CBN vs The Economist

In this week’s edition of The Economist, the magazine dared to say what many people have been saying for a while now – Godwin Emefiele, Nigeria’s Central Bank Governor does not inspire confidence in anybody.

As anyone who has been paying attention would have noticed – the CBN Governor has a magnificent obsession with Nigeria’s foreign exchange rate. At the beginning of this year he was defending the Naira with billions of dollars. That (unsustainable) strategy has since been abandoned. There is a new strategy every week these days.

The latest one however has to do with banning the use of the official foreign exchange market if the purpose is to import a list of 40 items ranging from toothpicks to Indian incense.  It didn’t stop there – it went further to say import of those items cannot be funded by buying forex from Bureau de Change or proceeds from exports i.e. if you sell your goods abroad, you can’t use the forex you earn to import any one of those banned items.

In short, the only way to fund the import of those items is by sourcing dollars from the black market. You can go through the recent press releases from the CBN and the message is clear – it is cracking down on use of forex for anything it does not like.

Why is the CBN doing this? It is trying to ‘defend’ the value of the Naira. It feels that the demand for forex is too much and as such is trying to reduce the demand. The way to buy dollars in Nigeria is of course to exchange it for Naira. The point of trade is that you give up something less valuable to you in exchange for something you consider more valuable. All the people demanding dollars have Naira which at that point in time, is not very valuable to them. The more people do this, the higher the value of the thing they want which in turn reduces the value of the thing they are willing to give up for it.

The moral of the story here is that the CBN’s actions clearly show that it is determined to stop the devaluation of the Naira. By denying people dollars to buy toothpicks from South Africa, it is telling them to use their Naira to set up a toothpick manufacturing plant in Nigeria instead.

And so we come to the gist of what The Economist said in its article – this is a very strange way of stopping the import of items you feel can be produced locally:

Economists find the policy baffling. Central banks usually prop up their currencies if they are worried about inflation, or allow them to devalue to depress imports and stimulate exports. Nigeria, by contrast, appears to be set on achieving both an uncompetitive exchange rate and higher inflation

We know that toothpicks can be produced in Nigeria. The technology is not complicated to the point that Nigerians cannot do it. The reason why it is being imported is that it is obviously cheaper to do so.

Imagine that the exchange rate is N200 = $1. Now, due to poor infrastructure, insecurity, police harassment and of course high cost of generating power, it costs N1,000 to produce a box of toothpicks in Nigeria i.e. $5. But in America where the roads are good, there is 24/7 electricity, policemen don’t demand bribes on the highway and the technology has advanced to very efficient levels, you can produce a box of toothpicks for $2. Add another $1.50 for shipping the toothpicks to Nigeria and clearing it at Apapa Port. By the time you add a profit element, it is still possible to sell the toothpicks in Nigeria for $4.50 i.e less than it will cost you to produce it in Nigeria. If you’re a businessman, this is a no-brainer. Manufacturing is stressful and Nigeria can be very unpredictable. You don’t have to be ‘unpatriotic’ to opt to import instead of manufacturing – it makes business sense.

But remember that the businessman who is importing the toothpicks can only sell them in Nigeria in Naira. Using the above exchange rate, a box will be sold for N900 ($4.50 * 200) as opposed to the N1,000 it would have cost to produce it locally.

You can see where this is going – the ability to import toothpicks for cheaper than it costs to produce locally relies on that N200 to $1 exchange rate. If the Naira loses value against the dollar and drops to N230 to $1, all of a sudden it will now cost you N1,035 to import that box of toothpicks. It becomes cheaper to produce it locally (for the sake of this simple argument, we assume that everything required to produce the toothpicks is available locally). If you agree that the reason anyone will import toothpicks in the first place is because it is cheaper to do so, it follows that when it is no longer cheaper to import, the person will stop doing it. And if the demand for toothpick remains (people are unlikely to switch to using their fingernails), then there will be money to be made by supplying it to them.

