President Jonathan, Private Jets & Nigerian Economy (1)
By Magnus OnyeibePresident Goodluck Jonathan’s reference to the increasing number of private jets (PJs) in Nigeria (150) as a symbol of a growing economy during his campaign stomp was pooh poohed by his political opponents who see PJs as evidence of corruption by oil subsidy barons. Although, there is strong merit in Mr president’s postulation about PJs being positive reflection of a dynamic economy under his watch.Unfortunately, he has not properly contextualized it hence APC’s position that PJs are the symbol of alleged Jonathan’s mal administration seem to have gained traction in the public sphere.
According to Howard Schultz, the CEO of Starbucks Coffee chain, USA ‘when there is a disconnect in authenticity, people feel cheated’. Unless most Nigerians are able to link the wealth that warrants ownership of PJs to the volume of legitimate business that their owners engage in, they are bound to be skeptical. This perhaps explains why the APC narrative connects with most Nigerians.
But keeping in mind that sometime in 2010, following the demise offormer president Umaru Yar’Adua, the then, Vice President, Goodluck Jonathan was elevated to the position of president after which he signed into law,a local content bill that would enable Nigerians retain at least 30% in oil/gas industry activities,then you can understand why our president proudly references ownership of PJs as a key economic growth indicator of his administration.
His enthusiasm is derived from the fact that his unprecedented policy decision in the oil/gas sector either accelerated or facilitated the emergence of young Nigerian oil/gas turks like those who now run OANDO, Seplat, NESTOIL,Televeras, Seven Energy, AITEO Midwestern oil/gas etc in the hitherto foreign firms dominated oil industry.
Assuming for the sake of this analysis that the value of Nigerian oil/gas business in a year is twelve (12) trillion naira as estimated by National Bureau of Statistics, (NBS) the local content bill compels the reservation of the business for Nigerians up to a minimum of 30% of 12 trillion which is about 3 trillion naira.
Hitherto, the International Oil Companies, IOCs which have joint venture (JV) agreements with NNPC were farming out oil services to companies such as Saipem, Slumberger, Halliburton Vitol,Glencore, Trafigura and a host of others from their home countries to carry out the bulk of the functions which Nigerian indigenous companies courtesy of the law, are now executing in partnership or alone.
With a whopping sum of N3 trillion being retained in Nigerian economy as a direct manifestation of President Jonathan’s local content bill, it beats the imagination that people like Chukwuma Soludo , ex CBN gov would dismiss with a wave of the hand, the benefits of the recent re-basement of Nigerian economy, which has catapulted our GDP value to $510b and therefore the largest in Africa.
Given the scenario above, it is not unexpected that our young men and women who suddenly came into such stupendous wealth would want to show off their new found wealth by exhibiting it in the most dramatic fashion that tickles their fancy.
After all,it is the penchant for primitive acquisition by those who suddenly come into wealth that the term ‘nouveau rich’ was coined by the French.
However,I’m disappointed that in anticipation of such a major paradigm shift in the oil/gas sector that would result in the creation of such huge pool of the so called ‘nouveau rich’ in Nigeria ,authorities did not deem it fit to plan against the negative side effect by introducing mitigating or remedial policies such as the luxury tax that the coordinating minister of the economy and minister of finance,Ngozi Okonjo-lweala recently muted. Maybe we should take solace in the wise crack ‘it’s better late than never’ While articulating her plans on the measures that would boost Nigeria’s revenue to cushion the effect of the current slump in global crude oil/ gas price, the coordinating minister of the economy had told legislators that luxury tax is in the pipeline.
Ideally, introducing luxury tax policy at the same time that the Local Content bill was passed into law about five (5)years ago, would have saved president Jonathan all the current hues and cries about the ‘invasion’ of PJs under his watch in Nigeria. This assertion is derived from the belief that the fear of luxury tax law would have curbed the ‘nouveau rich’ appetite for luxury toys.
To further drive my point home,l would like to crave your indulgence to deviate a bit and use my personal experience to illustrate how luxury tax curbs unbridled expense in luxury.
In a the bid to expand our waste disposal business in Nigeria,my partners in Germany ,Schulz khomunal and l after a waste management seminar we organized in Abuja,scheduled some visits to some identified potential clients. Amongst them were Plateau, Edo and Delta states ministry of environment and waste management boards .Upon the arrival of my guests in Abuja we had to drive in a luxury jeep to Jos, plateau state to see the authorities.When we concluded our visit to Jos, we flew into Benin airport ,transacted our business and then drove down to Asaba in another luxury jeep.Finally, when we were done there in Delta state, we flew back to lagos where we were picked up in another luxury jeep. At a send off dinner for my guests in my residence in lagos , mr Krumnikle, the owner of the German company asked me a curious question: how many jeeps do you have, magnus?
