Key To Economic Development, Says Jacobs
Dr. Frank Udemba Jacobs is the president of Manufacturers Association of Nigeria. In a chart with DAVID OGAH, he bared his mind on how to diversify the Nigerian Economy.
Nigeria has depended on mineral oil for too long. What are the implications for the Economy? FOR decades, since the discovery of crude petroleum in commercial quantity, Nigerian economy has been reduced to a mono-product Economy; depending almost entirely on crude oil export proceeds.
As a result, the economy is experiencing the economic fundamentals such as persistent internal and external imbalances, which an economy that depends solely on one-product export proceeds without a strong internal balance is bound to experience.
Dependence on crude oil proceeds is even more critical to this economic fundamentals since crude oil prices fluctuate randomly.
It is this fluctuation that throws imbalances into the economy, through budgetary distortions. The external imbalances are causing erosion in the parity of the local currency, low external reserves and unfavourable current account balance.
The crashing of crude oil prices in the international market, in September, 2014, triggered-off series of economic challenges, which ranged from the depreciation and devaluation of the Naira; low external reserves due to constant de-savings by the government; and declining balance of trade.
Incidentally, even the policy measures put in place by the Government authority to address the issues were adjudged to stifle some key sectors in the economy, such as manufacturing.
For instance, the closure of RDAS/WDAS Forex Windows is being perceived as inimical to manufacturing activities, as manufacturers are left to source FOREX for raw material import in the volatile Inter-Bank Forex market. It leads to ‘resource curse’: a situation where nations that are heavily endowed with natural resources such as oil and gas perform woefully economically and politically – Nigeria no doubt is in this situation. It leads to De-industrialization.
Reliance on petroleum can lead to the abandonment of the industrial sector, which is key to economic performance. This has also been the case with Nigeria.
It is known to be strongly associated with ‘Dutch Disease’: a situation where the initial impact of resource discovery is beneficial to the economy as a whole at the detriment of reallocation of production; output of non-traded goods rises and manufacturing output falls.
It encourages ‘cronyism within the political ruling class’ and this worsens income inequality. Crude oil by itself is one of the few natural resources that induces civil conflict by its nature and relying solely on it results to more civil conflicts. It incubates corruption and undermines democracy.
ECONOMIC diversification is a pathway out of both ‘resource curse’ and ‘Dutch Disease’. It is a lead to economic growth and development. Economic diversification occurs when a country derive revenue proceeds from sources that are distinct from each other.
For Nigeria, the need to diversify the economy is quite crucial. As the industry expands, particularly the manufacturing industry, more valuable goods can be exported. This will increase the export revenue profile of the economy.
It will help to reduce the high attention given to the petroleum sector; thereby reducing the civil conflict naturally associated with it.
This will bring about a more peaceful environment that is capable of attracting foreign investment. The diversification of the economy will lead to reduction in the spate of corruption that is prevalent in the petroleum sector.
It will also help to dismantle the current crony and impunity in government, where some individuals are more powerful than the government. This will help to reduce income disparity in the country and boost domestic demand and ultimately more industrial Production. What model of diversification would you recommend? Various models have been put in place to guide economic diversification.
It is possible for the government to adopt the unbalanced growth framework, in which case key sectors with high inter-industry linkages are identified and developed.
These sectors, when developed, should be able to provide inputs and resources for the development of the entire sectors of the economy.
Of course, given sufficient resources, all the sectors in the economy can be simultaneously developed. However, considering the financial situation of the government, following the fall in the crude oil prices, the unbalanced growth framework is handy for the diversification of the economy.
The development of Agriculture and Solid Minerals sectors will ensure that primary inputs are provided to the industrial sector and fewer resources are committed to food and certain classes of raw-material imports. This will also increase foreign exchange earnings through export of commodities.
The activities in non-oil sector should receive significant incentives from the government to encourage their swift development. Special attention should be paid to the manufacturing sectors being a key sector in the economy. This is because the path of economic development, in terms of employment generation, poverty reduction and general wellbeing of Nigerians can be traced to the sector.
So, the sector should be supported with proper incentives, in terms of reduction in the cost of production through provision of funds at a single digit interest rate, availability of Forex for raw-material imports, removal of all forms of multiple taxation and levies etc.
The economy cannot be diversified without resolving the perennial challenges of poor electricity supply. Ensuring the availability of regular and quality power for the industries as well as homes is the starting-point of economic diversification.
Consequently, there is the need for the government to re-visit its power sector reform. Significant attention should be paid to the Embedded IPP framework. The rehabilitation and privatisation of the existing four refineries is also critical to the diversification of the economy.
Such privatization should be transparent, and must attract companies that have cognate experience in refinery business. What should be done to agriculture for it to sustain the economy? There is no doubt that the present government’s agricultural transformation agenda (ATA) has given tremendous boost to agricultural production when compared to where we were before the policy.
In particular, was the introduction of cassava in bread making and local wheat cultivation, which has been a huge success. Notwithstanding the success recorded, we must remember that we have over 170 million people to feed, in addition to providing raw materials for the food processing industries.
This shows clearly that we need to increase production beyond what it is today for the country to be self-sustaining in food and raw material production.
The current huge bill on food import is a pointer. To move the sector forward, the following recommendations should be considered:There is need for the government to encourage large-scale agricultural production in cropping, fishery, poultry and forestry. It is also imperative that the government, through the various agricultural research institutions makes available various Modified DNA seeds, high yield seedlings and other auxiliary agricultural services to the farmers.
There is also the need to continue to develop the irrigation systems across all the states of the federation in the country, in order to encourage all-year crop-farming activities. The funding support provided by the government should be accessible to real farmers.
How best can we position the real sector to contribute meaningfully to the growth of the economy For the real sector to contribute meaningfully to the economic growth, government will need to sustain the current incentives extended to the manufacturing sector, which enhanced the sector’s growth and contribution to the overall economy between 2013 and 2014.
These incentives are: Tariff concessions and Waivers; Granting of 30 per cent tax relief to companies that incur expenditure on infrastructure or facilities of public nature; Granting of Employment Tax Relief to companies with minimum net employment of 10 employees of which 60 per cent are employees without any form of work experience.
The recently established Development Bank of Nigeria dedicated to industrial development should be fast-tracked to commence needed assistance to the manufacturing sector. The development of agriculture and solid minerals sector to provide needed inputs to the sector.
The government needs to encourage more investment in gas gathering infrastructure to curtail excessive flaring of gas in the up-stream oil sector. Apart from giving the country the opportunity of harnessing her gas resources, more gas will be made available for generation of electricity, industrial and household uses.