Economics

Made in Nnewi – enterprise of an extra-ordinary league of citizens in Nigeria

Nnewi-townThis may hardly read as your typical captivating news story, never mind one of the century’s most inspiring special reports. Yet it mirrors the dreams and disappointments, promise and enterprise of an extra-ordinary league of citizens slugging it out daily against daunting odds in the nation’s East of the Niger, thus arousing speculations that they may be the next best thing to happen to Nigeria since the 1970’s oil boom. OLATUNJI OLOLADE, Assistant Editor, writes

A smirk. Then a toothy smile was all it took Aloysius Nkama to describe his ascent from grass to grace. Yet easy as it was to the eye, 36-year old’s smile was full of ache. It recounted years spent tweaking tiny bolts on a production line for the motorcycles that whirr across the nation’s streets as you are reading this write-up right now. He probably tightened a crucial component or two in the laptop computer this story was written on at some point – particularly when he had to juggle jobs at the motorcycle assembly plant with a short spell in a computer factory in Zhejiang, East of China.

Suicidal as it was, he had to “hustle two jobs in order to make ends meet.” However, two years down the line, Nkama experienced an epiphany of sort. He met Ifesinachi Okon , a fellow Nigerian, at a party organised by a mutual female acquaintance. “Okon was full of very great plans. That night, he told me that he was in town to meet some Chinese business partners. He said he was planning to establish a motorcycle and drilling machine assembly plant in Nigeria. He made me understand that I was wasting my life toiling for about 20 pence per hour in a Grade C Chinese factory. According to him, given the needed support, we will shock the world,” disclosed Nkama.

After that night, Nkama toiled for two months and 17 days before he called it quits at the motorcycle assembly plant. He relocated to Shenzen, in Southern China, where he went into a business contract for the exportation of break pads and linings to Nigeria with a local technician with the assistance of his female acquaintance.

“He was looking for someone he could trust to go into exportation business with. And I happened to contact him at a very good time,” said Nkama adding that he imported brake pads and linings for six years before he discovered how easy they were to make. Hence his decision to venture into manufacturing of brake pads and linings after studying machinery and processes in use by his supplier firms in China. His product line “will be called Nkama-Best Brake Pads and Linings” and he is currently closing “very profitable contracts in dealership with local marketers in his native Nnewi, and Onitsha in Anambra and Lagos.

But rather than stop his importation of brake pads and linings, Nkama will simply add his new brand to existing lines that he currently imports from China because, “although it would be great to focus on my own product line, full time, the local business environment does not support such radical business decision.”

Chukwuebuka Ukpabio, 28, however, would rather not waste precious time importing or marketing “the work of another man’s brain. Me, as you see me here so…na learn I dey learn. I dey serve with my uncle and when I finish, I go travel go Taiwan go bring the Chinko (Chinese) wey go come follow me build my own factory for hia (here). Na correct motorcycle me I wan dey make.”

Ukpabio, who claimed that he used to dream of working with the Anambra Motor Company (ANAMMCO), is currently an apprentice in a local motorcycle spare parts factory with branches in Enugu and Lagos. But he intends to start his own factory as soon as he completes his apprenticeship in July next year. According to him, he intends to establish a unique product line that would become the toast of the African continent. More importantly, Ukpabio intends to dwarf the many feats of Innocent Chukwuma, Managing Director (M.D), Innoson Vehicle Manufacturing Company Limited (IVM) and Cletus Ibeto, founder, Ibeto Group. That has to be some tall dream. Is it?

The next best thing

Chukwuma’s Nnewi-based IVM recently placed the nation’s manufacturing sector in the front burner of national discuss since the discovery of oil courtesy his foray into vehicle manufacturing. An, industrialist of note with investments in various sectors of the economy, the Innoson Group Chairman ventured from selling, and later importing, automotive replacement parts and motorcycles into local production of the products with plants in Nnewi.

