Manufacturing plays an important role in economic development and accounts for a substantial proportion of total economic activity. In Nigeria, manufacturing companies are lagging when compared with their counterparts in Asia.
The inability of the policymakers to effectively and efficiently develop desirable and favourable policies for the country, which require proper monitoring and evaluation account for some of the challenges facing the sector.
There is no gainsaying by any means to state that Nigeria has not had a comprehensive industrial policy. As a result, the nation despite its quest for development has not done enough in the area of sectoral policy direction to bring about an all-encompassing industrial policy.
According to experts, one of the major reasons why the manufacturing industry in Nigeria has witnessed stunted growth for decades has been a policy somersault on the part of the government.
While some of these failures were well-intentioned initiatives that were not executed with the right tact and acumen, other times the policies simply did not achieve their intended targets due to corruption on the part of government functionaries.
For example, in 2020, the Central Bank of Nigeria announced a N50bn special mechanism fund to revive the ailing textiles industry.
The funds were to be administered by the BOI at a 4.5 per cent interest rate and would use any of the CBN-approved non-interest instruments for refinancing of projects, long-term financing for the acquisition of plant and machinery and working capital for the beneficiaries.
The apex bank said the funds would be used to resuscitate the ailing textile sector, restructure facilities and provide further facilities for textile firms with a genuine need for intervention.
Like several government policy interventions in Nigeria, the bid by Nigeria’s apex bank to save the country’s ailing textile industries never happened.
According to the Director-General of the Nigerian Textile Manufacturers Association, Hamma Kwajaffa, Nigeria’s textile industry has almost been plunged into a state of coma due to the lack of implementation of the interventions from the previous administration.
On the textile revival fund, Kwajaffa said, “What they did was put a N100bn fund for the industry, through the Bank of Industry. The thinking was that we were producing bad quality and not in high quantity.
“It was blamed on the machinery that we were using, that it was obsolete. The government gave that fund to retool our machinery. They provided the machinery to produce quality and quantity, but then we have no market access, because of the coming of goods from China and India.”
Another area which the government’s policymaking has hurt manufacturers the most has been forex-related policies.
Last October, the Federal Government had said it would begin steps towards creating a separate and special foreign exchange window for exporting manufacturers.
The Minister of Trade and Investment, Niyi Adebayo, dropped the hint during the Manufacturers Association of Nigeria Export Promotion Group’s Annual General Conference in Lagos on Thursday.
The minister was reacting to a plea by the manufacturers asking the Federal Government to support the sector by allowing operators to access forex through a special window to be created by the Central Bank of Nigeria.
This, according to the manufacturers, will put an end to a situation where operators go to the parallel market to source forex.
The manufacturers contended that other countries like South Africa were already embracing such proposals as a means of encouraging manufacturing activities.
In his response, Adebayo said his ministry would initiate steps towards helping exporting manufacturers cushion the impact of the current forex crisis.
He said, “MANEG is a formidable group. Write to me. I will see how I can use that as a reference to engage the CBN. As you know, the CBN is a monster of its own.
”I like the idea that you came up with, having a different window for manufacturers. The president just set up an economic team, and we have been meeting. Write to me, and we will see what we can do.”
As emphasised in the first part of this report, in recent years, forex illiquidity in Nigeria has constituted a major operational nightmare facing manufacturers in the country.
Manufacturers have lamented the acute shortage of FX amid a lack of locally available raw materials and machinery.
In its most recent Manufacturers CEO’s Confidence Index, MAN said its members had resorted to survival measures amid a worsening business climate.
However, the former minister’s words only turned out to be empty promises. No concrete steps were taken to formulate a policy that could have helped exporting manufacturers to navigate through the tight noose of acute forex scarcity.
In his 2021 book titled ‘Nigeria: A Resource-Rich Economy In Disarray,’ foremost economist, Akpan Ekpo noted that Nigeria at independence on October 1st, 1960, showed signs of a strong, dynamic and prosperous economy.
During the period 1960-1965, economic fundamentals like the Gross Domestic Product per capita, unemployment and inflation, among others, were better than those of Malaysia, Indonesia, Singapore and China.
Ekpo, in his book, posits that today, these countries have surpassed Nigeria. For example, the GDP per capita for Malaysia which was about $300 in the 1960s is now around $4,500.
For Ekpo, in terms of what needs to be done to spur growth in Nigeria’s manufacturing industry, the answers are not far-fetched. For Nigeria’s manufacturing sector to grow, conscious efforts must be dedicated to cursorily studying many of the countries it had a competitive advantage over in 1960 when it became an independent nation, especially given the fact that these countries now boast relatively stronger economies largely because of their exploits in manufacturing.
For example, in the 1960s, the manufacturing sector started to play a leading role in Korea’s economic growth. It grew by 17 per cent per year between 1960 and 1970, the highest decade-long growth rate since 1953.
It continued to grow rapidly in the 1970s, and its share in gross value added doubled from 12 per cent in 1953-1960 to 23 per cent in 1971-1980. Its share in total exports rose from one quarter in the early 1960s to nearly 90 per cent in the early 1970s, with an accompanying change in major export items.
Manufacturing growth in this period was dominated by the labour-intensive light industries such as clothing and footwear. These industries absorbed the surplus labour force discharged from rural areas by creating jobs rapidly.
As these industries began their production activities in industrial complexes near urban areas, they also contributed to the growth of large cities and the urbanization of the Korean population. The Guro industrial complex in Seoul is one example.
During this time, the role of government was no less important in accelerating the growth of manufacturing. During the first and second Five-Year Economic Development Plans undertaken in the 1960s, the Korean government invested heavily in physical infrastructure – power plants, express highways and seaports among others – to lay the foundation for export-driven industrialization.
The government established many state-owned enterprises in key industries such as fertiliser, cement, oil refining, and steel and iron, which were indispensable for industrial development. In addition, the government mobilised other policy measures, involving foreign exchange, taxation, finance and customs regulations, to promote export-oriented industries.
Besides these conventional measures, the Korean government employed rather unusual methods, such as the president chairing the Monthly Export Promotion Meeting, which was meant to solve problems and remove bottlenecks affecting exports.
Korea is just one example of a country which has dragged its economy out of the woods via a painstaking, detailed, deliberate focus on the real sector of the economy. One striking point about the Korean story is the fact that the government and its policymaking apparatuses had been involved in the revolution at every step of the way.
Unfortunately, in Nigeria, the reverse has often been the case. Successive governments, in the guise of revamping the industry, have often ended up frittering away precious resources on white elephant projects and boondoggles that did not yield any tangible impact.
In Nigeria, the maximum political commitment to propel industrialisation has been absent. As evident in the Korean example, manufacturing is state-led through policies and interventions, actualised by private sector investments.
Domestic manufacturers, in our context, have to invest capital to provide alternative infrastructure for their operations. Consequently, they bear prohibitive costs which result in loss of competitiveness and profitability in the domestic and foreign markets.
The Korean example offers a veritable blueprint of what needs to be done to turn our manufacturing industry around. Incidentally, a former Minister of Finance in Nigeria, Idika Kalu was among the World Bank team which gave South Korea the design largely responsible for its economic miracle.
