Post by omohayek on Nov 28, 2016 12:50:48 GMT
I just came across this opinion piece by a guy called Olaotan Oladitan, explaining why "Buy Nigerian" sloganeering makes no economic sense. He echoes my own views on the matter: if we create an environment which supports export-oriented businesses, new enterprises will emerge which will be competitive at an international level, and therefore at home too. No one will need to be scolded to buy from such companies.
When people say "Buy Nigerian", what I hear is "you buy Nigerian, so there's more cheap forex available for me to buy from abroad." Locally-made products wouldn't need any special pleading to sell them if they were perceived as competitive in price and quality to foreign alternatives; in fact, they could still be competitive even if they were of lower quality, as long as the price was reasonable enough. For example, who would mind buying "Made in Aba" shoes for 1/3 of the price of "Made in Italy" ones, if the "Made in Aba" version lasted for even just half as long as the imports?
The real problem with many Nigerian-made goods is that they simply aren't competitive even in such a manner as I've suggested above. Nobody voluntarily buys Innoson because Innoson cars aren't clearly cheaper than fully foreign-built vehicles, even though their quality and after-sales service is clearly inferior. There are good reasons why Nigerian manufacturers find it difficult to compete - including exorbitant transportation and power costs - but the right way to fix such problems is by addressing them directly, not by trying to force inferior alternatives down consumers' throats.
Pundits and amateur economists everywhere would remember this line from Adam Smith's classic, Wealth of Nations:
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."
In an earlier article in response to the Economists call for Nigeria to devalue it's currency, I posited that the current currency debacle facing the country could be an opportunity in disguise.
With recent events and campaigns in the media, however, it becomes painfully and increasingly obvious that we either have policy makers as well as followers who are blind to the severity of the situation, or who are numb to potential solutions based on the fundamentals of economic principles.
You have probably heard this phrase by now, #BuyNaijatoGrowNaira and #BuyNigerian together with amusing feats of showmanship from lawmakers as they make a show of purchasing local products.
Yes, it is admittedly admirable and 'mushy' to appeal to the Nigerians collective sense of patriotism, but now I need you to kindly stop reading this, go back to the quote above, read it, really digest it, then come back.
Done? Okay, let's continue.
It is admirable, and I like the idea, I really do, but by appealing to everyone's sense of patriotism to encourage them to buy local products at the expense of foreign products, they are missing the point, which gives an impression that they are looking for a shortcut solution which can last just until the oil prices get back to their original prices.
So the question is, are we looking for a stopgap till prices go back up so we can continue the 'business as usual' attitude, or do we want to use this opportunity to foster fundamental strategic changes? Not because I don't like the idea of buying Nigerian, we need it, but because it is icing without the cake.
As Nigeria is part of a global village, it would be myopic to attempt to attain economic self-sufficiency without realising that even if we were consuming Nigerian products, short of foolhardily placing a total embargo on foreign products, we would still be importing a large number of products and services which would still result in an imbalanced currency exchange.
Let's run a simulation using you as a case study. You find yourself at the supermarket, on a quest to buy diapers for your precious baby girl, and you see 10 products: 5 Nigerian made, and 5 foreign made, after considering perceived quality, price, packaging, 'patriotism', and other factors that typically influence a consumer's decision-making process, what are the chances you would leave there with a Nigerian made a diaper for your baby? 50-50? 30-70? Or not a chance?
Now, remove price as a factor, and repeat this experiment with your son's postgraduate education, your dad's urgent medical operation, or that TV you are about to give your most valued client as a birthday gift.
You see the problem? At that crucial point of purchasing a product, perceived product/service quality and brand image (personal emotional satisfaction or sometimes 'what other people would think'), are arguably the most important factors to motivate a sale, and rich or poor, under similar circumstances, most would make the same decisions they accuse the wealthy of.
Sorry, that wasn't blunt enough. What I meant to say is that, at the end of the day, we are all hypocrites. Yes, we might bash the author for seeming unpatriotic now, but would still buy our foreign made products while mouthing the feel good and nice sounding 'Buy Nigerian' for others to follow.
Chant it as much as you like, it is inevitable that the never ending cycle of bowing to foreign products and services due to their real or perceived superior quality and brand image won't stop because, you see, in a free market economy devoid of government policies and regulations, macroeconomic outcomes are a summation of many small micro-economic cases of Tayo, Tope, Tunde, Tosin and your own purchasing decisions in the market.
