What is the rule of engagement for our economy?

At the time of writing, I pondered on the philosophy behind Nigeria’s economy since independence in 1960. Today, it may be difficult to say categorically that Nigeria is operating a capitalist economy. Can we say we are operating a free market economy? I do not know. But may be the nation operates a combination of free market and capitalist economies.

Nigeria cannot be running a purely free market or capitalist economy when her government has placed embargo on about 41 imported items. While some commentators say Nigeria is a free market economy. Others believe that Nigeria is operating a protectionist economy in a globalized world.

If you say that Nigeria runs a combination of all forms of economy depending on the national leader and the prevailing circumstance, you may not be far from being correct. Perhaps, one may have to realize that no single nation runs a pure free market and capitalist economy. Some analysts say the free market we all talk about only exist on the pages of economic textbooks.

In a free market economy, buyers and sellers make deals without government interference except by the forces of demand and supply. On the other hand, prohibition or restriction on imports from foreign markets is called protectionism. Whatever the type of economy we are operating now? And what are our Rules of Engagement to stabilize the economy?

Rules of engagement (ROE) is a military term. It is mostly used “by a military authority specifying the circumstances and limitations under which forces will engage in combat with the enemy.” It could be written or unwritten. But in the case of a nation whose economy is not steady, a written ROE would have been preferred. This is to bridge communication gap between government and the citizenry.
When there is communication gap, rumours will hold sway within the nation’s political landscape. The newspapers may be awash with speculative stories that are misleading. Within the context of this piece, ROE is the actions with milestones to be taken by various organs of government, if planned actions are failing to stabilize the nation’s economy.

I am aware that Nigeria has often adopted the begging-bowl strategy to meet its budget requirements. To avoid this approach, I strongly support PMB’s position to use the N2.2 trillion realized through the Treasury Single Account (TSA) to cover up part of the deficit in the 2016 budget.
This piece is motivated by a front page headline of Businessday newspaper of 4 February 2016 titled “Budget gap may widen as imports slumps.” According to the report, many importers are currently finding it difficult to open form “M” in commercial banks due to the recent Central Bank of Nigeria’s (CBN’s) foreign exchange (forex) restrictions.

When occasion demands, the CBN Governor has made official statements on the paucity of forex. I learnt reliably that even those manufacturers whose products were not included in the list of 41 banned items are no longer having access to forex. While school fees for Nigerian students studying abroad are no longer approved by the CBN. Most Nigerians now source their forex requirements from the parallel market at N309 to 1US$.

Even commercial banks have their own rate of the Naira to the US Dollar. This poses a question: what is the exchange rate of the Naira to a US Dollar? Is it N200 or N309 to a US Dollar? Can the nation manage the differential in forex rates? What does the forex differential portend for the nation’s economy? Will this not fuel corruption as usual at the CBN? I ask these questions because Nigerians love Dollars more than the Naira.

We all know that Nigeria is rich in both agricultural, forest and mineral resources. But these resources have not been significantly processed as sources of raw materials for industrial use. We all know that up till this moment, manufacturing firms depend on imports to a disturbing extent for their raw materials. With decline in forex reserves to about US$ 29.1 billion, and drop in oil price at the international market, the CBN cannot meet its forex obligations. The result is that production capacity utilization in many manufacturing companies is dropping, workers are being laid off, unemployment is rising and ultimately, there will be rise in inflation.
Indeed, the Purchasing Managers’ Index report released by the CBN in January 2016 shows that PMI in the manufacturing sector of the economy declined to 47.2 percent from 51.2 percent in December 2015. The same report clearly shows that “production level, new orders and raw material inventories decline from expansion; supplier delivery time declines at a slower rate; and employment level decreasing at a faster rate.” This calls for a re-appraisal of fiscal and monetary policies that Nigeria is currently operating.

The economic problem of Nigeria is cyclic. But we have virtually not done much to help manufacturers’ source raw materials locally. This is not the first time that the price of crude oil in the international market is plummeting with Nigeria banning importation of raw materials. As soon as the price of oil increases and more US Dollars flow into the country, the federal government through its agent, the CBN, will lift the ban on importation of raw materials. For years, Nigerian governments have not been consistent with economic policies. This is not the first time Nigerians are being told about diversification of the nation’s economy, and efforts to ensure that raw materials are sourced locally. This is the stage we were in the early 80s when there was drop in oil price in the international market.

If we all agree that Nigeria is blessed with mineral resources, why can’t we ensure that the Raw Materials Research and Development Council is tasked to enable manufacturers know which materials are available locally? Is it that most Nigerian businessmen and their female counterparts do not want to know the raw materials available locally? All they want is Dollars to enable them go to China or Dubai with overblown Letters of Credit (LC) to import “raw materials”. If Nigeria does not have raw materials, one may not be bothered. But Nigeria has raw materials including crude oil which she imports from abroad. What a shame!

The world is changing and technology is advancing. Renewable energies are replacing the use of fossil fuels. I predict that in the next 10 years, Nigeria will accept that wealth from sale of crude oil has limitation, except the nation is technologically developed. This brings me to an important question. Are the ministers advising the President on the state of the economy or is it only the CBN Governor that talks to him? What about the finance minister? Or is it PMB that is not available because he is busy attending to other state matters.  Are there no better solutions to the economic problems we are facing today? May be this is the tough choice Nigeria has to make.

The Ministers of Industry, Trade and Investment, Science and Technology, and the Minister of Finance, should work together with the Vice President who is the coordinator of the economy towards providing an ROE for the nation’s economy. Importantly, The Minister of Industry, Trade and Investment should hold discussions with various production groups in Nigeria on local sourcing of raw materials.

Policy makers cannot take decisions in cozy offices without due consultations with stakeholders. Policy makers should remember that “the test of a progressive policy is not private but public, not just rising income and compensation for individuals, but widening the opportunities and what Amartya Sen calls “capabilities” of all through collective action.”

 

MA Johnson