History of Industrialization of Nnewi

The history of industrialization of Nnewi by Chukwuemeka Nzewi, president Nnewi chamber of commerce, industry, mines and agriculture

History of Industrialization

INDUSTRIALIZATION or Industrial development describes the process of transition from an agricultural society, devoid of mechanization, to a society that is based on industry.  This involves an increase in technological development.  New machines, new forms of power, new transport and new means of mobilizing capital to enhance massive increases in productivity.
The origin of industrialization or industrial development is traceable to the industrial revolution in the 18th century.  Industrial revolution applies to a set of technical, economic and social changes associated with the rapid development of the industry.  It was Arnold Toynbee who popularized the phrase “Industrial Revolution” when his book “The Industrial Revolution” appeared in 1884, a year after his death.  It was then used to describe basic changes in the British industry during the previous one hundred years.  These changes were in the transformation of the coal, iron and textile industries; the mechanization of the cotton and woollen industries and the use of steam power.  Britain is therefore regarded as the first country to undergo full-scale industrialization.  Hitherto the changes were slow.

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Industrial revolution acquired this meaning because in mid- 18th century Britain, these changes took on a new pace and became cumulative.  It changed the structure of the economy.  The social and economic relations of the people were affected.  The political environment became bound up with the new economic momentum.  Generally, the Industrial revolution in itself is the shift, at different times in different countries, from a traditionally agricultural-based economy to one based on the mechanized production of manufactured goods in large-scale enterprises.  Once began, industrial revolutions rarely stop.  There may be a decline in the relative importance of early centres of industrial growth and significant shifts in location.

The British experience showed that the following four elements encourage continued industrial momentum.  The first improvement in the transport system.  Second, the incentive for firms to lower costs by increasing the scale of operations and maintaining profits in the face of competition.  Third, constant pressure to discover new techniques, either through detailed research or through the exploitation of new forms of power.  Fourth, the impact of government policy and foreign developments either by protection or planning (sometimes both).  Historical factors also influenced the industrial revolution in Britain.  These included domestic peace and security of property that reigned after 1660; absence of legal frontiers within the country including Scotland; zero taxation of profits, robbing business of growth capital and the British naval strength which buttressed foreign trade as much as the navigation laws.
Patterns of the industrial revolution in some other countries are as follows: Germany between 1870 and 1913 showed rapid growth of the coal and steel industries.  It also took the lead in the development of synthetic products.  Following after the American civil war of 1861-65, the United States witnessed an enormous development of the industry.  This began with a spectacular expansion in the output of the iron and steel industries and the development of a new 20th-century technology based upon light metals, electricity and plastics.  It also transformed the consumer goods industries.  The case of Europe was slower.  It, however, led to the development of the automobile and of large numbers of non-produced consumer goods.  In the Soviet Union, the emphasis was on capital goods.  Japan without natural resource was astonishing in its development.
Every nation strives to industrialize by working towards the greatest degree of self-sufficiency within its bounds.  To achieve industrialization successfully, countries need a highly productive agricultural sector; functioning markets; a stable government and a conducive socio-political environment and institutional framework.  Such successful industrialization will depend to a very large extent to the degree of utilization of locally available raw materials and other inputs (including local manpower).  It will depend on the degree of local value-added; the utilization of home-grown technology or of adapted technology, the strength of inter-industry linkage and the degree of export of output. This will lead to rapidly expanding employment opportunities, a rise of national income per capita, changes in the distribution of income, changes in the domestic living and working condition, changes in social conduct and convention and an overall significant impact on the health and stability of the economy.

