BusinessDay

The imported potato chips and Nigeria’s local production complex

A few days ago, I came across a viral social media post in the aftermath of the CBN’s ban on forex issuance for milk importation. The poster uploaded a photo of a bag of frozen potato chips he saw at a supermarket which apparently was imported from the Netherlands. The  fact that something as objectively easy to make as potato chips was being imported into Nigeria instead of being produced locally was a source of severe angst to the poster and a large number of commenters on his post.

I raised an objection to the use of emotional rhetoric to present the issue in a distorted light. In my view, what the poster should in fact have ascertained was how much it cost to produce frozen fries in the Netherlands and ship them to Nigeria, as against how much it would cost to produce them in Nigeria. It quickly became apparent that not many responders were particularly interested in the cold, hard mathematics of it all.

The simple and repeated message was: “Even if it does not make economic sense to produce it in Nigeria, we should do so anyway just so that we do not import it.” I quickly realised that this was not an economic conversation but a political one. At a time when government spokespersons and institutions have made withering references to “seedless grapes” and “Imperial arrogance” when decrying the alleged ills of importing over local production, t is maybe not surprising that many have fallen for the government’s Jedi mind trick.

To move forward in the right direction, we now have to examine this idea at an elemental level. Is Nigeria’s economic malaise actually caused by importing over producing? Is importing actually costing Nigeria what the government claims it is? If not, what is actually the matter with Nigeria’s current business model?

Imports Bad, Exports Good: An Economically Illiterate Idea

In my column last week, I mentioned that a significant amount of modern African economic thought is still influenced by the Kwame Nkrumah’s Soviet-influenced ideas. One of these ideas is the outdated notion that a “strong” nation must “produce” everything it consumes and view importation of any kind as somewhere between an irritation and full-on economic sabotage. The Soviets obviously ran a closed, centrally-planned economy, so it is not hard to see where their vision of complete self sufficiency came from.

Nigeria in contrast, does not run a closed economy or anything close to it, and in any case, the cold war has been over for 30 odd years. Capitalism vs. Communism, trade vs. protectionism – these are not serious arguments in the year 2019. They have been comprehensively won and lost for decades. We have no business trying to resurrect a dead argument either out of economic illiteracy or in service to state-backed capitalists flying patriotism kites when all they are really after is competition-free access to a captive market.

For all of our self-flagellation on the subject of imports versus exports, Nigeria is actually still a net exporter. With exports totaling about $44 billion and imports coming to about $23 billion in 2018, Nigeria has a balance of trade surplus. These figures plainly cut through the wall of fact-free, emotional noise that surrounds this topic. This country’s primary economic inefficiency is not import dependency. It is that the cost of production and doing business in Nigeria is insanely high.

It has been discovered for example, that it costs less to transport a shipping container from China to Lagos than to move the same container from Tin Can Island Port to the Trade Fair Complex in Ojo – a journey of barely 19 km within the same city. Nigeria’s well-documented power issues, sloth-paced bureaucracy, regulatory hostility and multiple taxation are much bigger impediments to production than the import-greedy, Nigerian industry-destroying, market-flooding, neo-colonialist/unpatriotic national bogeyman that even the CBN has started to promote of late.

There is no bogeyman involved in a vast conspiracy to keep Nigeria poor by “flooding” its impoverished market with imported items that the majority of people cannot even afford. Out here in the real world, countries simply play to their economic strengths by producing and exporting what they are best positioned to do, while importing what they are not best placed to produce for themselves. In other words, as long as Nigeria does not have a prolonged balance of trade deficit, there is absolutely no need to stop importing frozen fries from Holland if making them there is still more economical.

Stop Majoring in the Minor – The Singaporean Example

The Asian island-State of Singapore offers the perfect case in point to explain how this works. Singapore imports practically everything it consumed in terms of food, fuel, construction materials and anything else you can imagine. It is slightly smaller than the Lekki Peninsula, so space for activities like agriculture is extremely limited. In 2018, Singapore imported a total of over $370 billion worth of goods. According to the economic theory of #BuyNaijatoGrowTheNaira which the CBN now seems to subscribe to, the Singaporean dollar must be in free-fall, because so much of it is dedicated to buying forex for imports worth about 16 times Nigeria’s total annual imports.

In reality, Singapore also exported roughly $420 billion worth of goods and services in 2018, giving it a trade surplus of about $50 billion. The city’s biggest exports are electrical machinery and equipment, computers and refined petroleum products with 31 percent, 14 percent and 13 percent export share respectively. Notice that dairy, meat and processed food are not on its list of big exports. In fact it hardly produces any of these things at all, even for local consumption. It just imports them and exports what it is good at producing.

This is called Comparative Advantage. Singapore’s economic planners did not get lost in an ‘Nkrumahnomics’ vision of their tiny city state becoming a major global power by being a jack of all trades, doing everything from space exploration to nuclear power as Nigeria pretends to do. Unlike Nigeria which harbors ambitions of someday producing and exporting everything under the sun because “we are a blessed country that has everything,” Lee Kuan Yew and his team set out a realistic and achievable business model for Singapore.

The island has a strategic Southeast Asian location which gives it a key advantage in terms of positioning along major Chinese shipping routes. Their strategy was simply to exploit this location. One of the key moves was to construct oil refineries on the Singaporean coast to take advantage of oil tanker traffic in the South China Sea. With refined petroleum accounting for 13 percent of its exports in a country that has no crude oil, it is obvious that this strategy has been successful. What they figured out was that it does not matter where what they consume comes from. What does matter is how productive they are, and the way to become productive is to explore their comparative advantage.

Thus with just over 5 million people, Singapore’s GDP of $323 billion compares favorably to Nigeria’s GDP of $376 billion with 180 million extremely unproductive people. The lesson for us is that we need to become more productive by playing to our strengths and exploring our comparative advantage – not by locally manufacturing frozen potato chips and motor vehicles that end up costing more than anybody can afford. The way to economic growth is to boost our exports, not to consume more locally produced milk and potato chips.

That way could tech. It could be outsourcing. Heck it could be sports and entertainment. It certainly isn’t anything that developed economies like the Netherlands and Japan have sewn up already. We are not going to defeat them on their comparative advantage. All we can do is find ours and stick with it.

As oil continues to teeter on the brink of obsolescence, while still making up well over 90% of our total export earnings, we will do well to remember that of all the countries in living memory that sacrificed international competitiveness on the altar of jingoistic self-sufficiency rhetoric, only Cuba came close to anything like success.

And nobody aspires to live in Cuba.

 

David Hundeyin

Get real time updates directly on you device, subscribe now.