Photo illustration by Dami Mojid / THE REPUBLIC. Source Ref: IMMANUEL AFOLABI / FLICKR.
THE MINISTRY OF BUSINESS X THE ECONOMY
Nigeria’s Unfinished Quest for Economic Independence
Photo illustration by Dami Mojid / THE REPUBLIC. Source Ref: IMMANUEL AFOLABI / FLICKR.
THE MINISTRY OF BUSINESS X THE ECONOMY
Nigeria’s Unfinished Quest for Economic Independence
On 1 October 1960, Nigeria officially gained independence, shedding the mantle of British colonial rule to achieve political autonomy. This independence, however, was merely the beginning of a complex journey toward true sovereignty. As Dr Nnamdi Azikiwe and Tafawa Balewa respectively assumed office as the newly independent country’s first president and prime minister, Nigeria faced the daunting task of achieving not just political independence, but also economic and administrative self-sufficiency.
UNDERSTANDING INDIGENIZATION
Nigeria was not navigating this decolonization process alone. By 1960, 15 African countries had also gained their independence. Across the continent, economic independence was at the forefront of the minds of nationalist leaders, as they recognized that political independence without administrative and economic independence was worthless. Economic control, in particular, was critical because as US diplomat, Leslie Rood, noted in his 1976 essay ‘Nationalization and Indigenization in Africa’, under colonial rule, foreign interests had dominated Africa’s economies, leaving little room for indigenous enterprise development. Further, in 1985, Adebayo Adedeji, a former Nigerian Federal Commissioner for Economic Development and 1975-1991 executive secretary of the United Nations Economic Commission for Africa, described the typical post-independence African economy as having a three-tier structure. At the top tier were Europeans who operated as the heads of industry. In the middle rung were Asians and Lebanese who acted as middlemen controlling wholesale and large distribution outfits. Then, at the very bottom were Africans who made up the bulk of labour services and operated in petty trading.
Thus, by 1962, 17 African countries had enacted or modified laws governing their investment regimes, which set the framework for the expropriation of foreign capital. Expropriation, in this context, refers to the government taking privately owned foreign property for public use, which could occur through either nationalization or indigenization. Nationalization is where the government requires that private foreign firms sell to the government. However, indigenization is focused on creating private indigenous equity, as private foreign firms are required to sell to private local businesses. Nationalization was a more likely strategy for huge extractive industries such as petroleum or mining, or it was pursued by a country with a strong socialist ideology such as Tanzania. Political scientist, Ernest J Wilson III, in his 1990 essay on ‘Strategies of African State Control of the Economy’, proposed that the choice between nationalization vs indigenization is not as clear cut, as it was often also dependent on the development of the local commercial class. Countries with a more developed indigenous business community, such as Nigeria and Côte d’Ivoire, tended to favour indigenization.
Within Nigeria, economic nationalists like Chief Obafemi Awolowo and Samuel Goomsu Ikoku advocated for foreign participation in the economy only through government partnerships. Such partnerships aimed to ensure that the state itself would take leadership of the commanding heights of the economy. Awolowo had aggressively pushed for nationalization of basic industries and commercial undertakings of vital importance to the economy of Nigeria, by moving a motion during the 1961-1962 session of the House of Representatives to that effect. However, the prevailing view, supported by the commercial class, favoured economic liberalization through indigenization. Thus, indigenization policies became central to Nigeria’s economic decolonization efforts, aimed at reducing economic dependence on foreign interests and increasing self-reliance. Nonetheless, the Nigerian government’s indigenization policies were not solely aimed at accumulating private local equity but also benefited the government itself. Therefore, indigenization as used here, encompasses government policies towards economic decolonization, reducing economic dependence, and achieving increased self-reliance.
