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Seven governance challenges behind Nigeria’s economic laggardness – Part 3

By Banji Oyelaran-Oyeyinka
18 November 2022   |   1:55 am
This is three times the total 2021 federal budget, projected at $34.51 billion. Clearly, one of the most significant barriers to industrialization, value addition and competitiveness of Nigerian firms is poor infrastructure.

This is three times the total 2021 federal budget, projected at $34.51 billion. Clearly, one of the most significant barriers to industrialization, value addition and competitiveness of Nigerian firms is poor infrastructure. According to a recent Financial Times (FT) report: “The congestion at the port in Lagos has become so bad that it can cost more than $4,000 to truck a container 20km to the Nigerian mainland these days, almost as much as it costs to ship one 12,000 nautical miles from China”. The estimated loss in economic activities is $55 million per day.

Industrial development depends on a wide variety of hard, soft and advanced infrastructure. Electric power, water/sanitation, roads, railways, ports and airports propel all modern production structures such as factories and agricultural value chains. Think about how global productive agricultural economies work: they are heavy users of chemicals, fertilizers, pesticides and agricultural machinery. Look at the world’s most productive service economies: they rely on top-tier computer technology, transport equipment and, in some instances, mechanized warehouses.

(3). Redouble efforts on industrialization and to building technological innovation capacity
This is critical for several reasons. First, the recent Covid-19 pandemic and the Ukraine-Russia conflict with its aftermath of soaring food inflation, show that countries with weak domestic capacity to manufacture basic products are extremely vulnerable to not just economic shocks; they face real health and food securities. Therefore, the most effective strategy for rapid growth is to promote the sustained expansion of foreign exchange earnings through exports of manufactures.

To overcome the BoP in the end, and grow the economy at a fast rate, we must counter import expansion with faster export earnings. More precisely, export of processed and manufactured products. We have long shortchanged ourselves exporting raw materials that others use as basis for wealth generation.

Recommendation: what distinguishes Nigeria and countries like South Korea, Malaysia and Indonesia? What should Nigeria and indeed Africa do to recover, rebuild and revitalize? Urgently, pursue an active industrial strategy taking agri-business as its base while continuing to promote other industrial sectors, and the services sector that have driven most African economies. While the country is challenged with infrastructure such poor power supply, use the strategy of localization of industrial zones such as the AfDB’s Special Agro-Industrial Processing Zones (SAPZs) to driver faster economic growth.

(4). Intensify Economic Diversification in deeds not words: The lessons of the last 50 years of Africa post-independence show clearly that Nigeria continues to lag far behind in technological capacity to diversify its economy. The economy is poorly diversified in its technological production base and export basket. The country routinely experiences disproportionately large volatility and huge swings in fundamental economic variables. This is especially so as the country is resource-dependent and vulnerable to external shocks. The recent nexus of pandemic and the resulting global financial crisis is illustrative. Poor diversification results in shortage of foreign exchange. The precipitous decline of the national currency is in large part because we consume high-value products that we do not produce, and export low-value raw materials which value is fixed by importers. Nigerians, especially urban elites, have developed an appetite for imports including expensive luxury goods such as automobiles, foreign drinks, and clothes, electronic and household consumer goods.

For example, the country’s top imports are refined petroleum ($75.75Billion), cars ($3.03Billion), Wheat ($2.15B), packaged medicaments ($1.38B), telephones ($771M) and special purpose ships ($4 billion). In contrast, what does Nigeria export? Coconuts, cashews, cocoa beans, rough wood, petroleum gas, and crude petroleum that accounts for 70.8% of all its exports, among others.

