₦airaland Forum

emeeco:
I've never heard the anti-import policy is meant to check inflation, rather it's meant to reduce demands for Forex for some items.
Raw materials and essential imports still get FOREX.

The problem is that under this policy, bureaucrats and politicians get to decide what is "essential", rather than letting the market decide. This results in absurdities like Buhari and Emefiele banning chopstick imports as "non-essential", though such imports may be absolutely essential to top-tier tourist resorts that can draw in foreign dollars. Just because something doesn't seem "essential" to layman doesn't mean it's not essential to important domestic businesses.

Leaving aside questions of economic efficiency, the other problem with such policies is that they create the very scope for the corruption that we all love to complain about. Who is more likely to have access to artificially cheap dollars, a struggling small or medium-sized manufacturer in Ibadan or Onitsha, or well-connected monopolist billionaires who already benefit from import waivers and convenient bans on competitors' inputs? We cannot say we want less corruption while giving politicians and civil servants the very tools to engage in it.

Topeakintola:
Ok I get you now.

I agree that diversification is crucial. However, diversification to what? Commodities? It will lead to the same problem in future if there is fall in price. With the world economy gradually embracing sustainability and reduction in fossil fuels, a focus in solid minerals will have consequences in the long term. You mentioned agric products, this is a good point but we still import some of our food commodities so an increase in domestic production will at best reduce imports and fill the domestic demand gap.

I will opine that Nigeria focuses on technology, manufacturing and gradually graduate to a smart economy. I was reading an article earlier, the author explained that if Mark Zuckerberg was Nigerian, his facebook project would have failed because of the export oriented syndrome of Nigerians. Nigerians are not patient and do not allow local businesses to improve the value of their products over time.

They may be Islamists and trouble makers but The Saudis are already thinking ahead. In the last 10 years, they have invested billions of dollars in IT and their Universities, especially STEM courses to increase their competitiveness. A lot of R& activities are going on in the country. I'm not too sure what the outcome will be but they are making an effort.

Nigeria is blessed with talents, locally and internationally. I dont see any reason why we cannot engage in innovation which incidentally might not require as much capital as investments in oil exploration or solid minerals.

Good points but all these things work hand in hand. Diversification is a starting point in order to reduce our over dependence on oil which ultimately contributes to our importation syndrome. Infrastructure comes next with the stabilization of electricity and a more reliable transportation system, this will attract local and international companies to invest more in talents capable of delivering the technologies of tomorrow. For what's the use of training our university students in the latest technology when electricity, hunger, poverty and so on limits their potential

seunmsg:
Prices of goods doesn't have to double before the ordinary people begin to feel the impact of inflation. Wages have been stagnant since 2011 so, any percentage increase in inflation will result in hardship for the people.

that's what he said, inflation but not catastrophic

Topeakintola:
You are correct. Japan's insular perspective is a major flaw

They might also argue that it has enabled them to maintain a cohesive society.

Yes, Japanese society is cohesive alright - I've actually lived there and can attest to that at first hand - but another way of interpreting that is "conformist", often-times stiflingly so. Japan is also a rapidly aging society with an ever-shrinking working/fighting age population, bordered by such "friendly" countries as China, North Korea and Russia, all of which it has disputes with.

Wallie:
And where do you get the machinery, seed, raw materials, clothing you need to survive? Take a look around you, you'd be hard pressed to name two things that are wholly manufactured in Nigeria.

as mentioned above. we have an export problem (read productivity problem),. PS those things are all in the ground but love of white collar job no gree us work hard to succeed

seunmsg:
The naira issue has been the topic of debate for a while now. Should we devalue or not? Can we cope with the effect of a devaluation? What happens if we don’t? And so on. Over the next few days, I and other colleagues-experts in their fields-will give views on a variety of issues regarding the naira devaluation debate.

To kick things off, it is useful to discard some bad ideas which have been tossed around for a while.

Bigger Number = Stronger Currency?

The first myth to debunk is the false idea that if you exchange a bigger number for a smaller number then the currency with a bigger number is weaker than the currency with a smaller number. You typically hear people say: “Wow, one dollar is exchanging for 16 rand. The rand is weak. The dollar is strong.” That kind of thinking is faulty mostly because it doesn’t take into account the purchasing power behind the currency.

