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Impact of the manufacturing sector on the economic growth of Nigeria for the period 1990-2012

Impact of the manufacturing sector on the economic growth of Nigeria for the period 1990-2012

CHAPTER ONE

INTRODUCTION

  • Background of the Study

In the development literature, manufacturing has been viewed as the major driving force of the modern economy. In most modern economies, manufacturing sector serves as the vehicle for the production of goods and services. The generation of employment and the enhancement of incomes are the benefits to the people concerned in helping to drive the sector. Hence, Kayode (2011) described industry and in particular the manufacturing sub-sector, as the heart of the economy.

Manufacturing sector refers to those industries which are involved in the manufacturing and processing of goods and indulge or give free rein in either the creation of new commodities or in value addition (Adebayo, 2010). To Dickson (2010), manufacturing sector accounts for a significant share of the industrial sector in developed countries. The final products can either serve as finished goods for sale to customers or as intermediate goods used in the production process.

Loto, (2012) refers to manufacturing sector as an avenue for increasing productivity in relation to import replacement and export expansion, creating foreign exchange earning capacity, raising employment and per capita income which causes unrepeatable consumption pattern. Mbelede (2012) opined that manufacturing sector is involved in the process of adding value to raw materials by turning them into products.

Thus, manufacturing industries are the variable key in an economy that motivates conversion of raw material into finished goods. According to Charles (2012), manufacturing industries create employment which helps to boost agriculture and diversifies the economy on the process of helping the nation to increase its foreign exchange earnings.

Manufacturing industries came into being with the occurrence of technological and socio-economic transformations in the Western countries in the 18th-19th centuries. This period was widely known as industrial revolution. It all began in Britain and it replaced the labour intensive textile production with mechanization and use of fuels. Manufacturing sector is categorized into engineering sector, construction sector, electronic sector, chemical sector, energy sector, textile sector, food and beverage sector, metal-working sector, plastic sector, transport and telecommunication sector (CBN, 2012).

In Nigeria, the level of growth in manufacturing sector has been affected negatively by high interest on lending rate and this is responsible for high cost of production in the country’s manufacturing sector (Adebiyi, 2001). Okafor (2012) further observed that the level of Nigerian manufacturing industries’ performance will continue to decline because of low implementation of government budget and difficulties in assessing raw materials. These changes in the manufacturing share of the GDP and capacity utilization show that firms that are efficient can contribute to job creation, technology promotion and as well ensure equitable distribution of economic opportunities and the macroeconomic stability of the country.

Notwithstanding, Nigeria has employed several strategies aimed at enhancing the productivity of the manufacturing sector in order to bring about economic growth and development. For instance, the country adopted Import Substitution strategy during the First National Development Plan (1962-1968) aimed at reducing the volume of imports on finished goods and encouraging foreign exchange savings by producing locally, some of the imported consumer goods (CBN, 2003). The country consolidated her import substitution policy during the Second National Development Plan period (1970-74) which actually fell within oil boom era. At this time, manufacturing activities were so organized to depend on imported inputs because of the weak technological base of the economy. However, as a result of the collapse of the world oil market in the early 1980s, there was a severe reduction in the earnings from oil exports. Consequently, the import dependent industrial sector that had emerged became unsustainable owing to the paucity of earnings from oil exports which could not adequately pay for the huge import bills. It is against this background that this work seeks to investigate the impact of manufacturing sector on the growth of the Nigerian economy for the period of 1990 – 2012.

1.2   Statement of the Problem

Upon several government policies on the stability of Nigerian economy through manufacturing industry, there have been a lot of challenges facing the growth of Nigerian manufacturing sector as identified by researchers. These challenges include: corruption and ineffective economic policies (Gbosi, 2007); inappropriate and ineffective policies (Anyanwu, 2007); lack of integration of macroeconomic plans and the absence of harmonization and coordination of fiscal policy (Onoh, 2007); gross mismanagement/misappropriation of public funds (Okemini and Uranta, 2008); and lack of economic potential for rapid economic growth and development (Ogbole, 2010).

Despite the emphasis placed on fiscal policy in the management of the economy, the manufacturing sector inclusive, Nigerian economy is yet to come on the path of sound growth and development because of low output in the manufacturing sector to the economy (GDP).

In recent times, some manufacturing industries in Nigeria have been characterized by declining productivity rate, extension employment generation, which is caused largely by inadequate electricity supply, smuggling of foreign products into the country, trade liberalisation, globalisation, high exchange rate, and low government expenditure. Therefore, the slow performance of manufacturing sector in Nigeria is mainly due to massive importation of finished goods, inadequate financial support and other exogenous variables which has resulted in the reduction in capacity utilization and output of the manufacturing sector of the economy (Tomola, Adebisi and Olawale, 2012).

