Friday 24 February 2017

Re: CBN’s Foreign Exchange Policies

CBN Headquarters in Abuja
By Dr. Ahmed Adamu

Yesterday, I was interviewed at Vision FM (Katsina) during the popular live programme “Babban Magana”, and we discussed on the new Central Bank Nigeria (CBN) policy on Foreign Currency Exchange. I thought I should share my points during the interview as follows:

We have seen series of policies and interventions by the central bank since the beginning of the economic crisis in Nigeria, but there is no significant change and stability in the foreign exchange market yet. Sometimes, short term positive impacts are noticed, but do not sustain. Then, I ask, would this new policy of increasing supply of dollar going to make any difference in the long term?

Just like before when dollar was subsidised and made available, this time around too, the increased supply will stimulate some latent demand for dollar and therefore not make any difference, as the increased supply of dollar will be surpassed by additional demand for dollar. Some Nigerians would have ordinarily travel abroad for shopping, holiday, luxury, healthcare or education, but they will not when dollar was not available, but when it is available, they will. So, additional supply will always create additional demand. So, this will mean the equilibrium value of Naira will shift to an upper position, leading to a weaker Naira despite the increase in dollar supply eventually. That is why many of the CBN policies do not achieve its objectives, and it is not surprising if this new policy of additional dollar supply to all commercial banks and creating new dollar exchange outlets will not have positive effects too in the long run.

When dealing with country like Nigeria, CBN’s policies cannot work without new strategies that will manage foreign currency demand, because the Nigerian demand for foreign currency is unlimited and its supply is limited. No matter how much dollar is made available, it always has its limit, and the demand will always catch up with it. Foreign currency demand side management must therefore complement any forex policy.

The culture of foreign products’ pride and poor local infrastructure especially in health and education sector will never let Naira stable. So, instead of subsiding the rich and middle class to meet their demand for foreign luxury, health and educational trips, the cost can be channelled toward improving infrastructure that can meet those demand locally not for the middle class alone but for the lower classes too. The government should let the Naira determine its value, but curb the demand for foreign currency.

No amount of dollar supply will meet Nigerian explicit and latent demand for dollar, so the only possible measure is the control of its demand. The best strategy is to identify the major causes of demand for foreign currencies and set targets and strategy for reducing them to the lowest possible level. Like in my previous article (X-raying the current Nigeria’s Economic Challenges: Prospects & Solutions), I listed down the major imported products that needs to be tracked and reduce its consumption, which included imported refined petroleum, vehicles, electronic equipment, machines and engines, healthcare, education, consumables and cloths.

Therefore, this currency instability can be a blessing, because it will compel us to produce and rely on our local products if we strategize well. The campaign for local products patronage especially in healthcare, education, tourism and other consumables should be emphasised. The government should not put a ban on any importation anyway, the best way to ban importation of a product is to create a competitive alternative for it locally. Creation of these best alternatives is the only solutions, so that Nigeria can prosper without foreign currency influence. And this is what can make Naira an international currency, because by then other countries will start importing Nigerian products.

Apart from instilling unyielding patriotism, basic infrastructures like stable electricity, railways, healthcare and education must be adequately provided to curb importation. I once advice for five-year suspension of government sponsored scholarships abroad, and use the savings to build a world class standard universities locally, that will not only meet Nigerians demand for high quality education, but those of foreigners. Generally, changing the people’s culture and improving local capacity is the way to go, because, the problem with the naira is not the naira itself but the people that spend the naira and the weak economy.  

Dr. Ahmed Adamu,
Petroleum Economist and Development Expert,
First-Ever Global President of Commonwealth Youth Council,
University Lecturer (Economics), Umaru Musa Yar’adua University, Katsina.
08034458189.




Thursday 9 February 2017

Addressing Food Inflation in Nigeria

By Dr. Ahmed Adamu

I read on the news that the high level taskforce responsible for advising government on solutions to food inflation has recommended usage of railway wagons and labelled trucks to transport food items as means to curb food inflation. My take is that how many states are linked with railways, barely a few, and these railways connect to only few major cities in these few states. This will mean food inflation is only targeted in those cities. I still wonder if there are enough railway wagons to serve the entire nation. Though, it is not a bad idea, but it is not holistic as it is intended.  

