Tough economic choices: Control vs liberalisation, regulation vs deregulation

Once upon a time, an Afrobeat musician named Fela Anikulapo-Kuti wanted to travel with his Egypt 90 band to a foreign country to perform his trade. He was arrested at the Murtala Muhammed International Airport for trying to smuggle some foreign currency out of the country. Then Nigeria was under military rule and the exportation of foreign currency was under severe control. Much later when military rule ended, things began to change in Nigeria and gradually the importation and exportation of foreign currencies were liberalized. People were allowed to take out and bring in any amount of dollars they wanted, provided they declared the amount.

Soon after, Nigerians were allowed to open domiciliary accounts in the country in foreign currencies and they were also allowed to use their dollars and pounds any how they liked as far as they were doing legitimate business. They could pay for imports and other sundry bills. It became really easy to bring in and take out foreign currencies in Nigeria just as it happens in many countries of the world. Indeed, the Nigerian economy became liberalized in conformity with global economic trends. Lately, things began to change again. All of a sudden, you were no longer allowed to pay foreign currency into your domiciliary account.

Then you cannot even send out money from your domiciliary account to buy anything or pay your children’s school fees. Limits to how much you can take out and bring in have returned. And there are fears that soon domiciliary accounts may be outlawed and depositors compelled to convert to local currency. Such fears severely damage the economy and force some economic agents to take preemptive or defensive actions which may hurt them and the economy. Small time importers, especially those in the informal sector, are now in severe difficulty. So they try to smuggle foreign currencies, especially the US dollar, out of the country on their way to China. Some are even concealing their money in very funny places, including swallowing them in wraps. Now the Nigerian Drug Law Enforcement Agency (NDLEA) is busy arresting foreign currency smugglers in place of illicit drug smugglers and many are on their way to jail like Fela. Thus, we are creeping back to the era of yore! What a reversal!

From the look of things, our economy seems to be heading back to the era of controls and regulation. Certainly not without reason. Our national income has declined sharply due to the drastic fall in the price of crude oil in the international market since June last year. With this and with our unbridled penchant for importation of all ‘importables’, demand for the dollar and other foreign currencies remained high, even in the face of reduced supply, leading to the devaluation of the naira. To stem this devaluation, the CBN reintroduced controls and new regulations. Have we achieved anything? Yes, the rate of depreciation of the dollar has been slowed and demand has been forced down. Have we lost anything? Plenty. Nigerians are now being criminalized for taking their legitimate foreign currencies out of the country. The international market is hesitant to do business with us. Credible importers are having problems establishing letters of credit. Some investors – portfolio and foreign direct – are refusing to deal with Nigeria. International agencies are marking us down and reclassifying our bond, credit rating and global competitiveness. Are we better on the balance? Doubtful.

In periods of danger and crisis, it is natural to seize control, centralize authority and stifle initiatives. The signs are there all over that in dealing with the crisis caused by the decline in our national dollar income from oil, we are tending towards control and regulation. The treasury single account (TSA), the CBN bans on importation and new foreign exchange regulations, the current and contemplated changes in the management of NNPC and oil trade transactions are all headed in one direction. Is the best way to go? Certainly opinion will be divided and every way or option we choose has its challenges. But modern economic history teaches that sustainable economic growth cannot be achieved by taking measures that tend to freeze initiatives and deactivate private initiatives.

Some level of control and regulation is inescapable even in a deregulated environment and no one will recommend a regimen where freedom can be turned into licence. The need to fight corruption in our economy is imperative. The desire to increase local manufacturing is very good and should receive the support of all patriots. But it is dangerous for the government to try to reintroduce controls and regulations that will get them taking back controls of the levers of the economy. Refusal to deregulate the downstream petroleum sector or to privatize the very old refineries cannot be in our strategic national interest, neither can it help with the ANTI-CORRUPTION fight. It will not serve our long-term economic interest if we take measures that worsen our attractiveness to foreign investment. I believe that it is investments that create jobs and cause wealth creation. So we should focus on measures that will get more people investing in our economy and diversifying away from oil. Suppressing flow of foreign currencies has the potential to suppress the flow of investment and introducing adhoc foreign exchange controls is the fastest way to undermine confidence in the attractiveness of any country to investment flows. Investors desire certainty that they can move their money in and out of any jurisdiction with ease. With the current situation in our nation, that ease has been abridged and as long as this situation persists, the prognosis for our economic growth will remain unimpressive.

As the economic ministers resume in the next few weeks, they must get PMB to make the tough choices. And in my humble opinion, we should choose liberalization over control, and deregulation in place of regulation. We must never return to Egypt!

 

Mazi Sam Ohuabunwa