Maybe you’ve seen television footage or newspaper reports of President Bola Tinubu meeting with Aliko Dangote of Dangote Group and AbdulSamad Rabiu of BUA Group, leading members of the cement cartel, whose pricing has become skittish.
That tells you that the President, who said, “We are looking for additional efforts that might help the downtrodden Nigerians,” understands that the ‘Invisible Hand’ in economic theory is not quite invisible.
You would have noticed that Tony Elumelu, Chairman of United Bank of Africa, was at the President’s meeting with the cement cartel. Some speculate that his was the symbolic presence of the cartel that disburses foreign exchange from the Central Bank of Nigeria to the importers.
Though the bureau de change operators weren’t invited, the CBN nonetheless rolled out some regulatory straits that should make it easier to monitor their operations within the forex ecosystem.
Whatever the cement cartel may have told the television cameras will not commit them to economic suicide, except they benefit from crony capitalism that gives them facile access to the Central Bank of Nigeria foreign exchange window.
Did you notice that soon after the Federal Government complained, and indigenous airline Air Peace crashed airfare from Lagos to London, by roughly 66 per cent, foreign airlines, who recently got part of their forex remittances through, too slashed their fares?
Business Day newspaper recently reported that cryptocurrency platform, Binance, offered to “(work) hand in hand with local (Nigerian) authorities, lawmakers and regulators to ensure we act on noncompliance (with rules),” to help stem the freefall of the naira.
So, you see that it is some individuals, sitting in the privacy of their businesses, who fix the prices of commodities to cover cost of production, profit margin, replacement cost of raw materials and the premium for owning capital.
Replacement cost is the anticipated price to replace existing input. To be fair, businesses that don’t take this into account in an import-oriented economy that is experiencing continuous depreciation of its currency, will run aground.
Vice President Kashim Shettima recently disclosed that government discovered about 32 illegal routes used to smuggle foodstuffs to neighbouring countries. These routes lead to scarcity and exorbitant prices of foodstuffs.
The exorbitant prices that you currently pay for commodities aren’t exactly because of removal of fuel subsidy, floating of the naira and (surprisingly) CBN raising of interest rate, or that the items are scarce. You are paying for the greed of the cartels, the proverbial Yoruba widow, who uses the death of her husband as an excuse to avoid taking her bath.
Before President Tinubu assumed office, one American dollar exchanged for N462 in the Black Market. Recently, the naira exchange rate swung between N900, or nearly 100 per cent increase, and N1600, or a bit higher than 400 per cent.
So, the cartels had the justification to hike the prices of commodities that the government of Major General Muhammadu Buhari described as “essential commodities,” thus worsening the hardships of Nigerians.
As cartels, whose winner must take all, they took advantage of being sole importers of essential consumer goods whose supply is inelastic, at least, in the short-run. It takes a relatively long time to import consumer items that aren’t served with adequate and functional storage capacity.
Those taking counsel from Governor Umar Bago of Niger State, and are withholding movement of foodstuffs down South, also compound the value chain. But karma will soon catch up with them when their unsold commodities go rotten.
Accountants will say that when a currency loses value, countries with stronger currency buy their goods because they are relatively cheaper. America deliberately devalues its currency, to make its manufactured products more competitive abroad.
But the catch for America is that it not only manufactures consumer goods, it also manufactures its industrial raw materials, plant and machineries, and funds its own scientific and technological researches.
Goods are naturally expensive in an import-oriented economy with weak currency because they must rack up plenty of their weak currency to buy imported goods, like foodstuffs, pharmaceuticals, industrial chemicals, spare parts, electrical and electronics and building materials.
The disgraceful condition that badly-run countries like Nigeria must contend with is called, “imported inflation,” which means that your country inherits the inflation from the country where it imports its consumer goods.
In other words, your economy is an appendage to the economy that exports to you. Whereas international relations scholars describe richer countries as core nations, they describe countries that must import everything, from foodstuffs to culture, as peripheral nations.
In import-oriented economies, only those with foreign exchange will have local currency to buy the foreign exchange to import commodities. If this sounds like a dog chasing its tail, imagine a drug dealer who has foreign exchange to acquire more of the relatively weak naira.
He can finance an expedition to the banks or BDC to buy foreign exchange. Whatever he loses in the round tripping exercise will be taken as operational cost of money laundering. So, as they say on the streets, “Nothing spoil.”
But he doesn’t have to absorb any losses, because he can fix the price of the imports with the excuse that the naira is weak. Even the government will not really argue, especially in the face of “Ebi npa wa,” we are starving, singsong.
Both those with access to foreign exchange through any means, drug business, estacode for government officials travelling abroad, diaspora remittances, and those who function as big time traders in an import-oriented economy will always have the cash to finance imports.
It’s even sweeter if you can claim to be a manufacturer, whilst you also have licences to import commodities. You can truly have the best of two worlds. And there are individuals who enjoy this rare privilege in Nigeria. Enough said.
Local manufacturers whose wealth is tied up in plants and machineries, and must pay huge staff salaries and multiple taxation, import industrial raw materials and spare parts, and endure idle time because of epileptic electricity supply, cannot compete with traders awash with cash.
That is why local manufacturers can’t prosper. Their products will never be able to effectively compete against imported foreign goods that gain huge market shares and can then fix their prices, like the natural cartels that they are.
In this dog-eat-dog game of capitalism, local manufacturers are way out of their league.
They won’t prosper, whatever they do. That is why the GSKs and Procter & Gambles are leaving Nigeria in droves.
Ill-informed price control won’t cut the ice in this import-oriented economy. At practically every point in time there will be inelasticity of supply, relative to demand, which naturally leads to scarcity, and hike in prices of goods.
Every import-oriented economy operates an imperfect competition, whereby market inefficiencies cause losses of value. If it were a perfectly competitive market there would have been many buyers and sellers whose profits will just be enough to keep business going on an even keel.
In a cartel situation, where (impoverished) buyers far outnumber exceedingly rich sellers, who may even choose to hoard commodities without incurring losses, the customer is not the king. He is at the mercy of the seller.
What to do? Government should use realistic data to argue the cost structure with the consumer goods cartels, like regulatory agencies in well-structured economies do.
