Cheap political talks, hard economic realities, value added processing the way forward

By Omoh Gabriel, Business Editor
THE Federal government has reiterated that if Nigeria must achieve the set target of becoming one of the top twenty largest economies of the world, there is the need for the promotion of value added export of locally produced goods.

President Goodluck Jonathan

While inaugurating a 20-member planning committee for the successful host of the Nigerian International Trade exhibition (NITEX), Minister of Commerce and Industry, Senetor. Jubril Martins-Kuye urged members of the Committee to workout modalities for the organisation of a very successful and quality exhibition of made in Nigeria goods under a public private sector partnership arrangement.

According to the minister, “the expectation is the promotion of value added export of our indigenous products and generation of additional foreign exchange for the country as we strongly believe that the event will also serve an avenue to generate sale and increase the overall awareness for the basket of exportable products from Nigeria.

No doubt the government has long realised that the way forward for the Nigeria economy is value added manufacturing. But the same government has not develop policy initiatives to encourage raw material processing in the country. It has not made any conscious effort at linking the real sector of the economy to the oil sector. It has over time open its economic doors to foreign goods such that the average Nigeria’s taste is for foreign goods. Nigeria is about the only OPEC member that still import finished petroleum products.

The economy remains import dependent with the oil sector not having any linkage with the other key sectors of the economy.

Where does the minister expects the value added exportable products to come from. It is shocking and highly disappointing to students of the Nigerian economy that in the 2011 campaign of the various parties, non is talking seriously about policy to transform the economy from its present import dependence to that of an export based economy.

Every one is talking of improvement in infrastructure, employment generation and that of power. If there is improvement in power supply and industries still depend on foreign supplies of raw materials, importation of basic needs, Nigeria will for ever be exporting jobs to those countries from where these goods and services are imported from.

Politicians should come off their high horses and cheap political talks and face the hard economic realities that dots the Nigeria land scape.

So far non of the presidential candidate has told the nation what policy he would develop when elected to fast track  industrial clusters, cottage industries, small and medium scale enterprises to process the nation’s abundant natural resources to semi-finished or finished products that can be exported at higher prices to earn the nation more foreign exchange, boost employment generation and the standard of living of the generality of Nigerians.

As far back as 2002, an 82 page research conducted by the United Nations Industrial Development Organisation and the Centre for the study of African Economies, Department of Economics University of Oxford  Måns Söderbom  and Francis Teal stated that “Aggregate statistics for the Nigerian macro-economy and its manufacturing sector showed that the 1990s was a relatively static period.

The end of the decade witnessed moderate economic recovery and growth in the manufacturing sector despite a certain degree of macroeconomic instability. At the end of the 1990s Nigerian per capita value-added in manufacturing was very low at approximately $13, which corresponds to about 10 per cent of the level of Botswana and less than 50 per cent of that of Ghana and Kenya.

“Over the period from 1975 to 1999, Nigerian per capita exports halved, while for Botswana and Mauritius, the African success stories, they doubled. In 1999 Nigeria’s  per capita value of manufacturing exports was less than $1, by far the lowest number in the sample of countries reviewed.

The survey data showed large labour productivity differentials across sectors and firm size. Although a substantial part of these can be attributed to differences in capital intensity, the analysis shows significant differences in total factor productivity across some of the sectors. Taken together, the evidence on productivity differentials indicates that the food sector has relatively high productivity and the textiles sector relatively low” the report stated.

The situation has not changed for good. In fact recent trend show that most companies are relocating from Nigeria to neighbouring countries. Yet this has not given Nigeria political leaders the needed signal that economy is the bed rock of nations progress to make it a serious campaign issue.

The average capacity utilisation rate in Nigeria industries is about 45 to 50 per cent. Capacity utilisation is highest in the food sector as of now. Investment in equipment and machinery is low, with more than half of the firms refraining from investing altogether. Very few firms record investment rates that imply significant expansion.

Regression results show that there is very little difference across sectors in these low investment rates. The oil and gas sector that use to be one of the drivers of the economy have witness hold back of investable funds as a result of the yet to be passed Petroleum Industry bill.

In Nigeria today data show that very few firms export, and that the decision to export is strongly related to firm size and technical efficiency.

The lack of exports has long been identified as a key problem for Nigerian manufacturing. The garment sector, which has been the source of labour intensive exports in other countries, uses by far the most labour intensive technology across all the sectors. However the average propensity to export even in this sector is very low.

The most frequently cited number-one problem for the firms is physical infrastructure, followed by access to credit, insufficient demand, cost of imported raw materials and lack of skilled labour. This aggregation masks considerable differences over the size range in problem perceptions; for instance among micro firms the most frequently cited main problem is credit access, while for medium and large/macro firms it is physical infrastructure.

The question is what will government do differently to address these problems after the general elections for who ever will occupy the presidency?

The successful shipment of Nigeria’s first consignment of garments and food products to the United States (US) under the Africa Growth and Opportunity Act (Agoa) signed by former President Bill Clinton of the US on May 18, 2000 is a bold start after a long wait. The Act was signed into law as Title 1 of the US Trade and Development Act of 2000 and was to be in force until September 30, 2012.

Without doubt, Agoa provides Nigeria and 39 other Sub-Saharan African countries covered by the Act a realistic opportunity of substituting the “aid giver-recipient” relationship existing between the US and African countries for a more dignified relationship of business partners.

This is because Agoa provides trade preferences for duty-free entry of 6,500 different goods such as apparel (garment), footwear, chemicals, steel, wine, certain motor vehicle components, and a variety of agricultural products from 40 African countries including Nigeria into the United States.

But for over five years Nigeria could not take advantage of this opportunity because of lack of policy initiative. Among the many benefits expected from Agoa is that the Act would enable the 40 benefiting sub-Saharan African countries the opportunity of earning more foreign exchange, diversifying their economic base, creating more jobs and income-earning opportunities for their citizens, stimulate new trading opportunities for local businesses and facilitating their integration into the global economy.

It is also expected that the opportunity provided by the Act would reinforce African countries’ reform efforts, provide improved access to US credit and technical expertise and establish high-level dialogue on trade and investment in the form of a US-Sub-Saharan Africa trade and economic forum.

Ask any of the Presidential candidates how they plan to tap into this opportunity, they will be blank. Nigerians should wake up and let these men know that the era of cheap political talk are over. 20-2020 is near the corner and politicians are still engaged in cheap talk.