Beer and Tunnel Vision: A very Nigerian story
In 1987, the Nigerian military government led by General Ibrahim Babangida had a brainwave.
At a time when falling oil revenues and rapidly depleting foreign exchange reserves were posing an existential threat to Nigeria’s oil-based economy, the administration came up with a solution that they believed would arrest the rapid slide of the naira, reduce forex reserve depletion and spark some economic growth.
This singular policy was to be the magic pill that would not only reduce pressure on the naira but also place Nigeria into a long-overdue phase of non-oil industrial growth.
The policy: ban barley imports.
To the uninitiated, the idea of imposing a blanket import ban at all, much less on a harmless agricultural commodity like barley, might seem weird, even nonsensical.
In post-civil war Nigeria, however, such moves were par for the course. In his authorised biography, Felix Ohiwerei, who was managing director of Nigerian Breweries between 1989 and 1997, famously described such moves as “irrational policy somersaults for which Nigerian military regimes were renowned”.
Unencumbered by checks and balances, or a constitution, successive military administrations between 1972 and 1998 came up with knee-jerk decisions to ban, unban, and tariff import commodities related to the beer industry no fewer than 12 times.
The reasoning behind these “policy somersaults” as Ohiwerei termed them, was as simple as it was faulty and understanding this reasoning is key to understanding the past and present failures of Nigeria’s industrial policymaking.
What Can’t People Do Without? Let’s Ban It
In his new book, Never Quite The Insider, former Guinness Nigeria Managing Director Keith Richards describes a period of turmoil under Babangida, culminating in the decision to ban importation of malted barley effective 1 January 1988.
An excerpt from the book reads:
- “Another decree that was damaging, to the brewing industry at least, was General Babangida’s decree banning the import of malted barley. Up to that point most states had their own brewery producing good local brews such as Champion, Trophy, Life and Rock. Over thirty breweries provided strong local employment and revenue.”
Scattergun as it may seem in hindsight, this was one of a series of similar actions by prior and subsequent military governments geared toward a specific desired outcome.
The basic idea was to exploit relatively inelastic demand for certain commodities by banning their importation, ostensibly to force Nigerians to produce them locally, and in the process create an industrial economic base separate from the oil industry.
In the minds of the policymakers, barley offered the perfect staging post for this idea, after all, what could be more inelastic than beer? Come what may, consumers would always drink beer, and brewers would simply find local substitutes for imported barley.
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Instead of using scarce forex to import barley in an economy reeling from low oil prices and a Structural Adjustment Policy, the country would instead conserve its forex reserves while creating economic growth for itself.
The new value chain, created by local production of barley substitutes, would create new jobs and everyone, including the consumer, would win at the end of the day. On paper, import substitution was a brilliant policy that could conceivably kill several economic birds with one stone.
Paper versus Reality
The reality, of course, was a completely different matter. Nigeria indeed saved some forex with the import ban, but that is barely a footnote today.
What history remembers is the resultant job losses and social unrest, followed by the emergence of — to all intents and purposes — an unbreakable beer market duopoly in Nigeria.
Describing the series of unintended consequences that came out of Babangida’s barley import ban in his book, Richards said:
- “The upshot of that decree was that only Guinness and Heineken were able or prepared to invest in the R&D needed to develop drinkable beer out of local grains such as sorghum. This delivered the two companies the golden opportunity to build dominance so that by the mid-90s their joint share was approaching 90% and they were two of the most capitalised companies on the Nigerian Stock Exchange.[…]
- The quality of all beer in Nigeria suffered badly from the move to sorghum and local maize as the key raw materials. […]
- The total beer market collapsed from the 12 or 13 million hectolitres in the 1980s to not much more than four million by the mid-90s. Guinness Stout’s market share had done well as the more robust flavour disguised some of the rancid flavours of local ingredients but Harp suffered badly and volumes plummeted from a million hectolitre brand to around 60,000 a year.
- Breweries all over the country ceased operating until by the mid-90s, of the 30 or so at the peak, only three or four were producing more than a few hectolitres for their immediate local market.”
In other words, the barley import substitution policy of the military government, which was supposed to boost local agricultural productivity, spark industrial growth, and strengthen the middle class with new jobs and incomes did the exact opposite of these noble intentions.
