An Open Plea to SLS
Good day to our Sanusi Lamido Sanusi (SLS). Your modesty and outspokenness speak for themselves ÔÇô from your suggestion of two pronged agenda in a sea of agendas for the way forward, to the onslaught on unscrupulous Mongols in the banking industry. It is this trait in you that compels me, on behalf of many ÔÇô I think ÔÇô who like me are not grounded in the sound judgement of economics but maybe willing to reason outside that box, to appeal to your sense of patriotism. Providence seems to have thrust onto your lap a vital role to play at this stage in the development of Nigeria. By your appointment, you are in control and do control the pivot upon which the economy of Nigeria rests ÔÇô the exchange mechanism. This mechanism has singularly, in the past and will in future, determined the direction of movement of Nigeria's economic index on the global economic chart. SLS, you could at least bring back to the debating table the topic of exchange mechanism. More so now that the politics of the constitution and the presidency has cooled, let's engage in the politics of the stomach. After all, it was through a debate, orchestrated or not, that we got to this sorry state. The rot in downstream banking, amongst other things, could just be a by-product of a warped exchange mechanism.
Nature, it can be argued, has done its bit for Nigeria. Nigeria's location seems the most advantageous to serve the markets of the affluent western hemisphere when compared to other parts of the world. Nigeria is endowed with abundant resources which nature has manufactured for thousands of years under its grounds. Its huge population is adequate to harness its fertile surface ground, which is watered and nurtured by its beautiful weather ÔÇô another gift by nature or the Almighty Allah if you wish. Something fundamental did happen along the way and the country has since been in a spin. We have groped as if in darkness to identify what went wrong. So many theories have been put forward (just like this attempt) but none seems fundamental enough. We only know that corruption has become cancerous; our factories have shut down; our brains have taken flight to other lands; our infrastructures have decayed, particularly the power sector which has reverted to the Stone Age; unemployment has spiralled to the sky, while oil somewhat remains the only tangible stock Nigeria exchanges with the rest of the world. Yet, we put on our trousers one leg at a time; just like other people. So what fundamental has gone wrong?
If we transpose say into a computer and use a Restore Point, we could notice that everything started going awry when we introduced our present exchange rate mechanism. Oil that is doing well is outside the exchange rate mechanism because it is already priced in dollars. Exchange mechanism has always been the means for trade equilibrium even from the early days of history. The world then traded by barter. The invention of currency, however, has made exchange rate the pivot upon which the economy of any nation thrives. In the pre 1986 years, before the present exchange mechanism was put in place, the local currency, the naira, was fixed to the United States of America's dollar at a value ÔÇô the dollar being the medium of world trade. In retrospect and particularly to those of us who are ignorant in the mechanics of economics, the fixed value of exchange of the naira to the dollar coincided with the era of steady and predictive economic growth in Nigeria. My argument is not for a variable or fixed exchange rate but for a reasonable exchange rate mechanism outside the auctioning of the petrodollar to the highest bidder. I want to argue that whatever rate of the naira to the dollar will do provided the mechanism determining the rate is not through auctioning!
Only an unrealistic Nigerian will forget the distortion during the import licensing period. The fixed exchange rate of that time was distorted by political manipulation and corruption. One cannot forget the briefcase toting emergency contractors, who peddled import licences and exchanged them for a fee to those that genuinely needed the licences. If those were all that was wrong at that time, we might have unwittingly thrown the baby away with the bathwater. On a scale, the attendant disadvantages of that terrible period seem pale in comparison to what has befallen Nigeria ever since the introduction of the auctioning of the petrodollar to cure the ills of that period. It has also been tried, futilely, to determine a realistic exchange rate, which has always been to no avail. The abolition of import licensing did stem down the corruption of a very few political correct emergency contractors, but it ushered in an era of widespread corruption perpetrated by almost all Nigerians in one way or the other. The attendant slide in Nigeria's economic growth can hardly be overemphasised. We seem to have deregulated everything, from the exchange rate (through auctioning), to the creation of jobs. Let it be known that with a warped exchange mechanism, wealth creation will always be consigned to the backbench.
Countries have pursued the mercantile route to prosperity or the manufacturing path or both. The differences between the trading floors option and the factory floors option are the way wealth as a by-product is generated and the number of labour employed. At its best, mercantile option generate a high percentage of its earnings through commissions. This, however, is only suited to a small state like Ghana, Singapore, etc. The factory floor option, on the other hand, could produce enduring wealth enough to feed large number of mouths and engage high number of labour. What can be categorised as a factory option or a mercantile option? Agriculture; manufacturing and education can be grouped under the factory option (wealth creation), whilst general trading; banking and the stock exchange, except that there is no stock to be exchanged, can be grouped in the mercantile option (commissioned process). We seem to have settled for the mercantile (trading) route, through our exchange rate mechanism of auctioning of the petrodollar. This has discouraged further wealth creation (factory floor option). The problem has always been how to allocate the scarce foreign exchange. But as innocuous as it seems, the exchange mechanism maybe the one vital element we have ignored so far that could be precipitating our underdevelopment.
There is nothing wrong with trading except that Nigeria has too large a population to feed by only the commissions being generated through the trading floor option we have settled for. We need to generate additional wealth to feed our huge population as well as to provide employment for Nigeria's teeming masses and that can only be achieved through the factory floor option. Unwittingly, however, the Dutch-Auction exchange mechanism has destroyed the factory floor option. Whilst our traders can turnaround their investment in days, our production sectors will need months or even years to do the same. Yet we expect them to go to the same currency market to bid for the petrodollar. Our factories have become warehouses for imported goods employing only a fraction of workers they used to employ when they were manufacturing the same goods they are now warehousing. Ironically, lack of power has been blamed for this situation as if that is fundamental enough. Nobody is thinking that maybe the lack of power is also a by-product of a suspect exchange mechanism. It can be what is responsible for the massive corruption; rot in banking sector; capital flight; brain flight; shutdown factories; decaying infrastructures, etc.
May I suggest for a start, that half of our oil receipt should be allocated solely to promote the factory floor options ÔÇô agriculture, manufacturing and education? Allocation for the use of this portion of forex (sic) could be based on the number of employment to be generated; additional wealth it could create and the potential for sustainability in further foreign exchange earnings through export of its products. Right now, excess crude oil receipt is being shared by the states. This could fund a subsidized purchase of raw materials and machine spare parts for the factory floor option industries to create jobs ÔÇô diesel fired for now notwithstanding. My guts feeling is that if tinker with the exchange mechanism as it were, it could be the elixir for our economy as well as our development. SLS, you are in a position to kick start a debate to fashion out a desirable exchange mechanism away from the Dutch auctioning of the petrodollar. The tax option as an alternative to fund the national treasury is in the upswing right now, so government should be able to function if it is decided to pursue this path. It requires boldness and a reserve of nervous energy to pursue and you appear to have that. Is it possible to start to think outside the box? This is not from an expert, but then experts have not been able to explain or agree till date, the cause of the Great Depression or the last world economy meltdown.
Samuel Akinyele Caulcrick