Nigeria has plentiful natural resources, the largest domestic market in Africa and an abundant and cheap labour force. Why, then, has its industrial performance been so disappointing? What capability factors may explain this? Is there any prospect of increasing Nigeria’s industrial capacity to reverse its slide into industrial marginalisation?

A report from the University of Oxford’s Queen Elizabeth House draws on data from the United Nations Industrial Development Organisation’s Industrial Development Report 2002/2003 to compare the industrial performance and capabilities of Nigeria with selected African countries and other oil producers. Analysis of such structural drivers for industrial competitiveness as human resources, technology transfer, foreign direct investment and ICT infrastructure paints a depressing picture of lost opportunities.

Between 1985 and 2000, total manufacturing value added (MVA) and manufactured exports declined dramatically in Nigeria. With booming oil exports, Nigeria has become dangerously dependent on petroleum as the only means to obtain foreign exchange. As international pressures mount, Nigeria is clearly losing its competitive edge in manufacturing. Weak industrial capabilities partly explained Nigeria’s poor industrial performance. Severe flaws in the education system, technological stagnation of domestic companies, lack of foreign investment in manufacturing, negligible technology transfer from transnational corporations (TNCs) and weak ICT infrastructure constitute significant factors for failure.

The report shows that:

• In 1998 Nigeria ranked tenth in the region in industrial performance, only doing better than Tanzania, Malawi, Madagascar, Central African Republic, Uganda, Ghana and Ethiopia.
• Unlike most other oil exporters, Nigeria has neither diversified into manufacturing activities nor moved into more value added, and technologically sophisticated, refined and processed products.
• Per capita MVA is only a sixth of nearby Senegal.
• Manufactured exports plummeted from US $216 million in 1985 to US $88 million in 2000, making Nigeria one of the less export-oriented economies in the world.
• Nigeria earned only US $4.5 million from food exports in 2000, far below its capacity.
• While textile and clothing has been an engine of growth in many countries with cheap and abundant labour, the Nigerian clothing sector has shrunk and failed to follow other African states into lucrative niches.

By contrast, expanded petroleum exports have made the Nigerian oil sector one of the most dynamic in the world. Nigeria’s oil exports account for 12 per cent of world market share. Yet this level of dependence is not conducive to sustainable economic growth as the industry can be badly affected by changing world prices and other external shocks. Failure to invest in the oil refineries capable of producing low sulphur light products means that Nigeria has become the biggest net importer of refined petroleum products among all oil exporting countries. By contrast, in Indonesia – another large oil exporter – refined and processed oil products now account for 30 per cent of total oil exports, and manufactured exports have increased sharply in the last decade.

Can Nigeria escape its low equilibrium trap, raise the share of manufactures in total exports and shift to more complex export sectors? The report argues that Nigeria needs to:

• have an ‘industrial vision’ to prioritise policies, making them rational and cost-effective
• stop unconditional government support to oil extraction as the sole engine of economic growth
• build up the industrial capabilities required to achieve this ‘vision’
• take advantage of its comparative advantage in labour-intensive industries
• attract export-oriented foreign direct investment in the manufacturing sector – the government needs to set up an Investment Promotion Agency (IPA)
• urgently correct the poor governance record which deters foreign investors.

Source(s):
‘Industrial realities in Nigeria: from bad to worse’, Working Paper Number 101, Queen Elizabeth House, University of Oxford, by Manuel Albaladejo, March 2003 Full document.

Funded by: UNIDO

id21 Research Highlight: 7 August 2003

Further Information:
Manuel Albaladejo
21 St Giles
Queen Elizabeth House
University of Oxford
Oxford OX1 3LA
UK

Tel: +44 (0)1865 273623
Fax: +44 (0)1865 273607
Contact the contributor: manuel.albaladejo@qeh.ox.ac.uk

Queen Elizabeth House (QEH), UK

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