The Lion King was a very popular movie. In the movie, the young lion cub, Simba had to grow up to take over his role as king over the homeland of his late father, who had been murdered by his uncle, Scar. After surviving lots of challenges, and after listening to Rafiki, who explained to him that the spirit of his great father lived in him, Simba eventually grew up to become the lion king, ruled the kingdom and restored the glory of the kingdom.
The film itself cost $45 million to make, but it has grossed over $11.6 billion by 2019 to be the most successful animated film ever made.
Nigeria, like the cub Simba, has great promise. But the promise is yet to be realized. The day that Nigeria wakes up and becomes a lion king, everything will change for its people; and everything will change for all of Africa.
For now, Nigeria is developing too slowly and well below its potential. The challenge is for the lion to roar. Then we will have the making of an economic giant.
The key for that is for Nigeria to have an industrial revolution.
While for decades the share of manufacturing in GDP of Nigeria has hovered around 7%, the nation has not been able to extricate itself from the comatose of its industrial manufacturing sector to unleash the fulness of its potential. The performance of the manufacturing sector in the past five years have been poor. Between 2015-2017, the sector declined by -1.5%, -4.3% and -0.2%. This is in sharp contrast to the dynamic and rapid performance of manufacturing in Asian countries, such as Singapore, Malaysia, India, and China.
While the Asian countries focused on export of manufactured products, Nigeria’s approach has been on import substitution.
The manufacturing sector of Nigeria represents only 3% of the total revenue from exports, but accounts for 50% of imports in the country. Instead of being forward looking in expanding the share of the manufactured goods in its total export revenue, Nigeria focuses on the model of import substitution.
Import substitution, while important, is a very restrictive vision. It looks towards survival, instead of looking to creating wealth through greater export market and value diversification. The result is a manufacturing sector that cannot even develop to compete globally, but limits itself to “survival mode”, not a “global manufacturing growth mode”.
Nigeria should have a greater ambition for its manufacturing sector, by shifting to integrating into global and regional value chains, rapidly moving up the value chains in areas of comparative advantage, driving greater specialization and competitiveness. A well-developed and policy-enabled manufacturing sector, with export orientation will spur greater innovation, industrial policy for export market development and structural transformation of the economy. Instead of being consumed with conserving foreign exchange, the focus would shift to expanding foreign exchange through greater export value diversification.
We would be proactive, not reactive.
Let us take the example of Vietnam, a nation at war for twenty years, from the American War to the Second Indochina War. Despite its challenges, it quickly mimicked the successful Asian countries such as South Korea by pushing into relatively complex product categories, and horizontal diversification with processing of agricultural products. Its exports in 2020 were very well diversified, with electrical machinery and equipment earning it $153 billion; machinery including computers, $23.9 billion; Footwear $23.8 billion; clothing, and accessories $15.5 billion; among others. In total, Vietnam’s exports in 2020 was $348 billion.
Malaysia achieved vertical diversification from its agricultural base, of rubber and palm oil, investing heavily in high tech sectors such as electronics. In 2020, its biggest exports by value were in electronic integrated circuits, refined petroleum oils, palm oil, vulcanized rubber and accessories, and solar power diodes or semi-conductors. Its export values in 2020 depended on electrical machinery and equipment $86.6 billion; mineral fuels including oil $25.5 billion; machinery, including computers $20.2 billion; animal, vegetable oils, waxes $13.5 billion; and rubber and rubber articles $11.2 billion, among others. In total Malaysia’s export in 2020 was valued at $234 billion.
By contrast, Nigeria’s exports in 2020 were dominated by mineral fuels, including oil valued at $29.7 billion, which accounted for 89 percent of the exports. Nigeria’s total export value was a mere $33.5 billion. That dollar amount represents a -3.6% decrease since 2016 and a drop of -37.5% in 2019 to 2020. Interestingly, the imports of Nigeria ––dominated by machinery, including computers, mineral fuels including oil, vehicles, electrical machinery and equipment, pharmaceuticals, plastics etc.–––are all what Vietnam and Malaysia are exporting.
