RESTRICTED

VhFLE rnPy AW35Vol. 3

This report is for of ficial use only by the Bank Group and specifically authorized organizationsor persons. it may not be pubuished, quoted or cited without Bank Group authorization. TheBank Group does not accept responsibility for the accuracy or completeness of the report.

INTERNATIONAL BANK FOR REiCONSTRUCTION AsN'D DEVELOPMN -KA

LN tERNA T IONAL DEVELOPrVIEN ASe .Mjt IA

THE CURRENT ECONOMIC POSITION

AND LONG TERM PROSPECTS

OF

NIGERIA

(in four volumes)

VOLUMN III

ANNEX 1 - AGRICULTUREANNEX 2 - THE INDUSTRIAL SECTOR

June 9, 1972

Western Africa Department

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ANNEX 1 - AGRICTLTURE

Ai&4NEX 4

AGRICULTURE

Introduction

1. The share of agriculture in gross domestic product (CDP) has beendeclining constantly since 1958/59. At constant factor cost, the share of

agriculture, forestry and fishing stood at 66 percent in 1958/59; by 1966/67it was down to 55 percent. Ignoring the intervening war years, it isestimated to be about 50 percent in 1970/71. Part of this decline in theshare of GDP can be attributed to the high growth rates of manufacturingand petroleum. But value-added in agriculture itself stagnated from 1963164to 1966/67, after growing at an average rate of nearly 6 percent per annumfrom 1958/59 to 1963/64. Statistics on agriculture during the war years1967/68 to 1969/70 show some fluctuations due to the varying geographicalcoverage and the disruptions in productive activity caused by the hostilities.

2. The onlv maior export commodities not related to agriculture and

forestry are petroleum and tin metal. The agricultural sector accounted foralmost all of Ni2eriats exports until the early sixties. With the growth

of petroleum, the share of agricultural commodities in the total value ofexpnrtg dronned to 61 nercent in 1966 and 38 percent in 1970. This trendwill probably continue, with agricultural products providing less than 12nPrtent nf -arnSq exnnrt- nroceepd bv 1975.

3. However, agriculture must conr1niue to be a malor focus of develoD-ment activity in Nigeria, as about 72 percent of the labor force derive their

incomes from th.h agricultural sector. T.ha. saecnr alan has consnderable un-tapped development potential. The following review of the agricultural sectoris based to a large extent on. the survey unAdertakea n by the Rank earlv in 1971.

4.~ T Ifmimediate so-p a:e taken to ip-,rove -rice in.centives, t-he

supply of farm inputs and transportation, and to restore production in theEast, agricultural proAuctior could achievie an averaaa growth rnFt of about3 percent through 1975, provided the weather is favorable and food outputresponds to -the pressures of demar.d. This is stil less than the averageannual increase of 3.3 percent achieved from 1958/59 to 1966/67. In thelonger run, provided appropr4ate steps are takern to overcome the developmentconstraints discussed in this chapter, the annual rate of growth could reach5 percent b- y I 9 80

ANNEX 1Page 2

Table X-i: PROD-uCTION OF MAJOR ElxORT CKOPS(thousand tons)

Average Average Projections1959/60-64/65 1965/66-70/7i i974/75 197/80fii 1984/85

Groundnut 625 728 1,100 1,400 2,100Cocoa 203 226 265 285 330Palm oil /1 504 406 515 560 800Palm kernel /1 404 285 425 425 470Rubber /1 65 60 79 72 95Seed Cotton 126 154 240 320 560

/1 Calendar years

Source - Appendix Table 7.2Projections are IBRD estimates.

5. An analysis of trends for individual agricultural products showsthat the constraint on expansion has almost always been supply rather thandemand, even for export crops. The rate at which domestic demand may growin the years ahead make it likely that this will continue to be true fora number of important crops. The shortage of supply is not so much aconsequence of constrained production potential, but is rather a resultof the lack of infrastructure and organization. Those involved in productionand distribution are not able to respond promptly and effectively to changesin the market situation and, more specifically, to increases in demand.

6. Investment programs alone cannot create conditions in which anadequate supply response is assured. There is no doubt that improved roads,and specifically access and feeder roads which would end the isolation oftraditional agriculture from the modern sector, must play an important role.The promotion and use of modern inputs and the provision of improved plantmaterial through the revamping of an entirely inadequate extension serviceis equally important, as are the provision of marketing channels andstorage facilities. All of this, and maybe more, can become a wastedeffort ff it fa not made a nart of a coherent and connsitent etratezv ofthe Government for rural and agricultural development, embracing not onlydirecrt inueatment and the input of more and hbtter trained manpnwer, hitt

also including proper pricing policies and realistic recognition of therole of the private sectnr in agrirct-ltiral marketing and ditri4hution.

7. Such a strategy, adequately -eared to realistic domestic demandforecasts and the need to maintain reasonable price stability, has not asyet been1 AeVSteA. 'Pk lal- of intitAtio th- -_ h14Akne4ss of 4* th.os t_a AoAA{AA*S_0AL w LFC;UU t V & OCU . *flS *CvK VL ~L *O *-A LL.Jf* ,^ - LIA wla^1~o JA--D V flL S i-&4O WV

exist, the uncertainties about the role of the Federal Government in agri-cuLt-ura'L deUvUelopr..er.;, LLhe peU.L.LL Latio.n.Lk bLW.W=L1 pri.c pajid.U tLo ari .L

cultural producers and the revenues of the states and uncertainty regarding

ANNEX 1Page 3

future Federal/State financial relations all tend to go together in hamper-ing the effective impiementation, or even the formulation, of a soundstrategy.

8. In what follows in this chapter, the main emphasis is on thedescription and analysis of present patterns of production, marketing andinput use, the market prospects for major export crops and the identifiableconstraints to development. It summorizes those parts of the Bank's agricul-tural sector survey and does not venture into the major policy issues in thispart of the economy, which are discussed in Volume I of this report.

General

9. Nigerian agriculture is marked by considerable diversity of output.There is fairly sharp regional specialization in the production of cash crops,based on ecological characteristics. Groundnuts and cotton are grown in theNorth; the tree crops (cocoa, oil palm and rubber) in the South. In thecenter of the country is the food crop belt which produces yams, cassava,maize and rice as cash crops. But virtually every farm family, even inareas specializing in other cash crops, also grows food for its own sub-sistence. Millet, sorghum (guinea-corn) and cowpeas are the staple foodsin the groundnut and cotton belts; yams, cassava, cocoyams, maize and riceare grown in the tree crop belt. The tree crop belt is the major fooddeficit area, partly because it contains the main urban centers. A smallsurplus of cowpeas is slipped south from the Northern States. In aggregate,however, no more than 20 percent of food production enters commercial trade,most of it from the food crop belt to the deficit areas in the South.

10. Cereals and starchy roots and tubers are the principal items inthe average Nigerian diet. Although little reliable data are available,the National Agricultural Development Committee placed the averase daily percapita intake at 2,200 kilo calories in 1968/69, which is approximatelyequal to the estimated requirement. Proteins, of which animal protein probablywas less than one-third, were only about one-tenth of the total intake.Diets vary considerably between the Northern States -- where millet andsorghum predominate -- and the Southern States, which depend mainly uponcassava, yams and cocoyams. Maize is eaten in all areas, Cattle p-rov1de themain source of meat in the Muslim North, while the South also relies heavilyon Roat, sheep, pork and fish. Goatser, sheep n"d various domestic and wildanimals are consumed throughout the country.

11. Groundnuts: The Northern States produce 10 percent of world outputof groundnuts and nunnlv over -3l0 perent of world eXports. The major partof production is exported, most of it afl kernels. Before the growth ofpetroleum exports since 1969 gronundnut productt contributed over 20 nercentof Nigeria's export earnings. Domestic processing capacity is only halfof Marketing Board nurhaRses. TotAl production was over a million ton in

ANNEX 1Page 4

1966/67 but has since declined. One of the major causes of this declinewas the shift to cotton cultivation in response to a change in relativeproducer prices. Recently, output has also been adversely affected byclimatic conditions.

12. Domestic demand is projected to double by 1985 to a level ofabout 0.5 million tons. World export demand is projected to grow at about2.5 percent per annum. World demand for Nigerian groundnuts is estimatedat between 1 million and 1.4 million tons of kernels by 1985. Prices areexpected to decline in the next few years due to a relatively rapid increasein world supply.

13. The Northern States will be able to expand production sufficientlyto meet a projected demand of 1.5 - 2.0 million tons by 1985. It isestimated that acreage will increase by 1.75 percent per annum and yieldsby 2.7 percent per annum.

14. Cocoa: In the decade before 1970, cocoa contributed 18 percentof Nigeria's export earnings with an annual average output of 210,000 tons.In 1970/71, excellent growing conditions resulted in a record crop ofabout 310,000 tons, but the world price dropped from US 45.7 i per pound in1969 to US 29 4 per pound in 1970.

15. World demand for cocoa is expected to grow at about 3.5 percentper annum. But due to production limitation. it is unlikely that Nigeriawill be able to maintain its present share of 20 percent of world exports.It is estimated that production will ba 26s,000 tons in 1975. the share inworld production dropping to 14 percent by 1985.

16. Oil Palm: Oil palm is grown predominantly in the Eastern Statesand nrnductinn was disrunted during the civil war= Produe-tion in 1970was estimated at about 480,000 tons of oil and 295,000 tons of kernels.These levela a-e still below the production of 1966. Exnorts of palm oil -which were EN 11 million in 1966, have now been completely displaced bydo.mestIc demand. Pro4ectIorn of demand, therefore, depend largely on

assumed population growth rates in Nigeria. Domestic consumption couldwell reach about 800,000 tons of palm oil consum.ptio by 1985. Thia AdmanA

can be met without imports provided about 0.5 million acres are replantedin 10-12 years. This is a substantial task, since 90 percent of thepresent production comes from semi-wild groves covering 3 million acres.

17. Exports of palm-kernels are eatimated to rise to about EN 13mU.L.L.Lon iLn I8JU a1 beluuw thUe average of1 EN L22 L.'L±on irorLu 1960 tu

1966.

18. Rubber: Production and exports of rubber were maintained fairlystable until 1966 but suffered a set-back because of the civil war. Look-ing ahead, it is production possibility rather than world demand that willlimit exports of rubber.

ANNEX 1Page 5

19. Taking account of the technological possibilities of substitutionbetween synthetic and natural rubber, it is expected that natural rubberwill maintain its 40 percent share of the world market. In 1965, Nigeriahad a 3 percent share of world production of natural rubber. Being aprice-taker, Nigeria could expand its export substantially without affect-ing world price. However, the production prospects are not bright. In theMid-Western States which produce 80 percent of Nigeria's rubber, half theacreage will be out of tapping by 1973/74. There has been very littlerehabilitation of small holdings and increases in production can be ex-pected only from farm settlements and large plantations. In 1975, produc-tion is expected to be 79,000 tons, only slightly higher than productionin 1964; by 1980, production will have dropped to 72,000 tons. However,the underlying conditions are favorable to the production of rubber andNigeria can profitably undertake sizeable investment to rehabilitate smallholdings, improve yields and raise the quality of rubber produced.

20. Cotton: Cotton is second to groundnuts as a cash crop in theNorthern States. The bulk of raw cotton is consumed in Nigeria, but thereis no domestic processing of cotton-seed. With textile demand rising atabout 6.1 percent per annum, demand for seed cotton is expected to increasefour-fold in 15 years, to a level of 445,000 tons in 1985. Provided thereis no shift in the relative prices offered for groundnut and cotton, thisdemand can be met from domestic production. It is anticipated that yieldswill grow at an average of 5 percent per year and acreage at 2.5 percentper year. At these rates of expansion, there will be no difficulty inexporting all available supplies of cotton-seed, since Nigeria supplies only4 percent of world trade in this commodity.

21. Livestock: Although the livestock sector accounts for only 5percent of GDP, it is important as a source of protein. Estimates oflivestock nonulation vary widely but there are annroxtmatelv 8 millioncattle, 23 million sheep and goats, 38 million poultry and 300,000 pigs.The Rix Northern States have nearly all thp cattlp and twn-third of thesheep, poultry and goats.

22. Consumption of meat in 1970 was 154,000 tons of carcasses ofwhich 26 neFrent was imported from neighborin NiQer and Chad. Withrising population and per capita incomes, the demand for beef at currentrelative prices is estimated tn inrrease at nhait 5.7 nercent per annu_mto 271,000 tons of carcasses by 1980. Since it is unlikely that suppliesfrom other West Afr4can cnountr4sa will vrlse above preeant lavels, this

represents a sizeable increase in demands on domestic production potential.

23. It is unlikely that production will increase at more than 3percent per annum and an up,ward price trend seema inevitable. Rangeland

is insufficient and deteriorating, due in large part to uncontrolled grazingby nomadic herds and encroach.ent of cultivation. Tse=tse infestaLtion iswidespread, covering an estimated 80 percent of the land area at the end

ANNEX 1Page 6

of the rains. Rapid extension of tse-tse eradication to the middle belt isnot practical since techniques to be used in relatively high rainfall areashave not been fully established. Unless the program for tse-tse eradicationis stepped up substantially, with a much greater input of technical manpower,it is unlikely that more than 40,000 square miles will be cleared by 1980.This represents less than 60 percent of the need for the new grazing land.

24. While tse-tse eradication is the most important element in alnna-tprm nrogram, an early increase In the sunnlv of mpat ran hp nhoainedby fattening existing stock prior to slaughter and by encouraging semi-intpnsive nrrst1r'tinn nf nigs aint nndoltrv- The mnair conntrAint 1 n nr_nm

plishing this is the inadequate supply of reasonable priced feed such asaon,rh,,m nA cor.n whi.ih can hb nupr-nmp in thP short- run by 4mportig con-

centrated feedstuffs.

25. Forestry: Of Nigeria's total land area, 39 percent is classifieds forest land andA 12 p e^,rant (45 0lelfl a nn .a r 4 1 m so N s. the curren forest

estate. The most valuable area is the high forest, nearly all of which liesin th Western,- MidA-W-est-err. -an South-Eastern States, and which supplies 755in* tUSO VW O LC n, .-Ud-W ~ U CLS fJ~ l I OLL S1. S J CL O ULI ' S.fl,.

percent of production on a cutting cycle of 50 years.

26. During 1960-66, timber exports realized an average of EN 7.7 mil-1llon a year, Lbu- t ti'L's '&-as siunce dAroppedA to 7N45r.il n ,J ulo oy.L, U ILOSJ.LL U.jJ'U L.) Si 9t..) I.L.L±LUIon. L'LLe oIutlook~ LUor

exports of forestry products is not very promising over the short term dueto ris' ng pLUUUciLU, costs. [uwever, Nigeria 'Ls geographically well placeto meet West European demands. With proper forest management it should bepossibl'e to export; 20 UUllon cu. fL. tb the year 2000.

27. Fuelwood comprises 95 percent of domestic neeas for forestryproducts, but there is a growing demand for sawn wood, poles and paper.mne value of industria; wood consumea locally is estimated at between L' 125-20 million annually and is conservatively estimated to double in the next30 years.

28. At present rates of exploitation, resources outside the highforest estate are expected to be exhausted within the next two decades andall natural forest in the high forest estate will have been logged overshortly after the turn of the century. However, forestry output can beexpanded substantially by using existing forests more intensively, establish-ing plantations of quick-growing trees and by establishing integratedindustries using existing hardwood forests, and pulp and paper mill complexesbased on quick-growing plantations.

Development Constraints and Needs

29. Land: The total land area of Nigeria is 228 million acres of which84 million acres are judged to be of medium and high productivity and reason-ably suitable for agriculture. This figure does not include areas that

ANNEX 1Page 7

might ube suit;atble Lfor range farming. Mp LyJ.iL LmLUodeL CL&LL1.uLUo y arLIUd ULfL..LL&?

needed improvements, this area could potentially be increased to about 179million acres.

30. Tne degree of utilization of these land resources, however, isstill very low. The area presently cropped represents only 25-35 percentof the suitable 84 million acres and only 11-16 percent of the land poten-tially suitable for agriculture. With traditional shifting cultivationpractised widely, much of the land farmed at any time is in bush fallow.There also are large areas which are not farmed at all.

31. Although in aggregate, land is relatively abundant, populationpressures have become serious in the tree crop belts in the South and inthe groundnut and cotton belts in the North. Fallow periods under shiftingcultivation have become too short to restore fertility in some areas. Theoriginal cropping cycle of 10-15 years in large segments of the tree cropbelt already has been reduced to five years. In the North, extension ofcultivation has reduced the grazing area for nomadic herds, resulting inover-grazing and erosion.

32. An area which is still under-populated and under-farmed is thevast middle belt covering an area of approximately 75 million acres. Verylittle has been done to date toward developing this area, which could becomethe mixed farming area par excellence of Nigeria. The major obstacle isthe prevalance of the tse-tse fly, but its elimination can be economic inthe middle belt provided the area is brought into continuous and intensiveuse.

33. Techniques: Production is carried out almost entirely by smallfarmers with holdings of three to seven acres growing a variety of crops,usually including their subsistence needs of food crops. In 1963, about40 percent of farmers in the northern states and over 60 percent in thesouthern states held less than 2.5 acres. 90 percent of the output ofoil palm comes from small semi-wild groves.

34. The implements used in farming are hoes. cutlasses and otherprimitive hand-tools. Use of ox-drawn implements is limited by climaticconditions such an the tse-tse flv and the shortae of fodder. Use ofpower equipment and machinery is almost nil.

35. Input: The use of improved inputs is extremely limited. Useof chemical fertilizers of all tvnee reachad a neak on 6500Q0 tons in 1967for a harvested acreage of about 29 million acres. This represents anaverae of only S lbs. per Antre. There in nn locnl rnodrtirinn of fertilizers;and very little private sector participation in distribution. Fertilizersare imnnrtad in hulk and distributea thrntugh the wt.nanon services and Inoalagents. However, adequate supplies frequently are not available when farmersneed themn

ANNEX 1Page 8

36. The supply of suitable planting materials is seriously deficientfor tree crops. Seed production is inadequate even for present needs ofcocoa planting and for any large expansion of rubber and oil palm. Thedistribution facilities for cotton seed and groundnuts will have to beexpanded drastically to cope with the rising demand for improved plantingmaterials. Supplies of improved materials for food and feed crops scarcelyextend beyond those used for research and experimentation.

37. Insecticides and other farm chemicals are particularly importantfor cocoa, oil palm, rubber and cotton, and projected increases in outputwill require a vastly improved supply network. Further study is alsorequired to assess technical and economic feasibility and possible harmfuleffects on the environment.

38. Irrigation: Annual rainfall ranges from 20 inches in the Northto about 160 inches in the South-Eastern region of Nigeria. About 30 percentof the country receives less than 40 inches per annum. Only 36,000 acresare now irrigated, mostly in the North-West, North-East and Kwara Statesand more irrigation is probably necessary to achieve projected expansion inthe output of wheat, sugar-cane and rice. The Second Development Planseeks to increase irrigated area to 160,000 acres by 1974 and 610,000 acresby 1980.

39. jue ruajor problem iLn expanding 'Lrigation Ls the abser.ce of thebasic data to plan projects. Hydrologic data are meager or non-existent;topographic and' soil and 'land' surveys are yet to bve accomplisheud; croppiLngprograms need to be established and crop-soil acceptances and crop husbandryprocedures need' to De investigated. Tnese will requ'ire considera-ble t'1im:e,

making it very unlikely that Plan targets, even if found to be justified,will be met. On a very optimistic estimate, no more than 5000,000 acrescould be brought under irrigation by 1985, contributing an increase inagricultural output of only 3 percent. Tne same result can be achieved withmuch less investment by extending the area cropped under rain-fed cultivation -

currently only 30 million acres out or a possblDle ou mlliion acres or araDleland.

40. Tenure: Land tenure systems vary among ethnic groups but a commonfeature is the absence of individual ownership. In the coastal states, landis regarded as the joint property of the community and the right to cultivateis given to individuals by the traditional head of the community. In thefallow period, land reverts back to the community, although trees are re-garded as the property of the ran who plants them. Such a system discouragesindividual investment in conservation and improvement of land and makes itdifficult for a farmer to obtain loans using his land for security. In theNorthern States, land is owned by the state and tenure is on the basis ofcustomary usufruct, a system that leads to friction between herders andfarmers.

ANNEX 1Page 9

41. Tn mnnyv n^rta ,-f th_ ^.^.^.tr-, t-16 c-afvtm 4a alread . tas^t^t.

While there is no need for a major program of land reform, there is need forchano^m in lncal leogilnio4rn tht will help the trar.slior toAdvidualtenure and for policies to promote improvement of commercial grazing areas.

42. Marketing: State Marketing Boards constitute the exclusiveiultimnte purchasers of co- -- A-.-- cto. -A -c a.z er

of minor commercial crops. The major commodities not controlled by marketingbnoards are rUbber and food crops.

43 Although the .r,.&iia UJJ C;LLVC Ani estlshing Ith ai M.arktin

boards was to stabilize prices earned by farmers and to improve the market-lug U iiair Lhyave bLerL LDU sdUL.L&A6 L;I- OxLJ;.'e ag a c,vJLAV J.'en

instrument for taxing agriculture. The emphasis on raising revenues hasresulted ln producer prisLL UULLI set at roUghly hai thLe un;L value ofexports. Consequently, the return to the farmer engaged in production ofexport crops is low. Ate current producers prices, the gross return per man-day of labor is less than 4 shillings in groundnut and cotton production;the relturn on thLe iLvestLmenLt required to establish a nucleus plantation ofioil palm is only about 5 percent.

44. In recent years, producer prices have indeed been raised substan-.ially: cocoa by 57% from LN 96 per ton in ioo96/o to MN 151 in 1970/71;groundnut by 36 percent from EN 43 to IN 55 per ton in 1968/69. The producerprices of palm products nave been raised slightly in 1970/71, from eN 41 toLN 44 per ton for palm oil and from iN 29 to EN 30 per ton for palm kernel.Maintenance of these producer prices will necessarily involve a reductionin revenues generated by Marketing Boards since world prices of cocoa, ground-nuts and cottonseed are all expected to drop slightly over the next five years.

45. The marketing board system has also been criticized for in-efficiencies in operation. The major items of expenses are the buyingallowances to the licensed buying agents, transport costs and general andadministrative expenses. These amount to about EN 20.5 per ton for ground-nut, EN 18.6 per ton for cocoa and tN 11.7 per ton for palm kernels. It hasbeen estimated that determined efforts to improve efficiency might reduceexpenses by 20 percent.

46. Tne system of licensed buying agents has also come in forcriticism. There is some evidence that the allowances paid to them areexcessive and, further, the marketing boards have no effective control overthe prices paid to the farmer by the licensed buying agents. There is con-siderable scope for licensed buying agents to short-change producers onweight and grade of produce purchased.-

47. The marketing of products not controlled by the marketing boardsis handled by a traditional, fragmented system. Various detailed studieson the marketing of foodstuffs have concluded that, given the existing

ANNEX 1Page 10

infrastructure, traders were reasonably efficient and achieved a consider-able degree of inter-market coordination. The infrastructure, however, isinadequate. Poor transport links tend to cause seasonal price variations insmall isolated markets. Storage costs are as high as 2 1/2 - 3 percent ofthe value of products stored, per month. Lack of adequate wholesale marketfacilities inhibits the inflow of perishable foodstuffs into the cities,widening the spread of prices between urban and rural centers. The IiiLhcost of distribution of foodstuffs has probably contributed to the increasein urban food priees durina And after the riv.l war,

48. TrAnanort: Transnprt in the nr4ningpal cmnnnPrnt of mnvketrin roata.It accounts for 30-40 percent of total marketing costs for cotton, 35-55pereent fnr rnutndn,tta nnA nit 9n vp-ecnt for onon. Tho Mivl 1 rwa 1 pacAa heavy strain on the transport network and the main arterial roads are innoor nndltionn dAue t1o or-noarA4rna aqA t mair.ter.ance T-..se roaAs

are vital in moving export crops to the ports. The railways have been un-able tom caer%T^, tr~affic dam-ar. dqaey resultir.8- inircreased trar,sportaa_ _ a -=- , L=Z0UL&.LLJ.& 111.L6.J G LI &.CuLIU UL L.

costs. For example, from 1967 to 1970 the number of cattle moved by railhn1raiA h'nth 4n ahbolute numbers_n oA - -- -_ _ Ia cat*te move~~~~~~~~t_ C ot l. E,; -- -- - -- ur-e _ mg =X W; IVV-The alternative modes of transport, road and hoof, involve both higher directCo08tS and b4igher .mortal iy rates.

49. Since there i8 liltle animal transprUt, a farmI family's mar ketedoutput is limited largely to the amount of goods which can be moved by**..O* pJWCI 'unless there ise I a d t network OL feeder roads. GYreaLer

attention will have to be given to the development of feeder roads tofacilitate the distrLbutLon of farm inputs and evacuate produce economically.

50. Credit: The lack of agricultural credit is increasingly singledout as a major handicap. Institutional credit has been available to farmersfor the past two or tnree decades but has not been successful. Tne onlyinstitutions now in operation, in the Western and Mid-Western States, do notha-ve active credit programs and are concerned only with coilecting old debts.Commercial banks have extended credit to some large-scale plantations but notto small farmers. Agricultural co-operatives reach less than 5 percent ofthe farming population. They have very limited financing programs, most ofwhich go to marketing and they provide negligible credit for productionpurposes.

51. Improved farmers' incomes and the modernization of agriculture willbring forth a rising demand for credit. On the basis of present plans forreplanting of cocoa, rubber and oil palm alone, annual credit needs areestimated at about EN 11 million by 1980. For cotton and groundnuts, creditneeds for production could exceed EN 5 million by 1980.

52. The absence of a Federal fnetitution ic heing remedied by theestablishment of a National Agricultural Credit Bank. The bank will lendmoney for credit prolects wh*frh wotulA ha adj,n n4at-orae by, the sate-soa

ANNEX 1

Page 11

state institutions. The Second Development Plan has earmarked EN 6 millionfor the Bank oer the next five years. Since fa- ¶r-a v%rt ir.cur lr.terest

charges somewhere between 24 percent and 50 percent, the Credit Bank shouldbe -able to char&6e~ interest rates- high e.ouS to# r -ns

53. .nw'R searchl-: U A Research;I haCL bee `o ucted 'r. -a n--.br of s i

autonomous institutions situated in the various ecological regions in thecount.y. E.Jxport cropU ha-ve received' the ma.Ln emphLasis wl .Le food and feed

crops have been comparatively neglected. The best prospects of immediateappl.catior. are 'or tree crops, grou-uunutu ano cotton, -where expLer'Lmenta'Lyields have been two to three times higher than present yields. By theum-d-1970's, suitable high yielding varieties of sorghum, maize and riceshould be available for multiplication. There are possibilities forincreasing yields of yams and cassava but further work needs to be doneto develop disease-resistant varieties and improve farming practices.

54. Much of the problem in research has been the absence of overalldirection. Tne Agricultural Research Council has recently been set up toimprove this situation. Another drawback has been that research has soughttechnical optima for individual crops instead ot tocusing on the total rarm-ing system and on integrating improvements within that system.

55. There is inadequate agro-economic data on basic economiclimitations, such as the shortage of labor at key periods in the croppingyear, to provide complete guidance for re-orientation of technical researchprograms. There is urgent need for more studies of the type now beingcarried out by the Rural Economic Research Unit at the Institute of Agri-cultural Research.

56. Manpower and Coordination: Inadequate overall planning andcoordination at the Federal level is an impediment to agricultural develop-ment. Until recently, the principal responsibility of the Federal Ministryof Agriculture and Natural Resources was limited to research. The linksbetween the Federal and State Ministries of Agriculture are weak, makingit difficult to monitor the implementation of projects in the DevelopmentPlan. The present system also tends to discourage regional specializationbased on comparative advantage.

57. Moves to strengthen the state ministries have come up againstthe shortage of suitable qualified personnel, making it necessary toconsider outside assistance on a large scale.

58. Perhaps the most serious restraint on agricultural developmentis the shortage of qualified personnel for planning and project preparationat the state level. With few exceptions, state staffs have no more thanone year's experience in planning or project work. Present trainingfacilities are inadequate. In the long run, an increased supply of manpowershould be forthcoming from the educational system. What is urgently neededis the establishment of ad hoc, in-service training centers to solve theshort-term problem.

ANNEX 2 - THE INDUSTRIAL SECTOR

ANNEX 2

T.LEd OJF CO1NTE,S4

Page No.

Chapter I. Recent Performance and Industrial Structure ........

Growth Rates .................................. 1Industrial Structure . 2Industrial Location .. 6Size of Industrial Establishments .Ownership Pattern. 9import Substiutiton. 1Processing for Export .15Competitiveness .,, 17Profitability of Industry. 1Utilization of Capacity. 21Emplovment, Wages and Productivity .2Investment ............. .................... 25

Chapter II. Incentives and Promotion Policies .... .............. 2L

The Incentives Framework ..... ................. 2xAdministration of the Incentives System ..... 31Cost/Benefit of the Tax Incentives System ... 32

The Tariff and Tax Structure .... .............. 35Tariffs ........ ............................. 35Taxation of Profits ......................... 36Excise Taxes ., 36Effect of the Tariff and Tax Structure 37

Impact of Policies on Industry and ResultingProhlems .3

Chapter III. The Second National Development Plan (1970-1974) ... 44

The Objective 4A;... . .. 44Proposed Implementation . .46The Federal Capital Expenditures Program. 49State Capital Expenditures Program .53Private Investment in Manufacturing .54Implementation of Government Policies andEvaluation ............................ ,. 54

Chapter IV. The Small Industrv SectOr .......................... 61

Prioritv Fields . ..............,,,,.. 61The Second National Development Plan (1q70/74) 63States . .. ... ,.. 64Industrial Development Centers and Small

Industrles Credit Schemes . .65

TABLE OF CONTENTS (Continued) Pace No.

Coordination of Federal and State Action 67Need for Financial Assistance .68

LIST OF TAHLES IN TIIE TEXT

Table 1. Structure of Manufacturing. 32. Sectoral Distribution of Manufacturing .43. Gross Output, Value Added and Fmployment hy Regions

in 1967. 74. Small Industry in Eastern Nigeria. 85. Structure of Nigerian Industry, 1967. 96. Distribution of Nigerian Industrv bv Tvpe of Ovmer-

ship, 1967 .107. Dependence by Manufacturing Sectors (1063-1968) 148. Domestic Production as a Percentage of Total Sunnlv

of Selected Commodities .159. Exports of Processed Primary Prodticts. 16

10. Value of Sales and Industrial Costs .011. Capacity tUtilization in Manufacturing Industries 2112. 1Wages, Productivitv, Labor Cost and Prices. ?313. Strulcture of W4ages in Manufacturing .2414. Manufacturing Investments .515. Investment in Manufacturing .2716. Summarv Effects of Tax Incentives System .3417. Effective Rates of Protection. 3818. Effective Rate of Protection of Import-Substituting

Consumer Goods and Intermediate Capital GoodsIndustries .39

19. Prolected Growth and Investment (1970-74) .4720. Projected Government Participation in Industries

(1970-74 Plan) .5021. State Capital Expenditures on Industrv .5522. Cmnership by Categories of Industries .5923. Loan Approvals for Small Industries in Selected

States .65

LIST OF TABLES IN THE APPENDIX

Table 1. Value Added in Large-Scale Manufacturing2. Value Added in Manufacturing and Crafts3. Index of Manufacturing Production4. Structure of Manufacturing. 19635. Structure of Manufacturing, 19676. Value-Added in Manufacturing by Malor Industrial

Groupings7. Value-Added in Manufacttirinn8. Ratio of Value-Added to Gross Outnut, 1067 and

Growth of Valiu-Adaed9. Industrial Survey, 1965

TABLE OF CONTENTS (Continued)

Table 10. Geographical Distribution of Value Added bvManufacturing Sector

11. Geographical Distribution of Value Added byManufacturing Sector

12. Geogranhical Distribution of Gross Output, ValueAAde anA 'lo-yment in Ma nufacturing, 1 '6-6 .7

13. Sales by Manufacturing Sector, 196714PaI.=up, Ca tJal byv SoYurce of] uwners`ip in thle Maunu-

facturing Sector, 196715. Guovernment Participation in Manufacturing16. Foreign Investment in Manufacturing and Processing17. Ranking of Factors Influencing Decision of Pioneer

Companies to Set Up1n. Factors Influencing the Decision of Pioneer Companies

to Set Up19. Reduction of Import Dependence, 1963-6820. Import Dependence in Food, Beverage and Tobacco Sectors21. Domestic Production as Percentage of Total Supply of

Selected Commodities, 1963-702z. Domestic Production of Selected Manufacturers, 1963-7023. Imports of Selected Manufactures, 1963-7024. Exports of Processed Primary Products, 1960-7n25. Nominal and Effective Rates of Protection of Nigerian

Industry, 196826. The Effects of Excise Taxation on the Degree of Pro-

tection Afforded Selected Nigerian Industries27. Estimated After-Tax Industrial Profits in 197028. Selected Manufactured Products - Comparison of C.I.F.

