MANUFACTURING: A MUST FOR NIGERIA’S PROSPERITY

Oct. 2012

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Content Define Manufacturing

Does Manufacturing Really Matter?

Importance of Manufacturing

Economic Development

State of Manufacturing in Africa

Comparing Africa and Asia

Strategy for Successful Manufacturing

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WHAT

TYPES

and

STRUCTURES

The production of goods for use or sale using labor and machines, tools, chemical and biological processing, or formulation

A range of human activity, from handicraft to high-tech, applied to industrial production, in which raw materials are transformed into finished goods on a large scale

Manufacturing

Heavy (Primary) – Big Plant Covering Large Areas of Land Large Scale Industries, Capital Intensive Examples - crude oil refining, metal smelting, ship building

Light (Secondary) - Low weight, high value products Small Scale Industries, Small Products, Limited Investment Capital Examples – electrical goods, clothing, food processing, toys

High-tech (Tertiary to Quaternary) – High Value Products Heavy Capital Investment in R&D, Uses Modern Technology Examples – computers, business systems, micro-processors

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Does Manufacturing Really Matter?Some Argue We Should Not be Concerned

China will produce everything; so we should concentrate on more successful sectors

Manufacturing jobs do not support the growth of a knowledge-based economy

Manufacturing is a dirty, dumb, and dying sector

Manufacturing, like agriculture before it, will continue to produce the goods we need but no longer employ a significant number of workers

Manufacturing workers are needed elsewhere in the country or in other sectors

They say………

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Did You Know…….

Source: NAM

The United States is the world's largest manufacturing economy, producing 21 percent of global manufactured products. China is second at 15 percent and Japan is third at 12 percent

U.S. manufacturing produces $1.7 trillion of value each year, or 11.7 percent of U.S. GDP. For every $1.00 spent in manufacturing, another $1.41 is added to the economy

Manufacturing supports an estimated 17 million jobs in the U.S.—about one in six private sector jobs. Nearly 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing

In 2010, the average U.S. manufacturing worker earned $77,186 annually, including pay and benefits. The average worker in all industries earned $56,436 annually

U.S. manufacturers are the most productive workers in the world—far surpassing the worker productivity of any other major manufacturing economy, leading to higher wages and living standards

U.S. manufacturers perform two-thirds of all private sector R&D in the nation, driving more innovation than any other sector

Taken alone, U.S. Manufacturing would be the 9th largest economy in the world

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Importance of ManufacturingAn Engine of Growth

1. High multiplier effect and extensive linkages to other parts of the economy - creates more economic activity both within and outside the sector than does a similar increment in any other major sector. It FUELS other sectors.

Backward Links and Effects – mining and construction Forward Links and Effects – warehousing, transportation, wholesale and retail

trade of finished goods

2. R&D, through the innovation process, boosts overall productivity growth

3. Creates export opportunities and drives foreign reserves, creates a balance of trade

4. Drives strong wages and a higher standard of living

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Importance of Manufacturing (Contd.)

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Importance of Manufacturing (Contd.)The Role of Manufacturing

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Key To Economic DevelopmentNigeria and Africa

What is the Key to Economic Development?• Economic Growth – the generation of income and profits for Nigerian Companies• Adding value to Nigeria’s vast physical and human resources

One Key Sustainable Source of Economic Growth?• Manufacturing – will enhance Nigeria and Africa’s competiveness in the global

market place

Can Economic Development be Achieved in Emerging Markets?• Yes – China, Japan, India, Brazil

What Must We Do?• We must STOP exporting resources ONLY after zero to minimal processing• We must break into export markets• We must move from local monopolies to the “PRODUCTIVITY” escalator• Attract foreign investment to bring export infrastructure up to global standards• Governments must negotiate trade preferences for Africa (via a vis US, EU, Asia

schemes)

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State of ManufacturingAfrica

With only a few exceptions, Manufacturing plays a minor role in Africa’s economy

Limited to small firms and simple products – baked goods, apparel, basic furniture

Why is this?

An uncertain macroeconomic environmentExcessive regulations – acting as a BRAKE on growthPoverty – skews domestic demand towards BASIC necessities

Paul Collier in his book, The Bottom Billion, summarized the situation as follows:

“Manufacturing in the bottom billion is in decline. Thirty years of protection created a parasite with stagnant productivity, and a decade of modest liberalization has merely reduced its size”

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Manufacturing: on A Per Capita BasisAfrica / Percent (%) Decline and Growth

1981 – 1994: Declined 1.0% a year, only second to construction; Compared to the whole economy at 0.6%1994 – 2008: Grew, however it was the worst . Construction, Transport and communication have grown the highest

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Consequence of Manufacturing DeclineGoods Exports in Sub-Saharan Africa

Resulting in exports declineSub-Saharan Africa: 12% of World’s population.

produced less than 1% of world’s manufacturing exports

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Comparison with AsiaAfrica and Asia

Asia - exports into the world marketsOnly five countries in Sub-Saharan Africa exports more than $100 manufactured goods per capitaOn Average Africa exports $36, compared to $680 and $1,317 in China and SE Asia

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Comparison with Asia (Contd.)Africa and Asia

Structure of Exports

ASIAVALUE: Manufactured Goods Processed Commodities Primary Commodities

AFRICAVALUE: Hierarchy runs in the opposite direction, Except in Mauritius, which enjoys one of the highest per capital income in the region.

VALUEValue added through processing and manufacturing GENERATES profits, income and jobsAfrica is not doing enough in the area of adding value to primary commodities

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Comparison with Asia (Contd.)Africa and Asia

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Strategy for Successful Manufacturing Nigeria and Africa

1. Given Asia’s many manufactured goods, US and EU’s maturity, Africa would need to pin point specific target products for highest probability of success

2. To raise the probability of success, based on 1, attract/import skilled and experienced practitioners and manufacturers to accelerate the process of manufacturing development

3. Reliable infrastructure – Power, Communication, Water, Transportation

4. Develop a knowledge based economy: we cannot take short cuts1. Well trained and adaptive workforce2. Advanced management systems3. Capital intensive productive processes high levels of productivity

These factors combine to allow a region to remain competitive in dynamic, even turbulent, global marketplace

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Economic Building BlocksFor a Knowledge Based Economy

Access to large, dynamic markets for exports, financing, and general business interactions

Access to a skilled labor force

Available land and a reliable land registration platform/system

Competitive tax and regulatory framework

High Quality of Life

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Why Open Up to Foreign FirmsNigeria and Africa

1. To raise the probability of success, based on 1, attract/import skilled and experienced practitioners and manufacturers to accelerate the process of manufacturing development

2. Attract foreign investments (capital)), in some case in partnership with the government (PPP)

3. Labour Turnover: trained workers transfer new skills to local firms. They contribute to technology diffusion by creating their own start-ups

4. Demonstration Effect: local firms adopt technology (imitation and reverse engineering)

5. Vertical Linkages: Investments flow from SME to local firms (supported by proper public policies)

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Thank You