LAST month in an audience with the incoming Japanese Ambassador Ryuichi Shoji, President Goodluck Jonathan said that his administration was reviewing national industrial policies to pave the way for foreign companies that export large volumes of finished products to this country to establish and manufacture or assemble those goods here so that employment could increase. The ambassador replied that the Japanese government was keenly following the implementation of the administration's agenda.That response was instructive: investors everywhere are always guided by host government's actions regarding the implementation of existing laws. It should be realised that until they are enacted into laws, national industrial policies undergoing unending review and reforms, as has been the vogue since 1999, induce a wait-and-see attitude in potential investors and also make established firms to scramble for waivers. As a result, the attention of the executive arm shifts from effectively implementing already known laws and policies to dabbling in amending those laws, which is a legislative function. The Jonathan administration should adhere to the principle of separation of powers and eschew granting waivers in any guise whatever.Now, the initial national industrial policies encouraged the substitution of locally manufactured products for similar imported consumer goods that enjoyed large demand so as to reap the benefits of industrialisation as well as conserve the country's limited foreign exchange. A large number of manufacturing firms sprang up in the 1960-70s to take advantage of the huge captive market which protection through government restrictive trade policy was guaranteed. In the heydays of the manufacturing sub-sector, the related construction industrial sub-sector witnessed intense activity; the power utility industrial sub-sector provided fairly adequate electricity supply; and the mining industrial sub-sector recorded a short-lived oil boom.As far as investors are concerned, the gauge of effective government implementation of its industrial policies is the average manufacturing capacity utilisation rate or its complement of unutilised manufacturing capacity rate. The former rate, which peaked at 79 per cent in 1977, fell to 29 per cent in 1995 and, according to the Manufacturers' Association of Nigeria, stood at 45 per cent in 2010. The high unutilised manufacturing capacity rate explains why President Olusegun Obasanjo's ceaseless reforms and globe-trotting campaigns to woo foreign direct investors fell on deaf ears throughout his eight years in office. And for the same reason, the appeals by top functionaries in the Jonathan administration are a total waste of time.Amidst unutilised manufacturing capacity rate of 55 per cent, the real challenge and government's priority responsibility are to facilitate the deployment of that idle capacity to produce the final products being currently imported. When the resulting output still does not satisfy the domestic market, investors in droves will rise to the occasion, exploit any linkage opportunities and establish small, medium and large scale enterprises in the various sectors of the economy.For sustainable industrialisation, government should resolutely carry out three reinforced-foundation measures. First, nibbling at the pristine prop of import substitution industrialisation, the 2012 budget proposal seeks to emplace revised tariffs, levies and import prohibition dates for cassava flour, wheat and rice. What about, for instance, the inactive tyre, mothballed footwear and evacuated textile production floors' It is imperative to return to and extend the 2003 banned import list. Imports competing against the full range of products manufactured locally should attract increased tariffs and levies and should additionally be limited to the projected shortfall between expected output from domestic production capacity and demand. Such specified dos and don'ts should be enacted into law in order to resurrect the over 1000 manufacturing firms that have shutdown and energise the struggling ones still in production.Second, because the three tiers of government annually expend mainly prorated deficit-financed funds substituted by the CBN for export accruals to the Federation Account, Nigeria has become a classic study in economy running fiscal deficits in excess of 10 per cent annually. The proof is the poisoned harvest of persistent macroeconomic instability with its accompaniments that give rise to a hostile economic environment marked by very high cost of production. To eliminate those debilitating conditions, the three tiers of government should strictly use deposit money banks to duly convert allocations of Federation Account dollar proceeds to realised naira revenue at the adjudged realistic naira exchange rate set in the yearly Appropriation Act. So the various governments suffer no diminution in total revenue, but the economy is spared the bloated volumes of money supply. Also bona fide importers purchase required foreign exchange at the same rate for eligible transactions set out in the legislation noted earlier. Transactions in foreign exchange are transparent and verifiable. The ensuing conducive economic conditions in the form of stable exchange rate, near zero inflation rate and low mid-single digit lending rate guarantee private sector investors's access to cheap domestic bank credit for financing manufacturing, construction, infrastructure and every other chosen business undertaking. Job openings multiply just as the economy expands.Third, the operation of the wholesale Dutch auction system (WDAS) and disbursement by CBN of foreign exchange to bureaux de change (BDCs) should stop immediately because they induce national de-industrialisation. Government is aware (Finance Minister, Ngozi Okonjo-Iweala is a living witness) that both mechanisms in their present form are the after-birth of the country's external debt exit. Through a so-called policy support instrument, our erstwhile Paris and London-Club creditor nations extraneously directed the World Bank/IMF (WB/IMF) to get the CBN to adopt WDAS in February 2006 and to disburse official foreign exchange to BDCs beginning from April 2006.The operation of WDAS officially introduces dual exchange rates regime. There is the fixed budget naira exchange rate denoting the dirty or managed exchange rate fixing system. It is used to derive the prorated notional revenue (deficit financed) from oil proceeds. As earlier indicated, when correctly applied as the economy-wide single naira exchange rate, it engenders salubrious economic conditions for industrialisation. On the other hand, WDAS is an inappropriate mechanism that does not produce equilibrium exchange rate. WDAS exchange rate is driven by the peripheric and parasitic black market for foreign exchange. The WDAS as being operated leaves the naira permanently overvalued thereby occasioning its continual depreciation and periodic devaluation. The 2012 budget devalued naira exchange rate in spite of ample inflow foreign exchange is a case in point. The WDAS by nature exacerbates inflation, instigates monetary tightening measures, increases lending rates, escalates production costs and constricts economic activity.Under its WB/IMF-installed twin mechanism, large chunks of scarce foreign exchange already in the banking system (that should otherwise be conserved) are disbursed to the BDCs, which do not generate foreign exchange. BDCs now noisily and importunately hawk the hard currency in all manner of places and constitute public nuisance. BDC patrons remain anonymous and no record of transactions is kept in order to better conceal the destructive and anti-economic and ineligible transactions which the hard currency purchased is deployed to fund, namely, laundering of treasury loot for stashing away in foreign bank accounts, speculation in foreign currencies and large-scale smuggling that uproot local manufacturing and breed unemployment.Thus WDAS and release of official foreign exchange to BDCs lead to dissipation of invaluable national resources and economic ruination which government resort to peddling GDP growth rates cannot hide. Both mechanisms are redundant and should be jettisoned accordingly. The Jonathan administration should focus on the task of unwaiveringly implementing only right measures that will diversify the economy through sustainable industrialisation, promote rapid economic development, ensure genuine economic growth and advance national prosperity.
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