Light Manufacturing As Elixir for Economic Diversification

Economic experts and operators in the Nigerian industrial sector have expressed the view that the COVID-19 pandemic’s disruption and the crisis it brought presented Nigeria with the opportunity to take steps to diversify its economy through the promotion of light manufacturing, writes Dike Onwuamaeze
“Never waste a good crisis.” This quote taken from one of the remarks of the late British Prime Minister Winston Churchill was the central message the former International Finance Corporation’s Country Manager for Nigeria, Ms. Eme Essien Lore, used to enjoin Nigeria to utilise the crises that trailed the outbreak of COVID-19 pandemic to build its light manufacturing industries.

Lore dropped the quote recently during the Nigerian Economic Summit Group’s webinar on “Developing Nigeria’s Light Manufacturing Sector: COVID-19 Response – Opportunities and Constraints,” where she said that Nigeria should seize the opportunities offered by this crisis to change the narratives and the dynamics of its economy in a manner that would enable light manufacturing to be a catalyst for growth for the overall wellbeing Nigerian economy.

She noted that Nigeria entered the crisis quite weak with a fragile GDP as the country was emerging from recession.

“Nigeria came into this crisis really in a very disadvantaged position relative to its peers. Now Nigeria is facing the African Continental Free Trade Area (AfCFTA) agreement, which could be an opportunity as well as a challenge,” she said, adding that Nigeria’s industrial sector is currently characterised by low competitiveness, low capacity utilisation, low skilled manpower base, heavy dependence on imported raw materials and commodity based processing,

She, however, observed that this narrative could be changed with right coordination and right policy that would enable Nigerian manufacturing to be regionally and globally competitive.

“We know that developing special economic zones will offer Nigeria tremendous opportunities to produce more sophisticated goods and build regional and global competitiveness. We cannot overstate the role manufacturing can play in addressing Nigeria’s challenging unemployment and underemployment issues.

“This is a really urgent issue and there will be tradeoffs and need to priorities, which are never easy decisions to make in the country’s complicated environment. But we have to recognise the need to prioritise the increasing role light manufacturing will be playing in the country’s development agenda. So, I will say again ‘never waste a crisis.’ We really view this crisis as an opportunity to really reshape the dynamics of Nigeria.

“Indonesia and Malaysia were initially commodity based economies like Nigeria but they successfully industrialised. In both countries, there were crises that forced them to make tough decisions. And this COVID-19 could be that crisis for Nigeria.”

She recommended that Nigeria should focus its energies in one direction in order to witness how industrialisation would address many of its development challenges. “Let’s push toward the right direction,” she said.

Deepening light manufacturing

Similarly, the President of the Manufacturers Association of Nigeria (MAN), Mr. Mansur Ahmed, observed the need to strengthen and deepen light manufacturing in the country and use it to bridge the gap between light and heavy manufacturing in order to give our economy the required resilience it needed.

Ahmed identified light manufacturing as the starting stage of industrialising an economy because it does not require the mobilisation of large capital.

He stated that light manufacturing is majorly driven by the private sector while the public sector, under the commanding height theory is focused on heavy industrialsation.

He stated that Nigeria had a very large light manufacturing sector in the 1970s but its growth was stalled by heavy involvement of government-owned corporation. This was the reason the country failed to transit from light to heavy industrial investments, which would have created integrated industrial process that would bequeath on the economy the resilience to grow sustainably.

“Unfortunately for Nigeria, this has not happened. The huge inflow of the oil wealth and the intervention of the military in politics created the condition where literally the public sector took over the space even in light manufacturing.

“In addition, the oil wealth blinded us to the need to have backward integration as a condition for our manufacturing sector to grow successfully through backward integration that would have linked heavier and light manufacturings,” Mansur said.

The consequences of this failure came to the fore when the COVID-19 struck and literally brought Nigeria’s manufacturing on its knees with the disruption of the global supply value chain and the acute shortage of FX.

“Due to high reliance on imported inputs, our pharmaceutical sector was almost brought to a standstill. We also face a high-level deficit in skills and industrial technology. The outcome is that our economy is less resilient. We may lose big opportunities and remain small players, if our skill level is low.

“We need investors in light manufacturing that will bridge the various value chains in different sectors. These are opportunities for domestic and foreign investors,” Ahmad said.

Industrial Comparativeness

According to the Minister of Industry, Trade and Investment, Mr. Niyi Adebayo, who spoke on the “Strategic Industrial Comparativeness for Manufacturing Competitiveness in the Light of AfCFTA and the Role of Government,” said that the manufacturing sector is projected to reshape Africa’s competitiveness.

