As Nigeria continues in its search for the right formula to reset the national economy from Low-Level Equilibrium Trap to Shared Prosperity; Professor Oyebanji Oyelaran-Oyeyinka, Senior Special Adviser to the President, African Development Bank (AfDB), on industrialisation, who was recently nominated for the National Productivity Award, in this interview, provides some road map to escaping the poverty trap
For about four decades, Nigeria has been a low-income country, and it is stuck at that level, why did Nigeria remain poor?
In framing the future, it is important to understand the past and the present and how we arrived here. We need to think hard and look ourselves in the mirror. Most especially in a season of deep-going changes, external shocks by a pandemic, food-induced inflation by a distant war; both of which exposed how unprepared and vulnerable we are in terms of food and health securities. Internally we have had a most grueling election. Yes, Nigeria’s income per capita, a measure of wellbeing has on average remained same for decades. Nigeria is classified as a Low Middle-Income country, but it is more “Low” than “Medium” income.
The World Bank analyzes the economic health of each of the world’s countries and territories based upon their Gross National Income (GNI) per capita (2021). Low-income Economies—up to $1,085, Lower-middle-income economies – 2021 $1,086 to $4,255, while Upper-middle-income economies — 2021 $4,256 to $13,205. High-income has $13,206 or more
Low-income countries like Nigeria with weak income per capita growth rate tend to experience economic stagnation and sporadic rather than sustainable growth because they do not engage in increasing returns economic activities such as industrial manufacturing which promote economic growth. For instance, coming from a low base that should witness high growth, the growth rate of Gross Domestic Product (GDP) per annum were respectively only 5.5, 13.2 and 4.6 and 1.25% percent under the four National Development plans. The 2nd Plan proved to be an outlier.
Volatility has become an integral nature of Nigeria due to its oil-dependence. Once there is a change in commodity price over which we have little control, the economy is hit. Most upper middle-income countries have developed the productive capabilities for high value added and technologically complex goods. They have market structures with significant innovation capacity that enable them produce for domestic and export to earn foreign exchange.
Can you please elaborate this concept of Low-Income Equilibrium Trap and how it applies to Nigeria?
The idea of an economy being stuck in Poverty Trap is same as being in a Low-level Equilibrium Trap. Agrarian based economies are mostly the ones in this situation. Advanced industrial economies escaped the Poverty Trap by modernizing the agricultural sector and transiting into industrial manufacturing. Therefore, you will notice that Nigeria’s Income per Capita has remained low consistent with Manufacturing contribution to GDP which has also remained the same under 10% for decades. History and widespread evidence show that Manufacturing is the engine of growth. The fastest growing countries in the world today are the so-called newly industrializing countries. Their progress has been on the strength of manufacturing. There is a strong positive relationship between the rate of manufacturing output and GDP growth. This has been found to be not just an ‘association’ but a causal relationship. The faster the growth of manufacturing the faster the growth of GDP. I have devoted my life to studying this phenomenon. A country that misses industrialization will not escape the Poverty Trap.
Most Nigerian rural dwellers, in some cases, nearly 70 percent of households make their living from subsistence agriculture. For the most part, a greater proportion of households derive their livelihoods from subsistence farming. The sector is characterized by a high percentage of smallholder farmers (70-80 percent) cultivating low-yield staple food crops on small plots with a minimal use of inputs. These farms depend on rainwater, thus subjecting production to the vagaries of the weather. This effectively is Low-Level Equilibrium Economy Trap, a spiraling mechanism which forces people to remain poor. It is a devastatingly binding constraint that leaves the poor people no avenue to escape it. This Poverty trap is reinforced by a lack of capital and credit to the people.
In short, the transition from a low-income economy to a middle-income economy takes place when a traditional agricultural economy enters the early stages of industrialization. I describe Nigeria in this way because our per capita income has remained at this stable equilibrium level resulting in low-level equilibrium trap while rural poor keep having more children. For our economy to move into sustained growth, the rates of income growth must outpace the rate of population growth.
