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THE COLLAPSE OF NIGERIAS MANUFACTURING SECTOR

1/16/2008

IT IS TIME FOR PRESIDENT YARADUA TO REVIVE THIS SECTOR. BY DR. O. A. AJAYI,

Dutch disease is an economic concept that explains the seeming relationship between the

exploitation of natural resources and a decline in the manufacturing sector. The theory is that an

increase in revenue from natural resources will reindustrialise a nations economy by raising its

exchange rate, which makes the manufacturing sector less competitive.

Dutch disease originated in The Netherlands during the 1960s when the high revenue generated

by its natural gas discovery led to a decline in the competitiveness of its other non-booming

tradable sectors. Despite the revenue windfall the new discovery brought, The Netherlands

experienced a drastic decline in economic growth. Nigerias economy has therefore suffered from

Dutch disease since the advent of oil syndrome which shifted attention from other sectors of the

economy to oil sector. It is not surprising to find a private company like the United Nigerian

Textiles PLC (UNTL) collapsed; neither is the textile industry, the only distressed sector in Nigeria.

Only a few firms are still active. Big-time employers that have collapsed or being crippled include

the Nigeria Railway Corporation, Nigeria Airways, Nigerian Coal Corporation, Nigeria

Telecommunication Ltd. (NITEL), etc. Little wonder that the level of poverty, unemployment and

crime is embarrassingly high in the country!

The closure of the United Nigerian Textiles PLC (UNTL), one of the Nigerias leading textile firms,

again opened another unpleasant chapter in the Nigerias economic history. The UNTL was

established in 1964 by the Northern region government of Sir Ahmadu Bello in the heat of the

healthy competition that existed among Western, Eastern and Northern regions for industrial

supremacy. By 1989, when the company celebrated its silver jubilee anniversary, it was already

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one of the largest companies in Northern Nigeria as a whole. It was at a time, the biggest textile

factory in Africa.

At the peak of its production, in the 90s, the company had well over 20,000 employees but when it

recently closed shop, the work force had shrunk to only 4,000, all of whom have now been thrown

into the unemployment market. The factors responsible for the closure of UNTL are: high cost ofoperation (including inadequate supply of water, power, and raw materials), unstable business

environment, the activities of smugglers and pirates of textile products, high cost of loans from

banks, non-release of the promised N70 billion Textile Revival Fund, inconsistent government

policies, the negative effect of globalization and energy problems. Set to close shop are many

more mills in an industry that has shrunk from more than 200 mills employing over one million

workers in the 1980s to 20 mills now employing fewer than 20,000 workers. UNTL was therefore

the last textile mill standing in Kaduna, several others are already dead.

The problem in the industry started in the days of the Structural Adjustment Programme (SAP),

when the cotton commodity boards responsible for the growth and sustenance of cotton, the

most important raw material for textile manufacturing, were scrapped. The government then

introduced an Approved User Scheme which made the importation of raw materials, such as

viscose and polyester yarns, an arduous task for textile manufacturers. In addition, deregulation,

privatisation, and now globalisation have added another dimension to it. Nigerias policy makers

will do well to disregard the prescriptions of outsiders and formulate policies that will protect the

interests of local industries and the less privileged ones. Any reform programme that cannot make

Nigerians have jobs, eat well and live well cannot be in the interest of the country. Obviously,

these factors are not limited to the textile sector alone, as many companies from other sectors are

closing shop for the same reasons. The textile sector is only worse hit because of the high

incidence of smuggling.

According to the management representative of UNTL, Senator Walid Jibrin, 80 per cent of textile

consumption in Nigeria comes from smuggled textile materials from China and other Asian

countries. Only 20 per cent of consumption is from the local industries, while 40 million litres of

textile chemicals are smuggled to Africa from China, out of which Nigeria alone consumes 40 per

cent of this. The collapse ofNigerias refineries and the consequent importation of Low Pour Fuel

Oil or Black Oil, an indispensable fuel used to start up industrial machines, constitute anoth er

factor in the death of Textile industries in Nigeria.

Be it as it may, Nigerias policy makers should accept responsibility for not initiating real policies to

vigorously diversify the Nigerias economy with the advent of oil boom. If the problems in the

textile industry and the manufacturing sector as a whole are to be effectively tackled, the Nigerian

government and Nigerians in particular must take definite measures to revive the manufacturing

sector through deliberate and the implementation of policies that would overhaul the countrys

infrastructure and give locally manufactured goods better patronage. Additionally, the Nigerian

government should encourage those Asian countries like India, Korea, China, Malaysia, etc. from

which textile products are smuggled into Nigeria to invest in the country rather than see the giant

of Africa as a dumping ground!! Nigeria, to observers, is a nation full of paradoxes. While the real

sector that provides jobs for the people and revenue for governments is collapsing, service

industries like banks are declaring billions of Naira as profits yearly. Banks have not been

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supporting the manufacturing industry with loans of low interest rates; the Nigerian government

and the Central Bank of Nigeria should do something about the prohibitive lending rate which has

contributed to the collapse of manufacturing sector. In other countries, interest rate is five or s ix

per cent. It is ironical, those foreign experts that preach that Nigeria withdraws subsidies have

ensured the bank interest rate is not more than five or six per cent in their home countries.

The YarAdua government must act fast to save more industries from collapsing as well as take

measures that would help bring back to life the ones that are already dead. If the previous

administrations since the advent of oil boom had diversified the economy, and paid necessary

attention to the manufacturing sector, it would not have been possible for UNTL top collapse..

There is therefore, the urgent need to fix infrastructure, particularly, power supply, to save

manufacturers the huge cost they spend on generators. The use of solar energy and wind mils to

generate electricity are recommended. The government also need to review other policies,

particularly the unfriendly (high) bank lending rate, that are stifling industrial growth if Nigeria is

not only to stop the factory closures and the attendant problems but to be one of the leading

economies in 2020. China with its attempt to encourage economic growth, and be comfortable in

the long run, recently reduced the interest rate. The YarAdua administration should not only

release and monitor the use of the N70 billion intervention fund to revive the textile firms but

consider the reduction of bank lending rates to affordable level that will stimulate and promote

economic growth. It may also consider the possibility of withdrawing around $5billion from

Nigerias foreign exchange reserves of over $45billion to revam p the manufacturing sector which

in the long run will generate employment, reduce poverty and crime.

Now that oil prices have attained over $80 per barrel, the government,may consider this option. It

is true that the larger the foreign exchange reserves, the better the country is able to engage in

transactions with foreign countries. Nigeria cannot keep huge foreign exchange reserves abroad

while its economy is in precarious state.Nigerians are therefore tired of news concerning rising

foreign exchange with little development in the country .

BY DR. O. A. AJAYI, MEMBER, ASSOCIATION FOR PROMOTION OF INTERNATIONAL BUSINESS AND

DEVELOPMENT

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