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The Problem With the Debt-For-Infrastructure Strategy

Nigeria has serious infrastructure challenges. You see it in the quality of roads, the near absence of rail services, the relatively poor state of many of our airports, and the gridlocks around the ports. All these contribute to our lack of competitiveness and our inability to generate sufficient economic growth and jobs. According to the World Bank in 2011, we needed to spend at least $14.2 billion a year for no less than a decade to start closing up our infrastructure gap. The Federal Government’s (FG) infrastructure plan said we needed about $33 billion a year.

Unfortunately, anyone who has taken a casual look at the FG’s finances can see that it does not have that kind of money. In 2018, the entire FG budget was just under $30 billion at the official exchange rates. That includes record levels of new debt. Actual FG revenue was just under $13 billion. That is all revenue, before you think about salaries and debt servicing and votes to different ministries and all that.

In 2018, according to data from the CBN statistical database, only $3 billion was spent on capital expenditure. Keep in mind that capital expenditure is not just spending on infrastructure but includes things like Prado jeeps and office buildings for federal parastatals. So, the spending on infrastructure was likely less than $3 billion. You can already see the problem; $3 billion spent in a country that requires $33 billion a year, even with record levels of new debt.

If the goal is propaganda then you can always show proof that you are working. That $3 billion will allow you to start projects in every state and take pictures for social media showing that work is being done. But it is still only $3 billion. You can show pictures of the newly paved 10 kilometre on the Enugu-Onitsha expressway but the remaining 120 kilometre will still be a mess.

The Lagos-Ibadan expressway which is only 130 kilometre will continue to take decades to construct. Every government likes to believe that they are the only ones who tried to build roads, but the truth is every regime since 1999 has built something. However, because the funding is not adequate, they can only build a little at a time, while the rest continues degrading. By the time the next regime comes, the ones that the past regime built have started to degrade. And the cycle continues.

Is this a problem that can be solved with debt? Obviously not. Since 2015 the FG has broken its deficit record almost every year. If you add the mysterious line item in the budget implementation report titled “net deficit” then the amounts borrowed, presumably for infrastructure, are at levels not seen since the 1980s. Yet the fraction of all government spending that goes to capital expenditure has been falling consistently.

Between 2010 and 2013 the FG spent about 20 percent of its expenditure on capital projects. Since then it has dropped dramatically. In 2017 the FG spent only 1.7 percent on capital expenditure, the lowest since the CBN started publishing such data. No doubt the collapse in oil prices played a role but oil prices were higher in 2017 than in 2016, and even higher in 2018. In 2018, the FG spent just under 14 percent and for the first 3 months of 2019 spent just over 11 percent.

If you are wondering why the fraction keeps shrinking, it is because debt servicing costs keep piling up. Which should be obvious even to roadside economists. If $33 billion a year is required, then a government which can typically afford to spend $3 billion only, cannot borrow up to that amount. It will go bankrupt very quickly.

The case to borrow for infrastructure is based on the infrastructure project itself raising enough revenue to repay the loans, or the infrastructure generating enough extra economic activity that can be taxed to pay for loans.

We can already rule out the tax part for Nigeria for obvious reasons. The infrastructure paying for itself strategy, has also proved challenging for political reasons. For instance, the Abuja-Kaduna rail line which was built with debt is currently priced so low that it cannot even generate enough revenue to keep itself afloat, not to talk of paying back some of the debt used for the project. Given these two realities, the debt-for-infrastructure strategy is a sure path to FG bankruptcy.

A country with infrastructure problems and a bankrupt government, will unfortunately be worse-off compared to current situation as it won’t even be able to spend the meagre $3 billion.

So, what is the way forward?

As at today there are over $15 trillion of global funds that are desperately looking for where to put their money. That is trillion with a “t” in dollars. They even have to pay some governments to hold their money. If we are able to mobilise just one percent of these to fund our infrastructure every year for the next four years, then all our infrastructure problems will be solved. The obvious policy question then is, how to mobilise global private capital to fund infrastructure projects in Nigeria. That is the question we hope our policy makers will try to answer.

Source: Businessdayng

Nigeria at 59: Inyangete, Chime, Adewole, Nubi, Ogundimu, Others Call for Policy and Attitudinal Reforms in Housing Sector

It has been 59 years since Africa’s most populous country Nigeria gained independence. On 1st October 1960, the former British colony was established as an independent state – free to pilot the affairs of a promising young nation that was on the threshold of a booming oil industry.

With 45 million people at independence, the United Nations estimates that Nigeria’s population is now set to double by 2050 to around 400 million people – from current 200 million – which would make it the world’s third-largest nation, behind India and China.

In spite of a retinue of housing policies and programs, Nigeria has estimated housing shortage of 22 million units while newly built luxury dwellings are springing up throughout cities – made possible often through the forced eviction of poor communities.

The current housing gap and magnitude of informal dwellings in Nigeria is so bad that the United Nations have even described it as a human rights violation.

A combination of factors including rapid urban migration, lack of adequate funding for housing, political unaccountability, policy breakdowns, high interest rates, cost of building, land acquisition, and many others have left millions of Nigerians almost hopeless about ever owning their own homes.

To compound the situation, Northeast Nigeria has for the last decade been gripped by the insurgency waged by militant Islamist group Boko Haram that has forced around 2 million people to leave their destroyed homes. Because of this, the housing situation in Nigeria has been described by many stakeholders as a ‘crisis.’

Housing Interventions in Nigeria

The recorded history of formal intervention into the housing sector in Nigeria dated back to the colonial administration, after the unfortunate outbreak of the bubonic plaque of 1928 in Lagos. This necessitated the establishment of the Lagos Executive Development Board (LEDB). The Federal Housing Authority was established through the promulgation of Decree No. 40 of 1973 and begins a formal operation in 1976. Part of its responsibilities is making proposals to the federal government on housing and ancillary infrastructural services and implementing those approved by government. In 1977 the Nigerian Building Society metamorphosed to Federal Mortgage Bank of Nigeria (FMBN) which serves as the main engine room for public housing delivery with a dual function of both primary and secondary mortgage institution.

In 1981/82, A National Housing Programme was designed to provide 350 medium and high income housing units in each of the then 19 states of the federation by the FHA. This is in addition to the national low income housing programme embark by the government in all the state of the federation popularly known as Shagari low cost.

A proposed 40,000 housing units were to be constructed all over the federation annually with 2000 units per state including Abuja, the federal capital city. The estimated target for housing delivery under this policy was 200,000 between 1981 and 1985 but only 47,500 were constructed across the nineteenth (19) states of the federation including Abuja, the Federal Capital Territory.

An ambitious housing policy was launched by the then military government in 1991 with a slogan “Housing for All by the Year 2000 AD.’ The National Housing Fund, NHF – a product of the 1992 Housing Policy of the Federal Government of Nigeria which is a legal instrument for mandating individuals and government to pool resources into mass housing delivery – was initially meant to facilitate the now discarded vision of housing for all by the year 2000 AD.

The failure of these policies and programmes to adequately resolve the backlog of housing problems in the country led to the National Housing Policy (NHP) in 2006, but like others, the policy implementation proved deficient.

Under the current government of President Muhammadu Buhari, there are also a number of Affordable Housing Initiatives including The Federal Integrated Staff Housing (FISH) Programme (2016); My Own Home scheme (2017); The Federal Integrated Staff Housing (FISH) Programme (2016); National Housing Programme (2016); Family Homes Funds (2018).

Stakeholders’ Perspective on Housing Crisis and Call for Reforms

While current efforts are commendable, including what Nigerian Mortgage Refinance Company (NMRC) are doing with housing data collation and management, Ugochukwu Chime, the President of Real Estate Developers Association of Nigeria (REDAN) said that there is need for more concerted efforts.

‘’I think that the issue is lack of understanding of the emerging socio-economic trends that drive the housing provision in any clan. A lot of people have different opinions about why we haven’t been able to address decisions on sustainable basis. The reasons differ from who you are asking. Some would say land, some finance, some policies, some would say it is the developers, some would say it is the mortgage people, but I would like to say that it is from all of us in one way or the other.

‘’As a nation, we are in deficit of understanding and appraising the truth of our situation and what we really can afford. Those in positions of authority do not know exactly what the people need and how to address them. As a developer and as someone who has been in the industry for quite some time, I think the greatest problem we have is lack of political will to drive the system through, and insincerity on the part of those who have been in governance over the years. The greatest defaulter in terms of the challenges we had in housing provision has come from the government angle. A case in hand is how lands under state governments are being administered in a way that does not serve the population,’’ Chime said.

Similarly, Professor Charles Inyangete, the CEO of Integrated Risk and Investment Solutions Limited, and Former MD of NMRC agrees that data is not available sufficiently to drive policy.

He also blames Nigeria’s housing problems on lack of continuity.

