Thursday, November 24, 2016


Keynote Address by Olu Akanmu, Fellow of Nigeria Academy of Pharmacy,  at the 89TH Annual Conference of the Pharmaceutical Society of Nigeria, in Minna, Niger State.

This 89th National Conference of the Pharmaceutical Society of Nigeria (PSN) is happening at a most critical time in the nation with the Nigerian economy in a recession characterized by the decline in the official naira exchange rate by more than 55% over the last one year. In the parallel market, we see an even more significant decline in the exchange rate at more than 90% over the same period. While the government would wish otherwise, the fact is that most Nigerians and their business unless they are well connected, they cannot source foreign exchange for their business in the official market. For the Nigerian pharmaceutical industry that is virtually import-dependent from raw materials to finished products, negative exchange rate movement at the quantum we have seen has meant skyrocketing prices for pharmaceutical products for those who could source forex. It has also meant reduced capacity utilization for the pharmaceutical companies who are unable to source foreign exchange for their raw materials. On the demand side, it implies expensive medicines for the Nigerian people, far above their means and the rationalization or the contraction of demand from retail to wholesale and the factory gates. Indeed, the Pharmaceutical Society of Nigeria (PSN) has issued a rallying cry to the government for some form of preferential treatment for pharmaceutical imports given public health implications. The challenge however for the Nigerian state is that it has to contend with other diverse priority and preferential sectors such as petrol imports and cannot satisfy their forex demand at current prices. I believe as argued in my earlier economic papers titled “ Government must let markets work” published in leading Nigerian newspapers that markets are the most efficient ways to allocate and price scarce resources. Attempts to undo the market, even with patriotic intentions, as we have seen with petroleum product markets create price distortions; dis-incentivize private provision to complement public supply, that which is critical in a period of fiscal constraints. It creates a parallel, rent seeking market for the privileged few to make undeserved profits. The government must stay committed to flexible, market-driven exchange rate policy, ensure effective co-ordination of fiscal and monetary policies and deploy political sagacity in the Niger Delta, to contain militancy and get oil production to recover back to 2 million barrels a day from current 1.4million barrels. At current oil prices of fifty dollars over the coming period, in addition to a market driven exchange rate that eliminates speculation premium and distortion, we should see private capital flows of forex returning. This along with higher government revenue at fifty-dollar oil price and increased oil production should improve foreign exchange supply and ultimately help the naira with the wide positive spirals across the economy.

The current situation however calls for a deeper reflection on how we would build and develop a pharmaceutical industry that is increasingly less import dependent, and by so doing can absorb the shocks of foreign exchange volatility, which is inevitable in the boom, and bursts of global economic cycles. In discussing the pharmaceutical industry contribution to national development, this paper would be more forward looking on contemporary industry and practice issues while recognizing where the industry is coming from. How do we build a pharmaceutical industry that is competitive, at least in some areas of the pharma industry value chain; and become a critical local player in addressing the health needs of our people while also dominating the exports market in the West Africa?  Professor Charles Soludo in his lecture titled “Can Nigeria Manufacturing and Pharmaceutical Industry Compete” at the Nigeria Association of Industrial Pharmacists Conference six years ago, in September 2001 x-rayed these issues. The summary of Professor Soludo’s argument, which I extend further, are as follows

a)         The pharmaceutical industry competitiveness cannot be divorced from the competitiveness of the overall manufacturing sector and the Nigerian economy. Nigeria has consistently ranked near the bottom on international competitiveness ratings such as  the recent World Bank’s Ease Doing Business (released last month) where Nigeria ranked 169th out of 190 countries, the World Economic Forum’s Global Competitiveness Index (GCI) also released last month where Nigeria dropped 3 places to 127th out of 138 countries and was only better than countries like Serria Leone and Malawi,  Mo Ibrahim’s Africa governance index (36th out of 54 countries), Transparency International’s corruption perception index (136th) , UN’s Human Development Index , Failed State Index where Nigeria is in the top 15 of the most fragile states in the world . The competitiveness issues where Nigeria has consistently scored low include infrastructure, access to finance, security, corruption and governance, quality of education, skilled manpower and labour productivity. This low competitiveness prevents Nigeria from benefiting from the “flying geese” economic theory model that says that when labour cost increases in developed markets, old technologies, factories and production moves from developed countries to lesser-developed countries with cheaper labour cost. China and Japan benefitted from these model as factories moved production from the US and Europe to China. You will recall that this is one the electoral campaign issues of Mr. Donald Trump in the current American elections incidentally holding today, the opening day of the 89th PSN conference. It should normally have been expected that as China gets more prosperous with wages and labour cost increasing, that global factories and production will then also move to Africa especially Nigeria, given our huge population. This is however unlikely to happen as we do not have the basics in place, like infrastructure, governance, transparency and regulation, skilled and vocational workforce to harness this economic dynamic. The extension of this argument is that while we have seen global pharmaceuticals in a flying geese from Europe (Beechams and Wellcomes in the UK) to Asia (in the Ranbaxys in India), unless we deploy the right economic and governance actions, we may not see the pharmaceutical geese flying from Asia to Africa or Nigeria. The geese may be stuck in Asia, in India and China for a long time to come. This is essentially what we have today with the Nigeria pharmaceutical industry with Western multi-nationals dominating advance medicines category and the Indian and Chinese companies dominating the manufacturing of basic medicines , leaving our local players to be largely importers of finished products or raw materials.

