Is Nigeria’s de-industrialisation imminent? December 22, 2014 by Henry Boyo Viewpoint illustration The above title may seem out of place in the wake of the launch of “Nigeria’s Industrial Revolution Plan” by President Goodluck Jonathan in February this year. The NIRP is clearly a recognition of the embarrassingly modest contribution of manufacturing (less than seven per cent) to our Gross Domestic Product. Conversely, the contribution of the services subsector, for example, has grown from about 23 per cent in 2011 to a robust 52 per cent by 2013 without any significant job creation component! President Jonathan expects “the NIRP and its sister project, the National Enterprise Development Programme, to “address the constraints that have consistently inhibited the growth of manufacturing by building industrial infrastructures, prioritising power for industrial use, mobilising and reducing cost of funds so that the real sector can produce for domestic consumption and also reduce the drain on our reserves from imports…” Subsequently, at the inauguration of the Presidential Advisory Committee on the NIRP in May 2014, President Jonathan tasked “the manufacturing sector to work harder to add value to Nigeria’s produce rather than just exporting raw materials”, as “no country has ever become prosperous, only by extracting and exporting its raw materials.” However, the question is whether Mr. President’s noble vision is supported by the actual reality on the ground, or could this also be another “feel good” propaganda in the manner of earlier failed projects such as Operation Feed the Nation, NEEDS, SEEDS, and Vision 2010 and Vision 2020 programmes respectively? It may be too early to make a call on the possible success or failure of the NIRP and NEDEP, but some observers may insist that the morning mirrors the day; consequently, such critics may refer to recent developments that could consign the NIRP and NEDEP programmes to the dust bin. For example, early in December 2014, the Governor of the Central Bank of Nigeria, Godwin Emefiele, unexpectedly reneged on his earlier assurances to maintain the naira exchange rate at the five year-old-rate of about N155=$1. Consequently, the naira now trades at between N165 and N173/$1 at the CBN’s official retail Dutch Auction window. However, these “premium” rates seem only applicable for government transactions. For example, the CBN would now substitute a minimum of N165 for every $1 of distributable dollar-denominated revenue, before sharing to the three tiers of government, a process which, incidentally, instigates the poisonous economic burden of excess liquidity which makes socially and industrially supportive inflation and interest rates unattainable! Indeed, there are already allegations by manufacturers that their forex applications for importation of raw materials/input have been directed to the interbank window, where dollars currently exchange for close to N190/$1, i.e. about 30 per cent more than what manufacturers paid barely a month ago! Alarmingly, the current demand pressure may likely push the interbank naira exchange rate above N200=$1, with disastrous consequences for production costs of the real sector. Thus, a manufacturer who usually required N100m to import raw materials/inputs, will now unexpectedly need to consolidate about N130m for the same inputs, if the naira exchange rate approaches N200=$1. Worse still, the same manufacturer who barely survived the burden of borrowing N100m at 20 per cent interest rate, may unfortunately, now need to borrow N130m, with possibly higher cost of funds just to remain on the same spot. Additionally, the Nigerian manufacturer will carry the burden of providing their own power as well as provide access roads, security and undertake other extraneous expenditures to stay in business. It is a no-brainer that, ultimately, Made-in-Nigeria products will certainly be more expensive, than, finished or intermediate import equivalents. Consequently, the inflation-ravaged income of Nigerians may ultimately persuade even a patriot to patronise imports because of their relatively cheaper prices. Instructively, inflation deepens poverty nationwide as all income earners including the N18,000 minimum wage earner lose 40 per cent of the purchasing power of their incomes every five years at the current annual average inflation rate of eight per cent! Some Nigerians may recall that several event centres, churches and mosques that dot our landscape were once vibrant factories whose “lives” were truncated by the series of naira devaluations under the Structural Adjustment Programme. Indeed, the proliferation of more idle carcasses of such factories is a clear indication that the Nigerian industrial landscape is probably still a long way from where it used to be before 1983. The SAP devaluations not only decimated our industrial base, but also led to a disruptive and retrogressive brain drain as Nigerian professionals exited our shores in droves in order to protect their lifestyle and dignity from the collapse of the naira exchange rate. Thus, the latest round of devaluation may be seen as an unwelcome de ja vu as it portends another cycle of social oppression and industrial embattlement which certainly runs counter to President Jonathan’s vision of transforming Nigeria’s manufacturing sector with the NIRP and NEDEP. In a related development, ECOWAS member states ratified a Common External Tariff Protocol in Abuja on December 15, 2014. The CET was curiously, sponsored by the European Union under the umbrella of an “Economic Partnership Agreement”. Under the provisions of the CET which will commence on January 1, 2015, European and other import sources of our raw materials and finished goods will have unhindered access to ECOWAS markets, specifically with Nigeria (with close to 200 million population and relatively superior consumer demand) as the prime destination! Under the CET, ECOWAS countries can no longer seriously protect local industries, and indeed the highest tariff category of 35 per cent is restricted to a limited range of goods for which ECOWAS countries have proved capacity to manufacture. This rather lopsided “partnership” has been described as an Enslavement Partnership Agreement by some observers, because, Made-in-Nigeria products will obviously have no chance against more competitive imports from those countries with established requisite infrastructure, such as adequate and competitively priced power, articulate and cheaper transport facilities, very low cost of funds (between three and seven per cent) as against 20 and 25 per cent rate of interest to Nigeria’s infrastructurally challenged real sector. Thus, President Jonathan may be clearly misguided in his expectation that with the establishment of the NIRP and NEDEP, Nigeria would also replicate China’s industrial revolution and become a successful world class economy. Instructively, China did not carelessly throw open its borders for a measly pot of pottage of the 6.5bn Euros pledge to 15 ECOWAS member states over the next five years from the European Union. Indeed, China’s industrial incubation lasted for over 20 years, during which time they quietly developed their local industries and only systematically opened up their market as Chinese industry acquired sufficient skills and muscle to successfully compete with imports from anywhere. As it is, with the ratification of the ECOWAS CET and the present economic destabilisation related to the present naira devaluation, we may just have sold the future of Nigeria’s manufacturing sector to our economic predators, and we may ultimately just remain a country with a bourgeoning services subsector with minimal job opportunities for a growing youth population and deepening poverty. Regrettably, while the CET opens up our markets to overseas imports, Made-in-ECOWAS products (where they exist) may never be competitive enough to take advantage of the export opportunities to the EU under the celebrated Economic Partnership Agreement!
Posted on: Mon, 22 Dec 2014 10:43:27 +0000
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