Changing Nigeria’s approach to industrialisation (5)
...of export and value addition
Four previous versions of the series have x-rayed some of the obstacles that have hindered Nigeria’s industrial progress.
Key issues such as wrong application of funds, protectionism, policy flip-flops, and misuse/abuse of import waivers have been thoroughly discussed. This week’s piece focuses on why it has been difficult for Africa’s largest economy to have a strong non-oil export sector.
For starters, the non-oil export sector is a reflection of the state of a country’s industrial sector. A poorly structured non-oil export sector is often characterised by the craze to ship out raw and unfinished products for the desperate purpose of earning foreign exchange by all means. Nigeria’s export sector has over the years been dominated by raw products which serve as inputs for European, American and Asian factories.
In 2013, for example, non-oil exports data from the Nigerian Export Promotion Council (NEPC) showed that total earnings by the end of the year were $2.97 billion. Of this, cocoa and its preparations comprised $758.64 million, amounting to 26 percent of the total non-oil exports value within the year. The global cocoa beans market was estimated at $9.94 billion as of 2018, according to a work done by Grand View Research. On the other hand, the global chocolates market was estimated at $140 billion as of the end of the same year, according to another research work by Research and Market.com. This shows that the chocolates market is 14 times the cocoa beans market. This also reflects the difference between raw materials and finished products, and why Nigeria has been where it is. So, Nigeria exports cocoa and imports finished beverages and chocolates. The country then loses foreign exchange, jobs and ancillary industries that should have sprouted from such value chains.
Furthermore, the 2013 NEPC data revealed that cocoa was followed by sheep, goat skin and leather, sesame seeds, aluminium, rubber, tobacco products, cotton yarn and woven fabrics. Also on the list were copper, cashew nuts, edible nuts, prawns, shrimps, fish and crustaceans.
In 2013, Italy, known widely as producer of quality shoes and leather products, spent $355.63 million on purchasing sheep and goat skins from Nigeria.
Also, Spain bought sheep, goat skin and leather valued at $51.67 million from Nigeria while India spent $24 million on buying them from Africa’s largest economy. In a similar fashion, China, world’s fastest-growing country, bought Nigeria’s leather worth $93.8 million. Incidentally, this was the only major non-oil product bought by China from Nigeria, according to the data.
Evidence shows that Italian and Spanish leather products, regarded as superior to Nigerian counterparts, are in various Nigerian markets and are often patronised by the rich class as they are expensive and durable. Some of the leather inputs used in making these foreign leather products might have come from Nigeria. While tanneries are exporting processed animal skins, shoemakers in Aba, Abia State industrial capital, travel to China and several African countries in search of skins.
“What happens is that the tanneries in Kano and Kaduna process animal skins and sell them as leather in the global market, earning foreign exchange,” said Chinatu Nwagbara, coordinator of Made-in-Aba Project, who produced shoes for Olusegun Obasanjo in 2016.
“So we go to China and other countries to buy. Sometimes, we buy our products and re-import,” he said.
While export of skins is a business decision, merely exporting raw products to Europe and the Americas while local industries starve of the same inputs is not be the best industrial strategy any nation should pursue. Even though the situation is slightly changing, the change is still insignificant.
More so, crude oil still dominates Nigeria’s export sector.
In the last quarter of 2019, the value of total exports stood at N4.8 trillion. Crude oil component of export amounted to N3.6 trillion or 76.08 percent of total exports during the period while non-crude oil export accounted for N1.14 trillion, or 23.92 percent of the total, according to the National Bureau of Statistics (NBS). For 2019, the share of crude oil exports in total exports stood at 76.5 percent, according to the NBS, maintaining a downward trend from 2016 as the share of non-oil exports continued to increase.
The fact is that Nigeria is not producing much and therefore cannot export much. The non-competitiveness of the manufacturing sector is a major drawback, and successive policy makers have not been able to crack it.
In 2018, for example, Nigeria’s total non-oil export earnings from more than 25 commodities in 2018 were $3.3 billion, according to the NBS, but Bangladesh, once one of the poorest countries on earth, earned 10 times that amount ($33 billion) from exporting only one product—textile.
Bangladesh has 5,000 garment factories, employing about 20 million people, mostly women, pushing the extreme poverty index down to 12.9 percent, according to the World Bank, as against Nigeria’s nearly 50 percent. Nigeria does not have any full-fledged textile firm today.
Yale economist Ahmed Mushfiq believes that Bangladesh’s recent economic success is attributed to the flourishing garment manufacturing industry.
Experts attribute Bangladesh’s success to a convivial business environment that guarantees three to five years return on investments and economic reforms that have taken place in the country.
Similarly, between January and December 2018, Vietnam earned $244.72 billion from export of finished products from garments and shoes to smart phones, according to General Department of Vietnam Customs.
Giant phone makers such as Samsung, Intel and LG produce smart phones in Vietnam today and export from there.
In 2018, the country fetched over $50 billion from export of phones and their components— the biggest turnover among export items— according to the country’s General Statistics Office. It earned $27.3 billion from phones between January and July 2019.
The Southeast Asian country attracted Foreign Direct Investment of $16.74 billion between January and July 2019, according to the country’s Foreign Investment Agency. In the whole of 2018, Nigeria’s FDI was $2.2 billion, from $3.5 billion the previous year, according to the United Nations Conference on Trade and Development.
According to Vo Tri Thanh, a Vietnamese economist, key to Vietnam’s growth was market reforms.
The country worked on private business right; macroeconomic and social stability, while opening and integrating its economy into the regional and world economy, especially in the areas of trade and FDI.
Vietnam sees trade as the most important part of its manufacturing sector. In an article entitled ‘Vietnam’s manufacturing miracle: Lessons for developing countries’, three economists Sebastian Eckardt, Deepak Mishra, and Viet Tuan Dinh said Vietnam has numerous bilateral and multilateral free trade agreements, which dramatically cut tariffs, anchor difficult domestic reforms, and open up the economy to foreign investment.
Vietnam likewise reduced its cost of doing business for enterprises.
The World Bank said in its 2019 Doing Business report that the country made paying taxes less costly for companies by reducing the corporate income and value added tax rates while eliminating the surtax on income from the transfer of land use rights.
Nigerian manufacturers self-generate 13,000 megawatts of electricity. Energy comprises 40 percent of their expenditure, followed by logistics. Manufacturers struggle to import inputs owing to delays at the ports and gridlocks at Apapa and Tin Can ports in Lagos. Moreover, start a manufacturing firm today and more than 10 different groups of tax collectors will knock at your door in one day asking for ridiculous fees, including radio and television charges.
The state of infrastructure in the country does not support any manufacturing business. Roads are in decrepit state and railways are still at inchoate stages. After the production process, manufacturers’ products become very expensive even for the local market. If China can beat Nigerian manufacturers price-wise at home, think of what happens in the highly competitive global market? Think about policy flip-flops that have damaged a lot of firms, sending them away or into the abyss.
Today, the Federal Government has no incentive for exporters. The Export Expansion Grant has not been reinstated seven years after suspension, and non-oil export has been on the slide since then. Ede Dafinone, chairman of the export group of the Manufacturers Association of Nigeria (MAN), wonders how Nigeria can become an industrial or export giant when the country has no infrastructure and funding plan for its exporters.
The fact remains that Nigerian manufacturing sector is not competitive. And there is no way the country can have a competitive non-oil export sector.