Indigenization can take four main forms: ownership, control, manpower, and technology. It is important to distinguish between them, as all are essential for holistic economic self-determination, but some may be achieved without the others. Ownership involves gaining indigenous equity interests in major enterprises, whereas control is about being at the helm of affairs of those enterprises. Manpower indigenization also referred to as Africanization, focuses on indigenous participation at all levels of the workforce. In the 1950s, significant strides had been taken towards the indigenization of the Nigerian civil service and military—which had aided its transition to political independence. Finally, indigenization of technology encompasses the acquisition of technology from highly industrialized countries, adapting that technology and then producing local technology. Although Nigeria’s indigenization programme is considered one of the most comprehensive on the continent, historical examination will reveal how well it achieved these different forms of indigenization.
THE 1972 INDIGENIZATION DECREE: REMOVING THE MIDDLEMAN
In the 1960s, foreign control over Nigeria’s economy was overwhelming, with about 60 per cent of shares in Nigerian industry held by non-Nigerians. Yet, Thomas Biersteker, author of critically acclaimed book, Multinationals, the State and the Control of the Nigerian Economy, asserts that this figure is likely a gross underestimation, as within that timeframe, only 2.7 per cent of shares in large enterprises were held by Nigerians. Local businesses, dissatisfied with foreign dominance, lobbied for greater indigenous equity through groups like the Lagos Chamber of Commerce. In response, the National Commission on the Nigerianization of Business Enterprises was established in August 1965 to gather local business sentiments and propose measures to increase Nigerian participation in areas where they already had expertise. Still, expatriates were to be left within areas where local technical knowledge had not yet been developed, to serve as development partners.
On 25 February 1972, the head of state, General Yakubu Gowon, signed the Nigerian Enterprises Promotion Decree (NEPD)—Nigeria’s first indigenization policy. It aimed to ensure greater indigenous participation in the ownership, management and control of productive enterprises while encouraging foreign capital to focus on intermediate and capital goods production. The decree had two schedules. Schedule One listed enterprises exclusively reserved for Nigerians. These included mostly small-scale, low-technology activities many of which were already nearly 100 per cent Nigerian at the time of the announcement of the first decree, such as newspaper publishing and radio and television broadcasting. In line with the wave of indigenization across Africa and the spirit of African unity, for the decree, citizens of Organization of African Unity (OAU) member countries were considered Nigerians, so far as their countries offered reciprocal arrangements. In line with Nigeria’s Second National Development Plan (1971-1974), Schedule Two were enterprises that barred foreign participation These were enterprises involved in largely intermediate-scale and intermediate-technology activities such as shipping and boatbuilding activities. However, based on the size of the operation of such enterprise, such as having paid-up capital exceeding £200,000, foreign participation was allowed with a minimum of 40 per cent equity for Nigerians. Thus, Nigeria, through the Nigerian National Shipping Lines, began a joint venture with British shipping giants Elder Dempster and Palm Line, where the Nigerian government had 51 per cent equity. Highly technical sectors were excluded from the decree.
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FOREIGN CAPITAL IMPACT
The 1972 Indigenization Decree did not affect all foreign capital equally. It focused on wholesale distribution, which was at the time dominated by the Levantine community (Lebanese, Indian and Syrian). These middlemen were mostly affected as they operated micro, small, or medium-sized enterprises that directly competed with Nigerians. This was in contrast with large multinational corporations (MNCs) who in recognizing early on the strong political will behind the policy, decided that lobbying against it would be futile. Instead, they began to distinguish themselves from the Levantine community (arguing that they engaged in more technical activities where there was insufficiency in local capital or ineffective local skill), so as to retain majority ownership of their businesses and at worst only have to sell 40 per cent equity to Nigerians.
Thus, in explaining the plight of the middlemen, Biersteker wrote:
Since they could not invoke the wrath of international organizations like the IMF or the World Bank, and since they had no recourse to a powerful home-country government, the Lebanese, Syrian, and Indian entrepreneurs were far more vulnerable than foreigners based in the multinational corporations from Europe and North America. They were both highly visible and highly vulnerable, and therefore they bore the brunt of the local capital resentment against foreign domination of the Nigerian economy at the time.