It wrecked the local beer industry, putting thousands of Nigerians out of work and delivered almost 90% of the local beer market gift-wrapped to Guinness and Heineken — both foreign-dominated entities.
Local breweries and their ancillary businesses providing important employment opportunities outside of the big urban centres were forced to close down, setting off a sequence of events that contributed in no small way to a debilitating brain drain that Nigeria has never truly recovered from.
Import Substitution is back in 2019 — but not for beer
Twenty-one years after the end of the military era, Nigeria is once again experimenting with a commodity import ban as a catch-all solution for easing pressure on the naira and sparking an elusive agricultural revolution. Once again, at the centre of the policy is a high-demand agricultural commodity, which Nigeria cannot produce at a level even close to satisfying local demand.
Like before, banning imports of this commodity will be the magic pill that will bring that much-desired agricultural industrial complex into being in a blaze of presumably-instantaneous backward integration and value chain development.
The wondrous commodity in question? Rice
Unlike sorghum and barley, which barely register on the popular consciousness of the Nigerian public, rice is a staple across practically all Nigerian diets, in addition to being a cultural fixture.
While locally grown rice does exist, the gap between demand for rice and its local supply is such that the Benin Republic next door has been the world’s largest importer of rice since 2017 — a period that coincides almost perfectly with when President Buhari’s administration began trying to throttle rice importation.
Like the last time around, the reasoning is simple — rice is so indispensable to Nigerians that if it cannot be imported, locally produced rice volumes will inevitably spike to satisfy the demand.
According to the decades-old crib sheet shared by Babangida, Abacha, and Buhari himself, meeting the demand for rice through local production will have a knock-on effect on the entire agricultural ecosystem and value chain around rice.
Conveniently, the government does not have to do anything except imposing a fiat import ban because the combination of practically inelastic demand and entrepreneurial ingenuity will do the business.
The elephant in the room is the only component of this calculation the Nigerian government has not overestimated in some way: the inelasticity of demand for rice.
If anything, it has perhaps even underestimated this demand and just how far Nigerians are willing to go to obtain the country’s national staple food. Every other variable sold within the “ban-imports-to-spark-a-local-industrial-revolution” scenario has been significantly oversold or exaggerated.
Using exaggerated or simply inaccurate predictions, Buhari’s government regularly invokes an unlikely outcome where dozens of busy and expanding rice mills signal an industrial shift away from Thailand and into Nigeria, bringing economic growth, jobs, reduced pressure on the naira, and milk and honey for all.
In reality, no amount of entrepreneurial ingenuity, for example, can get around dealing with Nigeria’s atrocious road and rail transport infrastructure, which make moving goods to market one of the biggest costs of doing business.
Some Nigerians may love a good unicorn story enough to even buy into the rice production dream, which is great for them.
Not even they, however, can innovate around using diesel and petrol generators to power rice mills because Nigeria’s total installed power generation capacity stands at 12,500MW, with a grid capable of carrying no more than 5,000MW at a time.
Most importantly, the government lacks the operational capacity to comprehensively police Nigeria’s borders — or at least keep customs officials sufficiently motivated to do so.
What this means is that the Thai rice imports will always find their way in, import ban notwithstanding.
Once in the country, their only competition is poor quality, locally produced rice the price of which is heavily inflated by the cost of running rice mills on diesel generators and in paying dozens of bribes to law enforcement officials along the poorly maintained highways en route to the market.
In a 2016 paper, ‘The use of local raw materials in beer brewing: Heineken in Nigeria’, researchers Akinyinka Akinyoade, Ogbuagu Ekumankama, and Chibuike Uche argue agricultural backward integration policies can only work in Nigeria when the government is at the forefront of research, development, and deployment efforts.
The paper’s position was that the Nigerian government’s historical push to outsource this responsibility to the private sector, using access to Nigeria’s market as both carrot and stick — but mostly stick — is untenable.
Commodity import substitution is not necessarily a policy destined for failure, as Nigeria’s relative success with cement production shows.
As the case of cement shows, however, such policies only succeed when the government plays a proactive role by liaising closely with local producers and responding dynamically to their needs and circumstances.
Evoking memories of military rule-by-fiat with simple-minded import bans to “boost local production” without examining evidence and examples is never a good idea.
Especially not in Nigeria.