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March 24

March 24 OPINION PAGE 42 FG, CBN and the local industry By Maureen Babatunde There were mixed reactions last year when the Central Bank of…

March 24


FG, CBN and the local industry

By Maureen Babatunde

There were mixed reactions last year when the Central Bank of Nigeria (CBN) decided to stop forex supply for the importation of 41 items. The major criterion for exclusion was any item Nigeria can produce domestically. For as long as we continue to import these items, the local producers will suffer, according to the CBN. Rice, cement, textiles, woven fabrics, clothes, tomatoes/ tomato pastes, soap and cosmetics are some of the items on the list. Many of the items are also not considered to be of critical importance, for example Indian incense and toothpicks. Metal products such as cold rolled steel sheets, galvanized steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers are also on the ‘exclusion’ list.

Reactions came in different tones. Some derided Mr. Godwin Emefiele, the CBN governor, for practising “voodoo economics”. The Economist of London, in a widely circulated editorial, was very brutal in its criticism of the policy. According to the newspaper, the logical thing to do was to devalue or float the Naira to encourage realistic demand for FX rather than an outright ban on allocations. Other analysts thought it was an inevitable measure by the CBN given the global commodity crisis which affected Nigeria’s oil income – the biggest source of public revenue. Failing to contain demand for FX would have led to a run on the reserves and this could eventually put Nigeria in a clumsy situation in international trade. This debate is still on.

My take to the CBN action was that it is impossible to stimulate local industry with monetary policy alone. Inasmuch as Emefiele had to react to the threat to foreign reserves which, if not properly managed, could topple the economy and return us to the inglorious days of the early 1980s, the reality was that he needed support on the other side of the divide – the fiscal side. Maintaining healthy key rates is the primary responsibility of the CBN, but importation is a trade policy which is under the purvey of the Federal Executive Council (FEC). Therefore, Emefiele was fighting a mammoth battle all alone. Unfortunately too, the cabinet had not been constituted at the time and there was no minister to look up to for answers to the fiscal questions.

It is instructive, however, that the CBN policy has ignited a national debate on the place of locally made goods in the Nigerian economy. This is one positive outcome of Emefiele’s FX policy. For decades, Nigeria had been importing many products that it could produce domestically. As long as the CBN was making FX available to the importers, they had nothing to worry about. They had no incentives to invest locally. Nigeria’s import bill rose by over 500% in 10 years because of this unfettered access to FX. Agricultural produce such as vegetables, poultry chicken, eggs and turkey were freely imported. This had negative impact on Nigeria’s balance of trade and placed enormous pressure on FX demand. Not only was local industry stunted, our FX reserves were not growing.

The sharp drop in oil prices since 2015 exposed Nigeria’s vulnerability to these external shocks. Although Emefiele was derided for his FX restriction policy, it is a good thing that other Nigerians have now taken up the issue on the need to buy locally produced goods in place of foreign products. On the social media, #BuyMadeInNigeriaToGrowTheNaira has been trending. Nigerians are saying: why buy imported corn flakes when there is one made in Jos? Why not patronise locally assembled cars? Why not reduce dependency on foreign spirits and wines? This campaign has opened the eyes of millions of Nigerians to the fact that we are hurting the Naira every time we choose foreign above local products. This pressure on the dollar to import products cannot go on forever.

However, and this point is very important, Emefiele needs support. The reality, at the end of it all, is that he cannot use monetary policy alone to encourage domestic industry. Now that there is a full cabinet in place and very competent ministers, the fiscal side of the equation needs to kick in. The Ministry of Finance, for instance, can introduce tariffs that will protect locally manufactured goods. There will be a lot of fuss about free trade and international rules, but there is nothing in the World Trade Organisation (WTO) rules that prescribes compulsory suicide for countries. To the best of my knowledge, different countries adopt many WTO rules to suit themselves so that their industries are not sent out of business.

Furthermore, it is very important that security be tightened at the country’s borders so that what we are gaining through differential tariffs and FX restrictions, we will not lose through smuggling. No matter how well-meaning the CBN and the Ministry of Finance are, as long as other agencies of government do not do their own part of the job and live up to expectations, we will be back to square one. It is good news that Col. Hameed Ali (rtd), the Comptroller-General of Customs, has tried to clean up the service so that it can deliver better security and screening at the country’s borders. But it is equally important to help him achieve the desired results so that all the efforts of other agencies are not in vain.

Beyond the FX restrictions, the CBN, according to news reports, is also offering loans to manufacturers and other members of the real sector at a single digit. This stimulus is expected to allow the real sector access to cheaper finance so that the businesses can expand. If it works out well, it will stimulate output growth, enhance value addition and engender economic productivity. The results will be favourable to the economy if credit goes to sectors that have sufficient employment capabilities and high growth potentials. Nigeria can start earning FX through other sources as the industrial base expands and the economy is diversified. Laudable as this stimulus is, it desperately needs the buy-in of Nigerians to succeed.

