IMPACT OF ECONOMIC LIBERALIZATION POLICY ON THE PERFORMANCE OF THE NIGERIAN INDUSTRIAL SECTOR

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Economic progress and development have been closely identified with Industrialization since Industrial Revolution from late eighteen century. This thinking has continued to influence policy makers especially so in developing countries (Jomo, 1993). In an attempt to enhance industrial performance and economic growth the Nigerian government has, since independence in 1960, implemented various economic policies. Such policies include: the Import Substitution Industrialisation (ISI) Strategy in the 1960s; and the indigenization policy of 1972 which was reinforced in 1977 (Adenikinju and Chete, 2002; Mesike, Giroh and Owie, 2008; Agboli and Ukaegbu, 2006). These policies largely reflected government’s effort to directly control and coordinate economic activities in order to achieve macroeconomic goals.

The Import Substitution industrialization (ISI) policy was the first industrial strategy embarked upon by the Nigeria government immediately after attaining independence. The objectives of this policy among others include to lessen overdependence on foreign trade and to save foreign exchange by producing those items such as detergents, food, textiles, household appliances, etc. which were hitherto imported.

In 1972, the Nigerian Indigenization policy was adopted following the obvious failure of the IS strategy. The major objective of this policy was to strengthen the Nigerian economy by transferring ownership and control of enterprises formally wholly or mainly owned and controlled by foreigners to Nigerians, fostering widespread ownership of enterprises among Nigerian citizens, creation of opportunities for Nigeria indigenous businessmen, the encouragement of foreign businessmen and investors to move from the unsophisticated area of the economy to areas where large investments were more needed.

The 1972 Act that resulted in the indigenization policy was amended, repealed and replaced by the Nigerian Enterprises Promotion Act, in 1977. This Act gave birth to the indigenization policy of 1977. The 1972 Act contained II schedules, while the 1977 Act contained III schedules. Schedule I of 1977 contained 40 Enterprises, Schedule II contained 57 and Schedule III contained 39. In 1981 the number of Enterprises in each schedule was revised. By this, schedule I had 36 Enterprises, Schedule II, 576 Enterprises and Schedule III, 456 Enterprises respectively.

The Structural Adjustment Programme (SAP) was adopted in June, 1986 and it received the blessings of Breton Wood institutions. SAP was regarded as the universal recipe that would bring the desired transformation of the economy from agrarian to industrial. In particular, this policy came to being in order to right the weaknesses, and ineffectiveness of earlier policies. Its objectives include: to promote investment; stimulate non-oil exports; and provide a base for private sector led development; promote efficiency of Nigeria’s industrial sector; privatization and commercialization of public investment; develop and utilize local technology by encouraging accelerated development and use of local raw materials and intermediate inputs rather than depend on imported ones. The SAP induced industrial policies include interest rate deregulation, debt conversion (equity swap), privatization and commercialization policy and the new export policy incentive (Ndebbio and Ekpo, 1991). According to Famade (2009), this programme was pursued up to 1993. Although some aspects of SAP were abandoned between 1993 and 1998, the then government pursued what it called “guided deregulation”.

In 1989, Trade and Financial Liberalization Policy were enacted to foster competition and efficiency in the financial sector. It aimed at stimulating competition among domestic firms and between domestic imports competing firms and foreign firms. The objective was to promote efficiency, reduction in the levels of both tariff and nontariff barriers, scrap the commodity marketing boards and market determination of exchange rate as well as deregulation of interest rates, all in a bid to foster efficiency and productivity. The National Economic Reconstruction Fund (NERFUND) was setup in the same year as complementary institution to the industrial policy. NERFUND seeks to address the medium and long-term financial constraints experienced by small and medium scale entrepreneurs, provide the required financial resources to participating merchant and commercial banks to lend to small and medium scale firms and provide naira or foreign denominated loans to participating firms for a period of five to ten years with a three year moratorium.