What must we do to make the pharmaceutical industry geese fly to Nigeria in Africa from India and China in Asia?

a)         Nigeria must develop and adopt a formal comprehensive “National Strategy and Plan of Action for Pharmaceutical Manufacturing”. While researching this paper, I was shocked to see that right under our eyes, some smart African countries like Ethiopia have developed such framework and implementing such , essentially leaving Nigeria behind. The following recommendations on the issues, which the National Strategy and Plan of Action for Pharmaceutical Manufacturing must address, is largely adapted from the Ethiopian framework. 

1.         Improvement of access to medicines through quality local production and implementation of the Good Manufacturing Plan Road Map. Nigeria now has four local companies certified as compliant with WHO Good Manufacturing Standard. We congratulate them on the achievement. We however need to make such standards the norm and not the exception. A formal public and private, inter-sectorial partnership, involving the Federal Ministry of Health, Federal Ministry of Trade and Industry, NAFDAC, PGMAN and the PSN need to be deployed to make this happen.

Ladies and Gentlemen, I will like you to specially notice the role of bodies outside the health sector like the Federal Ministry of Trade and Industry in this task. This is because the issues that we face and we seek to tackle while they are health sector issues, they are also larger national economic and development issues for which we will need to deploy cross-ministerial lobbies from Finance, Budget and Planning, Health, Trade and Industry including the support of multi-lateral agencies. This is indeed the model that has been deployed in Ethiopian Plan of Action.

2.         Secondly, we must strengthen the National Medicine Regulatory System. We must continue to strengthen efforts and capacity to eradicate fake drugs and medicine in the pharmaceutical supply chain.

3.         Thirdly, we must create incentives to move our local companies progressively along the pharmaceutical industry value chain from importation of finished products to local manufacturing. We must drive import substitution more aggressively. Government must deploy incentives that moves local players increasingly from importation and distribution of finished pharmaceutical products (Level 1 of the pharmaceutical value chain)  to packaging and labeling of imported bulk finished products  (Level 2) and then to real product manufacturing which is the manufacturing of finished products from imported active pharmaceutical ingredients (APIs)LEVEL 3,  and then to local Active Pharmaceutical Ingredient manufacturing in Nigeria at Level 4) and ultimately Research and Development of new chemical or biological entities( Level 5) .

An empirical audit of the distribution of local players in the pharmaceutical industry value chain will suggest that most of our local play is largely between Levels 1 and 3 with about 90% of local players largely in the importation and distribution of finished pharmaceutical products in Level 1 and just about 10% of local players in packaging and labeling and product manufacturing according UNIDO Pharmaceutical Sector report on Nigeria in 2011. To encourage local manufacturing, government must deploy incentives that encourage importers to become local producers through the right discriminatory tariffs and tax policies. The current ECOWAS unified tariff model where tariffs on imported finished pharmaceutical products are lower than pharmaceutical raw materials for local manufacturing therefore needs to be reviewed.  It delivers exactly the opposite of this policy objective. It dis-incentivize local manufacturing while encouraging importation of finished products. It kills local jobs in the Nigerian pharmaceutical manufacturing industry while creating jobs in in China and India.

Other incentives will include the encouragement of pooled procurement of raw materials to get scale and cost benefits for local manufacturers, a firm formal policy to patronize local players and local products by government, where there are local manufacturing capacities, where prices are competitive and there is adequate compliance to Good Manufacturing Standards. Similar policies are being implemented called “Local Content” policy in the oil industry to encourage local players. Federal, States and local governments should implement such “local content” policy in their procurement of drugs and medicaments.

4.         Fourthly, we must develop our human resources and local technical capacity through relevant education and training. We must build a stronger university-industry partnership to promote technology innovation, entrepreneurship, supply chain and regulatory management to support the progressive movement of the local pharmaceutical industry to higher levels of the value chain.

5.         Fifthly, we must develop geographic clusters for the production of active pharmaceutical ingredients (APIs). In locations around Lagos, Onitsha and Kano where the pharmaceutical forward supply chain is well-developed, deliberate pharmaceutical industry clusters or industrial parks could be developed that bring local players and their value chain suppliers together with adequate and shared infrastructure for good pharmaceutical manufacturing and distribution. Industrial clusters development in a country with constrained resources allows resources to be concentrated in fewer geographic locations at levels above the minimum effective threshold, that support industrial development rather than scattering them uncoordinatedly and ineffectively across the country. Can we for example plan a pharmaceutical cluster at the Lekki Free Zone around the petrochemical refineries coming on stream and build geographic, and value chain complementarities to support the manufacturing of Active Pharmaceutical Ingredients? (Igwillo, 2016)

6.         Lastly, we must develop a national system to coordinate health technology research across our universities and research institutes working closely with industry.

While addressing the above issues, we must continue to put pressure on government to deal with all the issues constraining our broader national development, such as infrastructure, ease of doing business, quality of education, labour productivity and skilled work force, security, governance and the cankerworm of corruption. These issues, as earlier discussed provide the macro context to support the implementation of the National Strategy and Plan of Action for Pharmaceutical Manufacturing”. They are the macro level issues that have made the manufacturing geese unable to fly to Africa from Asia as it flew from Europe to Asia. We should therefore commend the government for its latest move to deal with corruption in the Nigerian judiciary even if by extra-ordinary means. A corrupt judiciary is dangerous for business. A corrupt judiciary means contracts cannot be enforced. A corrupt judiciary means there will be no remedies for the breach of business contracts. It means a rule of the jungle, a state of anarchy, a business market in which there are no rights, rules or remedies.  In such situations, business and markets will malfunction or absolutely collapse to the detriment of national development. 


