Is The Economist Stupid?

THIS REPUBLIC By  SHAKA MOMODU, Email: shaka.momodu@thisdaylive.com

Let me state clearly here without equivocation, I am not an economist. So I cannot claim to possess the rigour, knowledge and language to enter a debate and best the data and graph-wielding of professional economists schooled in the martial art of dissecting economic policies of governments around the world.

 I still need a lot of tutoring and studying to understand the complexities of national economies - their interdependency, and the interactive forces at play in a globalised economy.

 But this deficiency notwithstanding, my elementary knowledge of economics gives me a slight hint of the kind of policy thrust that can unleash a tidal wave of benefits from a deliberate and carefully driven policy of backward integration. Suffice to say no country expects to grow its economy with a weak manufacturing sector, dilapidated infrastructure and poor power supply.

To strengthen manufacturing, the federal government (not the central bank), I must admit, must fix power, improve roads and infrastructure, while the Central Bank of Nigeria (CBN) itself must lower interest rates to reduce the cost of capital. The problem here is that, it is the structural defects on the fiscal side that have forced the CBN Governor, Godwin Emefiele’s hand to take some rather drastic but long overdue measures to save our fast depleting foreign reserves. Unfortunately, this good intention has drawn attacks.

Now, how does this appear when the total forex used for the importation of the items that were excluded from accessing the interbank forex market stood at –  $3.37 billion in 2013, $6.99 billion in 2014 and $2.73 billion between January and May 2015? A further breakdown shows the amount the various items gulped in 2013; rice accounted for $752.8 million, sugar-$464.6 million, wheat-$1.5 billion, fish-$1.3 billion, furniture -$31.7 million and textiles-$17.4 million. In 2014, importation of fish accounted for $1.02 billion, rice-$291 million, toothpicks-$2.71 million, milk-$960.7 million, furniture-$63.39 million, and textiles-$15.51 million.  Whereas in the first five months of this year, importers of fish procured- $374.04 million from the forex market, rice-$220.3 million, toothpicks-$1.32 million, milk-$375.67 million, furniture-$20.39 million and textiles-$6.49 million.

Aside these excluded items, the elephant in the room which consumes a chunk of our forex are the government-subsidised fuel imports. In 2014 alone, the import bill on petroleum products gulped $10.4 billion. Imagine for a moment if the refineries were functioning in a sector completely deregulated. All that huge revenue spent on subsidising the importation of petroleum products will become available to government for its infrastructure development, and that will help to conserve our foreign reserves, thereby making the naira stronger. But unfortunately, the forces that have made sure the refineries don’t work are still at play. Luckily, the 650,000 barrels per day capacity Dangote refinery is expected to come on stream in 2017. Its capacity dwarfs NNPC’s refining capacity which stands at 445,000 barrels a day. Hopefully, once it comes on stream, the Dangote refinery will play a significant role in reducing our import bill on refined petroleum products.

But as things stand, with a 48 per cent oil revenue shortfall and depleted reserves, what should the CBN have done? Continue to devalue the naira to make exports attractive, which is one of the positive takeaways of devaluation? But the problem with that is that our economy is essentially import-dependent.

Reading The Economist’s position on the CBN’s move to deny forex to 41 items that could be produced locally in a critique titled:  ‘Toothpick Alert: Desperate Measures from the Bank’, I came to the conclusion that either The Economist was bored and wandering around in search of something to excite it, or it deliberately and mischievously set out to blackmail the CBN in pursuit of a not-so-hidden agenda - that is far from altruistic.

 Otherwise, the dangerous immodesty of the referenced article stands tall in stupidity, both in content and careless motivation. I have had to read the write-up several times to be double sure that I didn’t miss anything. Pardon me if I tell you, I still haven’t seen the long-term economic sense in the article, other than the feeling of somebody wandering on what to write from a poll of topics on his stable that might attract instant reactions, and quickly stumbled on the new CBN policy which instantly triggered a eureka moment!

The condescending tone of the article was unmistakable and perplexing, just as its thinly veiled conclusion, or should I rather call it recommendation – which to my knowledge was beyond precedent. This is how it saw the measure: “Economists find the policy baffling. Central banks usually prop up their currencies if they are worried about inflation, or allow them to devalue to depress imports and stimulate exports. 

Nigeria, by contrast, appears to be set on achieving both an uncompetitive exchange rate and higher inflation. Whereas many investors were impressed by the previous CBN Governor, Lamido Sanusi, who was sacked for exposing corruption, they fret about the harm being inflicted by the current one. Some wonder which would be worse for Nigeria: allowing him to serve the remaining four years of his term or undermining the independence of the central bank by sacking him.”

As irresponsible as its call or advice was, it merely underscores that neo-colonial supremacist mentality of the magazine which deliberately tried to ride roughshod over the CBN, in its efforts to make us look inwards in pursuit of growth and development.

I was shocked and alarmed, for instance, to learn that Nigeria imports toothpicks. I was even more dumbfounded that The Economist chose to attack the CBN governor and the measure, in such a derogatory manner for denying importers forex to import the listed items including - margarine, palm kernel, palm oil products, meat and processed meat products, rice, vegetables, and processed vegetable products, poultry, Indian incense, tinned fish sauce (geisha/sardines), galvanised steel sheets, roofing sheets, furniture and of course toothpicks.

According to Emefiele, the measure would prevent further depletion of the country’s foreign reserves, arguing that the country was spending a huge amount of money to import things that could be produced locally.  “Importers who may want to continue importing these goods would have to source their foreign exchange from their own private sources,” he was quoted to have said. He also revealed that the federal government was spending a whopping N1.3 trillion on the average annually to import rice, fish, sugar and wheat.

