THE IMPACT OF MANUFACTURING SECTORS ON NIGERIA’S ECONOMIC GROWTH

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THE IMPACT OF MANUFACTURING SECTORS ON NIGERIA’S ECONOMIC GROWTH

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Industrialization acts as the catalyst that accelerates the pace of structural transformation and diversification of the economy, enabling the country to fully utilize its factor endowment, depending less on foreign supply of finished goods or raw materials for its economic growth, development and sustainability (Ademola, 2012).

Industrialisation which is a deliberate and sustained application and combination of an appropriate technology, infrastructure managerial expertise and other important resources has attracted considerable interest in development economies in recent times (Okafor, 2005)

The contribution of the industrial sector of the economy cannot be over emphasized when considering its role in building grounds for development, its employment potentials and financial impacts on the economy. Apart from laying solid foundation for the economy, it also serves as import substituting industry, providing ready market for intermediate goods. Thus, putting it in Adegbite’s (2004) idea; the manufacturing industry contributes significantly to the nation’s economic development by: increasing government revenue through tax; improving the standard of living; infrastructural growth; contribution to Gross National Products (GNP);employment generation; enhance manpower development; etc.

So far, it has been argued that the faster trend through which a nation can achieve sustainable economic growth and development is neither by the level of its endowed material resources, nor that of its vast human resources, but technological innovation, enterprise development and industrial capacity.

The effect of the manufacturing sector on the economy cannot be over emphasized. Nigeria’s manufacturing industry has suffered from neglect, since the country’s economy has depended on the petroleum sector since 1970’s. As the government tries to diversify the economy, it is working to reinvigorate the manufacturing sector so as to increase its contribution to Nigeria’s prosperity. Nigeria most important manufacturing industries include beverages, cement, cigarettes, food processing, textile and detergents.

According to Solomon (2012), industrialization during the colonial era did not have any explicit policy inherent in it, the colonial territory being regarded by the colonial administrators as a source of raw- materials and market for British industries. Thus the ten years development and welfare plan of 1945-1955, did not envisage any remarkable industrialization programmed. Nigeria industrialization stated with primary processing of local raw material before export .in 1950, it accounted for not more than 2.7 percent of the Gross domestic product federal ministry of industry and technology (1992), industrialization in Nigeria.

The second phase is the post- colonial era, which was characterized by the establishment of import substitution industries. While the third phase (the oil boom era) was characterized by direct government intervention and investment in the steel production, petroleum refining and the production of liquefied natural gas, edible salt and inorganic fertilizer. It was a period of indigenization with intense economic activity but with poor result as government attempt at diversifying into steel petrochemical, fertilizer and vehicle assemble yield paltry return (Anyanwu, 1997). The fourth phase was market driven which emphases toward the encouraging the use of local material for manufacturing.

According to CBN (2011) report between 1990 and 1996, the industrial sector recorded a negative annual growth rate of 1.6 percent. Consequently, the contribution of the sector to GDP fell from 11.2 percent in 1982 to 4.8 percent in 1996 and later 6.79 percent in 1999. The CBN report it that cost of raw materials accounted for 69.5 percent of the total cost of operations while wages and salaries, interest changes, depreciation and energy accounted for 7.5, 5.5, 3.5 and 2.9 percents respectively. 7.5, 5.5, 3.5 and 2.9 percents respectively. Aggregate value of raw materials used increased by 43.5 percent, locally sourced materials accounted for 48.3 percent of the total cost of raw materials used, imported raw materials accounted for 51.7 percent, manufacturing value added declined by 40.7 percent, manufacturing enterprises declined by 0.8 percent in 1997.

According to Adebiyi and Babatope (2004), manufacturing contributed of 4.2% GDP in 2009, up from 3.6% in 2008. The sectors contribution to GDP has changed little over the course of the decade. Even as industries like cement and beverages attract investment from home and abroad, other industries are closing up shop, between 2000 and 2010, more than 850 manufacturing companies either shut down or temporarily halted production. In 2012, the manufacturing sector contributed over 3.05 percent to GDP. Capacity utilization in manufacturing is around 53%. Import manufactured goods dwarf sales of home grown products (CBN, 2012).

Manufactured goods have constituted the biggest category of import since the 1980’s. But the government is working to revitalize the ailing sector in may 2010, the Nigeria government announced a USD 1.3 billion fund to help banks extend credit to the manufacturing sector, following the decline in available financing after the onset of the global economic crises. The biggest problem facing manufacturers over the past decade has been inadequate infrastructures in general and lack of power supply in particular. The country set a target of generating 6,000 MW of electricity by the end of 2009, but estimated national demand is 25,000MW. Owing to this, the government is embarking on a major drive to improve power generation with the express aim of improving conditions for industry: in March 2010 it unveiled plans to invest USD3.3billion in power project throughout the country (Anyadike, Emeh and Ukah, 2012)

The quest by the current Nigeria administration for economic growth and industrialization through national economic development prospects hinge on entrepreneurial energy of vibrant Micro, Small and Medium Enterprises (MSMEs) as most big manufacturing companies in Nigeria grew from small scale to become big icons. As they grow, they protect the economy from the geographical cost-benefit permutations of a few multinationals who are ever prepared to close up their businesses and relocates at the slightest provocation or appearance of economic downturn (Amakom, 2006).

The relevance of the industrial sector in the Nigerian economy forms the basis of this study.