For example, if an individual living in the US earns 300 dollars a month, then that is technically identical to an individual in South Africa earning 4800 rands a month, given that 1 US dollar exchanges for 16 rands. So long as that exchange rate holds then the rand is not weak or strong, it’s just the rand.

In reality, the strength or weakness of a currency has little do with what the actual exchange rate is. So although one Ghanaian cedi exchanges for 30 Japanese yen, you cannot say the cedi is stronger than the yen. Similarly, although one Turkish lira exchanges for six Mexican pesos, you cannot say the lira is strong and the peso is weak. That would be wrong.



In reality, the strength or weakness of a currency has little do with what the actual exchange rate is. So although one Ghanaian cedi exchanges for 30 Japanese yen, you cannot say the cedi is stronger than the yen. Similarly, although one Turkish lira exchanges for six Mexican pesos, you cannot say the lira is strong and the peso is weak. That would be wrong.

What then determines a currency that is “weak” or “strong”?

A weak or strong currency is one that is changing, or that everybody expects to change soon. For example, if the naira changes from 150 to the US dollar to 165 to the US dollar, then during the period the change is taking place the naira is relatively weak and the dollar is relatively strong. The same applies if the currency is expected to change soon. If everyone expects the naira to change from 197 per US dollar to 300 per US dollar, then the naira is weak relative to the dollar. The weakness persists as long as the expectations about the change persist. If the change eventually happens, the naira moves to 300 to a dollar, and everyone believes that is the end of it, then the naira is no longer weak. It is just the naira.

Weak Currency = Bad Economy?

The second myth to dispel is the idea that a country whose currency weakens consistently over time cannot grow. This could not be further from the truth.

The poster child of why weakening currencies do not imply slow growth is South Korea. South Korea grew its GDP per capita from about 1100 US dollars in 1960 to about 24,500 in 2014. What happened to its currency over the period? In 1960 one US dollar exchanged for about 63 won. Today one US dollar exchanges for almost 1200 won. In short, over the period where South Korea has “developed”, its currency has also weakened consistently.

…a currency that loses value over time is not the doom it is made out to be.

Similar patterns can be seen for some of the other fastest growing economies over the period, such as Chile, Vietnam, and Indonesia. The majority have grown relatively quickly even with weakening currencies. In fact, many countries try to weaken their currencies to boost growth. One of goals of Abenomics, a fancy name for policies implemented by the Japanese Prime Minister, was a devaluation of the yen to boost growth. China was accused for years of artificially weakening its currency.

There are many other examples from around the world. The Vietnamese dong trades at 22300 per US dollar today from about one dong per US dollar in 1983 and Vietnam still managed to grow at an average of 6.5% per year over the period. The Indonesian rupah trades at 11,800 per US dollar today from about 600 rupahs per US dollar in 1980 and Indonesia also still managed to grow at an average of 7% per year over the period. Bottom line, a currency that loses value over time is not the doom it is made out to be.

Devaluation = Uncontrollable Inflation?

The third myth is the idea that devaluations lead to runaway inflation, an idea that is not technically true. To be clear, devaluations do lead to inflation but not nearly as much as people think.



For example, the South African rand has devalued by about 40% in the last year yet inflation has ticked up by less than one percentage point to 5.2% from 4.4% a year ago. The Russian rubble has devalued by 126% since the middle of 2014 yet inflation has gone from 8% in mid-July of 2014 to about 13% today, although it peaked at around 16%. A significant increase, but nowhere near catastrophic.

…the reality is, devaluations do cause inflation but not that much… Ironically, according to some studies, the black market premium, i.e. the difference between the official exchange rate and the black market exchange rate is a bigger driver of inflation than devaluations.

Finally, we can look at Nigeria where the naira lost about 20% of its value between October 2014 and March 2015. Despite the devaluation, inflation, which was about 8% then, is still below 10%. If you add the fact that the dollar prices of some of our largest imports, fuel and wheat, have fallen to almost record lows then the inflation worry is minute.

So the reality is, devaluations do cause inflation but not that much. Despite a devaluation, the Central Bank still has lots of tools at its disposal to keep inflation in check. Ironically, according to some studies, the black market premium, i.e. the difference between the official exchange rate and the black market exchange rate is a bigger driver of inflation than devaluations.

Does Nigeria Have An Import Problem?