What should the government and other stakeholders do to get the country out of the low-level equilibrium trap?
It may sound counter-intuitive given what I am saying about the poverty trap. My proposal is that the next president must aim very high: target a minimum of seven percent growth rate so we can double our GDP in 10 years. How? There are short-term macro-economic issues to quickly deal with but what I will be emphasizing are fundamental structural issues. To move from this low-level equilibrium means a structural shift of the economy. Typically, a country’s economy has three main sectors: agriculture, Industry and manufacturing and Services. Poor countries are mired in low-level agriculture unlike advanced nations with extremely modern and productive agriculture. These countries have “industrialized” agriculture. The Netherland, a highly advanced industrial nation, exported over 90 billion euros of agribusiness products in 2019.
Agriculture is where Nigeria has comparative advantage but technologically it is decades behind. It is the sector with the lowest hanging fruit, but we must systematically invest in greater mechanization, inputs such as fertilizer and at the heart of high productivity is seeds. Nigeria as with other African countries signed the Agricultural Delivery Compact at the conference organized by the AfDB and the African Union in Dakar this January 2023. Faithfully implemented, the country can stimulate rapid growth of the agribusiness sector. This way we re-ignite the long delayed structural transformation and accelerate economic diversification in ways that lead to food security. This Compact developed jointly with the FGN will ensure resilience, economic recovery and growth and, more structurally, foster a shift from subsistence farming to modern agriculture. From our calculations, this kind of growth will lead to national food security while creating at least 12 million jobs.
As you may already know, the Special Agro-Industrial Processing Zone (SAPZ), a flagship program of the AfDB adopted by the Federal Government of Nigeria aims to make Nigeria competitive in agriculture by promoting agro-industrialization through value-addition and export of processed agricultural commodities. The first phase of the programme is being implemented in 7 States and the Federal Capital Territory. The objective is to bring economic infrastructure to areas where there is high agricultural potential and marketable surplus of production. SAPZs attract investments from private sector investors to develop value chains for selected strategic crops (e.g. wheat, rice, cassava, and other crops; livestock and fisheries) to contribute to the development of rural areas, creating wealth in these areas and to stem rural-urban migration.
Nigeria has been a consumption country for many years now, this issue was well analyzed in one of your books, kindly explain in practical terms ways Nigeria can become a production nation?
I see you are referencing my 2016 book titled: “From Consumption to Production”. Let me provide a simple illustration; it is an example of a country that evolved from years of devastating conflict, moved from a beggar-bowl in hand nation to a major player in global value chains. Vietnam exported an estimated US$348 billion worth of goods around the globe in 2020, a ten-fold difference compared with Nigeria’s exports in the same year. In macroeconomic terms, Vietnam’s total exported goods represent 30% of its overall Gross Domestic Product for 2020. Given Vietnam’s population of 97 million people, its total $348 billion in 2020 exports translates to roughly $3,600 for every resident.
In contrast, Nigeria’s total exports of around $34 billion represents less than 8% of its GDP of $432.3 billion. Why the huge difference? Nigeria’s revenue basket remains constrained due to its export revenue concentration. We depend on crude oil and few primary commodities. Nigeria records high food imports with most processed foods coming from outside the continent. To record high economic growth rate Nigeria should do the following: First, move away from crude oil dependence by urgently prioritizing economic and trade diversification including exploiting our vast Gas resource that is being flared. Second, the country should aggressively aim for food self-sufficiency through a combination of land intensification and massive expansion of food production over the next five years. It is a matter of urgency that Nigeria reduces dependence on imports to enhance food security and to develop markets for its farmers and firms that will engage in adding value both for local consumption and for exports.