‘’We are too short term in our perspectives. We take very short term perspective of things which leads to a lack of continuity even when we have a good policy. Successive governments do not see the good or the bad in the previous regime and look to improve upon them. We like to wipe the slate and start afresh and that lack of continuity means even good things tend to be abandoned regarding housing.’’

Inyangete believes that in spite of Nigeria’s economic benefits over the years from her resources, there is little to show for it, especially in the lives of the citizens.

‘’So we need to begin to look at our policy from the way it affects our people and we need to also be forward thinking in the way we design our policy. There should be the realisation that we are not building for today, but for the next generation.

‘’We also need to do that in a sustainable manner. We need to look at the impact of climate change on housing. Our coastal communities are being washed away. So we need to begin to design in ways that allows us to adapt favourably to climate change.’’

59 years after independence, Nigeria’s Housing Sector, according to the MD of Family Homes Funds, Femi Adewole, remains significantly underdeveloped.

According to him, even though recent interventions like the establishment of the NMRC offer hope for the future, the sector still lacks critical capacity across almost every part of its value chain.

‘’Regulatory environment is very weak, transaction costs are high and unpredictable, delivery capacity is poor and we are still largely building today in the same way we built almost 60 years ago – almost like technology never happened,’’ he bemoaned.

Given her potentials and resources, Nigeria boasts of the largest housing market in Africa, yet the most underserved. The mismatch between demand and supply has proven a great challenge to bridging the country’s housing gap.

One of the suggestions from Prof Inyangete is the need for Nigeria to embrace a digital economy. ‘’In today’s world,’’ he said, ‘’there are systems that can help you visualize the development of a house even before the first brick is put in. And I am not just talking 3D images. You can actually wear the IT gadget and see the various designs before you can make the adaptation for building and even its renovation. That’s the future of housing. Housing itself will no longer see the regular brick and mortar construction. We should start looking at modular development. The construction is faster, pre-fabricated and easier to standardize. We are seeing more and more of that happening around the world.

‘’Also, what is required now is for housing to be driven as a focal point. I’m advocating that we create a housing commission that will allow us to evolve policies for housing that address issues of the neediest group in our community which is the first time home owners. We are not doing much for them because of the affordability of housing. So if we have policies that specifically address first time home owners we will begin to drive down the impact of housing on the community and on society by making it more and more affordable.’’

Both Prof Inyangete and Ugochukwu Chime agree that some policies – notably foreclosure law, land use act and others – need to be looked into properly like many stakeholders have clamoured.

This opinion is also shared by the CEO of Abuja International Housing Show, Festus Adebayo. According to him, his experience as an industry operator gives him the conviction that there is a strong connection between strong policy frameworks and housing development.

If stakeholders can speak in unison, and with the will to imbibe the spirit of professionalism, as a complimentary role to a government that is genuinely committed and transparent, Adebayo believes that things could change sooner than later.

Speaking at the Inaugural Lecture of University of Lagos, Professor Timothy Nubi stated that a diagnostic review of the Federal Housing Authority (FHA) was conducted by KPMG – an international consulting firm in 2005 focusing on FHA’s mandate and operational framework. ‘’On the recommendation of KPMG report, a new mandate was approved by Government for FHA to henceforth, focus on social housing provision for low and middle income groups and special groups, e.g. physically challenged, elderly, widows, youths etc. The proportion of less privileged population with no shelter at all and the percentage of inhabitants living in slums and squatter settlements justify this. This number will continue to grow in the years ahead unless urgent remedial measures are taken to stem the trend. This informs the need for a viable option for mass housing provision in the country and this has been my research focus for the past 25 years,’’ he said.

The President of Nigeria Institution of Estate Surveyors and Valuers, NIESV, Roland Abonta who spoke with Housing Development Program believes that the most sustainable approach to fixing housing, like many other failing sectors in Nigeria is through strategic and proper planning. According to him, policies alone do not result to housing except they are backed up by strict adherence and purposefulness.

In spite of the challenges the country faces, a sense of optimism still rings in the tone of Inyangete, Adewole, Chime, Nubi and Adebayo.

Inyangete said that he sees a lot of new breed of developers who are really sensitive to the climate impact of what they are doing and the impact of sustainable development and the need for it. ‘’I also see the next generation, the millennial defining how they intend to live and these developers today are more inclined to the digital aspects which I see playing a critical role going forward, and Nigeria is by no means left behind. We have intelligent people who will be critical for running that process.’’

Femi Adewole believes too that there is strong hope for the future. ‘’There is a growing realisation,’’ he said, ‘’that housing and the construction sector can be a major catalyst for growth. We must do everything possible to support the Government in holding fast to this belief. One key development to look forward to is the development of institutional affordable rental housing. For that to happen I expect to see more collaboration and joint working between various market players.’’

Ugochukwu Chime assures that there is a very bright future for the real estate industry in Nigeria.

‘’We have come to see that working in silos is not going to help us. Collaboration is key. Through collaboration we have been able to establish the real estate data collection and management programme. Such collaborations reduce the cost for an individual or a single institution. Government too has also come to realize that policy and its execution are different things. That it’s better for them to remain in the realm of policy and leave the execution to technical experts with years of experience.

‘’A lot of things have happened and also Family Homes Funds have come in and they are moving quite well. We have Federal Mortgage Bank also moving in, and we are now taking the battle down to the states.

‘’So I believe we have a very good future where the hope of massive home ownership is there; the hope of using housing for employment, economic growth and for the general well-being of Nigerians,’’ he said.

Also, the MD of NMRC, Kehinde Ogundimu while speaking at the send-off of outgoing CBN Director Tokumbo Martins in Lagos, said that in the mortgage area, a lot of successes have been recorded, notably the mortgage interest drawback fund; the global standing instruction that will prevent non-performing loans from happening because there is now a hunting system that will go around to pluck incomes and funds from various accounts; Uniform underwriting standard and many more which he believes are a foundation to build upon

‘’As a nation. I think we are beginning to get things right as related to mortgage finance. Many states are beginning to either look into or adopt model mortgage and foreclosure law. Many states are beginning to even partner with NMRC and other stakeholders in the industry to push the mortgage agenda. In fact, the Governor of the CBN has now made mortgage finance one of the cardinal focal points of his five years agenda. So I see a lot of good things happening in the mortgage industry from now and going forward.

‘’As a nation, the main challenges that we have are still the high interest rates which makes mortgages unattractive, but the government is working on that and hopefully when we get the macro economic situation right, that will come down.

‘’The next thing is the enabling environment, especially the legal enabling environment which is the land titling system and the foreclosure law. We are the champions of that and we are glad states like Kaduna have passed that. Lagos is at the forefront. We are talking with Enugu, Edo and a few other states. So in the next few months, we will see a lot of things happening in that sector.

‘’So overall, I think the foundation has been laid, and from now on we will just be going forward in high speed that will make Nigerians able to afford mortgages to get their own homes,’’ he said.

How Osinbajo Drove Nigeria to Top 20 on Ease of Business Ranking

Through its Ease of Doing Business reforms, Vice President Prof. Yemi Osinbajo-led Presidential Enabling Business Environment Council (PEBEC) has contributed to Nigeria’s ranking as top 20 improvers of doing business for 2020.

The World Bank Doing Business team, announced on Friday that Nigeria ranked in the top 20 out of 190 countries.

The announcement is coming ahead of the official release date of the World Bank Doing Business Ranking set for October 24.

The World Bank Doing Business Report is an objective assessment of prevailing business environments based on a number of ease of doing business indicators.

In Nigeria, the report assesses doing business conditions in the two largest commercial cities of Lagos and Kano.

The World Bank’s announcement acknowledges reforms spearheaded by the PEBEC in the areas of “operationalising a new electronic platform that integrates the tax authority and the Corporate Affairs Commission (CAC)”.

It also acknowledges reforms carried out in some of the World Bank Doing Business indicator areas such as starting a business, registering property, getting construction permits, getting electricity, enforcing contracts, and trading across borders.

According to the World Bank Doing Business team, “the CAC also upgraded its name reservation platform and, in Kano, there is now an electronic platform for registering business premises online, eliminating the need to appear in person.

“In Lagos, land administration was made more transparent following the digitisation of cadastral plans in a geographic information system; digital copies of cadastral plans are now easily obtainable.

“Nigeria also made getting electricity easier by allowing certified engineers to conduct inspections for new connections. Initiatives also made commercial litigation of smaller cases more efficient.

“The Chief Judges in Lagos and Kano issued practice directions for small claims courts introducing pre-trial conferences and limit adjournments.

“Finally, customs integrated more agencies into its electronic data interchange system, and port authorities launched an e-payment system, speeding up both exports and imports,” it said.

This validation confirms that our strategy is working and we will continue to push even harder.” said the Special Adviser to the President on Ease of Doing Business, Dr Jumoke Oduwole.

