The Cobra Effect of #BuyNaijatoGrowtheNaira & How to Fix It By Chuba Ezekwesili

For those unfamiliar with the cobra effect, I’m certain you’re wondering what the popular twitter hashtag employed by Nigerian citizens and senators has to do with cobras. Don’t stress, this doesn’t refer to ‘juju’ or anything superstitious, instead it’s about the unintended bad effects of seemingly good decisions.

When incentives are not adequately accounted for, policies with good intentions can have disastrous and unintended effects. I have written about such here and here , but no need to visit those now. I’ll breeze through my favourite story of the cobra effect and how incentives royally screwed things up.

In a bid to reduce the rising snake population, the Indian government paid snake hunters for every snake caught. They hoped this would solve the problem; instead, enterprising Indians started breeding snakes on snake farms. Obviously, this cost the Government a lot more money than expected. Once they realised the unintended effect, the administration ended the policy and the snake farmers were left with a quite slippery and useless commodity, which they let back into the wild. Thus increasing the number of snakes and worsening the situation. The government had a laudable goal and set what clearly seemed like a good incentive in place, but in the end was unaware of how the target of their goal could be twisted and used to worsen the situation.

The true lesson from the cobra effect is the importance of identifying not only what we’re trying to achieve, but at what point we make such an intervention. Theodore Talbot and Owen Barder from Centre for Global Development (CGD) put this brilliantly:

“Generally, the further we go along the chain of causality, the closer we come to the outcome on which we should contract. Cobra effects are more likely to arise when a funder rewards an intermediate step (snakes captured) rather than the underlying objective (fewer snake bites).”

Clearly, understanding how incentives work and what outcome such incentives should ideally achieve should help policy makers make better decisions.

Ok. Cool story bro, but what does this have to do with our patriotic drive to grow the naira by buying naija?

The idea behind #BuyNaijatoGrowtheNaira is quite laudable. The sort of idea that makes you wonder why we waited this long to try it. If we eschew foreign made goods and patronise their nigerian alternatives, we’ll not only get the goods we want locally, these Nigerian alternatives will thrive, more jobs will be created and less of our precious dollars will be spent outside.  Oh, did I forget to mention we get that fuzzy feeling of patriotism as ‘jara’? Brilliant solution to Nigeria’s issues, right? Err…Not exactly.

If people purchase your goods out of patriotism or charity, and not because of its quality or…

So what’s the matter?

Considering that the core incentive to purchase such local content is built around patriotism, the #BuyNaijatoGrowtheNaira has a ridiculously high likelihood of being unsustainable. If people purchase your goods out of patriotism or charity, and not because of its quality or competitiveness, you should be worried. You’re basically operating under the same principle that drove socialism to obscurity i.e. sentiments without the right incentives. The average consumer doesn’t shop based on national sentiments, he/she shops based on affordability and quality. You’re consistently incentivised to buy a product because of its price or quality or even status, but there’s only so much patriotism one can possibly muster to consistently buy  an inferior or expensive local product while a better alternative exists.

Smart local producers like Dangote understand this. What happens when you can’t control people’s choices enough to make them choose your product? The first step is to find a way to make your product the only ‘choice’. Rally the cries of patriotism around your product till it reaches the ears of Government. Then when it does, don’t demand that the Government makes the tough policy calls, instead hand them the easy quick policy option that’ll make them feel like they’ve achieved something. Ban everything that looks or feels like competition. Think this is nonsense? Give it some time; you’ll soon hear someone in the Senate call for a ban against every form of foreign car in favour of our dearly beloved Innoson.

The second step is to call for ‘government intervention’ – the low-key way of asking that government either gives you money or patronises you. Whether or not your business is financially viable or competitive, you’ll have Government patronage as long as you stamp ‘Made in Nigeria’ – the key is to ensure you get that contract.

Here’s where the cobra effect slithers in. These two steps come together to kill the incentive to innovate or come up with solutions. Guess who’ll suffer for it? the citizens. Seen how Nigerian companies- who have competition – treat customers? Shoddy quality of service or product, terrible customers service and unjustifiable prices to boot. Now take a second to imagine what happens when the Nigerian government helps such companies become unnatural monopolies by eliminating their competition. Why bother to please customers by adopting innovative and new methods of service or product delivery when you can contract to our benevolent Government and be fine. In the end, the customers get shafted. Kilon je patriotism? These companies, apparently.

For domestic producers, if price is the only delineating factor between your goods and that of foreign competition, then the act of Nigerians choosing to buy your goods out of patriotism is unlikely to help you in the long run. Your competition’s product will still be cheaper. Instead, your focus should be on pressuring government to follow through on policies that reduce your input costs, reduce your price and make your product more competitive.

These sort of policies require tough choices, hard thinking and patience. But the government is…

These sort of policies require tough choices, hard thinking and patience. But here’s a ‘shocker’ for you, the government is full of people who’d rather avoid taking these hard steps, but prefer to form ‘awon patriotic leaders’ and prefer to mark-up contracts or ban international competition. After all, it’s way easier to sign a bill to ban than it is to come up with a bill that considers the intricacies of fixing a broken education system or streamlining multiple tax policies to support businesses.

Asides the obvious indolence, let’s not forget that there’s also a monetary incentive for our ‘policy makers’ to go this route, they get to make money in the process. How? Imagine if you can corner a market, eliminate competition and ensure that government patronage – coincidentally – goes to your cousin or friend’s company. Straight up shoki to the bank, bro.

Oh. Another random side-effect. Isn’t it curious that a lot of banned products are…well, still in the Nigerian market? When you have porous borders, anything you ban can still come through. Enriched Benin Republic citizens must pray that our leaders keep making such policies. Does this mean that we should eliminate all bans? Not necessarily. It just means that our policy makers have to think outside banning and faux-patriotism.

We lean towards policies that offer a straightforward and emotional promise of solving our issues,…

As a nation, we’re drawn to easy solutions – panaceas that promise to magically fix all that is structurally broken in our economic, political or social systems. It’s why we lean towards policies that offer a straightforward and emotional promise of solving our issues, but we ignore the hard, complex and esoteric policy options that require tremendous effort and guts. While this hashtag seems to be the solution to Nigeria’s current predicament, it really is a hackneyed path that has not only yielded little fruits, but actually reduced society’s collective welfare.

If this #BuyNaijatoGrowtheNaira tactic is faulty, then what is the right way to steer clear of this cobra effect and solve our foreign exchange and growth situation?

It’s in the fourth paragraph – keep going down the chain of causality. And when we do, the difference in results can be quite dramatic.  It’s first a matter of figuring out the right outcome to focus on, and second, figuring out the why and how to achieve this outcome. Drawing from case studies of other countries that did they hard work, I’ll explain in the second part of this article what we should actually be doing.   I assure you, this is not what your senators will talk about. Why? Because it is considerably easier to create and trend a hashtag than it is to formulate crucial and intricate policies that require expedient execution.