I attended the Africa Business Conference at the Lagos Business School (LBS) recently, and I am happy I did. The conference was so well organised that I thought everyone got their money’s worth. As is always the case with me when ever I am in the LBS premises, I am always reminded that this was one organisation where they truly do what they say – “to remain an oasis of sanity.”
Everyone who offers a service in Nigeria should go and find out how LBS has managed to train their entire staff to be so courteous.
In the conference, the speakers all had new insights they spoke about. The value created in that one day was tremendous. Listening to Sim Shagaya, CEO of KONGA.com, one of the contributing panellists, he told me that at age 37, he was founding his third internet company. It is a pity we never find people like this to be a minister.
Omobola Johnson, minister of technology, was also present, who impressed me with her contribution and understanding of technology.
However, during my sit in on the retail industry group discussions, a question about how the industry is hindered or helped by regulation, came up. The panellists all agreed that regulation was necessary to ensure an orderly business environment. The main problem was with the way it is administered at every level, the vexing issue of multiple taxation and the Land Use Act that makes the price of land prohibitive, preventing the rapid increase in the development of retail outlets.
The issue of smuggled goods and how to control it, became a point of discussion. Shagaya suggested using taxes to control, instead of trying to ban every conceivable item on the pretext of protecting local industries, reminding us that trading was usually the first step, before entrepreneurs eventually go into manufacturing.
Listening to him got me thinking, why don’t we try a different path? From the evidence before us, smuggling continues to thrive because there is a huge market for smuggled goods. The existing policy is clearly not working and has created room for corrupt practices and loss of revenue that could be used to support local industries by creating the infrastructure it needs to be competitive. Imagine a streamlined policy that imposes taxes as high as 500 percent for those things we do not deem to be necessary and graduated down ward for things we manufacture, but we have surplus demand for.
We could then specifically dedicate the revenue from the taxes collected on these previously banned goods to the infrastructure fund of our Sovereign Wealth Fund (SWF), as an additional source of funding for infrastructure. Imagine the fallout from this, a new source of funding that is progressive and put to good use, that will ultimately make our infrastructure better and by extension give our industries time to develop and become efficient enough to compete with foreign goods. Wine and champagne should definitely be in this category. Let those who want to drink their Dom Perignon and Cristal Champagne drink pay us our 500 percent tax on it.
In my opinion, markets with all its limitations always work better as an allocator of resources. The sudden taste Nigerians have developed for foreign goods can not be wished away, and deceiving ourselves we can stop them from being sold here is duplicitous. We find all the banned items from furniture to champagne all over the place, starting from top government official residences where the best vintage champagne and quality leather furniture is always on display.
What moral justification does any one have to seize goods at the borders when we can see the same goods in official quarters, including in the homes of the Customs officials who seize these goods. The most comical aspect of this is when Customs officers carry out raids in markets and warehouses, purportedly to seize goods that have crossed the borders they were supposed to be watching. We all know that all this is a waste of time and of course a lucrative business for the Customs officers and their bosses who send them on these raids. If we were realistic and a society of laws, we should require every one not to be seen in any clothing that is on the banned list, and also extend it to include furniture and other goods. But this will be unrealistic and a recipe for chaos.
One thing is obvious, Nigeria is a large country with a very large population with varying needs. We all know that there are a number of items we have no competitive advantage, and even where these advantages exist, we are unable to fully exploit them because of our infrastructure challenges at this time. Then there are also some areas where we clearly must import. These are those things that we don’t produce or things we clearly can not meet the demand locally.
Many of our manufacturers will tell you that their main problem is not really competing with foreign goods but the absence of electric power and the money they burn running and maintaining generators, as well as the bad roads that create a logistical nightmare – leaving them unable to efficiently distribute their goods. The average manufacturer in Nigeria has a large enough market to sell all their goods. If there are foreign competing goods, that means they have better quality or a stronger brand that Nigerians have come to trust, the only way to be fair to all, is to make foreign goods more expensive by levying special taxes on them. The special taxes will be paid by those who want these foreign goods, after all, why should Nigerians be forced to buy substandard goods?
Our local manufacturers should be forced to produce standard goods and compete for our money. There is no reason to pamper them and punish the rest of us because Nigerians want goods of a certain standard. Imposing higher taxes and levies on foreign goods instead of banning them will mean creating revenues for government that should specifically be used to improve our infrastructure. This will eventually allow our manufacturers to compete fairly with imported goods, while eliminating another avenue for corruption.
We have to be realistic in our policies, any policy that create barriers without a sound basis, leaves everyone worse of. Government missing out on revenues they can use, consumers prevented from getting access to better quality goods and forced to a limited choice of fake and substandard goods. We all know that those policies only serve the interest of those who benefit from the corruption associated with these policies. Look at China, India and Russia that today import every conceivable good into their country and export their goods to everywhere on earth. There was a time China, India and Russia were all closed societies and no foreign goods were allowed. Instead of damping the taste of its people to foreign goods, it grew and as is usual in these kind of cases, thriving black markets developed in all these countries.
Criminals took advantage in some cases, those brave and able to beat the system became rich. The same is true in most countries today, but they have all learnt their lessons, you can not close your borders to goods your people need.
I can recollect that in 1994, I wrote an article for the Guardian Newspaper titled “Our Foreign Exchange quagmire.” I had said then that the reason for the instability of the foreign exchange market was that, we were allowing the tiny black market control the larger official market because the Central Bank of Nigeria (CBN) was not funding that market.
Today, the CBN funds the market through the bureau de changes and no one bothers with the black market, and foreign exchange rates have since stabilised. Ask yourself, are our thriving industries like Music and Nollywood a result of banning foreign films and music? Unless those who make policies think out of the box, we will find Nigeria always on the wrong side of things.
Victor Ogiemwonyi is CEO of Partnership Investment Company plc, Ikoyi, Lagos