The Nigerian Experience

The Nigerian economy started as a peasant subsistence agricultural economy.  Colonization changed this economy to a cash crop economy.  Nigeria depended on her cash crops to satisfy the needs of the British colonial masters.  By the late 1950s, regional government and needs promoted regional competition and cash crop development.  Marketing boards were established to pursue agricultural commodity exports.  From the East flowed rivers of palm oil, from the North pyramids of groundnuts while in the west were warehouses full of bags of cocoa beans.  All these were exported in their raw unprocessed form.
Shortly after the civil war, oil that was discovered in commercial quantity in 1956 by Shell took the center stage following the 1973 Arab-Israeli Yom Kippur war.  Production of oil increased.  Oil prices increased four-fold.  Nigeria’s dependence shifted from cash crop economy to an “oil” mono-economy.  The oil then accounted for over 90 per cent of Nigeria’s foreign exchange.  The stage was set for the oil boom age.  Through the Udoji Award, there was a dramatic increase in income and purchasing power. This fueled an expansion in consumption above Nigeria’s absorptive capacity.  You will recall the “Cement Armada” – the globally notorious port congestion caused in 1979 by Nigeria’s buying binge.  Nigerian Government also opted for an Import Substitution Industrialization (ISI) strategy on a framework of the mixed economy by setting up State-Owned Enterprises (SOE) or Joint Venture (JV).  The ISI strategy is one of the two main approaches to Industrialization, which have dominated the third world planning.  The other approach is the Export Promotion Industrialization (EPI).  The central issues for both approaches remain the development of the industrial base of every nation.  While ISI aims to protect and nurture the country’s “infant industries” during their development stage, the EPI focuses on the export market, which implies achieving international competitiveness.  ISI restriction encourages foreign direct investments while EPI aims to use the stimulus of large external markets and the discipline of world competition to create an efficient industrial base.  Under the EPI, “infant industries” nurtured under ISI are expected to graduate from protection and enter the unprotected international arena.

For Nigeria, the ISI scheme was to utilize the import list to identify products with enough market to sustain the minimum economic scale plant to produce the goods locally, progressively deleting components and raw materials with local sourcing.  The policy thereby sought to create a market for locally manufactured substitutes for leading consumer imports, while the mixed economy was to allow government operation of enterprises and the strategic need for the state to be responsible for providing certain services.

Culture of bureaucratic prebendalism

This commanding height philosophy embraced by Government accelerated the culture of bureaucratic prebendalism.  Purposeful energies became diverted from creating wealth to sharing National cake through the allocation of rent-seeking behaviour.   The priority projects embarked upon became drainpipes and white elephants due mainly to politics and poor judgment.  Investments in the Steel sector were scattered throughout the nation. Delta Steel Company (DSC) established 1979 was to jumpstart the Industrialization march. It suffered from inadequate finance, which forced DSC to resort to 3rd party financing increasing debt accumulation.  It suffered from inconsistency in governmental policies, corruption and unstable leadership. Lack of basic infrastructure and problems of transportation also militated against it.
In the early 1980s when oil prices collapsed and terms of trade turned against crude oil it became obvious that the development strategy favoured by the Government could not be sustained.  Nigeria could no longer sustain its budgetary expansion, which flowed from dramatic increases in oil prices.  Nigeria could not cope with this decline and suffered from what economists call “Dutch disease”.  (The “Dutch disease”, named for Holland’s experience in the matter, is a condition in which an economy becomes damaged and regresses rather than expand with the inflow of extra resources).  With the crashing of oil prices, Structural Adjustment became inevitable as Nigeria found it difficult to meet its obligation.  The Naira began its decline.  Many import substitution manufacturing-manufacturing enterprises became uncompetitive. What to do to curb the economy’s consumption of foreign exchange became a top priority.  Any foreign exchange guzzler became a target.  The government was in a dilemma –‘’ To protect industry to give it room for growth or to liberalize to make the country more attractive’’.

Restructuring of Nigeria’s industrial policy

In 1984, the Research Department of National Institute for Policy and Strategic Studies made some recommendations on the restructuring of Nigeria’s industrial policy. Highlights include that:
1.    ‘’The erstwhile import-substitution strategy should be replaced with an import-displacement strategy.
2.    The exercise of restructuring the manufacturing sector should distinguish between the short-term and long-term.  In the short-term (up to three years thence), the emphasis should be on survival and the problem should be what to do with existing manufacturing enterprises (assist them to stay afloat or allow them to fold up) and what to do in order to facilitate arrival at a predetermined long-run (beyond three years thence).
3.       For the restructuring exercise, industries should be selected and prioritized.  For the short-term, criteria should include the following in descending order of importance:

