Manufacturing on the rise: The government is implementing an ambitious long-term industrial development policy

Nigeria’s industrial sector is expected to grow considerably over the course of the coming decade, largely as a result of Vision 20:2020, the state’s overarching long-term economic development blueprint. Under the plan, which was introduced in 2010, the government aims to expand the industrial sector’s contribution to GDP from its current 4-5% to at least 25% by the end of the decade. To meet this ambitious goal, the state is working to ramp up domestic production of manufactured and processed goods. The expansion plan will be managed and implemented by the government, but is expected to be funded almost entirely by private firms, either through direct investment or public-private partnerships (PPPs). Indeed, boosting private sector participation is considered to be a key component of Vision 20:2020 and vital to meeting the plan’s goal of turning Nigeria into one of the world’s top 20 economies by 2020.

CHALLENGES: A number of hurdles stand in the way of the policy’s successful implementation. Haphazard development since the 1960s has resulted in an industrial sector that is disorganised and under-capitalised. Additionally, the sector faces many structural challenges, including regular power outages and a rapidly deteriorating transport network. These issues have had negative long-term effects. According to a recent report released by the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, between 2009 and 2011, some 800 Nigerian manufacturers were forced to shut down due to the country’s challenging operating environment, and more than 50% of the remaining firms were characterised as “ailing”.

Despite this challenging situation, many industrial players are optimistic about the future. In recent years the government has shown itself to be increasingly adept at implementing transformative economic development programmes. The rapid progress of the cement industry over the past decade (see overview) is considered to be a prime example of the efficacy of the state’s newfound approach to economic growth, which relies largely on private investment. Indeed, PPPs are expected to play a major role in the advancement of the industrial sector under Vision 20:2020.

HISTORY: In the half-century since Nigeria achieved independence, the government has introduced a number of industrial plans, with varying degrees of success.

In the mid-1960s the newly formed government introduced a policy of import substitution industrialisation (ISI), in line with other African countries at the time and based on similar initiatives in Latin America. The policy was designed to replace foreign imports with local production and included a variety of incentives to attract foreign investment, such as tax holidays and subsidised electricity. However, despite resulting in some expansion, in general ISI policies fell flat, hampered by a lack of commitment on the part of subsequent governments, among other issues.

Throughout the 1980s, 1990s and 2000s Nigeria saw the establishment of other formal industrial policies. In 2000 the state created the Bank of Industry in an effort to ease access to financing for local industrial firms. These policies had a modest impact on some segments, but the industrial sector has still seen diminishing returns. This is largely the result of a lack of continuity between successive administrations and the government’s continued focus on the booming oil and gas industry, at the expense of non-oil sectors.

VISION 20: 2020: The current industrial development plan is markedly different than past governmental initiatives. Instead of protecting local firms from international competition, Vision 20:2020 aims to equip local private companies with funding, training and support to enable them to compete at the international level.

The majority of this training and technology transfer will take place between private sector players, both foreign and local. Another difference of Vision 20:2020 is that it was developed with implementation in mind.

The strategy addresses Nigeria’s weak record in terms of putting ambitious development plans in action, by stating, “Deepening the ability of government at both [the] state and federal levels, to consistently translate strategic intent into action and results on a permanent basis, is recognised as the single most important factor in making [Vision 20:2020] a reality.” The strategy also lays out a comprehensive blueprint for implementing the plan, which includes measures to strengthen the country’s institutional framework and more effectively budget for long-term expenditure.

STRATEGY SHIFT: Most Nigerian manufacturers currently generate the majority of their revenues through the export of low-value, low-margin products, such as raw agricultural materials. Under the new strategy, the state plans to shift the sector towards the production of high-value products, “as manufactured products have diversified demand and offer greater potential for market growth than primary products”. The industrial sector will be reorganised into economic clusters, allowing the government and private sector to concentrate their efforts. The government plans to set up four different types of clusters, namely industrial parks, which can cover areas of no less than 3050 ha; industrial clusters, which can cover 100-1000 ha; enterprise zones of 5-30 ha; and incubators of 1-5ha.

Each cluster will be focused on one of 10 industries, which have been organised by priority. High-priority industries, which are those segments that can be developed in less than five years, include the chemicals and pharmaceuticals segment; the non-metallic mineral products segment; the basic metal, iron, steel and fabricated metal segment; the textiles segment; and the food, beverages and tobacco segment. Medium-priority segments, or those expected to be developed in a period of 10 years or less, include the paper products and pulp segment; the domestic and industrial plastic and rubber segment; and the wood and wood products segment. Finally, low-priority industries, which will likely exceed 10 years to develop, include the electrical and electronics segment and the motor vehicle segment. While the government plans to fund infrastructure projects, private investors and PPPs will fund the majority of the development within each cluster.

The industrial development component of Vision 20:2020 includes six strategic initiatives. First, the plan advocates improving and expanding the use of new technologies to boost efficiency and production capabilities. Firms will be encouraged to acquire technology through both licensing and technology-transfer agreements with foreign companies. Second, all manufactured and processed goods will be held to quality standards in line with international precedents and set by the Standards Organisation of Nigeria. This will allow high-quality goods to compete more favourably with low-quality imports. Third, the government will improve the country’s transport networks, in line with the Federal Ministry of Transport’s long-term development plan (see Transport chapter). Fourth, individual sectors will be encouraged to institute new integrated supply-chain management systems in an effort to streamline production and export activities. Fifth, the state will focus on enhancing the industrial sector’s research and development capabilities, both independently and in conjunction with higher education institutions. Finally, the government will leverage PPPs as the primary means of funding and developing the sector.

PROGRESS: Commissioned in the mid-2000s, Vision 20:2020 was formally launched in May 2010 under the current president, Goodluck Jonathan. The government has been progressing on the first of the three National Implementation Plans (NIPs) that make up the policy. Under this initial phase, which runs through 2013, the government plans to invest N111.82m ($715,600) in the manufacturing sector and increase the sector’s contribution to GDP from 4% in 2010 to around 12% by the end of 2013. In mid-March 2012, after two years of slow progress on the industrial development component of the first NIP, the government created a new committee that focuses on jump-starting development in the sector and achieving the short-term objectives described in the NIP document. These goals include expanding local manufacturing by 5% annually and increasing the percentage of manufactured exports from 2.5% in 2010 to 20% by the end of 2013.