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I speak to the topic: “From Consumption to Production: The Role of Special Ago-Industrial Processing Zones in Nigeria”. Let me begin with a quote from my book published in 2017 bearing this title: “From Consumption to Production”.
If a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor, and other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars’ worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. [Emphasis Added]
Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for their product.
I submit that centralto our economic growth crisis is the failure to achieve rapid industrialization; the mis-management of our investment in the acquisition of necessary capital stock. Capital stock is the plant, equipment, and other assets that help with production. The country’s investment portfolio will reveal huge amounts budgeted to purchase plants and equipment; for example, refineries, iron and steel, sugar refining, fertilizers and so on. What has also become clear is that unlike countries where rising capital stock has led to rising living standards and high productivity, we have remained a non-industrialized underdeveloped country.
Tied closely to industrialization, but not always connected in public discourse, is arguably the most challenging economic issues faced by the country currently: Balance of Payment and foreign exchange crises. What we see manifesting as shortage of foreign exchange and the precipitous decline of the national currency is in large part because we consume high-value products that we do not produce,and export low-value raw materials. Nigerians, especially urban elites, have developed an appetite for imports including expensive luxury goods such as automobiles, foreign drinks, and clothes, electronic and household consumer goods. For example, the country’s top imports are Refined Petroleum ($7.75Billion), Cars ($3.03Billion), Wheat ($2.15B), Packaged Medicaments ($1.38B), Telephones ($771M) andspecial purpose ships ($4 billion).In contrast, what does Nigeria export? Coconuts, cashews, cocoa beans, rough wood, petroleum gas, and crude petroleum thataccounts for 70.8% of all its exports, among others.
Additionally, for a country to sustain economic progress, it must build infrastructure, acquire factory facilitiesfor manufacturing. Such infrastructure includesbridges, railways, highways, power plants, dams, airports and others, which are intermediate, and capital goods. We manufacture almost none locally; all are imported. As demand grows for imports, the more the pressure on foreign exchange. Where does the dollar revenue come from? Crude oil and paltry raw materials export that is not near enough. We are in a situation of accelerating deficit size and where the balance has to be covered by foreign loans, the country then finds itself in an encircling debt crisis. There are two common sources of financing import bills; the first is to attract foreign capital, concessional loans or grants. The second is to earn foreign exchange through export of goods and services, especially manufactured goods. No nation can survive an indefinite foreign exchange crisis. Therefore,the most effective strategy for rapid growth is to promote the sustained expansion of foreign exchange earnings through exports of manufactures. To overcome the BoP in the long run, and grow the economy at a fast rate, we must counter import expansion with faster export earnings. More precisely, export of processed and manufactured products.We have long shortchanged ourselves exporting raw materials that others use as basis for wealth generation.
I have brought the above into this discourse to establish the inescapable nexus of manufacturing capability and a nation’s balance of payment. The assured way that nations achieved growth in the long run is by either: (a) making its locally manufactured goods competitive in the external markets with attendant foreign exchange earnings (increasing the income elasticity of exports) and (b) making foreign goods less competitive and non-attractive to domestic consumers (decreasing the income elasticity of imports). Currently, Nigeria is not fulfilling either condition due to the weak domestic technological and industrial capabilities of local companies.
2.0 Reliance on Short Term Crude Export has stoked Balance of Payment Crisis
The pathology of oil-dependency and the periodic crash of oil prices transmit its impact through slow economic growth, constrained fiscal space and through direct effects on prices and activity for both importers and exporters.It channels its indirect effects via trade and other commodity markets; monetary and fiscal policy responses; and investment uncertainty. Through these channels, oil prices have immediate repercussions. For example, the damaging inflation Nigeria is experiencing began and increased steadily throughout 2020. It accelerated from 15.7% year-on-year in December to 17.3% in February 2021—its highest level since April 2017. According to the NBS, urban inflation rose to 19.09% and rural inflation hit 18.13% in June 2022. The surge in food prices persisted ever since the pandemic compounded by domestic security problems, the country’s lack of food securityand was capped by the Ukraine-Russia War. Meanwhile the national currency weakens leading to foreign exchange restrictions.Nigeria has relied on the trading and export of crude petroleum and agricultural raw materials for decades. However, the reliance on the easy path, or “easy money”—has proven to be a disastrous strategy. Nigeria’s production and export structure has remained less diversified relative to comparators.
