MADE IN NIGERIA

Nigeria 2016 | INDUSTRY | FOCUS: INDUSTRIAL POLICY

After years of decline in the industrial sector, various regulations have been introduced in an effort to boost local manufacturing, including the restriction of imports for several commodities.

There was a time when Nigeria's industrial sector was stable and growing, especially in agricultural processing, as well as in textiles, tire manufacturing, and other such undertakings. After the discovery of oil, the naira was strong, electricity was available, and there was ample labor to support manufacturing. However, a succession of military coups skewed policy towards the production and sale of oil, allowed demand for electricity to far outstrip supply, and eventually led to a World Bank loan and a Structural Adjustment Program (SAP). The program removed duties on foreign goods and caused the textile and tire industries to collapse. These industries never recovered.

Today, the strongest part of the Nigerian industrial sector is agro-processing and cement. The nation imports the bulk of its food commodities, but rice, flour, and processed food are still produced across the country. It is, however, an economy that follows its own rules.

Around 3 million tons of rice are officially imported into Nigeria each year, but there are reports that much larger quantities enter through parallel markets. Some rice is imported unmilled and then process by the nation's surplus rice-processing capacity that has been built up over successive governments that have attempted to wean the nation off of imported rice. The major agro-processing firms, including Dangote and Flour Mills, produce their own electricity from gas or diesel on site, which is expensive.

For decades, the Nigerian government has supported local production of steel, leading to the construction of many large facilities and warehouses and the expenditure of millions of dollars in public funds, which ultimately did not result in significant steel production. In a strange twist, mega churches later occupied abandoned steel, textile, and tire facilities during an evangelical revival in the 1990s.

Since coming into office, President Buhari has repeatedly stated his commitment to protecting local agriculture from imports. In the face of falling foreign reserves, the governor of the Central Bank of Nigeria (CBN) instituted a list of commodities that the CBN believes could be produced in Nigeria for which Forex could not be obtained. This effectively halted imports of rice, tomato paste, and various types of steel necessary for construction. The Forex restrictions have raised the price of food staples, but also created opportunities for local producers, although many businesspeople interviewed by TBY have expressed skepticism about the long-term viability of this policy and were reluctant to invest, pending changes.

Another regulatory saga is that of automotive manufacturing. The National Automotive Policy was introduced in 2006 by the Jonathan administration and intended to spark automobile manufacturing in Nigeria. It included a rollout of progressively higher tariffs on imported vehicles, and also allowed manufactures that imported fully knocked-down parts to assemble vehicles in-country and sell them tariff-free. This encountered a limited degree of success, as Peugeot and Nissan have both announced their intention to establish plants.

However, after nine years, tariffs on new imported vehicles have risen to 75%, the maximum, while used vehicles, whose tariffs were supposed to rise in parallel, remain at 35%. This has caused the importation of used and grey market vehicles, often from neighboring Benin, to skyrocket, and has caused consternation among new-vehicle dealers. Several dealers interviewed by TBY expressed deep concerns about the future of their businesses in the country and the appetite that manufacturers have for establishing plants in a market that does not consume significant numbers of new vehicles.

There are bright spots in the industrial sector, however, especially in agricultural processing. If Nigeria can establish a reasonable and well-conceived effort to protect local agricultural production without jeopardizing its food supply, the sector has enormous potential. Nigeria's population of over 170 million people is often cited as one of its greatest strengths, and today the majority of them are still fed by imports. The share of local food processing could grow exponentially.

In 2014, a local financial firm, Renaissance Capital, released a report that claimed the manufacturing sector was growing even more rapidly than telecommunications. If true, this is taking place without a stable power supply, which underscored the potential for growth under better conditions. Power and policy are today the limiting factors for industrial growth, but the Buhari administration is starting with strong momentum in both areas.