Industrial policy and the path to mass industrialisation in Nigeria
The ongoing recession occasioned by the collapse of global oil prices and its attendant fiscal consequences has deepened the clarion call for the diversification of the Nigerian economy. For a nation of almost 200 million people, it is clear that we can no longer trudge along the same trajectory as an oil-dependent monocultural rentier economy. That model has failed abysmally, bringing nothing but poverty, tears and sorrow. But it is one thing to come to the grim realisation that the old model does not work; it quite another to marshal the leadership, wisdom, courage, boldness and vision to do the right thing. My message today is that we must move resolutely on the path of agriculture-based mass industrialisation as the long-term panacea for our economic malaise.
Before the 2014 rebasing of the economy, manufacturing accounted for an insignificant 1.9 percent of our total GDP. With the rebasing exercise, it was revealed that the sector had improved to about 7.4 percent. Agriculture currently accounts for 22.1 percent while oil fell from 37 percent to 15.8 percent. The rebasing exercise also shows that we are still largely a nation of shopkeepers. Trade and services make up a whopping 54 percent of our total GDP. There is nothing wrong with trading in itself, except that it does not generate as much value-added and as much employment as the real sector. For Nigeria to become and advanced economy in the coming quarter century, it would not do for us to remain merely a nation of shopkeepers and money-changers. Manufacturing must increasingly occupy centre stage.
Industrialization refers to structural changes in which industrial production is increasingly dominant over primary and agricultural production. A nation is said to be industrialised when an agrarian economy dominated by the use of elementary tools gives way to one in which machines and power tools are widely deployed within a structured automated factory environment. The key features include: application of scientific methods to solving problems, mechanization and factory-based mass production, growth of the money economy, and enhanced labour mobility spatially as well as socio-economically.
Ever since the process that we term the ‘industrial revolution’ began in England in the eighteenth century, spreading to France, Germany, northern Europe and the New World, industrialization has come to be regarded as the key to wealth creation, poverty alleviation and employment generation in rich as well as poor nations. According the Cambridge economic historian Phyllis Deane, it is now “almost an axiom of the theory of economic development that the route to affluence lies by way of an industrial revolution”.
It seems fairly evident that industrialisation in England did not involve government taking a central role in economic management. According to the eminent economic historian Peter Mathias, it was essentially a “spontaneous growth, responsive primarily to market influences and underlying social, institutional forms, not shaped consciously by government design”. Far from being a quantum leap, it was a slow transformation, which, complimented by an expanding population and developments in banking, transportation, and communications services, boosted aggregate demand while creating the institutional basis for long-term secular growth.
Whilst this may be case for Britain, it is clear that, for late-developing low-income nations of Asia, Africa and Latin America, the path to accelerated growth would require the state to play a more active role in the development process. For agrarian societies undergoing modernisation, where mass publics are impatient for change in their material conditions, authorities cannot avoid confronting the challenge of industrial policy. Indeed, the remarkable transformation which has been achieved in the Asia Pacific, China and India in recent times amounts to a strong case in favour of industrial policy.
During the 1980s and much of the nineties, ‘industrial policy’ was a rather discredited term. The African state, with its neopatrimonial defects of venal strongmen, bloated bureaucracies, rent-seeking and structural rigidities, was seen as the major impediment to social and economic progress. The path of economic virtue was seen in terms of ‘rolling back’ the state and allowing market forces free rein in driving the development process. With the massive de-industrialisation occasioned by World Bank and IMF-supported structural adjustment programmes even against the backdrop of persistent poverty and external indebtedness, there was increasing doubt on the viability of inherited neoclassical dogmas. By the late seventies, Nigeria was on the verge of industrial-technological take-off. Alas, we were forced to destroy the pillars of our industrial capabilities. Manufacturing collapsed and industrialisation went into the doldrums.
Within the last decade, with the lessons of the Great Recession following the subprime crisis and the collapse of the so-called Washington Consensus, it has become clear in rich and poor countries alike that blind faith in markets could prove disastrous. ‘Industrial policy’, which used to be regarded as an “F” word among mainstream Anglo-Saxon economists, has been redeemed in the lexicon of economic science.
At a very broad level, industrial policy has been defined as “a set of actions executed by interventionist or mixed-economy countries in order to affect the way in which factors of production are being distributed across national industries”. It entails a program of selective government interventions that are designed to change the sectoral composition of a country’s economy by influencing the development of particular industries or sectors. Such interventions are often directed towards the supply-side of the economy (enterprises, industries, sectors), while aiming to influence the industrial structure of the economy towards a diversified manufacturing base. Successful industrial policy comprises four key elements: (a) strategic capability, (b) regulatory effectiveness, (c) efficient delivery of services and (d) political autonomy of decision-makers.
Dani Rodrik of the Kennedy School of Government at Harvard has been at the frontier of this revival in favour of industrial policy, especially for emerging economies. Rodrik defines industrial policy as a mix of interventions “in favour of more dynamic activities generally, regardless of whether they are located within industry or manufacturing per se”. For him, industrial policy encapsulates policies targeted at non-traditional agriculture and services in addition to trade and fiscal policies, incentives on manufactures and public subsidies as well as policies that promote such new sectors as tourism and call centres.