Recently, he collaborated with Chinese manufacturers to establish a huge auto plant in Nnewi and in apparent realisation of his technological dreams, a member of the Group, Innoson Vehicle Manufacturing Company Limited (IVM) currently produces a wide range of commercial and utility vehicles for the Nigerian market and some countries in West Africa. Aside the engine, chassis and some basic components, most of the parts of IVM products are sourced locally and the vehicles built in Nnewi.

For instance, the body components were fabricated and stamped by Innoson, while a substantial level of the local content was sourced from among the many automotive parts companies in Nnewi.

And in apparent support of the manufacturing initiative, President Goodluck Jonathan recently commissioned IVM in a colourful ceremony that was remarkable for the nation’s manufacturing sector – automotive industry to be precise – because it was the first time in the history of the industry that an auto plant is built by a single local private investor.

Then, there is Cletus Ibeto, who started out as a spare parts importer, after spending some time as an apprentice in the motor parts business, a gradual step taken by many eastern traders. In March 1988, he stopped direct importation of lead acid automotive battery and plastic motor accessories after completing his factory in Nnewi. By 1995, The Ibeto Group had become one of the largest auto spare parts manufacturing outfits in the country and still occupies an enviable position till date.

Nnewi, in the beginning…

With a population of over 190,000 people, Nnewi, located about 50 kilometres Southeast of Onitsha, is identified with a long history of trade.

However, the economic development of the town started in the 1960s but became pronounced through trading activities in Nkwo-market place in 1970 after the Nigerian civil war. The growth of Nkwo-market is attributable to specialisation impact on trade in different aspects of auto pare parts. This developed into a gathering of similar trading merchants at Nkwo-market place. The basic effects of such congregation manifested in a vibrant culture of information-sharing, learning and rise of support institutions such as different banks on the one side, and network building on the other.

Trade networking is a predominant feature of the Nnewi cluster and it has been the mainstay of Nnewi entrepreneurs for decades which has seen the area controlling a huge portion of trade in transportation and automotive spare parts in the country noted Ogomma Callistus-Ifejianwa, 44, a doctoral degree hopeful at the prestigious European Tufts University. According to her, in the last 80 years, starting with importation from Europe and later from East Asia, Igbo traders of Nnewi origin had accumulated considerable experience and succeeded in forging linkages with partners in Asia.

Nnewinomics

A close analysis of an Nnewi trader, however, shows that management skills are acquired through both formal education and an endowment of talent and tradition.

True; The Nation findings revealed that very close family ties had been an important source of credit, and a novice starts out as an apprentice trader, learns the ropes, and is started out with some capital. Outsiders are kept out completely and the new apprentice is soon exposed to international partners. In the manufacturing stage, there is evidence of shared facilities, and informal provision of capital through family ties continues, while manufacturing subcontracting has begun to thrive. This is not surprising for two reasons adduced by local technicians and entrepreneurs.

First, independent scientific and technological infrastructure such as foundry, forge shops and testing facilities that promote subcontracting, are largely absent. Second and as a result of the first reason, most factories were established to be self-sufficient in terms of core production, the provision of ancillary facilities, and basic utilities, since investment and plant design. Greater subcontracting may evolve over time when production processes begin to demand greater specialisation, and as the market demands higher quality products.

In each branch of motor spare parts began an evolutionary process in network development; ranging from formation of social grouping, trading norms, trading rules to cooperation. Control system was developed based on sanctions in the distribution system in order to maintain positive competition as well as competitive position in every branch of motor spare parts.

However, until the 1980s, motor spare parts sold in the country generally came either from the “original” manufacturer (Peugeot, Mercedes, etc.) or were counterfeit copies made in Taiwan. However, early in that decade, a number of factories sprang up in the eastern region of Nigeria, particularly in the town of Nnewi, whose large Nkwo market for used and new motor spare parts had grown into one of the largest in the country, with offshoots in many other towns and cities across Nigeria. By 2004, there were more than 17 modern, large and medium-sized factories in Nnewi, using imported technology and producing a wide variety of spare parts for automobiles, trucks, and motorcycles.