I said to him , why do you ask? He then proceeded to remind me of how we were conveyed in different luxury jeeps around the different locations that we have been in his four days visit to Nigeria. Unbeknown to me, my guest was secretly asking the drivers who conveyed us if the luxury cars belonged to me.
Initially,l felt surprised and irritated that our German partners were surreptitiously carrying out due diligence on us even after the partnership had been consummated.Then mr Krumnikle popped the next question: magnus, you know l’m a billionaire, right? After l affirmed his status as a billionaire in German, he then proceeded to give me a treatise on how he owns only two cars- a Porsche and an Audi Q7.
Although he could afford more,it did not make economic sense to pay the prohibitive luxury tax which further acquisition or investment in luxury would attract.Instead, he is encouraged to plough back the money into his business and get tax rebates and at the same time he is discouraged from buying more luxury items due to higher tax.
The lesson inherent in my experience with my German partner as enunciated above is that luxury tax administration prevents rich people in German from unbridled or primitive acquisition of luxury goods which appears to be penchant by Nigeria’s newly ‘minted’ oil rich billionaires who are currently embarking on compulsive purchase of Bugatti’, Ferraris , Rolls Royces cars and ocean going yachts as well as PJs.
Clearly,luxury tax is an efficacious means of compelling re-investment of proceeds from existing business into new businesses.In the long run, more businesses are established and more jobs created like the case in Germany,leading to a better, happier and more prosperous society. Little wonder German which is the richest economy in Europe,and before Singapore,held the enviable world record of being the country with the largest concentration of millionaires per square meter.
Compare Germany to Nigeria where the so called ‘nouveau rich’ oil/gas billionaires,govt contractors and commission agents are currently trying to surpass each other in the impulsive luxury acquisition.
As exemplified by the German experience , introduction of luxury tax in Nigerian would boost revenue and encourage internal investment of profits by entrepreneurs into more profitable ventures leading to employment creation and prosperity for more Nigerians.Is that not what Nigerians are yearning for?
Obviously,this is a win- win strategy because even if the nouveau rich despite the law still elect to go on a buying binge of luxury items, the tax revenue generated from such purchases would be subsequently invested in social infrastructure in our country to alleviate poverty. A story is told of an Indian telecoms billionaire whose residence in Bombay is a sixteen floors building with the first six (6) floors reserved for parking his personal luxury cars.
Irrespective of tax on luxury , the billionaire took the option to pay the tax than deny himself his epicurean taste.As they say,different strokes for different folks.
In what appears like a complementary role by the aviation ministry, Osita Chidoka, the minister in charge recently announced measures that requires that PJ owners register their airplanes in Nigeria as opposed to the current situation where most of the airplanes have foreign countries registration thereby making Nigeria lose revenue to other climes. Hopefully, the new initiative would enable authorities track and trap revenues accruable.
Let me hasten to point out at this juncture that in an emerging economy such as ours, it is not unusual for a handful of people to enjoy certain privileges that give them undue advantages in certain industries that are just opening up but over time such sectors would be open to others. For instance oil/gas licenses were given to friends of military heads of states without biding
That’s how some of the oil/ gas magnates of today acquired their acreages.
Presently,the situation is different as at least investors bid for the assets even though only those who have access to those in the corridors of power eventually win the bids and for signature bonuses in millions of dollars accruable to govt.Similarly, during military rule, a mobile telephone license, was issued to a single company by a head of state but with the emergence of democracy in 1999,GSM mobile telecoms licenses were auctioned with about one billion dollars realized from three service providers by the federal govt for the benefit of Nigerians.
Again, it is pertinent to explain at this point that a revolutionary policy that would result in massive wealth creation in Nigeria such as the local content bill is not novel in Nigeria.
Recall that under military president Ibrahim Babangida’s regime, the infamous Structural Adjustment Program, SAP foisted on Nigeria by the world bank and International Monetary Fund, IMF was introduced. The positive fall out of that deregulation of Nigerian economy and privatization of some state owned assets at that time resulted in young Nigerian bankers being granted licenses to operate banks and buying over existing ones with govt’s interest.
Thus some Nigerian bankers like Fola Adeola of Gtbank and Jim Ovia of Zenith bank and Tony Elumelu of UBA amongst others transformed from mere bank managers to bank owner/managers.
