be able to imagine the journey, catalogue the likely obstacles (both internal and external), and plan appropriate responses from day one.

H stands for hard work, history and humility. Development is not a destination but what one works for. Winston Churchill said ‘Any nation that forgets its past is not entitled to a future’. We don’t care about our own history. Schools don’t teach history anymore. Where they do, one only sees colonial history being taught, and nothing about contemporary history. We need to document our history to provide the basis for learning how to build our future.

E is for education. Though Nigeria has education, there is a disconnect between what we have and what we really need.

D stands for democracy. We run by far the most expensive democracy in the world, where lawmakers are earning, indisputably, more than the U.S. president. Our democracy has become a huge drainpipe, more problem than it solves.

The country appears set for another budget showdown as the executive and the legislature resume their long standing disagreement over budget figures. Finance minister, Olusegun Aganga said last week that the 2011 appropriation bill passed by the Senate is not “implementable” due to the alterations carried out by the lawmakers.

The Senate last week passed a budget of N4.972 trillion, N752 billion higher than the initial figure of N4.22 trillion submitted by President Goodluck Jonathan to a joint session of the National Assembly in December. The appropriation passed by the Senate was predicated on a benchmark of $75 per barrel of crude up from the $64.7 projected by the executive and a crude oil production of 2.3 million barrels per day.

The National Assembly jacked up its allocations for capital and recurrent expenditure by 52.2 percent from N111.24 billion to N232.74 billion, while reducing amount earmarked for debt servicing from N542.3 billion to N445.09 billion.

Mr Aganga recently expressed concern over the volume of deficit and the level of borrowing that this would trigger.

“The 2011 budget is supposed to signal the beginning of fiscal consolidation, but we now have another expansionary budget which is unimplementable. If we are to build our economy on a solid foundation and avoid the boom and burst of the past, it is critical that we embrace discipline in the way we manage public finances. We cannot continue like this,” the minister said.

“If you adopt pro-cyclical fiscal policies then you go into boom and burst all the time so you need to have consistent robust fiscal policies that are relevant to your economy. The level of recurrent expenditure is unsustainable. Unless we deal with that we cannot deal with the problem of allocation to capital projects.” He said a huge budget deficit would translate to government resorting to domestic borrowing, a situation which experts say would further crowd out the private sector from the bond market. “It is one of the reasons why we say we have to look at it again. We need to reduce borrowing and we need to improve the quality and efficiency of spending,” he said.

However, while the minister was lamenting the workability of the budget, the National Assembly is insisting that the budget should be implemented the way it has been passed. Chairman, House of Representatives Committee on Finance, John Enoh, was quoted as saying that no budget that was unimplementable provided the government had the political will and its agencies the requisite capacity to implement its provisions.

“If Aganga is talking about the Federal Government implementing the budget 100 percent, then he may have a point. But which of the budgets passed in the last 10 years has been fully implemented by the executive? ,” he was quoted to have said.

Private sector joins the fray

While the battle rages, the organised private sector has taken sides, on the ground that the economy has been at the receiving end of poorly crafted budgets over the years. Frank Nweke, director general of the Nigerian Economic Summit Group said it was no longer acceptable for the national assembly to stifle the other sectors of the economy.

“This is not acceptable. We recognise that the private sector must speak up. If it is necessary to institute legal action to seek interpretation of the constitution of this country as to who has legal powers to appropriate fund and whether the legislature has the power to distort the budget as it does each year, it is something that we are prepared to take up,” he further said.

He is not alone on this as the Institute of Directors (IoD) of Nigeria is also prepared to challenge the issue in the court. Chike Nwanze, president of the Institute said it was time the legislators begin to put the entire country into consideration before tinkering with the budget. “If we have to institute legal action, we are ready to consider that option,” Mr Nwanze said.

Opeyemi Agbaje, lawyer and senior consultant at Resources and Trust Company Limited, a strategy and business advisory firm said it was better for the executive to have this confrontation with the National Assembly once and for all. “Under Obasanjo, this was a recurring problem but in the end Obasanjo chose to implement only those portions of the budget he found acceptable. Yar’adua basically always allowed the NASS to have its way, leading to huge fiscal expansion between 2007 and 2010.” According to him, the constitution allows the previous year’s recurrent budget to operate for six months (till June 2011) so that the operations of government can continue in the event of non-passage of the budget. “It may also be useful if the Supreme Court resolves the legal duties and roles of the executive vis-a-vis the legislature once and for all. Unfortunately the impasse will hold up capital expenditure proposals contained in the budget,” he said.

