Despite recovery from the COVID-19 pandemic-induced economic meltdown, Nigeria’s economy is still relatively unstable. Mired in deep-seated corruption and poor leadership, the economy is centered on consumption with little or no regard for production.
Since independence, successive governments in Nigeria have adopted different approaches to economic development. From the first national development plan (1962-1968) to the current National Development Plan (2021-2025), investment in the manufacturing sector to boost production is a feature they all have in common. However, none of the ambitious plans has seemed to succinctly address the challenges in the manufacturing sector.
A Need for Diversification
According to a recently released trade report by the National Bureau of Statistics, Nigeria recorded a 37 per cent trade surplus amounting to N2 trillion in the second quarter of 2022. This is a significant improvement from a trade deficit of N1.49 trillion in 2021. However, with total export value standing at N7.4 trillion, crude oil exports alone accounted for 79.7% (N5.9 trillion), while non-oil exports stood at a mere 20.2 per cent (N1.49 trillion). While this might seem a magnificent feat, there is obviously a need to diversify the country’s export away from oil.
As the rest of the world shifts from fossil fuel to clean and renewable energy, we expect the demand for crude oil to decrease drastically in the coming years. This will put a serious strain on government revenue generation, except other viable sources of income grow sufficiently to fill the gap.
With an unmatched affinity for luxurious and foreign goods, Nigeria’s total imports in the first half of 2022 stood at N5.4 trillion, accounting for 42.3 per cent of the total trade in the window. As a nation blessed with arrays of natural and human capital resources, a simple deduction from the report shows under-utilisation of these resources, over-reliance on crude oil for foreign exchange and ultimately, an import dependency which erodes the gains from exports.
We cannot solve the challenges of excessive consumption through importation without addressing the need to increase production output and encourage local consumption.
Government must set the pace in encouraging consumption of local products by supporting small and medium enterprises through tax cuts, access to credit facilities, quality assessment and patronage through different government agencies and institutions. Government trade policies must encourage local production and consumption of products to retain values lost while importing them into the economy.
While imports cannot be eradicated, as no country can produce all it needs, it is imperative for Nigeria to prioritise production and exports over imports in order to boost the economy. With the availability of raw materials and a youthful demographic advantage, Nigeria needs to adopt a hands-on policy on boosting production hinged on the conversion of natural resources into industrial raw materials and adding value to these raw materials by processing them into finished products of international standard.
Production and Value-Addition
According to the Nigerian Exports Promotion Council (NEPC), some of Nigeria’s non-oil exports include cocoa beans, sesame seeds, cigarettes, cashew nuts, leather, and cotton, among others. Further research reveals most of these products are exported in their raw state. In the last three years, only British American Tobacco (BAT) has consistently remained in the top three non-oil exporters of finished goods in Nigeria.
Nigeria can no longer continue to export products in their raw state. Government and private sector must channel adequate investment in product research and development, acquisition of plants and machinery, and technical know-how to scale up its raw materials into finished goods.
To become a production-oriented country, Nigeria’s economy must become more private-sector driven, with the enabling environment to attract foreign direct investments. As the economy shifts towards more production through the establishment of manufacturing and supply chain facilities, many of the country’s contemporary challenges such as unemployment will be ameliorated.
As evident in manufacturing countries, further investment and capital inflows arise at different stages of the value chain to fill in a need for manufacturers. These value-adding industries provide job opportunities for young people which help solve the challenges of unemployment in the society. As the economy expands, there is an increase in demand for goods and services, hence, manufacturing companies also undergo expansion, creating more jobs and increasing government revenue through taxes.
Also, as a country in dire need of a foreign exchange, industrialization will create a clear path to earn foreign currencies through repatriated export earnings. Earlier this year, the Central Bank of Nigeria (CBN) launched the RT200 FX programme aimed to achieve a $200 billion non-oil inflow into the country over the next three to five years. The programme is hinged on five pillars namely; Value-Adding Exports Facility, Non-Oil Commodities Expansion Facility, a Non-Oil FX Rebate Scheme, Dedicated Non-Oil Export Terminal, and a Biannual Non-Oil Export Summit. All these schemes, especially the Value-Adding Export Facility will ensure the conversion of raw materials to finished commodities before exportation.
Going forward, investment in the manufacturing sector must go side-by-side with investment in infrastructures like good roads, stable power supply, automation of port clearing systems and overall security architecture. Government policies must reflect the reality of the market and create an enabling business environment for investors.