Lessons from Government intervention in Nigeria

An interesting account from Feyi Fawehinmi who is an accountant.

He points how interventions from Central Bank of Nigeria and the Government have benefited the two Palm oil producers in Nigeria. They have made more profits while producing less, employing less thanks to the bank which does not allow foreign competition in palm oil.

Lessons:

Time and time again, the government intervenes in a sector or the other. Time and time again Nigerians fall for it. The result is always to transfer wealth from Nigerians to lucky individuals or companies who can get on the right side of the government’s protection racket. Whether it be cement or palm oil or tomatoes — the result is always the same.

Nigerians fall for this because they make the mistake of thinking that the government is an impartial referee. It is not. The government takes sides and whoever is able to get government on its side will win the fight.

But there is something more pernicious at play here. Nigeria, for historical reasons, has a deeply exploitative culture. Whenever I mention Dangote, people are quick to tell me to go and watch The Men Who Built America and that America was that way too under Rockefeller and co. This is such nonsense to the point of it being offensive. Watching a documentary can only be the first step in understanding a topic. There’s more to the story.

Before Rockefeller started selling kerosene, there were so many players in the market. But there was a problem — a lot of accidents happened from adulterated kerosene which often killed people. There was no branding. You bought your kerosene from wherever and used it like that. What Rockefeller then did was to introduce branding to kerosene selling. He started selling his kerosene from distinct blue Standard Oil trucks. In this way, he was offering some kind of guarantee — if you bought kerosene from him and it exploded, it could be traced back to him unlike before. Stuff like this is normal today, but back then it was novel. Further, the bigger his company grew, the lower he dropped prices. Starting from 26 cents per gallon, by the time he had cornered 90% of the market, he had dropped prices to 8 cents per gallon. You know to ask yourself whether you have seen this type of behaviour from any monopolist in Nigeria before.

Here’s the harsh uncomfortable truth — foreign competition is absolutelynecessary to keep Nigerians in line. If you remove it, the pattern of behaviour that will emerge is plain to see. To make things worse, those companies hardly ever improve and the government enforced sweet profits become so addictive that within a few years, they can no longer live without it.

If you believe that government is acting in your interest by restricting foreign competition to ‘grow the local economy’, go and see your doctor. Tell him to examine your head for you.

One always laughs when you hear markets touting experts praising some or the other government move to create jobs and so on.

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