The final myth to bust is the idea that Nigeria has an import problem. You typically hear statements like “How can we be importing everything from toothpicks to fish. It is unsustainable.” Often left out of such statements is the fact that we have a N90tn economy. And you cannot have a N90tn economy that does not import. Is it odd that a N90tn economy would import N100bn worth of building materials or N26bn worth of shoes? No it’s not.

According to comparable data compiled by the World Bank, Nigeria imported only about 12.5% of GDP in 2014. Of the 160 countries for which the World Bank has data available, Nigeria had the lowest imports to GDP ratio. Côte d’Ivoire imported about 38.9% of GDP in 2014, Ghana imported about 48.9%, Mauritius imported about 63%, Belgium about 83.1% and Ireland about 95.4% of GDP.

Of the 160 countries for which the World Bank has data available, Nigeria had the lowest imports to GDP ratio.



So according to the data, we do not have an import problem. Even if you assume that 50% of our imports go unrecorded, that still leaves us at a healthy 25% of GDP, which is still not a problem.

However, we do have an export problem, highlighted by the fact that crude oil accounts for 90% of our recorded exports and crude oil prices are volatile. Recognising this key difference between an import problem and an export problem is very important because it determines that kinds of policies that should be implemented. Import substitution policies and policies that look to limit imports probably won’t work because they do nothing to tackle the real problem, which is an export one.

Nonso Obikili holds a PhD in economics and works as a researcher and consultant. He has published peer-reviewed articles in various international academic journals and blogs frequently on Nigerian economic issues.


http://blogs.premiumtimesng.com/myths-about-devaluations-by-nonso-obikili/

The best way is to leave the currency to float, like the south african Rand. it finds its own range.

omohayek:
Thanks. I've gone back and re-read your modified post. My problem with your first point is that any worthwhile exports will require the importation of the necessary inputs, which means that in the short term inputs may well increase, and that increase may happen even faster than exports do. Countries like South Korea, Japan and Taiwan have next to no native natural resources, not even iron ore, and if their politicians had insisted on keeping imports as low as possible, these countries would never have become export powerhouses.

The Nigerian prejudice against imports - one clearly shared by Buhari - is incredibly damaging to economic growth, and his import-restricting policies are actually opposed by most of the domestic manufacturers on whose behalf the policies are supposedly for, especially the smaller manufacturers without government connections to get around the restrictions. The claim that it is being done to restrain inflation is utterly wrong: as Obikili points out, the feed-through effect of a devaluation isn't 1-to-1, and central banks have other tools at reach for fighting inflation. On the other hand, what happens when domestic manufacturers can't import the materials and tools they need to keep producing? Their goods become scarce on the market, and the prices skyrocket correspondingly - producing the very runaway inflation the anti-importation policy was supposed to combat.

Nobody is advocating for a complete ban on lmportation. What we are saying is that importing almost everything, even items we can produce locally is not sustainable. If we are serious about growing our economy, we need to produce a large percentage of our needs locally. Beside, we don't even have the forex to maintain our previous level of importation hence the need to ration the available forex for strictly essential items.

abbey621:
Good points but all these things work hand in hand. Diversification is a starting point in order to reduce our over dependence on oil which ultimately contributes to our importation syndrome. Infrastructure comes next with the stabilization of electricity and a more reliable transportation system, this will attract local and international companies to invest more in talents capable of delivering the technologies of tomorrow. For what's the use of training our university students in the latest technology when electricity, hunger, poverty and so on limits their potential

Bro I agree with you.

In the short term, there needs to be less reliance on oil

We have to get the fundamentals right. Inadequate electricity provision is a great problem. This is an area that continues to stifle economic growth and investment.

Interesting that you mention transportation. I went through Nigeria's commitment to reduce GHGs by 40% in the next 15 years which they submitted before the COP summit at Paris. The document suggests that they will create multi modal transport systems focusing on rail for both freight and passenger transport and also heavy investment in public transportation. All good on paper but as we all know, the problem is implementation.

