Wednesday 24 February 2016

Responses To Understanding the Buhari approach to the exchange rate @

So I privately shared the article published on The Cable Website (Understanding the Buhari approach to the exchange rate @ here ) with a few select individuals. 

Below are their unedited (except for private / personal information) comments

1) A PhD holder in Petroleum Economics. Also happens to be a diplomat (as you do) &  published author said

"I see what you mean in terms of fearing it rambled. I thought it did a bit. That said, there is a strong argument being made albeit a bit emotive I thought. I also made a few observations which I think tend to get overlooked from both sides of the argument. 

- I like the historical reference to the economic situations that presented just before Buhari Marks I and II. I don't think it tells a full picture of what led to these economic situations. I also don't think it's enough to say corruption caused it. It doesn't do the diagnostics justice to say so, because it gives little to the investigators to work with. Understandably, there is only so much that can go in a paper. But in my view, or rather in hard data, the elephant in the room of root causes was the decline in oil prices and therefore government revenue. Now a case can be made for corruption-driven unpreparedness for such downturns in fortune, but loss of income is loss of income. We somehow don't like to acknowledge this bit, I find. 

- You rightly point out that the percentage share of oil in government revenues hasn't changed. I think this is only part of the picture and, in times like these when things are really bad, maybe not the right picture to paint or at least put in the front of pictures to paint. The economy has been doing something. I tried to quickly look online for the share of crude oil to Nigeria's economic output (GDP) in the 1980s but I dey under pressure for office. It would have shown - I think, no I'm sure - that there has been a stepped change in the share of oil in our GDP. Oil today does not account for more than a tenth of everything we actually produce in the real economy. This is something we tend to not notice and, in my view, one of the reasons the importance of favouring economic growth over currency valuation does not get a loud enough mention. 

- On Sanusi, the man did a John Maynard Keynes - the facts changed for him, so he changed his mind. I'm not a big fan of a lot of his actions leading up to his exit from CBN, but in his written and spoken work at least he is able to demonstrate a change of position if the hard data tells him something has changed. He may well have an ulterior motive, but I like to assess the guy on the merits of his arguments. 

- I didn't also get the chance to look for data on our export revenues by sector over a long period of time. The aim of this exercise would have been to show that 1) the share of non-oil exports had increased probably consistently over the years compared to oil exports and 2) there were structural changes to the kind of exports (I mean a growth in exports outside of raw commodities). The reason for all this is there's an argument that there isn't much to export therefore nothing to lose if such export revenues were to reduce or disappear. I think this argument is erroneous. 

- I also liked the reference to the list of banned imports and the reference to toothpicks is a catchy narrative that, in my view, cheapens the point I think people try to make with regard to the import-restrictive impact of this whole thing. This one too is where I think we don't do enough discussion. The problem is not the banned products like toothpicks. It's the equipment for manufacturing the domestic alternative. I particularly like the reference to ball point pens on the list. I like it because I watched a random documentary on how they are made a while ago. The level of mechanised effort 'na die'. The kind of equipment needed to make that banned item will need to be imported. The moving parts that will need to be replaced, from its daily use, will need to be imported. This is where I have a problem. It's not the protectionist intent of banning the items; every country does it. It's making sure the alternative is actually available and competitive that is the challenge. 

- I'm not sure that your assertion of the black market being small is accurate. I don't have the data though, but just looking at simple remittances from the West back home suggests to me that there is demand, and potentially huge. The incentive for Nigerians abroad (who are involved in regular remittance of cash home like me) to take advantage of this gap between reality and CBN is palpable. I know I'm not the only one doing it. This doesn't help matters at all, because the real value of the Naira right now, for those who are actually involved in the business of buying things from us, would be somewhere in the middle. 

In general though, we are in the recession end of a business cycle and the effort should be more at making sure the real sectors of the economy that have actually made some non-oil progress are encouraged to stay on. GDP from manufacturing grew 106% between 2010 and 2015. Services did 33% in the same time frame. Transport I think did about 20%. Going through the GDP reports from the Nigerian Bureau of Statistics will show even more progress in other non-government-dependent parts of our economy. Now, I know it is always very easy to dismiss these things as just academic, on the grounds of "the guy for street never chop anything from inside all this GDP business." Economists don't do themselves any favours by not being able to colour their analysis with the language of grassroots politicians. I used to feel awkward about this but not anymore, because their job I feel is to dig deep into all this data they collect and pass it on with explanation to decision makers. The Bureau of Statistics painfully explains how they gather their data, what the data captures etc. Ultimately, what it shows is that you can trace the GDP down to the pure water seller on the street because the maker of the bags that hold this pure water has a record somewhere of the rubber (or is it plastic) that made them, or the machine that seals them, or the loans that were provided to buy the machines, and so on and so forth. So while it looks academic and removed from the reality of Mr Lagbaja in report, the rigour of the work behind getting the numbers is anything but. 

2) Senior Manager with a Global Financial Services Firm gave this response

Here are some simple things I expected to see - re firing up employment opportunities for Unemployed and under employed Nigerians. Simple changes to trade and fiscal policy should be on the table as long as they shine a path towards opening up new opportunities for govt revenue and jobs for the masses .
checked the customs website yesterday and discovered that whiskey and lace are still on the banned item list. I can't fathom the reason this boneheaded trade and tariff policy. Are we trying to promote domestic production of lace? 

Fifty years after independence there isn't a single factory producing lace and demand remains strong and supply is ubiquitous.

Who are we fooling? Our import tariffs are one the highest in Africa driving input cost and inflation for ordinary folks. And most importantly, it deters investors in consumer packaged goods from setting up plants in Nigeria in spite of the fact we are the natural hub for all of Africa- millions of Nigerians deprived job opportunities.

With their backs against the wall I had expected to see Buhari take a pen and scratch all these anachronistic trade policies by removing all items from the banned list.

Apply competitive tariffs to luxury whiskey and lace and allow wealthy folks who can afford it get it but stop the bribe going to customs and instead new revenues for govt.

By broadening the taxable items you increase custom revenue that you can afford lowering tariffs on crucial input materials and encourage the CPG firms to set up plants here

3) A 3rd friend who is an entrepreneur and a retired Banker 
gave the following response 

Pro devaluation proponents haven’t proven their case. Devaluation theoretically will stimulate local production, encourage exports and import substitution. The problem with this is that there is yet no enabling environment to support increased local production. Infrastructure is still quite poor and inadequate. Any gains of devaluation will soon be quickly lost in my opinion. I also suspect (in absence of formal statistics) that the gains of any devaluation are already in play since a large quantum of the economy is serviced by the black market! In effect, I’d advocate status quo with the addendum that CBN and the banks be watched very closely to forestall any rent seekers taking advantage of arbitrage opportunity between official and parallel market rates.

No comments:

Post a Comment