Understanding Nigeria’s industrial strategy
One of the barely discussed concepts in modern development economics today is industrial strategy or blueprint. But it is hard to identify any upper middle-income or advanced economy that did not propel its growth or development through a clear-cut industrial strategy.
China, for instance, is export-oriented. It is the largest exporter of steel, shipping 73.3 million metric tonnes to the world in 2017. The country is also world’s largest exporter of textiles and a number of other products. Even the ‘Go-Out Policy’ introduced by the country in 2009 is a reflection of its outwardly looking industrial strategy, targeted at exporting finished products to the world and investing overseas.
India is following the same development pattern.
Import-substitution, on the other hand, was adopted by Latin American countries, including Argentina, Chile, Uruguay and Venezuela, in the 1930s up to 1980s. It was hugely successful in these countries.
It is a strategy in which local industries are established with a view to producing goods that replace imported ones. It means, for instance, encouraging the formation or establishment of fruit juice manufacturing companies in Nigeria to ensure that fruit juice is no longer imported. It is more inward-looking than outward.
It requires imposition of tariffs, quotas and exchange controls to protect local industries from foreign competitors and make foreign goods expensive.
Export- oriented or substitution industrialisation, on the other hand, is a strategy of exporting goods for which a country has a comparative advantage. This strategy has worked miracles for the Asian Tigers.
Some countries have also adopted foreign private investment strategy, whereby incentives are put in place to attract multinationals and foreign direct investors. A typical example of a country with this policy is Ethiopia, even though it may be argued that the East African country is export-oriented or a mix of export-orientation and foreign private investment strategies.
Some analysts argue that Nigeria does not have a specific industrial strategy and needs any of the three discussed above.
Speaking at this year’s Manufacturing & Equipment Expo organised by MAN and Clarion Event West Africa, Aliyu Suleiman of the Dangote Group said the an industrial strategy had become important for Nigeria as new governments spent half of their tenures devising plans, with little room for implementation.
“Last year, the United Kingdom produced a revised manufacturing strategy— a definitive roadmap. We can do that in Nigeria and MAN is in the best position to do this,” he stated.
According to him, the industrial strategy should include the aspiration of industry in terms of how much GDP contribution targeted; where to play, with regard to areas of priority, and how to win, in terms of becoming competitive.
Others have also pointed out that the country’s industrial strategy is vague, if it ever exists.
There is another school of thought that believes that the country has never had any well-defined industrial strategy over the years.
But a close look at Nigeria’s industrial history shows that the country adopted import-substitution strategy between 1960 and 1985. However, the objectives were never realised.
According to Udo N. Ekpo of the Department of Economics, Akwa Ibom State University, inputs such as raw materials, machines, spare parts and the skilled manpower used in the local industries were imported. As a result of this, rather than cut imports, external dependence or save foreign exchange as expected, the policy hiked imports, perpetuated external dependency of industrial sector, and drained foreign exchange.
More so, the envisaged transfer of technical skill and technology, which could have resulted in technological development in Nigeria and consequently boost industrial development, did not materialise because strategic technical position in existing manufactured firms were manned by foreigners, he added.
At various times in the past, Nigeria made efforts to attract foreign manufacturers and multinationals to create jobs and utilise local raw materials.
Olusegun Obasanjo and Goodluck Jonathan’s eras saw ministers doing road shows outside the country to woo investors. There were also controversial waivers and incentives which several foreign companies got, especially during the Jonathan’s administration, targeted at promoting foreign investments.
Currently, many government officials have used the expression ‘import-substitution’ many times, pushing analysts to wonder whether this is the country’s current strategy.
However, the crash in Nigeria’s biggest foreign exchange earner—crude oil— in 2015 and 2016 pushed public officials into campaigning for export of Nigerian agro and finished products. The reason was not far-fetched: Oil price was low and consequently dollar inflows could not meet the demands of manufacturers who needed to import inputs; fuel importers who wanted to bring in refined fuel, among others.
Like in the import-substitution era in Nigeria, many of the raw materials are still imported today, even though local input sourcing is already over 50 percent. This is why many think that Nigeria’s industrial strategy is either non-existent or it is import-substitution.
However, checks show that there has been a new industrial policy in the country since 2014. In the Nigeria Industrial Revolution Plan prepared by the Goodluck Jonathan administration, adopted by the present government, the country’s strategy is what is called ‘resource-based industrialisation’.
This means the use of locally available resources, such as raw materials, man power and natural resources, to grow domestic production. This has seen some success with local input sourcing ranging between 52 and 60 percent since the second half of 2016, according to numbers from MAN.
However, the craze for export to earn foreign exchange and the constant use of ‘import substitution’ in the industrial circles are blurring this vision. Nigeria’s non-oil export today is still dominated by cocoa, rubber, sesame seeds, shea nuts, animal skins/leather and vegetables, which ordinarily should feed local industries.
Frank Udemba Jacobs, president of MAN, believes on the focus is on import-substitution, export-orientation and resource-based industrialisation. Jacobs said export was important because of the need for foreign exchange in the country, adding that export would create more demand locally.
“Our industrial strategy is clear. It is resource-based industrialisation. But all others are important. What we do not want is exporting commodities without adding value,” he said.
Jacobs said the prices of Nigerian products were not low owing to high cost of inputs and power.
Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), pointed out most industries focused on both the local and export markets because the latter was bigger.
Yusuf said import- substitution and export promotion could go together. He explained that resource-based industrial was more competitive because local resources were utilised, citing an example with the bright performance of food and beverage sub-sector which got most of its inputs locally as a case study.
Oladapo Abiodun, chairman of LCCI SME Group, noted that import-substitution and export promotion could not be separated as one depended on the other for success.
“The whole world is a global market. For you to enjoy economies of scale, you need to produce at an optimal level, satisfy the local market and export,” Abiodun said.
He said a clear industrial strategy could only be noticed when the environment was good enough for businesses.
Experts say what Nigeria needs is to further develop essential raw materials for industries by bringing back petrochemical industries, rejigging Ajaokuta Steel and attracting deep-pocket investors to the solid minerals sector. They say unless efforts are made in these directions, input importation will continue and resource-based industrialisation will become a will-o-the-wisp.
ODINAKA ANUDU