This is not some untested economic theory by the way – as I wrote previously here, devaluing a currency and keeping it undervalued is a tried and tested strategy for industrialisation. The most recent example of this is China who for decades has kept its currency undervalued (combined with massive infrastructure spending) to keep its producers competitive.

But what the CBN is trying to do is keep the exchange rate at N200 to $1 (in the example above) and then telling people to simply stop importing. It wants them to be ‘patriotic’ and instead manufacture and sell in Nigeria for N1,000 – an 11% increase on the N900 people are paying for the imported ones (the inflation part of The Economist’s argument). There are very few places in the world where such an approach makes ‘sense’. Nigeria is one of them.

***

Amazingly, in 24hrs, the CBN has responded to the Economist’s article via a press release. It is never a good sign when the response is longer than the original article itself. By the end, we still do not really understand why the CBN is trying to strengthen the Naira at the same as it is claiming to be discouraging imports:

The CBN believes that Nigeria cannot attain its full potentials by importing anything and everything. For far too long, this trend has significantly weakened the operating capacities of our industries, but now is a good opportunity to begin a reversal. Although the article hastily derides this idea as lacking in economic foundations, it is the same principles upon which many other countries do not allow importation of certain products.

Once you believe that ‘the devil is abroad’, it will determine how you react to the situation. The CBN continues to ‘believe’ that importing is what is killing our industries. It follows then, that reducing or banning imports will resuscitate the industries. The question of why people choose to import in the first place is always conveniently ‘unlooked’. Importing simply happens because Nigerians are ‘unpatriotic’.

They say no one deceives themselves like the woman who has only child but when asked how the child is, she replies ‘which one of them?’. The problems are hard and will take a long time to tackle but the best time to start is now. It is sensible to import into Nigeria today. You need to be mad to try to produce most things in the country. That is why people collect all the ‘intervention funds’ provided by the government and buy Range Rover Autobiography with it.

Interestingly, the same Economist addressed the underlying issues about a month ago (emphasis mine):

FOR Muhammadu Abubakar, life is an uphill struggle. Farming in Nigeria is tricky at the best of times. Only the brave or the downright crazy would think of dealing in a perishable product like milk.

On his ranch on the dusty fringes of Kano, the biggest city in Nigeria’s north, he faces a daunting array of problems. The electricity grid is hopeless. So, at the gateway, two generators splutter away 24 hours a day. Diesel sets Mr Abubakar back about 1m naira ($5,100) a month. “We’ve had two hours of power in three days,” he says. “There’s no option.”

There are no good cows for sale nearby, so Mr Abubakar’s company, L&Z Integrated Farms, plans to start importing its own. There are no good seeds for fodder; he brought in cuttings on a commercial flight from Kenya. There is no mains water, so he must drill boreholes to irrigate his fields. Fertile land has a tendency to turn to dust. He has to train his own staff to use complicated machinery. Plenty of batches get spoilt along the way. By the time it is processed, a litre of milk has already cost about 320 naira (£1) to produce.

Then the milk has to get to market. “Three or four years ago we used to fly our milk down to Lagos,” he says. “It cost a fortune. The milk would spoil sitting in the airport. We had to pay off customs. It was a nightmare.” Nowadays, the firm uses costly refrigerated trucks instead. Drivers must brave day-long journeys on disintegrating roads. Each truck requires about 200,000 naira ($1,000) in opaque licence fees every month. Even when those are paid, local authorities send thugs out to get more.

“They make you buy new paperwork,” one trucker says. “We probably pay 3,000-4,000 naira (roughly $15-$20) every journey. ”When the milk finally arrives on supermarket shelves, it costs around three times what it would in Europe. Cheap long-life imports sell for less than half the price of local milk. Nigeria spends roughly $1m a day on imported milk powder, according to Sahel Capital, a private equity group which recently invested the same amount into Mr Abubakar’s business in the hope of changing that.

