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In Nigeria, One Size Doesn’t Fit All

Volker Treichel's picture

I blogged a few months ago about a paper Justin Lin and I were writing that focused on applying  the Growth Identification and Facilitation Framework in Nigeria.  The paper has just recently been completed and is now available online.

In the meantime, attacks on the UN house in Abuja have highlighted the extreme social tensions experienced by Nigeria. Many of these tensions may be related to the country’s persistent poverty. In fact, notwithstanding high and sustained growth over the past decade, Nigeria’s job creation has barely kept up with the relentless growth of its workforce, and youth unemployment has further risen.  Moreover, formal sector employment has fallen, as a result of privatization and civil service retrenchment, while employment in informal family agriculture has increased. 

Nigeria urgently needs to increase employment intensity and sustainability of its growth performance, and our paper can be a useful tool for developing a strategy to do so. 

The Growth Identification and Facilitation Framework  is ever more relevant today as it will allow to harness key insights articulated in the recent speech by Justin Lin on the opportunities for Africa created by China’s move up the value-added ladder.   China currently employs 85 million workers in low-skilled manufacturing jobs that will have to be relocated elsewhere because of rising wages and productivity levels.  At this point, China’s monthly wages for unskilled labor is about $350 compared to less than $100 in most African countries. 

What are these sectors in Nigeria and what does Nigeria need to do to develop them?   

Using the GIFF methodology, the paper identifies a wide range of products and sectors,  including footwear, motorcycles, consumer electronics (refrigerators, color TV’s and microwaves for example), paper and paperboard, pharmaceuticals, car parts, meat and meat products and oil seeds, leather, travel goods, tires and office machines as sectors that have high growth and employment potential, as they are produced by countries with rising wages and therefore deteriorating competitiveness.   In addition, Nigeria needs to develop its natural resources by developing its petrochemical, organic chemical and fertilizer industry. 

Before deciding on targeting these sectors, however, the government needs to do some further analysis to ascertain whether they are indeed in line with the country’s latent comparative advantage.   First, sectors with very high capital requirements and only small domestic markets should be eliminated, given that Nigeria is not a capital abundant country and initially success will be in catering to the large domestic market.  Second, a supply chain should exist for each product in the domestic market.  Third, raw materials should be available in the domestic market or could be easily imported.  Fourth, labor skills should be easily transferable.   Applying these pre-screening criteria reveals for example that sportswear is not a competitive commodity given the unavailability of PVC in the domestic Nigerian market, although it is labor-intensive and a sunset industry in the comparator countries. 

In a further step,  Nigeria’s wage competitiveness in the pre-selected sectors should be reviewed by comparing the relevant sector-specific wage data in Nigeria with those in the competitor countries.
 
Specific measures to attract investors in these areas or help existing companies to grow faster include the creation of industrial parks with dedicated power plants, selective capacity-building in key government agencies such as the Standards Organization of Nigeria, preferential access to finance and mobilization of mortgage-based finance, liberalization of trade policy and targeted efforts to improve technical and vocational skills in the key sectors.

In designing intervention programs for sectors, it is crucial to have an indepth understanding of the industry, given that each industry has a different set of constraints.   For example, tomato paste producers have indicated that their growth potential would sharply improve if domestic  production of tomatoes could be scaled up.  In addition, specific government incentives such as for Research and Development and the full operationalization of the Export Expansion Grant (EEG) would be crucial to facilitate growth in food processing.  At the same time, growth in motorcycle assembly would benefit from better trade facilitation so as to reduce the delay in imports and the allocation of land to allow for the expansion of production to reap benefits from economies of scale.
 
These examples highlight one of the key principles of the Growth Identification and Facilitation Framework which is “Not one size fits all”.   In selecting target sectors and intervention programs, judgment about specific country and industry circumstances needs to be applied. 
 
In particular at this time, as China moves up the value-added ladder, this is a crucial time for Africa to develop its manufacturing sector, create high-quality jobs and improve its external competitiveness.   This paper will hopefully help Nigeria lay out a roadmap towards this objective. 
 

Comments

Submitted by Tunde on
This is a wonderful article on Nigeria, for a change. Without being patronising, it makes useful suggestions on what we can do internally to increase the number of jobs and spur the economy. It also shows some knowledge on what the government is doing to make things better and how these efforts can be improved. Thanks, Mr. Treichel!