1. Basic needs industries such as food, clothing, shelter and pharmaceutical industries;
2. Industries which have strong inter-industry linkages (i.e. industries which produce products for other industries and the degree of dependence of other industries on them), particularly those with strong linkages with the basic needs industries mentioned in (i);
3. Industries that are essential for the attainment of government objectives in the key social and utility sectors, especially those that supply products to educational, health, water and power organizations;
4. Strategic industries.
   With each of these four industrial categories, not all individual-manufacturing establishments should necessarily be assisted to survive.  Rather, the establishments should be ranked according to the following criteria, in descending order of importance:
5. (a)     Strength of inter-industry linkage (b) Volume of employment  (c)     Volume of capital employed (d) Proportion of locally procured raw material to
   Total raw material utilized.  (e) Contribution to foreign exchange conservation or earning.
   (f) Location of the enterprise.  (g) Contribution to government revenue.
   4.       Industrial establishments which fit the criteria scheme set out in recommendation 3 above should be assisted to attain at least 50 per cent installed capacity utilization.
   5.       As a general rule, and in order to enhance efficiency in resources allocation, an establishment which is eligible for assistance under the foregoing scheme should have an ex-factory price for its product which is not more than say 25 per cent higher than the c.i.f. price of imported private equivalent.

In fact, in the long run, the overriding emphasis should be on local resource-based industries.’’

The Structural Adjustment package of the Government had as its cardinal goal the deregulation of the foreign exchange market.  This suffered from half-hearted implementation and met its death as the emphasis of policymakers shifted from the economy to politics after the annulment of June 1993 elections.  The Interim National Government initiated the Nigerian Economic Summit which recommendations favoured the earlier Adjustment package but became rubbished and reversed by the next military government. The Organized Private Sector, the Economic Summit and Vision 2010 have tried to come up with an agenda. The new Government industrial development policy is premised on the free market model – To attract more foreign investments; restore the confidence of foreign investors; improve infrastructure; privatization; export processing zones etc.  The big question is how prepared is Nigeria for the free market.  How ready are local producers to take advantage of the free trade.

Poor infrastructure, high cost of self-provision of basic services, frequent and inconsistent policy gyrations and somersaults, corruption and the consequential high cost of doing business in Nigeria seriously hamper the Nigerian business environment.  Others include paucity of incentives and incentive administration, government preference for foreign businesses in strategic sectors, and the preferential terms of foreign and foreign-controlled businesses.

The critical success factors for industrialization are the existence of a pool of skilled and knowledgeable people; the domestic and international market for goods; a comparative and competitive advantage for her goods in the international market; enabling environment for fast production and competitive penetration of markets and the existence of and access to capital for start-up and/ or expansion.

The Nnewi Experience

Nnewi people started with peasant subsistence farming, palm produce trading, and transport business and commercial apprenticeship (mostly in motor trading).  Onitsha played an important role in the palm trade up to World War II (1939-45) when road transport to Port Harcourt became more competitive than the river route.  During World War II, it was not easy to import motor parts.  This gave the trade-in motor parts a boost.  Second-hand motors and military vehicles were purchased and vehicles cannibalized.  Little wonder then that the founding fathers of commerce and industry in Nnewi started with palm produce and transport businesses.  Late D.D. Onyemelukwe who operated from Aba was a produce merchant and a pioneer in the transport business.  He also invested in landed property and agriculture.  He owned a fleet of vehicles and monopolized passenger services between Aba and Onitsha until the 1950s.