Other types of farming are equally fraught. Nestlé finds it cheaper to bring starch in than to buy it locally. Olam, a Singapore-listed agribusiness, says that processing costs up to 30% more than in other countries. Mukul Mathur, who heads its Nigerian business, says that moving a container from Kano to Lagos costs as much as from Lagos to Osaka, though the distance to Japan is 13 times greater.

Of course the CBN did not respond to this one.

FF

 

P.S This November 2014 article by Professor Ricardo Hausmann cannot get old. I share it with everyone I know – it addresses the issues currently afflicting Nigeria. 

P.P.S If you want something more technical, here’s a 2007 paper by Professor Dani Rodrik where he argues that an undervalued currency is associated with rapid economic growth in developing countries. 

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31 thoughts on “CBN vs The Economist

  1. Appears what we need is a neurosurgeon or an hypnotist to either perform operations on the guvnor’s head or hypnosis to help him snap out of this well worn path. I mean, this is so frustrating!

    Buhari may need to pull the trigger. I’m sure guvnor can be persuaded to take a sabbatical without acrimony. I feel this is actually a “save me” style action from him. Nobody can be this bad.

  2. As educating as ever. Saddening to hear about the milk production example.

    What you may have overlooked is the politics of exchange rate. PMB was reported (rightly or wrongly) to have said some things about exchange rate during the campaigns. He would be hard pressed to not try to keep the dollar from rising like a helium balloon as it is seeming to do.

    May God grant wisdom and courage to the folks who have to make the decisions.

    1. Unfortunately this is the truth. Exchange rates have become a political weapon in Nigeria. We even measure ‘performance’ by it.
      In reality what we should be arguing for is a freely floating Naira but the idea that the exchange rate will be something left to market forces is just not something the political class can understand or even tolerate.

      We might be this way for a while to come

  3. These economists (at both CBN and The Economist) again! Will they ever agree on anything! Or maybe it’s just the macroeconomists. During the SLS saga, when newspapers in Nigeria began to peddle a shortlist of some commercial bank MDs to fill the vacant position, I checked out what information was on wikipedia about individuals who had held similar positions at the Bank of England and the Fed. I was sad there was no expert Nigerian (to be patriotic) macro-economist in the list being peddled. SLS came from that sector but it soon became clear he wasn’t the average commercial bank worker.

    Talking about ‘patriotism’. It is a well recognized argument some countries make for not engaging in total trade in products another country has a lower comparative advantage.

    Anyway my optimism about the Nigerian economy has remained the same for more than a few years.

  4. Insightfull analysis, thank you. However, one of the key priorities of the CBN should be how to fund/partner with investors of Independent Power Plants (IPP) across the 36 states of the federation to boost/kick start the dead industrialization projects from macro-large business.

    1. Honestly, I’ll have to disagree.

      We cannot be using PPPs and funding them at the same time. These private investors should source their own funds.

      The CBN cannot be the one stop shop for private investors. If lack of dollars in our economy is a problem, spending these dollars on private investors; who should be bringing in dollars from foreign banks; is a bit baffling.

  5. The case for a devalued currency is not a new one and I think the CBN alluded to that by saying the best time for import restrictions is now…I presume because of the present state of our currency.

    However, further devaluation of our currency affects millions of Nigerians immediately. Those of us schooling abroad could see the real costs of education skyrocket. Do we also apply the local manufacturing principle to our education?