3.0 The Remarkable Rise of China as contrast to Nigeria
Forty-four years ago, China’s per capita income was only one-third of that of sub-Saharan Africa. Today, China is the world’s largest manufacturing powerhouse. It is a Production not a Consumption Nation. This is why China’s yearly exports $3.3 Trillion, 2021), mostly manufactures surpassed the combined GDP of all African nations ($2.7 Trillion, 2021). It produces nearly 50% of the world’s major industrial goods, including crude steel (50% of global supply); cement (60% of the world’s production), coal (50% of the world’s production), vehicles (more than 25% of global supply) and industrial patent applications (about 150% of the U.S. level). China is also the world’s largest producer of ships, high-speed trains, robots, tunnels, bridges, highways, chemical fibers, machine tools, computers, and cellphones, among others.
The remarkable rise of China follows that of other successful Asian manufacturing powerhouses such as South Korea. Their growth evolution showed that economic growth happens on the back of expanded manufactured exports. Exports is prerequisite for a sustainable current account balance compatible with the fast rate of economic growth. The trends for primary commodity prices and their low-income elasticities of demand suggest that African countries, including Nigeria, will not achieve prosperity from export earnings from these goods as they have done for decades.
One cannot but agree with a great scholar who said, “first, the only way for a country to develop is to industrialize; second, the only way for a country to industrialize is to protect itself; and third, anyone who says otherwise is being dishonest! ’ The Nigerian economy remains agrarian in nature; it continues to face heavy barriers, including those within international systems, in achieving industrialization. As implicit in Nicholas Kaldor’s Laws: The promotion of long‐term economic growth requires industrialization; the faster the expansion of industry in a country, the greater its long‐run growth’.’ . Kaldor’s proposition is explicit: that the “faster the overall rate of growth of manufacturing, the greater the rate of export earnings”. Second Law: “the faster the rate of growth of manufacturing production, the faster the rate of growth of the economy as a whole”’
4.0 A Hostile Industrial Ecosystem for Companies and Business Enterprises
The source of growth and locus of wealth is the factory-level of its firms and business enterprises.
Wealthy nations process their God-given resources including crude petroleum. They nurture strong companies driven by good governance. Compare Nigeria’s NNPC and Saudi’s ARAMCO. The Nigerian company has four refineries.
According to OPEC, the country exported $27.73bn worth of petroleum products in 2020, while the value of the country’s petroleum imports in 2020 was $71.285bn. The country has an installed refining capacity of 445,000 barrels per day from four (4) refineries that refined zero barrels of oil in 2020/2021 because the refineries have broken down and are inoperable. Saudi Aramco’s refining capacity is 5.4 million barrels per day (860,000 m3/d). On 11th May 2022, Saudi Aramco became the largest (most valuable) company in the world by market cap, surpassing Apple Inc . Saudi Aramco operates the world’s largest single hydrocarbon network, the Master Gas System. Its net income in 2021 was US$109.385 billion while total assets was US$331.818 billion.
Another example: The textile and ready-made garments industry in Nigeria tells a story of arrested development and of lost glory. Once a vibrant and dynamic sector in Nigeria, the sector exported to countries in the African region. It achieved an annual growth rate of about 70 percent, and constituted 25% of the manufacturing sector’s labor force of over one million workers between 1960 and the late 1980s. There were around 115 factories across the Cotton Textile and Garments (CTG) value chain, which engaged in several stages of the value chain such as spinning, weaving, and garment production in 1980. The Nigerian textile manufacturing capacity was valued at N420 billion and investment worth of US$3 billion in 1999.
By 2007, Nigeria had only 26 textile and ready-made garment (RMG) companies in operation with employment of roughly only 24,000 people. The near demise of the industry in Nigeria coincided with the rise of Asian producers, including China. China’s export value of RMG was approximately US$266.41 billion in 2020. Specifically, a dual process occurred: the growth of Chinese imports combined with massive influx of Chinese company representatives to Nigeria, while Nigerian traders flocked to China to import garments and textiles into Nigeria. There were by 2008, 50,000 Chinese textiles personnel in Nigeria and 20,000 Nigerians in China.
