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Nigeria needs to raise tobacco taxes

Tobacco has a high public health cost in Nigeria. More people are smoking, starting earlier and smoking for longer than ever. As a result, smoking-related diseases are growing. In addition to the public health costs, Nigeria under-taxes and under-regulates this industry compared to the west or other African countries. There’s a massive financial and public health benefit in better regulation of the tobacco industry, and we can get enough in taxes to manage the public health costs. 

Nigeria charges lower taxes on tobacco, in part due to lower tax rates and how it charges taxes. In addition to import taxes, Nigeria charges tobacco taxes based on the value of the goods, different from the WHO-recommended tax on retail prices. Even without low rates, this tax structure is prone to under-valuation and encourages creation of lower-quality products. 

Nigeria charges 20% of the UCA (unit cost) as taxes, down from 40% in 2009. This is much lower than the WHO-recommended 75% of retail price benchmark, and even lower than the 50% recommended by the Economic Community of West African States (ECOWAS). 

What’s worse is that cigarettes have become more affordable in the past decade, when you adjust for income and affordability. This is unacceptable, and unique to Nigeria. If higher taxes are compelled to lead to higher prices, demand will drop. People will smoke less, and fewer people will die from smoking-related diseases. 

Nigeria needs the revenues, and is in a position of strength to raise taxes. Both British American Tobacco (BAT), and Japan Tobacco International (JTI) have production facilities in Nigeria. BAT controls 80% of the Nigerian market, serving its West African market out of their Ibadan factory, and Nigeria continues to be one of the growth and profit drivers for BAT. This does not end with having the tax laws on the books. We also have a problem with collecting taxes for the laws we do have, and the abused but well-intentioned tax holidays for setting up factories. 

The prize is high for getting it right. It’s a significant revenue opportunity with a payback period as short as a year, according to some estimates. In 2012, the Philippines “Sin Tax” law raised tobacco taxes which counter-intuitively increased revenues and reduced smoking prevalence. This increase in revenue allows the government to subsidize insurance for more of the population. In 1994, South Africa’s increased taxes raised government revenues 100% and dropped smoking rates 30% in a decade. Why not Nigeria?

This is not a knock on the tobacco industry, at least not for the taxes. It is reasonable to expect businesses to find ways to reduce their tax bill. These companies are huge employers of labour, they pay corporate income taxes and their export revenues are a valuable source of foreign exchange for the government. However, studies have not seen any evidence that higher tobacco taxes in countries like Nigeria will lead to job losses. Nigeria can get a “fair share” of this revenue to deal with the public health impact, and in line with other countries. 

Taxation alone will not address the public health implications. We need to enforce restrictions on advertising, better notices on packets and other tobacco control measures. Some Nigerian states are seeking redress in the court system with court cases as far back as 2007. We need everything. Combined with higher taxes, Nigeria can increase revenues and reduce the negative public health impact of smoking.

The best books I read in 2020

What a year 2020 has been. The below is a list of the books I read this year. For me, the best books are those that if they were the only books I read, it would still be a good year of reading. 

“The Halo Effect…. And the eight other business delusions that deceive Managers” by Phil Rosenzweig 

Everything we know about how businesses become successful is coloured by one of these delusions. The author goes through several delusions and dismantles them. My favourite delusion: We attribute a company’s success to anything in sight – culture, leadership, strategy, etc. When a company is not successful, we attribute its failure to the same things. All the attribution is based on prior performance. After reading this book, you’ll never look at another business book or article the same way again.

“How to take smart notes” by Sonnke Ahrens

In order to develop a good question to write about or find the best angle for an assignment, one must already have put some thought in the topic. 

Writing does not start from a blank page. The best ideas come from connecting ideas across disciplines that you come across in different contexts. This book teaches you a different way to collect notes as the basis of coming up with ideas. Read this book if you consume a lot of interesting content and you’re looking for a way to get more from what you read or watch.

“Anatomy of a swipe” by Ahmed Siddiqui

Ever wondered how payments systems work together? What does PayPal do and how is it different from Stripe or Apple Pay? What happens when you swipe your card in store or online? This book runs through the complex payments system and the payers for each space.If you’re even marginally interested in payments, you should know everything in this book. That’s the only reason not to read it if you are curious about how payments work.

Honorable mention for other great books I read in 2020

  • Escaping the Build Trap by Melissa Perri: “The Build trap is when organizations become stuck measuring their success by outputs rather than outcomes. It’s when they focus more on shipping and developing features rather than on the value [it produces]”
  • The Book of Why by Judea Pearl: To really understand if / how A causes B, you need an accurate model of how the world works built on causal analysis. Data is not enough. Insight is model-driven.
  • No Rules Rules by Reed Hastings: Exceptional people deserve an exceptional workplace. To build this and attract exceptional people, you have a duty to push the boundaries to hire and retain only the best and diligently keep it that way. Whatever it takes. 
  • Shape Up by Ryan Singer: 2020 was the year I “discovered” Basecamp. I signed up for Hey and started using Basecamp for my personal projects. Basecamp is a company run differently. Shape Up outlines how they build products, prioritize features and think about backlogs. It’s different from most of the industry. And they’ve clearly had some success with their approach, growing Basecamp to 3m+ accounts. Read if you’re curious about a different approach to building products and managing teams.

