African Taiwan: Nnewi and the industrialisation of Nigeria
Prof. Kingsley Chiedu Moghalu Moghalu, former Deputy Governor, Central Bank of Nigeria (CBN) and a Professor of International Business and Public Policy, Tufts University, USA writes on the place of Nnewi, the commercial nerve centre of Anambra State.
I am a proud indigene of Nnewi, an ancient town in Anambra State populated by industrious and resourceful men, women and children, with a hereditary monarchy dating back over five centuries.
Is a town that has produced many of Nigeria’s most illustrious sons and daughters, men and women who have made sterling contributions to Nigeria’s economic and political development.
These giants, several of whom are now deceased, include Sir Louis Phillip Odumegwu-Ojukwu, the wealthiest Nigerian businessman of his era and the founding President of the Nigerian Stock Exchange; his world-famous son Chukwuemeka Odumegwu-Ojukwu, Military Governor of Eastern Nigeria and Head of State of the Republic of Biafra, and Dr. A.A. Nwafor Orizu, the Senate President of Nigeria in the First Republic.
Other Nnewi-born men and women of rare distinction include Francis Chuka Nwokedi, the first indigenous Nigerian to be appointed a Federal Permanent Secretary in the Nigerian colonial civil service in 1956 (Permanent Secretary, Federal Ministry of Labour) and who later served as Permanent Secretary in the Federal Ministries of Foreign Affairs and Defence in the First Republic; Dr. Chu S.P. Okongwu, who served variously as Federal Minister of National Planning, Finance, and Petroleum Resources; Dame Virgy Etiaba, the first female State Governor in Nigeria, and Engr. Ebele Okeke, the former Head of the Civil Service of the Federation. But this town of nearly half a million people is most noteworthy for its historical dominance of the automobile spare parts trade and its record and potential as an industrial hub in Nigeria.
This hub of real-economy economic production can become a theatre for the industrialization and economic diversification of the Nigerian economy.
Perhaps the greatest secret in Nigeria today is how, against all odds, Nnewi deployed a spectacular feat of backward integration to become a strong domestic industrial manufacturer of automobile and motorcycle spare parts and other products. Today, Innoson Motors locally manufactures vehicles of different types and is one of several Nnewi based or Nnewi indigene-owned companies in the vanguard of Nigeria’s nascent industrial revolution.
Nnewi: “African Taiwan”.
Nnewi is unique in Nigeria because the businessmen and women of this community have gone beyond the song and dance of platitudes about diversification and industrialization to do the deed in reality. Nnewi business people have walked the walk, not just talked the talk of industrialization.
They started industrialization on their own initiative as astute businesspeople. They did not wait for the government. But, as we will see as we progress in this discussion, the role of the government in industrializing an economy matters greatly. If Nigeria is truly seeking to industrialize its economy, why not build on what already exists in Nnewi?
Nnewi, an urban town of 72 square kilometers, was already a major commercial center by the 1920s. It began its journey to becoming an industrial hub in the period after World War II, when it became more competitive to trade by automobile transport between Nnewi/Onitsha and Port Harcourt than by river transport. In the 1930s, 1940s and 1950s, several Nnewi businessmen became transportation magnates.
The first generation of these included D.D. Onyemelukwe and J.C. Ulasi who operated from Aba, Sir. L.P. Odumegwu-Ojukwu, who was based in Lagos, and F.E. Okonkwo (“Okonkwo Kano”), who was based in Kano. The second generation of transport companies and their magnates appeared on the scene in the 1950s and 1960s. They included Ekene Dili Chukwu Transport founded by Chief A.E. Ilodibe, Izuchukwu Transport owned by Chief Ubajiaka, and Chidi Ebere Transport owned by Chief Lawrence Amazu. Later entrants included Ekesons Transport owned by Chief Eugene Ojukwu.
As a result of a combination of a high level of business acumen and political risk factors, chiefly the Nigerian civil war of 1967-1970 which caused a forced return to Nnewi of Nnewi-indigene traders previously located in all parts of Nigeria back to their hometown, Nnewi itself boomed as a spare parts market after the civil war.
This trading phase was dominant for the next decade after the civil war ended. Nnewi auto spare parts traders were importing parts from Japan in the 1950s and the 1960s.
By the 70s and 80s, Taiwan displaced Japan as the main foreign partner for Nnewi businessmen because Taiwanese manufacturers, to be competitive against Japanese products, offered lower prices and more flexible credit arrangements.
As foreign exchange problems hit the Nigerian economy in the early 1980s and importation became increasingly expensive, Nnewi businessmen migrated into local industrial production of auto spare parts and other products, initially with technological support from Taiwanese partners, onward to motorcycle assembly, and finally to full-scale manufacturing.
Between 1980 and 1995 several new manufacturing industries were established in Nnewi by indigenes of the town. Incidentally, many of these industries were not auto spare parts or related products.
These industries include Cutix Plc and Adswitch Plc, founded by Engr. Ajulu Uzodike, which manufacture electric cables and electric switchgears, several industries established by Chief Cletus Ibeto (manufacturing products ranging from synthetic marble to batteries, brake pads and linings) Armak (rice and maize processing), Intercontinental Feed Mills (animal feed), Chicason Industries, Ngobros Industries, and Innoson Vehicle Manufacturing (IVM) which manufactures complete automobile vehicles with up to 70 per cent local content.