Lessons from India and Brazil: Ensuring a non-stunted development of the Nigerian local pharmaceutical manufacturing base.

Mr. President, distinguished fellows, ladies and gentlemen, the evolution of the pharmaceutical industries in Brazil and India can teach us important lessons in how to ensure that the growth of the Nigerian pharmaceutical industry does not become stunted.  Today, the world recognize India as an emerging power in the  manufacture and export of generic medicines but little is heard of the Brazilian  pharmaceutical industry. This is despite the fact that both countries had similar growth ambition and similar opportunities of the relaxed intellectual property right protection environment in the pre-TRIPS era of the international pharmaceutical market. TRIPS is the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) which sets the minimum standards for the protection of intellectual property, including patents for pharmaceuticals. Guennif and Ramani (2010) in their seminal work titled “Catching up in pharmaceuticals: a comparative study of India and Brazil have identified the following factors for the strong growth trajectory of the local Indian pharmaceutical industry compared to the stunted growth of the pharmaceutical industry in Brazil.

a)         A consistent, long commitment and execution by the Indian government of an import substitution model, relative discriminatory tariffs that incentivize local production compared to a vacillating commitment of generations of Brazilian governments to import substitution policy. Guennif and Ramani identified the presence of two powerful opposing lobbies in Brazil of local manufacturers pushing import substitution agenda and a counter powerful lobby that pushed for open and unrestrained market for drug importation, actively supported by the multi-national companies (MNC) and the Washington multi-lateral agencies with the argument that unrestrained market will attract more Foreign Direct Investments.  India put up a more united front and selectively implemented the advice of the Washington consensus and the MNCs. Guerniff and Ramani (2010) and Nassif (2007) concluded that the vacillating commitment and the poor implementation of import substitution policy by the Brazilian governments had been disastrous for the Brazilian pharmaceutical industry.

b)         Role of local players and their different perceptions of opportunities. Whereas Indian local players saw the pre-TRIPS relaxed Intellectual property environment as an opportunity for duplicative imitation of western medicines and mobilize in series of Schumpeterian innovation, competing among themselves to exploit it for their local huge market and then for export, the Brazilian local players preferred importation of bulk drugs and raw materials. The Brazilian local pharmaceutical firms copying the multi-nationals in fact spent more on commercialization and marketing of products rather than investments in local manufacturing.

Our local pharmaceutical industry in Nigeria seem to be following the glide path of a Brazil rather than an India. We seem to be unable to build a consensus even among ourselves in the Pharmaceutical Society, that for the long term good of the industry and for the creation of local jobs, we should be united in supporting an import substitution policy that encourage local manufacturing. It is important to emphasize that import substitution policy does not mean a discrimination against everything imported. A country like Nigeria with limited local capacity for production and manufacturing of medicines will in-fact damage public good and health care with such blanket discrimination against all drug imports. The critical issue is to collaborate and identify the categories and products where there are local capacity and implement progressive and gradual import-substitution policy in these areas, with clear set goals and timelines, and leave the rest for inevitable and necessary importation. The local manufacturers must also produce to global standards and deliver prices that are competitive.  Import substitution should never become a policy to promote and protect local production inefficiency, which will be at the detriment of the consumer and public good.

Pharmaceutical care: A Nigeria socio economic context:

Now that we have addressed the pharmaceutical manufacturing issues, let us now address the delivery of pharmaceutical care. Pharmacists globally led by the International Pharmaceutical Federation (FIP) and with the endorsement and adoption by the Pharmaceutical Society of Nigeria have embraced the concept of pharmaceutical care, which is defined by the University Of Oklahoma College Of Pharmacy as the “responsible provision of drug therapy for the purpose of achieving definite outcomes that improves the patient’s quality of life. These outcomes are cure of a disease; elimination or reduction of patient's symptomatology; arresting or slowing of disease process and the prevention of disease or symptomatology. Pharmaceutical care involves the process through which a pharmacist cooperates with a patient and other professionals in designing, implementing, and monitoring a therapeutic plan that will produce specific therapeutic outcomes for the patient. Pharmaceutical care is provided for the direct benefit of the patient, and the pharmacist is responsible directly to the patient for the quality of that care. The fundamental relationship in pharmaceutical care is a mutually beneficial exchange in which the patient grants authority to the provider, and the provider gives competence and commitment (accept responsibility) to the patient.” 

We commend pharmacists in Nigeria for the adoption of this much-needed patient-centred rather than drug-centred paradigm in pharmacy practice. You will notice however that the definition of pharmaceutical care given above is not situated in any specific socio-economic context. That definition is a western and prosperous society definition of pharmaceutical care that assumes that the patient can afford the medicines, will fully comply with their prescriptions because they can afford them; and all that is left is for the pharmacist to work with the patient closely to ensure that specific therapeutic outcome is achieved. In reality, this would not work exactly like that, here in Nigeria and in the third world given endemic poverty and acute socio-economic inequalities that fundamentally constrains access to health care for the mass of our people. The genuine execution of the concept pharmaceutical care must therefore be situated in its broader socio-economic context and reality in Nigeria. Nigeria has one of the highest socio-economic inequalities in the world with a gini coefficient of 0.48 making it the 152nd worst unequal country in the world out of 189 countries in income distribution. It should be noted that social inequalities has progressively worsened in Nigeria with the top 30% of the population controlling more than 80% of income while the rest of the population sank deeper into unemployment, underemployment, poverty and misery. Nigeria is rated as having the third highest concentration of poorest people in the world according to the World Bank President, Jim Yong Kim in 2014. The Nigerian middle class is no longer rising due to rising unemployment or underemployment. 2% of customers control 90% of bank deposits in Nigeria according to the Nigeria Deposit Insurance Corporation, a proxy for extreme income concentration and inequality in Nigeria. When society gets more unfair, with widespread sea of poverty surrounding islands of excessive wealth, genuine pharmaceutical care can only become a mirage for the mass of people who cannot afford medicines.

