Now that Nigeria’s economic diversification is hot on the table

Although shaken by the tempest of the sinking oil prices, we still possess vastly untapped natural re-sources. That abundant natural heritage reassures the confidence we have that we can navigate out of the morass of depleting oil prices. Our favourable climate and fertile land support plentiful agri-cultural harvests as well as animal grazing. The northern Savannah, cultivate sorghum, millet, maize, groundnuts and cotton. The states of middle belt and southern parts of the country produce cassava, yam, plantain, maize, and sorghum. Palm oil, cocoa and rubber grow in the South. Today rice is cul-tivated in virtually every part of the country. The Niger Delta region, and fishers from lagoons, in-land rivers and lakes, provide over 80% of the fish consumed in the country and still export some. There are also about thirty-four solid minerals that are in approximately four hundred and fifty lo-cations in the country and comprise the abundance of metallic ores, precious metals, precious stones as well as industrial minerals. In addition to all of these is the vast endowment of natural gas. Nige-ria is quite fortunate. Each of its thirty-six states has at least two of the natural gifts to leverage for its growth and development. However, that would depend on our resolve to activate the markets around each of these endowments as appropriate.

Nigeria’s hope for successful economic diversification reclines on the extensive commercial develop-ment of these natural resources. But that, in turn, depends on properly functioning markets, an array of supporting public goods and supply chain infrastructure that will facilitate active trading on them. Of course, these must include substantial security provision and the advancement of private property rights protection. These are the factors that differentiate us from the developed countries of the world. For instance, if the manufacturers of vegetable oil are sure of regular supply of high-quality groundnuts from Kano state at competitive prices, there is no reason why it cannot produce for ex-ports to other West African countries. But the groundnuts farmers in Kano state will find it difficult to sell at such prices because of several logistics costs such as preservation, warehousing, transportation and security. And if the many vegetable oil manufacturing plants in Lagos are not able to produce for exports, the groundnut farmer will not have the incentive to continue at the scale required to meet the expectations of the Lagos manufacturer. There will be consequently the loss of prospective jobs on the entire value and supply chains due to the inadequacy of supporting public infrastructure that should enable the commercial activity.

Given this background, it is, therefore, heartwarming when we reflect on the potential effects that the CBN’s proposed N15 trillion deployment in the transport infrastructure will make in enhancing the connectedness of domestic markets to production centres. In the words of the governor of the central bank of Nigeria (CBN), the fiscal incentive expendable over 36 months will enable the creation of the infrastructure for connecting the supply-side (producers) with the demand side. Additionally, the governor of the central bank equally announced fiscal reliefs of up to N500 billion to enhance light-weight manufacturing. Although it is not yet clear how the CBN intends to apply N15 trillion in the transport infrastructure segment, any judicious spending of such amount should expectedly produce significantly positive outcomes. Nigeria’s underdevelopment considerably hinges on the tragedy of deficient supply chain infrastructure. Efficient rail systems linking all the geopolitical zones of the country should support the commercial exploitation of the agricultural capabilities as well as other natural resources that we own. The absence of these public goods that facilitate commercial activities has made us cede our natural resource procurement to China completely.

That is one of the major takeaways in prioritizing economic diversification. First, is the recovery of numerous lost economic advantages carelessly frittered away on account of the presence of crude oil. There are two ways to understand this. On the one hand, are several economies that replicated our natural agricultural endowments and have gained better commercial advantages in their produc-tion. The often-cited example is Malaysia’s competitive advantage in oil palm production. Of course, it was not only Malaysia that successfully overtook us in those areas that we initially had naturally endowed competitive edges. Many other countries, such as Ivory Coast did the same in the produc-tion of cocoa. The other way to appreciate this frittering away of natural economic advantages be-comes even more apparent with the illegal exploitation of our natural resources by the Chinese and nationals of many other countries in Asia who smartly improve on the value of the exploited re-sources and sell them to our manufacturing industries as raw material inputs. Thankfully, there are several cases of the arrest of many Chinese illegal miners spread out across the country, which also evidences this sad truth. These naturally endowed resources obtained from this country make their way to Chinese firms where they are slightly modified and repackaged as industrial raw materials that power our firms.

