Fuel Subsidies

The removal of fuel subsidies seems to be the topic of choice here in Nigeria at the moment:

On one hand you have a huge drain on scarce national resources, a large portion of which goes directly into the pockets of a bunch of sleazy players through anything from round-tripping (docking the ship and the subsidy, only to take it out again and re-register it for import and another subsidy!) to black market retailing (pocketing the subsidy and withholding the delivery until scarcity drives black market prices up which are then cashed in on).

On the other hand cheap fuel is pretty much the only tangible benefit the man on the street gets from his government. Many of my friends fear a social revolution if its removed. Mark my words, they say; remarks which are echoed by nearly every civil society organization out there - from Unions to the Nigerian Bar Association. Everybody is against it, apparently.

Its a sad state of affairs that the government really provides so little. Maybe it could provide more if it didn't 'chop' all the money itself in the form or reoccurring expense. That is to say - if we do cancel the subsidy, would the government know what to do with the extra cash?

But lets look at it rationally: In reality nobody but the oil lobby actually seeks the continuation of fuel subsidies. They:

1. Waste an awful lot of money. The IEA and others estimate that USD 409bn were spent directly on consumption subsidies in 2010, not to mention the indirect subsidies such as tax cuts. The American example, and the corresponding support for renewable is beautifully embodied in the graph published by ELI.
2. Make fuel artificially cheap, which in turns makes the renewable alternatives seem artificially expensive. Thus, they also distract investments into renewables, which would increase if the business opportunity were even more apparent.
3. Drain a scarce resource. The OECD estimates that if the subsidy were removed by 2020 globally, then the global energy demand would drop 5% and oil demand would drop 4.7mb/d, or around 1/4 of the current US consumption. The IEA estimates even higher drops.
4. Increase environmental pollution. The OECD estimates that the proposed removal of global subsidies by 2020 would reduce carbon-oxide emissions by 2 gigatons, about 1/15 of total emissions in 2011.
5. Hardly ever reach the people they are meant to. The IMF estimates that only 1 in every 6 dollars of subsidy reaches the poor, the rest gets lost in sleaze. 

So, lets cut the subsidy and see what happens. Maybe less support from government will actually make it more accountable to the people. Who knows? My guess though is that Nigerians will maintain their resilient nature and battle on through. The original stiff upper lip.  XHK69U9FVEPU

Where does Music come from?

I've always had a strong interest in how music originated, or rather the limited geographic sense thereof. In pre-literate society, which include most of Africa's early tribes and clans, music and stories carry added significance. This might explain why they seem to be more fundamental to societies here (although - classical cause and effect theory here - why would they need the literate traditions if their oral ones are so strong?).

The debate on origins of music are a never ending of course, and many clever heads that have much more to say on oral traditions than my rudimentary thoughts. In academia the area has been battling a bit for relevance however, especially in Europe I was told by Linda Braun (a Falling Walls Lab colleague), and suffers from chronic funding shortage. This seems surprising, given its importance and the unanswered cause and effect questions.

One way to up the relevancy levels is to bring the history of music that's more popular (though not more profitable) than ever back into popular conciousness. The best way to do that of course is graphics (who likes to read?). I have a huge map of the origins of jazz back in Germany, but I wanted to share the one below as a particularly good example...

Interesting that it comes from a travel agency. Maybe it will inspire more people to venture down the Chicago - New Orleans blues trail that Harry and I attempted way back. After all, that's where it all started ;)

Falling Walls

I'm doing something different in a couple weeks: Attending a conference on a topic that's not my own, just to break out of the box and see something else. There's no real desire for change on my side, neither am I intending to become omniscient over night, but it will give me a good opportunity to see what else is out there. Plus I get out of Nigeria, into Berlin, and get to see a host of fun things and friends. Win-win really.

As part of the scholarship I'm meant to present a Breakthrough of my own on the day before the real thing. I'm interpreting that liberally and hoping that few at the conference have heard of the BOP, let alone how to serve them, and am doing mine on "Breaking the Wall of Poverty Perception". The number of slides are limited so in this case not particularly descriptive. I hope you can make sense of them nonetheless. Comments welcome; maybe I can sneak in an edit before D-day. I'm planning to experiment with live blogging from the event - lets see how it goes.

Falling Walls - Breaking the Wall of Poverty Perception

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On Creativity

Do you have any artistic friends that you see far too seldom and you wonder what they get up to because they don't often show you stuff? There's murmurings amongst your friends about whether they actually do anything? And then, pop, they appear with something beautiful, right there in a one-liner?

I do, and the product is overwhelming. It helps me remember that creativity is a complex process that works different for everybody and sometimes takes long, arduous, and twisty roads to get somewhere. Sometimes it stays hidden, but that's not to say it isn't there. Its wonderful, surprising and helps me keep my spark. And, it's always unique.

Anyway, before I ramble on:

Made of Sand from Bison Moon Project on Vimeo.

Where's all the money going?

Lots of time to think in Sri Lanka's tea plantations. Mostly... Has the "where's all the money going" story been fully told?

Basically, there's a lot of money coming into SSA private equity (and public ones too, I imagine, but there's some fact checking to be done there). It's coming from established forces that are raising larger commitments (Helios, EMP), big funds new to the market (Carlyle amongst others), local funders (PIC) and increasingly also private sources (Allen Gray is rumored to be starting something). This means a) that there's a lot more cash and b) it's coming from new sources.

But I'm beginning to doubt if they can spend it. Yes, some democratization is driving business climate improvement and yes, some valuations may be on the low side. But continued structural issues (strife, infrastructure and corruption) remain largely unchanged. Even if there are young hopefuls such as FHN or IHS they are still a) facing the same barriers as before (I'm sure Will can name one or two examples to add to the ones that spring to mind) and are b) still few and far between. Just look at Anders, who went from looking for pipeline to making it.

Can this change? Yes, of course. But it's likely to take far longer than a PE fund and its investors have the stomach for. Don't get me wrong - these investments can still do an immense amount of good. However, they're likely to have far more VC characteristics than investors seem to think, with all the risk, timeline, work, cost, and other challenges that go with them. Hopefully more money will bring a) (short term) valuation inflation that will benefit a few golden nuggets b) enforcement of higher management and corp gov standards c) give rise to a new entrepreneurial gold rush that can really help foster a deeper pipeline. But all that might not necessarily translate into profits now.

I hate to tell a bearish tale, especially in a bullish time for Africa during which international investors have little else to be bullish about. However, I've seen first hand how too much enthusiasm can backfire (haven't wee all in some way or another). Microfinance for instance was for a long time (over)-heralded as a saving force only to fall flat on it's face when empirical studies showed that it's output didnt match those lofty expectations. That's not to say that it does not do any good at all though that's another discussion. Fortunately the sector is still largely backed by public institutionals who move slowly and have longer term/non-financial objectives. The sector therefore has time to build a new brand or prove it's critics wrong. Given the 'new' funding base of African PE it's questionable whether the sector will have that luxury.