Nigeria’s Real Sector Can Be Revived

Nigeria’s Real Sector Can Be Revived

Friday, July 22, 2022 5:15 pm


Banji Oyelaran-Oyeyinka


By Banji Oyelaran-Oyeyinka

Forty years ago, Nigeria’s income was six times that of China. In 2019, Chinese income became almost 3.45 times to that of Nigeria. The widening disparities are truly shocking to say the least. Around 60% of youth are unemployed; social and physically infrastructures are dysfunctional; and the country is in the throes of an unprecedented increase in crimes, insecurity and conflicts.

In a 16-year period between 1980 and 1996, Nigeria’s poverty level rose from 28 to 66 percent. By 2020, this increased to 83 million Nigerians living in poverty while the projected poverty profile is estimated to increase to 90 million, or 45% of the population, in 2022. Nigeria has clearly experienced a development reversal and largely slipped further into underdevelopment. Stagnation in income means that poverty and inequality worsened over time. Nigeria daily sinks deeper into the mire of penury from pillage of its common property. The population of poor people in Nigeria exceeds the combined population of South Africa, Namibia, Botswana, Lesotho, Mauritius and Eswatini. Nigeria has entered a development reversal.

Nigeria’s reversal of fortune manifests in several dimensions, namely: economic, social, technological and industrial conditions. Consider the wide disparities in development metrics particularly the levels and rates of growth of national incomes and Human Development Index (HDI); the differences are stark between Nigeria and Asian comparators like Korea. The Republic of Korea (ROK) had a high GDP/Capita in 2019 ($ 28,605.73), almost double that of 2000 (15,414.29), two decades earlier. The figure increased seven-fold in 40 years from 1980 ($3679.11). On the contrary, the GDP/Capita for Nigeria $845 in 1980, declined to $290 twenty years later and then rose to $2097 in 2020. On UN’s Human Development Index, which measures Quality of life, in 2019, it ranked 161st out of 180 on the human development index.

Nigeria has suffered massive reversal in industrial capacity: the ability to produce process and add value compared to its comparators. Nigeria ranks 99th on UNIDO’s Competitive Industrial Performance (CIP) index while South Africa, ranked 52nd in 2020. The CIP Index measures industrial capacity on three metrics namely: i) the capacity to produce and export manufactured goods, ii) technological deepening and upgrading, and iii) world impact. On average, industry in Africa generates merely $700 of GDP per capita, less than a third of Latin America’s output ($2,500) and barely a fifth of East Asia’s $3,400. Nigeria’s industry contribution to GDP is $650, while manufacturing contribution is a mere 14.1%, $326.

Not surprisingly, Nigeria ranks equally low on the Global Innovation Index at 118th with South Africa ranking the highest on the continent but only 58th worldwide. The country’ lack of industrial manufacturing dynamism is reflected in UNCTAD’s 2021 production capacity index (PCI); Nigeria ranked 184th worldwide; comparatively, Mauritius (46th) and South Africa (74th) top in the continent. The countries that left Nigeria behind are manufacturing exporters while our main export products are crude petroleum oils and natural gas.

Nigeria has practically destroyed all the institutions necessary for this nation to acquire scientific and technological knowledge over the last 50 to 60 years: primary, secondary schools, universities, Research and Development institutes (RDIs), all in decay. It is exacting a high price now, over this generation. It is bound to exact extremely high price over in coming generations. Let me illustrate. In the 1970s, India initiated the critical steps that led to a Green Revolution and one that has made it a pharmaceutical powerhouse today.

Two key historical events, in India’s agricultural and pharmaceutical sectors, altered the country’s trajectory. In 1963, following a famine, India imported 250 tons of high-yielding Mexican dwarf wheat seed varieties to test on farms on a wide scale. Positive results led to the importation of a further 18,000 tons through the following year, which transformed wheat production in the South Asian country. Three harvests later, the sector had added $1.4 billion to the nation’s GDP and there was a subsequent rise in production of rice and other key commodities as well. Ultimately, this Green Revolution had a transformative impact on India’s economic prospects.