I worked in a company packing tomato paste and i discovered that all the arguement above are all correct from where ever
perspective you are looking at it. during a meeting with my chairman i discovered that virtually most of the manufacturers in nigeria imports all the raw materials used . for example in case of tomato,concentrate,foil,dextrin/corn starch,cartons are all imported directly or indirectly,the only additive that is not imported is salt
Then with these new restrictions many companies will definitely shut down as cost of buying raw material is higher . In my candid opinion i think the govt should revisit the devaluation as prices will keep flying, as at this morning a bag of pure water already above N100 maybe when its 200 or 20/sachet then we know there is crises
minimum wages in some states are well below N18000, how will average nigerian survive

God Bless NIGERIA

Some of our imports

* the concentrate used in canned tomato paste products that are produced locally is imported...
* refined petroleum products (kerosene and petrol)
* Laptops
* Cell phones
* Generators and machine parts
* Sugar (st louis sugar)

These products are used by everyone (rich and poor) and we import them.

mikolo80:
you don't seem to get what the PhD is saying. naira value has halved. have prices of goods doubled?

only the rich import (very small minority)
our goal should be increased productivity (factories and farms)

Topeakintola:
Bro I agree with you.

In the short term, there needs to be less reliance on oil

We have to get the fundamentals right. Inadequate electricity provision is a great problem. This is an area that continues to stifle economic growth and investment.

Interesting that you mention transportation. I went through Nigeria's commitment to reduce GHGs by 40% in the next 15 years which they submitted before the COP summit at Paris. The document suggests that they will create multi modal transport systems focusing on rail for both freight and passenger transport and also heavy investment in public transportation. All good on paper but as we all know, the problem is implementation.

Correct....Implementation & maintenance, the international community shouldn't even allow us to give speeches anymore based on so many empty promises....

omohayek:
Yes, Japanese society is cohesive alright - I've actually lived there and can attest to that at first hand - but another way of interpreting that is "conformist", often-times stiflingly so. Japan is also a rapidly aging society with an ever-shrinking working/fighting age population, bordered by such "friendly" countries as China, North Korea and Russia, all of which it has disputes with.

Another interesting point you have raised. I think that China just beat Japan at its own game. Japan was one of the first countries to engage the American hegemony of production. They focused on innovation, quality management and lower cost of goods relative to western products and services.

China took advantage of globalization and concentrated on low cost mass production.

TeOwl:
Some of our imports

* the concentrate used in canned tomato paste products that are produced locally is imported...
* refined petroleum products (kerosene and petrol)
* Laptops
* Cell phones
* Generators and machine parts
* Sugar (st louis sugar)

These products are used by everyone (rich and poor) and we import them.

Hahahahahahaha you and all who use these things are among the 10% 'rich'. do you think it is everybody that use tomato puree, no many still grind with stone my dear friend. that you are fortunate to be civilised doesn't mean that majority are. travel. go to hinterland and see backwardness, you go fear poverty gap. most still drink garri without sugar, generator ke, cell phone, laptop loun loun. e be like say you never tey for village. you na ajebutter and that's how you will also get to power and plan for the elite instead of masses

Yea... you are right, I am also in support of encouraging local production. However, I am in support of the CBN not selling dollars to these importers.. for now dollars should only be for the essentials like chemicals for medicine and fuel (kerosene and petrol).

mikolo80:
Hahahahahahaha you and all who use these things are among the 10% 'rich'. do you think it is everybody that use tomato puree, no many still grind with stone my dear friend. that you are fortunate to be civilised doesn't mean that majority are. travel. go to hinterland and see backwardness, you go fear poverty gap. most still drink garri without sugar, generator ke, cell phone, laptop loun loun. e be like say you never tey for village. you na ajebutter and that's how you will also get to power and plan for the elite instead of masses

TeOwl:
Yea... you are right, I am also in support of encouraging local production. However, I am in support of the CBN not selling dollars to these importers.. for now dollars should only be for the essentials like chemicals for medicine and fuel (kerosene and petrol).

chairman awa cup Don full, press down and shaken together. it's chicken roosting time. 'we ' need to start manufacturing and farming big time, asap (industrial parks because of insufficient power infrastructure) and rice wheat sugar and fish farming

omohayek:
The problem is that under this policy, bureaucrats and politicians get to decide what is "essential", rather than letting the market decide. This results in absurdities like Buhari and Emefiele banning chopstick imports as "non-essential", though such imports may be absolutely essential to top-tier tourist resorts that can draw in foreign dollars. Just because something doesn't seem "essential" to layman doesn't mean it's not essential to important domestic businesses.