Transportation Business

Late Sir L.P. Ojukwu operated from Lagos and was regarded as a business leader of his generation.  He was a produce merchant, a transporter and a philanthropist.  He became Vice President Lagos Chamber of Commerce.  He built up a large fleet of vehicles and lorries in the 1940s.  Other well-known transport magnates of the 1930s and 1940s included J.C. Ulasi at Aba and Egwuatu at Nsukka, F.E. Okonkwo at Kano and Benson Okoli at Onitsha. In the 1950s, a new wave of transport companies appeared.  These included Ekene Dili Chukwu Transport owned by Chief A.E. Ilodibe, Izuchukwu Transport owned by Chief Ubajaka and Chidi Ebere owned by Chief Amazu.  Chief A.E. Ilodibe has expanded to other activities as motor sales and services, insurance brokerage, communications, steel fabrication etc.  In the late 1950s, Nnewi people were said to have sent European motor parts to Japan for copying and importing back to Nigeria.  It is believed that Nnewi people controlled about 60 per cent of the motor parts trade in the late 1960s prior to the civil war.   The pogrom of 1966 forced the Nnewi people home, as their security was no longer guaranteed outside.  Most of their investments outside were lost or declared abandoned properties.  The forced homecoming exposed the inadequacy of the Nkwo market then situated at the Nkwo triangle.

Establishment of Nkwo Nnewi

The need, therefore, arose to establish a bigger place to contain the influx.  The traditional institution of Nnewi headed by the Nnewi Monarch showed its love, concern and commitment to her people.  A decision was taken for the relocation of the Nkwo market from Nkwo triangle to the present place, which is bigger.  Thus began the march to establish the Nnewi motor spare parts market.  At the end of the war, other people came to Nnewi from far and near to trade in spare parts and to live in Nnewi.  When the war ended importation was difficult due to lack of funds.  This difficulty in the obtention of foreign exchange boosted the initial domination of old motor spare parts trade over the new parts.  In 1970 there were about 700 members of the Nnewi old parts union.  By 1978 membership of the new parts union outweighed the old parts union.  One of the earliest attempts at establishing an industry in Nnewi was by Sir. Sam Anazodo in partnership with foreign investors.  The Nigerian Bottling Company is presently occupying the factory building that was set up then.

Entrepreneur industrial Revolution

In 1966 Chief James Edokwe (Jimex) was to have started a light-aluminium die-casting plant in Onitsha.  The war disrupted his plans.  He, however, set up his pit-furnace at Nnewi.  He is regarded as the pioneer industrialist in Nnewi.  Cento International was established in 1983 to manufacture plastic auto accessories and batteries.  This signalled the emergence of new industries in Nnewi.  In 1984, Ibeto photo processing was established.  Cutix Plc and Adswitch Plc (both quoted in the second-tier securities market of the Nigerian Stock Exchange) came up in 1984 to manufacture Electric cables and Electric Switchgear respectively.  Ebunso came up in 1985 for the design and manufacture of process equipment.  S and M, a soap, toiletries, the disinfectant manufacturer came up in 1986.  1987 saw the following: John White (Fan belts), Uru (Brake cables), Edison (Brake pads, shoes and linings), Armak (Rice & maize processing), Ibeto marble (Synthetic marble).  1988 saw the emergence of Intercontinental feed mills (animal feeds), Life vegetable oil (Palm kernel processing), OCE filters (Oil filters), Godwin-Kris (Rubber auto parts) and Ibeto (Batteries, accessories, brake pads, linings) and shoes & clutch fibres (1990).  Dewaco (industrial moulds) came up in 1989 while Ifebi farms (Poultry etc) came up in 1991.  According to Alexander Gerschenkron, the Russian-born economist: ‘‘historical events influence the path of Industrialization’’.

The effect of the Biafran War

The war caused the Nnewi people to think Home.  The product of peace and strong community ties and the support of the traditional institution remain factors that helped in the setting up of new industries.  Also the loss of properties outside Igboland, especially in Port Harcourt, the need for security and the aftermath of the northern massacres and the civil war may also have triggered the industrial surge. Another reason is the vast experience and skills acquired in trading which made it easy for the Nnewi people to move from trading to manufacturing.   Not all Nnewi industrialists have located their industries in Nnewi.  The Coscharis Group manufactures timing and roller chains for the auto industry in Lagos.  It has diversified into very many businesses and is internationally acclaimed.  Others are DVC plastics and Innoson plastics in Enugu; Niger Auto Industries for motor parts in Onitsha; Memms (W.A) Ltd for paper and paint; Iju Industries and Fenok also in Onitsha just to mention a few.

