Buy Naira to grow Dangote (and others)

Last week, the Nigerian Automotive Manufacturers Association submitted a position paper to the Ministry of Industry, Trade and Investment. In the paper (which isn’t public, but their submission of it is — which is extremely Nigerian as one imagines coverage of that news wasn’t free), they argue that the government needs to protect the automotive industry even as the country pursues trade liberalization goals elsewhere.

In recent reporting, we learn that the government has reduced tariffs on cars, which means that the delta between used cars and locally made Nigerian cars is narrowing. If this delta narrows too much, car manufacturers won’t be able to sell their cars and will take a beating in the market. Therefore, their ask is simple: increase the tariffs and protect us.

If used cars are more expensive to import, it may have the side effect of making car ownership unreachable for most Nigerians, but it would also make NAMA more money as prices would be able to compete in the market. When faced with this sort of decision, what do you believe is the right thing for the president to do? Protect these manufacturers, or make goods cheaper and live better for a bigger slice of the population? Well, let’s see!

What NAMA is asking for is the pursuance of something called import substitution. The idea, from NAMA’s perspective, is that Nigeria spends too much scarce foreign exchange on cars and consumes too much of foreign goods in that sector. Instead, they hope we should save that money and circulate it in the country by buying vehicles from manufacturers who make them in Nigeria. This would coincidentally lead to even more jobs, and everyone would be happy.

Import substitution, which is different variations of the idea of saving foreign exchange by substituting imported goods for goods made in the country, isn’t a new idea. In fact, it is almost seventy years old, and has a history of failure just as old. The idea was first extensively tried in Latin America in the 1950s, but it failed in almost every single case. The industries being protected never grew up, the market never expanded, and the newly made industrial giants exerted every extra money they had on pressuring the political class to keep their captured market captured.

You see, the people who benefit the most in an import substitution environment are the local capitalists who seek to capture a monopoly and the political lobbyists who get kickbacks for keeping the regime running. The local industries that are “protected” by the government “reducing consumption” never grow up.

Let us consider the case of Dangote, Nigeria’s great industrialist. In 2002, Obasanjo asked Dangote why Nigeria imported cement, and wondered why we couldn’t export it like others. Dangote said it was just cheaper to import, and since that was cheaper, why would anyone do anything else? This led to the Backward Integration Policy (BIP) from 2002. Under this policy, the government used tariffs, bans and import controls to ensure that local manufacturers had an upper hand in the market. In essence, the government joined the market and sided with the producer — not the consumer.

This policy (which has been implemented several times in several different ways) in Nigeria had good intentions. If all went as planned, Dangote Cement would expand, hire more people, build more factories, and Nigeria would “save” precious foreign exchange.

However, even at that level, the policy fails. Dangote would still have to spend on importing the machinery and expertise required to run the factories. Furthermore, firms shielded from foreign competition have no incentives to become efficient, as they face a captured market and need not spend on capturing more. Importantly, the most economically rewarding activity would be advancing the political pressure needed to continue that capture.

That is precisely what has happened to Dangote Cement. The company still spends a huge chunk of its revenue on imports, thereby erasing whatever savings the country as a whole makes on not importing to consumers directly. We now have even higher cement prices because even though Dangote produces at global levels of efficiency, and his EBITDA generally hovers around 50%, he has no incentives to reduce prices since he has effective hold on the market and has no competition.

This means the Nigerian poor can now buy worse goods (since he has no reason to invest in R&D to improve quality either) at higher prices. And all for what? Nigeria’s cement-denominated infrastructure deficiency is running at about 100 million tonnes per year — every year Nigeria pours 100 million tonnes less concrete than a world-average country its size would.

In fact, the only people who have benefited from Dangote Cement is Dangote himself, the politicians he spends money on to protect his “production”, and the people he employs. Nigerians, on the other hand, have forgone cheaper cement (cheaper cement affects everything from quality of schools to hospitals to rent), a better product, and more disposable income for other necessities of life.

In other words, the idea of import substitution is that the poor man should focus on being his own electrician, his own plumber, and should even endeavor to build his own house with his own hands, instead of working to make his own money so that he can pay for those services and have some surplus from it.

What idiot poor man would accept such a ridiculous idea?

Despite how bad this idea is, many Nigerians still somehow believe it will work this time. They still complain all day about “importing toothpicks” and “high importation”. Even one presidential candidate recently opined that opening the borders has only made farmers poor, for food is now cheap.

The goal by people who believe this — because we can’t just assume they are uniquely evil — is to create a hundred more Dangotes so that they can create jobs. This is an extraordinary proposition because it isn’t even possible anyway.

Cement is the one product that clarifies the case for import substitution. It is the best test case for the policy because cement is difficult to smuggle, as such there can be no argument that bans, tariffs and other such efforts wouldn’t work. However, other goods, such as rice, wheat, and textiles are not as easy to legislate against. That is why despite banning them, we are yet to see a textile Dangote, a rice Dangote, or a wheat Dangote. Additionally, no investor can underwrite large fixed capital against a margin set by criminal efficiency rather than law, and rice production is in any case structurally unconcentrated — millions of smallholders and modular mills with trivial scale economies.