While many of Nnewi’s industries have survived, without government support or patronage but only owing to their resilience, some have not. There are several reasons for this including self-inflicted injuries such as suboptimal management practices in what is mainly a family and kinship based business culture.
Today, industries and industrialists in Nnewi are stressed by severe macroeconomic headwinds in Nigeria, and several industrialists have reverted once again to importation, now mainly from China, in order to stay afloat. This trend is truly unfortunate and must be reversed.
The Odds against Industrialization in Nnewi
Industrialization in Nnewi has stalled as a result of several challenges that need to be addressed, each in a specific and targeted manner. These challenges include:
Infrastructure – roads, river/ seaports, power, water, telecommunications
Critical economic infrastructure in the country, particularly in the South-East Region, is in very bad shape. The few federal highways connecting to artery roads which should in turn link manufacturing firms are all in disrepair. There is no proximal seaport; the river port at Onitsha is shallow and dredging work is slow.
I need not recount the effect of poor power supply on our industries. Pipe-borne water for industrial use is hardly available anywhere around. There have been marked improvements in telecommunication coverage but the user costs almost eclipse the benefits.
Finance – adequacy and cost
Financial capital is highly rationed in Nigeria, leaving those who can access it to do so at exorbitant costs. Presently, the Monetary Policy rate is 14 per cent, average short term interest rates swing between 21 per cent per annum for prime financial institution customers to 28 per cent p. a. for others. Very few endeavours would generate sufficient returns to cover such costs of funds.
It is not uncommon to see agents of the federal, state and local tax authorities swoop on business residents to demand the same tax, levy or the other fees. Production activities are often disrupted for long hours while the premises are sealed off, with huge losses.
Foreign exchange – availability and rates
In the wake of the recent effective devaluation of the naira by about 50 per cent in the interbank market, let alone by about 100 per cent in the parallel market, many factories have closed and laid off staff as they can no longer keep pace with competition from foreign firms.
The continuing difficulties in accessing foreign exchange from the official and autonomous markets pose a serious challenge to industries in Nnewi. Prospective new manufacturers require foreign exchange to import machinery while the existing enterprises require foreign exchange for raw materials importation and this is not readily available.
The technology required to actively compete in today’s market place is in short supply in most industrial areas of endeavour. You will often find small cottage industries with obsolete facilities. The rapid rate of technological advancement globally appears not to be marched in Nnewi, resulting in stunted industrialization.
As businesses grow beyond the scope of management by family members, they make serious demands on the management capacities of the promoters. Less conservative promoters expand the length and breadth of management of the firms and bring in strategic alliances that assist in the day to day operation of the company.
As the business grows, the company may even consider listing in the capital market as Cutix Plc in August 1987 and today is one of the biggest electric wire manufacturing companies in Africa.
Different governments in Nigeria come up with different polices, with many of such policies being significant departures from those of preceding governments. This makes planning very difficult and stifles the sustainable growth of industries in Nnewi and elsewhere.
Inadequate institutional support
The plethora of agencies with the responsibility of ensuring the sustainable development of small and medium enterprises which Nnewi industries mainly comprise, have not lived up to expectation. As a people, we need to forge strategies to ensure that agencies like SMEDAN and Bank of Industry have their most vibrant offices in industrial hubs like Nnewi and partner closely with targeted stakeholders.
The Path to Industrial Rebirth in Nnewi
We know the problems. But it is important to think hard about what the solutions might be. In that context, there are two types of approaches. One is what the state (the government) should do. The other is self-help by Nnewi industrialists and their communities.
The former includes structural reform of the economy, and macroeconomic reforms, both of which no entity other than the government can achieve. The latter includes finance (which requires a combination of government and self-help actions), foreign investment, innovation for competitiveness, an embrace of modern management practices, and political bargaining to influence public policy.
Structural Reform and Industrial Policy
The most important step that will restore Nnewi’s industrial glory is the execution of structural reforms and a robust industrial policy by the Nigerian government, mainly at the federal level given the reality of the current constitutional structure, but also at the state level given that Nnewi industrial require feeder roads that are the responsibility of state governments. Structural reforms involve repositioning the Nigerian economy in a very fundamental manner.
This means new policy thinking that (a) emphasizes industrial manufacturing to turn Nigeria into a truly productive economy, based on the arguments I advanced earlier about why manufacturing matters, and (b) creating the physical infrastructure to support industrial manufacturing. All infrastructure matters, but power supply and transport infrastructure are obviously the most important.
The need for manufacturers to supply their own energy needs adds up to 40 per cent to the cost of doing business, and so industrial clusters such as Nnewi must become the number one priority in the federal government’s power strategy. Ethiopia has successfully prioritized built infrastructure for industrial areas as part of its industrial strategy that has seen that country making quantum leaps in manufacturing and economic growth at 11 per cent a year.
This kind of prioritization and disciplined execution is yet to happen in Nigeria. More broadly, Nigeria has attempted an industrial policy in recent times, in the form of the Nigerian Industrial Revolution Plan (NIRP) commenced by the Goodluck Jonathan administration in 2013.
Prior to this, apart from an emphasis on industrialization in the pre-Structural Adjustment Program (SAP) era in the 1960s, early 1970s and the early 80s, Nigeria has not articulated and followed a consistent policy of industrialization. The SAP placed unbalanced emphasis on capital as a factor of production, at the expense of labor.