Investment in the manufacturing sector also affects the performance of this sector, viewing the aggregate investment behaviour in the sector. Value added is a crucial indicator in measuring the significance of manufacturing sector in an economy. Bakitt and Bhaltacharya (2010) made us to believe that if the share of manufacturing in total GDP of an economy is low, the value added will surely be very low. Low share according to them is associated with low value added.

Observing the manufacturing sector over the years shows that the share of the manufacturing in the GDP has been relatively low. In 1970, it was about 9%, 1980, about 10%, 1990, about 8% and 1998 about 6% and 2008 about 5.9%. Even though in the 90’s especially 1994, manufacturing shares in GDP was about 7%, the growth rate was a negative of 8%. Also at that same period, the overall manufacturing capacity utilization fell from over 70% in 1973 to 39% in 1986 and to about 27% in 1998 (CBN Annual Report, 2009).

It is only when firms are efficient that their potential for job creation, for promoting technology adoption, and ensuring equitable distribution of economic opportunities and the macro stability of the economy can be fulfilled. (Inegbenebor, 1995). The Nigerian Industries are concentrated on light consumer goods. There is hardly any production of capital and intermediate goods. Another feature of the manufacturing sector is its over-dependence on imports for the supply of raw materials and spare parts. There is no single industrial product in which the country is entirely self-sufficient. The Nigeria’s import bill is dominated by the cost of raw materials and spare parts for industries. This explains why in the 1980’s the economic stabilization measures designed to conserve foreign exchange affected industries most adversely. Many factories as a result of this reduced their scale of operations completely and even some had to close down completely with increase in our unemployment rates. This study is commissioned to investigate the impact of manufacturing sector on economic growth in Nigeria for the period under review.

1.3   Research Questions

To serve as study guide, we provide the following lead questions for which this study seeks to provide the answers:

  • To what extent does long-run relationship exist between the manufacturing sector and economic growth in Nigeria?
  • Does the manufacturing sector have any significant impact on the economic growth of Nigeria?

1.4   Objectives of the study

This study has the central objective of exploring issues relating to how manufacturing sector can influence Nigeria’s economic growth by facilitating the transfer of technology and other associated benefits, while in specific terms, the study is set to:

  1. Determine the extent at which long-run relationship exists between the manufacturing sector and economic growth in Nigeria.
  2. Ascertain if the manufacturing sector can contribute significantly to Nigeria’s economic growth.

1.5   Research Hypothesis

The following are the research hypothesis of the study:

H0: There is no long-run relationship existing between the manufacturing sector and economic growth of Nigeria.

H1: There is long-run relationship existing between the manufacturing sector and economic growth in Nigeria.

H0: The manufacturing sector does not significantly impact on the economic growth of Nigeria.

H1: The manufacturing sector significantly impacts on the growth of Nigerian economy.

1.6  Significance of the Study

The study will contribute immensely in aiding the government, policy makers, economic planners, researchers and the academia generally. This will provide an insight and understanding to the government on how to be prudent in spending public funds to boost the manufacturing sector in order to bring about economic growth and development. It is also of immense help in providing an insight and knowledge to the general public, policy makers, economic planners, and manufacturing sector regulatory authorities on the impact of the manufacturing sector in Nigeria.

To the academia, the findings of the study will contribute to the available literature on the current scenario of manufacturing sector in Nigeria and its level of contribution to the GDP. Based on our empirical findings and analysis, the result of the study will be of immense benefit to researchers who will rely on their contributions to existing knowledge for further research.

The findings of this research will assist monetary authorities in assessing the performance of the fiscal policy in Nigeria particularly in terms of their impact on the output of manufacturing sector. This work is also of immense benefit to the policy makers and economic planners in terms of using its findings in formulating and implementing appropriate policy measures towards accelerating economic growth through the manufacturing sector.

  • Scope and Limitation of the study

The study will investigate the impact of the manufacturing sector on the economic growth of Nigeria for the period 1990-2012. Annual time series data will be employed by this study to conduct the investigation. The researcher encountered the following constraints in the course of this work, data constraint, financial constraint, limited information due to the type of research work and time constraint. This research work is also limited to the use of secondary data gotten from secondary sources, as such if there are any errors made by those who generated these data; this research work incorporates such errors.

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