Versus Ex-Factory Prices29. Results of Enquiry on Business Prospects Among Selected

Manufacturing Companies, 1970/7130. Investment Expenditures in Selected Manufacturing

Companies31. Percent Utilization of Capacity in Selected Manufacturing

Firms32. Employment in Manufacturing, 196732B. Structure of Labor CoRt in the Industrial Sector by

Regions, 196733. Distributilon of Pioneer Industries Among Maior Industrial

Categories34. Pioneer Companies by Industry, 1955-6835. Number of Pioneer Companies36. Analysis of Role of Tax Hloliday in Influencing Investment

Decision37. Industries Ranked by the Number of Projected New Firms38. Federal Capital Expenditure on Industries, 1q7O-7439. Federal Canital Expenditure on industries, 1970-74

TABLE OF CONTENTS (Continued)

Table 40. Kano State Expenditures on Industries41. Mid West State Expenditures on Industries42. North Central State Expenditures on Industries43. Rivers State Expenditures on Industries44. Western State Expenditures on Industries45. East Central State ExDenditures on Industries46. Paid-Up Capital and Nigerian Participation

ANNFX 2

'HRE INDUSTRIAL SECTOR

Chapter I - Recent Performance and Industrial Structure

Growth Rates

1. The industrial sector has grown very ranidly since 1958/59. Inthat year, value added in manufacturing establishments employing ten or morewas EN 26.2 million; by 1970/71, net output had grown more than five-fold toabout IN 140 million. 1/ In addition industrial production in smaller scaleestablishments is extensive, 2/ but its exact magnitude is unknown, althoughaccording to national accounts estimates value added by small industries isnow about iN 20 million. Manufacturing has thus orown with remarkable speed(15.3 percent p.a. for large and medium sized establishments and 11.4 percentincluding small establishments). The base, however, is still small (4.4 per-cent of GDP in 1958/59 and 8.3 percent in 1969/70), so this rate of growthcan be maintained for some time yet.

2. In recent years, despite disruptions during the civil war, indus-trial production continued to grow. At constant 1962 prices, according tonational accounts data the average annual rate of growth of the manufacturingsector was, for large scale manufacturing. 18.3 percent per annum between1967/68 and 1970/71 excluding Eastern Nigeria. Some doubts can be raisedabout the coverage and validity of industrial statistics in Nigeria, narti-cularly as production in the three eastern states has not been recorded since1967. and also because data on value added include excise taxes. 3/ Thevolume index of industrial production, published by the Central Bank (whichalso excludes the three eastern states since 1967) cnvpring a nutmber of iTn-portant industrial commodities shows a similar trend. According to this in-dex after a verv small growth in calendar years 1967 and 1968, industrialoutput grew by 22.6 percent in 1969 and 18.1 percent in 1970. 4/ It wouldthen seem that Nigerian industry, after stagnating during the first two war

1/ Data provided by the Federal Ministry of Economic Development. Figures areat constant (1962) prices.

2/ For the most part, small scale industrial activities are included tnderrrafts" or not counted. Tn this -sense the very small size of the man-

ufacturing sector shown in the national accounts would be quite mislead-ing, ~0*

3/ For a detailed survey of industrial statistics in Nigeria, see "The 14an-ufacturing Sector and the Structure of Industrial Protection in Ni'neria"- February 1971. Ex-6, Western Africa Department - IBRD.

4/ National Accounts data show an increase of 20 percent in 1969/70 and 1,percet.t in 1i70/71

ANNEX 2Pave 2

vears nicked up again in 1969. taking advantage of a high deman(1 and of im-port restrictions. Since then, it has continued to grow at n ranid rate.

3. In fact, in 1970 and 1971, consumer demandl has continued at very highlevels with the restultant pressures upon local indutstry which have grown farbevond what could have been envisaged a few years ago. Nevertheless, with vervfew exceptions, production has not kept pace with deman(d. This has caused anexpansion within industry. As a consequence, plans have been developed forthe establishment of new industries and the expansion of existing ones. Manvconcerns have been diversifying their operations and considerable interest hasbeen exnressed bv foreign comnanies in setting up ioint ventures or anpointinglocal agents.

Industrial Structure

4. Table 1 below compares the structure of large and medium-scale man-ufantiring (as tbhlishmTnts Tmnln inv tPn and nover) in 19(63 .nd 19f 7. 1/ Thegrouping of industries follows the United Nations "International Standard In-dustrial lassi fi c -n", with group numbers show.n in brackets. Value addedin each group is shown as percentage of value added in nrocessing food, drinkand toaco /

1/ 1967 is the last year for which an industrial survey has been publisned.

2/ mThe food processing industries are the iirst to be established [or home

consumption. Their size serves as a rough index of demand for manufac-ttures, for comparative purposes.

ANNEX 2Page 3

Table 1: STRUCTURE OF MANUFACTURING

1963 1967

Food, drink, tobacco (20-22N 100 100Textiles (20) 27 44Clothes, footear (24) 4 10Wood products, furniture (25-26) 29 18Paper and pducts (27) 2 4Printing, publishing (28) 14 10Leath.er goos (79) 3 1Rubber products (30) 20 12Chemicals (31 46 31Non Metalliferous, cement (33) 25 14Metal products (34-34) 2 2n4

Engineering (36-38) 43 34M"scellar,eous (39)1 4L

suTAL ~~~~~~~~~~~~~337 306r

Source: Industrial Survey 1963 and 1967. The published source includes ex-cise duties in value added; these have been deducted. The 1963Survey includes the former Eastern Region, the 1967 Survey excludesit but structural data roughly are comparable since the industrialstructure in the East was comparable to the structure for the coun-try as a whole. In 1963, value added in the Eastern Region wasabout 16 percent of total industrial value added of Nigeria (Appen-dix Table 6).

5. T-ne table suggests that the largest progress has been maude in themanufacture of cotton textiles. This industry is still expanding rapidly:imports of cotton piece goods fell from 206 million sq. yards in 1963 to 187million in 1967 and about 150 million in 1970, and are expected to fall fur-ther. Another industry which experienced rapid growth has been clothing andfootwear mantifacture. The food and beverage industry witnessed increasingproduction of beer, sugar and of groundnut oil and cake. Consumption of tim-ber is restricted by the Nigerian's preference for building houses in concrete,though timber is abundant and can be preserved against insect damage. Indus-trial cliemicals, metal products and engineering are still in their infancy;if notor vehicle repair were deducted from engineering, the figure of 34 in1967 would drop to 6.

6. Table 2 shows a breakdown of industries according to their contri-bution to total value-added:

ANNEX 2Page 4

Tab1e 2: SECTnRAT. DTITPTRTTTTION O MANUTVACTTMT1r.IN

(Percent)

1963 1967

,Food, drink, tobacco 29.8 32.2Text les . r) 15.8

.Clothes, footwear 1.3 3.1T.__ -CLUU~. O .LU . LUI-C .. - U.. C CWoodU JLP%odU%ct, furnitureL= 8. 5.8

Paper and Products 0.6 1.3Printing.LLL, pulshn jJU.±ILL4.1 3.1

Leather goods 0.9 0.5. n L L _ - _ _ _ - s ~ ~~~~ ~~~~~~~~~~~~r /n / I

prou'LUUUCtS J .) .tr

Chemicals 13.6 10.0Non iMletaLlifierous 7.3 4-5Metal products 6.0 7.7Engineering 12.7 10.9Miscellaneous 1.2 1.1

TOTAL 100.0 100.0

Total Value-added (EN million) 47.6 71.7

Source: Ibid.

7. The above table evidently confirms that despite the relativelyhigh growth rate of manufacturing in the last ten years, the industrialstructure remains very little diversified. The major change has been asubstantial increase in cotton textiles, while the share of food, drink,tobacco, clothing, and footwear, and metal products grew only a little.All other sectors, had a smaller share in total value added in 1967 thanin 1963.

8. The fact that textiles and footwear was the group with the highestgrowth rate is confirmed by production statistics available from the CentralBank's volume index of industrial production covering the period 1963-70.

ANNEX 2

Page 5

Annual Growth RateWeight 1963 1967 1970 1963-70 1963-67 1967-70

Cotton textiles 15.0 100 447.0 621.6 30.0 44.0 11.7Paints 1.3 100 230z4 535.8 27.0 233 32.5Footwear 2.0 100 219.4 420.7 23.0 22.0 24.0Beer 32.0 100 128.3 233.5 12.9 6.4 22.0Soft Drinks 6.3 100 136.4 218.3 11.8 8.1 17.0Vehicle Assembly 2.4 100 119.3 190.7 9.7 4.5 16.9Vegetable Oils 12.9 100 91.8 143.4 5.3 2.0 16.1Cement 11.8 100 141.0 112.3 1.7 9.0 6.4Roofing Sheets 2.8 100 94.3 111.6 1.6 1.4 5.8Soap and Detergents 4.9 100 130.4 102.6 0.4 6.9 6.4Rubber 8.6 100 85.9 100.5 0.1 3.4 5.4

Total Index 100.0 100 171.8 250.2 14.0 14.5 13.3

9. These figures show the high growth rate of textiles, footwear andpaints from 1963 to 1967. From 1967 to 1970, food and beverage industriesexpanded rapidly. Other industries like roofing sheets and natural rubbergrew at relatively low rates while soap, detergents and cement actuallydeclined. These data help to confirm the fact that due to structural orconjunctural reasons, Nigerian industry has not been able, in the last tenyears, to develop substantially outside the "traditional" sectors of food,beverages, tobacco, textiles and footwear.

10. The ratio of value added to gross output for the manufacturingsector as a whole was 26 percent in 1967. Since these ratios reflect valueadded in manufacturing only (excluding backward linkages to e.g. agricultureand mining), a low ratio of value added to gross output does not itself in-dicate lagging development. Nevertheless, there is some truth to the state-ment that "most industrial activities in the country are still not manufac-turing in the true sense of the term, but mere assembly industries. Veryoften, all the components used are imported and are merely put together be-hind the tariff wall." 1/ While this is most obviously the case for someimport substitution industries carrying out finishing touches on importedinputs (from printing of imported cloth to assembly of vehicles and elec-trical apparatus), low value added is also characteristic of many of theexport industries which only semi-process raw materials (such as tanningof leather or sawing of wood). The backward integration of the import sub-stituting industries and forward integration of industries processing forexports have been g,iven hiigher priority in the 1970-74 Development Plan.

1/ Second National !)evelopment Plan 1970/74, page 285.

ANNEX 2Page 6

Tndustrial Loc2tion

11= Migerian manufarturing has nnt- develonnpd in n haalanced FaqhInnwhen viewed from a regional standpoint. Lagos, together with the ncighboringtown.s of Ike4a and Mushln, produced 55.8 nprrpnt- nf auilep mirded in 1963 and67 percent of the total outside the Eastern Region. In 1967 (excludIing the 3eastern state-s fotyr wi nh dsotan ,are not- mui 1 qilal g urpe t-Atr L.4agno arcou1ntpd fnr

about 45 percent of value added. Such a reduction in the relative importanceof the Lagos area T.as dea tn aiiubstantni a increas in textile mannfarctrring,vegetable oil milling, etc. in the Northern Region from 1963 to 1967. Valueadded grew twice as fa8t 4n this RegIoatns In LaTgos, 1/ SO there was region-al diversification and improved balance.

12. However, in recent years, quite apart from the fact that industrialproduction in the East had to be counted out, the -nno'.ag area has kp its i-m,portance. From 1966 to 1968, 60 percent of new firms, accounting for 40 per-cent of value added 9/ an,d 7f 1have located in the Lagosarea while firms accounting for 46 percent of the value added in ne,'s firms lo-ca*.A 4n the former Northern R-n4-e /

'3.1. ThUSC 5.e reasons f.or establishir.g zan induAtr-y- in- o.(1) the largest port facilities in Nigeria are at hand, (2) the area isa pri.'Lary distributlon anlud market center for N.1..igeria, (3) regio.al ri-valry for industry is avoided and (4) Lagos is the seat of the FederalGover r,.,lien t

1 nJUe parll L.y to overcrowding pair.o L ag os LLU a Ln p..Ly toth potential

of agro-based industries, industrial development may spread further to otherregions dU iI part'cudlar LtU LtLe NorthLLL. DespiCte I.LeI LLtLLbeUL trn Lpo LUt I costs,

lack of water and other serious problems, there are economic advantages whichattract industry to the North. These advantages include lower labor costs,new markets and the availability of raw materials (groundnuts, cattle, cotton,etc.). It would seem therefore that Nigeria has emerged from the civil warwith two main industrial poles - the Lagos area and the Kaduna-Kano-Zariatriangle in the north. The Western State (Ibadan area), the Mid-West and theEastern States are playing a relatively less important role, at least for thetime being.

1/ Appendix Tables 10, 11 and 12.

2/ I.e.,only slightly less than the 45 percent registered in 1967.

3/ Kano, North Central, North Eastern and Benue Plateau.

ANNEX 2Page 7

Table 3: GROSS OUTPUT, VALUE-ADDED AND EMPLOYMENT BY REGIONS IN 1967

Lagos Area West Mid-West North Total /1

Gross output 47.6 11.3 3.6 37.5 100.0

Value added 45.0 18.1 4.1 36.8 100.0

Employment 45.2 16.4 8.0 34.4 100.0

/1 Total excluding Eastern States. In 1963, the Eastern Region accountedfor 16.5 percent of value added, 18.8 percent of employment and 14.5percent of gross output.

Size of Industrial Establishments

15. A distinction may be made between small- and medium/large-scaleenterprises and between the nrivate and the public sector. No real compre-

hensive census exists for small scale industries. However, the number ofNigerians engaged in some form of manufacturing, largely of an artisan type,is large. On the basis of 1964 statistics, it was estimated that 900,000households carried on sonme cottane industr4al activity, The maior areas ofproduction are food processing, textiles, palm oil extraction, clothing,mats and m-ietal products.

16. Partial surveys of the urban cenrer- in various reaions also testifvto the multiplicity of small enterprises. The Federal Office of Statisticsestimated 4n 1965 that there were 9,700 nmnall

4nndustrial concerns with a

total employnent of around 49,520 in the Lagos area. In five towns of theNorthern Reg4on, Kano, Maiduauri, Tos, 7 aria and Kaduna, there were reported

to be 1,704 establishments employing 4,869 persons early in 1961. In 14cities of the Eastern Region, 1l,'28 enterPrises mployi4ng 281271 neonle were

operating in 1961. In Ibadan alone, 3,135 craftsmen and small industrialistswere recorded in 1964 w Ith a total of 14,500 workeras. A survey by the Induns-trial Research Unit of the University of Ife, which was begun late in 1969and continued 4nto 1970, disclosed the existence of 12,01 ente-rprises ein-ploying 20,163 perAons in 49 towns of the Western and Mid-Western States.

17. Urban small-scale industry tends to be highly concentrated in thenew co-mmercial and administratIve clti' t,ere there is cons iderable wageemployment. There is comparatively little small industry in the large tradi-tional tohTLs of the Northern and Western Regions. TXhs clustering occurs be-cause the products of small industry are consumer goods and it is only wherethere is concentration of consumer purcflasilng power that thlese esse,,tially satellite activities can be supported on any scale. At least threeu±tIerent types of producers can be identified in the small industry sector

ANNEX 2Page 8

- unskilled producers of crude consumer goods whose number is closely relatedto the volume of urban immigration; the skilled artisan producers of simplebut better quality products (e.g. cabinet-making, leather shoes, goldsmithiilg,motor vehicle repair), and more modern small-scale inclustry (e.g. baking, softdrink bottling, sugar manufacture). Total employment in urban small-scale in-dustry would seem to be in the neighborhood of 100,000 or more, which is lessthan in rural cottage industry but larger than the number employed in estab-lishments of ten or more (77,177 in 1967).

18. Results of the 1961 Survey in Eastern Nigeria are summarized in.Table 4.

Table 4: SMALL INDUSTRY IN EASTERN NIGERIA /1

No. of Firms Employment

Tailoring 3,450 7,228Motor Repair 396 2,968Bakery 221 1,341Tinsmithing 491 1,029Printine 146 938Radio Repair 236 906Welding; battery chargina 221 848Shoemaking 298 829Blarksmi thina 369 763Shoe Repair 390 616(old mi thing 267 516Mattress-making 266 488Photography 157 424Miscellaneous 1,047 2,654

TOTAL 10,728 28,721

Peter_ V4l - '1 ... ....... T1. __ _C C!itt 1 1 T_v . _..4UA- ......-.. T4 _ n 10f s. * ..w S L .[<L XJ y , .L LL JJKV %f.L%JVUL=L%. VIJL 1 . L.. X .LtLuX o * L y L L,O.O L Lt I 6 L - I J 'J}.

.The Survey covered 14 eastern Nigerian towns in 1961.

19. At the time of the above survey the number employed was roughlythree t'Llles as large as thLe number e-mployed ln large-scale nIULLUJa UL .LILg.

zOne-man businesses came to 4,080, i.e. 38 percent of the total number ofLLrms; the other 24,640 persons were in wor'Kshops employing I wo or morepersons. The number of firms employing 2 to 5 persons was about 5,800 andthe firms employing 6 to 9 persons numbered about 500. If these data forEastern Nigeria are typical of the whole country, the number of workshopsemploying 6 to 9 persons would then have been about 2,500 in the whole of

ANNEX 2Page 9

Nigeria. 1/ This highlights the fact (recognized by the 1963 Census) thatthere were many more firm.,site zg in the sJze go I 1 in I 1963 th1an thLle 20 w-ch.submitted returns. 2/

20. The fact that the number of firms in the size group 10-19 isunderstated would seem to bUe confiLL ,ed again 1.n the 152671 IJndlustr4al lurveywhich re^,istered only 104 establishments with 10 to 19 workers.

Table 5: STRUCTURE OF NIGERIAN INDUSTRY, 1967 /1

-~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ v -

Employment No. of l.stab- Employment Output IN PN per personSize i4s hmIe n ts ('000)x (r{I ,In)% r,,lli-on v Er. 1 p loyedI.LL~1II~~LI L~ %UUUv I LA.lIl I 1i I.L.L -L.LLJL ~

500 and over 29 29.6 76.9 40.1 45.8 7,353100 - .0A0 1,80 320 10174 3 60 41.1 1,125-- 5.212j J4.. I UI I JU.' v t l

20-99 264 13.7 36.7 10.9 12.4 793

10-19 104 1.8 1.7 0.6 0.7 323

TOTAL 555 77.1 217.0 87.6 100.0 1,125

/I E.asterni States riot included.

Source: Industrial Survey, 1967.

21. it is to be noted that 29 establisnments each employing 500 or moreworkers produced 35.5 percent of gross output and 45.8 percent of value added.Nost of this production was concentrated in beverages and tobacco and intextiles (Appendix Table 13). On the other hand, "medium" size industries(10L to 499 workers) were prominent in vegetable oil milling, sawmilling andfurniture, printing and paper products chemicals and metal products (otherthan auto repairs). The smaller group (20 to 99 workers) was particularlydeveloped in the sector of motor vehicle repairs.

Ownership Pattern

22. Though public enterprises accounted for 17.6 percent of paid up ca-pital, they provided only 0.7 percent of industrial value added in 1967. 3/

1/ On the basis that of the 383 firms employing 40-49 reporting to the 1963Census, 21 percent were in the Eastern Region.

2/ In Kilby's Survey, 320 firms were employing more than 10 workers.

3/ See Appendix Table 14.

ANNFXVV

Page 10

TablDe 6: DISTRIBUTN OF NIGERIA.N INDUSTRY DIBY ,IE Or UWINUA IILE 167U

Value-addedNumber of per p?rson

establishments Employment Output, Value-added emploved

Private 521 72,811 216.0 87.1 99.3 1,196

Public /I 34 4,366 1.0 0.6 0.7 132

TOTAL 555 77,177 217.0 87.7 100.0 1,135

/1 Federal Government, State Governments, Statutorv Cornorations.Source: Industrial Survev, 1967.

23. Projects where public authorities have provided 90 percent ormore of the capital include a fruit cannery, five cement mills (including2 clinker grinding plants), two sack factories, a paper mill, a meat can-ning plant, a textile mill, two soft drink bottling plants, a ceramicsfactory, a mint, two glass factories and several oil seed crushing plants.Total investment in these projects may be of the order of EN 35 inillion.With such poor utilization of the invested capital, few of the public proj-ects have earned a profit. The main reason for poor performance seems tohave been mismanagement. Hlowever, initial start-up stage production diffi-culties were also a factor.

24. The Industrial Survey of 1967 asked companies only about thesources of their paid-up capital, with the following results: 1/

Nigerian Private = LN 7.63 (12.3 percent)

Foreign Investment = EN 43.52 (70.1 percent)

Nigerian Governments = EN 10.92 (17.6 percent)

EN 62.07

The question was not addressed to unincorporated enterprises, and excludedloans, suppliers' credits and all sources of finance other than paid-upcapital; otherwise the total would have been nearer -N 180 million, andthe Government investment would also have been larger.

1/ See Appendix Table 14.

ANE X 2

Page 11

25 Between 1957 and 1964, actual f-overn…ment investm.ent ^ccounted for onlva small share of the industrial investment. 1/ After 1964, quite a number of,C-overnmen t-owned turn-.=keyr contracto 0 i,ne ratre ofc doubtful vaiiy~ .~, L--\J.~~~ u.. LLN~y LLLdAL JL LLdLLI..t_U £dI.LUL.it! 01. UOUUUL UL VLU.L 1 .LJ--,Y

were built (as indicated in paragraph 20 above). From then on, a higher pro-portion of new Investment was owLLed by the rederal and Regional GoverWmentsL,or at least the ultimate risks were borne by the Federal Government in theforL of guaranteed proiLssory notes. 2, According to the Second DevelopmentPlan (page 140), allocation of public funds to industries "resulted in theestablishm.ent of some inldustrial projects wnose viability was not assesseubefore execution and some of which have now turned out to be 'white elephants'.Sucih projects now pose for the Government the problem of the appropriate ra-tionalisation measures to adopt. How, in other words, would such industriesbe made to have long-term viability prospects, and be reconstructed and in-fused witlh new life, failing which they might have to be closed down to cutcontinuing losses."

26. Undoubtedly, foreign-owned companies still dominate the modernmanufacturing industry. Of the paid-up share capital of limited companiesin 1967, 70 percent was of toreign origin 3/. Of the remainder, only 1Zpercent was private Nigerian and 18 percent public Nigerian. Those indus-tries in which private Nigerian firms are prominent include bread baking,sawmills, rubber creping, furniture, printing and wearing apparel.

27. It is not surprising that foreign enterprise plays a leading rolein Nigeria's industrial sector. British investment in particular has longbeen an inportant feature of many sectors of the former colonial economy.Foreign capital in manufacturing grew from EN 47.5 million in 1962/63 toabout E3N 112 million in 1968/69. The net flow of foreign investments hasnot risen markedly in recent years, evidently partly because of civil wardisturbances. An exceptionally high net flow of MN 25 million was recordedin 1966/67, but this was due to the fact that earnings could not be repa-triated and they, therefore, inflated the apparent net flow of investmentinto manufacturing. (Appendix Table 16).

1/ The allocation of investment under the 1955-61 capital program was onlyEN 7 million.

2/ In 1967, the direct investment of the Federal Government representedonly 19.5 percent of total paid-up capital in the industrial sector(excluding the East). Regional Governments have been much more activethan the Federal Government in ia4esting in industry (Appendix Table15). Despite a total allocation for industry of EN 96 million or 14percent of capital expenditures envisaged in the 1962-68 DevelopmentPlan, less than one-third of the amount was in fact committed.

3/ In 1967, out of a total employment of 76,395, 1,940 were expatriates,i.e., 2.5 percent. Their share of total wages and salaries was 25.6percent.

ANNEX 2Page 12

28. Foreign investments are particularly important in beverages andtobacco, textiles, chemicals and paints, non-metallic minerals and metalproducts. 1/ British companies such as. the United Africa Company (UAC)and John Holt and Company, previouslyiengaged in distribution, are nowheavily involved in industry. A number of other foreign companies alsooperate in Nigeria.

29. The distribution of foreign industrial investment by country oforigin in 1964 was as follows (in percent):

United Kingdom 63.6United States 9.4Lebanon 6.6Netherlands 4.6Italy 3.3France 1.8Germany 1.5Other 9.2

TOTAL 100.0 2/

Imnort Substitution

30. Prior to the late 1950's; few industries serving local demand weredeveloped despite the existence of many markets which would have supporteda number of minimum-sized efficient factories. From about 1958, there was asharp upsurge in private industrial investment.

31. A survey made in 1969, covering Pioneer Companies which decided toin-est from 1955 to 1968, revealed that industrialization was induced moreby market protection motives than by any other motive such as government at-titudes and tay incentives, or the availabilit- of rFW m ateri-als and cheanlabor. Nevertheless rapidly growing demand, together with fiscal incentives,also spurred i.nvestments.

32. The major portio. of import replacinrg 4.dustrialization inNigeria has been carried out by firms which had a prior interest in theAmnr.kelt. T.hSe greater part o .fthe -. 44-aA import substitution has been

effected with public funds. Investments of the latter kind, because ofthe type of projects selected, high capital costs, methods of financingand subsequent unprofitable operation, have in many cases proved a farA.s effiJcier.; method fLor i..ndus trializing thL'an marklet=protectiing privtinvestment.

1/ Appendix Table 14.

2/ A.N. Hakam - Nigerian Journal of Economic and Social Studies, Vol. 8,March 1966.

ANNEX 2Page 13

33. There are several reasons why the market protection investmentmotive was consistent with rational entrepreneurial behavior and reasonable

economic yields. By virtue of his proximity, the market protector could note

any possible opportunity long before an "outsider." Likewise, with regard to

the cost of gathering information and its reliability, he had the advantage.Because of his specialized knowledge of the Nigerian economic environment he

had less risks of failure. Firally he could count on lower costs by utiliz-ing his already established distrtbution facilities, management overheads and

connections with the public bureaucracy.

34. The content of the import substitutlon process is illustrated in

the following table. Import substitution is defined as the difference be-

tween (a), actual 1968 imnorts and (b) hvpothetical imports representing thesame share of total domestic consumption (production plus imports minus ex-

ports) AR in 1963,

35= Imnort denendence is heawv in maRst categories but is nevertheless

particularly important percentagvwise in machinery, transport equipment and

chemicals. The total value of importp was higher than the value of domesticproduction of manufactures in 1963, but lower in 1968. htowever, the percent-

age of imports in total supply w-a somewhat lower than normal in 1968, sinceimport restrictions then prevailed. On the other hand, some local industrieswere prevented from producing at full cn-acity due to war conditions. This

was particularly the case with non-metallic minerals (including cement) andmetal products.

36. Between 1963 and 196Q, m.port substitution accotinted for 6N 71 mil-lion of the total growth in the vglue of industrial production, estimated atN 106 millior.. (Appendix Table 19.) vost of ths 4imort iubstitution occur-red in textiles, clothing and footwear (about 45 percent of the total) with

another 13 percent each accounted for by food a-nd beverages (in narticular

sugar) and metal products (Appendix Table 20). In this latter industry, the

net import substitution effect w2s d41uted by the promi-nence nf imported me-

tals and components in its cost structure. One reason why import substitu-tion had a rather Important ePFect Iz that NI4geria's import dependence was

very high in 1963. The share of importo in the total supply of manufactured

products .r. that year was63 percen; cnti-- i -rt substitution reduced

this figure to the still high figure of 45,2 percent in 1968. This suggests

that thlere s st Ill substantia room lor further i4-mort substatution in Ni-

geria.

37. The limits of import substitution have been reached in a few com-modities, anu fLor these the grwth of -roductior. will be largel dAetermined

by the growth of the domestic srket. -(Table 8).

Table 7: IMPORT DEPENDENCE3 B MAHIIUFACTURING SECTORS (1963-68)

Imports as% of' Imports

DDmestic Domestic plus DomestiLc Import 1/Imorts Production I orts Production Production Substitution

19?63 1968 196, 1 968 1963-68

Ftood, beverage and tabacco 20.2 34.7 15.1 53.6 36.10 22.0 0.2

Aninagl and vegetable oils 0,.1 14.4 0.2 23.6 0.7 0.8 - 0.2

Textiles, clothing andfootwear 38.2 9.3 15.0 45.1 80.14 24.9 33-4

Paper and printing 7..7 3.6 6.o 8.2 68.1 142.2 3.7

(hemicals l11.5 7.7 22.8 20.5 65.5 2. 0 5.8

Petroleum products 1,5.2 114.5 14.0 3100.0 7 8.4 4.0

3Rabber products It.1 7.6 1.6 9.o 35.0 15.1 2.1

Non metallic minerals 6.0 6.2 3.5 8.2 49.1. 29.9 2.2

Metal products 22.9 :16.5 20.1 30.31 58.1 39.9 9.2

Machinery and transportequipment 50.6 9.7 59.8 13.7 83.9 81.4 1.8

Other 23.5 9.4 27.6 8. 6 72.55 75.8 _ 1.2

TOTAL 203.0 119.1 185.6 225.0C 63.0 145.2 71.0

t/ Defined as the reduction in imrorts caused by an increase in the domestic share of total supply (productionplus imports minus exports ). CalclLLation shou:Ld b4 adjusted for any section where export. are3 important, but,,for simplicity, exports have been disregarded in the above calculation.

ANNEX 2Page 15

Table 8: DOMESTIC PRODUCTION AS A PERCENTAGE OFTOTAL SUPPLY OF SELECTED COMMODITIES

1963 1968 1970

Beer 84.6 98.4 99.1Soft drinks 99.0 99.3 98.8Biscuits - 38.8 98.8Sugar 95.7 23.7Cotton textiles 20.2 63.2 68.4Footwear 47.1 94.5 96.0Soap - 90.1 91.4Paints 77.9 80.9 84.6Cement 63.3 86.3 55.6Ronfing sheets 58.1 94 4 76_6

Source: Appendix Tables 21, 22 and 23.

38. The reduction in self sufficiency for sugar, cement and roofingshects between 16Q, adA 1Q70 - Aue to t4he f-.t -. 4--- tho wernest-ritly

rationed in 1968, but relatively more free in 1970. Further import substi-t-ution is possible and 141 kely to occur fo: these iter.s andA fo -- extf4 le a.Ut .IIU L ~ta 1 #L a t. Li. Ut J...L L/ *~ * .II& Lnt -. - --.%.

However, these are only a few items and the extent of import dependence1-%own 4n 'rul 7 Iniae fute oprtunities_ ¢._ A_A

OtlJ tL .LL . l i L~ I LA.U .Lt.aL C IttUt C J ptt t. A.A

LLLUWI $,LLL6 AILUL LAWUL L

Proesin fo- -^

39. ~ 11 -e;t ,port sub-stitut'on, the "valor'zation" of pr-l-ary export-s* D~ext Lo JLU 1IUI L4UU~L. L LLU LLLC VdL .LILUL L i L .LLI&Lyt1'.JAL

is the most important area of Nigerian industrial development. The advantagesA; _.._v4 1w_. _ ._-_A A - _ t. W4---tV. LILUUstLL izdationdLJ.Uu uaseu oLn eAxpor. XprcOcsLng as copIIaLre.U W .ith LtS-I- -

placement are: (a) it is not limited by the size of the home market, (b)its im1port-content o'L' i ,p LiLisLMUAL4LC L1LiL A.0 LyV.LtaJll.y .VWWeL arL. ()

likelihood of subsidized uneconomic production is significantly less.

40. Total employment in export industries is about 30,000, i.e. over'4U percent or industrial em-ployment. SDuchn inuuLries incluud oLULULiUL1UL oJ.L.

and cake, palm oil, palm kernel oil and cake, cocoa butter and cake, rubberprocessing, timber and plywood, tanning, cotton ginning and t'Ln 8,ImeLtitng.

LI I I- - - - .-. 1 _~ 14 1. The share of value-added in inufacturing contributed by L.Lrau

processing or semi-processing primary-products for export has declined fromaDout nalf in 1958 to less than a quarter in 1967. Exports of processedprimary products fell from 29 percent of total domestic exports in 1960 to14.8 percent in 1970. 1/ This is partly due to the drastic fall in palm oil

1/ Appendix Table 24.

ANNEX 2

_____2bri> ?E8C ED PRIKARY flDUOTS"iiti - Ln.:thouBnda)

1960 1965 1970

uro-ludnut Oil (tons) 47 91 89

Groundnut Cake (tons) 53 163 160

Palm Oil (tons) 183. 150 8

Palm Kernel Oil (tons) - 32

Palm Kernel- Cakes (tons) - 33

Cocoa Butter- (cwt) - 184

Cocoa Cake (cwt) - 179

Rubber Crepe and. Sheets (tons) 57 68 58

Timber (cu. feet) 24,309 18,672 7,738

Plywood (cu. feet) 674- 880 740

Hides and Skins (cwt) T173 171 102

Tanned Leather (cwt) 29

Tin Metal (tons) 11 11

/1 For detailed data, see _-sr,= hb .2h

ANNEX 2Paee 17

exportsj as the industry was lorated in the auQt- Fxpnnrr nf ruhehr ereppand sheets, timber and plywood, hides and skins and tin metal have eitherstagnated or declined= This trend has continueaA tn tha present= Some newindustries have developed (groundnut processing, palm kernel oil and cake,cocoa processing and tanned leather) but their 4mporta"ra remaina limitedand their value added is generally small. These industries are sometimeslimited with respect to raw materIals (e.g., grour.dnuts). Also the struc-ture of the tariffs and trade restrictions gives substantial preferences toimport substitution inAust1ries over export in.dust-ries (see below). T 4- 4-i

all the more serious since the marketing of most of these products posesparticularly A4ffi4cult. proble.us in getting access to highly sophisticatedp.... - ~~~~~~~~~ LAJ.AA. ~~~~~~~~ I~ j.LI ~ .L L. L±1 ~ tL.D L I. L.L 19.y

and competitive markets. If Nigeria intends to increase manufactured ex-pots _l is mosl in th **os exs-n _nutre laA AI w_/__J4_@*41n tetls t hat

frALAA. *-, A. L .fl *'ALAm L.A. V A.flA LLIJ A~ sL L.-L LL L J. aL L)A L s ..f/ lA

efforts will have to be made to provide necessary incentives and identiiynew m.arket-s.

