After decolonization, Nigeria was expected to industrialize fast in order to benefit from rapid growth and increasing prosperity. Yet, that “growth miracle” has still not materialized. Perhaps it is time to learn from the right lessons.
“We have crude oil, but you cannot go to filling station and get fuel refined in Nigeria, except we take our crude to England and go there to buy refined products,” said recently Emir Muhammadu Sanusi II, the central bank’s former governor. Ironically, Nigeria tends to import what it has and export what it does not have.
In international comparison, only 10% of Nigerians are employed by industry, as opposed by 70% in agriculture and 20% in services. Yet, industry accounts for almost 26% of the GDP, as opposed to 53% by services and 21% by agriculture.
In the West, Nigeria’s failed takeoff is attributed to mainly internal challenges. However, I have advised policymakers and senior executives in multiple nations and my scrutiny of the industrialization of the world’s leading 40-50 advanced and emerging economies renders little support to such gross simplifications.
A bit of history
After all, the imperial government took great advantage of Nigeria’s raw materials (which were seen as vital for the Empire’s economic development), favored ‘divide and rule’ politics (which was facilitated by a vast multiethnic, -religious and linguistic nation) and strategic dependence (which was exploited by the imperial indirect rule).
Nigeria’s takeoff has been compromised by a long history of colonialism, exploitive imperial policies, a very brief stabilization in the post-colonial years, three long decades of military regimes and destabilization – and, ironically, foreign assistance.
Until the 2008/9 global crisis, Washington Consensus deemed that Nigeria’s takeoff only needed more privatization, deregulation and liberalization. With the support of the International Monetary Fund (IMF), the World Bank and other donors, Nigeria began a new kind of reform program in the mid-1980s. Seeking to reduce the state’s role in production and in regulating private economic activity, the Structural Adjustment Program (SAP) paid more attention to exports, especially in the agricultural sector. Yet, the latter witnessed the worst neglect as the stress was presumably more on economic stability and avoiding overvalued exchange rates.
The 1988 industrial policy sought to make the industrial sector the prime mover of economic development. Yet, its goals were largely undermined by SAP-associated financial and trade liberalization that resulted in inflation and reduced purchasing power. Despite industrial rhetoric, SAP played a role in de-industrialization as it exposed small and weak local manufacturers to harsh import competition.
In the early 1990s came the national rolling plans followed by still another new industrial policy in 2003, when the goal became to accelerate the pace of industrial development by drastically increasing value-added at every stage of the value-chain. In turn, the Jonathan era saw the emphasis on infrastructure and industrial clusters.
Nevertheless, when the global crisis swept across the world, the role of the industry in Nigeria remained far too low.
Learning the right lessons
Recently, Dr Frank Udemba Jacobs, President of Nigeria’s Manufacturing Association, warned Nigerians not to allow Asian countries, especially China to destroy their country. Historically, such reactions are typical. In this narrative, Nigerian takeoff has been suppressed by foreign, particularly Chinese competition. Yet, the reality is that industrialization is not a win-lose scenario.
In the 1960s, European manufacturing companies, which were struggling against US industrial giants, warned about Le Défi Américain (The American Challenge), which they thought was demolishing German, French, British and Italian industries. Two decades later, both Europeans and American industrial giants warned about Japanese conglomerates, which they thought were destroying their manufacturing bases. In the past two decades, American, European and Japanese companies have argued that, thanks to outsourcing and offshoring, China, India and other large emerging-economy giants will destroy whatever is left of their industrial bases.
Yet, historically, most of these nations achieved their industrialization on the basis of import substitution and infant industry protection in the early phases, while moving toward learning by doing, attracting foreign direct investment and relying on their initial cost efficiencies to transition toward greater productivity and innovation.
In the postwar era, the prime examples of fast and successful industrialization can be found in East and Southeast Asia; from Japan to the small tiger economies and more recently China and India. Their takeoffs were not based on the doctrines of the Washington Consensus. Nor did their economic development follow the recommended paths of the international multilateral organizations.
In fact, these countries violated much of the conventional wisdom of the era.
Toward Nigerian industrialization
Nigeria’s takeoff needs industrial policies that are crafted for the contemporary international operational environment, which is far more challenging than the one that supported the rapid growth of Asian industrializers in the past three decades. Nevertheless, it continues to favor cost advantages and cheap prices.
An effective takeoff requires multiple sources of capital to generate broad progress in several non-oil industries simultaneously. In the late 19th century, US industrialization benefited from British capital. In the late 20th century, Chinese industrialization took advantage of US, European and Japanese investment. In the early 21st century, Nigerian industrialization could greatly benefit from Chinese capital, along with investment from the US, Europe and Japan.
As Chinese multinationals’ capital is increasingly moving abroad, these huge corporates are beginning to outsource and offshore as well. Moreover, Nigerian efforts could take advantage of the One Belt One Road initiative and the new emerging-economy development banks that focus on infrastructure investments.
For half a century, Nigeria has relied on the lessons of major advanced economies and former colonial powers, which industrialized generations ago. Perhaps it is time to experiment with the lessons of other emerging and developing nations whose industrialization is recent.
Dan Steinbock is the founder of Difference Group and has served as research director of international business at the India China and America Institute (US) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net
The original commentary was released by BusinessDay, Nigeria’s leading business daily, on March 28, 2016