Business
How we de-industrialized Nigeria
It is most unlikely that you will visit China and not notice its great industrialisation success. China’s mesmerizing success in creating jobs, lifting 700m people out of extreme poverty, generating overwhelming wealth, improving living standards and achieved food security for the Chinese people through industrialisation is remarkable. Her speed and precision in industrialisation is a modern-day miracle. China overtook the United States in 2011 to become the world’s largest producer of manufactured goods. Though following different routes, Britain, France, Germany, Japan and the US hitherto achieved global pre-eminence, economic strength and social stability through the same path of industrialization. The 20th century also saw the Asian Tiger countries rapidly industrialize, become manufacturing hub for specific products consumed world over and grew extensive wealth almost in comparison with the West.
Industrialization has been acknowledged as a critical engine for growth, prosperity, job creation and improved living standards. Yet Africa, Nigeria in particular, is less industrialized today than it was 30 to 40 years ago. Data from the Nigeria Bureau of Statistics (NBS) indicate that the contribution of manufacturing to the country’s GDP keeps declining in the past five years. Meanwhile, manufacturing to GDP ratio is a measure of industrialization. A quick snapshot. In 2018, manufacturing contributed 9.2% to GDP, 9.06% in 2019, 8.99% in 2020, 8.98% in 2021 and declined to 8.92% in 2022. The inability to industrialize is at the root of Africa’s poverty. Nigeria, the giant of Africa, appears left behind, with no plan to industrialize. We seem to be losing every opportunity to make any meaningful progress. Populous, labour-abundant economies globally have all anchored on a manufacturing boom to climb the ladder of economic emancipation. The pertinent questions to ask are: How did China and other industrialized countries get it right? How did Nigeria lose it?
Let us start by distilling the common denominator among all the industrialized nations. First, much priority is placed on education and technological advancement. Britain focused on new scientific inventions such as developing the steam engine and using it to the most significant advantage of massive production of goods and movement of people and goods from one part of Europe to another. France focused on technical education, establishing institutions like Ecoles des Arts et Metiers and Ecole Polytechnique. Germany and Japan emphasized solid engineering, technical and vocational education. The US invested in education that produced technological innovations. China followed this path, achieving 98% literacy with an emphasis on technical and vocational education. Industrialisation anchors on an educated and skilled workforce. How can a country industrialize with a dominant illiterate population? Or as the case is with many African countries, a population of half-baked graduates? People with no vocational and technical skills and an untrainable labour force with little or no interest in technical knowledge and capacity?
The second factor is that the industrialised countries laid great emphasis on innovation, research and development. From her industrialisation phase to this moment, the US has a strong culture of research and innovation. It developed an intellectual property framework that rewards creativity and innovation. Prominent inventions such as the telegraph, telephone and electric power emerged during the industrialization era. The US has continued to dominate in innovation. The most impactful innovations in recent history are either developed by or promoted more by Americans. From the Internet, robotics, entertainment, social media to Artificial Intelligence, the US has continued to industrialize; moving away from machine-based manufacturing dominance to the intellectual and knowledge-based production of the knowledge economy. Japan invested heavily in Research and Development (R&D) and followed the US in massive industrialization and production of known brands in the consumer market globally. France, in her R & D, focused more on specific industries such as iron, steel, machinery, chemicals and textiles.
The third common factor is that these countries developed adequate infrastructure and energy to power their industries. Not only did the US and other industrialized countries build massive infrastructure as the foundation for their industrialization and economic growth, they went further to secure the power these industries required to function. It is common knowledge that electric power and other forms of energy (oil, gas, nuclear, solar and clean energy) are harnessed extensively for private and industrial use in those countries. Constant and adequate energy is a sine qua non in the industrialisation process. This is common sense.
Introductory Physics teaches that energy is neither created nor destroyed and can only be transformed from one form to another. This principle implies that the more energy or power in a place, the more excellent the opportunities to convert it into other states. If materials or products represent condensed energy, it only means that the more power you have, the more you can produce. So, how can any country serious with industrialization and economic development focus on something other than energy creation and sustainability? How can a country power its industries if it does not have enough energy for private and industrial use? Or where it has power, it is unreliable and epileptic?