The prosperity of many community pharmacists is tied to the prosperity of their communities.  If society continues to get more unfair, only pharmacy shops in Maitama in Abuja, Victoria Island in Lagos and Olu Obasanjo way in Port Harcourt will make it and be prosperous. The prosperity of many of our community pharmacies is therefore tied to the prospect of a fairer society.  Pharmacists and the Pharmaceutical Society of Nigeria can therefore not be socially cocooned from the larger society and social injustice issues. It is time to have a PSN that is more concerned about society than the pecuniary interest of its members.  It is time to have a PSN that is less insular but have a stronger external orientation to society as its primary stakeholder.

We have made very significant progress in the PSN in this regards especially under our current e leadership. More however still needs to be done to move from the success achieved in commanding a new prestige for pharmacy to becoming a champion of enabling access to genuine pharmaceutical and healthcare for the mass of our people; to align with broader civil society movements to fight endemic poverty, to push for a fairer society and lesser social inequities without which genuine pharmaceutical care will be impossible in Nigeria.  It is in our greatest interest to do so as pharmacists for our prosperity is tied to the prosperity of our communities.

Pharmaceutical care, digital technology and the pharmaceutical industry:

Mr. President, distinguished fellow, ladies and gentlemen, let us now discuss another critical subject, the subject of digital technology and how it is disrupting many industries, in which the pharmaceutical industry will not be an exception. It is very good to note that current President of the Pharmaceutical Society of Nigeria, President Ahmed Yakassai leveraged and continue to leverage the social media for his presidential campaign. The social media is becoming the primary information and engagement media for many customers, even on their health needs. Patients post online and in real-time, their experience of medicines, they go to Wikipedia to search for pharmacological informations on medicines even before they approach the health professional. The new and emerging patient in the modern world of digital media is becoming more informed on medicines, pharmacology and toxicology. When she visits the pharmacy or medical clinic, she has questions already and clarifications to ask the pharmacist and may even be aware of options to her prescriptions based on on-line conversations with other patients. The pharmacy profession needs to re-invent itself for this new digital world in which medical information is no longer an exclusive privilege of the health professional. The new generations of patients emerging will put health professionals on their toes to raise their game, to raise their knowledge, to be a several steps higher than their patient, to provide advisory and consulting services to informed patients rather than just act as mere dispensers of medicines. New access models such as remote consulting of the health professional will emerge, geographic boundaries of the neigbourhood pharmacy may become irrelevant if an Abuja patient can leverage the power of the internet to remotely access their pharmacist who is based in Lagos. There will be disruption in distribution channels and service models of health and pharmaceutical services. It does look to me from my distant observation of the pharmaceutical society that we are still so much bogged down with old analogue practice issues that we pay little attention to how the future of pharmacy practice will change with digital technology. It will create new opportunities for some, while it will leave others behind.

Mr. President, distinguished fellows, ladies and gentlemen. Let me jolt you a little bit. Imagine if  the two biggest successful e –commerce on line retail platforms in Nigeria that have disrupted fashion retailing, imagine if they go into pharmaceutical on-line retailing. These on-line retailers  have become the biggest retailers of fashion products in Nigeria, driving out many expensive retail shops that used to be located on Allen Avenue and Awolowo road in Ikoyi in Lagos. They are taking business even from the informal fashion product traders in Tejuosho and Balogun markets, as their e commerce model delivers low prices through scale and supplier aggregation model while also delivering convenience for customers to shop without leaving their

homes. On the global level, we see how has become the biggest book retailer in the world through an e commerce model, driving incumbent book retailers to the corner. Ladies and gentlemen, because pharmacy is a retail business, though a specialized one, it will not be insulated from the disruptive trend going –on in the digital space.  If medicines are sold as mere commodities in our pharmacies, like fashion and clothing items, without any form of advisory service, we are creating a perfect condition for disruption of retail pharmacy by scaled e commerce players.

We must therefore not wait for the on-line retailers to disrupt us. We must re-invent and disrupt ourselves before others disrupt us by accelerating our appreciation and embracement of the new potentials of digital technology.



Mr. President, distinguished fellows, ladies and gentlemen, in concluding this keynote address, let me say that this generation of pharmacists and pharmaceutical industry managers face an historic task. This historic task is how to take advantage of the current challenges of economic recession, scarcity of forex for drugs and raw material importation, that threatens the survival of the pharma industry, to reinvent the industry and build a strong local manufacturing base for pharmaceutical products. It is no longer a task that can be postponed for another generation.  Paraphrasing  Okey Akpa, Chairman of PGMAN in their presentation to the Nigerian Senate, that it is a question of national security for a nation to have a minimum level of critical capacity to produce the medicines it needs. There will always be global trade and relative comparative advantages among nations for different products. However, to be absolutely dependent on other countries, to produce very little, to bulk import most medicines consumed, without a national structured articulated plan, with specific goals and timelines to gradually replace a critical level of imports by local manufacturing is tantamount to a pathological health crisis and perpetual poor access to medicines.

