For more than four decades, Nigeria’s industrial policies have been dangerously inconsistent. And investors, economy and consumers have been the helpless victims.
Just recently, the Central Bank of Nigeria (CBN) restricted maize importers from accessing foreign exchange from the official market—which indubitably represented a technical ban. But few weeks after, the apex bank approved four companies to import 260,000 metric tons of maize. Though the policy itself was criticised severally by analysts for being protectionist especially in the face of supply shortages, it signifies policy inconsistency to farmers and agro investors who were already making plans to leverage the luscious opportunity.
In the past, several industrial policies have been reversed mid-way, eroding the gains that could have been obtained.
The Export Expansion Grant (EEG), for instance, was targeted at raising the competitiveness of Nigerian products at the global market. But as of 2013, the grant had been suspended six times. The grant was done using what was called Negotiable Credit Duty Certificates (NDCCs), whereby those certificates served as receipts for exporters.
Because of the policy, many firms borrowed from banks to process their exports with the hope that the government would, as promised, give them incentives via the NDCC. But the government in 2013 suddenly suspended it. The EEG is not a Nigerian thing. It is the tool used by China to dominate the export world. Several other countries are providing it to their exporters to make them competitive and their products cheaper. About 269 companies have received their grants, but 38 companies have been left in the lurch. Even the payments were those of 200-2016. In fact, for many firms, the EEG is as good as dead because it is now. Consider the Automotive Policy, which was sincerely meant to enable Nigeria make its own cars at cheaper rates. Today, the policy is not implemented totally, though government officials make it seem otherwise. The 2013 National Automotive Policy imposed 35 percent levy and 35 percent duty on imported vehicles, amounting to a total of 70 percent.
Even with 70 percent fees paid on imported vehicles, importers of damaged or ‘accidented’ vehicles officially enjoy a rebate of 30 percent. What this has done is to encourage the importation of rickety vehicles, which make up 70 percent of imported cars today.
The age of most imported used cars in Nigeria is 15 years, whereas that of Algeria, Angola, Chad, Mauritius and Seychelles is three, according to a research done by PwC.
This has kept most car assemblers out of business. So, the policy is not encouraging assembly plants but boosting import of rickety vehicles into the country.
There are many more examples in the steel, tomato and other sectors. In 2016, a tomato policy was made to help the country produce sufficient fresh tomatoes and build concentrate plants. Today, the contents of that document seem to have been forgotten because several assumptions about tomato production were wrong in the first place.
Nigeria has never been short of industrial policies. After Independence, the then Nigerian government came up with the Import Substitution Policy, with a view to reducing over-dependence on imports, creating a high number of local jobs and saving the foreign exchange. This was seen as a fantastic policy targeted at transforming the country from an agrarian to an industrial economy. Without bias, economic historians aver that the British colonialists merely paid attention to agriculture, which was supplying them with essential raw materials needed in their overseas factories. But on the flip side, this launched Nigeria into the global market as a strong agro nation. As of 1960s, Nigeria was world’s biggest producer of palm oil, accounting for 45 percent of global output. The country was also a major exporter of cocoa and rubber to the rest of the world.
However, the Import Substitution Policy crashed because early policy makers, like the current ones, believed that protectionism was a cure-all for the country’s fledgling economy. An apparently young country pursuing an industrialisation mission thought it wise to start barring importation even when some of its industries would need foreign raw materials. Inevitably, this policy died a natural death and was replaced with the indigenisation policy. This later policy, also known as the Nigerian Enterprises Promotion Decree, was meant to transfer ownership of firms operated by foreigners to Nigerians. Foreign firms were limited to certain businesses to allow locals to thrive and set up industries. More so, it was pursued as part of the then government’s development plan of 1970-1974. More than 1,000 hitherto foreign-owned firms were handed over to the locals. This policy attracted a lot of criticisms and was marred by corruption. Many Nigerians became suddenly rich and bought shares of several enterprises through the back door. Some fronted for foreigners who were still silently controlling the businesses. However, it was a major set-back because of poor management and obvious lack of local skills to run those enterprises. Chibuzo Ogbuagu, a former assistant professor of Political Science at the University of Pennsylvania, Philadelphia, the United States, postulated that the policy was merely predicated upon the feeling of economic and political nationalism and that economic efficiency might have been compromised because of a strong surge of nationalism.
