I was once close to a Director at a UK Hedge Fund located at Mayfair on London. I used to visit their plush offices somewhere in Saville Row and we’ll sometimes go out for drinks and dinner. The financial markets were in upheaval then.
Many of the stuff we were taught about efficient markets and the wonders of derivatives were unraveling right before our eyes. Arcane financial products like Credit Default Swaps, Collaterised Debt Obligations, Mortgage Backed Securities and Structured Products in general were gradually tanking some of the big ‘uns. Lehman Brothers and Bear Stearns must have recently collapsed, so that must have been 2008.
I recall going out for one of those dinners. I met the CEO of the organization. Ivy league trained all the way. The team was a bunch you’d want to observe silently. At least that is what I did. When you meet people who have done greater things than you could imagine, you have to shut up and learn how they’ve done it; study their personality in the hope that you may learn something very tangible.
I didn’t know the exact state of their fund then, but I reckoned they must have something big up their sleeves because here we were, having a blast in the middle of a global meltdown. Every downturn throws up a new winner, I must have thought. Money never disappears in the market; someone makes the money; others lose.
These guys then made a move. One day I was heading to Mayfair only to be told they had moved to Covent Garden. Larger offices. I went to the new office and was wowed. Every room was themed after one Golf legend or the other. They didn’t even have space for Tiger Woods.
And I didn’t ask.
They had names on each door, of people you’ve never heard of before. These guys are deep. The kind of education they got is certainly different from ours. They attended proper schools like Eton and Harrow and studied Classics. They know real money. Our local champions here don’t know the color of cool money really. I moved around the office, mouth agape. Covent Garden was the place.
For those who don’t know, it is a place of culture. It is where you find the human statues on your way to work, and it’s a short walk from opera houses, theatres and museums. These classy guys had chosen right. What geniuses, I thought!
Two weeks later the company folded up.
As in they were gone!
They couldn’t pay their debts. The leases on the offices could not be serviced. They couldn’t meet up with obligations on their fund as they fell due. The company became one of the statistics in the global financial crisis of 2008 and 2009. I started wondering; what do they really teach people in these fancy Business Schools that we pay so much to attend? How do smart people make stupid decisions?
These days when I find myself around Victoria Island – Nigeria’s financial centre – I think of the same thing. I always imagine the brain capacity locked inside those plush offices, the smarts, in looks and in intelligence. Then I wonder how they manage to lose so much money from time to time, to the extent that they have to be bailed out by peasants, when the government wades in and pumps in taxpayers money.
VI is the graveyard of many smart organisations, especially banks. Recent stories we hear about some of the promising banks just boggles the mind. So those very smart guys couldn’t keep their hands off the till. No one thought it would be okay to run an institution for 20, 30, 50 years?
I admit though, that I am the un-smart one. Perhaps I missed the lecture where it was taught in business school, that the trick behind being a billionaire is to gyp the system, to deliberately lose money, to borrow and fritter into your personal account, because when you borrow big enough, the government will step in, and with poor taxpayers’ money, give you a mere tap on the risk (or perhaps a bear hug and a pat on the head for being such smart money-wasters), and you can then go and spend your heist happily ever after. Guys personally become billionaires by sucking the institutions they manage to death!
We will come to the Nigerian experience presently. But first to say that this is almost a global phenomenon. Bankers are basically the same everywhere, but the bitter experiences of the recent past, the documentation of history and the angry voices of citizens have set some of the banks in developed countries straight. Regulation has changed and become more proactive. Someone could argue though, that the change only came after they had bailed out airlines, car manufacturers and of course banks that they deemed systemically important.
In that era, the people who run government conveniently forgot one of the core tenets of capitalism; that the markets should shake out weak and badly-run companies in a process of Darwinian justice. Instead what we saw was a privatization of profits, and socialization of losses; the bigger your debt (or the bigger your stupidity), the higher the chances that government will pick your bills.
And so these were my thoughts when we heard about Etisalat’s inability to pay their debts of over N530billion to 13 Nigerian banks, and how those banks had set about liquidating and taking over the operations of the company. In the first place, this is a company that earns money daily. Its services are reputed good but very expensive. I’m their customer so I should know.
How could it have got itself into a situation where it is unable to simply service its debts? Banks would not fret if there was movements on their accounts. Etisalat is meant to be owned and run by Emiratis, who are some of the richest people on Earth. Where did all the money go?
Then I thought about another philosophy that seems rife in Business Schools especially in Nigeria; the idea that Nigeria cannot get anywhere except it cajoles and courts Foreign Investors. Most of our ‘intellectuals’ cannot utter a sentence without talking about foreign investors and I worry, that at the base of this dependency lies a certain feeling of inadequacy. Yes, we have capital deficits, and could do much better with our infrastructure, but how can we be so fixated with foreign investors when we empty our own capital into foreign countries, after we must have stolen the country blind anyway?