Big foreign businesses, however, were largely unscathed during the first decree. While these businesses had not been consulted, in a 2012 study conducted on the experience of British businesses during Nigeria’s indigenization exercise, Chibuike Uche, an expert on West Africa’s political economy, noted that due to a leak of the policy, these businesses were able to develop strategies to protect themselves. They were able to effectively position themselves as development partners, advancing that they should retain control of their businesses as their technical expertise would help Nigeria’s development agenda. Thus, many areas of their dominance were excluded from the application of the decree, or they were granted exemptions. For instance, Monotype Corporation, which specialized in supplying and installing a wide range of printing and ancillary equipment that should have been affected by Schedule Two was able to secure an exemption as it argued that it provided essential technical services to the Nigerian government noting, for example, that the NEPD was printed using Monotype equipment.
MNCs used various tactics to circumvent the decree. The most controversial and illegal was fronting. Fronting is where a business affected by Schedule Two found a silent Nigerian partner who knew and cared little about the business and created the appearance of a change by having the Nigerian partner visible, taking orders in the front room while the foreign partner (or former owner) managed the firm from the backroom. Other tactics used involved some businesses rushing to secure nationality in reciprocal OAU member countries, becoming naturalized in Nigeria, or selling shares to fictitious citizens of OAU member countries. Notably, although advertising was exclusively reserved for Nigerians, UAC, a subsidiary of Unilever, subsumed its wholly owned advertising and public relations firm, LINTAS to frustrate Schedule One.
IMPACT ON THE INDIGENOUS COMMUNITY
As the effect varied across foreign businesses, the same could be said for Nigerian businesses. There was increased Nigerian participation in the economy and key enterprises as Nigerians acquired equity and now sat on boards. Although the decree had somewhat bridged the inequality between foreign and local capital, it further widened inequality amongst local businesses.
Lagos-based businessmen, with their proximity to political power and the indigenized enterprises, were the primary beneficiaries of the decree, as they had lobbied for it. However, the decree also had unintended consequences, particularly in the context of regional and ethnic divisions. There were perceptions that the promulgation of the indigenization decree was a direct tactic to hinder Igbo participation. Chibuzo Obuagu, a professor of political science, in his 1983 paper assessing the indigenization policy, explained these sentiments further. According to Obuagu, following the Nigerian civil war, there were firstly very few indigenizable industries in Eastern Nigeria as most had been destroyed. Further, easterners had limited access to capital or connections in Lagos to assist with acquiring equity in indigenizable enterprises. Similarly, Northerners were disadvantaged by their lack of proximity to indigenizable industries.
Even for those who benefited, the indigenization of ownership did not necessarily translate to control. Many Nigerian partners were merely used as fronts for foreign managers who retained effective control of the businesses. Also, sales of shares mostly occurred to Lagos-based professionals (accountants, lawyers, and consultants) rather than manufacturers. Hence, they lacked the technical expertise or interest to manage the enterprises effectively. They were content to leave effective control in the hands of foreign capital so far as they were receiving returns on their investments—as they were more interested in investments rather than running those enterprises. Nigerians were also more interested in short-term profits to be had in middlemen businesses than the long-term investments and commitment required for manufacturing.
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THE 1977 INDIGENIZATION DECREE: A MORE STRINGENT APPROACH
In 1975, the Murtala Muhammed-led federal government set up the Adeosun Industrial Enterprises panel to assess the 1972 decree. Unsurprisingly, the panel concluded that NEPD 1972 had achieved only limited success because many affected enterprises secured exemptions from the decree on questionable grounds. Moreover, as of 30 June 1975, only 314 out of about 950 affected business enterprises had complied; and the defaulters had not been prosecuted two years after the decree came into existence. The use of fronting, the large-scale exemptions, and equity being acquired by a few Nigerian elites, arguably laid the path for corruption that is now so pervasive in the Nigerian economy.
The criticisms of the 1972 decree and the recommendations of the Adeosun panel paved the way for the more comprehensive and stringent Nigerian Enterprises Promotion Decree of 1977. This decree expanded the scope of indigenization—affecting all sectors of the economy through three schedules. Enterprises in Schedule One were exclusively reserved for Nigerians. Schedule Two enterprises required a minimum of 60 per cent of Nigerian equity participation in industries such as banking and the manufacture of fast-moving consumer goods. Schedule Three required at least 40 per cent Nigerian equity in enterprises which were mostly highly technical manufacturing.
