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How Nigeria can catchup with newly industrialised economies 15 May 2023

In 2021, industry accounted for 20.56 percent of Nigeria’s real gross domestic product (GDP), according to data by the National Bureau of Statistics (NBS). The figure represents more than five percentage points decline from the 25.61 percent contributed by the sector in 2012. Over the 10-year period, the country’s industrial output as a percentage of the economy either stagnated or declined. However, this is not because of a lack of policy decision – and even financial interventions by relevant agencies of the government – to increase productivity in the sector.

Lack of progress with industrial growth means agriculture and services have been the two dominant sectors, with the former accounting for 25.88 percent and the latter 53.56 percent, of GDP in 2021. Structural rigidity defined the economy in the 10-year period. The steepest change was the aforementioned decline in the industrial sector.

But the incentives for change are abundant and strong. For instance, Nigeria’s agriculture is dominated by subsistence farming. As such, output per capita is minuscule and inadequately monetised. Coupled with output loss, mass poverty characterises the agriculture sector. To turn the tide against poverty in the sector, processing primary produce into intermediate and finished products would improve income and future output.

The Nigerian economy is also reeling because of high import costs. Dependence on manufacturing input, refined petroleum products, and consumer goods has continued to put downward pressure on the naira value relative to the hard currencies for importation, especially the US dollar. The Central Bank of Nigeria (CBN) has tried to counter the depreciation of the currency by imposing a controversial list of intermediate and finished products that are banned from importation through the denial of dollar allocation in the official market. While the reserve bank may be criticised for arrogating trade policy to itself on an ad hoc basis, it remains genuinely concerned about its financial stability mandate.

Moreover, several countries that started as new nations with Nigeria and were at the same level as the country in the early 1960s have towered ahead of Nigeria, transforming into industrial powerhouses and upper-middle and high-income countries. Two examples of such newly industrialised countries are Singapore and Malaysia. China was as much a poor country as Nigeria seven decades ago. But the Chinese economy has since transformed into a global industrial giant, now only second to the United States in terms of nominal GDP.

However, the global industrial landscape has become much more competitive today than in the 1960s when Nigeria attained independent nationhood and became responsible for its economic fortunes. Nevertheless, there are three clear and distinct strategic areas the country can leverage today to dramatically improve its industrial output and compete internationally. These are industrial policy, manufacturing value-addition, and technopreneurship.

Industrial Policy

According to Organisation for Economic Co-operation and Development (OECD), industrial policy is more concerned with promoting industrial growth and efficiency than it would occur in the absence of such policy intervention. Launched by the administration of President Goodluck Jonathan in 2014, the Nigerian Industrial Revolution Plan (NIRP) is one of the most promising industrial development policies in Nigeria, after the popular industrial plans of the 1960s and the 70s. According to Jonathan, the NIRP was designed to transform the country’s industrial landscape, boost skills development, and conserve foreign exchange. To achieve these, NIRP aimed at facilitating investments in industrial infrastructure and power, reducing borrowing costs, raising product standards, linking innovation to the industry, and ensuring local patronage of made-in-Nigeria goods.

The failure of the NIRP is evident in the industrial decline data, high interest rates, and the poor performance of the power sector, making Nigerian products less price-competitive compared to foreign ones. It could as well be that the dire macroeconomic data failed the industrial policy rather than being the signposts of the failure of the policy. The NIRP may have also suffered from government transition. The administration of President Muhammadu Buhari came in in 2015 and started working on its overarching plan in the face of a deep recession in 2016. It subsequently launched the Economic Recovery And Growth Plan (ERGP) in April 2017, covering 2017 – 2020. Although the ERGP also failed in its objective of fostering broad-based economic growth, it diluted the sector-specific emphasis of NIRP.

Nevertheless, the foregoing suggests the Nigerian government has always recognised the important role of industrial policy in fostering economic growth and development. With Nigeria at the cusp of a new administration, it is important that the next industrial policy plan for the country be launched early in the life of the administration and assiduously implemented over the next four years. While four years is a short time to achieve fundamental transformation in the economy, the success achieved in that period could generate momentum that would make the programme endure.

