Nigeria’s Dangerously Rising Foreign Investment
By Basil Enwegbara
“Let me…control a nation’s money and I care not who writes [its] laws”
Mayer Amschel Rothschild
According to neoliberal economists, besides closing savings gap, technological leapfrogging, spreading corporate governance ‘best practice,’ freeing the flow of international capital is critical to economic development as it flows into areas of the economy with the highest possible returns on a global scale. In ensuring that international capital flows encounters no obstacles, developed countries have restricted developing countries from regulating foreign investments. But economists like Jagdish Bhagwati, fiercely disagreed. Warning developing countries about what they call ”the perils of gung-ho international financial capitalism,” they advised them to always guard themselves against the destabilizing foreign investment inflow effects, caused by premature opening of developing countries’ capital accounts.
Vetoing the re-chartering of the Second Bank of the USA in 1832 on grounds of its foreign ownership reaching 30 per cent of its shares, President Andrew Jackson had this to say, ”Should the stock of the bank principally pass into the hands of the subjects of a foreign country [England], and we should unfortunately become involved in a war with that country, what would be our condition? …Controlling our currency, receiving our public money, and holding thousands of our citizens in dependence, it would be far more formidable and dangerous than the naval military power of the enemy. If we must have a bank…it should be purely American.” And writing in 1884, the highly respected US Bankers’ Magazine stated, ”It will be a happy day for us when not a single good American security is owned abroad and when the United State shall cease to be an exploiting ground for European bankers and money lenders.”
As a result of this broadened hostility toward foreign equity investors, non-resident shareholders were never allowed voting power, and only citizen were allowed to be directors in national banks. While denying foreign individuals and foreign financial institutions board membership technically discouraged them from investing in US financial sector, for states like New York their hostile laws against foreign investment went as far as completely banning any establishment of foreign bank branches in the New York State.
Even more draconian measures in regulating foreign investment came from Japan. Besides kicking out foreign companies, including two US carmakers — General Motors and Ford in 1939 — in order to protect Toyota with endless taxpayers’ money; as pro-WTO as Japan is today, its laws did not allow the combined share of foreign banks in Japan to exceed seven per cent. That this same Japan is leading its western counterparts in kicking away the ladder, only demonstrates another classic example of selective historical memory loss.
Until the end of the WWII, Britain, France, and Germany, were champions of unregulated foreign capital. But with the end of the war in the early 1940s turning them from makers to recipients of foreign investments, their quick restriction of foreign investments came with the imposition of ‘performance requirements’ through foreign exchange controls. And despite this recent history which only ended in the late 1970s along with their war economic recovery, today European countries are working together with the US to outlaw practically any form of foreign investment regulation by developing countries.
In having their cake and eating it also, hiding behind their imperial WTO, developed countries, have, without any serious opposition introduced TRIMS (Trade-Related Investment Measures) Agreement, which besides banning local content requirements and export requirements; also bans foreign exchange balancing requirements, makes one to wonder if they have forgotten their own history! In this their ladder kicking, have they also forgotten economic theory and the contemporary experiences that show that in order for any nation to benefit from foreign investment, its government’s proper regulation of foreign investment should also require adopting hands-on and selective policies?
In refusing developing countries to follow their footsteps, hiding behind self-serving globalization, industrial nations have ingeniously argued that due to developments in commodities and transportation technologies, not only has globalization’s borderless world brought about the ‘death of distance,’ but also mobility and statelessness of today’s firms have made them give up on their nationality. In other words, they are deceitfully warning developing countries that any attempt to regulate these firms would mean having the firms leave the country for another where they are never regulated. But then, if all these are true, how come developed countries have forced their developing counterparts to sign tons of draconian international agreements, restricting them from regulating foreign investment? Shouldn’t it have made sense, based on free market that, developing countries be free to choose whatever approach they deem better and then leave it up to foreign firms to punish or reward them by choosing to invest only in countries that are friendlier to them?
