By Dr Dele Sobowale
“Every economy can only be as strong as its manufacturing base.”
Akio Morita, Harvard Business Review, May-June 1992.
When Morita wrote that article in the Harvard Business Review, HBR, Japan was the leading manufacturing economy in the world. American and European scholars were falling over themselves trying to understand the art and science of Japanese management. Several lessons were learnt which, at the time, appeared unique to the Japanese.
Focus on quality was one; just-in-time delivery of raw materials and parts to the factory was another; economy of scope replaced the century-long economy of scale to make each manufacturing unit more productive than ever before.
The nation’s Gross Domestic Product, GDP, grew about 8 per cent per annum for over a decade. Japan rose to become the world’s second-largest economy, surpassed only by the United States of America.
A nation with almost no natural resources was suddenly the world’s leading manufacturer. Japanese products from cars to cameras, tools to television sets, took over markets once dominated by European and American products; Toyota eventually upended General Motors as the world’ s largest global auto manufacturer. The Japanese seemed unstoppable. Futurists were busy trying to guess when Japan would eventually overtake America as the world’s largest economy. It is quite possible that the Japanese themselves believed the pundits regarding their inevitable rise to the top.
Unexpectedly, the rapid growth slowed down; at first unnoticeably, but, it later gathered momentum. Today, Japan has slipped to the third position behind USA and China. Furthermore, it might soon fall behind India to the fourth position. The obvious question is what happened? The general answer is: loss of manufacturing power. China and India have overtaken Japan in manufacturing. Not only that, China and India are proving that a nation without a large population and natural resources can only go so far with the most productive manpower base.
HOW THE BIG THREE DEVELOPED
The Industrial Revolution did not start in the US, China or India. Europe was its birthplace and Europe consequently colonized the rest of the world and forced us to supply raw materials to the factories of Europe and to accept the products manufactured there. Modern civilization followed the rise of industries and a template for economic development and competitiveness was laid.
From an agrarian nation a country must strive to move into manufacturing as soon as possible; supply its own domestic needs first, and then venture into export. Comparative advantage dictated that each nation should focus on those goods which in the beginning were easiest for it to produce in large quantities given geographical and environmental advantages.
It was not surprising that certain parts of the world, at first, specialized in supplying certain commodities as raw materials for industrial Europe; until they gradually started moving into manufacturing themselves. For most of the seventeenth to half of the twentieth century, manufacturing was the main driver of economic growth and development.
To a great extent, manufacturing is still the major catalyst of economic progress. However, since the last half of the last century, the service economy has gradually emerged as the major employer of labour in many countries. America, which had emerged as the largest economy after World War II and the most powerful, had gradually moved towards a service-led economy.
Either deliberately or inadvertently, the US had out-sourced its manufacturing to countries in Asia – Japan, China, South Korea – in order to concentrate on the emerging fields of internet and communications. The unintended repercussion had been a shift of economic power to South East Asia.
HOW AND WHY DID NIGERIA MISS THE BOAT?
The Nigerian economy until 1973 was based on production and export of agricultural products, mining of coal, tin and crude oil. Each of the three original regions had its own Marketing Board, based in London.
They engaged in export promotions. The main export revenue earners were: cocoa, palm oil, cotton, hides and skins, groundnuts, timber, coal, tin and crude oil, which was discovered in 1959, was a minor contributor to export revenue. The nation, until the middle 1970s was a net food exporter. [See the table below].
Even during the three years Civil War, 1967-1970, Nigeria was still a net food exporter. It was not the discovery of crude oil that altered the pattern of the Nigerian economy; it was the 1973 Six Days War between Israel and the Arabs, and the decision of the Organisation of Petroleum Exporting Countries, OPEC, which enthroned crude oil as the nation’ s major foreign exchange earner till today. The sudden and unprecedented increase in crude oil revenue resulted in shift of focus from agriculture and agro-allied enterprises to petroleum sector.
Manufacturing had hitherto made a small contribution to the Gross Domestic Product, GDP, the sudden increase in crude oil revenue in 1973 to 1978 encouraged the establishment of industrial estates in Lagos, Kaduna, Kano, Jos, Aba and Portharcourt. Even then manufacturing always constituted a small percentage of the nation’s Gross Domestic Product, GDP. In fact, manufacturing was so small, it was frequently lumped together with Industry – which was dominated by oil and gas exploration and fuel imports, as well as power supply. (See the table below).
Many of the factories established in the 1970s and 1980s were based on the import substitution policy.
Breweries and beverages produced brands that were previously imported – beer, stout, cocoa drinks, seasonings, pharmaceuticals, paints, tyres, and even cars and trucks. When the Naira was stronger than the dollar — $1 exchanged for 70 kobo – in 1973/4 – multinationals found it extremely profitable to produce and sell locally. They expanded as the market grew with increasing population.
