Impact of industrialisation on foreign investment

Industrialisation
Comment

Industrialisation has a major effect on the creation of wealth and the transformation of civil society. It also affects the volume of investment in countries around the world. In order to revolutionise its economy, Nigeria must formulate policies dedicated to industrial growth; through industrial growth the country can attract foreign investment, which in turn boosts the economy.

Industrialisation

Industrialisation is driven by government policies and Nigeria has never lacked industrial policies.(1) The history of industrial development can be divided into five phases:

• the pre-independence era (1943-1959);
• the post-colonial era (1960-1969);
• the oil boom era (1970-1979);
• the 1980s; and
• 1990 and beyond.

Pre-independence era
The pre-independence era was characterised by the availability of raw materials, including:

• palm nuts;
• wood;
• brass;
• bronze;
• leather;
• textiles;
• iron; and
• pottery.

This facilitated the creation of factories such as palm oil mills, groundnut crushing mills, cotton ginneries, oil seed mills and sawmills. However, history shows that no country has ever become rich by exporting raw materials without also having an industrial sector.

Post-colonial era
The post-colonial era government sought to transform Nigeria into a modern industrial economy with an emphasis on rapid industrialisation, as it realised that the industrialisation of any country is crucial to the development of its economy. The first Nigerian national development plan (1962-1968) emphasised rapid industrialisation.

The number of industrial plants in the country increased from 150 at independence to 380 by 1965 in an attempt to reduce the dependence on foreign imported goods and place more emphasis on locally produced goods. This led to an increase in gross domestic product from 4.2% at independence to 6.1% in 1964.(2)

This era was negatively affected by the civil war between 1967 and 1970 and the fact that plants were still heavily import dependent. As a result, most factories never produced close to their capacity, partly due to inadequate management logistics.(3)

Oil boom era
The oil boom era focused on rebuilding after the destruction of the civil war and the promotion of:

• even development;
• fair distribution;
• rapid expansion; and
• the diversification of the industrial sector.

The introduction of the indigenisation policy as part of the Nigerian Enterprises Promotion Decree of 1972 saw the reservation of certain categories of industrial activity – mostly services and manufacturing – for Nigerians.

However, foreign owners still occupied most strategic decision-making positions, while ceremonial and figure-head positions were given to Nigerians. The growth in this era was further inhibited by military rule and the crash in oil prices.

Subsequently, significant attempts to industrialise the country were driven by privatisation and liberalisation, wherein private sector participation in manufacturing was encouraged. The introduction of investment-friendly laws were further indications of the government's commitment to encourage foreign investment, including:

• the Nigeria Investment Promotion Commission Act;
• the Foreign Exchange (Monitoring and Miscellaneous Provision) Act;
• the National Office for Technology Acquisition and Promotion Act; and
• the promotion of export processing zones.

The Nigerian government recently outlined its intention to diversify the economy in its Nigeria Industrial Revolution Plan (NIRP) of 2014, in an attempt to boost industrialisation further. This commitment was strengthened by statements made by Minister of Industry, Trade and Investment Dr Okechukwu Enelamah on November 26 2016, who stated that trade and investment in Nigeria is about to be revolutionised as a result of government projects and other investment drives embarked on by the federal government, which is acting as a key stimulus for industrialisation.(4)

Enelamah also stated that the government has been able to generate over $20 billion from major infrastructure projects – including railways and other related infrastructure – with the Chinese EXIM bank.

China has a track record of partnering with African countries and has identified Nigeria as particularly important due to its strategic role in Africa. Chinese companies are willing to invest seriously in Africa, with a view to recouping their money in the future. This is largely due to the fact that Africa is a resource-rich continent, despite the inherent challenges of investing in the region, including political instability, insecurity and infrastructure deficit. In order to further develop its economy, it is important that Nigeria continues to encourage foreign investment.

Comment

The NIRP links trade policy with investment and industrial policies. It also aims to add roughly N5 trillion (approximately US$15.9 billion) to annual manufacturing revenues in the next three to five years in order to:

• create jobs;
• generate wealth;
• diversify the economy;
• substitute imports;
• boost exports; and
• broaden the tax base.

Countries with robust industrial and service sectors can attract more foreign direct investment, which in turn boosts the economy.

It is hoped that the existing wave of industrialisation will be accompanied by a political will to implement clearly defined policies to industrialise the country and increase the number of M&A transactions, which have the potential to boost the economy. Nigeria can revolutionise its economy through the commitment to policies formulated for industrial growth.

For further information on this topic please contact Kate Okoh or Adegoke Oluyede at TRLPLAW by telephone (+234 9 413 1897) or email ([email protected] or [email protected]). The TRLPLAW website can be accessed at www.trlplaw.com.

Endnotes