While the 1977 decree reduced inequality, it was less favourable for key players in the economy. Large MNCs were significantly affected, and by the end of the 1970s, the development agenda argument had reached its limitations, as the political and economic environment became increasingly hostile to foreign capital. This hostility led to a restructuring of foreign business operations, which perpetuated colonial cycles of production, focusing on the exploitation of primary commodities for export and the importation of factor inputs. Nigeria’s industrial growth remained dependent on foreign capital and technical expertise, limiting the effectiveness of the indigenization policy.
Although this policy was more far-reaching, it went beyond what local businesses agitated for. First local businesses were unsuccessful in their attempt to minimize state intervention as the state acquired banks, major manufacturing firms, and mining ventures. Dr Adeoye Akinsanya, a professor of political science at the University of Calabar, in examining the power structure during Nigeria’s indigenization era, asserts that local businessmen saw the federal and state governments’ acquisitions of equity interests in key sectors as direct competition with the private sector. Local businessmen felt that government intervention in the national economy should be limited to regulatory mechanisms to avoid inequality in regional development or sponsored programmes to improve the management and manpower capabilities of local businesses.
Moreover, there was a large disconnect between the state’s agenda and that of local capital. Based on the expansion of industries, local businesses were to serve as the primary implementers of the decree—acquiring equity and taking effective control of the enterprises. However, local capital was happy to take silent roles and assist MNCs in acquiring expatriates for technical managerial roles. Thus, further entrenching indigenization of ownership without control, labour and technology, especially in highly specialized manufacturing sectors.
CASE STUDY – NIGERIA’S BANKING INDUSTRY
A primary objective of the indigenization policy was to ensure indigenous control of the commanding heights of the economy. As noted, indigenization policies here cover both nationalization and indigenization as there is no clear-cut demarcation. Nowhere is it more evident in Nigeria than in the case of the banking industry.
At the time of independence, Nigeria had twelve commercial banks, but the industry was dominated by foreign-owned banks. These banks still operate in Nigeria but have had a huge change in ownership, management, and control resulting from indigenization. The biggest three banks post-independence, which were wholly foreign-owned, were: the Bank of British West Africa which was incorporated in 1894, and taken over by Standard Bank (now called First Bank); the Colonial Bank, later acquired by Barclays and now known as Union Bank, which began operations in 1917; and the British and French Bank, the precursor of the United Bank for Africa, which started in 1949. They accounted for 84 per cent of the deposits, 75 per cent of the loans, and 85 per cent of the international banking transactions at that time.
Foreign-owned banks were perceived as operating solely in the interest of foreign owners. They were accused of discriminating against indigenous businesses in the allocation of loans and failing to finance the developmental needs of the country, instead concentrating on the provision of short-term trade-related finance to foreign companies. The Nigerian government saw this as antagonistic to the country’s economic independence. Thus, it sought to acquire a majority interest in these banks to facilitate local businesses’ access to capital, which would be key for private indigenous participation in indigenization. Thus, even before 1972, the Nigerian government was talking about taking up 40 per cent equity in banks. The 1969 Banking Decree established the regulatory framework for the prudential control of banking as it required all banks to incorporate in Nigeria and publish audited statements of account in the country.
Public sector ownership was a dominant feature of Nigeria’s banking sector during the indigenization period as the federal government acquired controlling equity stakes in first and second-generation banks. By the mid-1970s the federal government purchased majority shareholdings in all the wholly foreign-owned banks, asides First City National Bank which withdrew from Nigeria. By the 1980s, the federal government had major shareholdings in eight commercial and five merchant banks, nine of which were joint ventures with foreign investors. It also had a minor stake in one other merchant bank. The government was also able to achieve indigenization of ownership, control, and labour, as the management of all federal government banks was mostly indigenized, with expatriates only filling specialized posts.