Leaving aside questions of economic efficiency, the other problem with such policies is that they create the very scope for the corruption that we all love to complain about. Who is more likely to have access to artificially cheap dollars, a struggling small or medium-sized manufacturer in Ibadan or Onitsha, or well-connected monopolist billionaires who already benefit from import waivers and convenient bans on competitors' inputs? We cannot say we want less corruption while giving politicians and civil servants the very tools to engage in it.

how many dollars does tourism bring in? ogbeni park well joor!

kayceelol:
I worked in a company packing tomato paste and i discovered that all the arguement above are all correct from where ever
perspective you are looking at it. during a meeting with my chairman i discovered that virtually most of the manufacturers in nigeria imports all the raw materials used . for example in case of tomato,concentrate,foil,dextrin/corn starch,cartons are all imported directly or indirectly,the only additive that is not imported is salt
Then with these new restrictions many companies will definitely shut down as cost of buying raw material is higher . In my candid opinion i think the govt should revisit the devaluation as prices will keep flying, as at this morning a bag of pure water already above N100 maybe when its 200 or 20/sachet then we know there is crises
minimum wages in some states are well below N18000, how will average nigerian survive

God Bless NIGERIA

the federal government needs to meet with local manufacturers and immediately find out whatever raw materials they import and quickly set up factories to produce those same raw materials asap as in with highest priority and favorable credit facilities.

just like wat u said let the govt quickly set up tomato processing plants corn starch production plants dextrose and foil production plants by themselves immediately to ensure output is not delayed.

seunmsg:
Nobody is advocating for a complete ban on lmportation. What we are saying is that importing almost everything, even items we can produce locally is not sustainable. If we are serious about growing our economy, we need to produce a large percentage of our needs locally. Beside, we don't even have the forex to maintain our previous level of importation hence the need to ration the available forex for strictly essential items.

My point is that rationing is the wrong way to allocate the forex, as letting the Naira float will allow the market to do a better job. Those who need the forex will be willing to pay the most for it, rather than some civil servant or politician in Abuja deciding what is "essential" and what isn't.

I agree with you bros. But the major problem we still have in Nigeria that affects everything thing is tribalism. When is Nigeria government going to promote Aba manufacturers and nnewi automobile. When are we going to focus on reality instead of theory.Let Hausa go back to groundnut production. Let Yoruba go back to coaco and igbos go back to Palm oil production. But it suprised me to see a Yoruba man condemning Aba product just because it come from igbo land and vice versa. We are causing more problems to ourselves by not promoting our product

phazotron:
how many dollars does tourism bring in? ogbeni park well joor!

Next time, how about trying to make an actual argument? Why would anyone want to visit a country where things are overpriced because of an ill-judged currency policy, and paying through the nose still only gets you substandard local "luxuries"? I suggest you take your own advice and "park well" if you lack the capacity to contribute anything meaningful to a discussion.

how will u be advocating imports for tourism based or related industries? be sincere to urself how much does tourism contribute? oga our economic policy and other policies right now should be manufacturing centered Because that is our only salvation from this quick sand that is about to swallow us whole. guy think!

omohayek:
My point is that rationing is the wrong way to allocate the forex, as letting the Naira float will allow the market to do a better job. Those who need the forex will be willing to pay the most for it, rather than some civil servant or politician in Abuja deciding what is "essential" and what isn't.

oga if ure advocating free float then u better make sure that those that are willing to pay most of it are not manufacturers of essential products who need to import raw materials which is wat is happening now. ure assuming that its only importers of luxury items who need dollars. what of the likes of Honeywell dangote and golden penny who need to import wheat? or tomato paste companies that have to import concentrate? if they have to get it at free float price then ur argument is defeated.

seunmsg:
The naira issue has been the topic of debate for a while now. Should we devalue or not? Can we cope with the effect of a devaluation? What happens if we don’t? And so on. Over the next few days, I and other colleagues-experts in their fields-will give views on a variety of issues regarding the naira devaluation debate.

To kick things off, it is useful to discard some bad ideas which have been tossed around for a while.

Bigger Number = Stronger Currency?

The first myth to debunk is the false idea that if you exchange a bigger number for a smaller number then the currency with a bigger number is weaker than the currency with a smaller number. You typically hear people say: “Wow, one dollar is exchanging for 16 rand. The rand is weak. The dollar is strong.” That kind of thinking is faulty mostly because it doesn’t take into account the purchasing power behind the currency.

For example, if an individual living in the US earns 300 dollars a month, then that is technically identical to an individual in South Africa earning 4800 rands a month, given that 1 US dollar exchanges for 16 rands. So long as that exchange rate holds then the rand is not weak or strong, it’s just the rand.

