Recent publications by United Nations and the report of the scoping study carried out by the Raw Materials Research and Development Council (RMRDC) in collaboration with Joks Nigeria Limited and other stakeholders on Nigerian manufacturing and service industries have indicated that the Nigerian economy faces the challenge of limited economic transformation and diversification. BINTA SHAMA reports.
Specialization plays fundamental role
The recent United Nations (UN) and RMRDC reports show that in the increasingly competitive world that is characterized by resource and endowment heterogeneity, specialization plays a fundamental role in the market economy through the division of labour and capital. As a result, one of the major defining features of today’s world economy is the globalization of production and trade, creating global value chains (GVC).
Various studies have shown that GVC integration improves industrial competitiveness through technology transfers and other types of learning. Nevertheless, it is also becoming increasingly important that the development of a competitive national industry is a prerequisite for successful GVC integration as competitiveness has evolved as a market mechanism that forces enterprises to measure up with each other in the production and distribution of goods and services at the best possible price and quality.
Economic transformation
The issue of economic transformation of Nigeria through effective diversification into industry, manufacturing and processing has taken a center stage in the country’s economic policy discourse for a long time. However, this has not materialized despite the significant progress made in economic growth that has averaged almost 7% in the past decade. Changing the status quo demands change in the orientation of economic production structure in favor of value chain development along the lines of available resources, most especially as regards areas of comparative advantage and integrating the chain with the global economy.
The importance of this to the Nigeria economy is numerous and highly compelling. First, value chain development has been proven to contribute to higher national economic growth since the mid-1990s through higher productivity gains, expanded economic activity and higher economic growth. Second, it has significant transformative effect on the economy and third, it builds competitiveness through improved logistics.
Fourth, value chain has high positive effects on industrial development, technology transfer and skills upgrade. Fifth, value chain activities increases job creation, not only for activities directly connected to the chain but also to other peripheral remotely related activities. Sixth, GVC breaks the barrier of trade protectionism and promotes regional economic and trade integration. Seventh, it helps improve logistics performance that has been empirically proven to reduce trade costs, on the average, ten times more than the equivalent reduction in tariffs and lastly, it strengthens the trade-investment nexus.
The backward integration policy
Presently, apart from the large scale manufacturing outfits in Nigeria, most MSMEs in the country currently specialize in less dynamic and low value added domestic activities and trading in the global system. While the economy was relatively diversified in the 1970s with building and construction, wholesale and retail playing major roles in economic activities, there has been a reversal since the 1980s. In the 70’s Nigeria has a policy of backward integration. This led to establishment of a number of industries which contributed to manufacturing sectors GDP and participation of some of the companies in GVC. For instance, the Newsprint industry in Nigeria exported Newsprint to various countries such as USA, Canada, etc, in the 1980’s. However most of the industries established depended on importation of most industrial inputs and thus depended on extensive foreign exchange for their importation. However, the oil glut of the 1990’s led to closure of most of the industries.
Studies have shown that structural transformation of the economy is possible through GVC development via industrialization, technology upgrade, emergence of new ancillary activities, export diversification, and inclusive growth promotion. There is need for value chains mapping to enable policymakers identify the segments of the chain that constrain the progress of others. For Nigeria, this may be done by mapping the Agro, minerals and other priority sectors such as automotive, ICT, etc. value chain mapping for prioritization. The selection of national priority value chains will help to promote productive transformation, improve access to both regional and global markets, address social and environmental concerns and ensure inclusive and sustainable development.
The Africa Continental Free Trade Area (AfCFTA) agreement
This study could be done based on UNIDO/ITC 2022 model. Within the framework of the Africa Continental Free Trade Area (AfCFTA) agreement, Nigeria can leverage on its provisions to promote value chain development. In this regard, national industrial policies need to be adapted to the provisions made by AfCFTA, hence, the need to build strong and robust indigenous lead firms capable of forming alliances with small and informal actors. This will help the country to integrate quite easily into the regional value chains and subsequently, the global value chains.
According to an African Development Bank Economist, the current active support of the government through policies such as the Agriculture Transformation Agenda, specifically the Staple Crop Processing Zones, and the Nigeria Industrial Revolution Plan is creating a momentum leading to emergence of some GVC firms. The expert further noted that while Nigeria is gradually undertaking steps to create staple crops processing zones, etc, it is also promoting the attraction of both domestic and foreign private sector investors; cost-reducing incentives of between 15 and 25 percent are being provided with promised internal rate of return ranging between 25 and 50 percent. Some of the incentives being offered include: fiscal and administrative support; land acquisition; infrastructure and real estate provision; and facilitation of supply security.
Nigeria’s gradual emergence
Likewise, several state governments are already collaborating with the federal government by offering land to prospective investors. Another important development that shows Nigeria’s gradual emergence as a GVC country is the articulation of the Nigeria Industrial Revolution Plan (NIRP). The broad goal of the reform is to improve Nigeria’s competitiveness and ensure that an additional 3.5 to 5 trillion Naira worth of annual manufacturing revenues are generated. It also aims at increasing the percentage contribution of manufacturing to GDP from the current level of 4 percent to 6 percent in 2015 and to over 10 percent at the end of the life of the Plan in 2017.
The National Automotive Policy that aims to develop automotive value chain in Nigeria is a major component of this policy. Its implementation has started in earnest with gradual increase in duties on imported used vehicles. It is noteworthy that there are a few firms that are already making efforts to break into the GVC processing and trading while others are relatively stabilized in this activity. In addition, Innoson Motors is also making significant progress in the automotive industry with auto plant assembly lines and other related chains of activities. The emergence of these firms is, to some extent, a product of ongoing reforms that focus on value chain development in the country. In a similar vein, those relatively entrenched in value chain activities are leveraging these reforms to deepen their engagements in these important activities.
Comparative advantage
One of the comparative advantages that the country has apart from its resource endowment is its large domestic market. Also, within the regional context, Nigeria has comparative and competitive advantages to mainstream into regional value chain (RVC) and invariably, global value chain. According to the report of AU/OECD (2022), Regional value chains (RVCs) have potential to complement Africa’s integration into global value chains and facilitate productive transformation.
The report indicated that Africa’s producers remain marginal actors in international production, accounting for 1.7% of participation in global value chains in 2019 compared to 1.5% in 2000. It concluded that regional value chains account for only 2.7% of Africa’s global value chain participation compared to 2.6% in Latin America and Caribbean and 42.9% in Asia. It further indicated that in 2019 for instance, processed and semi-processed goods accounted for 79% of intra-African exports to other destinations and noted that Nigeria and indeed, most African countries largely participate in global value chains by exporting raw materials and agricultural commodities for further processing and transformation by developed countries.
Among other highlights of the AU/OECD 2022 report is that forward participation in value chains through externalization account for 5.9% of Africa’s GDP. In contrast, backward participation through the use of foreign input for domestic processing represents only 2.1% of Africa’s GDP much lower than in Latin America and Caribbean (4.5%) and Asia (3.3%).
Strengthening regional production patterns
This situation demands strengthening of regional production patterns in order to improve backward participation in value chains and thereby create productive jobs. Domestic processing at regional level to serve local demand can help producers specialize in downstream segments, such as food processing, marketing, transport and retail by exploiting their proximity to final consumers. Among the elements that will make this possible is governance in view of its roles in promoting acquisition of production capability, provide market access and distribution of gains.
Other imperative roles of governance include provision of policy labour and environmental standards, building strong institutions and enabling business environment and on information sharing. In addition, a vital National Quality Policy and Regulatory frameworks are very important to local value chain development and mainstreaming it into regional and global value chains.
 | ReplyForward |
