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Creating a Competitive Nigeria:

Towards a Shared Economic Vision

Professor Michael E. Porter


Harvard Business School

Presentation to Federal Ministers


Lagos, Nigeria
July 23, 2009
This presentation draws on ideas from Professor Porters books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); What is Strategy? (Harvard Business Review, Nov/Dec 1996); Strategy and the Internet (Harvard Business
Review, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or
by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of Michael E. Porter. Additional information may
be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: July 17, 6pm

20090408 CAON Nigeria.ppt 1 Copyright 2009 Professor Michael E. Porter


What is Competitiveness?

Competitiveness depends on the productivity with which a nation uses


its human, capital, and natural resources.
Productivity sets the sustainable standard of living (wages, returns on
capital, returns on natural resources)
It is not what industries a nation competes in that drives prosperity, but how
it competes
Productivity in a national economy depends on a combination of domestic
and foreign firms
Local or domestic industries are fundamental to competitiveness, not
just export industries

Nations compete to offer the most productive environment for business


The public and private sectors play different but interrelated roles in
creating a productive economy

20090408 CAON Nigeria.ppt 2 Copyright 2009 Professor Michael E. Porter


Labor Productivity
Real GDP per employee
(PPP adjusted US$), 2008
Selected Countries
$90,000 USA

Ireland
$80,000
France
UK
$70,000 Australia Saudi Arabia
Italy Germany
Spain Japan Oman
$60,000
Slovenia

$50,000 New Zealand Korea Slovakia


Czech Republic

$40,000 Croatia
Poland
Turkey
Mexico Malaysia
Chile Russia
$30,000 Argentina
Romania
Iran
South Africa
Peru Kazakhstan
$20,000 Brazil
Algeria Tunisia Egypt
Thailand
Syria Morocco Philippines China (10.1%)
$10,000 Pakistan Indonesia India Sudan Angola (14.0%)
Cote dIvoire Cameroon Nigeria Bangladesh Vietnam Cambodia
Senegal Kenya Uganda
Zimbabwe (-8.9%) Ghana Zambia Mozambique Ethiopia
$0
-2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%
Growth of real GDP per employee (PPP-adjusted), 2004 to 2008
Source: authors calculation Groningen Growth and Development Centre (2009), EIU (2009)
20090408 CAON Nigeria.ppt 3 Copyright 2009 Professor Michael E. Porter
Determinants of Competitiveness
Microeconomic Competitiveness

Quality of the Sophistication


National State of Cluster of Company
Business Development Operations and
Environment Strategy

Macroeconomic Competitiveness

Social
Infrastructure Macroeconomic
and Political Policies
Institutions

Natural Endowments

Productivity ultimately depends on improving the microeconomic capability of


the economy and the sophistication of local competition
20090408 CAON Nigeria.ppt 4 Copyright 2009 Professor Michael E. Porter
Sources of Prosperity

Inherited Prosperity Created Prosperity

Prosperity is derived from inherited Prosperity results from productivity in


natural resources producing goods and services
Prosperity is limited Prosperity is unlimited

Dividing the pie Expanding the pie


Government is the central actor in the Companies are the central actors in the
economy economy
Resource revenues fuel corruption and Governments role is to create the
allow unproductive policies and enabling conditions for productivity and
practices to persist foster private sector development

20090408 CAON Nigeria.ppt 5 Copyright 2009 Professor Michael E. Porter


Nigerian Macroeconomic Competitiveness
Macroeconomic Policy
Macroeconomic Policy
Nigeria has made significant progress on macroeconomic policy
These gains must be sustained against short-term temptations
Tax complexity remains a weakness

Political Institutions
Political institutions remain weak
The data shows some progress on reducing corruption and rule of
law but Nigeria remains among the worst affected countries globally
Nigeria remains in the bottom group of sub-Saharan countries in terms
of governance
Government entities are often inefficient and uncoordinated
The States and the Federal government suffer from rivalry and poor
collaboration

Social Infrastructure
Education and health care remain major weaknesses
20090408 CAON Nigeria.ppt 6 Copyright 2009 Professor Michael E. Porter
Nigerian Microeconomic Competitiveness
Business Environment

Strengths Weaknesses

Home market Electricity


Favorable location Land transport
Abundant resources and Air transport
agricultural potential Land use
Workforce skills
Access to finance
ICT capacity
Business regulation / red tape
Tariff and non-tariff barriers
Monopoly / lack of open
competition
IP protection

