By Rafiq Raji, PhD
I was the keynote speaker at an economic dialogue on Nigeria organised by Konrad Adenauer Stiftung (KAS) and the Delegation of German Industry and Commerce in Nigeria (AHK) on 23 May 2019. Titled “Road to Economic Development: Challenges and Opportunities”, the dialogue was aimed at shaping the priorities of the incoming second administration of President Muhammadu Buhari. The following is the third part of the highlights of my speech.
What is to be done in the immediate term? Power and data. Any diligent Nigerian can be gainfully employed if he or she has access to electricity and internet data that are readily available, reliable and cheap. If the authorities want to create jobs, power and data should be like air for the citizenry: almost free for the poor. Thus, the government should do the following right away.
Raise power tariffs
“Power is expensive” is a better narrative than “there is no power”. At about 4,000MW on average, Nigeria’s current power generation level is about 10 percent of South Africa’s 50,000MW (rounded for simplicity). Despite this deficiency and myriad others, Nigeria’s 2018 gross domestic product (GDP) of $397 billion puts it ahead of South Africa’s more advanced $368 billion economy.
Imagine how much bigger Africa’s biggest economy could become if it were able to ramp up its power generation to South Africa’s current level. However, that would only be possible if the Nigerian government allows the electricity business to be a lucrative one for private actors. It should allow power firms set their own tariffs for an extended period; akin to the typical concession periods of 20-30 years. That is, a time long enough for profit-seeking agents of the economy, domestic and foreign, to see investing in the power sector as a huge opportunity. The price-setting process could still be coordinated by the electricity industry regulator, of course. But it should be one that makes power executives leave the room with a smile on their faces. What about the poor?
There are currently 5 major power tariff classes; namely: residential, commercial, industrial, special and street lights. We know where the rich live. And we know how much they currently spend on generators and diesel. They wouldn’t mind higher tariffs if you can guarantee them 24-hour power supply. Businesses won’t mind, either. Charge businesses and the rich with tariffs high enough to subsidise the poor.
I do not need to elaborate on how constant, reliable and abundant power would engender economic activity. Because if power is regular and cheap for the poor, aritisans can earn a living. And if power is abundant because it is a lucrative business, manufacturers would produce more and hire more. It is a virtuous cycle.
Scale-up legacy & budding economies
The mainstream view about manufacturing foreign direct investment (FDI) migrating from China and elsewhere, where wages are rising, to African countries where wages are relatively low, is increasingly unlikely. The informed view is that wages are not low enough in many African countries to compensate for inefficiencies like poor infrastructure, unskilled or semi-skilled labour and consequent low productivity.
In other words, as labour-intensive manufacturing has been migrating from China to emerging Asian countries like Vietnam, where wages are also now rising, the expected next transition to lower wage jurisdictions in Africa might be a pipe dream. And in any case, in the unlikely scenario that this changes, automation might have become so widespread that the thesis would have become irrelevant or untenable.
So should African countries give up on industrialisation? Not necessarily. African manufacturers could aim to cater for domestic consumption. And with the African Continental Free Trade Agreement (AfCFTA) in force by end-May, they could also aim to serve the continent. So, fast moving consumer goods, cement, petrochemicals, and so on, are industries that could still be developed. Yes, you guessed it. Nigeria should sign the AfCFTA right away.
Aliko Dangote, Africa’s richest man, is a good example of what is currently feasible. If you look at his portfolio of manufacturing endeavours, which mirror the aforementioned, it is only cement that he is probably able to export currently. And it is largely to neighbouring African countries. Dangote’s soon to be completed crude oil refinery in Lagos would probably also enable him export fuel and petrochemicals; likely to other African countries as well. These are the types of manufacturing that could now be reasonably hoped for. In other words, Dangote’s industrial endeavours already exemplify Nigeria’s currently feasible or optimal manufacturing possibilities frontier. So, the authorities should enable more Dangotes.
Put simply, our industrial development goal as a country should no longer be to be part of global value chains (GVCs) as being advocated by mainstream experts. This is because recent and likely future trends of nationalism and automation would likely make current GVCs not very “global” pretty soon.
In the Nigerian case, the agricultural value chain, from the farm to the factory gate, is still viable and would accommodate a lot of jobs. Nigeria could also begin to develop new industries. With lithium, a key input for batteries of electric vehicles (EVs), which Nigeria has in abundance in the northcentral state of Nassarawa, the authorities could certainly aim to make Nigeria an intergral part of the battery segment of the global EV value chain.
The movie industry (or Nollywood), which reportedly already employs more than 1 million people, could also be scaled-up. Other sectors of the entertainment industry probably employ just as much. And certainly, stronger intellectual property laws and enforcement could easily double that number; talk less of other more substantive measures. Of course, it is important to mention that Nigerian banks are already doing their bit to enhance the creative industry; with affordable loan facilities, for instance. What needs to be done is to find ways to scale-up that effort as well.