...says Forex restriction on food import creating more uncertainty
CEO of Financial Derivatives Company, Bismarck Rewane has argued that the Nigerian government’s idea of economic patriotism and state control is never a sound strategy and cannot work.
Rewane who spoke on Arise TV at the weekend, also noted that the interventions of the Central Bank of Nigeria (CBN) on the economy through its policy of Foreign Exchange (Forex) restrictions is only hurting the economy by creating uncertainty.
“Basically, my understanding of the misunderstanding is this: One, that the the presidential team is of the view that government spending and government investment are enough to actually push this economy forward; two, that a private sector partnership – junior partnership of the private sector with the government – will do, and that with these two, they will cross the finish line,” Rewane said.
“But the reality and empirical evidence shows that the Nigerian government’s policy of economic patriotism, dogmatic holding unto protectionism, is not a valid strategy at this point in time. In other words, the Nigerian government and the Nigerian people have to accept that the mixed economic model is what is required.
“The mixed economic model says that the private sector investment which produces the positive investment multiplier to create income on one hand, growth on the other, and jobs, should be supported by government spending and government investment.”
Rewane said the idea that the CBN can combine both fiscal and monetary policies is untenable and will only distort the allocation of resources.
“What we have been hearing lately is that monetary policy measures could solve fiscal problems. It is not a bad idea, but unfortunately it doesn’t work. You can get a pediatrician in an emergency to do the job of a cardiologist, but that’s not his calling. You can only use him in the interim to stabilize the situation a bit.
“So, using monetary policy measures; using restrictions to foreign exchange, which will only distort the allocation of resources and force investors into having higher level of uncertainty, will be bad idea. I think that context has to be understood.
He noted that the recent direction of President Muhammadu Buhari to the CBN to restrict Forex on food import was vague and unhealthy for the economy.
“People define concepts as it suits them. The reality is that if you look at materiality, how much imported food is in the country? How much of Nigeria import is food? And when you talk about food, are you talking about finished food or food inputs? For example, wheat. You bring wheat here and you mill it and it becomes flour. Are you restricting the importation of wheat? Are you restricting the ingredients for making Milo, Bournvita? Is that your definition?
“The thing about investment is that it wants two clear things: One, it wants certainty and clarity. Two, it needs people who are willing to respect the sanctity of contracts. Whenever you have a conversation with investors, they respond to your own action by asking that potent question, what next?” he said.
“Three weeks ago, we talked about diary products, milk and so on. And everybody said, OK, the total bill is $1.2 billion, which by the way, may not be totally accurate. The investors I spoke with said, after diary products, what next? Then two weeks later there is a blanket conversation around food. Finished food? Processed food? Food input? So the question was, is this what was next? And after food, what next? So, you have increased the uncertainty and investors do not like uncertainty.”
Speaking on the the recent $9 billion award against Nigeria in favour of a British engineering firm, Process & Industrial Development Limited (P&ID) by British Business & Property Courts, Rewane said it was price the country is paying for its carelessness and lack of due diligence.
“First and foremost, the seed capital or the issue in the controversy was nowhere near $9 billion, it was nowhere near even half a billion dollars. So the question is, what happened and at what point of negligence? Who are the people responsible who would have taken actions to ensure that we don’t get here?” he queried.
“I had no doubt in my mind that the court in Britain would give a rule that is much more friendly than what we have now, because what we have now sounds quite absurd. But we are in the world of laws and if you sleep on your rights there is a price to be paid.
“The question still is, under whose watch did we neglect our position that this thing has become a problem? And have we learnt any lesson? How many more problems are in the woodwork that will come up?”