PAPER PRESENTED AT THE PUBLIC LECTURE ORGANIZED BY THE INDUSTRIAL DIVISION OF THE NIGERIAN SOCIETY OF ENGINEERS By Paschal Ogechi Harry, PhD
1.0 Introduction
It is my pleasure to be part of this public lecture being organized by the Industrial Division of the Nigerian Society of Engineers (NSE). The theme or topic of discussion today is generic: Industrial Development and Growth of Nigeria. This means that Economic Growth is the Target Dependent Variable while Industrial Development is the Policy Independent Variable, implying that other things being equal, economic growth is dependent or is determined by industrial development. To discuss this, I have structured the paper into five (5) sections, viz:
Status Update of the Nigeria’s Industrial Sector
Challenges of the Nigeria’s Industrial Sector
Issues with the previous Industrial, Policies, Plans, Programs and Strategies
Recommendations
Conclusion
2.0 Status Update
The industrial sector (inclusive of the micro, small and medium enterprises: MSMEs) is regarded globally as the growth driver of any economy in terms of its contribution to capital formation, employment generation, income generation, wealth creation, export earnings, growth of the GDP and economic growth and development.
The Nigerian industrial sector is currently being dominated by the MSMEs with about 17 million micro enterprises, followed by the small and medium enterprises numbering about 22,000 and the large enterprises of about 2,000 (Survey by NBS and SMEDAN).
Another recent study reveals that most key performance indicators of the sector are low and declining, with the capacity utilization, employment generation, contributions to GDP, Government revenues, export earnings, cooperate social responsibilities and other key performance indicators in the last 20-30 years had been low and declining.
Average capacity utilization of the sector over the period is about 30%, while average employment generation over the period is about 3%.
Also, the average contributions of the sector to the GDP, export earnings, etc. over the same period is about 4%.
The study further reveals that about 40% of manufacturing industries in Nigeria have closed down while 40% are ailing, only about 20% are operating at a sustainable level. Where are the Dunlop, Michelin, Odutola, GBO, SCOA, CFAO, Pfizer/Neimeth, Leventis, Cadbury, Textiles, Procter & Gamble, Boulus, Honda, PAN, and the Public Enterprises/State-owned Enterprises: The Ajaokuta Steel, the Delta Steel, the Rolling Mills, the Pulp and Paper Mills, the Refineries?
Embarrassingly, most of the firms in the sector, who could not cope with the harsh Nigeria’s manufacturing/business environment had to relocate to other West Africa Countries due to high cost of doing business in Nigeria, which includes the multiplicity of taxes, high cost of energy and power, infrastructural deficit, and re-enforced by the ECOWAS Common External Tariff (CET).
It is also sad to note that most of the Industrial Estates and SME Clusters in the country such as Aba in Abia state, Yaba, Apapa, Ilupeju and Ikeja in Lagos state; Sharada, Bompai and Challawa in Kano state; Zaria, Kakuri and Sabo-Tashi in Kaduna state; Trans-Amadi in Port-Harcourt, River’s state, Emene in Enugu state, Otta and Abeokuta in Ogun state, etc. will confirm the depressed conditions of Nigeria’s industrial sector.
The poor performance of the industrial sector particularly, the manufacturing/ productive sector portends a detrimental socio-economic condition for the country, with unemployment, poverty, restiveness, insecurity and other vices in the country – enunciating the low contributions of the Nigeria’s manufacturing sector to the GDP.
Hence, there is an urgent need to develop the industrial/manufacturing sector, to enhance its contribution to the growth and development of the Nigeria’s economy. Thus, this Public Lecture is very apt and cannot be over-emphasized.
3.0 Challenges of the Nigeria’s Industrial Sector
The challenges of the Nigeria’s industrial/manufacturing were appropriately captured in the Nigeria Industrial Revolutionary Plan (NIRP) 2014. According to the NIRP (2014), “the same issues/challenges that haunt the Nigeria’s manufacturing sector in the 1980s have lingered on for decades”. Most empirical studies on the Nigeria’s industrial/manufacturing sector had also identified similar challenges and went further to make their recommendations.
