Growing and Sustaining Investments in Rivers State

MANUFACTURERS ASSOCIATION OF NIGERIA, RIVERS STATE BRANCH
Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

PAPER PRESENTED AT THE 2010 ANNUAL GENERAL MEETING
2010
JONATHAN OLUSOLA ADENIYI, PLOT 25, PHASE II, BECKLEY ESTATE, LAGOS
2010
Table of Contents Section

1.0 2.0 3.0 3.1 3.2 3.3 3.4 3.5 3.6 4.0 4.1 4.2 4.3 4.4 5.0 6.0 7.0
Description
Theoretical Framework Background Information Industrial Competitiveness of Rivers State Industrial Structure of Rivers State Status of Industrial Structure
Page No
3 7 9 11 12 13 17 18 23
The Changing Nature of Industrial Competitiveness Impact of Information & Communication Technologies Global Changes affecting the Manufacturing Sector New Directions in Industrial Competitiveness Competitiveness of the Economy of Rivers State Concept of Competitiveness Pillars of Competitiveness Components of the 12 Pillars Global Competitiveness Index
24 26 31 37
Implications of Competitiveness Analysis for the State 39 Recommendations for Implementation by the State Suggestions for Manufacturers Association of Nigeria 41 48
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Growing and Sustaining Investments in Rivers State The Manufacturers Recipe 1.0 Theoretical Framework
The key words in the theme of this Annual General Meeting of Manufacturers Association of Nigeria Rivers State Branch are: Growing, Sustaining and Investments. Growing: Simply means or implies increasing physically (dimensions); materially (quantity); numerically (number) Sustaining: The Websters dictionary of English Language defines sustaining to mean preventing from falling, collapsing or giving way, enduring Investment: This is an economic term and in order to fully understand the concept, we need to delve into economic theory. Relevant Economic Terms Gross Domestic Product (GDP): This is the value of the aggregate production of goods and services in an economy during a given time period usually a year. GDP is calculated by valuing everything that is produced and adding all the values together. But precisely what is valued and how is it valued? To answer these questions, we need to understand two fundamental principles of economic accounting: the distinction between flows and stocks; the equality of income, expenditure and the value of production. Flows and Stocks: To keep track of our personal economic transactions and the economic transactions of a state, we distinguish between flows and stocks. A flow is a quantity per unit of time. Typical examples are the number of CDs that a person buys during a month and the amount of income that a person earns in a month. GDP is a flow. It is the value of the goods and services produced in the state during a given time period. A Stock is a quantity that exists at a point in time. Typical examples are the number of CDs that a person owns and the amount of money in the persons savings account. Capital and Investment: The key macroeconomic stock is capital. Capital is the plant, equipment, buildings and inventories of raw materials and semi-finished goods that are used to produce other goods and services. The amount of
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capital in the economy exerts a big influence on GDP. Two flows change the stock of capital: Investment and Depreciation. Investment is the purchase of new capital. It increases the stock of capital. (Investment includes additions to inventories.) Depreciation is the decrease in the stock of capital that results from wear and tear and obsolescence. Another name for depreciation is capital consumption. The total amount spent on adding to the stock of capital and on replacing depreciated capital is called gross investment. The amount spent on adding to the stock of capital is called net investment. Net Investment = Gross Investment - Depreciation Wealth and Saving: Another macroeconomic stock is wealth, which is the value of all the things that people own. What people own, a stock, is related to what they earn a flow. Income can be either consumed or saved. Consumption expenditure is the amount spent on consumption of goods and services. Saving is the amount of income remaining after meeting consumption expenditures. Saving adds to wealth, and dis-saving (negative saving) decreases wealth. The flows of investments and savings together with the flows of income and expenditure; which also equals the value of production. This amazing equality is the foundation on which a states economic accounts are built and from which its GDP is measured. Circular Flow of Income and Expenditure: The economy consists of four sectors; households, firms, governments and the rest of the world. It has three types of markets: resource, goods and services and financial. Household and Firms: Households sell and firms buy the services of labour, capital, land and entrepreneurship in resources markets. For these resource services, firms pay income to households, wages for labour services, interest for the use of capital, rent for the use of land and profits for entrepreneurship. Firms retained earnings profits that are not distributed to households are also part of the household sectors income. Firms sell and households buy consumer goods and services in the market for goods and services. The total payment that households
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make for these goods and services is consumption expenditure. Firms buy and sell new capital equipment in the goods market. Firms finance their investment by borrowing from households in the goods market. Firms finance their investment by borrowing from households in financial markets. Households savings flow into financial markets and firms borrowing flows out of the financial markets. These flows are neither income nor expenditure. Income is a payment for the services of a resource, and expenditure is a payment for goods and services. Governments: Governments buy goods and services called government purchases from firms. Government uses taxes to pay for the purchases. Net taxes are equal to taxes paid to governments minus transfer payments received from governments and minus interest payments from the government on its debt. Transfer payments are cash transfers from government to households and firms. When government purchases exceed net taxes, the government has a budget deficit, which it finances by borrowing in Financial Markets. Rest of the World Sector: Firms export goods and services to the rest of the world and import goods and services from the rest of the world. If net exports are positive, the rest of the world is in deficit, if net exports are negative, we are in deficit. To finance our deficits, we borrow from the rest of the world or we sell foreign assets that we own. How Investment is financed: Investment, which adds to the stock of capital, is one of the determinants of the rate at which production grows. Investment is financed by: National Saving Borrowing from the rest of the world National Saving: The amount of saving by households and businesses plus government saving is called national saving Borrowing from the rest of the world: This is required to pay for the excess foreign goods and services imported into the state economy.
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2.0
Background Information
Based on the above simplified theoretical framework, what is required to grow and sustain investment? The simple answer is to acquire new and replace fully depreciated stock of capital viz. Plants, equipment, buildings; and produce inventories of raw materials and semifinished goods. This is synonymous with growing and sustaining the economy of Rivers State as Investments are made in every sector of the economy. For the purpose of this paper, more emphasis will be placed on the Industrial/Manufacturing Sector. Industrialization is integral to economic development. Only in circumstances such as extraordinary abundance of land or resources have countries succeeded in developing without industrializing and rapidly growing economies tend to have rapidly growing manufacturing sectors. Not only is industrialization the normal route to development, but as a result of the globalization of industry, the pace of development can be explosive. The miracle economies of East Asia transformed themselves into industrial powerhouses within a generation, and the unprecedented pace of industrialization in China and India has lifted millions out of poverty. Twenty years ago, Qiaotou in China was a village. Today, it produces two thirds of the worlds buttons. The rapid unheralded growth rates of China and other economies in East Asia is as a result of taking some of the recipes, formulas and instructions of generating value that already existed in the advanced countries of the world and putting them to use within their own borders. It is the same process that the Japanese followed after the Meiji restoration at the end of the last century. These countries noticed that other people in the world knew a lot about how to create value and realized that by trading with the people who possessed all this knowledge they could share in the gains. Growing and sustaining investments in any economy therefore must be based on the following: How efficient are the industries? What do they produce? How do they dispose off what they produce? etc. Answers to these will be found by analyzing the Industrial Competitiveness of the organizations and the impact on them on recent developments affecting the manufacturing sector/industrialization (micro level competitiveness) Investments are made in an economy. What are the resources endowments of the economy that can initiate investments? What is the structure of the economy? Is the economic environment conducive to doing business? How the economy is managed especially assurances that investments are safe? etc. Answers to these questions will
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be found by analyzing the competitiveness of the economy of the State and the direction of growth as a result of changes in the world economy.
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3.0
Industrial Competitiveness of Rivers State of Nigeria.
Competitiveness means the ability to compete with firms at the international frontier of best practice. It must be recognized that it is firms that compete not nations. Firms have their own strategies for lowering cost, improving product quality and finding marketing networks. International competitiveness requires ready access to international inputs at close to world prices and a domestic market subject to competitive pressure, among domestic producers and between them and imports. Competitiveness is critical for sustainable industrial development. Firms develop their capabilities within different 'markets', using the term broadly, for example those relating to physical infrastructure, human capital, and finance, technology and cluster effects. However, due to the intrinsic failure of markets in critical areas, government support for firms has in some contexts proved to be an important component of the process of attaining competitiveness. Industrial competitiveness is measured by the Competitive Industrial Performance Index (CIPI) The CIPI measures respectively, the capability, and capacity, of countries to produce and export competitively, and helps assess national industrial performance in the global economy. It considers the four main dimensions of industrial competitiveness, namely: industrial capacity, manufactured export capacity, industrialisation intensity and export quality to explore industrial depth, complexity and competitiveness, in order to establish a means of benchmarking. The CIPI measures quantitative variables that concentrate on the manufacturing sector, covers country-level indicators of intermediation and innovative performance that affect the exports of the country as well as the value-adding dimension of manufacturing, at progressively higher levels of technology. In other words, the CIPI benchmarks the scale and scope functions of competing economies. Industry and firms are, therefore, involved in not only sales, or exchange of goods, but also in functions involving value adding. The value-adding (transformational) and transactional functions carried out by firms, lead ultimately in terms of agglomeration, to national performance. The exchange of goods therefore, can take place as intra-industry trade and/or trade between different economies. With increasing global trade, it is crucial to look at the pattern of goods exported in relation to value-adding functions which require, and augment, innovation capability. It is thus necessary for a firm, and hence an economy or country, to carry out both exchange and value-adding activities, in order to maximise their profit and also enhance their growth.