PEBEC was established  by President Muhammadu Buhari in July, 2016 and works towards the fulfillment of the projections of the Economic Recovery and Growth Plan (ERGP 2017-2020), which is striving to deliver sustainable economic growth in Nigeria by restoring growth, investing in our people, and building a competitive economy.

Chaired by Osinbajo, the Council has carried out over 140 reforms so far, through the Enabling Business Environment Secretariat, in a bid to remove bureaucratic constraints to doing business in Nigeria and make the country a progressively easier place to start and grow a business.

Similarly, the Vice President’s office oversees the National Social Investment Programmes (N-SIPs) of the Buhari administration, which has millions of beneficiaries nationwide.

Source: nan


Nigeria At 59: We Are A Failed Country —Mailafia

59 years after independence, many Nigerians complain that the country is not where it is. In this interview with SANYA ADEJOKUN, economist, former Central Bank of Nigeria (CBN) deputy governor and presidential candidate in the last election, Dr. Obadiah Mailafia, looks at Nigeria’s growth trajectory since 1960.


NIGERIA is 59 years as an independent country. Do you believe it is a nation yet?

Unfortunately, I cannot answer in the affirmative. I wish I could proudly say that our country is a nation. Unfortunately, it isn’t. We are far from being a nation, like the Swedes, Germans, the French, or the Swazis. And it is not only because we are an ethnically heterogeneous country. There are multiethnic nations across the world. Singapore, for example, is a multiethnic and multi-religious country. But thanks to the nation building vision of their founding-father Lee Kuan Yew, Singaporeans enjoy a common national identity despite their heterogeneity. The same may be said for Ghanaians, Russians and Chinese. A nation is defined as a political community in which the people feel a deep organic and spiritual bond; with a shared feeling of belonging and a sense of a common destiny. The great sage Chief Obafemi Awolowo famously described Nigeria as “a mere geographical expression.” A lot of people criticised him for that statement. After 59 years of independence, we are farther away from being a nation than ever before.


Why is that so?

Several factors account for this unhappy state of affairs. The first is quite simply that throughout our decades of independence, we never really had true nation builders among our leaders. The closest we ever came to having nation builders was a figure such as General Yakubu Gowon. He believed – and still believes – in the concept of Nigerian nationhood. In a manner of speaking, he lives it and dreams it and prays it. If ever someone could ever be described as “the Abraham Lincoln of modern Nigeria”, that person would be General Yakubu Gowon. The idea of the NYSC was his. And so was the original proposal to move the capital from Lagos to the geographical centre of the federation. In all his infrastructure and economic planning policies, he had a national vision for our country. In his own cunning way, Olusegun Obasanjo was to some extent also a nation builder. As for most of our other leaders, they neither understood nation building nor did they ever care about it really.

Second, the removal of history from the school curriculum is one of the greatest follies we have ever committed in our country. The study of history right from elementary school is one of the biggest and most effective instruments for imbuing our young people with a national consciousness. Whoever took that decision ought to be tried for high treason. Teaching history is a means of socialisation and enculturation of the young into the myths that make up a nation. All nations to some extent live by myths. We owe it a duty to our children to teach them the kind of myths that reinforce their confidence about our country and its high and noble destiny. Related to this factor is the third element. We are yet to have a truly great national reconciliation exercise. Our history since 1966 is nothing but a hodgepodge of lies and make-belief. Many of our leaders were part of the so-called “Class of ‘66”. They were among the direct actors and dramatis personae in that sordid, macabre drama of violence, blood and death. There are wounds that only truth, justice, recompense and genuine reconciliation will heal. So long as we prefer to bury reality in a dung heap of historical lies, so will nationhood, solidarity and genuine amity continue to elude us. The fourth element is what I call the decade-long civil war that wrecked such untold havoc on our mental psyche. Boko Haram was invented as a weapon of political destabilisation by some of our political elites. Those same elites have also cultivated the murderous herdsmen militias that a committing genocide throughout the Middle Belt and beyond. They have killed men, women, children, the elderly and infirm in a hideous and indiscriminate manner. Some of these people are barbarous aliens from our poverty-stricken neighbours. Our political elites have imported them as armed militias in a bid to re-order our country and to change its demographic geomorphology in line with their own wicked and evil plans. Our leaders fail to realise that man is a moral being. Once you destroy the moral fabric of society there is no end to the evil that takes over. As a consequence, Nigerians feel that they cannot trust their leaders and they cannot feel a sense of loyalty or belonging to a so-called federal entity that behaves like a rapacious beast rather than an instrument of the servant state that caters for their welfare and security.


On October 1, 1960, Nigeria was almost at par with India, Korea, Indonesia, Brazil, Singapore and a few others that now appear far ahead. Why was this?

That one is a long story. You are not quite accurate. Nigeria was in fact ahead of some of those countries you mentioned. According to the accounts of the great Austrian-American economist Wolfgang Stolper, who was an adviser during our first National Development during the years 1959-62, our country was well ahead of Malaysia, Singapore and India. Stolper met everybody who mattered in the government and economic planning. He rated such people as Simeon Adebo, Ojetunji Aboyade, Ali Akilu, Abdul Aziz Atta, Sam Aluko, Jerome Udoji and Pius Okigbo as world-class technocrats.

Unfortunately, today, we are nowhere compared to those countries. They have made such giant strides in economic and social development while we have, as a matter of fact, regressed. As of today, our GDP stands at about US$500 billion while our per capita income is US$2,049. Our average life-expectancy is 53 years while our human development index (HDI) is a low 0.532 (157th out of 198 countries). Contrast our position with that of tiny Singapore with a population of 5.6 million. They have a GDP of US$372 billion and a per capita income of US$65,627 and a very high HDI of 0.932 (9th position out of 198 countries). Singapore has an average life-expectancy of 84.8 years. Its physical infrastructures are world-class while ours are relatively primitive. As you probably heard, in 2018 we overtook India as the world capital of poverty. India’s poor are now about 70 million out of a population of 1.3 billion (about 18 per cent of the population) while our poor number some staggering 87 million, representing 45 per cent of our population of 198 million. There is no magic about these development outcomes. The emerging economic powers invested in human capital, skills, infrastructures and agriculture. They built an eco-system that allowed their people to flourish in atmosphere of peace and harmony. They were also relatively stable politically.

Brazil, for example, initiated an ambitious poverty-alleviation programme first under President Hernando Cardoso and then under the more radical socialist Luiz Inacio Lula da Silva. Corruption exists in all countries, but countries such as Indonesia ensured that the money stayed at home. My friend Peter Lewis, Dean at the Johns Hopkins School of Advanced International Studies in Washington DC did a brilliant study of Nigeria and Indonesia. Our two countries started with similar initial conditions but diverged widely apart because of the bad policy choices we made. Like us, Indonesia underwent the tragedy of civil war. We similarly experienced corrupt military tyrannies. What made all the difference, according to Lewis, is that the corrupt military tyrants in Indonesia invested in their people and ploughed back their stolen wealth into the economy. By contrast, we created a petro-dollar rentier state where the bulk of the money was squirreled abroad. We simply had no mind to build an inner-directed and inner-propelled developmental state that could bring hope to the teeming millions of our benighted people. To echo William Shakespeare, the fault is not in our star but in ourselves. We are a failed country.


At the beginning there was development plans. Would you regard jettisoning of this as a reason the country is still at this low stage of development?

Yes, indeed, you are correct. But I wouldn’t go so as to say that development planning has been the sole determinant of economic progress among the more advanced emerging economies. But it has been a very critical factor. I don’t where we got the ideas that development planning is bad and that all we need are so-called “rolling plans” and mid-term expenditure frameworks. The history of planning in Nigeria goes back to colonial times. Before independence, the departing British brought in economists from the World Bank and the United States to assist in designing Nigeria’s first five-year economic development covering the years 1962 to 68. We’ve had altogether four national plans since independence, the other three being the Second National Development Plan 1970 to 74, the Third National Development Plan 1975 to 1980 and the Fourth National Development Plan 1981 to 85.


In addition, there has been the National Economic Empowerment and Development Strategy (NEEDS), which, strictosensu, is not an economic plan, but a general overview of economic goals and principles. Experts will continue to debate which, if any, among those plans was successful. It is generally agreed that the Second National Development Plan was among the most successful. It was successful because it was masterminded and implemented by great men such as Obafemi Awolowo and Professor Adebayo Adedeji, with help of technocrats such as Allison Ayida and Phillip Asiodu who were eminent economists in their own right. In 1985 the Ibrahim Babangida military administration were persuaded by the Bretton Woods institutions to jettison planning altogether.