20090408 CAON Nigeria.ppt 7 Copyright 2009 Professor Michael E. Porter


Nigerian Microeconomic Competitiveness
Selected Rankings from the Global Competitiveness Report
Rank versus 134 Countries
Patents per million population 134
Quality of electricity supply 133
Ease of access to loans 124
Burden of customs procedures 122
Regulatory quality 122
Quality of railroad infrastructure 121
Personal computers per 100 population 117
Quality of port infrastructure 115
Domestic credit to private sector 114
Mobile telephone subscribers per 100 population 111
Internet access in schools 105
Quality of roads 104
Tertiary enrollment 103
Low tariff rate 100
Internet users per 100 population 99
Intellectual property protection 96
Pay and productivity 93
Ease of starting a new business 93

Note: Rank versus 134 countries; overall, Nigeria ranks 106th in 2008 PPP adjusted GDP per capita and 93rd in Global Competitiveness
Source: Institute for Strategy and Competitiveness, Harvard University (2009)
20090408 CAON Nigeria.ppt 8 Copyright 2009 Professor Michael E. Porter
Microeconomic Competitiveness
Ease of Doing Business
Ranking, 2008
(of 181 countries)
Favorable Unfavorable
180

160

140
Nigeria per capita GDP rank: 117
120

100

80

60

40

20

0
Ease of Employing Protecting Getting Enforcing Starting a Closing a Paying Trading Dealing Registering
Doing Workers Investors Credit Contracts Business Business Taxes Across with Property
Business Borders Licenses

Median Ranking,
Source: World Bank Report, Doing Business (2009) Sub Saharan Africa
20090408 CAON Nigeria.ppt 9 Copyright 2009 Professor Michael E. Porter
Competitiveness and Cluster Development
Tourism Cluster in Cairns, Australia
Public Relations & Local retail,
Market Research Travel agents Tour operators health care, and
Services other services

Food Local
Suppliers Attractions and Transportation
Restaurants Activities
e.g., theme parks,
casinos, sports
Property Souvenirs,
Services Duty Free

Airlines,
Hotels Banks,
Maintenance Cruise Ships
Foreign
Services
Exchange

Government agencies Educational Institutions Industry Groups


e.g. Australian Tourism Commission, e.g. James Cook University, e.g. Queensland Tourism
Great Barrier Reef Authority Cairns College of TAFE Industry Council

Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
20090408 CAON Nigeria.ppt 10 Copyright 2009 Professor Michael E. Porter
Cluster in Developing Countries
Kenyas Cut Flower Cluster
Government Agencies, NGOs & Industry Associations

Horticultural Crops Development Authority (HCDA)


Government Export Policies targeting Horticulture
Government Policy for Revitalizing Agriculture; National Export Strategy; Export
Promotion Council (EPC)

Non-Governmental Organizations
The Rural Enterprise Agri-Business Promotion Project (USAID, CARE, IFAD)
Horticultural Produce Handling Facilities Project (JBIC)
Post-Harvest
Plantstock Cooling
Trade & Industry Associations Technology
Kenya Flower Council (KFC)
Fresh Produce Exporters Association of Kenya (FPEAK)
Regional Growers Associations e.g., North & South Kinangop; Lake Naivasha, etc
Greenhouse;
Grading /
Shading
Packaging Sheds
Structures

Packaging &
Irrigation
Labeling
technology
Post-Harvest Materials
Flower Handling;
Farming Transport to
Pre-Cooling Refrigerated
Technology
Market Trucks

Fertilizers,
Freight
pesticides,
Forwarders
herbicides
Education, Research & Quality Standards Organizations

Research Institutions: Clearing and


Agricultural Kenya Agricultural Research Institute (KARI) Forwarding
Cluster International Center for Insect Physiology and Ecology (ICIPE) Agents

Public universities with post graduate degrees in Air Carriers


Horticultural horticulture: (Commercial /
Cluster University of Nairobi; Jomo Kenyatta University of Agriculture & Technology Charters)
(Fruits & Vegetables)

Quality & Standards:


EUREGAP Standard (UK & Dutch Supermarkets) Tourism
Kenya Plant Health Inspectorate Services (KEPHIS) Cluster

Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt,
Microeconomics of Competitiveness Course, 2007
20090408 CAON Nigeria.ppt 11 Copyright 2009 Professor Michael E. Porter
Nigerias Cluster Export Portfolio
0.6%
1997 to 2007
Change In Nigerias Overall Growth
In World Export Share: -0.162% Business Services