Most of what we consume in textile or grain is still imported, albeit through porous borders and smugglers that (a) diverts tariffs from legitimate government coffers to private ones and (b) increases the price, as smuggling is more expensive than importing. The higher cost of the smuggled merchandise would still be a tax on the poor consumer, and would still protect the local producer, even if he might not be able to hold a monopoly because protection is capped at the smuggler’s cost structure and can be repriced downward any time Benin’s (or the importing country’s) logistics improve.

And what do Nigerians get for surrendering our economic choices to just one person? A few thousand more jobs, a few billions more in taxes, and all that in return for a more impoverished populace that is obvious in its extremely low level of consumption. A black market economy where employment is high but everyone is poor, coming to a sub-Saharan nation near you.

There are many Nigerians who are still spiritually in 2018, hoping against hope that “buying naira” to “grow the naira” was anything more than a stupid attempt at dressing up protectionism and poverty in a patriotic garb. If you are one of them, let me clarify the position for you.

When you buy a car you cannot afford, instead of a cheaper imported alternative, you are not growing the naira. You are simply growing the company’s bottom-line, and there is absolutely no reason to think that benefit will ever trickle downwards. You have lost part of your disposable income, and consequently have a poorer existence.

You may think it “saves foreign exchange”, and you may enjoy the effect via a stronger naira, but that is also a lie. Dangote’s foreign crude bill nearly matched Nigeria’s fuel-import saving in 2025. For every $1 cut from the fuel-import bill, about 92 cents reappeared as foreign crude demand. In 2025, the Dangote Refinery was compelled to import foreign crude valued at $3.74 billion from countries including Brazil, the United States, and Algeria. Can you see the naira growing, kid?

The idea that poor and middle class Nigerians should sacrifice consumer choice on the altar of patriotism for a parasitic class that only exists because it cannot compete outside Nigeria is a scheme out of an Orwellian novel. Big Brother tells us that we should do it and we will be happy, and we blindly follow along. The fact that many (very many) educated Nigerians who knew how idiotic this idea was still pushed it across different facets of the economy over the past 26 years is probably treasonable, if Nigeria were a sane country.

Unsurprisingly, these local producers see it very differently. One of them, the enigma known as “Baba Nord” (Nord is the name of his car company) tweets this; How can you export if you don’t sell in your country? No one will buy from you. You dominate your local market first, then the excess is exported.

Even in his great fantasy of local market domination, it all ends there. He never produces for the world, they merely enjoy the surplus of his production for Nigeria. The global market is none of our business, you see. Why sell to the world when Nigerians (all two hundred million mumus of us) can be forced to buy at any price? What sensible industrialist will turn his nose up at such a juicy opportunity? Would you? What is good for Dangote has to be good for Baba Nord!

Can any serious person argue against this logic?

Now, some clever person may argue that this was the same thing that worked in Asia. But it wasn’t at all. While Asian countries protected their infant industries, they ensured that those companies hit export targets to continue enjoying that protection. They understood that protecting companies from external markets was only necessary insofar as it helped them compete in the global economy. Nigeria, on the other hand, has protected Dangote Cement for over twenty years, and the company’s Nigerian plants still sell 93% of its cement inside Nigeria.

Is there any argument that the car manufacturing business in Nigeria, if protected, would go some other way? Right now, the biggest customers for these companies are the government. Many of them do not even manufacture vehicles; they merely import parts and assemble them in Nigeria. None of these companies have ever produced an original vehicle validated against global benchmarks. Will they change their behavior if we just gave them more tariffs? Or they would become globally competitive if we banned car importation wholesale? How confident are you in that thesis?

The problem here isn’t the drive for domestic production — that is good. Nigeria needs to industrialize urgently. However, the key to doing that isn’t tying Nigerians by the hip to inefficient producers and making us finance their ventures. If Nigerian firms cannot meet global demand, or be an alternative globally, why should Nigerians bear the cost of their enterprise? Exploitation doesn’t sound any better because it is done by someone of the same nationality. In any case, these hegemons end up funneling their “excess” abroad anyway — why should the Nigerian pleb subsidize that?

Despite the significant tariffs on car importation which has protected our car manufacturers for over a decade, they have never tried (or perhaps they tried and failed?) to compete in the global market. Baba Nord still doesn’t have a single patent (that I know of anyway), no original designs, and no vehicle that competes against any serious brand. Their plan, put it simply, is to ensure Nigerians have no other choice than to buy their vehicles (many of which are literally off-label Chinese vehicles assembled in Nigeria) — because no other person will buy.

However, can we blame them too much? The same cocktail of policies has catapulted Dangote from a cement trader to one of the most powerful black men of all time. The Nigerian government, which is probably staffed by more economic experts than you can count, handed this advantage over to him willingly. Why should we complain when fellow Nigerians want to also get in on the grift for no less noble a reason? After all, what is good for Dangote is good for Baba Nord.