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African Development Bank The text and data in this publication may be reproduced Country Department as long as the source is cited. Reproduction for Plot 1521, Cadastral Zone A0 commercial purposes is forbidden. Off Memorial Close Central Business District , Nigeria Legal Disclaimer This study was prepared as part of analytical work to Phone (Standard): (+234) 9 700 2092 underpin preparation of the Country Strategy Paper (+234) 9 700 2095 (CSP) 2020-2024 for Nigeria. The study was led by Chuku Chuku and Anthony Simpasa with input from a Email: [email protected] team of staff from the Nigeria Country Department.

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Growth and Economic Transformation Options for Nigeria: i An Assessment Using Growth, Identification and Facilitation Framework Preface

For nearly two decades until the 2016 economic recession, Nigeria’s economy grew at average of more than 6 percent per annum. However, this growth has not been transformational as evidenced by a steady rise in unemployment and slow progress in poverty reduction. Effectively therefore, Nigeria has experienced a jobless growth. This reflects structural deficiencies of the economy, which is largely anchored on the sector. The federal government has initiated some policy measures aimed at transforming the economy and diversifying exports from oil and gas into sectors that have potential to create jobs.

Understanding the key drivers of is essential to drafting policy to achieve the objective of economic transformation.The Bank initiated a series of studies to provide to the preparation of the Country Strategy Paper 2020-2024 for Nigeria and to anchor policy dialogue in the country. As part of this exercise, this study, an inter-departmental collaboration involving the Nigeria Country Department, Country Economics Department, and the Macroeconomic Policy, Forecasting and Research Department, assesses different options for stimulating growth and transformation of the Nigerian economy. The study applies the Growth Identification and Facilitation Framework (GIFF) in the context of the New Structuralist Economics. Using the GIFF, the study assesses how Nigeria’s economic growth can be achieved through diversification, technological innovation, infrastructure provision, institutional reforms, industrial upgrading, and the removal of other constraints.

Five key sectors/products have been identified as presenting opportunities for export and economic diversification. These are milled , and its fractions; apparel and footwear; radio and television receivers; and, motorcycles, tricycles, and motor parts. Stimulating growth in these sectors requires prudent utilisation of revenues from the country’s abundant natural resource endowments to invest in human capital and physical infrastructure as well as leveraging technological innovation to drive agro-led industrialization and upgrading in light industries. Agro-industrialization and light manufacturing provide forward and backward inter-sectoral linkages and have the ability to absorb a large part of the labour force. Focussing on this approach will move the economy up the agricultural value chain, especially in the key identified sub-sectors. Improving institutional governmence and better coordination across different agencies of government will be key to effective policy implementation needed to unlock private sector investment.

Ebrima FAAL Senior Director Nigeria Country Department

Growth and Economic Transformation Options for Nigeria: ii An Assessment Using Growth, Identification and Facilitation Framework Contents

Preface ii

Table of Contents iii

List of Figures iv

List of Tables iv

Executive Summary v

1 Growth and Economic Transformation Options for Nigeria

1.1 Introduction 1

2 Recent Economic and Social Developments in Nigeria

2.1 Drivers of growth 6 2.2 and dynamics 7 2.3 External sector developments 7 2.4 Poverty and unemployment 10

3 Factor Endowments in Nigeria: Labour, Natural Capital, and Physical Capital

3.1 The human capital endowment 14 3.2 Physical capital endowment 15 3.3 Natural capital endowment 17

4 A chronology of Industrial and Related Policy Strategies in Nigeria 20

5 Applying the Growth Identification and Facilitation Framework to Nigeria 26

5.1 Steps in GIFF 26 5.2 Unveiling Nigeria’s latent comparative advantage 28 5.2.1 Selecting benchmark countries 28 5.2.2 Identifying sectors with potential for growth 29 5.3 Nigeria’s resource-led transformation 34 5.4 Actionable policy implications 36 5.4.1 Broad policy implications 36 5.4.2 Getting granular: addressing binding constraints to structural transformation 37

6 Conclusion 40

Bibliography 41

Appendix 43

Growth and Economic Transformation Options for Nigeria: iii An Assessment Using Growth, Identification and Facilitation Framework List of Figures

Figure 1: Nigeria’s GDP growth 2000-2018 (percentage p.a.) 6 Figure 2: Change in oil output production (percentage p.a) 6 Figure 3: Sectoral composition of GDP (percentage) 6 Figure 4: Sectoral contribution to real GDP growth (percentage) 7 Figure 5: Evolution of consumer price inflation in Nigeria (percentage per annum) 7 Figure 6: Terms of trade and exchange rate movements (annual percentage change) 7 Figure 7: Current account position 8 Figure 8: Product composition of imports (percentage) 9 Figure 9: Destination of Nigeria’s total exports by 6-digit HS code, 2017 9 Figure 10: Origin of Nigeria’s total imports by 6-digit HS code, 2017 9 Figure 11: Nigeria’s poverty headcount, 2009/10 (percentage of the total population) 10 Figure 12: Household livelihood types by type of economic activity (left panel); Unemployment by geopolitical zone (right panel); 2018, Qtr3 11 Figure 13: infrastructure development index, selected countries (period average 2003-2018) 16 Figure 14: Natural capital rents (percentage of GDP) 17 Figure 15: Schematic representation in the application of the GIFF 26 Figure 16: Production and exports of palm oil and its fractions 30 Figure 17: Structure of Nigeria’s merchandise exports (percentage of total) 35 Figure 18: OPEC net real oil export revenues, period average (US$ billion) 35 Figure 19: Manufacturing exports (percentage of merchandise exports), 2010-2016 35 Figure 20: Long-term financing needs, US$ billion 36

List of Tables

Table 1: Population density per square kilometre and age dependency ratio, 2016 14 Table 2: Physical capital stock and investments in Nigeria 15 Table 3: Potential comparator countries with Nigeria based on GDP differentials in 2016 29 Table 4: Tradable sectors with high potential for global market penetration 32

Appendixes

Table A.1 Breakdown of Nigeria’s population by state, 2010-2016 43 Table A.2 Identifying sectors for growth: Key exports of Indonesia 44 Table A.3 Identifying sectors for growth: Key exports of 45 Table A.4 Identifying sectors for growth: Key exports of 56

Growth and Economic Transformation Options for Nigeria: iv An Assessment Using Growth, Identification and Facilitation Framework Executive Summary

Until the recession of 2016, Nigeria had transformation in high-skilled industries. Economic experienced sustained growth rates averaging transformation, and particularly industrialization in 6.8 percent per annum for about two decades. Nigeria, will require investing in human capital and The main concern, however, is that this growth building skills in critical areas to meet the needs of has not been sustainable and inclusive nor has industry. Second, to reverse the trend of capital it generated new and good quality jobs. Instead, shallowing, the physical capital stock needs to it has been driven by the increase in domestic grow at a minimum average of 8 percent per consumption, mostly by imported goods and annum for 10 successive years. production of oil and gas. This situation of the Nigerian economy was partly the cause of the Third, there are five key tradable sectors in which recession in 2016. Given the current challenges Nigeria can exploit its comparative advantage facing the country, the Nigerian government to expand its export market: milled rice; palm launched the Economic Recovery and Growth oil and its fractions; apparel and footwear; radio Plan (ERGP), a medium-term plan for 2017-2020. and television receivers; and, lastly, motorcycles, The plan focusses on implementation; outlines tricycles, and motor parts. government initiatives for accelerating growth; builds on existing sectoral strategies; and seeks to Finally, two far-reaching policy implications foster collaboration between the sub-component emerge from the analysis. First, an agro-led units of government and the private sector. industrialization strategy appears to be the easiest and fastest way to achieve accelerated This paper seeks to establish a practical case for growth and reduce unemployment because of its structural transformation of the Nigerian economy ability to absorb a large part of the labour force by taking into account the country’s endowment and provide both forward and backward inter- structure and its latent comparative advantages, sectoral linkages. This strategy would seek to and by offering actionable policy recommendations move up the agricultural value chain, especially for progress towards successful implementation in key sub-sectors with potential for domestic of the ERGP and the African Development Bank's market penetration and endowment feasibility country strategy paper 2020-2024 for Nigeria. To – such as milled rice, processed , achieve these objectives, the paper analyzes the and palm oil. Second, it is possible, given the implications of alternative growth and structural current underutilized endowment structure of transformation options for Nigeria. The approach Nigeria, to simultaneously pursue agro-based used in the paper draws from the ideals of New industrialization and significant upgrading in light Structuralism by applying the Growth Identification manufacturing industries, without having to follow and Facilitation Framework (GIFF), which focusses a linear structural transformation process. on understanding how growth can be achieved through economic diversification, technological A key issue continues to be the weak levels of innovation, infrastructure provision, institutional skills possessed by a large proportion of Nigerian reforms, industrial upgrading, and the removal of workers when compared with those held by their other constraints to growth. counterparts in other emerging markets, as well as poorly utilized skills. The results from this exercise are revealing on some fronts. First, regarding factor endowments, Keywords: the current skills base of the labour force is insufficient to support the kind of innovation and Growth Identification, Structural Transformation, technological revolution required for structural Endowment Structure, Nigeria

Growth and Economic Transformation Options for Nigeria: v An Assessment Using Growth, Identification and Facilitation Framework 1

Growth and Economic Transformation Options in Nigeria PHOTO CREDIT: Ayooluwa-Isaiah 1.1. Introduction

For about two decades preceding the 2016 consumers of oil such as China and Brazil are recession, Nigeria had experienced continuous continuing to discover substantial amounts of high economic growth averaging 6.8 percent shale oil deposits (International Energy Agency, per annum. However, this high growth has 2016). Thus, Nigeria’s continued dependence mostly been narrow-based, non-inclusive, and, on the oil sector and its revenue for government to a great extent, driven mainly by high domestic are unsustainable. consumption of imports and high oil-price- induced production of oil and gas. At the height Second, on the demographic side, predictions of of the recession, the government launched the a looming youth unemployment crisis could lead Economic Recovery and Growth Plan 2017 to a ‘Naija Spring’ – a Nigerian version of the Arab 2020 (ERGP). Spring – if the situation continues unabated. To avoid fiscal and demographic crises and escape The overall vision of the ERGP is to address economic and social depressions, Nigeria needs current challenges confronting the country and accelerated economic growth and structural lay a foundation for faster and more inclusive transformation. This will drive the country into a long-term growth achieved through structural more prosperous future. economic transformation by improving both public and private sector efficiency.” According This paper seeks to establish a practical case for to the government, the ERGP aims at increasing structural transformation of the Nigerian economy national productivity and achieving sustainable by taking into account the country’s endowment diversification of production – to significantly structure and latent comparative advantage. In grow the economy and achieve maximum doing so, it provides actionable recommendations welfare for the citizens – beginning with and towards successful implementation of the ERGP energy efficiency, encourages the use of , and the Country Strategy Paper 2020-2024 by , and innovation to drive growth, and analyzing implications of alternative growth and focus on building the capabilities of the youth of structural transformation options for Nigeria. Nigeria to be able to take the country into the future (Federal Republic of Nigeria, 2017). First, it draws from the ideals of New Structuralism (see Lin, 2012; Lin & Monga, Achieving the ambitious goals of the ERGP and 2017), by applying the Growth Identification and upgrading per capita income within the four-year Facilitation Framework (GIFF), which focusses period of the Plan entailed accelerating growth on understanding how growth can be achieved and structural economic transformation to alter through economic diversification, technological the pattern of output, employment, and labour innovation, infrastructure provision, institutional productivity over time. reforms, industrial upgrading, and the removal of other growth constraints. There are several reasons why the structural transformation of the Nigerian economy has The results from the analysis are revealing on some become more pressing now than ever. First, the fronts. We highlight the key findings below. The future of the oil sector is uncertain for Nigeria current skills base regarding labour endowment is given recent developments in the international oil insufficient to support the kind of innovation and market which have seen the , the technological revolution required for structural largest consumer of Nigeria’s crude oil, become transformation in high-skilled industries – only fuel self-sufficient and projected to be the 14 percent of the working population have post- world’s largest oil producer. Moreover, other key secondary , with 30 percent of the

Growth and Economic Transformation Options for Nigeria: 1 An Assessment Using Growth, Identification and Facilitation Framework working population having no formal education. The analysis identifies five key tradable sectors A recent study noted that Nigeria has a weak and sub-sectors where Nigeria could exploit its level of skills compared with those held by their comparative advantage to penetrate regional counterparts in other emerging markets, as well and global export markets: (i) milled rice; (ii) palm as poorly utilized skills (United Nations Industrial oil and its fractions; (iii) footwear manufacture Development Organisation, 2017). and apparels; (iv) radio receivers, video recording equipment, video displays; (v) motor vehicle and The rate of accumulation of physical capital in motor vehicle parts. Nigeria is too slow for any sudden catch up with other emerging and developing economies.

Box 1: Nigeria’s Economic Recovery and Growth Plan 2017-20201

The overarching vision of the ERGP is to achieve sustained, inclusive growth and structural economic transformation. Five main principles drive the ideals of the Plan.

First, it focuses on tackling growth constraints including fuel, power, foreign exchange, and unfavourable business regulations. Other binding constraints include shortage of requisite skills and technology necessary to drive growth. Second, to leverage the power of the private sector, which seeks to harness the inherent dynamism of the Nigerian entrepreneur from the micro, small and medium enterprises up to the large domestic and multinational corporations. Third, to promote national cohesion and social inclusion. Fourth, to allow markets to function – it recognizes the moderating role of the market as a referee in the game of economics. Fifth, to uphold core values of the Nigerian constitution, notably discipline, integrity, dignity of labour, social justice, religious tolerance, self-reliance, and patriotism.

