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Nigeria’s industrialization debate: The urgency to grow and nurture the capital goods sector to maturity

By H. Ejo-Orusa   |   09 October 2016   |   4:20 am

textile-industryMost of those who have attempted to explain why Nigeria and other less developed countries (LDCs) are finding it difficult to become industrialized fail to ask: how is wealth created and, how is it distributed once created? Rather, they tend to concentrate overly on issues championed by Western intellectuals and some Nigerian concerns such as imperialism and colonialism, true federalism, corruption, resource control, democracy, geo-politics, etc. As important as these tangential issues are, they did not conduce to the Industrial Revolution or to Nigeria’s development. From the standpoint of stimulating industrialization in Nigeria or any other less developed country, they are “off-target.”

If we are genuinely concerned with industrialization, tangential issues and likes are extractive considerations that rightly belong to the wealth distribution end of the development continuum – the subsidiary question. For example, England where the Industrial Revolution started in the 1700s to China, which is presently the workshop of the world, we notice that all the industrialized countries had unresolved wealth distribution issues of one form or another to contend with at the time of their industrial takeoff. But these challenges did not stop them from becoming industrialized. Many wealth distribution issues remain after industrialization and new ones emerge, as societies get more sophisticated. Wealth must first be created before its distribution. The defining factor(s) behind industrialization, which should be of serious interest to Nigeria and other developing countries, are located on the wealth creation axis and not distribution. This lack of understanding of the true essence of economic theory and in fact the ‘motive force’ behind the evolution of modern industry is precisely why Nigeria is not making significant progress in economic development and industrialization.

We must clearly understand that emphasis on the wrong factor(s) when attempting to stimulate industrialization is analogous to the case of medical myopia where if the problem is not properly diagnosed, the patient is left untreated, or treated for the wrong ailment. Despite the obvious differences in the economic and industrial history of various countries and in the forces and factors that shaped and determined them, there is one factor, which is fundamental for wealth creation and common to all the industrialized countries; while the wealth distribution method varied from one country to another. For Nigeria to become industrialized, we must accurately isolate, understand and internalize the key factor behind Industrial Revolution, which is – the capital goods sector.

Our policies makers, politicians and some intellectuals have shown unpardonable ignorance about the key factor that determined the emergence of the industrial society and are still failing the ‘‘industrialization leitmotif’’ test by a wide margin. Their economic prescriptions are never based on solid understanding of the historical process of industrialization. Regrettably, not only are we still ‘planning without facts’ as Wolfgang Stolper pointedly reminded us in his 1966 classic on Nigeria with the same title, we have descended further down the road of historical and intellectual amnesia of planning without understanding; particularly with regard to the forces behind modern industry. This is a serious indictment on our ‘intellectual’ community and they should do well to start acquiring the knowledge that will enable them to enrich their thinking and begin the quest to search and hopefully discover potent ingredients that will make their economic prescriptions more efficacious

The Capital Goods and Economic Development:
It is true that the convergence of many social, political, economic, institutional and technological factors and forces led to the evocation of the industrial society, but it was the emergence of the CAPITAL GOODS SECTOR that clearly marked the tipping point. The emergence of the capital goods sector consolidated and consummated the Industrial Revolution and made industrialization self-regenerating and irreversible. In fact, the acquisition of technological capability on which industry depends and the source of the dynamism of the industrial society take place principally within the capital goods sector. The reproductive capability which the capital goods has imbued the present civilization unlike in previous civilizations that tended to conform to the life cycle theory of takeoff, growth, maturity, slowing growth and decline, the industrial society has inbuilt negative entropy and is constantly reinventing itself. Nigeria is suffering from industrial and technological backwardness of the magnitude noted above primarily due to the dearth of people with the knowledge, skills and competences required to design, produce, operate, modify, adapt, repair, service and manage capital goods rather than the wealth distribution issues adduced above.

Today a new technology, microelectronics (including ICT) has become important for industrialization but unfortunately this sector is also underdeveloped in Nigeria. Of course, microelectronics cannot on its own evoke a cycle of industrialization and no country has or can become industrialized solely on microelectronics. The hardware (capital goods) and software (microelectronics) must be present and reinforce each other. Microelectronics acquires true economic significance in industry as they improve the design, production and performance of capital goods as well as raising the productivity and innovativeness of manufacturers and users of capital goods. This fusion of microelectronics and capital goods makes the former a new critical success factor in the industrialization matrix and it must be taken seriously. But we concentrate here on the progenitor of the industrial economy – the capital goods sector.