  6. Hmmm. Food for thought except that no solutions are proferred. Is the argument that once the exchange rate is freely floating infrastructure will improve and importation of all and every item will stop? I guess it’s time we compared apples with apples. Please educate me on the way and manner forex is sourced by businesses in China and other countries where devaluation works as a magic wand. Where apart from Nigeria does the central bank or monetary authority sell forex to businesses, banks and bureaux de change all the time? May be our problems are more fundamental than the analysis in the Economist then…

  7. one of the economic fallacies a dear professor at OAU left with me in his class was the idea that ” what is good for one may not be good for all”. PMB needs to provide leadership for the Nigerian state to elevate herself to the level of an industrialized nation. tough decisions will need to be made. the tea party will soon be over. the basic economic tradeoffs for a secured future for the country should be put in place. EConomists will always be on the side of investors just like most Brenton woods institutions. however, CBN by law is meant to be for the nation and her citizens. SLS made several attempts but the body language of his boss was not encouraging. I hope GOdwin finds enough support from PMB to tow this line to self reliance and sufficiency. the forex market just like every other thing on Nigeria needs restructuring and it must start now.

  8. Devaluation is not always the best and I believe there are conditions under which devaluation works one of which is the structure of imports and exports.In the Nigeria case where we import almost everything and our major export is a commodity export.Devaluation only amounts to further unfavorable balance of payment and further impoverishing the citizens.Under the current macro economic conditions in Nigeria though,I don’t think we can produce nothing competitively.We have to start by first lighting our homes and industries.looks bleak anyway but our destiny is in our hands as a nation.

  9. Let’s face it, in a room filled with the best economists in Nigeria. Very few(probably none) would peddle the idea of currency devaluation and export promotion + discipline. It is always: return back to agriculture + import substitution with puny size factories that hide behind barriers and bans, with little or no push to expand thereby can’t compete with their fellow counterparts where economies of scale gets to eat them up for supper. No one seem ready for an exports push.

    I gave up on Emefiele just about the first day I heard him say the only way out of our malaise is: import substitution. Here is a man twice my age and with more resources to feed on saying same thing like someone that got his economics diploma from some obscure correspondence college just a week ago.

    1. I don’t entirely agree with your submission. Import substitution in itself is not prone to failure. However, as with most other economic policies, application must be timed and other variables factored into it. Other countries have practised import substitution as an economic policy but the difference is that such countries imposed an obligation on the local industries to commence with external market expansion within a specified number of years. I am not an economist. Notwithstanding, I am strongly persuaded that economics is not an exact science to the extent that the articulation of its theories relies on human behaviour.

      We cannot deny that we must resuscitate our dead industries and protect them for a limited period of time in order to enable them become competitive. It is the mode of application of these protectionist policies that determine whether the import substitution strategy will work. Without import substitution, we probably would not have Hyundai today.

      With specific reference to your comments on agriculture, please note that pound for pound, Africa remains one of the most productive places on Earth for agriculture. This comparative advantage is lost as a result of the application of substantial subsidy to agriculture by the developed nations. It is perhaps the reason (amongst others) why baked beans is cheaper to produce outside Africa.

  10. I agree with Oluwadamilare. Treat forex like every other commodity. Let it flow with d laws of demand n supply. Let banks access it, let it into d streets. Its just insane that CBN prints naira every month for distribution to cover dollar income from oil imports and use the dollars it has stashed to prop up the artificial inflation it caused.

  11. Yes it may cost more to produce in Nigeria than abroad. Aside from the challenges itemised above, companies in countries where these products are imported from, also enjoy economic of scale as they will be supplying to many countries which makes the cost unit if their product cheaper. Manufacturers in Nigeria cannot compete with that because their products are only consumed in Nigeria.
    Even among the developed countries, there are varying price differential amongst goods developed in one country from the other. At a point in time, both US and EU quarrelled with China over the fact that goods produced by China and imported into their countries such as solar panels are cheaper than the ones produced in EU and US. They therefore advised China to adjust their currency, yen and let it appreciate in order to protect their manufacturers otherwise they will impose higher import duties on their goods which EU eventually did a time.