In 1972, the World Bank approximated the gross domestic product (GDP) of Bangladesh at US$6.29 billion. It grew to US$368 billion by 2021, with US$46 billion of that generated by exports, and 82% of which was ready-made garments.[3] In the year 2016-2017, the RMG industry generated US$28.14 billion, which was 80.7% of the total export earnings in exports and 12.36 percent of the GDP; the industry.[6]
Nigeria swapped its RMG Production Nation status for a Consumption Nation status. The country engaged in a race to the bottom ladder of poor nations when it’s reliance on crude oil became a pathology.
5.0 Self-inflicted De-Industrialization and slow Structural Transformation
The structure of Nigeria’s economy for most of the past decades has remained largely skewed to low-productivity agriculture sector. The sector contributed most to nominal output when compared to the industry and services sectors in periods 1960 to 2022. The output contribution of the industrial sector consistently declined on the average from 15.6%between the period 1971-1980 to 5.7% and remains under 10% until now. This trend suggests that Nigeria has experienced a process of premature de-industrialization since the 1970s. In addition, the trend depicts that structural transformation of the economy is slow or non-existent. By contrast, the sectoral contribution of services to nominal output has been on the rise for over three decades.
The service sector contributed an average of 24.3% in 1981-1990 and rose to 29.5% in the 2000s. In sum, Nigeria embarked on a path to industrialize but totally derailed and got into a cycle of premature de-industrialization until the present time. In other words, thepremature deindustrialization that we see in Nigeria has nothing to do with a fundamental decline in the significance of manufacturing as an “engine of growth”. I attribute the failure of industrialization to the country’s specific governance and leadership shortcomings. It is the mismanagement of capital stock investment and the waste of the stock through inoperability like refineries, fertilizer plants and in the extreme, creation of White Elephant junk yards. Our enormous investments in capital stock have sadly disappeared into Black Holes of private pockets or have degraded into the Forest of White Elephants. This is why we are in large part a Consumption rather than a Production Nation.
6.0 The Dissipative Forces of White Elephant Projects
As one writer remarked,Nigeria has become the world’s junkyard of abandoned projects worth billions of naira. It is staggering in its impact and befuddling to imagine the widespread nature and magnitude of project abandonment.Several years ago, the federal Government appointed a former minister of Works, General Kotangora to lead an assessment of abandoned projects. According to his report , at the time therewere an estimated 4,000 uncompleted or abandoned projects belonging to the Federal Government with an estimated cost of N300 billion, which would take 30 years to complete,given the execution capacity of government.
The impact of these failed projects has been clearly irreversible in terms industrial and financial lossesand human resources irretrievably wasted.
Almost two decades after this report, in 2011, the report of the Presidential Projects Assessment Committee (PPAC) showed that the Federal Government had spent over N7.78 trillion on 11,886 ongoing and abandoned projects nationwide as at June 2011. The report singled out Ajaokuta Steel complex started over 30 years earlier, on the sum of US$4.5 billion was spent.This is a classical White Elephant, lying waste. The committee in their report stated that the actual number of ongoing federal projects could be 20% higher than the reported 11,886. Similarly, the total sum expended on the projects could surpass the N7.78 trillion contained in the report to the neighborhood of N8 trillion.
7.0 What can we learn from Dynamic Industrializers?
China’s modernization started in 1978 under its leader, Deng Xiaoping. The keys to his approach were:1. Maintain political stability at all costs; 2. Focus on the grassroots, bottom-up reforms (starting in agriculture instead of in the financial sector); 3. Promote rural industries despite their primitive technologies; 4. Produce manufactured goods (instead of only natural resources); 5. Provide enormous government support for infrastructure buildup;follow a dual-track system of government/private ownership instead of wholesale privatization; and 6. Move up the industrial ladder, from light to heavy industries, from labor- to capital-intensive production, from manufacturing to financial capitalism, and from a high-saving state to a consumeristic welfare state.
