by Feyi Fawehinmi

 

There is one major problem with cement as an input – it cannot be expensive. If cement is expensive, then the wheels will slowly grind to a halt and all the activities further down the chain will slow down or stop completely.

I’m a Radical Free Market Ideologue.

What this means is that I lose all sense of proportion when it comes to ideologies on economic policy. I dream of one day challenging the advocates of state directed protectionist policies in Nigeria to a shootout in an open space somewhere near Abuja perhaps. Winner takes all (Mind you, if you take me up on this offer you have fallen for a free market idea).

But today I want to do an ‘ideological promo’! I am going to put aside my free market gra gra and attempt to make an argument for protectionist economic policies just to see where it takes us.

First thing is to start off with a couple of simple assumptions after which we can begin to layer complexities.

Assumption 1 – Let’s assume 2000 as our base year. This is when we decided on a protectionist industrial policy to nurture a particular industry to growth.

Assumption 2 – Let’s also assume that the chosen industry was cement i.e. President Obasanjo decided, based on an overarching strategy, that cement was one of the industries to lead us into the big boy league of nations.

Assumption 3 – Finally, let’s assume that the decision to pick cement was done in a 100% altruistic manner. Only the interests of Nigeria were taken into consideration when making the decision. Several other industries were considered but cement was chosen. Based on this we can then assume that whatever mistakes are wrong with the policy, they were honest ones. No bribe was paid and no promise of campaign donations made in exchange for favourable policy.

Having made the assumptions, we now stand here, 12 years later to honestly appraise how well the policy has worked. What do we make of the decision to favour cement as an industry? This is where I delve into personal opinion.

We all know that cement is an input. Nobody buys it to drink or to use as decoration in their living room. It is a means to an end. Therefore from the point of view of how an economy works, we don’t really care about cement as a product. It is a necessary evil on the journey to where we are going as a nation. We want cheaper houses to accommodate the masses of Nigerians. We want a thriving, nay booming, construction industry because this sector is a sure banker job creator. If the cement industry by itself employs say 50,000 people then we can easily make an assumption that the cement they produce will create millions of jobs insofar as the cement production is flowing to the construction industry.

But there is one major problem with cement as an input – it cannot be expensive. If cement is expensive, then the wheels will slowly grind to a halt and all the activities further down the chain will slow down or stop completely. For us as a nation trying to get off the ground industrially, we now have to ask the question – is the strategy of favouring an input helping or hurting us?

Today, cement prices in Benin Republic and Cameroun are about half of what they are in Nigeria. You are not allowed to be surprised that there is currently smuggling going on. Indeed, cement prices in the UAE are about 1/3^rd of what they are in Nigeria. In other words because cement is such a vital input, it will cost us probably 3 times as much to house our people as it will cost the UAE government. And we have more people and less money to burn. What sense is there in doing?

For emphasis, cement as an industry cannot create anywhere near the number of jobs the usageof cement can. If resources are thus scarce as we know them to be, then we want to free up the input as much as possible to get us to where we are going.

So if we shouldn’t be protecting cement which is an input, what should we be protecting? Cast your mind back to when you were younger; what did ‘Made in Taiwan’ mean? Undoubtedly ‘Made in Taiwan’ was a derogatory term for cheap and perhaps inferior goods some of which were not even made in Taiwan.

These days Taiwan is the home of Foxconn a company with nearly $120bn in revenues. Taiwan itself has an economy approaching $1trn in GDP with a population of 23m people. If you want to see what Taiwan is like these days, visit this site. Oh, the USA has also added Taiwan to the list of countries that can travel to America visa free.

How did a country like Taiwan manage this? One way to answer this question is that they used the world, including us Nigerians, as guinea pigs to validate their products. One of the beauties of making products that go straight to the consumer i.e. that are not inputs, is that the feedback is often swift and brutal. This is especially true for cheap products because by their nature they are cheap because competition has usually driven the prices down.

The Taiwanese found something to make for us but the only way we were ever going to buy it off them is if the prices were super cheap. So we insulted and abused them but then held our noses and paid for the goods. Today Foxconn makes Apple products which majority of Nigerians cannot afford. The experiment is over, thank you for participating. We have now moved on to the big leagues.

