Industrialization and Nigeria’s Post-Crisis Economic Recovery, By Professor Banji Oyelaran-Oyeyinka
Introduction
Your Excellences,
Vice Chancellor Lawrence Ikechukwu Ezemonye’
All the principal officers of the University, colleagues, distinguished ladies and gentlemen.
I wish to thank you immensely for giving me the opportunity to join and share this important 22nd Founder’s Day with you. I am here at a very significant time for our country and for Africa. What we choose to make of the challenges and as well, opportunities presented, will be critical for the development of Africa and our dear country.
COVID-19 has more than wreaked havoc on all areas of society. Lives have been lost untimely. Businesses and otherwise thriving families put in disarray. Besides the grief visited on individuals and communities, the plague has had huge negative impact on Africa’s health and food systems. We were largely unprepared and our lack of resilience severely tested and exposed our capacity for autonomous response in stark relief. Nigeria depends too dangerously on others for basic needs.
Significantly, COVID-19 accentuates two types of dependencies into which African countries are locked. First, is the dependence on export of commodities such oil, minerals, and agricultural raw materials. Second, the pandemic led to the crash of oil and mineral prices; both events exacerbated Africa’s economic challenges and taxed the health system in the most severe of ways. Africa imports around 80% of its drugs and medical supplies from China and India. According to the African Development Bank (AfDB), potential losses in GDP are to the magnitude of $ 173 and $236 billion in 2021 and 2022 respectively. The second dangerous dependency is the reliance on food imports, especially grains imports, estimated at $45 billion in 2019.
Your Excellencies,
Nigeria therefore faces not just a health crisis, but its people find themselves trapped in the quagmire of hunger, poverty, human insecurity and wants of all kinds. So, death comes not just by disease but by food and nutritional deprivation!
Most African countries suffered major economic collapse due to reliance on commodity exports that is subject to significant volatility and instability. Structurally, African minerals and oil exporters whose trade is highly concentrated in few commodities and limited number of partners have experienced very limited economic diversification.
Economic diversification entails a shift away from a single income source (oil and minerals) toward multiple income sources from an increasing spectrum of sectors, products and markets.
In pursuit of long-term recovery and sustainable development, Nigeria needs urgent economic diversification. Nothing is more poignantly demonstrative of the danger of over-reliance on a single or narrow range of commodities than the recent crash in oil price we saw in 2020 due to the COVID-19.
To illustrate, contrast two countries, Nigeria and South Korea that were at the same level of per capita income in the 1960s. On the one hand, Korea, a non-resource based economy has performed incredibly strongly through export diversification and growth since the 1960s. Considerable energy was devoted to the accumulation of industrial manufacturing that propelled its remarkable growth. The country is now ranked one of the: “most innovative countries on earth”.
In 1953 when the Korean War ended, the nominal GDP of Korea was $1.3 billion; it grew rapidly for the last six to seven decades; to 1.65 trillion in 2019. The GDP/Capita rose to $32,000 from a mere $158 in 1960.
In contrast, Nigeria hardly diversified. The country got locked-in into petroleum export for export earnings to the detriment of value-added agriculture and manufactures. The result is low contribution of the manufacturing sub-sector which fluctuates between 5% to 8% to aggregate output in Nigeria compared with its peers in Asia (Korea about 30% in the 1990s) is staggering.
The outcome is a Nigeria characterized by structural dualism. The agricultural and informal sectors consist of peasants, poor low-skilled traders with an admixture of subsistence and modern farming, co-existing with an evolving industrial sector largely labor-intensive. Nigeria’s GDP/Capita was $93 in 1960 and $2,222 in 2019. Oil export as percentage of GDP was 57% in 1970, this rose to 96% by 1985.
In contrast, Korea’s per capita is just shy of that of the status of a rich advanced industrial nation. Nigeria is stuck at low-medium income with a large proportion of very poor. Nigeria is in a state of stalled industrialization.
Economic Progress comes only to producers. Poverty is the lot of those that always buys from others. I quote from the Economist magazine five years ago: “BY MAKING things and selling them to foreigners, China has transformed itself—and the world economy with it. In 1990, it produced less than 3% of global manufacturing output by value; its share now is nearly a quarter. China produces about 80% of the world’s air-conditioners, 70% of mobile phones and 60% of shoes. Today, China is the world's leader in manufacturing and produces almost half of the world’s steel. The key words are “Making” and “Factory”.
Nigeria and other poor African countries remain poor because they continue to produce raw materials for rich countries.