Life in the 21st Century is so intractably dependent on the products of modern industry that our civilization will grind to a halt without them. Most of the products that define modern industrial society only became available after appropriate capital goods have been put in place. Ironically, our economists are generally mute on the capital goods sector and economic textbooks rarely mention the subject. Perhaps, the same thing will happen to ICT and microelectronics in the near future. What is however worrisome is the fact that most development economists and policy makers in the less developed countries are also silent and possibly ignorant about the capital goods sector. This is surprising given that a dynamic capital goods sector is a precondition for local industrial revolution, the ultimate goal of less developed countries.

What do we really mean by the capital goods sector? This sector is made up of the machine tools and the machine building industry. All machine tools, machines, engines, equipment, plants, factories, robots etc. required by various sectors of the economy (manufacturing, agriculture, power generation, construction, car plants, aviation, ship building, railways, armament, telecommunications, microelectronics, biotechnology, nanotechnology, 3-D Printing, Robotics, other emerging technologies, etc.) have to be designed and built by the capital goods sector. The capital goods sector is also responsible for building all the machines that are in turn used to build other machines. For instance, even an iron and steel plant such as the Ajaokuta Steel Rolling Mill is an assemblage of capital goods.

Indeed, all the much loved artifacts of modern industry such as cars, aero planes, railways, ships, electricity, tractors and many others can only be built after the appropriate capital goods have first been manufactured and deployed for use in manufacturing the intermediate and consumer goods. This is to say that the artifacts of modern industry follow the capital goods and not the other way around. Unfortunately for Nigeria and many other LDCs, their economic policy makers seem to be interested in the artifacts of modern industry but mute and even contemptuous of the capital goods sector that is responsible for producing the machinery and equipment that are used to produce them. This is like putting the cart before the horse. The novelty in industrialization is in the capacity to build the artifacts that define modern industry, which rests with the capital goods sector. Unfortunately, this ubiquitous sector is nonexistent in Nigeria.

A measure of Nigeria’s industrial backwardness can be gleaned from the fact that even to manufacture something as basic as ‘pin’, which Adam Smith used in his famous case study to demonstrate the potency of division of labour in his classic ‘Wealth of Nations’ of 1776, we will need to import the capital goods required for this purpose. Again, a brief look at the cotton textile industry, which played a key role in the Industrial Revolution in the Eighteenth Century England, can also help us to situate Nigeria’s industrial backwardness appropriately. We notice that Nigeria, a major source of cotton that sustained the British cotton-textile industry during the colonial era still CANNOT build (we mean build) textile mills, sewing machines and other machines and equipment used in that industry after over 250 years of the Industrial Revolution. The perceptive reader should now know why the clothes s/he is wearing or indeed why the President’s beautiful babariga or kaftans are not and cannot be made in Nigeria.

We acknowledge and it is not even contemplated, particularly in the globalized world of today, that any country would have the comparative advantage to justify producing all its capital goods stock. Nevertheless, all the truly industrialized countries have the capacity to quickly redirect their resources to areas prioritized as of strategic importance. No doubt, large countries require a lot of capital goods to drive their economies because they will face serious foreign exchange challenges if they have to depend extensively on imports. Therefore, Nigeria’s oil dependent economy (Nigeria’s per capita oil income is low relative to the OPEC average as a result of her large population) cannot sustain the importation of all the capital goods required to drive the economy of the seventh most populous country in the world. With the price of oil dropping like lead-balloon, Nigeria’s dependence on oil for industrialization becomes even less tenable. This is why industrialization, particularly in large countries has always been endogenously determined and never imported. As opposed to the unrestrained importation of capital goods, which is unfortunately the norm in many LDCs today. All the industrialized countries that came after Great Britain aggressively borrowed technology from other countries, internalized the borrowed technology and used them as the basis for developing indigenous technological capability and industrial take-off.

Without the indigenous capital goods firms to design and build the power plants, turbines, sub-stations, transmission lines, electrical exchanges, transformers etc., Nigeria will have to rely on imports for such a mammoth undertaking. The foreign exchange so far expended for Nigeria’s miniscule grid power is colossal. Further, dependence on imported capital goods means that the expected positive externalities such as employment generation and capacity building in the design and production of capital goods will be domiciled in the countries from where such capital goods originate. We will continuously be missing the employment generation opportunities and the leakages from the economy will remain monumental. There is no sector of the Nigerian economy that is not going through this uncontrollable employment and foreign exchange hemorrhage, which only a dynamic local capital goods sector will mitigate. Perhaps more worrisome is the fact that the capital goods sector is the hub for technological change in the manufacturing industry and the medium via which an economy acquires and improves its technological capability.

