While fixing my car last week, I overhead two Okada riders reminiscing about “the good old days.” From their discussion, they had worked in the textile industry some years back. They shared how the shift policies in most of the textile companies in Lagos provided them the opportunity to “do other things” which made it almost impossible for them “to ever be broke.” Before I left, they posed the question: “can our industries ever come back again?”
To me, this is a loaded question. A friend told me he conducted a research in an area of Lagos among Okada riders and his conclusion is that over 90 percent of them had worked in the textile industry before its collapse. Even without undertaking any research whatsoever, it is clear that the textile industry was one the largest mass employment industry after the government. But all changed as government policies and stifling operating environment made it “cost effective” to import rather than produce locally.
In the last dispensation, the government toyed with schemes like SURE-P, GIS, YouWin etc when it was apparent that was not the solution to our problem, but a mere populist move to try and gain relevance. Even a basic knowledge of Economics reveals that no nation can progress without a firm industrial base. China rose to become the second largest economy in the world because of its focus on industrialisation. In our own case, our stifling operating environment, forced companies we had in the past to close shop and relocate to other sister African countries and we were left with an army of unemployed citizens after the exodus.
The United Nation (UN) predicts that by 2050 there will be 2.5 billion Africans – a quarter of the world’s population. Because of this and other predictions, Africa has remained the toast of investors who would not want to miss the opportunity of investing in an emerging market with such huge population. But things have started changing the way few predicted. The way things stand presently, four of Africa’s biggest economies are showing strains.
Nigeria, South Africa, Angola and Kenya, the four leading economies, are seriously affected by the fall in oil and commodity prices. According to the IMF, South African economy will grow by just 0.6% this year. The rand plummeted 30% last year, and political turmoil emanating from a corruption scandal tied to President Jacob Zuma has also had a big impact.
Back home, Nigeria relies on oil for 70% of government revenue and accounts for 90% of export revenue. That leaves very little room to adjust the country’s budget. From an economic point of view, that can only mean one thing – slower growth. As a result, growth prediction is fixed now at 2.3%, the lowest rate in 15 years, according to the IMF. We have drawn down on our currency reserves and implemented capital controls, making access to dollars very difficult. In an economy that relies on imports, the controls have made life difficult for citizens and companies.
Angola, which was once one of Africa’s fastest growing economies, is now on its knees and asking for help from the IMF. Angola is Africa’s second largest oil producer and relies on oil for 95% of government revenue. It has requested assistance from the IMF in the form of monetary support. The country is set to grow by 3.5% this year, down from 6.8% in 2013, according to the IMF.
Unlike other African economies, Kenya’s economy is more resilient and diversified but there are challenges with its banking sector. Three banks are being wound down by the central bank. Two of the banks failed last year, and a third was forced into the arms of the lender of last resort early this month. A fourth bank is being investigated, and analysts believe consolidation in the industry is inevitable.
All these point to one thing: the continent’s future is in the balance. Whether it bounces back from this commodity slump or slips back into stagnation, war and autocracy of the past will depend on whether its leaders have the will and determination of moving forward.
For me, two things are crucial. The first is to recognise the new reality. Given the decline in its terms of trade, Africa’s buying power has gone down and governments are being forced to adjust to this reality which is also affecting rich Gulf nations like Saudi Arabia, Qatar, Kuwait and others.
The second is to focus on people, infrastructure and industrialisation. In recent years, the Economist and popular publications alike have argued that Africa was on the threshold of an economic boom. Pointing to a decade of high growth and increased foreign investment, this argument held that the continent was finally on track to leave its long years of poverty and under-development behind. Some even said that Africa could become the next global economic powerhouse, following in the footsteps of East Asia.
However, with this new reality, this position is now contentious for one obvious reason: weak or no industrial base. Africa’s growth would not be real, lasting, or beneficial for its people until it was based on industrialisation rather than exporting raw commodities. Rather than focusing on the hype of mobile phones we should ask critical questions and study some basic development indicators: Was manufacturing increasing as a percentage of GDP? Were the goods African countries exported becoming more valuable – finished products rather than raw materials?
It is instructive to note that a 2011 U.N. report looked into these questions, and found that most African countries are either stagnating or moving backwards when it comes to industrialisation, quite unlike the East Asian experience.
We are here because oil and commodity prices are plunging, China’s purchases are slowing, and GDP growth rates across the continent are in steep decline. Reflecting these trends, the IMF has cut its 2015 projection for growth in sub-Saharan Africa from 4.5 to 3.75 percent, concluding that the decade-long commodity cycle that had raised African export revenues “seems to have come to an end.” With a population boom on the horizon, experts now worry about how the continent will produce enough jobs for its people. For Nigeria, this is a tough period to be in leadership position.
Without the commodities boom, the actual failure of Africa’s development has now been laid bare. In November, the Economist noted that “many African countries are de-industrialising while they are still poor, raising the worrying prospect that they will miss out on the chance to grow rich by shifting workers from farms to higher-paying factory jobs.” But like most free market champions, it got it wrong when analysing why Africa has not been industrialising, citing the conventional lack of the “basics” — infrastructure, skills and institutions.
But development economists will point out that Africa has had difficulty industrialising because its leaders swallowed “hook, line and sinker” free markets and free trade policies proffered by the World Bank, the IMF. As a result, African countries have abandoned key tools, which they could have used to build up their domestic manufacturing sectors – even in the face of challenges.
Free market advocates told African countries that such “state intervention” in the economy usually does more harm than good, because governments shouldn’t be in the business of “meddling in the economy” but leave it “ to the market” to handle. Africans were told to simply privatise, liberalise, deregulate, and get the so-called economic fundamentals right. But Mahathir Mohammed of Malaysia proved that “the market” can be wrong when he propelled Malaysia to be among one of the Asian Tigers of the 1980s.
There’s however a ray of hope as the Economic Commission for Africa (ECA) has begun promoting what it calls “smart protectionism,” suggesting that trade policy in Africa should be “highly selective,” with special treatment for certain sectors to advance national development goals.
This is right thinking. For Nigeria, job creation will continue to remain a cliché if we do not make concerted efforts to bring back the industries that defined Lagos, Aba, Port-Harcourt, Kano and Kaduna and other urban centres in the past. They were the once that kept our army of Okada riders engaged.