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The CIPI includes the following six crucial variables of industrial development: Value Added (MVA) per capita (MVApc) This is the basic indicator of a countrys relative level of industrialization, in terms of value as opposed to volume, and is deflated by population to adjust for the size of the country. The technological structure of production matters insofar as industrial growth and maturity invariably entail a shift of the production structure from relatively simple to higher order activities and complex technologies. Moreover, technologically complex activities offer other benefits or externalities namely: they tend to grow more rapidly in terms of the variety in production and trade; they have greater scope economies, learning potential and beneficial spillovers; and they help make countries more responsive to new technological demands Manufactured Exports per capita (MXpc) Exports indicate the relative capacity of countries to intermediate competitively with the global economy and, implicitly, to keep abreast of changing technologies. Share of MVA in GDP (MVAsh) This captures the relative role of transformational capability in manufacturing in the country in question. It points to the macro-level effectiveness of knowledge at work, the extent of innovativeness at the level of the economy and signals the extent to which economies of scope could be exploited. Share of Medium- and High-tech (MHT) Value Added in total Manufacturing Value Added (MHVAsh) This variable captures relatively the technological complexity of the transformational capability in manufacturing within the economy. It gives relevance to complex activities, on the grounds that these are desirable for long-term competitive performance and growth prospects. Share of Manufactured Exports in total Merchandised Exports (MXsh) The share of manufactures in total exports captures the role of manufacturing in export activity. To some extent, it reflects the ability to export, through intermediation, the value generated by the economy. Share of Medium- and High-tech Exports in manufactured exports (MHXsh) This variable captures technological complexity, the ability to organise for making more advanced products and hence to move - through scale (and scope) economies - into more dynamic areas of export growth.
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Based on the above measurement parameters, how industrial competitive is Rivers State? The answer to this will be deduced from the industrial structure of the State.
3.1
The Industrial Structure of Rivers State
The natural resources of the state have clearly delineated the industrial structure of the state. The industrial Structure of the State thus can be broadly categorized into three as follows: The Primary Industries; Secondary Industries; The Tertiary Industries The Primary Industries The Primary Industries comprise of agriculture, forestry, hunting and fishing. Agriculture Agriculture remains the bulwark of River State economy both in the short and long run. Activities in this sector are primarily at the artisanal or cottage level (mainly production at subsistence level). Large-scale commercial activities in this sector are literarily non- existing. The Secondary Industries The Industrial sector comprises mining, manufacturing, construction and electricity, water and gas. Oil and Gas is the dominant sub-sector. In this sub-sector, the state houses two petroleum refinery plants, a petro chemical complex (Indorama), a liquefied natural gas plant which is joint venture projects between the Federal Government of Nigeria and the major oil companies and a petroleum product based fertilizer company (NOTORE). Some of the multinational oil companies also have manufacturing facilities. A typical example is the Soku gas gathering and processing plant owned by Shell Petroleum Development Company (SPDC). There are also in existence many petroleum flow stations dotted on both the upland and the riverine areas of the state. The state can also boast of many thousands of kilometres of pipeline laid for both oil and gas. Many indigenous and Multinational Oil Service Organizations operate in the State. The state government is also in partnership with foreigners in: Port Harcourt Flour Mills Pabod Breweries Nigerian Engineering Works Limited RIVOC a vegetable oil refining plant The West African Glass factory set up to utilize the silica deposits
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The State is also at various implementation stages for the implementation of the following projects: y y y Sugar Factory at Ibaa in Emohua Local Government Area Fabrication of Solar Energy Panels Food Processing Complex
The State used to boast of many state-owned and private manufacturing organizations, which are now either moribund or in comatose. A lot of previously privately-owned viable companies like Michelin Tires, Crocodile Matchets have relocated from the State. Some have shut down their manufacturing facilities to open marketing outlets in other states of imported products previously manufactured in the State. In summary, it can be said that the state is deindustrializing. The state also has large deposits of kaolinitic and ferruginous clays which are yet to be fully exploited. Many construction companies are currently active in the State to execute the various Infrastructural development projects going on. The Tertiary Industries The Tertiary Industries comprise all other branches of economic activity. The most active Sector in this category is the Services sector. This is where majority of the Indigenous small and medium companies are active. To service the industrial structure, the state can also boast of the following: 3.2 Port Harcourt sea port; Port Harcourt International Airport; Onne Lighter Ocean Terminal and Export Processing Zone Facility; Many jetties owned and operated by the Federal Government and the oil companies; A network of roads linking Port Harcourt with major cities and other state capitals; Water transport facilities to link the riverine area of the state. This requires a lot of improvement on the part of indigenous owners to make their boats safer. Status of Industrialization The State is naturally endowed with resources that can easily be converted into finished products both for domestic consumption and exports. Unfortunately, the manufacturing component of the State economy is hovering around 4%. Many of the exiting operational companies use low-level technologies and are producing only for the domestic market. There is very low level of cluster development even though businesses offering same/similar
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services or producing similar products congregate in locations scattered all over the industrial landscape of the state. It must be said that there is no concerted effort to integrate the economic sectors outside the oil and gas sector. Despite the abundant and varied agricultural products in the state, there is no agro-processing facility except in most cases, small-scale oil palm processing, cottage level and small scale cassava processing, and crude fish processing. The extensive kaolinitic clay deposits are very much under-utilized and no concrete plan for their utilization despite the huge demand of washed kaolin as an industrial raw material. The implication of this non-integration is that the economy and hence the industrial characteristics of Rivers State is skewed too much towards the oil and gas industry and the activities in this area are left very much in the hands of foreign entrepreneurs. The remaining sectors, where the indigenous entrepreneurs have comparative advantage, are not relatively developed. It is therefore abundantly clear that the State is industrially uncompetitive and may not be able to attract new investments without a radical transformation of the industrial structure. This is where State Intervention becomes very important.
3.3
The Changing Nature of Industrial Competitiveness
Certain events that became obvious in the last three decades are affecting the way industrial firms react to their externalities. These events are modifying the nature of industrial competitiveness. The likely impact of these on the State will be reviewed in proffering optimal solutions to the problem of industrial un-competitiveness in the State. These are: 3.3.1 Globalization Globalization has brought about easy access to the regional and international markets as well as rapid process of innovation in products and technological processes, thereby altering the factors determining industrial competitiveness at the international level. The new circumstances of the regional and international call for transformation and upgrading of support structures and industrial enterprises in developing countries in order to take the advantages of globalization. Studies conducted by UNIDO and other international organizations show that structures, institutional infrastructure and industrial base created under the influence of excessive protection appear fragile and insufficiently competitive to cope with the very strong competition of industrial enterprises operating in the developed countries. Thus, beginning from the last decade of the twentieth century, the international economic environment has been marked by profound, rapid and complex change that has affected the modes of production, distribution and trade and organization in all industries.
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3.3.2 Trade Liberalization Trade liberalization and globalization (opening up of the economy) have been reflected, for most developing countries and countries with economies in transition, by their accession to the World Trade Organization (WTO) and signing of a number of regional and/or international preferential agreements. The new context, which offers the industries of the developing countries a major opportunity to obtain a foothold in economies of developed countries in particular, which represents the worlds largest market, however makes it imperative for developing countries to choose carefully the trade policy measures to adopt in removing trade protection and exposing their economies to competitions. For developing countries and countries with economies in transition, the main challenge of globalization is to determine how to take adequate advantage of the positive effects of liberalization and how to strengthen competitiveness of advantages in order to increase the production of products and services in accordance with the international market, increase exports and have a significant impact on the sustained growth and competitiveness of industry. Consequently, large enterprises are being increasingly decentralized or dismantled into smaller autonomous units of production, blurring the distinction between large and small enterprises.
3.3.3 Other Agreements likely to impact on Trade and Industrialization