No matter the nature and form of technological innovation; whether it is a new product or process; improvement to an existing product or process, it will require new, improved or modified machines that conform to defined technical specifications and capital goods firms have to design and produce them. A simple illustration of the extreme backwardness of the capital goods sector in Nigeria is the yam pounder that was invented in Nigeria but is produced for the Nigerian market in Japan and other parts of the world. Also, a Nigerian student recently won the prestigious Young Innovators Award for 2015, which was adjudged to be groundbreaking technologically and to have potential economic significance. But unfortunately, that innovation, like the yam pounder and many others cannot be developed or produced in Nigeria. Thus, even when Nigerians have developed potentially epoch making inventions or innovations, these will continue to be of no economic benefit to the country due to the dearth of local capital goods firms that can successfully solve the associated mechanical issues with them and build the needed machines that will be used to manufacture the new products or processes.

We have noticed that despite the commonly recounted creativity and high entrepreneurial metabolism of Nigerians, the lack of local capital goods firms that can design and produce simple machines and equipment on demand to kick-start production is militating against small business start-ups and growth that will exploit the latent economic opportunities in the country. The absence of a vibrant local capital goods sector means that the rate and form of technological innovation within the economy is very limited and this reinforces the country’s technological backwardness and its economic underdevelopment.

Also noted is that technological ‘‘learning-by-doing’’ is in large part dependent on the capital goods sector. In particular, the skills and technical know-how on which the capital goods sector depends and indeed the sector’s reproductive capacity are in large part embodied in the operators in the sector. Therefore, when you import capital goods, you merely receive the hardware, and so the operatives who will use them miss out on the critical knowledge, technical skills and the organizational know-how needed to make them function efficiently, enhance capital goods or to take the economy to a higher technological threshold. In the absence of a large pool of workers who are knowledgeable about capital goods design, maintenance and production, machinery and equipment tend to function inefficiently when in use. With the needed competencies grossly absent locally, repairs are also poorly executed and at higher costs.

Further, repairs also take long to be completed as spare parts are usually imported from the original suppliers with grave consequences for limited foreign reserves and employment. In the absence of a dynamic local capital goods sector, the imported machinery and equipment will not perform optimally because they cannot be efficiently adapted, modified or re-tooled to suit local endowment constraints. These problems are part and parcel of Nigeria’s industrial experience noticed in all sectors of the economy. Nigeria’s undue reliance on imported capital goods means that the technological learning-by-doing opportunities in the design, production and maintenance of capital goods do not take place; a vicious cycle that perpetuates and reinforces technological backwardness.

From this tour de horizon, we notice that just as the woman’s womb is the perfect incubator for procreation, so is the capital goods sector the wealth creation hub per excellence in any economy. Simply, a dynamic capital goods sector gives the economy the capacity to become reproductive in character and equipped to tackle the challenges of underdevelopment and to shape its future. Put rather differently, the capital goods sector imbues the economy with the capacity to invent and reinvent itself and to create wealth at will – the primary goal of economic development. Expectedly, no large country, of which Nigeria is a typical example, has become industrialized without an indigenous capital goods sector. We are therefore led to conclude that Nigeria is not industrializing precisely because of the absence of an indigenous capital goods sector and it is tempting credulity to think otherwise. All those genuinely interested in the industrialization of Nigeria should not lose sight of this historical reality. Whilst a full battery of the economic policy needed for the industrialization of Nigeria cannot be provided in the limited space available, some highlights are presented below.

Dr Ejo-Orusa is at the University of Science & Technology, Port Harcourt and an Economic Development scholar. For detailed analysis of some of the issues raised see H. Ejo-Orusa, Development Myopia: Technology and the Wealth of Nations and also visit:

Concluding Remarks on Industrialisation debate and suggested Policy Direction
FIRST, contrary to the received wisdom that unbridled capitalism and indeed ‘perfect competition’ will conduce to economic development and indeed to industrialization, the facts suggest otherwise. It is an indisputable historical fact that from the first industrial nation, England, to Germany and Japan and to the more contemporary industrializing countries as epitomized by the BRICS and the Asian Tigers; the State has consistently played the leading role in industrialization. In fact, the role of the State increases with lateness in industrialization. This is because perfect competition which is so beloved by economists, particularly those of the free market hue, with all its potency and corrective mechanisms cannot be relied upon to mobilize and appropriately allocate resources to start the cycle of industrialization. It has to be understood that industrialization is by far the most serious battle for survival any country will ever face and the responsibility for such a critical challenge for national survival cannot be abdicated by the State.