The food inflation is not also triggered by delay in transportation. It is understandable the price of diesel has surged, which makes cost of transportation higher. The general inflation, currently at 18.3%, has reduced purchasing power of people’s income, and this is the major problem the country is facing, as Nigerian real GDP has lost billions of Naira. People now spend close to or more than 80% of their income on food alone, which would have been somewhere around 50%. This increased the poverty prevalence in the country. What I was expecting to come out from this high level taskforce were more of a pragmatic outlook and perspectives. Therefore, I would suggest the followings:

Inefficiencies in food supply chain has contributed in the food inflation, where poor or inefficient agricultural systems still dominate the sector. Improving the viability and agricultural yields will help, and this can be achieved through output optimisation, crop diversification and large scale production without necessary need for land expansion. This applies to animal rearing and transportation. There should be a holistic agricultural roadmaps indicating gaps and stipulated intermediate and long term targets. Immediate investment in agricultural optimisation is something to consider, if some intervention exists, then they are not impacting yet. Majority of farmers cannot access agricultural extension services or information or improved seeds and approaches to optimise output. Most farmers incur extra ordinary and unnecessary costs in crop production, and this affect the price. Mechanisms must be in place to actualise minimum cost of production, like adequate extension services, improved and mechanised system of farming for all.

I still don’t think the banning of rice importation through land borders is the right decision, it ended up in creating cartel, and over a year, the price has not come down to its potential level. Human beings are rational, if they can skip local rice for foreign rice, then there must be a reason for that. In a competitive market, you don’t distort the market, products are allowed to sell themselves. May be people prefer foreign rice because it is cheaper, available, and qualitative. So, if you want them to buy local rice, then you have to first make the local rice competitive by making it available, affordable or even cheaper, and qualitative, and at that time, people will make their own decision to buy local rice, without enforcement. Production subsidy in the agricultural sector can be an option too. Rice as a major food item is significant as demand of its best alternatives can be oversaturated when price of rice increased.

Cost of transport has contributed to the food inflation. The petroleum subsidy has to be revisited and perhaps reintroduced in some selected sectors and in different approach. Even when cost of subsidy was claimed to be overwhelming on government shoulders, there could have been a better review and reintroduction of it as emergency measure. I once suggested a comprehensive study on the pattern of petroleum consumption in the country, which will give information on how much in reality need to be spent on required petroleum consumption subsidy devoid of the corruption. Fuel consumption in agricultural distribution segment can be conveniently subsidised. Therefore, Limited Petroleum Subsidy on agricultural sector can be applied, where food wholesale and retail distribution are strategically subsidised.

Immediate development of agric-market database can be developed to document and disseminate accurate information about what was produced, traded and at what price. This will avoid exploitation and information asymmetry, and will set uniform prices, and track acute price hike and its cause for immediate redress.  

Any barrier in the market must be removed, as competition is the measure for ensuring market stability and lower prices, and this re-emphasize the need to expand competition scope in food supply sector. Any sort of cartel or possible collusion or distortion has to be traced and get rid of. It is important to note that the general inflation has caused agric suppliers to aim for higher profit to enable them afford other inflated goods and services. So, you cannot tackle food inflation in isolation, measures to address general inflation has to key in as well.

Food inflation can be a reflection of the general inflation, so in addressing food inflation, we have to consider measures to curb general inflation. The Central Bank may consider reducing interest rate, because most of the inflations are triggered by high average cost, not by saturation of demand.  Federal and State governments should lower taxes, but not increase wages yet (not as a first measure, maybe in the future). This will reduce cost of production for the suppliers and increase purchasing power of individual incomes. The government should spend more on infrastructures that ease production or direct investment subsidies.

 Instead of sharing stipends to individuals, investments can be made through targeted subsidy and improved power supply, which will enable these individuals to cheaply start productions or businesses. These stipends have low value now, and will not make difference in the lives of the beneficiaries due to the inflation. So, instead of quantitative interventions, we should go for qualitative ones. Though social welfare is good, but basic infrastructural development is paramount.

For us to have agric based economy, we have to begin fighting the agricultural apathy among the people, many latent energy and output are not harnessed due to the indifference and agrarian nature of the farming system. So, people must be sensitised to have pride for agro-allied ventures, because, if there is no motivation, all investments will not impact.

Finally, instead of setting “high level” taskforces, the government should be able to tap from the intelligence of others that are not on the “high level” table. Government must be able to see various perspectives to enable it make informed decisions, and this can be achieved through inclusive consultations and participations in governance. 

Dr. Ahmed Adamu,
Petroleum Economist and Development Expert,
First-Ever Global President of Commonwealth Youth Council,
University Lecturer (Economics), Umaru Musa Yar’adua University, Katsina.
08034458189.




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Sunday 5 February 2017

Inspirational Video: Life Vision With Dr. Ahmed Adamu

"Do you have a vision? A man without a vision is like a car without an engine".. Inspirational Video by Dr. Ahmed Adamu. Watch here: