BusinessDay
Nigeria's leading finance and market intelligence news report.

The value factor: Why buying ‘naija’ is not just about patriotism

Quote: Truth is, except in communist countries, where citizens are not allowed to act as rational human beings who seek to maximise their utility, no government can expect the citizens to buy local products simply by invoking the emotive word patriotism.

 

Nigeria’s leaders desperately want Nigerians to buy locally made goods. They want them to boycott foreign products in preference for those made at home. Indeed, the “Buy Naija” sentiment is so strong that the government is forcing Nigerians to turn to local products willy-nilly by banning imports and closing the country’s borders. But the rallying call for the policy is not based on any rational argument, but on a sentimental appeal to patriotism. Nigerians, it is said, must make the patriotic effort to patronise Made-in-Nigeria products.

 

Indeed, President Muhammadu Buhari once described “manufacturers who substitute imported goods with local materials” as “patriotic Nigerians who believe in Nigeria”. The inference is that any manufacturer who uses imported raw materials instead of local ones is not patriotic. It is an extreme form of economic nationalism. But should patriotism be enough to get Nigerians to patronise locally made products? the answer is no!

 

To be sure, throughout history, nations, including today’s developed countries, have pushed a buy-local agenda, through exhortation, persuasion and policy incentives. But as David Clayton and David Higgins wrote in their paper titled “The ineffectiveness of ‘Buy British’ campaigns”, the buy-local initiatives failed in virtually every country that introduced them.

 

Truth is, except in communist countries, where citizens are not allowed to act as rational human beings who seek to maximise their utility, no government can expect the citizens to buy local products simply by invoking the emotive word “patriotism”. In their paper, published in the London School of Economics’ Business Review, Clayton and Higgins argue that “consumers generally prefer domestic to foreign products”, adding: “But when price, quality and product-country images are taken into account, the country of origin effect is weakened considerably”. In other words, Nigerians do not have to be compelled to buy local products; they will generally do so voluntarily if their prices and quality are right!

 

But, as we know, buy-local initiatives are designed to support uncompetitive industries, those that can’t compete on price and quality. The trouble, though, is that if people are forced to buy from uncompetitive industries, those industries would have little incentive to improve efficiency. For instance, Nigeria is not an efficient agricultural producer. So, banning food imports to force Nigerians to buy local food products would not increase the efficiency of food production in Nigeria. Of course, the ban may artificially increase production, but it won’t improve productivity, and thus not efficiency and competitiveness.

 

According to a recent report in this newspaper, rice farmers and millers have ramped up production because the import ban and border closure have “compelled Nigerians to shift to local brands”. The report also said that because of the growing demand for local rice, one low-quality brand “with stones mixed with rice grains” is now sold in the market for between N14,000 and N15,000. So, the rice farmers are reaping huge profits but only by fobbing off consumers who are forced to pay high prices for poor qualities local products. But, as Adam Smith said, consumption is the sole purpose of production. Thus, any buy-local policy that protects uncompetitive producers at the expense of consumers is wrong.

 

Which is why industries that care about their competitiveness and about consumer interests should not support protectionist buy-local initiatives. Indeed, that was why the Confederation of British Industries, CBI, Britain’s largest business group, rejected the government’s buy-local initiatives in the 1970s. According to the CBI, “British goods must sell on their merits and their price in relation to those of our competitors, not because they happen to be British”. Of course, international law, such as the treaty of the World Trade Organisation, also makes unfair competition for domestic industries illegal, which further constrains the ability of most countries to pursue buy-local initiatives.

 

To be clear, I have nothing against buy-local campaigns, provided they are based on persuasion and exhortation, and not on a top-down pressure from government to force citizens to buy local products through crude protectionist measures, such as import bans and border closure, as Nigeria has done. There is nothing wrong with a government seeking to promote the purchase of local manufactures. And, indeed, as Clayton and Higgins said in their paper, evidence shows that “consumers generally prefer domestic to foreign products”. But in a free market economy, rather than a command economy, citizens should be able to exercise their economic freedom and choice, and not coerced into buying local products even when their prices are too high, and their quality is not up to scratch!