It is frightening to see the items our country spends its foreign reserves on when we can produce them here in commercial quantities. And for having the courage to confront the challenge and attempt to curb our peoples’ appetite for these needless imports, which were putting tremendous pressure on our depleted foreign reserves, The Economist wanted Emefiele’s head on the chopping board. It is a stunning and incredulous reaction coming from supposed experts. Nigeria’s already reeling economy actually needs some dramatic action to knock some order into an open-ended import regime that gives scant regard to local production.

 For the life of me, why is Nigeria importing toothpicks? Is this part of the free market philosophy The Economist wants to encourage and promote?  As important as a free market may be in any country’s economic possibilities, and attractiveness to foreign investors, it will be naïve to limit projections to the candid assumptions of the benefits of a free market while ignoring the realistic and more promising possibilities of the policy thrust with its attendant capacity-building, arising from local manufacturing - economic growth and development as derivable and more enduring benefits.

The huge import bill for those 41 items and more is simply staggering and unsustainable given the uncertainty in the oil market right now - that has seen oil prices plunge from about $110 a barrel to an average of $50 to $60. 

The US/Iran nuclear deal will definitely put added pressure by another one million barrels per day to a market already saturated by two million barrels a day. It is pointless to emphasise what the implications of a sustained fall in the prices of oil will have on our country’s economy, which the world knows contributes almost 90 per cent of its forex earnings.

 Unfortunately, it is the unrestrained importation of petroleum products that has put the foreign reserves in a precarious state. Imagine for a moment if Nigeria was refining 80 per cent of its petroleum needs, its current financial state won’t be this desperate.

Is The Economist saying the CBN should just continue devaluing the naira just to make portfolio investors with hot money happy? I don’t think so. And clearly, the jackpot and cash bonanza of our oil dollar reserves is nearly empty. So it is time to look inwards. It is absurd for instance that Nigeria imports palm kernel, palm oil products, vegetables, wheel barrows etc. It is even more so when attempts to curb these imports draw the ire of an otherwise reputable international magazine like The Economist.

I am unable to find a coherent economic narrative and sound logic that defeats the measure, which in my understanding serves to encourage local production and manufacture of such simple and basic items as toothpicks against their importation. Luckily, Aliko Dangote, Africa’s richest man, who himself typifies the success story of backward integration, has risen in stout defence of the CBN measure.

 He believes the measure should be seen as a clarion call for all hands to be on deck in the development of the nation’s economy, disclosing that the forex restrictions on the 41 items also affected the Dangote Group, especially Dangote Rice. He however believes (that) the measure would encourage his firm “to look inwards and massively produce locally to create jobs for our growing young population”.

Dangote said without such a ban by the administration of former President Olusegun Obasanjo, he wouldn’t have got the opportunity to grow his cement business as it is today, such that he is now exporting cement when only 10 years ago, Nigeria was importing cement massively.

His cement plants in Obajana, Gboko and Ibese have a combined capacity of 20 million metric tonnes per annum, providing hundreds of thousands of direct and indirect jobs across Nigeria. “When Obasanjo introduced the policy, he was massively criticised by many multinational organisations and the same foreign media. But today, we are self-sufficient in cement production,” he recalled. Dangote maintained that those criticising Emefiele for the decision on the forex curbs do not have the interest of Nigerians at heart. If Dangote, whose rice import business was affected by the CBN restriction, feels this way, then The Economist’s position stands in infamy.

At least, the import ban placed on cement has turned the fortunes of that sector around, lifting Nigeria from a cement-import-dependent nation to a producing one that meets more than its national demand. Instructively, Dangote’s views drew support from the management of Flour Mills of Nigeria. The Chairman of the company, Mr. John Coumantaros, at an extraordinary general meeting of Flour Mills held recently, was quoted to have said: “The foreign exchange market is getting tough and we have to find ways to manufacture locally. We are undertaking a very big investment programme.” Also the Managing Director of the company, Mr. Paul Gbededo, was even more elaborate in an interview with a national newspaper, The Punch, a few days ago. He said: “The situation is inevitable because you cannot give what you don’t have. The message that the CBN is passing is that foreign exchange is not just available. For that reason, we have to be more prudent in allocating to industries that will need it. We can do without the items on the list at this time. One needs to appreciate the bold step the CBN has taken. An item like rice is what we can produce in Nigeria.”

Reminded that Nigeria has not been able to produce enough rice to meet local demand, his response was blunt: “Then we eat something else. By the way, the commodity is not banned. The only thing is that by the time you source funds to bring rice into the country, it will be more expensive. So, those who want to eat rice should get ready.”

It is in this breath that one is more likely to agree with the CBN’s position articulated in its response to The Economist’s article. It said: “Adjustments to a sharp decline in supply of American dollars cannot all be borne by an indeterminate depreciation, without considering the full impact on the Nigerian economy. The demand side also has to be considered, not just in response to the pressure on the naira but as an opportunity to change the economy’s structure, resuscitate local manufacturing, and expand job creation for our citizens.

“Under these circumstances, the CBN will do the little it can to protect the jobs and incomes of local farmers, using some of the same principles other economies use to justify the protection of their farmers through huge subsidies.”

According to the central bank, it “believes that Nigeria cannot attain its full potential by importing anything and everything. For far too long, this trend has significantly weakened the operating capacities of our industries, but now is a good opportunity to begin a reversal. Although the article hastily derides this idea as lacking in economic foundations, it is the same principles upon which many other countries do not allow importation of certain products”.

The magazine’s motive was particularly suspicious, because just few days after, portfolio investors were reported to have announced that they would not be returning to Nigeria until the naira was allowed to find its true value in accordance with the dictates of market forces.

Finally, The Economist’s position and prognosis was totally lacking in depth and conviction – a marvel at nonsense, except for those with a mad attraction to thrillers and fiction. The article was a low moment for the highly respected magazine.