The broad objectives of the ERGP are categorized into three themes: (i) restoring growth, (ii) investing in the people, and (iii) building a globally competitive economy. First, the strategy for restoring growth involves maintaining macroeconomic stability and a diversification of the economy. Second, investing in people involves enhancing human capital and skills and efforts to create productive jobs to tackle (youth) unemployment and, making growth more economically and socially inclusive, especially for the poorest and most vulnerable groups, third, building a globally competitive economy involves investing in infrastructure, improving the business environment, and promoting a digital economy.

To achieve these broad objectives, the ERGP has five key execution priorities: macroeconomic stability, and food security, power and product sufficiency, infrastructure, and industrialization of small- and medium-scale enterprises.

In particular, at an average growth rate of 5.5 percent over the past five years, both the flow “With the right sequencing and component (investment in gross capital) and implementation of growth strategy, Nigeria can effectively move up the the stock component (accumulation of gross agriculture value chain and use agro-led fixed capital) have been lacklustre relative to industrialization to supplant natural- comparator economies. For example, China, resource dependence. “ with an average accumulation rate of 9.1 percent, and Ghana, with an average accumulation rate With the right sequencing and implementation of of 15.2 percent over the same period. Taking all growth acceleration and structural transformation factors into consideration, our estimates show strategy, Nigeria can effectively move up that to reverse the trend in capital shallowing, the the agriculture value chain and use agro-led minimum average growth rate of capital stock industrialization to supplant natural-resource (public and private) in Nigeria should be at least dependence, particularly by specializing in two 8 percent for 10 successive years.. sectors identified as having a latent comparative advantage: milled rice and palm oil fractions.

1 Culled from the ERGP document available at www.budgetoffice.gov.ng/index.php/economic-recovery-growth-plan-2017-2020

Growth and Economic Transformation Options for Nigeria: 2 An Assessment Using Growth, Identification and Facilitation Framework In terms of policy implications, an agro-led industrialization strategy, focussing on agro- processing to add value to primary products, appears to be a low-hanging fruit towards the achievement of accelerated growth in Nigeria. Agro-processing, both at small and large scale, has the ability to absorb a large part of the labour force and provide both forward and backward inter-sectoral linkages. Using this strategy, Nigeria could quickly move up the agricultural value chain, particularly in key sub-sectors with high growth potential and high endowment feasibility. For instance, cassava can be processed into many derivatives, including flour and industrial starch, among others.

The remainder of the report is structured as follows. Following an overview of Nigeria’s recent economic and social development in Section 2, the paper proceeds in Section 3 with an analysis of the factor endowments. Section 4 describes and applies GIFF to Nigeria. The conclusion and actionable policy implications of the results are presented in Section 5.

Growth and Economic Transformation Options for Nigeria: 3 An Assessment Using Growth, Identification and Facilitation Framework 2

Recent Economic and Social Development in Nigeria PHOTO CREDIT: -Can-Island-Port 2.1 Drivers of Growth

Recent developments in Nigeria’s economic gas. In nominal terms, the contribution of the landscape have highlighted some of the most service sector to Nigeria’s GDP has averaged challenging situations in the last three decades. 55.2 percent since 2012 while that of agriculture Until 2016 when real GDP contracted by 1.6 value added averaged 21.1 percent, down from percent and the economy entered into a recession, 27 percent during 2000-2011. The decrease may Nigeria had enjoyed robust real GDP growth. As be due to a decline in agriculture productivity over depicted in Figure 1, between 2000 and 2004 the years. Nigeria experienced growth acceleration, with the economy growing by an average of 11.1 Figure 2 Change in oil output production (percentage p.a) percent per annum. This period also marked the highest percentage growth in production of oil output (Figure 2). In fact, growth in GDP mirrors

Figure 1 Nigeria’s GDP growth 2000-2018 (percentage p.a.)

Source: Authors’ computations based on data from National Bureau of Statistics

Figure 3 Sectoral composition of GDP (percentage)

Source: Own computations based on data from AfDB Statistics Department the change in production of oil. The twin effect of contraction in oil output by about 15 percent, stocked by vandalism of production terminals by the insurgents in the and slide in global price of oil, drew the economy into a recession in 2016.

From 2000 to 2014, oil contributed an average of 13.7 percent of GDP but subsequently, the share has declined precipitously to less than 10 percent, with the service sector growing in importance The share of manufacturing has remained broadly (Figure 3). In part, the decline in contribution stems unchanged over the two periods, averaging 9.1 from the rebasing of GDP in 2012 which brought percent, far below 20 percent for the 48 least the services to the fore, but more significantly, developed countries (LDCs) in the world. Relative it reflects the sharp decline in output of oil and to the 1990s, the contribution of manufacturing

Growth and Economic Transformation Options for Nigeria: 6 An Assessment Using Growth, Identification and Facilitation Framework has actually almost halved, reflecting Nigeria’s inflation, and improvement in foreign exchange growing de-industrialization. Due to a decline inflows have halped stabilize the naira, limiting in contribution of manufacturing value added, the pass-through effects of the exchange rate to and a shrinking share of oil and gas to GDP, the domestic prices. This helped bring down inflation. contribution of overall industry sector fell by three Given that the implied inflation target is between percentage points to an average of 23.7 percent 6 and 9 percent in Nigeria, this may suggest a during 2012-2018 against 26.7 percent recorded breach in the targeting rules (Figure 5). for the period 2000-2011. A number of factors explain the spike in inflation. Although the contribution of the service sector The low level of foreign exchange reserves to overall output growth has slackened since impaired the capacity of the Central Bank of 2012, about 62 percent of the country’s average Nigeria (CBN) to intervene in the market to real GDP growth is generated within the service smoothen out exchange rate volatility biased sector, while the oil sector contributed an average towards a depreciating trend at the peak of the of 3.6 percent to overall output growth (Figure 4 foreign exchange shortages. The strength of below). Thus, in addition to the oil supply shock, the pass-through effect of imported consumer the contraction in real GDP was also attributed goods and the price of fuel drove inflation higher. to a decline in growth of manufacturing output, This was compounded by an increase in cost of which scaled off real GDP growth by about half a electricity, transport, and supply-side constraints, percent. as the economy slid into recession. On the demand side, fiscal policy fuelled by government Figure 4 Sectoral contribution to real GDP growth (percentage) borrowing compounded growth in money supply. Figure 5 Evolution of consumer price inflation in Nigeria (percentage per annum)

Source: AfDB Statistics Department The post-recession recovery has benefitted from the same sources of growth. Between 2017 2.3 External sector developments and 2018, oil production increased by an annual For much of the 2000s, Nigeria has enjoyed average of 2.7 percent year on year to an average relatively more favourable but mostly volatile of 1.9 million barrels per day (mbpd) compared terms of trade, as the global price of crude oil with a contraction of 5.7 percent recorded during surged, followed by corresponding positive output 2014-2016, with a corresponding average output response. of 2.1 mbpd. However, the fall in oil prices since 2014 and 2.2 Inflation and exchange rate dynamics concomitantly low exports earnings stocked a steady decline in the terms of trade, which was On the macroeconomic front, after sustained compounded by output contraction due to the decline from 2012, inflation crossed to the double- vandalism of oil production terminals by militants in digit region in 2016, reaching 15.6 percent from the Niger Delta. This led to acute shortage of foreign 9.0 percent the previous year. It shot further to exchange amidst growing demand. The mismatch 16.2 percent in 2017 (year on year). The Central between supply and demand put pressure on the Bank of Nigeria stepped up efforts to reign in

Growth and Economic Transformation Options for Nigeria: 7 An Assessment Using Growth, Identification and Facilitation Framework exchange rate, resulting in a widening of the gap The exchange rate stabilized in mid-2017 between the interbank foreign exchange rate, the following relative improvement in the availability of Bureau de Change (BDC) rate, and the parallel foreign exchange and remained stable throughout market rate. The emergence of multiple exchange 2018, supported by improved foreign exchange rates for different segments created distortions in reserves. the foreign exchange market. Figure 6 (a) shows the percentage change in terms of trade. From Nigeria’s continued dependence Figure 6 (b), it can be observed that the naira “ on exports of oil and gas has had a depreciated by an average of 48.2 percent from depressing impact on exports of the non- January 2015 to December 2016, moving from oil sector, particularly manufacturing and 196.12/US$ in January 2015 to 455.3/US$. the weakening terms of trade from 2014 to 2016 imposed a severe penalty on The rate of depreciation accelerated after the Nigeria’s external balance position. “ CBN suspended supply of foreign exchange to BDCs and introduced administrative restrictions Nigeria’s continued dependence on exports of oil for the utilization and access of foreign exchange, including the 60/40 rule – a requirement for banks and gas has had a depressing impact on exports of to allocate 60 percent of their foreign exchange the non-oil sector, particularly manufacturing and to the manufacturing sector and the restriction the weakening terms of trade from 2014 to 2016 of access to foreign exchange for 41 imported imposed a severe penalty on Nigeria’s external products. These restrictions led to more frictions balance position (see Figure 7). From 2004, the in the foreign exchange market which created current account balance was in surplus, buoyed opportunities for round-tripping and further by strong earnings from oil and gas. However, from widening of the premium between the official and 2006, the external account balance narrowed, the market exchange rate. eventually sliding into a deficit in 2015 due to

Figure 6 Terms of trade and exchange rate movements (annual Figure 7 Current account position percentage change)

Source: AfDB Statistics Department the sharp decline in the world price of oil and the attendant fall in foreign exchange earnings. Nigeria’s continued dependence on exports of oil and gas has had a depressing impact on exports of the non-oil sector, particularly manufacturing. Oil and gas account for more than 90 percent of Nigeria’s exports.

In contrast, Nigeria’s imports comprise mainly manufactured capital and transport equipment (Figure 8). Thus, although Nigeria is a major exporter of crude oil, it is also a major importer of refined oil, accounting for about 30 percent of total imports. Source: AfDB Statistics Department and

Growth and Economic Transformation Options for Nigeria: 8 An Assessment Using Growth, Identification and Facilitation Framework Figure 8 Product composition of imports (percentage) exports went to large European economies, a quarter was destined for large countries in Asia.

North America accounted for about 17 percent while the share of exports to African markets accounts for a total of 11.1 percent, with accounting for the largest proportion followed by Togo.

Nigeria’s imports are even more geographically concentrated. Four countries (China, The , The United States and India) accounted for nearly half percent of Nigeria’s Source: AfDB Statistics Department imports. Nigeria’s imports from other African The destination of Nigeria’s exports is highly countries account for only 3.7 percent of total concentrated in a few geographic regions (Figure imports (Figure 10). This may suggest the low 9). In 2017, about 35 percent of the country’s level of integration in the region.

Figure 9 Destination of Nigeria’s total exports by 6-digit HS code, 2017

France 6.0% Netherlands 4.9%

United India Other Africa Canada Kingdom 18.0% 3.7% 3.3% 3.2% United State 14.0%

South Africa China Indonesia 3.7% 3.2% 3.1% Brazil Swe- 1.6% Rest of the World Togo 16.1% 9.7% den 2.2% Cote D’Ivoire 3.5% 2.3% 1.5% Source: Computed using data from Country Profile, Observatory of Economic Complexity (OEC), MIT Atlas Note: Value of Nigeria’s total exports in 2017 was $46.8 billion

Figure 10 Origin of Nigeria’s total imports by 6-digit HS code, 2017

Netherlands 8.3% 6.4%

United King- Germany United dom 3.4% Rest of the WOrld States 3.9% 19.0% 6.0% Other Africa 2.2% Brazil Russia 2.2% 1.9% South China - India 28.0% 8.9% 4.6% 2.2% Africa 1.5% 1.5% Source: Computed using data from Country Profile, Observatory of Economic Complexity (OEC), MIT Atlas Note: Nigeria’s total imports in 2017 was $34.2 billion

