Does manufacturing matter for the Nigerian economy?

Once the recipient of large investments and a big employer of labour, of late the domestic manufacturing sector has spent considerable time in the doldrums. Quite easy to ask, then, by how much the recovery of domestic manufacturing capacity may help in tamping down our high and sticky unemployment numbers? One response to this question is self-evident.

Given how poor the data out of Nigeria have been of late, it is difficult to resist the urge to disaggregate the numbers on the economy ― in search of silver linings in an otherwise overcast weather. One conclusion from this: If the let to the services sector from the restrictions that were necessary to hold down the spread of the coronavirus pandemic until effective vaccines could be deployed against it are obvious, the challenges to the manufacturing sector are not immediately so.

Once the recipient of large investments and a big employer of labour, of late the domestic manufacturing sector has spent considerable time in the doldrums. Quite easy to ask, then, by how much the recovery of domestic manufacturing capacity may help in tamping down our high and sticky unemployment numbers? One response to this question is self-evident. Because our youth are at the short end of the most harmful effects of high unemployment rates, any recovery on the back of manufacturing will not happen without conscious and concerted investment in improving both social infrastructure and services.

Also Read: Nigeria’s Manufacturing Rebounds After Six Months of Decline But Recovery ‘Fragile’

All of which lead to a second question. With better schools, vocational and health services, how long will it take to get the larger part of our unemployed youth into work training schemes, educational institutions or employment? On the balance of available evidence, globally, at least, the payback period of any investment today designed to boost both employment and productivity in the domestic manufacturing sector, will be long enough to see us miss out on the skill and work transitions currently taking place in Asia. The wave of globalisation which slowed considerably in the latter half of the last decade, allowed an emergent China to become the world’s workshop. Back in the 1980s, though, China began its growth spurt at the lower rungs of global production competence, where its cheap labour was an advantage and the relatively non-technical nature of the manufactures imposed a low quality control hurdle.

Even now, the basic outlines of the required structural reforms remain unchanged, even though some of the details may have altered since we embarked on this current democratic phase. Under the broad rubric of promoting competition in the economy, reforms should pare the bureaucracy, reducing its processes and making compliance with the few rules and procedures that remain easy.

In a sense, globalisation’s ongoing reversal is a backhanded compliment to the progress China has since made as a manufacturing hotspot over the last four decades. Understandably, the West was already irritated by the giant sucking sound of jobs being off-shored to China as global production chains sought more efficient processes; but the changes in the composition of demand that COVID-19 was responsible for, drew a line under the full extent of the resulting vulnerabilities. Still, both near-shoring and on-shoring, as the West’s response to China’s industrial dominance, miss the fact that much of global lower level manufacturing has moved to Southeast Asia, where much cheaper labour, market reforms, and a more expensive Chinese production base had pushed them

For a brief period following the re-democratisation of Nigeria in 1999, hope flickered on the possibility of pursuing the same set of reforms that now confer advantages to Southeast Asia in the global supply chain ― i.e. those ones that change the structure of an economy, and not the cosmetic ones since favoured by successive governments here. After all, the Chinese template was barely two decades old in 1999.

Even now, the basic outlines of the required structural reforms remain unchanged, even though some of the details may have altered since we embarked on this current democratic phase. Under the broad rubric of promoting competition in the economy, reforms should pare the bureaucracy, reducing its processes and making compliance with the few rules and procedures that remain easy. At heart, this is both an improved governance and enhanced regulatory competence conversation. And so, without a root-and-branch review of the criminal-justice system, it is not an agenda likely to succeed.

…while manufacturers may respond to poor demand through single-use packaging, other sectors of the economy will struggle to profitably deliver their services in bite-sized quantities. And that is why this economy might be doomed to move round in ever narrowing circles.

However, a way of looking at things and a bad habit have hampered the possibility of this transition: A native and surprisingly deep-rooted attachment to communitarian values, and an addiction to the foreign exchange earnings from crude oil exports. Very recently, both of these still helped make the case for African Continental Free Trade Area (AfCTA) very difficult to swallow domestically. Our policymakers and critical segments of the populace did not see a walled-off market of about 1.3 billion people into which a strong Nigerian economy could make inroads or even ultimately dominate. They saw instead threats to domestic competences from the likes of Rwanda and Togo!

Of course, deep down inside we realised that this potential could only ride on the back of reforms that freed up the supply side of the economy. But with oil prices trending up and the prospects of increased sales looming a walk down, the reform part remains as unappetising as it has been all these years. And so our manufacturing sector continues to struggle. In part because of our reluctance to reform the economy. But increasingly because large pools of the unemployed, a consequence of the former failure, continue to depress final demand.

However, while manufacturers may respond to poor demand through single-use packaging, other sectors of the economy will struggle to profitably deliver their services in bite-sized quantities. And that is why this economy might be doomed to move round in ever narrowing circles.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.