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Agro-industrial processing: From consumption to production – Part 2

By Banji Oyelaran-Oyeyinka
20 September 2022   |   3:23 am
One cannot but agree with a great scholar who said, “first, the only way for a country to develop is to industrialize; second, the only way for a country to industrialize is to protect itself; and third, anyone who says otherwise...

workers on a farm | Magical Kenyan

One cannot but agree with a great scholar who said, “first, the only way for a country to develop is to industrialize; second, the only way for a country to industrialize is to protect itself; and third, anyone who says otherwise is being dishonest!1’ The Nigerian economy remains agrarian in nature; it continues to face heavy barriers, including those within international systems, in achieving industrialization. As implicit in Nicholas Kaldor’s Laws: The promotion of long‐term economic growth requires industrialization; the faster the expansion of industry in a country, the greater its long‐run growth’.’2. Kaldor’s proposition is explicit: that the “faster the overall rate of growth of manufacturing, the greater the rate of export earnings”. Second Law: “the faster the rate of growth of manufacturing production, the faster the rate of growth of the economy as a whole”’

A Hostile Industrial Ecosystem for Companies and Business Enterprises
The source of growth and locus of wealth is the factory-level of its firms and business enterprises.
Wealthy nations process their God-given resources including crude petroleum. They nurture strong companies driven by good governance. Compare Nigeria’s NNPC and Saudi’s ARAMCO. The Nigerian company has four refineries. According to OPEC, the country exported $27.73bn worth of petroleum products in 2020, while the value of the country’s petroleum imports in 2020 was $71.285bn. The country has an installed refining capacity of 445,000 barrels per day from four (4) refineries that refined zero barrels of oil in 2020/2021 because the refineries have broken down and are inoperable. Saudi Aramco’s refining capacity is 5.4 million barrels per day (860,000 m3/d). On 11th May 2022, Saudi Aramco became the largest (most valuable) company in the world by market cap, surpassing Apple Inc3. Saudi Aramco operates the world’s largest single hydrocarbon network, the Master Gas System. Its net income in 2021 was US$109.385 billion while total assets was US$331.818 billion.

Another example: The textile and ready-made garments industry in Nigeria tells a story of arrested development and of lost glory. Once a vibrant and dynamic sector in Nigeria, the sector exported to countries in the African region. It achieved an annual growth rate of about 70 percent, and constituted 25% of the manufacturing sector’s labor force of over one million workers between 1960 and the late 1980s. There were around 115 factories across the Cotton Textile and Garments (CTG) value chain, which engaged in several stages of the value chain such as spinning, weaving, and garment production in 1980. The Nigerian textile manufacturing capacity was valued at N420 billion and investment worth of US$3 billion in 1999.

By 2007, Nigeria had only 26 textile and ready-made garment (RMG) companies in operation with employment of roughly only 24,000 people. The near demise of the industry in Nigeria coincided with the rise of Asian producers, including China. China’s export value of RMG was approximately US$266.41 billion in 2020. Specifically, a dual process occurred: the growth of Chinese imports combined with massive influx of Chinese company representatives to Nigeria, while Nigerian traders flocked to China to import garments and textiles into Nigeria. There were by 2008, 50,000 Chinese textiles personnel in Nigeria and 20,000 Nigerians in China.4

In 1972, the World Bank approximated the gross domestic product (GDP) of Bangladesh at US$6.29 billion. It grew to US$368 billion by 2021, with US$46 billion of that generated by exports, and 82% of which was ready-made garments. In the year 2016-2017, the RMG industry generated US$28.14 billion, which was 80.7% of the total export earnings in exports and 12.36 percent of the GDP; the industry.

Nigeria swapped its RMG Production Nation status for a Consumption Nation status. The country engaged in a race to the bottom ladder of poor nations when it’s reliance on crude oil became a pathology.

Self-inflicted De-Industrialization and slow Structural Transformation
The structure of Nigeria’s economy for most of the past decades has remained largely skewed to low-productivity agriculture sector. The sector contributed most to nominal output when compared to the industry and services sectors in periods 1960 to 2022. The output contribution of the industrial sector consistently declined on the average from 15.6% between the period 1971-1980 to 5.7% and remains under 10% until now. This trend suggests that Nigeria has experienced a process of premature de-industrialization since the 1970s. In addition, the trend depicts that structural transformation of the economy is slow or non-existent. By contrast, the sectoral contribution of services to nominal output has been on the rise for over three decades. The service sector contributed an average of 24.3% in 1981-1990 and rose to 29.5% in the 2000s. In sum, Nigeria embarked on a path to industrialize but totally derailed and got into a cycle of premature de-industrialization until the present time. In other words, the premature deindustrialization that we see in Nigeria has nothing to do with a fundamental decline in the significance of manufacturing as an “engine of growth”. I attribute the failure of industrialization to the country’s specific governance and leadership shortcomings. It is the mismanagement of capital stock investment and the waste of the stock through inoperability like refineries, fertilizer plants and in the extreme, creation of White Elephant junkyards. Our enormous investments in capital stock have sadly disappeared into Black Holes of private pockets or have degraded into the Forest of White Elephants. This is why we are in large part a Consumption rather than a Production Nation.

The Dissipative Forces of White Elephant Projects
As one writer remarked, Nigeria has become the world’s junkyard of abandoned projects worth billions of naira. It is staggering in its impact and befuddling to imagine the widespread nature and magnitude of project abandonment. Several years ago, the federal Government appointed a former minister of Works, General Kotangora to lead an assessment of abandoned projects. According to his report, at the time there were an estimated 4,000 uncompleted or abandoned projects belonging to the Federal Government with an estimated cost of N300 billion, which would take 30 years to complete, given the execution capacity of government.

The impact of these failed projects has been clearly irreversible in terms industrial and financial losses and human resources irretrievably wasted.

Almost two decades after this report, in 2011, the report of the Presidential Projects Assessment Committee (PPAC) showed that the Federal Government had spent over N7.78 trillion on 11,886 ongoing and abandoned projects nationwide as at June 2011. The report singled out Ajaokuta Steel complex started over 30 years earlier, on the sum of US$4.5 billion was spent. This is a classical White Elephant, lying waste. The committee in their report stated that the actual number of ongoing federal projects could be 20% higher than the reported 11,886. Similarly, the total sum expended on the projects could surpass the N7.78 trillion contained in the report to the neighborhood of N8 trillion.

To be continued tomorrow
Professor Oyelaran-Oyeyinka, senior special adviser to the President on Industrialization, The African Development Bank, delivered this lecture titled From Consumption to Production: ‘The Role of Special Agro-Industrial Processing Zones’ at the Assembly of Fellows for the Nigerian Academy of Engineering – Nigeria on September 8, 2022.