Growing the Nigerian Software Industry — clarifying my thoughts. Part 4.
There have been many publications and suggestions for growing the Nigerian Software industry. On one side there has been a massive push for more entrepreneurship supported by the VC community. On the other hand has been the advocates of protectionism and exclusion of non-nigeria software products from the nigerian market. It is possible that these approaches are all correct.
My approach however will be to look at each of my measures and see which approach or approaches will lead to growth in that particular index. Clearly there is no single path to the cathedral.
There is no data to measure the size of the Nigerian software industry based on publicly available information. Various estimates of the size can be seen on the net. In 2004, Jim Ovia and NSDI estimated the nigerian software industry to be worth N15bn but I think he was talking about the market size and not the output of the industry. Every other data you see talks about the size of the market and not of the output of the industry as we have defined it.
If we are to grow the software industry then we should adopt measures that increase the output of the nigerian software industry from whatevr it is. The assumption here is that the industry has the capacity to grow and that there is a market that will buy the increased output. If we grow capaciqty with no corresponding increase in the ability of the market to absorb then we will have only made investments and not generated any output. Infact, capacity typically lags demand — it is the increase in demand that justifies investments that increase capacity.
To increase the size of the output of the nigerian software industry, there will be two possible approaches — reduce the competition from non-nigeria software industry or greatly increase the demand for the output of nigerian software industry. Reducing the competition is the protectionist stand and there are many arguments for and against its use. Those who argue in its favour point at nationalism and national security. While these are valid concerns, policies and strategies to promote nationalism and national security and national pride in the software industry abound that has nothing to do with protectionism. One could give awards and recognition, government can ask for source codes or government can embark on prestige projects. Why did the Americans land a man on the moon? Certainly it was not an economic project.
A major argument against overt protectionism is that reducing competition has been shown to reduce quality, stifle innovation and increase pricing in all markets. It is not any wonder that the Soviet block developed few competitive products and were soon inundated with western products once the barriers were lifted. More importantly, protectionism in the case of software immediately has to deal with the issue of the several layers in the software stack many of which re-inventing the wheel are totally unnecessary. This leads to policies that are riddled with loopholes. For instance allow foreign operating systems but do not allow foreign accounting systems meanwhile the market for operating systems is much more than the market for accounting systems. With the wide spread use of software, protectionism is only viable if it is blanket — allow software in or do not allow software in because the parameters to judge what is to be allowed in and what is to be left out are very vague. Some claim that a simple rule will be to keep out those ones that have local alternatives. The problem with this policy is that software is as much a science as an art and the consumers preferences sometimes look as if they are set by scientists and sometimes by artists just like music. Is there an alternative for a particular brand of music? So if we decide to ban all software from outside Nigeria, the software industry in Nigeria will be forced to build all of its own software stack, develop all of its own tools and algorithms. Assuming the rest of the Nigerian market will wait for them, this approach will eventually create a very large software industry. How long this will take, I don’t think anyone can tell. Will the output allow the users ( nigerian society and companies ) to become competitive with the rest of the world or even able to provide better services is a question that cannot be easily answered in the affirmative. A targeted protectionist policy can lead to growth in specific areas. The question becomes why are those areas selected and not the rest.
The other option is to increase the demand for made in nigeria software. There are again two different approaches that may work and each also has its consequences. We could increase demand for nigerian software by increasing the need for software in the market ( greater digitization ) or by simply making nigerian software more economically viable for the market. Nigeria is far away from ubiquitous digitization and software is a key resource for extensive digitization and also a major consumer of digitization. As a simple illustration, for us to have digitized drivers licenses, we need a lot of software. Once we have digitized driving licenses, it can be used by software in insurance companies, law enforcement , financial services and wherever else other software makes new services possible. Digitization of the licenses require software and also make possible other software use cases. This multiplier effect creates a chain reaction that increases the size of the software industry in many indices. Of course, nothing stops this growth from being soaked up by ‘foreign’ software especially where the ‘nigerian’ software industry lacks the capacity to grow to fill the need.
The other strategy — making Nigerian software more economically appealing, can be achieved by fiat — ban foreign software or by manipulating trade terms — impose ruinuos custom duty or taxes on ‘foreign’ software companies or by simply finding ways to build the capacity of the ‘nigerian’ software industry to meet the explicit and implicit, the overt and covert, the latent and express demands of the nigerian society and economy. Of course, the current economic shocks are forcing the society and economy to start looking for solutions whose costs are denominated in the local currency. It may actually be that by manipulating the currency and keeping it very low against other currencies, we will encourage demand for local nigerian software ( and other local product alternatives). Increased demand is a virtuous circle initiator for software as more software begets more software.
Manipulating currencies in order to achieve local sufficiency and promote export is an old tried and tested tactic. It was used by Japan to rebuild and expand her industry. Donald Trump has repeatedly accused China of currency manipulation. The only problem is that for some perverse reason ( I am neither a politician nor a seasoned economist ) Nigeria prefers to manipulate her own currency value upwards rather than downwards.
These strategies are not exclusive policy options but it is important to review the national experience with some of these options before recommending them as valid strategies to be used in any way. For decades effectively starting from the indigenization policy of the 70’s, Nigeria has pursued multiple prongs of import substitution and local industry protection across various sectors all by fiat. That we are putting in place a local content policy in 2016 after we have promoted and practiced it for decades is in my opinion an evidence of failure. If it did not work then, it is not going to work now. If it worked then, we should not be re-inforcing it now and complaining of import dependence. No nigerian industry of note has become a world beater because it has been protected. The only one that has become a worldwide phenomenon, Nollywood, was not protected in any way. The policy of course is extremely welome by business men like me to fill our personal and organizational pockets but achieve nothing of the original stated goals.
The objective here is not to debate economic policy but to clarify my thinking on what will grow the Nigerian software industry in terms of improvement in industry output, increase in the number of players, increase in the number of those employed and increase in productive capacity. Very clearly, promoting a program of increasing digitization of society and economy will be a priority as this creates a self re-inforcing demand for software which will be filled either by the nigerian software industry or foreign entrants. Nigerian software industry will have an ‘unfair’ advantage if the currency value is kept low enough to make the imported software too expensive to be used for digitization. Creating demand and placing Nigerian software industry at an unfair advantage will force a growth in the productive capacity. A long time ago, the most sought after engineering profession in Nigeria was civil engineering — construction was the leading industry. And Nigerians went to university in droves to study civil engineering. If today, STEM is the path to productive employment, we can be sure that Nigerians will develop those skills en mass.
Wheew. I think I have clarity on what I think we need to do.