The NIRP (2014: pp 15-20) aptly captured the Challenges, Strengths, Weaknesses, Opportunities and Threats (CSWOT) of the Nigeria’s Manufacturing Sector. The Plan went further to make recommendations on how to resolve these challenges.
The question therefore is, despite all the studies, policies, plans and strategies on the Nigeria’s manufacturing sector and the recommendations thereof, the challenges had persisted over the years and even getting worst in recent years? In other words, despite all the studies, policies, plans, programs and strategies, the aggregate performance of the Nigeria’s industrial/manufacturing sector in terms of capacity utilization, output, employment and contributions to the gross domestic product (GDP) keeps declining steadily. Figures are there to testify.
It has become obvious that the industrial development policies, programs, plans and strategies of the FGN are becoming too many yet, the implementation of these plans and programs is still far-fetched. Hence, one can say the challenge of the Nigeria’s Industrial/Manufacturing Sector is the lack of implementation of policies and plans.
3.0 Issues with the previous Industrial, Policies, Plans and Programs
The objectives of all the policy-thrusts, strategies, incentives and programs are similar in all ramifications, and that is ‘to accelerate the pace of industrial development, increase the value chains of the industrial sector, provide greater employment opportunities, diversify the economy, improve technological skills and capacities, enhance private sector participation, increase geographical spread/dispersal of industry and importantly, to increase the contribution of the sector to the GDP’.
All of these industrial policy documents are very comprehensive, broad-based and robust enough to launch Nigeria’s industrial/manufacturing sector into the path of growth and diversification. However, the steps in their implementation are not very clear.
Some of the objectives and strategies are not consistent with the ‘SMART GOALS’ principles. That is to say that they are not Specific; Measurable; Attainable; Result-oriented and Time-framed. Hence, monitoring and evaluation become very difficult.
The plans and strategies are not well coordinated and integrated into the general macro-economic objectives and policy- thrusts of the country.
Some of these policy documents ended at the ‘committees’ levels’ and never translated and transcended into ‘practical applications. Consequently, the deliverables were not followed through.
The Implementation, Monitoring & Evaluation templates were not clearly spelt out and the operational targets, strategies and timelines were not specific.
The Industrial Operators/MSMEs and the local capacity-building institutions were not carried along. Hence, the real operators are not adequately informed and well-trained on how to adapt their business operations to the policy documents. Some of them don’t even have the policy documents.
It can therefore be said that the problems of Nigeria’s manufacturing sector are not in the studies, policies, plans, strategies and recommendations thereof, but in the lack of or poor implementation of the policies, plans and strategies.
Hence, there is a need to revisit, review and fine-tune the previous policies, plans and strategies towards a sustainable development of the Nigeria’s industrial/ manufacturing sector rather than formulating new ones.
4.0 Recommendations
On an assumption that the challenges of Nigeria’s Industrial/ Manufacturing/ MSMEs sector had earlier been identified in various studies and fora and for the fact that the Government has good plans, programs and policy to develop the industrial/manufacturing sector, we hereby recommend that:
We go ahead and constitute a ‘committee of experts’ for the implementation of Government Industrial Policies, Plans and Programs for the development of the Nigeria’s Industrial/ Manufacturing Sector.
The MDS should get serious: The MDAs directly involved in industrial policies and programs such as the Ministries of Industry, Trade & Investment; Science & Technology; Mines & Mineral Development; RMRDC; NIPC; NEPC; etc. should dust their files and start implementing the previous policy recommendations or follow through with the implementation of these policies, programs and plans.
The FGN should prioritize manufacturing infrastructure in the annual budget. This can take the following forms:
Generating and transmitting electricity to the manufacturing firms, as well as linking the factories to gas and diesel pipelines.
Building and developing effective and efficient transportation, information and communication technology system, to support the growth of Nigeria’s manufacturing sector and improve on their performance.
Resuscitating and reactivating all the moribund mines and steel industries in the country, including the Ajaokuta Steel, ALSCON, Oshogbo and Jos Steel Rolling Mills; the oil and gas industries including the Port-Harcourt, Warri and Kaduna Refineries.
FGN should formulate and implement the Supply-Side Fiscal Policy. This can be in the form of:
Specific tax reduction on production and income, to induce investments in new capital equipment and research and development (R&D), to further improve productivity.