The crunch came in the early 1980s when the price of crude oil plummeted to under $15 per barrel; exchange rates steadily escalated and per capita purchasing power dropped sharply. It has been a long struggle since the 1980s till now. Many of the products formerly manufactured in Nigeria – cars, trucks, batteries, textiles, drugs, corned beef, tyres, iron rods, roofing sheets, iron rods etc — are now imported.
MISMANAGEMENT OF TWO OIL RESOURCES WRECKED NIGERIA.
Two oil resources – palm oil and crude oil – which paved the way for the industrialisation of Malaysia and Indonesia were available to Nigeria in abundance.
Palm Oil
It is a part of our sad history that Malaysians came to the National Horticultural Research Institute, NIHORT, in Edo State to collect seedlings of palm carnel and to learn how Nigeria became the world’s leading exporter of palm oil products in the 1960s.
Nigeria was exporting raw palm products and not developing improved seeds which yielded increased harvest. Furthermore, Nigerian palm products were not processed as raw materials for other industrial products. Malaysia, not only undertook research to multiply yields per hectare, the country also utilized the base palm products to diversify into over seventy different manufactured products.
Indonesia went to Malaysia for seedlings; improved on them and today Indonesia is the largest global producer of palm products; followed by Malaysia. Together, the two countries account for 80 per cent of global supply.
Furthermore, the two countries earn more foreign exchange from raw and processed palm products than Nigeria’s GDP every year. Nigeria, formerly the world’s largest producer is now a net importer of palm oil products. Every government, since 1973 has contributed to the current situation.
Crude oil and the massive corruption condemned Nigeria to backwardness.
When we turn to the opportunities missed by the mismanagement of the nation’s crude oil resources, the heart bleeds. Crude oil discovery in Nigeria was perhaps the greatest blessing turned to a curse by heartless leaders in any nation.
Petroleum refining inevitably results in diversification of industries everywhere except Nigeria. The nation started moving in the right direction with the establishment of four refineries – until corruption took control.
Refineries, contrary to what most Nigerians believe are not established just to produce petrol, diesel, kerosene and jet fuel. Processing crude oil in other countries, better governed, is always the start of many other industries. It provides the raw and intermediate materials on which other industries depend. A list of the by-products of crude processing will be provided shortly.
But, the point must be emphasized that by allowing Nigeria’s four refineries to be crippled, every Nigerian leader has contributed to making Nigerian “The Wretched of the Earth” – apologies to Fannon.
By-products of Refining and the industries they could have fostered.
At the last count, the products and by-products of refining crude oil include, but are not limited to the following: Fuels like gasoline, diesel, jet fuel, kerosene, and fuel oil, as well as other products such as liquefied petroleum gas (LPG), lubricants, waxes, asphalt, and petrochemical feedstocks used to make plastics and other chemicals.
These are all complex mixtures of hydrocarbons and other compounds, refined from crude oil into usable products through industrial processes like distillation.
Common Crude Oil Derivatives
Fuels:
Gasoline (Petrol): Fuel for most passenger vehicles.
Diesel Fuel/Heating Oil: Used for heavy-duty transportation, agricultural equipment, and heating homes.
Jet Fuel: Used in aviation.
Kerosene: Used for lamps and some jet fuels.
Fuel Oil: Used in heavy industrial applications, ships, and some large power plants.
Liquefied Petroleum Gas (LPG): A mix of propane and butane, used as a fuel.
Lubricants: Used to reduce friction between moving parts in engines and machinery.
Waxes (e.g., Paraffin): Used in candles, polishes, and other household products.
Asphalt: Used for paving roads and roofing.
Petrochemical Feedstocks: Raw materials from which other products are made, such as olefins and aromatic compounds, which are precursors for plastics, solvents, and synthetic materials.
How They Are Made
These derivatives are obtained by refining crude oil. In an oil refinery, crude oil is heated and separated by distillation into different fractions based on their boiling points. This process creates various products, which can then be further treated or used as feedstocks for the petrochemical industry.”
Virtually every one of those products are currently imported into Nigeria on account of comatose refineries. Consequently, the nation is not just having public funds embezzled by government officials appointed to manage the petroleum sector, they actively impede the nation’s march towards industrialization. They also export jobs which should have been created here.
Nigeria’s Niger Delta, now receiving 13 per cent derivation from crude oil production, without functioning refineries, is being seriously short-changed, because it lacks the industries which should have sprung up if Nigerian leaders have insisted on getting crude oil refined in Nigeria and the by-products processed into final or, at least, intermediate industrial inputs.
Nigeria: A service economy without an industrial base.
The ultimate tragedy of the Nigerian economy occurred as the country transited from an agricultural economy to a service, construction and ICT economy without ever becoming a manufacturing country.
Returning to the right path is now a daunting task. But, unless we increase the contribution of manufacturing to the economy, high unemployment and poverty will remain intractable. Morata’s observation was absolutely correct.
The top ten leading economies are also the largest manufacturers.
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