Growth comes from a diversified portfolio. Contrasting Nigeria and Vietnam, although Vietnam’s export revenue these days come largely from non-oil products such as phones and electronics goods, which are now exported to the world, it also remains a major exporter of agricultural products. That country exported agribusiness products such as footwear and textiles totaling over $30 billion. This not only equals Nigeria’s total oil revenue, but also far exceeds the less than $3 billion revenue that Nigeria received from shipping out raw leather, cocoa powder, sesame, cashew, and mainly raw agricultural commodities, which would be converted into finished products and re-exported to Nigeria
Why is the government always investing in projects that would not yield any return or be abandoned, like the Ajaokuta Steel company and others?
The conception, design and implementation of complex industrial programs has strong relationship with the capacity of the state. The state here includes the Executive, the Legislative and the Judiciary. The term “state capacity” refers to the state’s ability to get things done or the capacity to implement state-initiated policies. The question you raise has to do with the nature of the state and leadership and capacity of the Nigerian state. The State is either weak/fragile or strong; fragile states are also known as weak states. A State is Fragile when it is incapable of meeting key needs of their citizens especially their security and economic wellbeing. A strong state capacity has been strongly associated with long-term economic development. This includes the capacity to establish law and order, enforce private property rights, defend a country against external threats, as well as support development by establishing a competitive market, transportation infrastructure, and mass education. So, you have your answer. We have not succeeded to build a strong state due to a broader lack of Vision and the right leadership capable of sacrificing self-interest for public interest. When you initiate laudable industrial projects like Ajaokuta, refineries and so on, human beings must run them. The political, bureaucratic and corporate elites must AGREE on the Vision. In poor countries not just Nigeria, the attitude and actions of political and bureaucratic elite tend to determine the rate and direction of the country’s progress. So, the new president should sit down with political and corporate elites and agree with them on what term his “Strategic Presidential Flagship Initiatives” to appeal on behalf of Nigerians to ring-fence them from cronyism, corruption and execute them using competent people. This is what General Park Chung-Hee did with the Chaebols in South Korea in the 1960s. The new leadership needs an assurance of Agreement by the Elite. Our problem is not policy and plans, our challenge is the people and their purpose. Imagine the news trending in the last few day. Nigeria is groaning under lack of power supply yet a minister entrusted with fixing it is alleged by the EFCC to have stolen N340 billion! The AGF who was entrusted to help keep our money, himself and his collaborators allegedly stole N109 billion. Somehow like thousands of cases, it seems nobody is talking about it again. It’s not policy, its people.
Would you say this is the fate that befell our previous Plans?
The same fate befell Nigeria’s previous efforts. The country has had a long tradition of Development Plans right from independence. Nigeria has gone through four national development plans in her post-independence history, followed by different Visions, V2010 and V2020, three year rolling plans between 1990 and 1998 and long-term perspective planning and so on. The federal government introduced an ambitious programme between 2003 and 2007 known as the National Economic Empowerment and Development Strategy (NEEDS). These plans have not achieved the expected results. Rather than the modern industrial economy we hoped for, there emerged a country with widespread poverty, poor infrastructural stock, massive unemployment, technological backwardness, and excessive debt burden. This is classic Low-level Economic Equilibrium. It is not about Plans and Policies. It is about the motives, commitment and patriotic propensity of those who hold the levers of power. I do not see how else to explain our predicament.
Is the failure due to the political system or something else?
In the case of the Presidential System what has prevailed is what is called the Spoils System where winners take all and all others who all their lives have made sacrifices for the country become outsiders. The concept derived from the phrase “to the victor belong the spoils” by New York Senator William L. Marcy, in his reference to the victory of Andrew Jackson when he won the presidential election of 1828.
Let me expand this a bit so our political leaders can interrogate this system and see how to navigate its awful negative consequences. I say this as someone who loves his country not as a criticism of any government. The US and other old democracies worked hard to minimize the effects of this system over a long time. A spoils system is also known as a patronage system, which points to the practice where a political party, after winning an election, gives government jobs to its prominent operators as a reward for working toward victory, and as an incentive to keep working for the party—as opposed to a system of awarding offices based on some measure of merit independent of political activity. It is fair for those who run political parties to expect rewards but when a system consistently prioritize patronage over performance, it becomes self-defeating and a shooting of oneself in the foot. Those outside parties are patriots who have sacrificed for the country. The Spoils System has that blind spot. It is a situation whereby the political elite assume that they own the country, its resources now and forever. The outcome of the last election manifests an awakening of the Youth and others with stakes in the country. The political elite must recognize others including the corporate, academic, who have the requisite knowledge, experience and passion for the country.
