Leave the title the way it is please. The point is going nowhere so I’m not in a hurry to get to it.
The national economic situation isn’t entirely shit yet. This D-day of ours will be more than four years long. Let that sink in, offer the sink a seat, and give the sink a beer.
Welcome then to the hiatus.
I personally don’t think the president meant evil when he predicted hard times. I’m certain he doesn’t plan to create such hardness. It’s merely a situation of ‘Qui craint de souffrir, il souffre deja de ce qu’il craint’, which translates as ‘Who fears to suffer, he suffers already from what he feared’
For a good number of years, caustically, Nigeria’s MAJOR export has been crude oil. This is a known fact and a popular one too. Even though a lot of strengthening was done in the agricultural sector in last administrative tenure, its contribution to the export profile of the country remains a meager of a meager, and so does every other. What I’m saying is, if red represents crude oil on a pie chart of Nigerian exports, a person without a high quality vision would think the chart was a red circle.
The price of a barrel of crude oil went up which translated into the much talked about ‘excess crude account’ for Nigeria at all tiers of administration. This meant that even though we weren’t earning dollars (international form of revenue) significantly anywhere else, the amount we were earning from crude oil export was marginally enough to even out whatever deficits we were incurring on importation (spending dollars) and make life somewhat bearable for the average Nigerian. And trust me, we were IMPORTING, and we still are. When there’s a new vogue in the international market, we add it to the importation list.
An interesting part however is that the importation of new vogue doesn’t stop that of old vogue. Because we have a big population and a well-spaced social classification system, catch-up tends to occur each time something new hits the market. I’ll explain. Blackberries were initially relatively expensive, including their subscription fees. The bulk of the average Nigerian populace stuck to Java, Symbian and Torch-light phones. Androids hit the market. The prices of BBs dropped and also their subscription fee. It became relatively cheaper. The bulk of the average class start buying BBs. What has happened here is that we have added Androids to our import list and BBs have not been taken out. Matter of fact, we are importing more BBs as more people are actually ready to buy. So at the end of the day, we have an ever growing list of imports. And that’s not all. Androids are more expensive than BBs generally, so we spend more dollars to import, and even though the price of BB has dropped, we are importing more units, so our import dollar spending increases on two fronts. All the while, our import-export has been dancing on a see-saw.
Now, US and Iran happened. US, the biggest importers of our exports stopped importing (to protect their economy of course) and Iran, whose government had the wisdom to keep producing and storing crude oil while under ban of sales, suddenly came to the end of their ban and have millions of gallon to throw in the market. One of the most basic principles of economics kicked in immediately – demand and supply; and pricing. There’s plenty oil; the prices crash. Our export (dollar earned) hits the ground, flows into the drains.
This is our reality.
For about six months (or more), the international exchange rate of the dollar to the naira has been N199 (a few kobos added). In reality however, as of today we are exchanging the dollar at N350. Before you criticize the current administration, realize this. There is nothing immediate that the government can do to permanently remedy the situation. There’s a long back story to the reason why.
The Bureau de Change was introduced for public exchange in Nigeria at about a time when the Dutch Auction System was in play. A system that auctions out quota-dollar to commercial banks weekly. The auction causes competition within these banks which in turn lowers the naira value by making the dollar more expensive. The BDC was supposed to alleviate this problem for the masses.
The modern definition of a bureau de change is a business which, in competition with other similar businesses, makes its profit by selling currency at higher exchange rate than a rate at which it buys the same currency, as well as any commission or fee it may charge. Going by this definition, even the commercial banks can be classified as bureau de change. The difference however between the BDC and a typical commercial bank is that the BDC wasn’t supposed to obtain its dollars at the CBN but through buying from individuals.
This arrangement failed sometime during the Abacha regime when the trade rate difference between the CBN and the BDC was very wide. The CBN was trading at about N22 while the BDC was trading at about N99. The reason for this difference is basically an unchecked demand and supply routine. Now instead of the BDC buying from individuals at rates close to that at which they were selling and making marginal profits, it began to buy directly from the CBN at N22 and then go on to sell at N99. Needless to say, a lot of BDC traders became instant billionaires (in Naira of course).
Now the current administration has put a crackdown on sales of dollars to the BDC by the CBN. The scarcity of dollars to the BDC hence resulted in an increased exchange rate (the normal rules of demand and supply). Ergo, we are exchanging now at N350.
An intelligent question from this is “why then doesn’t everyone buy their dollars from the CBN and commercial banks?” The simple reason is that the CBN doesn’t have enough dollars to circulate as we are no longer earning as much from the sales of crude oil, so the capitalist BDC are left to do most of the exchanging.
Some people’s argument during this trying times is that why is the dollar rate then affecting everything, even things that are produced locally. See, because the dollar to naira exchange rate is high, imported goods become more expensive to ensure the profit of the businessman.
And because Nigeria is a largely importing nation, the cost of living increases. The person who is producing locally might not need more money to produce, but would definitely need it in other aspects of his life. This is not to say that the #MadeInNigeria campaign is a dud, but that the nation actually needs the campaign to fly past the borders. We must EXPORT, even as we are discouraging import.
Recently, a provoked friend commented to me on how the president came against for foreign education. I want to say that I’m with the president on this one. I’ll tell a little parable as to why.
A man previously earning N300000 suddenly has his salary slashed to N50000. Is it not the mark of a wise man to call his family together and half-explain/half-persuade them to stay of non-essentials and also make substitutions to luxury? Won’t he say for now kids lets bathe with Dudu-Osun instead of Irish Springs? This is what the president implied. What the president is saying is that you shouldn’t take dollars out of this staggering economy and spend it in Europe. It would only destroy the economy the more.
Nigerians are still seeing import and export as buying and selling alone. We have to come to the place of understanding that foreign education is an import. Services are also a big part of import and export. If we are wearing Italian suits and Italians aren’t wearing Abeokuta adire, we are falling behind. If we are wearing Venezuelan weave and Venezuelans aren’t plaiting koroba, we are falling behind.
The current administration is not saying don’t go to Oxford. If you can afford it, by all means go. But when you’re going there, please take plenty tubers of yam with you and sell. Make sure that for that education you’re importing, you’re also exporting enough yam to balance it out, or even tip it in our favour.
Forgive me if I’m not using a lot of economic terms, medical vocabulary is my core.
Also, realize this is beyond the APC/PDP thing. Government is more than just politics. There’s administration in government, and when elections are over, as they are in Nigeria, the government and its people shouldn’t necessarily neglect politics, but focus more on administration.
And I’m not saying take my word for it, neither am I proffering solutions. I’m saying more than just criticizing the government, find out why a problem exists, how it exists, how it affects decisions and how decisions affect it, what the government can and should do about it. Think about the forces at play both internally and externally. Arrive at a malleable conclusion as you can never have all facts and stats, then decide whether or not to criticize the government and its policies.
The truth about the Nigerian reality is that if there are no problems, we never see reason to improve our situation. We forget that you don’t have to be sick to lick vitamin C.
Akindamola Akintola is a physiotherapist and a writer. He writes from Lagos, Nigeria. Contact him on his Facebook page or on Twitter @aakindamola