2.0 Imperative of Urgent Industrialization
Throughout the history of capitalism - in both the near and the distant past - practically all countries that have transformed their economies from low- to high-income have done so through a process of industrialization. In 1750, Europe, North America and Japan constituted only 27% of manufacturing production in the world. However, by 1900, those regions made up 90% of world manufacturing production. Unsurprisingly, economic growth rates between the West and ‘the rest’ started diverging as well.
By the early Twentieth century, the world had been divided into two groups of economies: one was rich and industrialized; the other was poor and dependent on subsistent agriculture and natural resources. Industrialization became the main driver of economic development.
After World War II, the world’s manufacturing landscape started to change. As developing countries gained independence and had more autonomy in formulating policies towards their own development objectives, they implemented policies to promote industrialization. Over time, a significant share of global manufacturing production relocated to these countries, particularly to East Asia.
According to a study of ‘growth miracles’ by the World Bank in 2008, only 13 countries in the world have been able to sustain an annual growth rate of 7% or higher since 1950. Only two countries, both with small populations and highly idiosyncratic economic structures – Botswana and Oman – are among the group of 13 that have not grown because of industrialization[1].
Additionally, countries and regions that have de-industrialized or prematurely de-industrialized have experienced a slowdown in economic growth or, at worst, declining economic growth.
PART II: Nigeria’s Realities and Prerequisites
3.0 Infrastructure and Industrial Manufacturing are closely connected
Infrastructure and economic growth are closely related. Economic diversification requires investment in infrastructure. We estimate Nigeria's infrastructure deficit at $100 billion annually. This is three times the total 2021 federal budget, projected at $34.51 billion. Clearly, one of the most significant barriers to industrialization, value addition and competitiveness of Nigerian firms is poor infrastructure. According to a recent Financial Times (FT) report: “The congestion at the port in Lagos has become so bad that it can cost more than $4,000 to truck a container 20km to the Nigerian mainland these days, almost as much as it costs to ship one 12,000 nautical miles from China”. The estimated loss in economic activities is $55 million per day.
Industrial development depends on a wide variety of hard, soft and advanced infrastructure. Electric power, water/sanitation, roads, railways, ports and airports propel all modern production structures such as factories and agricultural value chains. Think about how global productive agricultural economies work: they are heavy users of chemicals, fertilizers, pesticides and agricultural machinery. Look at the world’s most productive service economies: they rely on top-tier computer technology, transport equipment and, in some instances, mechanized warehouses.
4. Nigeria must break its Dependence on oil and Raw Materials Export
Africa will continue to remain at the bottom of global wealth table measured by GDP as long as it is a raw materials exporter. In National Accounts, GDP measures value-added not materials buried under the ground like oil, nickel or copper; but then Africa hardly adds value to its vast raw materials assets.
In Nigeria, cocoa production fluctuates between 250,000 to 400,000 tons per year. Nigeria exports about 85% of total cocoa production as raw beans and only process and mostly export the remaining 15% into butter, liquor, powder and cake.
Contrast the case of Indonesia: the cocoa processing industry contributes significantly to Indonesia’s foreign earnings. According to official records, the cocoa industry processes nearly 80% of the output for exports. In 2019, processed cocoa products contributed over $1.01 billion in export value. Currently, the cocoa industry produces several products including cocoa liquor, cocoa cake, cocoa butter, and cocoa powder, with the main export going to countries such as the United States, the Netherlands, India, Estonia, Germany, and China.
Globally, cocoa is a $100 billion annual market. Ghana and Cote d’Ivoire produce 70% of global cocoa beans but their share of this market is less than 10%. The bulk of the value goes to value adding chocolate producers.
A similar story applies in the oil palm industry. Nigeria and Malaysia were practically at the same levels in the 1950s. The two countries drew from the same gene plasm; Nigeria relied on wild groves, Malaysia developed a strategic industrial masterplan in 1956. The sector in Malaysia enjoyed systematic investment including R&D spending, aggressive breeding and tissue culture developments[2] investment in science and technology. Currently Malaysia has six million hectares of plantation while Nigeria has 10% of that at 600,000 hectares. It is a contrasting story of industrial transformation for them and stagnation and bad governance for Nigeria.
Today, with the rapid expansion of cultivation in South-East Asia, Malaysia and Indonesia are the leading producers of palm oil supplying more than 80% of the global production and continue to dominate the international trade. Malaysia earned RMB 67 billion (US$ 16 billion) from oil palm in 2018.
