Is Nigeria Ready for Industrialisation?

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Although policy makers in the country are focused on steering the economy out of recession, Obinna Chima wonders if the country is ready for industrialisation

Since Nigeria gained independence, every government talks about some form of industrial policy aimed at stimulating industrial growth and transforming the economy from being import-dependent to manufacturing.

This has seen successive governments introduce various policies to help drive their quest for industrialisation.

Unfortunately, the results have been disappointing as things continue to remain the same.
Some of the factors that have stalled the country’s industrialisation story include policy summersault, market failure, lack of political will and market distortion.

Indeed, the slow pace of Nigeria’s industrialisation is responsible for the nation’s disappointing performance in translating growth into good jobs and poverty reduction.

That is why whenever commodity prices decline and global grow slows, the country is always affected.
Its high import dependence explains why the exchange rate is often the bellwether for Nigeria’s economic health.

FG’s Latest Effort
As part of efforts to once more drive the federal government’s quest for industrialisation, acting President Yemi Osinbajo, had in May this year inaugurated the Nigeria Industrial Policy and Competitiveness Advisory Council.

The mandate of the council is to spearhead the industrial agenda that will boost the contribution of manufacturing to the country’s Gross Domestic Product (GDP) by 250 per cent over a five-year period.

The ambitious agenda will make Nigeria a manufacturing hub for West Africa and diversify the economy from its over-dependence on oil.

The council is made up of leaders in the private and public sectors and chaired by Osinbajo, while the Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, and President of Dangote Group, Alhaji Aliko Dangote serve as vice-chairmen, representing the public and private sectors, respectively.

The broad terms of reference of the council is to provide input to the formulation of sectoral and industrial policy, and government interventions aimed at enhancing the performance of the Nigerian industrial sector.

In addition, the council is expected to provide feedback on government policies and programmes that affect the industrial sector; make recommendations, propose initiatives and bring perspectives that promote competitiveness and growth of the Nigerian industrial sector.

It is also expected to make inputs to Nigeria’s trade negotiations and agreements with a view to ensuring that the view of industry and industrialisation targets are taken into cognisance.
It is to also periodically review performance, trends and issues within the industrial sector, with a view to proposing interventions to enable investments and competitiveness.

Some other terms of reference included proposing targets for national industrial output and investments across major industrial sectors; and tracking the progress made on specific public and private sector initiatives aimed at transforming the industrial sector and meeting its industrialisation targets.

Renaissance Capital’s Perspective
Despite the move by the government, the Chief Economist at Renaissance Capital, Mr. Charles Robertson has expressed concern that policy makers in Nigeria were not ready for the industrialisation of the country.

In fact, the report pointed out that Nigeria’s literacy rate of 60 per cent was too low.
Robertson also urged portfolio investors in Nigeria and other frontier markets to always take literacy rates seriously.

In the report titled: ‘Thoughts from a Renaissance man: Literacy, development and industrialisation,’ Robertson stressed that countries need 40 per cent literacy to grow sustainably and 70-80 per cent to industrialise.

It argued that generally, the situation is most bleak in West Africa.
According to the report, Ghana (77%) is on a comfortable platform than Nigeria.
“Elsewhere, we have five countries (Benin, Burkina Faso, Guinea, Mali and Niger) with literacy levels so low that they cannot even rely on sustainable growth, and three countries with secondary school enrolment ratios so low that we think they cannot escape poverty before the 2030s (Mauritania, as well as Burkina Faso and Niger again),” it added.

The report noted: “From Mauritania on the Atlantic Ocean to Sudan on the Red Sea, including Mali, Burkina Faso, Nigeria, Chad, north east Nigeria and South Sudan – the combination of illiteracy and poor secondary school enrolment – have combined to produce a bleak outlook.

“Within West Africa, the most important conclusion is that Nigeria is not ready for industrialisation. The literacy rate of 60 per cent is too low. Also the lack of reasonably priced electricity prevents industrialisation except for those able to access their own sources (e.g Dangote). “This may be the main reason why Nigeria lags both Bangladesh and Pakistan in terms of developing industry, even though all three have similar literacy rates.