The spoil system is especially destructive in countries with weak political and legal institutions and where the rule of law is more the rule of ‘big men,’. Where there are no rules, governance power degenerates quickly into sheer looting of the common good such as we have witnessed in cases of promising industrial projects that all never worked. The Spoils systems commonly thrive where recourse is made to primordial affinities such as ethnicity and where tribal organisations and kingship groups find a common cause in self-enrichment. While political support will surely elicit reward, leaders must balance it with competence.
You know I am on a platform where you find the most brilliant minds in Nigeria, mostly technocratic elites engineers, scientists who in the past managed refineries, power plants, and all sorts. These folks gave their lives to Nigeria, but then political elites hold power, and they find themselves at the margins of power. It is an unacceptable waste of knowledge and experience. That is what Patronage does. The best of minds are never utilized. This we must reflect upon and change. The political elites assume the “winner-take-all” posture, but we are sabotaging the country as those who are younger migrate to other countries where they will actualize their dreams.
You once said Nigeria should set high goals and double it’s GDPin a decade, how can the country achieve this?
Yes this is my proposal. Fast and sustained economic growth is the main route to raising living standards and creating decent jobs. China did so why not Nigeria? In 1953 when the Korean War ended, the nominal GDP of Korea was $1.3 billion; it grew rapidly for six to seven decades; to 1.65 trillion in 2019. The GDP/Capita rose to $32,000 from a mere $158 in 1960. In contrast, Nigeria hardly diversified its economy. The country got locked-in into petroleum export for export earnings to the detriment of value-added agriculture and manufacturing. The result is low contribution of the manufacturing sub-sector which fluctuates between 5% to 8% to aggregate output in Nigeria compared with its peers in Asia (Korea about 30% in the 1990s) is staggering.
What is the recipe? First, economic Progress comes only to producers, especially those that manufacture, and add value to raw materials and export. Poverty has become the lot of our country as it is with those that always buy from others. Nigeria is in a state of stalled industrialization. This is the root of poverty. Nigeria has experienced Structural Transformation Trap. After four decades of policy implementations and effective governance, China successfully lifted 770 million of its citizens out of poverty.
How did it do that?
China transformed itself—and the world economy with it. In 1990, it produced less than 3% of global manufacturing output by value; its share now is nearly a quarter. China produces about 80% of the world’s air-conditioners, 70% of mobile phones and 60% of shoes. Today, China is the world’s leader in manufacturing and produces almost half of the world’s steel. Nigeria started a steel plant, an aluminum plant, fertilizer plant, refineries and petrochemicals but those who had power of decisions failed to realize it was better to make these factories work for the overall prosperity of Nigeria. Rather they made it work for themselves and families. The key words to growing the economy are “Making/Manufacturing” and “Factory/companies”.
Nigeria will experience faster economic growth when it stops relying on only short term crude oil and agricultural raw materials export for rich countries.
This is why after more than four decades of failed industrialisation and development efforts, Nigeria’s economy is still dominated by low-productivity agriculture and petty service activities compared with her Asian comparators (for example Malaysia, Thailand) that have become centres for global production. Industrial activities and services have expanded but compose largely of mining, the exploitation of crude oil and, telecommunication made up mainly of the telephone segment. The share of manufacturing value-added in total GDP remains very low, less than 10%. Crude oil exports account for approximately 70 per cent of total exports during the last four decades, a clear manifestation of lack of significant structural change, low sector dynamism and over-dependence on a single commodity. To achieve high growth, first, we should diversify the economy, not on paper but for real. Politicians and others say this, but they stop at policy paper. Recall Vietnam that I cited earlier.