Many of our so-called economists who bought into the fraud were in no position to know that works such as those by Naomi Caiden and Aaron Wildavsky, Planning and Budgeting in Poor Countries, were really sponsored stratagems to ultimately ridicule planning in developing countries and to discourage it. Those were also the years of the Cold War. This is not to by any means idealise planning. Economic development planning cannot be a panacea to solve all economic ills. But I see it as a discipline and tool for resource and political mobilisation that enabled leaders and the nation’s economic managers to focus on their long-term policy choices. Economic planning also helps to minimise the rampant policy inconsistencies and instability that accompanies regime changes. Contrary to what many suppose, the emerging countries that have enjoyed accelerated growth and structural transformation have precisely those countries that never jettisoned economic development plans. These include: China, India, South Korea, Malaysia, Singapore and Indonesia. Those countries have persisted with economic development in disregard to pressure from foreign powers. And the results have been salutary. India recently modified its national planning framework. But they are still very much committed to long-term planning. I heard some noises recently that Minister of Finance, Planning of Budget is thinking of developing a long-term perspective plan for the next 30 years. I warmly welcome that development.


Is it proper to refer to Nigeria as a federal state?

Well, I think we are a sort of a federal state, at least according to the letter of our constitution, if not its spirit. We have an over-centralised federation, which in many ways defeats the real desire and objective of our ethnic nationalities. We have inherited this over-centralised structure from the military era. However, I must point out that those who badger about “true federalism” don’t know what they are talking about. There are forms of federalism. They vary in structure and constitutional forms and practises, from USA to Canada, Russia, Ethiopia Australia, India and Switzerland. My point of departure is that every federal structure should reflect the deepest desires of its constituent ethnic communities, their historical experience, temperament and unique national conditions. We need a federal system that accords with the deepest yearnings of our people. I believe that Nigerians want to continue to live together. But they also desire autonomy and relative self-determination, devoid of an overbearing centre. The constitution that we inherited from the military in 1999 is a 419 contraption. It was prepared by a few jurists from one part of the country. They implanted into the document all sorts of inequities, egregious nonsense and patent jurisprudential mischief. To the extent that it was not the outcome of “We, the people”, it is an illegitimate document. One thing we Nigerians don’t understand is that the best constitutions are written not by lawyers but by political philosophers. We need a new constitution written by our best political-philosophical minds. Leave it to lawyers, and they will inject all sorts of inconsistencies and ambiguities, all for the purpose of buttering their own bread. Those who know the law and nothing else can be very dangerous people!


How should we properly restructure the country to function properly?

Please, allow me to say that I am not among those who are using the idea of “restructuring” merely to bludgeon one party of the country against another. The condition of our country today makes it clear that we have no future as a people unless we face squarely the arduous task of re-engineering our federation. We must be transparent and honest about the process of political reform. We must agree on basic principles: the rights of nationalities, the principle of self-determination and a referendum process that ensures that ethnic nationalities can join whichever region they so wish. We must dust-up several documents that we have buried under the carpet for our selfish and narrow-minded interests, prominently the report of the last political confab and the recommendations of the Willinks Commission on Minorities. In principle, we cannot go back to the tripodal structure we had in 1960. The great doyen of colonial administration at Oxford, Dame Margery Perham, described our federation at the time of independence as an “unstable tripod” which was doomed to collapse. The North, as you know, comprised two-thirds of the landmass of federation, thereby defeating one of the principles of federalism, which asserts that no one region should be so dominant as to threaten the others. For my part, I’m in favour of no more than 5 regions: West, North, Middle Belt, East and Delta. I am also in favour of unicameral legislature together with a modified parliamentary system.


What lessons do you think we have refused to learn as a country; how and why? 

It was the German philosopher, Hegel, who opined that the only lesson history teaches is that people never learn from history. There are, in my opinion, five lessons that we have failed to learn: (i) bad policies will simply produce bad outcomes; (ii) No society can ever transcend the level and mindset of its ruling elites, and if you are ruled by monkeys you will sooner or later become a land of monkeys and even the best among you will begin to mimic the behaviour of monkeys for the sake of self-preservation; (iii) our federation, as currently constituted, is programmed to fail, while the secular process of decline will continue until we take steps to re-engineer our system; (iv) without peace and security, nothing good can be achieved; (v) the whole world knows that our country in its current trajectory will eventually disintegrate if we continue on this self-same path of folly. We have refused to learn because we do not have righteous and enlightened leaders who are God-fearing and who are competent enough to do the right thing. As a society we also lack the institutional mechanism to internalise and promote collective learning in all we do.


Why is the leadership question intractable? 

Economists and social scientists have described a phenomenon that we term “path-dependence”. It is in the nature of human societies that once they set upon a path they tend to continue along those paths. It seems to confirm one of Isaac Newton’s Laws of Motion in physics that a body continues in a state of motion until an opposite force either brings it to a halt or forces it to change course. The same is true of leadership traditions. Once countries tend to settle for certain social groups from which leadership recruitment is made, they would tend to perpetuate that system. This is true of democracies old and new: Britain, Germany, France and so on. It’s even true of Russia, where they have never known anything like a liberal leader from Ivan the Terrible to Tsar Alexander and Vladimir Putin. Liberalism in Russian political culture is interpreted as weakness, which is why they quickly got rid of the hapless but well-meaning Mikhail Gorbachev. Nigeria has never had a first-rate leader. We’ve had, at best very mediocre people. The kingmakers and godfathers always prefer low-grade people because they believe they are more malleable. They are suspicious of anyone that seems to have a mind of his own. It has been our greatest undoing. The most outstanding leader who was denied the high magistracy was the great Chief Obafemi Awolowo. What we don’t realise is that the most advanced countries are also unashamedly elitist. Lee Kuan Yew of Singapore was a beautiful mind himself and did not feel threatened by equally gifted people. In fact, he surrounded himself with brilliant minds. Another thing we fail to realise is that no society can grow above the level and mentality of its leaders.  The godfathers and self-appointed kingmakers have also ensured that politics remains a prohibitively expensive business. To run for the presidency, you would need a minimum of N10 billion. You would either have to be a thief or a robber baron or a friend of both. And even when they finance you, it goes without saying that you become forever beholden to them. The price you have to pay is to open up the treasury and NNPC for them to loot. You will also have to bend the arc of the commanding heights of the economy to feed their parasitical proclivities. And if I may quote the great Lee Kuan Yew of Singapore: “A nation is great not by its size alone. It is the will, the cohesion, the stamina, the discipline of its people and the quality of their leaders which ensure it an honourable place in history.”


Is there any synergy between the political class and economic elite? How and why? 

Yes, there is an apparent synergy between the political class and the economic elites. But as you know, there is good synergy and bad synergy. Most of what goes for synergy between them has been of the negative variety. The biggest industrial and oil moguls work through a system of political patronage. Businesspeople support politicians financially during elections and in exchange regulatory monopolies are designed to satisfy them. They also receive unfair concessions, including oil blocks and the likes. Some of the privatisation programmes that were implemented achieved unsatisfactory results because of such game-theoretic realities. Another thing we have failed to understand is that you need to shield the higher civil service from external commercial pressure if they are to perform their task in the overall common good. In countries such as South Korea, Malaysia and Singapore, they started off with a highly merit-based civil based on competitive examination. Japan set the pattern for that; having copied the system the Chinese that had operated a highly advanced bureaucratic mandarinate since medieval times. To this day, competition into the Chinese civil service is extremely fierce. Only the very best make it into the civil service. India maintains the same tradition. The higher civil service in those countries enjoy prestige, tenure and good emoluments. They are also shielded from undue political pressures and from baneful influences of corrupt businesspeople. This allows them to operate as a technocracy that designs and implement public policies with purely technical considerations in mind. They also have the leeway to give sound professional advice to the politicians.


The citizenship issue in the past and now?

The concept of citizenship since Aristotle has been a binary one. You cannot have citizens without the rulers. It is essentially about rulers and the ruled. It is also about the social contract. In modern political theory the state is essentially a contract that communities enter into with each other to surrender their sovereignty in exchange for protection from the vagaries of nature and man. It is a two-way street. Citizens and rulers have duties as well as obligations. As citizens, we have a duty to pay our taxes, to rise to the defence of our country in the event of war and to perform other civic obligations as are expected of us. The rulers, on their part, have a duty to govern with fairness and justice and to be accountable to the people for whatever they do. A government that fails to protect its citizens and to secure the common peace has ipso facto failed in its most elementary duties. A government that perverts the course of law and public administration can no longer earn the loyalty of its citizens. Citizenship in Nigeria today is under severe threat. Through the excuse of our so-called “porous borders”, millions of illegal immigrants have been allowed into a country, a good number of them bearing arms. They have killed and maimed and committed rapine. We do not even know who is a citizen anymore. Anybody can walk across the border and they can lay claim to rights more than you and me. And unfortunately, some of the policies government is pushing through – Ruga and the bill to take-over all our rivers, waterways and lakes are rightly or wrong perceived as dispossessing indigenous populations of their ancestral patrimony. Those of us who speak the Hausa language know that some of these people are not Nigerians. It happens also that our national passport is the easiest to obtain in the world. Many people committing crimes abroad claim to be “Nigerians” but most are only operating with passports illegally acquired from our interior ministry. The genuine Nigerian citizen has become an alien in his own fatherland.