Growth and Economic Transformation Options for Nigeria: 9 An Assessment Using Growth, Identification and Facilitation Framework 2.4 Poverty and unemployment shock to the economy could easily push those  living on the margin to slip back into poverty Available statistics from the 2009/2020 poverty (Carlson, et al. 2015). One possible explanation  mapping by the National Bureau of Statistics for these variations could be differences economic activities that households are engaged in across show3RYHUW\DQGXQHPSOR\PHQW a decline in incidence in poverty from 65.6  percent in 1996 to 45.5 percent in 2010. However, regions. The predominant means of livelihood in 7KHestimatesODVWSRYHUW\ by theP DSSLQJWorld BankZDV suggestGRQHL Qthat the the 1DWLRQDONorth (East,%XUHDX Central,R andI6WDWLVWLFV West) is agriculture, ZKLFK  proportion of the population living below $1.90 while the main occupation in the South is non- VKRZHGper dayDQ DWLRQDOwas actuallySRYHUW\ higherUDWH at 53.5%RI in SHUFHQW2017. RIagriculturalWKHSRSXODWLR formalQ andOLYHG informalEHORZ employmentWKHSRYHUW\ andOLQ HD entrepreneurship (see Figure 12). GHFOLQHPovertyIURP is especiallySHUFHQW severe LQin rural (69.0%) than3RYHUW\ ZDVHVSHFLDOO\VHYHUHLQUXUDODUHDVDW in urban (51.2%) areas. There is also significant SHUFHQWspatialFRPSDUHG variation inZ povertyLWK ratesSHUFHQ across WgeopoliticalLQXUEDQ DUHDVUnemployment7KHUHLVD OVhasRVLJQLILFDQW been exacerbatedVSDWLDO YbyDULDWLRQ the LQ regions of the country. long-term structural effects of the recession, SRYHUW\DFURVVJHRSROLWLFDOUHJLRQVRIWKHFRXQWU\which)LJXUH in turnP is DSVlikelyLQ toF haveRORXU stokedWKHSRYHUW\ an increaseRID OOWKH Figure 11 maps poverty of all the states in Nigeria. in poverty. In Jigawa and Sokoto, for instance, VWDWHVLQ1LJHULD7KH6RXWK:HVWUHJLRQKDVWKHORZHVWOHYHOVRISRYHUW\ZKLOHVWDWHVLQWKH The South West region has the lowest levels of where poverty was already above 80 percent, the 1RUWKpoverty(DVW whileUHJLRQ statesKDYH in theWKH NorthKLJKHVW EastS regionRYHUW\ haveUDWH ZhighLWK RYHUrate ofKDOI unemploymentRIWKHSRSXODWLRQ of 27 percentOLYLQJ is likelyEHORZ WKH the highest poverty rate, with over half of the to have worsened the poverty situation. Similarly, SRYHUW\OLQHpopulation living below the poverty line. in the South South region, the loss of jobs as the recession deepened in the oil sector, pushed  Figure)LJXUH 11 Nigeria’s poverty1LJHULD¶V headcount,SRYHUW\KHDGFRXQW SHUFHQWDJHRIWKHWRWDOSRSXODWLRQ 2009/10 (percentage of the total population) 

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Growth and Economic Transformation Options for Nigeria: 11 An Assessment Using Growth, Identification and Facilitation Framework 3 Factor Endowments in Nigeria: Labour, Natural Resources and Physical Capital PHOTO CREDIT: NESA 3.1 The Human Capital Endowment

Nigeria maybe classified as a labour-abundant while the rate of unemployment for those aged resource-rich but capital-scarce developing from 25 to 35 was 31 percent in 2016. economy. Since the first application of the GIFF framework to Nigeria by Lin and Treichel (2012) A breakdown of Nigeria’s working population also using data up to 2010, some salient features of shows that the labour force has been growing Nigeria’s demographics have changed. Nigeria faster than in many countries. Between 2014 is the most populous nation in Africa with a and 2016 the labour force increased by 9.6 relatively high population density estimated at 204 percent from 71.6 million to 78.4 million. Only 14 people per square kilometre of land in 2016. The percent of the labour force has a post-secondary population density in neighbouring countries was education, and about 36 percent has a secondary estimated at 16 people per square kilometre in education while one third has no formal education. Niger, 123 in Ghana, and 11 in Chad (see Table 1). This overall structure indicates the relatively low However, Nigeria’s population density per square human capital base to support innovation and kilometre is still lower than that of India (445) and technological revolution in Nigeria.

Table 1: Population density per square kilometre and age dependency ratio, 2016 Country Name Age Dependency Population Density Nigeria 88.09 204.21 India 51.52 445.37 Vietnam 42.86 298.97 China 38.55 146.85 Niger 111.78 16.32 Ghana 72.61 123.96 Chad 99.43 11.48 Source: , World Development Indicators (WDI), 2017 Note: Age dependency is expressed as a percentage of the working-age population

Vietnam (298) but higher than that of China (146). Table A.1 in the Appendix presents a breakdown “The concentration of the labour force in urban areas poses challenges in an economy of Nigeria’s population by state. Nigeria has a where employment opportunities are scarce. relatively high dependency ratio compared with Thus, in the short-to-medium term, efforts other developing economies with similar labour to stimulate structural transformation should endowment structure such as India (51), Vietnam focus on supporting mid-skilled and non-high (42), and China (38) (see Table 1). skilled industries that have the potential to absorb Nigeria’s growing youthful population. “ At state level, (6.7 percent), (6.4 percent), Kaduna (4.3 percent) and Rivers (3.8 The concentration of the labour force in urban percent) have the highest population densities areas poses challenges in an economy where relative to others. The structure of the age employment opportunities are scarce. Thus, in distribution of the population shows a youth the short-to-medium term, efforts to stimulate bulge, depicting a high dependency burden in a structural transformation should focus on country where employment opportunities are also supporting mid-skilled and non-high skilled minimal for the youth. Nationally, 35 percent of industries that have the potential to absorb those aged between 15 and 24 are unemployed Nigeria’s growing youthful population.

Growth and Economic Transformation Options for Nigeria: 14 An Assessment Using Growth, Identification and Facilitation Framework The gender mix of the labour force as a whole in the sector. In contrast, manufacturing, which is relatively balanced with 51 percent males contributes only 7.8 percent to overall GDP, and 49 percent females. Despite this, there is represents 7.5 percent of the working population. wide inequality in actual participation rate and Public administration and service sectors account in employment across gender. Employment of for about two thirds of the working population. women accounts for only 21.4 percent of the labour force, including those engaged in part-time Although Nigeria has abundant labour to drive activities and those reported underemployed. The the structural transformation of the economy, the equivalent figure for men was 35.3 percent. main constraint, lies in low knowledge and skill embodiment in this labour force. The government There is also significant spatial variation with needs to deploy policies and strategies to about 70 percent of the working-age population improve the quality and quantity of human capital in urban areas while 30 percent resides in rural development so that the labour force can have areas. The concentration of the labour force in a higher capacity to adopt modern production urban areas poses challenges in an economy techniques and to initiate innovation in products where employment opportunities are scarce. and services. Indeed, a majority of Nigeria’s labour is engaged in the informal sector. Estimates show that 3.2 Physical capital endowment about 50-65 percent of the Nigerian economy is informal (Medina, et al., 2017) and, according to The paucity of physical capital, mainly due to the National Bureau of Statistics, approximately underinvestment in infrastructure over the years two thirds of new jobs are created in the informal presents an additional challenge to Nigeria's sector. growth and transformation. Table 2 presents measures of physical capital for Nigeria and Although the agriculture sector contributes about selected comparator economies. Between 2010 22 percent of GDP, only 2 percent of the working and 2017, gross capital formation averaged 15.7 population was engaged in full-time wage work in percent of GDP. This rate was lower than Ghana the sector. It means the bulk of those employed (27.3 percent) and nearly half that for Vietnam in the sector are in informal and subsistence (28.4 percent). China’s rate of 45.3 percent was agriculture, reflecting the seasonality of activities three times higher than Nigeria. Only South Africa has low capital to GDP ratio over this period.

Table 2: Physical capital stock and investments in Nigeria Indicator Country 2010 2011 2012 2013 2014 2015 2016 2017 Avg. 2010- 2017 Gross Nigeria 17.6 16.4 15.0 14.9 15.8 15.5 15.4 15.5 15.7 capital South Af- 19.5 19.7 20.0 21.2 20.5 21.0 19.4 18.6 20.0 formation rica (percentage of India 40.7 39.6 38.3 34.0 34.3 31.8 30.3 30.6 35.0 GDP) China 47.6 47.7 47.2 47.4 47.0 45.4 44.3 43.6 46.3 Vietnam 35.7 29.8 27.2 26.7 26.8 27.7 26.6 26.6 28.4 Ghana 13.1 12.8 17.0 26.5 29.3 29.8 27.6 22.0 22.3 Gross capital Nigeria 18.3 -7.9 3.4 7.8 13.0 0.3 -6.4 -1.8 3.3 formation South Af- 1.1 8.2 3.0 6.4 -1.8 5.4 -8.1 1.6 2.0 (growth, rica percentage per India 14.1 3.9 4.3 -3.7 7.7 3.3 4.7 9.6 5.5 annum) China 16.6 9.8 7.6 9.6 7.5 6.3 6.4 4.9 8.6 Vietnam 10.4 -6.8 2.4 5.4 8.9 9.0 9.7 8.4 5.9 Ghana -22.0 26.9 39.0 -23.9 -1.6 -2.6 13.0 3.7 4.1 Source: World Bank, World Development Indicators, 2018

Growth and Economic Transformation Options for Nigeria: 15 An Assessment Using Growth, Identification and Facilitation Framework Nigeria’s relatively low capital formation is a ten years. This will help improve its infrastructure reflection of underinvestment in both public and stock of 25 percent of GDP closer to the global private infrastructure over time. Also, relative average of 75 percent. to other African countries, Nigeria faces a large infrastructure deficit across all key sectors of The public sector is the engine of infrastructure the economy – notably in transport, energy and investment in Nigeria and is likely to continue to power, and ICT. Figure 13 presents a comparison play a major role. However, public infrastructure of infrastructure development across selected development has already been constrained by African countries. Across all dimensions of shrinking fiscal space. Since 2014, revenues infrastructure, Nigeria ranks relatively low have declined steadily due to lower oil prices, compared with peer countries. and the attendant shrinkage in export earnings. In contrast, fiscal policy has remained expansionary Figure 13 Africa infrastructure development index, selected countries with recurrent spending taking up two thirds of (period average 2003-2018) the budget. The burden of low fiscal revenues is ultimately borne by the cut in capital expenditure.

The decline in share of public sector capital expenditure implies that actual infrastructure investment undertaken by the government has been lower than would otherwise be overall, and for all sectors except transport. The share of private sector investment in infrastructure is equally small, estimated at about US$5 billion per annum, and unlikely to have decreased, largely due to the economic recession of 2016. High initial investment outlay and associated risk are other factors impending on private sector participation Source: AfDB Statistics Department in infrastructure development.

“To ease the infrastructure and capital Although Nigeria’s external debt remains broadly constraints to economic growth, and to sustainable in relative terms, it has risen since match the rate of growth of the labour force, 2017, largely due to commercial borrowing. As at Nigeria’s investment in infrastructure needs to end-June 2019, total federal government public grow by a minimum of 8 percent per annum debt increased by 14.6% year-on-year to US$ for approximately the next ten years. “ 83.9 billion. This amount represented 20.1% of GDP, up from 17.5% in the corresponding period The situation is especially critical in transport in 2018. More than two thirds of total public and electricity, where Nigeria ranks only better debt (US$56.7 billion) was owed to domestic than Angola. Focussing on transport, Nigeria has sources while external debt accounted for 32.4% made some progress over the past decade, but (US$27.2 billion). The government has adopted challenges remain. Transport is one of the fastest- a debt management strategy of shifting towards growing sectors but contributes only 1.2 percent to foreign debt to mitigate the high financing costs GDP. This figure has remained broadly unchanged of domestic borrowing and to avoid crowding out since 2010. Between 2014 and 2018, growth in the private sector. the transport sector averaged 5.4 percent, yet only about 18 percent of the country’s 197,000 High domestic borrowing is partly responsible km of roads is paved and carries over 90 percent for the high cost of credit in Nigeria. Structural of the movement of passengers and freight in the factors in Nigeria’s banking industry, including country. monopolistic structure, have also contributed to the high cost of financing. In general, therefore, the To ease the infrastructure and capital constraints private sector faces tight financing conditions. As to economic growth, and to match the rate of a result, growth in private sector credit has been growth of the labour force, Nigeria’s investment slow and has been worsened by the recession of in infrastructure needs to grow by a minimum of 2016. 8 percent per annum for approximately the next

Growth and Economic Transformation Options for Nigeria: 16 An Assessment Using Growth, Identification and Facilitation Framework Credit is also concentrated in few areas, with forest resources may be reflective of the country’s the oil and gas sector accounting for the largest efforts to reduce its environmental footprint by exposure, estimated at about 20 percent from specializing in more environmentally sustainable 2015 to 2017. Low credit to the private sector sources of energy. is also due to informality of the Nigeria economy. About half of the country’s GDP is generated in In 2015, 75 percent of the total land area of the informal sector with the agriculture sector (92 910,768 square kilometres was under agricultural percent) accounting for most informal activities. production; the implication is that there is hardly any more room for improving agriculture 3.3 Natural resource endowment productivity through increased hectarage. Rather, growth in agricultural productivity can only be With a total geographic area of 923,768 achieved through innovation and intensification. square kilometres, of which land is 910,768 Overall, Nigeria’s endowment structure – labour, square kilometres, and water is 13,000 square capital, and natural resources – are still far from kilometres, with another 12 nautical miles of their full employment or utilization levels, implying maritime claims, Nigeria has an abundant natural that there is domestically available potential to capital endowment (CIA, 2018).2 The country has drive structural transformation in Nigeria with a diverse range of natural resources, but 10 are accelerated economic growth. known to exist in commercially viable quantities: , crude oil, tin, , ore, limestone, niobium, lead, and zinc. Figure 14 Natural capital rents (percentage of GDP)

Source: World Bank, World Development Indicators, 2017

However, only oil and gas have been fully developed. Figure 14 shows the contribution of natural capital rents to Nigeria’s GDP between 1992 and 2015. We observe that oil rents contribute the largest proportion to natural resources rents in Nigeria. Although the share of oil rents in GDP has fallen from 55 percent in 1993 to less than 10 percent in 2016, oil is still the most important source of rents in the country.

