Comment: “Commendable thought leadership on how you used the US postal service and Amtrak rail line to take a position that a government can actually subsidize, and lose money, and still achieve economic growth strategically. But what do you say about Nigeria’s excessive importation?”
My Response: Thanks for the kind words. Yes, USPS has not made profit in more than two decades and the Amstrak line has not recorded a profit since 1971. The US government has not shut them down unlike how Nigeria took down NIPOST and Nigeria Railways. I am an apostle of efficient subsidies. Nigeria subsidized my university education and I think it was a great investment (lol).
On import, I do not think Nigeria imports a lot. So, I do not agree on that “excessive” importation mindset. This is a TV pundit talking point with shallow understanding on critical enablers we need to rebuild Nigeria. And when we see the absolute size of the imports, we flip, triggering a mess in the FX regime. This has been happening for more than a decade in the nation.
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Yes, the real focus should be “what are we importing?” and how we can use policies to change what we import and how we import. In Nigeria, for decades, we are not importing enough, and most especially, the little we import is the wrong category of imports. Unless we can discriminate at that category level at the policy level, we can put a policy that import is bad, and in the process stymie the ability of companies to actually import the right things.
Follow me: in 2022, South Korea’s total imports were $808.09 billion while Nigeria did about $60.35 billion for goods; South Korea is about 25% of Nigeria’s population. But if you check, South Korea imports were largely machinery, equipment, etc for production, while Nigeria’s were for finished goods. Also, in 2022, goods worth around $136.21 billion were imported into South Africa, with many of those industrial equipment. Check – more imports have not destroyed South Africa and South Korea’s currencies!
My position is this: if the economic team is afraid of subsidies, they should design a purchase agreement framework where the government commits to buy finished products from local companies. In other words, you can say, if you produce electric bulbs in Nigeria within a specified time, we commit to buy $500k worth. That will stimulate local capital formation as companies will use that document to look for capital knowing that a guaranteed customer is there.
Once they supply to the government, the government resells to uptakers. Just like that you can stimulate a virtuous circle, and depart from the scene, even as you increase tariff on imports of bulbs, and concurrently encourage purchase of equipment to make bulbs in Nigeria. Understand that under a purchase agreement regime, the government will not lose money to briefcase business people since it is only going to pay for finished products! This will stimulate the capital market, create local products and boost our balance of payment.
Wow – you may think. But that is what we are partially doing with Geregu Power and Transcorp Power and they are trillion Naira companies. They generate power and sell it to the government. You can do that in other sectors. Politically, no subsidies but the impact is the same. Nigeria must work!
Comment here
My Response: I lived in Ovim and all the villages along Railway lines in Southeast were on average developing faster than others. Why? Many people used their markets because of access to transportation. People built houses, small hotels, etc around the railway station because some people, from far away areas with no railway, would have to sleep to catch the train early. The value of garri, yam, etc went up because buyers from Aba, Enugu, etc used the train to come and buy. When the station collapsed, many bad things happened because those opportunities froze.
If you are a government as the US does, someone could have modeled: we are losing $100k on this route on ticket, but this route is generating $1m economic activity. When VAT and all taxes are applied on that route, we are getting $150k. Route stays,
Since the railway and postal service collapsed, poverty has scaled in Nigeria’s rural areas because of a poor supply chain. The Ovim Oriendu Market has lost size as only the villagers attend it. The traders from Enugu, Aba, etc have stopped coming as there is no train to move the garri. My brother, I do not need an economist on this because my Raleigh bicycle was always on duty, moving bags of garri from the market to the train station. In short, every kid has a bike to move things: you could make small money doing that!
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Even the finished goods we import are still of very small value, when you match it to the population size. But in a fact-free society, every talking head positions as a thought-leader. What Nigeria is positioning for is to run a wholesale irresponsible government, where the government has near zero responsibilities towards the citizens. When the government washes off its hands on all subsidies, of what use exactly is the government then? The nonsense they always yammer here, where in the world has it ever been applied and it worked successfully?
You can be forgiven for being ignorant, but no forgiveness for legalizing and institutionalizing cluelessness and making same as a state policy. If the managers have no clue about creating and managing a working economy, then it’s high time they surrendered and leave. Defending failure and bad ideas has not made anyone great before, and it’s not going to start today.
If you say that removing subsidies here and there has saved you a lot of money; can you also show what it has killed and distorted? When you compare both, then you can conclude for yourself whether you are tilting towards wisdom or foolishness. You cannot be right by doing wrong.