₦airaland Forum

lawani:
In normal countries, government have no forex income so the notion of floating or not floating does not even arise. The Japanese government have power only over the yen and it is only importers and exporters that have and use forex. In Nigeria like in all nations where government sells oil, the government has forex income that is sizeable but it can not be more than thirty percent of total inflow if up to that. The problem in Nigeria includes the government wanting to control all forex inflow from exports, remittances, online fraud, gifts and etc and that is totally unfair because those dollars do not belong to them. Even the oil forex ought to be shared in dollars to the states.

IbeOkehie:
Thank you! You're looking at it from another angle and it all comes down to the same SOCIALIST ideology, that government owns everything. In trying to enforce that theft a lot of damage is done to the economy.

Thanks!

IbeOkehie:
I think the major reason Nigeria doesn't process raw materials is the overvalued naira.

I was shocked to learn some years ago that Nigerian cashew nuts are shipped to Vietnam and some other Asian countries for processing BEFORE being exported to Europe.

I was shocked. Currency control is destructive.

Have a good day.

saifryzwi:
You are right to point out that the overvalued naira is a major reason why Nigeria does not process its raw materials. When the naira is overvalued, it makes imported goods cheaper than locally produced goods. This makes it more profitable for businesses to import processed goods than to process raw materials locally.

The cashew nut example you gave is a perfect illustration of this problem. Cashew nuts are a major export crop for Nigeria, but most of the processing is done in other countries. This is because the naira is overvalued, making it cheaper to import processed cashew nuts than to process them locally.

Currency control can also be destructive. When the government controls the exchange rate of the currency, it can make it difficult for businesses to import the goods and services they need to operate. This can also make it difficult for businesses to export their products, as they may not be able to get a fair price for their goods in foreign markets.

The government of Nigeria has taken some steps to address the problem of overvalued naira. In 2016, the government floated the naira, which means that the exchange rate is now determined by market forces. This has made the naira more competitive, but it has also led to higher inflation.

The government is also trying to promote the processing of raw materials in Nigeria. In 2019, the government launched the National Industrial Revolution Plan (NIRP), which includes a number of initiatives aimed at promoting industrialization. The NIRP includes a focus on processing raw materials, as well as other measures such as improving infrastructure and providing tax incentives for businesses.

It will take time for these measures to have an impact, but they are a step in the right direction. If the government can successfully address the problem of overvalued naira and promote the processing of raw materials, it will help to create jobs and boost economic growth in Nigeria.

Here is a link to allexamnotes.com: https://www.allexamnotes.com/tag/business/ for more information on this topic.

mariahAngel:
Not all agricultural produce are for consumption.
Some are raw materials.

IbeOkehie:
I think the major reason Nigeria doesn't process raw materials is the overvalued naira.

I was shocked to learn some years ago that Nigerian cashew nuts are shipped to Vietnam and some other Asian countries for processing BEFORE being exported to Europe.

I was shocked. Currency control is destructive.

Have a good day.

IbeOkehie:
I gave your comment a "like" because you touched on some important themes...but not on the major reason for lack of value addition in Nigeria.

The reason why Nigeria and most other Black African countries continue to import finished products made from their own raw exports is this - their governments have STRONG CURRENCY POLICIES that over-value their currencies compared to their fundamentals. That is all, every other issue is minor or even peripheral.

Not only that, STRONG CURRENCY POLICIES which are a subset of generalized socialist policies have ALWAYS been the most important underlying cause of Nigerian economic stagnation. It's not lack of electricity or corruption or anything else. It's SOCIALIST policies, the most important of which is STRONG CURRENCY policies.

A simple hypothetical will suffice. What will happen to say....Innoson Motors if the naira starts trading at ₦‎5,000/1$ tomorrow?

