According to scholars of development economics, structural transformation involves changes in sectoral contributions to economic growth and industrial structure, diversification, and technological upgrading.
It occurs when resources are transferred from low productivity sectors such as agriculture to high productivity ones such as industries. Nearly all developed countries were transformed through such resources transfers. As such, the main engine of structural transformation is industrialization.
For Nigeria, structural transformation is mandatory, following her present macroeconomic challenges and gloomy future of oil. The global energy dynamics continues changing with its resultant implications on oil prices, and reduction in government revenues and foreign exchange earnings.
With oil prices continuously nosediving following reduction in global demand for the black gold, Nigeria would find it difficult to service its burgeoning bureaucracy, and raise the necessary revenues to build infrastructure, schools and hospitals etc. In addition, with the colossal dependence on oil rents for a population of over 200 million citizens, which has rendered other sectors uncompetitive, how would Nigeria ensure economic growth, raise income, ensure that its millions of unemployed youths get meaningful employment or even address poverty. Nigeria’s population is projected to become 400 million in 2050 – with recent metastasizing poverty, preponderate unemployment, and low per capita income – this is a waiting time-bomb!
This is why Nigeria must structurally transform through focusing on an export-oriented and labour-intensive industrialization (EOLII) drive, so as to cushion the effect of this impending shock and place herself on the path of sustained growth. And doing this is not preposterous. Nigeria must not wait until it has built country-wide infrastructure, completely eradicated corruption, weberianized its bureaucracy, built market preserving institutions, improved governance- or be the first country on the ease of doing business ranking to kick-start its industrialization drive. In fact, the country does not have the administrative and financial resources to embark on such generic reforms, all at once.
In actuality, there has never been any developed country that got developed through, by first, fixing every institutional, administrative, infrastructural and governance challenge, as a precondition to develop. Moving away from such blanket reforms and pursuits, the new economic thinking is that countries can still become industrial economies with the often-flagged firm constraining structures. How can this be done?
First, focus on EOLII by coordinating investments in low end and light manufacturing industries where the country has an inherent comparative advantage. In this light, looking at value-addition industries for its comparative advantageous agricultural products, industries that are labour intensive and less capital intensive, industries whose inputs and outputs would not have extensive transportation and electricity implications etc.
Secondly, establish special economic zones (SEZ) at strategic places in the country, mostly at the coastal areas with limited transaction costs (transportation and logistical) to business for firm competitiveness. SEZ is the best mechanism to circumvent traditional firm constraints when infrastructure, power, political stability, improved governance, export promotion schemes are provided in such zones. In addition, by providing tax incentives to first-mover firms in the SEZs. When such zones have taken off, they would have a resultant multiplier effect on emerging industries and private sector growth through technology transfer, as well as on other sectors such as services.
SEZs can have residential areas, shopping malls, recreational centres etc. which would all affect the overall economy positively. This is the principle behind East Asia’s growth. Nigeria must position herself to be the next destination for manufacturing in the world. Rising labour and land costs are rendering low end industries in East Asia less competitive. Nigeria should attract such industries. SEZ is the surest way to break into the global market of manufactured products for Nigeria.
Thirdly, by focusing these SEZs at mostly the coastal areas, it is then critical that Nigeria decentralizes its seaport system. Nigeria is probably the only country with tens of millions of population size that has just a functional port. Decentralizing the seaport infrastructure would automatically decongest Lagos and birth new industrial clusters. The financial resources to build the seaports are not implausible, there are many foreign financial resources looking for such port investments. By starting from the coastal areas, as they grow into middle-income cities with high-end manufacturing, the government can then strategically encourage industrial transfers to other parts of the country through the right incentives for firms, enabling laws and critical connecting infrastructure. For the latter, the country could then use tax revenues from firms in the SEZs to provide country-wide infrastructure. In furtherance, once the SEZ structures are put in place, the government should unleash a massive investment drive whether through the Singaporean technocratic model or Chinese campaign-style. Such drive should target Nigerians in the diaspora and low end industries in East Asia.
In 20 years time, oil would be history. For a post-oil Nigeria, the country has to get to work, so as to cater for such projected surge in population growth, which would include a huge percentage of young people. The present social-economic consequences of slowed growth and poverty have resulted in widespread security crises across the country. Then a doubled population size in the next 3 decades would precipitate mega consequences if the right things are not done. The solution, there again, is taking critical and coherent steps toward structural transformation.
Chambers Umezulike
Umezulike is a Development Governance Expert and Researcher. He can be reached through chambers.umezulike@gmail.com and on Twitter via @Prof_Umezulike
