Wanted: New industrial paradigm for Nigeria

There is the overwhelming consensus that industrialisation is the most potent mechanism for diversifying Nigeria’s oil-dependent economy. Federal and state governments in Nigeria have made known their intention to promote industrial development as a strategy for job creation and poverty alleviation.

In their attempt to promote industrial development, both the Federal and state governments in Nigeria should note that industrialisation is no longer what it used to be 30-50 years ago. Consequently, care must be taken not to use ineffective and counterproductive policies to promote industrialisation. Manufacturing, which is the core of industrialisation, used to be perceived as a process in which an enterprise would design a new product; obtain raw materials and technology; process the raw materials, and produce a final product all in one country. That was Nigeria’s mindset when it unsuccessfully sought to promote the textile, footwear, cement, steel, auto and other industries in the 1960s and 1970s. The “final product,” “import-substituting” approach to industrialisation has now become outdated. The new industrial paradigm is one in which firms configure and coordinate their value chains across the globe.

A major feature of the new industrial landscape is that these activities are performed as interlocking and mutually reinforcing networks in several countries. Thus, in Nigeria’s new quest for industrialisation, efforts should be focused on how to attract Global Value Chains (GVCs), or nurture home-grown value chains, in activities that Nigeria has a comparative advantage. Although Nigeria’s share of GVCs has been increasing, anecdotal evidence suggests it remains very small relative to other African countries. Recent GVCs in Nigeria include the Siat Group, a Belgian company that has established palm oil and rubber processing plants in Nigeria, Ghana, Gabon and Cote d’Ivoire. Another recent entrant is General Electric (GE), which in 2013 invested $1 billion in an electric gear producing plant in the Calabar Export Processing Zone (EPZ).

Nigeria should also consider using a value chain approach for resuscitating fledgling industries like textiles, footwear, cement, etc. This approach would target only the segments of these industries in which Nigeria has a comparative advantage. In the textile industry, for instance, perhaps it’s better to focus only on Spinning (i.e., the transformation of cotton fibres into yarns), and let other countries specialise in the weaving, finishing, printing and auxiliary segments. With regard to the footwear industry, it is very pathetic that Nigeria lost the iconic Bata Nigeria Limited, which in its heydays in the 1970s and 1980s employed about 4000 workers. There have been efforts to resuscitate it under a new management and brand name. Instead of reestablishing the entire spectrum of Bata’s value chain, the new company could specialise in leather processing, and let other countries with a comparative advantage in shoe manufacturing produce the final product. Of course, it is more desirable for manufacturers to undertake all or most of their value chains in Nigeria, but that is not realistic in the current global economy.

While other African countries have been seeking GVCs aggressively, Nigeria has not been attracting GVCs at a scale commensurate with her potentials. The country has ample opportunities to attract GVCs in resource-based sectors such as solid minerals, oil and gas, and agro-processing – which are all sectors in which Nigeria has a comparative advantage. Egypt, Morocco and South Africa have become hubs for GVCs in the automotive industry, producing spare parts and accessories for global auto companies.

Another paradigmatic shift in the global industrial landscape is the transformation of the manufacturing process, from labour intensity to a more skilled and knowledge based system. Manufacturers are no longer interested in semi-skilled workers that merely stand by conveyor belts, shuffling semi-manufactured goods from one corner of the factory to another. They desire skilled workers who are familiar with the CAD/CAM software; can read and interpret computer-generated manufacturing blueprints; operate CNC milling/ grinding machines; possess good analytical skills, and have basic knowledge of geometry/trigonometry. Additionally, they expect these workers to have soft skills such as excellent work ethics, team spirit and not under the influence of drugs/alcohol. They want all of these qualities at globally competitive wage rates. This is a major reason why GVCs prefer to locate in India, the Philippines, Vietnam, Thailand, Malaysia, and China.

Four critical measures must be undertaken in order to attract GVCs to Nigeria. The first is improvement in infrastructure. Poor infrastructure raises the cost of doing business and discourages GVCs from locating in Nigeria. Since abysmally poor power supply is Nigeria’s most debilitating infrastructural dilemma, priority should be given to power generation in the capital expenditure of the 2016 budget. The second problem that must be addressed is insecurity, which has tended to raise the expected risk-adjusted rate on return on investment in Nigeria. The third is the removal of institutional constraints such as the bureaucratic red tape that still characterises the establishment of business enterprises in Nigeria; the perceived lack of the rule of law, as well as corruption.

The last, and perhaps the most important constraint to be addressed, is the shortage of skilled workers in the manufacturing sector. The fact that there are millions of unemployed educated Nigerians does not mean there is an abundance of skills in the country. A preponderance of the unemployed youths in Nigeria is not employable in modern manufacturing enterprises. The stock of industrial technical skills in Nigeria has been depleted because of a number of factors, among which are these workers employed in the manufacturing sector in the 1960s-1990s have either died or retired. The current generation of youths in the country have not been exposed to manufacturing. Most of them have never visited a manufacturing plant, or have knowledge about what goes on in a factory. They grew up in an era of oil, militancy, kidnapping, 419, and drugs.

It will take some time and sustained efforts to retool Nigerian youths for the 21st-century global economy. A starting point is the restructuring of the country’s educational system, which has become anachronistic. Nigeria could learn some lessons from the German educational system, where vocational education and technical education are considered just as important as university education. According to F. Kidwell and T. West, experts in the German vocational education system, the mentorship programme enables students to gain an array of skills such as “reading blueprints, calculating industrial formulas, understanding advanced manufacturing operations, maintenance and computerised operations.” The authors conclude that the German vocational education system has enabled the country to generate a continuous stream of youths endowed with industrial and managerial technical skills. It should be emphasised that the vocational track has more prestige and status in Germany, compared with the general education track. This is in contrast to Nigeria, where vocational education is regarded as a last resort meant only for “dropouts.” Ironically, vocational and industrial technical skills are very important for attracting GVCs that would generate job opportunities for Nigerian youths.

It is indeed time for Nigeria to follow a different trajectory from its current path, a path that has exacerbated youth unemployment.

• Onyeiwu is the Andrew Wells Robertson Professor of Economics at Allegheny College, Meadville, Pennsylvania, USA, and author of Emerging Issues in Contemporary African Economies (Palgrave/Macmillan, New York).