Book Review: Economic Prophecy on Problems and Solutions of the Current Crisis

The book, Stable Growth and Foreign Exchange by Abraham Nwankwo, is one that should be embraced by all who want to hear the truth about how countries, especially Low Income Countries (LICs), can experience stable growth and how they can use their foreign exchange earnings rationally to avoid the type of crises that have become recurrent as a result of the irrational application of resources earned during export boom periods.
Described as a “simple analysis” by the author, Stable Growth and Foreign Exchange is a robust, intense and brutally frank examination of trends in LICs that must be reversed for these countries to begin to experience stable growth.
It is even more compelling for all patriotic policy makers in Nigeria to revisit this book at this time of serious economic challenges arising from a drastic fall in the prices of crude oil, the major source of foreign exchange for the country. Of course, other countries that rely on the export of other primary commodities like cocoa, rubber, coffee, vegetable oil, must also learn the lessons taught by this small but mighty book, to avoid repeating the mistakes of the past.
Nwankwo said pointedly that the book of Nine Chapters and two Annexures, “focuses on how foreign exchange can be utilized to enhance stability in the process of economic growth, with special reference to Low Income Countries.”
The scholarly work, from Chapter One, acknowledges that the recurring acute balance of payments crises that often confront LICs is a major challenge of international economic relations and economic development, pointing out that such situations that result in shortage of foreign exchange have often led to imposition of trade restrictions, the banning of importation of commodities, including raw materials and equipment, which have led to factory shut downs and retrenchment of workers.
These unfavourable conditions often follow booms in export of the primary commodities of the affected countries. It is usual to portray the LICs as helpless victims when such reverses occur but Nwankwo insists that such sentiments are ‘’only partially true” because in reality, these LICs could have taken steps to avoid or minimise the effects of such crises.
In the concluding Chapter of the book, for instance, he states categorically that LICs “are not helpless victims of crises in the international economy.
They too, contribute to their problems and can thus play a positive role in providing the solutions.”
He takes time to outline the “Seeds of Crises in the Structure of Foreign Trade” in Chapter 2 of the book published by Evans Brothers (Nigeria Publishers) Limited in 2011, using Colombia, Ghana and Nigeria as case studies of “the boom- crises sequence.” He also dissects “Permanent Income Hypothesis, Rational Expenditure and Stable Growth” in Chapter 3 and the “Bayesian Decision Theory and Optimal Expenditure” in Chapter 4.
Chapter 5 deals with “Imports, Growth and Stability,” Chapter 6 stresses “Foreign Investment By LICs: New Path to International Economic Order,” while Chapter 7 dwells on “Economic abilization: Theory and Experience.” In this Chapter Dr, Nwankwo explains the interaction between internal and external instability, automatic and discretionary stabilization, effectiveness of alternative control measures and very importantly, the benefits of crisis to LICs.
This last section of Chapter 7 is very instructive, especially for Nigeria and other such countries which are presently going through crises induced by drastic fall in foreign exchange earnings.
The wholly home grown scholar (Dr. Nwankwo obtained his Bachelor’s, Master’s and Ph.D degrees in Economics from the University of Nigeria, Nsukka) explains in this section, as he does at every opportunity he has, that Nigeria and other such countries must learn from their crises to look inwards for the solutions to their problems.
According to him, ‘’economic crises, as undesirable as they are may, nevertheless, provide the impetus for future economic progress,” stressing that “LICs may benefit from foreign exchange
crises if they respond to the challenges positively.”
How should they response to the challenges positively? Abraham Nwankwo says in Stable Growth and Foreign Exchange that crisis is an opportunity for them to “critically reappraise their strategy of participation in the international economy.” He insists that they should shun overdependence on industrialised countries from where they are misled, by their export booms, to import even basic items that they have capacity to produce, like food and other agricultural products. “Crises is an opportunity for adjustment towards a higher degree of self reliance,” he categorically asserts.
He posits further that ‘’ Crises is also a time to learn the painful lesson that massive importation of capital goods for heavy industrialization is unlikely to lead to sustained growth and development. It is a time to learn that such a process of industrialization increases the vulnerability of the domestic economy and inhibits the type of industrial progress that is based on gradual but self propelled development of local resources, material and human.”
Pressing home the point, he insists that ‘’Meaningful industrial progress must be based on the systematic, even if gradual, upgrading of existing locally generated techniques, skills and concepts and the invention of new ones by indigenes, as attempts are made by man to respond to the challenges of the environment.
