2

Understanding
Facts, Myths, Policies

Manufacturing





This week, we continue our series on the facts, myths, policies and theories
surrounding the manufacturing concept. Feel free to send your comments or
questions to me at k.osafehinti@limeassociates.com.ng. We will try to publish
and treat as many of these as possible in subsequent editions.

Myth #2
Infrastructure development is
critical to manufacturing growth
This may perhaps seem counter-
intuitive. Long has it been a notion
amongst policy makers, opinion
leaders, even manufacturers
themselves, that one of the
greatest challenges of
manufacturing is poor
infrastructure.

However, what are the facts?

The Facts
Fact #2
Manufacturing growth and
development is the driver of
infrastructural development.
How can this be?
In order to develop and maintain
critical infrastructure with capacity
tandem to growth in population vis-
-vis demand, government requires
adequate revenue which come
from economic prosperity.
Manufacturing as the only cause of
economic development is thus the
only means by government can
adequately and sustainably meet
the growing demands for sufficient
infrastructure.
History reveals a consistent pattern
of correlation between periods of
high manufacturing promotion and
adequate and effective
infrastructure and conversely, poor,
deteriorating infrastructure and
poor manufacturing promotion.
(Sabillon, 2006)
Further, historical figures have
shown a disturbing pattern of
substantial investment in
infrastructure yielding in turn little
overall benefit.
The facts remain that the most
productive infrastructural
development strategy is to invest
Kola Osafehinti
Managing Partner, Lyme Associates Nigeria

substantially in the manufacturing
sector.
Of the many examples to back this
assertion, two will be reviewed:
Japan
The 1990s saw having one of the
best infrastructure systems in the
world. The government had made
major investments in infrastructure
in stimulating the economy out of
stagnation; the country however
attained low rates of economic
growth. GDP averaged 1.5% each
year during this period.
A similar situation took place during
the 1920s. In order to reactivate the
economy, the government
invested abundantly in harbors,
highways, bridges, housing, and
schools. Not only did growth
remained slow, but in 1929 the
economy plunged into the worst
recession in Japans history
(Sabillon, 2006).
Hong Kong
Up to 1945, the majority of the
otherwise small budget of Hong
Kong was invested in infrastructure.
During this period, economic
performance was dismal, at best.
By 1945, the realities of a
population explosion due to large
scale emigration of refugees from
(civil) war-torn China, lead the
colonial administrators to shift
investment from infrastructure to
labour-intensive manufacturing.
Though the size of their budget was
meagre, as the following tables
show, the results were an
astronomical increase in
manufacturing output and a
period of economic prosperity.
Hong Kong: Summary Figures
Time Period Man GDP
18
th
Century 0.0 0.0
19
th
Century 0.5 0.4
20
th
Century 7.4 6.0
1850-99 1.0 0.8
1900-49 4.0 3.3
1950-99 10.7 8.7
1920s 3.3 2.8
1930s 4.7 4.0
1940s 5.5 4.5
1950s 15.8 12.3
1960s 14.4 10.2
1970s 10.6 9.4
1980s 8.1 7.4
1990s 4.8 4.1
Source: Sabillon, Carlos. On the Causes of Economic
Growth, 2006

Economic Growth Theories
So far, empirical evidence has
been presented in support of the
pro-manufacturing concept as
being the driver of economic
growth. Next an examination of the
underlining theories surrounding the
myths and facts already discussed
is undertaken.
A. The Pro-Manufacturing Theory
The pro-manufacturing theory, to
which the empirical data fits the
most, is based on the assertion that
manufacturing is the cause of
economic growth as it is the only
sector of any economy that can
create or reproduce technology,
and technology creates wealth.
Every other sector utilizes
technology already created, but
manufacturing creates technology
and thus creates wealth. New
technology has mostly come to life
in the form of a manufactured
good, as efforts where been
poured into production, a new and
better way of doing things was
discovered. Technology so
discovered would of course
increase efficiency, hence
profitability. New technological
goods so created would be sold to
other countries thus increasing
earnings for the nation.
Further, since the value of a
manufactured good is far greater
than the raw materials used to
prepare it, the manufacturing
process can be considered as a
value-adding process. Hence
manufactured goods have higher
earning capacities that minerals,
raw materials as well as services.
It must be said that the fact
remains that all other sectors have
the unique ability to create wealth
for the few individuals operating
them, whilst the effect of
manufacturing cuts across all
sectors and earnings are spread
across the region.


The Nigerian Situation
Contrary to the opinion in certain
quarters, (chief of which is Nigeria
being thought to have defied all
economic theories of growth), the
Nigerian situation, when examined
in light of the pro-manufacturing
theory, reveals certain
consistencies.
What has been the level of
investment in manufacturing? A
national budget that shows
significant investment in
infrastructure as opposed to
manufacturing will never achieve
any form of impressive economic
growth, as the empirical evidence
as revealed.
Next week, an examination would
be undertaken of a popular
economic theory, widely held by
economists, showing how its
assertions deter economic growth.