Reduction in government regulations, to encourage business formation and expansion.
Increase disposable income through cuts in personal income taxes to induce consumption of locally-made goods and services.
The Nigeria’s tax system should be restructured in favour of the manufacturing sector rather than revenue generation for the government. This can be achieved by offering the manufacturers/producers various forms of tax incentives and rebates, to increase the sector’s productivity, performance and competitiveness and to attract investment including, foreign direct investment. This may include the following types:
Tax holidays or partial tax holidays, to temporarily exempt investors and manufacturers from certain specified taxes, which often reduces the tax burden on investors and encourages/attracts foreign investors and multinational companies.
Special zones can be created or the old ones reformed on geographically limited areas where qualified companies can locate and hence benefit from the exemptions of various forms of taxes or administrative requirements.
Investment tax credit: this is the deduction of some fraction of an investment from the tax liability
Investments allowance/Accelerated depreciation: This is the deduction of some fraction on investment from taxable profits (in addition to depreciation allowance).
Preferential tax rates: these are reductions in tax rates, specifically paid by the manufacturers/producers such as the corporate income tax rate.
Exemptions from various production taxes such as tariffs, excises duties and VAT on imported inputs, withholding taxes on profits and dividends.
Aligning Monetary Policy with Consistent Fiscal Policy: There is a wide range of choices of monetary instruments, operating procedures and strategies that can be applied, such as:
Create a special interest rate window for the manufacturers/producers in the real sector such that in the short-term, interest rate would be maintained at a single-digit to attract investment and motivate manufacturing/production. This would further increase capacity utilization and output of the manufacturing sector and ceteris paribus, would push general prices/inflation downward, to boost economic growth.
Create a special foreign exchange window for importation of manufacturing inputs/raw materials and equipment, technologies for the manufacturing sector.
Create special economic zones and incentives (or reform the existing ones) for manufacturers’ exporters, such that manufacturers/ producers would be encouraged to export competitively.
The States and Sub-national Governments to embark on:
Industrial Reactivation/Resuscitation Programs: to resuscitate and reactivate all the moribund and comatose industrial establishments, particularly the States’ Owned Enterprises: the beverages companies, textile mills, rubber plantations, piggeries, etc. that have been moribund over the years. The governments may adopt the PPP model of reform, following due process and in accordance with international best practice.
Construction of modern industrial estates, parks and processing zones where the MSMEs would be relocated for easy accessibility and pool of production resources.
Provision of basic infrastructure such as dedicated transformers/generators, gas pipe lines, water supplies, access roads, warehouses, loading bays, etc, in the industrial estates/parks that would be generally accessible to the MSMEs.
Acquisition and installation of modern technologies, equipment and automations that would be used in-turns by the SMEs as a fee.
Establishment of technology incubation centers, exhibition centers, recreational centers within the parks for easy accessibility by the SMEs.
Maintenance of internal security and peace in the country, to make the investment, industrial and business environment more friendly, to attract investors and businessmen from within and outside the country, including foreign and diasporas’ investors.
Granting of concession and incentives to agro-based processing industries, to harness and process the vast agricultural produce of the zone like: palm produce, cassava, maize, rubber, groundnut, etc to increase the value chains of these products.
Minimizing fees and charges collected from the MSMEs in the forms of tax and levy, to encourage them to add more values to the economics of the states and zone.
Collaborating with relevant institutions like the Institute of Professional Industrialists & Management Development (IPIMD) and the Nigerian Institution of Industrial Engineers (NIIndE), to establish Industrial Management/ Entrepreneurship Development Centers & skills Acquisition Centers for the building of Industrial/SME skills and capacity, entrepreneurship training, development & empowerment of the Industrial/SMEs Operators & Managers as well as Students in these States/Zones.
5.0 Conclusion
As earlier indicated, we don’t need much discussion on this matter. All we need do is action, action and action. If and if only we can effectively implement the policies, plans and programs we already have, then the challenges/problems of developing the Nigeria’s Industrial Sector would have been solved to a reasonable extent.
Once again, I thank the Organizers for making the event possible. THANK U ALL.
Paschal Ogechi Harry, PhD, FIMD, MNES