In reality, the strength or weakness of a currency has little do with what the actual exchange rate is. So although one Ghanaian cedi exchanges for 30 Japanese yen, you cannot say the cedi is stronger than the yen. Similarly, although one Turkish lira exchanges for six Mexican pesos, you cannot say the lira is strong and the peso is weak. That would be wrong.



In reality, the strength or weakness of a currency has little do with what the actual exchange rate is. So although one Ghanaian cedi exchanges for 30 Japanese yen, you cannot say the cedi is stronger than the yen. Similarly, although one Turkish lira exchanges for six Mexican pesos, you cannot say the lira is strong and the peso is weak. That would be wrong.

What then determines a currency that is “weak” or “strong”?

A weak or strong currency is one that is changing, or that everybody expects to change soon. For example, if the naira changes from 150 to the US dollar to 165 to the US dollar, then during the period the change is taking place the naira is relatively weak and the dollar is relatively strong. The same applies if the currency is expected to change soon. If everyone expects the naira to change from 197 per US dollar to 300 per US dollar, then the naira is weak relative to the dollar. The weakness persists as long as the expectations about the change persist. If the change eventually happens, the naira moves to 300 to a dollar, and everyone believes that is the end of it, then the naira is no longer weak. It is just the naira.

Weak Currency = Bad Economy?

The second myth to dispel is the idea that a country whose currency weakens consistently over time cannot grow. This could not be further from the truth.

The poster child of why weakening currencies do not imply slow growth is South Korea. South Korea grew its GDP per capita from about 1100 US dollars in 1960 to about 24,500 in 2014. What happened to its currency over the period? In 1960 one US dollar exchanged for about 63 won. Today one US dollar exchanges for almost 1200 won. In short, over the period where South Korea has “developed”, its currency has also weakened consistently.

…a currency that loses value over time is not the doom it is made out to be.

Similar patterns can be seen for some of the other fastest growing economies over the period, such as Chile, Vietnam, and Indonesia. The majority have grown relatively quickly even with weakening currencies. In fact, many countries try to weaken their currencies to boost growth. One of goals of Abenomics, a fancy name for policies implemented by the Japanese Prime Minister, was a devaluation of the yen to boost growth. China was accused for years of artificially weakening its currency.

There are many other examples from around the world. The Vietnamese dong trades at 22300 per US dollar today from about one dong per US dollar in 1983 and Vietnam still managed to grow at an average of 6.5% per year over the period. The Indonesian rupah trades at 11,800 per US dollar today from about 600 rupahs per US dollar in 1980 and Indonesia also still managed to grow at an average of 7% per year over the period. Bottom line, a currency that loses value over time is not the doom it is made out to be.

Devaluation = Uncontrollable Inflation?

The third myth is the idea that devaluations lead to runaway inflation, an idea that is not technically true. To be clear, devaluations do lead to inflation but not nearly as much as people think.



For example, the South African rand has devalued by about 40% in the last year yet inflation has ticked up by less than one percentage point to 5.2% from 4.4% a year ago. The Russian rubble has devalued by 126% since the middle of 2014 yet inflation has gone from 8% in mid-July of 2014 to about 13% today, although it peaked at around 16%. A significant increase, but nowhere near catastrophic.

…the reality is, devaluations do cause inflation but not that much… Ironically, according to some studies, the black market premium, i.e. the difference between the official exchange rate and the black market exchange rate is a bigger driver of inflation than devaluations.

Finally, we can look at Nigeria where the naira lost about 20% of its value between October 2014 and March 2015. Despite the devaluation, inflation, which was about 8% then, is still below 10%. If you add the fact that the dollar prices of some of our largest imports, fuel and wheat, have fallen to almost record lows then the inflation worry is minute.

So the reality is, devaluations do cause inflation but not that much. Despite a devaluation, the Central Bank still has lots of tools at its disposal to keep inflation in check. Ironically, according to some studies, the black market premium, i.e. the difference between the official exchange rate and the black market exchange rate is a bigger driver of inflation than devaluations.

Does Nigeria Have An Import Problem?

