Author(s): Dr. Ijeoma Nwagwu and Tamilore Oni
Affiliated Institution: Heinrich Böll Stiftung
Type of Publication: Article
Publication Date: July 2015
If taken as a country on its own, Lagos would be amongst the largest economies in Africa. It has been able to diversify its economy and to considerably reduce its dependence on oil allocations. But its potentials are still huge if it invested in skilled labour force, reduced its bureaucratic hurdles and adopted an inclusive development approach.
Lagos has a rich history of economic growth and transformation. Although it covers only 0.4th of Nigeria’s territorial land mass, making it the smallest state in the country, it accounts for over 60% of industrial and commercial activities in the nation. Lagos is financially viable, generating over 75% of its revenues independent of federal grants derived from oil revenues. It generates the highest internal revenue of all states in Nigeria. If taken as a country on its own, its 2010 GDP of $80 billion made it the 11th largest economy in Africa.
Here, it is important to distinguish between Lagos State and its Metropolitan area. Lagos State is the area defined by the state declaration of 1967 whose boundaries had largely remained the same since the amalgamation; while the Lagos Metropolitan Area consists of the densely populated and extensively built up parts of the state, referred to as “the city” or simply “Lagos” from here on.
Today, Lagos has emerged as a major hub for the headquarters of national and global companies and the complex business and professional services that support them. With a population well over 16 million, Lagos is the seventh fastest growing city in the world, and the second largest city in Africa. Lagos is not only becoming a “megacity” in terms of population but it is a global city with a substantial and growing foreign-born population and non-stop flights to hundreds of destinations around the world.
Although it covers only 0.4th of Nigeria’s territorial land mass, making it the smallest state in the country, it accounts for over 60% of industrial and commercial activities in the nation
While the economy of metropolitan Lagos has enormous competitive assets, it faces challenging trends in rapid population growth, urbanisation, relentless demands for infrastructure as well as macroeconomic pressures from the national level. The city’s expansion is estimated to continue over the next couple of decades. As it is, the economic growth of Lagos the industrial, financial and commercial nerve centre of the country has been unable to keep pace with the geometric increase in the population size. And although the city’s internally generated revenue (IGR) is high relative to other Nigerian states, it is not sufficient to meet the increasing social welfare, infrastructural and environmental needs of the city.
Despite these challenges, Lagos has managed to generate revenue from a variety of sources, including manufacturing, transport, construction and wholesale and retail, which together account for a bulk of its GDP. The economic diversification of Lagos contrasts with the larger Nigerian economy which is heavily reliant on profits from the oil and gas industry.
Concerned about the sustainability of Lagos’ economic success in the face of population and infrastructural challenges, its government in December 2014 articulated the Lagos State Development Plan (LSDP) for 2012-2025. The plan aims to transform Lagos into a model megacity that is productive, secure, sustainable, functional and safe.
With a population well over 16 million, Lagos is the seventh fastest growing city in the world, and the second largest city in Africa
Manufacturing in Lagos – Prospects and Challenges
Manufacturing in Lagos forms a significant part of Nigeria’s economic landscape and could, as the governor of Lagos State recently suggested, propel Nigeria into the manufacturing big leagues along with BRICs countries such as China and India. Metropolitan Lagos accounts for over 53% of manufacturing employment in Nigeria, significantly contributing to the 7% of national GDP constituted by manufacturing. In 2013 manufacturing is estimated to have contributed $35 billion to the national economy.
Manufacturing industries in Lagos State include food, beverages and tobacco, chemicals and pharmaceuticals, rubber and foam, cement, plastic products, basic metals and foam, steel and fabricated metal products, pulp and paper products, electrical and electronics, textile manufacturing, furniture and wood products, motor vehicles and miscellaneous assembly.
While prospects for economic growth through Lagos manufacturing are promising, the challenges are formidable. Take the regulatory challenge for example. Lagos manufacturers are faced with bureaucratic hurdles in the various standards and charges set by multiple regulatory agencies.
The economic diversification of Lagos contrasts with the larger Nigerian economy which is heavily reliant on profits from the oil and gas industry
Manufacturers in the sector bemoan disruptions to their operations arising from incessant inspection visits, environmental and product audits with hefty charges to manufacturers as well as long delays in product registration and certification. The burden of regulation on manufacturers needs to be eased through streamlining the requirements and interventions of state and federal regulatory agencies.