The pharmaceutical industry is unique. Its importance is far bigger than its contribution to GDP. Nobel prize winner in economics, Joseph Stiglitz has identified that GDP as a measure of economic performance, does not adequately cover and measure real “well-being and the quality of life” of citizens of a nation.   The well-being of the people, their quality of life and indeed their health are not necessarily the same thing as production output and consumption data that conventional economics measure in sizing the GDP.  The contribution of the pharmaceutical industry to citizen well-being and their quality of life far exceeds what is captured by its size and share of national GDP. We must therefore commission a new level of advocacy with government and policy makers to appreciate better the pharmaceutical industry and urgently address the disincentives to local pharmaceutical manufacturing because of its importance to our citizen’s well-being. We must also become more visible in the advocacy to improve the ease of doing business in Nigeria, to improve our national competitiveness and create jobs for the mass of our youths. We must become champions of a fairer society of shared prosperity, through our policy lobby, for our collective prosperity is tied to the prosperity of our communities and our neighborhoods. We must also reinvent pharmacy practice and retail pharmacy to take advantage of digital technology, e commerce and remote advisory services to deliver pharmaceutical care more efficiently and innovatively.

Ladies and gentlemen, the Pharmaceutical Society of Nigeria is about ninety years old at this conference. The generations before us recognized their own place and purpose in history and fulfilled their mission.  Let this generation too recognize its place and purpose in history and fulfill its own mission.

Distinguished fellows, ladies and gentlemen. Thank you for listening.

 Olu Akanmu ( November 8, 2016)


Akanmu, O (2014), Nigeria’s Sobering Competitiveness Rankings. Available at:

Akanmu, O (2016), Economic Pragmatism: Government Must Let the Markets Work. Available at:

Emma, U (2016), 2% of Nigerians own 90% of Deposit- NDIC, Available at:

Federal Democratic Republic of Ethiopia Ministry of Health and Ministry of Industry (2015): National Strategy and Plan of Action for Pharmaceutical Manufacturing Development in Ethiopia (2015–2025) 

Joseph Stiglitz (2016) Available at


Nassif, A. (2007). National Innovation System and Macroeconomic Policies: Brazil and India in

Comparative Perspective, United Nations Conference on Trade and Development.


Igwillo C.I ( 2016), Drug Research as a panacea for economic development, Businessday, September 28, 2016.

Nigeria - Income Inequality - GINI index.  Available at:


Okey S. A (2016): Medicines Security and National Self- Sufficiency: Maximizing Medicines Manufacturing Capacity in Nigeria, Pharmaceutical Manufacturers Group of Manufacturers Association of Nigeria (PMG-MAN), PMG-MAN 2016 FORUM, JUNE 2016

Omoh, G (2014), Nigeria, third on world poverty index— World Bank. Available at:


Prof. Soludo (2010):  Can Nigeria Manufacturing and Pharmaceutical industry compete


Samira G, Shyama R (2010). Catching up in pharmaceuticals: a comparative study of India and Brazil. 2010.


Senate committed to a viable pharmaceutical sector (2016). Available at:


UNIDO(2011), Pharmaceutical Sector Profile: Nigeria Pharmaceutical Sector Profile: Nigeria Global UNIDO Project: Strengthening the local production of essential generic drugs in least developed and developing countries


World Bank Group: Doing Business in Nigeria (2016)



A flexible exchange rate policy is still right

First published August 25, 2016.
By Olu Akanmu

There is an emerging debate whether since the Nigerian government buckled to float the naira, with the parallel and official still widely far apart, whether the flexible exchange rate policy was the right thing after-all.  This view argues that the much-expected private capital flows to the Nigeria with a market -driven exchange rate, which will complement government supply of the dollar to the currency market has not materialized as largely theorized and expected. The parallel market rate continues to fall even as the naira does same in the official market. Reinforcing this argument of whether a flexible exchange rate policy is right, is the view that all emerging market currencies are falling relative to the dollar anyway, due to capital flows out of emerging markets to dollar denominated US Government treasury bonds that provide safety and value preservation in a period of crashing commodity prices and uncertainty.  The argument observed rightly that the best period of capital (especially portfolio) flows to Nigeria and an attendant strong naira were during period of high oil (commodity) prices and low interest rates in advanced economies. The extrapolation of the argument therefore is that the problem was not with the naira or the fixed exchange rate policy but a challenge of the global economy at this time.

In this essay, we argue while there is a general attractiveness problem of emerging market currencies at this time, the particularities of the Nigerian naira within this general context have been worse than its peers. This makes the naira even more unattractive than other unattractive emerging market currencies.  A Bloomberg analysis on August 23 this year, showed that the Naira has lost most value of all oil currencies since oil price crash in June 2014. The naira has lost almost half of its value against the US dollar, worse than the Russian rouble, Kazakhstan’s tenge or Angolan kwanza. The Bloomberg analysis described the naira as worst performing currency among 150 globally depreciated currencies since June 20. The question really should be why the Nigerian naira is the worst performing of all the oil currencies and among its emerging market peers? Why has the Nigerian naira not responded positively to the flexible exchange rate policy? It should be noted that the poorest performance of the naira among world oil currencies is based on the official depreciation of the exchange rate. If we use the parallel market rate, which is the price most non-connected, non-privileged people and business source the naira, the Nigerian currency will be in a particular class of its own.

