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Published On: Thu, Dec 25th, 2014

Nigeria: Is De-Industrialisation Imminent?

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By allafrica.com

The above title may seem out of place in the wake of the launch of “Nigeria’s Industrial Revolution Plan” (NIRP) by President Goodluck Jonathan in February this year. The NIRP is clearly recognition of the embarrassingly modest contribution of manufacturing (less than 7 percent) to our Gross Domestic Product; conversely, the contribution of the services subsector, for example, has grown from about 23 percent in 2011 to a robust 52 percent by 2013 without any significant job creation component!

President Jonathan expects “the NIRP and its sister project, the National Enterprise Development Programme (NEDEP) to “address the constraints that have consistently inhibited the growth of manufacturing by building industrial infrastructures, prioritising power for industrial use, mobilising and reducing cost of funds so that the real sector can produce for domestic consumption and also reduce the drain on our reserves from imports… “

Subsequently, at the inauguration of the Presidential Advisory Committee on NIRP in May 2014, President Jonathan tasked “the manufacturing sector to work harder to add value to Nigeria’s produce rather than just exporting raw materials”, as “no country has ever become prosperous, only by extracting and exporting its raw materials.”

However, the question is whether Mr. President’s noble vision is supported by the actual reality on ground, or could this also be another ‘feel good’ propaganda in the manner as earlier failed projects, such as Operation Feed the Nation, NEEDS, SEEDS, and Visions 2010 and 2020 programmes respectively?

It may be too early to make a call on the possible success or failure of NIRP and NEDEP, but some observers may insist “that the morning mirrors the day”; consequently, such critics may refer to recent developments that could conscribe the NIRP and NEDEP programmes to the dust bin.

For example, early in December 2014, the CBN Governor, Godwin Emefiele, unexpectedly reneged on his earlier assurances to maintain Naira exchange rate at the 5 year old rate of about N155=$1; consequently, the Naira now trades at between N165-N173/$1 at CBN’s official retail Dutch Auction window; however, these ‘premium’ rates seem only applicable for government transactions; for example, the CBN would now substitute a minimum of N165 for every $1 of distributable dollar denominated revenue, before sharing to the three tiers of government, a process which, incidentally, instigates the poisonous economic burden of excess liquidity which makes socially and industrially supportive inflation and interest rates unattainable!

Indeed, there are already allegations by manufacturers that their forex applications for importation of raw materials/inputs have been directed to the interbank window, where dollars currently exchange for close to N190/$1, i.e. about 30% more than what manufacturers paid barely a month ago!

Alarmingly, the current demand pressure may likely push the interbank Naira exchange rate above N200=$1, with disastrous consequences for production costs of the real sector. Thus, a manufacturer who usually required N100m to import raw materials/inputs, will now unexpectedly need to consolidate about N130m for the same inputs, if the Naira exchange rate approaches N200=$1. Worse still, the same manufacturer who barely survived the burden of borrowing N100m at 20% interest rate, may unfortunately, now need to borrow N130m, with possibly higher cost of funds just to remain on the same spot. Additionally, the Nigerian manufacturer will carry the burden of providing his own power as well as provision of access roads, security and other extraneous expenditures to stay in business. It is a no-brainer that, ultimately, Made-in-Nigerian products will certainly be more expensive, than, finished or intermediate import equivalents.

Consequently, the inflation ravaged income of Nigerians may ultimately persuade even a patriot to patronise imports because of their relatively cheaper prices. Instructively, inflation deepens poverty nationwide as all income earners including the N18,000 minimum wage earner lose 40% of the purchasing power of their incomes every 5 years at the current annual average inflation rate of 8%!

Some Nigerians may recall that several event centres, churches and mosques that dot our landscape were once vibrant factories whose ‘lives’ were truncated by the series of Naira devaluations under SAP; indeed the proliferation of more idle carcasses of such factories is a clear indication that the Nigerian industrial landscape is probably still a long way from where it used to be before 1983. The SAP devaluations not only decimated our industrial base, but also led to a disruptive and retrogressive brain drain as Nigerian professionals exited our shores in droves in order to protect their lifestyle and dignity from the collapse of the Naira exchange rate.

Thus, the latest round of devaluations may be seen as an unwelcome de ja vu as it portends another cycle of social oppression and industrial embattlement which certainly run counter to President Jonathan’s vision of transforming Nigeria’s manufacturing sector with NIRP and NEDEP.

In a related development, ECOWAS member states ratified a Common External Tariff (CET) Protocol in Abuja on the 15th of December 2014. The CET was curiously, sponsored by the European Union under the umbrella of an ‘Economic Partnership Agreement’ (EPA). Under the provisions of CET which will commence on 1st January 2015, European and other import sources of our raw materials and finished goods will have unhindered access to ECOWAS markets, specifically with Nigeria (with close to 200m population and relatively superior consumer demand) as the prime destination!

Under the CET, ECOWAS countries can no longer seriously protect local industries, and indeed the highest tariff category of 35% is restricted to a limited range of goods for which ECOWAS countries have proven capacity to manufacture. This rather lopsided ‘partnership’ has been described as an Enslavement Partnership Agreement by some observers, because, Made-in-Nigeria products will obviously have no chance against more competitive imports from those countries with established requisite infrastructure, such as adequate and competitively priced power, articulate and cheaper transport facilities, very low cost of funds (between 3-7%) as against 20-25% rate of interest to Nigeria’s infrastructurally challenged real sector.

http://allafrica.com

 

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