Nigeria and the challenge of industrialisation

The development of Raw Materials-Based Clusters is one of the core programmes of the Raw Materials Research and Development Council (RMRDC) towards attaining this laudable objective. This is aimed at ensuring that at least one raw material-based cluster is established in each of the 774 LGAs of the country. It is in recognition of the […]

The development of Raw Materials-Based Clusters is one of the core programmes of the Raw Materials Research and Development Council (RMRDC) towards attaining this laudable objective. This is aimed at ensuring that at least one raw material-based cluster is established in each of the 774 LGAs of the country. It is in recognition of the above that the Federal Ministry of Science and Technology (FMST) took the initiative of ensuring the adoption of the concept as a national development strategy to drive the Transformation Agenda of President Goodluck Jonathan.
Also, this RMRDC’s initiative has been expanded by the Ministry of Science and Technology (FMST) and tagged the “Ward Based Cluster Programme (WBCP)” to cover all the political wards in the country, which has since been approved by the Federal Executive Council (FEC).
 Globally, there is increasing awareness on the need for cooperation, collaboration, and synergy among other agencies. Policy makers and development economists are also zeroing in on cluster as a strategy, catalyst and veritable tool to grow national economy through innovation and creativity.
It is a fundamental truism that Nigeria is endowed with abundant natural resources which under a normal economy ought to translate into wealth for the nation. Ironically, Nigeria was until the past few years, rated amongst the 25 poorest countries of the world with heavy local and international debt burden and high level of unemployment. Today, the nation is still faced with unemployment challenges, low industrial capacity utilization and high poverty level.
These challenges, no doubt, call for urgent practical action as well as schematic and purposeful steps to ensure continual harnessing and development of the nation’s abundant resources for sustainable industrial and economic transformation.
 It is also true that global industrial growth depend on effective processing and conversion of agricultural and mineral raw materials into industrial inputs using appropriate technologies. Thus, if these raw materials are optimally harnessed and directed for processing and use by industries, they would no doubt contribute immensely to the actualization of the present Administration’s Transformation Agenda through Science and Technology and consequently lead to the realization of the nation’s economic development agenda.
 For instance, it will be recalled that the Federal Ministry of Science and Technology, through RMRDC and other Agencies of the Ministry, has over the years charted a new course for industrial development of Nigeria. They have developed technologies capable of transforming the nation’s economy through the provision of affordable houses, stable power supply, value added products as well as increased production and processing of natural resources among others.
 Therefore, to ensure an even spread and grass roots inclusive approach in national economic development, the deployment of these technologies for applications at the ward levels is imperative. As such, the implementation of the Ward Based Cluster Programme, at the pilot sites comprising nine (9) Wards selected across the federation has commenced. The Pilot Wards were selected for proof of concept in order to set the stage for its replication in other wards by stakeholders, particularly the private sector. These sites are to act as nuclei for the proliferation of related cluster activities in the states.
 In spite of the modest achievements so far recorded more can still be achieved with improved funding. Considering the multiplier effect of this laudable programme on the economy, provision of sufficient funds should be a priority of the Government.
But surprisingly, the strategies for financing these small and medium enterprises {SME} cluster has remained problematic. So the strategies to finance SMEs is no doubt crucial against the backdrop of the need to diversify the Nigerian economy with current dwindling fortunes of the oil economy, and the current level of unemployment in the economy via-a-vis the potentials of SMEs to create jobs. SMEs therefore is contributing in no small measure to national development by enhancing aggregate demand, creating employment, and have grass-root reach, which is vital for rural transformation.
Sadly enough, despite these benefits, Nigeria remains one emerging market economy that is yet to unlock the full potentials of the sub-sector owing to numerous and diverse challenges. The sector currently contributes a mere 1.0 per cent to gross domestic product (GDP) compared with 40.0 per cent in the Asian continent and about 50.0 per cent in Europe.
An IFC survey in 2010 showed that about 96.0 per cent of all businesses in Nigeria were SMEs, with manufacturing, which anchors our drive for industrialization accounting for 90.0 per cent. Finance alone contributes about 25.0 per cent to the performance of SMEs. 39.0 per cent of small and medium scale firms in Nigeria were constrained by finance. But funding SMEs has not being too attractive. It is in recognition of these constraints and the catalytic role of SMEs in national development that the CBN undertakes initiatives to improve the operating environment for these entities. Some of the most recent interventions of the CBN are: The N200.0billion small and medium scale enterprises guarantee scheme (SMECGS); the N200.0 billion restructuring/refinancing to the manufacturing sector; the N220.0billion Micro, Small and Medium Enterprises Development Fund (MSMEDF), amongst others. All these initiative were primarily aimed at addressing the financing needs of SMEs.
Over the years, Nigeria has tinkered with clusters as a means of fast-tracking industrialization, but it is regrettable that these clusters, though still in existence have not performed to their full potential because of inadequate financing strategies. In other words, the strategies should not only focus on availability of funds but also on accessibility. Most SMEs and micro enterprises do not have the requisite requirements to access funds, thus there is the need for the banking sector to develop an innovative financing scheme based on the cluster approach. The banks can creatively work with microfinance institutions. Under this framework, microfinance services are made available within the cluster area to facilitate the establishment of credit cooperatives run within the community. Government then provides funds which are channelled through assigned banks, under contractual basis, which is tasked with the responsibility of training and supervising the operation of micro credit.
Another strategy is the use of Business Development Support (BDS). Indonesia is a graphic example in cluster development through the use of BDS. The BDS providers are involved in a contractual partnership with the government to serve clusters for three years and, in exchange, government provided start-up capital to the BDS providers that would be paid back in the form of servicing targeted clusters within the period.
Most operators of SMEs do not have collaterals in real estate, so to improve this condition, innovative financing instruments that are not as dependent on real estate securities and third party guarantees should therefore be developed. For instance, asset-based lending and credit-score-based lending are promising alternatives to mortgage-based lending. These instruments will enable banks to expand their clientele base, especially among SME borrowers and reduce transaction costs.
Credit guarantees is another strategy that can be used to mitigate the risks associated with SME financing and enhance the bankability of SMEs that lack collateral.
Other financing strategies include supplementary services such as leasing and factoring which can be provided to credit cooperatives, credit unions, finance companies, post offices and non-governmental organizations (NGOs).
However, it is worthy of note that no matter how innovative the strategies for financing SMEs are, a conducive operating environment is a sine qua non. Therefore, appropriate government agencies should commit to providing a proper regulatory framework and thereby create enabling environment for SMEs to operate
Suleiman is an industrialist based in Lagos