…Senior Lecturer at De Montfort University, Leicester, UK, Egbetokun, offers practical solutions, a concise step by step formula on how Nigeria can overcome its present industrialisation conundrum…Excerpt:
Every serious investor knows two things: one, you can start investing at any time but the earlier the better; two, investment requires patience because things take time. In George Clason’s 1926 classic, The Richest Man in Babylon, Arkad’s third and fourth laws for a thin purse and his third law of gold underscore the need for patiently investing with a long-term view. These principles are addressed to the individual but they bear strong relevance to the wealth of nations.
Nigeria is today one of the world’s poorest countries in real terms. In unreal terms, that is, if you look at potentials, Nigeria is one of the world’s richest. There is abundant human and natural resources as there are opportunities for growth and development. Yet, these resources do not seem to translate to national wealth. Why?
We can answer that in many ways but I choose one of them: short-termism that makes us appear unlucky. One of the most significant symptoms of Nigeria’s malady of collective short-termism is lack of industrial development. I believe this is the truth, however uncomfortable.
Short-termism is the reason politicians think only about today and citizens do not question or vigorously protest the decisions that seem logical in the moment but are clearly unreasonable in the long term. Leaders typically use big language to tell us that they want to develop the country industrially yet they consistently fail to see beyond their 4-year terms in office. And we continue to prod along hoping to get lucky someday. Unfortunately, it does not work like that with industrialisation.
An example will help drive home the point. I was consulted sometimes in 2021 to develop a policy brief on industrialisation for the African Union Commission. Part of the points I made in that brief was that African countries – and no less Nigeria – require three core actions to drive their industrialisation.
These actions are, in no specific order, active promotion of industrial exports, formation of industrial clusters, and an aggressive move towards industrial financing including attracting FDI and investing in infrastructure and human capital. I then shared the example that I now reproduce below.
“The cases of countries in East Asia and others like Vietnam and Cambodia show that, had most African countries strategically implemented these core actions early on in their post-SAP era, they would have considerably reduced the industrial gap between themselves and the rest of the world.
A comparison of Nigeria and Indonesia serves to illustrate this simple but powerful observation. Both countries realised a sizeable windfall—up to 20% of their GDP—from oil by 1981. Almost immediately, Nigeria’s budget went from surplus to deficit owing to a sharp increase in government consumption and heavy investments in low-performance capital projects. In particular, Nigeria began to invest in large-scale, capital-intensive projects with low rates of return, including a new capital city built from scratch and an integrated steel plant.
When oil prices fell, the Nigerian government had to move towards an austere economy by sharply cutting government expenditure and investments, a move that destabilised the country significantly.
On the contrary, Indonesia passed a law that prohibited a budget deficit despite the oil windfall, consistently maintained a balanced investment approach that funded physical infrastructure, education and agriculture on one hand and capital-intensive projects on the other hand. Even when oil prices fell, Indonesia managed to maintain its balanced investment course.
Although both countries started with overvalued exchange rates, while Nigeria waited until the SAP reforms in the mid-80s to devalue its currency, Indonesia did this much earlier in 1978.
Indonesia therefore entered the windfall with a better stance to compete internationally than Nigeria. These divergent policy choices had an impact that persists till today. Between 1982 and 2020, growth of manufacturing value added in Indonesia averaged 6.2% annually compared to Nigeria’s 0.8%. Moreover, oil accounted for far below 50% of Indonesia’s exports by the end of the 1980s whereas Nigeria continued to rely mainly on oil exports, making over 90% of the country’s exports throughout the 80s.
At the end of 2019, fuels made up only about 20% of Indonesia’s exports compared to Nigeria’s 85%.” The keen reader will already notice that Nigeria came out of SAP (which was, in any case, a bad idea) worse off than Indonesia because of policy choices. While Nigeria concentrated on the present, Indonesia consolidated for the future.
Last year, Indonesia’s GDP was $1.3 trillion compared to Nigeria’s $0.5 trillion. To provide some perspective, oil prices jumped from an annual average of $2.96 in 1970 to $13.95 in 1975 and then again to $33.86 in 1980. Instead of saving and planning for the future, Nigeria smiled to and from the bank.
Oil prices later went down to $26.99 in 1985 and further down to $13.93 in 1986. It would be another 18 years after that before global oil prices returned to the 1980 level. By then, industry in Nigeria had already become indelibly dented.
So, while we have always had what it takes to develop industrially, we have consistently failed to do so because of poor policy choices that elevate the present above the long term. There is indeed an opportunity now. A new President is expected to be sworn in come May 29. New cabinet appointments will be made. Changes will be made to policies and systems. Personally, I hope that for once our policymakers will think beyond 4 years and see beyond their noses. I really hope so, because in matters of national industrial development, the long term is sacred.