“Time ticks for Nigeria to diversify from oil or face bleak future.”- BusinessDay, 27 July 2017
It has been realized that the rising attractiveness and decreasing cost of producing electric cars may end the high demand for oil. With some of the world’s most developed nations considering a ban on the sale of gasoline-powered cars, what is in store for an oil dependent Nigeria?
Nations that command greater influence in world affairs maintain a reasonable control of their economy. That means control of factors of production and industries which are the backbone of any meaningful economic development in a nation. When there is technological backwardness as experienced in Nigeria with a consequential economic underdevelopment, policy makers need to interrogate and put into focus underlying reasons why the nation is drifting.
Although, it may seem paradoxical, as many economists consider an abundant supply of natural resources to be a potential curse which slows growth, hinders economic diversification, and limits the effectiveness of governments’ capacity building efforts. For many countries such as Nigeria whose exports consists mainly of raw materials, what is the strategy the nation wants to adopt for survival of its people when oil is likely to be less relevant in the future as reflected in the quotation above?
There is no doubt that Nigeria is blessed with abundant natural resources. Despite availability of abundant natural resources and huge revenue generated from the sale of oil and gas, Nigeria’s economy has not significantly responded to the pressures of demand from over 180 million people. This is an indication that wealth without an active manufacturing sector has its limits. As more countries plan to ban the use of petrol cars, industry watchers say this could spell doom for Nigeria whose economy is heavily dependent on sale of crude oil in the international market.
Nigeria’s economy is not beyond redemption provided those in government remain focused. Research findings have shown however, that natural resource endowments do not inevitably inhibit economic growth. On the contrary, countries can grow and prosper by adding value to their natural resources in almost all sectors of the economy before they are exported and by building the capacity of Medium and Small Scale Enterprises (MSMEs) to compete effectively in the knowledge-intensive segments of the natural resource value chain.
To escape the natural resource curse, Nigeria has to build appropriate technological capacity so that local firms have the ability to produce and export more knowledge-intensive goods and services with workers having the skills to perform more complex tasks. Improving the supply of skilled workers through sound educational system and training programs that are pro-industry are prerequisites for the success of any innovative initiative.
It’s rather unfortunate that in economic recession most businesses are negatively impacted and staff retrenched. Nigeria needs to improve its education sector so that the nation has skilled workers. However, increasing the number of skilled workers may lead to brain drain if it’s not backed up by a corresponding increase in the demand for skilled workers by private firms.
If Nigeria wants to create wealth and further diversify its economy, the MSMEs must be assisted to drive domestic manufacturing for exports. I find it extremely difficult to understand why “Nigeria loses N76 billion to potato chips importation annually.” Policy makers in Nigeria should take urgent steps to redeem the economic woes of the nation before the demand for crude oil is drastically reduced.
It is acknowledged that most MSMEs have challenges. It is not only finance that is the challenge of an average MSME. They need to conduct their businesses in a transparent and most ethical manner. Importantly, MSMEs should have a compliance toolkit which gives them the opportunity to comply with existing laws and regulations. They must have internal processes to enable them comply with financial obligations.
On the part of the government, contract bidding platforms must be digitalized to reduce engagement of MSME operators with corrupt officials in Ministries, Departments, and Agencies. There must a collective action against corruption in Nigeria if MSMEs are to thrive. Corruption exhibited by some government officials is very embarrassing. It appears some government officials are exempted from this fight against corruption, as multiple taxation poses serious challenge to the growth of the MSMEs in Nigeria.
Importantly, regulatory agencies like NAFDAC and SON needs to be overhauled to ensure high quality of domestic products and enhance global competitiveness. It is not enough to establish a business entity; the firm must operate under the best business climate that Nigeria can provide. Provision of good roads and electricity supply will go a long way in reducing the financial burden on most MSMEs. Smuggling will be the death knell of many local producing firms if not controlled by the Federal Government.
Leveling the playing field, reducing administrative barriers, and reducing the cost of doing business are essential but not sufficient conditions for higher productivity, increased competitiveness, and economic diversification. This is because capacity building and barrier reduction are not the same. Barrier reduction is necessary, but not sufficient for businesses to thrive, and perhaps, become more innovative.
Firms will not be able to exploit competitive opportunities generated by a good business climate if their workforce does not have the requisite skills to perform higher value added task. Good business climate will also not help local firms if they do not have the organizational ability, technical competence and managerial capacity to invest, innovate and enter into strategic supply chain arrangements with other firms operating in a global technological frontier.