Effective commercialization of these natural resources requires a substantial supply of properly func-tioning public goods. Efficient electricity supply will support the preservation of agricultural produce as well as minimal level of improvement on harvests that enhances their marketability. Good transport infrastructure will ensure that these natural resources get to markets where they command the best monetary value possible. When the supply of public goods facilitates the commercialization of natural resources this way, it shortens the time to attaining full economic development for the coun-try as a whole if operated within an atmosphere of an efficient justice system. It also frees our manu-facturing sector from umbilical dependence on China and a few other Asian countries for their raw material inputs.

The kick-off of COVID-19 in China and its crescendo early in the year showed how China remotely controls the performance of our manufacturing sector. As soon as the Chinese government com-menced the lockdown of the Chinese city where most of the industrial raw materials used by Nigeri-an firms are purchased, it was as if the Nigerian manufacturing sector was also automatically on lockdown. The effect exacerbated with the twin dilemma of rising raw material prices and foreign exchange supply difficulties. Sadly, most of the supposed manufacturing in Nigeria is nothing short of repackaging intermediate products imported from China. Therefore, China represents the extended or offshore manufacturing plant for many manufacturers while their domestic presence is to satisfy legal personality and regulatory requirements for trading on such commodity. Ironically, many of the supposed raw materials imported from China originated from Nigeria. If we therefore perseveringly conduct adequate economic diversification we shall recover these advantages ceded to China inad-vertently.

What advantages do China and some of these countries have over us the make us umbilically tied to them for our material needs? Two of such plusses standout. The first is the frontline standing of the Chinese research institutes. The Chinese government provides far-reaching support for research and innovation. For instance, China holds the fourteenth position in the 2019 global innovation index, which testifies to their high level of commitment to research and innovation. Our research institutes, on the other hand, seem to be non-existent. It is saddening that for more than four decades, we have relied on raw materials from China to power our manufacturing sector. In contrast, we have suppos-edly fully funded raw material research institutes. It is equally shameful that with more than 250 lo-cal universities each having hundreds of faculty in the chemical and biological sciences, we still de-pend on foreign countries for our raw materials. Meanwhile, most of these raw materials are ex-ported initially from Nigeria. Apart from the quality of research, Chinese entrepreneurs also reap the advantage of strong government support. China has a strong incentive structure for empowering export-oriented activities. Such incentives make it possible for them to sell these raw materials at highly competitive prices. Such an incentive structure hardly exists here. Even the semblances of it come at costs that do not confer significant competitive advantages.

In addition to the role of public goods in the diversification, agenda is the unbeatable advantage that a properly functioning commodities exchange and futures will orchestrate. Active commodities exchanges will increase the level of interest and participation in the exploitation and commercializa-tion of these natural resources. It will ensure the continuity of trade and will attract lots of investment into these hitherto ignored sectors. A well-functioning commodities exchange is most likely the surest route to private sector provision of some of the vital logistics and supply chain, including the ware-housing infrastructure for successfully developing the agricultural and solid minerals sectors. Some of the numerous advantages of the commodities markets include continuous price discovery mechanism, hedging against potential adverse price changes, import-export competitiveness through the use of futures market, predictable pricing as well as easier credit access. The effectiveness, there should be at least three commodities exchanges in Nigeria if we are to diversify effectively away from oil quickly.

Finally, as the combined realities of the coronavirus pandemic and low crude oil prices force us on the threshold of authentic diversification, we must realize that we are not the only countries be-queathed with abundant agricultural and substantial mineral resources. It means that we should at-tend to the demands of the choices that diversification compels us to make with all sincerity. There are a number of them that we cannot escape if we are to compete effectively with the rest of the world. Those factors also ensure that majority of our citizens authentically escape poverty. The re-verse is true. The meaning is that if we fail to attend to them with all our heart and soul, we shall surely be economically worse than we currently are. The two most important of them all are electric and transport infrastructure. It is essential to know that in the absence of these infrastructures that we can only achieve limited levels of diversification. The two-second most critical factors are truly liber-ating pro-market policies as well as adequately functioning commodities exchanges in at least three commercially strategic cities of Nigeria. The third critically important factor is demanding that our raw materials and other research institutes account and produce results that justify their continued existence. With these desiderata, we shall be on our way to a truly diversified economy.