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Has Nigeria missed the manufacturing bandwagon?

Has Nigeria missed the manufacturing bandwagon?

If industrial production is the key to raising a nation’s living standards, then Nigeria has been struggling for years.
Studies of Asian economic success stories — from Japan, South Korea, Taiwan, Singapore, China, Malaysia and more recently Vietnam and Bangladesh — have found that building a competitive manufacturing sector is the fastest way for a country to climb the productivity ladder and raise living standards.

Access roads and clean water, needed in many manufacturing processes, are often lacking
The Harvard economist Dani Rodrik has written that development is virtually synonymous with producing manufactured goods for export. This forces companies to compete internationally and gradually raise productivity through investment in capital and skills: “Industrialising has been the key escalator that has enabled rapid growth.”

Governments contribute by providing the public goods — the education of a literate and numerate workforce, the roads, the power and water supply and the stable business environment required to encourage domestic entrepreneurs and foreign companies to invest.
By these measures, Nigeria has not done well. Power is in short supply, forcing many factories to build their own generation capacity, substantially raising the costs of production. Access roads and clean water, needed in many manufacturing processes, are often lacking. Many schools are of poor quality, with millions of Nigerian children receiving substandard education or, particularly in th case of girls, virtually no education at all.

“In order to go into any form of production in Nigeria, you have to create a mini-state: your own security, your own water, your own electricity, your own roads,” says Dimieari Von Kemedi, a former presidential adviser and agricultural businessman. “That inevitably pushes up production costs and lowers efficiency.” Nor is the business environment easy, characterised as it has been by shortages of dollars, which are needed to import inputs in the absence of an integrated industrial base. Red tape is sometimes little more than a snare set by officialdom to extract payments.

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Sixty years after independence, Nigeria is still principally a raw commodities exporter. Feyi Fawehinmi, who has co-written a book about the pre-colonial experience, Formation: The Making of Nigeria, says: “We have had slaves, palm oil and now oil.” Today, oil accounts for 95 per cent of Nigeria’s exports with cocoa and rubber making up much of the rest. Oil has produced economic distortions, artificially inflating the exchange rate and making it cheaper in many cases to import finished goods from abroad than to produce them locally.

Cheap imports from China and India, sometimes copies of goods once produced in Nigeria, have wiped out much of what was once a thriving textile industry in the north. A few decades ago, Kano, with its famous dye pits, was a major textile producer. Kaduna was once billed as the Manchester of Nigeria.
97% The proportion of milk consumption that is imported
Nigeria even imports processed foods — a result of disincentives to local production and the difficulty of transporting goods around the country because of dilapidated infrastructure. “Nigeria imports vegetable oil, which doesn’t make sense,” says Aliko Dangote, the country’s richest businessman, who has built his fortune on relatively low value-added manufactured goods, such as salt, sugar, flour, pasta and cement — often with the help of government protection.

“Nigeria still imports 1.6m tonnes of sugar and 97 per cent of the milk that we consume. All the milk factories you see here are just packaging plants. It’s all imported,” he says, adding that, in Nigeria’s distorted incentive structure, local cattle herders sometimes throw milk away for want of a buyer.

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Easy money from the 1970s after the discovery of big oil reserves destroyed much of the industry that did exist. “It has really stunted our productivity and our innovation,” says Mr Kemedi. Even when manufacturers produce goods that people want to buy, he says, there is a lack of pride in local brands. “They make belts in Aba,” he says, referring to a city in Abia state, south-east Nigeria. “But they label them ‘Made in Italy’. Why should that be so?”

Nigeria’s Twitter users complained this year when legislators ordered 400 imported Japanese cars for themselves at great expense, rejecting bids from local manufacturers.
In spite of these obstacles, manufacturers have persisted. In cities such as Nnewi in Anambra state in the south-east, dozens of companies, large and small, produce products from car parts to carved doors.

Nnewi is also the home of Innoson, a domestic truckmaker which makes vehicles for commercial and military use. Innocent Chukwuma, its chairman and chief executive, born in 1960 on the day Nigeria gained independence, says the company sources more than 60 per cent of its components locally, but complains about high import duties on the remaining 40 per cent.
In Nigeria as a whole, manufacturing value-added accounted for nearly 12 per cent of GDP in 2019, up from 7 per cent a decade ago, but well below the 20 per cent it reached in the mid-1980s, according to the World Bank numbers.

The improvement may reflect government policies, strengthened under the administration of Muhammadu Buhari, to counter cheap competition from abroad. Last year, Mr Buhari closed the land border with neighbours, a measure intended to stop smuggling of foreign goods such as processed rice, but one that sits oddly with the country’s stated aim of joining the African Continental Free Trade Area.
Mr Dangote argues that some form of tariff barriers are needed to catalyse local production. Going back to his example of milk processing, he says: “The government needs to bring out a very draconian policy where you cannot keep importing milk. Just like they did to us with cement. If they applied it to all these products, you see what Nigeria will be in the next five years.”
Protectionism however would not work on its own. Without an increase in domestic productivity, Nigerians face higher prices and possibly inferior goods. Without basic infrastructure, both physical and institutional, it will struggle to reverse the trend of low value-added in which it has been trapped for decades.

Prof Rodrik argues that countries that have not made it may have missed the boat, partly as a result of WTO rules and the decline of low-skilled manufacturing as a wealth creator. If he is right, tens of millions will have no route out of poverty.
This article is part of , an FT special report which will be published in the Financial Times on Thursday 29 October and online in full at.
Copyright The Financial Times Limited 2020
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Link To FT.com: https://www.ft.com/content/38759159-2154-49a4-a90b-fabd8f60aafd