That when Washington was talking about “level playing fields,” it wasn’t football game it was referring to, but a well thought-out strategy of imposing dollar’s global democracy, has been fully demonstrated by many nations having become casualties of forced opening of the investment doors to US financial raiders. Armed with the full support of the CIA, some Wall Street international financial coup plotters, led by George Soros, a Hungarian refugee turned American international financial hitman, successfully attacking Asian Tiger economies in 1997, Russian and Brazilian economies in 1998, and Argentine economy in 2002, made these developing countries to painfully realize the level playing field President Clinton was talking about.
George Soros’s Quantum Fund, Julian Robertson’s Tiger Fund, and the LTCM hedge fund, whose management included former Federal Reserve deputy, David Mullins, acting in full secrecy and armed with an undisclosed credit line from Wall Street banks led by Citigroup, attacking the financial foundations of these countries, forced them not only into currency devaluation but also currency floating. Unable to recover on their own from such unprecedented currency and stocks simultaneous attacks, the Asian Tiger economies were forced to turn to the IMF. But in turning to the IMF, these Asia Tiger economies, according to Chalmers Johnson, discovered that ”the IMF was there not to help the [them], but to insure that no Western bank was stuck with non-performing loans in the devastated countries.”
Unable to regulate inflow and outflow of portfolio investments, unable to control the amount of foreign goods coming into the country, unable to protect and promote its infant industries by exercising sovereign powers over its borders, today, Nigeria is caught up in this global financial crossfire. Without any possible exit strategy from this neoliberal free market trap, its continued economic somersaults are a proof that its economic future remains seriously uncertain. What this means is that if we are alarmed by Nigeria’s plugging real sector economy, its soaring unemployment, its nose-diving income, and growing insecurity and social disenfranchisement, we better be ready because the worst is still on its way.
While waiting powerlessly, in the meantime, a team of unsophisticated managers of our economy is telling us to relax that they’re working hard to fix the problem. And fixing the economy they really do, thanks to help from some prepaid members of the press, who have rollout out the drums. Not only have they mastered the complex economic game being played by western economic and financial hitmen. In fact, they are now beating them hands-down.
But joke apart; there is an important difference between trying to keep the currency down and trying to keep it up. Yes the CBN can increase money supply by simply printing naira. But can it also print dollars? That is why sustaining the value of the naira in our dollarized monetary policy has always required continuing keeping interest rates high since that reduces the naira in circulation. But keeping interest rates high not only undermines the real sector, it also pushes the economy into perpetual slump. In other words, while maintaining high interest rates is a way to curtail inflation and exchange rates, at best it keeps the economy stagnant.
This is the dilemma the CBN finds itself in. Should it lower interest rates in such absence of productive activities, more naira chasing fewer dollars will lead to high pressure on the exchange rates! But avoiding dollar reserve from depleting, will force the CBN to further devalue the naira, which too will lead to a run on the naira. And for fear of being caught up in this value-losing chain-reaction, both foreign and local investors will engage in dollar stockpiling. But high dollar demand will further pressure the CBN to either further devalue the naira or to go ahead to empty the country’s dollar reserves, which if happens will be mean surrendering our economic sovereignty to the IMF as we ask for its invention.
Given this scenario, is our ongoing waiting game our best game right now? As painful as devaluing the naira should be, it remains the most acceptable option especially given how keeping it artificially high has been such a high cost to the economy. Should the naira be allowed to find its true levels, foreign investments too should find their true levels! And with imports out of reach, inward-looking economy should follow. But, besides reducing imports pressure on the naira, with flexible exchange and interest rates leading to enhanced macroeconomic growth, banks’ pricing of risks too becomes more effective, especially in the presence of counter-cyclical measures.
But to ensure that our capital markets are not turned into speculators’ hideout we will require a sound national policy governing the entry, operations, and exit of portfolio investments. And to effectively quarantine any excess portfolio inflows before they could reach our banking sector, we need the presence of the state-of-the-art stochastic and probabilistic modeling. This we do, understanding that without controlling portfolio investment inflows and outflows, our capital markets can’t be robust and stable.
But given how long-term growth prospects and macroeconomic sustainability are interwoven, securing the financial sector’s soundness in the economy should never happen in isolation. For this reason, for the economy to be growing with the real sector leading it, government should raise import tariffs and import administrative fees to generate more tax revenues. Also, it should expand local content regime, provide export rebates, as well as prohibit award of any contract paid with taxpayers’ money to non-indigenous firms.