Tag Archives: Feyi Fawehinmi

Don’t be unfortunate – By Feyi Fawehinmi

Posted on by
22

To say America is ‘exciting’ right now will be a major understatement. President Trump is releasing Executive Orders like confetti everyday and that’s before we even get to what he tweets everyday.

 

But there’s something more interesting going on. America’s Presidency is a powerful office, not just in America, but around the world. What the American President says and does will have far reaching consequences across the globe. More to the point, Donald Trump’s ideas have the power to shift what political scientists call the Overton Window i.e. bringing certain ideas into fashion. Once that happens, a policymaker in an African country will take it as ‘vindication’ of their down dodgy ideas (I’m told one very prominent Nigerian policymaker is very excited by Trump’s policies already).

 

As this column is about economics, I want to focus on two of those ideas. The first one is Trump’s refrain of ‘Buy American, Hire American’. This sounds a lot like #BuyNaijaToGrowTheNaira championed by the Senate President, Bukola Saraki and his co-travellers in the National Assembly. It will not be long before Trump’s policy will be used to justify the Nigerian version. But are they the same thing? To begin with, America has a $17trn economy. To get to that level, you must have a lot of jobs and things being produced within your borders. Whatever jobs Trump might be trying to bring back with his policy are jobs that left America when Americans got too rich to do them. That is, the jobs left to look for cheaper labour. In that sense, if Trump bullies companies to come back to America, their response will be to find a combination of labour (American workers) and capital (robots, automation) that ensures they can continue to produce in America profitably.

 

Can anyone seriously say Nigeria is trying to bring back lost jobs with a Buy Naija policy? If Trump’s policy backfires, the jobs simply won’t come back from Mexico or China while America’s unemployment rate will still be around 5%. But if a Buy Naija policy backfires, price of goods will go up (as they already have), smuggling will increase and most importantly, the economy won’t create the brand new jobs it needs just to keep up with population growth. If a Nigerian policymaker uses Trump to justify a Buy Naija policy, be wary.

 

The second policy is where Trump says he wants to put a 20% tariff on companies making stuff outside America and shipping them into the country. The implication is that if you want to avoid this tariff, just shift your production inside America and all will be well. Again, this sounds very much like policies we’ve seen in Nigeria including the disaster known as the ‘Auto Policy’ which put a 70% tariff on cars shipped into Nigeria. But there’s more to Trump’s side of the story.

 

The context is that America has one of the highest corporate tax rates in the developed world (35%). But the law is filled with so many exemptions and loopholes that in reality, most companies only pay half of that rate. It is also the reason why big American companies like Apple have kept around $1trn of their profits outside America. To fix this problem with America’s tax code, Republicans have been working on something called Destination Based Cashflow Tax (DBCFT). This will reduce the US tax rate to 20% while only taxing profits made in America. That is, when Apple sells a phone in Nigeria, it will no longer be liable to pay tax on the profit from that sale so it can send the money back to America free of tax.

 

But there is an even more interesting component to the DBCFT which is where Trump comes in. The plan also has a Border Adjustment Tax (BAT) which means that exports will no longer be taxed but imports will be taxed at 20%. When you add the DBCFT to the BAT, you can see what will happen – even if American labour is expensive, the tax savings might just make it worth it bringing back production to America. Trump, being the showman that he is, has of course focused on the BAT part to look and sound tough. But the full plan being proposed is quite revolutionary. Most economic models show that the American dollar will appreciate by the size of the BAT which means that Americans won’t notice any increase in prices. This is the difference between a real economy and roadside one – flexibility is built in to allow prices and exchange rate adjust quickly.

 

I sense that Nigerian policymakers will soon start quoting Trump to vindicate their policies of banning and tariffing things. Dear Nigerians, I write this to you as a warning. Please do not listen to them. They will even accuse economists of ‘hypocrisy’ as if both things are the same. Ignore them.