'w.JL L.LA U4FL L L UL.L C:U 3ULVC: LUUD LI.LU ill EULUo-y * 7

it would appear that at present exchange rates many Nigerian manufacturingindustries are not COUMDetitiLve w';LtlL 1Iuiports. *uU.Lig 1700 Udata, tLle stud

endeavored to calculate the level of effective protection for a 42-sectorclassification of 'ndustry. Tne effective rate of protection was repre-sented as the percentage by which the factor cost (value-added) of a parti-cuLar production process can exceed the margin availaDle fOr processingunder completely free trade (i.e. no import or export duties, quotas, etc.)at the existing rate of excnange (US$2.80 for EN 1). Tne excess of Nigerianprocessing charges over competitive charges, which was found for all industries(except export processing), may reflect monopolistic returns as weil as highmanufacturing costs. To the extent that this is true the calculated ef-fective rates of protection will no longer reflect the differential eco-nomic efficiency of different industries. Moreover, the absolute net pro-duction rates shown in the study are also subject to the implicit assump-tion that the existing exchange rate is an equilibrium rate. The studydifferentiates between major import substituting industries, export indus-tries and a group of selected high cost industries. (Nominal and effectiverates of protection by industry are shown in Appendix Tables 25 and 26).

Major import substituting industries - Textiles, beer, tobacco,tires and tubes, cement and the fabricated metal industries account forabout 70 percent of value added in the import substituting sector.

Textiles - A calculated rate of 120 percent was found for thatsector. This high rate of effective protection in part reflects higher

1/ The Manufacturing Sector and the Structure of Industrial Protection inNigeria, February 1971, IBRD, EX-6.

ANNEX 2Page 18

than normal profits in that industry rather than excessively high factor costs.Indeed the textile industry is one of the few where a respectable rate of re-turn on book value of fixed assets (17 percent) could be earned using worldprices. 1/ Further increases in excise taxes or recluction in tariffs on tex-tile products could be therefore considered.

Tobacco and beer - With effective rates of protection of 31 and 27percent, respectively, rank among the lowest cost producers in import substi-tuting industries. Uiigh domestic prices, in this case are due to ,ifferent-ially high excise taxes.

Cement - The cement Industry, first establishied in 1934, would nor-mally be expected to fall within the small group of industries where effectiveprotection is very moderate (natural protection due to transport costs beinghigh). However, in 1968 (the year for which the analysis was made), the warreduced available production capacity, leading to increased imports. Thetariff rate, previously almost prohibitive, again became relevant to the pro-tection afforded the domestic industry. Thus, for 1968, much of th1e effectiveprotection of 57 percent represents excess profits rather than low efficiency.In fact, in 1970, the rate of duty on imports of cement was reduced from 40 to25 percent.

Tire and tubes - There are only three plants producing tires andtubes. The moderate rate of effective protection (50 percent 21) found heredoes not appear to hide excessive profits.

Fabricated metal products (tins and drums, steel rods, fencing,nails, wire. enamelware and galvanized sheets) - The averave effective pro-tection in this industry was very high in 1968, 143 percent. It is a hiigi-ly profitable industry and the hiqh effective nrotection is explain1ed inpart, by excessive profits. Nevertheless, the degree of protection is somuch greater than in the other maior import substitut-in- indusiitrips that

adjustment for excessive profits would still leave it rankedl below thoseindustries in terms of comneritiveness= it achieved a 45 percent returnon capital but free trade would have reduced this to a mere 2 percent.

Export industries - Effective protection was found to be nLegativein the export processing industries. One reason for this is that these in-

ti/ Original book value of fixed assets is howeve[ only a roush apLproxima-tion of the value of capital stock.

2/ Value-added in this industry is relatively small due to imports of syn-thetic rubber to blenu wi`th natural ruDDer. Efrective rates of protec-tioni can be high if value-added is a small proportion of the price evenif no-rninal protection is low. This is the case in Nigeria where lowvalue-added as a ratio to gross output in most industries leads to fair-ly high levels of effective protection.

ANNEX 2Page 19

dustries are typically subliecr t expor taf3atior%. 'Por most producnts, thetax was 10 percent ad valorem until 1969 and, since then 15 percent. Theeffective rates are subs tant ally nenat4ive (from mInus 19 for rubber tominus 28 percent for tanned leather). This is particularly true where the

-industr4s use inputs that are produced do..estically in protected indusries

or where the raw material inputs are sold to domestic producers above the ex-pU L L piL, as II1 Ln the Uc as U * ULlo . 1. Lt LsU L sUl MrL LngLJl s ther efore th aNigeria's export industries find it increasingly difficult to compete on theworld market.

High cost industries - Tne industries that have received the greatestdegree of protection (over 200 percent) are the vehicle (truck) assembly, fur-niture, glass products, radio and television industries. hne high effectiveprotection of vehicle assembly reflects the extremely low value-added-to-outputratio - 5 percent in 1968. The metal furniture industry has few firms (i1reporting) and absorbed losses in 1968. The wooden furniture industry com-prises a large number of small firms (31 in 1968), presumably not all veryefficient. The radio and television assembly industries, although undoubted-ly of low efficiency relative to foreign competition, enjoy excess profitshidden in the calculated effective rate of protection. Recently the tariffrate on imported inputs has been raised (from 33-1/2 percent to 40 percent)to adjust for this.

Profitability of Industry

45. Most industries visited by the Mission were highly profitable,particularly in the textile sector, in metal products and in paints. 1/Net profits on capital and reserves ranging from 25 to 35 percent are fre-quent. There seems to be little doubt that prevailing strong demand fordomestic manufacture has led to high utilization of existing capacity whichcombined with a substantial level of protection has resulted in high, andsometimes excessive, profits. Recent liberalization may be having some lim-pact on the prices of textiles and consumer durables in the urban sector.This would explain complaints from some manufacturers about import competi-tion and dumping nrices. However, it would appear that import liberaliza-tion so far has hiad the effect, for some industries, of bringing down pre-viously very hiigh profits. Such profits were made in a seller's market duenot only to high duties but also, until not long ago, to a complete ban onsome imports. Also, the net impact of liberalization of imports and of re-duced import prices 2/ has certainly not been passed entirely to the consumer,as wholesale and retail trade margins are reported to have increased in re-cent months.

1/ Appendix Table 27.

2/ Apnendix Table 28 contains a comnarison of selected cif and ex-factorvprices. It would seem that in most cases nominal tariff rates give suf-ficient nrotertion to dome§tir industries

ANNEX 2Page 20

46. A Survey conducted by the Central Bank in October/November 1971and Mission's inquiries 1/ have confirmed some uncertainties in the industrial

sector regarding future business prq)spects. However, these doubts have beenraised by unclear govermnent policies regarding ownership of industry (seebelow) and rising production costs and are not due only to the importliberalization policy. For example, out of 24 companies which have declaredthemselves "uncertain" or "pessimistic", only 8 complained about growingcompetition from imports. So, despite the fact that the industrial "climate"has deteriorated somewhat in 1971 (51 percent of surveyed companies havedeclared themselves "optimistic" for the future at the end of 1971 as against69 percent at the end of 1970), it would not seem that the import liberaliza-tion policy and its potential impact on profitability shoul(d be consideredas the only major factor in such a deterioration.

47. The Mission also heard some complaints about higher costs of rawmaterials and labor resulting from inflationary pressures leading to lowerprofitability. However, here again, results from Industrial Surveys in 1969and 1970 and also those covering the first six months of 1970 and 1971 do notseem to confirm such complaints.

Table 10: VALUE OF SALES AND INDUSTRIAL COSTS

% Increase1st half 1st half (six months)

1969 1970 1970 1971 70/69 71/70

Valie of sales

(uN million) 99.4 129.9 46.8 56.8 30.7 21.4

Total cost 70.8 92.4 38.9 44.7 30.5 14.9

lbhnr 5.8 7-7 29 3.7 32.8 27.6

raw materials 48.1 62.6 26.3 29.2 30.1 11.0

overhead 16.9 22.1 9.7 11.8 30.8 21.6

Ratio of costs tosales value

Total cost 71.2 71.1 83.1 78.7

labor 4.8 5.9 6.2 6.5

raw m-iaterials 48.4 48.2 5 51.

overhead 17.0 17.0 20.7 20.8

1/ Appendix Table 29.

ANNEX 2Page 21

48. The Llata above indicate that total costs havte increased less tharthe value of sales. The only cost item which has slightly increased islabor, whi4ch 4in any -se accounts only for abot 6 percnt of t-otal cost.

Data available for 1970/71 show much higher costs in relation to sales than-in I 702 c Ii 121 1J* ±In,Lf.L A~U ~ L .~~I~,a .. L.~.~L .~~ ~ W~Lin 1 9 U andu 1970 I LLs Ls due to a so.,.whLat different coverage be.ween thetwo surveys and there are also strong seasonal fluctuations between theILSx L and. Ltlle secUonu IlaLL. oL LtLe yearL Wlich 'Iive uL L)ntil LeLL corrLetU . Li1

any case, a comparison of results for the first half of 1971 and the firsthalf of 1970 also inaicates a decrease ir total Costs as coumpared to total

value of sales.

Utilization of Capacity

49. Utilization of capacity continues to run high in most Nigerianindustries. This is not to say that industry is capable of utilizingefficiently its existing capacity. Lack of skills and of proper manage-ment and poor existing facilities prevent, in many cases, an optimal runningof the plant. hlowever, on the basis of information supplied by industrial-ists, a number of industries can be considered as running at near-normal ca-pacity. Perhaps more importantly, utilization of capacity is even increas-ing in some cases, obviously in response to good market conditions.

Table 11: CAPACITY UTILIZATION IN MANUFACTURING INDUSTRIES /1(percent)

1970 ist half 190,1- 1st half 1971

Food products (5 companies) 77 79 80Beverages (3 companies) 93 100 100Tobacco (1 company) 100 100 100Textiles and clothing

(5 companies) 78 83 77Wood products (2 companies) 85 85 85Leather and shoes

(4 companies) 86 85 85Chemicals (5 companies) 82 70 70Rubber products (1 company) 100 100 100Non metallic minerals

(4 companies) 80 80 81Metal products (9 companies) 92 83 89Vehicle assembly (2 companies) 68 68 70Electricals (2 companies) 90 1 83 82Miscellaneous (2 companies) 64w' 73 80

(stationery, plastic articles)

/1 See Appendix Table 31 for detailed data.

ANNEX 2Pa-.e 22

50. An indication of the high demand for industrial products is thelevel of inventories. Finished products inventories decreased from +-N 4.4million at the end of 1969 to EN 3.6 million at the end of 1970, i.e., from4.4 percent of sales to 2.8 percent. 1! It would seem however that invento-ries did not decline in the first half of 1971 as compared to the admittedlylow level nrevailing during the same neriod of 1970.

Employment; Wages and Produrtivitv

51. LApginning with riura1 rnOttnQ industry, the nlv information onthis subject comes from the 1965 rural economic survey. On the basis of asnmple survey of 199 rural villages; the Federnl Office of Statisticsestimated that 900,000 households are engaged in manufacturing activities.No information wOas collected on wangaes and none is a,v,ailable

52. Although far from complete, data on the extentand nature of s.all=scale urban industries are better. Total employment would seem to be in theneighborhood of 1i00,000- UHere aga4n, no rellable informa tion i9 ava4lable

on wages and productivity. Despite recent efforts by the Nigerian Governmlentst -n .. _nn.^._r SAn,,nlnn,an nV, am,

1 1 4nA..arr4nc nrAn.^.i.4^e4lt4F xIc h_l 4aa,,^ t-- I-nto encuv''E rage deelpmn Of. Sml inutries .__, poutivity i s bei-%,e to _be_v

low. The Second National Development Plan 1970-74 assumes that only moderategains in output per worker can be made in future ears. _/

5-3. Trotal emp,loymHent ln inusris 4th 1r0 wokr -------inrese-.iJ I L L. .1- -IL)ULL LL in £.L&AUO LA. JL00 WJ..JL& I '. WUL Ll~10 Ut MW. L, 0 -.LA C.i.Oaa Ci

from 65,798 in 1963 to 86,718 in 1968, i.e., by 31.8 percent. More thanhalfC of the labor force -was concentrated in food, b-everages anA oac,iUL.A± V1 LA I - JL LU L L W0 1.JILLL L U LA LuIJ LiV 01 %-L UC%-V intextiles and in wood processing industries (Appendix Table 32). Total value

U U 1 ~~~~~~~~~~~JJ ~ ~ ~ ~ ~ - T'l1 0)i/. -auuec ;,rew by 89 percent with -value adUUe per -wo rising LUom M JN P,4 Lin

1963 to IN 1,197 in 1968, i.e., by 43.5 percent.

54. While labor productivity measured by value added per employeerose by an annual average of i.5 percent from 1963 to 1 L68, the averagewage level in total manufacturing rose by 5.7 percent annually. nTe largestincrease in wages took place in 1966 when they rose by 12.1 percent. Table12 shows that the wage index and the productivity index follow one anotherfairly closely, with the wage index rising somewhat more siowly thian theproductivity index. The increase in productivity is striking. Increasesin production were accompanied by increased capital intensity as measured bythe inclex for labor costs in relation to total costs.

1/ Sou!rce : {Central Bank. It has been argued that some companies keep lowinventories at plant site and transfer stocks to distributors. But suchn;; argumen.et is not valid fr man0y- ,-n n

4-e -11

4n- A4 .i..c tor rcust-----.

/ Second Naltionall 1Developr.ent Plan, 107I0=7,4, paie 32.

ANN1H x9

Page 23

Table 12 TTA(GES, PRODUCTIVITV, LAROR COST &AND PRICTS

First half196i 1966 1967 1968 1969 1970 1971 I

Nigeria 100 126 131 132 n.a. n.a. n.a.Lagos 100 123 125 n.a. 122 135 147

Productivity /1Nigeria 100 140 138 144 n.a. n.a. n.a.Lagos 100 111 114 n.a. 152/3 166/3 n.a.

Labor Cost /2Nigeria 100 85 87 91 n.a. n.a. n.a.Lagos 100 n.a 94 n.a. 65/3 66/3 66/3

Consumer PricesNigeria 100 115 111 111 121 137 152Lagos 100 113 109 111 121 138 144

/1 Value-added per employee./2 In relation to total costs./3 Data not strictly comparable with years 1963-68 due to somewhat differ-

ent coverage of industries and valuation of costs.

Source: Industrial Surveys and Central Bank.

55. An indication of changes since 1968 in wages and productivitycomes from surveys in Lagos State undertaken by the Central Bank. Thesesurveys show that from 1969 to 1971 the average wage rate for the manufact-uring companies increased by 9.8 percent per annum, while consumer pricesrose by 9.1 percent. This tends to confirm that large-scale modern indus-tries in Lagos have increased salaries in line with prices (with perhapsthe exception of "unskilled" workers, whose category is however small ascompared with "semi-skilled or skilled", i.e., workers who have been withthe company for some time, and tend to form the largest group of workerssince labor turnover rate in this group is low). Also, there was virtuallyno change in the relation of wages to total costs in the last three years(labor cost is no more than 8 percent of total costs in Lagos industries 1/).

1/ However, the 1968 Census gave a ratio of 13.5 percent for the whole ofNigeria. Thls Is due to tne tact that many smaller, less capital inten-sive industries were recorded in the Census while the Central Bank sur-vey covers large-scale industries.

ANNEX 2Page 24

56. Evidence of higher increases in wages for skcilled and semi-skilledworkers than for unsk11led labor fs nrovitded by the fol_owinng :in.lvsiq ofaverage annual wages by main categories of employees.

Table 13: STRUCTURE OF WAGES IN MANUFACTURING(firma emnlrovincg ten nr morp'

Average Annual Pay (IN) % Employment % of Pay1963 1Q97 % increa 1963 1967 1963 1967

Unskilled 77 124 61 39.1 31.3 15.0 14.7Skilled and semi-skilled 161 191 86 44.3 51.5 35.3 37.2Clerical 234 300 28 12.1 12.7 14.0 14.4Professional & Managerial 850 1073 26 2.0 2.0 8.5 8.1

v_xpa_ri Ales _) f) 11 nq) C; : A'I. 9 1 ') C7 97 r, 9 I 1) C £LAr

4<cXLt ±dLCb 4-4-'J 4-'.lJS 4* 4-. J L .-J L S .4 4 -J *.

) 202) 2I6 100.0 100 0 100 0 100 0lotld (U-V 4-U)t a J V U l kJJ . 'S I'SJ. V I "IV .U

Source: Industrial Surveys 1963 and 1967.

57. As explained, the relatively low percentage of unskilled labor isdue to the fact that 'industries tend to grade most workers accordinU g to timcspenit with the company. In fact, the true number of skilled workers isrelatively low although no exact statLstics are available adU no breakdownis given as regards the proportion of semi-skilled and skilled. Also, itis believed that "unskilled workers" incluue casutal labor. 'I[ Tis woulU h1e.lpto understand why wages for unskilled labor have been kept low, more or lessin line with general labor cost in urban centers.

58. Wages paid are usually higher in Lagos than anywhere else. In1967 (last Industrial Census), the average annual pay for skilled and semi-skilled workers was LN 216 in Lagos, KN 187 in the Western Region and +;Ni 168in the north (Appendix Table 32).

59. The final report of Wages and Salaries Review Commission (theAdebo Commission) was published in November 1971. An interim report issuedDecember 1970 had recommended an increase of ls. 7d. a day for daily ratedworkers. The final report recommended paying 10 shillings per day fordaily rated workers in Lagos and 8s. 9d. in the rest of the country exceptin Kwara, North Eastern and North Western States (7 shillings a day). Allindustries visited by the Mission were giving the Adebo Award to unskilledworkers although some of them were already paying 10 shillings in Lagos and8s. 9d. or more in the States. The tendency is to give a general wage increaseto unskilled and skilled workers alike. Most industrialists were of theopinion that living standards of industrial workers had not improved forseveral years.

Al1iEX 2Page 25

Investment

60. The following table shows the growth in manufacturing investmentfrom 1962/63 to 1969/70 and Plan projections for the period 1970/74.

Table 14: MANUFACTURING INVESTMENTS

7,1nnitf ct,4rt-rnc. in tAnt--qfixe iaua rnvestin toa /1 /1 /1 '

fixe(1 investment Private- Public- Total- Public

1962/63 30.0 41.8 6.3 48.1 13.11963/64 31.6 43.3 12.6 55.9 22.81964/65 30.1 50.6 9.6 60.2 15.9

1965/<6 ~~( 58.9 ( (

1966/67 ( 29.0 59.8 ( 19.0 ( 67.6 28.1

1968/69 32.2 70.0 8.0(est) 78.0 10.31Afi9/70 2f,.8 0 It A 0 A it 72'IA II I

I? yrui 7 / Q'. 0 UJ.).U 0. '.) IL.U I I .I

lfl,AV,4 flt~~11 4 '71 0 i0 A 00 A 40 t

ijiu,/i1 I 7 14.0 18.0 92.8 1".4

1971/72 28.4 85.5 27.7 113.2 24.51972/73 29.7 100.8 23.3 124.1 13.81973/74 31.7 117.4 17.0 134.4 12.6

/1 Figures in bN million.

Source: Second National Development Plan, 197U-74, pages 1I, 157, L/78, 281 an8

290, and Annual Abstract of Statistics, 1969 (pages 189 to 191).

*.1. Private gross industrial capital formation rose from fN 42 millionin 1962/63 to +N 59 million in 1965/66 (at current prices). Indirectestimates for the last three years of the First Plan period (1962-68) indicatethat a slow-down of investment: took place, evidently linked to the civil war.The level of 'gross investment did not decline although this may imply a re-duction in net new investmnents because of increasing depreciation.

62. Although there are no precisely comparable fi,,ures for publicsector investments (which include some expenditures on industrial estates,investments in banks aind insurance companies and assistance to trade andcooperatives), there is little doubt that the public sector has laggedbehind the nrivate sector in the past. In the 1962-68 Plan, because ofthe high priority accorded to the industrial sector, provision was made Forthe capital cxnenditure of 1N 90 million for tlle Trade and In(dustry Programover the six; ve.r period, or roughly 14 percent of the public itivestmentpro,ra;ii. i,y T;ar-ch 1968, wien the Plan expired, only Fi 47.5 million liadbeen lbvste(' (i.e., ?".9 percent of tot;il public capital ex1penditures in1962-68). It is estimated that less than EN 30 million of the amount ihadbeen committed to ILdustries.

ANNI'X 2

P.lne '6

63. Several. factors accounted for this rather noor showring in thepuhblic sector. Firstly, though the objectives of the public sector programw¢ere defined to stimulate new industries, to increasr Nigerian particinationand minimize. the risk of over-dependence on forei.gn trnde, they were notmatched with well-articulated projects and closelv defined nolicies, g,earedtoiwards their achievement. Verv few industrial estWtes were huilt. Therecord on the establishment of cottage industries was not itmressive. TheIron an(d Steel project which was suinposed to he the cornerstone of theindustrial sector 1/ had not, bv the end of the Pl,an periond, possod bevond!

the investigati.on stage. Public partici.pation In new industrial nroinctshas not yielded the exnected return. On the nositive side, holwever, onemust mention the good start of the Nigerian Industrial T)Qvelonmenr TBnanlkset up in part with Government assistance and the erection of a petroleumrefinerv near Port llarcourt with a product caaecit" of l. m{illion tnnsper annum 2/.

64. The Second National Development Plar, with an all]ocation for industrvof nearlv EN 90 million, endeavors to achieve some of the ohbIctives set 10years ago. After a standstill in investments until 1969/70, existing, in-dustries are now being expanded and some newq projects are coming un. Com-panies surveyed by the Mission and those covered bv the Central. Bank Survevshave increased their gross investment from LN 4.6 million in 1969 to MN 10.3million in 1970 and to a projected 24.6 million in 1071, as shown in Table 15.

1/ An allocation of EN 30 million had been made in the Plan.

2/ The refinerv's canacity has recentlv been expanded to ahbout 2 milliontons of products per annum.

ANiNEX 2

Page 27

Table 15: INVESTMENT IN M.ANUFACTURING(N 00 0)

1969 1970 1971 /1

Food Products 235 1,111 2,110BReverages r I790 1 100 5

Tobacco 209 376 2,000Textiles, ancld clothing 59284 7) I3

Leather and footwear 192 210 750Viood products 13 3o 300Non-metallic rninerals 1,014 873 2,462Cllemi als 484 2 484 1,817Tires and tubes 100 300 1,100Mletal products 240 428 974EIlectricals 71 90 331Vehicle assembly 19 59 74'liscellaneous 706 319 275

(stationery, plastics)

Tot.al 4,602 /3 10,293 /Z 24,583

/1 Lstimated./2 Replacement of assets accounted for 79% of the total./3 Replacerient of assets accounted for 2,586 of the total.

Source: Appen.1i. Table 30.

65. Suhstantiai investments have been made in 1971 in textiles, beer,tobacco, tires .nd tubes and chemicals (cletergents in particular). It isto be noted that these investments are mainly expansions of existing companies.Addinrg new industrial, ventures (for which no detailed information is available)and also expenidituires on relhabilition of industries in the east would providea much higher total. Plan projections for 1971/72 assumed that private grosscapital [ormation in manufacturing would be about 30 percent above the lowlevel of 1969/70. On the admittedly limited basis of capital expendituresshown in Table 15, and taking into account the substantial number of newprojects underttaken in the 11 other states, it does not seem unreasonable tothink that privote industrial investment has increasedl by much mzore than one-thirdl in tle last two years. Further increases in investmiient will naturallydepen(d on zovOrn7Tl eut policies regarding industrial investment and in particu-lar on tLhe iupact oF the "'Nigerianization" policy on foreign-owned enter-prises, whicl still provide the bulk of industries in NiJ eria.

ANNEX 2Page 28

Chapter II - Incentives and Promotion Policies

66. In the sixties, industry developed in Nigeria without much activepromotion on the part of the Governments. There has been a framework oftariff promotion, industrial estates, pioneer tax exemptions and industrialloans, but the Governments did not try to attract new industries in accord-ance with any preconceived plan of what could or should be manufactured inNigeria. Government promised non-nationalization and non-interference inmanagement and the free repatriation of capital and dividend. For the rest,the scope for simple import substitution and the size of the internal Nigerianmarket proved attractive enough for the private foreign investors who havemade possible the industrial development which has taken place. The basefrom which the country was starting was so low that opportunities existed inevery manufacturing group. Proposals were so numerous that officials werefully occupied with processing what entrepreneurs suggested, and had neitherthe time nor the resources to do research or promotion on their own initia-tive. This phase will end, as the more obvious possibilities (such as tex-tiles) become exhausted and as more active participations by Nigerians inindustry is sought. Accordingly, the Federal Ministry of Industry in con-junction with the Nigerian Institute of Social and Economic Research (NISER)will establish an Industrial Development Consultancy Service as a separatequasi-autonomous unit of NISER. It will be run by a Management Board whichwill recruit staff and offer them contract terms commensurate with theirexperience. A promotion Unit has been set up in the Ministry of Industryand a Promotion Department may start to operate in NIDB. But considerablymore planning and effort is recuired to Dermit a substantial increase inpromotional and technical assistance to prospective and existing Nigerianentrenreneurs.

A. The Incentives Framework

67. Nigeria is one of the countries that has begun to use tax incen-tives comparatively recently. With the exception of the Small Companies'Relief Act introduced in 1949, its tax incentives system started in 1952,and the first major beneficiary commenced production only in 1957.

68. Nigeria's major tax incentives are controlled by the Federal Govern-ment and t-heyy hLave countr-wYWideV applicati4on fexcept tha.t the accelerated -le-preciation scheme as it affects individuals is controlled by state governments,since thI-ey cor.trol thIle personall incomle tax)%. TLax incent-ives now include thefollowing four principal items. 1/

1/ Following the end of the civil war, the Federal Government offered anumber of special tax incentives to companies directly affected by thewar. These include a 25 percent investment allowance, remission of com-panies income tax on 40 percent of taxable profit, and remission of 40percent of normal super-tax liability. The last two devices are avail-ablT for two vyars or three vears denendine on whether the investment ofthe company is less than or more than IN 100,000 as the case may be.These secial incentives tin not however, constiitu a fundamental changein the existing system.

ANNEX 2Page 209

t) The Poer --- pa.m.4e Relief

Co. This was first gra.te AundAer the A4i to Pior.eer TnAustries Ordinance02.1 ~ L&lO &A.LL L 1'..A L&L'u~ L.L& L±U L.J L J.IJL &~ .LuU L.L V UiU±La C1952, a law which was replaced by the Industrial Development (Income Tax Relief)tAct 1 -J. TLhe latter hLas Ueer recertly repealed y DJecree 0No. 22, Miay 1971 anareenacted with certain major changes.

70. One important innovation of the Decree is the classification ofcompanies into two categories: "indigenous-controlled" and those controliedby foreigners. The Decree specifies that before an "indigenous-controlled"company can quaifry to apply ror a pioneer status, 1/ it must nave incurreda minimum capital expenditure of bN 25,000 on or before production day. Inthe case of companies controlled bv foreigners, the qualifying expendituremust not be less than IN 75,000. The amount required before the commencementof production of the minimum z-year relier perlod was previously iN 5,uuu torall companies.

71. Another major reform of the 1958 Act was in the duration of thetax relief period. Hitherto, income tax reliet was initially tor two years,subject to extension by one, two or three years, depending on whether atleast bN 15,000, 50,000 and 100,000, respectively, of capital had beenincreased by the company. The amending Decree stipulates that the initialtax relief period will be three years instead of two and that this can beextended either (a) for a period of one year and, thereafter, for anotheryear, or (b) for a single period of two years, if the prescribed conditionsare fulfilled.2/ The condition for extension is not the amount of capitalincreased, as in the 1958 Act. Rather, extension can be granted by theFederal Executive Council if it is satisfied with the management of thecompany as to (a) the rate of expansion, standard of efficiency and thelevel of development of the company and (b) the implementation of the projectfor the utilization of local raw materials, the training and development ofNigerian personnel, the relative importance of the industry in the economyof the country, the need for the extension, having regard to the location ofthe industry and "such other relevant matters as may be required." A largerdegree of discretion is thus given to administration than had been the caseso far.

2) Relief from Import Duties

72. This has been granted in two forms, either in the form of a refund(partly or wholly) of duties paid, or in the form of a concessionary rateof import duty. The former method (refunds) is provided by the IndustrialDevelopment (Import Duties Relief) Act, 1957; the latter method was provided

1/ A pioneer company is a public company which has been granted a pioneercertificate and is operating in an industry which has been declared apioneer industry.

2/ The maximum number of 5 years for income tax relief is thus maintainedin the 1971 Decree as in the 1958 Act.

ANNEX 2Page 30

for under the Approved User Scheme.1/ Under this scheme, a successfulapplicant was granted an approved user license on the basis of which he couldimport materials at the concessionary rate of import duty. Introduced in late1963, it was a considerable improvement over the Import Duties Relief systemwhich has the disadvantage of tieing up the grantee's funds until a refund iseffected, thus leading to a loss of liquidity and interest on the part of thegrantee. There was no upper limit to the amount of relief which (as in thecase in the Import Duties Relief Scheme) a grantee could enjoy under theApproved User Scheme. Also, the latter was easier to administer, since thegrantee did not have to pay the duty first and then apply for a refund.

3) Accelerated Depreciation

73. This takes the form of initial allowances granted at rates deter-mined by the type of capital expenditure. The rates now range from 25 percentfor mining expenditures to 15 percent for plant and industrial building expendi-tures. The rates of initial allowance were reduced to their present levelslate in 1966.2/ During the fourteen years prior to 1966, the rates had re-mained stable at 40 percent for plant expenditure, 20 percent for industrialbuilding, and 25 percent for mining expenditures. Another feature of thedepreciation system is the grant of annual allowances. The rates of annualallowances were also reduced in 1966 from 10 - 33-1/3 percent to 10 percenton plant and industrial buildings. Clearly, Nigeria's accelerated deprecia-tion system has become less generous. The Second National Development Planenvisages an increase in these allowances "since the purpose of these allowancesin the past was to attract as much capital as possible into the country." Italso states, "for the purpose of influencing the pattern of future investmentin accordance with national priorities, capital allowances would further begranted so as to discriminate among industries; and within each individualindustry, between different activities."3/ As in the case of the Income TaxRelief Scheme the trend would then be to give a large degree of discretionto administration.

4) Small Companies Relief

74. This exempts private companies incorporated and controlled inNigeria _/ from companies' 4ncome tax during the first six years of operation,provided profits do not exceed bN 1,000 in any of these years. The scale of

1/ The Approved User Scheme was abolished with the announcement of theI. a./ 18 D..J-_1 7 / Z / Z J DUUrCL .

2/ However the initial allowance rate was increased from 10 percent to 15percent on industrial buildings in 1970 and the annual rate from 5 per-cent to 10 percent.

3/ Second National Development Plan 1970-74, page 286.

4/ Thus, the scheme applies to all Nigerian entrepreneurs and not only tothnp Pngvaged in manufacturing.

ANNEX 2Page 31

exemptions is, however, reduced over the period of relief. Thus, there isfull remission of tax liability during the first two years. two-thirds re-mission during the next two years, and one-third remission during the lasttwo years - all provided profit does not exceed EN 1,000. If in any givenyear of the 6-year period it does, relief takes the form of a reduction intaxahle income, that reduction being enual to MN 1.000 minus half the excessof profit over bN 1,000. Effectively, therefore, no relief can be enjoyedonce nrnfit level rearhe N 3,000nn, since 1-000 - 1/2 (3-o00 - 1,000) =0.In sum, the small companies relief can be enjoyed during the first 6 years-rovided profit does not exceed UJN i nnn,

Adtmninltrnt4nn nf tha TnprInt-v'a Ruatfm

75. Thea 1 a4 stntwo dev --- (a-celeated----- dee vcist40n and Small Cmom anlesRelief) have been so far more or less automatically available to any companysub_ect to the companlies' Incomue -ax. Since they are integral parts of incomeSuuj ~L. L. LU L k LII.iL.b 4.LLI. LU LG. .J.II. L I~ cL JL ±LL J ~J. 9L. L ALi. Lclt

tax provisions, no special application is necessary. By contrast, the otherLL in en_ A_tive.s. _ Liave L-o _u app_L.LeU Alor and_ are n_ avaial to al.l_ appL±Lcants,.

In other words, they are granted selectively, the major administrative agencyb-eing the Federal M'n'stry o' Ir,dustry. The latter usually -ek - h -v'ews _J --

of the Ministry of Industries of the State in which an applicant intendsto locate his enterprise. Such vlews oflten greatLy influence the reuera'lMinistry of Industries' decision on the application. The criteria underwhich the three incentives are granted are reporteu to De sufficientlyflexible and general to allow each case to be considered on its own merit.

76. An essential aspect of Nigeria's tax incentives system is, there-fore, the considerable scope it allows for Lhe exercise of administrativediscretion. Over the years, the administration of the incentives (the pioneercompanies relief, the system of duty rerunds and the approved user scheme inthis context) has improved. The quality of appraisal of applications is higherana the incidence of arbitrary decisions correspondingly reduced. inere are,however, cases where appraisal has been simply perfunctory.

