Why the FG should implement more free market policies

Two economic issues that have drawn much attention in recent times are the deregulation of the downstream sector of the oil industry and the floating of the forex exchange market.  The fuel scarcity that rocked the early months of this year was clear evidence that government control of certain sectors of the economy does not work. The same applies to the forex market where for a long time, the average Nigerian had to procure foreign currencies at much higher rates than the government regulated prices.

There is an increasing demand for foreign currency which outpaces supply; while this is an economic problem, it’s not justifiable for the government to restrict the right of Nigerians to global trade. The Federal government should rather focus on ways and incentives to increase supply of the foreign currencies by facilitating exports and encouraging foreign direct investments amongst other solutions. Countries have their areas of strength, or call it unique selling points; and our focus should be on how to develop our areas of  strength of which agriculture is key, produce valuable commodities and sell not only domestically but also in the international market.

While in Ghana last week, I observed that fuel (PMS) prices vary from one filling station to another. While some sell at GHS3.60, some sold at GHS3.61 and at other slightly different prices. Upon return to Nigeria I was glad to read that a filling station in Calabar was selling PMS at N139 and because of that buyers flocked there. I saw stations along Lagos-Ibadan express way selling for N143 and even N141 when they have the chance to make a little more money by selling at the N145 cap. It’s imperative to free the market and allow for competition because that competition will help to drive down prices as we have seen in the telecoms and entertainment industries.

Upon floating of the forex market on Monday 20th June, the Naira traded against the US dollar at just over N250/$. This was good news about the economy; and while some might view it as a drop from the initial N199, a trader who needs the foreign currency to import certain things or a student grappling with paying school fees at N360/$ will see it as an appreciation. Moreover, how many Nigerians could access the foreign currencies at the official prices? Consequently, the prices of petroleum products are expected to improve since there is now some level of improvement in the exchange rate.

From indications so far, we can see that when a market is driven by the forces of demand and supply, the actual price of a commodity is achieved. For a long time, it has been observed that the government is not effective at running businesses so much that a 19th century French political economist, Frederic Bastiat spent a substantial part of his life proofing that government does not have the practical ability to create prosperity through its intervention in the market.  A government should therefore limit its scope to focus on security and provision of the much needed enabling environment for businesses to thrive.

There are several experience-based evidences to support the fact that a free market performs better than a centrally controlled system, from telecoms to banking, we’ve seen the improvements and we’ve also seen that protectionism doesn’t bring the desired economic development. The poverty rate in Nigeria is still high and people more than ever before need the freedom to trade and prosper.

Poverty is said to be the natural state of man, and that wealth has to be created by people. For wealth to be created, the incentives and enabling environment needed must be in place. This can only be achieved by formulating and implementing more market-driven policies.

A Free market or laissez faire economy as some would like to call it is based on the idea that market forces should be allowed to determine the value of goods and services; and it makes sense to follow that path.

Stephen Oyedemi