And worse, Nigeria imports mineral fuels, which it should be producing as a leading crude oil exporting nation. It exports crude, it imports refined products––a befuddling irony.
Here is another disturbing statistic: in 1990, Malaysia’s export was $32.8 billion; meaning that Nigeria today is where Malaysia was 30 years ago in terms of export revenue performance!
So, what is the take home message here?
While Nigeria’s export basket has hardly changed, Malaysia and Vietnam have used aggressive horizontal and vertical industrial manufacturing diversification to move from low-value products to high-value market products. The result is seen in the comparative wealth of the three countries. While export value per capita is $7,100 for Malaysia and $3,600 for Vietnam, it is only $160 for Nigeria.
While Malaysia and Vietnam moved to “global manufacturing growth” creating massive wealth and jobs for themselves, Nigeria remains in a “survival” mode, still unable to substitute the imports of its petroleum products, while being one of the largest exporters of crude oil.
African countries, including Nigeria, have had policies, templates and programs for industrialization and expanding industrial manufacturing for decades. Nigeria’s first National Development Plan emphasized industrialization. There was the National Economic Empowerment Development Strategy (NEEDS) in the 1990s and the Nigerian Industrial Revolution Plan (NIRP) in 2015. They were all good policies.
But there is a huge gap between policy ideas and actions.
Today, capacity utilization of factories hovers around 40% compared to desired 70%. The reality, in view of several challenges facing the industrial manufacturing sector, is that firms are moving to other neighboring countries, where there is greater macroeconomic stability, enabling environment, with better ease of doing business.
To be a manufacturer in Nigeria is not an easy venture. You succeed not because of ease of doing business, but by surmounting several constraints that limit industrial manufacturing.
In short, it is not the ease of doing business; it is the pain of doing business.
The major challenge facing the industry in Nigeria is the very high cost and unreliability of supply of electricity. Load shedding and unreliable power have made the cost of manufacturing extremely high and uncompetitive. Most of the manufacturing companies do self-provision on energy, with dependence on generators, with diesel and heavy fuel oil, with emissions, making them brown industries, not green industries.
It has been estimated by the IMF that Nigeria loses $29 billion annually due to lack of and unreliable power supply or 5.8% of its GDP. Also, that Nigerians spend $14 billion per year on generators and fuel.
Lack of electricity is killing Nigerian industries. According to the Manufacturers Association of Nigeria, industries spent N93.1 billion on alternative energy in 2018. No business can survive in Nigeria without generators. A recent survey of manufacturers in Nigeria shows they lose N10.1 trillion annually due to power failure. To put this in revenue perspective, the annual total revenue of the government of Nigeria last year was N10 trillion. So, the industrial sector loses the same revenue as the nation collects in one year. What an irony!
What would have happened if the industries realized N 10 trillion and paid taxes! At a conservative corporate tax rate of 30% that means Nigerian government loses N3 trillion annually in taxes it could have earned from industries if it simply provided them electricity.
And the abnormal has become normal. Traveling on a road one day in Lagos, I saw an advertisement on a billboard which caught my attention. It was advertising generators, with the bold statement “we are the nation’s Number one reliable power supplier”.
Compare that with the situation of South Korea which has diversified its exports into high-value manufacturing. On a trip to South Korea few years ago, I visited the Korea Electric Power Corporation (KEPCO). While being briefed, I was told that the country experiences only 2 minutes of power outage. Not sure I heard correctly, I asked whether they meant 2 minutes per hour, 2 minutes per day, 2 minutes per week or month.
The response was quick and resolute: 2 minutes per year.
How then can Nigeria compete with Korea?