My wishlist (not predictions!) for African tech in 2021

2020 was mixed for African technology businesses. While Nigeria and South Africa saw their economies contract because of the pandemic, there were some high-flying fundraises and acquisitions. World Remit acquired Sendwave for $500M, Stripe acquired Paystack for $200M, Jumia is up 2,000% from pandemic lows and multiple companies raised $10M+. 

I put together the top 3 things I want to see in Africa technology next year. Think of the following as closer to a wishlist rather than predictions. Predictions are mostly useless anyways anyways. [1] For a podcast version of this essay, more predictions and discussions, please listen to the Afrobility 2021 & beyond podcast episode.

More startups that build for entrepreneurs 

In the past few years, we’re starting to see the compounding benefits of easier payments. For example, there are many companies in Nigeria that could not exist without the solutions and access provided by, say, Paystack or Flutterwave.

In 2021, we will see more of these companies that reduce the barriers to entrepreneurship and make it easier to set up and run businesses across all industries. Similar to how companies like Shopify or Stripe have made it easier for creators to monetize, there will be more companies that help entrepreneurs get started and keep going. For example, an easy-to-integrate identity verification and payments integration layer makes it possible for a banking entrepreneur to imagine a new kind of bank or business model. 

There’s more to be done here. Who’s building the Stripe Atlas for Nigerian or Kenyan entrepreneurs? Who’s helping new companies deal with the complex regulations across healthcare, transportation or finance? Who’s building the small business versions of the internal custom software Africa’s biggest companies run on?

As these solutions become more widespread, it will lead to more entrepreneurs but more entrepreneurs who can build big scalable businesses. 

Of course, not all the entrepreneurs will be successful, but the ecosystem will benefit from the successful ones and learn from the failures. 

Higher internet penetration driven by anyone other than the telcos

Internet access is still not a solved problem in Africa. In Nigeria for example, Internet penetration is under 50% with less than 25% of households having access to any kind of internet access. For many African countries, increasing internet access is close to being an objective net-positive, for the new business models and wealth it creates. 

However, Africa’s largest telcos are not in the best position to invest. Airtel is offloading its African assets to better compete in its home market, where it’s facing competition from Reliance Jio; MTN is still reeling from the fallout of the $5B fine from Nigeria, and their share price has fallen from a high of $11 in 2018 to $4 today.

If not the largest telcos, who will invest? 

Telcos are behaving rationally; investment is expensive. ARPUs are likely lower in parts of Africa that don’t already have internet, and given how low they are in Africa right now ($2-4 in most of SSA ex South Africa), not sure they want to go after those less profitable customers.

Also – the telco business models are under threat. Voice revenues have fallen off a cliff and data revenues are not growing fast enough, or profitably enough, to make up for the difference. There is limited incentive to continue to invest in building out a platform that the global majors – Netflix, FB, Google, etc – will be able to monetize better. (e.g., FB has similar ARPU to the telcos in Africa – ~$2 – without the same level of infrastructure investment, or just stress)

Google Loon launched in Kenya and is expanding. Space X has launched 800+ satellites and plans to go up to 40,000. Amazon’s Project Kuiper has plans to launch another 3,200 satellites. There are regulatory hurdles and incredible technical complexity to overcome, but the potential is massive. A services model (like Jio) or other business models can make serving these new customers more profitable and spur further investment. Driving down the cost and increasing access and quality will change the game for the entire African technology ecosystem. 

Africa coming into her own as a true offshoring hub

“Talent is equally distributed but opportunity is not”

Leila Janah

Okay, this one is not new. In 2007, Nigeria created a National Outsourcing Strategy(pdf). Not much clearly happened since then so they did it again in May 2020. Andela raised $181 million for a similar opportunity based on this but has struggled recently.

But hear me out. This time is different. 

The pandemic has forced many companies to re-evaluate what absolutely needs to be done in the office. Fewer people have followed this to the logical next step. If you don’t need to be in the office, do you need to be in the same country? Do you need to have an individual employee relationship with the worker? This is not new; some technology companies are fully remote- Gitlab, Basecamp, Automattic (makers of WordPress) and many more. In addition, The biggest technology companies have made commitments to expand remote work. What does that mean for where talent can be located? 

Other than the pandemic, Why now? 

The cost differential between the US and major African countries is higher than ever and increasing. In the last 5 years, Nigeria’s currency has gone from NGN150/$ to N450 today;  SA’s currency has gone from ZAR 11/$ to ZAR15 today. There’s money on the table and the economic incentive for offshoring is getting stronger. 