In contrast, the contribution of mineral resources and natural gas has been meagre, less than 1 percent, and that for coal and forest resources has been declining. The declining share of coal and

2 CIA Factbook accessed 30 May 2018, www.cia.gov/library/publications/the-world-factbook/geos/ni.html

Growth and Economic Transformation Options for Nigeria: 17 An Assessment Using Growth, Identification and Facilitation Framework 4

A Chronology of Industrial and Related Policy Strategies in Nigeria PHOTO CREDIT: Lars Kuczynski 4. A Chronology of Industrial and Related Policy Strategies in Nigeria

Industrialization in Nigeria pre-dates the only distorted the structure of the economy and country’s colonial era, but formal and modern- trade (World Bank, 1971). era industrialization can be traced to the early 20th-century colonial period, especially since Although there was a noticeable presence of the formation of the United African Company. indigenous Nigerians in the private sector, in However, until the discovery of oil and gas in general the importance of foreign capital or commercial quantities in 1956, industrialization expatriate management was quite significant. in Nigeria was at the bottom of priorities for the This meant that Nigerians were relegated to British colonizers. Indeed Nigeria and Africa as smaller, less sophisticated, manufacturing a whole were used mainly as a source of raw activities. The Nigerian Enterprises Promotion materials and ready export market of industrial Decree of 1972 attempted to reverse this and products for the British colonial powers (Okorobia gave Nigerian industrialists 40 percent equity in & Olali, 2018; Mendes, Bertella, & Teixeira, 2014). major multinational corporations, while foreigners The neglect of the industrial sector was such that retained 60 percent. The Indigenization Decree of at independence in 1960, agriculture was the 1977 further increased local ownership structure largest sector of the economy. to 60 percent for Nigerians, diluting that of foreigners to 40 percent. By the mid-1970s, crude oil had become a dominant sector of the economy, rising steadily Prior to subsequent formulation of the first national policy on micro, small and medium enterprises from a 3.6 percent share of GDP from 1965 to (MSMEs) in 2007, the first major attempt at 1969 to nearly a quarter from 1975 to 1979, industrialization policy and entrepreneurship a sevenfold increase. Over the same period, development outside of the framework of manufacturing value added as share of GDP successive national development plans was declined from 7.3 percent to 6.8 percent and the creation in 2006 of the Small and Medium that of agriculture fell by more than half from 53 Enterprises Development Agency (SMEDAN). percent to 24 percent. Attempts were made to restructure the economy through the import- The national policy on MSMEs outlined specific substitution industrialization (ISI) strategy to focus areas for the government. These included stimulate manufacturing of high value-added , the legal framework, skills development, products post-independence.3 By the early technology, research and development, 1980s, Nigeria had about 180 functional extension support, marketing, and reducing the mills, employing about one million people and cost of doing business, as well as improving accounting for over 60 percent of the textile infrastructure. The policy also identified target industry in . sub-sectors in the manufacturing sector, such as and , products, wood Despite the growth in textile and other processing and furniture, and solid minerals. manufacturing activities, production was largely concentrated in consumer goods for the large Until then, the government used national urban market and the public sector expanded development plans and strategies to articulate its disproportionately, funded by revenues from goals to promote industrial development. Between the booming oil economy. In addition, the ISI 1970 and 1975, for instance, the government strategy could not be sustained because of the established 23 Industrial Development Centres high tariff and quota protection regime, which (IDCs) across the country to provide technical

3 World Bank (1971) provides a detailed account of the import substitution strategy and the performance of the manufacturing sector. Growth and Economic Transformation Options for Nigeria: 20 An Assessment Using Growth, Identification and Facilitation Framework and managerial assistance to indigenous The policy focusses on enhancing growth of key medium and large companies with respect to industrial sub-sectors or product groups, already product development, entrepreneurial training, identified in the MSMEs national policy, namely and technical appraisal of loan applications. and including: food, beverage and ; However, a review of IDCs highlighted that many textile, apparel and leather products; wood enterprises were moribund because of gross products and furniture; and cement and glass. It under-utilization and financial inefficiency and also aims to curb anti-competitive behaviour, and had made no contribution to Nigeria’s productive encourage anti-trust tendencies and consumer capacities (Mahmoud, 2004). protection.

The government then instituted a process “The NIRP was the first time in the country’s to establish the cause of failure of the IDCs history that trade policy was linked to before ceding them to SMEDAN to revive their investment and industrial policies by operations. In a bid to ensure the availability of creating coherence in the government’s financial resources for indigenous entrepreneurs, economic diversification agenda focusing on the government established the Nigerian development of industrial clusters and parks. “ Industrial Development Bank (NIDB) in 1964 and the Nigerian Bank for Commerce and In 2014, the government launched the five-year Industry (NBCI) in 1973. These institutions were National Industrial Revolution Plan (NIRP) as the later amalgamated to form the present Bank of country’s roadmap for industrialization (Federal Industry (BoI), with a key mandate of providing Government of Nigeria, 2014). The NIRP aims financing to MSMEs. to build up industrial capacity and improve competitiveness and diversification of the Furthermore, the Central Bank of Nigeria (CBN) economy by targeting sectors where Nigeria has launched the Small and Medium Enterprises a comparative advantage such as agro-allied Equity Investment Scheme in 2006 and the industries, metals and solid minerals processing, Small and Medium Enterprises Credit Guarantee oil and gas related industries, , light Scheme in 2010, both of which were designed to manufacturing and services. The NIRP was the guarantee commercial banks’ lending to SMEs. first time in the country’s history that trade policy In 2008, the CBN commenced the establishment was linked to investment and industrial policies of entrepreneurship development centres in each by creating coherence in the government’s of the six geopolitical zones of the country for the economic diversification agenda focusing on sole purpose of nurturing entrepreneurs. development of industrial clusters and parks.

A 2010 baseline survey revealed that there were A key aspect of the NIRP is the detailed 17.3 million MSMEs in Nigeria, concentrated implementation strategy and oversight mostly in Lagos and Kano. The survey also found structure, with its advisory board from the a majority of these firms faced many constraints, private sector and a public-sector-dominated including high cost of doing business and low steering committee, both of which report to the levels of foreign direct investment (FDI) in key President on a quarterly basis. Despite this, the industrial sector activities. NIRP has suffered from weak implementation, which was compounded by the recession of Subsequent to the findings of the survey, 2016. Alongside the NIRP, the government also the government launched ‘Vision 20:2020’, launched the National Enterprises Development a blueprint for economic transformation Programme (NEDP) in the same year in order to (Federal Government of Nigeria, 2010). The address critical factors that prevent MSMEs from Vision recognized the need for an industrial graduating to large export-oriented enterprises. development policy that would transform the country into a global hub for manufactured Nigeria has also established several institutions products, with MSMEs playing a pivotal role. The and agencies aimed at fostering an environment Nigeria industrial policy was therefore developed for ease of doing business or promoting in 2013 to liberalize the industrial space by investment and trade in the country. These include removing constraints to private investment in key the Nigeria Investment Promotion Commission, sectors of the economy. Growth and Economic Transformation Options for Nigeria: 21 An Assessment Using Growth, Identification and Facilitation Framework Nigeria Export Promotion Agency, Infrastructure Concession Regulatory Commission, National “The current regime of quasi-fiscal packages provided by the CBN have created two tier Competitiveness Council of Nigeria, Presidential sectors – one supported by the CBN or Bank Enabling Business Environment Council, of Industry at below market subsidised single Industrial Policy and Competitiveness Advisory digit interest rates, and the other sector which Council, and Technology Creativity Advisory faces double digit market interest rates. “ Council, among others. Besides, there have been specific job creation programmes such as the An assessment of successive policies is that the N-Power Scheme and Government Enterprise cumulative effect on stimulating industrialization and Empowerment Programme. and fostering structural transformation has been minimal as shown above. Manufacturing value It is important to underscore the fact that many of added has declined from 15 percent in the early these government strategies and institutions have 1990s to just about 10 percent currently. conflicting objectives and overlapping mandates and are characterized by weak institutional This highlights clearly how Nigeria has failed to coordination, resulting in duplication of tasks. deploy oil resource rents to build the requisite A number of functions could be centralized infrastructure and human capital to support into one agency to avoid a silo approach and industrialization. For instance, for a sustained a thin spread of limited resources and capacity. period of time, maintenance spending at levels Activities of some of the agencies could be better close to zero led to sharp deterioration in the performed by competent institutions without water supply, sewerage, sanitation, drainage, encroaching into non-core business mandates. roads, and electricity infrastructures (Ilori, 2004; For instance, the SME programme operated World Bank, 1996). The current regime of quasi- by the CBN could be hived off to the Bank of fiscal packages provided by the CBN have Industry, with the latter capitalized to be able to created two tier sectors – one supported by provide funding on competitive terms. the CBN or Bank of Industry at below market subsidised single digit interest rates, and the other sector which faces double digit market interest rates.

Growth and Economic Transformation Options for Nigeria: 22 An Assessment Using Growth, Identification and Facilitation Framework

5 Applying the Growth Identification and Facilitation Framework to Nigeria PHOTO CREDIT: Simon Fanger RICE FIELD

25 5. Applying the Growth Identification and Facilitation Framework to Nigeria

The Growth Identification and Facilitation 3) The take-off stage when the rate of Framework (GIFF) was initially developed by Lin accumulation of savings and investments (2012) with later updates and applications by Lin is accelerated with industrialization, and and Monga (2017). The framework provides a a decline in the share of agriculture in the practical approach to identifying and facilitating labour force; growth and structural change in developing economies through a six-step procedure. The 4) The drive to maturity where growth becomes approach draws from the works of earlier thinkers sustaining with further investments in value- on structural change, such as Rostow (1960) adding industry, with industries getting and Gerschenkron (1962), as a diagnostic tool diversified, and more use of sophisticated of the causes of economic growth and strategies technology; needed to foster that process. 5) The stage of high mass consumption where Below we present the five key of the six stages on there are high output levels, and the service the scale of structural change that countries could sector dominates the economy. follow in the application of the GIFF approach:4 5.1 Steps in GIFF 1) A traditional economy, which is characterized by subsistence production, trade by barter, In this section, we highlight the steps needed to and labour-intensive agriculture; implement GIFF. For a thorough treatment and description of this approach, see Lin and Monga 2) Economies with preconditions for take-off, (2017), and a recent application to Uganda by Lin where there is an increase in the capital and Xu (2016). intensity of agriculture, the development of sectors and some growth in savings The steps in the application of GIFF involve the and investments; following (see also Figure 15 below): Figure 15 Schematic representation in the application of the GIFF

Source: Author’s own elaboration

4 It is important to note here, especially following the observation by Gerschenkron (1962) that countries do not have to go through these stages of development in a teleological or linear manner. It is possible to have both traditional and industrial sectors coexisting in an economy at the same time. Growth and Economic Transformation Options for Nigeria: 26 An Assessment Using Growth, Identification and Facilitation Framework (i) Identifying sectors with a latent from the government. A good example is an comparative advantage: this first step information-processing industry that started involves identification of tradable goods and in India in the early 1980s (see Lin and Monga, services that have been produced for about 2017). For Nigeria, the entertainment industry 20 years in selected benchmark countries. (especially ), began to blossom from the early 2000s. The government The benchmark countries are selected should adopt a transparent institutional based on similar endowment structures setup for selecting industries, sectors, and and are dynamically growing, with similar firms to be supported, and setting a clear manufacturing of value-added contributions, and rules based mechanism that seeks but with per capita incomes that are roughly to dismantle inefficiencies and encourage 100 to 300 percent higher than the pivot competitiveness in the selected industries.5 country; more generally, identifying countries with a similar level of GDP about 20 years (v) Transforming special economic zones ago. (SEZs) and export processing zones (EPZs) into industrial clusters: this stage (ii) Removing constraints for existing firms: of the GIFF involves providing and scaling this step involves identifying a list of sectors up infrastructure and special but terminal that have comparative advantages, and policy incentives to firms in circumscribed have attracted domestic private investment. geographic locations to attract FDI, It also involves identifying barriers that create jobs, expand exports, and serve as may be discouraging new entrants into the ‘experimental laboratories’ for reforms in sectors, and those preventing existing firms labour, financial, and regulation policies for the from upgrading the quality of their products. rest of the economy. However, infrastructure bottlenecks and access to foreign exchange (iii) Seeking foreign direct investment at competitive rates, should be adequately (FDI) or facilitate new firm incubation addressed to bolster investment response to programmes: this step involves adopting structural reforms and other incentives. The non-distortionary policy measures to idea is to encourage industrial clustering, support the establishment or development which would then activate agglomeration of competitive industries. These FDI-driven arising from increasing returns to scale from programmes aim to help domestic firms localization of activities. connect to global supply chains and other business networks in benchmark countries (vi) The last stage of the GIFF framework from which they could derive managerial recommends that the government experience, imitation and financing compensate pioneer firms in the opportunities and clientele. The idea is to selected competitive industries. This encourage firms in the benchmark countries could be through instruments such as limited (that are losing competitiveness due to rising tax incentives, co-financing arrangements, wages) to invest in the same industries in the direct credit for investments, and access pivot country and take advantage of lower to foreign exchange, among others. Some wages and other factor costs. rules should be put in place directly at the formation stages to avoid the distortionary (iv) Scaling up self-discoveries by private impact of subsidies. For example, financial firms: this stage involves identifying those incentives could be made more transparent sectors, industries, or products in which and limited both in duration and cost. the private sector has pioneered activity to drive dynamics of growth, especially without any coordination or systematic support

5 Even developed countries are still endeavouring to scale-up self-discoveries. For example, in its Industrial Policy Communications of 2010 and 2012, the European Union Commission outlined process of identifying key priorities and specific action plans to scale up self-discovery by private firms in the priority industries and sectors, and to foster technological upgrading (Lin & Monga, 2017)

