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Bottlenecks to our Industrial future

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By Obadiah Mailafia

AS I understand it, the current administration is rolling-out the implementation of the Economic Recovery and Growth Plan, ERGP,  through the so-called ‘industrial labs’.

We welcome these efforts. At the same time, we urge that this exercise be linked to an agriculture-based industrial revolution. It is an imperative necessity. How else are we going to absorb such a vast army of unemployed youths unless we industrialise and do so in an accelerated manner?

To attain accelerated industrialisation, we would need to overcome the key bottlenecks to enhancing productivity in the manufacturing/industrial sector.

First, there is the question of  low level technology and poor technology choice. While new processes and procedures have revolutionised the manufacturing industry in the industrialised nations, industries in Nigeria, especially textiles, cement, bakery, leather, paper manufacturing and many others are producing with 1970s machinery, giving rise to frequent breakdown and reduction in capacity utilisation rates.

This is particularly true of the two NNPC refineries which I visited in Eleme not too long ago. Low technology is responsible for the inability of local industry to produce capital goods such as raw materials, spare parts and machinery, the bulk of which are imported.

Equally vital is the imperative of building a viable machine tools and precision engineering sector. This, in turn, requires a viable iron and steel sector, which, in our case, has remained in the doldrums for decades, after frittering away over US$18 billion on Ajaokuta.

Related to the foregoing is the problem of low capacity utilisation in the manufacturing sector. Capacity utilisation, which has been in path-dependent decline since the 1980s, stands at between 30 and 40 per cent. This has been blamed on frequent power outages, lack of funds to procure inputs, falling demand for manufactures and frequent strikes and lockouts by workers and their employers.

Thirdly, lack of funding is an acute handicap. We are aware of efforts by CBN and development finance institutions to make credit available to the real sector. Not only are these not enough; they are having the perverse effect of crowding-out the commercial banks. The latter, on their part, have been reluctant to lend to the real sector; preferring to deploy excess funds into the stock market and treasury bonds that pay more with less risk.

Fourthly, there is also the fact of high operating costs related to poor infrastructures, lack of adequate electricity and other structural bottlenecks. Nigeria is the largest generator-importing nation in the world. The EU envoy in Nigeria recently estimated that Nigerians spend over US$46 million on imported petrol/diesel to fuel their private generators.

When individual businesses have to use diesel –fuelled generators, it adds a huge cost to their businesses and renders them uncompetitive, quite apart from the inevitable long-term environmental costs. Increased cost, traced largely to poor performing infrastructural facilities, high interest and exchange rates and diseconomies of scale, have resulted into increased unit price of manufactures, low effective demand for goods, liquidity squeeze and fallen capacity utilisation rates.

Fifth, we need massive railway networks. It is simply unthinkable that a country of almost 200 million people should not have a network of high-speed trains linking our major cities and towns. Railways are still the cheapest means of transport anywhere. The dependence on road haulage and trucking adds enormous costs to production and logistics services. It also explains why our highways have the worst carnage records in the world. In Britain, the steam engine was central to the development of the rail system and to the industrial revolution that began in those isles, sweeping through France and the rest of the continent.

The massive trans-continental railway in the United States and the great trans-Canadian Railway were central elements in the industrialisation of North America. Railways are necessary not only for industrialisation but also for nation building. Railway workers in early modern Nigeria lived and worked together. People travelled easily and cheaply. When the railways were killed by a combination of governmental incompetence and the trucking cartels, transportation costs soared and industrialisation was gravely impeded.

Sixth, there is also the fact of low skills. In spite of the availability of surplus labour, the education system churns out young people with poor technical skills. The humanities have tended to be more popular than the technical and engineering disciplines. Due to strikes by university teachers and poor government funding, standards have fallen. Many of our graduates are barely literate. The solution lies in launching an educational revolution that is anchored on science, technology, engineering and mathematics – the so-called STEM disciplines.

Seventh, it is evident that our business culture is more focused on trading rather than industrial production. There is quite simply the absence of an industrial manufacturing tradition, unlike Germany, for example, where small and medium-scale family owned Mittelstand firms have been at the heart of its manufacturing prowess. Only few Nigerians are ready to take the kind of entrepreneurial risk in industrial investments that will make Nigeria an industrial-technological state. This is not only due to the poor business environment but also due to the absence of a robust industrial tradition.

Eighth, lack of policy consistency and absence of effective institutional supports by government has continued to be a major challenge. In countries such as South Korea, Taiwan, Singapore and Malaysia, government is committed to nurturing industries and small businesses, providing knowledge, skills and a robust environment in which they can thrive. Such supports, unfortunately, are virtually non-existent in Nigeria.

Those countries also design their industrial development plans covering decades while we ourselves were foolishly persuaded to jettison planning altogether.

Ninth, there is also the challenge posed by the WTO’s liberal international trading regime by which developing countries like ours can no longer invoke the ‘infant industry argument’ to justify some form of limited protectionism.

The ECOWAS Common External Tariff, CET. took off a couple of years ago. The CET is considered a major step towards signing the Economic Partnership Agreement,EPA, with the EU. Several contentious issues have forced Nigeria not to sign the agreement, a fact that has angered the Europeans. The latter have started off some kind of low-intensity trade war against us as a consequence.

While the EPA has some potential for trade-creation, we have legitimate fears about trade dumping by highly subsidised European farmers, with many critics arguing that it would result in a massive influx of cheap goods from Europe to the detriment of local industries and jobs. We will need to confront these demons if we are to have an industrial/manufacturing future.

Finally, there is the challenge of China. Yesterday Monday I had the privilege of attending the Chinese New Year celebrations in company of the Chinese Ambassador Zhou Pingjian at Chida Hotel, Abuja; a fine gentleman in the best traditions of mandarin China. No other embassy could have pulled such a crowd. I note that the Chinese are now are biggest trading partners and investors. Beijing has strong interests in our oil and natural gas, solid minerals and infrastructures sectors. However, we cannot overlook the problem of trade dumping, as substandard Chinese goods flood our market.

Managing China will be central to our industrial future. We must engage with them to bring their capital and technology to invest in our country and to build our domestic industrial capacity rather than remain their backyard and dumping-ground.

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