Unless Nigeria decisively tackles its energy deficiency and reliability, its industries will remain uncompetitive. There should be massive investments in gas to power to assure stable baseload power for industries, hydropower resources, large scale solar systems, direct power preferentially to industries, and support industrial mini grids to concentrate power in industrial zones. In addition, we should develop more efficient utilities, reducing technical and non-technical losses in power generation, transmission, and distribution systems.
The African Development Bank invests massively in the power sector in Nigeria to support the implementation of the Power Sector Recovery Program. The Bank provided $200 million for the Nigeria Electrification Project, designed to fill the electricity access gap in Nigeria. We have also invested $257 million in the Nigeria Transmission project, to strengthen grid power evacuation and regional interconnection.
The Bank has launched the Desert to Power initiative, a $20 billion project to provide electricity for 250 million people across 11 countries of the Sahel, including Northern Nigeria. Desert to Power will create the world’s largest solar zone. This initiative will draw lessons from successful projects already financed by the Bank, including the Noor Ouarzazate solar PV power project in Morocco and the Ben Ban solar project in Egypt.
Industrial development is constrained by poor state of transport, ports, and logistic infrastructure. It costs $35,000 to export 100 tons of produce from Nigeria compared to just $4,000 in Ghana. About 90% of passenger and freight movements in Nigeria rely on roads but only 18% of the roads are paved. Meanwhile, our seaports are gridlocked. Recently the Financial Times reported that the congestion at the port in Lagos has become so bad that it could cost more than $4,000 to truck a container 20 kilometers inland – almost as much as it costs to ship it 12,000 nautical miles to China.
Nigerian ports have become revenue generation centers and do not support industrial manufacturing. I recall when I was Minister of Agriculture, and we were supporting local industrial processing of rice, which ignited the rice paddy revolution and rapid industrial rice milling of locally grown rice in Nigeria. The then Comptroller General of Customs, upset that local rice production and industrial processing of finished and high-quality local rice was taking over a significant share of the market, while being competitive with imports, blurted out that “the agriculture minister (myself) has removed the glory of Apapa Port, whose glory was known for rice imports!”. He continued “we used to collect a lot of revenue from rice imports at the Apapa port in its glory days. Now that is no longer the case”.
What an irony.
Here, Nigeria can learn from Morocco. The African Development Bank supported Morocco to develop its Tangier-Med port. The port is unique in that it is an industrial port complex, a platform that has over 1,100 companies. They collectively exported over € 8 billion worth of goods in 2020. Global companies are located there, including Bosch, Daimler, Huawei, Siemens, and several others.
Companies located there have allowed Morocco to move up the global value chains, including automobiles, automotive parts, aeronautics, agriculture and food manufacturing, textiles, and logistics. Annually, over 460,000 cars are manufactured in the zone for exports. And more interesting, is that the bulk of the human resources to do these are Moroccans.
I took a walk at the Tangier-Med Port. I thought they were on vacation, as I did not see people–––just machines, haulers, automated systems moving containers in what looked like a well-synchronized maze, with incredible efficiency. There were no kilometers of trucks waiting to get to the port. We should move away from the usual gestapo approaches of raiding ports, or deploying soldiers to decongest ports, or even vehicular traffic to the ports.
Ports are not military zones!
We should not be decongesting the ports in Nigeria; we should be transforming the ports. This must start with cleaning up administrative bottlenecks, most of which are unnecessary with multiple government agencies at the ports, high transaction costs or even plain extortions from illegal taxes, which do not go into the coffers of the government.
The Africa Continental Free Trade Area presents a huge opportunity for Nigeria to drive an export-driven industrial manufacturing pathway. The in-ward looking import-substitution plans that have been pursued over time have made the local industries unprepared when the continental free trade area was established.
Some of the concerns by the industries in Nigeria were legitimate, especially the challenge of dumping of illegal imports into Nigeria, which affect the profitability of the local industries. Illegal imports cannot happen if there is respect for the rule of law. They happen because of porosity of the borders and ingrained rent seeking and corruption at the borders––often aided by the powerful in society.