Why the leadership inertia to the critical issues that trigger threats of dismemberment of the country.

This is a rather difficult one. Somehow one would have to perform the psychic exercise of entering into the minds of those who are ruling us to understand how their mind works. It is absolutely true that our beloved country is hanging on a dangerous precipice. The anger and bitterness is unprecedented. But I think the people concerned don’t give a damn. They reason that because they have monopoly of the use of violence and have absolute control over the institutions and machinery of government, they can do as they please. The alarming interference with the independence of the judiciary is perhaps the most dangerous of these trends. We also watch with dismay as National Broadcasting Commission is bullying people and destroying the foundations of free speech that are so central to our democratic norms. The kind of atmosphere of sheer lunacy that we are seeing is unimaginable. Channels TV, for example, prides itself in being “the best TV station in Nigeria” for the better part of a decade. But they are actually among the worst. They operate by pretending to be “neutral” when what they are in fact projecting is a kind of amoral complicity with murder and genocide in our country. To assert professional neutrality in the face of the killing of innocent, defenceless people is not only unconscionable, it is evil. This phenomenon arises from the very unhealthy atmosphere that has overshadowed political existence in our country today.


Is it because of class interest or hegemony? 

I would say more hegemony than class. A section of our elites have taken it upon themselves to re-imagine our country in the image of a backward ideology. People who do such things actually deliberately encourage economic stagnation like they did in Sudan until recently. The logic is simple. People can only rebel when things are looking up, not when they have been reduced to Point Zero. So they deliberately kill the economy, allow illegal aliens infiltrate our country, turn a blind eye to rural bandits, and allow chaos to prevail. It is either they allow it or the unable to do anything about it. This is why they describe horrendous murders in the anodyne terms of “farmers-herders clashes”. Where are the clashes when well-armed bandits descend on a poor defenceless peasant with his wife and children in Zamfara or Adara land? The truth is that they continue to rule through fear and intimidation. Anybody who dares to criticise them becomes an “enemy” of the state. Blinded by power, they do not know that our country is bleeding to death.

Which among the gains and losses for Nigeria as a federation in 59 years, surpasses the other so far; and why?

We lost almost three million people during the tragic civil war. It was an unnecessary. If the highly overrated Dim Emeka Odimegwu-Ojukwu had not been such an arrogant fool; and if General Gowon had exercised more restraint and more forbearance we would not have had to go to war. They were relatively young men. Gowon was barely 32 and Ojukwu was barely a year older. They were mere kids playing with big dangerous toys. We lost so much treasure by way of capital and blood. The wounds continue to rankle. According to some estimates, out of the US$1 trillion made in the last 40 years, some US$400 million has either been stolen our expended in questionable projects. We have robbed future generation of infrastructures, world-class high speed trains, good highways and outstanding universities that could compete with the best in the world. We also lost the Bakassi Peninsula to Cameroon out of our greed and incompetence. Bakassi has been our biggest foreign policy debacle since independence. We have lost the chance to make ours a great nation. We have become a beggarly nation – a byword for mediocrity, folly and collective failure. Our national image stands among the lowest of all the countries of the earth, right next to Somalia, Afghanistan and Haiti. How are the mighty fallen!


High Cost of Building Materials and its Impact on Housing

One of the major causes of concern for many Nigerians willing to own a home is affordability. This affordability is affected largely by the cost of building materials – both for developers and individual builders.

Building materials contribute immensely to the cost and quality of housing, from what is used for the foundation to the materials for roofing and finishes. The building materials industry is an important contributor to the national economy of any country as its output governs both the rate and quality of construction work.

Over the past 10 years, there has been a dramatic increase in the costs of building materials in Nigeria, and this development threatens the performance of the construction Industry.

According to experts in the industry, the general direction at which prices of building materials are increasing in Nigeria was as the result of the combined effects of high interest rates, devaluation of the Naira, inflation, exchange rate of the Naira, cost of fuel and power supply, changes in government policies and legislations and non-effective distribution network of the materials.

The contribution of this to the increasing housing gap in Nigeria cannot be overemphasised. Many low to medium income earners have nearly given up the hope of ever owning a home of their own because of the unbearable cost of building materials.

Increase in the prices of building materials has multiplier effects on the industry. The rising cost of building materials has high implications on construction cost, volume of construction output, and risk of project abandonment.

The implication of the fluctuation in the cost of construction is such that projects are not delivered within the budget and time, the level of quality required is difficult to achieve, conflicts between contractors and clients ensue as a result of an upward review of contract sum and most likely leads to cases of abandonment where investments are tied-down since such projects will not be put to use at the time expected.

Another implication of the rising cost of building materials is such that the volume of construction outputs is reduced. The reduction in construction output is likely to jeopardize the government housing policy and invariably leads to shortage in the supply of housing demand of the citizenry and reduction in the employment, especially of labor workers in the construction sector, which by extension, is capable of bringing down the contributions of the construction industry to the nation’s gross domestic product (GDP).

If the government is committed to delivering mass affordable housing for Nigerians, she must be concerned about the rise in cost of building materials and do something about it.

Some stakeholders have suggested that government should formulate policy that will play down the agitations on the use of imported building materials by encouraging research in the production of local building materials.

Government should also take drastic steps to reduce the cost of production and transportation of goods by ensuring an adequate supply from the power sector and production of petroleum products through the local refineries as against dependency on importation.

General infrastructures like roads, bridges, power etc. that will boost local production should be provided or improved. There should also be an enabling environment which comprises of economic policies and the building of more factories through public private partnerships. This will lead to more made in Nigeria building materials, and reduce the general cost.

There is also an argument about the monopoly in the production of cement. The government should enable an equal playing ground to enable the kind of competition that can drive down the cost of building materials.

More so, government should encourage and support the development of alternatives to cement. For building sustainability in the 21st century, there are several alternatives to cement which have been successfully implemented in several places. These alternatives are not only dependable but cheaper.

Import duty wavers should also be introduced for those who import certain resources that are not locally available to enable the local production of building materials.

If the cost of building materials are reduced, it will definitely help increase the production of affordable houses for more Nigerians in need of houses.

Housing Crisis Affects Estimated 8.4 Million in England – Research

An estimated 8.4 million people in England are living in an unaffordable, insecure or unsuitable home, according to the National Housing Federation.

The federation said analysis suggests the housing crisis was impacting all ages across every part of the country.

It includes people facing issues such as overcrowded housing or being unable to afford their rent or mortgage.

The government said housing was “a priority” and it had delivered 430,000 affordable homes since 2010.

The research, carried out by Heriot-Watt University on behalf of the federation, used data from the annual Understanding Society survey of 40,000 people by the University of Essex.

The figures were scaled up to reflect England’s total population of nearly 56 million.

The research estimated:

  • 3.6 million people are living in an overcrowded home
  • 2.5 million are unable to afford their rent or mortgage
  • 2.5 million are in “hidden households” they cannot afford to move out of, including house shares, adults living with their parents, or people living with an ex-partner
  • 1.7 million are in unsuitable housing such as older people stuck in homes they cannot get around and families in properties which have no outside space
  • 1.4 million are in poor quality homes
  • 400,000 are homeless or at risk of homelessness – including people sleeping rough, living in homeless shelters, temporary accommodation or sofa-surfing

Some people may have more than one of these housing problems, the federation said.

People were considered to be living in overcrowded homes if a child had to share their bedroom with two or more children, sleep in the same room as their parents, or share with a teenager who was not the same sex as them.

Homes where an adult had to share their bedroom with someone other than a partner were also considered overcrowded.

Anna’s story: ‘I felt powerless’

After her relationship with her husband broke down, Anna spent five months trying to find somewhere to live with her four-year-old daughter in south-east London.

Although she was working full-time in social care, she was shocked at how difficult it was to find someone who would rent to a single parent.

Even when Anna found somewhere she felt she could afford, landlords would not consider her because her income was less than three-and-a-half times the monthly rent, while others refused to let to someone with a child.

“It was virtually impossible,” the 36-year-old told the BBC.

“I remember seeing one house for £1,400 a month which was literally a corridor in a basement – it was so mouldy and humid.

“But they still said I didn’t earn enough to be able to afford it.”

“It made me feel really powerless and frustrated,” she added.

Anna said she was “losing all hope” when a friend offered to rent a house to her below market rate.

“I don’t know what I would have done if a friend hadn’t been able to help me out when I needed it,” she said, adding that she still doesn’t feel completely secure.

“I just have no idea what I’ll do if my friend needs to rent her house out at full price in the future.”

Social housing call

The report also estimated that around 3.6 million people could only afford to live decently if they were in social housing – almost double the number on the government’s official social housing waiting list.

