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Halting Nigeria’s descent into industrial backwardness – Part 2

By Banji Oyelaran-Oyeyinka
02 August 2022   |   2:45 am
Poor nations like Nigeria on the other hand, possess enormous natural resources but lag far behind in the technological knowledge necessary to transform their natural endowment into high-value goods

Buhari

Continued from yesterday
Poor nations like Nigeria on the other hand, possess enormous natural resources but lag far behind in the technological knowledge necessary to transform their natural endowment into high-value goods.

Those countries, blessed with oil and minerals, are unable to add value to these precious gifts of nature not only for lacking technological capabilities, but the allure of short-term revenue derivation has also locked these countries into the phenomenon of the “resource curse.”

To be clear, the possession of natural resources is not the problem. It is the ways in which the institutions and policies that arise around resource-abundance shape the trajectory of that country’s development.

Nigeria has practically destroyed all the institutions necessary for this nation to acquire scientific and technological knowledge over the last 50 to 60 years: primary, and secondary schools, universities, and Research and Development institutes (RDIs), all in decay. It is exacting a high price now, over this generation. It is bound to exact extremely high price over in coming generations. Let me illustrate.

In the 1970s, India initiated the critical steps that led to a Green Revolution and one that has made it a pharmaceutical powerhouse today.

Two key historical events in India’s agricultural and pharmaceutical sectors, altered the country’s trajectory. In 1963, following a famine, India imported 250 tons of high-yielding Mexican dwarf wheat seed varieties to test on farms on a wide scale. Positive results led to the importation of a further 18,000 tons in the following year, which transformed wheat production in the South Asian country.

Three harvests later, the sector had added $1.4 billion to the nation’s GDP and there was a subsequent rise in the production of rice and other key commodities as well. Ultimately, this Green Revolution had a transformative impact on India’s economic prospects.

Then in 1972, the Indian government passed the Product Patents Act, which transformed the country’s pharmaceutical sector by enabling domestic firms to replicate drugs that had been patented by multinational corporations. Indian pharmaceutical companies went on to dominate the global business for reverse-engineered generic medicines that sold far more cheaply than their patented counterparts did.

India’s domestic pharmaceutical market was $42 billion in 2021 and is likely to reach $65 billion by 2024 and further expand to reach ~$120-130 billion by 2030. For the period 2021-22, the export of drugs and Pharma products stood at $24.6 billion.

History matters and progress is path-dependent.

The cost of overcoming the knowledge gap built up over centuries is huge. The squandering of our riches and lost time will be difficult to recover. Consider the Nigerian oil and gas sector as an example of a colossal opportunity lost. The extant weak technological base is exerting incalculable damage.

Nigeria has the second largest oil reserves in Africa, and yet is a net importer of Liquefied Petroleum Gas and myriad petroleum products. It has the 9th largest natural gas reserves and yet barely has enough gas to generate 5 MW of electricity.

According to OPEC, the country exported $27.73 billion worth of petroleum products in 2020, while the value of the country’s petroleum imports in 2020 was $71.285 billion.

The country has an installed refining capacity of 445,000 barrels per day from four refineries. Yet, these four refineries refined zero barrels of oil in 2020 given that they are broken down and inoperable. In a country with the necessary metallic and chemical sector capabilities to produce, maintain and innovate, this situation will be unthinkable.

Again, while the country has massive gas reserves, Nigeria’s citizens have no access to electricity. Nigeria is among the top counties in the world with the highest number of portable generators.

Dependence on imported fuel has put serious pressure on Nigeria’s foreign exchange at the expense of other productive sectors of the economy.

In the face of the Ukraine-Russia war, with oil prices soaring to $100/barrel, Nigeria cannot meet its OPEC quotas due to unprecedented crude oil theft and divestment from the upstream oil sector. N

igeria has proven gas reserves that can potentially provide a Gross Value Added (GVA) of $18.3 billion annually and 6.5 million full-time jobs to the domestic economy (PwC). Flared gas alone can power 5.3 GW of power through Modular IPPs and decentralized grids.

Due to a weak industrial base, Nigeria’s oil and gas make an only a small contribution to GDP, despite generating the bulk of export earnings, as it is a high technical and capital-intensive industry that employs few people. We do not produce the materials and equipment used in the exploration and production domestically. There is minimal domestic manufacturing input in the oil sector, especially in oil product refining. The local content makes up about 5% of goods and services.

In sum, Nigeria’s oil discovery, just like DRC’s enormous mineral deposits and the dependence on these resources exerted a strong exclusionary effect on industrialization. It did so by displacing the tradable sectors, especially industrial manufacturing with the resultant outcome of arresting the structural transformation of the economy over time.

Secondly, dependence on crude oil led to the collapse of the agriculture sector, which successive governments have tried to restore. Nigeria in 1950/the 60s produced over 40% of global oil palm; in 2022, it produced 2% while Malaysia and Indonesia between them command over 80%.

Again, over the last sixty years, Nigeria lost massive opportunities to transform its agricultural sector, as did comparator countries in Asia such as India, Malaysia, Indonesia and Vietnam.

By so doing, we lost the time required for the long learning dynamics that are required for mastering technologies. We have fallen far behind in competitiveness in key sectors in which we were global players in the 1950s/1960s.

We are paying a huge price for 60 years of lost opportunities to industrialise.

The cost of a weak industrial base manifested during the COVID-19 pandemic. In the face of acute shortages of vaccines, African countries looked on helplessly while individuals in the Western nations received multiple booster vaccine shots. It was not about money. Nobody cared if you die or live as a poor African.

When these African nations had money to buy vaccines, they were pushed to the back of the queue in the global supply chain. Vaccine nationalism ensured that as of July 2022, only 16% of Africans on average were vaccinated.

While much of the developing world begged and complained about the lack of global collaboration, a half dozen Western pharmaceutical companies dug into their arsenal of scientific and technological banks and came up with the mRNA vaccines

To be continued tomorrow

Professor Oyelaran-Oyeyinka, professorial fellow, United Nations University and Fellow, Nigerian Academy of Engineers is Senior Special Adviser to the President on Industrialisation and African Development Bank, presented this paper recently.