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The urgency to grow and nurture the capital goods sector to maturity


Inside a moribund textile company in Kaduna

Inside a moribund textile company in Kaduna

Most of those who have attempted to explain why Nigeria and other less developed countries (LDCs) are finding it difficult to become industrialized fail to ask: how is wealth created and, how is it distributed once created? Rather, they tend to concentrate overly on issues championed by Western intellectuals and some Nigerian concerns such as imperialism and colonialism, true federalism, corruption, resource control, democracy, geo-politics, etc. As important as these tangential issues are, they did not conduce to the Industrial Revolution or to Nigeria’s development. From the standpoint of stimulating industrialization in Nigeria or any other less developed country, they are “off-target.”

If we are genuinely concerned with industrialization, tangential issues and likes are extractive considerations that rightly belong to the wealth distribution end of the development continuum – the subsidiary question. For example, England where the Industrial Revolution started in the 1700s to China, which is presently the workshop of the world, we notice that all the industrialized countries had unresolved wealth distribution issues of one form or another to contend with at the time of their industrial takeoff. But these challenges did not stop them from becoming industrialized. Many wealth distribution issues remain after industrialization and new ones emerge, as societies get more sophisticated. Wealth must first be created before its distribution. The defining factor(s) behind industrialization, which should be of serious interest to Nigeria and other developing countries, are located on the wealth creation axis and not distribution. This lack of understanding of the true essence of economic theory and in fact the ‘motive force’ behind the evolution of modern industry is precisely why Nigeria is not making significant progress in economic development and industrialization.

We must clearly understand that emphasis on the wrong factor(s) when attempting to stimulate industrialization is analogous to the case of medical myopia where if the problem is not properly diagnosed, the patient is left untreated, or treated for the wrong ailment. Despite the obvious differences in the economic and industrial history of various countries and in the forces and factors that shaped and determined them, there is one factor, which is fundamental for wealth creation and common to all the industrialized countries; while the wealth distribution method varied from one country to another. For Nigeria to become industrialized, we must accurately isolate, understand and internalize the key factor behind Industrial Revolution, which is – the capital goods sector.

Our policies makers, politicians and some intellectuals have shown unpardonable ignorance about the key factor that determined the emergence of the industrial society and are still failing the ‘‘industrialization leitmotif’’ test by a wide margin. Their economic prescriptions are never based on solid understanding of the historical process of industrialization. Regrettably, not only are we still ‘planning without facts’ as Wolfgang Stolper pointedly reminded us in his 1966 classic on Nigeria with the same title, we have descended further down the road of historical and intellectual amnesia of planning without understanding; particularly with regard to the forces behind modern industry. This is a serious indictment on our ‘intellectual’ community and they should do well to start acquiring the knowledge that will enable them to enrich their thinking and begin the quest to search and hopefully discover potent ingredients that will make their economic prescriptions more efficacious

The Capital Goods and Economic Development:
It is true that the convergence of many social, political, economic, institutional and technological factors and forces led to the evocation of the industrial society, but it was the emergence of the CAPITAL GOODS SECTOR that clearly marked the tipping point. The emergence of the capital goods sector consolidated and consummated the Industrial Revolution and made industrialization self-regenerating and irreversible. In fact, the acquisition of technological capability on which industry depends and the source of the dynamism of the industrial society take place principally within the capital goods sector. The reproductive capability which the capital goods has imbued the present civilization unlike in previous civilizations that tended to conform to the life cycle theory of takeoff, growth, maturity, slowing growth and decline, the industrial society has inbuilt negative entropy and is constantly reinventing itself. Nigeria is suffering from industrial and technological backwardness of the magnitude noted above primarily due to the dearth of people with the knowledge, skills and competences required to design, produce, operate, modify, adapt, repair, service and manage capital goods rather than the wealth distribution issues adduced above.

Today a new technology, microelectronics (including ICT) has become important for industrialization but unfortunately this sector is also underdeveloped in Nigeria. Of course, microelectronics cannot on its own evoke a cycle of industrialization and no country has or can become industrialized solely on microelectronics. The hardware (capital goods) and software (microelectronics) must be present and reinforce each other. Microelectronics acquires true economic significance in industry as they improve the design, production and performance of capital goods as well as raising the productivity and innovativeness of manufacturers and users of capital goods. This fusion of microelectronics and capital goods makes the former a new critical success factor in the industrialization matrix and it must be taken seriously. But we concentrate here on the progenitor of the industrial economy – the capital goods sector.

Life in the 21st Century is so intractably dependent on the products of modern industry that our civilization will grind to a halt without them. Most of the products that define modern industrial society only became available after appropriate capital goods have been put in place. Ironically, our economists are generally mute on the capital goods sector and economic textbooks rarely mention the subject. Perhaps, the same thing will happen to ICT and microelectronics in the near future. What is however worrisome is the fact that most development economists and policy makers in the less developed countries are also silent and possibly ignorant about the capital goods sector. This is surprising given that a dynamic capital goods sector is a precondition for local industrial revolution, the ultimate goal of less developed countries.

