Is Nigeria’s problem import addiction or low production?

Is Nigeria an import-loving or production-deficient economy? This thought-provoking question was raised in the latest edition of the Financial Derivatives Company (FDC) Prism report, published on 31 December 2024.

While the issue of import restriction remains a popular first line of defence for policymakers, it has often been criticised as “a cure worse than the disease”—a strategy that fails to address Nigeria’s underlying production challenges.

The inflationary side effect of import restrictions

Import restrictions in Nigeria have consistently been linked to inflationary pressures. Rather than alleviating economic woes, they have often reduced households’ financial strain through higher prices.

“ Industrial policies of the time inadvertently deepened Nigeria’s reliance on imports for both consumer goods and industrial inputs.”

The FDC report revealed a startling statistic: Nigeria’s imports per capita stand at $215, significantly lower than Brazil’s $1,635, Turkey’s $4,197, South Africa’s $1,992, and Mexico’s $5,121. In essence, Nigeria’s import levels are among the lowest compared to those of its peers.

“As a result, Nigeria’s industrialisation ambitions faltered, leaving a vacuum filled by imports.”

While the notion that Nigerians have a penchant for foreign goods holds some truth, the FDC’s data-driven analysis offers a nuanced perspective: Nigeria’s core problem lies not in excessive imports but in inadequate production capacity.

The roots of Nigeria’s import dependence

Michael Omolayode, former managing director of Unilever Nigeria, provides valuable historical context. Agriculture flourished before the Nigerian Civil War, and the country relied minimally on food imports. “We were reasonably self-reliant, with a thriving agricultural economy,” Omolayode recalls. However, the discovery of crude oil in commercial quantities in 1956 catalysed a shift.

“The monetisation of the economy meant people aspired to imported goods that were not produced locally,” Omolayode explains. “As importation boomed, agriculture suffered, and farmers abandoned their fields for urban opportunities.” He notes that while industrialisation took root, the country’s industries remained dependent on imported machinery and raw materials, creating an enduring cycle of dependence.

The civil war further disrupted the country’s agricultural productivity. Post-war reconstruction efforts prioritised industrialisation, but this strategy lacked a robust framework for sustaining local production. Industrial policies of the time inadvertently deepened Nigeria’s reliance on imports for both consumer goods and industrial inputs.

Free trade and its consequences

The liberalisation policies introduced in 1986 further exposed Nigeria’s economy to an influx of foreign goods. An anonymous economics professor highlights how cheaper and better-quality imports displaced local products, leading to the collapse of many domestic industries. “Free trade, while beneficial in theory, disproportionately disadvantages economies like Nigeria’s, where local production struggles to compete on a global scale,” the professor asserts.

Revisiting import substitution

Over the decades, successive Nigerian governments have attempted to curtail imports through import substitution strategies, which gained prominence in the 1960s and 1970s. This approach sought to foster domestic production via tariffs, quotas, and import bans. Notable examples include the recent rice import ban under former President Muhammadu Buhari. However, as the FDC report argues, “import bans or restrictions in a production-deficient economy often exacerbate existing challenges.”

Import substitution policies have historically faced significant hurdles. While they aim to reduce dependence on foreign goods, the lack of enabling environments—such as reliable power supply, efficient transportation networks, and access to credit—has limited their effectiveness. Furthermore, corruption and bureaucratic inefficiencies have often diluted the intended impact of these policies.

A regulatory and institutional bottleneck

Beyond infrastructure and finance, Nigeria’s regulatory framework poses a significant barrier to boosting production capacity. The FDC report highlights Nigeria’s dismal global ranking in regulatory quality (12%), compared to peers like South Africa (44%), Brazil (43%), Mexico (47%), and Indonesia (59%). Similarly, Nigeria’s productive capacity index of 38 falls well below the global average of 46.8.

These weaknesses are symptoms of systemic issues: weak institutions plagued by corruption, nepotism, bribery, and inefficiency. Addressing these institutional deficits is crucial to unlocking Nigeria’s production potential.

Moreover, regulatory oversight inefficiencies discourage foreign direct investment (FDI) and stifle local entrepreneurship. Investors often cite regulatory unpredictability as a significant deterrent, further compounding the production challenges.

Charting a path forward

To break free from its current economic conundrum, Nigeria must:

Specialise in comparative advantage: Focus on goods where Nigeria holds a competitive edge, such as agriculture and certain mineral resources.
Diversify exports: Reduce reliance on oil by expanding into agriculture, technology, and manufacturing.
Invest in high-tech manufacturing: Encourage innovation to enhance productivity and competitiveness. Government policies should incentivise research and development (R&D) and support startups in emerging industries.
Integrate into global value chains: Leverage international markets to boost domestic production. Participation in global supply chains can open technology transfer and skill development opportunities.

These steps require a structural overhaul, including strengthening institutions, prioritising critical infrastructure investments, and transitioning from resource extraction to value-added manufacturing and technology-driven industries.

The misconception that Nigeria’s economic woes stem from an “import addiction” distracts from the real issue: a deficient production base exacerbated by weak institutions. Import restrictions, while well-intentioned, are a misdirected prescription for this ailment.

Nigeria must focus on addressing its production deficiencies to achieve sustainable economic growth. The country can unlock its potential and compete globally by investing in infrastructure, fostering a business-friendly environment, and building robust institutions.

Import restrictions alone are not the answer; the real solution is to create an economy capable of meeting domestic and international demand. Only then can Nigeria genuinely begin to thrive.