The question of the role of industry and of industrial policy in economic development is not a new one. As early as the 1960s, at the fourth Cambridge conference on economic development, a lively debate occurred on whether the newly independent countries should prioritise industry or agriculture. The ‘agriculture first’ school, which included Arnold Rivkin, Nicholas Kaldor, and others, took the view that spectacular expansion in agriculture was essential to creating the capital and the home market for subsequent development of the industrial sector. The more radical ‘industry first’ school, on the other hand, maintained that without an industrial revolution there was not much hope that developing countries would secure the rapid capital formation and the expanding purchasing power that would provide stimulus to the rural farm sector.
In the early years of independence, countries such as Ghana and Guinea made concerted efforts to pursue the path of state-led industrialization, with disastrous consequences. For the newly-independent nations, particularly those of Africa, import-substitution industrialization (ISI) was seen as the main key to breaking the shackles of poverty and ensuring rapid economic development. The agreed consensus was that the path to economic transformation follows a linear path from agrarian backwardness, through the build-up of economic momentum, to take-off towards industrialization, right up to the stage of a mature industrial economy. Writers such as Walt Rostow in economics and Samuel Huntington in political science premised their works on the inevitable process of modernization (read Westernisation) that would propel backward nations into the ranks of advanced industrial economies. For economists such as Albert Hirschman and Nobel laureate Gunnar Myrdal, technology choice and institutional reforms were the most critical ingredients in the modernization of traditional societies.
By the 1970s, modernization theory came under the onslaught of the emerging underdevelopment and dependency paradigm. Within Africa, scholars such as Samir Amin and Justinian Rweyemamu were arguing that the traditional pattern of industrialization advocated by modernization theorists would simply deepen the ‘underdevelopment’ of less developed countries. They advocated radical economic strategies based on autonomous development, control of transnational corporations, technology transfer and the restructuring of the inequitable international economic order.
By the 1980s, when the ‘neoliberal resurgence’ gained the upper hand, the tide had turned decisively against the intellectual current that became known as Dependencia School. The logic of structural adjustment required the ‘rolling back of the state’ and the reduction of the role of government in the economy, in addition to the promotion of an ‘outward-oriented’ economic policy framework. Structural adjustment and its impact on economy and industry has been a subject of widespread scholarly debate in Africa which should not preoccupy us in this paper.
For much of the last two decades, ‘industrial policy’ had a rather bad press. Of late, however, the hegemony of neoliberal economics appears to have reached an impasse. Blind faith in the market is giving way to a more interventionist approach to economic management. President Barack Obama intervened in key sectors of the economy, including automobiles, ICT, energy and banking in order to save the heartland of world capitalism from imminent collapse. More voices are being raised in favour of a shift away from extreme trade liberalization to targeted government policies that promote balanced economic growth.
In the 1980s and 1990s, developing countries were encouraged by the major development agencies simply to open up their markets to imports and to export whatever products they could produce relatively cheaply in the short-term. World Bank structural adjustment loans IMF stand-by facilities and assistance for debt relief were conditional on trade liberalization. The fundamental assumption was that successful export-led development could be achieved eliminating government intervention in markets and allowing the price mechanism to determine domestic economic incentives. Far from supporting the extreme trade liberalization view, the actual record of these countries demonstrates that successful export-led growth has generally been based on activist trade and industrial policies. A particularly perceptive observer, the Norwegian economist Erik Reinert, has noted: “From Renaissance Italy to the modern Far East, development has been driven by a combination of government intervention, initial protectionism and strategically timed introduction of free trade and investments… but advanced countries do not want less developed countries to follow that approach”.
We in Africa must be careful when foreigners come to give lectures on how best to run our countries. We must listen with an open mind, but we must never be taken in. Nobody can feel the pinch in your shoe more than you who wear the shoes. We need to do our homework. We need original thinking about economics, about macroeconomic management and about long-term development strategy. Much of the nostrums being purveyed by the international agencies aim to keep us permanently in the status of drawers of wood and hewers of water. Without industrialisation, Nigeria cannot survive as a viable democracy. How else are we going to build a future for our 180 million people and to absorb the teeming millions of our unemployed youths?
I agree with the thrust of the 2009 UNCTAD report on Least Developed Countries when it calls on emerging economies to rigorously pursue industrial policies to create “a dynamic domestic comparative advantage in an increasingly complex and sophisticated range of products and services”. The report also recommends the following mix of policies: upgrading productive capacities through innovation to increase value; building capability that decreases social marginalization and poverty through effective incomes and labour policies, public expenditures and entrepreneurship and technology development; creating conditions that enhance for full employment while promoting inclusive growth through pro-growth macroeconomic policies and strengthening of intersectoral linkages; fostering structural transformation from agrarian to post-agrarian societies; improving the supply of all public inputs with a view to raising labour productivity; and building capacities at the firm level, fostering collective learning and facilitating economic diversification.
It is evident that the path industrialisation, no matter how ambitious, cannot succeed without a sound infrastructure base. Power and energy are vital to successful manufacturing. Equally important is the development of a robust rail network. Industrialisation also requires a strong iron and steel sector. The latter are vital to the development of machine tools and precision engineering which are much-needed inputs in the manufacturing sector.
Nigeria has the wherewithal to become an advanced technological-industrial power. We have the people, we have the home-market and we have the natural resources. What is lacking is the political will and the leadership to move in that direction. We need to build industrial clusters around Lagos-Ogun axis, Aba-Nnewi, Kaduna, Kano and Jos. Regional power systems should be developed and other facilities designed around these clusters, including railroads, inland canals and other vital infrastructures. Training and skills, particularly in science, technology, engineering and mathematics (STEM) is critical to successful technological advancement. This has crucial implications for education policy and for training and skills development. Where there is a will there is a way.
Obadiah Mailafia