NIGERIA, THE NEXT CHINA. CAN WE?

Nigeria, Africa’s most populated country, has been poised to exploit the long-awaited “demographic dividend” with a higher share of working-age population. Labor is Nigeria’s strongest source of comparative advantage, and it's stale news that Nigeria’s abundant and growing labor force is currently underutilized. Absorbing the growing labor force and utilizing better the existing stock of underemployed youths requires expansion of labor-intensive activities. And that means expanding exports, as domestic consumption offers limited opportunities for specializing in labor-intensive production.

What are the potentials for expanding exports? Nigeria’s main competitors in the continent, South Africa, Tunisia, Libya, Egypt etc., are becoming expensive places in which to do business. In the next three to four years, China’s exports of labor-intensive manufactured goods are projected to decline, it has been envisioned that it will no longer have one-third of the world market in garments, textiles, shoes, furniture, toys, electrical goods, car parts, plastic, and kitchen wares. Capturing just 1% of China’s manufacturing export markets would more than double Nigeria’s manufactured exports.

The Nigeria wage is half of India’s with $0.28/hour compared to $0.15/hour, and less than one-third of China’s or Indonesia’s. With Sierra Leone with the lowest minimum wage in the world at $0.03, other countries such as Cambodia, Pakistan, and Vietnam are other exporters who take advantage of their extremely low labor costs to drive export revenues. Nigeria can take advantage of this low-cost edge over its competitors. Nigeria can become the “next China,” with its labor-intensive manufactured exports growing at double-digit rates per year, if it can break the infrastructure bottleneck and take advantage of its large pool of underemployed labor. A recent World Bank study shows that if Nigeria (among other surveyed countries) can improve its business environment halfway to India’s level, it could increase its trade by about 38% and cut dependence on oil revenue by half. If Nigeria fails to act soon, others will take the markets China is vacating.

Export-product and market diversification is crucial to insulate the economy from external shocks, such as the recent global financial turmoil and recession in the United States and European Union economies. Experience from other countries such as Brazil, Philippines, Mexico, Russia, suggests that export diversification is associated with generally strong economic performance. Was progress achieved in this regard? In fiscal year 2012, according to the Nigeria Export Promotion Council, Nigeria non-oil exported products worth was $1.40 billion which was an 11 percent decline from 2011 figures. Although, the decline was attributed to unrecorded exports, the fuel subsidy crisis and workers’ strike in the early part of the year. However, the figures for 2013 are not encouraging as non-oil export figure currently stands a little above $900 million. It doesn't seem Nigeria would cover or surpass the 2012 mark, but the overall trade balance is encouraging as there has been a marked improvement with the reduction of importation and increased export value, owing to decreased dependence on oil and gas for export earnings. Nigeria has recorded a 43 percent decline in imports between 2011 and 2012, resulting in savings of about NGN4.2 trillion in foreign exchange. This indicates that the local front is satisfactorily covered, but more need be done on the external front. Japan continues to be a huge potential market which is so far untapped. Nigeria can also look to other emerging import markets such as Russia, Canada, the United Arab Emirates, South Korea, and China itself to adequately bridge this gap.

A new wave of reforms is needed to raise Nigeria’s growth path. Deepening and diversifying Nigeria’s labor-embedded exports can transform the country from a rural, oil-based economy into an urban, manufacturing and agricultural economy. McKinsey & Company’s interview-based survey of chief purchasing officers in European and U.S. companies identified a number of challenges which, if not addressed, could cause Nigeria to miss the opportunity of attracting viable importers moving out of China. These include:

·         - Transport: congested roads, limited inland transport alternatives, absence alternative         deep-sea port, and the over congestion of the present functional one.

·         - Utility supply

·         - Compliance with labor and social standards

·         - A productivity gap reflecting skill and technological deficiencies

·         - Soaring risks and long lead times

·         - Political instability, corruption and the new burgeoning terrorism threat.

By tackling these obstacles head-on, Nigeria can seize the moment of opportunity to move into the space that China’s transition will open up. But in my opinion the main bottleneck which will hinder Nigeria from filling the gap the China transition would create is the leadership drive, coupled with the political will to solve these challenges. The opportunity won’t continue to wait for Nigeria to get her leadership acts right, as other nations such as Indonesia, Malaysia, Philippines etc. are gearing up to fill that space. It is therefore a rat race which has to be won at all cost if we intend to shift from the current oil economy dependence into a more diversified one, so help us God.