Social housing rents are on average 50% cheaper than from private landlords, contracts are more secure and many properties are designed specifically for older people with mobility issues, the federation said.

It said the country needed 340,000 new homes every year, including 145,000 social homes, to meet the housing demand.

Kate Henderson, Chief Executive at the National Housing Federation, called for “a return to proper funding for social housing”.

“From Cornwall to Cumbria, millions of people are being pushed into debt and poverty because rent is too expensive, children can’t study because they have no space in their overcrowded homes, and many older or disabled people are struggling to move around their own home because it’s unsuitable,” she said.

A spokesman for the Ministry of Housing, Communities and Local Government said in 2018 the government built more homes than in all but one of the last 31 years.

It has also cracked down on rogue landlords, banned unfair letting fees and capped deposits – saving renters at least £240m a year, he added.

Source: BBC

The Hybrid: A New Deal Design

Developers are combining 9% and 4% credits in the same development.

Bellwether Housing has built a development that achieves both size and depth to provide needed affordable housing in Seattle. At 133 units, Arbora Court is the nonprofit’s largest construction project to date. The development also digs deep to serve many of the city’s most vulnerable households, including 40 families transitioning out of homelessness.

To develop the ambitious project, Bellwether Housing combined 9% and 4% low-income housing tax credits (LIHTCs) in the same project, a move that more developers are eyeing to finance their developments.

“We could not have created a capital stack that would allow us to create that many extremely low-income units and be able to accommodate those families without the 9% credit or some other off-scale investment from other public soft funders that would have funneled those resources away from other projects,” says Susan Boyd, CEO of Bellwether Housing.

Traditionally, LIHTC projects have utilized either 9% credits or 4% credits, not both. That’s because the tax-exempt bonds that come with 4% credits are prohibited from being used with 9% credits. However, developers and their financial partners have recently been able to utilize both credits by splitting a project into separate deals, but it requires careful planning and documentation.

This “twinning” of credits helped Bellwether Housing create a financially sustainable project, and it was a useful tool when creating a deeply targeted mixed-income development, including units for families leaving homelessness, Boyd says.

The residential portion of Arbora Court cost approximately $39.8 million and is financed with $12.1 million in 9% credit equity and about $10.2 million in 4% credit equity from investor U.S. Bancorp Community Development Corp. Additional funders include the city of Seattle and King County.

Bellwether Housing, with partner Plymouth Housing, is looking to combine credits at another development that is expected to break ground in 2020. The project will be the first nonprofit-developed high-rise in Seattle.

Virginia Finds Success with New Structure

On the other side of the country, the Virginia Housing Development Authority (VHDA) has been providing an incentive for developments that combine 9% and 4% LIHTCs in its qualified allocation plan (QAP) since 2015.

The move allows the agency to stretch its limited 9% credits further while using an abundant supply of 4% credits to finance affordable housing developments. VHDA funded five hybrid projects in 2015, two in 2016, four in 2017, 14 in 2018, and another nine projects have been reserved credits this year. Together, these projects provide nearly 5,700 affordable units.

In its QAP, VHDA provides a point incentive for developments that combine the two credits. The points, which are awarded on a sliding scale, are enough to be a difference-maker in the competition for credits, says Art Bowen, VHDA’s managing director of rental housing.

The program has worked well, but the deals are complex, requiring developers to divide a project into two separate transactions—one with 9% credits and another with 4% credits and tax-exempt bonds.

This requires developers to think about what would happen if they have to run the two projects independently of one another.

As an example, a development may have one building financed with 9% credits and another with 4% credits. However, only one of the buildings will likely have the amenities, including the leasing office, the fitness center, and other community space. Developers may need to have a legal agreement in place so residents in the other building will have access to the amenities in the other.

Despite the complexities, there are many benefits to twinning. For developers, the structure will allow them to access additional credits to make deals financially feasible.

For VHDA, twinning is a way to maximize the agency’s resources by reducing the use of 9% credits by bringing in 4% credits and bonds into deals. VHDA officials estimate they are able to squeeze out one additional 9% credit development each year under the program. That’s significant because it means more affordable homes are being built.

More Hybrid Deals

Other states also are looking at ways to combine the credits to help developers build affordable housing.

Following the 2016 presidential election, the threat of tax reform caused LIHTC prices to plummet, which made many deals across the country no longer financially feasible. To help these projects, the California Tax Credit Allocation Committee (CTCAC) passed an emergency regulation change allowing developers with an existing allocation of 9% credits to reapply and monetize excess tax credit eligible basis (i.e., basis in excess of the amount needed to support the original allocation of 9% credits). CTCAC accomplished this by issuing 4% credits on the excess basis, which resulted in several million dollars of additional tax credit equity proceeds for the developers who were able to utilize the regulation change, says Matt Grosz, director of acquisitions at Red Stone Equity Partners. In their regulations, CTCAC has since defined the combination of 4% and 9% credits as the hybrid.

Grosz was familiar with the hybrid structure after using it to finance a large development in downtown San Diego years earlier in his previous role as chief investment officer at Chelsea Investment Corp., a prominent affordable housing developer in the state. That experience led to conversations with CTCAC leadership about employing the structure to help projects that were struggling after 2016 and since has resulted in a permanent regulation change, which now provides for a competitive scoring incentive for hybrid transactions, he says.

We’re seeing more hybrid deals happening and people choosing to pursue the structure either to increase the competitiveness or purely for project feasibility where there’s a limited amount of local resources,” he says. “The basic concept is the following: If you’re not taking 9% credits on 25% of your eligible basis, then you can carve that 25% piece of the project or building off and access 4% credits, which gets you 35 cents on the dollar back in equity. Absent the hybrid structure, 100% of those excess basis costs are financed with soft money, perm loan proceeds, or deferred developer fee.”

Red Stone Equity Partners, a national LIHTC syndicator, recently closed on the financing for a 65-unit hybrid community with Meta Housing and Western Community Housing in Roseville, Calif.

In order to execute on hybrid transactions, it’s critical that developers draw clear lines between the different ownership structures for the 9% and 4% components. The documentation is a bit more intensive, and some investors may be more leery of these transactions depending on how clear the delineation is between the two ownership structures, according to Grosz.

“When you build your pro forma to finance the deal, you have to figure out how you want to allocate the costs between the 4% and 9% components,” he says. “There are a handful of methodologies you can employ, but more important than the methodology you choose is that the allocation method is consistently applied across the development budget.”

Issues to WatcH

In addition to separate ownership structures, other aspects of the development plan will need to be split into separate parts—even if the project involves a single building. This includes the construction contract, financing plans, and other third-party reports, says Kent Neumann, founding member of Tiber Hudson, a law firm experienced in affordable housing and bond deals.

“Tax credit deals are already complicated, and adding both 4% and 9% tax credits to the same development plan only adds to that complexity,” he says. “It is also important to set things up as far in advance as possible with the twinning aspects of the deal. Having to make adjustments later in the schedule can create significant delays and in some cases require substantial changes to certain reports, contracts, or agreements.”

Hybrid deals have become more common in the last few years as developers and investors have become more familiar and more comfortable with the structure. It’s also notable that some states have either explicitly permitted or, in some cases, incentivized it in their QAPs, says Daniel Rosen, a partner at Klein Hornig. His law firm has closed on a number of twinned deals in multiple states.

Each state has a limited amount of 9% credits to allocate each year, and many states also have a cap on how much in 9% credits a project can receive. These limits often mean deals have “excess” basis that’s not generating credits, especially for larger projects, according to Rosen. Twinning allows developers to monetize that excess basis with 4% credits. As a result, how much more equity a project can derive from this structure varies from deal to deal. “It’s a question of how much bigger is your deal than your 9% credit allocation,” Rosen says. “That’s where the decision begins.”

Combining the credits usually makes more sense on a large deal because you are monetizing the extra basis and you have to reach a certain scale to justify the complexity and costs, he says, noting that twinning has been used in deals over 300 units as well as in deals with as few as 60 units overall.

While the structure’s main promise is to monetize “wasted” basis, it’s also been used to serve other purposes, ranging from providing incentives to using expiring tax-exempt bond volume cap to encouraging additional density of affordable units on a particular site, or even reducing the amount of local subsidy gap financing, according to Klein Hornig partner Erik Hoffman. He says twinning is often a way to separate your financing application from the pack of competitors given it demonstrates that the developer is working to better leverage public resources to provide more housing. Hoffman observed a significant increase in developers pursuing twinned project structures and in state allocating agencies permitting or incentivizing them. For example, Hoffman says that in Maryland’s recent 2019 funding round, of the 47 applications submitted, eight of the 15 projects that received awards employed the twinning structure.

When a development team decides to move ahead with a hybrid structure, it will have to create a legal framework for the separate ownerships that are required for the 9% and 4% credit portions of the project. This often involves splitting a project with a condominium or an air-rights structure.

