Buy or make – Does Nigeria have a choice?

By Olumide Ijose   |   08 February 2017   |   3:44 am  

The ‘buy or make’ threat to Nigeria’s economic survival remains deep in the backburner, far from policy discourses and from such a resolution as will unlock massive job creation. In essence, Nigeria is still in the grasp of the “buy” mentality that took hold of consumer behaviour, 30 or so, odd years ago.

Make versus buy is rooted in the very essence of human sustenance and is a decision that organised humans have always had to make. This has evolved from basic agriculture to complex manufacturing and technology decisions on what to make or buy. In a globally connected economic system, the dimensions of a country’s make or buy decisions, are determined by the relative quality of politically determined policy decisions, regardless of their context.

Rich and thriving nations trade with value added goods and services whose prices are primarily determined by firm level competition in these countries, while poor and struggling countries, depend on commodities whose prices are largely determined by forces controlled by rich and thriving nations. Nigeria is a prime example of a country whose national income is dependent on primary commodities and thus subject to market prices it does not control.

To be sure, not every country that is dependent on the export of commodities is equally affected by price fluctuations. Political quality, effective and efficient institutions, population size, the propensity to consume imported goods and services, and the size and competitiveness of the services a country offers, are important determining factors. As such, commodity exporting nations like Australia, Chile and to a lesser extent, Brazil are not as negatively impacted as countries like Nigeria and Venezuela when the price of their dominant commodity export drops.

In essence, Nigeria is significantly affected by swings in the price of crude oil and natural gas because of its large population, a high propensity to consume imported goods, and the absence of competitive foreign exchange generating service sectors, such as tourism, healthcare, financial intermediation and education.

A close study of China, a country that recently moved from a buy to a make economy, shows a singular focus on implementing a set of policies designed to build and leverage the factors that enabled every country that has made that transition: a merit based political system, regardless of the dominant ideology or historical antecedents; a set of national attitudes and values that are anchored on thrift, discipline and hard work; an efficient and effective legal system; and a singular focus on creating and deepening value creation skills and knowledge. In essence, the creation of strong and enduring formal and informal institutions.

Clearly, Nigeria has structural challenges that are historical in nature, and are anchored on a political system that is side-stepping broad-based merit, by imposing a policy of rotating the presidency between the North and the South. Interestingly, this has not always been the case and arguably, Nigeria made the greatest progress towards “making” in the 1960 to 1980 period.

The shift towards identity politics – a state that is particularly unamendable to compromise – has made it harder to restructure the economy. It does not guaranty that merit as opposed to ethnic sentiment, would be the basis for appointments into political office and it breeds a mentality of “waiting for our turn,” not necessarily geared towards fast real economic growth.

It is clear that Nigeria has to engineer and become dependent on high levels of inward investments and value added exports for its economic growth. Inward investment is required to improve the existing network of road and bridges, airports and seaports, portable water and sanitation systems, internet access, hotel rooms and other facilitating infrastructure and to build new ones. Skills and knowledge are required for value added manufacturing and providing competitive services.

The reality of course is that these outcomes require stable institutions. Placing restrictions on imports, producing plans, even allowing the Naira exchange rate to be market determined, will not create the needed capabilities. Unfortunately, even in the best possible circumstance, creating a truly investment friendly climate and developing skills and capabilities take time and other countries will not willingly cede their advantages.

Like China, Nigeria has to make it happen! This means a sharp focus on broadly delivering skills-based education. It also means – at the minimum – a political ability to earn the patience that requires. Generating patience, in a representative democracy, where politicians feel compelled to promise “democracy dividends” will not be easy. It will require intense communication, using all available media and leaders that model the expected behavior, including frugality and demonstrably prudent stewardship of the country’s scarce resources.

Ultimately, Nigerians have to grapple with these question: should the country transition to a “make” economy”? Can the country make the transition? Is there a supportive natural resource base? What sacrifices are required? How pressing is the need for change? Is the political leadership able to create the enabling conditions?

Clearly, the country has for long been navigating a slow trajectory to becoming an economy that can export significant quantities of value added goods. That is the good news! Speeding up the transition to an investment and value added export focused economy is the challenge.

Nigerians are connected to the world and failure to speed up the difficult structural transition discernibly and significantly, will inevitably result in pressure on an incumbent government. The pathways and implementation levers have however been well throd by other economies. And Nigeria has good example to follow.

• Ijose is a policy analyst based in the United States.

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