FG Must Prioritise Productivity Reforms To Revive Manufacturing Sector
The Nigerian economy is facing a sobering reality, such that the growth rate, stripped of cyclical ups and downs, has slowed steadily, for instance in 2023, reached 2.74%, compared to 3.10% a year earlier.
Without policy intervention and leveraging emerging technologies, by the Federal Government, the envisage stronger growth rates are unlikely to return.
Faced with several headwinds in the past 10 years, Nigeria’s future growth prospects have also soured. And this growth trend threatens to reverse improvements to living standards, and the unevenness of the slowdown between richer and poorer in Nigeria could limit the prospects for the nation’s income convergence.
Comrade Peters Adeyemi , the General Secretary of the Non-Academic Staff Union of Nigeria (NASU), in an exclusive interview with Daily Independent, cautioned the Federal Government to prioritise productivity reforms to revive ailing manufacturing sector, for President Bola Tinubu’s administration targeted growth rate of about 3.8% in 2024 and 6% or more in the coming years to see the light of the day.
He said: “The current trend of persistent low-growth scenario, combined with high interest rates, could put debt sustainability at risk, restricting the Federal Government’s capacity to counter economic slowdowns, boost growth in the manufacturing sector and invest in social welfare or environmental initiatives for Nigerians.
“Moreover, expectations of weak growth could discourage investment in capital and technologies, possibly deepening the slowdown. All this is exacerbated by strong headwinds from GDP Growth Rate in Nigeria which averaged 0.50 percent from 2010 until 2024, reaching an all time high of 12.12 percent in the third quarter of 2020 and a record low of -16.10 percent in the first quarter of 2024 due to economic fragmentation, and inconsistent industrial policies”.
Adeyemi, who argued that Nigeria’s Gross Domestic Product (GDP) grew by 3.46% (year-on-year) in real terms in the fourth quarter of 2023, lower than the 3.52% recorded in the fourth quarter of 2022, said the current high electricity tariff will inflict more hardship on manufacturers and Nigerians who are already feeling the heat of petrol subsidy removal.
He said: “We call on Federal Government to initiate policies that would improve labour and capital allocation across manufacturing industries to tackling labour shortages caused by inadequate power generation capacity, transmission and distribution bottlenecks, sub-optimal pricing, operational inefficiencies of the Distribution Companies (DisCos) as well as regulatory uncertainties and policy inconsistencies, that could collectively rekindle revival and growth of the manufacturing sector.
“The key drivers of economic growth include labour, capital, and how efficiently these two resources are used, a concept known as total factor productivity. Between these three factors, more than half of the growth decline since the crisis was driven by a deceleration in Total Factor Productivity (TFP) growth. TFP increases with technological advances and improved resource allocation, allowing labor and capital to move toward more productive firms”, he said.
He said the increasingly inefficient distribution of resources across manufacturing companies, has dragged down TFP and, with it, growth rate.
Much of this rising misallocation stems from persistent barriers, such as policies that favour or penalise some firms irrespective of their productivity, which prevent capital and labour from reaching the most productive companies.
“This limits the growth potential of the manufacturing industries. If resource misallocation hadn’t worsened, TFP growth could have been 50 percent higher and the deceleration in growth would have been less severe.
He noted that Federal Government policy shifts that address resource misallocation by improving the flexibility of product and labour markets, trade openness, and financial development would boost the manufacturing sector.
“We call on Federal Government to also consider policies aimed at enhancing labour supply or productivity by reforming retirement and unemployment benefits, supporting childcare, expanding re-training and re-skilling programmes to boost productivity, and fully leverage AI toward reviving the growth of manufacturing sector in the medium term.
The labour leader suggests that focused policy actions to enhance market competition, trade openness, financial access, and labor market flexibility could lift the nation’s growth s by 2030.
He noted that economic growth has not been inclusive, and Nigeria’s economy faced key challenges of lower productivity, and the weak expansion of sectors with high employment elasticity.
He said the consequences of Nigeria having a weak manufacturing base with a large population are evident in its foreign exchange shortages, limited number of jobs created to accommodate workforce entrants, and an import bill that can hardly be met (nor sustained) by current export earnings.
The weak manufacturing base transcend to 80 percent of workers being employed in sectors with low levels of productivity in agriculture and non-tradable services.
“This means that the kind of jobs needed to generate income growth and lift many Nigerians out of poverty are not available in large numbers”
He noted that a practical strategy on how to structurally transform the economy would embrace moving labour and economic resources from low productivity sectors to high productivity sectors.
He emphasised that at the top of the productivity ladder is the tradable services sector, which has the potential to improve incomes and raise overall productivity.
“The challenge with the manufacturing sector, however, is its inability to accommodate labour in large numbers, though the sector is important, given Nigeria’s young population who are increasingly driving technological revolution across various sectors on the African continent.
“To leverage the full potential of this sector, the government will need to design and implement national skills programs aimed at upskilling young Nigerians, to ensure many more embrace digital skills and capabilities.
“The manufacturing sector, he said has a much higher productivity level than agriculture and can accommodate, in large numbers, the kind of labor that is abundant in the country.
Nigeria’s rising population (which is projected to reach 428 million by 2050), the existence of mineral resources, and the adoption of a single market in Africa—the African Continental Free Trade Area (AfCFTA),present a case for why manufacturing would thrive in Nigeria in the long run.
“The priority, therefore, for the Federal Government must be to address the burgeoning infrastructure deficit and inadequate power supply, which limit the competitiveness of the manufacturing sector.
“The Federal Government will need to develop an industrial policy that seeks to support the scale, efficiency, and competitiveness of local firms within the manufacturing sector; bearing in mind that developing the sector is key to building economic resilience against vulnerability and future shocks.
“The needed policies must be integrated with Nigeria’s AfCFTA strategy and support transition of small-scale firms that are often the drivers of job creation in the country”, he said.