77. Over the years, the administration has encountered a variety ofproblems which highlight some of the difficulties arising from the executionof an industrialization program. The role of foreign investors is partic-ularly relevant in this context. The problems often arising in this arearelate to the difficulty of distinguishing between the genuine foreign in-vestor and the one who advances a proposal to set up operations merely toprevent the Government from encouraging his competitors to set up, or the

Page 32

investor who is more of a vendor of machines than a real investor.1/ There isthe problem of ensuring that foreign investors who enjoy Government subsidycontribute their utmost to the economy in return. Ensuring equity in Govern-ment incentives programs between foreign investors and indigenous investorsis a problem also. With regard to the encouragement of indigenous enterprises,officials have pursued a balanced course. They have denied income tax reliefto indigenous enterprises not likely to benefit much from tax incentives be-cause they can be better assisted in other ways, or because the large numberof indigenous operators in that field suggest that it wi]l be superfluous touse tax incentives to stimulate indigenous interest in such activities. Ex-amples are the tailoring, bread, printing, and saw milling industries. Onthe other hand, they have readily and judiciously used income tax reliefgrants to encourage Nigerian participation in industries which are doninate(dby expatriate firms if there are good chances that the Nigerians will makegood in such industries. The policy of indigenization of Nigerian industrytherefore is not being pursued blindly.2/

Cost/Benefit of the Tax Incentives Svstem

78. Since 1455; about 700 annlications for Income Tax Relief and ImnortDuty Relief have been submitted, divided almost equally between the two in-centives. About 180 nioneer certificate annlications were approved. althoughonly about 100 have resulted in the actual enjoyment of income tax relief(thp remanining sucrcessfiu1 pnn1irants having filpld t-n commenre onerationq).

1/ There was, for example, an application from an international dry cellbattery manufacturer. The applicant already controlled the major partof the Nigerian market through its salesmen, and in consequence theapplication received enthusiastic support. Thereafter, the applicantdid little to indicate seriousness of its intention to set up, and yetfor two years other interested parties were denied tax concession. Atthis point, the authorities understood the intentions of the first ap-plicant, though from the string of other concessions (including no taxconcessions to any other manufacturer for 5 years and, curiously, noincrease in import duty on dry cell batteries so the applicant intendedto continue to export to Nigeria even though it said it wanted to pro-duce locally) requested by applicant at the time it applied for IncomeTax Relief, it should have been possible to detect the real intentionsof the applicant. Similar examples could be given covering milk, razorblades or many other commodities.

2/ Critics are quick to emphasize that out of 148 Pioneer Certificatesonly 7 were granted to private Nigerian investors, thus reducing themorale of Nigerian investors. However, the main question seems to benot to systematically favor Nigerians by discriminating against eco-nomically sound foreign projects but rather to help Nigerians to in-crease the efficiency and size of their establishments through Govern-ment technical and financial assistance and by patronizing of productsmanufactured by Nigerian-owned industries.

ANNEX 2Page 33

About 90 applications tor Import Duty Relief were approved and about 300approved user licenses were granted. In 1965, there were about 700 compa-nies enloying accelerated depreciation alone. and only about 150 enioyingthe small companies relief.

79. The most favored industries have heen textile, metal and food in-dustrie3. Lhe naints- rhemica1, conmtrrirft-ncy materials and. rtiluhpr nrditretindustries have also been imnortant beneficiaries (Appendix Tables 33, 34 and35). Nigerias' tax inc=entIves program hAs not he-n tinsed t influepnceP thedispersion of Industries over the country. Hence, one finds a heavy concen-tratlon of the arvntees 42taFt for%i m4o4 F-fa !Tne^a (4"-A4no TlArf4n

Port Harcourt, Kano and Kaduna. The distribution of the grantees betweenthe n f*tmv rei -N h t A Wese) hwever, appe8rs less unevensince all the regions have more or less the same number of grantees loca-ted in tbem; but th4.-s has buVeen more an aCC4.cid thU- the result of a Aelib-erate locat4onal policy.

80. Table 16 summarizes the effects of the incentives system.

81. Between 1958 and 1966, it is estimated that about bN 40 millionrevenue was lost as a result or' th-e subsidies granted unuer various devices.Accelerated depreciation alone accounted for over half of this loss, followedby the lncome tax reilie whicn accounted ror about one-tnird. Total revenueloss was about 4 percent of Federal Government current revenue over thewnole period, although the annual ratio of revenue loss to current revenuesrose from over 1 percent in 1958 to 6 percent in 1966. It may be noted, how-ever, that accelerated depreciation does not produce a permanent loss ofrevenue, only a postponement of revenues, and that some of these postponedtaxes are now due.

82. An informative survey conducted by the University of Ibadan helpsto answer the question whether tax reliefs were necessary for the establish-ment of indust:y.1/ Only one-third of the Pioneer Companies consider taxincentives as a factor in their decision to set up.t Tax incentives general-ly rank lower than market conditions and Government attitude, participation andencouragement as factors in the decisions of the companies. With regard tothe particular role of the income tax relief in their investment decisions,two-thirds of the companies consider that they probably would have set upwithout tax holiday. These findings were supplemented by comparing the aver-age annual profit rates achieved by the companies with the minimum annualprofit rate most of them thought was required to commence and continue inoperation. It was found that if the companies had not been granted a taxholiday about half would still have achieved the acceptable after-tax rate

1/ Appenclix Tabl.es 17, 18 anrd 36.

ANNEX 2Page 34

Table 16s SUMMARY OF EFFECTS OF TAX INCENTIVES SYSTEM

Applications, 1955-68 (number)

1. For income tax relief (Pioneer Companies Relief) 3h02. For import duties relief 360

Approved Pioneer Certificates 179 /1Approved Import Duties Relief Certificates 90Approved Accelerated Depreciation /2 700Approved Small Companies Relief /2 150Approved User Licenses /3 300

Estimated wross amount of eovernment revenue lost. 1955-66

£N million Percent

Income tax relief 12.0 30Import duty relief 7.2 18Accelerated depreciation 20.h 51Small companies relief 0. 1

Total TO.3 ion

Estimated net revenue loss. 19q5-66 £N 32 (Wi 410n /A-

Contribution to the economy by Pioneer Companies

Investment, 1957-68 £N 46 (million)Percentage of Nigeria's gross capital

formation 1 percent in 1957 and 6 percentin 1966

Total value of fixed assets (1966) £N 57 millionValue of gross output £N 1.5 million in 1958 and

£N 80 million in 1966Value added (1966) £N 25 millionEmplovment (1965) 29,000 /5Wages and salaries (1966) £N 7 million

1/ Thit onlv 101 with effective pioneer status as others failed to commence

operations.2/ More or less antati i'Anl lv% am.i1'hl1l to any companr Ruuihipt ton cn..a..n 4

income tax - administered by the Federal Board of Inland Revenue.3/ .3i.mher eof n-n14inAr1 a in8+. n mnot- Rerham.e introciiedti latp 1963 frer

import duty relief (imports at concessionary rate of duty).

personal income taxes on incomes generated) less revenue lost (fromco.m.paries'inco..e tax and i ..por duis->c tulA hav been- collected

if pioneer companies had not been producing import substitutes.' Abvo-ut 20 percentL of tovl ed.If'oyII,1 i n CL UUmi factu irg.

ANNEX 2Page 35

of return.1/ Besides, about one-third of the companies who have been refusedpioneer certificates in fact went on to commence operations. On the wholeabout 60 percent of investment in the pioneer companies sector would probablyhave been undertaken without the offer of a tax holiday.2/

83. Pioneer companies' contrihbution to the economv in return for thetax holiday was about iN 46 million initial investment (i.e. prior to com-mencement of production) between 1957 and 1967. The value of their grossoutput rose from 7N 1.5 million in 1958 to about bN 80 million in 1966 i.e.about 40 percent of gross output recorded in the 1966 Industrial Survey.Generallv speaking; ninneer cnmpanies tend to be larger than the average intheir respective industries, whatever indicator of size is used.

84. However, between 1958 and 1966, the operation of pioneer companieshas resulted in net revenue dicit for a G Treve m uegained

from various taxes (such as excise duties) paid by the companies fell shortof revenue loss by an esstimated LN 32 m.illiton. From a purely budgetaryviewpoint, therefore, the pioneer relief program has so far not been self-supporting. ThL'ere are strong indications that this s-ituati4on m.ay le re=versed in the near future, as excise duties are expanded to replace importUuties, ant1U as uaLny p±UIonee compranies UomlpLete Lt ler txL Lfis LUoLU'ay, anLU L'ILceLbecome liable to companies income tax.

D. The Tarif- and Tax Structure

Tariffs

85. In 1960, Nigeria was a relatively open economy with industrialactivity concentrated in firms processing traditional primary products.Tariffs were relatively high only on imports competing with some industrieslocated in the non-export sector (30 percent on beer, 20 percent on cement,112 percent on cigarettes and 37 percent on textiles). Most other commoditiesentered Nigeria either free of tariffs (sugar, for exampie) or witn low ormoderate tariffs. By the mid-1960's, however, tariffs rose substantially.In 1965 the weighted average of tariffs on all commodities was 67 percentand in 1968, 76 percent, the average tariff being somewhat higher for con-sumer goods than on raw materials.

1/ Thus, the argument that the pioneer program reduces the incentives torealize profits in the initial years of operations does not seem entire-ly justified.

2/ For further details, see A. 0. Phillips "The Significance of Nigeria'sIncome Tax Relief", July 1969. Also, refer to Appendix Table 36.

ANNEX 2Page 36

86. Since 1968, tariffs have continued to grow on many raw materialsand capital goods, a move designed to redress the imbalance in protectionaccorded consumer goods and intermediate-capital goods industries. Thetariff has been increased in 1970 on imported yarn and on grey baft (toencourage the backward integration of the textile industry). The tariffon most intermediate metal products has been raised from 33-1/3 percentto 50 percent and from 5 percent to 10 percent on machinery and parts. In1971, duties have been further raised on a number of items.

87. Quantitative restrictions, which were very important duringthe civil war years, have been relaxed since 1970 for a wide list of com-modities. This increases competition and has the additional benefit thatmonopoly profits of those fortunate in obtaining import licenses under asystem of quantitative restrictions would accrue to the Government astariff revenue under a system of tariffs designed to equalize the importrestraining effect of the previous quota system.

88. Mention should be made of the negative protection implied inexport taxation. Export taxation on most products was at a 10 percent rateuntil 1969 when the basic rate was increased to 15 percent. The new rateapplies to exports of groundnut products, palm kernel products, cotton lintand seed, rubber, and logs. The previously lower rates have been increasedfor lumber exports from 2.5 percent to 3 percent. The export tax rate onplywood has remained unchanged at about 10 percent. This export tax changehas added to the already heavy penalization of export activities.

Taxation of Profits

89. The basic tax rate applied to industrial profits in Nigeria was 40until the end of 1971/72. With the announcement of the 1972/73 Budget thetax rate for companies earnings more than EN 5,000 was raised to 45 percent,while tax exemption was introduced for firms earning less than EN 3,000. Asa temporary measure, a "super" tax was introduced during the war years bywhich profits above 15 percent of sbare capital were subiect to additionaltaxation at a rate of 10 percent for the first EN 5,000 and 25 percent forany nrofits above that amount. Becausp Rharp ranital is internrptpd as in-cluding earnings capitalized by issuing stock dividends, the tax encouragedA rptpntinn nf nrnfita *in Nioarln. Tt rdid nnt hn,aor,r Art Ae : r44n.-nonetra

to new investment in Nigeria, as the ratio of share to debt capital is normallykept low in the first years of a firm'a noperti4n in nraer to- reduc ris. TIt

has often been possible for new firms to keep this ratio low enough so thatGovernment-provided debt capital was in effect risk capital. The advantageto the entering firm from this type of financial arrangement, sometimes veryhaz.ardous, was reduced by the nature of the super tax. T.his super tax wasabolished at the beginning of the 1972/73 fiscal year.

Excise Taxes

90. In contrast to most developing countries, excise taxation is notapplied to imported commodites, so that it has the effect of reducing thedegree of protection to the domestic industry. The commodity base of excisetaxation has expanded rapidly since 1960. In that year, only cigarettes,

AzThVN 9

Page 37

beer, confectionery and soap were subject to excise. By 1970, the list hadexpanded to 46 commodites including virtually all the major Nigerian indus-trial products. Rates of taxation also increased substantially. Whereasexcise taxes accounted for only 13.5 percent of total revenue in 1965/66, theyhave accounted for about 20 percent of revenue in 1970/71 (as compared to 25.5percent for import taxes). The policy has been to use high tariffs to protectnewly introduced industries and then, with increased efficiency in theseindustries, to reduce protection not by lowering tariffs but by imposingheavy excise taxation. Furthermore, since 1964, it has been the policyto offset the protective effect of increases in tariffs designed for revenueor balance of payments purposes with corresponding increases in the excisetax rates on the domestic industries concerned.

Effect of the Tariff and Tax Structure

91. Effective rates of protection resulting from the tariff - exporttax - excise tax system are shown in Table 17.

(a) The system discriminates strongly against export-orientedindustries processing the traditional primary products of theNigerian economy. mainly as A result of exnort taxation. Thebenefit of penalization of export processing is additionalgovernment revenuie (thouigh the name rAvAiIuip eniltd hp cnllecrt-efrom a smaller additional tax on both processed and unprocessedexports). The more imnnptnnt A 0B 8a an inaffirient Allnoationof resources and an income transfer from domestic consumers notnly to-n f-he onarnm.nt but alae to-n pnreminainly expatatte pro-

ducer groups.

Page 38

Table 17: EFFECTIVE RATES OF PROTECTION(percent)

Effective Rateof Protection

Export Industries /1 -24Import Substituting Industries 85

- Industries Processing Domestic Inputs /2 98- Industries Processing Imported Inputs 7T 78

/1 Includes tanneries, leather finishing, tin, oil milling,lumber and plywood, and rubber.

/2 Includes tobacco, cement, tires, petroleum products,other food products, wooden furniture, pottery, wearingapparel, concrete and clay products, one-third cottontextiles, one-half cement.

/3 Includes beer, soft drinks, spirits, radio and televisionassembly, motor vehicles, textiles (2/3), cement (1/2),paper products, paints. structural metal products, soap,cosmetics, drugs, electrical appliances, footwear, cutlery,hand tools, hardware, plastic products, fabricated metalproducts, metal furniture, glass products.

Source: IBRD Report - EX 6 - February 1971.

(b) The average level of effective protection on new import substitut-ing industriesm i8 n high __ 105 percent. The level shon in thetable is lower (85 percent ) because it includes the long estab-lished and relastivelly compnetitive lbeer, tobaccon, andceen in-

dustries on which high levels of excise taxation are imposed. Itis for the new e-port substitutirng 4ndustries that serious ques=tions arise concerning the benefits in employment and training

_;¢ __ 1 4 U _.__4 1- 4 4: C e.LLcts LatL Ve toLth Aoss to con stier.s.. imp X-i Lni IILgil LaL A. L

barriers and the loss of government revenue.

(c) Greater protection is given to industries processing domesticinputs than those processing foreign inputs. This preferencefor the former type of industry can be justified on the import-ance of hign linkages in a less developed economy. But despitethe importance given by the tariff-tax system to industriesprocessing domestic inputs, growth has been relatively more pro-nounced in industries processing imported inputs. This seems to

ANNEX 2Page 39

be explained (as indicated earlier) by the importance of marketportection for foreign investment in Nigeria. Mucn of this in-vestment is undertaken by foreign firms, previously importinginto Nigeria, to protect their market by transferring finalstage processing to Nigeria.

92. The system of industrial protection also discriminates againstintermediate and capital goods in favor of consumer goods industries asindicated in Table 18.

Table 18: EFFECTIVE RATE OF PROTECTION OF IMPORT-SUBSTITUTINGCONSUMER GOODS AND INTERMEDIATE-CAPITAL GOODS INDUSTRIES

(percent)

Effective Rateof Protection

Consumer Goods Industries

(a) Including beer and tobacco 91(b) Excluding beer and tobacco 114

Intermediate-Capital Goods Industries /1

(a) Including cement 59(b) Excluding cement 73

/1 Includes cement, structural clay products, concreteproducts, paper containers, boxes. paper boards,structural metal products, and miscellaneous productsnf nptroleunm

Source: IBRD Renort - EX 6 - Februarv 1971.

C. Impact of Policies on Industry and Resulting Problems

93= Government-, tariff and tax structure; and incentiuepolicies have combined to produce the following results:

(a) a relatively rapid growth rate of manufacturing has been achievedin the last ten years. This growth rate has taken place by fol-lowing the classical (and so far the most practicable) route toindustrialization i.e. tmport substitution. Even during the

civil war, the policy strategy was to encourage, on all fronts,the local p.ro.,dun 4- of goods that were previously imported. As

ANNEX 2Page 40

a result, near self-sufficiency has been achieved in severalindustries and a numDer of the obvious opportunities for simpleimport substitution have been exploited. Yet, Nigeria has notapproached the limits of import substitution and imports ofmanufacture in many sectors still run at high levels. Thus, thequestions are (1) at what price can further import substitutionbe pursued and (2) what are the alternative opportunities fordeveloping export production.

(b) The structure of Nigerian industry remains little diversified.The tariff policy has encouraged production of consumer goodswhich accordingly have developed faster than intermediate-capitalgoods industries. But many of these indtustries are mere assemblyplants. If intermediate and capital goods for sale to other in-dustries 1/ are to be manufactured locally, the Government musthelp finance feasibility studies, and tariffs and other supportmeasures must be introduced to make local production more "profit-able". But there is a limit to the extent to which one can makelocal goods more expensive and forego revenue to the Governmentwithout actually depressing the standard of living. In the ab-sence of new international trading arrangements such as an inte-grated West African Economic Community and since it appears un-likely that in the near future Nigeria would be in the positionto export manufacturers to Europe, Nigeria must seek ways ofstimulating internal demand and so enlarging its internal marketand in the process do more than replace traditional imports withlocal production. This is why there is need to modernize andimprove productivity in the agricultural sector and reverse thetrend of the last decade of the relative impoverishment of theagricultural sector relative to urban labor.

(c) The tax incentives policy pursued by the Government has so farnot had the effect of directing industries to uneconomic locationsand it has been neutral in that respect. It is true that Nigerianindustry is largely concentrated in three areas - greater Lagos,Kaduna-Kano and Port Harcourt. These centers continue to attractpeople from the rural areas with its negative economic consequen-ces for the rural sector. It can be argued that the countrywould benefit economically if there were some means for dramatic-ally increasing employment opportunities and income of rural areas,while; at the same time, restraining the growth of urban slums andother attendant problems. But Nigeria is still at the beginning ofthe inAduqtrial procesR The most imnortant oblective must be morerapid industrialization and therefore the most should be made ofthe external economies for egtablishinQ induiqtripq in existing

industrial centers. Over time, with more mature industries and

!f For example, wood pulp, industrial chemical, metals and engineering.

Page 41

a greater proportion of intermediate and capital goods locallyproduced, more foot-loose industries or local-raw-materialsoriented ones can be dispersed all over the country withoutprejudicing optimum industrial progress.

(d) Since it is impossible to know precisely what would have happenedin its absence, it is difficult to say whether Nigeria's taxincentives system has so far succeeded or failed in attractingindustries. However, since the Nigerian authorities have shownno indication to abolish the system but rather regard the offerof tax incentives as an important instrument of industrial policy,it is vital that the system be subjected to reforms aimed atrationalizing it and enhancing its effectiveness. One reason whyreforms are desirable is that Nigeria's tax incentives systemwas introduced at a time when the pre-occupation of the Governmentwas to get general industrial development going. The incentiveshave remained largely in their original forms even though theeconomic conditions of the country have changed. Many of themost obvious opportunities for simple import substitution havebeen exploited. The next stage of industrialization should in-volve the consolidation of what has been achieved so far. Exist-ing capacities need to be diversified to produce other lines notat present being produced. Many existina industries could dowith further backward integration to include earlier stage ofthe manufacturine nrocess (e.; textiles. There is need to en-courage the greater production of intermediate goods, and fosterthe beginnines of light capital gaodA industries. The tax incen-tives system which can be made to become one of the tools forarhieving the ohiectives of fuit-re plans. The imnliration is

that the present era of general, uncoordinated and passive incen-tives would … . If tho (v,ernmnnnt Aecides4 to cnntinie tax rine-n-

tives as an investment of industrial policy, rather than abolishthem, then it should uAe them 4udiciolAis4 1 .

(e) As the Gnvernment assumes a larger role in nromnotng new industries,

more consideration will have to be given to their economic basis.As nnterd many Nigerian indu,stries have a relativpelv mall value

added in relation to gross output (about 25 percent). Also, thoughlarge-scale manufacturing Abnorbs great amnnuntso of annpit-al 4 t- hasso far yielded relatively little to Nigerian national income. Besidewages and sal4ares 1/ the only 4*nwn a t^tvtn4on N4eriv4an 4ncome

are the taxes (direct and indirect) on expatriate incomes, theincm .e taxnon th f4irm (as n d ti small because of pioneer

1 Nigeria has a low ratio of wages and salaries to value-added. The ratio.i LoWer iLLn developing contis eauso %.Cpita.LL. %LPOLD Lco.sLtsr .LVe.Ly Ir,ULr.

Nigeria is relatively less efficient in making capital goods than inmak-ing consum,er goods; i-'por-ed m,achines Cost r,ore; th'e life of' capitali-L shortUer andj tL. LeU rts and proLIts are higher.

is shorter; and interest rates and profits are higher.

ANNEX 2Page 42

tax exemptions), profits on that nart of the entlitv which is

locally owned (about 30 percent) and the incomes generated by

local purch.ase of inte…mediate goods and services, It is unlikely

that Nigerian income benefits by as much as 30 percent of the value-

adUeu iLL large-scale m.anufacturing. And since many products survive

only because they are protected by tariffs exceeding 50 percent onvalue-add3ed1, Nigeria probably spends more foreign exchange (onn

machines, raw materials, expatriate salaries 1/ and profits) onma'.ing sor,,e products at. homne, t,-ha,n -It would spend if they were to

import the manufactured product itself. Nigeria is still in the

stage where to manufacture some products at home is to reduce thecurrent standard of living in the hope of future gain. To the factthat thLe .major part of vallue-added goes abroad there is no im-m.ediate

remedy. 2/ The part attributable to depreciation now spent onim,,ported iu,luiuch4nes A w 4n4sh s NCerials m.etal-usi- indus-

tries develop. Since they depend on the size of the market, the

only way to dimirnish the proportilon of depreciation spent abroad

is to push ahead with industrialization. Part of value-added goes

abroad as amortization, interest and profits because domestic saving

channelled to industry is low. The chief remedy is developmentitself, which -will raise domestic savings. Another part of the

problem which will be solved with time is the payment of 7 percentof value-added to expatriate wages and salaries. This should

diminish as the secondary schools, the industrial institutesand the universities pour out educated personne'l. This helps toexplain why it could theoretically be worthwhile to push aheadwith industrialization even though the domest'c cost of foreignexchange saving may be fairly high. Future gain will come asproductivity increases, as the industrial network expands, so

that industries buy more from each other and less from abroad,and as Nigerians replace expatriate supervisors. Heavy costswill have to be incurred before future gains can be made.

(f) In the past, the Government has directlv invested relativelylittle in industry preferring to encourage hesitant entrepreneurs

througn tariff and tax incentives. The currently low return on

capital invested in industry, whether from the standpoint ofemployment, or in terms of income generated for Nigerians, is

relevant to the question of how much of their own capital theGovernment should invest in industry wlhen there are so many

other useful ways of spending Government funds. The question

is to know what would be the least expensive way to achieveindustrialization objectives which at any rate are bound to

be costly. It would seem that, under Nigerian conditions, and

on the basis of past experience, the burden of direct Government

1/ They represent about 25 percent of total wages and salaries paid in manu-

facturing.

2/ Assuming that repatriation of capital and profits is allowed.

Page 43

ownership of industrv is to he assumed only when it is unavoid-

able. A more efficient use of additional public resources

which may no- become available in the future may be to assist

financially and technically Nigerian entrepreneurs with industrial

exper'Lence.

Litt.LLL± hLas ubeen done in the past to help Ni4erian entrepnrneurs

except lending them some money. What the small businessman

lacks most is managerial competence and what they need, along with

money, is the right product for their market, along with adequate

supervision of labor, better layout of plant, proper control of

investment, better accounting, etc. Small enterprising (employing,

say, from 1 to 20) has a nu-mber df auvantages. T eis less apt-

intensive, and so adds more to national income and employment for

every pound invested. It is also the nor-mal sciloo'l or entre neur-

ship; out of existing thousands of small firms could emerge the

Nigerian business leaders of the future. Given the private enter-

prise system, the way to industrialize Nigeria adequately is to

produce a large class of Nigerian entrepreneurs with industrial

experience. Thus, looking ahead, it may be as important to lay

the foundations of an industrial class by helping small entre-

preneurs than it is to build large factories.

ANNEX 2Page 44

ChaDter III - The Second National DeveloDment Plan (1970-74)

The Obiective

94. The Plan recognized that Nigeria was now moving away from theearly phase of industrialization to the "more deman(ding second-generationphase of basic structural change". The policies, programs and projects

in the industrial sector of the Plan were supposed "to meet this new chal-lenge".

95. It would appear that the basic aims of the Plan are the following:

(a) maximize value-added in relation to output, so as togenerate more income and employment - "what is crucial isnot the mere local manufacture of a wide range of productsbut the net impact which manufacturing activities can con-tribute to the growth of income and employment." To achievethis, two possibilities are simultaneously envisaged.

( consolidation ofJ wllat has b een ach eve' so lar.

Existing capacities are to be diversified to pro-duce other 'lines ,.otL atL present' byeing produuced'.This would imply in certain cases further verticaliLntegratiVon to iLLLLUUd eacrJ.CL stagsU LLIC manu-

facturing process (such as expansion of weaving inth'le textLle ind-ut-Ly".

(2) providing higher priority to raw material producingindustries and industries processing domesticallyproduced raw materials, while reduced priority willbe attached to import substituting industries basedon imported raw materials. Tnis would imply thedevelopment of agro-based industries which by usinglocally-grown agricultural products as the main in-puts make a greater total impact on income and em-ployment. Another sector to be developed would be

the chemical and petrochemical industry. This wouldserve the dual purpose of increasing the value-addedby the oil industry as well as providing some of the

intermediate goods (chemicals, fertilizers, plasticgranules, artificial fibers, industrial gas, etc.)required in existing or proposed industries. Thirdly,capital goods industries could be started (iron and

steel bars, rods and structures, machinery componentsand spares, etc.) to increase the value-added of in-dustries using steel and machinery. Steel production

ANNEX 2Page 45

would initially be based on scrap, but in the longrun the establishment of a basic Iron and Steel in-dustry would provide the input for the manufacture ofcapital goods.

(b) the second main objective of the Development Plan is to reducethe part of value-added which goes abroad. The assumptionis that the chief reason why large-scale manufacturingadds little to Nigerian income is not that wages are a smallpart of value-added, but that the major part of value-addedgoes abroad. As noted, the greater part of this "exported"value added is depreciation, spent on imported machines.Next comes amortization, interest and Drofit, of which onlvthe part locally owned (about 30 percent) and the small sharetaken by the profit tax remain in Niaeria. To remedy thissituation, the Plan envisages three methods.

(1) development of capital goods industries so as torpdtiup thp nart attr4hut-ahlp t-n depreciat4-on. Sinepcapital goods industries depend on the size of themarket, the Plan'R nh prtive i8 to dimi4n4ish t pro-portion of depreciation spent abroad by encouragingindustrialization.

9(2), deve-lopment of Nigerian in.vestments in. industry 4r.-oderto reduce in the future the part of value-added now goingaLbroad as Wortiz ation, interest ar.d prft It is fthis reason that the Plan reserved for Nigerian direct-InvestmXent a certain part of 'ndustr'al irl-vestruen'. "or

public policy reasons and also because private Nigerianfinancirg 's not expected to L e availabe in wu"i'c'entquantity for very capital intensive industries the Plandecided that- the GOve.,.rnent asuhou'ldU h o lU at least 55 per-cent of equity in the iron and steel basic complex andin 'ndustries prolucing petrochem-ical, 'ert"1izer ar.d.L L JLUU LL .I LUIhL.LL J L. UiWIJA ~ L, LL -L.L.L ~ ~ LU

petroleum products. As regards other industries, in-Ligenous ,.e., eiLthL'er Government or private NigerLans)participation should be at a minimum level of 35 percentof equ.ty. IL 'L not specified LI' thi percentage wouluapply only to new or also to existing industries.

(3) A faster program of Nigerianization of staff to reducethe "earning leakage occsionad by the employment of

ANt!IKY 2

expatriates whose remuneration accounts for about 7percent of the value-added ln manufacturing. Thiswould imply a further tightening of the existing ex-

patriate quota system as well as assistance towardsincreasing Nigerian participation in management.Training and assistance towards the development ofsmall industries would also be provided.

Proposed Implementation

94. To implement the above objectives, the Plan envisages the follow-ing series of measures.

(a) reconstruction of damaged industrial capacity - this wasof course, the first measure to take before embarking onany more ambitious industrial strategy.

(b) inclusion in the Plan of a list of priority industriesand activities ranked as follows:

(i) agro-based industries

(ii) petrochemical and chemical industries

(iii) increased integration of the textile industry(including greater diversification)

(iv) integrated iron and steel complex

(v) passenger motor vehicle assembly and relatedindustries

(vi) expansion of existing and new industries for export(such as LPG or LNG)

(vii) further selective import substitution.

(c) revision of the industrial incentives system, mainly througha more selective approach and by giving priority to indus-tries with greater value-added in relation to investment andforeign exchange savings potential. In particular. attentfonwill be given to capital allowances which would be grantedso as to disc:lmirsnte between. industries; and between dif-ferent activities within each individual industry. Measureswould be taken to realign. private sector inrtentions which

tend to be different from Plan priorities as shown inAppendix Table 37. Most private proposals are for textiles(46 percent of proposed investment) and for metal products(12 percent). This does not take iLnto account isolatedproposals in accordance with Plan priorities such as LPG,oil refinery, sugar estate and passenger car assembly.

ANNEX 2Page 47

(d) a public capital expenditures program of EN 86.1 million (ofwhich EN 40.8 million for the Federal Government 1/ and EN 45.3million for the States) covering the period 1970-74. This pro-gram would enable governments to acquire either 55 percent or35 percent of equity in priority industries listed under (b).

(e) indicative planning for private manufacturing investment whichis nrnipeted to inereaRe from EN 74.8 million in 1970/71 toEN 117.4 million in 1973/74 (at current prices). Total indus-trial oitnipt is oroiented tn crow frnm FN 17R.R Rmllion in1970/71 to EN 290 million in 1973/74, i.e., with an annualaveraPe Prowth rate of 17*9 nprrpcnt-

Table 19: PROETEDl G>nITL A.^D INVnST NTMMT (1970-74)(EN million at current prices)

Anverage

Growth1970/71 197 1/72 197272 17t rt 0p.aS .A

IndAUstr4a' fGDP at

factor cost 178.8 209.2 245.8 290.0 17.5~~ T...... ~~~7/. Q C CZ Inn 0 1l I.AI a 1Private Tnvestm.ent 74.8 85.5 100.8 117.4 16.2

Public Investment /1 18.0 27.7 23.3 17.0 -

Tota'l Priva-te a9 ruV"L'c 92.8 1'3?.2 1244.It 134.4 13.1

Private as % of total 80.5 75.5 81.2 87.4 /2

/1 Including the major projects mentioned above, as well as industrialestates, training, assistance to financial institutions, etc.

/2 Private sector investment would then be about 80 percent of total in-vestment in 1970-74 against about 76 percent in 1962-69 (Table 14).

Tne growtn rate of manufacturing applies to iarge-ana smaii-scale industries and compares with a growth rate of 11.4 per-cent per annum from 1958/59 to 1970/71 (15.3 percent if craftsare excluded). The Plan did not make detailed projections foreach manufacturing suD-sector. All that is known is that pro-jections were based on three factors. An assessment of theproductive capacity of industry up to 1967 is the first. Anotheris the differential impact of the end of civil war since January1970 (large scale industry grew by 20 percent in 1969/70 and 18percent in 1970/71). The third is the nature of policies, programsand projects in the current Plan to the extent that they will be-gin to make impressions on the actual production in each sectorduring the period of preference. What is, however, certain is that

1/ Appendix Table 38 contains detailed data on the Federal program.

Plan proiections for manufacturing reflect- t-hp high prioritygiven to industry, which shows the highest growth rate aftermining. (nn the basis of the rentrnl Rank inr1ce nf man.ufn-

turing it would seem that a growth rate of 19 percent hasbeen arhieved in 1970/71 ' 1/)

(f) -nistance t-n ind4&oanniu nwnarg,h4n nnA # ,r,S.,Ie the

following measures:

(i) Industrial Training Fund for the purpose of financingindustria1 training of indigenous personnel. All in-dustries will be obliged to contribute, and each firmwill he ewnIeftei tn nrenare a well natil program

for progressively increasing Nigerian participation inmanagement at all levelsq Tlat-aila oFf the FuA n A 4a-i

administration will be worked out after consultationw~itih t-he linterests- conn.erned.-

(ii) enorge-e. of nation-wide equitY participation=shares will be allocated to the Federal Government,the state in whlch a particular industr ,is located,other states and to Nigerian nationals willing toparticipate in. indu-strial develop.-ent.

(iii) p o.,. o nir of sma'll=scale -inAUSIriles. Tro this end, the.- ~- ~ F J- LJ.Lu C - PS owa,.--.aL u .L*UL& A. iC - LU LL*I.O CLIU , LI11

Government will operate three Federal Industrial Devel-opmlen.t Centfers at, 7arila, OwerrL andLU OshUoUb. Eor theprovision of technical support for projects which aresupportdU Luy Gvernmeunt 'Lon s11 'Ln uerL LU ensurLe appro-

priate utilization of funds each state will also set up aSuall-scale 'nd-ustries Credit `eme-te or Fund to wh'nch.2lL.±L L~ .LILU LL.L , U.LUL a Li[ItI U rul LU IflCf

the Federal Government will lend its support. A FederalSJchen,.e may a'Lso be est5abu±.LlieU ("Iteru (v)).

v.Lv) VuetLer L"Inanc'Lng of indigenous OusDlnessmen. At the statelevel, where existing banking facilities are inadequate,establishments of Atate-controlled commercial banks tocomplement existing ones and promote short-term financingfor loca;l businessmen.

