In the Central Bank of Nigeria’s quest to grow the Nigerian economy to be export-based, there are lessons to glean from the likes of China and South Korea, which have implications on inflation and foreign exchange.
Speaking with NATIONAL ECONOMY on the path the Asian economic powerhouses took, former director general of the West African Institute for Financial and Economic Management (WAIFEM), and Chairman of the Foundation for Economic Research and Training (FERT), Professor Akpan Ekpo said the various economic policies of the CBN are all geared towards not only growing the economy but also to stabilize the exchange rate in the country as well as moderating inflation.
He stated that restrictive policy is one way of implementing the monetary policy, although it depends on how far it affects the different sectors of the economy for it to have any impact on the exchange rate inflation and the rest.
Citing China, he said, “Government plays a major role in development. Unlike Nigeria, China has its growth centralized. Their policies are much more elaborate, the government participates in every sphere of the economy. It is a different system of government.
“Government participates actively in the economy, the government is also an engine of growth and development, but in Nigeria, the private sector is the engine of growth. That is why the China economy grows and develops faster.
“In Nigeria, the government provides an enabling environment; in China, it goes beyond that, the government takes part in the economy actively. The government owns banks and is involved in everything; they allow the private sector to work in areas where they can and where they can’t they will not. That is the difference and that is why in those countries, policies have better results than our own.
“The federal government on paper has a lot of policies in place, structural, fiscal, and monetary policies. When you rely so much on the private sector, they may be disappointing because they have a different goal. Their major goal is to make profit and they can stimulate growth in the long run and through that growth, there can be development. But their major aim is to make profit and there is nothing wrong with that because they have made investments.”
On the part of South Korea, it may be recalled that when that country was dependent on aid for its foreign currency needs, it was hit with a crisis when the United States aborted its plans to provide a $500 million investment towards development. The import-dependent country found its way out of the crisis through policies that helped develop its local economy.
One such was cutting the supply of raw materials, which initially led to an economic downturn. Materials that were essential for the rehabilitation of the country such as cement and steel were produced domestically to reduce dependence on imports.
To earn foreign currency Korea sold a few natural resources overseas, although earnings were small. While there was no formal trade policy at that time, South Korea, in 1962 embarked on a massive industrialization based on exports, while she also introduced an export-centric development strategy, and exports of labor-intensive, light manufactured goods were aggressively promoted. Aside from those, financial incentives such as tax-free imports of raw materials encouraged the production of export goods that stimulated the growth of textile and electrical machinery industries.
The primary goal of export promotion was to earn foreign currency; imports were discouraged and with those, trade grew from $500 million in 1962 to $2.8 billion in 1970.
Professor Ekpo noted that while the CBN’s several policies would have more impact on the exchange rate, they are likely not to directly impact inflation, which is being affected by several other factors.
On the impact of the policies on development, he said there is a need for more elaborate policies not just by the monetary authority but also by the fiscal authorities in ensuring development.
There have been several policies by Nigeria’s monetary and fiscal authorities toward growing the Nigerian economy, many of which are protective in nature. Most of the policies that are protective of the local economy have in recent times been mainly by the Central Bank of Nigeria (CBN).
One of the most protective and controversial policies is the list of items not eligible for foreign exchange. In 2015, the CBN made a list of items not eligible for foreign exchange to discourage their importation into the country.
The list consisted of items such as rice, toothpicks, textile, poultry, steel, wood, cement, vegetables, and private jets, amongst others. The initial reaction to this was that the prices of the items would soar, thereby sending inflation to the roof.
As was predicted, the prices of some of the items, particularly food items went up but as the backward integration programmes embarked on by the monetary authority began to bear fruit, it became bearable and things seem to normalize.
At the inception of his tenure as the CBN governor, Godwin Emefiele’s main objective was to deploy developmental initiatives that would create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development.
While there have been initial hardships inflicted on the masses as a result of protective measures taken by the CBN and other fiscal authorities, following in the footsteps of the likes of China and Korea, these have been necessary to Nigeria on the path of productivity.