African Growth and Opportunities Act (AGOA) It was established on October 2, 2001 by President Clinton of America through a proclamation designating 34 sub-Sahara African countries including Nigeria as beneficiary countries. The General Preferences of the AGOA was meant to strengthen US relations with African countries and provides incentives for African countries to advance political and economic reform and growth. The Act offers beneficiary duty-free and quota-free US market access for essentially products through the Generalized System of Preferences (GSP) program as well as security for investors and traders in African countries. The Act also specifically lifts all existing quotas on textile and apparel products from subSahara Africa. Nigeria up till now is not taking advantage of these trade incentives, yet many of its textile industries are moribund. The effort of the government to revamp this sector has not recorded any meaningful success.
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Everything But Arms (EBA) EBA was established in 2001 by the European Union with African countries at the same time AGOA was established. EBA is designed for countries in Africa classified as Less Developing Countries. EBA also based its rules on the traditional industrial policy model of encouraging vertical integration. It therefore required a very high share of inputs to be produced within each African country. During the period of AGOA and EBA, African export of apparel and textile to Europe actually declined in absolute terms. The impact of the EBA initiative has been confined to a few additional sectors beyond those already responding to preferences granted under the Cotonou Agreements between the EU and African Caribbean and Pacific Group of States. The fact that most countries in Africa failed to reap the benefits from trading opportunities in expanding markets and concessionary schemes, such as AGOA and EBA, suggests that market access can improve, but will not completely solve African lack of export dynamism resulting from the inability to prove compliance of potential export products with international standards, and problems with integration into multilateral trading. World Trade Organization (WTO) The outcome of the Uruguay Round of talks on International trade was the design of small donors window to help Less Developing Countries comply with standard of trade, but it is not yet comprehensive to enable them compete effectively in the global economy. The major outcome of WTO Doha negotiation process was Aid to Trade. Trade Ministers called on bilateral and multilateral donors to increase the resources for Aid for Trade at their Hong Kong Declaration of December 2005.This endorsement enhanced the Integrated Framework for Trade-Related Assistance to least developed countries. The focus is to help LDCs to build supply-side capacity and trade-related infrastructure that will help them implement and benefit from WTO Agreements. Rio Earth Summit The Rio Earth Summit was adopted in Rio de Janeiro, Brazil as far back as 1992. The major outcome of this summit was the world as a whole assumed responsibility for the protection of the environment. Prior to this development, the world felt a great need for a new pattern for industrial activities, as pollution from industrial activities depleted the ozone layer, contaminated the atmosphere, and became harmful to water and land resources and public health.
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The world needed cleaner techniques of industrial activities to avoid waste, self energy, use less of the earths limited resources and make the world a better place for all. Even with regard to competitiveness, the cost of compliance to the environmental friendly technologies is minimal in relation to the size of the industry. In years to come even the cost of compliance to environmentally friendly technology will reduce because those that are unable to meet environmental standard will be forced out of the market by enterprises that have adopted greener technologies. Nigeria/China Cassava Export Initiative Nigeria is currently the world's largest producer of the commodity with an estimated total production of 36 million metric tons. China is one of the worlds largest consumers of cassava products. In an effort to diversify the industrial base and sources of foreign income the Obasanjo administration in Nigeria entered into a bilateral trade agreement with China on Cassava Products with a projected yearly income of $5 billion (about N675 trillion) from the exportation of cassava products. Rivers State is one of the States in Nigeria adjudged to have comparative and competitive advantages in growing and processing of cassava in Nigeria. This is therefore an opportunity for increasing the export component of manufacturing value added. South-South Regional Economy Initiative The First South-South Economic summit took place between April 22 and April 24, 2009 in Tinapa, Calabar. The aim of the summit is to initiate establishing a regional South South economic bloc to take advantage of regionalization to overcome globalization. The South-South region is the geographical area in Southern Nigeria with six States of Akwa Ibom, Bayelsa, Cross River, Delta and Rivers. Together, these six States account for more than 95% of the income of Nigeria, from mainly oil and gas exports. The vision is to create a robust, competitive regional economy and target period of an initial ten years. The strategy is to put together common existing infrastructure and expanding same; create various scale of industry for the abundant oil and gas, mineral and agricultural resources in the region; facilitate adequate market structure; deal with insecurity regionally. The strategy will harmonize along the lines of the Niger Delta Regional Development Programmes. The Niger Delta Region of Nigeria comprises the six South-South States and three other States. Rivers State should therefore be at the forefront of encouraging the South South regional economy that was initiated in April 2009.
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3.4
Impact of Information and Communication (Knowledge-based) Technologies
The diagram below describes the positive impact of information and communication technologies on businesses.
Specialized Human Asset
CT
Value Creation/Growth
Innovation
CT
The diagram above shows that enterprises require up-to-date data on market trends and economic conditions as well as a broad range of technical information covering equipment and machinery, raw materials and spare parts to survive and compete effectively in todays competitive environment.
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3.5
Global Changes affecting the Manufacturing Sector
One change in the global economy has been due to the inexorable rise in the proportion of manufacturing output that is internationally traded. This has been assisted both by the reduction in trade barriers and the fall in long-term transport costs. Trade has become so central to manufacturing that it is no longer realistic to think of industrialization as fundamentally an internal process. An important consequence of the growth of trade in manufacturing is that the location of production has been shifting from developed to developing countries, a process that has gradually accelerated. However, this relocation has been highly concentrated. Asia, in particular China, has experienced explosive industrial growth, whereas in many middleincome countries industrialization has stagnated and Africa has remained marginalized. Not only are manufactured products traded, but the process of production is increasingly broken down into tasks that are themselves traded. Production is becoming less vertically integrated and the old image of raw materials entering one end of a huge factory and coming out at the other end as a final product is less and less applicable. Potentially, trade in tasks is a lifeline for countries yet to industrialize because it simplifies getting started. Instead of needing to acquire the entire range of skills necessary to produce a product all at once, manufacturing can start with specialization in tasks most suited to the skills available. A further change in the global economy of consequence for industrialization is periodic booms in the price of commodities. In low-income commodity exporting countries, such booms can be a springboard for manufacturing, as illustrated by historical trends in Malaysia and Mauritius. However, they can also lead to rapid de-industrialization. In addition to their implications for manufacturing, commodity booms are, of course, of direct consequence for the extractive industries. Changes in attitudes Industrialization and Poverty Reduction The international community has embraced a broad definition of development, one that is embodied in the Millennium Development Goals (MDGs). Is industrialization development-friendly? Does it contribute to the MDGs and, in particular, to the overarching goal of poverty reduction? Unambiguously, sustained rapid industrial growth normally leads to a significant reduction in poverty and, conversely, poverty reduction is extraordinarily difficult in the context of stagnation. But beyond this, manufactured exports from developing countries are usually labour-intensive, which also has a potentially equalizing socio-economic impact. As labour intensive
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manufacturing-based development proceeds it creates jobs and, in countries with strongly growing manufacturing sectors, such expansion can be spectacular. Ordinary people benefit both through opportunities for formal wage employment and through rising wages. Typically, formal wage jobs are more secure and better paid, and offer greater scope for skill accumulation than either self-employment or informal wage work. This may be particularly important for gender equity as labour-intensive manufacturing is a key source of wage employment for women. Where manufacturing does not develop, women have fewer opportunities to gain economic status. Industrialization and Climatic Change Awareness of climate change is shifting attitudes to industrialization because of the damage caused by carbon emissions. This can easily turn into a misplaced hostility to continued industrialization in developing countries. While it is true that the world cannot afford its past industrialization path to be replicated on a global scale, this does not imply that continued industrialization is undesirable. On the contrary, not only does industrialization play a vital role in development, but climate change can sometimes make it even more essential. Much of African agriculture will inevitably be adversely affected by climatic deterioration, driven by past emissions of carbon. For Africa, the key priority is adaptation. Since climatic deterioration does not affect manufacturing, part of the process of adaptation is for Africa to accelerate its shift from agriculture to manufacturing. Here industrialization is part of the solution rather than part of the problem. Even for the mitigation of carbon emissions, the pattern of industrialization is likely to be more important than its pace. There are large variations in carbon emissions between different industrial activities and between different technologies within an activity. The challenge is to offer incentives to firms that induce both changes in industrial composition and technology. There are strong reasons for building incentives and financing mechanisms that have a global reach, involving both developing countries and member countries of the Organisation for Economic Co-operation and Development (OECD). Some developing countries are already major industrial powers. Climate change is a global threat, and a condition for a globally efficient response is that the cost of reducing carbon emissions should be broadly equalized around the world. The shift of industry to developing countries could potentially reduce emissions. It is much easier for low-carbon technologies to be introduced when a plant
