Nigeria’s rice bubble

The bubble was created by the people, amplified and accelerated by the government.  Profited by hardboiled bloodsucking politicians and many more predators who enjoy things like these.

I have never got involved in the rice debate.  I usually try not to move with the motley crowd and I believe this pays off for me as it is the way I am wired. Contrarian. Trying to see issues from neglected angles. There are usually neglected angles in Nigeria. That is the reason we have many issues. Paul Krugman once wrote that developing countries often have a problem called ‘adverse selection’, meaning that they often choose the wrong policies when given a choice between good and bad. Even when faced with two or more bad options, developing countries like Nigeria are wont to selecting the very worst.

This is usually because of the inability to project long term, interference of politics in economic decisions, self-serving external influence, the dominance of cultural practices that are not in tandem with efficiency and modernity, and the almighty corruption, which is a massive problem here. There is corruption elsewhere too, but those countries have been able to dominate the world and at least secure some concession from their elites to guarantee an averagely livable life for their masses. This issue of adverse selection is the reason why we are not tapping into the energy of our youths to build our future, but have chosen instead to collect loans and mortgage the future instead. African leaders are in Russia with begging bowls as I type this. It is the reason we have chosen to give cash handouts to many poor citizens rather than get them to do a bit of work for the money. It is the reason we are maintaining a luxury-loving government across the board rather than cutting down drastically the cost of governance. It is the reason we are in what I call the Rice Bubble.

Some economists study bubbles and busts. Some are skilled at anticipating it. It is usually not a big issue though… when too money is chasing a particular product or market, a bubble ensues. We have our property bubble in Nigeria as defined by hundreds of thousands of empty luxury houses (we could have chosen better by providing mass housing for our people first, thereby reorganising society – but another adverse selection took control). We have had a bubble in the oil sector and that is why a significant chunk of the over N5Trillion sitting at AMCON are loans to that sector after the International Oil Companies sold off onshore assets and marginal fields to enthusiastic local players who probably didn’t see what the oil companies had seen.

Today, I have a strong feeling, having maintained an unbiased stance so far in the entire rice melee, that too much money is going after rice in Nigeria.  Like I said earlier, the people caused it, and they have allowed the government to unleash much inefficient money in that direction. We will pay for this at some point in the future. The people caused it by always comparing everything with a bag of rice. When you compare minimum wage with a bag of rice, for example, you make it sound like a worker buys and his household finishes a bag of rice every blessed month. This will be a rarity, except you are that irresponsible Kaduna father who said he sent 4 of his boys to live in that hopeless ‘rehab centre’ because he has 40 children and a bag of rice finishes in his house under 3 days! What needs to be fixed in that man’s life is not the price of a bag of rice but his brains and mentality. The unfairness of it all to the rest of us taxpayers does not even occur to such people.

For an average family, a bag of rice can last for between 3 to 12 months. But our misguided comparisons have led the government to create a whole bubble around rice. Many people have become illegal billionaires today as a result of rice loans. Was the rice dominance of Asian countries such as Thailand, India and so on borne out of loan disbursements? How much of the loans we are giving out is channelled at research, seed improvements, higher productivity per hectare? At the end of the day, will this investment in rice be worth it or would we have greatly lost money? Are we displacing other needed farm products as many farmers rush into rice production? These are some of the questions that come to mind. There could be more concerns. What I know is that Nigeria has no credit culture. Most people see even bank loans as manna from heaven. Where such loans have anything to do with government, they see such as their portion of the famous national cake. If our authorities will be honest and transparent, we may find out that a large chunk of the loans to rice, in particular, is already lost, or jeopardised. The calibre of some of the beneficiaries is also a pointer. Our politicians swooped on those loans. It became a constituency issue. The rest is history.

On the other side of the bubble is the spike in rice prices in our markets. We hear now that the local ones sell for about N19,000 per bag, while the foreign – which still make it in by the way – sells for N25,000 with prospects for an increase as December draws closer. More money is being taken from the pockets of people but no additional value. The bubble and frenzy are as a result of the narratives about rice, rice, rice, that we put in the public space. Today, both the government and the people are sending too much money after rice, a singular product.  Today we have seen a made smuggling frenzy through our porous ‘borders’, using all sorts of nasty devices, just to bring rice into the country.

The only bright side is that by the time the bubble is over, we should have at least created substantial self-reliance in that product and demystified rice as a staple food item. Hopefully, by then even our children should be tired of the cereal. For now, let’s ride the bubble. And let us hope it doesn’t contribute too significantly to our fiscal cliff even as another global financial crisis builds up.

I think there’s too much government money going after rice and many stragglers have latched on to skim cheap money. Perhaps the investment and attention on rice could be better diverted to tech for innovation or something more groundbreaking or life-changing for Nigerians. The focus on rice speaks to our under-achievements. Given that we must feed ourselves, I believe the hoopla around rice should be more muted such as not to further inflate the current bubble. The conversations about what we need to be doing right now to catch up with humanity should be elevated. Government is right to seek a blockage to a source of foreign exchange attrition by using import substitution, but we cannot afford to dwell too much on this. Now is time to move on and intellectuals must seize the gauntlet. We cannot build this economy on rice. We are going to need a lot more so that even if Nigeria is incredibly successful with the rice strategy tomorrow, to the extent that we become a major exporter, the economy may develop economic malnutrition. I reckon that the outcome should be worse. For now, I will advise as is usually done for bubbles in financial markets – any households who can avoid buying rice, for now, should do so. Ignore rice and let’s see what happens.