23/05/2025
VALUE OF IGNORANCE
By: Dr Donald Peterson
Nigeria's economic relationship with manufacturing reveals a complex paradox where the country's current reliance on imports, while creating dependencies, also provides certain short-term advantages that mask deeper structural challenges. This "ignorance" or underdevelopment in manufacturing has created a delicate global equilibrium, but at tremendous cost to Nigeria's long-term economic potential.
Current State of Manufacturing Ignorance:
Nigeria's manufacturing sector contributes less than 10% to GDP, significantly below the 15-20% target set in various economic plans. This underdevelopment has created a heavy reliance on imports, particularly from China and India, for everything from textiles and electronics to machinery and consumer goods. The country imports approximately $50 billion worth of goods annually, with manufactured products comprising the majority.
The current state provides several short-term advantages. Consumer goods remain relatively affordable due to economies of scale in Chinese and Indian manufacturing, keeping inflation manageable for imported products. Nigerian traders and importers have built substantial businesses around this model, creating employment in distribution, logistics, and retail sectors. The government also benefits from import duties and taxes, though these revenues are often volatile and tied to exchange rate fluctuations.
The Competitive Threat Scenario: Why Global Factories Fear Nigerian Industrialization;
Nigeria possesses several competitive advantages that remain largely untapped, creating a scenario where full industrial development could indeed threaten established manufacturing centers globally. The country has abundant natural resources including oil, gas, and minerals that could feed manufacturing processes; a population of over 220 million people providing both a massive domestic market and potential workforce; relatively lower labor costs compared to many established manufacturing hubs; and strategic geographic location for both African and global markets.
Nigeria's oil and gas reserves could power energy-intensive manufacturing at competitive costs if properly harnessed. The country has significant deposits of iron ore, coal, limestone, and other raw materials essential for steel production, cement manufacturing, and chemical industries. Agricultural products like cotton, cocoa, and palm oil could support robust textile and food processing industries. These natural endowments, if combined with proper industrial policy, could indeed create cost advantages that would challenge established manufacturing centers.
With median wages significantly lower than China's current levels, and with China's own labor costs rising due to economic development, Nigeria could potentially offer compelling labor arbitrage opportunities. If Nigeria successfully industrialized, Chinese factories producing textiles, electronics assembly, and consumer goods could face significant competition, particularly in serving African markets where Nigeria would have logistical advantages. Indian pharmaceutical and textile industries might also face pressure, especially given Nigeria's potential to serve as a manufacturing hub for the entire West African region through ECOWAS trade agreements.
Vietnam's Pre-Industrial Ignorance and Its Costs:
Vietnam's journey from a predominantly agricultural economy to a global manufacturing hub provides a stark contrast to Nigeria's current trajectory. In the 1980s, Vietnam resembled Nigeria's current manufacturing predicament. The country relied heavily on agricultural exports and imported most manufactured goods, maintaining trade relationships that kept it dependent on other nations' industrial capacity.
This manufacturing ignorance came with significant costs: Vietnam's GDP per capita remained below $100 throughout the 1980s, unemployment was rampant, and the country struggled with foreign exchange shortages due to import dependency. Like Nigeria today, Vietnam spent precious foreign currency importing basic manufactured goods while exporting raw materials at much lower value-added prices. Young Vietnamese workers migrated abroad for employment opportunities, creating brain drain similar to what Nigeria experiences today.
The Strategic Industrial Awakening:
Vietnam's transformation began with the Doi Moi reforms in 1986, but the real manufacturing breakthrough came in the 1990s with targeted policies that Nigeria has yet to implement effectively. The Vietnamese government made crucial decisions that Nigerian policymakers have struggled with: they prioritized manufacturing over natural resource revenues, invested heavily in technical education, and created industrial zones with reliable infrastructure.
The textile industry exemplifies Vietnam's strategic approach. In the early 1990s, Vietnamese textile production was minimal, and the country imported most clothing. By 2020, Vietnam had become the world's third-largest textile exporter, with companies like Nike, Adidas, and H&M establishing major production facilities there. This transformation displaced production from higher-cost locations, including some Chinese factories, demonstrating exactly the competitive threat Nigeria could pose.
Samsung's Vietnamese Operations: A Case Study in Rapid Transformation:
Samsung's decision to establish major manufacturing operations in Vietnam illustrates how quickly industrial transformation can occur with proper policies. In 2008, Samsung began production in Vietnam with a $670 million investment. By 2019, Samsung's Vietnamese operations employed over 160,000 people and contributed nearly 25% of Vietnam's total exports. The company's smartphones assembled in Vietnam now compete globally against products made in China and India.
This transformation came at a cost to other manufacturing locations. Several Samsung facilities in China reduced operations or closed as production shifted to Vietnam's lower-cost, well-trained workforce. Indian electronics manufacturers also faced increased competition in regional markets where Vietnamese-made products offered better price-performance ratios.
