Currency crisis, gloomy economy and hidden opportunities

The times are hard. There is a consensus that the economy has tanked – at least in the short term. The naira has lost much of its value in the real (or parallel) forex market. As usual we bicker on who is to blame. Overlooked in the finger pointing is the old cliché that necessity […]

The times are hard. There is a consensus that the economy has tanked – at least in the short term. The naira has lost much of its value in the real (or parallel) forex market. As usual we bicker on who is to blame. Overlooked in the finger pointing is the old cliché that necessity is the mother of invention and that every crisis creates its own opportunities. As Thomas Edison, the American inventor and business man would say, opportunity is missed by most people because it is generally dressed in overalls and looks like work. Peter Drucker, the Austrian-born American management consultant would say that the entrepreneur always searches for change, responds to it and exploits it as an opportunity. The Nigerian bus conductor would remind us that Nigeria is tough but that those who live in it are made of iron. The American author Napoleon Hill would say that our opportunity may be right where we are. The crucial question therefore is beyond the economic gloom, how do we partake in the available opportunities created by the current currency crisis and the gloomy economic outlook?
The first consolation is that we are not alone in what APC politicians like to call ‘the mess we are in’.  The truth is that it is simplistic to blame the PDP   for all that has gone wrong in the country, including the current economic crisis. Ironically by framing the current economic crisis as a PDP legacy, there is an expectation that an APC government headed by a man that is generally believed not to be corrupt will fix things quickly. And because this has not happened and is not likely to happen overnight, there is an increasing frustration that is already morphing into legitimacy crisis in some quarters. Like those who blame all our problems, including the inability of some women to find husbands and some men to find wives on the past government, expectations that Buhari has a sort of magic wand to fix our problems overnight are also simplistic.
The truth is that several countries are seriously hurting. All exporting economies – whether they are exporting manufactured goods or simply commodities as we do are not finding things easy. For instance exporters of manufactured goods such as China are suffering because of the weakness in Europe and to a lesser degree the USA. Mineral and oil exporters have been particularly hard hit because of declining commodity prices.
In a very incisive article in the  Geopolitical Futures of January  26 2016 entitled, ‘The Export Crisis: The 10 Worst Hit Countries and the 5 Most at Risk’, George Friedman ranked Nigeria the eighth worst affected behind China, Russia, Saudi Arabia, South Korea, Australia, Zambia and Angola in that order. Like Nigeria, Russia is heavily dependent on its oil revenues, with oil and gas accounting for about 70 per cent of total export revenues. It is often said that Russia loses about $2 billion in revenue for every dollar fall in the oil price. In Venezuela, which relies on crude sales for roughly 96 percent of its exports and more than half of the country’s gross domestic product, it is estimated that for every dollar off the price of oil, the government loses as much as $700 million in estimated revenues a year. Though it is estimated that we need oil prices of about $119 a barrel to balance our budget, oil prices currently straddle between $39 and $40 per barrel. It is therefore obvious that much of the current economic challenge is caused by external shock.   My argument is not that PDP did not get a few things wrong or that Buhari’s and CBN’s economic policies are beyond reproach. My argument rather is that insufficient weight is given to the international context of the current crisis and that not enough attention is paid to the opportunities  created by the crisis.
While some companies are already grabbing these opportunities with both hands most of us remain the ‘wailing wailers’. For instance the Deputy Managing Director of Tempo Pulp & Packaging Ltd, Nassos Sidirofagis, a Greek national who runs a manufacturing firm in Nigeria was quoted by the Vanguard of January 26 2016 as saying that due to the CBN’s demand management policies that included the banning of the importation of 41 items, local patronage has increased, leading to a 70 per cent increase in capacity utilization. For Mr Sidirofagis, the CBN’s policy was the “game changer because as a Nigerian company, we are also competing globally and locally”.   
It is within the above context that the current ‘Made in Nigeria’ campaign should be located. The Senate President Bukola Saraki recently promised that the National Assembly would support locally produced items including garments, wears and cars. He also promised that the Public Procurement Act would be amended by the 8th National Assembly to make it mandatory for the government to patronize ‘Made in Nigeria’ goods. In the same vein, Aisha Abubakar, the Minister of state for Trade, Industry and Investment has proposed a ‘Patronize Naija Product Campaign’, as a way of encouraging local manufacturers. Equally, Ben Bruce, ‘the Common Sense’ Senator has created a hashtag: #BuyNaijatoGrowtheNaira to trump support for locally made goods. Senator Bruce and some members of the National Assembly have gone a step further by purchasing Made in Nigeria cars. The wife of the President Muhamadu Buhari, Hajiya Aishat Buhari,  equally keyed into the ‘Made in Nigeria’ train. Recently she commissioned the Erisco Foods Lagos Factory. The factory is said to be the largest tomato paste factory in Africa and the fourth largest in the world with installed capacity of 450,000 metric tonnes per annum.
Elite-led campaign for locally made goods is all well and good. But more needs to be done beyond the rhetoric, grandstanding, photo-op and our instinctive search for new mantras and catch-phrases as the magic elixirs to our problems. I will recommend the following:
One, the government should define what it means by ‘Made in Nigeria’. Since many ‘locally manufactured’ products even in the industrialized economies still have  substantial foreign inputs, we need to know what percentage of locally sourced materials must be in place for a product to be called ‘Made in Nigeria’ It is important not to mistake local re-packaging or assembling for local manufacture. The government will then design different incentive packages for companies with certain percentages of local content.
Two, for Nigerians to maximally take advantage of the opportunities in the current economic challenges or for the Made-in-Nigeria Campaign to work, credit must be available at affordable rate to local producers. In this connection the CBN needs to take a second look at the current nine per cent cost of borrowing policy from commercial banks to manufacturers. It also needs to fast track the commencement of operations by the recently established Development Bank of Nigeria, which is dedicated to industrial development.
Three, a big challenge for most policies in Nigeria is sustainability. Though some people mentioned as belonging to Buhari’s Economic Management team are honestly uninspiring, once economic policies have been thoroughly debated by those competent to do so and a decision is taken, the government should avoid quick reversals. This is different from being inflexible which happens when one clings to a course of action even against superior argument or evidence that the chosen path is not working.  Since every new policy is expected to disadvantage some of the current beneficiaries, a fight-back using different tools, channels and tactics should be expected. This is where the ability of the President to provide maximum political cover to those who are fronting the policy becomes an imperative. Certainly without Obasanjo’s generous political cover, El-Rufai’s restoration of the Abuja Masterplan or Soludo’s bank consolidation would not have been possible. 
Four, though the debate on whether the naira should be devalued or not is both complex and largely ideological (each option has its merits and downsides), what is not in doubt is that there is need for measures to bridge the gap between the official and parallel market rates. The Nation newspaper of 27 February 2016 reported that the CBN is targeting a N200 per dollar rate for the parallel market. It also claims that the CBN has the capacity to sustain the current downward pressure on the major foreign currencies and that the apex bank’s aim is “to ensure that the divergence between the official and parallel rate does not exceed N3”.  Certainly if the CBN is able to do this, the debate on whether the Naira should be devalued or not will become a moot point because the black market is the ‘real’ foreign exchange market. It also means that the temptation for arbitrage and round tripping by those fortunate enough to get foreign currency at the official exchange rate will be reduced.