Book Review @ITRealms:
Book Title: Stable Growth and
Foreign Exchange
Author: Abraham E. Nwankwo
Publisher: Evans Brothers
(Nigeria Publishers) Limited
Year of Publication: 2011
Number of Pages: 144
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 who obtained his Bachelor’s, Master’s and
Ph.D degrees in Economics from the University of Nigeria, Nsukka explained 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. Pointing 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 per cent 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.
Simon Ibe/GEE
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