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is established, rather than retrofitting it. However, without proper incentives the shift could increase emissions, especially if firms relocate in order to escape regulation. (Carbon Trading rather than Emission tax is likely to be more effective) Export of Agricultural Products and Natural Resources versus Manufacturing The revolution in Brazilian production is finally taking tropical agriculture into the range in which economies of scale may be significant. However, with this exception, tropical agriculture has not harnessed economies of scale. Two basic physical differences between agriculture and manufacturing limit agricultures scope for economies of scale. Firstly, land is an essential input for agriculture but not for manufacturing and secondly, there are severe limits on the extent to which the growth of crops and livestock can be accelerated. There are no such limits for the production of manufactures. For a growing number of countries in the bottom billion including Nigeria, the main alternative to agricultural exports is natural resource extraction. However, this has proved a highly problematic route to development. While in the long term the income level of resource-exporters is higher than that of other countries, there is clear evidence of the resource curse in production. An increase in the price of commodity exports triggers a brief phase of output growth, but this is usually followed by a long period of decline, with output ending up below its initial level. While the resource-extraction sector itself generates income, it often undermines the rest of the economy. (Oil exports from Nigeria are a good case). Export agriculture and resource extraction share another disadvantage relative to manufactured exports: they expose the economy to shocks. This is because the price of commodities is considerably more volatile than the price of manufactures, notwithstanding the impact of the recent financial crisis on the global demand for manufactured goods. Volatility in turn exposes the economy to risks. Investment in the domestic market will be discouraged by the risk that demand will drop owing to a decline in income triggered by a fall in export prices. Over and above these general advantages of manufacturing relative to other sectors, there is evidence that in the small countries of the bottom billion, manufactured exports are likely to offer more scope for long-term productivity growth than either agriculture or natural resources. Research results have confirmed that resource extraction has left little legacy in terms of sustained development in resource-exporting countries.
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Whereas 30 years ago the dominant explanation for the apparent growth of resource rich countries was macroeconomic, now it is recognized that political processes shaping governance are probably more important. Both societies in resource-rich countries and the international community are concerned that past mistakes should not be repeated and, reflecting this new understanding, there is a new focus on good governance. Research has also confirmed that exporting firms raise the productivity of neighbouring firms. Of course, firms that are more productive tend to self-select into exporting. A possible explanation for why exporting is more beneficial in Africa is the radical difference in the size of the domestic market. In the small markets of Africa the market is not highly competitive, so a relatively efficient firm can afford to relax. Only when it is exposed to international competition will it have to struggle to keep up. In contrast, in the far larger market of China there is sufficient domestic competition so that exporting does not intensify pressure. Finally, and most crucially, both agriculture and natural resource extraction depend on the availability of land, and land is in limited supply. But development based on manufacturing exports can continue and indeed accelerate, leading the society to prosperity. In contrast, even if development based on agricultural exports or resource extraction is initially successful, it may hit natural limits well before prosperity is reached. Changes in understanding Industrialization has been taking place for some 250 years and from its infancy economists, starting with Adam Smith, have been struggling to understand the process. Surprisingly, in view of how long this work has been going on, there have been several major advances in the recent past. Inevitably, the details of these advances are complex, but a simple way of summarizing them is that industrialization is now recognized to be lumpy in products, space and time.
Product range One respect in which manufacturing is lumpy is in the range of products that are produced. What you make matters and the products most appropriate for a country to
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manufacture change over time. Change is necessary but is likely to be evolutionary. It is difficult to make large leaps from one type of product to another. Evolution can be thought of as a process of increasing sophistication. Product sophistication should be understood broadly to include not just the hard technology used in the production process, but also the soft technology used in all the necessary ancillary stages, such as design, logistics and marketing. However, now that manufacturing is dominated by trade, it is not necessary for every country to produce the same type of product. Successful low-income countries that have expanded their market share in unsophisticated products and it is the successful middle-income countries that have moved vigorously up the ladder of product sophistication. Location of production A second respect in which manufacturing is lumpy is in the location of production. To reap economies of scale, manufacturing needs to be concentrated. This is most obvious at the plant level: the very idea of a plant is to bring machinery and workers together in a single location. However, it also applies to the location of firms engaged in the same activity. By clustering together, similar firms reduce each others costs. Finally, economies of scale can also be generated by proximity to firms in other activities, such as can be found in large cities. These potent forces for agglomeration create tensions both within and between countries. Within countries, attempts to distribute manufacturing equitably between localities are liable to sacrifice efficiency and hence threaten viability. Between countries, those which already have concentrations of manufacturing are at a major advantage over those which have yet to industrialize. Timing and threshold of competitiveness The difficulties facing latecomers are highlighted by the final aspect of lumpiness, namely, time. Latecomers face a chicken-and-egg problem. Because they still do not have industrial agglomerations, they are unable to be competitive against countries that have. In effect, there is a threshold of competitiveness to be surmounted. Once that threshold is crossed, growth is explosive, because as the activity expands and the agglomeration grows, production costs fall. But until the threshold is crossed, industry is not competitive. It therefore stagnates or, if exposed to international competition, contracts. Industrial success in an activity thus tends to occur in a rush.
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3.6
New Directions in Industrial Competitiveness
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4.0
Competitiveness of the Economy
Competitiveness is what determines the productivity with which the endowments of a geographic entity (nation/region/state) are used to create goods and services. The competitiveness indicators explain the created wealth from productive economic activity that adds value to available labour and natural assets. 4.1 Concept of Competitiveness Competitiveness is the set of institutions, policies, and factors that determine the level of productivity of a geographical entity (country, region, state). The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. The productivity level also determines the rates of return obtained by investments in an economy. Rates of return are the fundamental drivers of the growth rates of the economy therefore a more competitive economy is one that is likely to grow faster over the medium to long run. The concept of competitiveness thus involves static and dynamic components: although the productivity of a country clearly determines its ability to sustain a high level of income, it is also one of the central determinants of the returns to investment, which is one of the key factors explaining an economys growth potential. 4.1.1 Measurement of Competitiveness The Competitiveness Index For hundreds of years, economists have tried to understand what determines the wealth of nations. This attempt has ranged from Adam Smiths focus on specialization and the division of labour to neoclassical economists emphasis on investment in physical capital and infrastructure, and, more recently, to interest in other mechanisms such as education and training, technological progress (whether created within the geographical entity or adopted from abroad), macroeconomic stability, good governance, the rule of law, transparent and well-functioning institutions, firm sophistication, demand conditions, market size, and many others. Each of these conjectures rests on solid theoretical foundations and makes common sense. The central point, however, is that they are not mutually exclusiveso that two or more of them could be true at the same time. Hundreds of econometric studies show that many of these conjectures are, in fact, simultaneously true. This also can partly explain why, despite the present global financial crisis, there are no necessarily large swings in competitiveness ratings, for example in the United States. (Financial markets are only one of several important components of national competitiveness).
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The new concept goes beyond factors production analysis used in the conventional economic modelling to consider other factors and parameters which have been considered globally to explain why some countries especially in the Far and South East Asia are growing and while Africa especially Sub-Saharan Africa is de-industrializing. The World Economic Forum has designed a measurement index based on the weights allocated to the factors and parameters. The Global Competitive Index captures this open-ended dimension by providing a weighted average of many different components, each of which reflects one aspect of the complex reality that we call competitiveness. These components are grouped into twelve (12) pillars of economic competitiveness. Lack of local data did not facilitate further disaggregation of the Nigerian data to determine the actual index for the State. However inferences for the State were made by using the Human Development Index (HDI) for the State. (HDI is a measurement of development developed by the United Nations Development Programme (UNDP)).
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4.2
Pillars of Competitiveness
BASIC REQUIREMENTS:
IN TITUTION

