The Economics of Chaos

The Economics of Chaos

Try to visualize this hypothetical scenario. A hurricane is about hitting a town, and the government has issued evacuation warnings, thousands if not millions are leaving  the city, strapping alongside them what they need to survive the next few days in a nearby shelter. By evening, the city is fully deserted, but a group of bandits stay back to loot houses and retail outlets before eventually evacuating in the dead of the night.

The analogy above is a criminal act and is strongly condemned but we see it everywhere. We see militants taking advantage of failed states , we see marketers of petroleum products taking undue advantage of scarcity, we see business men taking advantage of controversial policies and then I ask,  what do all these events have in common? I think the answer is simple: People are taking advantage of chaotic situations. 

So the next questions are how? To do that, first, we need to ask these two questions,

  1. What is the immediate implication of this event?
  2. What is the following consequence?

A critical look at these two questions will provide insights as to what to do next to take full advantage of the event.

Question 1.What is the immediate implication of this event? Let’s take this for instance,that there is a sudden ban by the government on the importation of a staple food. The immediate implication of this ban will be that there will be panic in the market, and that the demand of this item will increase as people will want to get as much as they can before it becomes too late. 

As this happens, sellers will make more money by selling at a higher price though this is expected to be temporary . In countries where there is price control, this act could be illegal. So the reader is left with the moral question of whether it is ethical to do such. In a market where prices are driven by demand and supply, this is always likely to happen.

Nevertheless taking advantage of chaos isn’t about greed, rather it is about using events to your advantage. I know a very successful business man who struggled in his early years of business. One day he managed to get the information that the price of a particular building material which he sold was about going up. What he did next was critical. He sourced for funds from every corner and stockpiled this item until he was convinced he had enough. Months later when other traders discovered that the price of the material had gone up, knowing that there would be both scarcity and panic buying they started selling at exorbitant prices.

But this man was the only one who sold at the old price. As a result, when customers after having gone through other stores realized that he sold at the old price, they all started coming to him. Their assumption was that he was the only honest man in a market filled with greedy middle men.  That was how he built his customer base many of whom still patronize him even after many years.

Question 2. What is the following consequence?  If there is a ban on the importation of a particular staple food, the immediate implication would be the sudden rise in price but the following consequence will be that over time people will gradually shift to start consuming the closest readily available alternative,whatever that alternative may be. 

If the naira is in free fall against the dollar, the implication would be that the cost of imported items will increase, but the following consequence would be that it will be more lucrative to export than to import.

Three years ago(2016) at the heat of the Nigerian recession  when the naira was in free fall, the Government of Anambra State realized over $million dollars from the exportation of scent leaf alone. Could there be a better time to be an exporter than then?

Many human resources managers are taking advantage of the desperation and unemployment in the country. Many farmers are taking advantage of the ban on importation of rice, and many exporters are taking advantage of the naira-dollar exchange rate.The essence of this article is to show that taking advantage of uncertainty in the economy isn’t just about greed and selfish capitalism but that it can actually be harnessed in a positive way for the overall improvement of the economy of an individual or state .  Whatever the event is, boom or recession, import or export ban, inflation or deflation, peace or war, just see how you can make the best out of it, legally.

Nigeria has insecurity crisis – anyone that can solve it should do it, and profit doing so. Build private intelligence and data systems to help fix our security paralyses. That is chaos worth fixing and profiting from.

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