Funny Illusory Exchange Rate
The traffic on the road had been horrendous and it was not just because it was 2 days to Christmas, alas, in addition it was due to fuel queues occasioned by the impending deregulation in the downstream oil sector which I support fully. I had gone to pick my son, who is on holidays, from the Murtala Mohammed International Airport in Lagos. He is a last-year major in economics at the State University at Buffalo, New York State, U.S.A. ÔÇô this is only included with modesty to boost the quality of my audience. For one hour and thirty-five minutes, we had travelled only 3 kilometres due to traffic and this prompted our discussions away from pleasantries onto the national issues. ÔÇśDad, is it corruption... why can't we just have light and I think every other thing will fall in place after that,' he asked almost from nowhere. I told him that it is more serious and deeper than just having light which the government has promised we will have by the end of the year, but how to sustain an uninterrupted light if at all we have it. I immediately linked it to a thinking which is not popular with majority of Nigerians ÔÇô I think it's just me.
Some years back, my theory of what is wrong with the economy would have sounded to my son like nuclear physics, but now he is in a position to hear me - with sympathy maybe. ÔÇśDad, what's your take?' he asked. ÔÇśThe economy is stupid and I don't think those who should know (our economists) are morons, though it seems so,' I answered. He knew what my theory was and wanted to hear it again. I started by asking, ÔÇśHow do you control an auctioned item after it has been sold?' ÔÇśThe moment you auction an item, you have lost full control over it and that's certain,' he quipped. ÔÇśUnfortunately, that's what we have been doing with our petrodollar. It is the reason why we have lost control of how to direct the wealth earned from oil to fund development in agriculture, education and industry... It is the reason why many Nigerians are roaming the street looking for jobs; it is the reason why we may not be able to sustain an uninterrupted power supply, and why there are so much wants in the land of plenty.'
He wonders why we can't revisit the exchange mechanism. He feels that what we have been doing is to panel beat an unproductive economic system. If oil that is already priced in the U.S. dollars, he says, accounts for over 96% of our exchange of goods with the outside world then whatever exchange rate arrived at through the Dutch auctioning at the Central Bank is nothing but a farce. To him, and I agree with him, our exchange rate is a form of tax without a formula because it is through auctioning. It is a locally arranged exchange mechanism with no bearing from outside our borders; it is bedevilled because it is between the government that has the petrodollar and the citizens that need the petrodollar to satisfy their individual yearning. It is loosely called market forces, but no serious nation anchors its development on the whims of the few in the market talk less under the hammer at the auction table. ÔÇśIf you can reason this way, why can't they even discuss it?' he asked with a bit of sympathy. ÔÇśWell, I suppose it's all about fixation. The ugly experience of the import-licensing days, which unfortunately has appeared somewhat pale in comparison to what we are experiencing now, is their fear.
In an auction, it is about desperation and wherewithal. The psychology is about who can afford to bid higher for foreign exchange in this case the petrodollar. Is it the trader that can turn around his investment in a couple of weeks; or is it a farmer that has to wait for a season to harvest his crops; or is it a an educationist that could wait for as long as 7 years to produce a doctor, or is it a manufacturer that has to procure machinery and raw materials that will bid higher? The "level playing" field is meant to be the Dutch Auction Floor of the Central Bank of Nigeria, but the result has always favoured the trader. Unfortunately for Nigeria, trading that has remained the foreign exchange winning sector is the least labour intensive when compared to the productive sector. Sadly also, trading in imported finished goods add little value to the wealth of a nation. The greatest wealth creator is education where skills are forged onto raw minds. Agriculture adds value through multiplication of seeding and animal husbandry. So also is manufacturing that creates wealth on the factory floors.
It amazes me when Nigerians complain about our slow development outside of the facts of our economic policy. We are fixated with the issue of corruption, which is a by-product of our stupid economic system - even angels will not propel this country to 20-2020 with the present economic system. We need to redirect our resources towards further wealth production sectors through access to the petrodollar. In other words, we need to bias the access to the petrodollar to favour the wealth producers (agriculture, education and manufacturing). For 5 years, I flew cargo regularly out of China from 2001 and I can categorically state that all cargo aeroplanes flew into China empty but fully loaded out of China. Nothing was allowed to enter China. In the same period, all my flights into Nigeria was full of finished goods while we flew out of Nigeria empty either into Accra to carry agricultural produce back to Europe or Dubai; or into East Africa, empty, to carry flowers and other agricultural goods to Amsterdam or other destination in Europe or Dubai. It was always a discussion on all our flights out of Nigeria ÔÇô Nigeria was the only country that we flew out of, empty. That says a lot about wealth drain. You cannot make omelette without breaking eggs!
Merry Christmas to you all and have a lovely and fulfilling coming year.
Samuel Akinyele Caulcrick