China’s strategy mimics the historical sequence of the British Industrial Revolution, despite dramatic differences in political institutions. The 1988-1998 period was China’s first industrial revolution. This phase featured mass production of labor-intensive light consumer goods across China’s rural and urban areas, relying first mainly on imported machinery. During this period, China became the world’s largest producer and exporter of textiles, the largest producer and importer of cotton, and the largest producer and exporter of furniture and toys.
Special Economic Zones as Industrial Policy Tool: One of the most important pillars of Deng’s push to modernize China involved the reopening and integration into the global system . To fast track China’s economy, Deng adopted an export-led model of development that had worked for Japan and some of the Asian Tigers, namely Taiwan and the Republic of Korea. The industrial organization model he chose was the establishment of special economic zones (SEZs). The institutional reforms include significantly reducing state regulation and tax rates; by these, zones were able to attract foreign firms to do business in China, generate exports, and earn foreign exchange. The more long-term objective is to acquire firsthand technical skills, business management, production engineering and work organization from Western enterprises.
The experiment that took place in the four initially opened SEZs had mixed outcomes, with Shenzhen serving as the prime example of the successes possible under the SEZ model.SEZs have contributed 22% of China’s GDP, 45% of the country’s total national foreign direct investment, and 60% of exports. SEZs are estimated to have created over 30 million jobs, increased the income of participating farmers by 30%, and accelerated industrialization, agricultural modernization, and urbanization .Clearly, the numerous special economic zones (SEZs) and industrial clusters that emerged after the country’s reforms are without doubt two important engines of China’s remarkable development.
There were nearly 5,400 SEZs in 2019, more than 1,000 of which were established in previous five years in China. .The SEZs and industrial clusters have made crucial contributions to China’s economic success. Foremost, the SEZs (especially the first several) successfully tested the market economy and new institutions and became role models for the rest of the country to follow. Together with the numerous industrial clusters, the SEZs have contributed significantly to national GDP, employment, exports, and attraction of foreign investment. The SEZs have also played important roles in bringing new technologies to China and in adopting modern management practices.In 2010, foreign multinationals accounted for two-thirds of value added in high-tech production in China, for 55% of total exports and 90% of high-tech exports.
8.0 Why Special Agro-Industrial Processing Zones (SAPZs)? Six characteristics and functions
Economies that have most successfully achieved rapid industrial development through the use of SEZs underscore that zones are, not only an investment, but first and foremost an industrial policy tool. Agro-industrial sector is the largest industrial globally worth over 8 trillion dollars compared with IT, Iron and Steel among others worth 1 trillion dollars.
Let me outline six characteristics and functions of SAPZs
SAPZ is an Instrument of Economic and Industrialization Strategy
The African Development Bank defines the Special Agro-Industrial Processing Zones as “an integrated (demand and supply side) agro-industrial ecosystem comprising production, processing, distribution, marketing with a continental and global reach aimed at transforming Africa’s agriculture from an incremental-existential mode into a business-industrial complex.” The SAPZ has its origin in the Bank’s ‘Staple Crops Processing Zones (SCPZ) initiative which was launched as a flagship programme under the Feed Africa Strategy. The Bank conceptualizes the original SCPZ as “an agro-based spatial development initiative, advanced to agglomerate agro-processing activities within areas of high agricultural potential with the aim to boost productivity and integrate production, processing and marketing of selected commodities”. The SAPZ, which can be applied to the full range of agricultural production activities as recognized by the FAO – i.e. crops livestock, fisheries, and forestry –, is a unique spatial brand of the AfDB that is designed to achieve the twin objectives of agricultural transformation and rural development through agro-industrialization.
- SAPZ is a spatial solution for Rural Transformation and Sustainable Urbanization
The AfDB envisages that the location of SAPZs in rural areas would provide ‘spatial solutions’ to the challenges of uneven economic geography posed by rural underdevelopment and to stem rural-urban migration in African countries. African urbanization is occurring as the fastest but unsustainable rate in the world. Half of the continent’s total population will be living in urban areas by 2030. This will pose more development challenges for the continent’s already overburdened infrastructure, transportation and housing in cities. The location of SAPZs with attendant improved infrastructure, especially roads and public utility, and employment opportunities associated with such zone activities provide the foundation for transforming rural poles of poverty to zones of prosperity. The location of agribusiness agglomerations in large geographical areas, as implied in the SAPZ model, can serve as a catalyst for the growth of secondary or intermediary towns/cities to modernize the rural landscape.