Second, pay renewed attention to Productive Infrastructure. Infrastructure and economic growth are closely related. Economic diversification requires investment in infrastructure. We estimate Nigeria’s infrastructure deficit at $100 billion annually. One of the most significant barriers to industrialization, value addition and competitiveness of Nigerian firms is poor infrastructure. A recent Financial Times (FT) report the congestion at the port in Lagos shows that it has become so bad that it can cost more than $4,000 to truck a container 20km to the Nigerian mainland almost as much as it costs to ship one 12,000 nautical miles from China. The estimated loss in economic activities is $55 million per day.
Third, we must ramp up production of agricultural commodities to a large scale. Currently Malaysia has cultivated six million hectares of Palm Oil plantation while Nigeria has 10% of that at 600,000 hectares. It is a contrasting story of industrial transformation for them and stagnation and bad governance for Nigeria. Today, with the rapid expansion of cultivation in South-East Asia, Malaysia and Indonesia are the leading producers of palm oil supplying more than 80% of the global production and continue to dominate the international trade. Malaysia earned US$ 16 billion from oil palm in 2018.
The African Development Bank started working with Ethiopia and Sudan less than four years ago to cultivate a new variety of heat-resistant wheat. Today that country cultivates 1.2 million hectares of wheat and moved from import-dependence to a wheat exporter. We cannot call Nigeria a giant and all our thinking and acting Lilliputian.
Another example. Nigeria is a leading cashew producer but as with cocoa and oil palm, it exports raw cashew mostly. One tonne of raw cashew fetches $1,200 while processed cashew nuts sells internationally for $10,000. Nigeria exports most of its in-shell cashew nuts — in raw form. Besides the value addition lost, the cashew nutshell liquid (CNSL) derived from the cashew shell is extensively used in polymer-based industries such as friction linings, paints and varnishes, laminating resins, among others. As I said earlier, it is the one who produces and manufactures that get rich and creates jobs. We ship away jobs and the learning for our workers to the raw materials recipient countries.
You always advocate structural approaches. How does that fit into your prescription?
This is my fourth proposal, we must adopt a structural approach to development. For, example, we have been advocating the construction of Special Agro-Industrial Processing Zones (SAPZ). Economies that have most successfully achieved rapid industrial development massively deployed SEZ. Zones are not only an investment in geographic space, but first and foremost an industrial policy tool. The SAPZ focuses on the agro-industrial sector which is the largest industrial globally worth over 8 trillion dollars compared with Information Technology, Iron and Steel among others worth 1 trillion dollars.
The African Development Bank is building Special Agro-Industrial Processing Zones across Africa, an integrated (demand and supply side) agro-industrial ecosystem comprising production, processing, distribution, marketing with a continental and global reach aimed at transforming Africa’s agriculture from an incremental-existential mode into a business-industrial complex. The SAPZ, which can be applied to the full range of agricultural production activities – i.e. crops livestock, fisheries, and forestry –, is a unique spatial brand of the AfDB that is designed to achieve the twin objectives of agricultural transformation and rural development through agro-industrialization.
The location of SAPZs with attendant improved infrastructure, especially roads and public utility, and employment opportunities associated with such zone activities, provide the foundation for transforming rural poles of poverty to zones of prosperity. The location of agribusiness agglomerations in large geographical areas, as implied in the SAPZ model, can serve as a catalyst for the growth of secondary or intermediary towns/cities to modernize the rural landscape.
As an experienced technocrat of great repute, what are the major issues, challenges you want this new government to solve first if any progress will be made?
The new government in addition to my earlier suggestions should do the following.
- Maintain Security and political stability at all costs, I mean by every means possible;
- Maintain Macro-economic stability. The current exchange rates regime discourages investment. A non-transparent exchange regime creates uncertainty that impact investment performance.
