The untapped solution to our economic crisis 2
Continued from yesterday
The pressure on the Naira will be reduced through which a more stable exchange rate that is market determined can be achieved. It will reduce or eliminate the persistent excess liquidity in the system through which the banks have continuously made unmerited profits. Further cost reduction and elimination of waste will be achieved through the limited use or lack of the need to issue treasury bills that are normally used by the CBN to mop up excess liquidity. As some of the treasury bills are sometimes turned into treasury bonds, the government and the economy will benefit from the saved interest payments and debts. With Nigeria paying a high treasury bill rate of about 15%, participation is expectedly high especially from foreigners. This is why majority of the 36.7% of the Federal Government domestic debt at 2012 held by the non-bank public were mainly by foreigners. As about N721 billion was used in servicing the Federal Domestic Debt, adopting this MFS would have saved the CBN and the economy about N265 billion paid mainly to foreign portfolio investors for debt servicing in 2012.
In the current efforts to manage the foreign exchange crisis and to diversify our economy, a fundamental question is how to identify and effectively utilise our comparative advantage(s) to provide short to long-term solutions. Excitingly, one of them is the huge population of Nigerians in the Diaspora who have continued to maintain the values and culture of Nigeria in their different places of residence. If the CBN can pay about 15% on treasury bills mainly to foreigners, why can’t they pay 10% to incentivise the high population of Nigerians in the Diaspora to invest in ‘Dollar Denominated Savings Account’ which can be used to provide more foreign exchange to our businessmen and women. With the current low savings rate in most developed societies (below 1% in the UK for instance), the payment of about 10% and flexibility to withdraw from the account either in dollars or in Naira will create the required incentive for Nigerians in the Diaspora to effectively patronise and invest. Given that we have over 15 million Nigerians in the Diaspora, a significant pool of foreign currency can be generated which can be used to support the Naira. If properly planned, marketed and managed, it is an idea that can generate over $50 billion of investible funds every year. Without any incentive, Nigerians in the Diaspora remitted about $21 billion in 2015. From 2011 to June 2014, over $63 billion (about N12 trillion) was sent back to family and friends.
Another way through which the Nigerians in the Diaspora can be used to provide short term to long foreign revenue is through the supply of food products consumed by Nigerians in the Diaspora. The main reason why these foods that are in very high demand are not sourced from Nigeria is the lack of internationally accepted packaging centres in Nigeria. This is a challenge which the government can quickly address and which I had earlier asked the banks to provide possibly as part of their Corporate Social Responsibility. With about 15 million Nigerians in the Diaspora, it is a business with a potential annual revenue of over $81 billion (about N16 trillion). A brief illustration will be helpful. A food expenditure of about $15 by each of the 15 million Nigerians in the Diaspora translates to about $225 million everyday and about $81 billion every year. As only a very small quantity of the foods consumed by Nigerians in the Diaspora actually come from Nigeria, the above is sadly the amount of money that Nigerians in the Diaspora send to other countries especially in South America and Asia every year. To further illustrate, the UK imports plantains and bananas from Argentina, Ecuador and Uruguay. The flight time between these countries and the UK is about 14 hours compared to six hours from Nigeria. Food products supplied from Nigeria are not adequate to meet the demand, therefore they are very expensive. The products imported from Asia are equally expensive primarily because of the flight time to the UK. Conversely, Ethiopia exports over £1million worth of fresh flowers to the UK every day. This is surprising but true and I mean “normal” flowers for expressing love, for condolences, birthdays, etc.
So, this is a big opportunity for Nigeria to generate revenue. The benefits are endless! Nigerians will always have a preference for foods imported from the homeland so there will be little or no competition especially if these are sold at slightly lower prices compared to the products from Asia/South America. As a major problem is the absence of packaging centres that meet international standards, the government can immediately invest in this vital area by establishing packaging centres in major cities in Nigeria. To ensure prompt take-off and success, distribution centres in major European and American cities will be needed to ensure efficient distribution to all other cities with significant Nigerian/Afro-Caribbean populations.
This venture will improve the Naira’s value, generate foreign revenue and bring about financial inclusion. Not to mention employment generation and economic empowerment especially for the women and the poor. It will provide the required stimulus for the much talked agricultural revolution. Not only will it lead to better revenue for Ozor Nwanjiam of Abakaliki, it will also increase his life span due to the psychological satisfaction that his yams are sold and consumed in London and America (Obodo oyibo!). It will help Mrs. Abuse of Vandekiya village of Benue State to train her kids through the export of mangoes that are in abundance and wasting in her village. Alhaji Aminu from Fagge in Kano State will live in peace with Joshua in Jos as they are both involved in the export of carrots and groundnuts to Canada. Mr. Gbadamosi will prefer to live in Ogbomosho than in Lagos due to his Amala processing plant which provides him with good income. Imagine the yearly impact of over N16 trillion on the economy especially the less privileged Nigerians!
In the long term, it is important to start thinking of how to create a better and more effective economic/monetary policy framework or model. It will require either the adjustment of the neo-liberal model to suit our socio-economic and political peculiarities or the creation of a new model that will be suitable to our peculiarities and context. This will ensure a better coordination and integration of our monetary, fiscal and supply side policies to create a sustainable economy with annual growth of over 10%.
• Ngwu Ph.D is an Assistant Professor of Finance in a UK University.