Together with engineering firms and machine shops, a number of aluminium foundries, and 68 smaller, less formal factories also producing spare parts, these businesses employed some 8000 to 9000 persons. Some of these factories exported to neighbouring countries in West Africa, the Middle East and even Europe. One advertised in the Abidjan, Côte d’Ivoire phone directory.

The manufacturing boom attracted attention both within and outside Nigeria and contacts between Nnewi traders and their Chinese counterparts in Taiwan proved the major catalyst to industrialisation. Spare parts for the Nnewi market network were imported primarily from Europe at first, but by the 1960s, Asian distributors began to frequent the Nkwo market, offering to produce copies of the European “original” brand name parts.

The first Asian firms were Japanese, but they were rapidly supplanted by Chinese traders from Taiwan. Over time, Nnewi motor parts traders arranged to have their own brand name products made in Taiwan. During the 1970s, many Nigerian traders travelled to Asia to meet with their suppliers, and were thus exposed to the industrial dynamism of the Asian newly industrialised countries, as well as the many small and medium firms still operating in Taiwan. Nnewi traders used their contacts with the Chinese in Nigeria to locate distributors and producers in Asia, with whom they could trade, and later, from whom they could purchase machinery and technical assistance.

Without those contacts, the transition to manufacturing might not have happened. The contacts between the Nnewi manufacturers and the Chinese traders and the manufacturers in Taiwan and elsewhere primarily enabled the diffusion of information and technical knowledge as reflective in the case of Nkama.

The Nation

The networks of contacts established during years of trade eased the Nnewi entrepreneurs’ task of gathering information about production. One manufacturer who had imported many lines of spare parts made in Taiwan, solicited bids for machinery from a number of Chinese firms in Taiwan with whom he had grown familiar. In other cases, the Nnewi entrepreneurs asked for recommendations from their Chinese networks for technical advisers to install the factories and train local people. Some companies, such as a producer of melded plastic components, sent groups of workers to Shenzhen and elsewhere in Asia for on-the-job training in Chinese factories.

Others used their contacts with trading companies to identify Chinese manufacturers who were ready to sell used equipment, such as Madubuchi Emenike, a 48-year-old widower and oil filter manufacturer who purchased the entire plant of his Singapore supplier.

Auto spare parts do not receive much protection from the Nigerian government, unlike textile manufacturers who have operated under a nearly complete ban on imports. The average tariff on auto parts was reduced to approximately five percent in the trade liberalization of the country’s Structural Adjustment Program (SAP) in the early 1990s. Even with local manufacturing firms close by, the Nkwo market in Nnewi continued to host visits from Asian traders who offered to copy “original” spare parts in their home factories, increasingly located in China’s special economic zones.

Branded counterfeit parts or those that are close copies but made in China, sell at very competitive prices. For example, in 2006, spark plugs made in China, counterfeit copies of those made by Toyota or the American firm Motorcraft, sold at N55 compared with N220 for the original.

Chinese branded parts intended to compete with the original manufacturer were also sold at prices less than half the original: China’s “Super Filter” sold for N200, while the original “Bolus” or “Dorian” oil filter sold for N550. Local manufacturers have accused these Asian exporters of “dumping” when they are able to consistently offer products at prices lower than the Nigerians can match.

The Nnewi cluster of automobile parts manufacturers in Nigeria has also exhibited the capacity to undertake technology adaptations, to design new products and processes and to bring them quickly to market as reflective in the IVM initiative. Most of them have the design capability to modify products and adapt the production process to the local market. They are a typical example of how firms located in an informal cluster with virtually no infrastructure have been able to grow, to export informally and upgrade, grouping together and setting up common utilities.