Hoffman dubbed these “Noah’s Ark” deals because they require two of everything, including two plans of financing, two budgets, and two loans. Rosen notes that construction contracts sometimes are the exception and can be a single contract for both projects, but that even these often require extra attention because the costs and scope of the work will have to be split among the two different projects even though there may only be one building involved, he says.

Close monitoring and documentation is also required after construction, says Boyd of Bellwether Housing, noting that a property will get one utility bill but that will have to be split between the two projects.

Twinning adds significant complexity and business risks, all of which should be evaluated with counsel and accountants before pursuing, says Hoffman. He explains that the main risk comes if the tax-exempt bond proceeds “taint” the 9% credits, resulting in a potential adjuster of 50% to 60% of the tax credit equity, which would be catastrophic for most projects and sponsors. That taint, Hoffman says, can be direct, wherein the tax-exempt bond proceeds subsidize the construction of the 9% project, or indirect, such as by cross collateralizing the projects or inappropriately blending the two project financings when they should be separated.

While the twinning of 9% and 4% LIHTCs is still relatively new and poses potential risks, a similar structure has been used in other transactions, including in deals that combine LIHTCs and New Markets Tax Credits, Rosen says. “We do a number of transactions that combine those credits,” he says. “The technical rules are different, but the results and structuring issues are very similar because there’s a similar concern. In that case, it’s not allowing the New Markets financing be used to finance the residential project.”

Source: housingfinance

Task before Economic Advisory Council

The Federal Government announced the members of the Economic Advisory Council on September 16, 2019. The new body which replaces the Economic Management Team that was headed by Vice President Yemi Osinbajo is to be led by Prof Doyin Salami as Chairman; Dr. Mohammed Sagagi, Vice-Chairman; and Dr. Mohammed Adaya Salisu, Secretary, who happens to also be a Senior Special Assistant to the President on Development Policy. Other members are: Prof. Ode Ojowu, Dr. Shehu Yahaya, Dr. Iyabo Masha, Prof. Chukwuma Soludo, Mr. Bismark Rewane. The team is no doubt a top rate one.

The team, however, has a female member, Dr Iyabo Masha, who was until August 2019 the IMF Representative for Sierra Leone. The percentage of female is about 12.5%, a ratio of 1 to 7. Perhaps, President Buhari should have appointed more females for a more gender-balanced composition.

The EAC appears to be modelled after the United States’ National Economic Council, though the Council of Economic Advisers model would have been more institutionalised because the latter was established by the Congress and the members’ appointment is subject to the Senate approval.

As stated in a report by the President’s spokesperson, Femi Adesina, this advisory council, which will be reporting directly to the President, will advise him on economic policy matters, including fiscal analysis, economic growth and a range of internal and global economic issues working with the relevant cabinet members and heads of monetary and fiscal agencies. In addition, the EAC will have monthly technical sessions as well as scheduled quarterly meetings with the President. The chairman may, however, request unscheduled meetings if the need arises (I like this part because it fosters flexibility). One thing is missing: its tenure. We don’t know for how long the EAC will be in existence.

From the face of it, the EAC composition appears to be pro-growth and can kickstart a bullish run on the Nigerian economy, other key factors being equal. It is a good signal and confidence-boosting. And the administration will attract more attention and respect from the international market. We must however face the fact that this administration has about 30-36 active months to consolidate on its recent gains and lay a solid foundation for higher economic growth and create more jobs. Time is running out fast. So, let us take a look at the economic statistics staring at the EAC:

-Gross Domestic Product grew by 1.94% (year-on-year) in real terms in the second quarter of 2019. On a half-year basis, real growth in the first half of 2019 stood at 2.02%.  The Federal Government’s growth estimate for the 2019 fiscal year is 3.01%. But the IMF is projecting a 2.1% growth for 2019.

-Unemployment rate was at 23.1% (Q3 :2018) up from 18.1% a year earlier. The African countries having higher rates than Nigeria are Namibia (33.4%), Angola (29 %), South Africa (29%) and Mozambique (25%). Countries such as Libya (17.3%), Tunisia (15.30%), Rwanda (15%), Kenya (9.30%) have lower rates compared to Nigeria. More details are contained here

-Underemployment was at 20.1% (Q3: 2018)

-Inflation rate at 11.02% (August 2019). The Federal Government’s estimate for 2019 fiscal year is 9.98%

-The key benchmark interest rate (monetary policy rate) is 13.5% with asymmetric corridor at +200/-500 basis points

-Out of the actual 2018 FGN budget of N7.455tn, the debt service was N2.152tn, which represented a 28.8%. The FG also recorded a variance of 23.9% (shortfall) in the total expenditure- N9.120tn vs N7.455tn. The actual amount of debt service was even more than capital expenditure (N2.152 trillion vs N1.743 trillion)

-The key projections contained in the Draft Medium Term Expenditure Framework /Fiscal Strategy Paper 2020-2022 released on September 10, 2019 by the Federal Ministry of Finance, Budget and National Planning are shown thus:  The real GDP growth is projected to be 2.93% (2020), 3.35% (2021), 3.85% (2022). Using an official exchange rate of N305/US$, the real GDP is projected to be US$458bn (2019), US$468bn (2020), US$522bn (2021) and USD588bn (2022). If an exchange rate of N350/US$ which mirrors the actual rate available to much of the population is used, the real GDP will be lower than the projected figures.

-The personal cost (inclusive of pension costs) for 2019 is over N3tn (more than a third of the entire budget) and it is rising. New borrowing as a percentage of total FGN Budget (including Government Owned Enterprises and project-tied loans) between 2020 and 2022 is averaged to be about 15%. Debt service to Revenue ratio (including Government Owned Enterprises and project-tied loans) for the projected period is averaged to be about 34%. Deficit as percentage of FGN Revenue (including GOEs & project-tied loans) is averaged to be about 26%. Capital expenditure as percentage of Non-Debt Expenditure to be about 29% on average. It is 41% in 2019. So the FGN is planning to spend less on CAPEX between 2020-2022. This is strange though. The draft document concludes that “Nigeria faces significant medium-term fiscal challenges, especially with respect to revenue generation and rapid growth in personnel costs”. The draft MTEF 2020-2022 can be downloaded here


So, what should we expect from this EAC? For one, most if not all the members of the council have a market ideological bent. But they will be reporting to the President who seems not to have a soft spot for free market. Perhaps, the President’s mindset is now changed. Secondly, it is important the apparent ideological differences are resolved from the onset.

Nigeria has been running perennial budget deficits and keeps increasing. It is equally troubling that much of the public debt goes to recurrent expenditure. Eventually, Nigeria will have to adjust. As I mentioned, the EAC does not have much time but a lot can be done. I guess the council will work with the Economic Recovery and Growth Plan of Buhari’s administration. It is its major economic blueprint. The ERGP objectives are to: restore and sustain growth; invest in our people and build a globally competitive economy. Given the ERGP, the EAC would likely tilt towards stabilisation policies for the remaining duration of the administration. This administration ends in 2023.  The first 90 days of the EAC will either confirm a good signal or a bad one. It will show whether the initial optimism will be sustained or will fade away quickly.

Going forward, in its advisory role to the President, the EAC will have to:

  1. Look for more sustainable ways to generate revenue.
  2. Reduce leakages in government spending to the barest minimum.
  3. Help answer the question whether Nigeria (administrative-wise) wants an expansive government or restrictive type.
  4. Decide whether to borrow more from the international markets right now or borrow domestically
  5. Evaluate the question of subsidy/under-recovery in the pump price of petrol
  6. Evaluate the government strategies at generating more revenue from taxes taking into consideration other bottlenecks Nigerian businesses currently face which make them to be less competitive.
  7. Advise the FG whether it is in Nigeria’s interest to go ahead with launching of ‘ECO’, the planned single currency for Economic Community of West African States in 2020; given the divergence criteria in most member States.
  8. Consolidate on the Ease of Doing Business initiative
  9. Work with the monetary authorities to fight inflation.
  10. Fight the unemployment.
  11. Assess the current state of the currency swap deal with China.
  12. Assess the various intervention schemes (not the monetary policy mandate) of the Central Bank of Nigeria in the real sector of the economy.
  13. Ensure a better coordination between Ministries, Government Owned Enterprises (GOEs) and other key agencies.
  14. Ensure Nigeria is an attractive destination for Foreign Investment. It is obvious the quantum of domestic investment can not take Nigeria forward. Nigeria needs on a much bigger scale both the Foreign Direct Investment and Foreign Portfolio Investment.
  15. Look at other areas that need critical infrastructure such as ports, education, works, housing and power. This is also calling their attention to the fact that as contained in the draft MTEF, a reduced amount is proposed to be spent on CAPEX between 2020-2022. This could be counterproductive.

