• Friday, June 21, 2024
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Why Nigeria needs to change its industrial strategy

Why Nigeria needs to change its industrial strategy

Industrialisation is the process by which an economy is transformed from just primary agricultural production to one based on the manufacturing of goods.

As a country becomes more industrialised, individual manual labour is often replaced by mechanised mass production, and craftsmen are replaced by using more technical inputs.

Indeed, industrialisation plays a vital role in the development of all economies as historical facts reveal that all the developed countries of the world broke the vicious circle of underdevelopment by industrialisation.

Before the oil boom era, solid minerals and agricultural commodities accounted for almost all of the country’s exports with the agricultural sector contributing more than 57 percent to the nation’s GDP and the solid minerals sector, especially coal, tin, columbite and iron ore contributing more than 12 percent to the country’s Gross Domestic Product.

It was postulated then that the discovery and harnessing of different solid mineral deposits in every state of the country could go a long way in leading the country’s path to industrialisation. Ironically, as it stands now, the solid mineral subsector is currently contributing less than 0.3 per cent to the GDP, and has only been able to contribute only N113 billion to the nation’s coffer in the last five years.

Over the years, Nigeria’s economy has been highly volatile to fluctuations in the global prices of crude oil. In fact, the bulk of economic recessions experienced by the country have been on account of the fall in the prices of crude oil in the international oil market.

For instance, Nigeria was forced to seek external assistance from the International Monetary Fund (IMF) in 1986 as a result of the fall in global oil prices under conditional ties, which have been discovered to be of no benefit to the nation.

Also, by mid-2014, the sharp and continuous decline in crude oil prices led to another period of economic recession, majorly attributed to the slow economic growth in China (the largest importer of crude oil in the world). It should be noted that prior to 2014, crude oil was sold for as high as $108.13; however, the global price of crude oil fell to $98.97 by 2014.

Also, the year 2016, which marked the beginning of the most recent economic recession in Nigeria definitely didn’t leave any trail of pleasure for many Nigerians.

This happened as a result of the advent of shale oil in the US, which used to be one of the largest buyers of Nigeria’s crude oil.

With no other major export, the government was forced to increase borrowing to make up for the shortfall in revenue.

Consequently, the naira was further weakened to the dollar, government revenue dropped considerably, salaries got delayed and many construction projects had to be suspended, while inflation rate has also been on the increase.

Also, in the year 2020, the outbreak of the pandemic cut down the prices of crude oil to below $40 per barrel as the global demand for crude oil fell drastically due to limited movement and industrial activities.

Year in year out, Nigeria has continued to find itself within a vicious debt circle, which has further been worsened by the scarcity of foreign exchange for the payment of imports.

A recent projection by the IMF recently projected that Nigeria could end up spending 92.6 percent of its revenue on servicing debt as the country’s debt sustainability continues to be at risk.

The issue of Nigeria’s worrisome debt amidst rising rate of unemployment and poverty has repeatedly garnered more clamours for the diversification of the country’s economic base over the years.

However, beyond the usual economic issues of piling debts and poverty, there are more recent and more pressing reasons why the call for a change in Nigeria’s industrial strategy is now more exigent than ever before.

Read also: Explainer: Nigeria’s debt status in 10 points 

Exit of its major oil-producing companies

Presently, there are several media reports that Nigeria’s major international oil companies notably Royal Dutch Shell and ExxonMobil are leaving the shores of the country on account that they want to divest their investment base to a cleaner energy.

In the words of Mele Kyari, group managing director of NNPC, “Oil companies are leaving because they want to shift their portfolios to where they can add value and also add to the journey towards carbon net-zero commitment.”

The Paris climate accord has set a climate goal that by the year 2050, global warming should have been reduced to 1.5˚C while Columbia Climate School reported that “keeping global warming to below 2˚C from pre-industrial levels means that an estimated one third of oil reserves half of gas reserves and 80 percent of coal reserves need to remain unused by 2050.”

In another revelation, the International Energy Agency has declared that no fossil-fuel cars should be sold beyond 2035.

