The Knowledge Economy and Growth Opportunities for Nigeria

1. The Knowledge Economy and Growth Opportunities for Nigeria Osita Ogbu, Ph.D. Economic Adviser to The President Federal Republic Of Nigeria

2. Is the Knowledge Economy an Opportunity for Nigeria? • The Critical elements of our past • Nigeria has in the past made limited progress in exploiting technology to create a basis for higher productivity and growth • Weak link between agriculture and industry • The dominance of primary commodity export (lack of value addition) • The macroeconomic effects of oil dominance • Technology- intensive oil sector have limited technology externality or transferability to other sectors

3. Critical elements of our past contd. • Trade-liberalization and domestic technology capability building • ( Eroding the initial gains made in textiles, garments and footwear) • Weak link between industry and knowledge generating institutions • Knowledge Dependence ( The bundling of knowledge and aid)

4. Contemporary issues • The questions of leapfrogging • FDI as a source of knowledge transfer • Lack of appreciation of the role of knowledge in national strategic plans/PRSPs/CAS • Reform of the Educational system

5. Nigeria and the KEI Ranking Nigeria’s ranks 110 out of 128 countries ranked on the overall KEI. Composite rankings: Economic Innovation: 127, Innovation: 83, Education 105. Infrastructure: 111. Source: World Bank Knowledge Assessment Methodology (KAM). World Bank.

6. Knowledge Economy and Opportunities for Nigeria Where we are today • Opportunities in all the sectors: both low and high end. • Some recent successes including in telecoms, computers and a few other high value chains such as shrimps, high value leather, motor spare parts and banking • Government now being more strategic in its approach to promoting emergence of knowledge economy • Local content policy • Rebuilding of knowledge generating institutions. • Creating of institutions that can domesticate technology and knowledge • Mainstreaming science, technology and innovation policy in our reform strategy( NEEDS) • Building confidence • Nigeria is undertaking a major reform of its S & T infrastructure ( in collaboration with the Japanese govt and Unesco)

7. Where we want to be • Nigeria desperately needs productivity improvements to spur and maintain rapid growth—technology provides an opportunity to do this- 10 percent annual growth rate on a sustained basis • Given the significant constraints on external competitiveness, harnessing the large domestic and regional market for improved productivity and growth is what is most achievable in the short to medium term.

8. The Challenges • Since 2000, growth has strengthened: • Growth is higher averaging over 5% annually between 2000 and 2005, and 6.1% and 6.3% in 2004 and 2005 respectively; • Non-oil sector has grown strongly: 7.4% and 8.2% in 2004 and 2005 respectively; • FDI and exports in non-oil sector picking up • But: • Jobs are not being created in sufficient numbers • Economy still highly undiversified and excessively dependent on oil • Move up the technology ladder limited—primary production dominates. Manufacturing contributes only 4% of GDP • The quality of FDI remains an issue

9. Some success stories: Nigeria's Telecoms Revolution • Triggered by government’s liberalization policies initiated in 2002 including entry of GSM operators and improved regulatory framework for sector • Nigeria’s telecoms sector is now the fastest growing in the world. • Direct employment has increased from 12,000 to over 120,000. Indirect employment increased over 400,000 • Not exporting much ICT directly but ICT development is key to economy’s competitiveness and was a major constraint to business activity in the past

10. Nigeria Telecoms Sector: Fastest Growing in the World Telephone Subscribers and Penetration Levels Source: ITU, eShekels

11. The Otigba Computer Cluster • Has evolved from trading in imported ICT equipment, components and products over 12 years. Now a beehive of computer hardware and software trade and production and an ICT market that serves Nigerian and other West African markets • About 50% of firms in the cluster export with exports growing about 18% in 2004 • Has attracted and generated diverse skills

12. High Value Shrimp Exports • Rapid growth in industry over last few years has made it a potential knowledge intensive export product • Value added component provides ample room to cover both the primary input costs as well as the logistics costs. Profit value estimated at about 18% of value added • Success is a turnaround from previous decline in the industry and is due to • Nature of the product—high value shrimp • Production of quality good—shrimp that meets international quality standards; and • Competency in the trade transaction process

13. Main Channels of Technology Transfer in Nigeria • Traditionally FDI has been key channel for technology transfer but in Nigeria’s case has been limited to oil sector. Now some evidence of FDI improvements in non-oil sectors including through privatization process • Nigerian Diaspora, is an important potential market for traditional products; source of new ideas and financing for targeted investments and points of entry for developing new markets. Large share of new non-oil sector FDI flows coming from Diaspora

14. Government Role in Nurturing Technology Intensive Industries • In past tried to do this mainly through approaches which introduced a lot of distortions in the system and defeated the original purpose. Examples: • Major public investments in heavy industry (steel, aluminum, fertilizer etc)—poorly planned and executed • High levels of effective protection including outright bans on imports for domestic manufactures • Poorly designed product and location specific incentives, including tax and import duty rebates, and development of export processing zones. Several of these schemes were subject to gross abuse because of weak governance

15. Government Role in Nurturing Technology Intensive Industries • More recently approach has been changing as part of the ongoing reforms • Direct: • Creation of NITDA and clear articulation of technology development policy • Revamping targeted incentives to make them less prone to corruption and abuse • Indirect: • Privatization and liberalization reforms creating confidence and conditions for participation of private capital bringing in modern technologies and innovation. Telecoms is a good example but happening in steel and in other technology intensive sectors