What do we really mean by the capital goods sector? This sector is made up of the machine tools and the machine building industry. All machine tools, machines, engines, equipment, plants, factories, robots etc. required by various sectors of the economy (manufacturing, agriculture, power generation, construction, car plants, aviation, ship building, railways, armament, telecommunications, microelectronics, biotechnology, nanotechnology, 3-D Printing, Robotics, other emerging technologies, etc.) have to be designed and built by the capital goods sector. The capital goods sector is also responsible for building all the machines that are in turn used to build other machines. For instance, even an iron and steel plant such as the Ajaokuta Steel Rolling Mill is an assemblage of capital goods.

Indeed, all the much loved artifacts of modern industry such as cars, aero planes, railways, ships, electricity, tractors and many others can only be built after the appropriate capital goods have first been manufactured and deployed for use in manufacturing the intermediate and consumer goods. This is to say that the artifacts of modern industry follow the capital goods and not the other way around. Unfortunately for Nigeria and many other LDCs, their economic policy makers seem to be interested in the artifacts of modern industry but mute and even contemptuous of the capital goods sector that is responsible for producing the machinery and equipment that are used to produce them. This is like putting the cart before the horse. The novelty in industrialization is in the capacity to build the artifacts that define modern industry, which rests with the capital goods sector. Unfortunately, this ubiquitous sector is nonexistent in Nigeria.

A measure of Nigeria’s industrial backwardness can be gleaned from the fact that even to manufacture something as basic as ‘pin’, which Adam Smith used in his famous case study to demonstrate the potency of division of labour in his classic ‘Wealth of Nations’ of 1776, we will need to import the capital goods required for this purpose. Again, a brief look at the cotton textile industry, which played a key role in the Industrial Revolution in the Eighteenth Century England, can also help us to situate Nigeria’s industrial backwardness appropriately. We notice that Nigeria, a major source of cotton that sustained the British cotton-textile industry during the colonial era still CANNOT build (we mean build) textile mills, sewing machines and other machines and equipment used in that industry after over 250 years of the Industrial Revolution. The perceptive reader should now know why the clothes s/he is wearing or indeed why the President’s beautiful babariga or kaftans are not and cannot be made in Nigeria.

We acknowledge and it is not even contemplated, particularly in the globalized world of today, that any country would have the comparative advantage to justify producing all its capital goods stock. Nevertheless, all the truly industrialized countries have the capacity to quickly redirect their resources to areas prioritized as of strategic importance. No doubt, large countries require a lot of capital goods to drive their economies because they will face serious foreign exchange challenges if they have to depend extensively on imports. Therefore, Nigeria’s oil dependent economy (Nigeria’s per capita oil income is low relative to the OPEC average as a result of her large population) cannot sustain the importation of all the capital goods required to drive the economy of the seventh most populous country in the world. With the price of oil dropping like lead-balloon, Nigeria’s dependence on oil for industrialization becomes even less tenable. This is why industrialization, particularly in large countries has always been endogenously determined and never imported. As opposed to the unrestrained importation of capital goods, which is unfortunately the norm in many LDCs today. All the industrialized countries that came after Great Britain aggressively borrowed technology from other countries, internalized the borrowed technology and used them as the basis for developing indigenous technological capability and industrial take-off.

Without the indigenous capital goods firms to design and build the power plants, turbines, sub-stations, transmission lines, electrical exchanges, transformers etc., Nigeria will have to rely on imports for such a mammoth undertaking. The foreign exchange so far expended for Nigeria’s miniscule grid power is colossal. Further, dependence on imported capital goods means that the expected positive externalities such as employment generation and capacity building in the design and production of capital goods will be domiciled in the countries from where such capital goods originate. We will continuously be missing the employment generation opportunities and the leakages from the economy will remain monumental. There is no sector of the Nigerian economy that is not going through this uncontrollable employment and foreign exchange hemorrhage, which only a dynamic local capital goods sector will mitigate. Perhaps more worrisome is the fact that the capital goods sector is the hub for technological change in the manufacturing industry and the medium via which an economy acquires and improves its technological capability.

No matter the nature and form of technological innovation; whether it is a new product or process; improvement to an existing product or process, it will require new, improved or modified machines that conform to defined technical specifications and capital goods firms have to design and produce them. A simple illustration of the extreme backwardness of the capital goods sector in Nigeria is the yam pounder that was invented in Nigeria but is produced for the Nigerian market in Japan and other parts of the world. Also, a Nigerian student recently won the prestigious Young Innovators Award for 2015, which was adjudged to be groundbreaking technologically and to have potential economic significance. But unfortunately, that innovation, like the yam pounder and many others cannot be developed or produced in Nigeria. Thus, even when Nigerians have developed potentially epoch making inventions or innovations, these will continue to be of no economic benefit to the country due to the dearth of local capital goods firms that can successfully solve the associated mechanical issues with them and build the needed machines that will be used to manufacture the new products or processes.

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