Aliko Dangote’s refinery in Lagos will be adding $13 billion into the Nigerian economy at its completion, equivalent to 3.25 percent of today’s GDP, and 700,000 jobs.
Assuming Nigeria is able to attract 10 more Dangotes, it would have created 7 million jobs, added 33 percent to the GDP and $130 billion into an economy that has just returned 27 percent unemployment rate and 6 percent negative growth in the second quarter (Q2) of 2020.
India, an emerging Asian market, has proved that it is possible to attract many Dangotes to an economy—albeit with market-based reforms expanding the role of the private sector and investment since 1991.
With economic liberalisation and enabling business environment, the South Asian country today has over 12 petrochemical companies worth $163 billion.
Its biggest petrochemical firm – Reliance Industries – became the first Indian company to exceed $150 billion in market capitalisation in June 2020, creating 187,729 jobs for the economy. Today, over 120 drug makers in Nigeria rely on India for more than 60 percent of their input needs.
In 2013, the firm earned $44.1 billion from exports—almost 15 times what Africa’s biggest economy earned from its non-oil exports that year ($2.9bn). Its earnings have since risen.
More than 2,000 members of the Manufacturers Association of Nigeria (MAN) created only 78,623 new jobs between 2016 and 2019, according to the association’s data, but unemployment rate in the country has risen more than threefold from 6.75 percent reported since 2014.
The best bet for Nigeria is to attract some of the manufacturing jobs that will be leaving China, as the world’s second largest economy becomes pivot to pushing domestic consumption to drive growth.
Chinese President Xi Jinping is accelerating his push for a China that can stand on its own feet amid mounting pressure from the United States that exposes the vulnerability of Beijing’s economic model.
In a series of remarks over the past few months he is touted to have initiated the so-called “dual circulation” development model, in which a more self-reliant domestic economy serves as the main growth driver, supplemented by certain high tech foreign technologies and investment.
Vietnam has been one major winner in the trade war between the US and China.
With market-based reforms and skills-based education, Vietnam has boosted its factories’ revenues, adding 1.5 million new jobs in 2019 to the economy and sending 147,000 people to work overseas.
With oil price lows, Nigeria has failed to industrialise as Ajaokuta Steel dragged after gulping $8 billion from government coffers. The government has an annual budget for the plant, even though it is unproductive.
Over 2,000 Nigerian manufacturers (except Dangote) made N3.353 trillion ($9.31bn) worth of investments between 2014 and 2019, but this is less than $10 billion investments made by manufacturers ($6bn) and Bac Lieu LNG ($4bn) in Vietnam between January and April 2020.
Attracting manufacturing investors like Dangote and Reliance to Nigeria requires certain steps.
The foreign exchange crunch in Africa’s most populous country must be addressed.
The FX crisis has come to a head with manufacturers saying they get two to 10 percent of their dollar needs from the market even after waiting for 30-90 days.
“We wanted $60,000, but we could only get $5,000 from one of our banks. It is now much worse than the 2016/17 situation, and some of our members are thinking of moving to ECOWAS in January when the continental free trade starts,” a director at a manufacturing firm told BusinessDay.
MAN says the central bank’s instruction authorising dealers to desist from opening Forms M, whose payments are routed through a buying company, would be detrimental to factories and cause shutdowns.
“Exchange rate unification is critical,” Jesmin Rahman, IMF mission chief for Nigeria, said at a recent virtual fireside interview participated by BusinessDay.
“Improve certainty and regulatory regime to help diversification, and turn a growing population into human capital,” she further said.
Much has been said about tailoring Nigeria’s education system towards skills to ensure that 500,000 graduates churned by higher institutions every year can work in chemical, laboratory and other technical departments in manufacturing companies without fuss, or at least become confident entrepreneurs on their own.
A recent ITF-UNIDO Skills Gap Assessment report carried out by the Industrial Training Fund (ITF) and the United Nations Industrial Development Organisation (UNIDO) identified lack of requisite skills, absence of labour market information (LMI) in any useful form, lack of tracking of the performance of polytechnics, colleges of education and university graduates by the National Board for Technical Education (NBTE), the National Commission for Colleges of Education (NCCE) and the National Universities omission (NUC), as major reasons for the skills gaps.
Also, manufacturers are faced with an energy crisis, with power supply inconsistent and gas supply irregular, according to Michael Ola Adebayo, chairman of MAN Gas Users.
Roads are decrepit and many firms investing in backward integration are facing a communal crisis and lack of funds due to economic slump and COVID-19 pandemic.
Nigeria will need to pump $100 billion over the next six years to plug infrastructure holes, according to Chidi Izuwah, director-general, Infrastructure Concession Regulatory Commission (ICRC).
Izuwah estimates that while about $60 billion would be required for the oil and gas sector, $20 billion is needed t
o revive the power sector; $14 billion for roads, and between $8 billion and $17 billion for rail tracks.
The country’s low fiscal space may not allow this to happen, even with humongous borrowings.
Rails are coming up, but are not connected to the nation’s seaports.
Access roads to premier seaports in Apapa and Tin Can, Lagos, is plagued by gridlocks, hurting export and import, in addition to lack of functional scanners by the Nigeria Customs Service, which causes untold delays of raw materials to factories and exports to destination countries.
In Q2, real GDP growth in the manufacturing sector was –8.78 percent (year-on-year), lower than the same quarter of 2019 by 8.64 percent and the preceding quarter by –9.21 percent points, respectively. Growth rate of the sector on a quarter-on-quarter basis stood at –13.17 percent, lower than the quarter-on-quarter growth rate recorded in the preceding quarter of 2020.
Real manufacturing contribution to GDP in Q2 2020 was 8.82 percent, lower than the 9.08 percent recorded in the second quarter of 2019 and the 9.65 percent recorded in the first quarter of 2020.
The closure of Nigeria-Benin Republic orders is also a major complication, having an untold impact on trade and exports, especially as the AfCFTA begins in January 2021.
Nigeria earned $823.06 million (N296.3bn) from export to ECOWAS countries and $2.72 billion (N978.21bn) from shipping out products to Africa in the first quarter of 2020. The FX earnings are already threatened.
Jobs are mainly driven by manufacturers and exporters, but their margins are now badly hit by border closure, COVID-19 and inflation rate, which was 12.56 percent in June 2020.
“Initially, the closure was supposed to last for one month, but till now it still remains closed. The resultant effect of this is the decline in export to these countries and significant losses for many exporters, as many have closed down some of their production lines since then,” Ede Dafinone, chairman, Manufacturers Association of Nigeria Export Group (MANEG), told BusinessDay at the weekend.