Entrepreneur succession Mismanagement

It is not all the early industries in Nnewi that have survived the founders.  The reason has been traced to the quarrels over properties by their siblings at the death of the founders.  There was in most of the cases an absence of managerial culture and plan for succession and survival.

This post founder crisis has limited economic development, as the principle of cumulative legacy is lost to generational extinction of wealth accumulation.  According to the records of the Nnewi Chamber of Commerce, Industry, Mines and Agriculture (NCCIMA), there were 40 registered members in1992.  This number rose to 118 in 1995.  Not all members are manufacturing.  The period of 1984-1995 witnessed high growth in the establishment of industries.  A significant number of those industries are still in existence.  The survival rate of industries in Nnewi is relatively higher than in other parts.  The reason may be because of sound economic studies and acquired skill/expertise before the investment.  It is not based on reliance on political access and state patronage.  The profile of manufacturing firms as at this year indicates that out of 37 officially registered firms, 24 are still in operation (see Table).  This is over 60% success and is encouraging.

Hostile Environment and Poor infrastructure

Between 1996 and 2003 very few industries have been established.  Though this is a National problem for Nnewi, the major constraints remain poor infrastructure (road, electricity, and water).   Others are a hostile business climate due to multiplicity of taxes and excessive regulatory practices and high cost of self-provision of basic services.  It also includes the absence of a pool of skilled and knowledgeable manpower and limited access to technical and managerial advisory services.

According to Engr. Dr S.E. Chukwujekwu, “the result of all the above is that the rate of industrial growth has slowed down in Nnewi – while some old industries are struggling to survive, new ones are not coming up fast enough.  The reality of the situation, however, is that for Nnewi to survive, the industrial sector must grow substantially to a point where it is impacting significantly on the commercial sector”.  The recourse to commercial importation as a way of survival will greatly hamper industrialization.  Some big-time industrialists are already involved in the commercial importation of such items as rice and cement because of the low-profit yield from the manufacturing sector.  This is an unfortunate development because industrialization is impaired in any economy where commercial importation yields better than manufacturing.   Over 95% of industries in Nnewi are built by indigenes.  The absence of a developed Industrial estate may be the single most important factor why the non-indigenes have not contributed noticeably to the industrialization of Nnewi.

Plan for the provision of land for the industrial estate

The Nnewi Chamber had initiated steps for the provision of land for the industrial estate.

The estate will help existing small and medium industries and lead to planned industrial development.  It will also ensure that the indigenously driven industrial revolution in Nigeria for which Nnewi has come to be known is sustained.  The 76 hectares of land already earmarked by the Government should be developed.  Also, the N50 million pledged by General I.B.Babaginda (during the special trade exhibition in his honour, at Anaedo hall in 1992) for the development of the estate should be followed-up for release.   The assembly of motorcycles in Nnewi with local brand names is a good development that will positively impact on further industrialization of Nnewi.  The emergence of such motorcycle assembly industries as Innoson and Maryment amongst others is definitely in the right industrialization path.  Christomex Industries now produces motorcycle seats.

There are many informal manufacturing activities in this area.  This gradual approach of conversion from importation to manufacturing and assembly will augur well for the future of industrialization.   There are four distinct modes of investment financing in Nnewi.  This excludes the isolated case of partnering with foreign investors already mentioned.

• The first is where the owner finances the investment 100% with own funds and then with some support from the Banks for Working capital.  This is the dominant mode with very few not receiving any support from Banks.  There is always the problem of post founder succession and success.  The second is where a few people collect money from others to set up factories that did not work.
• This second mode is replete with a lot of credibility as well as succession problems.
• The third mode is by going public by raising money from the Stock Exchange.  This is the model adopted by Cutix Plc and Adswitch Plc.  According to the founder of Cutix Plc and Adswitch Plc, Eng. G.O.Uzodike, he initially started with private placement but quickly went public as soon as possible.  He preferred to go public rather than use private placement for three main reasons.  He wanted the shares to be marketable.  He believes it would be easier to raise more funds in future.  He wanted the two companies to survive him.
• The fourth mode is from 100% bank financing.  This could not be sustained as funds were diverted into other areas.  The indiscipline in the management of such funds created problems that caused the failure and closure of both trading and manufacturing businesses.
• The United Nations Industrial Development Organization (UNIDO), the World Bank Group (WBG) and the African Project Development Fund (APDF) are jointly mounting a program aimed at developing the Nnewi Automotive Industrial Cluster to a self-sustaining standard.  This is a big boost to the industrialization of Nnewi.