Nigeria is a leading cashew producer but as with cocoa and oil palm, it exports raw cashew mostly. One tonne of raw cashew fetches $1,200 while processed cashew nuts sells internationally for $10,000. Nigeria as with most African producers exports most of its in-shell cashew nuts — in raw form.
David Pilling of Financial Times describes the unequal trade relations of the 21st Century thus: “For centuries, the world’s most advanced economies used African slaves to pick their cotton and harvest their sugar in places such as the US and the Caribbean. Slavery has been banned. The West would now prefer to leave these workers where they are to produce what the world needs. The power relations remain essentially unchanged”[3].
Part III: Removing Barriers to Industrialization
Africa is not short on big ideas. We have agendas that can propel the region to great height. The Agenda 2063, the African Development Bank High-5s among others can if implemented fully will allow the continent achieve prosperity. The starting point is the determination to engineer a structural transformation process that ends over time this import-dependence that keeps Africa in poverty. It is time for the region to create strong industrial value added capacities that actively promote autonomous industrialization.
What are these barriers?
5. Institutions Leadership and Human Behaviour
One of the historical challenges that Nigeria is dealing with and which has been a clog in the wheel of progress is the emergence of institutions that oppose industrialization. An enclave economy such as oil tends to breed rent-seeking behavior including widespread corruption. Rent seeking as different from profit seeking expends huge resources to gain a larger share of existing wealth rather than create new wealth. Since such wealth is expended without creating a new one, the net effect of rent seeking is reduction of total social wealth. However, we know that individuals operate institutions - and often-powerful groups - whose interest lies in non-industrial activities. One can say with little contradiction that the Nigerian elite by their behavior have sabotaged every industrial initiative ranging from iron and steel, petrochemicals/refineries, aluminum, fertilizer projects to name a few.
Arthur Lewis alluded to the damaging impact of human behavior that slows down economic advance of the African society. The point he wrote is this: “Given [a] country’s resources, its rate of growth is determined by human behavior and human institutions[4]”. We trace these very basic constraints on progress to the primordial mindsets of people in powerful positions.
The best people for the job never get a peep in. Cronyism and nepotism, the basis of political parties that we operate, ensure that the brightest and the best serve the mediocre. In the end, corruption and self-sabotage of national aspirations by the elite have been at the root of Nigeria’s economic backwardness far more than technological incompetence; important a factor as the latter is.
In our society with fragmented and diverse ethnic groups, what benefits the powerful in politics and bureaucratic groups may all-too-frequently disadvantage the growth and economic performance of the country. The patronage system operates in a way by which rulers and their political organizations profit not through promoting economic growth but through giving rewards to key constituents who keep them in power. This applies to bureaucracies too. Powerful bureaucrats benefit not by supporting production but rather by taking control of resources and allocating such in ways that promote cronies and political allies.
Let me remind you of some of the industrial initiatives that have been victims of our carnivorous political and economic systems.
i) Ajaokuta Steel Mill, construction started in 1979 and ended.
ii. Nigeria Paper Mills: As part of its strategic plan for pulp and paper production for domestic and export markets, the Nigerian government commissioned the Nigeria Paper Mill, Jebba, Kwara State, in 1969; Iwopin Pulp and Paper Company (IPPC), Ogun State in 1975 and Nigeria Newsprint Manufacturing Company (NNMC) in Oku-Iboku, Akwa Ibom in 1986. The government’s plan was for the three pulp and paper mills to provide tonnes of different papers in their thousands every year and of course, their performance was encouraging and promising. As of 1985, the Jebba mill, which was to be the largest in West Africa, was producing 65, 000 tonnes of Kraft paper, liner and chipboards, sack Kraft, and corrugated cartons per annum. I
(iii) Oluwa Glass Company, Igbokoda: Founded by the former Ondo State governor Michael Ajasin, this factory was the only one of its kind on the African continent. It was designed to supply automobile windscreens, drinking glasses, and the construction industry with windows. Today, it is lying totally derelict.
(iv) Okposi Salt Industry: During the Nigerian Civil War, this plant provided Biafra with all its salt. Using very basic technology, women processed water from Okposi Salt Lake and turned it into table salt. It is nowhere to be found today.
(v) Ile-Oluji Cocoa Grinding Plant: Another initiative of Governor Michael Ajasin, this plant was started as part of the integrated chocolate production chain.