Africa’s largest economies are hurting. Nigeria’s GDP is down 3.6% in Q2, South Africa is down 6%. Currency devaluation means the largely import-dependent countries can’t access the foreign currency they need to run their economies. Unemployment is 27% in Nigeria and concentrated in younger age groups with up to 40% unemployment.. South Africa has 23.3% and produces over 200,000 graduates a year. We can’t create enough jobs for our people in our declining economies, we need more ways of putting people to work. 

Africa – in general – has clear advantages as an offshoring location. It’s a young population with an average age of 15. A legacy of colonialism means that the language of formal instruction is English or French. Time zones mean that we’re within 3 hours of EU countries.  

Companies of different sizes are already operating in this space. Hugo, Integreon, Techno Brain, etc. Also, EU blue chips are testing the water with Deloitte, BT and British Gas and Amazon relying on outsourced labour in South Africa. I hope 2021 is the year that this blows up. 

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What do you think? If you have any ideas or thoughts – email me at bmakanju (at) gmail (dot) com or leave a comment below

[1] Human predictions are more like fantasies and are unrealistically optimistic. We project our own biases and think bad things are less likely to happen. Case in point: few people predicted a pandemic in 2019. 

A trip to the Philippines: Nigeria’s tourism and BPO opportunity

This post will discuss 2 (of many) things that stood out during a 2-week trip to the Philippines: tourism and the thriving business process outsourcing (BPO) industry.

Nigeria and Philippines have a lot in common. Both are middle-income countries with a GDP per capita around $3000. They both have a relatively young population and have experienced strong growth in the last few years. Lagos, like Manila, is a perpetually gridlocked, densely populated city that has grown organically with apparently zero urban planning. Unlike Lagos, however, Manila has regular electricity. That’s not the only thing the Philippines has over Nigeria.

Manila at night from a few thousand feet

Tourism and Boracay beach — “What exactly is the fuss about?”

Philippines is an archipelago made up of over 7,000 islands so it’s not surprising that they have great beaches. Of all the beaches, few are more popular than Boracay, a 45-minute plane ride from Manila.

Sand and palm trees in Boracay, Philippines

Boracay is beautiful. Sold as a dream tourist destination, it has the right combination of local and western culture that forex-spending foreigners love. It is inexpensive to travel there — $50 for a plane ticket from Manila and another 50 cents for a ferry ride to the busy island with its narrow streets. Meals are cheap, costing as little as $3 at the best restaurants. Still, I was unimpressed. I couldn’t help think about how Nigeria has beaches at least as beautiful as Boracay, but not as popular. What would it take for us to develop holiday destinations in Nigeria?

Boracay’s evolution has been supported by Government. They built roads and airports to support the constant stream of tourists. They advertised heavily and developed a brand for tourism in the country — “It’s more fun in the Philippines”. Philippines is visa-free to most OECD countries and is therefore a tempting holiday destination. The locals are welcoming and have a solid understanding that the constant stream of visitors is what drives their livelihood.

Beyond ‘exciting’ locations, tourism requires supporting infrastructure. It requires real and perceived safety of lives and property. Internet access and regular electricity are table stakes, along with inexpensive transportation options. To understand why it’s Boracay and not Bar Beach, well, those are some clues to start.

Business Process Outsourcing — “Man, I’m sure Nigeria has more unemployed graduates who speak English”

Among other things, BPO describes companies moving parts of their business to lower cost countries, with call centers being the easiest and most common.

Philippines has the largest BPO industry in the world — yes, even bigger than India. The largest of these companies take calls on behalf of American clients from AT&T to Wells Fargo.

The industry has grown from barely anything in early 2000s to becoming the largest private sector employer of labour. International BPO companies all exist in the Philippines and they compete fiercely for talent — some employ fresh high school graduates. Many have kiosks in malls to encouraging passers-by to apply. After application, successful candidates receive a job offer after a few hours of interviews and tests. This has worked for the Philippines — unemployment has dropped over the last 5 years.

If you hear them tell it, the Philippines has natural advantages over most countries to set this up. Many Filipinos speak English and the country boasts a literacy rate of over 90%. Since WWII, they have maintained good relations with the US giving big American brands like AT&T or Verizon comfort in setting up call centers abroad. They have the supporting infrastructure required — their American clients will not tolerate any downtime for any reason. Again, Government actively supported the BPO industry as a vehicle of growth providing low cost funding, tax holidays and other incentives. In fact, they have been the darling of Filipino governments for the past decade because they create so many jobs .

None of these advantages are impossible to replicate in Nigeria, no?


This is not to put the Philippines on a pedestal — that country has many issues. Income inequality, insurgency and terrorism in the south, slowing economic growth to name a few. However, they appear to have got tourism and BPO going.

Overall, SE Asia has left Sub-saharan Africa in the dust. In 1970, Sub-saharan Africa generated 3 times the electricity per capita of SE Asia on . Today, SE Asia generates twice as much electricity per capita as Sub-saharan Africa.

Nigeria can and should be in a better place right now. Good times soon?