The CBN alone cannot bring about the needed change in the appetite of Nigerians for foreign goods. Although, the controversial restriction on FX has made some of those imports very expensive and uncompetitive compared to Nigerian products, we must think of ways to make this sustainable. The tendency in Nigeria, as we all know, is that as soon as oil prices recover and the country’s reserve position improves, we tend to forget where we are coming from. We throw caution to the wind and return to an unsustainable lifestyle. We need to re-examine our tastes and priorities as our own contributions to national development. It does not make any sense for us to be consuming foreign products at the expense of made in Nigeria. We need a new orientation altogether.

I understand quite well that many people think Nigerian products are substandard and do not compare with imported products. There is no argument to be made against this fact. However, there is something called differentiation in an open market. If Nigerian products begin to enjoy good patronage, the companies will have to start competing for the consumers’ loyalty. At this stage, they will seek to improve the quality of their products in order to become the market leader or the dominant product. This will lead to healthy competition, and the smartest producers will go for international standards so that their products can be export quality. But without demand, they cannot recoup their investment, much less improve the quality of their products.

Dr. Maureen Babatunde, an economist, writes this article from Port Harcourt, Rivers state.

New tariff: Let there be light

By Modu Alkaleri

It is indeed intriguing to observe that the reality of a new electricity tariff, which came into effect in Nigeria last February has been accepted and is being complied with by virtually all electricity consumers in Nigeria yet political and labour leaders (who, no doubt, also comply) continue their vociferous vituperations in rejection of reality. Now even the Senate has joined the bandwagon of “undoing” a done deal. So where were the distinguished legislators when the Nigerian Electricity Regulatory Commission (NERC) began the process of publishing the proposed changes on the Commission’s website and newspapers, conducting public hearings across the geopolitical zones and consulting with key public institutions with mandate to manage macroeconomic fundamentals of the economy, as required by law?

The Senate’s motion supposedly instructing the regulatory body NERC to stop implementing the tariff was unfortunately not motivated by a genuine interest in intervening meaningfully on an issue of weighty implications on the sustenance of the power sector. It reveals a worrying tendency, already displayed by trade unionists, for “populist” posturing to becloud consideration of national economic issues. The case for some adjustment in the electricity tariff structure became a forgone conclusion as soon as the privatization reform was implemented and private investors took over the distribution business. This was the only option to decades of decadent ownership and management of the power sector during which, millions of generator-powered homes, offices and industries were at the mercy of a comatose NEPA/PHCN, which was reduced to an epileptic stand-by. There was no Senate resolution stopping the privatization.

The power sector privatization programme was positively preceded by the sensational success of the telecoms sector, which transformed our tormented telephony into a haven of mass multi-connectivity literally overnight with the GSM. The labour-instigated “protests” were drowned by ring-tones and lively chats. So it will be with the electricity sector. But the reality of a new business-oriented ownership and management cannot be wished away just as there can be no question of a return to NEPA! For the avoidance of doubt, Subsection 2(a)(b)(c of the Electric Power Sector Reforms (EPSR) Act 2005 categorically endorsed the commercial rights of the DisCos “to recover the full costs of the business activities, including a reasonable return on the capital invested in the business”. There was no Senate resolution against it.

Profit is what motivates private investors to put their money into a venture and also to manage it efficiently so that customer satisfaction will keep the business going smoothly. This is a universally accepted reality that cannot be protested or legislated out of existence. Moreover, the electricity distributors’ commercial interests have been curtailed by the regulatory functions of NERC, which specifically in the EPSR Act 2005 is charged with the power to establish the tariff payable by all classes of customers of the DisCos. By the time NERC approves a new tariff, other significant interests especially the national interest of the consumers had been taken care of. The Senate knows better.

The isolated confines of protest against the new tariff within the elitist circle of political and labour leaders, erupting only on pre-arranged outings, indicates a deliberate downplaying of the established constitutional, legal and economic realities of the new electricity tariff. It will appear as if the Senate, whose leadership has a serious credibility crisis, is trying to latch on to the feeble protest by NLC and TUC to win public confidence for itself. The senators need no telling that under the principle of separation of powers, a fundamental ambit of rule of law in a democracy, one arm of government cannot give directive to an agency (NERC) under another arm of government, and the DisCos can only take directives from NERC. No wonder the Senate’s motion recorded no movement!

Labour leaders should be undergoing a reality check on the validity of their representation relying on strike threats even when the majority of people are not with them and strike action can only do more harm than good to the people who will be enveloped in darkness and to the economy which will grind to a halt. Unless there is an ulterior motive, labour leaders should have a more enlightened and constructive engagement with workers and the regulatory authorities in order to come up with more meaningful interventions. The majority of electricity consumers saw reason to embrace the new tariff from the series of interactive town hall meetings where the rationale for the adjustment, incentives for consumers and DisCos’ commitment to improved services through massive investments were introduced and discussed. Why should labour leaders wail more than the bereaved? They should recall the GSM experience and LET THERE BE LIGHT.

Modu Alkaleri writes this piece from Bauchi. He can be reached at [email protected]

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