INFR TRUCTUR M CRO CONOMIC T BILITY H LTH & PRIM RY DUC TION

PLATFORMS
L B OUR M R K T F FICI N CY FIN N CI L M R K T O PH I T IC T ION

INNO
TION
M RK T IZ
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T CH NOLO IC L R

D IN
BU IN OPHI TIC TION

O OD M R K T F FICI N CY
INNOVATION & SOPHISTICATION FACTOR

COMPETITIVENSS
EFFICIENCY ENHANCERS
H I H R D UC T ION & TR ININ
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INTER-CONNECTIVITY OF THE 12 PILLARS OF COMPETITIVENESS )
EFFI IENCY ENH NCERS

First pillar: Institutions The institutional environment forms the framework within which individuals, firms, and governments interact to generate income and wealth in the economy. It plays a central role in the ways in which societies distribute the benefits and bear the costs of development strategies and policies, and it influences investment decisions and the organization of production. Owners of land, corporate shares, and even intellectual property are unwilling to invest in the improvement and upkeep of their property if their rights as owners are insecure. Of equal importance, if property cannot be bought and sold with the confidence that the authorities will endorse the transaction, the market itself will fail to generate dynamic growth. The importance of institutions is not restricted to the legal framework. Government attitudes toward markets and freedoms and the efficiency of its operations are also very important: excessive bureaucracy and red tape, overregulation, corruption, dishonesty in dealing with public contracts, lack of transparency and trustworthiness, or the political dependence of the judicial system impose significant economic costs to businesses and slow down the process of economic development.
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Second pillar: Infrastructure Extensive and efficient infrastructure is an essential driver of competitiveness. It is critical for ensuring the effective functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular economy. Well-developed infrastructure reduces the effect of distance between regions, with the result of truly integrating the national market and connecting it to markets in other countries and regions. In addition, the quality and extensiveness of infrastructure networks significantly impact economic growth and reduce income inequalities and poverty in a variety of ways. In this regard, a well-developed transport and communications infrastructure network is a prerequisite for the ability of less-developed communities to connect to core economic activities and schools. Third pillar: Macroeconomic stability The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country. Firms cannot make informed decisions when inflation is raging out of control. The government cannot provide services efficiently if it has to make high-interest payments on its past debts. Fourth pillar: Health and primary education A healthy workforce is vital to a countrys competitiveness and productivity. Workers who are ill cannot function to their potential, and will be less productive. Poor health leads to significant costs to business, as sick workers are often absent or operate at lower levels of efficiency. Investment in the provision of health services is thus critical for clear economic, as well as moral, considerations. In addition to health, this pillar takes into account the quantity and quality of basic education received by the population, which is increasingly important in todays economy. Fifth pillar: Higher education and training Quality higher education and training is crucial for economies that want to move up the value chain beyond simple production processes and products. In particular, todays globalizing economy requires economies to nurture pools of well-educated workers who are able to adapt rapidly to their changing environment. This pillar measures secondary and tertiary enrolment rates as well as the quality of education as assessed by the business community. The extent of staff training is also taken into consideration because of the importance of vocational and continuous on-the-job training for ensuring a constant upgrading of workers skills to the changing needs of the evolving economy.
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Sixth pillar: Goods market efficiency Countries with efficient goods markets are well positioned to produce the right mix of products and services given supply-and-demand conditions, as well as to ensure that these goods can be most effectively traded in the economy. Healthy market competition, both domestic and foreign, is important in driving market efficiency and thus business productivity, by ensuring that the most efficient firms, producing goods demanded by the market, are those that thrive. Seventh pillar: Labour market efficiency The efficiency and flexibility of the labour market are critical for ensuring that workers are allocated to their most efficient use in the economy, and provided with incentives to give their best effort in their jobs. Labour markets must therefore have the flexibility to shift workers from one economic activity to another rapidly and at low cost, and to allow for wage fluctuations without much social disruption. Efficient labour markets must also ensure a clear relationship between worker incentives and their efforts, as well as the best use of available talent irrespective of gender. Eighth pillar: Financial market sophistication The present global financial crisis has highlighted the critical importance of financial markets for the functioning of national economies. An efficient financial sector is necessary to allocate the resources saved by a nations citizens as well as those entering the economy from abroad to their most productive uses. It channels resources to the entrepreneurial or investment projects with the highest expected rates of return, rather than to the politically connected. A thorough assessment of risk is therefore a key ingredient. Ninth pillar: Technological readiness This pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries. In todays globalized world, technology has increasingly become an important element for firms to compete and prosper. In particular, information and communication technologies (ICT) have evolved into the general purpose technology of our time, given the critical spillovers to the other economic sectors and their role as efficient infrastructure for commercial transactions. Therefore ICT access (including the presence of an ICT-friendly regulatory framework) and usage are included in the pillar as essential components of economies overall level of technological readiness. Tenth pillar: Market size The size of the market affects productivity because large markets allow firms to exploit economies of scale. Traditionally, the markets available to firms have been constrained by
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national borders. In the era of globalization, international markets have become a substitute for domestic markets, especially for small countries. There is vast empirical evidence that shows that trade openness are positively associated with growth. Eleventh pillar: Business sophistication Business sophistication is conducive to higher efficiency in the production of goods and services. This leads, in turn, to increased productivity, thus enhancing a nations competitiveness. Business sophistication concerns the quality of a countrys overall business networks as well as the quality of individual firms operations and strategies. The quality of a countrys business networks and supporting industries, which are captured by using variables on the quantity and quality of local suppliers and the extent of their interaction, is important for a variety of reasons. When companies and suppliers from a particular sector are interconnected in geographically proximate groups (clusters), efficiency is heightened, greater opportunities for innovation are created, and barriers to entry for new firms are reduced. Individual firms operations and strategies (branding, marketing, the presence of a value chain, and the production of unique and sophisticated products) all lead to sophisticated and modern business processes. Twelfth pillar: Innovation The last pillar of competitiveness is technological innovation. Innovation is particularly important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous technologies tends to disappear. The Interrelation of the 12 pillars Although the 12 pillars of competitiveness are described separately, they are not only independent but they are related to each other. They also tend to reinforce each other. For example, innovation (12th pillar) is not possible in a world without institutions (1st pillar) that guarantee intellectual property rights, cannot be performed in countries with poorly educated and poorly trained labour force (5th pillar), and will never take place in economies with inefficient markets (6th, 7th, and 8th pillars) or without extensive and efficient infrastructure (2nd pillar). Although the actual construction of the Index will involve the aggregation of the 12 pillars into a single index, measures are reported for the 12 pillars separately because offering a more disaggregated analysis can be more useful to countries and practitioners: such an analysis gets closer to the actual areas in which a particular country needs to improve.
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The 12 Pillars of Competitiveness grouped into 3 Major Classes.
4.3
Components of the 12 Pillars of Competitiveness
BASIC REQUIREMENTS 1st pillar: Institutions................................................. A. Public institutions ................................................... 1. Property rights......................................................... 1.01 Property rights 1.02 Intellectual property protection1/2 2. Ethics and corruption................................................... 1.03 Diversion of public funds 1.04 Public trust of politicians 3. Undue influence.................................................................... 1.05 Judicial independence 1.06 Favouritism in decisions of government officials 4. Government inefficiency ..................................................... 1.07 Wastefulness of government spending
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1.08 Burden of government regulation 1.09 Efficiency of legal framework 1.10 Transparency of government policymaking 5. Security................................................................................... 1.11 Business costs of terrorism 1.12 Business costs of crime and violence 1.13 Organized crime 1.14 Reliability of police services B. Private institutions .................................................. 1. Corporate ethics ................................................................... 1.15 Ethical behaviour of firms 2. Accountability........................................................................ 1.16 Strength of auditing and reporting standards 1.17 Efficacy of corporate boards 1.18 Protection of minority shareholders interests 2nd pillar: Infrastructure........................................... A. General infrastructure............................................. 2.01 Quality of overall infrastructure B. Specific infrastructure ............................................. 2.02 Quality of roads 2.03 Quality of railroad infrastructure 2.04 Quality of port infrastructure 2.05 Quality of air transport infrastructure 2.06 Available seat kilometres (hard data) 2.07 Quality of electricity supply 2.08 Telephone lines (hard data) 3rd pillar: Macroeconomic stability....................... 3.01 Government surplus/deficit (hard data) 3.02 National savings rate (hard data) 3.03 Inflation (hard data) d 3.04 Interest rate spread (hard data) 3.05 Government debt (hard data)
