This concluding segment of the ‘Inflation in the Face of Bounty’ series delves into the untapped potential of Nigeria’s manufacturing sector and emphasizes the critical need to enhance its capacity for the production, consumption, and exportation of finished goods. It is widely recognized that Nigeria has struggled to effectively transform raw materials into finished products. For example, in a 2019 exclusive interview with Daily Trust, the president of the Manufacturers Association of Nigeria (MAN) highlighted Nigeria’s ability to generate substantial volumes of raw materials across multiple sectors. However, the country has yet to fully capitalize on the opportunity to convert these raw materials into finished goods. As a consequence, Nigeria exports its raw materials at low prices while importing the finished products at higher costs. This trade pattern hinders the country’s economic progress, diversification, and growth, as well as impedes value-chain expansion, job creation, revenue generation, international trade, and investments, among other factors.
According to the Nigerian Export Promotion Council (NEPC), a significant portion of non-oil raw materials produced in the country emanates from the agricultural sector. This can be attributed to the vast arable land, rich biodiversity, weather, fast-growing human capital and other favourable conditions. These products include cocoa beans, sesame seeds, cigarettes, cashew nuts, finished leather, soya bean meal, and cocoa butter, among others. The country holds the record as the 4th largest producer of cocoa beans, globally. Yet, it exports roughly 90% of these cocoa beans and processes only 10% (see Figure 1). However, transforming this raw material into finished goods such as chocolate, cocoa powder, etc would have been more economically beneficial to the country. Here is a brief calculation, Nigeria made roughly $33.50 million from exporting cocoa beans to the USA in 2021. In return, the USA made about USD 30 billion in 2021 from the sales of chocolate. Also, Nigeria makes USD$83.73 Million, and US$34.57 Million from cocoa exports to Germany and Belgium respectively. However, both countries make nearly USD 15 billion each from chocolate alone yearly. These are some of the economic narratives that need urgent change in Nigeria, as it is common knowledge that companies that produce and export finished goods make higher revenues. Hence, they can contribute significantly to the country’s revenue through various taxes, levies and duties imposed by the government.
In addition to the potential economic benefit from the exportation of finished goods, the manufacturing sector can also reduce the high rate of unemployment in the country. Data shows that the largest manufacturing countries in the world have significantly low unemployment rates. (See the chart below).
The manufacturing sector employs about 18 million people in China, 12 million people in the USA, 7.7 million people in Japan, 7.6 million people in Germany, and 27.3 million people in India. Nigeria has about 33.3% unemployment rate, one of the highest globally; and the manufacturing sector employed only 1.7 million people between 2013 and 2022. The exportation of raw materials in Nigeria deprives the citizens of jobs that would have been created from value chain expansion; and the development of new technical and managerial skills and capacities.
The sector also has the capacity to boost foreign direct investment (FDI) in the country. Data from the Commerce Department’s Bureau of Economic Analysis shows that the manufacturing sector of the USA is the largest beneficiary of Foreign Direct Investment (FDI) in the country, accounting for more than one-third of that investment. In addition to this, every $1 spent on manufacturing generates $1.35 in additional economic activity for the country. This shows the pivotal role that the production and exportation of finished products play in attracting foreign investment and driving economic growth. Nigeria’s total FDI is only 0.27% of the global FDI and 4% of FDI in Africa. The establishment of more manufacturing companies in the country can accelerate FDI and capital inflows because more industries will emerge at different stages of the value chain to provide support to the manufacturer.
A buoyant manufacturing sector is pivotal to curbing the current inflation rate in Nigeria and improving the overall growth of the economy. It will significantly increase the production of finished products, thereby decreasing the volume of exported raw materials, and the country’s dependence on importation.
In conclusion, the “Inflation in the Face of Bounty” multisector series sheds light on Nigeria’s untapped economic potential, which can play a pivotal role in curbing inflation and driving economic growth. To achieve these goals, it is imperative to implement interventions that bolster local food production, improve farmers’ livelihoods, and guarantee affordable access to nutritious food within the agri-food sector. Additionally, the government must prioritize the development of a diversified transportation system, ensure a reliable and consistent electricity supply, and effectively manage water infrastructure. Lastly, a comprehensive approach entails active engagement with the manufacturing sector, reducing raw material exports, and prioritizing the consumption and exportation of finished goods. By adopting these measures, Nigeria can harness its economic potential and lay the foundation for a more prosperous future.
About the Author(s)
Olayide Oyeleke is an associate at The AR Initiative.