Before then, most banks in Nigeria ranging from IMB to UBA, Afribank, Societe Generale, Habib bank etc were owned by govt (about 60%) and foreigners(roughly 25%) and the rest were held by Nigerian public via quotation in the stock exchange.Invariably, a significant part of the profits generated by the banks in Nigeria at that time were repatriated back to the foreign countries except about 5% or so going into staff emoluments and operating costs for rents of properties, diesel etc.
With the 100% of profit from the Nigerian owner/manager banks being retained locally ,the lifestyle of the new owner/managers changed to reflect their new wealthier status and there was public resentment towards these bankers just as there is presently opprobrium towards oil/gas barons who own private jets.
In many ways, this is déjàvu for me.
As a banker at that time, l had course to defend bankers in an article entitled ‘In Defense Of Bankers’ published in the Guardian newspaper of May 27, 2002.
Today,out of the estimated 150 PJs in Nigeria,only a handful of bankers own some as a matter of necessity because they are required to supervise their branches and franchises spread nationwide, Africa wide and in some cases world wide as some of our banks have branches in faraway,Quandzou, Dubai , New York and London.
A smattering of oil/gas entrepreneurs also operate PJs for similar reasons while a couple of pastors- A.K.A pastorpreneurs also enjoy the privilege of operating PJs because it’s critical to doing their jobs more effectively rather than for prestige considerations.
With Petroleum Industry Bill, PIB which petroleum Resources minister, Diezani Alison-Madueke has promised would be passed into law by the current National Assembly, Nigeria’s economy should be expected to have a quantum leap that would perhaps raise the GDP to a trillion dollar region when the economy begin to operate on 24/7 basis; recommendations contained in the PIB get faithfully implemented; more Nigerians get involved in the critical aspects of oil/gas business and prosperity percolates down to the masses.
When that happens private jet owners bashers or uncommon wealth skeptics of today would probably become extinct as more Nigerians get a piece of the Nigerian common wealth as they begin to link up hard work and progress.
On his part, president Jonathan who look all set to to be the first to breast the tape in the race for Aso Rock villa on march 28th presidential elections, will take credit for being the father of a new Nigeria that would have, like a Phoenix risen from the ashes to tower above all other African economies.
Goodluck Jonathan’s reference to the increasing number (150) of private jets, PJ owners in Nigeria as a symbol of a growing economy during his campaign stomp was pooh poohed by his political opponents who see PJs as evidence of corruption.
Nobody seems to remember that president Jonathan also waxes lyrical about how he looks forwards to Nigerian farmers earning enough income from their trade to make them billionaires and as such join the ranks of private jet owners as it obtains in the advanced societies of Europe and USA.
Although, mr president has strong merits in his postulation about PJs,unfortunately he did not properly contextualize it hence APC’s position that PJs are the symbol of alleged Jonathan’s maladministration seem to have gained traction. According to Howard Schultz, the CEO of Starbucks,Coffee chains in the USA ‘when there is a disconnect in authenticity, people feel cheated’.
As most Nigerians are yet to link the wealth that warrants ownership of PJs to the volume of business they are bound to be skeptical. Keeping in mind that sometime in 2010, following the demise of former president Umaru Yar’Adua, the then,Vice President ,Goodluck Jonathan was elevated to the position of president after which he signed into law,a local content bill that would enable Nigerians retain at least 30% in oil/ gas industry activities,you can understand why our president is not a skeptic but rather proudly references ownership of PJs as a key economic growth indicator of his administration.
His assertion is derived from the fact that his unprecedented policy decision in the oil/gas sector either accelerated or facilitated the emergence of young Nigerian oil/gas Turks like those who now run OANDO, Seplat, NESTOIL, Televeras,Seven Energy,AITEO , Midwestern oil/gas etc in the hitherto foreign firms dominated industry. Assuming for the sake of this analysis that the value of Nigerian oil/gas business in a year is twelve (12) trillion naira as estimated by National Bureau of Statistics, NBS, the local content bill compels the reservation of the business for Nigerian businessmen up to a minimum of 30% of 12 trillion, which is a 3 trillion naira.
Hitherto,the International Oil Companies,IOCs which have joint venture (JV) agreements with NNPC farmed out oil services to companies such as Saipem,Slumberger, Halliburton trafigura,vitol, Glencore, Trafigura and a host of others from their home countries to carry out the bulk of the functions which Nigerian indigenous companies courtesy of the law, are now executing in partnership or alone.
