Industrialising Nigeria: Beyond the rhetoric of revolution

Nigeria is in desperate need to industrialise and diversify its economy. The country’s economy is structurally defective and everyone accepts it must be rebalanced away from the dependence on oil export to value-added manufacturing exports. Indeed, Nigeria’s economic paradox would shame any nation in its category: the paradox, for instance, of being a major oil exporter and yet importing over 80 percent of its refined oil needs; of being a leading exporter of cocoa beans, but adding very little value. Nigeria doesn’t only export a very small number of goods (oil and a handful of non-oil items), it adds very little value to the few products it exports. For decades, successive Nigerian leaders have talked about the need to industrialise and diversify the economy. But awash with oil money, Nigeria has always paid lip service to the structural transformation of its economy.

However, that lethargy has now turned into desperation. The trigger, of course, is the collapsing oil prices, and the realisation, as one Western commentator put it, that “cheap oil is here to stay thanks to fracking”. In other words, with shale technology, oil is unlikely ever to return to its halcyon days of high prices – it was $140 per barrel in 2014, now it’s under $40! For Nigeria, of course, this has huge implications, which President Buhari accurately captured recently when he said that “The days of Nigeria as a big oil producer with plenty of money are gone”. Nothing can be truer!

So, it’s understandable why Nigeria’s leaders are fixated on the need to industrialise and diversify the economy. Indeed, that need is so compelling that the Buhari government has decided not to do any fresh thinking on the subject, but to adopt an off-the-shelf solution even from its opponents! We know, don’t we, that President Buhari hardly sees anything good in the Jonathan administration, which he believes left him nothing but Augean stables – corruption, insecurity and a bad economy etc! Indeed, Buhari said on assuming office that “We will gladly have policy somersaults” on policies of the Jonathan administration. But, now, the Buhari government has adopted lock, stock, and barrel the Jonathan administration’s industrial policy.

The Minister of Industry, Trade and Investment, Okechukwu Enelamah, said recently that “Our Industrial ambition is hinged on the Nigeria Industrial Revolution Plan (NIRP), launched by the previous government in 2014”. Given that the key characteristic of a successful policy is its durability and ability to weather political change, one must assume that the NIRP has survived the Buhari government’s apparent animus towards the Jonathan’s administration because it is a very good policy. But is it? Well, I took time to find out by reading the document.

Now, you may ask: “what’s in a name?” But, in truth, it was the document’s title that first caught my attention: an industrial “revolution” plan. Nigeria is good with highfalutin words, some of the favourites being “revolution” and “transformation”. But often the policies behind those grandiose words fall far short of the high ambitions that the high-sounding titles suggest. So, is the NIRP different? Would it do exactly what it says on the tin? Well, let me just say that I have my doubts. I am not at all convinced that the policies set out in the NIRP would “revolutionise” the industrial landscape of Nigeria or “rapidly build-up industrial capacity and improve competitiveness in Nigeria” as the plan claims!

The first key weakness, in my view, is the absence of a strong linkage with science and technology. The current theme of the World Economic Forum is the 4th Industrial Revolution, characterised by digital technology, with the likes of robotics, 3-D printing etc. All the Industrial Revolutions, including the three previous ones in 1784, 1870 and 1969 respectively, have the same thing in common: the centrality of technology. And several countries are now making the digital revolution part of their manufacturing future. There is a general concern that manufacturing is declining in the UK, even though it’s still the 11^th largest manufacturing economy in the world, with manufacturing making up 54 percent of its total exports. Now, Britain is making the emerging new technologies part of the future of its manufacturing, including robots, additive manufacturing or 3-D printing, and the Internet of Things, that is, machines communicating to machines.

A few weeks ago, I attended a seminar given by two senior executives of Roll Royce, who spoke about manufacturing excellence and the role of research and development. Science and advanced technology are at the heart of manufacturing excellence, they said. A country industrialises when it can achieve a step-change improvement in manufacturing through technology innovation that can transform productivity by, for instance, replacing a process that takes 46 operations with a new method that takes 21! Talking about an industrial “revolution” in Nigeria when it’s still grappling with basic problems of infrastructure and has such a low technological base thus rings a bit hollow. It’s inconceivable that there can be an industrial “revolution” in Nigeria without first having a revolution in innovation and technology, both of which flourish in a competitive environment.