The Plan Droiects foreien Drivate investment in the non-Detroleum sector(mostly manufacturing) at EN 145 million. Assuming a debt-equity ratiotvnical in Nigerian manufacturing comnanies of 2:1; total nlanned nri-vate investment of EN 126 million approximately. Assuming also that amanor part of the fN 145 milllnn of foreign ranital inflw is in theform of equity, as it usually is, these magnitudes would imply that for-eign captal would continue to o-n a major share of new investments.

A111EX SPs'

Page 49

(v) rearrangement ot NIDB activities to increasingly involvethis Bank in the following activities: (a) viable publicsector prolects in order to raise the level of NIDB's in-vestment in Nigerian-owned enterprises; (b) industriescontrolled by Nigerians or with at least 55 percentNigerian ownership. NIDB's local currency resources willbe increased by about EN 3 million with loans from theGovernment, to enable it to make investments in such firms.This would also help the Bank to have a better geographicalspread of its investment operations; and (c) a Small Indus-try Credit Scheme with resources of EN 1 million will be setup under NIDB management which will provide necessary tech-nical support.

(g) assistance to Industrial Research. One of the reacons that ac-count for the low utilization of local raw materials in indus-trial processes is the low level of applied industrial researchwork going on in the country. The Federal Institute of Indus-trial Research will stimulate the use of Nigerian materials throughthe building of demonstration factories as there is a need forhaving an intermediate stage of development between researchlaboratory processes and commercial exploitation.

The Federal Capital Expenditures Program

96. The Federal capital expenditures program on industry amounts toEN 45.4 million includin2 EN 4.6 million for NIDB and amall industries schemes.This figure could be very misleading. The actual total cost of the industrialprogram in which the Federal Government is interested is about EN. 239 million(Appendix Table 39). But, as the Federal Govermnent (in conlunction with stategovernments) plans to enter into partnershin with foreign investors in theexecution of most of its projects, and as all investment funds will not beactually committed or disbursed during the Plan period, the Federal Governmenthas provided EN 45.4 million as probable disbursement for 1970-74. Table 20shows the proierted share of aovernment narticination in new industries.

97. Tt is est{im2ted that ar-tuail disburFements were only EN 0.5 millionin 1970/71 for investment in various industries 1/ as against EN 7.5 millionprovided in the Plan fnr 1970/71. Tn 1971172. Msnbursements mayv sharnlv in-crease to about EN 6.3 million but would again remain below the EN 16.1 mil-lion Plnn t:arget fnr thnt vyar. xF.nnAintore In 1Q71/72 will cbe mainlv forrehabilitation of industries in the East, investment in various industries,

feasbilty a.d the stulesA, forv niulp ndA papemr, che,m4cal co%mple-x. son

petroleum refinery, salt refinery, aid to small-scale industries and finan-cing of the new Industrial Training F.und. The fact that disbursements were

1/ Excluding redemption of promissory notes to industries (EN 1.05 million,for payments incurred in previous years (i.e., suppliers credits in theMid-West State, etc.).

Table 20z PROJECTED GOVERNMT PARTICIPATION IN INIXISTRIES (197o-74 PFLan)

ODst of Envisaged G3oy't 4 aov'. t, qgwt- share inproject equity Equity share in sbhaze. 8o0st &.f project

z lo) ( mUlon)in cost% 22!Lt4j (L dlLi-on)- - - A~~~~~~~-i Mil''t (£ lo l -i 03t - hn _ l

Wocden furniture for export (2 factories) 0.62O na nLa nIa 0.621) 100.0

Second petroleum refinery 9.0CO 4.500 ;0 55 2.500 27.13

Pulp and paper 9.9C10 4.950 '0 50 2.500 25.0

Sugar estates 19.5CO 6.82c 35 60 I.121OL- 21.1

Salt refinery 2.4CO o.84a0 35 55 0C4462 L9.2

Chewical complex 1i.098 4 .93L4 35 55 2.73 19I.2"

Nitrogenous fertiliLzers 25.849 9.041' 35 55 4.976 19.2

ILq4fled lPetroLa s gis 6.900 2.30CI 33 55 1.2651 18.6

Single supeoTprO8phbtte 1.190 Oe417 35 c5 0*2250 192

Combined fish eknd shri3p trawlingand distribution 1.020 0°357 35 55 0.196 19.2

Palm kernel onIahing plant 2.800 0.98C0 35 55 0.535 19e2

Fish trawling said distribution 3.915 1.958 50 35 o.687' 17.5

Passenger car assenbly (3 plants) 4.500 1.057 25 35 0.370 8.2

Iron and steel plant 120.000 na na na 7.C00 5.81

M Kay be revised to £,6.8 million, i.e.,100% of equity,if no private partner can be found. a o

0n rN)

Page 51

so low in 1970/71 is due to lateness in starting operations according tothe Plan schedule nnd ne Tny then ronmidwr that thp f4rat yeav of tfhe Plan,

from an operations point of view, starts really in 1971/72. However, evenduring that year most onf the tm1e w"as again spenton preparatlon of thevarious projects and schemes of the Plan and it will evidently take some* 4 - - -A -_A -_^ ^"' ̂F4^e.., k-_- ^^nve @4 14stor f -_ r n ew-4. .. e before nagreemntsf 4,, nnani.4 a f 4

-- S 4#,s4 . nar l*..n~r a.a

L.LLLI.C IJSX J Lt. 1UCL DI.1CLI.- L -- *ALVL= XL.5 L VL L.LO & j.S. Lwfl LSOV S S LI. VC FVO U.I S 0 Z St/. LW

projects can be finalized.

98. The status of industrial projects included in the Federal Plan isas follLws:

()Sugar estatesand factories Feasibility studies possible ready in 1973.

These w"il be followed b-v engineering studiesJIL~ it L.L.L UI L L.L WU DV 1

and trial plantations. No new estate to be induring Plan period but extens'ion of existingBacita estates will raise production from 25,000tons in 1970 to 40,000 tons in 19;4. A newestate at Numan may start production in 1976with 40,000 tons.

(2) Palm Kernel Two projects likely to materialize. GovernmentCrushing Plant participation of EN 0.5 million envisaged in

Plan may be effectively disbursed.

(3) Wooden furniture No progress so far.for export

(4) Pulp and paper EN 0.2 million spent on feasibility study con-ducted with Finnish assistance. Suitable loca-tion of forest plantation (using gmelineaarborea species) has not been identified and aminimum of 7 years needed before plantationready. Plan allocation unlikely to be disbursedby 1974.

(5) Fish trawling and No progress so far /.distribution 1/

(6) Chemical complex Terms of reference being prepared for feasibilitystudy. Consultants may be asked to identify po-tential private partners. Cost of study aboutEN 70,000. Size of project may become much largerthan foreseen in Plan by inclusion of 250,000 tonsethylene plant (mostly for export) - nothing firmRo far.

1/ Including combined shrimp and fish trawling distribution.

2/ Hlowever, NIDB is studying possibilities and South-Eastern State is nego-tiating with a Kuwaiti Company.

,'w'r', .2

- 52

(7) Nitrogenous Terms of reference being prepared for feasibil-fertilizer ity study (£N 70,000). Local market very small.

Previous Arthur D. Little study envisaged 1,000tons/day ammonia to be converted into urea(mainly for export). Two private offers madeso far (one for 100 tons/day of ammonium nitrateand another for 2,000 tons/day of ammonia forexport). No decision so far.

(8) Liquified Proposal by US Company for LPG export productionPetroleum Gas from 276,000 tons to 379,000 tons/year. Cost of

project from E 9 million to E 1x millionaccording to scale of production agreed on.Equity would initially be 20 percent of projectcost, to be originally paid bv TS companv.Nigerian National Oil Corporation would pavits participation from profits to be achievedlater. Project likely to he approved by rov-ernment.

(9) Single super- Japanese completing feasibility study. Problemphosphate is small domestic market. Nothing firm so far.

(10) Second Petroleum French Petroleum Institute location study to beRefinery ready in February 1972. Four possible sites -

Warri, Lagos, Kano or Kaduna. Decision to bemade in 1972/73. Annual production would be2.5 million tons but not before 1975/76. Severalproposals received from private partners - costto be higher than EN 9 million indicated in Plan.

(11) Salt Refinery Proposals received from private partners. Choicestill to be made between high or low densitysalt refining process.

(12) Iron and Steel A National Steel Corporation has been established.Soviet team investigating iron ore denosits (with60 percent or higher FE content). Establishmentof steel m:ll denending on results of such in-vestigation.

(13) Passenger car Peugeot and Volkswagen selected among severalassemly a pplicants. Local planxts will a-sse.m ..................ble t0,000

vehicles. One plant is to be located in Lagos,the ot her in ,Tot alA.,C..8 -a!ct of project tsbe about EN 5 million. Plants may be ready by1974 - -U ou 'I Jgove,ient participatior, i.' equi%.y wUld

be 35 percent.

99. On the basis of the progress made so far in implementing projectsand various other schemes (assistance to small-scale industries, loans toNIDB, Federal Institute of Industrial Research, Industrial Training Fund,

ANNEX 2Paee 53

ptr); the mission estimates are that about EN 29 million may be disbursedby the end of the Plan period, i.e., about two-thirds of the Plan allocation.A shortfall would ocrur for most nrnJects, nart1'ularlv for the sugarestates, the pulp and paper project, the chemical complex and nitrogenousfert4147ar nlan"t However, progresn is expected ton he ach4ievA on th TPr

project and the palm kernel crushing plant. Also, the Plan allocation forL hal litati ofdadin J ust tr.ies a li kel J .~t b n&tieL.y pen,Lt andl s.l -

bursements to NIDB may be even higher than foreseen in the Plan as NIDB isbecom4ng an important too' of govern.ment policy to give financial assistancefor Nigerian participation in new industries. The Plan allocation for other

schees aidl to smal'l industries, industrial research ar,dtringisao~iL1~iIt~ vctLI L ~ik~LL. £IUU~LI.± .i £IUU LI. .L a.L ' I.L LI. dLLiiJL1r, JLM AZIJ±

likely to be used entirely. This is expected because active work is goingon fir these schemrIes. nowever, the latter represents Dut a smnall part oftotal Plan allocation.

100. Despite the overall expected shortfall, it must he noted that onthe basis of tentative estimates of progress in implementing individual pro-jects, disbursements under the Federal program will increase from perhapsEN 6 million in 1971/72 to an annual average of DN 11 million in the last twoyears of the Plan whereas the Plan tentative phasing was EN 14.2 million in1972/73 and only UN 7.7 million in 1973/74. TLhis reflected some lack ofrealism as regards the time required to implement the large-scale industrialprojects included in the Plan. Consequently, expenditures are likely to nickup in the end of the Plan period and perhaps increase further in the vearsafter 1974. It must be stressed, however, that the list of projects includedin the nresent Plan is only a relatively limited one and that a continuousrevision of the program is needed to permit a smooth and continuous exnendi-ture program beyond the present Plan period. This would avoid the repetitionof major shortfalls such as are likely to occur during the 1970-74 Plan (theindustrial project part of the Plan will see very few of the Plan's projectsactually operatingi!).

State C.apital Exnenditures Program

101. It seems that a large shortfall in capital expenditures is alsooccurring in the states as shorwn in Table 21.

102. On the hasis of information available to the mission, it would seemthat about EN 5 million were disbursed in 1970/71, i.e., about 40 percent ofthe EN 12.6 million Plan target for that year. In all states, big shortfallsoccurred except in Lagos and South Eastern State.2/ In 1971/72, informa-

1/ Iotal expenditures on projects may reach E 29 million. However, thiswould he red1uced to X 10 mi'l.lion excludiUri "easy" spevi.Iinig on rehab,i.l-

itation of war-damaged industries, cost incurred for feasibility studiesand expendittures made on preparation of the steel project which willcertainlv not be ready by 1974.

2/ It is not clear however if expenditures in this state include repavmentof suppliers' credits obtained in previous years and not included in thePlan.

tion available for five states (Table 21) indicates that 40 percent of thePlan target for that year could be again disbursed (i.e. EN 2.6 millionagainst EN 6.4 million in the Plan) in those states. Mission estimates forfour states, covering the 1970-74 Plan period, show that about 60 percent ofplanned expenditures might be disbursed. 1/ The conclusion reached for theFederal Program seems to be the same as regards the states' programs, i.e.after a slow start in the first two years of the Plan, expenditures will riseup to 1973/74 but not rapidly enough to meet the Plan targets. Reasons arethe same. i.e.. the time needed to prepare prolects and schemes, deficienciesin staff resources and management capabilities. In some states (Nesternand East Central), a serious shortage of financial resources is an addtionna1obstacle.

Private Investment in Manufacturing

103. As noted earlier, the Plan gave an "indicative" amount of EN 378.5million to be disbursed in 1970/74. orivate invPstment risinp from fN 6l mi 1-lion in 1969/70 to EN 74.8 million in 1970/71 and EN 117.4 million in 1973/74.The average annual rate of 16.5 npercent from 1970/71 to 1973/74 is ahout inline with industrial output (17.5 percent p.a.). Data for selected manufac-tures show an increase in their investments from EN 4.6 million in 1969 toEN 10.3 million in 1970 and an estimated EN24.6 million in 1971. In part,this inerease reflerts the need to cateh tin with investment delays diiirincy the-war years and repair of war damages. Also, the liberalization of imports inthe course of 1970 stimulated imnorts of ranital goods, whirh reached exrep-tionally high levels. Data for the first months of 1971/72 show considerablefurther inrrpeReS of rnaltnl goods import which, even after taking account ofthe public sector component of these imports, give the impression that privateinvestm.ent ,may be risin.g agair.. Msny~ expansionsar tain plac to n.eetstrong market requirements. A number of new projects (particularly in textiles)

arecom.lng up in the states. There seems to be little doubt +-hat the prlvate

sector could continue to invest in order to seize the numerous import substi-tution poss bilitles which, as noted earlier, st4ll remain to be taken. Hw-ever, it was also indicated that the Plan assumes that a large share of pri-vate -investr.n reoreswl or.e froru alroal or fromt retained anigvat £LV. LLLLLL LCOVJUL Lec WJL..± ALIL ILLIUaULJ L. . ii Lu L_ La.LIU C:e1LLIJ.ngs

from existing largely foreign-owned industrial companies, as there are still-1 __J ~~~~~~~~~~~~~~-- .11 -

reLatively- L'w pwPri-vate Nigeriant fin. 41.L &LLLU ar.dr.aneriald resurLes. A.Ll pLU-

jects included in the public capital expenditures program assume partnershipwiLth foreign Investors e'Lter as majorLty or minOrity parLIULZI kaU±t 4V)J.

Consequently, the question is to what extent government policies can reconcilethe implementation or Plan priorities (increase tne value-added content inmanufacturing and increase the share of this value-added to be retained inNigeria) with the continuous attraction or a nign levei of private foreigninvestment in manufacturing.

Implementation of Government Policies and Evaluation

104. With the exception of the important case of rapid integration ofthe textile sector, progress in implementing the declared Plan objective of

1/ As compared with an estimated 63 percent for the Federal Program.

ANNEX 2

Table 21s STATE CAPITAL LSXF'NDITUEES OT flWUSTRY- -- * (EN million- _

Plan 'ra-geat PI=z U-jape VAIDUf* o tr _ Eeti^R+.m1970-7 1970/71 1970/71 1971(72 1972i 1 1970-74

^atl.o ~ ~ ~ -3.50 ei%% 0.2 f.AIX 5 25o .5Kano ? pV V' w ~j

Mid-West 5.363 2.305 0.405 0.907 3.130 4.42

North Central 2.568 0-730 0.o66 0.620 1.350 1.936

Rivers 4.033 0.990 0.010 0.375 n.a. n.a.

Western 8.005 2J450 0.150 0.132 1.820 2.i02

East Central 5.650 2.595 0.482 n.a. n.a. n.a.

Benue 1.950 0.370 0.110 n.a. n.a. n.a.

Kwara 2.156 0.312 0.279 n.a. n.a. n.a.

Lagos 2.460 0.100 0.300 n.a. n.a. n.a.

North Eastern 4.031 0.516 0.011 n.a. n.a. n.a.

North Western 2.527 0.548 - n.a. n.a. n.a.

South Eastern 3.009 1.085 2.873 n.a. n.a. n.a.

Totalt 45,252 12.626 4.896 n.a. n.a. n.a.

ANNEX 2IPage 56

maximizing value-added in industry has been slow. This is inot surprisingas a long gestation period is needed for major projects sutch as sugar, pulp(including forestry nlantation), petrochemicals, fertilizers, assemblv ofvehicles cum local fabrication of components (with well timed i.lntegrationschedule), engineering industries, etc. There are prospects that theseprojects may take place but a number of years will he needed to implementthem. Several of these projects are in the public sector (i.e. Tr.ith majoritygovernment ownership) and are only in the exploration phase. Pew new majorproposals have been made by private investors beyond preliminary soundings.Consequently, immediate prospects are that industry mav continue to developin the few years ahead along the lines followed in the last 10 vears and des-cribed in Chapter 1. In view of the limitations on ntublic sector managementcapabilities, it would consequently be necessarv to immediately explore themeans of enlisting private sector cooperation, either for developin5, fullvprivate prolects or entering into partnership with government.

105. The second obiective of the Development Plan is to increase theshare of value-added to be retained in Nigeria, which is now small. TheGovernment policy seems to push this second obiective faster than the firqstthus creating the risk of some imbalance in the long run achievement ofPlan targets.

106. Plans are being made to reserve excluisivelv for indin,enoun Nigerianbusinessmen a number of sectors covering trade, transnortation, constructionand industrv. The following industrial sub-sectors wo^uld he entirelu rese.rvJe

for Nigerian (List A):

Advertising agencies and public relations businessAl 1 aects nf nnol begtt4ng bu es4ns and loteresAssembly of radios, radiograms, record changers, television sets, tanerecorders and other electric domestic a,.liances not combined with mrnn:-facture of componentsl',lendi n g and hottl4ng of alcohollc drlnls

B,loclks, bricks and ordinarv tiles manufacture for huilding ancl constr'ic-tion wors.r;

Bread and cake makingCandla e mandu.acture

Casinos and gaming centersCine,mas and other places of entertainm-entClearing and forwarding agenciesHairdressingHaulage of goods by roadLaundry and dry-cleaningManufacture of jewelery and related articlesNewspaper publishing and printingOrdinary garment manufacture not combined with prodtuction of textilematerialsMtnicipal bus services and taxisRadio and television broadcasting

ANNEX 2Page 57

Retail Trade (except by or within the departmental stores and super-

Rice millingLnglet maLnuL C LU C

Tire retreading.

It is estimated that these industries represent about 8 percent of the totalvalue aduea in establiis-iments employ'ng 10 or more._/'

1u0. anotner group o' Ln'HustLes (List DB), wnere tne rfied capitaL 1s

unThnr F, , requtres a minimum indigenous equity participation of 40percent. These industries include:

Beer brewingBoat buildingBicvcle and motorcycle tire manufactureBottling soft drinksCoastal and inland waterways shippingConstruction industriesCosmetics and perfumery manufactureDepartmental stores and supermarketsDistribution agencies for machines and technical equipmentDistribution and servicing of motor vehicles, tractors and spare partsthereof or other similar objectsEstate agencyFish and shrimp trawling and processingFurniture makingInsecticides, pesticides and fungicidesInternal air transport (scheduled and charter services).Manufacture of bicyclesManufacture of cementManufacture of matchesManufacture of metal containersManufacture of paints, varnishes or other similar articlestManufacture of soaps and detergentsManufacture of suitcases, briefcases, handbags, purses, wallets, port-folios and shopping bagsManufacture of wire, nails, washers, bolts, nuts rivets and othersimilar articlesPaper conversion industriesPassenger bus services (inter state)Poultry farmingPrintina of booksProduction of sawn timber, plywood, veneers and other wood conversionindustries

1/ On the basis of the 1967 Industrial Survey (value-added excluding ex-cise tax).

AINNEX 2Page 58

Screen printing on cloth, dyeingSlaughtering, storage, distribution and processing of meatShippingTravel agenciesWholesale distribution.

These listed industries account for abouit 40 percent of value added (on thebasis of the 1967 Census). The larger activities involved are beer brewing,sales and service of vehicles, soap and cosmetics and cement. It must beemphasized that the objective here is to increase Nigerian participation to40 percent rather than to ban these industries to foreigners.

108. A number of industries have so far been left out from the list ofindustries to be totally Nigerian, or with a minimum 40 percent Nigerianparticipation. These are tobacco, sugar, 1/ textiles, vegetable oil milling,drugs and medicines, products of petroleum 1/ and coal, trucks and cars,tires and tubes, other rubber products, tanning, concrete products, basicmetals, structural metal products, non-electrical machinery. electrica1equipment (except 7V-radio assembly), plastic products, etc. These indus-tries together cover about 50 nercent of value-added 2/. the maior indulstrvgroup being evidently cotton textiles.

109. Total paid up capital of manufacturing industries amounted to EN 62mlllion in 1967 (last data availahle) of which 3n nercent wan NIgerainn rr-vate or public (Appendix Table 46). The approximate breakdown according tothe three categorfes of industrfes mentioned ahove was as follows:

TAble 92: WNERSHTP RY rATErnRTTES OF T"ThTTRTFS

(percent)

Private Public Non- TotalNigerian Nigerian Total Nigerian Total (EN millions)

List A 11.2 44.8 56.0 44.0 100.0 4.8

List B 21.1 11.3 32.4 67.6 100.0 21.6

Other 7.1 17.8 24.9 75.1 1no.0 35.7

Total 10.7 19.3 30.0 70.0 100.0 62.1

1i0. In order to fully "Nigerianize' industries under List A and to in-crease Nigerian participation to 40 percent under List B, about EN 3.7 mil-lion wvould have to be invested in those industries from domestic resouirces.If public sector participations are excluded (under List B) about EN 6 mil-lion would have to be put in by private Nigerian investors in order to reach

1/ Butf- th-airn is alireadyI, asubstannt-ial Ni4gerian -inuPetmente in this scrtorr

2/ Excluding excise tax (Chapter 1).

AINLiEX 2Page 59

the required percentages. The annual flow of transferred funds would appearto be small because the process of transferring part of foreign capital toNigerian ownership would be spread over several years.

111. However, the above data refer only to paid-up capital, whereas theNigerian Enterprises Promotion Decree envisages participation in equity, i.e.,paid-up capital and reserves. In 1967 according to Central Bank data, foreignprivate equity in manufacturing was EN 66.6 million as compared to EN 41 mil-lion for paid-up capital. In 1969, paid-up capital and reserves had risento EN 84.8 million and could perhaps amount to EN 100 million in 1971. Onthis basis, increased Nigerian participation could involve amounts from EN 8to EN 10 million, i.e., still relatively small sums when spread over severalyears. The amount would be evidentlv higher if all industries not included-under Lists A and B were to be involved.

112. There is little doubt that the Nigerian authorities intend toprrovide financi4 al asssance to Nigerian entrepraneurs otentall- 4intererated

in investing in existing industries. In the 1972/73 Buget the Governmentan-.ounced its ir.tention to estasblish ar. Ir.du,tr'al an.d CJUS4 . CreditBank to channel resources to the private Nigerian sector. The Plan was veryclear in this respect, irnsist'ng on the fact "politlcally; the situationwould be untenable if within a decade when industry should be much more im-porant th. e bulk ox investu-er.;s were he-'dLU Lb- A.W&C.L5IULA ULLa.-dla:gy

owners. It is at this initial stage that a policy should be set in the mutualinterest of iLn-;estors andu Nl'Ler'Lans allowing t;B letter to acquiLre a aigni ficantstake."

113. Another sector where government has been moving to keep in Nigeriathe largest possible share of value-added is training. An industrina Train-ing Scheme has just been set up with resources provided by a tax on industry'ssales anu also public financing resources ('iN 0.; million for the period1970/71). No details are known yet on this fund but since it will haveample financial resources, the probiem is iikeiy to be in erfective manage-ment and implementation of the scheme. 1/ Some years will be needed but, withthe hope that industry cooperation can be enlisted and that effective existingtraining schemes in private industry can be maintained, this should be a stepin the right direction. Finally, the avowed desire of the Nigerian authori-ties of speeding the Nigerianization process is already leading to a mandatoryand progressive reduction from year to year or the expatriate quota allocationsof all enterprises. Here again, a delicate balance will have to be achievedbetween the understandable desire to increase Nigerian management and skillsand the necessity to preserve efficient operations. It is felt that for manyyears to come there will he always a good number of foreign managers and super-visors in Nigeria and that the Nigerian authorities realize it but wish aboveall to reverse the sometimes "unhelpful"" attitude to the use of local personnel.

1/ One question is, for example, how to establish realistic targets of pro-gressive Nigerianization in existinz and nlanned enterDrises and ensurethat enough Nigerians are trained in the industries themselves or else-where to fulfill the tar2ets.

A N:71 1, 60j

114. Despite the laudable aimR of the Second National Development Plan re-garding industr1nlzatIon, it would seem that In Tinnlementing Plan nrioritle,some caution and ahove all more clarlty would be required. The main Plan ohlec.-tive is to maximize growth durtng the PlAn neriod. The q-rncl I r1 "Ji 'fyr1iani : ntanrogram aims otnlv at filling the mecond mntn ohnertivo of tljo elan ind can hivopositive effects onl.v vears from now. Tn order to holanco tr Plopan ohiertivos(growth And Nigerianization), one muqt see that nrivat-P (Incitirlinp forprif'n) In-vestors, who todav possens most of the proiect Imnlemrnt4ng notentfal aro - fvonnecessary encouiragement. It would therefore anpear to he good nolicv for thoCovernment to encoutrage the private sector except tn cases of nronectn of hiTh,economic prioritv where no private investor is forthcoming.

115. One way to encourage the private sector is to provide it with thenecessary tariff structure and suitable tax incentives, In Diving incentiveand protection, Government can be "selective" i.e., by helping those indtus-tries with the highest yalue na ded content- thus reconcilin the d4lscrpanciesbetween the so-called private and public priorities. However, should indus-tries not wi8h to apnlV for incentlves (lt ha8 been seen that a tax holI4ayis not an essential factor in investment decisions for a number of industries),they should he left free to etablish na they desire. In any case, many in-dustries will want to include private Nigerian partners in order to appear"Tlcl" nnprhap s to insist on government prticipation as a protec=tive and financing device.

116. In order to alleviate fears expressed in the foreign private sec-tor that "nati4oralt-4i., "a 4ir c4t, w4it the resultin bad investment

climate, industrial policy aims should be more clearly expressed. It shouldbe esatd_ha __prtfrms 4I5_ feW M&5 -i W iduf wh.c° X .L U IJllicV seLctr UL-i-

jority is mandatory (i.e. over 55 percent), 1/ all other large-scale plantswil.l retain prl.vate Mand, 1U LaL;L ILULUIU.LJ.y LfLor..99 WaJUL±LLJCti LU LLI lllaily

cases, private control. The Government, in providing tariff and tax incen-tives t-o brir.g sabout e- r-a 'dwri -8ith high vau add,my sLJ.VD L ULJLL~~UUL UCW pLJ.VCLW .AIUDU LLJ.5 WJ.LAL LI.LY,1i VCI.LUC CSUUWU, Ulid' UZSe

the resulting leverage to induce high Nigerian participation (individuals orinUigenoUs i tUDLtLUt-ios) .* Uly W01In pr'Lvate llgerian resurUes WoU'LU notL Ue

available and only for very important projects would public ownership (say35 percent) be sought. Other now lndustries not applying for special govern-ment protections and incentives should be free to invest as they see fit.Finally, as regards the above mentioned Lists of existing industries to betotally or partially Nigerianized (and most of them are only subject to aminority Nigerian shareholding), a clear statement should be made as to whenand how private Nigerian participation is expected to proceed.

1/ If additional resources from oil are available, the government may wishto invest more in these industries. However, the main problem will notbe finance but how to make sure that economically sound projects areidentified and that good foreign and Nigerian management can be madeavailable.

ANNEX 2Page?~ 61

Chapter IV - The Small Industry Sector

117. African private business enterprise is generally more developed inNigeria than in any other country of Sub-Saharan Africa. The range and sizeof enterprises run by Africans is greater than elsewhere. A larger number ofNigerians is presumably engaged 4in sma'l-scaLe industry than in medium- orlarge-size enterprises employing 20 or more. Although far from complete,available data on the extent and nature of small-scale urban industries wouldseem to indicate a total employment in the neighbourhood of 100,000 in small-scale industries as compared with about 90,000 in the medium- and large-scalesector. 1/ This fact alone may explain the attention being paid increasinglyto the development of small industries in Nigeria.

118. Small-scale industrial establishments cover a wide range of activi-tles suich as carpentry and furniture making, textiles, tailoring, shoemaking,tannery, printing, baking, bottling, corn and rice milling9, brick-making,metal working, motor vehicles and other repairs, etc. In mary of thesesectcrs. as oDposed to large-scale industries mostly owned by expatriates,Nigerian businesemen are predominant.

Priority Fields

119. A tentative breakdown may be made of the types ef business inwhich Nicerian entrenreneurs may have reasonable prospects of aucceeding: 2/

(a) nroduction of goods for local markets:

(h) nropessing of lonl r.aw matprials-

(c) servlce industries (repair and main.tenance);

(d) suppliers of large-scale enterprlses (e.g. compornents arn parts).

120. On t-ho bkasi o d fhin h,-nnel nlasnisf4rntinn It would eaem that

Nigerian small industries have definite advantages due to:

(a) The large size of the country and the difficult transportproblem.s wahich g4ve natural ttion t may 1cal inA.utriesin the various states. Small Nigerian enterprises are well de-

, veloe -ich iedo oncrete prodcts bricks and tilles,fur'niture, bulky household goods such as beds and mattresses.'Th-e proAuction of ga..er.ts, foot.wear anAdother leathler gooAds,

bottled beverages, and bread and other bakery products could

1/ See Chapter I.

2/ The Development of African Private Enterprise by John C. de Wilde,OcLrtobe IY/ I.

ANNEX 2Pae r,

also be profitable depending, from case to case, on the extentof the loca-l mrket, the spcinl cfharacterlstic of the local

demand, and the cost of bringing in competitive goods madeelsewhere.

(b), The Iag wmteria-s hoac x4iti-ng in the euntr. Such

raw materials which are now processed and could be further de-ve-oe 1 4 an moderizA- A44..f 4edheu 4- .- , -- Av. v a,,LL IILSJLA L &fl l ..JU XA t as u"JLS W.-t .U S - -- r,,, %L %A. LUL C atLu

construction sectors, include sawmilling and timber, brick-m.a ki4ng, tanning of U4A-- -an skins, drying -r: frein fihMLauL.L-7

5'4/A -UL O f&U OC4LLO tt7L LE- M-Ut L .UCtl i L S

and various types of agriculture processing such as grain mil-.Lin,g, cassava gratlng, gari processin6 , vegetable o-.L il. extraction,

and rubber creping.

(c) The growing need for service industries in Nigeria as purchasingpowe-- rLses andi th'Le stockL ofL cap'LtaL equip,ment rapidl-y increases.The development of service industries for thie installation, repairanti maintenance of cap'Lita'L 4qu-ipmtett andII CUiI5Ulite aurables is be-coming an increasingly urgent problem in Nigeria. The conserva-tion of capital equipment through better repair and maintenancefacilities is necessary. Hire-purchase credit for the purchaseof vehicles Ls generally limited in time because cars and trucksdepreciate too rapidly for want of adequate repair. Similarly,in areas where an increasing amount of agricultural equipment isbeing used, repair facilities are often insufficient.

It must be noted, in this context, that Nigerian small industriesare becoming increasingly active. In addition, maintenance andrepairs are obviously one field where some metal working and en-gineering skills can be acquired.

(d) The potential development ot engineering industries in Nigeria,

particularly in the field of vehicle assembly. The NigerianGovernment is now thinking of establishing suchl industrieswith a time-phased production of locally made components.Some large foreign-owned enterprises are studying which compo-nents could be supplied by Nigerian establishments. However, ex-perience indicates that progress in this field is likely to be

very slow owing to a number of constraints. There is limitedscope for the development of auxiliary enterprises in view of thepresent low level of total industrial output. The large manufac-turers are reluctant to depend on suppliers who may prove unreli-abla and incapable of meeting specifications with regard to quality

and who may require close supervision.

121. One of the ways that small firms develop is by doing work for largerfirms. As an industrial system expands, firms' sales to other firms growfaster than their sales to the public. The large firms buy components fromthe small firms and sub-contract various overations to them. We have nodata from which to assess to what extent this is taking place in Nigeria.

ANNEX 2Page 63

The fact that the large firms are frequently directed from abroad and are ex-pected-A to be 1-1- self-sufficient 4S not conducive to th0e growth of an inter-

woven network. Research should be done on the extent to which large firms mightuse thie sma' llr-,ms mr,oe.

I4 C I.LUC I iC . 4. t i ii t.j a. .

