Overcoming Binding Constraints to Competitive Manufacturing for Intra-Regional Trade |
I wish to thank you for inviting me to deliver this Annual Adeola Odutola Lecture. It is indeed an honor to be asked to speak at an event named after one of Nigeria’s foremost industry leaders. Chief Odutola, a former President of the Manufacturers Association of Nigeria, was a colossus in the industry.
He established Nigeria’s first industrial manufacturing company, Odutola Tyre and Rubber Company, which manufactured treaded rubber tyres, among several companies and industries.
He gave pride to “Made in Nigeria” products.
I remember my growing up days as a kid, we used to roll old tyres around the dusty roads of our neighborhood, acting as if we at least also had the fortune and pride of “riding on Odutola tyres”.
Chief Odutola was a visionary. It is amazing that that the reforms he called for as President of the Manufacturers Association of Nigeria (MAN), in 1971, are the very same things bedeviling the Nigeria’s manufacturing industry today, five decades after.
In one of his speeches he “lamented the collapse of public utilities, and advise that the private sector should be permitted to compete on the provision of these utilities, he pleaded again, for the encouragement of manufacturers, through a review of the mechanism of the foreign exchange, assistance for manufacturers with infrastructural facilities, and the abandonment of factors which promote uncertainty”. (Ruben Abati and Sesan Ajayi’s book: ODUTOLA. A biography of T. Adeola Odutola, African Leadership Forum 1995):
In the words of Odutola “There are other ancillary services and problem areas worth stressing because they are vital to economic development…(a) inadequacy of industrial plots; (b) water supply; © bad condition of roads in many estates; (d) inadequate sanitation and waste disposal services, and (e ) more warehousing facilities.
He foresaw the inherent dangers of Nigeria abandoning the manufacturing sector after the discovery of oil, and said “oil will finish, while industry will not.”
Yes, indeed, Chief Odutola, as you rest in peace, your words resonate loudly, yet, in this hall today, as I start to deliver my Odutola Lecture “Overcoming Binding Constraints to Competitive Manufacturing for Intra-Regional Trade”.
For decades, Africa’s development trajectory has been based on the export of raw materials and natural resources. The continent has abundant natural resources, oil, gas, minerals, metals, agricultural and forest products, and the blue economy.
Estimated at $30 trillion in potential wealth, Africa’s natural resources are enough to make it one of the wealthiest places on earth (Craig Arnold, 2019. How to Turn Africa manufacturing into a high tech powerhouse. World Economic Forum). But tragically and ironically, Africa’s massive natural resources have not translated into wealth.
The reason is simple: a dependency on the export of raw commodities, with very little or no value addition. Put in a stark way: lack of industrial manufacturing. African countries export natural resources and import manufactured products.
It is a race to the bottom, where the only assured commonality, in the face of limited industrial manufacturing, is rising poverty, export of jobs, vicissitudes of volatility of commodity prices, and import dependency.
Hard earned foreign exchange is used to support a high propensity for imported goods, machinery, equipment and raw materials, to support industries.
The low level of industrial manufacturing is at the core of the slow structural transformation of African economies, with dominance of primary sectors. The situation has also been partly perpetuated by the escalation of tariffs on exports of manufactured goods from Africa. For example, export of raw materials attract very low tariffs, but value added products from Africa face steep tariffs.
The economic and wealth divergence between wealthy developed and low income developing countries derives from their differential levels of industrial manufacturing. Wealthy nations export value added manufactured products, while poor or low income nations export commodities with little or no value addition. Low income countries are perpetually at the mercy of price volatility, throwing their economies into perennial swings.
Take the case of agriculture. While the price of cotton will always fall, not so the prices for apparels and textiles. While the price of cocoa will always fall, not so the prices of chocolate. While the prices of coffee beans will fall, not the price of brewed coffee.
No wonder, Africa’s share of the global value chain is a miserly 1.9%, leaving a continent of 1.3 billion people and their economies stuck at the bottom of global value chains.
Africa should therefore wake up and smell the proverbial coffee, and industrialize. That’s why at the African Development Bank, “Industrialize Africa” is one of our High 5 priorities. There is an urgent need for Africa to rapidly diversify its economies, and add value to everything that it produces. Exporting raw materials only leads to vulnerabilities and no nation or region has succeeded by simply exporting raw materials.
While for decades the share of manufacturing in Nigeria’s GDP, has hovered around 7%, the nation has not been able to extricate itself from the comatose of its industrial manufacturing sector to unleash the fulness of its potential.
The performance of the manufacturing sector in the past five years have been poor. Between 2015-2017, the sector declined by -1.5%, -4.3% and -0.2%.
This is in sharp contrast to the dynamic and rapid performance of manufacturing in Asian countries, such as Singapore, Malaysia and China.
While Asian countries have focused on the export of manufactured products, Nigeria’s approach has been on import substitution. The manufacturing sector of Nigeria represents only 3% of total revenues from exports, but accounts for 50% of imports in the country. Instead of being forward looking in expanding the share of the manufactured goods in its total export revenue, Nigeria focuses on the model of import substitution.
Import substitution, while important, is a very restrictive vision. It looks towards survival, instead of looking to create wealth through greater export market and value diversification. The end result is a manufacturing sector that cannot develop nor compete globally, but limits itself to “survival mode, not a “global manufacturing growth mode”.
Nigeria must have a greater ambition for its manufacturing sector, by integrating and rapidly moving up global and regional value chains in areas of comparative advantage; by and by driving greater specialization and competitiveness. A well-developed and policy-enabled manufacturing sector, with an…