As a result, to encourage local consumption, ramming patriotism down our throats without taking care of the fundamental issues would be akin to putting the cart before the horse.
So what would be a better strategy?
- Initially, by creating policies that not only encourage local production, some as minor as allowing you to register a business in 1 day, tax breaks for SME's, STEM's, Agriculture and entrepreneurs in catalystic sectors, but also removal of all sorts of unnecessary bottlenecks, to more substantive ones such as, creating a basic enabling environment (power, transport etc) which is only possible by completely opening up more sectors (e.g. steel, railway sectors etc) to private participants (and instead taking a more regulatory approach such as they have done in the Telecoms sector), and by providing more and cheaper licenses for many types of sectors, because the more easily and affordable it is for entrepreneurs to enter these various sectors and do business, the more productive they would be, and the cheaper their end product. e.g. experience shows that a telecoms license sold for too high a price leads to unreasonable tariffs which are borne by the end user.
- Very strongly encouraging competition and thus innovation in the creation of local products by being a fair umpire, and ensuring a market where both the new entrepreneur as well as the one who sits together with presidents have the same opportunities, not just to capital, but also to information, so that one person or a cabal doesn't get a monopoly to produce everyone's cement, rice, petroleum and what-not. Coupled with this is closing opportunities for rent-seeking, such as stricter monitoring of forex allocations to entrepreneurs.
In essence, to survive, not only do we need local products, but we also need *pardon my French* bad-ass local products that can compete with each other and out-compete their international counterparts.
- Finally, by creating products with a view to exporting them rather than simply to satisfy local consumption, especially as the right indices of cheap labour, availability of raw materials, and proximity to various international ports are in our favour. It isn't a coincidence that China, even with their gargantuan population didn't grow by emphasising local consumption, but rather, by encouraging and creating policies that favor exportation. Hence, we need to avoid sad occurrences such as cashew nuts getting spoilt at the port because they were not cleared on time (possibly because someone somewhere wasn't 'settled' on time), and thus getting rejected abroad.
By creating end products for international consumption (not just a provider of raw materials), not only do we gain much needed foreign exchange which results in our desired balance of trade, but we would also increase the perceived value of our products in the eyes of our own populace which then creates the local demand.
Not by telling people it is the right or patriotic thing to do, but by appealing to their self-interest. Not by repeating soundless rhetoric or celebrating mediocrity but by tuning out the hypocritical town criers and realising the extent of the work ahead.
‎Only when these fundamental steps, amongst others, are taken would we have a self-sufficient local populace purchasing their own products, products and services which can stand and surpass their international rivals without the need to coerce anyone with poorly timed sentimental patriotism, so we can drive ourselves out of our self-imposed predicament which we are all guilty for.
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."
In an earlier article in response to the Economists call for Nigeria to devalue it's currency, I posited that the current currency debacle facing the country could be an opportunity in disguise.
With recent events and campaigns in the media, however, it becomes painfully and increasingly obvious that we either have policy makers as well as followers who are blind to the severity of the situation, or who are numb to potential solutions based on the fundamentals of economic principles.
You have probably heard this phrase by now, #BuyNaijatoGrowNaira and #BuyNigerian together with amusing feats of showmanship from lawmakers as they make a show of purchasing local products.
Yes, it is admittedly admirable and 'mushy' to appeal to the Nigerians collective sense of patriotism, but now I need you to kindly stop reading this, go back to the quote above, read it, really digest it, then come back.
Done? Okay, let's continue.
It is admirable, and I like the idea, I really do, but by appealing to everyone's sense of patriotism to encourage them to buy local products at the expense of foreign products, they are missing the point, which gives an impression that they are looking for a shortcut solution which can last just until the oil prices get back to their original prices.
So the question is, are we looking for a stopgap till prices go back up so we can continue the 'business as usual' attitude, or do we want to use this opportunity to foster fundamental strategic changes? Not because I don't like the idea of buying Nigerian, we need it, but because it is icing without the cake.
As Nigeria is part of a global village, it would be myopic to attempt to attain economic self-sufficiency without realising that even if we were consuming Nigerian products, short of foolhardily placing a total embargo on foreign products, we would still be importing a large number of products and services which would still result in an imbalanced currency exchange.
Let's run a simulation using you as a case study. You find yourself at the supermarket, on a quest to buy diapers for your precious baby girl, and you see 10 products: 5 Nigerian made, and 5 foreign made, after considering perceived quality, price, packaging, 'patriotism', and other factors that typically influence a consumer's decision-making process, what are the chances you would leave there with a Nigerian made a diaper for your baby? 50-50? 30-70? Or not a chance?