When we aren’t sending money abroad either to buy irrelevancies or to invest in other people’s countries, we prefer to hide our people’s money from our people. We simply deprive our people from enjoying their own commonwealth. We dig soakaways and dump money there, we stuff overhead tanks, and of late, we discovered that many of our ‘big men’ prefer sending the money to their villages where they sneak into village huts to pinch little by little, like rats, for their continued oppression of the people.
How can we be expecting foreign investors to fix our country? What are business schools teaching? Why are we not keenly encouraging accountability and also local investors?
Of late, what has become obvious is that these so-called foreign investors have learnt never to bring any money into the cheap assets they acquire in Nigeria. On one hand are those portfolio investors who invest in treasury bills and cash out up to 16%, or Federal Government Bonds, or the stock market. Those trained in our business schools say we MUST devalue the Naira in order to keep attracting them!
We listened for a while and before we knew it, the Naira became perhaps the trashiest currency in Africa. I am still awaiting an explanation of that rationale. Why should an economy so big also have the weakest currency in Africa? And if we say other African countries have overpriced their currencies, why must it be Nigeria who gets to be the guinea-pig by devaluing first?
On the other hand we saw how the guys that bought our power assets under the Jonathan government complained about having no capital to run their operations. In October 2015, they were bailed out with N213billion. Apparently many of them had rushed there because there was a kill to be made. People don’t invest in Nigeria except to make a kill. Not for them a 5 or 10-years plan before break even. And so when they rushed in, they soon realized that things will be tougher than expected. They sought bailout. Nigerian people paid up.
As I type this, their financial analyst friends have started sensitizing the government that the power sector is about to collapse and that these companies will need another N730billion bailout. Nigerians will also pay up. If they were SMEs, they can as well keel over and die as soon as possible. No one will give a toss. This economic philosophy that rewards criminals is simply insane. SMEs are statistically better run than these large companies in Nigeria because managers cannot keep their hands off the cookie jar.
Meanwhile, while the going was good, these large companies put our banks under immense pressure – of course with the connivance of the banks. The deposits that innocent customers put in were swept en masse and lent to these guys at giveaway rates with little or no collateral; because they are big. The best the banks will get from most of them will be a ‘Negative Pledge’, which means simply that this big client is only promising that it will not give its assets to any other bank without the lender’s knowledge.
Big companies borrow today at around 12% in Nigeria because they can armtwist the banks, while SMEs cannot get any funds below an all-in rate of 30%. It’s no wonder why SMEs die faster, in spite of being more frugal with resources, and big companies continue to survive. The big companies also dictate economic policies because they have friends in high places. You can imagine the future we are creating for ourselves, where careless borrowers crowd out honest managers.
For Etisalat, the move made by the banks to take over the company, sent the CBN and NCC into a flap. Meetings were urgently convened and the banks placated. The banks probably wanted to make a point so that the CBN will take it easy on them on other matters. You cannot ask them to take it easy with Etisalat and then harangue them for other issues can you? Wink wink.
What did the Emiratis do with the money? Someone made a comment about their managers’ spending habits, their binges and the fast lives they’ve been living, and so on. I’m not close to Etisalat and so cannot verify. I note though that one of Nigeria’s corporate gurus, Hakeem Belo-Osagie, is their chairman.
Why do these gurus run companies aground and make us pay for it?
What was his oversight role as Chairman of the Board?
Is he not ashamed of himself?
This is someone whom every government in Nigeria invites to every serious strategy session on the economy! And with all the money Emiratis have, they too refused to bring real funds into Nigeria?
Anyway, I have some experience with them. They could be extremely generous, the Arabs. But they are very bad debtors. My small company was once owed money by a Saudi organization for two years! Another organization in the UAE has been owing my tiny company just below $2,000 for more than 4 years now. I’ve given up. Is this the attitude the Emiratis brought in with their Etisalat foray into Nigeria?
We hailed Etisalat as much-needed foreign investors when they came. Newspaper editors did features on them. They were said to have bought $2billion. But they must have remitted all they brought, while playing with Nigerian money. While noting that many foreign investors dine with Nigeria with a long spoon, and always make a note to outsmart us (even though we shouldn’t be in a contest), the rest of them have lately invested in businesses like real estate, where a drive around Abuja and other capital cities will reveal several expensive ghost estates; overpriced assets currently decaying where they stand. I visited a few lately and it’s scary. I don’t know how Nigeria will resolve this problem.
But it is not really just a foreign investor issue. Just last week we learnt about how bank directors in Nigeria were ‘directly’ responsible for 40% of the bad loans sitting on our banks’ books (N1.85trillion). Insider dealing is rife. People take it for granted these days. Nigerians have become more carefree than ever in these matters, after all, serial bad debtors emerge as bank chairmen in Nigeria.
Our people simply cannot be trusted with money.
