Besides cost-cutting, diversification of revenue sources should be at the front burner of any struggling economy. The lingering macro challenges caused by the current global oil price regime should stimulate economic activity around segments of the economy which are largely untapped. First, this will assist with trimming the country’s heavy import bill. Second, it will help generate jobs, thereby enhancing household pockets. Finally, it will boost exports.
The “Grow the economy: support the naira” anthem has become familiar. Despite operational challenges, there are a few “cash cows” that stick out. These include agriculture, manufacturing, human capital, petroleum and petrochemicals.
Petroleum and petrochemicals is an industry that is severely under-utilised. Despite being a leading producer of crude oil, Nigeria is import dependent on plastics, paint and textile which are derivatives of petrochemicals. Industry sources suggest that the country’s petrochemical market is worth US$30bn annually.
To put this in better context, the bottled drinking water industry continues to maintain its rapid momentum due to high water consumption across the country. However, the bottles are largely imported. One reason is the underdeveloped plastics industry. Plastics contribute only 3% to manufacturing GDP.
In Saudi Arabia, the development of its plastics industry can be attributed to the 1987 low price regime which awakened the need to implement an economic diversification program away from hydrocarbons. Through supportive policies, the Saudi government has encouraged the industry to shift from import dependence to actual growth in domestically manufactured plastic products. Perhaps, Nigeria should adopt this template and modify it to suit its economy.
Chinwe Egwim
Macro Economist & Fixed Income Analyst at FBN Capital
Source: The Guardian, 13 March, 2017.
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