The Sun News

Banking & Finance: ‘Diversifying economy’s not about getting forex’

By Omodele Adigun

“When you want to diversify the economy, think in terms of economic interdependence; think in terms of the money in the pockets of our people and what do they spend it on; create those things that they spend the money on.”

This was the verdict of a financial analyst, Mr. Tope Fasua, the Chief Executive, Global Analytics Consulting Limited, in a response to the diversification talk of the Central Bank of Nigeria (CBN).

According to him, diversifying the economy is not about getting foreign exchange(forex). “ And I always try to caution government’s people on that. When you are looking for other means of foreign exchange for the economy, what you do is diversifying the revenue sources of the government. To diversify the economy, the only way to do that is by looking at a diversified economy like Australia and ask; how do these people survive?”,he explained.

Recall that the apex bank boss, Godwin Emefiele, had x-rayed its efforts in promoting import substitution, saying, “the  realization  that it was  unsustainable to fully depend on  importation of goods, particularly food items to  meet  domestic  consumption, was what propelled the apex bank into providing cheap financing to the critical sectors of the economy in recent times.”

While exploring the theme: ‘Import Substitution and  the Dynamics of Interest and Exchange Rates Management in Nigeria’ at the seminar organized for finance correspondents and business editors in Awka, Anambra State, recently, Emefiele  said the  major  thrust  of  CBN’s ongoing developmental efforts is geared towards  import substitution of what could be produced locally.

He stated: “Strategies  to  increase  domestic production,  especially  of  basic  commodities,  are  necessarily accompanied  by  industrialization. These measures  intensified  by  the  late-1970s when  international  oil  prices  began  to  fluctuate  and  high importation of basic food commodities became unsustainable.

“The  government  of  the  day  instituted  a program  to  boost  domestic  agricultural  production,  boost food sufficiency and curtail imports.

“I  would  like  to note  that  fundamentals  of  the  domestic  environment  need  to be  promoted  to  support  domestic  production  and  invariably curtail  imports. The  CBN  recognizes  these  challenges.  And within  the  core  remit  of  formulating  and implementing  monetary  policy,  the  interest  and  exchange rates serve  as  major  instruments  for  CBN’s  support  for import substitution.

On exchange rate, he said: “The  exchange  rate  is  also  another  essential determinant that  may  support  local  production  efforts.  Most domesticallyproduced goods  have  foreign  substitutes,  and the exchange  rate  serves  to  allocate  the  comparative  prices of domestic  and  foreign  goods.  It,  therefore,  determines  the attractiveness  of  domestic  production  to  support  import substitution.

“Indeed,  the CBN  has  embarked  on  massive  monetary  stimulus through direct  interventions  in  sectors  that  hold  immense benefits  for the  broader  economy.  Such  interventions  have  been in agriculture,  micro,  medium  and  small  scale  enterprises (MSMEs), power sector, aviation and youth entrepreneurship,  among others.

“These  measures  were necessitated  by  the  liquidity  (and credit)  crunch  that  followed the  global financial crises. The  CBN recently  introduced  the  flexible  foreign exchange  regime,  with forex  restrictions  placed  on  the importation  of  41  items.  This became  inevitable  in  order  to curtail  fast  depleting  foreign  reserves,  occasioned  by  the significant  demand  for  imports  in Nigeria.

“The  bank  has consistently  supported  the  economy  with  robust supply  of foreign  exchange  to  deposit  money  banks  (DMBs) particularly  to  meet  demands  for  invisibles  such  as  school fees,  medical  tourism  and  personal  travelling  allowance.  This has  led  to  stability  in  the  Naira  exchange  rate  against  the US Dollar.”

But Fasua, viewed the issue from another angle, saying Nigeria’s situation is more complicated than what Emefiele thought.

