Buy Naija to Grow the Naira: Probably Pointless but Potentially Dangerous, By Nonso Obikili

Unless you are still living in an internet-free world, you have probably heard the phrase “buy naija to grow the naira”. Championed by Senator Ben Murray Bruce as the solution to the naira struggles and the key to the growth of manufacturing in Nigeria. The idea is that if we could all stop our unpatriotic tastes for foreign goods, and buy locally made goods instead, our economy would grow and we would all get jobs and be happy and so on.

To be clear there is absolutely nothing wrong with buying Nigerian. In fact, many, including me, have a soft spot for buying stuff made by someone we know. That being said, buying Nigerian will probably not lead to any significant improvement in the Nigerian economy.

Why?

Too many people but not enough demand

Nigeria is huge from a population perspective. At the last official count in 2006, there were 140 million Nigerians in Nigeria. Estimates put that number close to 180 million people in 2016, with a working age population of just over 100 million. We are many. Unfortunately, a big fraction of this population is poor. The poverty rate ranges from 33% to 62%, depending on which agency you want to quote.

So we are in a scenario where we have a lot of people who need jobs and sources of livelihood, but only a smaller number of people with the financial capacity to actually buy stuff. During peak growth in 2013, the economy could only generate about 1.2 million new jobs, according to the Nigerian Bureau of Statistics. To put that in perspective, about four million Nigerians entered the labour force between 2013 and 2014.



The relatively small demand is apparent once you start to look at statistics from various sectors of the economy. According to the Oxford Import Group, Nigerians imported only about 50,000 new cars and about 150,000 used cars in 2013. So even if we were to get all Nigerians to slap on their Nigeria badges and buy made in Nigeria cars, that would still amount to only 200,000 cars. The Ford plant in Chicago alone produces about 262,730 cars per year. So the entire Nigerian new plus used car industry would probably generate only enough jobs for one car assembly plant.

But it’s not just cars. In 2014, during peak oil prices, we imported about N162bn worth of paper-making materials, according to the Nigerian Bureau of Statistics. This N162bn included everything from finished paper, to cardboard to pulp; basically everything in the paper industry. So if we were to convert all that demand to local industry it would be about N162bn worth of stuff. International Paper, a paper and paper products company based in Tennessee, had sales of printing paper of about $5.7bn in 2014 from 17 plants. This comes to about $336m revenue per plant or about N55bn per plant. So converting the entire Nigerian paper imports to local industry will probably result in only about four plants. Side note: International Paper employs just over 50,000 people.

The message is the same across almost every industry. The domestic demand is simply not enough to generate the kind of manufacturing growth, and job growth, that is required to really move Nigeria forward. Again there’s nothing wrong with shifting that business to local industry but it needs to be very clear that fulfilling Nigerian demand alone is nowhere near enough.

Where is the real growth potential?

If the domestic industry cannot internally generate the kind of growth required then where should we aim at? The international markets of course. The fact remains that Nigeria still accounts for a really small part of global economic activity. As at 2013, Nigeria made up only about 0.8% of global GDP. So the obvious place to target is the foreign 99.2%.

The statistics in different sectors make this very clear. The entire car sales of about 200,000 are a fraction of the global new car sales of 82.8m in 2014. Toyota alone had revenue of $249bn in 2014, almost half of Nigeria’s GDP. Grabbing 1% market share from Toyota is worth more than the entire Nigerian new car industry.

We don’t even need to go as far as competing in the complete car segment. The global tyre industry is more than enough. The global tyre industry is worth an estimated $200bn, with leading players like Michelin having sales of about $20bn per year. Thanks to the luck of having the best climate for rubber, which is what tires are made of, we should be taking advantage of that industry. The gains from capturing even 10% of the global tyre industry is worth more than our entire domestic auto industry.

The message is simple and is replicated across many industries. The real growth potential for Nigerian manufacturing is in breaking into international markets. Not even to win, but just to participate. Breaking into international markets requires firms that are focused, motivated, and competitive.

Why is #BuyNaijaToGrowTheNaira potentially dangerous?



Which brings us to why the hashtag is potentially dangerous. We know, from our history, that such campaigns usually end in some kind of government action to force Nigerians to buy Nigerian products. Either through bans on imported stuff or by other indirect actions. What happens to these companies when they get guaranteed revenues and profits via government action? They get less competitive and less efficient. Which means they are less likely to break into international markets. After all the National Assembly in Nigeria has no power to ban products in China or India or Brazil.

An even worse scenario is when these companies get guaranteed business from the government, they turn into the so called ‘tenderpreneurs’ whose only goal is to win government tenders, forgoing the hustle required to enter foreign markets. After all free money from government is easier. The danger with this Buy Nigeria fervour is that it will lead to government action to force Nigerians to buy Nigerian, which is really counterproductive.

More useful government policy would focus on helping our firms break into international markets. Infrastructure, power, security, red tape are all things that need fixing and that can encourage our businesses to go global.

And no, there is no country that corners its local market before going international. So the idea of producing for the local market first before heading abroad is moot. The largest firms, from KIA to Samsung to Sony to Michelin, all had to compete with foreign firms locally. After all if you cannot win at home then you certainly cannot win abroad.

My suggestion: change the #BuyNaijaToGrowTheNaira hashtag to #ExportNigeria or the famous #ExportOrDie.

As an aside, what happens if we ‘grow’ the naira to N100 per dollar and a brand new Toyota Corolla costs N1.8m? Are Nigerians really going to buy a N2.5m Innoson instead of a N1.8m Toyota?

Nonso Obikili holds a PhD in economics and works as a researcher and consultant. He has published peer-reviewed articles in various international academic journals and blogs frequently on Nigerian economic issues. Follow him on twitter: @nonso2.