'I e C)teCUI1U £NdUL.LQ1UJ.L JJ~V U.LuPIjI1jC1L ridli \ I 7 IU-1 4)

The Second Na,'onal r.J. e.. t f..Plan tl70-71% Fe rA oi tEl1 ~ (I LLoneIL a I gives r1 Ii LU),.:.:. Trle ecnri' "at'Lona'L Deve'Loprnent r-n Il/-s 4) i-e nlg proivt

small industries. Thle latter (employing, say, from 1 to 20) have a number ofadvantages. T'ey are iess capital intensive, and so adn more to nationalincome and emplovment for everv dollar invested. Thev are also the normalschool or entrenreneurship, out of these thousands of smaii firms villerierge the Nigerian business leaders of the future. Given the private enter-prise system, the only 8aV to industrialize Nigeria adequateiv is to nroducea large class of Nigerian entrepreneurs with indtustrial experience. Smallenterprise is the iuniversitv where this class receives its training. Then,looking ahead, it is more important to lav the fotndations of an industrialclass bv helping small entrepreneurs than it is to build a few large tac-tories - all the more so when 70 percent of the value added hy large fac-tories accrues to foreigners.

123. This is the philosophy of the Second National Development Plan. Tobring abouit assistance to small enterprise, financial allocations have been madein the Plan. H3owever, specific and effective means to channel financial andtechnical assistance remain to be worked out in detail. Federal Plan alloca-tions for small-scale industry are as follows:

Federal Government (EN)

Aid to small scale industries: 600,nn0 /1

Federal Matching grAnts to supplementassistance given by States: 6nO,00 /2

D)evelonment of 3 Industrial Development.Centers /3 400,nn0

Small Industrv Credit Scheme(NIDiB managed) 1,noo,nn0

Total 2,6n,o0nn

/1 This amount is shown on pages 152 and 233 of the Plan.However, it is not clear whether two entries are duplica-tive or additive.

/2 I.e. only bN 12,500 ner year ner State.

/3 The Federal Covernment will take over 2 existing Centersat Zaria and O,werri and will create a new one at Oshogbo inthe W'estern State.

AN4EX 2Page 6/6

States

124. The following allorations nf statp funds h2vep alsn hbeen marde in

the Plan:

State PN _ __

REst Gpntral 300 000

Rivers 100,000South Eastern 200 000

Benue Plateau 500,000 /1North Centra1 900,000Kano 180,000

Kwara ~~~~~100 000

North Eastern 40,000North Western 200,000Western 1,300,000M4A T!est 4A0,000

Lagos 100,000

Total. 3,620,000

/I The DIa Docu,,en IPg 158) Aoes r,ot give the am.ountallocated for small industries. However the State'sPlan (Pzge !2'I indlicates a Iola' or rN 500,000A for.L .aL \ I j5 L. .LU.L L.La LI L.CJ -L - .L AI J~Uv. /JJ £L

Small Industries Credit Scheme.

125. Total Plan allocations for small-scale industries (not includingexpe-Lditures Lor industrial estates which Imay house both large- anu small-scale industries) thus amount to EN 6.2 million, i.e., 6.8 percent of thetotal Plan allocation of -N 90.7 million for industry. However, this is oflittle significance, since Plan allocations by state were devised withoutuetailed evaluation of real needs. Table 23 shows, for four states, thatwide discrepancies exist between states. In particular, "worthwhile" loanapplications in the East Central State already substantially exceed the Planallocation, even when allowance is made for possible Federal matching grants.It would seem that the main problem here is lack of financial resources(rather than lack of nanagement), while in the Western State, the relativelylarge Plan allocation should be more than sufficient to finance potentialsmall-scale industries, due to the fact that in the West the need for tech-nical assistance is even more urgent than the need for financial aid.

ANNEX 2Page 65

Table 23: LOAN APPROVALS FOR SMALL INDUSTRIES IN SELECTED STATES

(EN)

North Cen- Kano Rivers East Cen-tral State State State tral State Total

Food processing, bakery 4,000 13,790 118,205 202,700 338,695Furniture, wood working 13,800 6,400 85,000 229,000 334,200Leather goods, shoes 900 2,500 77,800 81,200Textiles, clothing 4,300 1,680 - 122,000 127,980Printing - 3,600 13,000 58,000 74,600Building material 15,000 9,180 50,000 50,000 124,180Metal working 4,900 8,400 - ( (Repairs (vehicles) 8,400 - - ( 88,500 ( 110,250Miscellaneous 2,100 2,000 156,000 232,500 392,600

Total 5 3,4 0 OL-L 47,55O!± 5 6 6,2 0 51 1,0 6 0,5 50 L2. 1,727,705

/1 February - October 1971.XT April 1970 to June 1971.

TY Amount of applications received up to November 1971./4 Amount of loans recommended but not yet formally approved due to lack

of funds, January 1970 to September 1971. Total applications amountedto about EN 10 million.

Industrial Development Centers and Small Industries Credit Schemes

126. A typical feature of Nigerian Government assistance to small in-dustries in the cnmbination of Industrial Development Genters (TID'6) withSmall Industries Credit Schemes (SIC's). A detailed description of IDC'sand SIC's is given in The Develop;mrent of African Private Enterprise, Vol-

ume II - Annex VIII (Nigeria), (October 1971) by John C. de Wilde and it isnot nereaRarv to ineltude here a detailed analvsis of PxiAtinQ merhaniRms.

One may simply mention that IDC's were created with the objective of provid-ingl entrpnrpnpiers with a full range of manageranl and tv-hnr1al na4iatant'p

services including feasibility studies, training, and advice in the enter-nrinea thomaslvesD 1/ Tw Inr1a oar now r ex4atlastnc: one at Zaria, serving

the six Northern States and the other at Owerri 2/ serving the three EasternStates. The first SIC sTaeamnn to f4niranca snnll 4rA.idtr4al ertearpr4ses wasstarted in 1966 in the Northern Region and was administered as a semi-autono-mous body b- the Small indAustries Divisior. of the Mi

nistry of Trade and In-

dustry in Kaduna. After the Northern Region was dissolved and divided into

1/ The two IDC's were mainly promoted with US AID assistance.

2/ The Owerri Center stopped its operations in 1967 but should resumeactivLiLLt Lir 1972 I.

ANNE_ 2

Page 66

six states, it was administered during the transitional period from April 1,1968 to March 31, 1969 by the Interim Comnmon Services Agency, which, howevermade no new loans. Since March 1969, the six Northern States have eachoperated their own SIC's. Until June 1970, the Ford Foundation providedadvisers and helped draft loan procedures and manuals, trained officers inloan administration, and gave considerable assistance in the screening ofprojects.

127. It would seem that the creation of 12 states should enable a moreefficient management of SIC's as the latter, operating as semi-autonomousunits within the Ministry of Industry in each state, are IIow closer to loanapplicants and may rely on the existing network of local trade officers, al-though time will be needed to give the latter sufficient training in dealingwith small industrialists. Regarding the IDC's, a major drawback for theCenter at Zaria is its location. Zaria can really conveniently serve onlybusinesses in the North Central State whose capital, Kaduna, is a littleover an hour from Zaria, and those in Kano, which is about two hours fromZaria.

128. Reports indicate that the training activities of the IDC at Owerriin the East and the field work of its staff had considerable success (until1967) in promoting a variety of local enterprises. A number of factorsprobably contributed to its success. It operated in a relatively small butdensely populated area where considerable industry already existed and whereit was relatively easy to maintain contacts with indigenous businessmen.The Ibos with whom it primarily dealt had long been known for their entre-preneural drive which had probably been developed partly because the Ibos,living in a region where population pressure on available agriculture re-sources was severe, had over the years been comipelled to seek and exploitalternative opportunities for earning a livelihood.

129. It would appear that two areas are particularly advanced regardingthe development and promotion of small industries: Kaduna/Kano/Zaria andthe East Central/Rivers States.1/ These areas, not surprisinDly, are also

1/ Based on the number of loan applications received and processed invarious states and on Mission's ditcussions with state trade and in-dustry officials, it is apparent that the East Central State has mademore nrogress and has been more aggressive in small-industry promo-tional efforts than other states visited. About 12 officers are spend-ing fiill-tIimen In sucdh act ivi.ies at- Enugu; mostly in lnan anplicationevaluations. This preparationi is a commendable effort that should con-siderably hasten final disburssem.eent of the crrdits authorized. Tn viewof the limited amounts to be made available by the combined Federal/State program, however, further review of applications to establishpriorities will be necessary. The Mission did not have an opportunityto evaluate either -hle loaGns r the staf , DUt the state authorities inEnugu, as elsewhere, expresse-_ a desire for expatriate assistance inde-veloping and imaplerment4ni cvaluation techniques.

ANNEX 2Page 67

those (with the maior exception of Lagos State which is a special case)where most large-scale industries and skills are concentrated. It wouldtnus seem that immediate efforts should be concentrated in these two areaR;or at least in one of them, if a dilution of resources is to be avoided.In the longer run; results obtained will benefit other states in N1geria.

Coordination of Fedieral snn State Artinn

130. Prinr tn rhe otabhl1ahmant in 1970l 0f the mi Ir. dut11 Triatv4es n4u4_sion in the Federal Ministry of Industries, there were no institutionalmeans fnr tho delnpnrmetnt anA i4mnla.oentar4,o, of a feAnral program for smallindustries. The twelve state governments have neither the financial re-sources nor the qualified manpow^er (wfth some exceptons) to operate ade-quately the programs of financial assistance needed to promote small enter--rises. she n.eeA for Federa' support in the,Mae effortz is 41a-nda clear

It would also be usetul for the Federal Government, with the initiative ofth.e Sm.all TnAustries Dsivis-ion, t-o plan, adopt and im,ple.uer.t azdditi-onal~ ~A*'.4.L .&..LS L "A. A.V LCDJL LU jA.L % Q LLL~. LaLU L J~UkL. %AuJ. L±UL.L

measures - on a nation-wide basis - to encourage the development of smallenterprises. A-.ong possible mleasures are thle crealion of industrial es=~IIL~L A. ~ * t1LiLU L~ ' LU A. LLaU . 41. L L L .4L±LL AJ. .LLU _ L.

tates (or workshops clusters), reservation of certain production and mar-ket segIments f1or smuall industrialists, preierent'ia rFeueral4J treawLUent w'Litlrespect to importation of both raw materials and equipment, remission ofcertain reuerai taxes anu duties for initial periods, etc. Ai-l of these,among others, have been found helpful in several countries where the econo-mic and social importance of small industries has been recognized. Theycannot be accomplished without Federal direction and coordination.

131. Similarly, and especially in a country as large as Nigeria withimportant regional and ethnic differences which affect the abliity ofgroups to work together, it would be unwise for the Federal Government toassume sole responsibility for small industry development. The states havea continuing and important role to play. There are many activities that thestates can perform more efficiently, especially in policy implementationmeasures related to the evaluation of local opportunities, credit and ex-tension services.

132. Tne preparation of a comprehensive plan for joint Federal/State dev-elopment effort in this area should be undertaken as a matter of high priorityby the Small industries Division in Lagos. The obvious needs for coordinatedaction by the Federal and the State governments would include the followingmatters:

(1) The State Small Scale Credit Schemes. Many are deficient asregards availability of qualified manpower and financial re-sources. Maximum feasible degree of uniformity among CreditSchemes should be achieved with respect to policies, procedures,evaluation standards and personnel qualifications.

(2) Provision of industrial estates and workshop clusters (in towns)and their use as a base for both Federal and State common serv-ices, technical training, and extension activities.

ANNEX 2Page 68

(3) Coordination of Federal and State IDC's for specified industriesin which both are active. It should be understood that IDC's areto appraise loan applications, provide extension services, trainentrepreneurs but are not to engage in direct financing of entre-preneurs.

(4) Technical training and extension services by both expatriate andindigenous personnel.

(5) Foreign training of Federal and state administrative, economicand technical officers and advisory personnel.

(6) Preparation of industrial feasibility studies, but limited forthe time being to those industries where more than local marketsare envisaged.

(7) Preparation and implementation of quality standards for small-industry products.

(8) Activation of additional financial sources.

Need for Financial Assistance

133. As mentioned, the financial/credit requirements of small indus-trialists in some states (particularly the Eastern States) are far greaterthan the present available resources. The entrepreneurs that have beenmost successful thus far have had to rely on their own limited resources,and those of their families and friends, with only occasional credit exten-sions from private financial institutions where pre-war lines of credit hadbeen established in limited amounts. In the Eastern States, very limitedfunds have actually been provided, although a large number of applicationshas been submitted (and sometimes approved at the state level).

134. It is understood that a sum of EN 1 million may be given by theFederal Government to NIDB for the purpose of starting SIFON, a NIDB ad-ministered Small Industries Loan Fund of Nigeria. However, if small loansprograms are to be effective, NIDB must have close and continuing contactswith entrepreneurs and at present NIDB's only operations office is in Lagos.NIDB is thinking of using state small industries credit schemes and the IDC'sfor proiect feasibility studies and for the follow-up of entrepreneurs; butthe exact mechanism has not yet been worked out. NIDB sees SIFON as a "so-cial service" with a high risk element and a high appraisal cost. Thus far.no schedule has been announced for the establishment of SIFON or any similarNTDR-rplatpd instltution.

135. The Central Bank requires the commeriral bankR to make a certainproportion (currently 40 percent) of their loanis to Nigerian nat'.nals, andsvewra1 bankz, have exnressed a willingness to extend credit to tnn better es-ta'-b. 2sher smnl?. industries as recommended by the 3mall Industry Crqdit Commit-tees 9nd -the TIC advisOrs, it is understood that sore commercial banks arenow satisfied with a government guarantee covering 60-75 percent of the loanannount (as a-ainst previous requests fozr 100 percefn loan guaarts Sn unch

a step is to be welcomed, as commercial banks may usefully supplement techni-cal assistance provided by the TIDC's an..d the supervisor.y. fun.cti^n of theState Credit Schemes. Through commercial banks, Nigerian industrialistsshould becom … accustomed to regular banr.ki.g practices. .s.y a.Y sh..ul.d be ex-pected to keep a current account at a commercial bank and to channel theirreceipe-s anA exper.d4tures as 'far as possible through such- an accou..t. eec-

* S.C LALLSA 4tpr~~~~~~~~~~~~~~~S*t.~~ A. 5.5C D A. a. C jLJD .U %.L LIA ~JJLa At..L n O% JtL .

ondly, the commercial banks with their large number of branches are moreconve.niently situated& wit .h respect t-o smlall borrowers than KFed es'al or Stateagencies which are generally confined to state capitals and can deal with

ctiA L elsewLher or.ly LtLhrough traUde officers Ln the i Lel. Fi.al'ly, to 'heextent that regular bank resources can be used for lending, the b7irden onstate andL fedUeral fLnar.ce wuld be reduced. Coord.inated gui delin es fo rworking out appropriate financing arrangementa with the banks are needed.The banks seem eager to finance small in'ustries provided they partic'patein the selection of enterprises and the approval of loans. The states needto make sure that the banks have some financial stake in the sucoesn- of aloan. To avoid misunderstandings, the conditions under which a guaranteecan be invoked by the banks should be precisely defined and if possiblecoordinated at a Federal level. In view of the importance of providingsmall industries in Nigeria with sufficient financial resources, the wholesubject of the supply of funds to small business merits further study lead-ing to immediate coordinated action.

136. Nigerian small-scale industry is unlikely to develop on the basisof a series of separate ill-coordinated initiatives addressed to variousaspects of the problem. External assistance can be most helpful if it isused as a means of realizing a program that will deal comprehensively withall the major constraints on the development of enterprise. The potentialimportance of external assistance is evident from the credits that have beenmade available to small industries, especially in funds associated with locallending institutions, in Pakistan and elsewhere. However, such credit canbe provided only on a highly selective basis. Tne Nigerian Government couldexplore the possibility of obtaining help for industries and entrepreneurswith proven abilities, when and if programs for small industries are suffi-ciently advanced to justify external assistance.

ANNEX 2APPENDIX

Table 1 s VALUE-ADDED IN LARGE SCALE MANUFACTURINGL-L

(at constant 1962 prices)

Indexc Rate of Growth Share of Minufacture ij GDP-'(1962/63=100) percent (at 1962 factor cost)

1958/39 47 2.6

1959/60 59 26.0 3.0

1960/61 67 14.3 3.0

1961/62 79 17.6 3.5

1962/63 100 -26.9 4.3

1963/64 101 26.9 4.3

196L/65 123 22.0 L.0

1965/66 149 21.1 5.3

1966/67 166 11.L 5.8

1967/68 155 (6.6) 6.7

1968/69 180 161 7 11

1969/70 216 20.0 7.6

1970/71 255 18 0 7.2

/1 Fastern S+.atAs excludqe froTm 1967/68 on.

Source: Federal Office of Statistics - National Accounts.

ANNEX 2APPENDIX

Table 2: VALUE-ADDED IN MANUFACTURING AND CRAFTSL

(at constant 1962 prices)

Manufacturing Crafts Total Rate of 1Manufacturing Crafts Total(£N million) Growth (percent of GDP)

1958/59 26.2 19.1 45.3 2.6 1.8 4h4

1959/60 32.9 19.1 52.0 -14.8 3.0 1.7 4.7

1960/61 37.6 19.4 57.0 9.6 3.0 1.6 4.6

1961/62 44.2 19.6 63.8 11.9 3.5 1.6 5.1

1963/63 56.1 19.8 75.9 19.0 4.3 1.5 5.8

1963/64 56.6 20.2-' 76.8 1.2 4.o 4.h 5.h

196M165 68.8 20.1 88.9 -5I8 hh 1.4 5.8

196ArJA(6 83 .h 20.3 103n7 16 7 5.3 1.3 6.6

1966/67 93.0 20.4 113.4 9.4 5.8 1.3 7.1

1967/68 86.7 20.6 107.3 (5.4) 6.7 1.6 8.3

1968/69 101.0 20.9 121.9 13.6 7.4 1.5 8.9

1969/70 121.3 20.2 142.5 16.9 7.6 1.3 8.9

1970/71 143.0 21.5 164.5 15.4 7.2 1.1 8.3

/1 Eastern States excluded from 1967/68 on.

Source: Federal Office of Statistics.

ANNEX 2APPENDIX

Table 3: INDEX OF MANUFACTURING PRODUCTION

(base = quarterly average 1963 = 100)

Index/ Rate of Growth (%)

1964= 123.7 23.7

1965 = 143.7 16.2

1966 = 164.5 14h5

1967 = 171.8 4.4

1968 = 172.8 0 5

1969 = 211.9 22.6

1970 = 250.2 18.1

1971 = 280.2 1 / (first half)

/1 Index is quantitative, based on physical outputs of firmscovering about 60 percent (measured by value-added)representative for the manufacturing sector in the baseyear (y963).

/2 Rate of growth over first half of 1970. The second half oftLh yeiar is usually substanLdialLy hightr than the firsr nalfdue to seasonal varigtions.

Source: Federal Office of Statistics and Central Bank.

ANNEX 2APPENDIX

Table 4: STRUTTIRF. OnF MANTIWAOl-FT-RTNG, 1963(FN million)

Percentage offood, drink

Value-added Value-added and tobacco(incl. excise tax) (excl excise tax) sector

Food, drink, tobacco (20-22) 20.93 14.19 100Textiles (20) 3.99 3.80 27Clothes, footwear (24) 0.63 0.60 4Wood products, furniture (75-76) 4.17 4.10 29Paper and products (27) 0.29 0.29 2Printing, publishing (28) 1.93 1.93 14Leather goods (29) 0.42 0.42 3Rubber products (30) 2.86 2.80 20Chemicals (31-32) 6.64 6.50 46Non MetalliferousMetal Products (34-35) 2.88 2.85 20Engineering (36-38) 6.o6 6.06 43MiscAellaneous (39) 0.64 o.60 4

TOTAL 54.98 47.64 337

Source: Industrial Survey, 1963.

ANNEX 2APPENDIX

Table 5: STRUCTURE OF MANUFACTURING, 1967(Z million)

Percentage ofValue-Added Value-Added food,drink an

(inn.. excise tax) (excl. excise tax) tobacco secto

Food, Drink, Tobacco (20-22) 35.04 23.11 100

Textiles (23) 13.68 11.32 49

Clothes, footwear (24) 2.36 2.22 10

Wood products, furniture (25-26) 4.25 4.17 18

Paper and products (27) 0.91 0.91 4

Printing, publishing (28) 2.21 2.21 10

Leather goods (29) 0.36 0.32 1

Rubber products (30) 3.08 2.8L 12

Chemicals (31-32) 7.63 7.171 31

Non-m.etall-ic G.ninera1s (33) 3.31 3.25 1L

Metal products (35-35) 6.07 5.50 24

Engineering (36-38) 7.80 7.78 3L

Miscellaneous (39) 0.96 0.88 L

TOTAL 87.6L 71.68 311

Source: 1967 Industrial Survey.

ANNEX 2APPENDIX

mable ~ T? A Tr TIf %%llrr tAthTAnmr .I, fy n.rl , ttm ',-r nl, T -l,t fTablu v iAJ,Th' -E&LJFldj IIN Pil"u'AuCTNuLDI1G BY IMAjOR Ih'uSTRIAL Gf.OLJrL LLL

(percent)