The final myth to bust is the idea that Nigeria has an import problem. You typically hear statements like “How can we be importing everything from toothpicks to fish. It is unsustainable.” Often left out of such statements is the fact that we have a N90tn economy. And you cannot have a N90tn economy that does not import. Is it odd that a N90tn economy would import N100bn worth of building materials or N26bn worth of shoes? No it’s not.

According to comparable data compiled by the World Bank, Nigeria imported only about 12.5% of GDP in 2014. Of the 160 countries for which the World Bank has data available, Nigeria had the lowest imports to GDP ratio. Côte d’Ivoire imported about 38.9% of GDP in 2014, Ghana imported about 48.9%, Mauritius imported about 63%, Belgium about 83.1% and Ireland about 95.4% of GDP.

Of the 160 countries for which the World Bank has data available, Nigeria had the lowest imports to GDP ratio.



So according to the data, we do not have an import problem. Even if you assume that 50% of our imports go unrecorded, that still leaves us at a healthy 25% of GDP, which is still not a problem.

However, we do have an export problem, highlighted by the fact that crude oil accounts for 90% of our recorded exports and crude oil prices are volatile. Recognising this key difference between an import problem and an export problem is very important because it determines that kinds of policies that should be implemented. Import substitution policies and policies that look to limit imports probably won’t work because they do nothing to tackle the real problem, which is an export one.

Nonso Obikili holds a PhD in economics and works as a researcher and consultant. He has published peer-reviewed articles in various international academic journals and blogs frequently on Nigerian economic issues.


http://blogs.premiumtimesng.com/myths-about-devaluations-by-nonso-obikili/

honestly reality is far different from dreaming and book analysis
1, okonjo was snatched from world bank, yet could not systematically solve Nigeria economic problems
2, you compare our obodo Nigeria with country like Belgium n co. those are countries that had/have visionary leaders not those launching suggestion box like ours, travel all over the world enjoying what other citizen built and crippled every it's citizen effort to do same here
3, you shouldn't have analyze each economic factors individually because one wrongly tackled problem invite others
3, Nigeria have a peculiar problem- our leaders don't see reasons why Nigeria should be great, YES because if they do, we had made enough profit ( that even those countries you mention in your analysis can only dream of )from exportation of crude to better Nigeria but all the do is to take care of their skin and save for their child unborn.

thanks

seunmsg:
Very revealing article. I agree with most of the arguments of the author except the issue of importation not being a problem and devaluation not resulting in serious inflation.

The level of importation in Nigeria today is not sustainable considering the inadequate foreign exchange earnings. Again, if we are serious about creating jobs and becoming a major global economic player, we need to reduce our over dependence on importation and stimulate our manufacturing industry. China and India did not become the second and third largest economy by importation, they achieved the feat by manufacturing almost all their local needs and still manufacturing enough for exportation to other countries. He identified exportation as a problem but the fact is, we can't export when we are not even producing enough to meet local needs. We need to discourage importation to stimulate local production.

The argument that devaluation does not cause serious inflation is just weak. The truth is, the real rate of inflation that the people contend with is not really reflected in the inflation figures that the NBS comes up with. When we devalue, the first thing that will go up is the cost of fuel importation and that is what the present administration can't afford. In calculating the inflation rate, NBS takes a lot of items into consideration and so, the real effect of the increase in petroleum products is watered down in the overall rate.
Again, minimum wage of workers has remain the same since 2011 and inflation has risen by over 5%. Adding another 1-2% to the inflation rate as a result of devaluation without increasing workers salary is wickedness.

the writer's write up is brilliant, but as a PHD holder has should know that no big economy still practice fixed exchange rate,last country that did that was China,we must abandoned that system and let the naira float naturally in the market,currently the official rate is a scam.
Workers salary increase is not the solution either,the last raise was a major cause of inflation,salaries were raised on all level,which is not the basis of minimum wage,if tomorrow the minimum wage is increased to 36,000 that shouldn't mean someone earning 100k should get 200k automatically, our labour unions sold us a dummy,the last election was dollarised by politicians,now the price of oil has gone down everyone is having heart attack.

seunmsg:
Very revealing article. I agree with most of the arguments of the author except the issue of importation not being a problem and devaluation not resulting in serious inflation.

The level of importation in Nigeria today is not sustainable considering the inadequate foreign exchange earnings. Again, if we are serious about creating jobs and becoming a major global economic player, we need to reduce our over dependence on importation and stimulate our manufacturing industry. China and India did not become the second and third largest economy by importation, they achieved the feat by manufacturing almost all their local needs and still manufacturing enough for exportation to other countries. He identified exportation as a problem but the fact is, we can't export when we are not even producing enough to meet local needs. We need to discourage importation to stimulate local production.