Here's another one everyone needs to think about - WHY are Nigerian interest rates persistently high? The government keeps them high to ensure a higher value for the naira than it deserves. So PRODUCERS are denied cheap capital, which means they don't borrow and invest. Anyone interested should go research the link between interest rates and currency value. I keep coming across people on Nairaland who claim to be forex traders, they surely know this.

https://www.google.com/search?q=relationship+between+currency+and+interest+rates&rlz=1C1CHBF_enUS1037US1037&oq=relationship+between+currency+&aqs=chrome.1.69i57j0i512l7j0i22i30l2.20786j1j9&sourceid=chrome&ie=UTF-8

The high rate of importation into Nigeria has nothing to do with CULTURAL PREFERENCE or lack of patriotism. The cause is a simple thing in plain sight - a strong currency makes imported goods cheaper than they should be!!!

Another thing, weak currency generally boosts productivity, while strong currency suppresses productivity and development. This is why Nigeria has been an underdeveloped, low productivity country for a loooooong time. Even in the times when Nigeria was supposedly doing well in the 1970's, a RATIONAL measure of say HDI will show the country was wallowing in poverty and underdevelopment. During those oil boom years before 2001 what percentage of Nigerians had access to mains electricity and piped water and telephones and university education?

The problem of Nigeria is socialism. Currency control is a socialist policy, it's a SUBSIDY exactly like fuel subsidy. Forex price controls destroy every country that uses it. ALL the prosperous countries in the rich country club called OECD have floating currency.

The ONLY reason Kenya exports more MANUFACTURED goods than Nigeria is that Kenya has a floating currency, Kenya doesn't fix their forex prices. I've seen Kenyan clothing in major retail chains in the USA, Kenya also exports flowers to Europe. I've never seen a single Made-in-Nigeria product in a major retail chain in the USA, not a single thing.

https://www.investopedia.com/terms/forex/k/kes-kenyan-shilling.asp



And if a country MUST control its currency, it's better to SUPPRESS it instead of boosting it. That's how China became the manufacturing capital of the world.

That's really all there is to the matter. The sad thing is, I'm not sure if Nigeria has TRULY floated its currency, because all sorts of statements coming from the Central Bank indicate otherwise. Forex subsidy in Nigeria is on a par with fuel subsidy as a source of corrupt enrichment.

Have a good night.

IbeOkehie:
So could you explain WHY Nigeria still doesn't add value to it's cocoa locally and still imports lots of manufactured cocoa products? I don't think it's about controlled trade...that's my opinion. I think there's something else at work.

Thanks.

IbeOkehie:
So WHY do Nigeria, Ghana and Ivory Coast choose to export raw cocoa? What is stopping them from processing and adding value in within their borders? Curious to know, it seems this should be a simple problem to solve. The technology is surely NOT new or difficult to copy. Build cocoa processing factories, make chocolate bars and powder and sell. This will also create so many jobs and tax revenue.

I wish someone could explain the REASON why these countries export raw and import products made from the same raw products.



So I'd like someone to explain WHY Nigerians prefer imported goods.

Thanks in advance to ANYONE who can tackle these related subjects.

IbeOkehie:
Thanks for the reply. I fully agree with you that floating currency is the best policy. Some of the details you've pointed at give a wrong impression of certain situations.



The Central Bank sets interest rates and banks follow that because they have no choice, because the government is the sole supplier of currency. Lack of trust is a small contributor to high interest rates. Another contributor is lack of collateral. Whatever the case, no bank or lender can AFFORD to set an interest rate less than the Central Bank rate in any country.



Japan has a free floating currency. When a Central Bank trades currency or sets interest rates to influence the value of its own currency, that is still a full float because the marketplace can still legally RESPOND via price. The currency control I'm referring to is when a currency is PEGGED at a fixed price, such as has been the case in Nigeria for so long. The only way to respond to the currency fix is to enter the ILLEGAL BLACK MARKET or parallel market. Such a fix incompatible with a free float and is unsustainable in the long run as the UK found out in 1992 and Switzerland in 2005. Nigeria is the latest example of that futility.

Thanks.

CodeTemplarr:
cheaper forex means equipments can be umported easily. If no one imported equipments and started priduction before stipping due to high prices, then it is wrong to assume currency is linked to lack of cocoa processing.