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Home Columns

“Made in Nigeria” policy: Cleaning the Augean stables (4)

16th October 2016
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According to World Bank Enterprise Survey data, over 90% of manufacturers see electricity as the greatest constraint to production in the country. Many also submit that electricity accounts for over 60% of their production costs because of the use of alternative electricity supply through power generators.
The challenges retarding domestic production are also legion. First, there is constraint on access to land resulting from the country’s outdated land tenure system. Second is poor public and general perception that locally produced food crops such as rice are of inferior quality. Third, limited access to credit as a result of poor funding through the financial system that prefers to fund traders rather than farmers. Fourth, poor yield as a result of absence of improved seed varieties. Fifth, weak support by the government through R&D and extension services. Sixth, government inconsistent policy signals over the years. Seventh, higher cost of locally produced food commodities as a result of high reliance on subsistent production and high funding costs. Eight, inefficient fertilizer procurement and distribution system, leading to low application.
There is the factor of low level of technology which is also a major challenge. World over, technological innovations drive productivity, especially in the manufacturing sector. Such innovative technology reduces cost of production and promotes efficiency and economies of scale. Level of technological innovation is yet low in Nigeria. Hence, manufacturers are sometimes forced to adopt obsolete technology that is very difficult to apply, hard to manage and expensive to maintain.
Then the factor of lending rates in Nigeria which is one of the highest in the world. Lending rates by some deposit money banks are as high as 28 – 30%. Lending at these rates is highly inimical to business development. This explains the reason for the high rate of non-performing loans in the country.
The challenge of dumping of substandard imported goods is another issue in focus. This challenge emanates from both push and pull factors. The push factor is mainly the very cheap cost of production in emerging industrial Asian countries. Through state support, low cost of capital, excellent infrastructure and low labour costs, these countries are able to produce at very relatively cheap price. Their search for market to sell their manufactures makes Nigeria attractive based on its large market. The pull factor is driven largely by the attitudinal and psychological issues where there is high penchant for anything foreign. The high appetite for foreign-made manufactures have dramatically increased manufactures imports at the expense of domestic production that are perceived to be of low quality and meant for people of lower social status. Thus, many middle income Nigerians will prefer imported commodities not minding the quality when compared to locally produced alternatives. Furthermore, because of the challenges they face in producing locally, many erstwhile local producers and prospective ones have rather resorted to trading in those commodities that they were previously producing locally. They simply travel to places like Dubai and China to import the goods, sell and make their profit while avoiding the hassles associated with manufacturing business.
Generally, sustained economic growth means increase in national output and national income emanating from rising aggregate demand and aggregate supply or productive capacity. This can only occur with lower interest rates that reduce the cost of borrowing and as such encourage spending and investment, increased disposable income that promotes household consumption, increased government spending, diversified and increased net exports. Others are good quality institutions, human capital development, favourable macroeconomic policy environment, and diversification of the economic base. National and sub-national governments should focus critically examining this general framework in the specific context of the realities on ground with a view to identifying the main sources and ingredients of growth that is capable of ensuring the country produce and consume what it produces in a sustainable way.

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