• Thursday, May 30, 2024
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‘Textile, apparel industry should be reconceived as sunrise, not sunset industry

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In this exclusive interview with Titus Obiezue, vice president, of the data, analytics, reporting, and technology team of Risk Management at Citigroup, New York, USA, a former economist at the Central Bank of Nigeria; BusinessDay’s Stephen Onyekwelu probes the factors that have led to the decline of Nigeria’s textiles and apparel industry and how to reconceive the industry and make it globally competitive. The views expressed are Obiezue’s not those of Citigroup. Excerpts

Nigeria’s trade balance has historically been negative. What are the main reasons for this, and what strategies can be implemented to increase exports? Where is the place of the textile and apparel industry in this?

Nigeria’s trade balance has historically been negative due to low non-oil exports, insecurities, infrastructure challenges, excessive dependency on imports, and exchange rate volatility.

Nigeria’s trade balance recorded a deficit of US$4.85 billion in 2021, about 870 per cent increase from the deficit recorded in 2020. To increase exports and improve the trade balance, Nigeria can implement policies that promote non-oil sectors by investing in infrastructure, supporting small, and medium enterprises and ensuring exchange rate stability.

Nigeria’s textile and apparel industry holds enormous potential in helping to address this. Let me start with the potential. One way of showing potential is to reveal gaps. In West Africa, Ghana appears to be the one country that has an industrial or mass apparel production base for export, and it is comprised largely of two firms that started exporting in the late 2010s with foreign investment.

Read also: Textile manufacturers seek government grant to revive industry

The governments of Togo, Cote d’Ivoire and Ghana are adopting new strategies to develop apparel exports in their countries. However, only the Togolese government has started implementing its strategy, which centres on an eco-industrial park and vertically integrated knit factories established through a public-private partnership with Arise Integrated Industrial Platform.

Arise IIP sees an investment opportunity and this is why it has decided to set up shop in Togo. An extension of this is that should Nigeria get its textiles and apparel manufacturing right there is an enormous West African market waiting. There is also a global demand for Nigeria’s textiles and apparel.

Given the global trends that will reshape textile and apparel global supply chains over the next five to ten years, the principal among these are sustainability goals, the textile and apparel industry in Nigeria should be reconceived as a sunrise and not a sunset industry.

Within both Africa and Nigeria, there lies a unique chance to craft sustainable textile and apparel industries from the ground up. This tactic could provide them with a competitive edge over countries in South and Southeast Asia, which currently lack “green” industries in this sector.

Advancements in renewable energy technology are making it increasingly affordable and accessible for industries to adopt in their push to go green. Moreover, novel fibre and recycling technologies present an opportunity to leapfrog into the next generation of advanced technologies. To seize this opportunity, African governments and Nigeria in particular must adopt a forward-looking approach, focusing on constructing new textile industries rather than revamping existing ones.

To foster the learning processes of local firms, the Nigerian government should create industrial policies that complement trade policy instruments. Attracting the right kind of foreign investment and assisting local firms in utilising technology from these foreign businesses are essential components of the industrial policy toolkit.

Additionally, the government must prioritise public expenditures in industry-specific knowledge and skills for textiles and apparel. This involves establishing the groundwork for adopting new fibre and recycling technologies through investments in basic chemistry education and promoting research partnerships between local and foreign companies and researchers.

The recent focus on import substitution has seen a rise in local production of certain goods. Is this a viable long-term solution, and what challenges might arise for textiles and apparel?

In 2015, the Central Bank of Nigeria initially restricted 41 items, including textiles and clothing, from accessing foreign exchange through the Investors & Exporters window, the country’s official market. This restriction was further expanded in 2018 and 2020, respectively, to encourage local production.

However, the ban was lifted in October 2023, and its effectiveness in reducing textile and apparel imports is uncertain.

Data from the National Bureau of Statistics indicate a significant increase in textile imports in 2022, rising by 100.30 per cent to N365.5 billion ($862.23 million at the 2022 exchange rate). This represents the highest level in at least 15 years, up from N182.5 billion ($462.12 million at the 2020 exchange rate) in 2020.