This has also heightened the need for Nigeria to improve its manufacturing capability in a manner that would enhance the quality and competitiveness of its industrial products a matter of categorical imperative in order to provide a platform for prosperity for its citizens through job creation.

Adebayo said: “With the growing population in Nigeria, demands for light manufactured goods like electronics have increased over the years.”

The minister noted that the manufacturing sector currently contributes 13 per cent of Nigeria’s GDP while the government is targeting to raise it to 20 per cent in 2023. Similarly, the government is also targeting to increase jobs created in the manufacturing sector from five million to six million.

Yet, the manufacturing sector has been faced with series of challenges ranging from influx of imported goods that are sometimes cheaper but of low quality to access to raw materials.

Notwithstanding, Adebayo believed that with adequate innovation the light manufacturing sector would be capable of meeting the needs of Nigerian consumers and even compete favourably in international markets.

“However, in order to compete globally, the local manufacturing industries need to develop their marketing and research capabilities to stay ahead of the pact and meet evolving customers’ needs. They need to develop strong brands with competitive edge. Intellectual property encroachment needs to be addressed to promote more investments in consumer goods and address product counterfeiting.

He added that the President Muhammadu Buhari’s administration is eager to support the manufacturing sector and has been playing a key role in fostering backward integration that would develop the country’s value chain.

There are a number of policies the government has been driving to ensure that the manufacturing sector would benefit from the opportunities provided by the AfCFTA.

Adebayo said: “We are currently revamping three economic trade zones and developing four others, we are also driving agro-processing across the 36 federating states of the nation. In addition, there are also several industrial policies expected to be finalised this year, including the cotton, textile and garment policy, the oil palm policy as well as the passage of the automotive industry development bill.”

A Partner and Deloitte’s Customer Service Leader for West Africa, Mr. Bernard Orji, said that light manufacturing has an important role to play in Nigeria’s quest for economic diversification, create jobs opportunities for its teeming unemployed population, grow its export market, and earn more foreign exchange.

Orji described light manufacturing as industries that are usually less capital intensive oriented toward the manufacture of end-users consumer products.

“The important thing about light manufacturing is that it is labour intensive and employs a lot of people within that sector. It has relatively low material input and it is also more environmentally friendly,” he said.

Players in the light manufacturing space include firms in agro-allied and food processing industries, textile and leather manufacturing, consumer electronics production and the automotive industry.

He stated that light manufacturing has played a big role in transforming countries into highly industrialised economies especially in Asian countries like China, India, Bangladesh, Vietnam, and Philippines, which successfully transited from commodity-based economies to industrialised economies.

Orji said: “Looking at Bangladesh, Vietnam, Philippines and India, just to mention a few you will find out that in the light manufacturing sector has contributed a lot in their GDP growth, it has also brought in a lot of FDIs and also added to their total export. It has also employed a lot of people.”

For instance, the Bangladesh textile industry contributed 11.7 per cent to the country’s GDP in 2018, brought in over $529 million FDIs in 2017, earned $36.67 billion from export, and employs more than four million workers.
“This is a clear illustration of the importance of showing attention to light manufacturing. In the 1970s, just as Mansur has said, Nigeria has light manufacturing hubs in the country. There is a need to go back to that so that we can get significant contribution to the GDP, attract FDIs and employ a lot of workers,” he said.

LESSONS FOR NIGERIA

Coming closer home in Africa, the Moroccan automotive industry stands out as a good example of how light manufacturing could impact an economy positively.

It started in the 1960s as a small cluster and has become the second-largest car-producing hub in Africa. It controls 35 per cent of the continent’s automobile market and is projected to shun out 160,000 cars per annum in 2022 with local input of about 60 per cent.

It has also attracted key automobile players like Nissan, BMW, Volkswagen, Peugeot.

“Today, Morocco is exporting cars to Europe, the Middle East, and the rest of Africa. It has grown from its small cluster in the 1960s to the second-largest automotive economy in Africa. It has a production of 80,000 cars per annum and hopes to double it to 160,000 cars in 2022. It has exceeded $10.5 billion in export earnings. This is something Nigeria has to look at as we go into the AfCFTA regime,” Orji said.

He ascribed the success story Morocco’s automotive sector to three pillars. They are policy and regulation, partnership and agreement with the private sector and infrastructure development.

“What we have seen in Morocco is policy consistency right way back from the 1960s. It has not wavered as governments changes. This has given the private sector the comfort and assurance that their investments are protected.

“Two, is sectorial integration. The policies that government enacted are aligned with the private sector that has led to value chain growth.

“Three, is due emphasis on export and letting the private sector lead the development while government lends support in terms of policy.

“The automotive had clear training program for workers. One of our key challenges in Nigeria is low skill capacity of those in manufacturing sector,” Orji said.