Consigning Nigeria’s industrialization solely to the free market is tantamount to continued dependence on foreign capital goods manufactures. This is a vicious cycle that perpetuates economic and technological backwardness and the acceptance of the prevailing world economic order. If Nigeria’s goal is rapid industrialization, the capital goods sector must be singled out as the economy’s reproductive and wealth creation engine and must be protected as an infant industry. As a starting point, all the resources available to the state should be deployed for this purpose. In particular, depleting oil and gas resources should be deployed to grow and nurture the capital goods sector. Further, special incentives should be used to encourage local and foreign investors, particularly leading producers of capital goods to set up full production (not mere assembling plants) including research and development in Nigeria. The objective from the beginning will be to ensure that the new ventures are competitive and can compete in the export market.

Secondly, the economic managers must as a matter of urgency put in place a robust and well articulated industrial strategy that promotes and stimulates the development of a dynamic indigenous capital goods sector by explicitly and comprehensively addressing all the multidimensional and interdependent factors that impinge on the development of technological capability. One area that is in dire need of special attention is human capital development broadly construed to include education and training from the primary, secondary, technical to the university level. The objective will be to build a learning economy where people are equipped with the requisite technical, metal working and engineering knowledge, skills and competences required not just to operate, maintain, adapt and modify capital goods and ensure that they function optimally but also to produce them. This will ensure the availability of a large pool of the workforce with the capacity to kick-start the cycle of indigenous industrial revolution. Further, Nigeria’s poor physical, financial, scientific and technological infrastructure including, research and development, scientific and engineering institutions must be upgraded to world class standard.

Thirdly, inclusive socio-economic institutions must replace the extractive ones that are stifling economic growth. In this regard, Arthur Young’s unrivalled observation over 100 years ago that ‘ownership is the magic that turns sand into gold’ should not be lost on Nigerian policy makers. Therefore, as part of the package designed to create an entrepreneurial eco-system and to promote innovation, the extractive Land Use Act should be abrogated without delay. Also, the establishment of more efficient property rights should be pursued with vigour. These inclusive institutional changes will not only stimulate the development of agriculture – a key precondition for industrialization – but perhaps more importantly, they will help to release investable surplus, provide entrepreneurs with bank compliant collateral and spur them to unleash their creative energies to search for innovation, explore new venture opportunities and to create wealth.

Fourthly, it has to be understood that modern industry evolved with, and is dependent on, its own distinct value system such as belief systems, myths, rituals, dress code, social structures, national outlook and psychology, patterns of behavior and more importantly perception of science and technology. Therefore, as a corollary, societies that want to industrialize must adapt to, and internalize the value system behind the evocation of the industrial era and those driving industrialization today. Non-adaptation and indeed retrogression to ‘reactionary’ traditionalism is in large part a major reason why many less developed countries like Nigeria find it difficult to industrialize. Therefore, traditional societies like Nigeria that want to industrialize must comprehensively modify and realign the innumerable anti-industry social, cultural and traditional values that are stifling techno-economic development to ensure convergence with the ethos of modern industry. This obviously calls for social engineering and creative adaptation, which in turn demands visionary leadership of the highest order.

To be sure, reorienting the value system is an intractable task that is made more difficult by the fact that the high quality leadership that is needed for this paradigm shift is very often the scarcest commodity in any country and more so the less developed countries. Nevertheless, it must be acknowledged that economic development is a process of creative destruction and to ignore the needed socio-economic changes is to acquiesce to technological backwardness and economic underdevelopment. Further, modern society is intricately intertwined with, modulated by and dependent on some of the wealth distribution factors often cited as limiting industrialization in Nigeria. While we still maintain that these do not directly lead to wealth creation, we nevertheless concede that they determine the extent to which the economy can function competitively, effectively and efficiently and must therefore be addressed as an integral part of the economic and industrial policy.

Finally, we particularly need to deepen our understanding of the historical process of industrial evolution and urgently open up the idea-spaces to intelligently inform our economic and industrial policy. In doing this, we must of course be reminded that it takes a very long time to grow and nurture the capital goods sector to maturity. The instructions of the French General, Hubert Lyautey to his gardener is therefore apt for Nigeria’s economic policy makers: if a tree takes 150 years to mature, then it should be planted as soon as possible. The time to start is now.

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