Why Nigeria can not industrialise

Nigeria’s failure to industrialise is partly due to bad industrial policy. The industrial sector accounts for six per cent of economic activities, while in 2011, the manufacturing sector contributed only 4 per cent to GDP. The economic transformation agenda, otherwise known as Vision 20:2020, sets out the direction for current industrial policy in Nigeria. 

The industrialisation strategy aims at achieving greater global competitiveness in the production of processed and manufactured goods by linking industrial activity with primary sector activity, domestic and foreign trade, and service activity.

The  National Bureau of Statistics (NBS)  shows that the manufacturing firms, micro-enterprises, retail, and residual businesses are not doing well. The manufacturing survey addressed a wide range of issues pertinent to the industrial sector. Among the 2,387 firms surveyed, only 42 per cent fell within the industrial sector.

At independence in 1960, and for much of that decade, agriculture was the mainstay of the Nigerian economy. The sector provided food and employment for the populace, raw materials for the nascent industrial sector, and generated the bulk of government revenue and foreign exchange earnings. Following the discovery of oil and its exploration and exportation in commercial quantities, the fortunes of agriculture gradually diminished.

Nigeria’s first attempt at comprehensive and integrated planning took the form of the First National Development Plan. The plan included an aggregate growth rate target of 4 per cent per annum, an increase in the rate of investment from 11 per cent to 15 per cent of GDP and an increase in the ‘directly productive component’ of government investment. To encourage industrial development and lessen dependence on foreign trade, import substitution industrialisation (ISI) was introduced conserving foreign exchange by producing local products that were previously imported.

Import duty relief, accelerated depreciation allowances, and easy remission of profits aimed to attract foreign investors. The period of this plan witnessed the commissioning of energy projects such as the Kanji Dam and the Ughelli Thermal Plants, which provided a vital infrastructural backbone for the emerging industrial sector. Other important industrial infrastructure included an oil refinery, a development bank, and a mint and security.

Military intervention in Nigeria’s governance in 1966 resulted in a 30-month civil war from July 1967 to January 1970. The post-war economy was dominated by the oil sector, arising from the unprecedented increase in the price of crude oil in the international market. Oil exports as a percentage of total exports rose from 58 per cent in 1970 to 83 per cent in 1973. The oil boom enabled public sector expansion in infrastructure and manufacturing, most of which was aimed at achieving IS of foreign consumer goods and consumer durables. These measures were encompassed in the Second National Development Plan (1970–74). The government embraced ambitious and costly industrial projects in sectors such as iron and steel, cement, salt, and paper.

According to stakeholders in industrial sector, who spoke to Daily Sun, recently, the period of the 1970–74 plan also witnessed a dramatic shift in policy from private to public sector-led industrialisation.

It was clear that there was a dearth of human capital and skills required for initiating, implementing, and managing industrial projects among Nigerian entrepreneurs. Foreign technical skills and services were heavily relied upon. The oil economy was characterized by ‘Dutch Disease’, signified by the diversion of productive resources away from agriculture into commercial activities that thrived on trade in imported manufacturing goods. The windfall in oil revenue affected the fiscal policy of government.

They noted that the Third National Development Plan (1975–80) was launched at the height of the oil boom—emphasis remained on public sector investment in industry. Indigenization policy was implemented in 1973 and 1978, with the objectives of increasing the level of local managerial control, building local technological capability, and extending state ownership. Heavy subsidies were provided for public companies and corporations. The Nigerian Enterprises Promotion Act of 1977 aimed to further support Nigerian businesses.

It became apparent that the country had entered into industrial project agreements with very little concern for capabilities for technology acquisition. While each of these projects required the acquisition of key sector-specific skills, the agreements made by Nigerian planners were for the turnkey transplantation of technology. During the same period, the nation’s oil sector had  become vibrant and prosperous, and the gates of the economy had been opened up to all sorts of imports. This had a debilitating effect on real industrial growth. The period of the Third National Development Plan failed to advance the course of industrial development in Nigeria in a positive way.

The Fourth National Development Plan (1981–5) coincided with a global economic recession which sparked declining foreign exchange earnings, balance of payment disequilibrium, unemployment, and accelerating inflation in the Nigerian economy. This prompted emergency stabilization measures in 1982. These measures included advance deposits for imports; increases in import duties; review of import licences; a 40 per cent across the board cut in public expenditure without any prioritisation; and an upward review of excise duties, interest rates, and prices of petroleum products. In the agricultural sector, exports became highly constrained by the overvalued naira and production declined.

This included the production of labour-intensive export crops (e.g. cocoa, palm oil, cotton). The decline in output was most apparent in the manufacturing sector, resulting in gross losses in employment. This demonstrated the vulnerability of the high cost, import-dependent industrialization that had been encouraged by the pattern of incentives in the 1970s. A decline in the aggregate index of manufacturing was observed from 1982, falling by 26 per cent in 1983. Plant closures were common in consumer goods sectors, especially in textiles. Average capacity utilisation in industry declined from 73.3 per cent in 1981 to 38.2 per cent in 1986 .