Growth and Economic Transformation Options for Nigeria: 27 An Assessment Using Growth, Identification and Facilitation Framework 5.2 Unveiling Nigeria’s latent comparative between 100 to 300 percent higher than advantage that of Nigeria (identify countries with a similar per capita income 20 years ago as Nigeria’s per capita income today); 5.2.1 Selecting benchmark countries c) Countries with good manufacturing Although the GIFF methodology involves six performance measured by the steps, we focus on the first three steps in selecting manufacturing value added (MVA) as a industries where Nigeria has a latent comparative percentage of GDP. advantage. We then identify approaches that would help in removing the constraints inhibiting Table 3 presents a list of countries that share new entrants and expansion of firms in those similar characteristics with Nigeria based on the 6 industries. A more micro and rigorous, in-depth above criteria. The first step is to drop countries study of value chains would then be required that do not meet the criteria of dynamically to identify binding constraints in these sectors growing economies – that is, those with growth and inform the prioritization of government and rates less than 5 percent – and countries with private sector programmes to overcome key GDP per capita less than 100 percent or greater 7, 8 constraints in targeted sectors. This systematic than 300 percent of Nigeria’s GDP per capita. prioritization is akin to the ERGP ‘Big-Fast-Result’ approach, focussing on ‘high impact’ priority Based on these two criteria, we drop Pakistan, investment projects in agriculture, transportation, Russia, Morocco, Malaysia, South Africa, Ghana, manufacturing and processing, and power and Brazil, Chile, and . Thus, five countries gas. are left: India, China, Indonesia, Vietnam, and Uzbekistan. In particular, Indonesia stands out Revealing Nigeria’s latent comparative advantage, as a potent flying-geese leader for Nigeria. This the strategy exploits the latecomer advantage observation corroborates earlier findings by Lin by adopting the leader-follower, flying-geese and Treichel (2012). Like Nigeria, Indonesia is a pattern. This involved a careful assessment resource-rich country and has a large population, of selected lead countries that are potentially and hence abundant labour endowment, which losing competitiveness in the cost of production bodes well with its labour-intensive production (especially in wages), and imitating or licensing to economy. obtain technology from the dynamically growing more-advanced leader countries – see Lin and However, unlike Nigeria, Indonesia is known Treichel (2012); Lin and Monga (2013). to have used both its natural resources and abundant labour supply to develop industries that Thus, based on the three of the six steps, the correspond to its latent comparative advantage. first step in the GIFF framework is to benchmark Uzbekistan also shares some features with Nigeria. Nigeria with identified countries that have similar It is the most populous country in central Asia, characteristics based on three criteria: just as Nigeria is in Africa, and is endowed with natural resources including oil, gas, and minerals. a) Economies with similar factor Moreover, Uzbekistan’s 13 percent MVA is only endowments and dynamic growth about five percentage points greater than that of rates; Nigeria. India is also a good comparator. Lin and Treichel (2012) argue that, although India has not b) Economies with GDP per capita of consistently followed its comparative advantage

6 In a pioneering application of GIFF to Nigeria, (Lin & Treichel, 2012) go through the entire six stages of the GIFF framework. The application here is an update on their previous work and focusses on conditions for structural transformation, given the changing structure of the Nigerian economy. 7 Specifically, value chain analysis involves scrutinizing how inputs and services are brought together and then used to grow, transform, or manufacture a product; how the product then moves physically from the producer to the customer; and how value increases along the way. Insights from value chain analysis help the stakeholders to understand business-to-business relationships that connect the chain, mechanisms for increasing efficiency, and ways to enable businesses to increase productivity and add value (Webber & Labaste, 2010) 8 Interestingly, results from a competitiveness assessment by the World Bank of 14 value chains in the economic corridors of Lagos, Kano- Kaduna, and in Nigeria showed that sector with the highest employment potential include light manufacturing, construction, ICT, wholesale/, meat and poultry, oil palm, and cocoa; only two high-value chains in agriculture – oil palm and cocoa – have high potential (Treichel, 2010)

Growth and Economic Transformation Options for Nigeria: 28 An Assessment Using Growth, Identification and Facilitation Framework of unskilled labour, it has effectively used its skilled 5.2.2 Identifying sectors with potential for growth labour force to capture outsourcing businesses such as call centres. Nigeria can learn how to To identify the sectors with high potential for growth speed up the industrialization process by taking a in Nigeria, we study the dynamics of the tradable cue from these countries. goods and services produced in the benchmark countries over the last 20 years. In particular, we China, though not a resource-rich country, qualifies rank the export shares for benchmark countries at as a leading flying-geese mentor for Nigeria. In five-year intervals (i.e., 1996, 2001, 2006, 2011, 2016, China’s GDP per capita was 264 percent and 2016) and identify sectors that are losing higher than that of Nigeria; had comparable comparative advantage (Indonesia and China) and population density, and robust domestic market those emerging as drivers of industrialization and size. Nigeria stands to gain by imitating China’s economic growth (India and Uzbekistan). Tables production structure, especially in some of the A.2-4 in the Appendix lists the export shares in industries that have driven China’s fast growth, key sectors for Indonesia, China, and India. but are beginning to lose their competitiveness due to rising wages. Vietnam’s dynamic economic Over the past 20 years, we observe from Table 3: Potential comparator countries with Nigeria based on GDP differentials in 2016 Manufacturing value GDP per capita, PPP Ratio to Nigeria’s Real GDP growth Country Name added (percentage of (constant 2011 US$) GDP per capita (percentage p.a) GDP) Nigeria 5,438.92 100.00 8.76 -1.54 India 6,092.65 112.02 16.51 7.11 Pakistan 4866.16 89.47 12.73 5.74 Russian Federation 24,026.00 441.74 13.72 -0.22 Morocco 7,265.85 133.59 18.26 1.10 China 14,400.89 264.77 29.70 6.70 Indonesia 10,764.55 197.92 20.51 5.02 Vietnam 5,955.26 109.49 15.86 6.21 Malaysia 25,660.46 471.79 20.11 4.24 South Africa 12,260.17 225.42 13.37 0.28 Ghana 3,980.20 73.18 5.63 3.58 Brazil 14,023.69 257.84 11.71 -3.59 Chile 22,706.72 417.49 12.01 1.59 Uzbekistan 6,038.87 111.03 13.02 7.80 Turkey 23,679.40 435.37 18.93 2.88 Source: World Bank, World Development Indicators, 2017 growth, mostly driven by labour-intensive Indonesia’s key exports that it is possible to manufacturing such as textiles, provides valuable industrialize even when natural resources dominate lessons for Nigeria’s transformation agenda. the country’s exports. In 1996 crude petroleum accounted for 11.5 percent of Indonesia’s total Overall, the screening procedure leaves India, exports but, by 2016, crude petroleum accounted China, Indonesia and Uzbekistan as the benchmark for only 3.6 percent of the country’s exports. countries, based on the criteria set out above. Palm oil and its fractions had emerged as the Among the four benchmark countries, India and main export commodities contributing nearly 10 China are labour-abundant, although without percent to Indonesia’s total exports. Effectively, natural-resource endowments related to those of Indonesia has used its agricultural potential and Nigeria, but have relatively well developed labour- climbed the value chain by adding value to palm intensive industries. Indonesia and Uzbekistan are oil, thereby moving away from natural-resource both labour-abundant and resource-rich countries dependence to agro-processed exports. with a rapid rate of industrialization in the last three decades.

Growth and Economic Transformation Options for Nigeria: 29 An Assessment Using Growth, Identification and Facilitation Framework Over this period, labour-intensive manufacture of sports footwear has diminished in ranking among “Although Nigeria has immense potential in the top-10 exports. In contrast, manufacturing the production of palm oil, the product does of motor and motor vehicle parts not feature among the country’s top-20 export agriculture commodities, suggesting has been able to penetrate the top-ten list. weak integration into the global palm Indonesia’s diminishing competitive advantage oil value chain. in the manufacture of sports footwear could well “ become Nigeria’s competitive advantage, both for the domestic and export markets. An analysis of China’s export composition reveals some emerging opportunities for Nigeria. From Although Nigeria has immense potential in the Table A.3 in the Appendix, we observe that, in production of palm oil, the product does not feature 1996, children’s toys used to be China’s number among the country’s top-20 export agriculture one export at 2.6 percent of total exports. By commodities, suggesting weak integration into 2016, these were not even among the country’s the global palm oil value chain. top 50 exports.

The key constraints contributing to low productivity Other labour-intensive sub-sectors that have been at production and process level include lack of gradually losing their competitiveness include: storage and transport facilities; multiplicity of jerseys/pullovers, cardigans, and other knitwear, intermediaries in the value chain, which undercut which occupied third place in 1996 with a share producers; and lack of development of the of 1.7 percent of exports, but were relegated information channel. Addressing these through to ninth place in 2006 with 1.4 percent share. a number of interventions, including closing Television sets and radio transmitters, which took the infrastructure gap, is key to accelerating up second place in 2006 with 3.8 percent of productivity and regaining Nigeria’s comparative exports contributed only 1.2 percent of exports, advantage and global competitiveness, away moving to a ninth place in 2016. Others include from just focussing on meeting local demand. leather footwear, video displays and recording equipment, and stuffed animals.

Box 2: Stimulating the palm oil value chain

In the 1960s’ Nigeria commanded about 40 percent of the global palm oil industry, a market that is now worth over US$45 billion. Over the years, production of palm oil plummeted, and although the country has remained one of the largest producers, domestic demand is met through imports. Most of the country’s palm oil is produced in nine states of the Niger Delta region, which account for about 60 percent of Nigeria’s local palm oil production. The discovery of crude and rise in export revenues imposed implicit costs on local production of other tradable goods, including palm oil, Nigeria subsequently lost its position and has remained at the bottom of comparator producing countries (Figure 16).

Figure 16 Production and exports of palm oil and its fractions

In terms of exports, palm oil does not feature among Nigeria’s top 20 agriculture export commodities, suggesting that production is biased towards the domestic market. It also suggests that Nigeria’s palm oil global value chain is very weak. In contrast, in Indonesia and Malaysia, exports of palm oil and fractions (kernel, etc.) ranked among the top 20 products in 2016, valued at US$16.3 million and US$9.9 million, respectively. Exports from Nigeria amounted to only US$11.5 million.

Growth and Economic Transformation Options for Nigeria: 30 An Assessment Using Growth, Identification and Facilitation Framework Box 2: Stimulating the palm oil value chain Cont'd. However, Nigeria’s “Green Initiative” Agriculture Promotion Policy recognises the transformative potential of palm oil and government has prioritized development of the sector with a view to regaining Nigeria’s comparative advantage and global competitiveness.

Reforms in the sector have focused on creating a conducive environment with appropriate supportive policies to boost local production and deepen integration into the global value chain. In particular, the policy framework in aimed at addressing the key constraints contributing to low productivity at production and process level. These include lack of storage and transport facilities; multiplicity of intermediaries in the value chain, which undercut producers; and lack of development of the information channel. Extensive research in inputs and good ecology has increased production of oil palm to more than 24 states of the country in both large farm holdings and smallholder plantations. The reforms and increasing value addition have also catapulted Nigeria to Africa’s largest producer, but its share of the global market is remains dismally low, at only 2 percent.

The Central Bank of Nigeria listed oil palm among the 41 items ineligible for purchase foreign exchange at the official window to limit importation of products that could be produced locally. This measure was meant to stimulate domestic production without undermining competitiveness of the affected sectors. For palm oil, the objective is to galvanize the sector around a growth agenda. It should be noted, however, that the efficacy of this policy measure might be undermined without the active participation of the private sector in defining the obstacles that impede investment and grow their businesses in order to compete with imported products and globally. Although the government’s role is to protect the public interest and to promote national welfare, administrative measures that take away incentives from private sector might have unintended effects of discouraging local investment.