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4th pillar: Health and primary education.............. A. Health........................................................................ 4.01 Business impact of malaria 4.02 Malaria incidence (hard data) 4.03 Business impact of tuberculosis 4.04 Tuberculosis incidence (hard data) 4.05 Business impact of HIV/AIDS 4.06 HIV prevalence (hard data) 4.07 Infant mortality (hard data) 4.08 Life expectancy (hard data) B. Primary education................................................... 4.09 Quality of primary education 4.10 Primary enrolment (hard data) 4.11 Education expenditure (hard data) 1/2 EFFICIENCY ENHANCERS 5th pillar: Higher education and training .............. A. Quantity of education ............................................. 5.01 Secondary enrolment (hard data) 5.02 Tertiary enrolment (hard data) 4.11 Education expenditure (hard data) 1/2 B. Quality of education ................................................ 5.03 Quality of the educational system 5.04 Quality of math and science education 5.05 Quality of management schools 5.06 Internet access in schools C. On-the-job training .................................................. 5.07 Local availability of specialized research and training services 5.08 Extent of staff training 6th pillar: Goods market efficiency ........................ A. Competition ............................................................. 1. Domestic competition.................................................. 6.01 Intensity of local competition 6.02 Extent of market dominance 6.03 Effectiveness of anti-monopoly policy
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6.04 Extent and effect of taxation1/2 6.05 Total tax rate (hard data) 1/2 6.06 Number of procedures required to start a business (hard data) g 6.07 Time required starting a business (hard data) g 6.08 Agricultural policy costs 2. Foreign competition ..................................................... 6.09 Prevalence of trade barriers 6.10 Trade-weighted tariff rate (hard data) 6.11 Prevalence of foreign ownership 6.12 Business impact of rules on FDI 6.13 Burden of customs procedures 10.04 Imports as a percentage of GDP (hard data) B. Quality of demand conditions................................ 6.14 Degree of customer orientation 6.15 Buyer sophistication 7th pillar: Labour market efficiency ......................... A. Flexibility .................................................................. 7.01 Cooperation in labour-employer relations 7.02 Flexibility of wage determination 7.03 Non-wage labour costs (hard data) 7.04 Rigidity of employment (hard data) 7.05 Hiring and firing practices 6.04 Extent and effect of taxation1/2 6.05 Total tax rate (hard data) 1/2 7.06 Firing costs (hard data) B. Efficient use of talent .............................................. 7.07 Pay and productivity 7.08 Reliance on professional management1/2 7.09 Brain drain 7.10 Female participation in labour force (hard data) 8th pillar: Financial market sophistication........... A. Efficiency .................................................................. 8.01 Financial market sophistication 8.02 Financing through local equity market
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8.03 Ease of access to loans 8.04 Venture capital availability 8.05 Restriction on capital flows 8.06 Strength of investor protection (hard data) B. Trustworthiness and confidence............................ 8.07 Soundness of banks 8.08 Regulation of securities exchanges 8.09 Legal rights index (hard data) 9th pillar: Technological readiness........................ 9.01 Availability of latest technologies 9.02 Firm-level technology absorption 9.03 Laws relating to ICT 9.04 FDI and technology transfer 9.05 Mobile telephone subscribers (hard data) 9.06 Internet users (hard data) 9.07 Personal computers (hard data) 9.08 Broadband Internet subscribers (hard data) 10th pillar: Market size ............................................. A. Domestic market size.............................................. 10.01 Domestic market size index (hard data)h B. Foreign market size ................................................. 10.02 Foreign market size index (hard data)i INNOVATION AND SOPHISTICATION FACTORS 11th pillar: Business sophistication ...................... A. Networks and supporting industries .................... 11.01 Local supplier quantity 11.02 Local supplier quality 11.03 State of cluster development B. Sophistication of firms operations and strategy 11.04 Nature of competitive advantage 11.05 Value chain breadth 11.06 Control of international distribution 11.07 Production process sophistication 11.08 Extent of marketing
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11.09 Willingness to delegate authority 7.08 Reliance on professional management 12th pillar: Innovation................................................ 12.01 Capacity for innovation 12.02 Quality of scientific research institutions 12.03 Company spending on R&D 12.04 University-industry research collaboration 12.05 Government procurement of advanced technology products 12.06 Availability of scientists and engineers 12.07 Utility patents (hard data) 1.02 Intellectual property protection
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4.4
Global Competitive Index (GCI) for Nigeria and by Extension Rivers State.
The World Economic Report for 2009 has computed an overall index and indices for each pillar for Nigeria. NIGERIA is ranked 94th this year (2008-2009). The countrys greatest area of strength remains the macroeconomic environment (ranked 26th), with windfall oil revenues contributing to large (although declining) government budget surpluses, and a high national savings rate. Nigeria also benefits from a relatively large market, allowing for economies of scale. In addition, its financial markets are quite sophisticated by regional standards (ranked 54th). On the other hand, the GCI shows that Nigerias economy is characterized by weak and deteriorating institutions (ranked 106th, down from 87th in 2006) including a serious security problem (125th)and poor assessments for its infrastructure (120th) as well as basic health and education (126th). In addition, the country is not harnessing the latest technologies for productivity enhancements, as demonstrated by its low levels of ICT penetration. The rankings show that Nigeria is not taking the opportunity presented by the windfall oil revenues to upgrade the populations access to basic health care and education, and to make improvements in other areas such as infrastructure. Movements in this direction would be critical to set the basis for sustainable growth going forward. Based on the above parameters, Nigeria is regarded as in Stage 1 of Industrial development, a factor driven economy and must therefore place emphases on improving the basic requirements viz. Institutions, Infrastructure, Macroeconomic stability, Health and primary education with major attention to institutions and infrastructure. Based on the Competitiveness, the following are the most problematic factors of doing business in Nigeria and by implication Rivers State: Inadequate Infrastructure Access to financing Corruption Policy instability Inflation Crime and theft Poor work ethics of labour force Inefficient government bureaucracy Rapid changing administrations (resulting from election petitions/inefficient electoral process) Inadequately educated workforce
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Techniques of collection taxes Multiple taxation Poor public health Dual foreign exchange rates (official and unofficial (black market)) Eliminating or reducing significantly these factors will form the basis for the upgrades to existing institutions or establishment of new institutions; crafting of appropriate commercial and industrial policies and factors that will enable the State to leapfrog competition and improve her competitiveness index. This will position the State to be the number one investors destination not only in the South South Region but also in Nigeria. The State will be the number one state in Nigeria to:
y y y
Attract new businesses Retain and expand existing/new businesses Create new businesses
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5.0
Implications of Competitiveness Analysis for Rivers State.
Analyses of the industrial and economic competitiveness of Rivers State point to the need for structural changes at both the firms and the state level if the state hopes to attract new and sustain investments. Economic distance is shrinking, driven by technical progress in information processing, transport and communications. This means that international competition now appears quickly and intensely but also that there are many new market opportunities. Rapid technical change pervades all activities, rendering older technologies obsolete. Enterprises have to use new technologies to remain viable (new 'technologies' include not just products and processes but also organisation of firms, supply chains, human resource development, and technology links and so on). The State has to undertake constant technological effort to create or access, absorb and adapt new technologies. The ability to compete depends vitally on the ability to move up the technology scale in all activities, including services. The State must develop and implement concerted growth-oriented competitiveness strategy supported by appropriate competitiveness policy to shift the economy, its human capital and technology base, its institutions and infrastructure from a low to a high competitiveness path. The essence of a competitiveness strategy is to: promote in-firm learning, skill development and technological effort; improve the supply of information, skills and technology from surrounding markets and institutions; and coordinate collective learning processes that involve different firms in the same industry, or across related industries popularly known as 'clusters', geographical or activity-wise. The need for a competitiveness policy arises when any of these 'markets' fails to function efficiently. The experience of the 'Tigers' of East Asia indicates that coherent and carefully crafted policies can accelerate shifts in competitiveness and promote entry into very complex and high technology activities. High technology activities have grown faster both in terms of production and trade than other manufacturing activities (and trade has grown faster than production, indicating the increasing internationalization of industry in all economies). Not only are technology-intensive industrial activities more dynamic, they tend to offer greater potential for sustained learning and productivity increase, more spillover benefits to other activities and more scope for foreign direct investment (FDI) in integrated production systems that offer enormous export possibilities. All production and export structures are not, in other words, equal in terms of promoting industrial growth and competitiveness.
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This does not mean that low technology and resource-based products should be neglected in competitiveness strategy. On the contrary, such products are the starting point for building industrial competitiveness in the State. The 'bottom line' of competitiveness is to upgrade technologies in all activities, building new capabilities and finding new markets and market niches. These will be achieved by creating new primary jobs that pay more than the prevailing wage, increasing the amount of income coming into the State from outside its market area, and creating greater capital investment in the State. The strategy is to achieve this in a number of diversified industries by synergizing and coordinating all economic development activities and programs within the State under one umbrella. This mission is critical to reduce duplication of efforts and prioritize limited resources.
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6.0
Recommendations for Implementation by Rivers State The major assignment before the State Government is industrial renaissance. This is creating a more conducive and more attractive business environment that will lure a mixed breed of new companies especially knowledge-based and scientifically oriented companies to come into the state thereby creating primary jobs that will fast track the growth of the economy of the State. This will be achieved by implementing the following:
Providing a mechanism for easy access to project financing