In the next planning cycle for Nigeria’s industrial growth, it is important for the government to work more closely with the private sector to deliver on the goal. Whereas national industrial planning is a prerogative of the government, it needs the private sector to successfully implement such plans. Since its establishment in 1971, the Manufacturers Association of Nigeria (MAN) has only been performing routine consultation roles where government harvests ideas from the membership organisation. Manufacturers should be integrated into the implementation of any new Nigerian industrial policy.

Manufacturing Value-Addition

The competitiveness of industrial outputs in both domestic and international markets hinges on manufacturing value-addition. The industrial sector is a part of the real sectors – one which the advanced countries used to attain economic growth and development.  For most African economies, agriculture is the real sector of growth and development. But in Nigeria’s specific case, the services sector – banking, insurance, and telecommunications – is dominant, while manufacturing is weak and experiencing a trend of decline in capacity utilisation.

Between the last quarter of 2015 and the second quarter of 2022, the manufacturing capacity utilisation rate oscillated between 54.50 and 39.09, according to data by the National Bureau of Statistics, as the economy continue to depend on importation for most of its manufacturing inputs amid crippling forex shortage. One area of the solution is linking agriculture to manufacturing.

To raise Nigeria’s industrial output, the development of the value chain of the oil and gas sector – where the country possesses significant natural endowments – is highly necessary. Thankfully, the Dangote refinery is set to dramatically increase output in the petroleum refining and product manufacturing sector. The country needs to go over and beyond meeting the domestic consumption need, to ramping up capacity for the exportation of petroleum products. This means the standstill in revamping the four state-owned refineries should be resolved and other private sector refiners of various capacities and specialising in different niche products should be supported. A state monopoly in the sector should not be replaced by a private sector one.

And whereas the grossly inadequate power supply situation in the country requires further policy intervention, power remains an industrial activity, requiring private sector investment and innovation. A comprehensive assessment of the power sector is now due, with the view of consolidating the progress of the past few years and comprehensively removing the remaining bottlenecks in the sector.

Nigeria also needs to take the role of a manufacturer – and not simply a consumer – of renewable energy. This view hinges on the need for Nigeria to continue to be a major energy producer that it has been for decades through oil exploration and production. Nigeria’s energy production should not disappear in the energy transition, based on its vast industrial and domestic needs and because of its history as a major energy producer.  

Technopreneurship

When talking about ‘technopreneurship’ in Nigeria, attention is most recently focused on financial technology or fintech for short. Indeed, Nigerians have been expressing their innovative talents in fintech. Apart from producing three of Africa’s biggest five unicorns – start-ups with over USD1 billion in valuation – Nigeria has continued to be the leading recipient market for fintech funding. However, the country can leapfrog to the Fourth Industrial Revolution (4IR), which is characterised by different combinations of digitally powered technologies, such as artificial intelligence and robotics, data analytics, machine learning, internet of things and their interactions with humans and machines in workplaces.

Technoprenuership, the combination of technology and entrepreneurial skills, is the process of organising factor inputs to create new value through the use of technological innovations for profit maximisation. The strongest obstacle to Nigeria’s hitech economy is know-how. However, this can be solved by incentivising Nigerian diaspora technology transfer. For this to happen, however, the country needs to take nation-building more seriously, not only fostering a united country but also a purposeful one. With the interest of Nigerian experts leading and working in hitech environments in advanced countries, mobilising financing to the country’s technology sector would become easier.

Many countries around the world have fostered technology-based entrepreneurship through assistance and financing schemes, such as the Singaporean National Science and Technology Board (NSTB) and the Eighth Malaysian Plan. Should Nigeria really want to technologically develop, technology must become a priority sector for the government where all-of-government approach is mustered across policymaking, regulation, and investment.

In conclusion, the industrialisation strategy in Nigeria should aim at achieving global competitiveness for selected manufactured goods from sectors where the country has a high comparative advantage. It is also imperative to link primary sector activities to industrial processing and service-oriented activities in a conducive business environment. Well-coordinated efforts of both government and the organised private sector are indispensable. Successful implementation of such strategic actions will reduce the economy’s high dependence on imports, stabilise the exchange rate, create high income, and reduce poverty.

Olusola Dahunsi, PhD, who is a chartered accountant, is a lecturer in the Economics Department at KolaDaisi University, Ibadan.