The argument remains valid that investors will not move assets to the naira when it is overvalued relative to their current currency and asset holdings. A lot of previous analysis have put the fair value of naira to the dollar at about N290. Yet there remains significant premium on this rate or anything close to it in the parallel market rate, which is now above N400.  The market in its collective wisdom is clearly putting an additional risk premium on what would have been the fair value of the naira at least in the short term. This additional risk premium continues to hold the wide gap between official and parallel market rates.  This additional risk premium effect is also corroborated by the fact that the naira has depreciated most all the major oil currencies. This indicates that there are additional risk factors beyond oil prices that has made the naira depreciate beyond the normal average of world leading oil currencies. What are the additional risk factors that need to be addressed urgently to get naira closer to its fair value, which reflects much better Nigeria’s long-term economic fundamentals?

The first risk factor putting additional premium on what should have been a fair value of the naira is the uncertainty of the market that Nigeria is fully committed to market reforms and that state actors will have the courage to pursue market reforms through to the desired end. The market took notice when President Buhari said in one his national independence anniversary interviews that he does not believe in a flexible exchange rate policy. This was just barely three weeks after the monetary authorities floated the naira. Given market perceptions that the Nigerian Central Bank is not truly independent, such open communication of policy mis-alignment within government can only create market uncertainty and amplify investor risk perception.

The second risk factor is national security and the capacity of the Nigerian state to sustain oil production and revenue by ensuring peace in the Niger Delta. Nigeria oil production has fallen from its peak capacity of 2.2 million barrels to 1.5 million parallels, with the potential for such negative trajectory to continue if we cannot secure enduring peace in the Niger Delta. The security issue in the Niger Delta is complex and can only be solved with toughness, wisdom and political sagacity. There are clear limitations of the capacity of the armed forces to secure peace and fight internal terrorism on two fronts simultaneously in the North East and the Nigerian creeks. The third risk factor is policy flip-flops and un-coordination between the monetary and fiscal authorities such that they neutralize each other’s actions or elongate the lag time for positive policy effect to come through. A good example is that while the fiscal authorities are pursuing a policy of reflating the economy, pushing liquidity into the system with the much delayed budget implementation; the same liquidity is being sucked out of the economy by high yields on government bonds and treasury instruments. The high yields on government bonds, crowds out the private sector from accessing loans from banking system. While would the banks lend to the real sector when they can get risk free returns on government bonds at rates close to twenty percent? The monetary authorities are however pushed to this extreme to defend the naira because of the long delay in liberalizing the currency market because they were watching the body language of the fiscal authorities.

In conclusion, the low attractiveness of the naira to international investors is not just typical of an emerging market currency problem at this time of investor preference for the dollar denominated US government bonds.  The naira has been one of the least un-attractive of the un-attractive emerging market currencies because of the anti-market economic policy we have pursued in the last seventeen months. The improved attractiveness of the naira that should have been occasioned by the new flexible exchange rate policy has been mitigated by mixed policy signals by state actors, mutually neutralizing monetary and fiscal policies and security issues, which have put additional risk premium on what, should have been a fair value of the naira. Recent action of the reserve bank to withdraw the remaining national oil corporation foreign currency deposits from the banking system in one fell swoop, clearly an action directed by the fiscal side of government, has created new spikes in dollar illiquidity in the market and a new trajectory of downward pressure on the naira. Such developments clearly suggest that that the fiscal and monetary sides of government need to be coordinated much better to get us out of recession and get the naira to appreciate closer to its fair value. The flexible exchange rate policy is therefore still right even when its salutary effects are yet to come through strongly in the short term. Staying with the abandoned fixed exchange rate policy could have been worse. Strong actions to address the three additional risk factors described above that put additional risk premium on the naira will ensure that the expected salutary effects of the flexible exchange rate policy come through quickly and more strongly.
Published in newspapers in Augsut , 2016.
Olu Akanmu publishes a blog on Strategy and Public Policy on

Friday, April 29, 2016

Government must let the markets work.