The Africa Continental Free Trade Zone, with collective GDP of $3.3 trillion, makes it the largest free trade zone in the world in terms of number of participating countries.
However, for the full impact of the zone to be felt, it should go beyond just being a zone for duty free trading between African countries. Unless Africa countries manufacture more of what is being imported into the zone, simply having high common external tariffs will not stem imports of those manufactures into the zone. The African Continental Free Trade Zone should, therefore, be a manufacturing zone, not just a trading zone. Otherwise, we would have succeeded in creating a well-organized consumption zone for imported raw materials, machinery, and equipment from others.
Nigeria should unlock its industrial manufacturing capacities to take advantage of the duty-free exports within the zone. Doing so requires decisively tackling the infrastructure and logistics bottlenecks that hamper industrial capacity and competitiveness, establishing and enforcing quality, grades, and standards of products, assuring access of industries to land, providing investment relations management to attract investors and trade facilitation.
The drive of the Federal and State Governments towards Export Processing Zones is commendable. While export processing zones provide incentives for exporters, they should rapidly move towards becoming Special Economic Zones, to allow for better clustering of firms, production sharing and learning platforms, for multiple industries.
With the Africa Continental Free Trade Zone, Nigeria will face stiffer competition on the establishment of industrial manufacturing platforms. With rising wages in China and other Asian countries, as they move from labor intensive industries to more knowledge intensive industries, they are out shoring their light manufacturing industries.
The so called “flying geese model” is on the rise, as these countries outsource their manufacturing capacities to new industrial manufacturing platforms, with lower labor costs, from where they can launch market entry into regional and global markets.
Ethiopia has been very successful with its Special Economic Zones, which have allowed it to attract significant investments in multiple industries, including leather, foot ware, textile, garments, and pharmaceuticals. Its one-stop shops aggressively seek out investors, maintain and strengthen investor-state relations, using them to attract other investors.
Nigeria has also established the Guangdong-Ogun Free Trade Zone, the Lekki Free Trade Zone, and the Calabar Free Trade Zone. The newly constructed $19 billion Dangote petrochemical and fertilizer complex (the world’s largest ammonia plant) in the free trade zone, with new deep seaport, is exactly the kind of massive infrastructural and industrial manufacturing that is needed to make Nigeria a regional and global player in gasoline, diesel and aviation fuel, and fertilizer value chains.
Greater efforts will be needed in Nigeria to improve coordination failures, inter-agency cooperation, ensure stability of the policy environment, and avoid policy reversals to assure investors.
The future benefits those who anticipate and prepare.
Nigeria must look beyond the industries of today into the industries of the future and develop a plan and capacity to compete in the smart industries that will become the main drivers of global economies. The fourth industrial revolution, based on automation, robotics, artificial intelligence, machine learning, big data computing, 3-D printing and additive manufacturing are rapidly transforming industrial manufacturing. Nigeria must therefore enhance its readiness to transition to digitized and smart manufacturing.
The rising use of robots for manufacturing will pose a challenge for Nigeria’s drive to attract and be competitive in labor-intensive light manufacturing. As capital costs are falling faster than labor costs, developed countries are shifting towards reliance on industrial robots for manufacturing.
Competition will become tougher in global value chains with robotics, as they could wipe out low labor cost advantage of Africa. The rise in robotics in manufacturing is leading to a rethink in the structure of global value chains.
Developed countries with high labor costs have previously out-shored their manufacturing to low-wage countries, for labor intensive manufacturing. With declining cost of cognitive robots, the low labor cost advantage of Africa will be reduced, as these countries are now restructuring their models by re-shoring previously out-sourced manufacturing capacities back to their home countries.
The future of manufacturing will be digital. The global digital economy is estimated to be worth over $16 trillion. The use of Internet of Things (IoT) will raise productivity of labor in manufacturing, deploy smart machines, manufacturing platforms and systems, connecting machines and people, and using machine learning and artificial intelligence to improve speed and efficiencies of complex manufacturing processes.
