In the last three to four decades, policy makers have adopted different approaches aimed at making Nigeria’s industrial sector competitive. But all of those approaches have either led to de-industrialisation or catapulted the economy into industrial backwardness. Perhaps, the very key question is, what is wrong with these policies?
This series will attempt to answer this question based on well-rounded researches, enlightened views of development experts and what works for a developing economy like Nigeria.
The first approach that Nigerian policy makers have adopted over the years is the use of bailouts and money to support companies. Struggling firms world over often need funding to remain afloat. The United States of America bailed out General Motors and several auto makers after the global financial crisis of 2008. General Motors and Chrysler were said to have got $9.4 billion and $4 billion respectively under the Emergency Economic Stabilisation Act of 2008. With the current coronavirus crippling economies and businesses, many firms are already being bailed out by governments around the world. This is, however, an emergency situation. Even in normal times, certain industries request bailouts and funds from the government to restructure or remain in the market. China is supporting a lot of companies in that category and is also funding firms wishing to invest in Africa. The country has, for some time now, been spending 3.45 billion Yuan ($487.48 million) in 3,000 firms, mostly start-ups in emerging industries. Certain industries might require intervention due to issues relating to size of the firms, external shocks or some other reasons. No country in the world leaves its industries empty handed without some form of support. Germany has remained a European manufacturing giant because it set up a financial and institutional structure after World War II. This has supported many firms, enabling them to compete better in the global market.
But why is Nigeria’s case different? Answering this question requires examining industries that have so far been flooded with funds and the outcomes that have been recorded. And the textile industry comes to mind. During the military era, the country established the N100 Billion Cotton, Textile and Garment (CTG) to support textiles firms and save them from going into extinction. As of 2013, the Bank of Industry (BOI), which manages the fund, said that 60 percent of the fund had been disbursed. Olusegun Aganga, the then minister of industry, trade and investment, announced in early 2013 that 38 firms had benefitted from the fund.
The irony, however, is that as more money was being disbursed, more of the textile firms were shutting down. Grace Adereti, former president of the Nigerian Textile Manufacturers Association(NTMAN), said at an event in Lagos in 2018 that the country could only boast of two full-fledged textile firms. Most of the firms that are called textile firms today are ginneries or companies producing caps, towels, sweaters and now face masks. But real producers of fabrics are lacking. The Federal Government is still approving money for many more firms today, but has that solved any problem?
It is worthy of note that Nigeria had over 180 textile mills in 1980s, which employed more than one million citizens. Some of the mills included: United Nigerian Textile Limited (UNTL), Aswani Textile, Afprint, Asaba Textile Mills, and Edo Textile Mills. But these firms are no more, despite billions pumped into the industry.
The federal government, through the Central Bank of Nigeria, is still supporting many firms and even recently set up an additional N50 billion intervention fund to facilitate the takeover of existing debt and offer additional long-term loans and working capital to existing companies in the cotton, textile and garment sector.
As of 2016, N3.4 billion had been disbursed to local firms.
However, analysts have always pointed out that what the country has so far done is throwing money at a problem. Is money or funding the biggest hiccup to the textile industry? Is funding the reason why the big companies of the 1980s shut down?
Hamma Kwajaffa, director-general of Nigeria Textile, Garment and Tailoring Employers Association (NTGTEA), once told BusinessDay that money was not the problem of the sector.
For him, the problem was smuggling/ unbridled importation of textiles into Nigeria. The World Bank estimates that textiles valued at over $10 million are smuggled into Nigeria through Benin Republic annually.
Government has taken steps to checkmate smuggling in recent times, but the measure will not bring back more than 170 companies that have gone under.
However, smuggling or importation is not the biggest challenge of the textile industry. The elephant in the room is that the industry was never competitive. Cost of production in Nigeria has always been prohibitive. Issues around high energy cost, multiple taxation, poorly skilled manpower and policy flip-flops have always been with Nigeria after the oil boom. Some of the companies survived due to government intervention, but went under when competition became tougher.
“The textile industry has been a beneficiary of several fiscal incentives and protectionist measures over the years, yet it has remained in stagnation,” Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), told BusinessDay in 2019.
“Some of them have even gone into receivership as they could not repay their loans. The lesson is that we should deal with the fundamental issues of production competitiveness in our economy. The textile industry needs to be saved from the excruciating burden of high operating and production cost,” he explained.
This sums up the major challenge facing the industry and many others, which are not being addressed holistically.
Also, policies were made in the textile industry without considering the competitiveness of the entire value chain—from the cotton farmer to the fabrics manufacturer. A former president of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), who is now a governor of one of the northern states, once pointed out that the cottons supplied to ginneries were not supporting the textile industries. According to him, lack of research and development in that area stalled production of many textile firms in the good old days.
Today, this situation continues to hurt the entire manufacturing sector. Policy makers are either focusing on end manufacturers or just farmers/ those at the other end. The thinking is to provide more money to farmers or give manufacturers more interventions without removing obstacles to competitiveness.
The understanding of experts is that when you provide money but fail to make the environment conducive for businesses, you are merely giving a Greek gift. Companies and farms get the money but die while paying back.
Nigeria can pick one or two lessons from Bangladesh. The once very poor country now earns over $30 billion annually from export of ready-made wears because of what experts call ‘convivial business environment’ with minimal government influence and low taxes, which helped to attract Chinese and Vietnamese firms to the once poor country.
Odinaka Anudu