Leather and Related Products


0.5%
Nigerias world export market share, 2007

Oil and Gas (-0.22%, 2.73%), $50.5 billion

0.4%
Nigerias Average World
Publishing and Printing Export Share: 0.353%

0.3%

0.2%

Agricultural Products Marine Equipment


Transportation and Logistics
Tobacco
0.1%
Footwear Fishing and Fishing Products

Plastics Building Fixtures and Equipment


Textiles
Forest Products Metal Mining and Manufacturing
Processed Foods Chemical Products
0.0%
-0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8%
Change in Nigerias world export market share, 1997 to 2007 Exports of US$500 million =

Nigeria has not yet embraced cluster development at the federal or state level
20090408Institute
Source: CAON Nigeria.ppt 12 Trade Statistics Database and IMF BOP statistics.
for Strategy and Competitiveness; Richard Bryden, Project Director. UN Commodity Copyright 2009 Professor Michael E. Porter
Competitiveness of Nigerian States

Many of the essential levers of competitiveness reside at the state level


Competitiveness requires effective policy collaboration between states and the national
government
Every state (and city) needs its own distinctive competitiveness plan
20090408 CAON Nigeria.ppt 13 Copyright 2009 Professor Michael E. Porter
Economic Integration With Neighbors
West Africa

Economic integration in ECWAS remains limited


20090408 CAON Nigeria.ppt
Nigeria would be the greatest
14 beneficiary Copyright 2009 Professor Michael E. Porter
Nigerian Competitiveness Agenda
Maintain sound macroeconomic policy
Improve the tax system
Macro Implement truly effective anti-corruption policies and strengthen the rule of law
Modernize government
Improve education and health care

Address bottlenecks in physical infrastructure and land use


Catch up in ICT
Business Modernize and simplify business rules and regulations
Environment Continue reform of the financial sector
Open up local and international competition
Protect intellectual property (IP)

Cluster Develop a concrete economic diversification strategy based on cluster


Development development

Align the interests of the states and the national government around
States competitiveness
Create effective economic strategies at the state level

Regional Assume a leadership role in West African economic integration


Integration
20090408 CAON Nigeria.ppt 15 Copyright 2009 Professor Michael E. Porter
Clusters and Economic Diversification

Develop Related Clusters

Turn Niche Products Into Build Clusters Around


Deepen Existing Clusters
Clusters Strong MNCs

20090408 CAON Nigeria.ppt 16 Copyright 2009 Professor Michael E. Porter


Recent Nigerian Economic Plans
President YarAduas priorities National Economic Empowerment
Electricity Development Strategy (NEEDS)
Agriculture Public sector reforms
Privatization and liberalization
Transport system
Governance
Jobs Transparency and anticorruption
Land Service delivery by government
Education agencies
Security

Nigeria 2020
Stable democracy
Globally competitive economy
Good infrastructure
Sound education system
Quality health care
Modern agricultural sector
Competitive manufacturing

Economic reform has been a central focus of recent Nigerian governments


20090408 CAON Nigeria.ppt 17 Copyright 2009 Professor Michael E. Porter
Defining a Nigerian Economic Strategy

National Economic Strategy

What is the unique competitive position of the nation given its


location, legacy, endowments, and potential strengths?
What is the national value proposition?
In what clusters can the nation excel?
What role can the nation play in its region?

Developing Unique Strengths Addressing Crucial Constraints

What are the key strengths that the What weaknesses must be addressed to
nation must build upon? achieve parity with peer countries?

Nigeria needs an overall strategic framework, not just lists of aspirations and weaknesses
The strategy requires more rigorous prioritization and sequencing
Competitiveness improvement demands a coordinating structure within government and
a disciplined process of monitoring implementation
20090408 CAON Nigeria.ppt 18 Copyright 2009 Professor Michael E. Porter
The Process of Economic Development
New Roles and Responsibilities

Old Model New Model

Government drives economic Economic development is a


development through policy collaborative process involving
decisions and incentives the private sector, government at
multiple levels, universities, labor,
and civil society

Competitiveness needs to become a bottoms-up process


A shared economic vision across all stakeholders in society is needed
A national campaign to communicate competitiveness principles and
challenges to the broader population is a necessity, not just to the elites
The private sector must take responsibility for driving competitiveness
improvement and ensuring continuity
20090408 CAON Nigeria.ppt 19 Copyright 2009 Professor Michael E. Porter