Milk ban
Just over two weeks ago rumours started to swell that the CBN was going to add some items to its now legendary list of items banned from foreign exchange markets. Not just its own foreign exchange markets but any official markets. Top of the rumour mill was milk. At the last MPC meeting the news was confirmed. Milk was next in line and would soon be added to the banned list. Of course, officials were keen to point out that it wasn’t a ban as they have no right to ban stuff. Just an “incentive” to domestic manufacturers to produce more locally. Straight out of the import substitution playbook.
Does this import substitution philosophy work? It doesn’t. When you ban, or sorry incentivize, products the domestic producers win because you shut out their foreign competitors. They may produce a little more. Maybe but not always. They probably make a lot more profits though, so now you know why they are always mostly happy with such actions. But the consumers lose. When you ban, or “incentivise”, with import restrictions prices go up, and people who consume those products must pay more even though their incomes don’t change. For the rich it is typically insignificant, but for the poor it’s a big burden. Overall, the losses by consumers are almost always larger than the gains by producers. So, it’s usually a net loss and society gets poorer. Can Nigeria get richer and poorer at the same time?
Ironically, even the major milk importers and producers seem to be unhappy about this. The business of milk is a complicated one. No, you can’t just give cows water and grass and expect them to produce milk. It’s really more complicated than that. Ask the people who actually do this.
Stunting epidemic
One of the most crucial periods in the lives of human beings is from when they are born until age five or thereabout. Any kind of physiological or mental damage done at this stage is usually permanent and can’t be outgrown. One of the key things at this stage is nutrition. If children don’t get enough proper nutrition at this age, then they end up with impaired growth. Some of the consequences of this include poorer cognitive ability and less potential for educational attainment. To break it down, if a child doesn’t get proper nutrition in the early stages then they are going to have a lot more difficulty learning in a way that cannot be undone. Or to break it down even further, if your pikin no chop correct food when e small e fit no get sense, and if e no get sense e no go ever fit get sense again. This is a condition referred to in the health community as stunting.
There are some countries with a relatively high prevalence of stunting. You guessed it. Nigeria is one of them. As at 2015, before the last recession, Nigeria had the second highest burden of stunted children in the world with a prevalence rate of 32 percent of children under five. This 32 percent is an average by the way. In some richer states like Lagos it is probably a lot lower. But in some poorer states? Best left to the imagination. Many northern states are at the front of this challenge. The same states where we frequently complain about poor educational attainment. In case you are unaware, there is malnutrition and stunting problem there.
Current account deficit
In the first quarter of 2019 Nigeria had a current account deficit. In simple English it means more foreign exchange flowed out of the country than flowed into the country. Two of the past three quarters have been current account deficit quarters, as opposed to almost two years of current account surpluses prior to that. This deficit occurred despite reasonably high oil prices and production and despite the CBN continuing to sell billions of dollars’ worth of its OMO instruments to foreign portfolio investors. If history is anything to go by, we know what happens when the CBN starts to feel pressure. Phrases like “we import too much” start to get thrown around and “demand management” policies start to pop up. The second quarter current account numbers have not been published but I can guess what it looks like given the CBN’s actions.
So, there you have it. Three seemingly unrelated stories. I will leave you to connect the dots. I just wish we would all be a bit more honest about the purpose of policy. Finally, let me wrap up with this simple question: can you get richer by eating less?
Nonso Obikili
Dr. Nonso Obikili is chief economist at BusinessDay.
