Import substitution industrialisation, sheer nuts?, By Uddin Ifeanyi

A couple of years ago, it was not just that under import substitution industrialisation (ISI) coddled industries became inefficient and uncompetitive. Nor that a balance of payments crisis eventually came to be as the then-Third World countries enamoured of the policy in the 1950s-1970s saw their import bills dwarf their export obligations. Along with the burgeoning fiscal burden from nannying state-owned providers of the goods and services that this policy supported, these and many other reasons led, by the 1980s, to the jettisoning of ISI as development policy.

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What changed? China’s leverage of market-based solutions, leading to its emergence as a global economic powerhouse may have underwritten ISI’s demise. Conversely, in the interval since its emergence as a major participant in the global economy, China’s export of increasingly cheap, technology-enabled goods continues to threaten global industrial production, not least in what is now described as the Global South. Indonesia’s ban on the export of raw nickel ore which came into effect in 2014 (and reinforced 6 years later) is one response to the new global trade conditions. It appears to have boosted investment in nickel-smelting, battery-related and downstream industries, creating tens of thousands of industrial jobs in the Asian country.
With Nigeria accounting for about 40% of the global supply of shea nuts, is there a case to be made for the subsidisation by government of this market and its protection from competition, if not eventual nationalisation? The Nigerian government’s ban, late last month of the export of raw shea nuts seems to be premised on an affirmative answer to this question. The gap between being the world’s largest producer of shea nuts and then accounting for less than 1% of the billion dollars global market for shea products does suggest plenty of room for the Nigerian economy to create a self-sufficient internal market in the shea product space. If only it could develop domestic industries and reduce its reliance on manufactured foreign imports.

How do we transition from exporting raw nuts to exporting refined, high-value products like shea butter, oil, and other derivatives? It might help, first, to understand the contradiction between the large domestic capacity for shea nut production and the inability of domestic processors to operate at more than 50 per cent of their installed capacity. If supply of raw materials is not the problem, then a higher cost economy could be. Much of the domestic conversation about agricultural productivity falters on the huge quantities of post-harvest spoilage, because we lack adequate storage and processing facilities. The absence of regular power from the mains is a straw that the Nigerian industrial camel bears with equanimity but bears increasingly badly. The dearth of investment, one consequence of our high-cost base, could also be a hurdle, at least to the extent that our processors of agriculture commodities do not have installed equipment that deliver scale economies compatible with external competitors.

There is the additional worry that similar bans on shea nut exports imposed by Ghana, Burkina Faso, Mali, and Togo could cooperate with our porous borders to spur new, albeit informal export drives at the expense of the possibility of rural jobs creation, especially for women who comprise more than 90 per cent of the workforce on the shea value chain. In the near term, the policy is projected to generate US$300 million annually for the economy. With full implementation and value addition, that figure could rise tenfold by 2027, placing Nigeria firmly at the centre of the projected US$9 billion global shea products market by 2030. The ban, which is temporary and set to expire in six months, aligns with Nigeria’s Zero Oil Plan, which promotes non-oil exports, and resonates with legislative efforts like the Raw Materials 30 per cent Value Addition Bill, which mandates a minimum of 30 per cent value addition for eligible raw materials before they can be exported. To ensure that Nigeria’s refined shea products find markets, the government is negotiating preferential access to Brazil and other destinations within a few months of the policy announcement.

But this is where the similarities with Indonesia’s ban on raw nickel exports end. As primary input, nickel is critical to a large industrial base. At about US$6.5 billion globally, the shea products market is big but not strategically significant. As policy response, consider instead, the Ivorian example. In 2010, Côte d’Ivoire, the world’s biggest grower of cashew nuts exported nearly all of its produce. This is where the similarities with Nigeria’s shea nut production ends, though. Rather than impose a ban, the Ivorian government put incentives in place to boost investment in local cashew processing. About 15 years ago, it instituted a competent regulatory mechanism for the cashew nuts processing space, eliminated import duties on machinery for cashew nut processing, and paid a subsidy of 10 per cent of the export price or US$700 per tonne of processed kernels to exporters. By last year, Côte d’Ivoire was processing around a third of its cashew nuts.

Almost invariably, if not directly replaceable, Nigeria’s ban on the export of shea nuts could trigger a search for close substitutes in those countries that were export destinations before the ban. Nigeria not only faces porous borders, but it has also benefited from large-scale informal trade across its borders (90,000 MT of shea nuts leave the country illegally each year). Enforcement is well nigh impossible, at least, immediately. The temporary ban on Shea nuts exports success depends heavily on investment in processing infrastructure, enforcement against informal trade, and supporting favourable market access for refined shea products.