However, the major cost concept that was acknowledged by the traders in their journey towards self-determination was the “transaction costs.” Reducing the costs of information about the market, contract negotiations and enforcement with the distributors has been found to be very effective through an efficient distributive network system.

Comfort Maduebuka, 50, a financial consultant and importer of automotive spare parts, pointed out that the success in this form of marketing strategy motivated the traders to venture into actual production in Nnewi.

On the other hand, Idrisu Dingwa, an economist and SME financial consultant, argued that the Nnewi cluster development “is a case of gains from externalities. The factors responsible for efficient performance or best practices by one entrepreneur can spread easily in a cluster of specialised and similar entrepreneurs.”

Dingwa could not be too far from the truth as further findings revealed that SMEs in the Nnewi cluster built and still operate albeit informally, a learning network geared to improve their productivity through sharing of tools, pooling of financial resources to augment cost of transporting raw materials, and information. Manufacturers in the cluster also collaborate in sharing common services germane to their businesses and production efforts as it has been discovered to reduce transaction costs.

The usual headaches

In Nnewi, every manufacturer generates his own electricity, water supply and employs as well as pays security, constructs the road that leads into or adjoins the one leading to his factory. Asides the power supply crisis and policy-related headaches, Nkama, like fellow manufacturers, is disturbed about the persistent state of insecurity in the region. According to him, frequent reports of kidnap and violence targeted at business and political rivals neither attract fresh off-shore and local investments, nor are they encouraging to operators of existing industries.

Nkama recalled a gruesome experience of March 17, 2007, when two Chinese and a Nigerian taking part in the construction of IVM assembly plant were kidnapped at the site in Nnewi.

To exploit a goldmine

Incentives should be made in order to motivate the growth of SME clusters in Nnewi and other parts of the country suggested Callistus-Ifejianwa. According to her, opening new market opportunities and dismantling the various trade barriers that affects SMEs development negatively is also imperative in amassing the gains of the current wave of globalisation of the world economy.

“In this context, policies should be directed on overall production efficiency of the SMEs. This will in turn lower costs at the same time increase the purchasing power of the consumers, when the prices are reduced. Besides reducing costs, increasing the efficiency will also position the SMEs in the nation’s various clusters to compete effectively in an open economy. The efficiency gained in local market will project them as well towards an export oriented production system and possibly help to integrate them effectively into the global economy,” she said.

On the other hand, Dingwa advocated the institution of policies geared to support of technical education and training in the South-East region and across the federation. In this context, besides providing technical training for middle level manpower in the nation’s productive sectors, a vibrant training scheme should be instituted and expanded to cover the grassroots level. This will help to strengthen the effectiveness of the lower skilled workers in the region, he said.

Practical as the suggestions may seem, the institution and sustenance of such measures requires enormous funding as it requires adequate research funding, implementation of technical agreements, outsourcing, purchase of needed equipment and capacity building. These requires the intervention of international multilateral finance institutions and industrial development organisation such as the United Nations International Development Organisation (UNIDO) in funding and supporting the development of core industry that will stimulate SMEs upgrading through value chain in the region.

Furthermore, incentives that tend to stimulate foreign direct investment in Nigeria need to be pursued. Such incentives include the stability of macroeconomic variables and none-discrimination in investment opportunities. And in order to restore confidence in Nigerian economic transactions, effective legal institution is important because contract relations can only be maintained and opportunistic behaviours can as well be reduced when the laws governing economic transactions are effective and stable said Obaseyi Akinbusola, 34, a lawyer.

And that is as hearty as the recommendations get. To ambitious manufacturers like Nkama, their dreams are of more simple dispositions: That the “Government endeavours to provide among other necessities, stable electricity supply, good road networks, soft loans and a dependable security network”. It needn’t hurt to provide all that, should it?

findings revealed that most of the traders who established factories between 1983 and 1996 for instance, continued to maintain their trading business and distribution networks in Nigeria, and simply added their new brands to existing lines that they continued to import from Taiwan and elsewhere in Asia.

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