Bank of Industry (BOI) established in 2000, was introduced as a development institution to accelerate industrial development through the provision of long-term loans, equity finances and technical assistance to industrial enterprises. The bank has the combination of the following institutions, Nigerian Industrial Development Bank (NIDB), Nigerian Bank for Commerce and Industry (NBCI), Industrial and Insurance Brokers (IDIB) and Leasing Company of Nigeria Limited (LECON). The objectives of this bank include providing long term loans, assist in employment generation and promote industrial dispersal indigenous entrepreneurship.

As a complement to the Bank of Industry, Small and Medium Industries Equity Investment Scheme (SMIEIS) was also setup in 2000. The objective was to assist in the coordination of the scheme with a guideline that 60 percent of the SMIEIS fund should go to core real sector, 30 percent to services, and 10 percent to micro enterprises through NGOs. The other objectives of SMIEIS include increased per capita income/output and initiating changes in the structure of business and the society through growth, increased output and employment opportunities, enhanced regional economic balance through industrial dispersal, moderate rural/urban migration, ease adaptation to local technology and promote efficient resource utilization.

As part of the efforts towards the implementation of Nigeria’s Industrial Policy, which focused on the competitiveness of the industrial sector, finance, technological advancement, incentives to industries, research and development, among others, the National Integrated Industrial Development (NIID) blueprint was adopted by the Federal Government of Nigeria in 2007. The NIID is a country service framework developed by the United Nations Industrial Development Organization (UNIDO) in collaboration with the Nigeria’s Federal Ministry of Industry and other stakeholders. The framework comprised four integrated programmes;

• Industrial governance and public/private sector partnership
• Strengthening industry’s institutional support base: a cluster development initiative to grow the Small and Medium Enterprises (SMEs) using common facilities.
• Environment and Energy: The challenge of low power generation and utilization to be addressed through rural renewable energy.
• Rural private sector agro-industrial development.

In addition, the Federal Government adopted the recommendation of the Presidential Committee on Revival of the Textile Industry in Nigeria with the approval of a N50 billion loan to the textile subsector. Efforts to boost the development of SMEs through the construction of one industrial park in each of the six geo-political zones of the country by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) continued. The parks would provide industrial plots with regular power supply, potable water, and sewage system.

To support this initiative of the Federal Government of Nigeria, the Nigerian Electricity Regulatory Commission (NERC) issued 14 new licenses in 2007 to private operators for the establishment of independent power plants with varied capacities and expected total output of 6,010MW. All the licensed power generating plants were gas-based. This brought the total number of licenses issued by the commission to 23, with expected total output of 9,152.0MW. Two new distribution agencies were also granted licenses to commence operation. (CBN Annual Report and Statement of Accounts, 2007)

In pursuance of these objectives, the government has experimented with a number of incentives aimed at positively influencing the performance and productivity of the industrial sector. Some of these incentives include tax holidays, tariff protection, outright ban on certain commodities to encourage domestic production, building of industrial estates (export processing zones) and Industrial Raw Material Research and Development Council (IRMRDC) etc (see Egwaikhide, 1997; Ayodele, and Falokun, 2003; and Udah, 2010).

From the above it is glaring that after SAP economic policies in Nigeria have been towards a market driven economy. Therefore the focus of this study is on the economic liberalization policy implemented in 1986 through the adoption of the structural adjustment programme and the successive reforms aimed at further liberalizing the economy.

Economic liberalization is a subset of globalization and it is multifaceted as it encompasses trade, financial, telecommunication liberalization, etc. According to Kareem (2009), economic liberalization entails freedom in the movement of goods and services across the border of the trading countries. Economic liberalization may be described as the freedom to engage in economic activity at home and/or abroad, a freedom subject to institutional and policy constraints needed to guarantee public interests at large.

While some scholars believe that liberalization does translate into substantial industrialization and economic growth, others believe that it leads to the development of underdevelopment and further impoverishment of peripheral nations in the unequal relationship it creates amongst nations, a situation which is referred to as the “Mathew effect” (Okowa, 2005).

1.2       Statement of the Problem