Now, remove price as a factor, and repeat this experiment with your son's postgraduate education, your dad's urgent medical operation, or that TV you are about to give your most valued client as a birthday gift.
You see the problem? At that crucial point of purchasing a product, perceived product/service quality and brand image (personal emotional satisfaction or sometimes 'what other people would think'), are arguably the most important factors to motivate a sale, and rich or poor, under similar circumstances, most would make the same decisions they accuse the wealthy of.
Sorry, that wasn't blunt enough. What I meant to say is that, at the end of the day, we are all hypocrites. Yes, we might bash the author for seeming unpatriotic now, but would still buy our foreign made products while mouthing the feel good and nice sounding 'Buy Nigerian' for others to follow.
Chant it as much as you like, it is inevitable that the never ending cycle of bowing to foreign products and services due to their real or perceived superior quality and brand image won't stop because, you see, in a free market economy devoid of government policies and regulations, macroeconomic outcomes are a summation of many small micro-economic cases of Tayo, Tope, Tunde, Tosin and your own purchasing decisions in the market.
As a result, to encourage local consumption, ramming patriotism down our throats without taking care of the fundamental issues would be akin to putting the cart before the horse.
So what would be a better strategy?
- Initially, by creating policies that not only encourage local production, some as minor as allowing you to register a business in 1 day, tax breaks for SME's, STEM's, Agriculture and entrepreneurs in catalystic sectors, but also removal of all sorts of unnecessary bottlenecks, to more substantive ones such as, creating a basic enabling environment (power, transport etc) which is only possible by completely opening up more sectors (e.g. steel, railway sectors etc) to private participants (and instead taking a more regulatory approach such as they have done in the Telecoms sector), and by providing more and cheaper licenses for many types of sectors, because the more easily and affordable it is for entrepreneurs to enter these various sectors and do business, the more productive they would be, and the cheaper their end product. e.g. experience shows that a telecoms license sold for too high a price leads to unreasonable tariffs which are borne by the end user.
- Very strongly encouraging competition and thus innovation in the creation of local products by being a fair umpire, and ensuring a market where both the new entrepreneur as well as the one who sits together with presidents have the same opportunities, not just to capital, but also to information, so that one person or a cabal doesn't get a monopoly to produce everyone's cement, rice, petroleum and what-not. Coupled with this is closing opportunities for rent-seeking, such as stricter monitoring of forex allocations to entrepreneurs.
In essence, to survive, not only do we need local products, but we also need *pardon my French* bad-ass local products that can compete with each other and out-compete their international counterparts.
- Finally, by creating products with a view to exporting them rather than simply to satisfy local consumption, especially as the right indices of cheap labour, availability of raw materials, and proximity to various international ports are in our favour. It isn't a coincidence that China, even with their gargantuan population didn't grow by emphasising local consumption, but rather, by encouraging and creating policies that favor exportation. Hence, we need to avoid sad occurrences such as cashew nuts getting spoilt at the port because they were not cleared on time (possibly because someone somewhere wasn't 'settled' on time), and thus getting rejected abroad.
By creating end products for international consumption (not just a provider of raw materials), not only do we gain much needed foreign exchange which results in our desired balance of trade, but we would also increase the perceived value of our products in the eyes of our own populace which then creates the local demand.
Not by telling people it is the right or patriotic thing to do, but by appealing to their self-interest. Not by repeating soundless rhetoric or celebrating mediocrity but by tuning out the hypocritical town criers and realising the extent of the work ahead.
‎Only when these fundamental steps, amongst others, are taken would we have a self-sufficient local populace purchasing their own products, products and services which can stand and surpass their international rivals without the need to coerce anyone with poorly timed sentimental patriotism, so we can drive ourselves out of our self-imposed predicament which we are all guilty for.
The real problem with many Nigerian-made goods is that they simply aren't competitive even in such a manner as I've suggested above. Nobody voluntarily buys Innoson because Innoson cars aren't clearly cheaper than fully foreign-built vehicles, even though their quality and after-sales service is clearly inferior. There are good reasons why Nigerian manufacturers find it difficult to compete - including exorbitant transportation and power costs - but the right way to fix such problems is by addressing them directly, not by trying to force inferior alternatives down consumers' throats.