According to Biersteker one of the key things local businesses wanted was to limit public sector involvement in the economy. Hence, there was resentment towards the 1977 indigenization decree that increased equity participation for the government, as private capital felt that the government took equity in the most profitable sectors and enterprises rather than allowing private businesses to take equity.
While the indigenization of the banking sector increased Nigerian participation in the industry, it also led to several challenges. The Nigerian government’s ownership of the majority of shares in the banking sector meant that the sector was heavily influenced by political considerations. This led to inefficiencies and a lack of competitiveness in the industry. Due to the government’s heavy involvement in the sector, the government did not allow banks to fail when the country underwent its economic crisis following oil price crashes. Instead, the government deliberately propped up banks by lowering interest rates or directing business to them. Moreover, the political nature of the sector resulted in the emergence of a rent-seeking culture among private investors who acquired shares through their political connections.
The indigenization policy also failed to address the fundamental structural problems in the Nigerian economy. The banking sector remained heavily dependent on foreign capital and technical expertise, limiting its ability to support the country’s development needs. Moreover, the government’s ownership of the majority of shares in the banking sector created a moral hazard problem, as banks became more willing to lend to politically connected borrowers, leading to a high level of non-performing loans.
Yet, liberalization and privatization of the banking sector finally occurred at the end of the 1980s. Following the global oil price crash in the 1980s, Nigeria’s economy was heavily affected as it was highly dependent on oil revenues. Thus, the Ibrahim Babangida administration heeded pressures from the IMF to undertake a Structural Adjustment Programme (SAP). This SAP mandated that Nigeria liberalize its financial system, which led to the growth of private sector banks and privatization of most federal government banks.
LESSONS FROM THE POLICY
As Nigeria transitioned to a more open economic system, the policy of reserving certain industries for local businesses was gradually eased and eventually abolished in 1995 through the establishment of the Nigerian Investment Promotion Commission Act. This enabled foreign capital to participate in all areas of the Nigerian economy, with the exception of a few restricted sectors, which feature under the negative list.
Scholars alike concede that while the indigenization policy increased local participation in the economy, its implementation was so shoddy that it did not lead to effective indigenization of control. In assessing indigenization, the objective was only reached when it pertains to ownership but there was a lack of successful indigenization of control, labour and technology. Nigerians have dominated in wholesale distribution and management of retail outfits. Yet, there was not as much technical growth, with Nigeria’s manufacturing industry still lagging, particularly as there was no indigenization of labour where those key technical skills could have been passed. While the government created the Industrial Training Fund in 1971 to promote training programmes for staff of indigenized companies, it focused more on access to capital rather than enhancing managerial ability.
Uche argues that because of the aggressiveness of indigenization, major foreign corporations changed the structure of their Nigerian subsidiaries away from fully producing to just assembling. Hence, the Nigerian government in its push for indigenization had further entrenched colonial cycles. If the Nigerian government refrained from threatening foreign businesses’ capital and acted to clarify and monitor the new labour policies, foreign businesses would have been encouraged to develop longer-term operational strategies and to cooperate more fully in transferring skills to the local workforce.
Nigeria’s trajectory can be contrasted with that of Singapore, which at the time of its independence faced similar challenges. Singapore ensured the continued presence of foreign capital but strategically focused on labour indigenization to acquire technical knowledge and build local capacity. The country also established robust skills development programmes to empower its workforce, which played a crucial role in its rapid industrialization.
In its quest for economic independence, Nigeria successfully achieved indigenous ownership of industries. However, it fell short of using the indigenization policies as a springboard to develop the technical expertise and capacity needed to propel the nation into its own industrial revolution. The policy’s shortcomings offer valuable lessons for Nigeria today. The economy remains heavily reliant on oil revenues, perpetuating the colonial economic cycle of extracting raw materials, exporting them, and then importing refined products—thus maintaining economic dependency. To genuinely achieve economic self-reliance, Nigeria must pivot towards industrialization by focusing regulatory efforts on promoting technical manufacturing and fostering the development of local expertise⎈
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