- SAPZ: Spatial Clustering and Agglomeration is an Industrial Policy Instrument
We design the SAPZ model as an appropriate and prioritized industrial policy in the context of the wider development process.
As a variety of special economic zones, it stimulates the clustering of economic actors such as firms and farms within the desired geographic space. It combines attributes of SEZs and free trade zones (FTZs), which include logistics and warehousing services, in addition to Agriculture Transformation Centres (ATCs) deliberately located within farming communities. In development terms, an SAPZ as an industrial policy strategy is designed to fast-track structural transformation; by modernizing farming techniques, technologies and traditional practices of the agrarian sector. Agglomeration and clustering in space – which countries have deployed to great effect -enhances productivity and economic efficiency.
Asia has 75% of all Special Economic Zones (SEZs) in the world as at 2018 out of which China alone had over 2,500 . China alone hosts over half of all SEZs in the world.
For example, Vietnam has major concentrations of economic activity in its two economic centers, Hanoi and Ho Chi Minh City, which collectively account for more than 60% of the country’s Gross Domestic Product. Vietnam has 376 industrial parks, the most prevalent instrument for manufacturing and industrial growth in Asia. Vietnam in the past two decades emerged as a global leader in agribusiness and a top exporter in several commodities and products that are important in Nigeria’s agribusiness sector. In 2019, Vietnam generated export earnings of at least US$ 3 billion from each of the following commodities – cashew nuts, rice, cassava, fish, coffee, tea, black pepper, and rubber – resulting in total agricultural export revenue of US$40 billion. These eight value chains have experienced strong export growth, founded on productivity growth in on-farm and off-farm segments and improved coordination of investments across the value chains. Access to remunerative export markets has generated broad-based gains in the incomes of farmers and higher returns for agribusinesses, thus increasing foreign exchange earnings and public revenues.
South Korean government aggressively pursued an economic development strategy with a central focus on manufacturing-sector growth driven byindustrial complexes. More than 900 industrial clusters account for 62% of the country is manufacturing production and 80 per cent of total exports . The path of industrial development in South Korea revolved around building industrial complexes and clusters scattered across the country, and it initiated the measures and policies that enabled industrialization . These industrial complexes have as a result, as of the end of 2018 a total of 1,207 industrial complexes had been built in South Korea: forty-four national industrial complexes, 664 regional (general) industrial complexes, twenty-seven metropolitan high-tech complexes, and 472 agricultural and industrial complexes been the backbone of Korean industrialization. These 472 agro-industrial parks, constitute 40% total.
The SAPZ programme stimulates Investment in Infrastructure
Although agriculture in Africa is predominantly a private sector business, its success is likely to be determined by targeted public investment in physical infrastructure and human capital development and adequate capacity of government institutions for regulation of private investments such as SAPZ type projects. Improved physical and institutional infrastructure, especially roads and energy, and logistic services and aggregation that facilitates transition to value-addition activities through agro-industrialization represent important drivers of agricultural transformation.
SAPZ as a catalyst for private sector development
The AfDB identified the private sector as a key partner in mobilizing investment for the development and implementation of SAPZs. The Bank has traditionally supported private sector development in Africa because of the sector’s potential to drive and sustain economic growth in complement with public sector efforts. In the case of the SAPZ model, the private sector is likely to be the main source of strategic investments to finance agro-industrial processing activities. The AfDB envisages that the participation of the private sector in the operation and management of SAPZ activities will include both foreign and domestic private investments comprising a mix of large, medium and small-scale investors. Evidently, local micro and small enterprises (MSEs) would be involved in the operation of SAPZs.
SAPZ as a Strategy for Human Capital Development
Growth and shift in the structure of agricultural production beyond the agrarian level requires higher skills and knowledge. The transformation of the sector would contribute to rising labour productivity and the creation of new employment opportunities. A major challenge with respect to the deployment of SAPZs concerns skills development and upgrading across the agriculture and agro-industrial value chains. In addition to measures to increase labour productivity, effective labour market planning must consider the requirements for the implementation of SAPZs. This isin the sense of supporting skills formation and entrepreneurship training needed for putting labour to productive use in agriculture and agribusiness.
