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Revisiting actions and policies in Nigeria’s manufacturing sector

10 February 2016, 09:20 Adefolake Adeyeye

Manufacturing plays an important role in economic development and accounts for a substantial proportion of total economic activity. The Asian countries have seen remarkable growth as a result of their manufacturing exports and constructive policies aimed at opening markets, implementing favourable trade and exchange rate policies, and attracting foreign investment through stable governments and respect for property rights.

China, the worlds’ largest manufacturing nation, is a prime example. Other examples are the four Asian Tigers – Hong Kong, Singapore, South Korea and Taiwan.

Manufacturing is one of Singapore’s key growth drivers, accounting for 18.4% of Singapore’s GDP. Between 1960 and 2005, Singapore’s manufacturing share of GDP rose from 11% to 27%, helping raise the standard of living. Since 2007, there has been a decline in manufacturing GDP due to sluggish demand, Singapore’s susceptibility to external shocks, long term structural changes, regional competition, and higher business and labour costs. Nevertheless, the importance of the sector is not lost and attempts to spur the sector continue.

Unfortunately, in sub-Saharan Africa, not many countries have been transformed through industrialization, which is paramount for sustainable economic growth. Rather, many resource-rich African countries tend to rely on exporting raw and unprocessed commodities. In light of the global decline in commodity prices, China’s slowing growth, rapid urbanization, growing population and rising demand, it is useful to revisit the issue of industralisation in Africa. The focus here is on Nigeria, Africa’s most populous and largest economy.

According to Nigeria Vision (NV) 20:2020, ’the manufacturing sector provides the greatest opportunity for the transformation of the Nigerian economy … It is an antidote for unemployment, a creator of wealth and threshold for sustainable development’. However, the sector’s potential has not been fully utilized. Manufacturing accounts for 10% of total annual GDP. Nigeria’s vision 20:2020 envisaged Nigeria’s manufacturing sector to be globally competitive, tightly integrated, contributing no less than 25% to GDP.

Although manufacturing in Nigeria has seen strong growth in recent years, with steady increases of 6.55% in 2010, 7.79% in 2011 and 2012, and 9.03% in 2013, this has not always been the case. The manufacturing sector’s contribution to GDP fell from a high of 8.85% in 1990 to about 4.1% in 2008.

The hope is that the recent decline in oil prices will ensure greater focus on manufacturing, leading to a greater GDP share to boost the economy. However, infrastructure deficits and global and domestic economic situations may make it difficult for manufacturing to have a strong impact.

Through the years, Nigeria has only gained minimal success in promoting industrialization. One reason was the failure to harness the private sector’s potential. Another reason has been the inability of numerous administrations to successfully complete and/or carry out effective operations in state-owned enterprises created to spur industralisation. Corruption has also been cited as a major factor. Other contributing factors to the failure to achieve industrialisation, include the global economic recession and the usual woes that come along with that, such as foreign exchange decline, unemployment and balance of payment disequilibrium.

So how do we revive manufacturing in Nigeria? Singapore provides a powerful case study of what has been done to boost a manufacturing sector. It has created a business-enabling policy framework since the start of independence in 1965. This has allowed the manufacturing sector to grow and develop to the extent it has. In addition, its energy, water, transportation, and other infrastructure have all combined to boost manufacturing in Singapore. It has lately consistently been ranked at Number 1 on the World Bank’s Ease of Doing Business rankings. The fact that Nigeria achieved a ranking of 169 out of 189 countries ranked, goes a long way to explain the differences between the manufacturing sectors of these two countries. Comparing the rankings on the Global Competitiveness Report of the WEF, an even more elaborate picture is painted. Overall, Singapore is ranked 2nd out of 140 countries, whilst Nigeria is ranked at 124. On infrastructure, Nigeria and Singapore ranked 124 and 2; on technological readiness they rank 106 and 5; while on higher education and training, they come in at 128 and 1, respectively.

So, it seems clear a number of actions are necessary. With the right macroeconomic stabilization strategy, business-friendly environment, improvements in public infrastructure (transportation, power and energy), and foreign direct investment, Nigeria’s manufacturing sector has the potential to grow more rapidly in the long-term.  Other actions include an unrelenting anti-corruption drive, strengthening national security and revamping human capital development. In January 2016, President Buhari was reported to have said “Nigeria’s vision of becoming one of the 20 largest economies in the world by 2020 is only attainable when science, technology and innovation are fully integrated into the national socio-economic development process”.

Subsequent plans, such as the Nigerian Industrial Revolution Plan (NIRP), have projected growth driven by a number of sectors, including oil and gas, solid minerals, agriculture and manufacturing. The NIRP aimed to raise overall manufacturing competitiveness through improved industrial infrastructure, power prioritization, reduced borrowing cost, access to finance, skills training, improved investment climate, better product standards, innovation and technology and promotion of local patronage of “Made in Nigeria” goods – all areas seen as major hurdles for the manufacturing sector.

Perhaps the NV 20:2020 will succeed where other plans failed. It sought economic diversification with the goal of growing the economy at an average of 13.8%, driven by the agricultural and industrial sectors. Although the growth projection of 13.8% has not been achieved, the Nigerian economy is now well diversified and no longer dominated by agriculture and oil, with services accounting for almost half of GDP.

With the agro processing industry, a subset of manufacturing dominant in Nigeria, and the current administration’s plan to modernize agriculture with a budget raised by 96%, manufacturing is set to drive economic growth further.  Olam International recently announced the purchase of wheat milling and pasta manufacturing assets in the country, with a projection of 8% growth in the pasta market annually. The revival of motor vehicle assembly plants has also attracted top international brands such as Ford, Volkswagen, Nissan, Hyundai and Honda, further increasing the potential for manufacturing. For instance, in November 2015, Ford built its first “Made in Nigeria” vehicle at its Lagos plant. In July 2015, Volkswagen resumed building vehicles in Nigeria since it stopped 25 years ago.

In conclusion, manufacturing is one of Nigeria’s growth drivers. A serious commitment to industralisation and manufacturing has the potential to make Nigeria’s economy enviable among other nations, developing or developed. This will only be achieved if Nigeria can get its act together and work towards achieving infrastructural development, inclusive growth and citizen welfare, objectives highlighted in president Buharis’ recent 2016 Budget address to the National Assembly.

The author is the Research Fellow of the NTU-SBF Centre for African Studies, situated at the Nanyang Business School, Singapore. A more comprehensive version of the article with footnotes provided, is available from the website of the Centre for African Studies at http://www.ntusbfcas.com.

- MyNews24

Disclaimer: All articles and letters published on MyNews24 have been independently written by members of News24's community. The views of users published on News24 are therefore their own and do not necessarily represent the views of News24. News24 editors also reserve the right to edit or delete any and all comments received.

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