To be sure, the NIRP contains the right buzzwords: competitiveness, innovation etc. Consider the following statements, for instance: “Nigeria’s industrialisation must be driven by long-run competitiveness” and “Industries thrive locally when they can compete globally”. Hardly anyone would disagree with any of these. Yet, at the heart of Nigeria’s plan is an industrial policy, designed to support old, struggling and uncompetitive sectors. Specifically, Nigeria has decided to promote four industry groups and 20 sub-sectors that are largely unproductive, structurally weak and technologically deficient, and that produce low-quality yet expensive goods that only few people want, despite the hypes about the “Buy Naija” and “Made-in-Nigeria” campaigns!

Of course, governments should cultivate and support winning sectors, but picking “winners” ex ante is bad policy not least because evidence shows that such selectivity is hardly ever driven by market considerations. Surely, policy should follow and not try to lead the market. For instance, if there is no market demand for products produced by an industry, and the government tries to prop up that industry, it would simply perpetuate the inefficiency. The only way government intervention could be justified, despite a lack of initial market demand, is where there is market failure or the government is investing in innovative technology, as the US did when it supported the early development of the internet, despite a lack of private sector interest. Even the United Nations Commission on Africa (UNECA), which favours “vertical” interventions, argues that they should be based on “rigorous empirical analysis”. But UNECA doesn’t think that the NIRP meets this condition. According to the UN body: “selecting the various sectors to be promoted appears to be based on rule of thumb and not on known rigorous studies”, adding: “The number of subsectors (20) appears on the high side to qualify for a selective trade or industrial policy”.

The truth is that attempts to support a struggling industry without tackling its structural weaknesses always fail. China, which the NIRP tries to copy, is a case in point. Recent evidence suggests that China’s state-led model of propping up unproductive firms is not working. According to a recent report in TIME magazine, China’s industrial policy has created “zombie enterprises” that are churning out unwanted goods. It is estimated that 3 million jobs would be cut from China’s coal, steel, electrolytic, aluminium, cement and glass industries due to their inefficiency. And China is now focusing on supply-side reforms to support industries rather than artificially increasing domestic production output through selective state interventions.

Let’s face it, many of the sectors and sub-sectors selected for special treatment in the NIRP cannot survive in a competitive environment. They would either have to innovate and raise their game or disappear from the market. For instance, food processing in Nigeria has a serious quality and standards problems. Cement is a highly protected, oligopolistic sector, and as the NIRP states, “Nigerian cement prices are currently one of the highest globally”. The auto industry can’t produce cheap cars for ordinary Nigerians, and the light manufacturing sector can’t innovate and compete. Yet, the NIRP’s vertical policy interventions aim mainly to protect these struggling and unproductive sectors through the trade policy instruments of high tariffs and import bans, as well as discriminatory subsidies and public procurement, which are protectionist tools.

The NIRP clearly fails to recognise that an industrial revolution needs a consumer society. Therefore, any policy to promote industrialisation must put competition and consumer welfare at its heart. Some of the key barriers to industrialisation highlighted in the NIRP are low consumer purchasing power and low patronage of “Made-in-Nigeria” goods. Surely, the first is linked to the low productivity of most Nigerian firms, which means that workers receive poor wages. It is also linked to the fact that goods produced by Nigerian companies are too expensive. The second problem is linked to the poor quality and standards of Nigerian-made products.

Now, if you can tackle problems associated with productivity, competition and standards, most Nigerian companies would be able to compete on prices and quality, and this would have a multiplier effect. As Nigerians earn better wages (thanks to higher productivity) and as goods become cheaper (thanks to competition, productivity and innovation), consumers would have more disposable incomes, and buy more things from producers, thus supporting industrial development, creating jobs and generating prosperity. A key to industrialisation, therefore, is to make sure that any policy designed to support industrial development doesn’t reward producers while punishing consumers, but rather benefit businesses and consumers alike.

For me, the future of industrialisation in Nigeria rests on the horizontal measures, focusing on infrastructure, skills, innovation, standards, access to finance, as well as a dogged commitment to developing science and technology and making Nigeria a competitive and open economy. To be fair, some of these measures are also identified in the NIRP. They should be the real focus of Nigeria’s industrialisation policy, and not the old-fashioned strategy of propping up unproductive firms. Any targeted support must be time-bound and linked to innovation and export performance. Remember: industries than can compete globally will thrive locally!

Olu Fasan