The adoption of foreign technology should be minimal and selective,” he strongly counsels.
He also points out that at such periods of crises, when it becomes difficult or impossible to import finished products or raw materials and machinery, people are challenged to invent and innovate. At such times, he says, “local craftsmen and entrepreneurs are likely to be stimulated into introducing new products and processes to satisfy demand.”
The 100 % Nigerian-educated Economist insists that a major problem of the LICs is the ‘’pathological misconception that is complacently accepted, particularly when local problems can be solved from outside,” of inability to solve problems facing them by themselves through internal self-help.
Though it would be preferred that mistakes are not made and that crises do not occur, the author of the book avers that what is critical is the ability of any country concerned to quickly learn the necessary lessons and make the needed adjustments, including “internal restructuring of the economy.”
Nwankwo’s economics is pragmatic and unapologetically nationalistic and this reflects in his prescriptions which favour development of agriculture and local manufacturing of items that can be exported to break the monopoly of crude oil as the dominant source of foreign earning; a monopoly that easily results in crisis once there is a slump in the price of the commodity as is the case presently.
A public debt manager per excellence, Abraham Nwankwo sets aside Chapter 8 of his book to explain the relationship between public debt management and stable growth, pointing out that since governments of LICs “depend significantly on borrowings from external and domestic sources to finance their growth and development programmes …a satisfactory understanding of the subject of stable growth requires some understanding of the nature of public debt and its management.”
He goes ahead to consider, not only the size, sources and application of public debts but their structure, the risks and how to manage the risks, which, he says, if they crystallize, could have “a direct bearing on the stability of the economy…could have virtually unmanageable adverse consequences for the growth process.”
Like most consummate economists, Nwankwo sees nothing wrong in public borrowing for provision of infrastructure and the funding of socio-economic projects and programmes but insists that only “a healthy and well managed public debt portfolio is required for stable growth of the economy.”
In Chapter 9 “Summary and Conclusion,” he restates his position that LICs have a major role to play in solution of their growth and development challenges especially arising from foreign exchange crisis, stressing for the umpteenth time that “the concentration of exports on a few primary commodities is certainly perilous” and warning against irrational utilization of boom-time foreign exchange earnings, which he explains, are often transitory.
He counsels that imports should be directed into production of export goods to guarantee continued capacity to import and enhance growth; and that LICs should diversify their foreign exchange earnings through investment in the economies of their major industrialized trading partners.
While encouraging LICs to design policies and operate their economies in ways that would prevent crisis, the author goes ahead to suggest ways to overcome such crisis when they occur.
Although he ended his monumental study on the pessimistic note that “LICs hardly learn from their past experiences,” Nwankwo believes that “economic crisis may produce the shock therapy necessary to jolt up an otherwise complacent, overly dependent, indulgently importing, underdeveloped country into active exploitation of local resources,” stressing that “crisis provides an opportunity for inventions and innovations by engendering a siege situation.”
At a recent forum he said that, for instance, what had been considered an oil doom could turn around to become a blessing by forcing Nigeria to look inwards.
How much progress or otherwise LICs make, therefore, he says, will depend on how they respond to the crisis they encounter.
“If they respond poorly, crisis and frequent interruptions of growth will persist. If they respond effectively by preventing the reoccurrence of past mistakes, not least through rational expenditure of export revenues, they may well be on their path to sustained economic growth and development.”
It is believed that the efforts of the current change government of President Muhammadu Buhari are geared towards the correction of the mistakes of past governments, including their irrational use of foreign exchange earnings and overdependence on a single export commodity.
The 144-page book is a must read for all policy makers, especially those involved in the planning of the economies of LICs, and even those of> developed economies, who need to have a better understanding of how to relate with LICs for a more balanced and mutually beneficial international economic order.
Stable Growth and Foreign Exchange should also be a compulsory handbook for all students of Economics at all levels of the educational ladder as it is simple yet sublime, easy to read and a nugget of inestimable value.
Besides policy makers and students who necessarily must read and reread this collector’s item, it is also recommended for every human being because the lessons taught therein are tailored towards guiding the average reader to take decisions concerning personal and business moves that would result in stable growth.
Tables and figures graphically illustrate and simplify the points the author of three other works of creative writing (drama and poetry) is making in this timeless book that has a hint of the prophetic.