Consolidating the Tinubu government’s reforms

In the foreign exchange market, the central bank must quit the retail market completely. Indeed it should only be in that space for government’s import and export needs, which should be transacted at prevailing market rates. In order to ease the process of price discovery in this market, not only should the apex bank encourage the return of the interbank market, but it should see to the removal of all but the most necessary restrictions in the use of domiciliary accounts.

As higgledy-piggledy as the stack of reforms recently implemented by the Tinubu administration might seem at first blush, they look like having their hearts in the right place. Common to all that the new Federal Government has done thus far is the embrace of market-based solutions to long-standing national problems. This embrace of the markets might, ultimately, be no more than an expedient recognition, in the case of the foreign exchange market, that we have run down the reserves necessary for the smooth operation of the economy through the previous multi-window approach ― and currently have no means of keeping the national currency supported at our preferred exchange rate. Or, in the case of the subsidy on the pump-gate price of petrol, that the fiscal haemorrhage as a result of the subsidy scheme is no longer supported by the revenues flowing into the exchequer.

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Conversely, the Tinubu government’s embrace of the market might genuinely be out of conviction. It ought to be clear by now from the serial failings of the Nigerian state to properly manage the economy by seizing its commanding heights, that the only protection possible to consumers in any economy is through as free as possible a market, vigorously policed by a regulatory environment with a strong bias for consumer rights and welfare. Friedrich Hayek framed this imperative succinctly. The main benefit of the market, in his view, is in the degree to which it frees people to use information that is only available to them for their personal gain. In other words, markets are an information exchange. The data that they produce are in consequence both useful for a myriad range of activities and impossible to do without.

Unfortunately, having long suppressed our domestic markets’ ability to generate these information, and the competence of our policymakers to interpret and leverage the mass of data, it is hard to tell whether the current dominance of a few suppliers in a number of our local markets (one reason why we remain a high-cost business location) is a sign of improperly developed markets or that it simply reflects the objective limits imposed on our society by constrained demand. Either way, at its most basic, the reform path embarked on by the incumbent government holds out the possibility of removing the arbitrage opportunities that have enriched a very narrow coterie of Nigerians in the name of succouring the mass of our people.

Down the Tinubu government’s current path is the invitation to our policymakers to understand that markets function best when there are as few restrictions as possible to the entry and exit of both suppliers and consumers of whatever goods or services are on offer there. They do even better when there are no lets to consumers switching between suppliers.

As it is, though, the reform package still leaves a lot on the table: Whether it is rumours of a planned return to the import licensing arrangement for the importation of petrol, or the Central Bank of Nigeria’s (CBN) desire to continue quoting rates for the naira’s exchange rate. Down the Tinubu government’s current path is the invitation to our policymakers to understand that markets function best when there are as few restrictions as possible to the entry and exit of both suppliers and consumers of whatever goods or services are on offer there. They do even better when there are no lets to consumers switching between suppliers. In the downstream oil and gas sector, therefore, the goal should be to have any body corporate (incorporated in nigeria), subject to the provisions of its memorandum and articles of association, able to import petrol into the country, and to sell at whatever price the market can take. An additional caveat will be that imports will be subject to minimum quality standards as stipulated by the responsible government agency. To have some government panjandrum begin to issue import licences all over again will be to create new arbitrage windows, and allow the resulting oligopolies stitch up the market.

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In the foreign exchange market, the central bank must quit the retail market completely. Indeed it should only be in that space for government’s import and export needs, which should be transacted at prevailing market rates. In order to ease the process of price discovery in this market, not only should the apex bank encourage the return of the interbank market, but it should see to the removal of all but the most necessary restrictions in the use of domiciliary accounts. Indeed to focus on the domiciliary account as a target of monetary policy is to have missed much of the lessons of the last eight years. For in truth, the only reason Nigerians use this dollar-denominated account is because the CBN has failed in its price stability remit. Indeed were the naira not a store of value prone to destruction by moth and rust, and a means of exchange that allows inflation to break in and steal, Nigerians will never have stopped laying up for themselves their treasures in it.