Then in 1972, the Indian government passed the Product Patents Act, which transformed the country’s pharmaceutical sector by enabling domestic firms to replicate drugs that had been patented by multinational corporations. Indian pharmaceutical companies went on to dominate the global business for reverse-engineered generic medicines that sold far more cheaply than their patented counterparts did. India’s domestic pharmaceutical market was $42 billion in 2021 and likely to reach $65 billion by 2024 and further expand to reach ~$120-130 billion by 2030. For the period 2021-22, export of drugs and pharma products stood at $24.6 billion.

Due to a weak industrial base, Nigeria’s oil and gas make only small contribution to GDP, despite generating the bulk of export earnings, as it is a highly technology and capital intensive industry that employs few people. We do not produce the materials and equipment used in the exploration and production domestically. There is minimal domestic manufacturing input in the oil sector, especially in the oil product refining. The local content makes up about 5% in goods and services.

In sum, Nigeria’s oil discovery, just like DRC’s enormous mineral deposits and the dependence on these resources exerted a strong exclusionary effect on industrialization. It did so by displacing the tradeable sectors especially industrial manufacturing with the resultant outcome of arresting structural transformation of the economy over time. Secondly, dependence on crude oil led to the collapse of the agriculture sector, which successive governments have tried to restore. Nigeria in the 1950/60s produced over 40% of global oil palm; in 2022, it produces 2% while Malaysia and Indonesia between them command over 80%. Again, over the last 60 years, Nigeria lost massive opportunities to transform its agricultural sector, as did comparator countries in Asia such as India, Malaysia, Indonesia and Vietnam. By so doing, we lost time required for the long learning dynamics that is required for mastering technologies. We have fallen far behind in competitiveness in key sectors in which we were global players in the 1950s/1960s.

The cost of a weak industrial base manifested during the Covid-19 pandemic. In the face of acute shortages of vaccines, African countries looked on helplessly while individuals in the Western nations received multiple booster vaccine shots. It was not about money. Nobody cared if you die or live as a poor African. When these African nations had money to buy vaccines, they were pushed to the back of the queue in the global supply chain. Vaccine nationalism ensured that as at July 2022, only 16% Africans on average were vaccinated. While much of the developing world begged and complained about lack of global collaboration, a half dozen Western pharmaceutical companies dug into their arsenal of scientific and technological banks and came up with the mRNA vaccines.

Vietnam exported an estimated $348 billion worth of goods around the globe in 2020, a 10-fold increase when compared with Nigeria’s exports in the same year. In macroeconomic terms, Vietnam’s total exported goods represent 30.3% of its overall Gross Domestic Product for 2020 ($1.148 trillion valued in Purchasing Power Parity (PPP). Given Vietnam’s population of 97.4 million people, its total $348 billion in 2020 exports translates to roughly $3,600 for every resident of Vietnam.

In contrast, Nigeria’s total exports of around $34 billion represent less than 8% of its GDP of $432.3 billion. Nigeria’s revenue basket remains constrained due to its export revenue concentration (dependence on oil and few primary commodities); trade concentration (dependence on a few trading partners – China and Europe); high food imports (with most processed foods coming from outside the continent) necessitating the need and urgency for both economic and trade diversification as well as food self-sufficiency.

Contrasting the two, what is important is that although Vietnam’s export revenue came largely from non-oil products such as phones, electronics goods, it also remains a major exporter of agribusiness. Vietnam exported agribusiness products such as footwear and textiles totaling over $30 billion. This not only equals Nigeria’s total annual oil revenue, but also far exceeds the less than $3 billion revenue that Nigeria received from shipping out raw leather, cocoa powder, sesame, cashew and mainly raw agricultural commodities, which would be converted into finished products and re-exported to Nigeria.

*Professor Oyelaran-Oyeyinka is senior special adviser to the African Development Bank president on industrialization.

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