We are All Involved in the Forex Challenge


Akachuckwu Emmanuel

One critical error made by the forerunners of newly emerging African states, was to have swallowed hook, line and sinker the Ricardian theory of comparative advantage as a basis for engaging into a particular line of productive activity.

In a very simplistic form, the theory states that a nation should engage in the production of goods and services, in which it commands relative comparative advantage (in terms of relative abundance of human and natural resources) relative to her trading partner countries. It is hardly surprising that these former colonial enclaves are still paying dearly for this sweetly coated half-truth.

Oblivious of the intricacies involved in the pursuit of national economic development, many of these former colonies took to the production and export of primary commodities such as cocoa, coffee, palm produce, cotton etc. to enable them import manufactured goods such as cars, electronics, machines and spare-parts.
Some economists, like Raul Prebisch and Han Singer, argued that, because the income elasticity of demand for manufactured goods eventually, is greater than those of low value-added primary commodities, therefore, the demand for manufactured goods increases more rapidly than for primary products.

It therefore means that overtime, the prices of primary commodities tend to decline relative to those of manufactured goods, which presupposes adverse terms of trade for countries that rely heavily on unprocessed primary commodity exports. It is important to note that, the emergence of petro-dollar windfall from crude oil exports has altogether been providing the country some cushioning effects against the revenue shortfalls from these primary commodity exports.

This scenario explains the boom-and-bust nature of most African economies, which is dictated mostly by the level of prices of commodities at the international market. Thus, at the period of higher prices, the economy booms, and at the periods of lower prices, it recoils into recession. Nigeria went through similar periods of falling commodity prices in the early 1980s, prompting the then President Shehu Shagari to enact the Economic Stabilisation Act, 1982. The Act, otherwise known as the “Austerity Measure” was characterised by forex restrictions.

This has been the dilemma that Nigeria has had to contend with, in the last four decades of our import substitution strategy experience. The situation was much more exacerbated by Nigerians’ insatiable taste for foreign imported goods, which was lubricated by huge inflow of petro-dollar.

It is hardly arguable that these primary commodities dependent countries are at pains to realise that given the present falling commodity prices, such frivolous taste is not sustainable. These newly emerging independent countries ended up in return to reap macroeconomic instability with greater chances of suffering double (trade and fiscal) deficits.

It is in the light of the above discourse that the Godwin Emefiele–led CBN brand of import substitution strategy – Anchor Borrowers’ Programme for rice and wheat production could rightly be adjudged as novel.
Confronted with the twin problem of high food import bill that averaged over N1 trillion in 2013 and 2014 and falling oil prices, the country was left with no choice than to design a strategy of domestic production of these food products in order to stem the fast declining foreign reserves.

As a strategy to raise the demand for these locally produced products, the Central Bank of Nigeria (CBN) rolled out a complimentary policy of denying importers of 41 items that can be produced locally, access to forex from the official inter-bank window as incentives to local producers.

Besides, the programme has helped to stimulate local production of these food products, but has reinforced employment generation and wealth creation. More than anything else, the programme has yielded some appreciable results, as import bill on agricultural commodities is already declining. Already, the increasing large expanse of paddy rice already being produced in Kebbi, Ebonyi, Cross River, Niger, Anambra, etc. goes to suggest the likelihood of the attainment of self-sufficiency in rice production in short time than was envisaged.

Furthermore, the CBN ABP was carefully designed to avoid the pitfalls associated with the post-colonial import substitution strategy. The high import-dependent structure of these import substitution industries as crystalised in the 1980s, clearly shows absence of rigour in ascertaining the long-term effects of these industries on the macro economy. Given the huge cost of imported machineries, spare-parts and industrial raw materials needed to run these industries, it became apparent that the import-substitution industrialisation strategy was unsustainable.
The CBN ABP was designed to deemphasise dependence on foreign inputs with guaranteed local demand for the products and therefore reduces to the barest minimum any foreseeable bottlenecks from either the supply side or the demand side.

The scheme uses the already subsistence farmers who are grouped into clusters, which should be registered with the state government. The off-takers undertake to extend credit to the small-holder farmers on the agreement that the farmers produce and sell at an agreed price to the off-takers. The credit facility is basically in form of material inputs (seedlings, fertiliser and extension services) in addition to minimal cash to facilitate production.

The CBN ABP scheme has become a revolution of some sort and the rice crusade is fast spreading like a wild fire across the country. Revolution in the sense that the scheme is creating wealth and employment among the rural poor and at the same time helps to save forex that would have been frittered away through rice importation.

The problem today is hardly the boom-and-bust (balloon) economy, but the dearth of effective policy response by the government in restructuring the economy into a form that is attuned to our production possibility potentials. There is also the absence of right attitudinal response from the people in moderating their consumption pattern to reflect domestic production realities.

This informs the vociferous, but bitter agitations by some interest groups against the CBN efforts to conserve the much depleted foreign reserves as explained by the flexible exchange rate policy and the withholding of access to forex for the importation of 41 items.

The bedlam of voices against the CBN is rather confusing, tending to douse clear analytical reasoning required to sort out the issues at stake. The call for the removal of the CBN Governor, Godwin Emefiele, is simply misplaced and does not provide solution to the desperate need to restructure the productive base of the economy from oil to other non-oil exports.

As viable alternative to the current protestation against the CBN, Nigerians should consider seriously, improvement in the value chains of non-oil products such as rice, wheat, palm produce, cocoa, cassava, yam etc.

We should also take a hard look at other low hanging fruits such as the garment industry in Aba and leather works in Sokoto with a view to improving on the supply value chain of these sub-sectors. Closely related to improvement in supply value chain is the need to improve the business environment by way of adequate infrastructure to guarantee international competitiveness of these products.
This is the only way we can transform from import-substitution to export-led growth strategy, diversify and enlarge our foreign exchange earning capacity, in addition to the existing crude oil export.

The government should on their part commence social mobilisation of the citizenry aimed at appealing to their sense of patriotisms to patronise made-in-Nigeria goods. Equally tangential to such mobilisation and appeal is the imperative for government at all levels to demonstrate good faith by ensuring that at least 30 per cent of government purchases are from locally made goods.

Let us therefore do away with the politics of who occupies the headship of Central Bank of Nigeria and get down to the more serious business of crafting a sustainable economic strategy that improves our naira exchange rate. That is a better way to demonstrate nationalistic feeling towards resuscitating the Nigerian economy, given the resurging nationalism the world over.
––Emmanuel lectures at University of Ilorin