(including (excluding (excludingEastern StaL-s Eass.'eri oaste.a taess

Food products 4.r 5.2 6.7Vegetable oil milling 6.2 7.5 6.9

~~~~~~~ ~~~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~ ~ '7 r%

^ver_L s 18.5d± ~£17.0suab twotalL 29-7.c-c 2972.

T obacco L2.1. L.08.2

Textiles and clothing 7.5 8.9 18.2footwear, leather 1.5 1.8 1.2Sawmilling, wooden furniture 7.6 8.6 2.4Printing and paper products 4.0 4h.2 3.7Rubber products, tire and tubes 5.2 5.1 4.1Chemicals, paints and plastcs 5.8 4.211. -Cement, and cement products 6.5 3.9 4.1Basic metals, metal products 5.2 6.o .6Electricals 0.2 0.2 o.6Miotor vehicle asseibly 1.2 1.3.Services and repairs of vehicles 9.2 9.6 6.8Ml'sceilaneous 1.8

TOTAL 100.0 100.0 100.0

/1 Excise taxes are innluded.7n Industry petroleum products (2.4 percent).

Source: r'ederal Office of Statistics, Industrial Surveys, 1963 and 1968.

AMXEX 2

Table 7: VALUE-)DDED IN N14LfFACTURINC-

15,63 1963 j1 1963 1953 196E6(inel. East) (excl. East) (exci. East) (incl. East) (excl. East) (excl. East

i:A rOiDO perr-entag_ _ _ _~~ ~ ~ ~ ~ __ _ _ _ ! Q__ , __

Food prodscts 2,MtS 2,39U 6,9W 4.5 5.2 6.7Tobacco y 8,297 6,1412 8,518 15.1 14.0 8.2Beverages 10,168 7,796 15,772 18.5 17.0 15.2Vegetable oil miling 3,420 3,420 7,184 6.2 7.5 6.95Textiles 3, 992 3,990 16i,802' 7.3 8.7 16.2Clothing 572 96 2,068 0.2 0.2 2.0Footwear, leather, tanning 518+277 538+277 597+643 1.5 1.8 1.2Sswmilling 3,4_38 3,239 1,730 6.3 7.1 1.7Furniture and fixtures 725 68i 713 1.3 1.5 0.7Paper products and board 2595 295 1,097 0.5 0.6 1.1Printing 1,928 1,669 2,709 3.5 3.6 2.6Rubber Products, tire & rubber 2,B858 2,354k 4,222 5.2 5.1 4..1Basic chemicals 4514 321 639 0.8 0.7 0.6Faints 3514 354 652 o.6 0.8 06Miscellaneous Chemicals 2,4415 1,2 4 2 10.950 4.4 2.7 10.5;Pottery and glass products 14 17 67 - - -Bricks & Tiles 102 102 131 0.2 0.2 0.1Cement 3,118 1,384 3,306 5.7 3.0 3.2Concrete products 3 09 309 7 91 0.6 0.7 0.c1Basic metals 14;2 452 779 0.8 1.0 O.EMetal fNrniture & fixturas 2,4k5 2,280 1,2405 4.4 5.0 1.2Structural metal prcdlucts 1,211 1.2'Fabricated meta:L products 4,56? 4.LiNon slectrical riachinery - - 157 - - 0.lRadio, TV 504 -

Other electricals 114 114 132 0.2 0.2 0.6Motor vehicle assBembly 6144 3 620 C 4 20014 /5 1.2 1.3 .9Miscellaneous manufacture 638'373 1,026+11i 487+98- 1.8 2.5 0.6Service of Vehicles 6,659 6.14Repairs of Vehicles & equipment 508+212 14,171+212 _ 4431 9.2 9.6 0.11

TOTAL 54,930 45,870 103,836 100.0 100.0 100.0

/1 DeLta include excise taxes.T2 ThcludiLng miscellaneous food preparations.73 Including drags, soap, detergents, products of petroleum and coal, plastics, etc.

ZI :ncm-±ng travel goods (111).77 TricludiLng tlr'r<l goods (99).

qource 1 ederal Office of Statistics, Industrial Surveys, 1963 and 1968.

AmT"%r

APPENDIX

Table 8: RATIO OF VALUE-ADTT , TO GROSS OUTPUT, 1967AND GROWTH 0F VALUE-ADDED

perfAnt 1967 (196zt=1001

Food, beverage and tobacco 24.8 163Text1 es 33 .0 298Clothing and footwear 32.7 370Wood product1 40-4 102Paper products 22.0 31Printing 46.0 115Leather goods 12.0 76R-beI'ue pr-w-u'-at;s3RnllChemicals 34.5 110

It I ~~~~~~~~~~~~1, 1. nNor, metallic .in-a'irals, cane.,rt +,-.0 9Metal products 19.0 193Egineering l. 128Miscellaneous 36.6 147

TOTAL 26.0 150

lIL 4I * M- 1 y a- 4 'K

L.. Excluding "other cos'us" ie -i- es.

So.rce: 1963 and 1967 InduEtrial Sirveys.

Table 9 INDUSIPIAL 21J927 1Y 6 /1

THursher Of 1ros,s Industrial Val-un7. S.1. C. E;stablish- Number Wiages -oi WIotOO yoss Add"dCode Industries met S Rnployed Salaries 13,

LI 000 11 000 tei1 000o

31:11 Meat Products 11 1,119 251 1,914 1,237 37731312 Daliry Prroducts - 87 b 739 coO 2&t3213 Frult Ca-ing and P-eserving 3219 9 28 -5131:15 Vegetable Oil Milling I6 3,407 638 23,603 16,419 7,1843116 Grain Mill Products 3 6 71 279 5,896 1,438 i,145831:17 Bakery Products 33 1,617 206 2,256 1,5164 7913118, 3131 Sugar and Spirit Distillery 3 569 iS8 "001 1,1L31 i, 86831:19 Sugar Confectionery 7 ,6 9 , ,43121, 31110 Miscellaneous Food Prepar-ationis and TObbacco 0 3,026 1, 267 t2,3

09 ,8,5i83122 Animal Fends 3 71 37 503 301203133 Beer 4 1,884 1, 087 t6, 187 3,691 14.494313 4 Sof't Driuks a 868 169 1,774 1497 1, 27832:11 Te-thines 3'5 17,387 3,7r6 36,159 19,358 16,8023212 Mate-up Taxtile Goods (Fucept wearing apparel) 9 3, 430 5,1 4,831 3,111 1,6863213 Knitted Goods 3 306 ! 674 340 3353220 Wearing Apparel 12 6y~o 85 1,017 970 173231 Tarning I 60± sIn' 2,057 3 , 4l 6433233 Travel Goods 4 394 65 416 3518 983240 Footwear - Leather 7 986 231, 2,408 1,811 5973311 ISa' milling 56 6,874 1 4,i1 3,874 2, i44 1,7303320 Wooden furniture mad Fixtures 13 1,316 402 1,495 78 1 33319, 3419 Otper wood and Paper Products / 3,08 3 1,224 913 13412 Conotainers, Boxes of Paper and Paperbosod 692 234 2,142 1,~355 7873420o Printing 514 5,321 1,64

84,376 2,167 2,7093311, 35112 Basic Industrial themicals, Portilizoro and Pesticides 94:13 1 14 1,172 53 3 6393521 Paints 39011, 1,519 56765'A522 Dasad eiin 7,26 p ,6 941 245 6953523 Soap, Ferfeses, Cosmetics and oier claunting Preparations 1.4 2,965 1,237 1-2,361 6, 74 3 s,6i8352'9 Other Chemical Products. 615 110 1,719 667 1,05235110 Products of Petroleum sand Coal -s 102 In 3,960 1,515g 2,1413551, Tyres and Tubes :3 989 509 1,023 1,632 2,3733559 Other Rubber Prod,,cts 17 2,37 490o 4,956, 3,107 1,8149

356'o Plastic Products i6 1,3~41 203 2,803 1, 661 i,i443610, 362,0 Pottery sand Glass Products n 832 111~ 794 77 673691l Bricks and Files .. 315 b3 227 97 1313691 Cemenit 3 1,210 5-2 5,629 2,3,2 3 3,3063699, Concrete Prsoducts J, 781 25 4 1,533 ;-43 791-720, 3811 Basic metal, CotTery, Hand Tools andi Hee a,dw...ose 416 1. 11,996 11,2.07793832 -metal Fusroature and Pixtures 13 1,1411 ',C' 2,678 1,431 1.2463813 Structural Metal Products 21 1,926 5- _1 , 467 2,23?6 1,2113819 Fabricated Metal P-roducts iS3 5,288 1,332 12,199 7,628 4,5693522, 3824, 3829 machoaery, otter thso Electrical 2 m29. 799, 241 19713832 Radio, T.V. Sets sod ComScutication Squipoents 7 22 i I6 a,ot6 1,523- 5o43531, 3833, 3839 Other S1eocrical Equipment 522Q6 38 72 140 1323843 Mttor -Vehicle AssemCbly 7 1.661 510 10,959 -1 2,00139~53, 3921 Clocks, Watches sod Jewellery 324 57 324 122123,841. 3851, 39319 miscenisseous Manufactured Prods 12522 105 698 '93 '2756200 Sales and lersicn of' Vehicles 6.0 )3.32 1,979 :3,62 G5 E; 9 n, 1c799212, 9513 Repairs of Vehicles and boolpacat 1i6l 20; 931 L9 431

TOTAL 925~ 66,7i6 23 .1 32 251,516 1-4 3183 103,83-3

/1 This table po-es-nto the resulot of the 19ot in,iustrial zucyro whlich a-n cosductnd to o the~ 12 2o.te of riigoria (namely3, . o-iW~eN,orth Central, K.ansNorih-Psnern-, (Mars, Sense Flateo-, Nid-Wescora, Moemte nod Lrago S,ates) . 'Tl 5 Ea-ster,n (taco-s (East-enotrai, Nivero -ri tooth Ps-trro - fosseri, :P oostas Ithe Imoas-ra loiien) eore s,t coverd.

12 Gross 0O-put is the a'aiuo of salons of products, pluss rcoeipts for resle of Foods sold in tireS m-s onodticin So -abet boordht, a-ol Of on -S.rot work, renPtsfor nsa'.renante nod~ re-adec, vnl- of osae rrosdfr -un sa-. elan or misnu -ho value of isn,,-tort' chiomse in fiibdgna ad-nr-s-rmr

23 Tnd,,ntfrisl :i,'s l-nC oato of aaeioa.nl lsotiy oascolai .-~e sae tot-f tlon at ben boughIt, s~totacti o done by otters so ownmteilaod repai-ca and -ointeoa-r wart -Dr by, others

s atlon Add-ell mossys bonus falie tie-]d anid -o Ito, diftoc et-enn Ge-o-utpn~. seal Cos Olfsts. 20a -find ilndacoieutexs sod ot1her cozen.

lonia,ma ant of; -d o coral beOsos- Of--odngSouron Federal Office of ntastioSL., Lagos.

ANliEE 2APPENDIX

Table 10: GEOGRAPHICAL DISTRIBUTION OP VALUF, SJ)DED BY MAlU'ACThBINC; 010700

___ __ 1963 _ _ ___ 1967Lagos West MidWest North Subtotal E'ast Total -. -West MidWest North Subtotal East Tctal

Foo,i Products 470 202 18 162 852 71 923 791 629 55 1,645 3,120

Vegetable Oil Milling - - 192 3,930 4,122 /1 4,122 - - 85 5,919 6,C004

Beverages 2,914 4,328 - 2,372 1,290 4,638866 1.5,743 20,010 4,530 21,110

Miscellaneous Food Productsand Tobacco 1,297 6.348 - 1,885 2,561 8,091 -

Subtotal: 4,681 10,878 210 4,958 20,717 4,328 25,045 4,642 13,358 143 12,094 30,234 n.a. n.a.

Textiles and Clothing 358 703 - 3,019 4,080 - 2 4,078 1,101 2,728 - 10,770 14,599

Leather, Footwear 18 - - 277 295 - 295 300 841 - 612 1,753

Sawnilling, Wooden Furniture 421 1,048 2,360 96 :3,925 243 4,168 218 2,008 1,793 232 4,251

Prilnting and Pzaper Products 1,637 48 13 222 1,920 259 2,179 2,548 327 - 222 3,097

Rubber Products, Tyres andTubes 197 312 1,850 142 '2,501 504 3,005 125 1,798 1,173 33 3,129

Chemicals, Painits 1,533 258 - 101 L,919 1,301 3,220 5,212 990 - 1,423 7,625

Cement and Concrete Products 233 1,556 - 26 L,815 1,721 3,536 237 3,000 - 61 3,298

Basic Metals, Metal Products 1,036 L1,087 - 289 '2,412 145 2,557 2,275 2,993 - 434 5,702

Electricals 48 - - - 48 - 48 260 121 - 59 440

Motor Vehicle Assembly 622 - - 84 706 34 740 763 - - - 763

Services and Repairs of Vehicles 2,128 560 258 1,217 4,163 915 5,178 2,540 1,238 451 2,119 6,348

Miscellaneous 459 546 15 332 1,352 -388 964 757 1,573 22 612 2,964

Total: 13,371 17,023 4,706 10,762 45,862 9,060 54,922 24,401 30,976 3,584 28,670 87,631 n.a. n.a.

% Growth 1963 k7 82.5 82.0 (24.0) ]L66.4 59.6

Palm Oil. Productionr not ireported. -

Souirce: Industrial Surveys, 1963 and 1967.

Decesmber 13, 1971

ANNEX 2APPENDIX

Table 11: GEOGRAPHICAL DISTRIBUTION OF VALUE ADDED BY MANUFACTJRING SECTORI(percent).

1963 1L967Lagos West MidWes SubtotaL Faqt- Midipci North Rshttl F-t Tota'

Food Products 55.1 23.7 2.1 19.1 100.0 8.3 25.4 20.2 1.8 52.6 loc.0

Vegetable Oil Milling - - 4.7 95.3 100.0 - - - 1.4 98.6 100.0

Beverages and Tobacco 26.7 67.8 - 5.5 100.0 27.0 18.2 60.3 L- 2:1.5 lOCI.O0

Subtotal: 22.6 52.5 1.0 23.9 100.0 20.9 15.4 44.1 0.5 40.0 100.0 n.a. n.a.

Texctiles, Clothing 8.8 17.2 - 74.0 100.0 - 7.5 18.7 - 7:3.8 100.0

Leather, Footurear 6.1 - - 93.9 100.0 - 17.1 48.0 - 34.9 100.0

Sawnnilling, Furniture 10.7 26.7 60.1 2.5 100.0 6.2 5.1 47.2 42.2 5.5 100.0

Pr:inting and P'aper Products 85.3 2.5 0.7 11.5 100.0 13.5 82.3 10.6 - ,7.1 lOC.0

Rubber Products 7.'3 12.5 73.9 5.7 100.0 20.2 4.0 57.5 37.5 [.0 100.0

Chemicals 79.9 14.9 - 5.2 100.0 67.8 68.4 12.9 - 18.7 100.0

Norn-metallic Minerals 12.13 85.7 _ 1.4 100.0 94.8 7.2 91.0 - L.8 100.0

Basic Metals, Metal Products 43.0 45.0 - 12.0 100.0 5.0 39.9 52.5 - 7.6 100.0

Electricals 100.0 - - - 100.0 - 59.1 27.5 - 1:3.4 100.0

Motor Velhicle Assembly 88.L - - 11.9 100.0 4.8 100.0 - - l0CI.0

Services and Repairs ofVehicles 51.L 13.4 6.2 29.3 100.0 22.0 40.0 19.5 7.1 3:3.4 100c.0

Miscellaneous 33.9 40.4 1.1 24.6 100.0 - 25.5 53.1 0.8 20.6 100.0

Total: 29.:2 37.1 10.2 23.5 100.0 79.8 27.8 35.3 4.1 32.8 10CI.0 n.a. n.a.

/I A;s a percent of total other regions./2 Palm Oil production not report ed.

ANNEX 2APPENDIX

Table }2: IiIGERIA: G EOGC IHTCAI DISTRIBTI1I0N 'r 5ROSS OUn ?ui,-ALU~ -D SA1,Thv m41r, /ff T TN ,MfiIv\U:J ... AClTRTI.G, 1963-67

/1In Value Lagos West Mid West North Sub Total. A Lo

Gross Cutput (1000)

1563 39654 284.19 103L7 38683 115103 19589 13469215967 67827 6130b. 8002 82113 219246 n.a. n.a.

Value-Added. (6000)

1963 13371 17023 14706 10762 45862 9060 5149221967 24401 30976 31584 28670 87631 n.a. n.a.

Dnployment (number)

1963 15379 12021 10190 15784 53374 12425 657991967 20784 23221 609h 26297 76396 n.a. n.a.

Percentages

Gross Output

1963 34.5 24.6 9.0C 31.9 100.0 17 0 /21967 30.9 28.0 3.6 37.5 100.0 n.a.

Value Added

/21963 29.2 37.1 10.2 23. 5 1C0O.0 119.819657 27.8 35.3 14.1 32.8 lc0.0 n.a.

Emplo rment

1963 28.8 22.5 19.0 29.7 100.0 23.3196l7 27.2 30,4 8.0 34.14 100.0 n.a.,

/1 Includes greater Lagos area …75 Percentage of total for other regions in Nigeria.

Source: Industrial Surveys, 1963 anid 1967.

ANNEX 2APPENDIX

Table 1: I AT.P 'RY MANTTFACTKaTNG SECTOR, 1967(L million)

Breakdown according to employment size of enterpriseTotal 10-19 20-99 100-499 500 and cveri

Food 16.5 0.2 2.8 6.1 7.4

Vegetable oil milling 24.1 - 0.1 2h.0 -

Beverages and tobacco 29.8 - 0.7 8.2 20.9

Textiles, footwear andapparel 35.6 0.1 3.0 7.3 25.2

Sawmilling and furniture 8.0 0.2 1.2 3.3 3.3

Printing and papernrodurts 6.7 0.3 1.6 3.7 1.1

Chemicals. naints.plastics 15.5 0.1 3.2 6.2 6.0

Rubber products 6.3 0.1 1.9 1.6 2.7

Cement and glass products 6.5 - 1.1 1.6 3.8

Metal products andmiscellaneous 68.o o.6 21.1 39.7 6.6

motor vehicle repairs 28.6 o.6 16.8 11.2 -

Total 21 7. 0 /1 1.7 36.7 101.7 76.9

percent 100.0 0.7 16.9 h6.9 35.5

Number ofEstablishments 555 10h 26a 158 29

percen~t l.Inr , IQ 17 '76 5o

/1 Includes receipts for resale of goods (mhinly motor vehicle repairs, i.e.-£24.6 milliofn) - Value of sales on §ucsih amounted to £179.2 million bybreakdown.by size of enterprise.

Source: Industrial Survey, 1967

ANNEX 2A.PRTWDIX

Table 14N: NIGERIA PAID-UT CAPITfAL BY SoiUnCE OF O'wJvERShflEN TIrFE MANTWACTTRTIX, SRCT)P, 1967

( I-"'*'' }

Privte Publ'L Total Non ToPi I N1gejanNigerian Nigerian Nigerian Nigerian in total

Food, beverages andtobacco 1,758 2,327 4,085 15,006 19,091 21.4

Vegetable oil milling 105 701 806 1,154 1,960 41.1

Textiles, footwear, apparel 1,494 3,438 4,932 8,057 12,989 38.0

Sawmilling and furniture 1,328 128 1,456 2,221 3,677 39.6

Printing and paper products 733 2,096 2,829 1,824 4,653 60.8

Chemicals, paints, plastics 89 37 126 3,791 3,917 3.3

Rubber products 353 375 728 1,313 2,0041 55W4

Cement and -lass products °67 a7R3 1,050 1,000 31 9i 34-l

Metal products and misc. 1,50L 1,034 2.538 8,155 10,693 23.7

Motor vehicles repairs 1,011 556 1,567 1,4h5 3.012 52.0

TOTAL 7,630 10,918 18,509 43,521L2 62,070 29.9

% in total 12.3 17.6 29.9 70.1 100.0

/1 Federal and Regional governments.72 Including £2.5 million Lfor the Commonrwealth Development Corporation (CDC), i.e.

mainly in sugarj(U2.Omillion), in rubber products and basic metals.

Source: Industrial Curvey, 1967.

,MZNEZ 2APPENDIX

Table 15: GOVEFNMENT PARTIC:[PATION IN NANUFACTURING(PELid uD Capital, 1967)

(LWOO)

Federal Government Regional Governments _Total Federal andLagos West MidWest North Total Lagos West MidWest ilorth Total Regional Governments %

Meat Products - - - - - 29 - - 197 226 226 2.1

Bakery Products - - - - - 20 - - 13 33 33 0.3

Vegetable Oil Milling - - - - - - - 275 86 361 :361 3.3

Other Food Products and Tobacco 180 - - 350 530 - 320 - 620 '940 1,470 13.4

Beverages 50 - - - 50 - 450 - 98 548 1598 5.5

Textiles - - - - - - 995 - 2,222 3,217 3,217 29.5

Leather,Footwear, Apparel - - - - - - - - 319 319 2.9

Furniture and Fixtures - - - - - - 128 - - 128 :128 1.2

Paper Products - - - - - - 57 - 478 535 535 4.9

Printing 1,480 - - - 1,480 - 81 - - 81 1,561 14.3

Rubber Products - 50 - - 50 - 325 - - 325 375 3.4

Chemicals and Paints - - - - - - 37 - - 37 37 0.3

Cement and Concrete Products 15 - _ _ 15 35 733 - - 768 783 7.2

Metal Products - - - - - - 65 - 53 118 118 1.1

Motor Vehicle-Repairs - - - - - 550 - - 6 556 .556 5.1

Miscellaneous - - - - - - 432 - 169 601 501 5.51/

TotaLl: 1,725 50 - 350 2,12.5 634 3,623 275 4,261 8,793 10,918 100.0

/1 !Be.sttrn States not reported.

'9 'hTbe role of the MidWeist Goverrme:nt has been substantial:Ly increased from 1968 on.

Source: Industrial Survey, 1567.

December 13, 1971

ANNEX 2APPEINDIX

Table 16: FOREIGN INVESTMENT IN MANUFACTURING AND PROCESSINJG(E million at current prices)

/1Net Flo%- Total Stock of ForeiRn CaDital

1962/63 11 47.5

1963/64 9 58.5

1964/65 11 69.5

1965/66 -5 69.0

1966/67 25 94.0

1967/68 3 97.0

1968/69 15 112.0

1969/70 n.a. n.a.

1970/71 n.a. n.a.

/1 Additions to paid up capital, reserves and external debt.

Source: Centrai Bank of Nigeria.

ANNEX 2APPENDIX

Table 17: RANKING OF FACTORS INFLUENCING DECISION OF PIONEER COMPANIES TO SET UP

(nutmber of times mentioned - 1st, 2nd., etc.)

1st 2nd 3rd 4th 5th

Market Conditions (e.g., large market, tariffwaill control of existing market, cnmns.it+.ors-knowledge of Nigeria's market) 27 14 - - -

Government Attitude (participation, invitation,encouragm.ent 12 5 12 6 6

Tax T,,,ntivec, 2 17 18 L -

P 1aw aer4a' = 7 20n 11

Cheap Tabor - 2 4 11 2

/1 Analysis based on 41 Pioneer Companies' Survey. It is to benoted that onrly 2 companies ranked taax incentives as the firstfactor influencing decision of companies to set up and thatnone ranked tax incentlives lowest.

Souces Nigerian Journal of EconomLic and Social Studies, July i196.

ANNEX 2i.rr'nil X I A

Table 18: THrATvR ILUEBUiNG THE DECISION OF PIONEER COMPANIES TO SET UPL

;acrors Number of times mentionedLarge potler,ital0 Marrket 3Long connection with Nigeria 37Controls rajor share of existing market 31Tariffs going up 3Activ-ites Of competitors 32Government invitation, participation and/or

encouragement 31Raw materials 23

lax incentives 17Cheap labor 15Slability of the country 10Expansion of group activities 7Good Location for eventual exports 5

/1- Analvsis based 9n a survey of 52 Pione0eroompanies (our of 148 holiday pioneercertificates and of 99 actually enjoying income tax relief, the remainingcom ani e having faifed to co.ui ence o-ertdo).

Source: Nigerian Journal of Eco-omic and Swcial Studies, Vol. 11, No. 22, July 1969,By Adedotun Philips.

ANNEX 2APPE'NDIX

Table 19: REIDUCTTON IN IMPORT DEPENDENCE, 1963-68

Theoiretical Imports in 1968Total Supply- (Percent, liq)orts in 1963 Actual Imports Import

in 1968 in Total Supply 1968) in L968 Subst. Percent

Food, Beverage, TobaLcco 68.7 27.4 1..1 12.3-L 16.8Animal and Vegetable Oil 23.8 (.2 0.? -- --

Textiles, Clothing, Footwear 6oi 468.3 1 .0 33.3 45Pubr, P?aper and Printing 14.2 '3.7 6.0 3.7 5.oChemicals L?.7 27.9 22 .2 5.7 7.8Petroleuaif Products 18.5 18.5 1,i1.5 4.o 5.4Rubber Produucts 10. 6 :3.7 :1.6 2.1 2.9Non-met-allic M1inerals 11.7 5.7 .3.5 2.2 3.0iletal Products 50.4 29.3 20.1 9.2 12.6Machinery e Transport Equip, 73.5 61.7 59.8 1.9 2.6Other 36.)L 26.L4 27.6 -1.2 -1.6

TOTAL ,l o.f 258.& 185.6 73.2 100.0

/1 of which refined sugar and confectionary, 27.6 million.

Source: Industrial Surveys 1963 and 1968 and Nigeria Trade Statistics.

ANNEX 2AP;PE3IX

Table 20: 1MY¶PRT fDEPENDMICE I.N THE F(XD, BEVERkGl ANI3 TOBACCO SECTOR 9( £I IUi ons)

-1963 1 964

Supply Percent SupfTly ThekoreeticalTIport Productimn (T I P) Import ITport Productien (I + P) (orf rt in bi Import

(on 63 basis) SUIbst.

TOTAL 20.2 14.7 5J4 .9 36.8 15.1 53.6 68.7 27.4 12 3

Food 18. 8.8 27.3 67.8 14.5 21.? 35.7 25.1; 10.,6

Dairy Products 0.6 0.4 1.0 6 0.0 0.3 0.8 1.1 0.7 0.4

Refined sugarand confectionary 3.7 0.9 4. 6 Bo.4 2.0 10.0 12.0 9.5 7.,6

Cthert 14., 't .5 2 1.7 65.4 12. 1o.4 22.5 14.8 2.6

Tobacco 0.2 11.9 12.1 0.2 - 12.4 12.4 0.2 0.2

Beverages 1.5 14.0 14.5 10.3 0.5 20.0 20.6 2.1. 14.5

Non-1-11coholic - 2.3 2.3 - _ 1.8 1.8 -

AI1lcohWolic(1 1.>5 11.7 13.? 11.4 C).1 18.8 I 1.5

ANNEX 2

APPENDIX

Table gt. NIGERIA : DOMESTIC PRODUCTTON AS PERCENTAGE OFT3TAL SUPPLY OF sE7,rT CO"4OD=mES, 1963- 70 1

1963 1961 1965 1966 1967 1968 1969 1970

Beer 8!6 88U .2 96.7 97.5 98.2 988.! 98.9 99.1

Soft D-inks 98. 99.1 90.8

Cotton Textiles 20.2 22.1 32.u "L.h 44.L 63.2 61.6 68.h

Cesment 63.6 70.5 85.0 86.7 8b.3 86.3 8u.b 55.6

Paints 77.9 69.6 50.6 82.L 0 81.2 80.9 70.3 8b.6

Roofing Sheets 58.1 80.8 86.9 96.5 96.8 94.9 90.L 76.6

Footwear h7.3 61.9 71.2 86.3 89.7 94.5 96.7 96.0

Soap and Detergents n.a. n.a. n.a. 95.4 88.4 90.1 93.2 9'.4

Refined Sugar - - 4.6 11.3 20.6 38.8 26.8 23.7

Biscuits n.a. n.a. n.a. 94.4 93.1 95.7 98.5 98.8

/1 Ratio of domestic production to total supply is based on data expressed involume.

Source: Federal Office of Statistics and Central Bank.

ANNEX 2

APPENDIX

Table ;2: PiTGEKFIA5: DOMESTIC PRODUCTIDN OF SELECTED MAIOUFECTAC ES, 16R-70 -

3- - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1970 Inidex 19170 Index1963 1964 1965 i966 1967 1968 1969 1970 (1963 * 100)1 (1965 - loo)

Beer (000 gallons) 10,392 12,263 t2,606 13,896 13,338 15,597 19,316 24,26'; 233.5 192.5

Soft Drinks (000 galLons) 3,232 3,962 5,055 m,1i99 4,4o6 4,270 5,453 7,05.3 218.2 139.5

Cotton Textiles (000 sq. yards) 52,152 59,088 103,365 176,743 234,347 219,929 2865,839 324,161 621.6 313.6

Cement (000 tons) 518 650 967 985 722 565 557 575 111.0 59.5

Paints (000 gallons) 444 650 897 l,(80 1,023 920 i,475 2,379 535.8 265.2

Roofing Sheets (tons) 42,988 72,392 25,750 50,732 40,521 36,506 39,710 47,597 110.7 14.8

Footwear (000 pairs) 5,028 6,521 5,350 9,322 11,031 10,743 t4,551 21,15? 420.7 395.5

Soap and D3tergents (tons) 2'9,1 O 27,969 36,613 41,2240 37,972 27,157 27,499 29,861 102.6 81.6

Vehicle Assembly (nnu,nber) 3,892 5,231 4,896 3,712 4,643 4,128 6,213 7,42'5 190.7 151.7

Matches (000 boxes) n.a. n.a. n.a. n.a. 105,257 94,168 139,832 187,356 n.a. n.a.

Biscuits (cwts) n.a. n.a. n.a. 169,000 172,713 89,956 132,326 233,362 ln.a. n.a.

Radio and Tr Assemblyand Changers (Inumber) n.a. n.a. 79,1148 107,795 123,215 118,818 193,765 269,387 n.s,. :340.4

Sugar Confectionary ( cwts) n.a. n.a. 79,828 119,575 138,212 140,476 2113,710 281,9259 n.a. 353.2

,Suitcases (number) n.a. n.a. n.E. 224,169 329,448 311,528 509,716 944,926 n.a. n.a.

Cigarettes (mil:Lion sticks) n.a. n.a. 6,o,24 5,1421 5,142 5,470 9,507 8,502 n.a. 141.1

Jhubber Products (tons) 43,076 46,608 41,576 39,1411 36,994 35,717 37,821 143,309 100.5 104.2

Vegetable Oil (tons)(groundmnt oil and cake) 220,304 269,432 300,716 207,216 202,234 293,404 328,881 3 5,939 1i43.14 105.1

Sugar (refIned) (tons) - - 4,880 12,000 20,QO0 23,000 2'5.000 27,OO) - 553.0

A1NNEX 2APPENDIX

Table 23: ITIO0E; OF SELECTELD MAITUFACTUREDS, 1963-70

1963 1964 19,65 1966 1967 1968 1969 1970)

Beer (000 gallons) 1,889 1 ,6l14 433 360 246 255 207 225Sof t Drinks (000 gallons) 31 6 3 69 85 68 30 52 84

Cotton Textiles (000 sq. yards) 206,647 208,333 213,904 1,47,583 187,253 128,158 178,911 150,000

Cement (000 tons) 300 178 171 1Jl1 1314 90 103 459Paints (00C) gallons) 126 283 8714 230 237 216 623 433Roofing Sheets (tons) 31,023 177,202 3,879 1,8157 1,339 1,9155 4,197 14,520

Footwear (000 pairs>) 5,597 L,,020 2,160 1,482 1,267 626 502 8714

Soap and Detergents (tons) n.a. n.a. ri.a. 2,000 5,000 3,000 2,000 2,806

Refined Sugar (ton,s) 52,170 L10,831 100,221 93,815 80,696 :36,1t53 71,086 86,950

Biscuits (cwt) 16,000 10,OC)0 10,000 10,000 12,000 l,,000 2,000 8,7151

ANNEX 2APPEN1DIX

Table 24: EPOORTS DF PROCESSED PRIMARY PRODUCTS, 1960o-0

Unit of Quantity irn ('000) ValuLe in W,'million

Product Quantity 1970 1969 6 18 - -5 1T9T D O 1970 1 96 9 1967 L

Groundnut oil tons 89 99 109 71 104 91 47 11.6 10.9 9.5 7.2 10.0 10.0 5.3Groundnut cake tons 160 168 171 131 133 163 53 5.5 5.0 4.9 4.2 4.7 5.3 1.DPalm oil tons 8 8 3 16 143 150 183 0.6 0.4 0.1 1.3 11.0 L3.6 14.0Palm Kernel oil tons 32 37 27 37 n,a. 1 - 4.2 3.9 3.3 3.6 n.a,, 0.1 -

Palm Kernel cake tons 33 39 30 39 n.a. 3 - 1.0 1.9 0.8 1.0 n.a,. 0.1 -Cocoa butter cWt. 184 209 209 - - - 6.6 7.3 5.5 - - - -Cocoa cake cwt. 179 213 209 - - - - 1.1 0.9 0.6 - -

Rubber crepe and sheet tons. 58 56 52 48 70 68 57 8.8 9.6 6.3 6.3 11.5 1O0.9 14.2Timber cu. f'eet 7738 11400 10764 10776 18192 1867^2 24309 3.1 3.9 3.5 3.5 5.8B 6.3 7.0Plywood cu. feet 740 714 584 525 742 880 674 0.9 0.9 0.7 0.8 1.L 1.2 1.1Riides and skins cwt. 102 166 :L44 150 163 171 189 2.9 4.2 4.0 4.4 5.8 4.7 4.5Tanned leather cwt. 29 32 40 32 n.a. 26 6 1.9 2.2 1.6 1.8 n.a.. 1.5 0.3Pin metal tons 11 10 11 10 11 11 - 16.6 13.9 13.7 1]3.0 15.4 :14.9 -

~1) Total above products 64.8 64.3 54.5 47.1 n.a. 68.6 48.0

.2) Total domestic expcorts 438.5 314.6 206.5 238.1 278.7 263.3 165.6

\3) Percent of total domestic exports, (1) I (2) 14.8 2C. 4 26.4 :19.8 n.a. 26.1 29.0

AN WRY 2

APPENDIX

Table 25: NOMINAL AND EFFECTIVE RATES OF PROTECTION FOR NIGERIAN INDUSTRY, 1968(percent)

Industry Nominal Protection Effective Protection

Tanneries and leather finishing -9 -28Non-ferrous metals (tin) 0 -27Oil milling -9 -26Lumber and plywood -2 -20Rubber -2 -19Distilling and blending spirits 108 - 6Matches and candles 305 2Drugs and medicines 20 17Dairy products 22 22Beer and stout 75 27Paper containers, boxes, paper board 17 31Tobacco 153 31Paints, varnishes and lacquers 140 40Travel goods 40 14Concrete products 35 50Tires and tubes 45 50Cement 14 57Structural metal products 35 67Structural clay products 50 67Soft drinks 82 69Soaps. nerfumes. cosmetics 61 71Footwear except of rubber or plastic 40 77Miscellaneous products of netroleum

and coal 35 77BRakerv nrodunts 50 93Electrical apparatus and supplies 47 96Cutlervyd andtoos and hardwa.re r47 101Made up textiles except wearing

apparel 57 110Textile spinning, weaving and

prinrtinpg 7L4 120Sugar factories and refineries 83 134Fruit and vegetable ca2nning 83 1),0Plastic products 79 141Fabricated metal nrdiiucts 39 113Slaughtering, preparing and pre-

se?rving mTniz+. 0 1 AnGrain mill products 51 180Miscellaneous food products 71 183Motor vehicle assembly 35 206.btal furniture 67 285Furniture except of metal 75 290I tJV U Un, chi and earthenwaree, 38L; 3 -- A UA I

Glass and glass products 50 1,0631dioU.LU , Ut:;-Lte V V L0UII.CUIU AJi1oriIJudL UnLU.LionI 91 -200

Source: IBRD Report Ex-6, February 1971.

ANAEX 2

APPENDIX

Table 26: THE EFFECTS OF EXCISE TAXATION ON THE DEGREE OF POTECTION AFFORDED SELECTEDNTIGERTAN INDUSTRIETR -

(percent)

Hypothetical effective Actual percentagerate of protection with effective rate Difference be-

no exci-se taxation 01f prot-ection tween -1 nd (

(1) (2)

Distilling and blendingspirits 393 -6 105

Matches and candles 76 2 96

Tobacco 368 31 91

Travel goods 244 40 04

Deer an' sout 133 27)8

Cement 95 57 66

Soft drinks 166 69 58

Drugs and medicines 38 17 55

Textiles 229 120 147

Fabricated metal products 2)l1 1i43 40

Tires and tubes 95 57 IJO

Made up textiles exceptwerngaparel 180 110 3

Bakey-v produ_cts 137 93 32

Paints 59 1o 32

Soaps, perfumes and cosmetics 100 71 29

Metal furniture and fixtures 393 285 27

Plastic products 161 1 h1 1)4

/1 Excise taxation is applied only to domestic production and not on imports.Consequently protection can be offset by excise taxes to the extent that in some casest,he~ effectl rate of. p c is foun tu L .L u-o be lower Iiian the nominal tariff rate.

Source: IBRD Report Ex-6, Febru1a- 1971.

ANNEX. 2APPENI)IX

Table 27: ESTIMATED AFTER-TAX INDUSTRIAL PROFITS IN 1970

Percentage on Paid UpCapital and Reserves

Textiles

NTM 48.2KTL 19.3Arewa 23.3Unitex 35.4Zamfara 43.4Nortex 39.0Fablon Knitting 7.3President Clothing 33.7

Food Products

Biscuits Co. 25.5Sugar Co. 7.3Mandrides groundnut oil 21.4.6

Metal Products

Metal Box 23.5Matal FVmiturp 389Pioneer Metals 20.0

Wood Products

Plywood & Veneer Co. (Epe) loss

Timber and Plyweood (Saple) 15.0Olass Pwnduc-ts

Bot+.ing Co= (Lagos) L4-4Glass Containers 43.7

Paints

West African Paints 36.5

Paper Products

Thmnas Wyatt Stationery 9.0Office' S++4 o.e G

'Soon Selec 12.

Source: Selected Companies.

AN1NIEX 2

APPENDIX

Table 28: SELF.CTE-D MAJPJFACTURED FRODUCTS

COMTPlA1USO1i( OF C.'[.r. fERsUS EX--FACTORY PPLU'iS

Unit C.I.F. Price &-Factorv Price % &:-Factory Price Nominal Tariff

C .I.F.Textiles and Clot'hing

Cotton yarn lb.. 0 d 30d 61 10dCotton print sq. yard 24d dENd 2°0 7j%Grey print clotlh sq. ya rd 16 to 19 2:d 11-L to 131 9Rayon filament 20/- 3 2/ 6 d 160 n.a.Shirting material sq. yard 2 2 d 33 to 415d Z0 to 191 36Wor-sted suit (high quality) unit 113 L20 154 50%wolrsted suit (medium quality) unit 9 LL3 1.44 50%Trousers (high quality) uni-t r3 15 167 50%Trousers medium qualit y) unit ;l/18 L3 158 502Heatdties yard 3 3 d 66d 2/-

Leather (Bovine, nedium quality) sq. foot 150 d -/6 5 d 130 66-1/39

Coir Fiber .42 aq. yerd 13/- )/- 108 n.a.

Chall: bo: of 144 1/6 3/3 217 n.a.

AsbeEstos

Sheets torL L51 L';50 98 30%Pipes 6"--class B L3/1 L3/13 120 66%

Wooden Furniture (upholstery low amechair) one anschair L26 L38 1.46 50 to 15%

Po]Ly Vinyl Acetatea (paint ingredient) kg2. 3/- 3 16 d 135 33%

Galvanized Iron Sheets tor 90 to 9S 137 to 147 152 to 155 L38 to 45

Steel Rounds torL 653 ;30 151 50%

Wire Nails case L3/10 UW- 1.71 50%

Shoesi (men's) pair L2 L:7/17/6 144 100%

Tomato Paste lOC cases L1/8 L:3/6 236 140%(2.5 ounces)

TireEs and Tubes

Bicycle tire unit 8 /6 d 10 _ 1.06 45%Bicycle tube unit 2 /6 d 2 ,1 8 d 107 45%Motorcycle tire unit 30/- 36/- 320 45%Motorcycle tube unit 1[4/- l4/5d 103 45%

Bicycle (low grade)

110 A unit 1.10 L15 150 33%110 B unit LU 2kL6 1645 33%110c C unit L13 L18 1.38 33%

PVC Fbams sq. seter 15/5 22/- 163 79%

Cemen.t 100 cwt. bag 19/- 15/- 79 75%

Source: Selected Industrial FLrms, November 1971..

ANNEX 2APPENDIX

Table 29: RESULTS OF ENQJTIRY ON BUSINESS PRO'SPECTS AMONG SELECTED MANUFACTURING COMPANIES - 1970/71

End 1970/EarlY 197:1 End 1971OptinistiLc Unceftin Pessimlistic Opttic Uncertai _ _ Pessimisitic

Textiles 4 1 1 1 3

Non-Metallic Minerals 2 1 1 2 2

Be vera gs 1 2 1 1

Tobacco 1 -- 1

Food Products 4 2 3 3

Metal Products 8 1 8 1

Vehicle Assembly 1 1 - 2

Chemicals 4 1 2 1

Electricaals 1 1 - 1

Leather, Footwear 3 1 2 2

Wood Products 1 1 1 1

RuLbbe r Products - 1 -

Miscellaneous 1 1 1

riTAL 31 12 2 22 17 4

Source: Selected manufaclturing companies,.

AJJN4E 2A,PPENDIX

____ ___ ____ ___ ____9__9__1970 1971(Plann-ed)New Assets Replacement Total Meow Assets Replacemnt Total Iosveetmit

TextilesCott-on thread 3)4 3 37 93 4*8 il 99Spinning, waing (I) 43 - 43 is - 18 5,120Spinning, weaving (II) 99 - 98 PAL. 9,,An). 1 0009Cotton and synthetic fabrics 90 - 90 51 St- 1 i20-Knitting and garment 260 - 260 - )DO30

Siti-nto t1 526 3 529 2,766 08. 2,81)4 7,139

Won-Metallic MineralsWest Portland g1g 70 989 538 28 566 2,000Cosent lagos 456 10 6 6 14 12Concrete blocks, t-ipaso 15 15 18 25 c'- 50Asbestos tenent -- 250 - 250 4oOO

Sub-total 923 91 1,01h 812 61 873 2,o62

~~~~~~~ree 182 ~~~~~~~~~~~~~3 v18 43 12 55 250Beer (I) I1 1*41 396 - 396 2,178Beer (III) 1,41 123 56* 5145 -203 7 48 2,823

S.b-toral 661* [26 790 984 215 1,199 5,251

TLebacco 209 - 209 376 - 376 2,000

Food ProductsFlour 1954 195 923 -923 1,500Fork Prouxts -- 3 -3-Toma

tnor pre ---- -50Groundut at7and -ke 40 - 10 25 -25-

Biscuits - ----- 10Cocoa, butter sond cake - - 160 -1601 -

Sub-total 235 -23-5 1,111 - 1,111. 2,110

leta.t Proch,ctoGalvranized Iron sheet (fl - - - 20 20 20Gallvanizced iron sheet ( 1)------ Water tanks, steel bodies 8 - 8 5- -

and drum-a 38 30 6.1 - I 99~~~~~~~~~~~~~~1 itructo,rai steal 39 - 39 38 -38 63Roofing sheets, ailuminums utensils 3)4 - 34 52 -52 3)4Hiouoehold utensils 19 2 21 15 2 21 22Metal cootainers 1*5 - 1*5 181 - 181 686'Wire nail1s, bar'a, fencing 2)4 L 25 & 21. 110 510

Sub-total 2C7 33 21*0 38.17 19%) 071.

VIebicle.Asebl

A-sombty (IT) _1o 2 57)

Sub-total 11 8 19 31* 25 55 71*

Paints CI) 80) 15 95 155 25 160 soPaints (II) 2 - 2 35 - 35 30Paints (:II) 9 21 30 Pi31 I -Detergenrts 33)4 53 357 291 152 U*3 1,357Poly vinyl acetate -- - 250

S~~--t~~t sl 315 54. -" -NO 744 I.YO5 1,817

Electrkicas

Lamps raios , V V 51 60 70 281Hsdios,TV 66 - ~~~~~ ~ ~ ~ ~~ ~ ~~~~~~~~~66 20 -20 50

Sub-total 66 5 71 30 60 90 331

Leatber and FootwearLeather (tanned) - - - - - - isoLeathereshowCl 19 -19 21 -21 150o,a.-u,.. i

Footwear, rubber crepe sheets 173 -173 199 -199 250

Sob-total 192 -192 210 -210 750

Wood Podictis

tAodifi farditare 1 )1

Sub-total 13 -13 30 -30 300

Fh.b_or Products ti-adtue D 11.0) 0 300 1,100

MiscellaneousSZtationer 11 - Ii 19 - 1IPlastic ar~ticles 26 1*39 69 5 5 0 7

Sub-total 267 1*39 706 169 150 319 275

Total 3,808 794 4,602 7,707 2,586 10,293 2)4,583

ANNEX 2

APPENDDC

Table 31: PERCENT UTILIZATION OF CiPACITY IN SELECTED MANWI'ACTURINGO FRMSL-

First Half Firgt Half1970 1970 1971

Textiles

Cotton thread 80 80 80Spinning and weaving (I) 80 80 80Spinning and veaving (II) 70 96 o6Cotton and synthetic fabrics 70 n.a n.a.Knitting 100 100 100Gaenmta 60 60 30

Non4iltallic Minerale

West Portland - 92Ceinnt Lagos 80 75 75Concrete blocks, pipes, precasts 75 90 90Asbestos cermnt Not in production 65

Beverages

Soft drins 80 n.a. n.a.Beer (II) 100 100 100Beor (II) 100 100 100

Tobacco 10 100 100

Food Products

Flour 100 100 100Pork products 41 50 50Grodnuftt o'l and o 85 85 60Biscuits 60 60 90Cocoa, butter and cake 100 1O0 100

Metal Products

Galvanized iron sheet (I) 100 100 100Calvanized iron sheet (II) 100 50 100Water tank, steel bodies 80 80 80Tins and drums 100 100 100Structunl steetl 80 n.a. n.a.Roofing sheets, utensils (aluminum) 97 98 98Household utensils -a 65 85Ibtal containers 100 100 100Wire nails, bars, fencing 90 75 80

Vehicle Asasmbly

Vehicle assembly (I) 60 60 65Vehicle assembly (II) 75 75 75

Chemicals

Paints (I) 75 70 70Paints (II) n.a. 75 75Paints (III) 100 n.a. n.a.Deterkexktn, toilet preparations 95 n.a. n.a.P0 -R; .l to..let p tot in production 65

Electricals

Lamp, radio, TV 80 65 63Radio, radiogram, TV 100 100 100

Leather (tanned) 100 100 100Inatha, ahnaa (TI) 100 10 100Leather aboes (II) 5o 50 50Foot-ear, rubber crepe sheets 95 90 90

Wood Products

Logs, timber, plywood 100 100 100Wooden ture mki 70 70 70

Rubber products

Motorcycle, tires and tubes 100 100 100

Miscellaneous

Stationery 70 80 80Plastic articlea 57 65 80

A above companiEs achievad a gross output or about £1i40 million in 1970and £110 million in 1969. In 1968, the Industrial Survey gave anestimated grods value of output in manufacturing of 8250 mi77ion (tasternStates-excluded).