By Olu Akanmu
If there is any lesson the federal government must learn from the lingering petrol crises, in the unabated long queues at our petrol stations, it is that that a government cannot substitute itself for the market no matter the depth of its patriotic intentions.  From the management of the foreign exchange to petrol markets, we see an economic management paradigm that markets do not matter, that a government can take over the fundamental functions of markets from the supply of goods, to the determination of demand and the ultimate fixing of prices. Nothing illustrates the fallacy of this economic paradigm more than the current petrol crisis. When economic goods are mechanically and artificially priced below their true economic value, the effective and efficient functioning of markets are distorted, supply dries up and demand becomes over-bloated. This leads to secondary and parallel markets where economic goods will ultimately find prices closer to its true value. The few privileged elites who control supply benefit from unjustifiable rent, the market becomes inefficient and productivity and economic output ultimately decline. It will be useful to estimate the productivity loss and output decline occasioned by the current petrol crisis in all sectors of the economy including small business and the impact on the quality of life of Nigerian households.
If the economic and output implications issues of a fixed pricing of foreign exchange are not as clear, it should be clearer with the petrol product crisis.  Essentially, the fixed price of petrol below its economic value created little incentive for the private sector to participate in the petrol market leaving virtually the NNPC as the sole supplier. Despite all patriotic intentions and the best of logistic management, the NNPC alone has been unable to cope and meet national demand. If any government must be open to market logic, it should be the one operating in a time of heavy fiscal constrains like the current administration. In the period of fiscal abundance, a government might have the resources to call the bluff of markets, even controversially so but certainly not in the period of fiscal constrains where private sector resources need to be deliberately courted and mobilized to complement constrained fiscal supplies. From Venezuela to Nigeria, we see the same challenge of the anti-market economic policy and its negative effect on output and employment. A genuinely patriotic Hugo Chavez could call the bluff of markets when oil prices were high in his days in Venezuela but not the current Maduro government operating in period of low oil prices and heavily constrained fiscal state resources. Outputs have shrunk; inflation and unemployment have skyrocketed in Maduro’s Venezuela.  Shops are empty and there are typical long queues for basic essential groceries. Like Zimbabwe with the same unorthodox economic policies, we in Nigeria are now beginning to queue perpetually for fuel, queue for forex and queue for electricity.   
As it affects petrol and forex markets, the same issues affect the infrastructure and power markets. The Works and Power Minister has lamented  that while his ministry needs two trillion naira to complete just the road projects inherited from the previous administration, his ministry will at best have just about N400billion from the budget, which is expected to finance road construction, including investments required to radically upgrade our power infrastructure. It should be obvious that if we do not get our power markets to work with the right pricing of economic goods that provide sufficient incentives for private investments from home and abroad, we should say good-bye to serious improvement in our electricity situation. Babatunde Fashola despite his good track record may be potentially demystified by the current government economic policy.  
 It is not that markets are always perfect and cannot fail. There are in fact critical instances where markets fail and their dysfunction necessitates the intervention of the state to protect the poor and the socially vulnerable. In the case of public goods like education and health, where the social benefits of investments are far bigger than private returns to capital, when private capital will not sufficiently invest in public goods, the state must intervene to correct market failure to ensure the protection of the socially vulnerable, the poor and the larger society.  The state will achieve this by driving public investments in social services including the provision of subsidies targeting the socially vulnerable.  Such public investments and social subsidies especially in a fiscally constrained state must be appropriately targeted to ensure that they are going to only those who deserve such subsidies, those who cannot afford to pay commercial prices.  Designing such social subsidy program can be very challenging as we see in the petrol subsidy program as well as in the current forex allocation program, which is effectively a social subsidy program to buy the dollar at prices below its true economic value. The true economic value or price of the dollar is the equilibrium price that balances demand and supply in the forex market. This price given parallel market rate today is clearly above the official fixed exchange rate.
The distortion in the current forex subsidy program is obvious. The subsidy program is benefiting the rich and narrow elites more than the poor. The poor do not buy dollars. They do not process letter of credit nor buy dollars for capital investments in their companies and their subsidiaries abroad. They do not pay overseas school fees neither do they pay mortgages abroad using our dollar commonwealth. They do not travel overseas and certainly do not buy Personal Travel Allowances at official rates. And, there is certainly very little trickle-down effect of this heavy subsidizing of the dollar consumption of narrow elites as production inputs are priced at near parallel market rates, in the determination of market prices, even among businesses that are privileged to get the dollar at official rate.  The evidence of rising inflation confirms that the current non- market, fixed forex pricing policy, despite its good intentions has not delivered low prices of goods for the poor.
The same distortion also happens in the petrol subsidy program. The wealthy consumes more petrol with several fuel guzzling cars per household compared to the low income that uses mass-shared public transportation. The wealthy benefit from petroleum product subsidy more than the poor.  The petrol product market will be more efficient if prices reflect their true economic value at equilibrium prices that balance demand and supply. At true economic prices, demand will reduce to match available supply. This will solve the lamentation of the State Petroleum minister that thirty percent of our fuel imports are ferried across the border to Cameroun and Chad where petroleum product prices are closer to their economic value.  In a market driven pricing regime, the arbitrage margin between local price and cross-border price of petroleum product shrinks eliminating incentives to smuggle petrol across the border. Fuel imports and demand for dollar for fuel import will crash; the naira will appreciate with positive spiral effect on social welfare. Private sector supply of petroleum products will also increase at market prices, reducing the pressure on NNPC to supply and fulfil virtually most of national demand. We can then save resources from NNPC and plough them to fund social investments in infrastructure, public transportation, health and education.
Our argument in essence is that a fiscally constrained government such as we have, cannot afford to distort markets in area where they are potentially efficient and create inefficiencies by its commission or omission. The social cost of such market distortions is high on society, the economy and general public welfare. While the anti-corruption stance of the Buhari government is commendable, it must embrace real economic pragmatism and allow markets to function if it will make a difference in reversing the economic downturn. There is very little evidence, even if nascent, that the anti-market economic policy orientation of the government is working. Growth rate is at its lowest in decades, unemployment and inflation are rising. It is now time for change. It is time for the government to let the markets work.
Olu Akanmu publishes a blog on Strategy and Public Policy on

Saturday, January 23, 2016


By Olu Akanmu

Whereas the Nigerian monetary authority fixed the official exchange rate at N196 to a dollar, there is today a near 50% differential in the parallel market rate to the official rate.  The fact that the exchange rate is not market determined, that the price of the dollar is not determined by the equilibrium of demand and supply means significantly that the dollar is officially priced far below its true market value. The incentive for rent seeking and price arbitrage, given the increasing differential has never been stronger. We are back in the days of essential commodity or import license where you don’t need to work hard anymore to make huge fortunes. All you need is to have the connection to be allocated dollars in the guise of a legitimate transaction. A manufacturer can potentially make a quick 30% return in one month on her dollar allocation and do not then need to go through the trouble and risk of running a factory, importing raw materials, producing and distributing her goods,  all which will give her a 15% profit margin at best in one year. Meanwhile factories are closing down, as genuine businesses who need the forex cannot get dollars and the lucky ones who get forex allocation are quietly changing their business model from manufacturing to round-tripping their dollar allocations.