As I end this lecture
I emphasize the need for deeper involvement of engineering professionalsin national development plans. It is a great misunderstanding to hold the view that what happens,for example,at a country’s Central Bank necessarily alone determines the country’s economic growth. According to Michael Best commenting on America’s war time endeavor: “Both fiscal and monetary policies were involved, but they were subservient to the transformation of the nation’s productive structures (factories and laboratories)…the massive increase in federal R&D funding during World War II laid the institutional foundation of the S&T infrastructure that enabled the emergence and postwar ..of America’s regional innovation system” Best, 2018, pg 7,8).
My emphasis today is on the need to strategically promote the buildingof industrial technological capabilities for manufactured exports, invest more in infrastructure and institutions that foster Ease of Doing Business.The ‘factory of national firms’ is the furnace where long-term fortunes are formed. The wealthiest nations are the ones with the strongest industrial capacities. The United States has 12.85 million manufacturing jobs —employing 8.5% of the workforce. Manufacturers contribute over US$2.3 trillion to the economy of the United States every quarter, over 9 trillion every year. China leads the world in terms of manufacturing output, with over US$2.01 trillion in output. Manufacturing constitutes 27% of China’s overall national output, which accounts for 20 percent of the world’s manufacturing output. Germany, Italy, Turkey, and South Korea have the highest percentage of their workforce employed in manufacturing.
How do we move forward?
The summary of this paper is that behind the wide and terrifyingly widening wealth gap between developed Production Nations and poor meaning Consumption Nations like Nigeria, is the huge gap in scientific and technological knowledge to produce and sell to others. If crude oil was the basis of wealth, Nigeria will not be too far down the prosperity ladder yet we are sadly among the poorest on earth. Rich nations on the one hand have a long history of producing, Learningfrom their mistakes and selling to Consumption nations. A poor nation on the other, possess enormous natural resources, but lag far behind in the technological knowledge necessary to transform their natural endowment to high value goods.
First,we need elite agreement, an intent that this country must develop. South Korea, China and other Asian nations achieved a high degree of industrialization and sustained growth over four to five decades Nigeria remains relatively an underdeveloped Consumption nation. The examples I reference demonstrate clearly how the agenda, mindset and policies of the political elite made up of politicians, bureaucrats and the private sector have exerted an extreme impact on the economies of their society. The dramatic economic extremes in income divergence, highlights the impact ruling elites and leaders can have in the economic welfare of states.
Second, you hear industry people say that venturing into the manufacturing industry in Nigeria requires a lion heart due to dysfunctional infrastructure, corruption and rent-seeking at ports, airports, government offices and so on. There is a long list of challenges: finance, infrastructure/electric power, skilled work force, exchange rate, complex and difficult destabilizing bureaucracy, dependence on imported technology and machines local manufacturing companies. These are surmountable challenges. Why are these so hard to achieve if not for vested and self-interests that come before public interest.
Third,Nigeria promoted industrialization after gaining political independence;we have not sustained the momentum.In fact, Nigerian politicians and bureaucrats over the last five decades are complicit in truncating the industrialization agenda. There is a need for renewed commitment to industrialization as part of a broader agenda for economic diversification, resilience to external shocks including by foreign wars foreign exchange shortage caused by drop in oil prices, the development of productive capacity for high and sustained economic growth and the creation of employment opportunities and substantial poverty reduction.
This is the domain of engineers and scientists as it is of economists. The profession should seek to make greater contribution.I have shown a few of the several factors and variables that determine the rate and direction of our economy and growth. Clearly, the choices and actions taken by those in political positions, the ‘Leaders’ and ‘elites’ tend to trump all other factors. Their choices, interests and predilections have pushedthis nation into the current trajectory of a negative economic development pathway. We must not be shy to speak the truth. Only the Truth will help those who hold the levers of leadership no matter how unpalatable.
Thank you and long live our great country, Nigeria!
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