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Nigeria at 59: Why Nigeria can not industrialized

 

By Charles Nwaoguji

Nigeria’s failure to industrialize is partly due to bad industrial policy. The industrial sector accounts for 6 per cent of economic activity, while in 2011, the manufacturing sector contributed only 4 per cent to GDP. The economic transformation agenda, otherwise known as Nigeria Vision 20:2020, sets out the direction for current industrial policy in Nigeria. The industrialization strategy aims at achieving greater global competitiveness in the production of processed and manufactured goods by linking industrial activity with primary sector activity, domestic and foreign trade, and service activity.

The  Nigeria’s National Bureau of Statistics (NBS various years)  shows that the manufacturing firms, micro-enterprises, retail, and residual businesses are not doing well. The manufacturing survey addressed a wide range of issues pertinent to the industrial sector. Among the 2,387 firms surveyed, only 42 per cent fell within the industrial sector.

At independence in 1960, and for much of that decade, agriculture was the mainstay of the Nigerian economy. The sector provided food and employment for the populace, raw materials for the nascent industrial sector, and generated the bulk of government revenue and foreign exchange earnings. Following the discovery of oil and its exploration and exportation in commercial quantities, the fortunes of agriculture gradually diminished.

Nigeria’s first attempt at comprehensive and integrated planning took the form of the First National Development Plan. The plan included an aggregate growth rate target of 4 per cent per annum, an increase in the rate of investment from 11 per cent to 15 per cent of GDP and an increase in the ‘directly productive component’ of government investment. To encourage industrial development and lessen dependence on foreign trade, import substitution industrialization (ISI) was introduced conserving foreign exchange by producing local products that were previously imported. Import duty relief, accelerated depreciation allowances, and easy remission of profits aimed to attract foreign investors. The period of this plan witnessed the commissioning of energy projects such as the Kanji Dam and the Ughelli Thermal Plants, which provided a vital infrastructural backbone for the emerging industrial sector. Other important industrial infrastructure included an oil refinery, a development bank, and a mint and security.

Military intervention in Nigeria’s governance in 1966 resulted in a 30-month civil war from July 1967 to January 1970. The post-war economy was dominated by the oil sector, arising from the unprecedented increase in the price of crude oil in the international market. Oil exports as a percentage of total exports rose from 58 per cent in 1970 to 83 per cent in 1973. The oil boom enabled public sector expansion in infrastructure and manufacturing, most of which was aimed at achieving IS of foreign consumer goods and consumer durables. These measures were encompassed in the Second National Development Plan (1970–4). The government embraced ambitious and costly industrial projects in sectors such as iron and steel, cement, salt, and paper.

According to Stakeholders in industrial sector, who spoke to Daily Sun, recently, says, the period of the 1970–4 plan also witnessed a dramatic shift in policy from private to public sector-led industrialization. It was clear that there was a dearth of human capital and skills required for initiating, implementing, and managing industrial projects among Nigerian entrepreneurs. Foreign technical skills and services were heavily relied upon. The oil economy was characterized by ‘Dutch Disease’, signified by the diversion of productive resources away from agriculture into commercial activities that thrived on trade in imported manufacturing goods. The windfall in oil revenue affected the fiscal policy of government.

They noted, the Third National Development Plan (1975–80) was launched at the height of the oil boom—emphasis remained on public sector investment in industry. Indigenization policy was implemented in 1973 and 1978, with the objectives of increasing the level of local managerial control, building local technological capability, and extending state ownership. Heavy subsidies were provided for public companies and corporations. The Nigerian Enterprises Promotion Act of 1977 aimed to further support Nigerian businesses.

It became apparent that the country had entered into industrial project agreements with very little concern for capabilities for technology acquisition. While each of these projects required the acquisition of key sector-specific skills, the agreements made by Nigerian planners were for the turnkey transplantation of technology. During the same period, the nation’s oil sector had  become vibrant and prosperous, and the gates of the economy had been opened up to all sorts of imports. This had a debilitating effect on real industrial growth. The period of the Third National Development Plan failed to advance the course of industrial development in Nigeria in a positive way.

The Fourth National Development Plan (1981–5) coincided with a global economic recession which sparked declining foreign exchange earnings, balance of payment disequilibrium, unemployment, and accelerating inflation in the Nigerian economy. This prompted emergency stabilization measures in 1982. These measures included advance deposits for imports; increases in import duties; review of import licences; a 40 per cent across the board cut in public expenditure without any prioritization; and an upward review of excise duties, interest rates, and prices of petroleum products. In the agricultural sector, exports became highly constrained by the overvalued naira and production declined. This included the production of labour-intensive export crops (e.g. cocoa, palm oil, cotton). The decline in output was most apparent in the manufacturing sector, resulting in gross losses in employment. This demonstrated the vulnerability of the high cost, import-dependent industrialization that had been encouraged by the pattern of incentives in the 1970s. A decline in the aggregate index of manufacturing was observed from 1982, falling by 26 per cent in 1983. Plant closures were common in consumer goods sectors, especially in textiles. Average capacity utilization in industry declined from 73.3 per cent in 1981 to 38.2 per cent in 1986 . The stabilization measures achieved some reduction in the volume of imports, however, the inability to effectively control the allocation of import licences and foreign exchange aggravated the pace of decline. The experience in the first half of the 1980s exposed profound weaknesses in Nigeria’s industrial structure and planning.

