Imperatives For Industrialisation, By Nonso Obikili

I attended the annual conference of the Nigeria Economic Society last week. The conference was centred around Nigeria’s attempts to industrialize. Of course, this is not a new issue. Since independence, we have been talking about industrialization and have tried various strategies to industrialize. So far, the results have not been great. In 1961, shortly after independence, manufacturing accounted for just under five percent of GDP. This rose to just over seven percent by 1970, before declining to between five and six percent through the 1980s. By 1999, at the transition to democracy, manufacturing accounted for under five percent. Today it is somewhere around nine percent of GDP. In short, since independence manufacturing has not lived up to expectations.

 

This is not for lack of trying. Since independence, we’ve had various economics plans all trying to kick start rapid industrialization. There was a first national development plan in 1962, then a second in 1970, then a third in 1975, then a fourth in 1981, then SAP in the 1986. There were a series of smaller plans between 1986 and 1999, and then there was NEEDS in 2004, and then NIRP in 2014. Yet, our industrial sector has remained largely the same, remaining just a small fraction of the economy. The conference was focused on why that continues to be the case, and on the way forward.

 

As with any conference, there were a variety of ideas, some good and some bad. But there did seem to be a tinge of protectionism everywhere. If I had got a hundred naira for every time I heard phrases similar to “we should produce what we consume,” or “shipping jobs abroad”, I would have made a lot of money. Still there were good ideas. Particularly, there appeared to be a realization that trade was an essential part of industry, and without trade, whatever industrial strategy we choose was doomed to fail. A reality which this government seems at odds to accept. Unfortunately, there was almost no discussion on human capital, which is perhaps the most important factor behind not just industrialization but development in general. A scenario which mimics this governments almost completely ignorance of human capital and reform to learning in the country.

At the end of the conference I left with just one thought in my head? Is there really a path to development through industrialization anymore or is that door quickly closing for countries like Nigeria? In the last decade or so, manufacturing has become more of an automated process with limited human involvement. The trend is also only moving in one direction, towards more automation. The implication is that the traditional cheap labour and low cost of production advantage that countries like Nigeria had, is slowly fading away.

This combined with the fact that manufacturing is becoming less and less relevant in global economic activity, has me wondering if we should be putting so much emphasis on manufacturing above all else. Manufacturing as a share of global economic activity has been in decline for decades, falling from 22 percent in 1995 to 15 percent in 2015, with the trend pointing south. Perhaps we should also be exploring alternative paths to development.

PEBEC and moving the needle in competitiveness, The world economic forum released the 2017 version of their global competitiveness index last week.Nigeria managed to climb up two spots from 127th to 125th of 137 countries ranked. Technically, we did not actually improve as our score was worse than it was last year, but other countries got significantly worse so we climbed up the rankings. You might be wondering why we showed no improvement despite all the successes that PEBEC has achieved over the past year or so.

 

Unfortunately, while PEBEC has been focused mostly on bureaucratic bottlenecks behind doing business, something which is also important, competitiveness is about a lot more than that. Indeed, peeking into the finer details Nigeria did improve on some factors relating to bureaucracy, like the number of procedures to start a business. However, on the factors which are most important for competitiveness, we’ve made no progress, specifically on the quality of our infrastructure. A look at the current state of the Apapa port road, one of the most important roads in the country, makes it very clear that on infrastructure, we are nowhere near being competitive. The deterioration in macroeconomic policy over the last two years probably did not help as well.

 

Although I like the work that PEBEC is doing, it is important to understand that becoming a competitive economy involves a lot more than just fixing bureaucratic problems.
Nonso Obikili is an economist currently roaming somewhere between Nigeria and South. The opinions expressed in this article are the author’s and do not reflect the views of his employers.