Fulfilling the Promise of Lagos Manufacturing
Along with managing broader macroeconomic shocks there is scope to improve labour and capital productivity in Lagos manufacturing by investing in upgrading urban infrastructure such as transport facilities, power supply, water supply and waste management facilities. Infrastructure affects the entire process of production from raw material supply to product distribution. Poor energy supply for example is a major infrastructural challenge that has an immense effect on production output in Lagos. Manufacturers spent an average of N57.72 million monthly to provide alternative sources of energy in the form of diesel or gas generators for production.
It is crucial to note here that energy supply to homes and businesses is the responsibility of the federal government, and the State Government does not to interfere with this. National level reforms to the power sector have failed to trickle down to local industry. Infrastructural interventions and the exploration of renewable energy options would lead to improved capital productivity in environmentally sensitive ways, and the Lagos’ manufacturing sector would become an engine of inclusive growth and prosperity for the whole country.
Manufacturing industries in Lagos State include food, beverages and tobacco, chemicals and pharmaceuticals, rubber and foam, cement, plastic products, basic metals and foam, steel and fabricated metal products, pulp and paper products, electrical and electronics, textile manufacturing, furniture and wood products, motor vehicles and miscellaneous assembly
Currently, Lagos accounts for about 10% of Nigeria’s population which is in excess of 170 million people. Although there is no lack in numbers, there is a definite shortfall with regards to skill levels, and the availability of skilled personnel is important to the expansion of manufacturing. Labour productivity in Lagos manufacturing would benefit from large-scale investment in skills training to enhance managerial roles in industry and build the productivity of machinists, maintenance engineers, welders and other industrial workers.
The manufacturing production value of the Lagos industrial zone was N126.01 billion in the 1st half of 2014. This figure accounts for almost half of the production value for the whole country. This visible source of revenue is somewhat handled as a “cash cow”, and as such, manufacturers in Lagos face multiple taxation. Taxes are paid to the federal as well as to local authorities.
In these ways the socio-economic environment of Lagos has been viewed as “unfriendly” for manufacturing investment and there has been a noticeable shift into other industrial zones especially to the neighbouring Ogun State zone. In the 1st half of 2014, Ogun State saw manufacturing investment of N376.57 billion which accounted for 78% of investments nationally within the same period. Lagos received N43.2 billion.
Poor energy supply for example is a major infrastructural challenge that has an immense effect on production output in Lagos
The Way Forward
However, to utilise its enormous potential, Lagos would have to find a way to make the people a part of its economic success story and to find ways to divert from the trajectory of “jobless growth” which would spell social unrest in the context of its massive and mostly young population.
With regards to accountability and inclusion, Lagos has a long way to go. There is no conclusive evidence to support that increased IGR has given citizens more leverage in decisions on political governance and social provision. Poverty and social exclusion is a major challenge in the broader Nigerian federation today. Poverty rates range from 16% in the South-West where Lagos is located to 50.2% in the North-East.
The LSDP tells of the government’s commitment to poverty alleviation and the government’s pledge to support SMI and informal sectors to ensure the growth of the GDP. But the pathways for dialogue between the city inhabitants, manufacturers, and the government need to be opened and expanded to sustain economic reforms and bring diverse and often excluded voices of small scale manufacturers and citizens into conversations on industrial policy and implementation.
Labour productivity in Lagos manufacturing would benefit from large-scale investment in skills training to enhance managerial roles in industry and build the productivity of machinists, maintenance engineers, welders and other industrial workers
Lagos manufacturers must seize the moment to engage their government towards transforming the manufacturing sector through targeted improvements in labour and capital productivity, physical and virtual infrastructure, industrial rules and regulatory enforcement, access to credit, creating durable platforms for stakeholder engagement as well as favourable tax structures. Government must begin to develop measures that will encourage investors to remain and expand within the territory. Taxation policies need to be reviewed, more aggressive infrastructural provision schemes need to be developed, and funding should be made more accessible to industries of all scales. As Lagos is already the central commercial hub in Nigeria, such incentives will lower the cost of production and enhance its appeal to investors, allowing it to reach its full economic potential.
The combination of growing domestic demand, the concentration of resilient manufacturing industries able to tap into political support at the state and federal levels, offers Lagos product makers a once in a generation opportunity to fully emerge from the shadows of the country’s toxic dependence on the oil and gas sector.
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