With a whopping sum of N3 trillion being retained in Nigerian economy as a direct manifestation of president Jonathan’s local content bill, as opposed to the hot money portfolio investors in Nigerian Stock Exchange, NSE,(who retrieve their investments as soon as signs of instability is noticed in Nigerian economy ) it beats the imagination that people like Chukwuma Soludo , ex CBN gov would dismiss with a wave of the hand,the benefits of the recent re-basement of Nigerian economy , which has catapulted our GDP value to $510b and therefore the largest in Africa. Given the scenario above, it is not unexpected that our young men and women who suddenly came into such stupendous wealth would want to show off their new found wealth by exhibiting it in the most dramatic fashion that tickles their fancy. After all, it is the penchant for primitive acquisition by those who suddenly come into wealth that the French coined the term ‘nouveau rich’.
However,I’m disappointed that in anticipation of such a major paradigm shift in the oil/ gas sector that would result in the creation of such huge pool of the so called ‘nouveau rich’ in Nigeria ,authorities did not deem it fit to plan against the negative side effect by introducing mitigating or remedial policies such as the luxury tax that the coordinating minister of the economy and minister of finance,Ngozi Okonjo-lweala recently muted. Nevertheless, we take solace in the saying ‘it’s better late than never’ While articulating her plans on the measures that would boost Nigeria’s revenue to cushion the effect of the current slump in global crude oil/ gas price, the coordinating minister of the economy had told legislators that luxury tax is in the pipeline. Ideally, introducing luxury tax policy at the same time that the Local Content bill was passed into law about five (5) years ago, would have saved president Jonathan all the current hues and cries about the ‘invasion’ of PJs under his watch in Nigeria.
This assertion is derived from the belief that the fear of luxury tax law would have kept the ‘nouveau rich’ appetite for luxury toys in check. To further drive my point home,l would like to crave your indulgence to deviate a bit and use my personal experience to illustrate how luxury tax curbs unbridled expense in luxury.
In a the bid to expand our waste disposal business in Nigeria, my partners in Germany , Schulz khomunal and l after a waste management seminar we organized in Abuja, scheduled some visits to some identified potential clients. Amongst them were Plateau, Edo and Delta states ministry of environment and waste management boards. Upon the arrival of my guests in Abuja we had to drive in a luxury jeep to Jos, plateau state to see the authorities. When we concluded our visit to Jos, we flew into Benin airport, transacted our business and then drove down to Asaba in another luxury jeep.
Finally, when we were done there in Delta state, we flew back to Lagos where we were picked up in another luxury jeep. At a send off dinner for my guests in my residence in lagos, mr Krumnikle, the owner of the German company asked me a curious question: how many jeeps do you have, magnus? I said to him, why do you ask? He then proceeded to remind me of how we were conveyed in different luxury jeeps around the different locations that we have been in his four days visit to Nigeria. Unbeknown to me, my guest was secretly asking the drivers who conveyed us if the luxury cars belonged to me. Initially, l felt surprised and irritated that our German partners were surreptitiously carrying out due diligence on us even after the partnership had been consummated. Then mr Krumnikle popped the next question: Magnus, you know l’m a billionaire, right? After l affirmed his status as a billionaire in Germany, he then proceeded to give me a treatise on how he owns only two cars- a Porsche and an Audi Q7.
Although he could afford more,it did not make economic sense to pay the prohibitive luxury tax which further acquisition or investment in luxury would attract. He is instead encouraged to plough back the money into his business and get tax rebates, as much he is discouraged from buying more luxury items due to higher tax. The lesson inherent in my experience with my German partner as enunciated above is that luxury tax administration prevents rich people in German from unbridled or primitive acquisition of luxury goods which appears to be penchant by Nigeria’s newly ‘minted’ oil rich billionaires who are currently embarking on compulsive purchase of Bugatti’, Ferraris, Rolls Royces cars and ocean going yachts as well as PJs. Clearly, luxury tax is an efficacious means of compelling re-investment of proceeds from existing business into new businesses. In the long run, more businesses are established and more jobs created like the case in Germany, leading to a better, happier and more prosperous society. Little wonder German which is the richest economy in Europe, and before Singapore,held the enviable world record of being the country with the largest concentration of millionaires per square meter.
Compare Germany to Nigeria where the so called ‘nouveau rich’ oil/gas billionaires,govt contractors and commission agents are currently trying to surpass each other in the impulsive luxury acquisition. As exemplified by the German experience, introduction of luxury tax in Nigerian would boost revenue and encourage internal investment of profits by entrepreneurs into more profitable ventures leading to employment creation and prosperity for more Nigerians.Is that not what Nigerians are yearning for?