The return to democratic governance in 1999 introduced a new opportunity for industrial growth and economic freedom. The Bank of Industry (BoI), established in 2000, was introduced to accelerate industrial development through the provision of long-term loans, equity finances, and technical assistance to industrial enterprises. As a complement to this, a Small and Medium Industries Equity Investment Scheme was also set up. The role of S&T featured prominently in the economic reform agenda between 1999 and 2007, specifically within the rubric of the National Economic Empowerment and Development Strategy (NEEDS) . Similarly, the current economic policy blueprint—Nigeria Vision 2020 (NV20:2020) – embraces elements of science, technology, and innovation (STI).

A prominent feature of the industrial sector in Nigeria is the existence of a number of special economic zones. There are approximately twenty-five free trade zones (FTZ) licensed by the federal government. However, fewer than thirteen of these are currently operational. Some are under construction and in the early phases of development. Two types of free trade arrangement operate in Nigeria—specialized and general-purpose. These are managed by two bodies—the Oil & Gas Free Zone Authority for the oil and gas zone and the Nigerian Export Processing Zone Authority (NEPZA) for the general-purpose zones

For Director General of Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, says,  the economic activity is clustered in this way to create a controlled environment for industrialization to flourish, especially in the presence of poor infrastructure.

“The localization of firms allows for infrastructural provisions to be prioritized, and it gives firms a competitive edge while offering access to raw materials, skilled labour, technology, and materials. Nigeria has a number of large industrial estates and complexes, but has also witnessed the spontaneous development of small clusters across the country. The latter include the computer village in Otigba, Lagos; the auto and industrial spare parts fabricators in Nnewi; and the footwear, leatherworks, and garment cluster in Aba,” he explained.

The National President  of Nigerian Chambers of Commerce, Industry, Mines and Agriculture ( NACCIMA), Hajiya Saratu Iya Aliyu, says  there is urgent need for the government to find permanent solution to the challenges affecting the power sector in Nigeria, and this should cut across the entire value chain. Some of the challenges includes but not limited to funding, metering constraint, tariff issues, debt issues, competence and capacity challenge, transmission, gas, etc. We are of the view that the discos do not seem to have the financial and technical capacity required for efficiency in distribution network, and are not making tangible investments. We recommend that the Power sector be overhauled for efficiency and effectiveness.

Information and communications technology (ICT) is an emerging sector in Nigeria. A key example is the Otigba Computer Village which started in 1995, involving over 392 small and medium enterprises (SMEs) and employing more than 3,000 workers. The formation of this  cluster has given Nigeria a foothold in skills-intensive computer repair and ‘clone’ production.

On the other side , the textile industry is an example of a sunset industry and illustrates the deindustrialization process that Nigeria has experienced in the last decade. According to the Manufacturers Association of Nigeria (MAN) through  its Director General, Mr. Segun Ajayi-Kadir,  over 820 companies shut down or suspended production between 2000 and 2008. At its peak, the textile industry employed close to 700,000 people (making it the second largest employer after the government) and generated a turnover of over US$8.95 billion. “The industry witnessed a catastrophic collapse, from 175 firms in the mid-1980s to ten factories in stable condition in 2004, while employment in the industry plunged from 350,000 to 40,000,” he noted.

At present dispensation under President Muhammadu Buhari over 350 industries has been shut down despite various  incentives introduced to attract investors into manufacturing sector. Various export promotion has also be introduced , but still uses import prohibition to protect its manufacturing and agricultural sectors. The rationale is that the production base is relatively weak, import-dependent, and limited in technological capability. The import prohibition list includes a wide range of manufactured consumer goods that were often dumped in Nigeria’s relatively large market. A few agricultural products (e.g. fresh fruits, pork, and frozen poultry) that are produced locally in large quantities are also included in the list to protect the local industry and encourage job creation. On the export prohibition list are staple foods/crops that are important for food security, commodities that could serve as raw materials to local industries, and living organisms that are becoming rare. Such commodities include maize, hides and skin, scrap metals, and wildlife animals classified as endangered species.

Despite the size and fast pace of economic growth in the Nigerian economy over the last decade, Ajayi-Kadir says, the manufacturing sector remains weak. “Past policy efforts aimed at improving the performance of the sector have failed, and the focus has shifted towards more targeted policies aimed at specific sectors, as set out in NV20:2020. A key aim is economic diversification, with a focus on stimulating the manufacturing sector and strengthening its link with the agricultural and services sectors,” he stressed.

A number of challenges exist that will be critical to the success or failure of this strategy. Key among these are infrastructure, corruption, and national security. The current infrastructure base in Nigeria is grossly inadequate in terms of capacity and quality. Power generation capacity is less than 2,000 MW—about 20 per cent of estimated national demand. A key challenge for government and the private sector is to build a modern, efficient, and effective infrastructure network within the next five to ten years.

The internal security of Nigeria has become a major challenge. Internal conflicts, including religious, ethnic, and economic, have had debilitating effects on the economy. The insecurity of lives and properties became noticeable following the civil war and the subsequent military regimes, and the recent upsurge of violence and insurgency in the country heightens the need to address the persistent causes of social tension.

Addressing these concerns,  Hajiya Saratu Iya Aliyu, says, will require private sector collaboration. Business coordination efforts in Nigeria have been largely successful, but future cooperation will require the development of efficient, accountable, transparent, and participatory governance. She noted strong public service institutions can engender government effectiveness, and success will depend on the establishment of a competitive business environment characterized by sustained microeconomic stability and the enhancement of national security and justice.

About Editor Charles

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