Not All Manufacturing Is Created Equal

Developing country governments typically want to promote manufacturing and de-emphasize agriculture. One of the concepts I teach in my development classes is the importance of backward and forward links.  For example, the creation of a railroad may have positive spillover effects on anything from commerce & transportation (forward links) to steel manufacturing (backward link).  If a government wants to promote a particular industry, it is wise to look for one that has widespread potential links, because not all manufacturing is created equal.

This was brought home to me recently by the great satirist Elnathan John, who regularly excoriates the Nigerian government (as well as many others).  He tweeted:

Screenshot 2015-10-29 08.16.01

I can tell you from experience that Import Substitution Industrialization is not a subject that is ripe for comedy, so kudos to Elnathan John for this.  I can think of some positive backward links to creating arms but not many good forward ones!

p.s. This reminds me of an instance when I asked students once on a midterm to choose an industry that would likely have a lot of links to other sectors and one student chose the unlikely industry of fighter jets.  Again, the backward linkages are clear (steel, airplane part manufacturing, aviation schools) but the positive links…not so much.  Not all midterm answers are created equal either!

Import Substitution Fishing?

In the department of “what could go wrong?”, the Nigerian government has embarked on a new plan to promote fish farming by slapping import quotas on foreign fish (that’s a funny concept, as if the fish in Nigerian waters carry (waterproof) citizenship papers)).

So what are the details of this creative new plan for growth?  The Ministry of Agriculture first sought to ban all fish imports for four years and force fish importers to start fish farms.  This brilliant nugget was shot down by public outcry, who rightly realized that there would be massive fish shortages.  Somehow the government thinks that the skills needed for import-export are the same for fish farming.  I don’t know what exactly each of those jobs entails, but it doesn’t strike me as likely that the same person would be equally well suited for both.

Alright, back to the drawing board.  The Minister then decided on a 25% annual reduction in fish imports, using foreign exchange as a control mechanism. Foreign exchange is already regulated by the Nigerian authorities and fish importers have already learned to game the system; that is, claim to be importing way more fish than they actually are and resell the foreign exchange on the black market.

The article does a good job of summing up other reasons the policy is likely to fail:

“The Nigeria Agriculture Minister has said, “In 2013, a total of 3.6 million juveniles, 36,000 bags of 15 kilograms of feed and 200 water testing kits were provided to fishermen in ten states, at a total cost of N1.5 billion Naira.” While many fish farmers indicate they are yet to see and/or get these items, market analysts state that these are grossly inadequate to make any impact on boosting production to cover the import cut.

Nigeria’s marine waters are also unsafe with serious security challenges which hamper fish and shrimp trawling. Nigeria’s Niger Delta areas used to be the hub of the country’s fishing and fishery production. But that status has been overwritten since Nigeria’s oil and gas discovery in that region. Water pollution from oil and gas exploration activities in the region has continued to deplete the region for fishery activities.”

and I agree completely with their forecast:

“Many industry watchers indicate that Nigeria’s fish quota regime can only increase food inflation and open up channels for profiteering by politically-connected importers and individuals with privileged access to top government officials. This will fuel smuggling and the corruption of port officials, as well as increase the risk of disease in domestic fish farming as pond will be overtaxed as fish farmers try to boost production.”

The real question is if the program’s failure is so easy to predict in advance, why is the government pursuing it?