Constitutional crisis

However, Mr Aganga expressed fear about the ambiguity of certain aspects of the constitution. “We expect to have a dialogue because we all have to work together and usually it is resolved but the constitution in some areas is not clear on the roles and powers of the executive and legislature on this. If the executive decides not to sign the budget, then after 30 days, the legislature can actually hold a resolution and pass it. That is the constitution we have today.” With elections underway, deliberations on the budget may not hold under the current house leadership. A new legislative session may not commence until well after the swearing in on May 29. Under the current scenario, only a political solution may resolve this imminent logjam. What then is the way out?

A few more banks have released their 2010 year end results, some of which have fallen below the expectation of industry watchers. However, the trend that was common among the institutions was the drop in earnings, due largely to the reduction in lending. Through a mixture of cost-cutting strategies and efficiency in deploying assets, most of the firms still posted impressive profits.

Diamond Bank posted a profit-before-tax of N4.227 billion from a loss of N12.4 billion in 2009, while profit after tax rose to N1.33 billion from a loss of N8.17 billion in 2009.

However, gross earnings were down 16 percent to N91 billion for the 12 months period ended 31 December, 2010 (from N108 billion, 12 month period ended 31 December 2009). Net interest income was also down 16 percent to N49.0 billion (from N42.2 billion in 2009).

The bank’s total assets down 9 percent to N594.8billion (from N650.4 billion in 2009), total loans to customers down 5 percent toN312.2 billion (from N329.8 billion in 2009), while customer deposits were down by 15 percent N412.0 billion (from N482.0 billion in 2009).

‘Nightmarish’ performance

Some finance experts have however, expressed disappointment at the bank’s figures, saying it is “much worse than expected.”

“This result pales substantially when stacked against our forecasts. Although gross earnings were 7.7 percent ahead of our forecast of N84.5 billion, both Profit Before Tax (PBT) and Profit After Tax (PAT) overwhelmingly under performed our forecasts of N10.2 billion and N7.1 billion by 53.3 percent and 81.2 percent respectively. We are constrained to call this a really poor bottom line performance. The bank, expectably, did not propose any corporate actions in the wake of what is a nightmarish performance,” Afrinvest, a finance firm, said.

Industry watchers say the bank might have had to take a substantially larger impairment in the form of provision for bad loans, given the really poor margins on display as they do not expect such a ‘massive’ deterioration in operating margins.

The bank’s officials declined to speak on the figures when contacted by our reporter, saying its reaction would be based on a statement it issued on Tuesday.

In the statement, Uzoma Dozie, ED Corporate Banking, Diamond Bank, said: “In compliance with our enhanced risk management policies, the Corporate Banking unit continued to unwind positions carried over from the economic slowdown in 2009. This has enhanced liquidity and reduced NPLs. Provisions are starting to come back to normal levels as the economy returns to its pre-2008 growth path. This bodes well for the unit as we take up new opportunities arising from telecoms and government infrastructure spending in 2011.”

Robust credit growth

In a similar industry move, First City Monument Bank said its pre-tax profit rose to N9.02 billion in 2010 from N856.6 million the previous year, and declared a N0.35 dividend per share while gross earnings rose to N62.67 billion from 35.79 billion naira in 2009, according to a Reuters report.

“In our view, a good set of results from FCMB, with the tax benefit being the single reason for our earnings estimate miss. The 2010 NIM (net interest margin) squeeze (which is the difference between interest income and interest expense as a percentage of assets reflects broader sector trends, while robust credit growth and cost control are encouraging, we think. It is also good to see asset quality stabilising” Renaissance Capital, an investment bank, said.

Ecobank Transnational Inc. (ETI) the parent company of the pan-African banking group also made its report for the year ended 31st December 2010 public last week.

The bank’s report showed a 4.6 percent decline in gross earnings to $1.1bn from the $1.2bn recorded in 2009. Profit before tax (PBT) surged by 67.3 percent to $169.0m from $101.1m, while profit after tax (PAT) more than doubled to $131.8m, 104.1 percent higher than the $64.6m posted in 2009.

“Gross Earnings fell 9.7 percent short of our projected $1.3bn, while both PBT and PAT fell short of our forecasts of $170.6m and $131.9m by 0.9 percent and 0.1 percent respectively. This impressive performance is in line with expectations, as we anticipated a substantial reduction in its cost of risk due to the debt clean-up activities of AMCON on its Nigerian subsidiary that accounted for as much as 70.0 percent ($98.0m) of the 24.0 percent increase to $140.0m in group provisions.” Afrinvest said.

Stanbic IBTC’s gross earnings in its 2010 year end report declined by 5.1 percent (from N59.8 billion to N56.7 billion), while PBT and PAT grew by 30.8 percent (from N10.3 billion to N13.5 billion) and 16.2 percent (from N8.1billion to N9.5 billion) respectively, when measured against the corresponding period in 2009.

On this, Afrinvest stated that the bank’s gross earnings decline could be attributed to its aggressive growth play on the Nigerian market that may have seen it give up some yield on interest bearing assets.