1.2 STATEMENT OF THE PROBLEM

In the Nigerian experience, the downturn of the global oil market of the early 1980s and the sharp decline in foreign exchange earnings have adversely affected economic growth and development in Nigeria coupled with the global financial cri-sis that rocked the world economies. Problems particular to the economy of Nigeria include; excessive dependence on imports for consumption and capital goods, dysfunctional social and economic infrastructure, unprecedented fall in capacity utilization rate in industry and neglect of the agricultural sec-tor, among others. These have resulted in fallen incomes and devalued standards of living amongst Nigerians (Anyanwu, 2004). Although the structural adjustment programme (SAP) was introduced in 1986 to address these problems, no notable improvement has taken place. From a middle income nation in the 1970s and till 2014, Nigeria is today among the 30 poorest nations in the world. In view of this, the question is; does the industrial sector ‘cateris paribus’ has impact in the economic growth of the nation in view of the Vision 20;2020.

It is difficult for an economy to meet the need and aspiration of the people if the manufacturing sector is hampered. Chigbu (1992) point out that in Nigeria the manufacturing sectors has been the worse hit by various government economic policy whether deregulation or even regulation. No wonder there has been an escalating rate of unemployment due to closer of industries unmanageable debt, diminished living standard, wide spread poverty and deteriorating physical infrastructure. Given that the unskilled (primary and secondary school leavers) constitute the bulk of the unemployed in Nigeria. A further dimension to this issue is what is referred to as the unemployability of current graduate from Nigeria educational system due to pronounced fall in the equality of graduate resulting from virtual collapse of the system which has made employer of labour to incur extra cost of re- training young graduate for employment. The issue here is what is the current level of capacity utilization and has this in anyway reduced unemployment rate in Nigeria?

Owing to the above, this study will therefore attempt to examine the problems and find solutions to them.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to critically appraise the impact of the industrial sector on Nigeria’s economic growth. The specific objectives are:

1. To determine the contribution of the industrial sector on Nigeria’s GDP.

2. To investigate the effect capacity utilization on economic growth in Nigeria.

1.4 RESEARCH QUESTIONS

Base on the above statement of problem, one can raise the following questions

1. To what extent has the industrial sector contributed to Nigeria’s GDP?

2. Is there any relationship between capacity utilization of manufacturing sector and economic growth in Nigeria?

1.5 RESEARCH HYPOTHESIS

Ho1 Industrial sector has not contributed significantly to Nigeria’s GDP

Ho2 Services sector has not contributed significantly to Nigeria’s GDP

1.6 SIGNIFICANT OF THE STUDY

Basically the purpose of any scholarly research should be useful to:

1. Government/policy maker: It opens a thoroughfare for government in their effort at revolving policies programmed for the betterment of the Nigerian nations at large. Government agencies in charge of manufacturing related case like the Federal Ministry of labour, Nigerian Directorate of Employment (NDE) will find this study useful in their plans and policies targeted at developing the manufacturing sector.

2. Bankers: The work will revealed the actual credit needs of the manufacturing venture and enlighten the banking institutions on their role at ensuring that Nigeria become an industrialised country by 2020.

3. The public: this research will enlighten the citizen on what is expected of them in the areas of patronage and what the sector can do for them in the areas of job creation and good production if the citizens give the sector full support.

4. Academic: this study will be useful to student and other researchers as it will add to existing literature on issues of unemployment in Nigeria.

1.7 SCOPE OF THE STUDY

This focuses on the Nigerian industrial sector while covering the period between 1980 and 2011. Data for the study will be collected from the secondary source while regression analysis will be applied to test the stated hypotheses.

1.8 ORGANISATION OF THE STUDY

For a research of this nature that need for logical presentation of the data and fact of the subject matter the researcher made conscientious effect in arranging the work in an ordinary manner.

CHAPTER ONE: cover the introduce statement of the problem, research question , objective of the study research hypothesis, significant study scope of the study organization of the study and definition of terms

CHAPTER TWO; it provides a concise summary of review related literature and theoretical framework of the subject matter, empirical literature, the history of industry in Nigeria , the role of industries in economic development .

CHAPTER THREE: it will examine the method of data collection, which includes method of data analysis and decision rule.

CHAPTER FOUR: this will deal mainly with the collection and data presentation, criteria for decision, analysis of data, and interpretation of data

CHAPTER FIVE: base on the analysis of information and testing of hypothesis summary, recommendation and conclusion will be drawn. Also ways wil be made which their economic development process and also for further study.

1.9 DEFINITION OF TERMS

Economic growth: This is the increase over time in a country’s real output per capital. It is measured by the gross national product (GNP).

Per capital income: This is national income of a country divided by the population.

GDP : This is Gross domestic product. It is one of the main measures that is calculated without subtraction of allowances for capital consumption.” Domestic indicates that it measured activities located in the country regardless of their ownership.’ Product indicate that it measure real output product rather than output absorbed by residents. GDP is reported at both current and constant prices.

GNP : Gross National Product is the same as Gross Domestic product. The only difference is the national which indicates the incomes of Nigeria residents abroad as well as those at home.

Development: Development is a process of prolonged and sustained growth in the real national income of the economy accompanied by positive change in the economic, social and political structures of the economy with the result that the real income per capital of the people increase over a long period of time subject to the stipulation that the number of people below the poverty line does not increase as well as the distribution of income does not become more unequal.

Underdevelopment: It is a condition in which workers work below the hours they would have normally like to work or earning less than its sufficient to support a minimum comfortable standard of living.

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