The net effect is that the economy has slowed down and nearly grinding to a halt. Companies are retrenching staff as they cannot produce. Unemployment and social misery is rapidly compounding and will compound in an accelerated fashion if the current policy is not reviewed. Unlike the good intention professed by the President, Nigerians are not the ones benefiting from this current fixed exchange rate policy but few Nigerians who are privileged to allocate or get dollars at official rate who are making huge fortunes on dollar price arbitrage. It should be emphasized that unlike President Buhari would have wished, that even those who get the dollar at N196, if they ever really do any manufacturing or trading, are not pricing their inputs and final products at N196 to a dollar. Every business is pricing their input at close to parallel market rates to determine their final shelf and market price. Imported inflation is skyrocketing and may continue to do so in accelerated fashion.  In essence, the federal government good intention of taming imported inflation by legislating an exchange rate has not materialized. Our current fixed exchange rate policy is therefore like an ostrich that buries its head in the sand or can be described as an attempt to hide behind a finger. The ostrich that buries its head in the sand does nothing really to manage its danger but engages in a self-delusion that it is doing so.

The indices of the test of the current policy are clear. It is not working. Output is down, inflation is rising and unemployment is beginning to accelerate as companies close down or rationalize operations. Investment confidence has been eroded leading to massive capital flights. In a country that need foreign direct investment to support its low capital formation and national savings, current monetary policy flip-flops and uncertainty have not helped investor confidence. The negative trajectory of the growth of our foreign reserves now at USD28billion, its on-going rapid erosion due to attempts by the reserve bank to artificially defend the naira at its overpriced value further erode investor confidence and increases uncertainty concerns of investors who will either wait for the dark clouds to settle or fly with their capital. It should be emphasized that investors are less concerned about exchange rate or value than with the uncertainty of where the exchange rate will be tomorrow. No-one does anything when everyone is uncertain. The economy slows down and unemployment accelerates. Meanwhile, speculators continue to bet against the currency of a country with eroding trajectory of reserves, front loading and amplifying demand for forex and further driving up differential between the official and the parallel market.

We join the call for the naira to be floated but with some exchange controls that ensures that short term arbitrage players have little incentive to bet against the naira. A dollar that is priced close to its equilibrium price and market value will reduce artificial, speculative and front –loaded demand. During a fuel scarcity problem, every car with a half tank who can still run for another week goes to queue up for fuel, amplifying demand and compounding the fuel scarcity problem. A floated market determined naira-dollar rate that ensures that “anyone who can pay will get” will eliminate speculation and front-loading. A floated exchange rate policy will also mitigate significantly the uncertainty concerns of investors reversing current capital flight while stemming the erosion of foreign reserves. The national treasury will also be boosted by a dollar that is priced at its true market value to the naira. The rent seeking and arbitrage margins on the dollar sold through official market will be eliminated as this arbitrage differentials comes directly into the national treasury boosting government revenue at this critical time of fiscal constrain. A floated exchange rate policy will improve output and get more people back into jobs. A floating exchange rate policy supported by prudent fiscal management including the privatization of refineries to bring investors who along with the Dangote refinery in pipeline,  will produce petroleum products locally, will eliminate the huge pressure on the dollar by petroleum importers , which could even strengthen the naira.

What are the downsides of a floated exchange rate? A floating exchange rate policy may imply that the naira to the dollar rate will become significantly higher than the current N196 in the near term. The fact however is that only few privileged elites and their businesses get the dollar at current official rate. Most Nigerians buy and price their production input at parallel market rate. The Nigerian economy cannot loose what it does not presently have in real terms in a strong naira. A floated naira with exchange controls that mitigate against short term arbitrage incentives, where speculation and front-loading are eliminated may actually settle at a rate better than current parallel market prices.  The choices before us are simple. An illusory strong naira that only few privileged Nigerians get at official rate with declining output and rising unemployment or a naira priced at its relative real value with increasing output, investment and rising employment.

It is important to stress that there is no painless monetary policy option on the table for Nigeria at current low oil prices, especially for a country that has squandered its previous oil windfall savings. A Buhari government with its strong patriotic credentials and integrity has the goodwill to take tough economic decisions and get the buy-in of the Nigerian people.  As it dilly-dallies however running away from tough economic conditions, with declining economic output and rising unemployment, it begins to inevitably loose the goodwill that it seeks to protect. This government or ruling party has only a two year window to fix the economy and present its economic management credentials to Nigerians as it seeks re-election in the last two years of its administration. It risks boxing itself into a corner as current monetary policy are largely palliative, attempting to provide symptomatic relief for a patient whose fundamental underlying condition is rapidly deteriorating. The patient does not have to get into intensive care before the right medicine is administered. It may be too late. There is a “fierce urgency of now” to act with more flexible economic policies. We wish President Buhari well.
Olu Akanmu publishes a blog on Strategy and Public Policy on