Industrialising Nigeria? Ask the Brits: It’s about ideas, people and systems
How can a nation industrialise without innovation? Yet Nigeria is 119th out of 127 in the 2017 Global Innovation Index. How can a country industrialise without being competitive? Yet Nigeria is 125th out of 137 in the 2017/18 Global Competitiveness Index. What about infrastructure, which I call, broadly, systems? No nation has ever industrialised without energy and advanced transport networks
Continuing the theme of my discussion on Nigeria’s trade policy last week, I want to turn to its industrial policy. Trade and industry are, of course, closely interrelated. A nation cannot truly participate in international trade, and be rich, unless it can sell valuable products, not just raw materials, to the rest of the world; and it can’t do that unless it has the industrial capacity to produce high-quality goods and services. So, industrialisation is a legitimate goal for any nation to pursue. But how best to achieve it? Central to that question is another: What is the proper role of government?
The statist school holds that government should centrally plan, direct and influence industrial outcomes, with state officials picking “winners” among industries. On the other hand, the libertarian, laissez-faire school sees virtually no role for government, but puts absolute trust in market forces. However, a third school, the classical liberal approach, rejects both extremes. Markets can fail and need framing rules, and, thus, there is a proper role for the state. Of course, that role is not about central planning by some arrogant yet ill-informed state actors, but rather it’s about government working in partnership with business and other stakeholders to remove all barriers to economic and industrial growth.
So, what are the enablers of industrial development, and how prepared is Nigeria to provide them? To answer these questions, I will use the UK’s recent Industrial Strategy White Paper to benchmark global best practices, and then compare Nigeria’s approach to industrial development. Why Britain, you might ask. Well, for centuries, Britain has been the global economy’s intellectual powerhouse and driver of change, from the first industrial revolution to the “golden era” of free trade. In the 1980s, after a decade of national economic stagnation and high inflation (“stagflation”), caused by statist economic policies, it was Britain’s bold, pro-market reforms that set an example for others, including (eventually) the then Soviet Union, to follow. So, when Britain produces an Industrial Strategy, any country interested in economic development should learn from its approach.
For me, what’s most striking about the UK’s Industrial Strategy White Paper, published in November last year, is the clarity about Britain’s overarching approach to industrial policy: it is underpinned by a resolute commitment to trade openness. As the White Paper puts it, “Britain’s prosperity is founded on being an open, liberal free-trading economy”, and “Britain’s future has to be one of free trade”. It goes on to say that “The role of the government is not to pick favourites and subsidise or protect them; rather it is to ensure that British business environment is shaped by competition and contestability in which the best businesses of all sizes can thrive”, adding that, “the best way to improve productivity is to increase exposure to competition”.
In this era of growing protectionist sentiments, it’s really refreshing that a government is talking like this. When you hear some otherwise well-informed technocrats in Nigeria, as I pointed out last week, you would think that no country embraces economic liberalism anymore. Well, Britain has always done and still does. But does it mean that the UK does not support its industries or that it doesn’t have a strategic view about the direction its industrial development should take? Far from it, its strategy is not libertarian or laissez-fair, rather it is based on classical economic liberalism that believes that government has a role in promoting competition and driving higher productivity, and in providing incentives for industry-led technological breakthroughs.
So, first, the White Paper lists five foundations of industrial success that the government wants actively to support. It calls them ideas, people, infrastructure, business environment and places. The last is about devolving economic powers to regions to ensure that every part of the country experiences economic dynamism and productivity growth.
In addition to the five pillars of productivity, the White Paper then lists four “Grand Challenges”, that is, four areas where the UK believes it can lead the “global technological revolution”. These are: 1) artificial intelligence (AI) and big data; 2) clean growth; 3) the future of mobility, i.e. the development of electric cars; and 4) meeting the needs of an ageing society. None of these “Grand Challenges” involves the government protecting any sector, but they will be achieved through intense focus on the five cross-cutting, horizontal enablers, and through bottom-up Sector Deals, in which sectors come together under clear leadership to negotiate a Sector Deal with the government to address their specific sectoral needs and boost productivity through the five enablers.
Reading the UK’s Industrial Strategy White Paper, I couldn’t help but wonder why, given its acute development crisis, Nigeria lacks the urgency to embark on serious structural reforms. Britain, let’s remember, is the world 6th largest economy, 5th out of 127 in the 2017 Global Innovation Index, 8th out of 137 in the 2017/18 Global Competitiveness Index, and 7th out of 190 in the 2018 Ease of Doing Business Index. If Britain, with its world-class achievements, is still deeply fixated on advancing its innovative capacity, people, infrastructure, business environment and regions, why is Nigeria not in a hurry to develop, why is it so sclerotic and lethargic about progress?
Nigeria published its industrial strategy, called Nigerian Industrial Revolution Plan (NIRP), in 2014, under the Jonathan administration. The Buhari administration adopted it, which is commendable for policy consistency. But despite the plan being called “revolution”, there is nothing revolutionary about it; not in terms of its substance nor in terms of the speed of delivery. Take delivery first. The plan was supposed to be delivered “over the next 5 years”. That was 4 years ago. In 2018, where is Nigeria with the implementation of the NIRP? Beyond processes, committees, meetings, announcements, planning etc, where is the real progress on the ground? Hardly any!
Now, what about the substance of the NIRP? Its overall approach is to pick “winners” among industries. While the UK identifies themes, such as Artificial Intelligence, big data and clean energy that it wants to advance through key enablers, Nigeria lists 4 industry groups and 20 sectors that it wants to protect through local content requirements, high tariffs, import bans etc. Even though the NIRP states that manufacturing in Nigeria “has failed to undergo critical structural transformation”, the government thinks the best way to tackle that problem is to cocoon the sectors within protectionist walls instead of exposing them to the oxygen of competition. By the way, how can a country promote or protect 20 sectors? Even the United Nations Economic Commission for Africa said: “Selecting the various sectors to be promoted appears to be based on rule of thumb and not on rigorous studies”, adding: “The number of sub-sectors appears on the high side to qualify for a selective trade and industrial policy”.
To be fair, the NIRP also lists 7 cross-cutting or horizontal enablers, namely, infrastructure, skills, innovation, investment climate, standards, local patronage and financing. But while the UK makes these enablers the focus of its industrial strategy, Nigeria sees them only as secondary to its overarching protectionist approach. Yet, the enablers are what Nigeria must focus on if it truly wants to industrialise. How can a nation industrialise without innovation? Yet Nigeria is 119th out of 127 in the 2017 Global Innovation Index. How can a country industrialise without being competitive? Yet Nigeria is 125th out of 137 in the 2017/18 Global Competitiveness Index. What about infrastructure, which I call, broadly, systems? No nation has ever industrialised without energy and advanced transport networks.
What about the business climate? Last week, a reader, Mrs Makinde, emailed me. She described the Nigerian business environment as “a complete mess”. There is a “hostile attitude to foreign-owned businesses”, she said. Expatriate employees are hardly welcomed, “yet standards have fallen so badly graduate engineers don’t know how to interpret metres”. This is sad, of course. No nation can industrialise without the right skills base and a flexible labour market. Indeed, every serious nation now competes for the best brains around the world.
Truth is, Nigeria can industrialise if it does the right thing. It must become one of the best places to start and grow a business. That requires focusing on ideas, people, infrastructure and business environment. Above all, it must be a competitive, open economy. That works. If in doubt, ask the Brits!