This means a country like Nigeria, whose economy hinges on the proceeds from crude oil exploration, might be faced with more economic burdens due to its highly specialised economic structure.

The Russia/Ukraine war: A big hit effect

For the first time since 2014, global price of crude oil has increased to $118.11 per barrel, majorly due to the outbreak of war between Russia and Ukraine.

However, the surge in oil price does not automatically guarantee Nigeria’s quest to financial freedom as the cost of transport is likely to increase, especially considering the fact that the issue of fuel scarcity still remains at large.

While it is no longer news that the increase in fuel price usually leads to increased rate of inflation in Nigeria, the major issue lies in the fact that the country remains vulnerable to a worsened economic position if appropriate measures are not taken.

Also, Nigeria maintains a good bilateral trade with Russia which spans to the tune of about N994 billion. Evidence from Nairametrics revealed that Nigeria is a major importer of different agricultural and mechanical products from both Russia and Ukraine.

Recently, a report by Bloomberg revealed that Russia is set to ban the export of 200 products, following the different economic sanctions imposed by different countries over its invasion of Ukraine.

This step was taken in order to cater for its own economy; however, the implication of this is that there will be a reduced supply of certain commodities being exported from Russia which will consequently affect the level of Nigeria’s inflation rate and lead to more attendant effects on the overall economy.

What the country can do is to quickly use this opportunity to develop other industries so that it can reduce the attendant effect of the war on Nigeria’s economy.

Untapped mineral resources

Almost all the states of the federation are endowed with one solid mineral or the other, thereby implying that the industry has high potentials to succeed in the country.

However, the bulk of these mineral resources have remained highly untapped due to low drive for industrialisation. According to the 2020 report by Statista, the manufacturing sector contributed about 13 percent to the nation’s GDP.

However, the bulk of the manufacturing activities were generated by industries that deal with consumable items such as food, beverage and tobacco. However, articles from mines and steels such as vehicles manufacturing, electronics, basic metal and steel amounted to 0.61 percent, which is less than one percent of the total GDP.

This further corroborates the London School of Economics’ stance that the country will need to change its industrial strategy if it hopes to meet up with the IMF’s recommendation that Nigeria will need to create an additional five million jobs per year for the next 10 years, if the country intends to bridge its unemployment gap.

Highly specialised industrial sector

The lack of diversification of the economy over the years has put the Nigeria’s economy in a perilous state and has consequently left the nation’s economy to be at the mercy of international oil prices.

Recently, the IMF revealed in a report that Nigeria has not achieved much in its diversification strategies. According to their report, “Nigeria has achieved little export diversification over the past decades.

Between 1990 and 2020, only 47 new products were added to Nigeria’s exports compared with an average increase of twice as many (95) products for countries like Bangladesh, Cameroon, Pakistan and Tanzania”.

Low level of industrial innovation

Nigeria is rich in natural resources but due to lack of capital and technology, these resources have not been tapped. A report by trading economics revealed that Nigeria does not rank amongst the top 10 industrial countries in Africa.

The last report by WIPO in the year 2021 revealed that globally, Nigeria ranked 115th in its innovation inputs while it also ranked 124th in its innovation output.

In an effort to address the rising issues of unemployment, Nigeria has introduced various economic reforms but a bulk of these reforms has been largely discovered to be more of paper achievements.

There would have been increased employment opportunities for Nigerians had the reforms been followed with an inclusive industrial development strategies.

In this rapidly changing world, the quest for self-reliance through industrialisation has always been the desire of many nations, especially in the present face of the current global economic challenges.

Many developing countries of the world have been triggered to re-evaluate their position and question their roles as nations and consider investing heavily in industrialisation as a path way for ensuring self-reliance.

The opportunity for Nigeria to promote inclusive economic transformation and create jobs by capitalising on the country’s natural and human resources still remains at large.

The onus lies on the country to exploit its opportunities for industrial growth by promoting a value-based economy, which will drive the conversion of raw materials into finished goods before exportation.

Without any iota of doubt, Nigeria needs a working manufacturing sector that can help absorb its large population base and prepare the country for the high-quality skills that are needed for the 21st-century modern age.