Beyond protectionism: Making a case for industrial stimulation, revival

A key argument in favour of protectionism is the infant industry case, especially as the rules are being applied in developing nations like Nigeria. This is based on the idea that emerging economies must first be shielded from foreign competition so that they can eventually obtain the efficiencies required to compete on costs with established foreign producers. Despite the ideals, continued contraction in the real sector however requires government’s decisions on which industries to protect, while reviving incentivised manufacturing to innovation and efficiency. FEMI ADEKOYA writes.

Protectionism remains an ongoing concern between developed and developing economies involved multilateral ties as there is no general agreement on what constitutes it.

Often, protectionism involves restricting trade by limiting foreign competition faced by domestic firms. At one end of the spectrum it might be defined as restrictions on imports through tariffs and quotas; a broader definition might include the influence of a wider range of government regulations and policies which (deliberately or otherwise) restrict or distort trade, including those that seek to support domestic industries.

Although some protectionism is permitted for developing countries under WTO rules, the balance of evidence suggests that infant industry protection has had only limited success in practice, as protected industries have tended not to become internationally competitive over time, especially when the cost of production has not been addressed.

Still at its early stage, stakeholders are anxious that the CET regime will make countries with weak manufacturing base to lose out and become a dumping ground for other economies in the sub-region, adding that the development has negative implication for Nigeria.
President, Manufacturers Association of Nigeria (MAN), Dr Frank Jacobs says implementation of cross-border policies such as the CET and Economic Partnership Agreement (EPA) could throw up fresh challenges that might further complicate the current lack-lustre performance of the manufacturing sector.

Arguing in favour of continued implementation of protectionist policies, the Manufacturers Association of Nigeria (MAN) urged President Muhammadu Buhari’s administration to rebuff such ideas, especially if Nigeria intends to develop its real sector.

According to MAN, the economic framework that are effective in maintaining advanced economies have been proven to be ineffective in developing economies, as opening Nigerian markets to cheap and sometimes substandard foreign goods is a capitalistic ideology that will not support the employment and poverty exigencies in the country.

MAN President, Dr. Frank Jacobs, in a rejoinder to address calls for removal of prohibitive tariffs, import ban or exchange control on imported finished products explained that the nation’s Industrial sector is a fledging one that is yet to find its feet.

Nigeria’s industrial sector has, over the years, gone through several challenges and is still import dependent for most essential inputs. Succeeding Governments in the country have come up with several policy options in order to set the right path for the economy. Opening up the economy to unfettered importation will definitely not be in the best interest of the country.

Nigerians are aware of the benefits of engaging in international trade. They are also aware that no country can effectively thrive in autarky. This explains why Nigeria has been active in international trade even before independence and is also a founding member of the World Trade Organisation (WTO). Suffice to say that Nigeria is inherently (by colonization) a trading nation and now, as a sovereign nation, should chart its path to economic/industrial development by carefully planning an appropriate course of action.

As the President of the Manufacturers Association of Nigeria (MAN), I recognize the huge disadvantage Nigeria would be exposed to if the country opens up its economy without caution to indiscriminate trade relations with advanced countries. First, the advanced countries would trade capital goods such as plant and machinery, medical equipment, agricultural machinery, aviation equipment and airplanes, etc while Nigeria would only trade commodity goods such as cocoa, pepper, sesame seed etc.

The implication will be that while the advanced countries get richer and more industrialized, Nigeria will remain a commodity country and in perpetual de-industrialization. As mentioned earlier, trade is important but Nigeria must be cautious to ensure that most of the goods coming into the market are input materials for the productive sectors and not finished consumer goods that will wipe out existing domestic industrial efforts and truncate new industrial initiatives”, he added.

Justifying the need for protectionist policies, he noted that protectionism remains an economic principle that has been successfully applied in many countries, adding that developed countries are still applying the principle.

The United States of America used it and is still using it today; or is the rebounding of US Auto-Industry not a success story perfected with protectionism? France, Britain, Germany, among others, have protected their economies during their course to industrialization. Britain, at some point, protected its textile industry from the Indian and Chinese trade surge on textile materials until its industry was developed enough to compete effectively.

In Nigeria, the principle of back-ward integration has helped to improve productivity in the manufacturing sector. Nigeria will not forget in a hurry, the challenge the industrial sector faced when the Government opened the economy to foreign textile materials as this led to the crushing of the domestic textile industry in the 90s. It has been an indelible sad experience to many Nigerians”, he explained.

He however urged Government to identify key sectors especially those that offer high society revival in terms of employment and poverty reduction as well as inter-industry linkages for protection, adding that the manufacturing sector, agricultural and solid mineral sectors should not only be protected but also incentivised.

It must be stated that Nigerian manufacturers are not averse to free trade cooperation but such should be better done in a situation of equal economic development. Any attempt to coerce the country into a free cooperation will only succeed in killing the fledging manufacturing sector which has just started to recover from a long period of comatose. MAN passionately advice that Government should immune itself against international distractions especially on trade issues as most of the advanced countries are searching for market extension. Nigeria being the largest market in African has been their target”, he stressed.

To revive local production and processing of raw materials, stakeholders under the aegis of the Organised Private Sector Exporters Association (OPEXA) appealed to the Federal Government to revive the Export Expansion Grant (EEG) scheme and honour outstanding Negotiable Duty Credit Certificate (NDCC) claims, both of which have hit over N450 billion.
According to OPEXA, the failure of the Federal Government to honour the trade agreements has affected non-oil export earnings within the last two years.

MAN President, Dr. Frank Jacobs

Executive Secretary, OPEXA, Jaiyeola Olarewaju, said the non-oil sector which showed remarkable growth from $1 billion in 2006 to about $3 billion in 2013 in foreign exchange, had equally experienced a decline from 10 per cent in 2014 to 20 per cent in the first quarter of 2015.
He said: “The growth earlier mentioned, however, is being hampered by the inconsistency in implementing the government policy on non-oil exportation. The extant policy on the Export Expansion Grant (EEG) and the utilisation of the Negotiable Duty Credit Certificates (NDCC) had been put on hold; this is having a negative effect on the non-oil sector in particular and the economy in general.

Many companies have invested in export processing factories to add value to primary products. However, the suspension of these polices has hampered their operations. McKinsey, the global consulting firm, reckons that Nigeria could easily double its agricultural output over the next 15 years by introducing some simple reforms. The association will collaborate with the government, its agencies and other private sector organisations to further boost the expansion of non-oil exports”.

He urged government to address the challenges associated with the implementation of incentives for the non-oil sector, adding that the huge cost of production in the country was impacting negatively on global competitiveness of processors and operators in the real sector.