At 60, manufacturers’ productivity still hampered
FG must identify, fix fundamental issues and draw up industrial strategies
For Nigeria, the last 60 years has been characterised by a bitter-sweet tale of progress marred by failures. The manufacturing sector, which is the true gauge of countries’ level of development, is not left out.
The Import Substitution and the Nigerian Enterprises Promotion Decree of the 1970s, for example, were two of the earliest policies set up by the military interregna to build an inward-looking and competitive real sector that would be prominent on the global map.
As of the time of setting up these policies, Nigeria was one of the world’s top four in palm oil, cocoa, rubber and groundnuts. The Nigerian Industrial Development Bank, now Bank of Industry, had been set up in 1964 to support the sectors and boost value addition needed to transform the young independent country into an industrialised nation.
The country controlled 43-45 percent of the world’s palm oil market, which means over $10 billion annually today. Though the policies were marred by corruption and protectionism, they started Nigeria’s industrial journey as industries such as Ajaokuta Steel Complex, Aluminium Smelter, Delta Steel and many textile and palm oil firms came on board. Also, Kainji Dam and Ughelli Thermal Plant, among other infrastructure projects, sprang up during this period.
After many years of policy flip-flops, the Olusegun Obasanjo administration initiated a cement industry revolution in 2006. He assembled the bourgeoisie and cement importers and encouraged them to set up local plants. As long as they were willing they would be entitled to import quotas. This helped to shore up local production of cement, making Nigeria a net exporter today. Fourteen years down the line, Nigeria produces over 40 million metric tonnes of cement, with Dangote Cement, BUA, and Lafarge as the major players.
There is no doubt that the Nigerian manufacturing sector has made some progress, contributing over 8 percent to the GDP, but age-old challenges have remained.
Nigeria has missed several opportunities to rebound on the industrial front. The receipts during periods of oil boom were not properly utilised to build infrastructures that would aid productivity of factories. Railways were abandoned to rot; roads became decrepit, and the ports were merely money-making machines rather than trade facilitators.
The major culprit is the resource curse, which shifted policy mind-sets to crude oil at the expense of industries. This is why the 1980-2005 remained the worst period of de-industrialisation in Nigeria’s history. It was a period when Nigeria lost its 45 percent position on the global palm oil market, controlling just 1.7 percent share up till today. Rubber firms such as Michelin and Dunlop exited. Dunlop has transformed into DN Tyres and joined many traders to import tyres into Nigeria. This is the story of Nigeria’s industrial journey.
Progress has been made by the Muhammadu Buhari administration in terms of improving the business environment. In 2020, Nigeria jumped to 131 from 146 in the 2020 World Bank Doing Business Report, signalling an improved business environment.
However, age-old problems have continued to hurt manufacturers in Nigeria and these seem to defy solutions. For instance, despite tax reforms done in 2019, the country is still mired in multiple taxes, and touts are disrupting business activities in many states.
Also, policies have been inconsistent and incoherent at times. The Automotive Policy, for example, places 35 percent levy and 35 percent duty on imported vehicles with a view to promoting local vehicle assembly.
But the country seems to be promoting damaged or “accidented” vehicles which have lasted 15 years now rather, because these 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.
Also, no one knows what has happened to the cassava policy initiated by the Jonathan’s administration.
Moreover, the 2013 National Industrial Revolution Plan (NIRP) represents Nigeria’s most comprehensive industrial policy since Independence. No one knows where that document is today.
These challenges have impeded growth in the manufacturing sector till date. The sector contracted -8.78 percent in the second quarter of 2020, as against -0.13 percent in the second quarter of 2019. In the last five, the manufacturing sector has only seen growth twice, Q2 2017 and Q2 2018. The major challenges remain high cost of energy and poor infrastructure.
Four hundred CEOs of major manufacturing companies in Lagos said in the first quarter of 2020 that Apapa and Tin Can were threatening to shut down their companies.
The issue of the Lagos ports seems to have defied solution despite over N5 billion in revenue to the federal government.
For Nigeria to become truly industrialised, it must address these issues and propose an industrial strategy. The country is still a rent-seeking economy where importers get more money from banks than local manufacturers; where the government thinks that shutting borders will suddenly make uncompetitive manufacturers better; where governments do not understand that road construction is not just to earn votes but to aid movement of goods and persons.
Except these fundamental issues are addressed, Nigeria cannot make headway sooner. And with the African Continental Free Trade Area (AfCFTA) coming in January, it will be interesting to see how Nigeria fares.