Wednesday, March 16, 2011

Of Tsunamis and Africa

Japan is experiencing extreme trauma in the wake of the tsunami and flood triggered by a 9.0 magnitude earthquake. These natural disasters caused a major nuclear emergency, and this is the beginning of a chain of events for which no one knows the end. We hope that Japan survives and recovers from these tragedies, and is able to cope with the loss of lives.

One cannot but thank God that He somehow decided that Africa should not be subject to earthquakes, tsunamis, hurricanes, or even the common snowstorm. Indeed, it may be that He took one look at Africa, and decided the continent had more than enough travails already. No need to place another straw on the camel's back.

Imagine if there was a tsunami at Lekki Peninsula. Envision a massive wave towering 27 feet high, the height of a three storey building. The first set of people to be consumed would be the thugs (popularly known as area boys) that routinely harass hapless tourists basking in the sunshine. Pandemonium ensues.

Yorubas stop speaking English and run to their cars. Ibo traders start selling "Original" swimming trunks, and offering rides in their personal cars at $500 per passenger. Brave Hausa brothers stay behind to buy and sell the dollars from the new venture. Niger Delta indigenes demand their share of the petrodollars. Jos indigenes continue fighting. Banks insist on getting their COT.

When the flood gets to Lekki Expressway, wealthier kinsmen try to cruise through in SUVs but are swept away like every other motorist. The brand new multi-million dollar road immediately disintegrates and develops massive craters.  Furtive calls are placed to the cellular phone number of the nearby police stations and fire departments. The officers on duty could not find the phone in the candlelight.

People, property, politicians, and cars all get swept away by the flood. Thieves snatch cell phones at gun point as people drift by. Hospitals desperately try to reach doctors to call off their strike.  The state government gets creative and creates an express lane for buses. Thankfully, there are no nuclear power stations to emit radiation and disperse the carbon monoxide in the air.

Entrepreneurial power

For many mid-level managers, the prospect of becoming an entrepreneur involves a romanticized view of making a lot of money and being one's own boss. However, starting up a new business can be one of the most challenging career choices. Unless, of course, you already have an established advantage in your chosen field. Such advantages include owning monetizable relationships with potential customers, or possessing the required technology and tools that are not readily available to would-be competitors.

Without these types of advantages, the entrepreneur will need to work continuously often day and night to stand out and succeed. You are not guaranteed a pay check in any given month regardless of any exciting benchmarks achieved during the period. You will need a crystal ball (not to mention cash) to identify capable employees that are motivated like yourself to make the business succeed. You need to convince the target customers that they need to switch to your offering, or start buying if there was no prior alternative. You have to protect the cash, equipment, intellectual property and any other assets that was contributed to the business. You will need to negotiate with often stronger counterparts in the value chain to ensure you make a significant margin. Indeed, establishing a new startup is no piece of cake and is ultimately not for everyone. 

But wait.  The process of building a new organization is something that many find to be exciting, especially if there is a promise of "attractive" returns if the business succeeds. The investor has much more upside (and downside) than employees working in a similar firm of the same size. The possibility of creating a dominant firm in a given niche also provides a tremendous feeling of accomplishment in addition to the financial reward. There is a chance you may revolutionize an industry with disruptive inventions, becoming the next Apple, RIM, Nokia, or Microsoft. The allure of such gigantic successes will continue to pull the "best and brightest" to yearn to start the next great venture.

Tuesday, March 15, 2011

24,000 megawatts vs the current current.

It's amazing that the country is unable to consistently generate 4,000 megawatts (MW) in 2011.

The upstream petroleum sector contributes 65% of the earnings of the federal government. This sector produces an average of 2 million barrels of crude oil per day, with each barrel conservatively sold at $70 on the international market. That means the country earns $140 million of revenue DAILY. Yes, daily. If we assume it costs $10 to produce each barrel, that translates into a net profit of $120 million daily. The government receives approximately 60% of this, so the government's net revenue each DAY from crude oil alone is $72 million, or $21.6 billion annually.

Solar power technology has a higher cost of development than most other sources of power, although the operational and fuel costs are lower. Based on the estimated revenues above, if the country invested 20% of its crude oil earnings ($4.3 billion) in solar power, it would install approximately 811MW of power (which has relatively high cost of development) each year.

Based on the above, an investor committing $4.3 billion annually would match the current level of power production within five years (4,000MW divided by 811MW). That investor would have built out over 24,000MW of power production capacity over a 30 year period, since 1980.

It would be great if the government could provide acceptable reasons for the difference in outcomes, 24,000MW potential per above analysis versus 4,000MW current capacity. Even more capacity would be built using cheaper, conventional power sources. And this analysis is only based on using 20% of 65% of the government's annual income.