In a recent article titled ‘Toothpick Alert’, the Economist penned a rather bizarre critique of the CBN Governor’s forex ban policy on some select import items.
The widely-read British magazine, known for its neo-liberal views argued that the decision of the CBN to stop providing foreign exchange for the import of items such as toothpicks, rice, Indian incense, roofing sheets, tinned sardines, palm oil, furniture will cause ‘untold harm’ to the Nigerian economy. In the Economist’s considered opinion, the policy is not well thought through and the naira should be allowed to depreciate without any attempt to defend it – ‘Instead of allowing the naira to devalue, the central bank is trying to defend it by blocking imports’.
The views of the Economist are unnecessarily alarmist and fundamentally wrong. The gloomy conclusions, veiled as objective analysis are hypocritical, lacking in depth demonstrate poor knowledge and understanding of the peculiarities of the Nigerian economy which informed the policy.
The truth is that the forex ban is a well thought out policy that has already helped to reduce the pressure on the Naira and will help to encourage growth of our local industries, create jobs and reduce poverty. The “parachute journalism” of the Economist’s editors who pontificate on the economic challenges facing other countries from a jaded and selfish position are not credible in our circumstance. They hold no water, especially when pushed by a medium that is known for the unreasonable promotion and worship of the so called free market. It is not in our national interest to watch the naira go on a free fall and the CBN Governor is right to cut off demand for unnecessary and frivolous items for forex. We do not need any jaundiced commentary from the Economist to tell us to do otherwise.
However, to put things in perspective, the facts show that the Central Bank under Emefiele is not essentially against the devaluation of the naira per se. What Emefiele is against, and justifiably so, is the ‘uncontrolled, unmanaged depreciation’ of the naira, which given the heavy import dependency of our economy will lead to escalating inflation. He understands that the exchange rate is essentially a function of supply and demand and that is why at the onset of the steep fall in oil prices, he authorized the closure of the subsidized official foreign exchange window. This bold move has indeed led to a 22% depreciation in the value of the naira. This act which was widely applauded by international finance organizations like the International Monetary Fund (IMF) for helping to keep inflation low was predictably ignored by the Economist in their analysis.
In the circumstance, it is fair and responsible for the CBN Governor to consider that the 22% depreciation as ‘optimal for now’ and to explore ways of reducing unnecessary demand for the greenback. Ours is a unique case and what Emefiele has done is not any different from what any of the other CBN Governors would have done given the same circumstances.
For instance, his predecessor, Sanusi Lamido Sanusi whom the Economist praised in the article had in an argument against naira devaluation stated that “If I devalue the Naira by 20 or 30 per cent, it wouldn’t make textile products in Nigeria cheaper than imports from China because it doesn’t fix the power problem or infrastructure problems.’ “If we do not have the buffers and if exchange rate is under pressure, then it is better to tighten to support the currency. In a normal world, I should be resisting an appreciation of the currency today and not fighting depreciation.”
The Economist’s love for Nigeria is very touching but it is also true that anytime foreign investors are deliriously happy with a regulator, at the expense of the clear economic priorities of the country and sustainable development, we should be worried. Conversely, their unhappiness sometimes means that the regulator is doing a good job. We need serious investors who will make profit from bringing jobs and investments to Nigeria. And certainly the long term interests of Nigerians are not less important than those of investors, especially the briefcase jackals who are only interested in feeding fat on currency fluctuations.
The fact is that the Nigerian economy is heavily dependent on imports and the huge inflow of forex as a result of high oil prices have been responsible for the appreciation of the naira and not the strength of our exports. We run a dangerous trade deficit with our local manufacturing industries lying comatose. Our economy cannot withstand a precipitous depreciation of the naira. This is sadly the structure of the economy that the CBN Governor has inherited. And if it is not managed properly, it will lead to an escalating increase in the price of food, goods and services across the nation. No responsible central bank will seat back, fold its arms, and watch its economy take such a sudden and intense beating without doing anything about it. Managing the situation requires of course defending the currency judiciously and encouraging the growth of the domestic economy.
Even the Economist acknowledged this much in their article where they said that ‘Central banks usually prop up their currencies if they are worried about inflation’. This is exactly what the CBN Governor is doing, helping to prop up the naira, by reducing unnecessary demand for foreign exchanged by not granting foreign exchange for the import of items that can be produced locally. Commonsense dictates that if you have a scarce resource, you prioritize it and deploy in areas that would have the most impact.
CBN is right to at such a critical period as this support and finance the import of goods that will have the most impact on the economy not goods that can be easily produced in country – it is about Nigeria getting the best value it can from the scarce forex that it has at the moment.
It is therefore curious why they would still refer to the decision of the CBN Governor to cut off unnecessary demand for forex that is putting too much pressure on the naira that if left unchecked could lead to inflation as ‘baffling’. That is what according to them, a CBN Governor should do.
Helping local economies to grow is not a new practice. Such strategies have been used by several countries to bolster their economies by restricting importation of some items so as to give their local industries some competitive advantage. The position of the CBN Governor that the country cannot attain its full potentials by simply importing everything is totally in order. Several Western industrialized countries have at critical points in their histories implemented policies that have encouraged the growth of their domestic economies. The United States did so. Germany and Japan also used same principles to grow their industry just like China and India more recently.
Other examples of the West’s protectionist policies to grow their domestic economies include the Common Agricultural Policy (CAP) of the European Union that implements a system of agricultural subsidies and other programs to stimulate local growth. Ditto longstanding agricultural subsidies and “Buy American” provisions in economic recovery packages in the United States. Most of these countries have only become strong advocates for free markets largely because they have used protectionist policies to grow their domestic economies and have achieved good competitive advantage already.
Even though the G20 have pledged to keep free trade, majority of those countries were reported by the World Bank as having imposed trade restrictive measures to protect their economies. The truth is that most of the world’s major economies are resorting to some protectionist measures in the light of the current global economic crisis.
The Economist’s one sided look at the issue therefore shows that it is clearly a vehicle for the hypocritical expression of the Western World’s concept of free trade. A concept that gives them an unfair advantage over smaller developing economies which they see as extended markets for their advanced industries. As a paper that is highly sympathetic to such neoliberal economic policies, it is not surprising that the Economist would be against this legitimate need for the CBN to protect the Nigerian economy and the people’s standard of living.
The CBN Governor is therefore right to protect our infant industries in order to allow them to grow to a point where they can meet domestic demand and fairly compete with the larger mature industries established in foreign countries. He believes and rightly so that without this protection, our industries will die before they reach a size and age where economies of scale, industrial infrastructure, and skill in manufacturing would have progressed sufficiently to allow our industries to compete in the global market.
All countries that have successfully industrialized went through this sort of process. At several points in their histories, they used interventionist economic policies to promote industrialization and protect critical sectors until they reached a level of development in which they were able to compete in the global market, after which those countries adopted free market discourses directed at other countries to obtain two objectives: open their markets to local products and prevent them from adopting the same development strategies that led to the developed nations’ industrialization of developed nations.
Jackson is a public affairs analyst based in Lagos.