Investing in the long term is an essential strategy for any serious investor. The earlier one starts investing, the better, and patience is a necessary virtue in investment because things take time.
The same principles apply to nations; as industrial development requires a long-term view. Unfortunately, Nigeria, one of the world’s poorest countries in real terms, suffers from a malady of collective short-termism, which manifests itself in the lack of industrial development.
Leaders think only about today, and citizens do not question decisions that appear logical in the moment but are unreasonable in the long term.
To drive industrialisation, African countries, including Nigeria, need to take three core actions actively promoting industrial exports, forming industrial clusters, and aggressively moving towards industrial financing, including attracting FDI and investing in infrastructure and human capital. African countries, if they had strategically implemented these core actions earlier, would have considerably reduced the industrial gap between themselves and the rest of the world. A comparison of Nigeria and Indonesia illustrates this simple but powerful observation. Both countries realized a sizeable windfall, up to 20 per cent of their GDP, from oil by 1981. Almost immediately, Nigeria’s budget went from surplus to deficit, owing to a sharp increase in government consumption and heavy investments in low-performance capital projects.
In particular, Nigeria began to invest in large-scale, capital-intensive projects with low rates of return, including a new capital city built from scratch and an integrated steel plant. When oil prices fell, the Nigerian government had to move towards an austere economy by sharply cutting government expenditure and investments, a move that destabilized the country significantly. In contrast, Indonesia passed a law that prohibited a budget deficit despite the oil windfall, consistently maintained a balanced investment approach that funded physical infrastructure, education, and agriculture on the one hand and capital-intensive projects on the other hand. Even when oil prices fell, Indonesia managed to maintain its balanced investment course. Although both countries started with overvalued exchange rates, while Nigeria waited until the SAP reforms in the mid-80s to devalue its currency, Indonesia did this much earlier in 1978.
Indonesia, therefore, entered the windfall with a better stance to compete internationally than Nigeria. These divergent policy choices had an impact that persists till today. Between 1982 and 2020, growth of manufacturing value added in Indonesia averaged 6.2 per cent annually compared to Nigeria’s 0.8 per cent. Moreover, oil accounted for far below 50 per cent of Indonesia’s exports by the end of the 1980s, whereas Nigeria continued to rely mainly on oil exports, making over 90 per cent of the country’s exports throughout the 80s. At the end of 2019, fuels made up only about 20 per cent of Indonesia’s exports compared to Nigeria’s 85 per cent.
Nigeria came out of SAP worse off than Indonesia because of policy choices. While Nigeria concentrated on the present, Indonesia consolidated for the future. Last year, Indonesia’s GDP was $1.3 trillion compared to Nigeria’s $0.5 trillion. To provide some perspective, oil prices jumped from an annual average of $2.96 in 1970 to $13.95 in 1975 and then again to $33.86 in 1980. Instead of saving and planning for the future, Nigeria smiled to and from the bank. Oil prices later went down to $26.99 in 1985 and further down to $13.93 in 1986. It would be another 18 years after that before global oil prices returned to the 1980 level. By then, industry in Nigeria had already become indelibly dented.
Nigeria has always had what it takes to develop industrially, but it has consistently failed to do so because of poor policy choices which relegated the long-term.
Investment requires patience, and industrial development is a long-term goal. Nigeria’s abundant resources and growth opportunities have not translated into national wealth due to collective short-termism. To achieve industrial development, Nigeria must implement strategic policies that promote industrial exports, form industrial clusters, and invest in infrastructure and human capital. The comparison of Nigeria and Indonesia highlights the impact of policy choices on industrial development. To achieve industrial development, policymakers must prioritise the long term and elevate it as sacred.
Egbetokun is a senior lecturer at De Montfort University, Leicester, United Kingdom.