    It is government responsibility to protect their economies. We are having a situation now where we do not have enough foreign currency to go round all those who may demand for it and I do not believe devaluation of the naira is the way to go. There are some many ways to protect the manufacturing businesses in Nigeria outside of devaluation. For instance in the example sighted., all what the country needed to have done to ensure that the local manufacturers of toothpick are protected is to impose import duties on the toothpick imported into the country and then you will have achieved the same thing devaluation would have done. Make importation of toothpick uncompetitive..
    Even as it stands now with importers of toothpick sourcing for their own forex through black market which is usually higher than the official rate, they will be paying more naira to get the dollar to import the tooth pick which will also make importation of toothpick uncompetitive compared to manufacturing it locally.

    Unilateral devaluation of Naira as a result of insufficient foreign earnings in a country like Nigeria that virtually imports everything is not the best way to approach the problem. The mutiplier effect on the economy will be catastrophic. We can deploy other tools as mentioned above.
    Being a developing country that as of now, practically exports no finished goods, we can use import duties effectively to our advantage without the fear of reprisal from other countries.

    1. The higher you tariff the toothpick, the greater the amount of smuggling. You can ask the former Agric minister who put 110% tariff on rice in 2013. In less than a year he had dropped it 50% when the amount of rice that was going to Benin Republic increased dramatically. In the end the rice still came into Nigeria and the FG did not make any money at all from the 110% levy….losing both ways

      1. Precisely the point I was trying to make as I read this comment. Import levies do not and cannot work in Nigeria just now. The price differentials they create encourage smuggling and the borders are too porous/customs too impoverished/corrupt/incompetent to do anything about it, we will just provide a stimulus to our neighbors while simultaneously losing custom revenues as we seem to be doing with the auto policy.

        I believe a better way to solve the toothpick example is a properly priced currency plus competitive import duty (maybe waivers in absolutely necessary) for would-be manufacturers of the tooth-pick to get their equipment. This is based of the assumption that quality machinery is at the moment unavailable locally and will need to be procured – no point having an unnecessarily high duty on that, the lost custom revenues would probably be offset over time by increased local production, income tax etc. The primary raw material obviously is locally available…

        Talking about price differentials by creating such a big spread between parallel and official rates, scammers are being created everyday. I argued this here: http://bit.ly/1LrR5kx

  12. I will side with the argument not to float the naira at this point. The exemption of 41 items by the cbn is a good step at this point in time. Essential and/or import that can’t be easily substituted should enjoy the backing of govt via access to forex from official sources (cheaper). Other should through the black market wherein the rate is dd-ss determined (expensive) and could ultimately lead to some back integration by importers as well as bring about new entrants to the various affected industries. The follow up policies to this fx restrictions for me should be the focus. Strengthening our institutions, drastically reducing corruption, fiscal governance, head-on tackle of the power situation etc all these, if properly done, would support the pseudo import substitution policy of cbn, and could eventually grow our manufacturing/industrial/export base. Hence condemning the policy is not the right position To take imo. It’s clear some good polices fail cause of other support systems/policies that are lacking. Like the import tariff on rice mentioned by u, imagine if our borders were not so porous am very sure the benefits intended by the policy would come to past

    1. per your ideas…therein lies the rub, isn’t it? I am no economist, so forgive me if i cannot talk economic lingo, but your position passes the test of the reasonable man to the extent that all other conditions and and variables remain favourable and balanced. However, they’re not. It amounts to the CBN saying…”we need to remove the safety for good housecleaning, but we expect you to jump anyway.” The fundamental rot in the system needs to be healed first and foremost, before fixes like trying to manipulate the currency can be applied.

  13. Then you step up your efforts in controlling smuggling instead giving in. The whole idea of the import duties is to protect local industries and not to collect additional revenue so government should not be concerned about losing revenue but that they could not the smuggling.
    Smuggling happens everywhere in the world but a proactive government takes adequate steps to combat it. A good example of what the government can do is to engage and partner our neigbouring countries in effective border control. Nigeria has to use her international diplomacy to achieve this. The Republic of Benin may get something in return for this to work. I do not whether they are amongst our neighbours that we give free electricity to, but if we do then,nigeria has to leverage on that to get republic of benin and cameroon to stop the inflow of smuggled goods. Nigeria effectively did that during the biafra war with Cameroon to stop the flow to weapons,etc being smuggled to biafra. The government is equally partnering with niger, Cameroon in the fight against boko haram. To resign and give in means, you are abducting your responsibility as a government. EU partners with Libya etc to stop the illegal migration of people through Libya borders to EU. After that was done, the number of illegal migrants dropped astronomically.