The State needs to transform the industrial landscape. Internally Generated Revenue (IGR) is unlikely to be sufficient to provide all the supporting economic and infrastructure facilities to achieve this. Moreover, the revenue to the State from the Federal Collectible Revenue varies because of the uncertainties in the Oil Market. This means that the State needs a funding strategy suitable to meet the challenges of competitiveness. Government should downplay its leading role as a major investor in the manufacturing sector. The objective of rapidly transforming the State into a major industrialised economy now hinges critically on the private sector playing the leading role in investment, management and development. Emphasis has been on the microfinance sub-sector and efforts are currently on to develop a microfinance scheme that will be market oriented and not just for poverty alleviation. Despite the fact that the State is the second largest state economy in Nigeria, there is no commercial/universal bank that has her beach head in the State. The attraction of local and foreign capital into the state is crucial to the attainment of high level of competitiveness. Foreign Investors can take advantage of new opportunities arising as a result of the restructuring of the economy. The high credit rating accorded the State by International Rating Agencies like Fitch, Standards & Poor and implementing privatisation policies and rewarding returns on capital investments are all factors which will combine to enhance the flow of foreign capital into the State. Therefore Government should initiate the implementation of a Private Sector managed Investment Institution christened Rivers State Development and Financial Corporation (RSDFC). RSDFC will be a partly private, partly public corporation. Through RSDFC, the banking community active in the State will be brought into the drive to engineer an industrial and economic renaissance. Creative forms of financing
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for new business ventures are expected to come into the financial services product mix of the Corporation. Mandate of Rivers State Development and Financial Corporation o Sourcing for long-term and foreign funds for accelerated development of Rivers State o Making low-interest loans to businesses willing to make improvements consistent with the competitive strategy and policies o Accelerating the Development and Commercialization of Indigenous Technology and/or adapting Imported Technology to wider domestic application by: y y Providing financial assistance in the form of Soft Loan, Equity or Grant Developing linkages between R&D institutions and Industry for catalyzing the adoption of innovative technologies o Be the financial hub of the State for Internal and External Investment Funds coming into Rivers State. o Liaise and collaborate with Rivers State Indigenes in Diaspora, other financial institutions world-wide to promote investments in Rivers State. Detailed Natural Resources Survey of the State. This survey goes beyond Resource Mapping. One of the outputs of this exercise is the States Economic Development Plan with Sub-sectoral Plans with emphasis on non-oil & gas resources. It has the following potential uses: o o Bases of any Economic/Industrial Development Plan for Areas; Bases for the Planning and Implementation of Community-Based Initiatives using the abundant raw materials available in each community; o Identification of resources that can be subjected to value-added processes for improved revenue generation through exports or more widely national distribution; o Bases for identifying growth centres and growth poles for spatial development. The state needs to identify industries (Creative, Micro and Small-scale) that will serve as growth poles in resource rich rural and semi-urban communities (growth centres). These industries will be based on the natural factor endowments of the communities and will provide needed employment opportunities that will stem this trend. Growth centres and growth poles will enhance spatial integration in development, and minimize rural urban gaps and swamp- land inequalities;
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Bases for the production of an Investment Potential Document of the area, which can then be made available to institutional investors and high net worth individuals; Bases for discussing with, and encouraging multinational companies operating in the area to have industrial projects on a joint venture basis with the communities and local government area. This will definitely have a multiplier effect on the economy of the area; and Bases for material for a sensitization workshop on Industrialization Action Plan for the local Government Area.
Full digital mapping and Enterprise Geographical Information System Mapping of the State. This is beyond the current RIVGIS project. This is required to provide data in a geo-reference format for easy retrieval by potential investors.
State Infrastructure Needs Survey