That future is already here.
It is time to re-imagine the industrial manufacturing in Nigeria.
It is time for rapid investment in digital skills for manufacturing, re-tooling of workers, vocational training, digitization of industrial processes, and investments in digital infrastructure and enabling environment.
It is time to prepare students in Sciences, Technology, Engineering and Mathematics.
It is time for the Manufacturers Association of Nigeria to establish “Industrial Digital Skills Academies” and link them to universities and technology innovation hubs.
It is time for Federal and State governments to make massive investments in digital infrastructure to support learning and skills development for global labor market demand.
In the Global Skills Report (2023) by Coursera, they assessed 100 countries on recent skills preparedness in business, analytics, and data sciences of their populations. The finding was very depressing for Nigeria: Nigeria was ranked 100 out of 100 countries, taking the first position only from the bottom. The leading countries in Africa were Rwanda, Egypt, Morocco. Nigeria fell way behind war-torn Lebanon and Somalia.
This is shocking!
With the rapid rise in micro-tooling to develop skills for current and emerging industries, there is need for a radical re-calibration of business, analytics, technology, and data science skills, among other skills needed by local, regional, and global industries.
To fix this problem, I recommend that Nigeria establishes Skills Enhancement Zones––new zones in partnership with industries, dedicated exclusively to skilling up Nigeria’s work force. Students can be supported to be exposed to skills delivered by different industries. This will build up their vertical skills in those industries and horizontally across different industries. This will reduce the labor market skills mismatch facing industries and allow feedbacks by the private sector industries into the curriculum of universities and colleges.
The Skills Enhancement Zones (SEZs) can be developed through industry partnerships with national and state governments.
The African Development Bank is helping Nigeria to skill up digitally.
The African Development Bank, Agence Francaise de Developpement and the Islamic Development Bank launched the $618 million I-DICE program to develop digital and creative enterprises. They will create 6 million jobs and add $6.3 billion to Nigeria’s economy.
The African Development Bank is also currently working with Central Banks and countries to design and support the establishment of Youth Entrepreneurship Investment Banks. These will be new financial institutions, run by young, professional, and highly competent experts and bankers, to develop and deploy new financial products and services for businesses and ventures of young people.
Several African counties plan to establish Youth Entrepreneurship Investment Banks. I am delighted that President Tinubu has agreed to establish the Youth Entrepreneurship Investment Bank. This will be a game change for Nigeria’s youth.
Nigeria must also make agriculture a major wealth creating sector. It is time to take bold policy measures to drive the structural transformation of agriculture, with infrastructure and spatial economic policies that will help turn the rural economies of Nigeria away from being zones of economic misery to new zones of economic prosperity.
The key for this is the development of Special Agro-industrial Processing Zones (SAPZs) across the country. These will be zones enabled with infrastructure and logistics, to support private sector food and agriculture companies to locate close to the areas of production, and to process and add value to food and agricultural commodities.
They will be zones to turn cotton into textiles and garments.
They will be zones to turn tomatoes into purees and tomato paste.
They will be zones to turn milk into cheese, butter and substitute imported milk.
They will be zones to drive massive transformation of finished rice products.
They will be zones to process palm oil, cocoa, and cassava into derivatives.
We are working closely with Federal Government, seven State Governments, the Federal Capital Territory, the Ministries of Finance, Agriculture, Trade, Industry and Investment, Water Resources, and the Nigerian Sovereign Investment Authority (NSIA) on the design of these Special Agro-industrial Processing Zones. They are expected to create at least 1.5 million jobs.
The African Development Bank and its Partners have already mobilized $520 million towards the first phase of these Special Agro-Industrial Processing Zones in Nigeria.
A perennial binding constraint facing manufacturers in Nigeria is the unpredictability and availability of foreign exchange. This is not an easy issue to resolve. It is often emotive, yet it must be addressed, pragmatically and structurally. Emotions run economies down, but sound policies make economies to thrive. Multiple exchange rates create opportunities for financial arbitrage, while restrictive access to forex constrains manufacturers import of machinery, equipment, and raw materials.
