Nigeria’s best chance of building a consumer class is by enabling the growth of efficient and sustainable manufacturing companies
There has been a lot of talk about toothpicks in Nigeria of late. The humble implement for removing elusive morsels of dinner is a culprit in Nigeria’s foreign exchange crisis. It is included in a list of more than 40 items for which the Central Bank of Nigeria has forbidden the sourcing of foreign currency through the formal banking system for spending on imports.
Other items on the list include private jets, tinned fish, vegetable oil, roofing sheets, cosmetics, soap, plastic and rubber products, Indian incense, steel pipes, plywood board, glassware and kitchen utensils.
Although the manufacturing sector’s contribution to Nigeria’s economy has grown from 1.9 percent in the early 1990s to 6.8 percent, the country has little to show for years of import bans designed to boost local manufacturing. The recent central bank foreign exchange clampdown is not an outright importation ban, but the bank says it is partly designed to stimulate local production of goods that Nigeria can make, but doesn’t.
Nigeria has relied on import restrictions to drive its industrialisation policy since the 1970s.
In 1986, about 40 percent of agricultural and industrial products, in terms of tariff lines, were covered by import prohibitions. In 2003, a new list was put in place that included 27 items. This was increased to 35 the following year. That list included finished clothing and shoes in an attempt to protect the country’s textile and leather industries. Both are still struggling.
The list has been slowly whittled down over a decade. There have been some successes from the ban in terms of increased production of local items and foreign investment into new sectors. But the bank’s long list highlights the fact that the country is a long way from realising its manufacturing potential.
The government has failed to stimulate local industry with proper trade policy measures that are supportive, rather than punitive.
Companies battle against a host of challenges in manufacturing, including expensive power, the high cost of money, an onerous regulatory environment, poor infrastructure and inefficient ports. Smuggling is one of the biggest reasons for Nigeria’s failure to get manufacturing off the ground. Restricting imports only worsens the situation.
Whether or not Nigeria makes toothpicks is immaterial. But because it seems like a small and basic item, it has been seized upon to make a point.
The Economist magazine’s recent article on the new foreign exchange restrictions was titled “Toothpick alert”. Those words incurred the wrath of the central bank. In a reply to the magazine’s assertion that items on the list appeared to be randomly selected, the bank stated that the selection had been made after “thorough and exhaustive discussions” by the bank’s highest policy-making body.
Toothpicks are symbolic of the state of Nigeria and Africa’s industrial malaise. A process of deindustrialisation took place in many African economies after countries liberalised their economies in the 1980s and 1990s. Many companies that had survived thanks to protectionism were unable to compete with new foreign players.
Malaysia and Ghana achieved independence at the same time — 1957 — and yet their economic trajectories have been very different. Malaysia has become an industrial giant, while many Ghanaian industries, built in a post-independence industrialisation drive behind tariff walls, did not survive liberalisation.
A few decades ago, Nigeria was a global producer of palm oil. Today it imports nearly 600,000 tonnes a year, while Indonesia and Malaysia produce 90 percent of global demand.
Nigeria’s best chance of building a consumer class is not by making it difficult to get imports, but by enabling the growth of efficient and sustainable manufacturing companies. This does not require government to control the process.
As in all places, the state needs to create a safe environment for companies to compete and then get out of the way.
Games is CEO of advisory Africa @Work.