The economic policy of Nigeria is highly protectionist, with a fundamental flaw in its approach: one must first create the capacity to produce in a country before protection can be accorded.
The current policies of high tariffs and import restrictions reflect a flawed strategy of protecting an empty warehouse-scarcity creation without a resolution of the basic supply problem.
The cassava sector of the nation illustrates this fallacy. While Nigeria is the world’s largest producer of cassava, the country still imports its processed form because of her non-adequate processing capacity.
A 10 percent import tariff, along with other charges, simply raises the price without encouraging local production. A similar anomaly occurs in the leather industry: Sokoto’s high-quality raw hides are exported, only to be re-imported at a high cost as finished goods, attracting 20 percent tariffs while the manufacturing capacity at home remains low.
The power sector crisis is the number one factor against industrial growth; over 60 million active Nigerians, relying on power generators, hike the cost of operation to unaffordable levels, as such, scaring away investors from the country.
This verifies Okun’s Law – the connection between economic growth and unemployment – due to the high production cost that would suppress GDP and job creation rates. Meanwhile, the extremely lucrative generator business is actively opposing every power sector reform.
What is needed, rather, is a strategic shift from protection to enablement. Power sector modernization, renewable energy development, and industrial infrastructure building need to come before protective tariffs in Nigeria.
The experiences of Ghana’s “generator-free zones” and Brazil’s leap into renewable energy provide workable models of transformation.
While protective tariffs serve the cause of developed economies like the United States by protecting established industries, the context in Nigeria requires a different tack.
The priority should be to develop robust production capabilities through reliable power supply, modern infrastructure, and strategic industrial policies.
It is only such a foundation that will provide for sustainable economic growth based on actual production rather than artificial trade barriers.
This is a transformation that Nigeria should be making-smoothing out the inefficiencies in the power sector, investment in processing facilities, and generally making the environment ripe for manufacturing.
It will do, if one simply allows the premise: protection works only when one has something worth protection. The emphasis should, therefore, be on capacity building, attracting investments, and nurturing the local industries before protection.
“The way forward is, therefore, clear: build production capacity first, then protect.”