Definition of Infrastructure is based on the U.S. National Research Council panel on Infrastructure by adopting the term "public works infrastructure". This refers to: Both specific functional modes - highways, streets, roads, and bridges; mass transit; airports and airways; water supply and water resources; wastewater management; solid-waste treatment and disposal; electric power generation and transmission; telecommunications; and hazardous waste management - and the combined system these modal elements comprise. A comprehension of infrastructure spans not only these public works facilities, but also the operating procedures, management practices, and development policies that interact together with societal demand and the physical world to facilitate the transport of people and goods, provision of water for drinking and a variety of other uses, safe disposal of society's waste products, provision of energy where it is needed, and transmission of information within and between communities."
For planning towards the State competitiveness, housing, health and education infrastructure needs will also be included in the Survey. One major output from this survey is the States Infrastructure Development Plan. The rationale
for this plan is based on the following: o Preponderance of small settlements in the State with population between 1,000 to 5,000 people. This makes the holistic approach to economic development based on urbanization and population impossible because of
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insufficient population to support economy of scale. There may therefore be the need to identify growth centres that will be the centre of development efforts for neighbouring communities; o High level of rural-urban migration with serious consequences including environmental degradation, overcrowding, spread of communicable diseases, poor sanitation, pressure on transportation and food insecurity. o Inadequate transportation structure with movement and access to settlements being hampered by a poor road network and difficult conditions especially in the riverine areas; o Absence of electricity supply in many riverine areas and regularly interrupted supply across all areas; o Poor telecommunications network (GSM services is improving this however service quality is poor in many areas) ; o o A shortage of land for development; Ineffective waste management and inadequate sanitation facilities.
Implementation of the State's Commercial and Industrial Policies. A document incorporating all these policies and implementation strategies has been put together by the State Committee on Industrial Policy Formulation and Sustainable Development Roadmap. The government should quickly review this document and come out with the government white paper on its implementation. Implementation of commercial and industrial incentives. This is necessary to encourage organizations to come and establish in the state Encouraging attitudinal change in the people of the state especially the youths change from an era in which youths besiege operation sites and company offices to demand settlement, to an era driven by the dignity of labour and industry. Heavy investments in relevant human capital development suitable for industries. Unless the culture of industry and resourcefulness is promoted, it will be very difficult to create an environment for industrial competitiveness and transformation. This will cover the following: o The overhauling of school curricula across all levels to reflect the development priorities and challenges of the state; o o The development of reading lists in primary and secondary education; The upgrading and provision of requisite infrastructure in schools, including vocational and non-formal education centres;
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Adequately funded training for primary, secondary, technical or vocational, and adult education teachers; Literacy programs for disadvantaged youths; Programs to improve the relevance and skills of the workforce, to increase productivity; Entrepreneurship Training Help youths prepare for entering the workforce; and Regular awareness campaigns on livelihood and economic empowerment issues.
o o o
o o o
Restructuring and Upgrading of all government-owned commercial oriented organizations. This is in preparation for implementation of a full-blown privatization policy. There are about twenty three organizations in primary, secondary and tertiary industrial sectors that are in this category. Revamping those in priority areas that will enhance the State economy will jumpstart the re-industrialization of the State. Restructuring and Upgrading of Private Sector Organizations. This is recommended as a State Intervention Strategy to enable existing organizations in the State to reposition themselves for industrial competitiveness. Technological upgrading of Industrial Organizations. government-owned and private sector organizations. Identify Business Clusters and encourage their growth. This should include all sectors in which the State has comparative and competitive advantages. This should include but not limited to Agribusiness, Solid/liquid mineral processing, Traditional Arts and Crafts business clusters for cane/rattan furniture, Mat weaving, Pottery and Ceramics and Basket weaving This should cover both
Harmonization of the tax system to minimize and/or abrogate arbitrary and predatory taxation and levies by Local Governments. Tax rates must be competitive with other States of the Federation Implementation
of a Privatization Policy. This will cover not only industrial/manufacturing activities but also those activities of Ministries, Departments and Agencies that have economic benefits.
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Implementation of Supporting Institutions/Organizations that will sustain growth.

These institutions will be set up with the objective of being self-sustaining over time by charging fees for services rendered. Some of such institutions include but not limited to the following: o Natural Resources (non-oil and gas) Management Agency. This Agency will have responsible for the management of the States non-oil and gas resources endowment. This is required to prevent over-exploitation and utilization that may lead to environmental damage; o One Stop Investment Information Centre that will provide all necessary information and documentation required for starting a business in the State. Such a centre will assist investors to get necessary approvals to minimize time for processing relevant documents. o Rivers State World Trade Centre that will offer Commercial and Industrial Information Service It will also house an E-Commerce Portal and Trade Capacity Building Facility o Consumer Protection Council (CPC) to guarantee free and fair practices in delivery of goods and services o Weights and Measures Service. This can be done in collaboration with Federal Ministry of Commerce and Industry to ensure implementation of standards o Technology Assessment, Evaluation and Deployment Centre. This centre should have a Commercialization of Research and Development Unit o Anti-Competitive Practices Unit in the States Ministry of Commerce and Industry to forestall anti-competitive practices amongst business organizations. A good example is standardization of signage and advertisement of billboards o o Permanent Trade Fair/Exhibition Centre Commodity Exchange which will serve as a clearing house for agricultural commodities and agro-processing companies o Special Economic Zones Development Agency. This agency will be responsible for designing, developing and managing Industrial Estates/Parks based on Industrial Ecology principles with in-built resource recovery facility to ease access to land for setting up businesses.
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Subcontractor Exchange and a Small Business Development and Information Centre. This centre will provide necessary support and information to micro and small businesses to facilitate their growth. Technology and Business Incubators in selected locations in the State. Specific ones can be set up for the Crafts and other Culture-based Industries Industrial Design Centre Materials Testing Centre Metal Fabrication and Machine Tooling Operations Centre with associated facilities to assist in production of replacement of machine spare parts
o o o
Develop a longer range plan to attract various forms of investment
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7.0
Suggestions for the Manufacturers Association of Nigeria
Members of the Manufacturers Association of Nigeria Rivers State are likely to be the major beneficiaries of the new investments especially in machinery and equipment. In order for this investment to be made and also for their sustainability, the following are recommended: Co-operate with the State Government in the implementation of Competitive Strategy and Policies that will improve the Industrial Competitiveness of the State. Sensitization of members of the Association on the concepts of Industrial Competitiveness and measurement of and Competitive Industrial Performance Index (CIPI). This can be achieved by organizing a Workshop/Conference in which it will be mandatory for all members to participate; Produce products that meet international standards in all ramifications (raw materials used, processes and process technologies, packaging etc). Products for export have to comply with a myriad of technical standards and health, safety and environmental requirements set by importing countries. These problems are addressed in the two key WTO agreements on technical barriers to trade (TBT) and sanitary and phyto-sanitary measures (SPS). Members of MAN must therefore build their capacities in the following areas: o standards, metrology, testing and accreditation to overcome TBT/SPS constraints; o o quality and productivity improvements, and supporting the development of mechanisms to assist them in accessing global subcontracting and supply chains and networks Restructuring Operations in line with the new direction of industrial competitiveness. This should cover management systems, production processes/technology, partnership arrangements (micro-restructuring); Co-operate with each other while competing to establish business clusters and networks; Encourage development of growth oriented SMEs through backward linkages and subcontracting; Collaboration with Universities, Tertiary Institutions and Research Institutes engage in research and development activities to commercialize research results. MAN can initiate an annual Science and Technology Fair in which Research results are showcased and those that can be commercialized are identified for follow-up and funding.
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Growing and Sustaining Investments in Rivers State

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MANUFACTURERS ASSOCIATION OF NIGERIA, RIVERS STATE BRANCH

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

Table of Contents Section

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

Industrial Competitiveness of Rivers State of Nigeria.

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

The Industrial Structure of Rivers State

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

The Changing Nature of Industrial Competitiveness

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

3.3.3 Other Agreements likely to impact on Trade and Industrialization

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

Impact of Information and Communication (Knowledge-based) Technologies

Specialized Human Asset

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

Global Changes affecting the Manufacturing Sector

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

New Directions in Industrial Competitiveness

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

Competitiveness of the Economy

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

OL USOL A ADE NIYI, PL OT 25, BE CKLE Y E STATE , L AGOS

Growing and Sustaining Investments in Rivers State The Manufacturers Recipe

L B OUR M R K T F FICI N CY FIN N CI L M R K T O PH I T IC T ION

Providing a mechanism for easy access to project financing

State Infrastructure Needs Survey

Implementation of Supporting Institutions/Organizations that will sustain growth.

Develop a longer range plan to attract various forms of investment