M.A. Johnson

A thriving capital goods sector is essential to industrialization

by MA JOHNSON

March 13, 2018 | 1:03 am
  |     |     |   Start Conversation

It is sad to remember that after 250 years of the first industrial revolution, and fifty-eight years of independence, Nigeria cannot have a thriving capital goods sector. Nigeria finds it very challenging to build and maintain textile mills, sewing machines and other machines used in the textile industry. Most textile firms across the country have closed down. Interestingly, most Nigerians wear expensive clothes and enjoy looking good always. Most clothes we wear, and machines used in sewing gorgeous and stylishly stitched kaftan, long wrappers and blouses, including agbada/babaringa  are not made in Nigeria, and may not be produced in the country soon.

In fact, any country of about 180 million people that prides itself as the seventh most populous country in the world with abundant mineral resources, must have a thriving capital good sector. You may wonder why a thriving capital goods sector is imperative. The capital goods sector is imperative to enhance the production of locally made goods if the government meant business. Otherwise, the country will continually face foreign exchange challenges especially when it depends solely on imports.

It is no longer news that sharp drop in crude oil price in 2015 took Nigeria’s economy into recession. And that increase in the price of crude oil in the international market took Nigeria out of recession in the last quarter of 2017. With the price of crude oil oscillating like a pendulum and dropping like a ripe orange, Nigeria’s dependence on crude oil for industrialization will not work. If crude oil was to be the determinant for industrialization, Nigeria would have emerged as an industrialized country more than forty years ago.

Industrialization, according to Wikipedia, is “the period of social and economic change that transforms a human group from an agrarian society into an industrial society, involving extensive re-organization of an economy for the purpose of manufacturing.” If manufacturing was accorded its prime place, the country must improve its ease of doing business ranking, develop infrastructure, ensure availability of most raw materials locally, reduce production bottlenecks, improve industrial linkages, eradicate multiple taxation and provide viable investment opportunities for those willing to invest in Nigeria. Until the country is able to ensure these requirements are met and sustained with appropriate legal and regulatory frameworks, no one should be in doubt that Nigeria is not an industrialized nation. Nigeria can best be regarded as an oil producing nation with agrarian ambition.

Capital goods sector is that sector of the economy which build machines for all the other sectors. Karl Marx, in his book, “Capita: A Critique of Political Economy,” classified goods into two broad categories namely, producers’ goods and consumers’ goods. The producers’ goods is further subdivided into those proposed for making producers’ goods, that is steel used in making machinery or machine tools; and producers’ goods used for making consumer goods, for example, industrial sewing machines.” Simply put, all machine tools, machines, engines, equipment, and plants used in aviation, shipbuilding, railways, Defence, telecommunications and other industries have to be designed and built by the capital goods sector. The capital goods sector when developed has the greatest potential for expanding a nation’s productive capacity and also, accommodating most Nigerian unemployed graduates.  The chain of businesses that would support a thriving capital good sector is immeasurable.

A measure of Nigeria’s industrial backwardness can be seen from the fact that even to manufacture a pin or better still, the proposed made-in-Nigeria pencil, will require the nation importing the capital good for these purposes. That is why the reactivation of steel projects in Nigeria becomes very vital. Although, the nation’s foreign reserve is gradually increasing, Nigeria cannot sustain the importation of all capital goods required to drive the economy of the seventh most populous country in the world.

The iron and steel plants such as the Delta Steel Complex, and the Ajaokuta Steel complex as well as all rolling mills represent an assembly of capital goods. All known products loved by Nigerians such as cars, motorcycles, sewing machines, yam pounding machines, wrist watches and mobile phones can only be built after the appropriate capital goods have first been manufactured and deployed for use in manufacturing the intermediate and consumer goods. These are products of modern industry which must follow the capital goods sector. That is, if Nigeria wished to be part of the industrialized world as chorused by those in the government then a thriving capital goods sector must first be established and not vice versa. Nigerians generally, including those in the government, cannot love products of modern industry without first producing the machinery and equipment that are used to produce them.

A vibrant steel sector is the starting point of any industrialization effort in any country and it is the core of economic development. Those federal lawmakers, and in particular, Nigerians who are in favour of the resuscitation and completion of the Ajaokuta and Delta Steel Complexes are in order. But how to go about reactivating these moribund edifices is the challenge. Out of all the options available for reactivating these plants namely, sales, concession and joint venture (JV),the JV partnership is preferred by this writer. The federal government should however not leave the management of joint ventures in the hands of foreign partners. This time Nigeria must not be seen as a “sleeping partner” because of corruption. The federal government should not be interested in collecting dividends, taxes and “entitlements” but it must monitor progress made to promote technological capability. Nigeria must develop its machine tool industry to build machines that are of economic significance to the country. A thriving capital goods sector will generate economic activities in the downstream sector, create job opportunities, and helps in the provision of machine parts and tools.

MA JOHNSON


by MA JOHNSON

March 13, 2018 | 1:03 am
12893  |   93   |   0  |   Start Conversation

Big Read |  

Analysis
Does Conoil need a makeover?

Does Conoil need a makeover?

One of Nigeria’s oldest company, Conoil Plc is looking like a company in need of a game changer as its...

MTN Felele