The argument that devaluation does not cause serious inflation is just weak. The truth is, the real rate of inflation that the people contend with is not really reflected in the inflation figures that the NBS comes up with. When we devalue, the first thing that will go up is the cost of fuel importation and that is what the present administration can't afford. In calculating the inflation rate, NBS takes a lot of items into consideration and so, the real effect of the increase in petroleum products is watered down in the overall rate.
Again, minimum wage of workers has remain the same since 2011 and inflation has risen by over 5%. Adding another 1-2% to the inflation rate as a result of devaluation without increasing workers salary is wickedness.

There's so much to take into account in this debate whether to devalue or not.

I get what the Administration is trying to do in making the country and economy stronger.
I disagree with OP when he says there isn't such a thing as A weak naira, or a strong Naira.
The strength of your currency would determine, the influx of tourists/investors.
All of a sudden, it might be more lucrative for Investors to manufacture in Nigeria, and hire nigerians rather than exporting to Nigeria.
On paper, The Op's analysis is acceptable, but not practical. There's so much that needs to happen even before this becomes a major discussion point. But Nigeria loves to produce results without following the proper means of achieving the desired results. Imports equals Job-loss, lets assume that one tomato can equal 8 jobs, but importing that same tomato can will create 4 jobs instead.

Alberta, Canada is a Province in North America, that is kind of going through almost the same thing that Nigeria is going through, complete dependence on Oil, Inflated Salaries, Inflated Housing and prices. All of this is weakening the Canadian dollar compared to the American dollar.

Devaluing the Naira, does not do anything, If Government spending is not accounted for and Billions fall through the crack. No wonder the unemployment rate is really high in Nigeria. Once the Federal government can account for how the budget is being spent and there's accountability, then you can move next to controlling the amount of Dollars in circulation in the country. There's so many aspects of the economy that needs to be addressed, and Nigerians are the most unpatriotic bunch of people I know.

Devaluing the Naira or not, without solving our economical problems, will only bring us back to the same place later on.

jaybee3:
Educative not educating

All you had to do was pay a little bit more attention to your submission instead of rushing to post your usual jargon

Educating not Educative.
Go back to school

GEJ2019:
CNT read Al D's Jargons.

Jst Ftc

HBD Fantasticlala.

Finally had to read all.

D writer is sayin Bubu shud allow a free fall of the naira?

If he(CBN GOV dares Communicate that to bubu he will be seen as Trying to Be a PDP mole in an APC govnmnt


thus I predict $1=#600 in May D's yr.

I left it @#197 wen I left Aso Rock.

You mean you actually learned nothing from this FREE LECTURE.

Party Affiliations have blinded many.
SHAME!

aaronson:
What is the op writing? CRAP to the intellectuals. Educative to the dummies.

Have you ever made research as regard why you have the Federal reverse?

Have you ever made research as regard why money supply gets surplus and retracts within the shortest period of time?

Have you ever inquired why the dollar has to be the exchange rate against other currencies?

Ever wondered how the country debt gets paid and how?

Ever wondered modus operandi to getting world bank/IMF loan?

Do you think your country really owns the central bank/Federal reserve?


Well those are questions to ponder about to know why you a slave till you die in debt and your children continues the payment till they pass it down to their next generation.

Its not really about the Nigeria economy not viable it's about the hands that regulate the economy.

your fourth question,,I've always wondered why,,,cos its not even the highest currency sef

GEJ2019:
CNT read Al D's Jargons.

Jst Ftc

HBD Fantasticlala.

Finally had to read all.

D writer is sayin Bubu shud allow a free fall of the naira?

If he(CBN GOV dares Communicate that to bubu he will be seen as Trying to Be a PDP mole in an APC govnmnt


thus I predict $1=#600 in May D's yr.

I left it @#197 wen I left Aso Rock.

Dullard!!! if you can't read and learn, shut up at least! This is the problem with our last youths, they don't read anymore, would rather watch porn and chase FTC trophies all year long. smh.

Meanwhile, God bless the author of this article.
Too many misconceptions everywhere you look, even when explaining to so-called post-graduates of the social sciences in important public offices where you expect policy makers.