The Federal Government will have to decide on what it wants to do with Government Enterprise and Empowerment Programme and other intervention schemes on the one hand and the new Ministry of Humanitarian Affairs, Disaster Management and Social Development on the other. Does it want to merge them and why?

Affordable Housing Lessons from Sydney, Hong Kong and Singapore: 3 Keys to Getting the Policy Mix Right

Affordable housing is a critical problem for Australia’s biggest housing markets. Five Australian cities are in the top 25 with “severely unaffordable” housing in a 2019 Demographia survey of 91 major metropolitan markets. Sydney was ranked the third least affordable of the 91.

The average age of first-time buyers in Sydney has reached 38. And, on average, tenants spend more than 30% of their income on rent. Those who entered the Sydney market 10-15 years ago are more likely to find their housing affordable.

Cities with housing affordability issues have introduced various policy packages in response. This article compares the policies of Singapore, where housing is relatively affordable, Hong Kong (the world’s least affordable private housing market) and Sydney. Our review shows a need for coherent and coordinated housing policies – a synergistic approach that multiplies the impacts of individual policies.

Housing has direct impacts on people’s well-being. A housing market that works well may also enhance the economic productivity of a city. If not handled properly, housing affordability issues may trigger economic and political crises.

Our review covers several aspects.

A balance of renters and owners

First, an affordable housing system needs to be about both the rental and ownership sectors.

In Singapore, public housing provided by the Housing and Development Board makes up 73% of Singapore’s total housing stock, which includes public rental and subsidised ownership. HDB flats house over 80% of Singapore’s resident population, with about 90% owning their homes. The average waiting time to get public housing is three to four years.

Public housing is also important, although to a lesser extent, in Hong Kong. In this city, 44.7% of the population live in public housing. The average waiting time is three to five years, depending on household type.

In both cities, subsidised rental and subsidised ownership are an integral part of the public housing system, which aims to improve housing affordability.

Sydney takes a very different approach. Social rental housing provides only 5.56% of housing and covers only low-income households in “priority need”. The average waiting time to get into social housing is five to ten years.

Although there are other policy measures to support home buying and rental (such as the National Rental Affordability Scheme), these are not integrated with the public housing system in Sydney. Rather, the goal of these policies is to support the private housing market.

It’s not just about housing supply

Second, housing affordability needs to be backed up by demand-side policies – i.e. policies to help tenants and owners to develop financial capacity.

Despite its heavy state intervention, Singapore’s public housing stresses the responsibility of individuals. The Housing Provident Fund is a form of forced savings for housing, retirement, health and education, among other things. It is integrated with the pension system to enhance the efficiency of savings.

Forced savings are not available in Hong Kong and Sydney for housing purposes. Since 2017 first home buyers in Australia have been able to draw on their voluntary superannuation contributions for a deposit.

Work-life balance matters

Third, action on housing affordability needs to take employment and its location into account.

Ultimately, the reason people find it hard to afford housing in certain locations is because they need to achieve a work-life balance. Both Hong Kong and Singapore have developed extensive public transport systems. These offer affordable options for people to travel efficiently to and from work.

In Hong Kong, the average daily commuting time by public transport is 73 minutes. Some 21% of the residents have to travel for more than two hours a day. In Singapore, average commuting time is 84 minutes, with 25% exceeding two hours.

In Sydney, the average time is 82 minutes, but 31% take more than two hours. This means a significantly larger proportion of Sydney residents spend more time on public transport. Among the worst-affected are white-collar workers from the city’s west and southwest.


Lessons from the 3 cities

So, what we can learn from these cities’ experiences with housing affordability?

Cities take very different approaches to these issues. Each approach has its own merits and issues.

A key argument against public housing has been that it might give the tenants less incentive to save for housing. It might also not be popular with mainstream voters because of the cost to taxpayers.

Singapore’s approach seems to be a midway solution. The government plays a bigger role in providing housing, but does not waive individual responsibilities. Providing public housing and at the same time demanding individuals and employers contribute can send a strong signal: people are encouraged to join the labour force.

So far, Singapore faces the least housing affordability issues. Hong Kong and Sydney are much more liberal in their approaches to housing.

In Sydney, only the poorest benefit from the public housing system. The younger generation is struggling to get on the housing ladder.

In Hong Kong, people are forced to buy housing in the commercial market if their income is even just above the eligibility line for public housing. The severe unaffordability of private housing in Hong Kong, even for young professionals, brews social discontent.

Combining these three perspectives, Sydney’s housing, savings and public transport systems are far from well synergised to offer a competitive package of affordable housing. The 30-minute city plan prepared by the Greater Sydney Commission might improve the situation. However, similar to Hong Kong, current policies are weak in building the capacity of young people to own homes.

Source: theconversation

Should People Profit From Housing? Bernie Sanders Says Yes, and No

Bernie Sanders has gone much further than any of the other 2020 Democratic presidential candidates in proposing not just more money for affordable housing, or more enforcement of fair-housing laws, but also fundamental changes in how the housing market functions.

His most startling ideas — a national rent control standard, and new taxes on land speculation and house “flipping” — would bring America closer to the idea that housing should be treated as shelter and not a commodity.

But in the housing plan his campaign released Wednesday, Mr. Sanders doesn’t go all the way there. He allows for profit, but not certain kinds of profit, or profit by certain kinds of actors. In that middle ground, somewhere between the private market and social housing for all, things get complicated.

The national rent control standard Mr. Sanders has proposed would cap the amount that landlords can raise rents, to shield tenants from escalating housing costs and, in a deeper sense, the excesses of capitalism in the housing market. Landlords could raise the rent by no more than 3 percent per year, or one and a half times the rate of inflation, whichever is higher.

His housing plan says nothing about the profits of people buying and selling homes in the normal course of homeownership. In fact, Mr. Sanders would invest an additional $8 billion into federal programs to help first-time home buyers, precisely because homeownership in America is often a means of building wealth.

Between the two proposals lies a fraught balance: One would curb profits in the housing market, while the other acknowledges that many Americans depend on those profits. Mr. Sanders’s campaign seeks to reconcile the two by arguing that rich investors or landlords shouldn’t get to make so much, while ordinary American families should have a chance to make something.

“We want to return to the notion that homeownership can be an asset builder for working people and average American families, and it is not just a vehicle to commodify to make the rich richer,” said Josh Orton, a senior adviser to the Sanders campaign and its national policy director.

In practice, however, it’s not always obvious how to distinguish the working families from the rich investors, or how to devise policies that crack down on the one but not the other. Some middle-class families, for example, build wealth by owning rental properties. And landlord groups are skeptical that 3 percent rent increases would build them much wealth, especially when property taxes, insurance rates and utilities aren’t also capped.

Mr. Sanders’s proposal would also put a hefty tax on house flipping, hitting owners who sell a property for more than the original price within five years of purchase (for a place they don’t occupy). But that definition would cover people we don’t think of as flippers: a small-scale general contractor who remodels two homes a year; a family that buys a home for an aging parent who later dies; a landlord who herself faces financial distress and must get out of the business.

Mr. Sanders has similarly proposed a tax on empty homes, aimed at speculators who sit on vacant properties until they become more lucrative to redevelop, or simply profitable to resell. That is a real problem in some communities, leaving neighbors to live with blight for years. But owning an empty home doesn’t necessarily make you a speculator. Someone who has put a property on the market and struggled to sell it for months might end up facing this tax.

The full proposal, emphasizing the feel-good parts of the market but not the others, is trying to have it both ways, said Jenny Schuetz, a housing economist at the Brookings Institution who has been following housing proposals from the 2020 candidates.

“In some ideal universe, people would buy homes (or rental properties) that appreciated slightly faster than inflation, allowing them to build wealth, but without housing costs rising too fast to pressure renters, deter new homeowners, or create excess capital gains,” Ms. Schuetz wrote in an email. “In that context, both rent control and flipping taxes make sense. The problem is, with any semblance of a private real estate market, land and housing values don’t behave that way.”

She is skeptical that it is even possible to design or regulate a market that gives modest returns to individual homeowners, but never gives big returns to landlords; that penalizes greedy flippers, but never harms small-time contractors; that taxes vacant homes but doesn’t punish working families.

Mr. Sanders’s ideas invite a host of questions about how they would technically work (how do we police a million landlords?) and where their legal authority would come from (would the courts uphold a national rent control law?). But these deeper questions about the kind of housing market voters might want seem worth hashing out, regardless of those other details.

Mr. Orton, the Sanders adviser, pushed back against the logic of economists that, for one, rent control discourages developers from building and landlords from renting housing that Americans badly need.

“I would say to those economists, how is that working out?” he said of the current deference to the market. “That’s what we’ve been doing. When we’ve left this to private developers, everything from the crash of the housing market to how we’ve seen gentrification just explode in some of the most vulnerable communities, to how we’ve seen people priced out of what would normally be affordable housing — this current crisis is the result of that.”

Source; nytimes

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