It is beyond question that an industrial revolution is ensuing in Nigeria. In the past, when an agent of the government made this claim, it was usually viewed as a public relation spin; seen to be completely devoid of any bearing with the reality on the ground. It is therefore gladdening that the validation of the progress which we have made as a country with regard to the revival of industrial activities in Nigeria is not only coming from policymakers; it is readily provided now by different stakeholders in the economy.
At meal time, Nigerians across the age brackets validate the leap in food processing with their menu. For instance, there was a time when Italian spaghetti brands were all we had for pasta. Today local brands dominate that food segment. Similarly, domestic production has dominated the packaged fruit drinks subsector. The strong push to leverage the status of the country as the largest producer of cassava in the world to the largest processor of the produce is well underway.
Last month, one of Nigeria’s more influential, non-partisan trade associations, Manufacturers Association of Nigeria (MAN), attested to successful outcomes of government’s policy interventions in the manufacturing sector in a well publicised media statement. Same January, Nigeria’s foremost industrialist, Aliko Dangote, was the cynosure of all eyes at World Economic Forum 2014 in Davos. His success, being rooted in manufacturing, underlines the performance of private investment in non-rent-seeking activities, and the consumption capacity in Nigeria – a country of 170 million people, with a fast-growing middle class. What’s more; the NSE Industrial Index grew by 78% in 2013.
The recent successes in the manufacturing sector have been long in coming. Successive Nigerian governments have always looked for ways to lift the real sector. In spite of the fact that oil revenue has been significant as Nigeria maintains the profile of Africa’s highest oil exporter, policy measures to engineer and support real sector growth have always been in the policy mix. The enthusiasm to do something to incentivise industrial production had in the distant past led to even opposing policy measures being aimed at achieving the same results, amid a raft of policy interventions under very unpredictable governance environment of military dictatorship. This led to the coinage: “policy somersault.” Its negative connotation nevertheless suggested that government was anything but inert with regard to using the policy framework to boost the manufacturing sector, even though there was agreement that more political will was needed to back the policies.
From the foregoing, three critical factors are to be held to be responsible for the take-off of the “industrial revolution” in Nigeria. They are improvement in governance under the current democratic dispensation, stable macroeconomic environment, and wider reach of government’s incentive system, especially under the Administration of President Goodluck Jonathan.
Improved Governance Framework
Nigeria’s new democratic dispensation reaches a decade and half in May. The incontrovertible point of this is that governance of the country is now quite predictable. Democratic norms of regular elections have taken roots. This is good for policymaking and policy implementation. Unlike in the past when a cocktail of (conflicting) policies by successive military dictatorships that held sway for about three decades before 1999 brewed uncertainty, democracy and the entrenched electoral cycle has mitigated risks of policy volatility. This is even made better by the appetite for policy continuity as one administration gives way to the other through the electoral process.
No doubt, perception of high political risk had been a mitigating factor for long-term investment in Nigeria. By its nature, investment in manufacturing requires medium-to-long-term political risk outlook that is subdued. This holds to be true whether or not we refer to private domestic investment or foreign direct investment. Therefore, both local and foreign investors are responding to the brighter outlook of the governance framework in Nigeria. Indeed, the level of confidence in the governance environment is not better expressed than that Nigerians, who understand best the risk profile of the country, are now investing in long-term businesses. There is no sector of the economy where you do not have substantial investments by Nigerians in the private sector. Agro-processing and manufacturing are going to be the driving force for private sector prosperity as Nigeria continues to face the future with certainty. The prospering Nigerian businesses in these sectors are further attractions for inflow of investment from foreign entities.
Stable Macroeconomic Environment
Nigeria is evidently committed to macroeconomic stability. Why would we not? It could be said that we learnt a hard lesson. We saw the negative impacts that unstable and unsustainable macroeconomic policy can have on public finance and citizen welfare before we started to fight it off at the turn of the millennium, as we ushered in the nascent democracy that continues to entrench. We did the deal to exit the Paris Club debt overhang in 2005. The deal not only freed funds for social programming and development projects, it has signposted Nigeria’s commitment to sustainable public debt. Counter-cyclical measures have since been imbued in federal budgeting, and the sub-national governments are raising tax revenue to reduce dependency on shared oil revenue.
From the height of 27% in 2003, inflation rate has been brought down to single digit by the end of 2013. Nigeria’s 2014 budget (awaiting passage by the National Assembly) demonstrates the commitment of the fiscal authority to price stability in line with the monetary policy objective which the Central Bank of Nigeria has continued to pursue. Also, the CBN’s exchange rate policy which delimits a band outside of which the local currency would not be allowed to depreciate, limits currency risks to foreign investment flows to the country. Overall, Nigeria is a responsible player in the international system that looks to contribute to stability of the global economic space.
Macroeconomic stability is important for Nigerian manufacturers. It helps to ensure that they are not paying high premium on international credit. Nigeria risk is now priced at par with peer emerging market economies. Therefore, as the Nigerian Export Import Bank (NEXIM Bank) has facilitated several transactions in the manufacturing sector, a lot of Nigerian manufacturers are now able to import machineries and tools to modernise their operations and scale up production capacities. Previously, the rate of inflation made this very difficult to happen. Aversion to Nigeria risk attracts pricing that is beyond what is operationally doable for Nigerian real sector firms. A more stable currency outlook is not divorced from the rising new investment in manufacturing in Nigeria by foreign entities that long ago or recently shed the little-warranted phobia for investing in the country. Recent re-investments by Procter and Gamble, GSK, PZ, SABMiller and others tell the tale that Nigeria is a good place to invest.
Wider Reach of Incentive System
Nigeria has always incentivised investment in manufacturing. Its generous offer of incentives for investing in the sector is currently undergoing reforms to ensure wider reach for investors and create a level-playing field. In the past, the incentive system was administered in a manner that market participants saw to be preferential of persons and not just of industries. We are going past this learning curve. Under the President Ebele Goodluck Jonathan’s Administration, the incentive system has been ‘democratised.’ Qualifications for the incentives are now well defined to apply more generally. Under this regime, supports for SME manufacturers, including special funds which lend at affordable rate, are known in the market. NEXIM Bank has been a significant player in this subsector with our loan portfolio to SMEs reaching N30.99 billion and we have issued guarantees worth $27.30 million to the sector in the last four years.
Mr. Kola Jamodu, President of MAN notes: “There is a clear evidence of the positive impact of the sector based incentives. Incentives and concessions given to the cement industry have contributed to the phenomenal increase in national cement production from less than 2 million tons in 2002 to over 20 million tons in 2013. As a result, from being a net importer, Nigeria has become a net exporter of cement. This was achieved in less than a decade thanks to the enabling environment fostered by government policies.”
Nigeria has got comparative advantage with regard to manufacturing. We have the population to support the sector. Government policies and the indefatigable entrepreneurial spirit of Nigerian manufacturers have seen the operators through the period when they operated marginally, because infrastructural challenges exacerbated cost, and there were difficulties in accessing the investment incentives and affordable finance. All the problems are not solved yet. However, with the commitment of the Administration of President Jonathan, the power sector reform nears fruition. The playing field is now level in administering investment incentives. The infrastructural gap is gradually being bridged and we are now in more predictable environment.
NEXIM Bank is especially excited by these developments because we know the industrial sector is the bedrock of sustainable job creation for Nigerians. Our activities in manufacturing, agro-processing, solid mineral and services that support the value-chains (under our MASS Agenda) will continue to help the government to diversify its sources of foreign exchange earnings to make our national economic growth to be more robust and assure the attainment of shared prosperity.
By: Roberts Orya