I am a great fan of the Made-in-Nigeria movement. There is an ongoing campaign for Nigerians to patronize local products in order to save our economy from import dependence and its attendant pressures on dwindling dollar earnings. As far as I am concerned, even if the current financial crisis had not reared its ugly head we would have needed a home-base industrial strategy. I have always insisted that there is no nation with a population of nearly 200 million people which does not also possess a strong manufacturing base. If such a nation does exist, its future and prosperity would gravely be imperilled. How else are we going to absorb the millions of young people being churned out year-in-year-out by our bourgeoning education industry? How can we maintain a semblance of national honour if we import almost everything required by our local consumers?
If wishes were horses beggars would, of course, be riding them all the way to Daura. We have so many policies and plans for industrial development that have been gathering dust in dingy government archives. It is one thing to have pious intentions, it is quite another to translate them into rigorous frameworks for action. This is where we fail as a country. The devil is always in the detail of implementation.
My own conviction is that we do not need any new plans. We already have everything that we need on that score. Rather, what is needed is how to translate the plans into a blueprint for implementation and to follow-up. And to do so with thoroughness and rigour. We also need to address the binding constraints that exist on ground. And these are legion.
What many of us fail to realize is that manufacturing is a form of culture — a way of life. I have been a frequent visitor to Japan. I never fail to be amazed by their discipline and capacity for work. There is a Samurai culture that undergirds the Japanese work ethic. They are totally non-compromising when it comes to the matter of order and good form. Everything is operated with clockwork precision – factories, trains, harbours and even the government bureaucracy. An industrial culture requires mastery of the discipline of work, of keeping the machines going, and of securing a sound and harmonious work environment. The duty of government is not only to address these constraints but also to build the right enabling environment for industry to flourish.
One of the biggest impediments to Nigeria’s industrial development is the parlous state of its infrastructures. Limited power generation and weak distribution along with a severe lack of transportation raises the cost of business. By some estimates, the cost of power to the private sector is six or seven times the price paid by international competitors.
For Nigeria, the most glaring gaps exist also in skills and training; technical higher education and world-class universities; commercial courts to enhance speedy adjudication of business and investment disputes; an efficient and professional civil service; transparent regulation; law and order; industrial clusters; prevention of ethno-religious violence; consolidating national stability and democracy; deepening the financial architecture; and creation of a national Competition Commission to prevent collusive behaviour on the part of firms and local businesses. There is anecdotal evidence of such collusive behaviour in the building materials, automotive spare parts, transportation, oil and telecoms sectors which distorts market efficiency, prevents competitive pricing and provides Nigerians with poor-quality products and abysmal services.
During the summer of 2009 Prof. Michael Porter of Harvard University addressed Nigerian political leaders and captains of industry on the issue of national competitiveness. Among the factors he identified as militating against economic competitiveness were the weakness of political institutions and the infrastructures gap. Although there has been some progress in reducing corruption and the rule of law Nigeria remains among the worst affected countries globally. The country remains at the bottom group of sub-Saharan countries in terms of governance. He noted that government entities are often inefficient and uncoordinated while the states and the federal government suffer from rivalry and poor collaboration. In addition, electricity, land and air transport and access to finance, skills and ICT remain poor. Prof. Porter also remarked that the regulatory regime is rife with red tape and rent seeking while rampant monopolies weaken open and fair competition. The tax regime is also rather complicated while the social infrastructure and education sectors remain weak.
Porter, however, noted some of our strengths in terms of the advantage of a large home market, favourable location, abundant natural and human resources and some progress that has been made in macroeconomic policy management.
Some of the binding constraints that we need to work on include the following.
First, there is the question of low level technology and poor technology choice. While new processes and procedures have revolutionised the manufacturing industry in the industrialized nations, industries in Nigeria, especially textiles, cement, bakery, leather, paper manufacturing and many others are producing with 1970s machinery, giving rise to frequent breakdown and reduction in capacity utilization rates. Low technology is responsible for the inability of local industry to produce capital goods such as raw materials, spare parts and machinery, the bulk of which are imported. This factor also explains the very low value added and low productivity.
Secondly and related to the foregoing is the problem of low capacity utilization in the manufacturing sector. Capacity utilization, which has been in path-decline since the 1980s, stands at between 30 and 40 per cent, indicating gross underutilization of resources. This has been blamed largely on frequent power outages, lack of funds to procure inputs, fallen demand for manufactures and frequent strikes and lockouts by workers and their employers.
