Manufacturing in 2016: Why having raw materials doesn’t really matter anymore

“Nigeria is full of experts in importing what we have and exporting what we do not have.

We have cotton but we import textile materials from China; we have crude oil but we import fuel refined from our own crude from Russia and other countries.

We have gas but we let it flare away instead of utilising it to produce power, yet import generators from outside.

We eat our hides and skin and import shoes from outside, and we eat our tomatoes and import canned tomatoes paste from China.” – SLS

There is a lot wrong with how we think of manufacturing in Nigeria. The easiest way to understand the problem with this kind of thinking is this: transportation costs. The two graphs below are from a paper by David Hummels on transportation costs and international trade over time. Morale of the story: transportation costs have never been so low in human history.

trade2

trade3

This is important because it means that having raw materials does not mean anything anymore. Anybody can buy cotton and ship it anywhere in the world at a very low cost. So in the list of things that are important in the production of textiles, growing cotton is not one of them. What matters is the efficiency at which countries can turn cotton into textiles. Mauritius is one the largest clothing exporters in Africa today and they grow a grand total of ZERO bales of cotton. They have thriving clothing industry because they are really good and really efficient at turning cotton into textiles and clothing.

So this idea that because you have cotton you will or should automatically have a textile industry is false. If you want a textile and clothing industry you have to be efficient at turning clothing into textiles. The same applies to turning hides and skin into leather and shoes. Or turning tomato into tomato paste. Or turning iron into steel. Or turning crude oil into fuel.

In the world of 2016, with relatively super low transportation costs, having raw materials means nothing. Because frankly, anybody can buy raw materials.

Unless you have a monopoly on raw materials. Which of course we don’t.

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