“However, we are not convinced Nigeria’s oil production condemns it to having a small manufacturing sector. Angola produces far more oil per capita than Nigeria, and this is one reason its manufacturing sector is just 3-4% of value-added (a lot of oil tends to cause Dutch disease). Angola shares more similarities to Venezuela in terms of oil production, while Nigeria is more similar to Mexico.

“There might also be regionally different stories within Nigeria. Using National Bureau of
Statistics data from 2010 showed how literacy rates vary around the country. The 16 million living in Abia, Imo and Rivers States, and the 12 million living in Lagos have adult literacy rates above 80 per cent, according to a National Bureau of Statistics (NBS) report.

But there are another 12 states (with a total population of 54 million) stretching from Ogun to Cross Rivers, and Oyo to Benue, with a literacy rate of 70-80 per cent or higher, it added.
It estimated that in the north, Kano, Kaduna, Jigawa and Sokoto have a combined 35 million population, and also record adult literacy rates of 70-80% (these literacy rates are often in local languages).

“It may be no coincidence then that the Ministry of Industry, Trade and Investment has chosen Abia (one of the highest literacy rates in the country) and nearby Akwa Ibom (literacy rate of 70-80%) as the first two model zones for its special industrial parks. Other brownfield zones include highly literate Lagos (over 80%), as well as Cross River and Kano (literacy rates of 70-80%).

“It would be a pointless exercise to develop such zones in the west or north-east, where Nigeria’s weaknesses are most acute. Taken together, there are seven states with a population of 32 million and literacy rates of 40-60% and another eight states (across the country) with a population of 27 million and a literacy rate of 60-70%. Pushing these ratios far higher is essential’” the report stated further.

Divergent Views
But the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf disagreed that the country’s literacy level is a major factor inhibiting its industrialisation.

To Yusuf, the biggest constraint to industrialisation in Nigeria is infrastructure.
“Even people who are not literate, they still find a place in the industrial sector. There would always be opportunity to train people on the job.

“So, for industrialisation in Nigeria, the biggest constraint is infrastructure. We don’t have the power; therefore our industries are not competitive,” the LCCI boss stated.
According to him, Nigeria does not have adequate transportation, therefore cost of goods and services are so high to move goods across the country and even export it.

“High transportation cost contributes a lot. That is because over 90 per cent of these movements are done on the roads which are in bad shape. So, for me, literacy level which you can link to skill could be a factor.

“But in terms of the materiality of these factors, I think infrastructure would come up as number one. In fact, lack of basic infrastructure is even one of the reasons why many of the facilities the banks give to the manufactures go bad.

“They are not competitive because their cost of production and cost of production are high. So, that is one of the biggest issues I think we have,” he added.
Yusuf further noted that the country’s industrial sector is too dependent on imports, insisting that the dependency rate is too high.

“Ideally, industrialisation should be driven by the resources you have and that will strengthen your position in terms of competiveness.
“It will bring about comparative advantage. So, the way forward is to fix our infrastructure,” he advised.

In his view, the Head of Research, SCM Capital Limited, Mr. Sewa Wusu, said the inauguration of the Nigeria Industrial Policy and Competitiveness Advisory Council about three months ago showed that the government’s target is to industrialise the nation.
If government assembled these people together for a start, that means they are serious, Wusu argued.

“Once you industrialise, it would make your economy to be productive. Industrialisation has to do with knowledge.
“For any country to develop, knowledge however, is very key. This is because once the human capacity is developed, innovation comes in.

“I won’t say we are not ready for industrialisation; government has inaugurated a team which shows they are looking in that direction. But we must continue to develop our human capacity,” he said.
Wusu pointed out that the world is now moving away from oil. With this, he stressed that policy makers in the country should be focused on industrialising the country.

“The UK said by 2040, diesel and fuel cars would be banned. That tells you that they are looking for alternative ways and we should begin to think towards that direction,” Wusu added.
Therefore, for the nation to achieve industrialisation, it must design policies that would encourage exports, continue to drive, promote and lead in its Made-in-Nigeria campaign as well as promote policies that are friendly to investors.