Source: Own computations based on FAOSTAT

Nigeria could also explore opportunities of 2016, the CBN is supporting rice farmers across engaging with some of the emerging sectors in the country with a view to create an ecosystem India. In Table A.4 in the Appendix, we present linking out-growers to local processors. It also the top-ten exports of India at five-year intervals seeks to bridge the gap between production and between 1996 and 2016. The statistics provide consumption. some useful insights. For instance, India is beginning to lose its competitiveness in milled and The programme targets over 200,000 rice- and semi-milled rice. wheat-growing beneficiary farmers, with financing ranging from 150,000 to 250,000 naira to assist In 1996, milled rice was India’s fourth-most in procuring the necessary agricultural inputs. An important export (about 2.7 percent of total integrated approach bringing together farmers exports). By 2006, it had slipped to tenth position, and processors is critical to the anchor borrowers contributing less than half its share a decade programme but ultimately, success will depend on earlier. Although milled rice is still a valuable export improving the quality of indigenous rice in order to commodity for India in relative terms, it presents compete with imported rice. many opportunities for Nigeria, especially because of the availability of arable land suitable for rice The federal government has an important role cultivation and successful agro-processing of to play in forming strong policies to facilitate this other cereals and tuber crops. transition but this should be done in a transparent and efficient manner, unlike the current practice “An integrated approach bringing together where cost of capital is higher for sectors not farmers and processors is critical to the covered by the fiscal support initiatives. Overall, anchor borrowers programme but ultimately, however, there is no one-size-fits-all approach on success will depend on improving the quality the nature of support governments should provide of indigenous rice in order to compete with to the private sector. The interaction should be imported rice. “ informed by specific country and sectoral contexts (World Bank, 2010). Indeed Nigeria has made strides in promoting local production of rice in an effort to increase self- Other emerging sectors in India include sufficiency and limit the amount of imported rice medications, motor vehicles, and motor vehicle in the country. To this end, rice was listed among parts. The smaller gap between India’s MVA of the 41 banned imported items to encourage 16.5 percent and that of Nigeria (8.8 percent) local production and value addition. Through relative to China (29.7 percent) and Indonesia the Anchor Borrowers Programme launched in (20.5 percent) also provides greater scope for

Growth and Economic Transformation Options for Nigeria: 31 An Assessment Using Growth, Identification and Facilitation Framework Nigeria to catch up with India than with the two tradable sub-sectors with high potential for global Asian countries. market penetration and domestic expansion for Nigeria (see Table 4). Identification of the diminishing and emerging sectors in the benchmark countries provides a As Table 4 indicates, improving production of two of the key sectors involves climbing the agriculture guide to sectors in which Nigeria can exploit its value chain. Specifically, palm oil processing and potential and leapfrog its industrialization. The milled rice emerge as two of the most promising next step is to conduct further pre-screening in sub-sectors that Nigeria can exploit for the order to select only those sub-sectors that have export market. For both commodities, the decline both the potential for growth and the feasibility competitiveness in leading comparator economies of successful production. The potential for due to rising labour costs could be used to attract Table 4: Tradable sectors with high potential for global market penetration Sector and commodity Sector/Product Codes Remarks description The decline in competitiveness in the world’s top exporters Palm oil and its fractions (Indonesia and Malaysia) for this agriculture and labour- 4222 (not necessarily chemically intensive value chain sector provides an opportunity for modified) Nigeria to reclaim its competitive edge as one of the leading exporters of palm oil. Nigeria’s favourable climate and rising middle class creates conditions for increased production of milled rice. Technological adaptation and skills transfer from leading 0421, 0423, 4231 Rice, milled or semi-milled producers such as India could raise Nigeria’s competitive advantage in imports by substituting milled rice with local production. Rising wages are ousting producers of these goods from China and other East Asian economies. This presents an Leather Footwear, Leather opportunity for Nigeria to transform its high quality and 6403, 6402 Apparel, Rubber Footwear abundant leather into finished products that would compete in international markets. Ethiopia provides valuable lessons of agro-led industrialization in leather products.

Radio receivers, Video As wages rise and competitiveness falls in China, Nigeria 8527, 8521,8528 Recording Equipment, stands to gain by using its competitive advantage to enter Video Displays these industries more efficiently. These sectors capitalize on relatively labour-intensive light manufacturing in which Nigeria could leverage the diminishing comparative advantage in China and India, two Motor vehicle and motor 7810 of the leading producers. Manufacturing could start with parts (tricycles) low-end technologically intensive motorcycles and tricycles before going full scale on motor vehicle spare parts and heavy industry vehicles. Source: Authors’ elaboration from GIFF analyzes Nigeria’s benchmarking with Indonesia, India, China, and Uzbekistan growth mainly depends on market demand, and firms to relocate and establish manufacturing especially the availability of a domestic market for industries to Nigeria. The identified sectors could, the commodity. therefore be springboards for a new era of agro- led industrialization in Nigeria. “The cassava value chain should transcend the harvest of tubers for flour to include An integrated approach of public intervention is the manufacture of industrial starch to needed to draw investment in areas where Nigeria demonstrate the agro-processing-led has comparative advantage in raw materials and industrialization. “ cheap input costs, particularly labour. Each region of the country is endowed with different types of Feasibility of production mainly depends on resources, whose potential can be tapped to the production requirements in terms of factor create a thriving industrial base. For instance, endowment and, capital and skills requirements. Kogi and other middle-belt states have immense Based on these criteria, we identify five key agriculture potential to transform Nigeria into food

Growth and Economic Transformation Options for Nigeria: 32 An Assessment Using Growth, Identification and Facilitation Framework self-sufficiency and a regional food basket. Kogi has emerged as a leading producer of cassava “The emergence of Lagos as Africa’s fifth- largest economy illustrates the growth and is poised to capture the market for rice as potential of a private-sector-driven well. Value addition is key to industrial upgrading. development strategy. With an estimated Cassava production should transcend the harvest population of 12.6 million people in 2016, of tubers for flour to include the manufacture Lagos state is the hub of Nigeria’s private of industrial starch to demonstrate the agro- sector and business activity, ranking first in processing-led industrialization. Nigeria in the ease of doing business and locally generated revenues. “ Other sectors with potential for growth and successful production include footwear to local manufacturers has successfully created manufacture, apparels, radio receivers, video an industry that supplies parts to assemblers in recording equipment and displays, motor vehicle, Europe. and motor vehicle parts.9 For the manufacturing of motor vehicles, Innoson Motors demonstrates Forging alliances between foreign and local Nigeria’s potential in the sector. Innoson Motors partners and joint research and development has succeeded in producing different kinds of programmes are alternative ways of facilitating cars for domestic use in Nigeria using mostly technology transfer. Examples elsewhere in imported parts. This is a remarkable story with Africa abound. The clean technology initiative set high potential for generating learning-by-doing in up between the Botswana Innovation Hub and the motor industry and other sectors. partners (Lund University and the Krinova Science Park in ), and the China-South Africa However, given the level of technological and Durban Industry Climate Change Partnership capital involvement, a more pragmatic approach Project are examples of clean industrial technology would be to start with low-end motorcycles/ partnerships. Drawing from these experiences, tricycles for which inputs can be sourced and innovative ideas from other regions and domestically before venturing into more complex countries, Nigeria could explore opportunities for and high tech sectors of producing more- skills upgrading, in order to create sustainable advanced motor vehicles for exports. industrial development required for the country’s economic diversification and transformation. The quality and standards of the products is also important if Nigeria is to build competitiveness Apart from peer-to-peer country benchmarking, and integrate into the global value chain. Thus, some states and sectors in Nigeria can be attracting foreign direct investment could facilitate used to demonstrate what can be achieved by technology and skills transfer, allowing local dismantling the constraints to doing business firms to learn by doing, especially in exporting. in transforming their economies. For instance, Firms that produce for exports tend to be more the emergence of Lagos as Africa’s fifth-largest productive and competitive, gained through economy illustrates the growth potential of a ‘learning’ compared with those producing for the private-sector-driven development strategy. With domestic market for the same product (Mohamed an estimated population of 12.6 million people in and Matoussi, 2014). In particular, fostering 2016, Lagos state is the hub of Nigeria’s private task-based manufacturing, whereby parts of sector and business activity, ranking first in technologically intensive imports are domestically Nigeria in the ease of doing business and locally sourced, is another way of encouraging local firms generated revenues. to work with firms in comparator countries. The challenge is to transform Lagos’ economic Developments in motor vehicle industries with auto success into creation of sustainable jobs, and to components supplied by domestic firms could be integrate its economy into the regional and global a major stimulus for industrialization in Nigeria, value chains through improved policy formulation, and the West Africa region more generally. Other targeting critical sectors of the state economy in countries – Tunisia, Egypt, and Morocco – have order to create jobs for the citizens of the state. made strides where terminal public sector support

9 Before making definite recommendations on which sub-sectors Nigeria should promote, it is necessary to first conduct rigorous value analysis to identify sub-sectors with feasible backward and forward linkages and sector-specific constraints.

Growth and Economic Transformation Options for Nigeria: 33 An Assessment Using Growth, Identification and Facilitation Framework Furthermore, like the federal government, only a Lin and Treichel (2012) further contend that third of Lagos State’s budget is devoted to capital targeting of identified sectors or products should expenditure. The state has prioritized skills training, satisfy the following pre-screening criteria. The focussing on information technology with student identified sectors should have a large labour apprenticeships and industrial attachments. absorptive capacity and a large domestic market.

Every year, about 2,500 students studying This effectively rules out capital intensive sectors information technology undergo industrial and mainly targeting export markets. Each attachments or apprenticeships for up to six product or sector should be well integrated into months. Female student apprenticeships account the domestic supply chain, with strong backward for about 46 percent of the total. This is essential and forward linkages. The raw materials should in building entrepreneurship skills. Nigeria has one be available in the domestic market or could be easily imported. Labour skills should also be of the highest number of women entrepreneurs. easily transferable from other sectors to the one It is estimated that 40 percent of women in with established comparative advantage. Nigeria (and Zambia) start businesses, compared with 10 percent or less in industrial countries. Based on these criteria, they argue that although The problem is that women-run business have sportswear is labour-intensive and a sunset lower survival rates than those of their male industry in the comparator countries, it does counterparts. Undoubtedly, Lagos has other not pass the test as a competitive commodity challenges, but at the minimum, the model that given the unavailability of Polymerizing Vinyl Chloride in the domestic Nigerian market. Since “Like all frameworks used to assess economic competitiveness is also premised on wage- development plans and transformation, differentials between Nigeria and comparator the GIFF has its own limitations and therefore economies, a careful comparison of the relevant does not guarantee that sectors and products sector-specific wage data in Nigeria with those in that have been successful in comparator the competitor countries is critical. countries can be replicated symmetrically to another country without due consideration for effect of local conditions, quality In summary, the GIFF is premised on ‘no one of institutions and certainty of domestic size fits all’ principle and therefore support to government policies. any identified sector identified will have to target “ constraints peculiar to that sector. has catapulted it to the position of fifth-largest economy in Africa, if replicated in other states, 5.3 Nigeria’s resource-led transformation could accelerate the transformation of the overall economy of Nigeria. Importantly, empowering the The dominance of natural-resource exports private sector, focussing on key constraints that has historically undermined Nigeria’s export prevent businesses from being competitive, is key diversification and growth. However, as Hausmann to success. and Klinger (2006) demonstrate, economic growth and transformation are not driven by comparative Whereas GIFF has established the importance advantage only, but also by diversification of of comparative advantage in the transformation investments into new activities. However, Boly and of Nigeria’s economy, it is but among other Kere (2018) posit that exports of manufacturing frameworks that can be deployed to assess products are relatively small compared to the the comparative advantage and transformation resource-based and low-technology products options for a country. Moreover, like all frameworks that account for about 80 percent of exports for used to assess economic development plans and many African countries. transformation, the GIFF has its own limitations and therefore does not guarantee that sectors and In Nigeria, oil and gas account for about 80 percent products that have been successful in comparator of total exports while the share of manufacturing countries can be replicated symmetrically to products is less than 10 percent (Figure 17). another country without due consideration for Nigeria’s relatively rich endowment in solid effect of local conditions, quality of institutions minerals has not been fully developed despite the and certainty of domestic government policies. policy pronouncements to stimulate growth in the sector. Agriculture exports are equally evidently invisible.

Growth and Economic Transformation Options for Nigeria: 34 An Assessment Using Growth, Identification and Facilitation Framework Figure 17: Structure of Nigeria’s merchandise exports (percentage of total) Figure 18: OPEC net real oil export revenues, period average (US$ billion)

Source: National Bureau of Statistics, Nigeria

Source: Energy Information Administration (EIA), 2018 “From 2011 to 2016, Nigeria generated more than US$70.1 billion in net real oil Figure 19 Manufacturing exports (percentage of merchandise exports), 2010- export revenues. This resource windfall, 2016 if had been properly invested in critical growth enhancing and employment intensity sectors, would have been transformation but failure to do so presented another squandered opportunity. “

Within the manufacturing sector, the technological structure of exports appears biased towards resource-based and low- technology manufacturing. Nigeria’s resource windfall during the previous commodity super cycle presented another squandered opportunity to foster transformation by investing in critical growth enhancing and employment intensity sectors, while strengthening human capital. “Nigeria can leverage on already evident transformative business services such as data From 2011 to 2016, Nigeria generated more than transcription and call centres by addressing US$70.1 billion in net real oil export revenues. the binding constraints but the dominance of the paucity of skills reflects This figure was much higher than and the country’s development challenge of Gabon combined (Figure 18). However, as achieving tangible structural change. Figure 19 shows, Nigeria’s manufactured exports “ lagged behind the global median as well as , OPEC’s leading oil exporter, whose gap stepping into more standardized segments of with the ‘frontier’ (global median) was only about the market. The main challenge is building the one third. This suggests that, with right policies right skills mix. Trade in services is skilled-labour and conditions, oil-exporting countries have intensive and requires particular language skills. potential for further growth and transformation, A number of important service export industries and narrowing the gap with the global median. require outstanding infrastructure in the field of information and communications (ICT). Manufacturing is intrinsically intertwined with some agricultural value chains and tradable services Tourism development is often constrained by lack and Nigeria is gaining ground in the latter. The of access to destinations and lack of other services, including transport services and infrastructure, emerging role of agro-based industry and tradable accommodation, utilities and marketing. Nigeria services – including tourism – provides scope for can leverage on already evident transformative industrialization based on ‘natural resources’. As business services such as data transcription and early market entrants such as India upgrade to call centres by addressing the binding constraints, higher value services, Nigeria could tap the low end of the market and gradually upgrade, thereby

Growth and Economic Transformation Options for Nigeria: 35 An Assessment Using Growth, Identification and Facilitation Framework including paucity of skills, in both quality and revenues, estimated at about 7 percent of GDP adequacy. The low level of skills reflects on the (oil and non-oil), the government may enlist dominance of the informal economy peppered by the private sector and development financial micro, small, and medium enterprises that require institutions support its infrastructure development less skilled employment. Skills development is agenda. critical to structural change. Figure 20 Long-term financing needs, US$ billion The shift in sectoral composition of output in the Nigerian economy towards the service sector and agriculture against a shrinking share of manufacturing reflects Nigeria’s transformation dilemma. The industry sector is more resource intensive with limited labour content, resulting in a low rate of employment creation and thus very little structural change.