Hear Him: “Where we are now, as regards the economy, is that we can not use only one strategy. Import substitution was very popular in the 70s and in the 80s, especially among the Latin American countries. It was just like saying, what are we importing now?  This thing we are importing now, let’s build capacity for people to produce them and sell so that our money would not be going out.Where we are right now is a lot more complicated. The first industrial revolution was powered by steam; the second was powered by electricity.; the third was powered by internet We are in the fourth industrial revolution now, powered by artificial intelligence.

“The age where you use very little to do so much.We are talking of the age where cars are running on water; the next time they would be running on air. We have solar power plant and all that.

“So the challenge has changed. We can not say we want to use import substitution alone(to reboot the economy). You have to use import substitution; backward integration; forward integration; you have to just be real with yourself and know that we are seriously in trouble. Where we are right now is a scenario where we are actually digging hole for ourselves. The first thing you must do when you are in a hole is to stop digging.But we are still digging the hole. We are boring on. Diversifying the economy is not about getting foreign exchange. 

“I always try to caution government’s people on that.When you are looking for other means of foreign exchange for the economy, what you do is diversifying the revenue sources of the government. To diversify the economy, the only way to do that is by looking at a diversified economy like Australia and ask; how do these people survive? They call them ‘the Down Under’.

“The economy there is self sufficient. Go to the USA. By far, the most diversified economy in the world.Everythig you need as US citizen, you get it in the US. Anywhere there is a US company, the American government would back it up. When US government gives aid, they wont give you the dollars. They would nominate the US company that would carry out the job and then pay the company in US. When you want to diversify the economy, think in terms of of economic interdependence. Think in terms of the money in the pockets of our people and what do they spend it on; create those things that they spend the money on.”



Common household budgeting pitfalls 

Anyone can create a budget, but it won’t do any good if it’s poorly designed. To ensure your household budget is a success, avoid these common budgeting traps.

Underestimating expenses

When creating a budget, it’s easy to underestimate expenses. It’s better to play it safe and try to overestimate. You always can do something with saved money, but you might not be able to dig your way out of debt if you underestimate.

Losing track of your spending

Don’t overlook N50 doughnut in the morning. Track and record every Naira you spend, or your budget may not be a true reflection of what you could be saving.

Lacking a grocery shopping schedule

Skipping one week of grocery shopping to save money is useless if you pay twice as much the next time you make it to the grocery store. Instead, shop once a week every week to keep your refrigerator and pantry full, and your household budget intact.

Forgetting monthly bills

Don’t forget those bills that come only once every month. Include them in your monthly budget, and you won’t be caught without the money when it’s time to pay up.

Ignoring emergency savings

Unexpected expenses come up for everyone. Don’t think they won’t happen to you. Build some padding into your budget every month for emergencies. If you don’t need it, so be it, but if you do, it’ll be there.

Missing a plan for extra money

Over time, you might find yourself accumulating miscellaneous savings. Don’t let them sit unused – or risk spending them on something frivolous. Have a plan for what to do with extra savings, such as a place to invest the funds.

Creating unreasonable financial expectations

Never rely on anything but your regular monthly income. Counting on a bonus, tax refund or promotion can impact your ability to maintain your budget.

Lacking spending control

Your budget won’t work if you can’t control your spending. If you struggle with this, there are many techniques that can help you. For example, you might choose to follow a cash envelope system in which you put your budget allotments of cash into envelopes; when the cash is spent, and the envelopes are empty, you’ll have to stop spending for that budget cycle.

Making exceptions for hobbies

When the weather turns nice, it can be tempting to go a little crazy with household projects. Be kind to your budget, and never take on more than it can handle.

Stalling the budget during bad (and even good) times

When unexpected crises arise in your life, your budget can feel like an unmanageable stressor that’s tempting to ignore. On the other hand, when you’re on vacation or enjoying good fortune, your budget might threaten to dampen your spirits. Don’t be too quick to abandon your household budget in times like these. It got you to where you are, and it can keep you there.

Source: Woman’


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