Role Of Competitiveness In Industrial Sector’s Participation In Global Value Chain

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Industry workers

Recent publications by the United Nations and a scoping study by the Raw Materials Research and Development Council (RMRDC), in collaboration with Joks Nigeria Limited and other stakeholders, indicate that the Nigerian economy faces the challenge of limited economic transformation and diversification. Reports show that specialization plays a fundamental role in the market economy through the division of labour and capital, and in today’s world economy, globalization of production and trade has created global value chains (GVC).

Various studies show that GVC integration improves industrial competitiveness through technology transfers and other types of learning. However, the development of a competitive national industry is also becoming increasingly important as competitiveness is a market mechanism that forces enterprises to measure up with each other in the production and distribution of goods and services at the best possible price and quality.

According to the chairman of Economic and Business Strategies (EBS), Dr. Magnus Kpakol, the issue of economic transformation of Nigeria through effective diversification into industry, manufacturing, and processing has taken centre stage in the country’s economic policy discourse for a long time. However, changing the status quo demands a change in the orientation of economic production structure in favour of value chain development along the lines of available resources, most especially as regards areas of comparative advantage, and integrating the chain with the global economy.

Kpakol posits that apart from the large-scale manufacturing outfits in Nigeria, most MSMEs in the country specialize in less dynamic and low- value-added domestic activities and trading in the global system. While the economy was relatively diversified in the 1970s with building and construction, wholesale and retail playing major roles in economic activities, there has been a reversal since the 1980s. Nigeria had a policy of backward integration in the 1970s, which led to the establishment of several industries that contributed to the manufacturing sector’s GDP and the participation of some of the companies in GVC.

“The importance of this to the Nigeria economy is numerous and highly compelling. First, value chain development has been proven to contribute to higher national economic growth since the mid-1990s through higher productivity gains, expanded economic activity and higher economic growth. Second, it has significant transformative effect on the economy and third, it builds competitiveness through improved logistics. Fourth, value chain has high positive effects on industrial development, technology transfer and skills upgrade. Fifth, value chain activities increase job creation, not only for activities directly connected to the chain but also to other peripheral remotely related activities. Sixth, GVC breaks the barrier of trade protectionism and promotes regional economic and trade integration. Seventh, it helps improve logistics performance that has been empirically proven to reduce trade costs, on the average, ten times more than the equivalent reduction in tariffs and lastly, it strengthens the trade-investment nexus,” he said.  

He also notes that structural transformation of the economy is possible through GVC development via industrialization, technology upgrade, the emergence of new ancillary activities, export diversification, and inclusive growth promotion. The Nigerian government has implemented policies to support GVC firms, such as the Agriculture Transformation Agenda and the Nigeria Industrial Revolution Plan, which aim to improve Nigeria’s competitiveness and generate additional manufacturing revenues. The National Automotive Policy is a major component of this plan.

“According to an African Development Bank economist, the current active support of the government through policies such as the Agriculture Transformation Agenda, specifically the Staple Crop Processing Zones, and the Nigeria Industrial Revolution Plan is creating momentum leading to the emergence of some GVC firms.   The expert further noted that while Nigeria is gradually undertaking steps to create staple crops processing zones, etc, it is also promoting the attraction of both domestic and foreign private sector investors; cost-reducing incentives of between 15 and 25 per cent are being provided with a promised internal rate of return ranging between 25 and 50 per cent. Some of the incentives being offered include fiscal and administrative support; land acquisition; infrastructure and real estate provision; and facilitation of supply security. Likewise, several state governments are already collaborating with the Federal Government by offering land to prospective investors.  

“Another important development that shows Nigeria’s gradual emergence as a GVC country is the articulation of the Nigeria Industrial Revolution Plan (NIRP). The broad goal of the reform is to improve Nigeria’s competitiveness and ensure that an additional N3.5 trillion to N5 trillion worth of annual manufacturing revenues are generated. It also aims at increasing the percentage contribution of manufacturing to GDP from the current level of 4 per cent to 6 per cent in 2015 and over 10 per cent at the end of the life of the Plan in 2017. The National Automotive Policy that aims to develop the automotive value chain in Nigeria is a major component of this policy. Its implementation has started in earnest with a gradual increase in duties on imported used vehicles. 

“One of the comparative advantages that the country has apart from its resource endowment is its large domestic market. Also, within the regional context, Nigeria has comparative and competitive advantages to mainstream into the regional value chain (RVC) and invariably, the global value chain.  According to the report of AU/OECD (2022), Regional value chains (RVCs) have the potential to complement Africa’s integration into global value chains and facilitate productive transformation,” he stated.  

Commenting on this development, the director-general of the Raw Materials Research and Development Council (RMRDC), Prof. Hussaini Ibrahim said the council in this context initiated a national strategy for competitiveness in raw materials and products development. 

He said the programme which has been approved by Federal Executive Council provides the implementation guidelines with eleven strategic foci, which were mostly used in the construction of the result-based Management Logical Framework of the Strategy. 

“The focal areas are regarded as strategic programme elements on which all the specific projects for 21 raw materials and products classification schemes from the 97 broad categories of harmonised system commodity codes (HS Codes) were based. The execution of the programme has commenced.  The successful implementation of the strategy would significantly impact import reduction potentials towards Nigeria’s competitiveness in raw materials and product development.   The design of the implementation framework is built on the principles of fact-based considerations, international best practices, verifiable indicators and coefficients of various two-way frequency matrices. It is, therefore, a Plan with great potential to guarantee success in growing Nigeria’s economy in the desired direction. 

“The implementation plan’s institutional framework has ‘The Presidency’ at the helm for directing the policy thrust and decision-making. Over 17 ministries, their departments and agencies (MDAs) are major stakeholders with specific mandates to play key roles in the implementation of the strategy and provision of support services. The National Assembly, Federal Executive Council and National Economic Council (representing the sub-national levels of governance) are involved in providing the much-desired enabling environment for fast-tracking project execution,” he said.

The RMRDC boss stated that the council has taken the responsibility to conduct the scoping study and provide a policy brief for a renewed approach to implement a value chain development strategy that can prioritize sectors with high potential for sustainable value chain development in Nigeria. The overall objective of the policy brief is to provide the framework to strengthen the competitiveness of Nigeria and enhance its integration into the regional and global value chains.  To consolidate these gains and tackle the remaining challenges, there is a need to articulate a national policy on value chain development, deepen reforms to further improve the business and regulatory environment, focus on areas of comparative and competitive advantages, promote public and private R&D investment and champion cross border trade within ECOWAS countries.

Nigeria’s large domestic market and regional comparative advantages position the country to participate in regional value chains and global value chains. Compliance with standards and technical regulations is of paramount importance for production and effective trade in goods, and the existing National Quality Infrastructure needs to be strengthened to provide acceptable evidence that products and services meet these requirements.

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