- Focus on rural modernization through programs like the SAPZ. SAPZ are located in peri-urban areas rather than in the primate or capital cities. This is how to use a policy to force structural transformation of the economy. This is a bottom-up reforms starting with transforming agriculture while still building the necessary industrial value chains, and manufacturing logistics;
- Promote Small and Medium Enterprises (SMEs) both farms and firms to be more efficient; and support the country’s Large companies to become regionally and globally competitive firms. Where will South Korea be without the humble origins of its Chaebols, family businesses that we now know globally? One of them is the Korean giant Samsung Electronics that has now surpassed Japan’s Toshiba and America’s Intel to become the world’s top chip producer by revenue. Beyond South Korean semiconductors we have Hyundai Motors which recently became the world’s third largest carmaker after Toyota and Volkswagen – with quality to match. It is a matter of intentionality. Rather than ridicule Nigerian businesses let us support and incentivize them to raise our nation’s flag. Great countries are branded by their corporate ambassadors: Amazon, Microsoft, General Electric, Ferrari, Mercedes Benz etc.
- Incentivize the production of manufactured goods by giving strong support to local firms instead of relying only on natural resources;
- Provide consistent government support for infrastructure buildup and ensure Ease of Doing Business across sectors. The power sector challenges need a military-like solution.
- The wellbeing of Nigerians has suffered enormous degradation, so we need to prioritize especially the first three Sustainable Development Goals (SDGs) namely poverty, hunger and disease. The labour market is the most potent force for solving these challenges: create decent jobs especially for Youth and embark on genuine and massive Social Housing programs. The National Health Insurance scheme should be overhauled and made to serve the purpose for which it was created. The young people deserve explicit attention because of their energy and creativity. When a country views Youth as an angry segment to be kept quiet it shoots itself in the foot. We need new initiatives to support and drive youth entrepreneurship. For example, the AfDB President, Dr. Akinwumi Adesina with the Nigerian Vice-President recently launched a program called Investment in Digital and Creative Enterprises (i-DICE). It is an initiative of the AfDB and the Federal Government of Nigeria to promote entrepreneurship and innovation in the digital technology and creative industries in the context of efforts to create jobs. So far that initiative has raised over $600 million and ready to be rolled out.
What should be the quality and capacity of its cabinet?
At the individual level look for people with high level competence accompanied by character, creativity and compassion for the poor. You need humble men and women who see this country as a legacy garden to tend and beautify. Not haughty and arrogant people who think citizens are doormats. We must in addition aim deliberately for good governance and strong institutions. These are essential to creating an enabling environment for economic growth. When you look at the Country Policy and Institutional Assessment (CPIA) index of the World Bank) which captures governance and institutional behaviour in Nigeria, on all counts, Nigeria scores extremely low on governance. Nigeria scores extremely low on anti-corruption.
More importantly, good governance thrives on good leadership made up of: a commitment to integrity, a strong vision and plan for their nation’s future, and the ability to make the most of their available resources. Good government looks beyond short-term political cycles and quick policy fixes. The actions, behavior choices, and the ability to keep promises made will influence the level of trust that citizens and businesses have in government. A transformational leadership which premises decisions on what structurally transforms the country is what Nigeria needs now. There is little time for the next government. A friend of mine calls it: One Chance! If we miss this chance, we have big troubles.
If Nigeria is to achieve industrial growth and tangible development, what should the system do away with?
Nigeria is at an inflection point of history such as we have, we need transformational leadership. We should do away with as much as possible the bad elements of the Spoils or Patronage System. Do away with the sense of unaccountability and corruption, the latter channels resources away from production into private pockets. Do away with the sense that somebody else will build this country. Do away with small mindedness and look for leaders that will husband our assets to achieve tangible outcome by putting forth and aggressively implementing a Bold and Compelling industrial Agenda for our country.
Do away with a system that relegates the broader collective interest under self and sectional interest. The pursuit of self-aggrandizement is antithetical to the pursuit of the greater good. We need leadership that will weave our diversity into national cohesion; we need leaders who will lead a renaissance for Industrial transformation.
When it comes to Nigeria, I am an eternal optimist. May Nigeria’s star rise and never set.