The Things They Did That Made Them Giants Series: Policy Options for Diversification Part I

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Much has been said but too little has been done to diversify Nigeria’s economy. Diversification has been a buzzword since the 1980s, Nigeria’s oil age. Still, non-oil sectors contribute too little to government earnings, employ too few people, and have made very small advances in innovation and technology.

In an effort to break away from a mono-product economy, YNE juxtaposes the stories behind the emergence of today’s leading industries and the current state of Nigerian industries in the series ‘The Things They Did That Made Them Giants’. The idea is to identify crucial differences and adopt best practices to drive local production.

In our first edition, we take a look at how the post-World War II economic boom marked a turn in two of the world’s leading manufacturing industries as we discuss the role of sound economic policies in the development of the manufacturing sector. A sector that contributes only 9 percent to Nigeria’s total output as key components such as the automobile and steel industries continue to dwindle.

Pharmaceutical Industry, United States of America

Home to global brands like Pfizer and Johnson and Johnson, the U.S. is the headquarters of six out of the top ten pharmaceutical companies in the world. In 2016, the industry cornered almost half of the global market and is valued at $446 billion. It’s expansion dates back to the end of World War II when there was a growing demand for antibiotics to save the lives of wounded soldiers.

The U.S. government through the Office of Science and Research Development and the War Production Board supported key pharmaceutical firms to collaboratively identify ways to produce penicillin antibiotics in mass. The government coordinated and funded research programmes providing previously unavailable access to scientific discoveries and exchange. The high-level support led to innovations and heralded a new phase in the pharmaceutical industry.

Several decades later and U.S. policy leaders have continued to fund medical and pharmaceutical research in high levels. The National Institutes of Health spends about $32.3 billion annually on medical research.

Pharmaceutical innovation and research is again stimulated by the government’s strong patent protection policy. The government allows an inventor to earn monopoly profits by giving her the sole right to exclude other pharmaceutical firms from developing a competitor drug for up to seven years. The exclusivity period gives inventors enough incentives to undertake the high financial costs of inventing new drugs.

Finally, the interests of the public and the industry are protected by the extensive regulations of the U.S. Food and Drug Administration (FDA). Owing to the standard of excellence maintained by the FDA, the effectiveness and safety of U.S. drugs are almost guaranteed, securing competitiveness in the global economy; an arena where Nigeria is noticeably absent.

In Nigeria, drugs are not wholly produced locally as the industry imports 98 percent of the raw materials used for production. The industry struggles with dismal infrastructures, poor access to low-interest funding and over-reliance on foreign exchange for importing drugs and raw materials. According to the Pharmaceutical Society of Nigeria, effective drug regulation across the country is lacking with ubiquitous drug counterfeits.

Automotive Industry, Japan

At the end of World War II, Japan had lost a quarter of its national wealth and about 3 million people. With a stern focus, the Japanese government concentrated their remnant manpower and resources on rebuilding the economy which birthed the modern-day Japanese automotive industry.

Japanese passenger cars have become ‘the people’s choice’ all over the world featuring brands like Honda, Nissan, and Toyota. The country’s automotive industry is its largest followed closely by the chemical industry which produces car tires and other rubber automotive parts. Together, the automotive manufacturing and related industries absorb roughly 9 percent of Japan’s labor force.

After the war, Japan Development Bank and the Ministry of International Trade and Industry (MITI) channeled labour and capital from non-performing industries to the automotive industry and other promising industries. MITI deployed low-interest bank loans, subsidies, and tariffs to develop specific automobile companies.

The government’s strategy was to offer Japanese citizens a tax-exempt investment pool (called the Fiscal Investment and Loan Plan) to save their money and give out the savings as loans to key industry players. At the time, an astonishing one-third of bank loans came from private savings.

Since the 1970s, much of what Japan’s automotive industry produces is exported with the foreign exchange earnings invested in energy sources, management, raw materials, and technology. Japan continues to make sky-high investments in automotive research and development. In 2013, $18 billion was poured into automotive research and development leading to constant innovation and high product quality.

On the other hand, Nigeria’s automotive industry is a bit elusive. Innoson Motors, the country’s only indigenous automobile manufacturing company, imports 40 percent of the raw materials used for production.

History has shown that governmental oversight has played a big role in strengthening nascent industries. At ground zero, creating a brand that can dominate the local market and eventually become ‘the people’s brand’ globally is a tad bit difficult in the absence of an enabling environment, one which the free market will not provide.

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