Productivity gains have largely arisen from within the sector rather than through labour reallocation Source: NIIMP, 2014 across sectors, manifesting a low level of skills The quest for transforming Nigeria economy is to adapt to sectoral changes in GDP. This urgent. The following are some suggestions on phenomenon is not unique to Nigeria. South how the government can take the agenda of Africa belongs to this category of countries, which transformation forward. have benefitted from within-sector productivity gains. In contrast, Côte d’Ivoire demonstrates a class of countries exhibiting a pattern of moderate 5.4 Actionable policy implications structural change with substantial in-sector productivity gains (African Development Bank, 5.4.1 Broad policy implications 2018). Two main policy implications emerge from the “Although Nigeria is making efforts to address results for the design of growth and structural constraints to doing business, progress transformation strategies for Nigeria. First, the remains uneven, and often overshadowed results of the analysis for Nigeria are consistent by wanton rent-seeking behaviour and with practical experiences and theoretical coordination failure. “ predictions that modernization is an outcome of industrialization, with successful countries Resource rents, in boom years, can be deployed exploiting their comparative advantage. Thus, to catalyse structural transformation and long- given Nigeria’s resource endowment and latent term sustainable growth. But as literature shows, comparative advantage as revealed by the GIFF although Nigeria is making efforts to address analysis, climbing up the agricultural value chain constraints to doing business, progress remains and modernization of agriculture through agro-led uneven, and often overshadowed by wanton rent- industrialization could be an effective path towards seeking behaviour and coordination failure. This is accelerated growth and structural transformation. a legacy issue which would take long and great effort to reverse. In infrastructure, the funding This advantage arises from the sector’s potential gap remains huge, and the federal government to absorb labour and generate inter-sectoral estimates that about US$3 trillion for 30 years linkages across the economy. from 2014 will be needed to plug this gap. The results also show that traditional and The largest financing requirement is in energy industrial sectors can and should be developed (US$1 trillion), with that for power, estimated at simultaneously in the economy. The experience US$600 billion (Figure 20). It should be understood from other countries – and especially the that that infrastructure deficit is a perpetual policy benchmark countries considered in the GIFF problem anywhere in the world and addressing it analysis, show that growth and structural remains work in progress. In the absence of fiscal transformation has rarely been market driven space, given government low level of domestic but has been achieved through active state Growth and Economic Transformation Options for Nigeria: 36 An Assessment Using Growth, Identification and Facilitation Framework coordination (see Lin and Monga, (2017)). Public 5.4.2 Getting granular: addressing binding policy and institutional reforms are a requirement constraints to structural transformation to drive the economy towards accelerated growth and structural transformation. The analysis in this paper identifies five specific sub-sectors where Nigeria can exploit its The GIFF framework provides clear guidance on comparative advantage to accelerate economic the coordination role that the government can growth and structural transformation. Further play in the economy following the identification of sector-specific analysis is required to identify the sectors with latent comparative advantage and obstacles that prevent individual firms in different potential for accelerating growth. Specifically, the sub-sectors from upgrading the quality of their government should focus on: products and becoming more competitive for the export markets. In the ensuing discussion, we (i) Addressing the binding constraints identified focus on three key binding constraints identified from the analysis of the endowment structure in the analysis and provide policy suggestions of the economy; on how to address them in order to accelerate growth, job creation, and structural transformation (ii) Actively encouraging and incentivizing in Nigeria. investors in the benchmark countries operating in the sectors of Nigeria’s comparative advantage to invest in the same industries in (i) Infrastructure development Nigeria; Nigeria faces an enormous infrastructural gap with large investment requirements to catch up with the (iii) Given the relatively large size of the Nigerian global benchmark. Not all forms of infrastructure economy and the enormous political and can be provided simultaneously at the required financial requirement to make economy- scale and quality. wide changes, the government should promote the establishment of geographic Infrastructure deficit is a perpetual policy enclaves such as special economic zones problem and remains work in progress. Trying or industrial parks, and expeditiously remove to achieve everything at once would spread the institutional impediments and infrastructure federal government thinly on too many projects. bottlenecks targeted explicitly at selected About US$10 billion is currently spent annually sectors, especially agro-related and light on infrastructure. Federal capital expenditure 10 manufacturing industries. represents between 50 and 60 percent of total annual infrastructure invetsment. (iv) The government should focus more on providing targeted and limited incentives to Private sector funding is about 40 to 45 percent domestic self-discovered industries and firms, and multilateral financial institutions account for as well as to foreign investors that operate less than 1 percent. To meet the large financing within the identified sub-sectors stipulated requirements, the government could pursue a in order to compensate for the knowledge strategy of focussing on investment-enhancing externalities they generate. Incentives may and growth-stimulating sectors. For instance the include targeted and corporate income tax estimated US$600 billion financing requirements holidays, directed tax credits, or priority for over 30 years in the energy sector alone is access to foreign exchange to import key substantially high to be met from local budgetary equipment, all granted for a prescribed resources. period. “Strategic targeting is essential to address the challenges, focussing on “Sector-specific analysis is required to identify key sectors and assessing infrastructure the obstacles that prevent individual firms on the basis of economic returns and high in different sub-sectors from upgrading the development impact including adopting quality of their products and becoming more innovative approcahes to create ‘islands competitive for the export markets. “ of excellence’ in special economic zones or industrial parks. “ 10 The launch of the focus labs for the ERGP is in the same spirit, but implementation should be more systematic and institutionalized to avoid policy reversals often associated with political cycles or change of political regimes. Growth and Economic Transformation Options for Nigeria: 37 An Assessment Using Growth, Identification and Facilitation Framework Thus, strategic targeting is essential to address (ii) Human capital skills development the challenges, focussing on key sectors and assessing infrastructure on the basis of economic Given the nature of the Nigerian labour force – returns and high development impact. One only 14 percent of the working population has pragmatic approach is to create ‘islands of post-secondary education and a nearly a third has excellence’ in special economic zones (SEZs) or never attended any formal education, the current industrial parks. Therefore, within the context of the skills base is insufficient to support innovation and National Infrastructure Investment Master Plan, the technological revolution required for structural government should pursue a selectivity approach in transformation in high-skilled industries. Hence, providing well-functioning infrastructure, prioritizing greater emphasis should be given to technical power and transport to locally concentrated areas and vocational training to raise the country’s such as the Free Zones in Lagos (Lekki), Kano, skills profile. In particular, the government create Ogun, Cross River, Akwa Ibom, Jigawa, and incentives for development of skills required in Adamawa states. employment-intensive sub-sectors identified in GIFF, namely, apparel, rice milling, motorcycles This approach would improve the competitiveness and motor parts, palm oil processing, and radio of light manufacturing, agro-processing, and and TV equipment – and deliver practical capacity manufacture of motor parts (especially for development in these areas. motorcycles and tricycles). In Ethiopia, the establishment of industrial parks has infused In this regard, the government should adequately productivity gains and, in Tanzania and Uganda, resource the National Board for Technical it has reduced firm costs by between 0.3 and 0.4 Education (NBTE) to effectively serve as a percent. Creating industrial parks and economic regulatory and monitoring authority for formal clusters has great potential to jump start and informal technical and vocational training manufacturing and jobs. in the country. Adequate funding to NBTE will also enable the agency to cover new emerging Concession of infrastructure is another option, technical skills, such as programming and which could involve a redefinition of the federal software design, and this can be done by working government’s responsibility in the provision of key with Sector Skills Councils, to ensure a better infrastructure and its relationship with different match between labour market needs and the levels of government and the private sector. Recent training being provdied by polytechnics (United plans by the government to concession the Lagos Nations Industrial Development Organization, and Abuja airports are a welcome development 2017). and should be pursued with commitment. Furthermore, establishing informal sector trade However, more needs to be done regarding associations to take part in skills upgrading relinquishing ownership of key infrastructure to and the certification of their members should component units of the federation and financially also be pursued, together with establishing empowering them to provide the infrastructure that tripartite governance frameworks involving supports the most viable value chains explicitly training institutions, public sector agencies, and private sector agencies, with the private sector “To engender structural transformation, strong emphasis should be placed on technical and vocational training to raise the “Selection of beneficiaries in each industry skills profile for employment-intensive sub- should be delegated to independent sectors such as apparel, rice milling, palm and properly legally vetted agency oil processing and deliver practical capacity devoid of vested interests and this development in these areas. agency must complemented by greater “ decentralization of responsibilities for coordination from the federal to the in their localities. Allowing for the creation of state and local government authorities. independent power projects is a typical example “ along these lines. institutions leading in providing vocational and technical training.

Growth and Economic Transformation Options for Nigeria: 38 An Assessment Using Growth, Identification and Facilitation Framework A public-sector-funded incentive system (possibly through the Industrial Training Fund) could be established to help fund programmes and skills development for the informal sector and light manufacturing businesses. These proposals are also consistent with the federal government’s N-power programme, a youth empowerment programme to accelerate job creation. However, implementation of these proposals should be done systematically and acceleratedly. Other specific policy recommendations along these lines may be found in Treichel (2010).

(iii) Governance and institutional reforms

Effective implementation of policies to address constraints to growth transcend provision of physical infrastructure and skills development to encompass institutional and governance factors. Although some steps have been taken in combatting corruption and progress made in improving the overall business environment, Nigeria still faces numerous institutional and governance challenges that hold back the country’s economic transformation. The following factors may be considered as some quick wins for improving governance for accelerating growth and structural transformation in Nigeria.

First, as with infrastructure targeting, for each of the selected sectoral interventions, the government should implement less complex, targeted reforms one at a time to stand a better chance of success. Large doses of policy interventions could create a propensity for rent-seeking behaviour, corruption and abuse. Second, selection of beneficiaries in each industry should be delegated to an independent and properly legally vetted firm rather than by a public agency with vested interests. This could be complemented by greater decentralization of responsibilities for coordination of economic activities from the federal to the state and local government authorities.

Growth and Economic Transformation Options for Nigeria: 39 An Assessment Using Growth, Identification and Facilitation Framework 6. Conclusion

This paper sought to examine some growth expand its export market: milled rice; palm oil and and structural transformation options with the its fractions; apparel and footwear manufacture; application of GIFF to Nigeria. The framework radio and TV receivers; and lastly, motorcycles, is used to identify tradable sectors with latent tricycles, and motor parts. comparative advantage by thoroughly analyzing the endowment structure of an economy. Finally, two far-reaching policy implications emerge. First, an agro-led industrialization strategy, The key findings from the exercise reveal some because of its ability to absorb a large portion options for possible consideration. First, in terms of the labour force and provide both forward of factor endowments, the current skills base of and backward inter-sectoral linkages, appears the Nigerian labour force is insufficient to support to be the easiest and fastest way to achieve innovation and the kind of technological revolution accelerated growth. Specific and granular policies required for structural transformation in high- for surmounting some of the constraints to growth skilled industries. Second, to reverse the trend in Nigeria are also discussed, in particular, the of capital shallowing, Nigeria needs to grow the need to adopt a piecemeal approach by creating stock of its physical capital at a minimum average several industrial enclaves that are connected of 8 percent per annum for the next ten years. to both domestic and foreign markets, and the Third, there are five key tradable sectors where importance of building capacity in the technical Nigeria could exploit its comparative advantage to and vocational workforce.

Growth and Economic Transformation Options for Nigeria: 40 An Assessment Using Growth, Identification and Facilitation Framework Bibliography

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Growth and Economic Transformation Options for Nigeria: 41 An Assessment Using Growth, Identification and Facilitation Framework Rostow, W. (1960). The Stages of Economci Growth: A Non-Communist Manifesto. Cambridge: Cambridge University Press. Syrquin, M. (1988). Patterns of Structural Change. In H. Chenery, & T. Srinivasan (eds.), Handbook of Development Economics (pp. 203-273). Amsterdam: North Holland. Treichel, V. (2010). Putting Nigeria to Work: A Strategy for Employment and Growth. Washington, DC: The World Bank. United Nations Industrial Development Organization. (2017). Skills gap assessment in six priority sectors of Nigeria economy. Vienna: United Nations Industrial Development Organization. Webber, M. C., & Labaste, P. (2010). Building competitiveness in Africa's agriculture : a guide to value chain concepts and applications. Washington, DC: The World Bank. World Bank. (1971). The Manufacturing Sector and the Structure of Industrial Production in Nigeria. Washington DC: The World Bank. World Bank. (1996, May). Restoring urban infrastructure and services in Nigeria. 62. Washington, DC: The World Bank.

