Friday, July 25, 2008

Divesting From Nigeria

ONE of the few recent news items that should concern government and citizens alike is the increasing rate of divestment from Nigeria by leading multi-nationals in the petroleum and other sectors of the economy.
Dunlop, the last domestic tyre producer, and once one of the nation’s largest industrial conglomerates and employers of labour, intends to close shop. Only its imported products would soon be available, to serve the Nigerian market from more favourable economic climes.

Its major rival Michelin based at Trans-Amadi Layout in Port Harcourt folded up two years ago without notice because the nation was enjoying a crude oil price oil boom which made contributions from non-oil sectors almost dispensable to government. Moreover, governments in these parts have little time for industries and most of the productive sectors.

The causes of the closure remain the same and they will inevitably claim more casualties unless the Federal Government institutes urgent action to avert irreversible de-industrialisation of Nigeria. Dunlop like Michelin closed shop because it was unable to compete with imports the low tariff policy of government encourages and the escalating cost of doing business in Nigeria.

Collapsed infrastructure and increasing cost of generating power which the private sector bears are other factors. Even the promised declaration of emergency cannot cut the cost of energy inputs fast enough neither can road construction be speeded up in a way that would save companies such as Dunlop from profit erosion.

Closures of Dunlop (and Michelin before it) represent the inevitable consequences of policy options long ignored on account of the nation’s over-dependence on crude oil earnings. At the Nigeria Economic Summit Group workshop nine years ago, a presentation demonstrated that return to massive cultivation of rubber would not only save Nigeria billions of Naira in imported raw rubber but would generate foreign exchange revenue equal to that of crude oil by 2020. It would also make the price of locally produced tyre more competitive, save jobs and create other jobs because the benefits are multiplicative.

Almost a decade after, no government acted on that proposal. The closure of the two largest tyre manufacturers was a tragedy long foretold. Now, the nation will reap the consequences of ignoring viable and long term and sustainable projects while we continue to focus on crude oil which is probably approaching its peak before the decline starts.

Dunlop’s departure, whether partially or in full, would result in several hundreds of people being unemployed. Those over 45, with their education and experience, most probably will never be able to secure paid employment again, in a country where the same factors that shut down industries do not encourage entrepreneurship.

The closure of these industries are not acts of God –– as Nigerians are wont to suggest when they reap unpalatable results — it is the handiwork of governments from the 1970s to date.
Sadly, there are no indications that changes from the insipid past is an ambition of even the present government.