 

One of the biggest dangers for developing countries with half baked policy makers is the risk of being led astray by Trump’s policies and tweets. If you copy what he says as justification for your own policies, your economy will suffer on earth and they will hear in heaven.

 

Don’t be unfortunate.

Feyi Fawehinmi: One nation under MMM

Posted on by
38

Around 11pm on the 23rd of June, I decided to go to bed. I had voted ‘Remain’ in the UK European Referendum earlier in the day and the first exit polls showed Remain was ahead by 10 points. So, imagine my complete shock when my wife woke me up the next morning to tell me that ‘Leave’ had won. It’s not just that the result surprised me, what annoyed me the most was that everything I read in the media and heard from my circle of friends and colleagues told me Remain was going to win.

Having learnt the lesson that surprises can happen when you go to bed at night, on the night of the US election in November, I took no chances – I stayed up till 3am and saw North Carolina, Ohio, Florida and Wisconsin fall to Donald Trump, handing him the US presidency. Overall, 2016 was an interesting year across the world to put it mildly.

But it’s not only when you close your eyes at night that you are asleep. If we define being asleep as being oblivious to something big and important happening around you, then it is possible to be asleep for months and even years. In a country like Nigeria where it is hard to get hard data on anything, the possibility of dozing off for years is very high. You only wake up when it’s too late.

One thing that Brexit, Trump supporters and MMM have in common is that they were all outside the mainstream of accepted behaviour for the most part. The entire establishment and media were for remaining in the EU. People who supported Brexit were either racists or those looking for a reason to lash out at the ennui of their lives. It was not ‘normal’. So it was with Trump – given the man’s behaviour and comments while campaigning, how could any reasonable person support him over Hillary Clinton? How can any person who was expensively educated put money in an obvious Ponzi like MMM?

What makes MMM particularly dangerous is that those who are currently cleaning out from it are NOT poor people. I’ve heard staggering tales of oil company workers who are deep inside the MMM vortex. People are even taking loans or pooling funds in a co-operative to join the fun. People who put millions of naira into MMM are not poor people. They are upper middle class or rich folk. They are also plugged into the internet which is not a past time of poor Nigerians per se. This is the biggest danger about MMM that is yet to come – poor people haven’t joined in yet. It is when they join that the scheme will come crashing down and leave sorrow, tears and blood in its wake.

Simply dismissing MMM as a regular Ponzi is not going to work. The marketing is very clever. Those who participate in it are able to assuage their conscience by telling themselves they are providing ‘help’ to people in need. It is an interesting type of help given that you earn 30% in one month for providing it. The members of MMM have also lately launched a blitzkrieg of publicity to normalise the activity in the eyes of ordinary Nigerians – donating to IDPs, hospitals and the like. It’s all part of the ‘help’ they are providing. MMM itself doesn’t even collect the money. You are told who to send ‘help’ to and you follow the instructions (this explains why it is almost impossible to shut it down – the transactions are simply people sending money to themselves).

The context of Nigeria’s economy cannot be separated from the scheme. It is not just that Nigeria’s economy is in a recession. The larger problem is a sense of hopelessness. Hence the middle class are escaping to Canada while poor Nigerians are crossing to Europe via Libya by the thousands practically every day. This is all the fertiliser that MMM needs to germinate and flourish in Nigeria and it is.

MMM is a problem to be solved. However, like Brexit and Trump, it won’t be solved simply by demonising those who participate in it. Many of them actually know it is a Ponzi but want to cash in before it comes crashing down. For the most part, they are rational actors. Ordering a crackdown by sending policemen (who are probably also invested in MMM) to harass a few people is not going to solve this brewing social problem.

At the entrance to the town hall of the ancient Dutch city of Gouda is inscribed one of my favourite sayings – Audite et alterem partem- To wake up from this sleep, we must at least hear the other side.

We need to understand what is so seductive about this scheme so we can properly counter it, before the poor decide to join the party.