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Feyi Fawehinmi: Reform 101: Act like a fine boy; think like a war general

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Feyi Fawehinmi: Reform 101: Act like a fine boy; think like a war general

by Feyi Fawehinmi

Morning class. I assume you are all here because as young men and women you have a dream – or even a plan to – one day go into government to carry out reforms and to get Nigeria working.

So today I have decided for us to use a case study taken from Mallam Nasir El-Rufai’s new book, The Accidental Public Servant (TAPS).

The subject matter is the protracted privatization of Nigeria Airways and how you can navigate the vested interests you are likely to encounter when you try to change any long standing ‘arrangement’ in Nigeria.

Without further ado, if you’ve got an e-book edition of TAPS, please go to page 129 where the subject matter begins.

The Scenario

You have been appointed as the head of the government body in charge of privatizing various government assets. We know that government is not the best manager of business enterprises due to the way incentives distort the proper running of such ventures.

For example we know that a government cannot go bankrupt so no matter how badly run a government agency is, the answer will always be to pour money into it. Hence the need for privatization to take it out of the hands of government completely.

So today you have been asked to privatize Nigeria Airways, which has become ‘moribund’ as we like to say in Nigeria. We are currently in 1999 and twenty years ago the airline had 24 planes but today it only has 3 planes – one of which cannot fly because there is no money to carry out a compulsory ‘D check’ service on it.

The Key Players

The President – Chief Olusegun Obasanjo is the one who appointed you to head the privatization agency so this Nigeria Airways exercise will ultimately require his blessing.

However there is a slight problem – Mr. Obasanjo was Head of State in the 70s when the airline grew to its peak of 24+ aircraft. It was after he left office that the decline really began.

Mr. Obasanjo believes that the airline can be revived without privatization by buying new aircraft and pouring more money into it just like he did before he left office 20 years ago. In short, he is emotionally attached to keeping the airline under government ownership.

You will therefore need to persuade him as to why this privatization needs to happen. You will need to use data, lies and possibly blackmail to convince him, but he must be convinced.

The Unions and Employees – The usual implacable set of people who are opposed to taking the airline private. For many of them, Nigeria Airways had become a sinecure – collecting a salary while doing nothing or their own private businesses.

There are 2000 employees you will need to deal with. The global standard is for an airline to have 200 employees per aircraft but Nigeria Airways has only 2 working planes so that’s essentially 5 times the global average.

This group will fight you and call you all sorts of names including an agent of the devil sent to carry out satanic privatization plans. Your chances of convincing them to support privatization are about the same as convincing rams to vote for Sallah i.e. zero percent. Your only option will be to outwit or bribe them. But you cannot ignore them as they have a powerful emotional argument against you – everyone knows a Nigeria Airways staff that died waiting for their pension outside the airline’s office in Ikeja.

The Ministry of Aviation – On the face of it, this should be the least difficult of your opponents. But are they? They do have an interest in keeping the airline under government ownership because it makes them more powerful and it is a useful tool for patronage. If the airline is flying, tickets are a useful way to bribe people such as legislators and keep a lot of hangars-on happy.

But there is one more thing – under Bilateral Air Services Agreements, if one airline makes more money from another country, then it needs to pay a percentage of that money to the country where it is making it.

The idea is that since the BASAs are meant to develop aviation in both countries, it doesn’t make much sense from one country to be the sole beneficiary from the agreement without giving something back.

For the purpose of this exercise, let’s use an example with numbers to illustrate how the BASA revenue works. Let’s say British Airways makes $10m from Nigeria in a year while Nigeria Airways only makes $4m from Britain in the same year. British Airways will then be asked to pay say 10% of the difference between revenues i.e. $10m – $4m = $6m x 10% = $600,000.

Based on arrangements like these, the Aviation Ministry was able to collect $35m in total this year i.e. 1999 from the likes of British Airways, Lufthansa and KLM.

Your Assignment

  1. Your first task is obvious – privatize the damned airline. It is costing the government money and is grossly inefficient because it doesn’t allow anyone else come in there and at least attempt to do a better job.
  2. The 3 key players listed above must not, under any circumstance, be allowed to team up by finding common ground. You have to be extremely careful about this – if they somehow find a way to team up, your reform plans will be destroyed. In fact, you should seek to sow discord among these 3 players where possible to give them as little time as possible to spend fighting you.
  3. Prof Thomas Sowell likes to define Economics as the study of what actually happened and not what anyone intended. You may have noticed something interesting with the way we calculated the revenues due to the Aviation Ministry under the BASA agreement. What happens if Nigeria Airways’ revenues drop to $2m in a year? This will mean an increase of $200,000 to the Aviation Ministry. In other words, the ministry gets more revenues if the airline does badly.

Now this money goes directly to the ministry and is not part of the money allocated to it by government. It also doesn’t have to send the money to the federation account i.e. it can spend it as it wishes.

In other words, what was intended as a way to help smaller countries develop has now become an incentive for those in power to keep their aviation industries underdeveloped. If Nigeria Airways were to make $10m in revenues, then the ministry will not get any money. Bear this is in mind when developing your strategy.

4. The money available to the ministry also means it has enough money to bribe those who will oppose you. This goes back to point 1 – you must not allow any of the 3 key players to combine forces to oppose you.

The ministry might seek to bribe the unions with some of that money to ensure they remain motivated to oppose your reform plans. Dr. Olusegun Agagu is the minister in charge and Kema Chikwe will soon replace him. Both of them have excellent relationships with the President. Since the President already doesn’t want to privatize the airline, their job (do your research and see whether they are in favour or opposed to privatization) is a lot easier than yours.

5. Finally, this is the most important advice for you – follow the money. Don’t take anything at face value. Follow the flow of money to understand the motivation of the different players in the whole scenario.

You are to come up with a workable and realistic plan of action to privatize Nigerian Airways within 18 months taking into account all of the above. This should include a combination of theory and street smarts. As a rule of thumb, you should use around 30% theory and 70% street smarts.

You are allowed to use bribery as a strategic tool however you can only use this for the unions and you must structure this in a legal way e.g. you can bribe the unions and structure it as an Accelerated Enhanced Retirement Benefit Package.

Please be reminded that this course is a pre-requisite for going into government. Failing this assignment will mean you will not be considered for any government position.

Show your workings.

100marks.

Good luck!

Feyi is an accountant in London with several unreconciled balances to deal with on any given Tuesday. He takes his job of commenting on any policy issue in Nigeria from the safety of faraway London very seriously. Everything he knows about economics, he learnt from reading reviews of textbooks on Amazon. Twitter: @DoubleEph

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