 

But here lies the key problem with Nigeria’s buy-local policy: Made-in-Nigeria products are generally of poor quality and expensive. The government itself admitted in the Nigerian Industrial Revolution Plan, NIRP, published a few years ago, that the quality of Nigerian products is generally poor. The NIRP said that “Nigerian firms need to improve products and process in a number of areas”. If Nigerian agricultural products are rejected by the EU on quality grounds, why should the same products be good enough for Nigerians? Why should any government treat its citizens like prisoners who must eat what they are given? A rice farmer was quoted in the BusinessDay report as saying that “the border closure compelled Nigerians who generally have a high preference for foreign varieties, to shift to local brands”. Really? Free trade offers citizens the benefits of quality, value and choice. Only in communist countries, which Nigeria is becoming, would citizens be denied these benefits.

 

Of course, government officials often argue that, apart from spurring local production, the import bans are also designed to conserve foreign reserves. As President Buhari once said, “We wasted our large foreign exchange reserves to import nearly everything we consume”. Of course, we know that, compared with other major African countries, Nigeria is not a heavily import-dependent country, and that food items account for less than 10% of its total imports. But even assuming that foreign exchange is an issue, is banning imports and forcing people to buy local goods, instead of foreign ones, the solution? The answer is no!

 

Surely, the market-based solution is to allow the price mechanism to work as it should. In other words, let the exchange rate adjust to reflect underlying economic fundamentals and thus determine what is imported and consumed. A floating exchange rate would ration scarce foreign exchange in a way that determines what people import and in what quantities, and thus what people buy and consume at home.

 

When imported goods are expensive, due to a high exchange rate, only those with the willingness and ability to pay would buy them. This would inevitably reduce imports and could encourage local production of such goods. Indeed, this was the main proposition in David Hume’s price-specie flow mechanism, namely that if a country’s exchange rate is high, i.e. devalued, it would discourage imports and encourage local production. But in a command economy, where the government directs resources to where it wishes, allocation of resources would not be market driven and efficient to encourage productive activities.

 

Yet, only a market economy system that allows that decentralises decision-making, through individual freedom and choice, can enhance the competitiveness of Nigerian industries. Forcing Nigerians to buy local products regardless of price, quality and preferences just to protect uncompetitive industries would condemn those industries to perpetual inefficiency. But it would also reduce the general welfare of the people. The “Buy Naija” policy will only be a patriotic call if it is welfare-enhancing and promotes economic efficiency!

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1 Comment
  1. Bod Adeyefa says

    Typical Olu Fasan. We are served with broad statements about communism and marxism which most intelligent observers would agree have nothing to do with ideological underpinnings of the confused economic actions of the FGN. The claims, in our opinion, are based neither on facts or historical knowledge, but widespread ignorance. This is not Olu Fasan’s first time of making such claims. On this occasion, we are informed that the ‘buy naira’ expectations of the FGN are unrealistic as, except in : ‘communist countries, where citizens are not allowed to act as rational human beings who seek to maximise their utility’. The same man previously called Buahri a marxist and Godwin Emefelie a communist! By general use, a communist is a member of a communist party. Dr Ola Fasan could start by informing us of what communist party is Godwin Emefelie a card-carrying member.
    Why is this wrong characterisation of the policies of the FGN, and their ideological motivations, of importance? Such issues are important, because most Nigerians want the Nigerian government to succeed in improving their economic situation. If, as it obvious, the FGN is not succeeding in achieving this goal, Nigerians would like to know why.
    Is it because, as the Vice President would like us believe, of the actions of (Nigerian) saboteurs, is it foreign saboteurs, or is it pure bad luck? Or is it true, as Olu Fasan would like us believe, that this is because the FGN is following communist-inspired economic diktats that have been proved counterproductive in other countries?
    If the doctor has some information to back up his conspiracy theory that the top echelon on the FGN is occupied by some closet communists, his reading public deserves to know such information. If he can adduce some historical facts to back the parallels he draws between FGN’s financial economic policies and specific teachings of Karl Marx, Mao Tse Tung, Fidel Castro or anybody who is thinks is infested with this ideology which, as far as he can deduct, is ruining the lives of most of the 200 million Nigerians, he should let Nigerian people know.
    Our opinion is that Ola Fasan is ignorant about Marxism, and has not taken the time to study the history of ideological motivations behind the economic policies of successive Nigerian governments. When he does, he will discover the ideological underpinning which the ex-governor of the CBN, Lamido Sanusi, gave for his own actions when in office, neo-liberal economics, is the best that can be said to inspire the FGN. The application of this so-called Washington consensus, advanced by advisers from the IMF and the World Bank, when coupled with the ignorance in basic economics of the top echelons of the FGN hierarchy, is responsible for mishmash of incoherent economic policies which we suffer from.

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