So, the recent focus on import substitution in Nigeria, aimed at boosting local production of goods, presents both potential benefits and challenges. While it can foster economic growth, create jobs, and enhance self-sufficiency, challenges such as maintaining quality standards, addressing cost and efficiency issues, overcoming market distortions, building robust supply chains, and bridging skills and technology gaps must be addressed.

In the 1970s, the import substitution policy implemented by the Nigerian government benefited the textile and apparel industry. This policy, which utilised tariffs, indigenisation measures, and subsidies, aimed to stimulate numerous industries, including textiles, steel, iron, petrochemicals, cement, breweries, agriculture, and cottage industries.

During the late 1970s and early 1980s, the policy led to the establishment of various textile companies across Nigeria, notably in Kano and Kaduna States. This resulted in the popularisation of the Nigerian Ankara material.

However, the economic recession triggered by the collapse of oil prices in 1981, followed by the 1986 foreign currency crisis, and the subsequent Structural Adjustment Programmes, hindered the progress of these industries. As a result, most of the industries spurred by the 1972 policy stagnated and vanished, with only cement production achieving the policy’s objective.

This means that import substitution policies have to be sustainable too. It is still the case that imported textiles and apparel are cheaper than locally made ones because the industry is still exposed to foreign exchange.

They have to import equipment and machinery and modern technologies are lacking. The government needs a bouquet of policies and incentives from both the monetary and fiscal authorities to spur the textile and apparel industry. Where is the electricity for this?

The African Continental Free Trade Area (AfCFTA) presents new opportunities for regional trade. How can Nigeria leverage AfCFTA to improve its trade balance?

Nigeria can utilise the African Continental Free Trade Area (AfCFTA) to bolster its trade balance in several ways. First, Nigerian exporters can diversify their customer base by gaining access to a larger market of over 1.3 billion people across Africa, reducing reliance on traditional markets.

Second, AfCFTA encourages export diversification beyond oil, promoting sectors like agriculture and manufacturing, particularly textile and apparel. Participation can also drive competitiveness by fostering innovation and enhancing quality standards.

Moreover, AfCFTA offers an opportunity for infrastructure development, simplifying trade procedures, and harmonising regulations, which can lower transaction costs and facilitate trade flows.

Nigeria can further benefit by integrating into regional value chains and accessing intermediate inputs at competitive prices. Finally, Nigeria can leverage its strengths in service sectors such as telecommunications and finance to expand services exports within Africa.

Discussions on the rules of origin for the textile and apparel sector in the AfCFTA are still in progress, and the Council of Ministers responsible for trade is yet to achieve a consensus.

Meanwhile, textile production capabilities in the major apparel-producing and exporting countries in sub-Saharan Africa are insufficient to support trade under a double transformation rule. Consequently, significant investments in spinning, knitting, weaving, dyeing, and finishing are necessary before countries can leverage preferential market access for textiles and apparel in the AfCFTA with a double transformation rule.

Available proof indicates that the double transformation rule within the Southern Africa Development Community (SADC) did not spur new investments in textile manufacturing, suggesting that preexisting textile production capabilities limited regional integration.

Read also: Nigeria’s textile imports double despite local production push

The CBN announced in March that it has successfully cleared all valid foreign exchange backlogs, effectively eliminating a legacy burden, of about US$7 billion. This strengthened the naira against the dollar. What’s your take on this?

This is a positive development and major progress towards the unification of the official and parallel market exchange rates. Foreign portfolio investment, remittances, and the initial disbursement of $2.25 billion of the $3.3 billion under the African Export-Import Bank (Afreximbank) oil-for-cash loan provided the much-needed funds to address the foreign exchange shortage.

Clearing the backlog has restored credibility and confidence in the Nigerian foreign exchange market. The measure has also stabilised and propped up the naira by improving liquidity in the foreign exchange market.

Appreciation of the naira has helped to reduce the foreign exchange exposure of textile and apparel industries that rely heavily on imported equipment as the government strives to revive the textile sector.

Stephen Ikechukwu Onyekwelu
“In the practical use of our intellect, forgetting is as important as remembering.” William James
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