Bangladesh: The Textile Revolution:
Bangladesh's textile industry evolution provides another example of how manufacturing development can disrupt global production patterns. In 1980, Bangladesh had minimal textile exports. By 2020, the country had become the world's second-largest apparel exporter after China, with the industry employing over 4 million people and generating $35 billion in annual exports.
This transformation directly impacted established textile producers. Indian textile manufacturers lost market share in global markets as Bangladeshi producers offered competitive pricing with improving quality. Some Chinese textile operations also relocated to Bangladesh to take advantage of lower labor costs and trade preferences with Western markets.
The key to Bangladesh's success was specialization and scale. The country focused intensively on garment manufacturing, developing supporting industries like fabric production, dyeing, and accessories manufacturing. This cluster approach created efficiencies that individual factories couldn't achieve alone.
Ethiopia's Industrial Ambitions: African Lessons:
Ethiopia's recent push into manufacturing, particularly textiles and leather goods, demonstrates both opportunities and challenges for African industrialization. The country has attracted investments from Chinese, Turkish, and European manufacturers seeking lower-cost production bases. Companies like H&M and PVH Corp have established sourcing operations in Ethiopia, taking advantage of the African Growth and Opportunity Act trade preferences.
However, Ethiopia's experience also highlights potential pitfalls. Infrastructure limitations, including unreliable electricity and transportation challenges, have slowed some manufacturing investments. Political instability has also deterred long-term industrial commitments, showing how manufacturing development requires stable governance alongside economic policies.
China's Manufacturing Evolution and Global Displacement:
China's manufacturing development from the 1980s onward created the template for rapid industrialization that other countries now follow. Chinese manufacturing growth displaced production from established centers in Japan, South Korea, and Taiwan for labor-intensive industries, while these countries moved up the value chain to higher-technology manufacturing.
The scale of China's transformation illustrates the potential disruption Nigeria could create. In textiles alone, Chinese production grew from minimal levels in 1980 to dominating global markets by 2010. This growth came at the expense of textile industries in developed countries and other developing nations that couldn't compete with China's combination of low costs, improving quality, and massive scale.
Economic Costs:
Nigeria's manufacturing underdevelopment carries costs magnified by the country's larger population and greater natural resource endowments. The country's $50 billion annual imports of manufactured goods represent foreign exchange that could support domestic production and employment. Nigerian unemployment rates, particularly among youth, reflect the absence of manufacturing jobs that could absorb the growing labor force.
The textile industry provides a stark example. Nigeria was once a significant textile producer, with cities like Kano hosting numerous textile mills. Most of these facilities have closed due to competition from Chinese imports and infrastructure challenges. The result is a country with abundant cotton production but minimal textile manufacturing, forcing imports of products that could be produced domestically.
Human Capital Misalignment:
Nigeria's educational system has emphasized university education over technical skills, creating a mismatch between graduate qualifications and available employment opportunities. The country produces numerous university graduates but lacks the skilled technicians and production workers that manufacturing industries require.
Vietnam's manufacturing success required massive investments in technical education that Nigeria has yet to match. Vietnamese technical schools and universities aligned curricula with manufacturing needs, producing skilled workers for electronics assembly, textile production, and other industries through government-industry partnerships.
The Foundation of Manufacturing Competitiveness:
Vietnam's success required massive infrastructure investments that highlight Nigeria's current gaps. The Vietnamese government invested heavily in industrial parks with reliable electricity, efficient ports, and transportation networks. The Saigon Hi-Tech Park, established in the late 1990s, now hosts global technology companies and demonstrates how targeted infrastructure development can attract manufacturing investment.
Nigeria's unreliable power supply forces manufacturers to invest in expensive backup generators, making production costs uncompetitive. Vietnamese industrial electricity costs average $0.08 per kWh with 99.5% reliability, while Nigerian manufacturers often pay $0.15-0.20 per kWh when including generator costs, with frequent outages disrupting production schedules.
Financial Sector and Manufacturing Development:
Vietnam's manufacturing growth required financial sector reforms to provide industrial credit. Vietnamese banks developed expertise in manufacturing finance, offering term loans for equipment purchases and working capital for production. Government development banks provided additional support for priority industries and small-scale manufacturers.
Nigeria's financial sector remains oriented toward trade finance and short term lending, with limited capacity for long-term manufacturing credit. High interest rates and collateral requirements make manufacturing investments financially challenging, particularly for small and medium enterprises that could drive industrial diversification.
Trade Policy and Global Value Chain Integration:
Vietnam's manufacturing development strategy focused on integration into global value chains rather than import substitution. Vietnamese manufacturers became suppliers to global brands and multinational companies, accessing international markets and technology transfer. This approach required meeting international quality standards and delivery schedules, forcing rapid improvements in production capabilities.
