Oil price volatility: Nigeria’s overdue protectionist approach?

The moment of truth is here. Prices of crude oil, the mainstay of Nigerian economy has nose-dived to a record low. This simply means less petro-dollar at the disposal of the Nigerian government, investors and the consequent free-fall of naira against the dollar. The Nigeria’s mono economy is sadly pegged to revenues from the proceeds […]

The moment of truth is here. Prices of crude oil, the mainstay of Nigerian economy has nose-dived to a record low. This simply means less petro-dollar at the disposal of the Nigerian government, investors and the consequent free-fall of naira against the dollar.
The Nigeria’s mono economy is sadly pegged to revenues from the proceeds of oil, so whatever happens to oil prices internationally has a direct bearing on the economy back home. The repercussion is all over the place – the value of naira against the dollar is rapidly sliding and showing no signs of stopping. Given this crisis, it is all too obvious diversification of our economy is imminent, if we want a lasting growth.
Our insatiable appetite to import most of our consumables is unfortunately or fortunately no longer sustainable as foreign exchange that comes largely from oil proceeds is grossly scarce. Thus, igniting a derived-demand inflation of a proportion never known in recent times. This is arguably the most trying economic moment in the history of Nigeria.
At this unwavering turmoil, President Buhari’s economic policy of Protectionism is one that the country has always badly needed. I think it is long overdue. It is kind of a bitter pill, if endured will usher in a new production-oriented Nigeria as against the clearing house for all sorts of goods that we are at the moment. Most developed and developing countries from the U.S., Europe to Asian Tigers such as Japan, China and Malaysia, protected their boarders to boost nascent industries and strengthen local production as well as to ensure a long term growth at some stage of their progress.
But this policy is not without its challenges. Chief among them is soaring prices of goods and service; slower economic growth, negative GDP growth was recorded in the first quarter of this year and general scarcity of commodities. These are the evident immediate, albeit temporal consequences of this policy.
Nigeria imports everything it consumes, including toothpick. As boarders are closed now, locally produced goods are not sufficient enough to serve the population in the interim. The adjustment period we are witnessing now is almost unbearable to many Nigerians as the cost of living is becoming out of reach. And this, in my opinion is where the government has to do a lot more to cushion the negative effects of protecting the boarders.
Foremost among the measures to ensure the success of this policy is to provide adequate electricity, the catalyst for serious industrialisation at least in the industrial zones of the country. This will guarantee continuous flow of relatively more affordable goods and services.
Then, favourable incentives to investment such as soft loans and tax holiday will encourage Small and Medium Enterprises (SMEs) to expand. The N-Power initiative, seeking to give soft loans to artisans and graduates to startup businesses tends to address this particular challenge.
Already, there are significant signs that people are going back to farms. If we can produce at least enough rice to consume locally, we free up the foreign exchange used for importation of rice, which takes a huge chunk of our needed funds for other important investment.
The proponents of free trade would argue that restricting certain goods from going in to a country violates the principle of free-market economy. This could be true only if the economy thrives in manufacturing high tech commodities such as cars and computers. Developing countries that allow free influx of any items in to their countries are condemned to specialising in processing of primary goods, raw material or inferior commodities such as garments and sweets at best.
The economic policy of protectionism has been tested and trusted in many Economies across the globe. Nigeria may reap its benefits by becoming an industrialised African power house in the long run if the following caveats are strictly observed:
One is that, the vast majority of Nigerians have been living below the poverty line even before this policy was introduced by Mr Buhari, this policy however, understandably compounds their hardship. Deliberate palliatives as they call it must be effective in alleviating people from abject poverty during this adjustment period.
Another measure to cushion the heat on investment is through various monetary policies at the disposal of the CBN. Quantitative easing- expanding liquidity portfolio, incentives to investment in any form will make sure the economy remains afloat before we get to the final stage of industrialisation, which is the ultimate destination of Protectionist policy.

Bagwanje wrote this piece from the U. K. He could be reached at [email protected]