(vi) Mokwa Cattle Ranch: This was another initiative introduced during the First Republic. Brought to Nigeria by the Germans, the Mokwa Cattle Ranch was actually designed to end the primitive practice of nomadism in Nigeria. The livestock at the plant was to be fed on special molasses diets. As of at 1973 when the Germans handed over the ranch to Nigeria, it still had 3,000 healthy cattle in it. Today, there is not one cow on the ranch
(vii) Nigerian-Romanian Wood Industry, Ondo: This is another major tragedy as this plant actually got up and running. It was a major supplier of furniture to the home furnishing industry and by now, would have been exporting finished products to the industrialized world had we kept it going. It lies in ruins today.
(viii) Bacita Sugar Company, Ilorin: Nigeria’s annual sugar consumption is about 2m tonnes but we only produce about 25,000 tonnes of this. Aliko Dangote’s Savannah Sugar Company in Adamawa State is trying to bridge the gap but alas, the gulf is massive
(ix) Okitipupa Palm Oil Mill: the Okitipupa Palm Oil Company began life in 1969 with the creation of plantations. In 1974, an oil-processing mill was installed and in 1976, the firm was incorporated as a limited liability company. As with many other initiatives, it collapsed due to myriad reasons that are familiar.
(x). The Cotton Textiles and Garment Industry: 145 textile companies shut down operations between 1980 and 2016 due to harsh economic climate; again reinforcing the urgent need for Nigeria to diversify its economy from oil dependency. Between 1985 and 1991, Nigeria’s textile sector recorded an annual growth of 67 per cent and as at 1991; it employed about 25 per cent workers in the manufacturing sector. At the time, 180 textile companies employed about one million people.
Some of the textiles companies that enjoyed the boom then include Kaduna Textile Ltd (KTL), Arewa Textiles Plc, United Nigerian Textile Plc, Supertex, Nortex Nigerian Ltd and Finetex Nigerian Ltd. Others were Gaskiya Textiles Mill, Kano Textile Ltd, Aba Textiles, Zamfara Textiles Ltd, Asaba Textiles Ltd, African Textile Mill Plc, Tofa Textiles and several others.
The story, however, changed in the early nineties and the sector took a massive dive into an industrial abyss.
6. The Damaging Legacy of SAPs
The falling behind of many African countries coincided with acceptance of the “Structural Adjustment Programs” introduced by the World Bank and similar organizations in the mid-1980s, whose content derives from the so-called Washington Consensus.
The Structural Adjustment Programme (SAP) was a set of “one size fits all” policies that replaced the industrial policies in SSA with simplistic macro – economic framework. It led to the de-industrialization of the embryonic economies of SSA. This misguided approach to development denied African countries the space to create broad manufacturing platforms that offer avenues for large-scale employment and decent wages.
Clearly, governments have an important role to play in directing the nature and direction of industrialization. Progressive governments throughout history understand that the faster the rate of growth of manufacturing, the faster the growth of Gross Domestic Product (GDP). When a government is weak, corrupt or lack confidence in its people, industrial plans are left to foreigners who take advantage of our weak governance.
PART III: What must Africa and Nigeria do?
7. Urgent Diversification
So what distinguishes Nigeria and countries like South Korea, Malaysia and Indonesia? What should Nigeria and indeed Africa do to recover, rebuild and revitalize? Urgently, , pursue an active industrial strategy taking agri-business as its base while continuing to promote other industrial sectors, and the services sector that have driven most African economies. While the country is challenged with poor power supply, use the strategy of localization of industrial zones such as the AfDB’s Special Agro-Industrial Processing Zones (SAPZs).
I have argued with empirical evidence that continuous concentration on commodities exports is strongly related to relative economic instabilities, poverty and unemployment. For Africa as a whole, the dependency figures are significant and troubling as commodity exports on average account for 80% of total merchandise exports.
Economic history has shown that without diversification into industrial manufacturing including modernized agribusiness and services, and away from simple resource extraction, the long-term development prospects of countries are always bleak. The need for economic diversification in the continent is high, even more so given that the growth cycle is at a low point.
8. Industrialize for Massive Employment Creation for Youth and All
A strong link exists between the poor state of export diversification and the dismal nature of employment creation in developing countries, especially in Africa. Creating meaningful and stable employment usually requires relatively high and stable growth, which in turn is dependent on exports diversification that allows a country to spread its risks over a broader number of countries and commodities, and to hedge against real and potential terms of trade shocks emanating from commodity prices. Indeed, it is widely believed that the considerable progress in widespread employment of a number of Asian countries has been the result of the shift towards export diversification that is, from primary to labor-intensive manufactured exports, and further to more resource-intensive manufactures.