  14. Nigeria must be the only where it’s Central Bank aside from its Monetary objectives also sets the Industrial policy for the country.
    My worry is that the current CBN Governor is apart from being incompetent is also unawareness his remit. Industrialisation Policy is not the role of the CBN. Let the Minister of Industry worry about toothpicks and champagne. The CBN should be concerned about Inflation and the health of the Financial Sector.

  15. I noticed that some persons like ifeanyichukwu, are routing for devaluation of Naira as a mean of achieving promoting exports of finished goods to other nations. Good motive. But my take is if that is your objective then you do not need to devalue naira further because it is already devalued enough to make prices of any products produced in Nigeria to be competitive to that bring produced other advanced countries etc. China’s yuan is currently going for 6 yuan to a dollar and goods produced in China such as solar panels is cheaper than the ones produced in USA and EU that US and EU are collectively asking China to let yuan appreciate. Nigeria naira is at 200 naira to a dollar and yet we can’t produce competitively with America etc in things as small as toothpick because of hidden costs from bad road infrastructure, to corruption,to power failure, etc. So if nigeria is desirous of being a major exporting nation , then it must put its house in order first by building reliable road networks, ensuring stable supply of electricity, etc. Until you do that and fix the basis, you can aspire to the tall order of being an exporter of manufactured goods. You can’t put the chart before the horse. You should realise that it was because of these challenges that local industries hitherto producing these items collapsed as a result of being uncompetitive to imported goods of the same kind. You can just be devaluation your currency at every twist and turn, your economic policy should backed up by what you desire to achieve having been well thought of. A case study is Zimbabwe that retire their currency of recent having devalued it to unimaginable proportions. They are presently spending US dollar in Zimbabwe.

    So it is because top economists in Nigeria knew of these fundamental challenges that they are championing things like import substitution, trade/forex restrictions etc to minimise the effect the challenges mentioned above, one of which us depletion of have on nigeria one of which is rapid
    depletion of her foreign earnings as a result of indiscriminate importation of goods and services while the government addresses issues around stable supply of electricity, good road network, etc.

  16. And we will first have to decide on two things? First, what exactly should Nigeria under her circumstances (and bent on industrialization, I believe), be spending her dwindling Forex Earnings on? Importing every finished product deemed cheaper than local manufacture or machinery for the local manufacture of same and others? If its the latter, we would definitely need a stronger currency to build on industrialization. Secondly, regardless of the imperfect environment, would we rather continue to propagate these vicious cycles of imports on ”everything that is cheaper to import than manufacture” than institute virtuous cycles to produce the same even at the level of our infrastructure without discounting current efforts? Have we considered the known benefits of the latter despite the state of our infrastructure?

  17. The argument is simple:

    By propping up the Naira, CBN is making imports cheaper. Cheaper imports mean NO ONE is his right mind would invest in producing substitutes locally. This so-called “Import Substitution” policy is therefore doomed to fail.

    Also, banning products for which there is insanely strong demand (like rice, for God’s sake!) only encourages smuggling and costs the government billions in lost revenue from import duties.

    It is all folly. A chasing after the wind. Pointless. Worse than pointless. Wasteful. Stupid, even.

  18. The pure economic theories are infallible, enough said & understood, however, must be pointed out that no country submits her economy to wholesale free market forces, u cannot float the currency without attacking the imperfections in the system, majorly the infrastructure deficit, some form of protectionism is desirable to grow the economy,

  19. This policy or methodology of CBN is the one sensible thing Emefiele has done. Every major economy has protected itself. Ever heard of dumping? The economic tool of selling for less in foreign countries than back home? Why is China amongst other accused of artificially keeping its currency low? What Nigerians should be doing right now is to ensure that the Federal Government’s (implemented) policy in general aligns with what CBN is trying to achieve. It would definitely cost more in the short term but the dividends would be seen down the line. This is the message of Local Content.

