Nigeria’s self-reliance push: lights, camera, action

By Patrick Smith

Posted on Monday, 12 March 2018 13:53

When members of the government’s technocratic wing – vice-president Yemi Osinbajo and trade and industry minister Okechukwu Enelamah – descended on Ogun State on 8 February to open a couple of factories, they had another important task in mind: to send signals to the voters and the markets.

They were doing so at a time of jitters about the oil-fired economy’s prospects as the country moves painfully out of recession. Depending who you talk to, the economy is set to grow between 1.7% and 5% over the next two years. Neither figure makes a serious cut in unemployment likely.

In the third quarter of 2017, the share of unemployed and under-employed in the workforce increased to 40% from 37.2% last year, according to the National Bureau of Statistics. For the 18-35 age group the rate of unemployment and under-employment was 52.65%.

So Osinbajo’s message to the voters – national elections are less than a year away – was that the government understands the challenge and is doing something about it. Like a true technocrat, Osinbajo took his audience on a guided tour of the multitude of government financing and training initiatives to encourage companies to hire more workers.

On coming to power in June 2015, President Muhammadu Buhari pushed his belief in national self-reliance: by boosting production of rice, wheat, sugar, tomatoes and a host of other commodities, the country could break its parlous dependence on crude-oil exports. That production boom is happening now. How much by design of government policy and how much born out of desperation from the chronic foreign-exchange shortages is another question.

Policy labs: the new big thing

The two factories visited, one making chocolate drinks and the other biscuits, showed the realities up close. Most of the jobs on offer in those industries are for farmers, not high-school leavers from the cities. “I am told this factory was built at a cost of N4.1bn ($11.3m),” said Osinbajo at the drinks factory opening ceremony. “And it will create 150 direct jobs in addition to local sourcing of raw materials from Nestlé’s network of over 30,000 farmers.”

The next stop was the Beloxxi biscuit factory, now one of the largest in the country, with plans to double production to 80,000tn per year. Its $80m expansion plan was financed by Bob Geldof’s 8 Miles investment company and African Capital Alliance, the private-equity company that Enelamah founded in 1997. Inside this factory, the job numbers are also modest: rising to 6,000 from present levels of 3,700 when the new plant is up and running. The real difference will be made by the 71 local suppliers of raw materials.

Beloxxi and Nestlé, according to industry minister Enelamah, are companies that “have turned what potentially could have been a drawback into an advantage. Most of the inputs for what Nestlé produces in Nigeria, they get from here. They’ve managed to understand the market […] from farm to fork as they call it.” Beloxxi owes its success partly to a ban on imported biscuits. It built its manufacturing operations to depend almost wholly on local commodities.

Now the problem becomes one of scale. At the factories in Ogun State, Osinbajo elaborated on the newly launched policy laboratories aimed at accelerating project implementation. An idea borrowed from Malaysia, “the laboratories will bring together all private and public stakeholders to achieve the specific policy or project objectives of our economic plan,” said Osinbajo. “We are focusing on three specific areas: agriculture and transport; power and gas supply; and manufacturing and processing.”

Intensely ambitious, Osinbajo wants these labs to generate $24bn of investment and 15 million jobs over the next three years. Most of the money will come from private companies. The incentive is that Osinbajo and his team will assemble all the government decision-makers on a particular project – everything from land rights and access roads to power supplies – bringing them into the same room as the project managers and financiers to agree a plan of action.

That could help end the logjam of stalled projects. According to a development consultant who formerly advised the Senate, hundreds if not thousands of projects are blocked by bureaucratic obstruction. “Under the previous government, a rogue official in the attorney general’s department was able to block a highly viable processing project on specious legal grounds for three years. In fact, the company simply wouldn’t pay him the commission he was demanding.”

About seven years ago, a special committee was set up under former finance minister Ngozi Okonjo-Iweala to develop policy in reaction to a global oil price crash. Some of that work is now playing out on the ground, according to finance minister Kemi Adeosun. “We have been able to balance our budget [with an oil price] at $45-46 a barrel and we’ve got to learn to live comfortably at that level,” she told the Nigerian Economic Outlook conference in January, which made ‘Beyond Oil’ its main theme.

For Cheta Nwanze, head of research at SBM Intelligence in Lagos, the diversification question is more about government revenue than the wider economy. “Over 80% of government revenue comes from the oil sector […] so the government has got to rebuild the non-oil tax collection system,” he says.

The tax man cometh

With non-oil taxes at around 8% of gross domestic product, almost a third of the level in Ghana, the Nigerian government has embarked on a revenue collection blitz. A new scheme, the Voluntary Assets and Income Declaration Scheme, allows late payers to submit all monies owed between 2011-2016 in return for a waiver on interest and to avoid prosecution.

Nwanze says this is the start of a long-term effort to boost tax collection, using the national identity card system and pulling more individuals and companies out of the informal economy. To an extent, it is back to the future.

“Oil overtook taxation as a source of revenues in 1972 and – apart from a brief period when oil revenues crashed in 2016 – government revenues have been very dependent on oil,” says Nwanze. Lagos, the only state in the 36-state federation to finance its budget mainly from local tax revenue, is leading the way. Many smaller states are looking at new sales and property taxes to finance civil service salaries and local services.

Lagos State hosts about half the country’s industrial operations, while neighbouring Ogun State hosts 25%. But with that level of economic concentration comes the responsibility to provide better services. In early February, Lagos State governor Akinwunmi Ambode introduced new rules allowing the state to produce, via private-public investments, some 3,000MW of power to be used exclusively in the state and not hooked into the national grid.

Tipping the scales at last

Ugodre Obi-Chukwu, founder of the financial analytics firm Nairametrics, reckons the government’s attempts at restructuring have been a qualified success. “Local production of staple foods has gone up and the import bill has fallen […] some of that is the work of the previous agriculture minister Akinwunmi Adesina and some is due to the shortage of foreign exchange after the oil price crash.”

Monitoring prices and supplies in markets across the country, Nairametrics found that local rice was making strides against imports from Thailand and India. That is making a substantial dent in the over $10bn-per-year food import bill. Local sugar production is forecast to meet the national demand of 1.6m tonnes a year by 2020. Boosting tomato production to replace the 150,000tn of concentrate imported each year, costing some $170m, is also a target being pushed by Enelamah’s ministry.

Those cuts in imports and the build-up of foreign reserves to more than $40bn in the past year give the government more room to manoeuvre. But it remains cautious on radical restructuring, says Obi-Chukwu. “The recession [of 2016] was a missed opportunity […] it would have been a big political risk but they could have used that crisis to deregulate the downstream oil sector and float the naira.”

Instead, those institutional battles are still to be fought. Most industry experts reckon that Aliko Dangote’s $10bn, 500,000-barrels-per-day oil refinery and petrochemical plant, expected to start operations late next year, will be a game-changer. And Segun Adebutu, chief executive of Petrolex, tells The Africa Report that he is making progress in raising the finance to build a refinery in Ogun State at a cost of $3.5bn.

After three decades of trying to run state-owned refineries and being outwitted by avaricious fuel traders and smugglers, the government is starting its slow withdrawal from the oil sector. The signs are that Nigeria’s new economy, when it surfaces fully, will be dominated by its fast-growing companies.

This article first appeared in the March 2018 print edition of The Africa Report magazine

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