9. Need for greater Industrial Activism
Nigerian bureaucrats operate within a regime of regulations that are not just patently archaic but hostile to capital. Ethiopia has demonstrated that the very opposite of what Nigeria does is what works. That country’s manufacturing sector pre-COVID19 expanded by an annual average of more than 10%, albeit starting from a very low base. The strategy is an activist industrial policy that explicitly courts investors (foreign and domestic). According to an official quoted in the The Economist. “We approached Holland’s horticultural firms, China’s textile and leather firms and Turkey’s garment firms [to invest in Ethiopia]. Now we are bringing in German and Swiss pharmaceuticals[5]. What we need demonstrably is greater activism, greater political commitment and the determination to implement policies for sustainable industrialization even in the face of a hostile international environment that prefers to see Africa as a supplier of raw materials. We cannot continue business as usual!!
10. Quality of Governance Leadership and Institutions
Good governance and strong institutions are essential to creating an enabling environment for economic diversification[6]. I employ a combination of the Country Policy and Institutional Assessment (CPIA) index (World Bank) and the GCCI to capture governance and institutional behaviour in Nigeria. On all counts, Nigeria scores extremely low on governance. Nigeria scores extremely low on anti-corruption.
Good governance thrives on good leadership made up of: a commitment to integrity, a strong vision and plan for their nation’s future, and the ability to make the most of their available resources. Good government looks beyond short-term political cycles and quick policy fixes. The actions, behavior choices, and the ability to keep promises made will influence the level of trust that citizens and businesses have in government. A transformational leadership bases its decisions on what structurally transforms a country.
11. Industrialization and the African Continental Free Trade Area (AfCFTA)
Nigeria should lead the implementation of the African Continental Free Trade Agreement (AfCFTA) rooted in industrial dynamism.
According to the World Bank (2020)[7], the AfCFTA will expectedly boost African trade, but specifically intra-regional trade in manufactured goods. The report estimates that manufacturing exports would gain the most, with intra-Africa manufacturing trade increasing by 110% and manufacturing exports to the rest of the world rising by 46%. To effect rapid structural transformation through industrialization will require political actions that lead to removal of historical structural rigidities inherent in national laws, regulations, and business practices that have become tangible and intangible obstacles to the continent’s deeper integration. Manufacturing generates backward and forward linkages that foster horizontal integration of different sectors in ways that create jobs and raise living standards.
Your excellencies,
Africa is at an inflection point of history such as we have, we need transformational leadership.
Nigeria is crying for leadership that is accountable and is incorruptible. Leaders that will husband our assets to achieve tangible outcome by putting forth and aggressively implementing a Bold and Compelling industrial Agenda for our country.
We need transformational leadership that puts the broader collective interest over and above self and sectional -interest. A transformational leader, who desires to serve, cannot possibly serve God and mammon at the same time. The pursuit of self-aggrandizement is antithetical to the pursuit of the greater good.
We need leadership that will weave our diversity into national cohesion; we need leaders who will lead a renaissance for Industrial transformation.
I thank you for your attention. God bless Nigeria.
[1] World Bank, 2008
[2]https://ift.tt/33F8Bze May 1, 2021.
[3] We all collude in exploiting commodity-rich nations | Financial Times (ft.com), accessed May 8, 2021
[4] These are this author’s underlining.
[5] ” This is a quote by my friend. Arkebe Oqubay, author of “Made in Africa: Industrial Policy in Ethiopia,” who is also a minister and a senior adviser to Prime Minister Hailemariam Desalegn.
[6] The World Bank Country Policy and Institutional Assessment (CPIA) index is used to capture institutional quality .Quality of Institutions: Business regulatory environment, efficiency in revenue mobilization, financial sector rating, fiscal policy rating, macroeconomic management rating, quality of budgetary and financial management rating, and quality of public administration.
The Country Policy and Institutional Assessment (CPIA) index is used to capture institutional quality: Governance Indicators: control of corruption, government effectiveness, political stability and absence of violence/terrorism; regulatory quality, Rule of law, Voice and accountability
[7] WB. 2020. The African Continental Free Trade Area: Economic and Distributional Effects. Washington DC: World Bank Group.
Opinion AddThis : Featured Image :
Original Author : Professor Banji Oyelaran-Oyeyinka Disable advertisements : https://ift.tt/3xXx8O2