Countries use data and science to drive their industrial policy trajectories. Nigeria sometimes uses the same metrics. But the difference is that Nigeria’s are often tainted with politics, ‘who-is-involved’ syndrome, ethnicity, regional and other primordial considerations.
It was later amended in 1977 to limit the number of companies an individual could have control over and streamline the type of businesses that would be done by foreigners. It must be admitted, however, that these two policies, which coincided with Nigeria’s first and second development plans, raised a bar for Nigerians and encouraged the rise of several industries and supporting infrastructure. Such industries like Ajaokuta Steel Complex, Aluminium Smelter, Delta Steel and many textile and palm oil firms sprang up within this period, making Nigeria an industrial giant. Kainji Dam and Ughelli Thermal Plant, among other infrastructure projects, also sprang up during this period.
Two development plans preceded the Structural Adjustment Programme (SAP) introduced by the self-acclaimed civilian president, Ibrahim Babangida. But before SAP, the foundation laid earlier had been shaking, as crude oil had become the new darling. Even with oil glut and fluctuations in the crude oil market, policy makers and leaders had committed less money to research and development, while allowing companies to die due to high production costs and interest rate.
The SAP liberalised trade, and encouraged privatisation and exports. But it also ushered in unbridled importation of cheap and sub-standard products. In a liberal market, players must be fair. But this was lacking as local manufacturers could not compete partly because of high cost of production and influx of cheap goods. Also, there was no protection for infant industries which, like children, needed protection.
The result of an off and on policy flip-flops was that manufacturing growth rate fell from 11 to 3.5 percent in 2009 while capacity utilisation in industries followed the same trajectory, falling from 70 to 34 percent, according to the Central Bank of Nigeria Bulletin. As the cost of production was rising, the government introduced Cargo Tracking Note, raising production costs higher. The Manufacturers Association of Nigeria (MAN) said in 2009 that 839 firms shut down that year. Within this period, policies on automotive industry, palm oil, rubber, cocoa and other non-oil export products were never implemented religiously.
Here is the policy part. These firms shut down because governments after governments had fluctuating import and export policies. Import duties were unilaterally relaxed or lowered by some regimes without due consultations with all the stakeholders. Export policies were inconsistent.
The Goodluck Jonathan administration had genuine technocrats willing to industrialise Nigeria, though some players took advantage of loopholes in the policies to make money. But the 2013 National Industrial Revolution Plan (NIRP) represents Nigeria’s most comprehensive industrial policy since Independence. Where is that policy, prepared by experts from reputable global and local institutions, including UNIDO? Like others before it, major sections of that policy have been abandoned and left in the shelves by the current Muhammadu Buhari administration. Assuming that investors banked their investments on that policy, what happens to those humongous investments?
In essence, the major reason for policy inconsistencies in Nigeria is that they are not usually well-thought-out. Tomato Policy, for example, failed to factor in challenges around tomato quality and market changes that could result in sudden price changes. The issue of concentrate was also not well-thought-out, as an imposition of heavy import duty on a product the country was not producing yet was inappropriate.
In terms of maize, Nigeria produces 10.5 million metric tons (MT) per annum with a demand of 15 million metric tons, leaving a supply-demand gap of 4.5 million MT annually, data from the Federal Ministry of Agriculture state. The data were ignored, despite that maize serves as food crop and cash crop. It serves as an input to several food companies and for hard-hit poultry farmers. Due to the usual lack of consultation, part of the policy was inevitably reversed.
Countries use data and science to drive their industrial policy trajectories. Nigeria sometimes uses the same metrics. But the difference is that Nigeria’s are often tainted with politics, ‘who-is-involved’ syndrome, ethnicity, regional and other primordial considerations. This cannot guarantee industrial success.