So what can Nigeria make that even if the quality is so poor, people will abuse it publicly but then in private pay for it and move on? Who can we test our products on? Cement is obviously not the answer as ours is too expensive. There is no need to speculate because thankfully we have real examples to use.

Now maybe this is not the best comparison but it will work. On Amazon UK, you can buy a pack of Indomie noodles with 40 packs in the box for £12.50 (N3, 125). The same box will cost N1, 300 in Nigeria.  Bear in mind that that N1, 300 includes the cost of input, transportation, diesel and a profit element for both Dufil Group and whoever sold it to you. Perhaps it costs N600 to actually make? The product has also been validated by customers i.e. people continue to buy it and not die as a result. A made in Nigeria product is globally competitive in price…exactly what Dangote cement is not. Anyone who has spent a few minutes at the check in desk of a Lagos to London flight at MMIA will also testify to the arbitrage opportunities that Nigerians coming to London continue to take advantage of.

Now to extend the argument in Taiwanese fashion – what is to say that the person who is making Indomie today won’t make ready to eat Fettucini Alfredo meals tomorrow? Remember that the market is not Nigeria and what we are trying to do here is to build some kind of industrial base for our country. Remember that the people who laughed at ‘Made in Taiwan’ yesterday are not laughing at Foxconn assembled iPhones today.

Another example? A friend was recently in Kano and got to hear about a Chinese run factory making slippers. They make around 1.5m pairs daily. Website here. The slippers are exported across the world as I am told. But here’s what is interesting about this – an article recently highlighted the fact that the USA was getting worried about the Chinese gaming the African Growth and Opportunity Act (AGOA).

The thinking behind AGOA was that it made sense to buy stuff produced in Africa to encourage more production on the continent. So products made in Africa allowed under AGOA were essentially allowed free access to the US market without tariffs. Given that China is now a serious competitor to the US; its goods don’t have that kind of free access to the American market. So Chinese companies are setting up shop in Africa to produce all kinds of stuff and then slapping ‘Made in Nigeria’ on them. When they get to the American port, they are simply waved in.

Now, I have to stress this – I am in no way advertising for these two companies. I am merely making the point that we actually have a path in front of us to get to where we want to go. Again to extend the Taiwanese example – what’s to say that the person making cheap slippers today won’t make billion dollar selling Crocs tomorrow?

In the final analysis, how do we identify the exact industries to protect?

The system where government decides on a ‘strategy’ and then picks a ‘winner’ is way too risky. Government did not pick noodles or slippers as strategic industries yet Nigerian made products are comfortably competing in those areas globally. This global aspect is important because that is where the big business is that will give us the level of demand to match whatever it is we want to sell and ultimately create employment.

It is not because Bengali people like to change clothes so many times a day that the Bangladesh garment industry has 5,000 factories employing 3.6m people and exporting $15bn worth of clothes in 2010. It is because if you stop reading this article for a minute and checked the label on a few of your clothes, you will most likely find one with Made in Bangladesh on it.

The answer lies in the free markets! Yes, we are back here. As bad as things are in Nigeria in terms of infrastructure and energy costs, it is possible to be competitive globally. So even if we are going to be protectionist and reject free market principles when it comes to external forces, we cannot run away from having an internal free market. Let the markets inside Nigeria be free and let winners emerge. Once these winners emerge, we can then ‘protect’ them as they go into the wider sinful world. It’s also important to understand – protectionism is not just about banning stuff like we like to do in Nigeria. It is the giving of subsidies like the Chinese give their factories cheaper electricity to produce things. It is the giving of cheap loans like BNDES has done over the years in Brazil. And, Mallam Sanusi will not like this; it is the weakening of the Naira to ensure our goods are cheaper abroad.

But most of all we need to stop protecting inputs and back products that customers can quickly validate so we know whether to continue with them or move on. The government is making the same mistake again by ‘protecting’ our sugar industry with bans on imports. But sugar is also an input so if it’s too expensive people might give up drinking garri or tea or perhaps switch to honey.

And then tomorrow sugar producers will start crying and threaten to go on strike.

Fool me once, shame on me…or how did George Bush say it again?

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Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.