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On Friday, Vice President Yemi Osinbajo, represented by Special Adviser to the President on Ease of Doing Business, Jumoke Oduwole, expressed confidence that Nigeria stands to benefit a lot from the African Continental Free Trade Area (AfCFTA).
“At $35.45 billion, Nigeria’s manufacturing value-added is about seven times more than the current average for the top 20 African countries,” he said.
“There is no doubt that Nigeria would enjoy significant benefits from the agreement. AfCFTA will promote a vibrant and competitive industrial sector that is central to job creation and income growth.”
But while it is true Nigeria has the third highest MVA in Africa owing to her huge economic size, the trend from 1981 till date shows that very little success has been recorded over the years. This, therefore, casts doubt on the country’s ability to achieve Sustainable Development Goal 8—involving “higher levels of productivity of economies through diversification, technological upgrading and innovation, including through a focus on high value-added and labour-intensive sectors”.
The MVA is the manufacturing sector’s net output arrived at after summing all the outputs and subtracting the intermediate inputs. It is a measure of economic activity that captures “the difference between the value of goods and the cost of materials or supplies that are used in producing them”.
It is also a marker of the level of a country’s industrial development.
Manufacturing, according to the International Standard Industrial Classification, comprises “units engaged in the physical, or chemical transformation of materials, substances, or components into new products”. This includes production using hand such as in bakeries, assembling of component parts, waste recycling, and substantial alterations to goods.
What the figures say
According to the World Bank’s national accounts data, in 1981 Nigeria’s MVA was $33.3 billion. From there, it reduced rather sharply until it hit $5.1 billion in 1993. Gradually, it rose till it got to $27.5 billion in 2008. Then it dropped to $22.9 billion in 2009, from it skyrocketed to an all-time peak of $54.8 billion in 2014.
In 2015, it reduced to $46.6 billion and it’s continued on a downward curve since. The latest figure provided by the international organisation is for 2018: $30.9 billion—the same amount it was sometime in 1982.
The moments of a sharp decline in the manufacturing sector’s outputs appear to coincide with periods of sharp falls in global oil price, reflecting the country’s heavy dependence on crude oil since it became independent in 1960.
In June 2008, for instance, a barrel of oil sold for $140, but by January 2009 it had drastically dropped to $41.68. A similar pattern can be observed between July 2014 and January 2015, as well as in 1985. The Structural Adjustment Programme introduced in 1986 may also have played a part. It’s been argued to have led to “the collapse of manufacturing and agricultural industries, heightened unemployment and social insecurity”.
While a look at the MVA in terms of dollars shows that the country’s manufacturing sector is, in fact, slightly smaller in capacity than it was in 1981, interpreting it as a percentage of the Gross Domestic Product (GDP) tells a more unpleasant story.
In 1981, the MVA contributed up to 20.3 per cent of Nigeria’s GDP. But, thirty-seven years on, the sector’s contribution has now dropped to 7.8 per cent. In 2010, when it was at an all-time low of 6.55 per cent, it began to increase steadily until it got to 9.6 per cent in 2014. It has since returned to a downward spiral.
This figure is substantiated by the National Bureau of Statistics which confirmed a negative quarterly growth rate in the sector (minus 4.4 per cent) and stated that its contribution to the country’s real GDP in the second quarter of 2019 is 9.1 per cent
Worst manufacturing growth rate in Africa
The World Bank provides the manufacturing value-added figures for 218 countries across the world and 53 countries in Africa. The annual statistics date back to 1960 for some countries and later years for others.
There are 18 African countries for which the financial institution has figures from 1981, as in the case of Nigeria. Comparing the MVA in 1981 for all 18 countries shows that it is only Nigeria that has a negative growth rate in the manufacturing sector over the years.
Uganda has the highest rate of 8,980 per cent increase, having improved upon an MVA of $25 million in 1981 to $2.3 billion in 2018. Zimbabwe has the second least rate of 55.4 per cent while Nigeria has the lowest growth rate of minus 7.3 per cent.‘It isn’t surprising’
Olaolu Olayeni, an Assistant Professor of Economics at Obafemi Awolowo University, told The ICIR it is obvious Nigeria’s economy has a lot of challenges and has been nose-diving most of the time.
“We should not be surprised that we are having issues,” he said.
Those issues range from weak value chains, bad infrastructure, inadequate data collection and planning, unemployment and low per capita productivity, lack of training and skill acquisition opportunities for the young population, and an over-reliance on extractive products, to poor linkages among different sectors—including between rural agricultural communities and urban settlements.
“And above all, we don’t have political will to tackle these problems,” he added.
The Assistant Professor said another problem is that Nigeria hardly adds value to its products and that it is embarrassing the country produces cocoa but people cannot buy locally-made chocolates.
“While others are thinking ahead, we keep looking back. We are looking at what happened in the ’80s. People are thinking of what will become of them in the next 50 years. But in Nigeria, there is no plan for the future generation,” he lamented.
A 2019 study published by the Mediterranean Journal of Social Sciences has also noted that Nigeria lacks the needed infrastructure for industrialisation. It advised that efforts be focused on the manufacturing sector “that has the ability to bring expansionary and multiplier effects capable of harnessing the resources of the country and change the economic trend for better”.
“The required environments and infrastructure deficiency have not been favourable to the manufacturing sector over the years,” the study observed.
“Again, the bulk of manufacturing establishment in Nigeria is located in the urban areas with epileptic national power supply whereas, the source of the raw materials which is the rural areas are devoid of essential facilities and poor road net-work for easy conveyance of raw materials to the urban centres.”
The president promises
President Muhammadu Buhari, in his Independence Day speech on Tuesday, lamented that the crude oil sector, though contributing only eight per cent of Nigeria’s GDP, comprises up to 70 per cent of government revenue and 90 per cent of foreign exchange earnings.
He accused administrations before his of abandoning “the residual Investment-driven non-oil sector, which constituted 40 per cent of Gross Domestic Product and comprised agriculture, livestock, agro-processing, arts, entertainment, mining and manufacturing activities that provide millions of jobs for able-bodied Nigerians and utilise locally available raw materials and labour for production”.
“To address this imbalance, our commitment to achieving economic diversification has been at the heart of our economic strategies under the Economic Recovery and Growth Plan, which I launched on the 5th of April, 2017,” Buhari said.
He then promised that the government will put income from oil sales to good use while also investing in the non-oil sectors, partnering with the private sector, and improving infrastructure.