Other factors that support growth are right and consistency policies, access to capital, macroeconomic stability anchored on good governance and strong leadership. The Asian Tigers industrialized on the backbone of macroeconomic stability and stable governance .
A critical analysis of the Nigerian situation shows that we are not meeting these three primary common denominators of industrialisation and are not making any meaningful progress. It is even heart-rending that instead of marching towards industrialization, we are faced with de-industrialization in Nigeria. This refers to the decline or shrinking of the little progress made in the industrial sector of the economy. This process typically involves reducing the share of industrial output and employment in the overall economy. De-industrialization has significant economic and social consequences; been a concern in Nigeria for several decades and has become alarming in recent times. It is an evil wind that blows Nigeria no good.
Several manufacturing companies have left Nigeria recently. A few more are planning to go. These companies cut across several sectors, including oil and gas, retail industry and pharmaceuticals. A few notable companies sold their assets and left Nigeria. Etisalat, ExxonMobil, Tiger Brands, HSBC, UBS, Mr Price Group Ltd, Shoprite, Game, Brunel Services Plc, Intercontinental Hotel Group, etc have all left. The recent announcement by GSK PLC that it plans to exit Nigeria has sent shock waves to the system. At a time when we desperately need more companies to produce goods and services and provide employment, the few we have are leaving our country. This is very sad!
The reasons these companies are leaving are many and varied. Some of these companies cited an unfavorable business ecosystem and foreign exchange inconsistency as the remote and immediate causes of their decision to leave Nigeria. Most companies struggle to get Dollars or other foreign currencies to import goods or machinery. Even after ‘successfully’ doing business in Nigeria, repatriation of proceeds to their home countries is a huge challenge.
Besides these immediate negative business factors forcing companies to leave and stalling Nigeria’s industrialization, major macro issues are fuelling our de-industrialisation. First, Nigeria’s economy for many years is heavily dependent on oil exports. The discovery of oil in the 1950s and the subsequent boom in the oil sector led to a neglect of other sectors, including manufacturing. As a result, Nigeria’s industrial base was not adequately developed, and the country became overly reliant on oil revenue.
Second, insufficient investment in infrastructure such as power, transportation and logistics has hindered the growth of the manufacturing sector. Frequent power outages and inadequate transportation networks constitute challenges to operate industries efficiently and competitively. Third, the influx of cheaper foreign products has adversely affected domestic industries, leading to further decline in manufacturing. Some degree of protectionist approach is needed to arrest the last therefore.
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Fourth, many Nigerian industries face challenges accessing affordable financing for expansion and modernisation, thereby hampering ability to invest in new technologies, improve productivity and compete globally. Access to loans for importation is more plausible than securing one for building and developing a manufacturing facility. Fifth, inconsistent government policies discourage investments and make it difficult for industries to plan for the long term. Lastly, insecurity, corruption and lack of skilled labour fosters de-industrialization. Poor economic management at home has deprived local industries of effective demand.
To address de-industrialization and promote industrial growth, Nigeria needs comprehensive economic reforms to stimulate investments in critical infrastructure; stable and supportive government policies; some degree of creative protectionism to protect local industries; access to affordable capital; and efforts to diversify the economy from the heavy reliance on oil.
Encouraging the growth of the manufacturing sector is vital for job creation, reducing import dependency and achieving sustainable economic development in the country. The path to industrialisation is not impossible. Other countries with worse conditions than Nigeria’s have walked that path and got it right. All we need is to emulate them. It is only human to study others, learn therefrom and adapt the lessons to fit our peculiar circumstances.
Nigeria has no option but to industrialize. Production is the key to progress. Local production and consumption of our products as well as supply of goods and services to the rest of the world would address problems caused by poverty and unemployment.
De-industrialization is an existential crisis and we must do everything possible to stem the tide and usher in massive industrialization. We must critically examine the best ways to industrialize and all hands must be on deck to accomplish this.