Why #ExportNaijatoGrowtheNaira is Better


In Part I of this article, I pointed out how this newfound fervour to purchase all things local was hardly the key to ‘growing the naira’ and how such initiatives can potentially limit the welfare of both local producers and consumers. And while this drive might be misguided, the fortunate thing is that it’s not far away from the right solution, however, the effects are radically different.  The right solution is to set the target on something a lot more ambitious – exports. Switch the hashtag to #ExportNaijatoGrowtheNaira. Why?

Between now and 2 years ago, nothing has changed in terms of our Balance of Trade – except now we what we export has far less value than what we import. The fall in oil prices significantly hit our earnings from exports. So the problem is more our exports than our imports. Understanding this is key to putting the right policies in place and achieving the goals of growing the Nigerian economy, ‘saving’ the naira and creating jobs.

What’s different about the focus on exports?  Focusing on exports puts the right incentives for both Government and Producers to make better decisions. To increase your exports, you have absolutely no choice but to upgrade and innovate because the highly competitive international market cannot be bothered by your sad-sob story. Your NASCO cornflakes will be a failure internationally as other alternatives are far more advanced in the quality of their flakes, their branding, their packaging…oh, and you won’t crack your teeth by accidentally chomping down on a random kernel of corn. So if NASCO were to be export-driven, they’d have no choice but to step up in these areas. If a company needs protection to compete locally, it should not think of venturing abroad. Global competition places incentives in the right place that demand you’ll have to step up if you want to succeed.

Here’s the economist Ricardo Haussmann on the importance of export:

The goods and services that a place can sell to non-residents have a disproportionate impact on its quality of life–and even its viability….In contrast to non-tradable activities, a place’s export activities need to be pretty good to convince out-of-town customers–who have ample other options–to buy…. The higher the productivity and the quality of export activities, the higher the wages they can pay and still remain competitive…. 

To survive and thrive, societies need to pay special attention to those activities that produce goods and services they can sell to non-residents. Indeed, the need to act on new export opportunities and remove obstacles to success is probably the central lesson from the East Asian and Irish growth miracles.

The Devil in the Details

It’s one thing to know ‘what’ to do and quite another to know ‘how’. This is a crucial difference because it helps define the difference between Government intervention and Government facilitation. Several things here: first, deciding what you can sell, making sure you can actually sell it and have it be competitive, and third, eradicate any form of barriers to exports.

A lot of countries understand this export-minded concept and work towards becoming competitive by meeting international standards. Chile upgraded their regulations of salmon farming to meet international requirements. India worked with leading certification agencies to ensure it was up to date in software testing that Indian software companies could aspire to set standards.

“The wealth and poverty of nations inexorably depend on their domestic productivity and relative competitiveness.”

@obyezeks

First, create an enabling environment by closing the infrastructural and institutional deficit. This of course includes tackling Nigeria’s anachronistic and ridiculous policies that make it difficult for businesses to thrive. Stable macroeconomics, political, and social environment supported by a legal system that enforces contracts and protects property rights – these simply need to be present for Nigeria to even consider exporting anything worthy of value.

The countries that found success exporting were able to identify a product they could competitively produce and ensure there was an enabling environment for production. India’s government targeted software exports once the market identified the industry’s potential and created the necessary institutions. Now India has a significant global share of outsourced information technology.

Kenya’s government made large investments in refrigerated facilities at the airport to enable local floriculturists to start exporting. Now Kenya is the largest producer of flowers in Africa, with 30% of the European Union’s cut-flower imports now come from Kenya.

The Malaysian government funded industry-specific R&D and skills development, provided financing, built physical infrastructure, and offered tax incentives to encourage firms to transition from exports of crude to processed palm oil and oleochemicals. Consequently, Malaysia has already moved from being an exporter of crude palm oil to a global leader in processed oils and fats for household and industrial use.

Setting up the right processes

However, sorting through infrastructural and financial barriers is still not enough to instigate export-led growth in Nigeria. The foundation might now exist, but the crucial frameworks might still be missing. The book ‘Technology, Adaptation and Exports’, describes such frameworks as institutional arrangements for technological adaptation. Here are a couple of them.

First, Government needs to focus on specific export industries and not firms, and in doing so, incentivise the winners. Referring to success countries, Vandana Chandra in the book referenced above points this out:

Generally, governments offered the same level of public support to all exporters in the preferred industry and let the discipline of the market prevail. Within an industry, governments bestowed rewards on firms that performed well and penalized poor performers by letting them fall out of export competition. In the Indian software industry for example, the privilege to import computer hardware was extended to all firms that could export.

Second, such development must be private sector-led. So in the cases of these developing countries that were able to find export-led growth, the private sector was the driver of exports, while government played a facilitating role.

Third, governments in these countries valued competition among domestic and foreign firms. Entry into and exit from the industry were open, and foreign firms that brought in new technology were welcome. In our current economic clime – with our odd stance on foreign exchange – don’t expect anyone to bring in technology into Nigeria.

None of these steps are remotely easy, but if you’re looking for next steps to actually ‘grow the Naira’, here’s where we have to start. Instead of guilt-tripping Nigerians into buying local goods, our lawmakers should be focused on creating and implementing legislations that improve the necessary institutions & infrastructures needed for local production to be globally competitive.

#ExportNaijatoGrowtheNaira is so much harder than #BuyNaijatoGrowtheNaira because it requires a deft and concerted execution of policies. Unfortunately, your lawmakers would rather place their responsibilities on the citizens. India, Malaysia, Kenya, Singapore, Chile didn’t coerce their citizens to buy goods for these industries to flourish; they put in place whatever was needed to have these industries be competitive on the global market. If you wish so badly to ‘grow the Naira’, be more ambitious and demand more than cute alliterating hashtags from your lawmakers.