Nnewi at present is the source of more than 80% of motor spare parts trade in Nigeria (both for automotive and motorcycle).  There are medium and large-scale industries.  There are also micro and small-scale entrepreneurs, and importers of new spare parts.  Four main associations coordinate activities in the Nkwo market.  These are old & new motor parts dealers associations and old & new motorcycle parts dealers associations.

Conclusion

In the British experience, it was noted that certain elements encouraged Industrial momentum.  Most of those elements are either minimal or non-existent in Nnewi.  There are no good roads.  The power supply is epileptic.  Pipe borne water is unavailable.  The burden of a multiplicity of taxes and levies is heavy.  There are no incentives.  The knowledge industry is frustrating.  The policies of the Government are inconsistent.  There is no protection of the industries.   The industrialization of Nnewi has been encouraged by the need to think home.  The relative communal peace and security have also promoted it.  The Nkwo market as a functioning and booming market for automotive and motorcycles trading has enhanced it.  The utilization of homegrown technology or of adapted technology and the establishment of inter-industry linkages have strengthened industrialization in Nnewi.   The Nnewi Chamber of Commerce should have been one of the most viable in Nigeria.  Most of the Chief Executives want to go it all alone.  It is only during the crisis that they find convergence.  This should not be the case.  There is a need to unite and be pro-active.  The linkages and finance available to the Group far outstrip what a single individual can do or get.  There is enough on the ground to be harnessed such that the first Made-in-Nnewi car can be a reality in the next 10 years.  All it takes is more of a political will.   It is true that Nnewi people have tried to provide for themselves those things that enhance industrialization.  However, the truth of the matter is that we cannot continue like that without massive government assistance.  The absence of a true and real political power base in Nnewi is a great hindrance.  Pockets of professional politicians who are more interested in what they can get than in the industrial growth of the town should no longer be in the driving seat.  Genuine industrialists should harmonize their interests and take the driving seat for Nnewi to remain the Japan of Africa.  The individual contributions of Nnewi industrialists to the Nigerian economy cannot be glossed over.  The exploits of Nnewi industrialists both at Nnewi and in Nigeria remain a source of strength and joy.  Why will Nnewi not get its fair share of the presence of Government and become the industrial giant it is destined to be?

OTHER CONTRIBUTORS:

1. Engr. Ajulu Uzodike (Immediate past President, Nnewi Chamber of Commerce, Industry, Mines & Agriculture)

2. Dr Sam Chukwujekwu (Pioneer President, Nnewi Chamber of Commerce, Industry, Mines & Agriculture)

References

Chambers Encyclopedia: New Revised Edition Volume VII

The New Universal Library Volume VII

Research Department, National Institute for Policy and Strategic Studies, Kuru – Nigeria: ‘’Restructuring of Nigeria’s Industrial Sector’’

Oyelara-Oyeyinka Banji – ‘’Nnewi-An emergent industrial cluster in Nigeria’’.

Anya O. Anya: “Diversifying the Nigerian Economy. The Industrial Option

Forrest Tom: The Makers and Making of Nigerian Private Enterprise.

Pat Utomi: Critical Perspectives on Nigerian Political Economy and Management

Pat Utomi: Managing Uncertainty Andrew Uzoigwe: “The Role of Technological and Industrial Development in the Stabilization of the Nigerian Economy”

Chukwujekwu S.C.: “Developing the Nnewi Industrial Cluster – A strategy for Industrial Firms Survival”.

“Nnewi Chamber of Commerce Industry Mines and Agriculture Annual Reports”

‘’ Journal of Contemporary African Studies: Nigeria: Indigenous Private Enterprises.