If the money is there, whether it is theirs to take or not, they just take it. And they have no limits. These are comfortable people. But until they ruin the organisations that they direct, they never stop. And this is why many people in government and the public sector also snigger at us that we private sector hacks should first deal with the log in our eyes before putting the blame for Nigeria’s collapse on their heads.
Yet there is no executive course in Harvard, Princeton, MIT or Stanford where you will not find at least a Nigerian delegate, especially in the Business departments. We wear our degrees and certificates like badges of honor. We judge people by those certificates and hardly have any moment of introspection to question whether having those certificates is what it takes really. So one wonders if these executives of ours learnt anything worthwhile in those places. Were they taught ethics, or the value of integrity?
Were there perhaps courses on sustainability and how to ensure that your organisation survives into the future no matter what? Were they taught delayed gratification and the need to have moderation in anything we do? Were they taught strategy at all? For if they were, how come almost none of them have deployed strategies to ensure they don’t run into quicksand and have to demand for government bailouts every two years? We are yet to resolve most of the loans in AMCON, and their friends are pushing for AMCON 2 already? It takes bad genius to lose so much money, I believe.
But I recall my own Harvard short experience. We were told by the Professors about Michael Jensen, one of the tough Harvard professors who used to preach crass capitalism. He believed that the concern of the managers of a company should be the maximization of profits, full stop. Not for him all that talk of having a stakeholder view. Unfortunately for Jensen, he was still teaching at Harvard when the dotcom bubble bust around year 2000, and his undergrad students started pelting him objects at him whenever he wanted to continue his rubbish talk. He had to resign from Harvard to go into private practice. Maybe Jensen’s lecture is the type our executives attended very attentively.
I take a better experience from the Germans. Those people will rule the world one day – hopefully not through the instrument of war. They have since enshrined the involvement of staff on the directorship of their large companies to create controls. They are also giving serious opportunities to women. Germany is the vocational skills capital of the world as well. But what is more remarkable is that in Germany, they don’t believe in this way of doing business. As a matter of fact, this fairly recent and unsustainable phenomenon whereby people have to live on loans (mortgage, business, credit cards etc); is alien in Germany.
Wages have been stable for years in Germany without Germans feeling shortchanged but enabling the country to produce goods and services cheaper than its European neighbors thereby crowding out other European economies. If you go to Germany today, best go with your cash. They don’t do all that card business. People don’t understand why you have to eat in a restaurant and pay with a credit card. It is in Germany that one of the Tata billionaire brothers was fined for wasting food at a restaurant.
The abhor waste of any kind.
Most Germans rent houses till they die, and they die happy. They don’t put themselves under unnecessary pressure or get into trouble while trying to keep up with the Joneses the way the rest of us have become; the way it is now taught in Business Schools, where its all about the Top 50 Richest list, Richest people under 40 years old. and the companies posting the highest returns. Certainly a lot is wrong with these business school teachings and certificates and we have a lot to learn from other business models.
Let me close by sharing this anecdote;
A boat was docked in a tiny Mexican fishing village.
A tourist complimented the local fishermen on the quality of their fish and asked how long it took to catch them.
“Not very long” they answered in unison.
“Why didn’t you stay out longer and catch more?”
The fishermen explained that their small catches were sufficient to meet their needs and those of their families.
“But what do you do with the rest of your time?”
“We sleep late, fish a little, play with our children, and take siestas with our wives. In the evenings, we go into the village to see our friends, have a few drinks, play the guitar, and sing a few songs. We have a full life.”
The tourist interrupted, “I have an MBA from Harvard and I can help you! You should start by fishing longer every day. You can then sell the extra fish you catch. With the extra revenue, you can buy a bigger boat.”
“And after that?”
“With the extra money the larger boat will bring, you can buy a second one and a third one and so on until you have an entire fleet of trawlers.
Instead of selling your fish to a middle man, you can then negotiate directly with the processing plants and maybe even open your own plant. You can then leave this little village and move to Mexico City, Los Angeles, or even New York City!!! From there you can direct your huge new enterprise.”
“How long would that take?”
“Twenty, perhaps twenty-five years.” replied the tourist.
“And after that?”
“Afterwards? Well my friend, that’s when it gets really interesting,” answered the tourist, laughing. “When your business gets really big, you can start buying and selling stocks and make millions!”
“Millions? Really? And after that?” asked the fishermen.
“After that you’ll be able to retire, live in a tiny village near the coast, sleep late, play with your children, catch a few fish, take a siesta with your wife and spend your evenings drinking and enjoying your friends.”
“With all due respect sir, but that’s exactly what we are doing now. So what’s the point wasting twenty-five years?” asked the Mexicans.
And the moral of this story is:
Know where you’re going in life, you may already be there!
Many times in life, money is not everything.
“Live your life before life becomes lifeless”
Tope Fasua is CEO of Global Analytics Consulting Ltd