Is Nigeria laughing at Venezuela and Turkey?

Ahead of the 10-year anniversary of the 2008 global economic crisis, the embattled Venezuelan government, led by Nicholas Maduro, has just released new economic measures it believes will lead the country out of its economic crisis, the worst in it country’s history. Last week, the government released new bills, called “Sovereign Bolivar” in order to tackle the worst rate of inflation in history. The new currency will replace the old “bolivar”, with the plan that a staggering 100,000 Bolivar note will be replaced by 1 Sovereign Bolivar.
At the time of replacing the currency, hyperinflation had reach above 500,000%. Though the International Monetary Fund (IMF) expected inflation to reach 1 million percent this year, the Central Bank of the South American country had stopped measuring inflation since 2015. The plan ahead of the launch the new currency, which had initially plan to cut three zeros, before eventually settling of five zeros, highlight both the uncertainty the economy face, and the dynamic nature of the change in prices in the country. In one of the reports I read, there was a supermarket changing prices three times in a week, and since the start of this year, had seized to put price labels on its products. A New York Times report by Nicholas Casey also highlighted the case of a coffee seller that now sells a cup of coffee for 2 million bolivars, and the dollar trading for about 6 million bolivars, about 20 thousand times the Nigerian value.
The rising and rising rate of hyperinflation masks the desperate, despair, despondency, and hopelessness of poor Venezuelans. Every report from the country shows a grim reality. A once rich country, currently with the largest oil reserves in the world, has been shattered and decimated by poor economic choices. The economic conditions and outcomes that we see today are results of poor and weak economic choices in the past, starting at the time of President Hugo Chavez. The three categories of economic policies include subsidizing food and shelter for the poor, incurring excessive debt and pledging oil resources in exchange, and providing fixed and subsidized petroleum and gas prices.

The details of these measures are not important for our lessons. What is important is that they are underlined by the quest for the expansion of the State and the State’s desire to allocate resources, rather than rely on market prices. In the ongoing crisis, Venezuela now produces 1.2 million barrels of oil, comparable to the level of production in 1947, repaying the debts incurred with China and Russia with oil resources, and continues to print money in order to meet government’s bill, which is essentially a tax on the public. But Venezuela is not the only country facing economic crisis, though the country is surely in a league of its own. Turkey, with a plunging Lira, rising inflation, borrowing costs, and loan defaults is at the start of a characteristic emerging economic crisis. Venezuela has longed degenerated beyond this point, and if Turkey do not make the necessary adjustments now, provide strong economic policy response, it may also degenerate further. For almost a decade, Turkey has relied on current account deficits, which is international borrowing in layman terms, for its consumption and construction boom. With international borrowing, you must be able to repay from rising productivity or continue to borrow. Nonetheless, there comes a point that international borrowing dry up.
In Venezuela and Turkey, the leaders have described their situation as economic wars. According to their leaders, Nicholas Maduro and Recep Erdogan, respectively, the countries are suffering from deliberate economic policies of other countries, usually the United States. The Turkish president especially vents his anger at the increase in tariffs by the US on steel imports from the country, which he sees in retaliation for non-release of the US Pastor Andrew Brunson, whom the Turkish authorities arrested in October 2016, following the country’s aborted coup same year. But before all these, the country has not only relied on current account deficits and foreign currency debt, but determined to keep interest rates low, even at odds with the cost of money and the necessity for the country to keep international capital flowing.
For Nigeria, there are two lessons and messages, and that is the purpose of this piece. First is that economic policies and the conditions that follow are so dynamic that the consequences are usually slow and never immediate. It thus means that the consequences of today’s economic policies will be felt, sometimes much after those that operated the policies have left government. Second, foreign economic policies are never the problem, but that they only amplify already bad domestic policies.
Today, our government is engaging in foreign borrowing, almost doubling the size of the national debt in just three years. They are expanding the State and its subsidies on credit, petroleum products, and power. They are giving bail out to State within the federation with “resources” from the Central Bank of Nigeria (CBN), and they are determined to continue to rely on expanding the State and its allocation of resources, rather than embark on extensive reforms across important sectors that will ensure the flow of the much needed investments in the country. Yes, they are not sufficient to trigger any serious economic crisis today, but its trends like these that deliver expected consequences in years down the line. Do you remember the 1980s and 1990s, and the subsequent relief in 2005?

I thank you.

Ogho Okiti