Between 2018 and 2022, Nigeria’s economy received N32.346 trillion from the manufacturing sector, a paltry 9% of the total GDP. Nigeria’s weak manufacturing sector contributes largely to foreign exchange shortages, high unemployment rate, and balance of trade deficit. Nigeria’s economy is heavily reliant on petroleum exports and, therefore, vulnerable to external shocks due to fluctuating crude oil prices in the international market; necessitating proactive diversification of Nigeria’s economy.

Naira depreciation and 216% fuel increase from January to September worsened inflation; decreasing purchasing power while local firms in critical need of foreign inputs are subjected to the agonising foreign exchange crises. Many firms have suffered losses since the forex unification and subsidy removal policies – in addition to inflation. For instance, Airtel lost $151m, while Guinness Nigeria Plc recorded N49 billion in exchange rate losses. No doubt, some companies are struggling to survive while others are discontinuing certain operation units – with a shift in business model.

What will Nigeria trade with other African countries when the African Continental Free Trade Area (AfCFTA) which aims to unlock Africa’s manufacturing potential and accelerate industrialisation through a unified market is fully operational? This is a conundrum at a crucial time Nigeria needs to ramp up diversification and enhance the local manufacturing industry to strengthen the economy.

Saudi Arabia, a major oil player, is making frantic efforts to diversify from oil by 2030. Saudi Arabia unveiled Vision 2030 in 2016, a strategic plan that is targeted at diversifying Saudi Arabia’s economy by reducing its dependence on oil and fostering the growth of a vibrant private sector; especially when the world is transitioning to renewable energy. Nigeria should take a cue from Saudi Arabia and Dubai’s economic diversification strategies. What is the strategic economic diversification road map of Nigeria – in the medium and long term?

Nigeria must break its dependence on oil and mere raw materials export. Nigeria primarily exports 85% raw cocoa – which fetches the country’s meagre forex, while a mere 15% is processed and exported as cocoa butter etc. In contrast, Indonesia’s cocoa processing industry is a major lifeline in the country’s foreign earnings, processing nearly 80% of its cocoa output for exports. In 2019, the export value of processed cocoa products from Indonesia went beyond $1.01 billion. Processing of raw materials locally will not only create value, boost exports, and reduce vulnerability to mono-economy fluctuations but also foster local SME growth. It is high time Nigeria added value to its vast raw materials assets.

Light manufacturing dominates the manufacturing landscape in Nigeria, with only a few engaging in heavy manufacturing. Critical heavy industries that could contribute raw materials to local manufacturing in Nigeria are moribund. The likes of national refineries, Ajaokuta iron and steel complex, the national paper mills, Eleme petrochemical, and the national fertiliser companies are in comatose; pushing around 80% of Nigeria’s workers into low productive sectors.

Nigeria’s former president Goodluck Jonathan introduced the National Industrial Revolution Plan (NIRP) and the National Enterprise Development Programme (NEDEP) in 2014. The NIRP aims to enhance Nigeria’s industrial sector competitiveness, while the NEDEP focuses on empowering SMEs.

The Nigerian Industrial Revolution Plan (NIRP) aims to transform Nigeria into a manufacturing nation that meets domestic needs, boosts skills development, and conserves foreign exchange. The goals are to foster an export-led economy and channel energy into import substitution, increase the manufacturing sector’s GDP contribution and generate up to N5 trillion in annual revenue for Nigerian manufacturers. However, NIRP’s execution has failed woefully.

Nigeria’s average GDP per capita from 1960 to 2022 is $1024.44. Nigeria’s GDP per capita has been dilly-dallying and relatively stagnant over the years since 1960. Singapore’s GDP/per capita was $82,808 in 2022, a country which started on a similar footing to Nigeria in the 1960’s. Radical industrial transformation has changed the fortunes of Singapore, South Korea, Brazil, Malaysia and China from less developing countries.

Recently, the naira continued to recover against the dollar as CBN pays banks a $6.7bn forex backlog. This is a cosmetic measure which is akin to a pyrrhic victory. The Central Bank of Nigeria needs to outline a transparent plan to improve forex inflows and management – in restoring trust in the forex market and consolidating the confidence of top foreign investors.

The manufacturing sector should be prioritised in Nigeria’s quest for economic stability. Manufacturers rely mainly on the exorbitant parallel market, which accounts for more than 95% of their Forex demand, while a meagre 5% is obtained from the official market.

The government needs to entrench policies and strategies that will facilitate a steady flow of foreign exchange into the Nigerian market to counteract the speculators. This can be achieved by massively diversifying Nigeria’s economy, moving away from mere raw materials to investing in local processing and heavy industries that will not only substitute some foreign products but also fetch Nigeria a massive foreign exchange.

Odewale is a lecturer at Kaduna Polytechnic, Nigeria, a public affairs commentator, and a Free Trade Fellow at Ominira Initiative for Economic Advancement.

This article was first published on Business Day.

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Abayomi Odewale

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