Obviously,this is a win- win strategy because even if the nouveau rich despite the law still elect to go on a buying binge of luxury items, the tax revenue generated from such purchases would be subsequently invested in social infrastructure in the country to alleviate poverty. A story is told of an Indian telecoms billionaire whose residence in Bombay is a sixteen floors building with the first six (6) floors reserved for parking his personal luxury cars. Irrespective of tax on luxury, the billionaire took the option to pay the tax than deny himself his epicurean taste. As they say,different strokes for different folks.
In what appears like a complementary role by the aviation ministry, Osita Chidoka, the minister in charge recently announced measures that require that PJ owners register their airplanes in Nigeria as opposed to the current situation where most of the airplanes have foreign countries registration thereby making Nigeria lose revenue to other climes. Hopefully, the new initiative would enable authorities track and trap revenues accruable.
Let me hasten to point out at this juncture that in an emerging economy such as ours, it is not unusual for a handful of people to enjoy certain privileges that give them undue advantages in certain industries that are just opening up but over time such sectors would be open to others. For instance oil/gas licenses were given to friends of military heads of states without biding. That’s how some of the oil/ gas magnates of today acquired their acreages. Presently, the situation is different as at least investors bid for the assets even though only those who have access to those in the corridors of power eventually win the bids and for signature bonuses in millions of dollars accruable to govt. Similarly, during military rule, a mobile telephone license, was issued to a single company by a head of state but with the emergence of democracy in 1999,GSM mobile telecoms licenses were auctioned with about one billion dollars realized from three service providers by the federal govt for the benefit of Nigerians.
It is pertinent to explain at this point that a revolutionary policy that would result in massive wealth creation in Nigeria such as the local content bill is not novel in Nigeria. Recall that under military president Ibrahim Babangida’s regime, the infamous Structural Adjustment Program, SAP foisted on Nigeria by the World Bank and International Monetary Fund, IMF was introduced. The positive fall out of that deregulation of Nigerian economy and privatization of some state owned assets at that time resulted in young Nigerian bankers being granted licenses to operate banks and buying over existing ones with govt’s interest.
Thus some Nigerian bankers like Fola Adeola of Gtbank and Jim Ovia of Zenith bank,Tony Elumelu,Henry Imasekha amongst others transformed from mere bank managers to bank owner/ managers. Before then, most banks in Nigeria ranging from IMB to UBA, Afribank, Societe Generale, Habib bank etc were owned by govt (about 60%) and foreigners (roughly 25%) and the rest by Nigerian public via quotation in the stock exchange. Invariably, a significant part of the profits generated by the banks in Nigeria at that time were repatriated back to the foreign countries except about 5% or so going into staff emoluments and operating costs for rents of properties, diesel etc.
With the more profit from the Nigerian owned and run banks being retained locally, the lifestyle of the new owner/managers changed to reflect their wealthier status and there was public resentment towards these bankers just as there is presently opprobrium towards oil/gas barons who own private jets. This is déjàvu for me. As a banker at that time, l had course to defend bankers in an article entitled ‘In Defense Of Bankers’ published in the Guardian newspaper of May 27, 2002. Today,out of the estimated 150 PJs in Nigeria,only a handful of bankers own some as necessity because they are required to supervise their branches and franchises spread nationwide, Africa wide and in some cases world wide as some of our banks have branches in faraway,Quandzou, Dubai, New York and London. A smattering of oil/gas entrepreneurs also operate PJs for similar reasons while a couple of pastors- A.K.A pastorpreneurs also enjoy the privilege of operating PJs because it’s critical to doing their jobs more effectively rather than for prestige considerations. With Petroleum Industry Bill, PIB which petroleum Resources minister, Diezani Alison-Madueke has promised would be passed into law by the current National Assembly, Nigeria’s economy should be expected to have a quantum leap that would perhaps raise the GDP to a trillion dollar region when the economy begin to operate on 24/7 basis;recommendations contained in the PIB are faithfully implemented;more Nigerians get involved in the critical aspects of oil/gas business and prosperity percolates down to the masses. When that happens private jet owners bashers or uncommon wealth skeptics would probably become extinct as more of them get a piece of the wealth pie or brace up to witness more display of affluence in their faces by those who opt to pay luxury tax rather than reinvest their wealth as reflected in the Indian telecom billionaire earlier mentioned.
On his part, president Jonathan who look all set to to be the first to breast the tape in the race for Aso Rock villa on march 28th presidential elections, will take credit for being the father of a new Nigeria that would have,like a Phoenix risen from the ashes to tower above all other African economies.
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