Thirdly, lack of funding is an acute handicap. Most of Nigeria’s banks, with the absence of an effective risk ratings agencies, have been reluctant to lend to the real sector, preferring to deploy their excess funds into the stock market and speculative activities. Banks perceive manufacturing as a high risk venture in the Nigerian environment, hence they prefer to lend to low-risk ventures, such as commerce, in which the returns are also very high. Lack of funds has made it difficult for firms to make investments in modern machines, information technology and human resources development which are critical in reducing production costs, raising productivity and improving competitiveness. Even when credit is available, high lending rates, which were over 40 per cent at a time, made it unattractive; more so when returns on investments in the sub-sector has been below 10 per cent on the average.
Fourthly, there is also the fact of high operating costs — costs related to poor infrastructures and lack of adequate electricity. When individual businesses have to diesel – fuelled generators, it adds a huge cost to their businesses and renders them uncompetitive. Increased cost, traced largely to poor performing infrastructural facilities, high interest and exchange rates and diseconomies of scale, has resulted into increased unit price of manufactures, low effective demand for goods, liquidity squeeze and fallen capacity utilization rates.
Fifthly, poor performance of infrastructural facilities, characterized by frequent disruption in electric power and water supplies and inefficient telecommunication and transportation systems, is a major constraint on productivity. As firms have to invest huge capital to provide alternative infrastructural facilities to run their businesses, enterprises are forced to carry high cost structure which reduces efficiency and results in loss of competitiveness for their products.
Sixthly, there is the fact of low skills. In spite of the availability of surplus labour, the education system churns out young people with poor technical and computer skills. The business and human sciences have tended to be more popular than the technical and engineering disciplines. Due to strikes by university teachers and poor government funding, standards have fallen.
Seventh, our business culture remains problematic. The Nigerian business culture is more focused on trading rather than industrial production. There is quite simply the absence of an industrial tradition. Only few Nigerian are ready to take the kind of entrepreneurial risk in industrial investments. This is not only due to a poor business environment but also due to the absence of a robust industrial tradition. The poor image of the country also discourages potential foreign investors.
Eighth, we would mention the lack of policy consistency and absence of effective institutional supports by government. In countries such as South Korea, Taiwan, Singapore and Malaysia, government is committed to nurturing industries and small businesses, providing knowledge, skills and a robust environment in which they can thrive. Such supports, unfortunately, are virtually non-existent in Nigeria.
Ninth, there is also the challenge posed by the WTO’s liberal international trading regime by which developing countries can no longer invoke the ‘infant industry argument’ to impose some kind of protection on local firms. Nigeria’s failure to sign up to the EU’s Economic Partnership Agreement (EPA) has affected several of its exports. As far back as 2009, there were already indications that cocoa exporters were beginning to feel the pinch, as their exports to the EU were beginning to experience restrictions. The government has set up a committee to look into the trade implications of the Agreement, with many critics arguing that it would result in a massive influx of cheap goods from Europe to the detriment of local industries and jobs. More recently, nearly all Nigerian commodities, with the exception of oil and gas, have difficulty entering the European market. We need to intensify dialogue with our ECOWAS partners and the EU to find an amicable settlement so that our trade relations can resume without further difficulty.
Finally, there is the challenge of China. Nigeria’s trade and commercial relations with the Middle Kingdom are growing from strength to strength. They now stand at the magnitude of US$14 billion, only outdone by our trade with India, which currently stands at US$17 billion. Beijing has strong interests in our country’s oil and natural gas, solid minerals and infrastructures sector. At the same time, however, Nigeria has to contend with the problem of trade dumping, as substandard Chinese goods flood the market, with evidence of massive smuggling of textiles, mobile phones and electronics. We need to encourage the Chinese to invest in critical sectors within our economy, with terms that ensure fairness in environmental and labour practices and in the imperatives of technology transfer.
I dream of a day when Nigeria will become the manufacturing hub of the African continent – producing aircraft, building trains and submarines and designing satellites of outer space. But to do so we need, first of all, to able to be self-sufficient in food. Only a food-secure nation can aspire to technological-industrial advancement. But it cannot happen without the existence of world-class infrastructures, an atmosphere where the law courts are predictable and fair and contracts are enforced and the rule of law prevails; an environment in which the leadership is credible and policies are consistent within a long and sustained trajectory. We must industrialise or perish!
Obadiah Mailafia