Sourco: Selected industrial firms.

ANNEX 2APPENDEX

Table 32: EMPLOYIENT -[N MANFACTJRING, 1967

_Earian s

Skilled andManageriaL Clerical Semi-Skilled IJnskilled Sub-Total Non-Nigerians Total a5

Food, beverage and tobacco 308 1,660 64,123 4,457 10,548 259 10,807 ILA

Vegetable oil mrilling 20 210 977 1,463 2,670 51 2,721 3.6

Textiles, footwear, appaLrel 224 1,150 13,363 5,142 19,879 540 20,419 26c.7

Saw milliAg and funriiture 130 799 4,l69 4,696 9,794 1L37 9,931 13.0

Printing and paper products 208 1,174 3,6141 1,053 6,076 76 6,152 8.1

Chemicals, paints, plastics 155 1,090 1,6 77 1,086 4,008 1141 4,149 5.14

Rabber products 48 306 928 1,039 2,321 61 2,382 _3.1

Cement and glass products 51 270 1,572 945 2,838 95 2,933 3.8

Mietal prodicts and miscellaneous 379 3,013 8,919 4,010 16,321 580 16,901 22.2of which motor vehicle repairs

181 1,721 2,960 1,125 5,987 220 6,207 8.1

Tr 0 T A L 1,523 9,672 39,369 23,891 74,455 1,940 76,3951' 100.0

/] E)ccluding working proprietor-, (207), unpaid apprentices (1438), unpaid iamily workers (83) and home! icrkers (54).

Source: Industrial Survey, 1967

ANNE[ 2APPENDIX

Table 32B: STRUCTURE OF LABOR COST IN IHE INDUSTRIAL SECTOR BY REGIONS, 1967

(firms employing ten or more)

… ~ ~ 7752rage Annual ~P77 (fN) Fer Ce-nt of Employment Per Cent of Pay =

Lagos West Mid West North Total Laeos West Mid West North Totaal Lagos West Mid West North Total

Unskilled 141 124 153 104 124 21.4 33.5 52.1 32.3 31.3 9.1 16.1 30.7 15.3 14.7

Skilled and semi-skilled 216 1137 230 168 191 52.1 50.5 37.7 55.1 51.5 34.1 36.9 33.4 42.,4 37.2

Clerical 327 290 343 252 300 20.7 11.4 7.4 8.7 12.7 20.4 12.9 9.8 10.1 14.4

Professional and managerial 1,208 1,122 1,184 742 1,073 2.9 2.1 1.4 1.3 2.0 10.6 9.2 6 .5 4.5 8.1

Ecpatriate 2,937 2,6:LO 3,604 2,310 2,664 2.9 2.5 1.4 2.6 2.5 25.8 24.9 19.6 27.7 25.6

Total 331 256 2611 219 264 lOO.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

/1 Data cn the riid west may be considered as less representativt than for other regions due to the factl that only a small number ofcompaies were recorded.

Sourc^ Industrial Survey, 1967.

ANNEX :2APPENDIX

Table 33: DISTRI]3UTION OF PIONEER IN1DUSTRIES AMONG MAJOR INDUSTR[IAL CATEGORI:ES

(1('55 - 68)

/1 (2 Re,jected ApplicantsEffective Pioneer Rejected - Gone into

Industry ArlDroved Compani.es Status Applicants Production

Metal Products 33 25 1.5 9

Textile 21 18 23 4

Food Processing 18 12 14 3

Chemicals and Flaint,s 1S' 14 6 7

Rubber and Rubber P'roducts S' 6 2 -

Cement and Construction Materials 7 6 3 2

Hotels 4 4 6 4

Others 37 15 2 5 9

TOTAL 148 101 94 34

/1 Of the approveci ccgnpanies, only lO]L have emerged with effective pioneer status that is they have actuallycommenced operations and have obtained their "qualifying capital expenditure" certificate (indicat:ingthe amount of investment undiertakeni, thereby determining the duration of exemption) and thesir"production day" certificate (certifying the day production commences on a commercial scale, therebydetermining the date tax exemption commences). Thus a pioneer certificate is a necessary but notsuffici.ent condition for the enjoyrment of tax reliegf. The other twio certificates have to be obtai:ned also.

,/2 CoiTpani-es wrhose application for pioneer status was rejected. Out of 914 of them, 34 went i.ntoproduction without pioneer status.

Source: Federal llinistry of Industry.

ANNEX AXPPENJDIX

Tab:Le 34: PIOKEER COMP.ANIES BY INDUSTRY, 1955-68

EstiLmatedtotal Average per

Number of value of companyPioneer iLnve stment iLnvestment

Ind.ustzy Companies (EN Lllion) (bJN thousand)

Metal (based. on iron, and. steel) 33 22.5 680

Textiles and. textile products 21 19.0 900

Food. processing (including animoal feed) 18 '.5 :310

Chemicals and paints 12 '.2 1430

Rubber and rubber products (includirng synthetic rubber) 9 6.6 '730

Pharmaceuticals 7 :3.5 500

Tin alloys and aluminium 10 2.5 250

Cement 7 3-7 530

Hotels 4 2.5 630

Others 27 l4.0 150

TOTAL 148 7'.0 'iOO

Source: Federal Ministry of Industry.

ANNEX 2APPENDTX

Table 35: NUMBER OF PIONEER COMPANIES

Approved

1955 1

1956 1

1957 1

1958 3

1959 9

1960 10

1961 22

1962 16

1963 15

1964 22

1965 25

1966 19

1967 2

19S8 2

1969 1

TOTAL 149

Source: Federal Ministry of Industry.

ANNEX 2APPE:NDIX

Table 36: ANALYSIS OF ROLE OF TAX HOLIDAY IN INFLUENCING INVESTEhNT DECISION

A,nalysi_ of responses to question-

Definitely Probably Definitely Probablyyesq yes not not Uncertain Total

Numbar cf responses 3 22 3 6 3 27Percent of-total responses 8.1 59.5 8.1 16.2 8.1 C100

Responses by size of fixed asset1;3 in .15966Small (less than £100l,000) 1 2 - - 2 5Medium (£100,000-500,000) 2 14 1 3 1 21Large (over £500,000) - 6 2 3 - 11Total fixed assets (£000) 301 22,3,56 3,604 2,926 324 29,511Total initial investaent (£000) 274 13,058 3,506 1,145 229 1]8,2]2Percent of total revenue lost togovernment because of tax Holiday 2.3 25.3 9.2 5.3 0.6 5,2.7

/1 Ouestion was: "Would you have set up without tax holiday?"

Source:: Nigerian Journal of conoanmic and Social Studies, July-1969.

ANNEX 2A f1 ';LDI' 1TT

Table 37: INDUSTRIES RANKED BY THE NTUBER OF PROJECTED NEW FIRMS

NIGERIA, 1970

Ranking Industry

1. SDinnine. Weaving and Finishing Textiles

2. Manufacture of Metal Products except Machinery

3. Manufacture of Articles of Pulp Paper and Paper Board

14. Electrical Apparatus and Appliances

Miscellaneous Metal and Electrical Products

6. Cordage. Rone and Twine

7. Canning and Preserving of Fish and other Sea Foods

8. Leather Products excent Footwear

9. Cocoa, Ghocolte and Siiar Confectionerv

10. Miscel I aeous Chemical Produclts

11= Printing and Pulish; n Tg

12. Glass and Glass Products

13. Fur.niture and Fixtures

114. Mi~scellaneous Products of Petroleumt

16. Canning and Preserving of Fruits and Vegetables

17. (1-min Mill 'P-roducts+.

18. Paints, UVarnishes and Lacquers

19. -Pulp and Paper

20. Thibber Products

21. StructuralClay Products

Source: IBRD Report Ex-6, Table 15, Statistical Annex.

ANNEX AAPPENDIX

Table 38: FEDERAL CAPTT2AJI EXPENDITUIRE ON INDUSTRIES, 19 70-74- - (£N million)

.Project, 1 970-71 1 971 -72 1972-73 1973-7h Total

Loans to Industri-es in War-AffectedAreas I. 500 i.500 - - 3.000

Sugar Estates ancd Factor-ies (Inc:ludin-gExtension) 0.1 20 1 .000 1.500 1.500 L.120

Palm Kernel Crushing 0.039 (D.2250 0.250 - 0.539Wooden Furniture for Export 0.020 0.300 0.300 - 0.620Pulp and Paper - 0.250 1.000 1.250 2.500F'ish Trawling ancd Distribution 0.01'7 0.3kO 0.330 - 0.687Combined Fish ancd Shrirmp Trawling and

Distribution 0D. 0IS O .1 00 0.090 - 0.196Aid to Small--Scale Indusitries 0D .1 50 ID .1 510 0.150 0.150 0.600Chemical Complex 0.0,11 1.3513 1.350 - 2.714Nitrogenous Fertilizer 0 076) 2.-5l0 2.J50 - L.976Liquefied Petroleum Gas 0.269 0.700 0.300 - 1.269Single Superphosphate 0.029 ID. 1 0 0.050 - 0.229S;econd Petroleum Refinery 0.500 1 .000 1.000 - 2.500Salt Refinery 0. 062 0.350 0.050 - 0.)462Iron and Steel 0.500 :2.000 2.000 2.500 7.000Passenger Car Assemb:Ly 0.170 0.200 - - 0.370Investment in other Industries 1.500 2.000 2.000 2.000 7.500Industrial Development Centres 0.1 95 o.o85 0.030 0.090 O.liOOFederal Institute of Industrial Research 0 .030 0.160 0.100 - 0.290Industrial Development Consultancy

Service 13.075 0.075 0.075 0.075 0.300Industrial Training Fund ID.125 0.125 0.125 0.125 0.500Standards Organisation 0.0005 0.020 0.020 - 0.0b5

TOTAL 5.5402 1 -555 13.170 7.690 )40.817

Source>: Second Developmenlt P:Larn yL970--74.

AINNf 2APPENfDIX

Table 159: FE11.OLU CAPITAL K(PENOITUREI .22 INDIOS-K-ES, 1910-754

Ori3ina Pla. IPlaji Allocation Actsal Estinated Estimated Estimated Toatl] a,cost of P3s llosos ____Total as % of Total lxpesditors Eooioe 0edtrs Ttl t o?eo3oot ~~~T~577i 1971:72 177w l97~~~~~7'(W~~ 1970-74 Psuject C~~1oat - 1-9901~71 1971/92 192- D4 iflacatian

n..s ts ind-atries It. Wr-aff-rtedars 3.000 1.900 1.500 - 3.0091 100.0- 1. 500 1.500 3.000Sugar esaes--30 0.0 -. 700 1. 500 1.5170 4.120D 21.1 - .200 1.500:O 1.700Pals keroel trusting sOo~~~~~~~~~~~~~2 8C 0.030 0.2p52 0.250 .. 0.539? 19.2- 0.0050Psoden furnitur for caponc 1sos fantorles) O.60 0. 020 0.70 0300.. .6o 10.0Pup and papor ~~~~~~ ~ ~ ~~~~~~ ~ ~~~~9.900 -C ) 0.250 I. 000 1. 250D 0.501) 25.3 -0.200 -0.200P1t sslt uihitrbto 3.915 0.01? 0).3412 0.330 .. 090 05-Calin-d ftth sod sinpteaslling and diatoliotjon 1. 020 io00 0.0 0.090 0.106s 19.2 -A-id to oml-cl idsre .600 0. 15' 0.550 0.150 0-150 0. 60: 10. 02004000.0Chenjoal rossples ~~~~~~ ~ ~~~~~~~ ~~14.098 0.01., 1.550 1.85o -. 2.7,11 19.2 -0.070 -000Nitsogeaunfrtlte 25. 949 0.0765 0.150 4.50

D.0961. .7 .070LiquefIed Potroleun Gas ~~~~~~ ~~~~~~ ~~6.90m 0. 269 0.700 0.300 . .269) 18.4 - -0.o .600D.6oStu

gle lopnrbopha-hte 0.390 0. 029 0.150) 0.050 . . MO 19.2Secoit Penrtj, et,e-900 .00 100 .0 '.500 27,8 3.300 1.000 1.300salt reflrery 0.100~ ~~~~~~ ~~~~~~ ~ ~~~ 0.IO 062 0.350 0.0,50 D. 62, 10. 3.000 0.100 0.170TPr--_-o Ceel p-lan 4.ooo 0.500 2.0 ',0 .0 7.00l ~ 8 3 0.500 6.ooo 6.,503PTn-t-ge Car -hseo ,dOy t.0i0-70 000 7 .7.30 1 -0.200 0.0Onvosoneo~~. it oshor Irduelclss 7.500 1.50.) 2.777 2.000 2.070 7.500 1070 5171.5 2.0000 2000O6.5loFnd .. ria I- relopacrf Centr-to .9 oo.005 .9 0.Lo") 100 0 - o.6s o.4oo o.465federal Institute of Resesrol. 0~~~~ ~ ~~~~~.2'90 0.030) 0.1i60 0.100 .0.290 100 0 -0.060 0.225 o.285Todustrlal fe-elop ..ot Cunadratos Jerit 0.00 0. 07'; 0.071 0.075 0.075 7. -30( 100 1 .0 .0Ondiustrisi Training hind ~ ~ ~ ~ ~~~~~~~~0.os 0. 12'5 0.125 0).325 0.125 0.500 100.0 - 0105 0.500 0.625Standsrds Orgasiosnior 0.00.~~~~~~~~~~~~~C5 0.01 0 ." 020 0.020 . 0.045 102.0~ - 0.020 0.ob45 l).o65

T0)AL 234.'27 5.4o 14?o 13.170 7.690 b0.8u- 17,4. 520 5.380 17.2'0 23.170 56.7(oldgiron -d stool plant) 1t4.327 4.go 0.5 011.170 5.190 33.817i 79.6 517 4.88o 11.0'70 i6. 667 '49. 3

Loa- tlo 701 3.000 1. ODC 1.000 1.000 - 3.000 100.0 - 0.300 1* 152 . .72Inan to 30274i 1.000 0.500 0.500 - - .0 0. .8500 0.750Pederul grontn to stall industries state sohenen ~o.6oo o. 6o0 - - o. 6oo too.0 0.050 0.30o 0). 30

TO)TAl 4.6oo 2.10C 1.500 1.000 - .600 100.0 0.0950 4.65o '5.550 120.6

238.917 0.0 1.564.7 990 4.1 1. 2 6.330 01.9-0 2t~.-200 3 ,

/1 DIolotog redeapc;on~ ofpass. .nssC ir.d-tn.-cs =LI.v52 oflH,.s fr- pQssto inc-rred In rvs ye.as (s-pplier srodits in the .Oid.edt Stu.to'2 ft-so dawn ~by RIDE lore te- bosr-edng - exuluding raujet by T7E419 to pse.--ti 2f 400,000 iii L5'1 ed 1113.000 ½ 1972.

roo: Pderl Ksisos .f ostry Fed-rul Mimi sts7 of Tinancs md KIMS

ANNEI 2APPENDIY

Taeble 40: KANO STATE EXPNDOITURES, ON INDUSTRZIES-(EL million)

Revised Budgeted Estimated Estimated EstimatedPLAN Estimate Expenditures Excpenditures Expen(ditures TotaL

1970/71 1971/72 1972/73 1973/714 Total 1970/171 1971/72 1971/'7274 1970/741

Kano Investment Company /ILim:itecd (KSIC) 0)503 0. 500 0.500 0.500 2.000 0.250 0.500 / 0.503 1.000 1.750

Investment in New Industries 0.120 0.4400 c.4o0 0.400 1.320 - o.400;- - -

Small Scale Industries LoanScheme o.o45 o0o45 0.045 0o045 0.180 0.010 0.045 0.045 0.090 0.145-

Pre Investment Studies 0.103 0.100 0.080 0.030 0.360 - O.lCic4 0.100 0.260 o.36o

Commercial Bank 0.100 0.300 0.360 0.420 1.180 - 0.300 - l.:L8O 1.180/'

TOTAL 0.865 1.345 1.385 1.445 5.o4o 0.2/66- 1.345 o.645 2.530 3.435

/1 Created in 1970 with registered capital of' LO.5 million. In 1970/71, KSIC invested 1250,000 in Kano State groundnut oil m11 where government ismajority shareholder. In 1971/72, L500,000 are transferred to KSIC as new resources. These resources could bie increasecd further depending onavailability of projects and qualified staff. Objective of KSIC is to supplement NNDC and NN3W activities in Kano State - 100 percant gcvernment ecuity -Interest rate' of KSIC loans likely to be 7 to 9 percent - will an average table 40 percent equity share 'in industrial projects but may gc down to 20 percent

I or even give loans without taking equity. KSIC objection will also to lend money to Nigerians willing to buy shares in excisting or new projects.I nvestment in new industries - This Plan item has been transferred to KSIC but underspending to occur in view of' time needed by KSIC -to get organized.

/- To be supplemented by Federal government matching grant.__ Shares to be undertaken on items such as macaroni, buttons, sanitary ware, toilet soap, ready made children clothing, foundry, etc. Such studies to

be made available to private investors. If later not forthcoming, government may invest through KSIC./5 Plan item deleted. Proposal is to use part or all of Plan allocation to increase Bault of' the North Capital.7. 1970/71 not considered as first year of the Plan in Kano State. Plan period is now 1971-75.

ANNEX 2APPENDIX

Table 41: MID-WEST STATE EXPENDITURES ON INDUSU'RY(I. mi:Llion)

Actual Estimated Estimiated EstimatedPlan Expenditures E:xpenditures Expenditures Total

1970/71 1971/72 1972/73 1973,/74 1970/74 1970/71 1971/72 1972/74 1970/74

Rehabilitation of cement, glass and textile plants 1.500 0.'500 - - 2.000 0 .0 26g1 0.10/2/3 l. 000 1.132Multipurpose Industries Sclheme - o.x60 o.o60 0.o60 0.180 - - A -/Palm kernel crashing - - 0.101 0.102 0.203 - 7- -Small scale industries 0.100 . 0.00 0.100 0.1(.4,o - 0.30 0.5000/Bendel Insurance Company o.o5 .. - O.OC. 0.007 0.025 D.8030/Bendel Construction and Steel Structure 0.100 - - 0.100 - 0.070 0.030 10Mid-West 13ank 0.100 0.150 0.150 0.1(0 0.5CO - 0.100 O.400 O .5 -

Joint Enterprises O.D25 0.025 0.025 0.025 0.100 - - -

Loans to Statutory Bodies 0.100 0.300 0.100 0.100 0.6co 0.372 - 0 372Industrial Lay-outs 0.075 0.150 0.150 - 0.275 - 0.200 0:20OtLLInvestment in niew industries 0.250 0.250 0.250 0.250 1.000 - 0.306 1.C000 1.306Co-operative Secretariat o.050 0.050 - - - _ _

TOTAL 2.305 1.3So85 0.936 0.737 5.363 0.4o5 0.907 3.130 14.442

/1 Excluding deferred repayraent of German machinery deliver-ed in 1966 (payment throuigh Federal Government)These payments totalled Id.099 million in 1970/71 - and L3.872 million up to March 31, 1969. Aboveamount shows government grant fcr access road to Ukpilla cement factory.

/2 Includes government subsidy to pay fcr Mid-West Glass Co. electricity bills, staf'f and refractory bricks(ii76,000)and iv30,000 for repairs at cement plant's eletriciSy generating unit.

13 Textile plant now in productiorL and cement plant -io resume full production in 19 72. These two plants werereactivated with financial assistance Df comssercial bank loans granted with government guarantee. In 1970/71tl million to Asaba Textile and 10.250 million in 19(71/72 - For Ukpilla Cement, loan of' 10.5 million in 1972/'(1and probably L0.750 million in 1971/72 - For Mid-West Glass, tio loan given and production not resumed - Firnancialneeds are 1L millioni.

Ak 'Project * eleted -- Existing building may be used to house small scale industries/5 New feasibility study shows cost of LI million for 60,000 tons oil plant. Governlment would finance 80 percent of cost.

decision yet but moniey requested in 1972/73 budget./6 No small indastries loan scheme! set up so far - Government envisaging to set up cuch scheme but to be financed through

co,mmercial bank loarns with State guarantee. Money spent so far on erecting small to medium size industries (woodtreatment, PVC floor^ tiles, laundry and dry cleaning, soeap factory, wire na-ils plaEnt, medical cotton) at a totalcost of 10.8 mrillioni to be spread over the period 1971-74. Some of these fclCtories may be sold to the private sector.

/7 51% government participation in Bendel Insurance Company - Payments in 1969/70 were already 119,600 - Consequently,total government share will amount to 151,00( i.e. 51 percent of share capital.

/8 Government is minority shareholder in this company (steel and other metal construction, automobile enginesering, trade andstores in steel and automobiles).

t9 Government is minority shareholder in Mid-West BanLk (commerciEal bank). Total capital is reported to be LI million./lS05mall industries estates likely to be in Bemin and Warri.

IltArmels Transport Limited ' LO.256 million in 1971/72 - Coastal and Inland River Transport = I0.050 in 1971/72 - New Breweryproject for ;;1.5 million of which government share will he 80 percent. Disblursements maLyr be 10.6 million In 1972/74. Otherinvestment possible in a water drilling company, in an automobile assembly plant, etc. and eventual participation inthe Second Oi:L Refiniery.

ANNEX 2APPENDIX

Table 42: NORTH CENTIRAL STATT EXPENDITURES ON INDUSTRY

( B million)

Actujal Estimated Estimated EstimatedElan Expenditures Expenditures Expenditures TotaL

1970/71 1971/72 1972/ 1973/74 1970/74 1970/71 1971/72 19 7 2/ 7 4 1970o/7

Industrial Areas

Kaduna South 0.018 o.o46 0.019 C.020 0.103 0.003Kaduna North 0.024 0.069 0.023 0.021 0,137 -Funtua 0.018 0.o48 0.016 - 0,082 0.007Katsima O.o64 o.024 0.017 o 0.105 0.007Zaria 0.065 0-025 o.034 C.035 0,159 0.016Karfanchan 0.041 _0.019 0.022 - 0.082 -_ _

SUB TOTAL 0.230 0.231 0.131 0.076 o.668 0.033 0.070 0.150 0.2531

Small Scale Industries Credit Scheme Fon,d 0.035 0.05o 0.055 0 .055 0,200 0.033 0.050 0.100 0.183 /2

Investment in new industries (government uarticipation) o.465 o.145 0.245 o.845 1,700 - 0.so00 L.000 1.502/

TOTA/L 0.730 0.431 0.431 0.976 2,468 o.o66 0.620 :1.350 1.93$

/1 Shortfall eompared to ptan tar-gets sray be due to Ministry of IWorks capacity to implement projects on a number of estates, f'inance being not a problE!m.72 Problem is shortage of' competent technical staff to appraise loan applications and also lack of good projects (only 04 projects approved in CY 1971,1.7-. Including investment, in particular, in 3 specific projects (a) Cotton wcol plant near Kadisna, (b) Buying of shares in United Textiles in Kaduina in order to increase

Nigerian participation with poEsible resale of shares to Nigerian public, (c) Spinning., weaving and printing plant at Zaria.

ANEX 2APPENDIX

Table 43: RIVERS STATE EXPENDITURES ON INDUSTRIES(L million)

Plan Actual Estimated1970/71 1971/72 1972/73 1973/74 1970/74 Expenditures Expenditures

_ _ _~~ ~~~ ~~~~~~ 70_ __ 1_7_ _

' Rehabilitation of existing industries 0.370 0.360 0.150 0.150 1.020 - 0.01(Wooden Furniture for export 0.(07 0.010 0.010 - 0.027Fish nets industry 0.100 0.100 0.050 - 0.250 -DistriLlery 0.(50 0.050 - - 0.200 - 0.01(Small industries loan scheme 0.025 0.025 0.025 0.025 0.100 - 0.05(Loans and grants to Statutory Corporations 0.:125 0.125 0.125 0.125 0.500 - 0.25(Carsava starch factory and plantations 0.016 0.025 0.025 - 6.C66Industrial rotates 0.100 0.100 0.100 0.100 0.400 - 0.025Bicycle Manufacture 0.(50 0.100 0.100 0.100 0.-50Pre-Investment studies 0.025 0.025 0.025 0.025 0.100 _Cooperative Societies 'Loans and grants 0.022 0.028 0.028 0.032 0.1.10 0.010 0.03(:Investrment in pilot and Federal projects 0.100 0.300 0.300 0.300 1.000

Sub Total 0.990 1.248 0.938 0.857 4.C033 0.010 0.375

Additional Industrial Projects (government participation) N/A IN/A N/A N/A 5-194_/3/L o.coI95Port Harcouit Industrial Development Center - 0.200 N/A N/A 0.400Port Harcourt - Trans Amach' Layout (rehabilitation) 0.025 N/A N/A N/A 0.100

/lItems not originally included in Plan and added subsequently72.Several projects included in plus item would need Federal Government approval to go ahead. Main projects are for a palm kernel crushing plant (41 million),

fish and shrimp trawling ar.d distribution (L-993 million), synthetic f'iber spinning and weaving (LO.5 million), boat building, wire and steel drawing,integrated wood products, hand tools f'actory and construction and furniture industry.

/.Participation in pa]L kernel crushing plant.7.Several industries have started production (enamelware factory, metal works, flour mill) despite the i'act that Rivers State although having equity in those/5' plants (from before the Civil War) has not provided new finance.

''No expenditures until Federal government decision on fertilizer projects, chemical complex and second oil refinery.

ANNEX 2APPENDIX

Table 44: -,rSTERN STATE EXPT.NDITURES ON IIDUlSTRIES(EL mil:Lion)

Actual Estimated Estimated EstimatedI'lan Expenditures Expenditures ExpenditureS TotalI

1970/71 1971/72 1972/73 1973/74 1970-74 1970/71 1971/72 1972 -74 1972-74

Small sca] e enterprises development 0.100 0.100 0.100 0.100 o.400 - D.008 0.100 0.1CeMatching grant f'or self-help schemles 0.100 0.100 9.100 0D.100 C).400 0.060 0.080 0.200 0 340Rural integrated development 0.100 0.100 D.100 D.100 0.400 o 0.019 0.075 o.0o94Cooperative movement 0.051 0.050 0.050 D.050 0.201 -Investment in irndustries 1.075 1.369 1.008 0D638 4.090 - - o.,8o 0.8OoInduistrial estates 0.100 0.100 0.100 D.200 0(.500WNDC uroj ects 0.924 0.570 D.325 O.0195 2.014 0.09o)/1 0.02S C.645LI& 0.760

TOTAL 2.450 2.389 1.783 i.383 d.oo5 0./15/2 0.132 1.820 2.102

1 Excluding Lm.]70 million *pent in debt payments of Nigersol Ccnstruction Company.2 Excluding liabilities on government industrial projects. A SLzne of 10.424 million w-as budgeted in 1970/7.1 but the 9aount actually spent is not known.

( Iovernme-nt participation in possible bicycle factory aLnd eventua1y' in a plywood factory. HDwever, no decision, made on amsount of' government participation.L, Irluirig:

(a) L0.5 million to be repaid by Ministry of Finance to Western Nigeria Marketing Board as part of raw material supplies to Vegetable Oils Ltd. Co.for a total valuE of LW million resiained un)paid in the last six yea ss. L1.4 million would be given irn shares to the Board in the Company andWo.4 million would be f'or payment of debentures to the Board. Another WO.l million would be provided to the CoMpELny as working capital.

(b) 1115,00D tc) Nigerian Shoe and Rubber Products Co. Ltd. (of which L80,000 for workin,g capital).(c) 130,000 for- Lafial Hotel and Pepsi Cola plant for new equipment.

5 WIUDC seeking technical partners interested in a livestock feedmill arnd a bottle project. These partniers would prepare feasibility studies. WIPDC to invest10.4 million in such projects if forthcoming although douctful whether MNDC would have f'inancial resDurces to do so.

ANNEX 2APPENDIX

Table 45: EAST CENTRAL STATE EXPENDITURES ON INDUSTRY- - ~~~(I'D millicn)

Plan Actual Estimated1970/71 1971/72 1972/73 1973/74 1970/7'4 Ecpenditures Expenditures

-__________ _____ __1__ 1970/71 1L971/72

IndustriaL layout and estates - 0.500 _ _ o 500_ N/ARehabilitation of existing industries 1.120 1.OOD - - 2' 120 l 0.434 -/lIndustrial investigations and investments (new industries) D.300 0.40D 0.700 0.550 1. 950- o0.o48- N/ASmall industries loans scheme 9.100 0.100 O.C50 0.050 0.300 - N/A/6Trade development D.050 0.05D 0.050 0.030 0.180 - N/ALoans to Marketing Board 1.000 - - - 1L.000 - - /7Assistance to cooperative societies 0.025 0.025 0.025 0.025 0.100 - N/A

TOTAL :2.595 2.075 0.825 0.655 6. 150 0.482 N/A

LItem not included in Nigeria s Development PlELn (1970-74),Expenditures on Golden Guinea Breweries Ltd. (180000), Hotel Presidential (1164000), Nigeria Constraction and Furni-ture Co. (;80000), Nigeria Water Planning

and Construction Co. (;86000), Modern Shoe Industry (L66000), Soft lDrinks Factory (1,3000), Nijergas Co. (X1300), Modern Ceramies Ltd. (1500) and feasibilitystudy for Nigerstal Co. (1]4850). These amounts may include trends not f'rom East Central State own resources.

_/3xclusin,g expenditures of 11.355 million through Federal government grants (;0.5 million for Nkalaju Cement Plant, L0.5 million for Aba Textile Mill and L0.35million for Cooperative Bank) - Also loans made by commercial banks with East CentrEl State guarantee are not included - Several factories are now inproduction (e.g. Nkalagu Cement plant, Aba Textiles, Golden Guinea Breweries, etc.

,Nmount mentioned in Nigeria Development Plan - East Central State Plan includes a total sum of' ;3.050 miLlion.,/5Amount released for PRODA, technical and engineering goverment agency.f5220000 included in budget but; not released by end November 19I71./7i450000 given to Marketing Board for trading and administrative families but rot as capital expenditures,7&No estimated expenditures possible due to no release of :9-unds by November 1971.

ANNEX 2APPENDIX

Table 46: PAID-UP CAPITAL AND NIGERIAN PARTICIPATION

(IT thusn -

percentPrivate Nigeria Public Nigeria Tozal Non Nigeria Total Nigerian

l'int A

Battery products 188 67 255 279 524Soft Drinks _ 58 58 386 444Wearing apparel 4 - 4 106 110Printing 334 2019 2343 1099 3452Bricks and tiles 8 - 8 241 248

Sub Total 534 2144 2668 2111 4779 56.0

List B

Beer 849 450 1299 3201 4500Meat products 24 191 215 240 455Miscellaneous c2hw I.Ls ?7 j u 66 T10 I

Suitcases (travel goods) 2 _ 2 76 78Texrti1e made np gnods 127 107 23'P 386 _

Footwear 533 115 _ 621 1209Paper products 399 77 476 725 1201Sales a d service of veld4le 1011 556 1507 1445 3012Oemen 2146 760 906 1h99 2405Paints 30 30 60 535 595ilectrical equipment/3 44 19 - 559 622

w. a , *j.J.LJ6 -,^ L'.JV 7/ C1

Furniture 234 128 - 669 1031

Sub Total 4564 2440 7004 14607 21611 32.4

List "

Dairy products 7 35 42 111 153COrain .mi products 20 1802n 160nSugar 21 1020 1041 2311/ 3355Suaar confectionary 44 320 364 1176 1540Tobacco 605 40 645 5865 6510Textiles 830 3216 4046 6942 10989Tonning 130 97 227 110 337Rubber products 353 375 728 2213 2041Basic cnemicals - - 155 155Vegetable oils 105 701 806 1154 1960Glass products 113 23 236 260 396Basic metals 153 168 321 1399 4720Non-electrical machinery 5 - 5 50 55Motor vehicle assembly 2 - 2 1015 1017Miscellaneous 151 192 343 509 8532

Sub Total 2532 6335 8867 26813 35680 24.9

TOTAL 7630 10919 18549 43521 62070 30.0

tl Including soap, detergents, cosmetics and perfumes, insecticides, matches.le Including concrete products.13 Includes assembly of radios and television sets.I U £10C0U00 L&.±LUJV.AJ £r Vrr.LhL.W1 LILA,.