5. Prioritize Security of Agricultural and Industrial Assets: To the cocktail of challenge of rural and urban insecurity that has disrupted agriculture production is the massive crude oil theft taking place in plain sight. According to widespread reports, Nigeria’s crude oil production crashed by 24.73 percent in September 2022 to 937,766 barrels per day, compared to 1.246 million barrels per day recorded over the corresponding month in 2021, the latest data from the Federal Government has shown. Quoting the NNPC CEO: “Today our production is around 1.23 million barrels per day. We have a proven production capacity of 2.49mbpd.

we can easily produce 2.49 mbpd but we cannot do it because of acts of vandals, as we speak, all our major trunk lines are shut down, which means we are not flowing crude oil in these lines”.  Nigeria has lost nothing less than 120 million barrels of crude oil from January and September this year amidst revenue crisis. The level of crude oil loss in production translates to $12.6 billion going by crude oil production data obtained from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

6. Respect the Social Compact with Citizens
There is zero credibility of the Government’s Commitment to Visions and Industrial policies. This speaks to State Strength and Bureaucratic Capacity. Industrialization and economic growth thrive on a strong and effective state capacity as the case of thousands of abandoned projects in Nigeria illustrate. Several years ago, the federal Government appointed a former minister of Works, General Kotangora to lead an assessment of abandoned projects. According to his report1 , 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 ability of a government to initiate an investment project, implement and manage it, separate countries that made rapid progress in “catching up” and those that tend to be “falling behind.”

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 through the following year, which transformed its wheat production dramatically. Three harvests later, the sector had added $1.4 billion to the nation’s GDP and there was a subsequent rise in 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 patented drugs 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 likely to reach $65 billion by 2024 and further expand to reach ~$120-130 billion by 2030. For the period 2021-22, export of drugs and pharma products stood at $24.6 billion. Without functioning laboratories and R&D capabilities, these could not have happened.

(7) Bridge the Trust Deficit between Government and Citizens
Professor Oyelaran-Oyeyinka is senior special adviser to the President on Industrialization, African Development Bank (AfDB)
Professorial Fellow, United Nations University (o.oyelaran-oyeyinka@afdb.or). He delivered this as keynote address to Nigerian Society of Chemical Engineers in Ilorin recently.

Citizens have lost faith in successive governments. Governments announce visions, projects and initiatives that never see the light of day. I illustrate and conclude this paper with a personal reflection especially in this season of political promises.

The late General Abacha inaugurated the Nigeria Vision 2010; a 250-member committee of private sector representatives, government ministers, academics, journalists, traditional leaders, and so on; inaugurated on November 27, 1996. I was a member of the Technical Group that facilitated the deliberations of the committee, which was chaired by late Chief Ernest Shonekan. The Vision objective broadly was: “To forge a plan which will ensure that Nigeria is en-route by year 2010, to becoming a developed nation in terms of economic prosperity, political stability and social harmony”.

Nigeria Vision 2020 (NV2020) was designed as a strategic framework for the Federal Republic of Nigeria to develop its economic and political strength to the point by 2020, “Nigeria will be one of the 20 largest economies in the world, able to consolidate its leadership role in Africa…”

When Nigeria’s Federal Ministry of Science and Technology was created on 1 January 1980, it boldly put out the vision of making “Nigeria one of the acknowledged leaders of the scientifically and technologically developed nations of the world”.

Sixty years after independence, Nigeria has become a poorer country; it has not achieved its regional or global technological power ambition. It is clear that Nigeria is at a critical juncture. This paper has made the point that technological, engineering and industrial capacity advance only with a strong State capacity. A Strong State is indispensable in establishing institutions that drive economic growth and that of equitable administration of the rule of law. An unequal and divided society undermines economic growth. Strong states ensure security of property and enforcement of contract; through checks on government; and through checks on corruption and private capture. Where a capable state is absent, violence, economic retardation and insecurity tend to be the order.

This is a time for the second chance. Let us seize the moment. A great Nigeria is possible. Let it begin in our hearts and in our professing today. We have no other country!
Professor Oyelaran-Oyeyinka is senior special adviser to the President on Industrialization, African Development Bank (AfDB)
Professorial Fellow, United Nations University (o.oyelaran-oyeyinka@afdb.or). He delivered this as keynote address to Nigerian Society of Chemical Engineers in Ilorin recently.