Nigeria’s economic pain the gateway to a new normal

The Made in Nigeria campaign to push import substitution is the country’s response to the painful period of recession and foreign exchange shortages it is experiencing as a result of low oil prices and its failure to diversify its revenue stream away from oil.

But it is nothing new. Previous administrations have touted this concept and there have been a few successes, but many failures. Governments have paid lip service to the concept, allowing Nigeria to become one of the most difficult and costly countries in which to do business in the world. They have failed to put in place the building blocks of a local industrialisation process, and it has gained little traction.

The current economic woes have forced the administration of Muhammadu Buhari to dust off the localisation project. and take another look. But while the concept is simple, application is difficult in a country that spends more than $6bn on basic foodstuffs alone and whose consumers have long shown a preference for imports over local goods. As one critic wrote in a local newspaper: “The point is not about being local or patriotic; it is about developing the capacity to turn Nigeria into a world-class production and economic centre.”

Nigerian standards authorities and export bodies appear to have taken their eyes off the ball. The authorities maintain that a high percentage of Nigerian goods exported overseas are rejected because of poor quality or packaging issues. Nigeria now has no choice but to make this work. But it requires a multifaceted approach by all stakeholders and a mindset shift by producers, policy makers, consumers and investors. The Made in Nigeria debate made its way into discussions at last week’s SA-Nigeria Banking and Finance Forum in Sandton. South African companies were exhorted to become part of the local value chain within Nigeria, rather than simply exporting goods to this market of 180-million people.

Nigeria’s foremost entrepreneur, billionaire Aliko Dangote, has long seen the opportunity. He has spent billions of dollars on importsubstitution projects that range from a $20m tomato processing plant to a $17bn fertiliser plant and refinery that will save the country billions while making Dangote even richer.

Getting investors to bring their money to Nigeria now is a hard sell. It requires companies to take a long-term view of the potential and to think about acquisitions while assets are still cheap. But it also requires the Nigerian government to tackle the business climate. Investors, we heard last week, must realise that the pain Nigeria is feeling now is necessary for the country to reform itself. This will never happen in the good times. The logic is that when the recession abates a process of reform will be under way from which there is no turning back. Policy makers, bureaucrats and citizens need to do a lot more to “get things right”. This requires more political will than it does dollops of money.

Creating a level playing field for investors is critical. Past practices of relying on political favours, paying bribes to frustrate justice or gain favour over competitors and needing friends with influence in high places to make money in Nigeria are undermining, rather than building, the economy. Key foreign investing nations need to be identified and courted. This includes SA, still one of the biggest investors in Nigeria.

Low oil prices have provided the wake-up call Nigeria needed to start working towards a new normal. As a Nigerian speaker at last week’s event said: “We are happy to take the pain of $50 oil if that is what prevents us from going back to where we were.”