Bootlegging in Banking and the Nigerian Economy

The repeal of the Prohibition Law in the United States of America in 1933 was America’s 21^st Constitution Amendment. It gave a reprieve to that country and its citizens as America had been bogged down by the century old social problem of alcoholism and the arduous efforts to fight it. By decriminalising bootlegging and speakeasy bars, amongst others and leaving it to individual states to deal with, it allowed the country to face and tackle other pressing social and developmental issues. Initially, post result showed an increase in the alcohol consumption rate of the average American. The USA, free of the distraction of fighting bootlegging, would then emerged through the Great Depression as the richest and most powerful nation – the country till then had been like ours - a sleeping giant.

Our own bogged down problem is not alcoholism but corruption. There is nowhere in the world where there is no corruption and in some places it is even deadlier than ours – yet they are developing at a greater speed. Corruption by itself is not a system - it is enabled through a legitimised economic structure. Our economic structure as it were is a fertile platform for corruption to thrive. Compared with other blossoming economies, the only thing Nigeria does differently from them is the method we employ to fund our public treasury – how government earns its naira. Governments all over the world spend in local currencies and in our own Nigeria, it is the naira. Government must, therefore, earn naira in order to pay salaries of his workforce and fund government contracts which incidentally is also in naira. 

As government depletes its treasury through its constitutional spending rights, it must replenish the treasury. This is either through tax, or borrowing, or by conversion of foreign currencies, or combination of all the above. If people don’t realise it yet, the flaw of this singular process is the crux of what is wrong with Nigeria. It is why education, manufacturing, agriculture, electricity, mass transit, roads, gainful employment and general wellbeing of Nigerians have reverted to the Stone Age. It is what fuels corruption and contrary to general belief it is not much of corruption as that is just a ripple of that singular action in 1986. Let’s examine two of the routes the naira ought to tack back to government coffers from the citizens and see their implications in the socioeconomic wellbeing of Nigeria thus far.

I will deal with the preferred conversion of the petrodollar first. This, as agreed must be done through a conversion (exchange) rate dictated by market forces and which will then serve as the official exchange rate with other countries. But the market forces we are talking about are based on auctioning, mm! Even Japan, the second largest economy, needs foreign currency more than any other country – it needs it to procure raw materials for its manufacturing economy. Because of our stage of development, all the economic sectors in the country are in dire need of foreign currency, which is never enough. The sectors can be classified into two groups - the mercantile sector (trading and banking) and the extra-wealth-producing sector (education, manufacturing and agriculture).

The dynamism of the mercantile sector (the turnaround time) is an advantage in the race for the scarce forex at the forex auction market. Whereas it could take as little as two days for a trader to go the border and back with goods; it will take the medical school 7 years to produce a medical doctor; a farmer a season to harvest, a factory some time to turn raw materials into desired goods. Trading, which is what mercantile is, is a viable option for a small nation with little mouths to feed. With no much value added to either the goods or the currency only commission, a large country like Nigeria with no industrial base will be at the losing end. This lag in production time of the wealth creating sector is the main reason why the sector is constantly outbid at the foreign currency auction market. And why most have closed shop.

For this reason, the bulk of the foreign currency available ends up for trading. The trading sector unfortunately is not a large employer of labour when compared to the wealth creating sector. The high unemployment situation in the country is therefore as a result. If we hope to be self-sufficient in future, it can never be through trading. Allocation in whatever form will have to be biased towards the wealth-producing sector, who will aggregately add wealth to our riches. With no wealth produce to exchange with the world apart from oil, it is as if the country has consigned itself to an everlasting regime of imports. All this is because of the desperation of government to fund its treasury with naira through an easy route of petrodollar auctioning – Dutch or no Dutch.

The other possible route for the naira to fund the public treasury is through tax. Ironically, this is the preferred route for funding public treasury in developed economies. If only our government could fund its treasury through tax mainly, there will be no desperation to auction the petrodollar. Allocation of the available of foreign currency could then be by other means. The tax route means that employment of labour must remain high to be effective and it is a win-win situation because additional wealth creation is ensured. The banking scandal has exposed the foolishness of our economy. The banks could easily lend out money to speculators to gamble at the trading floor of the stock exchange while potential wealth creators were scorned. The repeal of whatever act that mandates the Central Bank to auction the petrodollar will be an elixir that will propel the nation to the 20-2020.

For as long as we continue to auction the petrodollar, we will remain in the cycle of financial mess. Don’t blame the banks or the bankers; it is the enabling platform that is to blame. Only tax reform would guarantee a direction for economic prosperity and secure the future for the next generation. Tax reform will move the country closer to the determination of a fair exchange rate devoid of desperation of government. My argument is that the government is the problem. I have, however, cleverly downplayed the effects of those in government, whose damaging contribution is the wasteful spending of the “agaracha” naira that populates the treasury instead of the proceeds of tax. That is another source for concern. It however does not compare to the damage the auctioning of the petrodollar is doing as innocuous as it seems; preventing the creation of additional wealth. We all know how wasteful one could be if one does not work for the money. Tax collection is not an easy task, but it will make the government prudent.

Samuel Akinyele Caulcrick

Chief Flying Instructor

Nigerian College of Aviation Technology

Zaria

Tel. 08136677264

Robot  # 1 | 02.09.2009 07:17

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