Nigeria's manufacturing policy has historically emphasized import substitution and domestic market protection, limiting exposure to international competition and technology transfer. This approach has resulted in manufacturing capabilities that struggle to compete internationally, constraining export potential and limiting industrial growth.
Vietnam leveraged regional trade agreements and global trade preferences to access international markets for manufactured goods. Nigeria's participation in ECOWAS provides similar opportunities for regional market access, but the country has not fully exploited these advantages for manufactured exports. Instead, Nigeria has become a net importer within the regional trade arrangement, missing opportunities to serve as a manufacturing hub for West Africa.
The Multiplier Effects of Manufacturing Development:
Vietnam's manufacturing growth created extensive multiplier effects throughout the economy. Supporting industries developed to serve manufacturers, including packaging, logistics, and business services. Urban development accelerated around industrial centers, creating construction and service sector employment. Tax revenues from manufacturing activities funded infrastructure improvements and social programs.
These multiplier effects explain why manufacturing development creates more comprehensive economic transformation than resource extraction industries. Vietnam's manufacturing led growth reduced poverty rates and created middle class employment opportunities that agricultural and resource based economies struggle to generate.
The Delicate Global Balance:
The current state represents a delicate equilibrium where Nigerian consumers benefit from affordable imports, global manufacturers maintain their market positions, and local import-dependent businesses continue operating. Disrupting this balance through rapid industrialization would create winners and losers both domestically and internationally.
A manufacturing strong Nigeria would reshape trade patterns across Africa, potentially reducing the continent's dependence on Asian manufacturers. This could accelerate African economic integration while creating new competitive pressures on established manufacturing economies. The multiplier effects could extend beyond manufacturing to logistics, financial services, and technology sectors.
Timing and Global Manufacturing Cycles:
Vietnam's manufacturing development benefited from favorable global timing, as rising Chinese labor costs created opportunities for lower-cost producers. Nigeria may face a narrower window of opportunity as automation technologies reduce the labor cost advantages that drive manufacturing relocation.
However, Nigeria's domestic market size and regional position still provide significant advantages. The country could develop manufacturing capabilities primarily for domestic and regional consumption, reducing import dependency while building industrial capabilities for eventual export competition.
Environmental and Social Considerations:
Vietnam's rapid manufacturing development also created environmental and social challenges that Nigeria can learn from. Industrial pollution increased significantly, requiring subsequent investments in environmental protection. Urban migration created housing and infrastructure pressures that required government response.
These experiences suggest that Nigeria's manufacturing development should incorporate environmental and social planning from the beginning, rather than addressing these issues after industrialization creates problems. Sustainable manufacturing development may be slower but more durable than purely growth focused approaches.
Economic Transformation Requirements:
For Nigeria to realize its manufacturing potential would require coordinated efforts across multiple sectors: power sector reforms to ensure reliable, affordable electricity; massive infrastructure investments in roads, rails, and ports; educational system overhauls to produce skilled workers; financial sector development to provide manufacturing credit; and regulatory reforms to streamline business operations.
The current "ignorance" in manufacturing stems largely from systemic challenges rather than lack of awareness. Unreliable electricity supply, inadequate transportation infrastructure, complex regulatory environments, and limited access to long-term financing have historically made manufacturing uncompetitive. These barriers have effectively protected global manufacturers from Nigerian competition while keeping Nigeria dependent on imports.
The True Cost of Manufacturing Ignorance:
The evidence from Vietnam, Bangladesh, China, and other successful manufacturing economies demonstrates that the price of manufacturing ignorance compounds over time, while the benefits of industrial development create self-reinforcing cycles of growth and capability building. Nigeria's current manufacturing underdevelopment represents not just lost economic opportunities, but a strategic vulnerability that will become more costly to address as global manufacturing continues evolving.
Understanding this dynamic helps explain why manufacturing development in Nigeria has been slow despite obvious potential benefits. The transformation would require not just technical and financial resources, but also political will to disrupt existing economic relationships and power structures that benefit from the current import dependent model.
The true value of Nigeria's current "manufacturing ignorance" lies in maintaining global manufacturing equilibrium, but this comes at the cost of long-term economic development, job creation, and reduced dependency on volatile commodity exports. The question is not whether Nigeria can develop manufacturing capabilities the natural resources, market size, and labor force clearly exist but whether the country will choose to pay the upfront costs of transformation to capture the long-term benefits that other nations have achieved through strategic industrialization.
The window for manufacturing-led development may be narrowing as automation and changing global trade patterns reshape industrial location decisions. Nigeria's choice to remain in manufacturing ignorance or pursue industrial transformation will determine not only the country's economic future but also its role in the global economy for generations to come.
Blessed weekend Folks....
