By Samuel Caulcrick <firstname.lastname@example.org>
October 15, 2018 Viewpoint
Nigeria is at a crossroad, and 2019 could be the defining moment. Nigeria’s earnings are mainly from two sources – proceeds from oil sales and remittances from Nigerians in the diaspora. In the last few years, while the population is growing exponentially, the oil receipts have been subjected to the up and down of the world oil politics. Fortunately, the repatriation of hard-earn dollar from Nigerians in the diaspora, some of whom have to keep two jobs, have topped $20 billion.
The economic system in Nigeria, however, has suppressed import substitutions that could have preserved the little earned from oil and the additional remittances. So Nigeria needs foreign investment to be able to pull out of the economic quagmire.
There two types of foreign investors into any economy – short-term and long-term. In the past 35 years, short-term investors have moved to liberalised currency economies where “wealth is created on the trading floors, eg. stock exchange.
Nigeria is one of the top destinations for such short-term investments in the last 16 years. These investors bring in dollars, which they got at less than 2% and lend Nigerian banks at 20%, who in turn lend out at 25%. Such rates can only support quick returns on investment activities like importations, and genral buying and selling.
The other type of investors are the long-term investors. These type of investors have gone to economies that have fixed exchange rate to the dollar. In these type of investment (long-term),wealth is created on the factory floors, instead of the trading floor. The reason is simple, fixed exchange rate gives security to the investment funds. So that down the line, their investments are secured as these are funded by depositors money in their home country. China, the whole of the Middle East, etc that have fixed exchange rates I have all attracted the majority of the long-term investment in the past 35 years.
Nigeria was a magnet for investors for long-term Investments in the 1970s to mid 1980s. Then the Naira had a fixed exchange rate to the dollar. Mercedes, Leyland, Volkswagen, Peugeot, etc all rushed to Nigeria, but the moment the Naira was liberalised they all disinvested. Then came the short-term investors of Morgan Stanley and co. They came with only a briefcase and can move out their money anytime. In 2016 when Buhari hinted on fixing the Naira, these financial organisations moved over $80 billion out of the Nigerian financial system within 3 weeks and the Naira crashed.
They could only do that because they had nothing solid on ground in Nigeria. They would not have been able to do that if their investments had been pieces of industrial machinery.
So in 2019, Nigeria’s Tiananmen Square, it would naturally be a protest, but there will be no authoritarian to crush it like in China in 1989. It is now left to the citizens to choose to endure and prosper like China after the Tiananmen Square Protest or chicken out for a few dollars inducement.
Whatever, viva Nigeria!!!