Since the incumbent government’s accession to office, the responses to the foreign currency-induced part of the nation’s current economic crisis have ranged from mild (import substitution) to outlandish (arguments for economic autarchy). To hear most commentators who rail at the nation’s propensity to import and how this is the main cause of the naira’s woes, you would not know that the distributive trade sector is a major contributor to domestic output.
By all means, therefore, ban all imports (beginning with the infamous rice) in the hope that demand for those goods will drive domestic production, and create jobs in those sectors of the economy that will meet this demand. But remember as you go along that “Trade’s contribution to nominal GDP in the third quarter (2016) was recorded at 19.83%”. The National Bureau of Statistics (NBS) from whose report the preceding quote was taken describes “trade” as growing “by 15.36% in the third quarter of 2016 in nominal terms”. Add the workforce engaged in wholesale and retail trade across the economy, and calls to shut down imports should ordinarily enlist admonitions of caution.
An economy is a “system” with considerable dependencies across it. Therefore, economists try to build robust models of economies in their attempt to understand how policy prescriptions work. But these models are indicative, at best, and nearly never predictive. Accordingly, the unintended consequences of shutting down a part of any economy are always going to be far more than even the best model presumes. And I have no doubt that the models with which our policy makers currently interrogate the economy are of a parsimonious sort.
Take the naira’s woes, for starters. When folk discuss the economy, and how our love for imports hurts the naira’s exchange rate, one could be fooled into thinking that we have a disproportionately large import bill. Yet the truth is that compared with other countries Nigeria’s import-to-GDP ratio is one of the world’s lowest. This ratio was 12.4% two years ago, going by data from the World Bank. In the same period, the ratio of imports of goods and service to domestic output in India, China and South Africa was 25.5%, 18.9%, and 33.1% respectively. We evidently do not import far more than other countries do. Indeed, in Europe and North America, this ratio is a lot larger. And, not to forget, the biggest component of Nigeria’s import isn’t rice, nor toothpicks; but petrol.
Clearly, the problems with this economy lend themselves to far more thought than the glib recommendations dominating discussions on this suggest. In dimensioning these problems, a useful point of departure is constantly to remind oneself that irrespective of the economy, people only respond to the available structure of incentives.
One example of such incentives is the fate of the naira. Appeals to patriotic instincts notwithstanding, much of the demand for the U.S. greenback in the country today is the result of the erosion of the naira’s value. The naira rusts and it is beloved by moths — at least figuratively up to this point. The new hunger for dollars, therefore, is the result, not so much of speculation, nor of the uncaring activities of economic saboteurs. It instead is but a symptom of the precautionary impulse — we are all (increasingly at the retail level) concerned to keep our savings where moth and rust will not touch it. If we must salvage the country, we must get these causal relationships right. And the truth is that the people see public policy choices driving the naira in the direction of Idi Amin Dada’s “shit money”, and try to insure against the fallout; while those responsible for the shitty policies attribute the naira’s woes to the peoples’ lack of faith in the country.
At the import substitution and clamour for autarchy levels, this inversion of the cause-effect relationship is already hurting. To make the famed “local rice” affordable, sub-national governments across the land have set about subsidising the price at which people buy it. How do you square initiatives such as this with long-running arguments that we are a high cost economy; and that government has got to aggressively drive structural reforms that push these costs down (whether it be the number of procedures necessary to obtain a licence for doing business, or the number and size of payments that businesses must make)?
Rather than address this more fundamental issue, we tend to head the way of cop-outs: improperly targeted subsidy schemes end up supporting wasteful consumption by segments of society who would ordinarily have been able to afford the goods and services; the absence of sunset clauses in the design of our myriad subsidy schemes mean that they then become a self-reinforcing drain on the exchequer; and the cossetted businesses resulting from the schemes then range from economic retards to zombies.
Remarkably, the effort by the Lagos State Government to get its rice to rich households in the state was not without useful lessons, all of which reinforce the point about tackling the fundamentals rather than symptoms. While India has developed Aadhaar (a biometric identification system) that allows its government target subsidies at the needy, subscribers to the Lagos State Government’s rice distribution scheme confronted long queues, dense bank tellers, and long walks to close-by bank branches to pay into designated accounts before they could pick up their consignments. The Unique Identification Authority of India (UIDAI) reports that as at mid-December 2016, 1.09 billion citizens (85% of the country’s estimated 2015 population) had been issued Aadhaar numbers. The scheme is used to distribute US$40bn of subsidies annually; and the current edition of “The Economist” reports further that about “300 million biometric entries (on Aadhaar) are linked to citizens’ bank accounts, so that money can be paid to them direct”. No queues!
As at last count, there were still under 200 million Nigerians.