Growth and Economic Transformation Options for Nigeria: 42 An Assessment Using Growth, Identification and Facilitation Framework Appendix

Table A.1 Breakdown of Nigeria’s population by state, 2010-2016 State Name 2010 2011 2012 2013 2014 2015 2016 Abuja 2,039,937 2,238,752 2,456,945 2,696,403 2,959,199 3,247,608 3,564,126 Abia 3,169,889 3,256,642 3,345,769 3,437,336 3,531,408 3,628,055 3,727,347 Adamawa 3,569,948 3,674,992 3,783,127 3,894,444 4,009,037 4,127,001 4,248,436 Akwa Ibom 4,470,509 4,625,120 4,785,078 4,950,568 5,121,781 5,298,916 5,482,177 Anambra 4,672,954 4,805,646 4,942,106 5,082,440 5,226,760 5,375,177 5,527,809 Bauchi 5,330,933 5,515,302 5,706,046 5,903,388 6,107,554 6,318,781 6,537,314 Bayelsa 1,914,163 1,970,487 2,028,468 2,088,154 2,149,597 2,212,849 2,277,961 Benue 4,795,967 4,942,026 5,092,533 5,247,624 5,407,438 5,572,118 5,741,815 Borno 4,778,758 4,944,030 5,115,017 5,291,918 5,474,937 5,664,285 5,860,183 Cross River 3,248,814 3,344,409 3,442,816 3,544,120 3,648,404 3,755,757 3,866,269 Delta 4,674,012 4,825,999 4,982,928 5,144,961 5,312,262 5,485,004 5,663,362 Ebonyi 2,434,943 2,504,085 2,575,190 2,648,315 2,723,515 2,800,851 2,880,383 Edo 3,602,124 3,700,706 3,801,987 3,906,039 4,012,938 4,122,764 4,235,595 Ekiti 2,715,657 2,801,161 2,889,357 2,980,330 3,074,167 3,170,959 3,270,798 3,684,476 3,796,685 3,912,311 4,031,459 4,154,235 4,280,750 4,411,119 Gombe 2,687,993 2,775,400 2,865,649 2,958,833 3,055,047 3,154,389 3,256,962 Imo 4,463,884 4,609,038 4,758,912 4,913,660 5,073,440 5,238,416 5,408,756 Jigawa 4,897,387 5,041,491 5,189,835 5,342,543 5,499,746 5,661,573 5,828,163 Kaduna 6,892,955 7,102,877 7,319,192 7,542,095 7,771,785 8,008,472 8,252,366 Kano 10,727,888 11,087,814 11,459,817 11,844,300 12,241,682 12,652,397 13,076,892 Katsina 6,541,268 6,740,479 6,945,757 7,157,287 7,375,259 7,599,869 7,831,319 Kebbi 3,686,456 3,802,526 3,922,250 4,045,745 4,173,127 4,304,520 4,440,050 Kogi 3,736,573 3,850,369 3,967,630 4,088,462 4,212,974 4,341,279 4,473,490 Kwara 2,666,928 2,748,148 2,831,842 2,918,084 3,006,953 3,098,528 3,192,893 Lagos 10,358,095 10,694,915 11,042,686 11,401,767 11,772,524 12,155,337 12,550,598 Nassarawa 2,107,717 2,171,906 2,238,051 2,306,209 2,376,444 2,448,817 2,523,395 Niger 4,530,911 4,687,610 4,849,730 5,017,456 5,190,982 5,370,510 5,556,247 Ogun 4,280,457 4,424,069 4,572,499 4,725,908 4,884,465 5,048,342 5,217,716 Ondo 3,902,128 4,020,965 4,143,422 4,269,608 4,399,637 4,533,626 4,671,695 Osun 3,883,555 4,009,839 4,140,228 4,274,858 4,413,866 4,557,394 4,705,589 Oyo 6,393,929 6,615,061 6,843,840 7,080,532 7,325,409 7,578,755 7,840,864 State Name 2010 2011 2012 2013 2014 2015 2016 Plateau 3,572,229 3,669,993 3,770,432 3,873,621 3,979,633 4,088,547 4,200,442 State Name 2010 2011 2012 2013 2014 2015 2016 Rivers 5,956,075 6,162,063 6,375,176 6,595,659 6,823,767 7,059,764 7,303,924 Sokoto 4,174,756 4,301,896 4,432,908 4,567,910 4,707,024 4,850,374 4,998,090 Taraba 2,577,051 2,652,880 2,730,940 2,811,296 2,894,018 2,979,173 3,066,834 Yobe 2,670,175 2,765,286 2,863,785 2,965,792 3,071,433 3,180,836 3,294,137 Zamfara 3,726,613 3,847,793 3,972,914 4,102,103 4,235,493 4,373,221 4,515,427

Totals 159,538,107 164,728,460 170,097,173 175,651,227 181,397,940 187,345,014 193,500,543 Source: National Bureau of Statistics, Nigeria

Growth and Economic Transformation Options for Nigeria: 43 An Assessment Using Growth, Identification and Facilitation Framework Table A.2 Identifying sectors for growth: Key exports of Indonesia Tradable sector rankings 1996 Tradable sector rankings 2011 1996 Ranking Commodity Commodity Percentage 2011 Commodity Commodity Percentage Code Ranking Code 3330 Crude petroleum 11.50 1 3212 Other coal, not 12.53 agglomerated 3431 Natural gas, liquefied 8.10 2 3431 Natural gas, liquefied 8.83 6343 Plywood, solely of 6.70 3 4222 Palm oil, fractions 8.48 wood 2312 excl. 3.77 4 3330 Crude petroleum 6.80 latex 2831 Copper ores and 3.52 5 2312 Natural rubber excl. latex 5.77 concentrates 8512 Sports footwear 3.47 6 2831 Copper ores and 2.31 concentrates 3212 Other coal, not 2.16 7 3432 Natural gas, in the gaseous 2.27 agglomerated state 3344 Fuel , n.e.s.* 2.06 8 9310 Special transactions 1.58 361 Crustaceans, frozen 2.02 9 6821 Copper, anodes, alloys 1.25 7638 Sound,video record- 1.67 10 6871 Tin, tin alloys, 1.18 ing unwrought 2001Ranking Commodity Commodity Percentage 2016 Commodity Commodity Percentage Code Ranking Code [0.001cm] 1 3330 Crude petroleum 10.15 1 4222 Palm oil, fractions 9.94 3431 Natural gas, liquefied 9.56 2 3212 Other coal, not agglomer- 8.93 ated 2831 Copper ores and 3.03 3 3330 Crude petroleum 3.60 concentrates 6343 Plywood, solely of 2.96 4 3431 Natural gas, liquefied 3.56 wood Tradable sector rankings 1996 Tradable sector rankings 2011 3212 Other coal,not ag- 2.87 5 8973 Gold,silverware, jewellery 2.83 glomerated 9310 Special transactions, 2.17 6 2831 Copper ores and concen- 2.41 commodities trates 7649 Parts,telecoms 2.08 7 2312 Natural rubber excl.latex 2.33 equipment 8512 Sports footwear 2.07 8 7812 Motor vehicles for the trans- 1.77 port of persons, n.e.s. 4222 Palm oil, fractions 1.92 9 8512 Sports footwear 1.71 361 Crustaceans, frozen 1.63 10 7843 Other parts, motor vehicles 1.37 3431 Natural gas, liquefied 12.09 3330 Crude petroleum 9.89 3212 Other coal, not 7.34 Source: UN Comtrade Database agglomerated *Note: n.e.s. (not elsewhere specified) is used to supplement for other 4222 Palm oil, fractions 5.83 items that (a) have low value trade and (b) have unknown partner designation for the reporting country 2831 Copper ores and 5.62 concentrates 2312 Natural rubber excl. 5.21 latex 9310 Special transactions 4.02 and commodities 6412 Paper, paperboard, 1.68 uncoated 6343 Plywood, solely 1.58 of wood 2842 Nickel mattes, 1.48 sintrs. etc

Growth and Economic Transformation Options for Nigeria: 44 An Assessment Using Growth, Identification and Facilitation Framework Table A.3 Identifying sectors for growth: Key exports of China Tradable sector rankings 1996 Tradable sector rankings 2011 1996 Commod- Commodity Percentage 2011 Commodity Commodity Percent- Ranking ity Code Rank- Code age ing 8942 Children’s toys 2.611 1 7522 Digital automatic data 5.79 processing 3330 Crude petroleum 1.856 2 9310 Special transactions 3.34 8453 Jerseys/pullovers, cardigans, waistcoats 1.683 3 7643 TV, radio transmitters, etc. 3.33 knitted 7649 Parts, equipment 1.463 4 7649 Parts, telecommunications 2.87 equipment 8513 Footwear,nes,rubber. 1.449 5 7932 , boats, other 2.00 vessels 8514 Other foowear, leather.uppers 1.443 6 7763 Diodes, transistors, etc. 1.77 7526 Input or output units for data 1.321 7 7764 Electronic microcircuits 1.76 processing machines, 8481 Leather apparel, accessories 1.251 8 8719 Liquid crystal devices, 1.67 lasers 8312 Trunks, suit-cases,etc. 1.236 9 7599 Parts, data processing, 1.61 etc. machinery 8414 Trousers, breeches and shorts 1.232 10 7611 Television receivers 1.17

2001 Commod- Commodity Percentage 2016 Commodity Commodity Percent- Ranking ity Code Rank- Code age ing 7599 Parts, data processing. etc. machinery 3.073 1 7643 TV, radio transmitters, etc. 5.54 7526 Input or output units for automatic data 2.571 2 7522 Digital automatic data 3.89 processing processing machines 7649 Parts,telecommunications equipment 2.490 3 9310 Special transactions 3.25 8942 Children’s toys 1.941 4 7649 Parts, telecommunications 2.97 equipment 8453 Jerseys/pullovers, cardigans, waistcoats 1.809 5 7764 Electronic microcircuits 2.97 knitted Tradable sector rankings 1996 Tradable sector rankings 2011 7643 TV, radio transmitters, etc. 1.725 6 8131 Lamps, light fittings, n.e.s. 1.37 7638 Sound, video recording etc. 1.549 7 8719 Liquid crystal devices, 1.37 lasers 7527 Storage units 1.206 8 7843 Other parts, motor 1.35 vehicles 9310 Special transactions 1.182 9 7611 Television receivers 1.24 8514 Other footwear, leather uppers 1.132 10 7599 Parts, data processing 1.23 machines Tradable sector rankings 2006 2006 Commod- Commodity Percentage Ranking ity Code 7522 Digital automatic data processing ma- 4.555 chines, containers in the same housing 7643 TV, radio transmitters. Etc. 3.757 7599 Parts, data processing, etc. machinery 3.469 7649 Parts, telecommunications equipment 3.305

7526 Input or output units for automatic data 2.696 processing machines 7764 Electronic microcircuits 2.237 7638 Sound, video recording 2.233 8719 Liquid crystal devices; lasers 1.451 8453 Jerseys/pullovers, cardigans, 1.350 waistcoats knitted 7611 Television receivers 1.348

Growth and Economic Transformation Options for Nigeria: 45 An Assessment Using Growth, Identification and Facilitation Framework Table A.4 Identifying sectors for growth: Key exports of India Tradable sector rankings 1996 Tradable sector rankings 2011 1996 Commodity Commodity Percent 2011 Commodity Commodity Percent Ranking Code Ranking Code 6672 Diamonds, excl. industrial 12.37 1 9310 Special transactions 23.15 6513 yarn, 4.18 2 6672 Diamonds, excl. industrial 10.69 excl. thread 813 Oil-cake, oilseed 2.92 3 8973 Gold, silverware, jewellery 5.32 residue 423 Rice, milled, 2.73 4 5429 Medicaments, n.e.s. 1.97 semi-milled 8415 Shirts 2.41 5 7935 Special purpose vessels, etc. 1.57 361 Crustaceans, frozen 2.26 6 2815 Iron ores and concentrates 1.37 8427 Blouses, shirts and 2.02 7 423 Rice, milled, semi-milled 1.34 textile material 9310 Special transactions 1.79 8 7812 Motor vehicles for the transport 1.20 of persons 6585 Curtains, other 1.71 9 2631 Cotton (other than linters) 1.12 furnishings 8973 Gold, silverware, 1.62 10 7643 TV, radio transmitters, etc. 1.09 jewellery Tradable sector rankings 1996 Tradable sector rankings 2011 Tradable sector rankings 2001 Tradable sector rankings 2016 Ranking Commodi- Commodity 2016 Commodity Commodity Percent ty Code Ranking Code 6672 Diamonds, excl. industrial 12.84 1 9310 Special transactions 11.19 9310 Special transactions 8.17 2 6672 Diamonds, excl. industrial 9.23 6513 Cotton yarn, excl. thread 2.77 3 8973 Gold, silverware, jewellery 4.89 8973 Gold, silverware, jewellery 2.53 4 5429 Medicaments, n.e.s. 3.95 361 Crustaceans, frozen 1.89 5 7812 Motor vehicles for the trans- 2.45 port of persons 8415 Shirts 1.56 6 423 Rice, milled, semi-milled 2.02 5429 Medicaments, n.e.s. 1.55 7 9710 Gold, non-monetary, excl ores 1.67 6585 Curtains, other furnishings 1.5 8 7843 Other parts, motor vehicles 1.54 8427 Blouses, shirts and textile material 1.45 9 112 Bovine meat, frozen 1.41 423 Rice, milled, semi-milled 1.39 10 361 Crustaceans, frozen 1.35 Tradable sector rankings 1996 Tradable sector rankings 2011 Tradable sector rankings 2006 Ranking Commodi- Commodity Per- ty Code cent 9310 Special 16.69 transactions 6672 Diamonds, excl. industrial 8.6 8973 Gold, silverware, jewellery 4.0 2815 Iron ores and 3.07 concentrates Tradable sector rankings 2006 5429 Medicaments, n.e.s. 1.65 5169 Organic 1.52 chemicals, n.e.s. 6821 Copper, anodes, alloys 1.38 6513 Cotton yarn, excl. thread 1.32 8454 T-shirts, singlets, knitted or 1.22 crocheted 423 Rice, milled, 1.19 semi-milled

Growth and Economic Transformation Options for Nigeria: 46 An Assessment Using Growth, Identification and Facilitation Framework