    Sometimes I wonder what our so-called business men do. Don’t they have the good sense to lobby so things can be done for cheaper back home? This argument of it being cheaper to import is what has perpetuated the malaise. To paraphrase Abraham Lincoln: I do not know much about the balance of trade but this- If America buys from France, America gets the goods and France keeps the gold. But if America buys from America, it keeps both the goods and the gold.

    1. From the CBN website (cenbank.org), their aim is “…delivering price and financial system stability and promoting sustainable economic development.”

      You have to choose your battles. Note that price and financial system stability is what the CBN sets out to DELIVER. Economic development they help PROMOTE, because there are many facets to it. Industrial policy is not one of the jobs of the CBN. For sure they can support it, but Mr. Godwin’s actions are not part of a coordinated national strategy and it’s hurting what should be his primary focus. Inflation is already out of the band. Perhaps the financial system is stable for now, we’ll see how long that keeps up.

      Anyway I hope he’s right and it all works out cos ultimately I just want Nigeria to be better… But I don’t think he’s right.

  20. IK Joy-Uzor, I’m on same page with u, & tnx for the paraphrase by Abraham Lincoln, makes economic & common sense, after all, local manufacture of what is consumed locally, ultimately @ globally competitive price will shore up trade & industrialization, & enable CBN preserve our FCY reserves, to fund absolutely essential imports, & especially payment for massive infrastructure capital expenditure. federal allocations & payments by CBN are ” nairaised “, & not in FCY, so enabling CBN to manage our local & foreign currencies payment systems efficiently, what we need is fiscal discipline, to complement CBN monetary policies

    1. IK and Yomi, Abraham Lincoln might make some sense about protectionism but it leads to other incentives for local producers. The economic prediction is that if local producers are certain there won’t be competition between local production and imports, then the country have a monopoly or oligopoly, and the attendant price ‘games’ in her hands. Both of these are economically inefficient and reduce economic surplus. This is the more obvious scenario given the current high cost of production/doing business in Nigeria and I can’t readily think of a scenario that will lead to the “ultimately @ globally competitive price” Yomi referred to. Maybe if it is possible to have a near perfectly competitive local market for all those goods. Will the (possibly costly) goods be exported? If yes, the exports will only be purchased if transportation or other government policy in the destination country makes it cheaper for the domestic market to buy the (possibly) expensive one. In fact there is evidence that protectionist policies in developing countries at the onset of globalization led to neither growth of the businesses nor economics gains in most of these countries. In summary, there are pros and cons protectionism and I have only just reminded you it is not as infallible as Abraham Lincoln may have made it sound. I provide a few references below.

      http://useconomy.about.com/od/glossary/g/Trade-Protectionism.htm

      http://www.cato.org/publications/commentary/american-european-protectionism-is-killing-poor-countries-their-people : good for the home country, bad for the potential trade partners. While, the home country may gain in some industries, it may lose in others.

      https://www.globalpolicy.org/component/content/article/213/45644.html

      1. Tolu, tnx, I really appreciate ur comments & the reference materials which have enriched my knowledge, we’re not too far apart, most economic theories also consider local & environmental variables, hence the cateris paribus caveat…we must not submit our economy to WHOLESALE market forces, I believe in free market as the only efficient management of economic resources, but we need to rejig to local realities & continue along path of attaining the utopia of free market, I’ve the malaysia economic development model in mind, a hybrid of home grown economics & global best practices, tough, but question is: how did we get to this quagmire & how do we get out less painfully…a seeming paradox…

  21. Pingback: RTTS#6: The Bankers and Terrorists Edition | Return to the Source

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