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Halting Nigeria’s descent into industrial backwardness – Part 4

By Banji Oyelaran-Oyeyinka
04 August 2022   |   3:27 am
Due to horizontal diversification and value addition, Indonesia is now the 26th largest exporting country; as at 2015 total export volume stood at $161 billion while import at $139 billion, this meant $21.7 billion of positive trade balance.

Due to horizontal diversification and value addition, Indonesia is now the 26th largest exporting country; as at 2015 total export volume stood at $161 billion while import at $139 billion, this meant $21.7 billion of positive trade balance.

Factors explaining Divergence with Nigeria
In the early 1960s, Nigeria’s palm oil production accounted for 43 percent of the total world production.

However, Nigeria is currently struggling with less than 2 percent of global output. From a major exporter, Nigeria has become the largest importer of Malaysia palm oil in the Sub-Saharan Africa region with 287,000 metric tons. Rather than deploy its relatively good research results from R&D systems, its production systems have relied on outputs from wild groves, which in Nigeria accounts for over 90 percent of total production. This source has continued to decline due to aging trees and increasing difficulties in finding the necessary labor to ensure maximum exploitation of the groves. This is how it was for decades. Nothing seems to have changed even now in 2022. On the contrary, Southeast Asia has increased its total share of world output because of more extensive plantings and higher yields, while the share of the traditional African producers has declined. Nigeria’s strategy of relying on age-old traditional methods rather than adopting an industrial agriculture pathway has cost the country dearly: regrettable lost opportunities.

The success of Indonesia’s oil palm has drawn on strong research and development work that led to progressively high yields over time. Indonesia has steadily increased its replanting programme and adopted better suited varieties developed from hybrid research and cloning. The availability of land in Indonesia, coupled with years of high seed sales, record energy prices, and high vegetable oil prices are factors that resulted in Indonesia continuing to lead the world in palm oil production. Its leadership will likely continue for years to come.

Governance and Institutions
In 1965, the World Bank invested around $2 billion into over 45 projects in Southeast Asia, Africa, and parts of Latin America to support the growth of the palm oil industry. Indonesia received $618.8 million, the highest; Nigeria received $451.5 million, while Malaysia got $383.5 million. Nigeria remained the second-largest recipient of funding from the World Bank for palm oil investments with six projects. Sadly, only one project succeeded while the rest went bankrupt. Presumably, if there had been more efficient governance, competence and financial management of the industry, Nigeria could have been on a different trajectory of industrial leadership. Opportunity loss at critical historical junctures pushed the country down the ladder behind comparator countries.

Development requires Elite Agreement to work for the welfare of their people
Nigeria has experienced unusual spate of violent conflicts and terrorism. Befuddling is the reality of a country that brought peace to Liberia and Sierra Leone but is unable, for the most part, to provide basic security to its citizens. Natural resource wealth has elicited violence driven by group interest and competing interests. In conflict-rife environments, three main factors put the environment in an unstable situation. First, the lack of trust between elites and the mistrust of the state by citizens, due to ethnicity and disillusionment, that attends widespread poverty and inequality in poor countries.

Second, the difficulty of respecting contracts and agreements since institutional change can increase the risks of violence in the short term. This is due to political backlash from groups that lose power, those who feel cheated or denied economic benefits. Third, institutional transformation is being derailed from external security threats (read Boko Haram and the rest) and economic shocks (read Russia-Ukraine war) that slow progress. In short, fractionalization, conflict both violent and non-violent, include corruption lead to over-dissipation of resource rents.

Public Finance Mismanagement
Poor management of public finance is evident in Nigeria’s Revenue to GDP ratio. The ability of a government to collect tax – to fund public goods and services in developing countries-is a measure of governance capacity. Taxation provides the largest share of government revenues in almost all countries and is relatively predictable and sustainable, in contrast with non-tax revenue sources such as official development assistance and royalties. In most European countries, it is between 30-50 percent. In 2019, the Asia-Pacific (24) average tax-to-GDP ratio was 21.0 percent, below the OECD and LAC averages, (33.8% and 22.9%, respectively) and higher than the Africa (30) average (16.6%, 2018 figure).

“…..Nigeria, unfortunately, has the distinction of having about the lowest revenue-to-GDP ratio in the world,” the standard rule of thumb is that for the government to provide the basic services and law and order, it needs between 15 to 20 percent of GDP as being revenue, and this will be both at the federal and state levels combined. In Nigeria, it was eight percent in 2019. In 2020, in the middle of the COVID-19 crisis and with the fall in oil prices, that went down to about between five and six percent”.

How Leadership ruined Industrial Progress
According to a report from the Abandoned Projects Audit Commission President Goodluck Jonathan set up in 2011, it stated that 11,886 federal government projects were abandoned in the past 40 years that is from 1971 to 2011, in Nigeria. According to one commentator, “Nigeria has become the world’s junk–yard of abandoned and failed projects worth billions of naira” In stressing the economic implication of project abandonment to the society and the nation, the committee cited the case of the Ajaokuta Steel Complex. This project commenced in 1979 with an estimated project cost of $650 million but remains uncompleted after spending over $5 billion. During this period, the country spent about 2.1 trillion, an equivalent of $10.5billion in importing steel into the country.

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. He presented this paper at the 8th Edition of the Nigerian Society of Engineers’ Hr Eng Otis Oliver Tabugbo Anyaeji, FNSE FAEng KtSGG Annual Distinguished Lecture, recently.