The constrained access to forex has led to dependence on the parallel market, as the forces of demand and supply drive widening gaps between official and parallel market rates. The fall in the price of oil and decline in foreign reserves have further put downward pressure on the currency.
To grow Nigeria’s economy in a transformational way, there is need to move away from solely depending on “managing demand for forex” to “expanding the supply and availability of forex” through greater export-oriented manufacturing. This will extricate Nigeria from relying only on export of crude oil for access to forex and the instability that arises from the shocks to global oil prices.
Nigeria, therefore, needs greater export earning diversification to boost its supply of forex to support its industries. It also needs to focus on domestic manufacturing of a larger share of the imports of manufacturers, expand local content, by rapidly moving into processing of raw materials, manufacturing of equipment and machinery, which form 50% of the imports.
To boost manufacturing, access to affordable finance is critical, especially long-term financing that matches the investment gestation of companies. PWC (Nigeria) estimates that Medium, Small, and Micro-Enterprises (MSMEs) account for 50% of Nigeria’s GDP. Yet, they receive only 1% of the total credit from financial institutions. They estimated the financing gap for MSMEs to be N 617 billion.
Nations that have expanded their industrial manufacturing competitiveness have been those which provide incentives for their companies, especially low-interest rate financing. Just think of the following: interest rates are negative in Japan (-0.1%), 3.9% in USA, 0.25% in China, and 4% in India. But manufacturers in Nigeria face extremely high interest rates at over 15%.
The Bank of Industry, the Nigerian Import and Export Bank, and the Bank of Agriculture, should be significantly capitalized to provide loans at affordable interest rates to manufacturers, especially for small and medium sized enterprises. The deepening of the domestic capital markets will further allow companies to access equity financing they need to grow their businesses.
The African Development Bank’s SME financing facility supports small and medium sized enterprises. By assuring financing to large, medium, and small businesses, Nigeria will ensure integration of its supply chains for regional and global markets. The African Development Bank has so far provided about USD1.6 billion in low interest rate lines of credit to 15 financial institutions in Nigeria in the last decade.
To drive greater investments into Africa, the African Development Bank and its partners launched the Africa Investment Forum in 2018, as a fully transactional platform to develop bankable projects, close deals, and fast track financial closure on projects. In the past four years the Africa Investment Forum has attracted $142 billion of investment interests into Africa. This includes $15.6 billion for the Lagos-Abidjan highway corridor.
Excellencies, ladies, and gentlemen.
Let’s revamp industrial manufacturing in Nigeria.
With the right policies, investment frameworks, infrastructure, logistics and financing framework, and powered by a highly trained, dynamic, and youthful workforce, Nigeria must fully unleash the power of manufacturing.
As the late industrial icon Chief Odutola once said, “oil will finish, industries will not”.
Industrial manufacturing can earn Nigeria ten times what it earns from reliance on oil.
Let’s change our perspective away from simply import substitution, to high-valued export-oriented manufacturing.
The source of Nigeria’s greater wealth will come from having strong manufacturing capacity for competitiveness in regional trade and integration into global value chains.
It is time to change from being inward looking to outward looking.
For outside lies incredible opportunities, yet to be tapped by Nigeria.
Let us be bold. Let us rise with greater ambition.
Let us from the inside prepare for this great future for Nigeria!
A dominant Nigeria in global manufacturing!
Then the lion will roar!
Simba the cub would be Lion King!
Your Excellency, President Tibubu, turn Nigeria into an industrial economic giant!
It is Nigeria’s turn!
Let’s make it happen.
Thank you very much.
Keynote Lecture Delivered by Dr. Akinwumi A. Adesina President, African Development Bank Group Business Day CEO Forum July 13, 2023. Lagos, Nigeria.