‘One Nigeria’: To Be Or Not To Be? (3)

RESOURCES ARE LIMITED AND NOT FREE: THEY HAVE THEIR PRICE AND OPPORTUNITY COST.

Most likely, those that fail to take into consideration this very important fact take it for granted that:

1. The vast resources in the south ‘automatically’ belong to Nigeria, especially the north;

2. That resources are free, do not come with a price and have no opportunity cost.

You don’t need to be a banker or a professor in economics to understand that when you approach a bank for a loan, there is no guarantee that the bank will issue you the loan. And if the bank eventually decides to issue you the loan, it must get interest on the issued loan. In other words, within an agreed period of time, you are supposed to return the principal, the original amount issued as loan, and interest on the loan. The interest on the principal is the ‘price’ or the cost of the loan to you. Likewise, the interest that you have paid is the bank’s ‘profit’ for issuing the loan to you. Likewise, when you buy any product, you are paying for the cost price of producing it and the profit that the company that manufactured it is asking for taking the trouble to produce it for you.

The difference between a manufacturing company and a bank is that banks ‘lend out’ their capital, which in this case is money for a fee or price for a period of time. But unlike a company, which makes her profit immediately ‘on the spot,’ when you pay for a product, when a bank sells money to you, it gets back the principal and interest (profit) in the future, (here, we are examining the classic crediting system, and not a situation when interest is deducted immediately a loan is issued) Therefore, in order to be sure that she gets back her money with interest, the bank insures herself by asking you to provide a ‘collateral’ which has a market value not less than the principal and the interest. In essence, what this means is that your getting the loan is not automatic. If you can’t provide a collateral, the bank will turn down your loan application.

However, the most important lesson for us to learn here with this example is that since the bank has a limited amount of capital in her custody at any given time, therefore, if she lends you a certain amount, that amount automatically leaves her account, which makes it impossible to lend it to another client. Thus, the money that the bank has lent to you is the opportunity cost of the limited resources in her custody which it can no more sell or lend again to others who are also interested in buying, using or borrowing her money. In view of the fact that quiet a number of people and companies are interested in lending or using the bank’s limited money (resources), she is compelled to charge or ask for the highest price, or interest her money can fetch in the free market, determined by the laws of demand and supply.

The concept of opportunity cost is of ‘great’ importance in economics because it influences every decision in which scarcity of means and a choice between alternatives play their part. Whatever choice we make comes at a price. It’s not free. When we make a choice, especially, when we make investment decisions, since our resources are limited, we are compelled to forgo other investment opportunities in other to satisfy our want or choice. Therefore, whenever we make a choice, or make investment decisions, we strive to get the maximum value or price/profit for our limited resources.

Why has the company decided to take all the trouble to produce the goods or products that we need? Or why has the bank taken the risk to lend us money? Are they acting out of love? Are they guided by altruism? Definitely NO. They are acting in their self-interest. They have used their resources to produce products that we have a demand for, and sell them to us at the maximum price possible in the free market. The price that we have paid for the products or the loan is the compensation of the company and bank respectively.

In his famous book, “The Wealth of Nations,” the famous Scottish economist, Adam Smith, made a statement which has become classics in economics: “We get our breakfast not because of the benevolence of the baker, brewer and butcher, but because they are pursuing their self-interest. The baker, brewer and butcher, just like the bank have combined different products and ingredients to produce bread, beer and meat that we have for our breakfast. We, in turn, compensate them by paying the market price for their products. It is worth noting here that the baker did not steal the flower or wheat that was used in making the bread. He paid for it. Likewise, the bank has not stolen the money that she lends to us. She also pays depositors for keeping the money in her custody to conduct business transactions. In other words, depositors sell their money to the bank, and the bank in return resells the money to borrowers, in form of loans at the highest price possible in the free market.

Now, please try to imagine that a manufacturing company sells her products at, or below the cost price, or gives them out completely for free. Try to imagine the bank lending out its money for free, without getting back neither the principal nor the interest. What do you think will become of such a company and bank? It’s obvious that they will both go bankrupt, sooner or later. Undoubtedly, there is no ‘economic sense’ for a company to give out her products for free, just as it makes no economic sense for a bank to lend out money absolutely for free.

But has it ever occurred to you that basically that’s what the south has been doing since 1914? Just like depositors put their money in the custody of their banks, the oil, gas and other mineral resources in the south are limited resources put in our custody by generations of unborn southerners; our future great great great grandchildren. The mineral resources in the south are like trillions of dollars in the bank. We have been giving them out ‘absolutely for free’ to the north in the name of building a ‘fake and non-existing’ One Nigeria! The north has taken hundreds of billions of dollars of the oil money without paying back neither the principal nor the interest on it. Do you want your ethnic group to be involved in such a ‘loose making’ business transaction or do you want to own a bank that gives out money without collecting back neither the principal nor the interest? I am sure you don’t.

There is an English proverb that goes thus: “You can’t eat your cake and have it.” Suffice to say that this proverb is no more valid- at least as far as Nigeria is concerned simply because the north not only has a monopoly on power, but also has ‘unlimited and free’ access to the vast mineral resources in the south which are worth trillions of dollars! All in the name of building One Nigeria that we never subscribed to! Definitely, they are eating their BIG and TASTY cake, and have it at the same time. Even the British were not that lucky during colonialism.

THE ONE TRILLION DOLLAR INVESTMENT DECISION

Let us continue our analysis with another example. Supposing you have $1 trillion dollars to invest in 5 mutually exclusive projects: A,B, C, D and E, each of which costs exactly $1 trillion dollars. In other words, you can not invest in 2 or more projects simultaneously. You can only invest in one project, and no more. Thus, going by the explanation made earlier, the projects not invested in are the opportunity cost of the project that you have chosen. Supposing the 5 projects give the following return on investment (R.O.I.) A= -25%, B=0%, C=5%, D=15% and E=30% respectively? All things being equal, which project will you invest your $1 trillion in? If we assume that you are a rational business man, then, it’s obvious that you will go for project E with the highest return. According to Harry Becker, the 1992 Nobel Laureate in economics, “Economics is the art of getting the maximum out of life.” What Becker is telling us in essence is to always strive to maximise the value of our resources or investments. In Corporate Finance, investors are thought to choose investments that give the highest Net Present Value (N.P.V.) i.e. the maximum profit possible.

Going by this sound economic advise by a Nobel Laureate, which, in actual fact, is based on common sense, we are bound to ask the following questions. Are the Niger Deltans, and the south in general getting the maximum from their investments or resources? Are the Niger deltans and southerners maximising their profit by investing hundreds of billions of dollars in the north? But has it ever occured to you that the south, all along, has chosen that unprofitable project A, instead of project E that could have maximised our profit? Do you want your ethnic group to continue investing in that loose making project A?

Written by
Bode Eluyera
Join the discussion