Overcome constraining manufacturing constraints


A recent review of the economy by the President of the African Development Bank, Akinwunmi Adesina, once again reminds stakeholders of the poor policy choices holding back Nigeria and the urgency to build a vibrant manufacturing sector. His dismay at power shortages, dilapidated transport infrastructure including ports, highways and railways, among other compelling constraints to competitive value-added investments and productivity, requires action to launch the country on the road to export, job creation and poverty. reduce economic growth.

Adesina was clear about this during a talk he gave at the Nigeria Manufacturers Association Annual General Meeting in Abuja. Even in Africa, where economists project to have $ 30 trillion in potential wealth, Nigeria’s case is pathetic. Its economy is crippled, lacking the productive capacity to solve problems and expand into new industries to spur development. It is rich in resources: agricultural, mineral and human, but fails to harness these advantages into robust manufacturing like other successful emerging economies have. Its “race to the bottom” is characterized by dependence on imports, even on refined petroleum products, despite being the world’s 13th largest producer of crude oil. It fails to transform its raw materials into value-added products for exports, to fight unemployment and to reduce poverty.

The main failure lies in the inability to overcome manufacturing constraints. One of the main ones is power. According to the International Monetary Fund, a bad supply leads to losses of $ 29 billion per year. This represents 5.8% of the GDP. MAN says self-sufficiency of electricity now adds 45% to costs, making products manufactured in Nigeria uncompetitive in the global market. Nigerians spend $ 14 billion a year on generators.

Ports are dilapidated, with importers and exporters relying mainly on congested Apapa ports while others across the country are neglected. The roads are in poor condition and the railways are archaic and inadequate, compounded by the government’s insistence on borrowing for development rather than opening the sector to private investment. The country ranks 131st out of 190 countries in the World Bank’s 2020 Ease of Doing Business table. USAID specifies inadequate infrastructure, “tariff and non-tariff barriers to trade, barriers to investment, and limited foreign exchange capacity” as constraints to realizing its economic potential.

With population growth of 2.6% per year and an economy stuck in the rut, dependent on imports and commodities, and stagnant manufacturing industry, unemployment has reached 33.3% and poverty more than 70%; The country fell three places from the previous year to 161 out of 185 countries according to the 2020 UNDP Human Development Index.

Nigeria should and can get out of the low income hole by making the right choices. Growth in the manufacturing sector is one way. Massive and efficient production of goods by converting raw materials or parts using labor, machinery, tools and biological or chemical treatments separates prosperous economies from global laggards. Countries that move out of dependency and poverty are those that create value-added industries, making products cheaper and more efficient for export. Described as an ‘engine of growth’, the manufacturing sector is not only a major employer of labor and a driver of exports and innovation, but according to the Journal of European Economic History, ‘virtually all countries that have transformed their economies from low to high income have done so through a process of industrialization.

Nigeria should abandon the import substitution model – blocking imported products to promote local products – and adopt the export-oriented model based on liberalization to attract foreign investment and the promotion of SMEs, start-ups and of innovation. This forward-looking policy has facilitated the transformation of the Asian Tigers and other emerging economies. While in Nigeria manufacturing only adds 7.0% to GDP, but accounts for 50% of imports (mainly machinery, parts and raw materials), India, through its Make-in program India, adds 19% to real GDP. added value. Brazil became the world’s ninth-largest producer and fifth-largest net exporter of steel in 2018, while Nigeria’s 40-year-old steel aspirations lie in ruins, stunted by fallow factories and state ownership. A 2020 KPMG report ranks Malaysia fourth out of 17 countries in terms of manufacturing competitiveness, ahead of China, Japan, Vietnam and India.

Adesina’s highlight on Vietnam’s export prowess after 20 years of war, with a 2020 export value of $ 153 billion of diversified products, should shame Nigeria for taking action. Malaysia’s total export value in the same year was $ 234 billion, and Brazil’s was $ 209.88 billion. Nigeria’s total exports were only $ 29.7 billion, 89% of which came from crude oil and other commodities. While India and Brazil are today major manufacturers of aircraft and military equipment, Nigeria, with which they launched their industrial ambitions at the same time in the 1960s, remains a midget industrialist.

The new economic strategy should focus on expanding a set of productive capacities and expressing them in a more diverse and complex set of products and services for domestic consumption, but especially for exports. Changing history requires reversing constraints, privatizing and liberalizing key sectors of the economy, radically improving the business environment, currency reforms and macroeconomic dexterity. The overhaul of the electricity sector is essential; without it, forget about industrialization. States should invest in electricity with partnerships with the private sector and should encompass wind, solar and hydro technologies. Investments must be oriented towards agriculture, mining and infrastructure. It is also essential to increase the inflow of foreign direct investment; this continues to propel China and other Asian economies.

States should not leave it to the federal government alone; each state should have effective economic policies integrating agriculture, mining and industrialization and attracting investment. Insecurity must be tamed to allow productive activities, trade and transport unhindered. The provision of infrastructure, especially in rural areas, should be a top priority. SMEs, the main drivers of manufacturing, exports, innovation and job creation, should be the priority of national and subnational governments.

Above all, there should be a more serious attitude towards the growth of the economy by different governments and away from the current preoccupation with ruinous politics and culture of consumption.

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