CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF STUDY

The impact of manufacturing on economic development has been widely studied. Very few countries have been able to grow and accumulate wealth without investing in their manufacturing industries, and a strong and thriving manufacturing sector usually precipitates industrialization. The manufacturing sector is widely considered to be the ideal industry to drive Africa’s development. This is due to the labor-intensive, exportfocused nature of the industry. There is a direct correlation between exportation levels and the economic success of a country. By increasingly adding value to products before they are sold, revenues are boosted, thereby raising average earnings per input. Furthermore, the manufacturing sector is also more sustainable and less vulnerable to external shocks than commodities (KPMG,2014). Industrial development therefore is the application of modern technology, equipments and machineries for the production of goods and services, alleviating human suffering and to ensure continuous improvement in their welfare. Modern manufacturing processes are characterized by high technological innovations, the development of managerial and entrepreneurial talents and improvement in technical skills which normally promote productivity and better living conditions. In recognition of this, successive governments in Nigeria have continued to articulate policy measures and programme to achieve industrial growth and development. This cannot be attained until manufacturing capacity is utilized to a reasonable extent (Fashola, 2004). In Nigeria, as in many other developing countries, the word industry is used essentially as a synonym for manufacturing. This is because manufacturing is the most dynamic component of the industrial sector. Industrialization has come to be regarded as a crucial and powerful engine in the overall development process. The World Bank has classified Nigeria as inward oriented by trade orientation. Using data for 1963 – 73 and 1973 – 1985, she was deemed moderately inward oriented for the production period 1963 – 1973, but strongly inward oriented for the period 1973 – 1985. Since 2001, Nigeria has enjoyed a long period of sustained expansion of the non-oil economy, with growth occurring across all sectors of the economy and accelerating at about 7%. This growth rate increased to about 8-9% in 2003 despite the financial crisis. This has more than doubled the growth rate in the country prior to 1999. Even in the wake of the global financial crisis in 2009, Nigeria’s growth performance fell only to about 4.5 percent. This, according to Ajakaiye and Fakiyesi (2009) has been attributed to the rapid growth rate in the non-oil export. The development of the non-oil economy was in contrast to that of the oil economy, whose contribution has been declining owing to unrest in the Niger Delta. However, an investigation by the World Bank (2012) has revealed that the pattern of growth in the Nigerian economy has not gained significant input from the industrial sector and development. In spite of the country's vast oil wealth, the World Bank Development Indicators (2012) has shown that majority of Nigerians are poor with 84.5 per cent of the population living on less than two dollar a day. The United Nations Human Development Index (2011) also ranks Nigeria 156 out of 179 countries, which is a significant decrease in its human development ranking of 151 in 2004; and World Bank Development Indicators (2012) have placed Nigeria within the 47 poorest countries of the world. The issue of poverty can be easily traced to mono-economic practice and underutilization of the nation’s endowed resources, especially in manufacturing sector, which could have opened up windows of opportunity in job creation and economic development.

1.2 STATEMENT OF PROBLEM

Nigeria would be classified as industrially underdeveloped. Yet a lot of efforts have been put into the industrialization process. Plan after plan, investment policies have been renewed, fine-tuned and at times completely revamped. Resources are abundant and investment opportunities are almost unlimited. Various industrial development policies, perspective plans and medium–term economic plans acknowledged the importance of the manufacturing sector in the economy. For instance, as stated in the nation’s 4th Plan, manufacturing is capable of sustaining a minimum growth rate of 15% per annum, contributing over 7% to gross domestic product, promoting employment and enhancing the value of natural resources, to mention but a few. The history of industrial development and manufacturing in Nigeria is a classic illustration of how a nation could neglect a vital sector through policy inconsistencies and distractions attributable to the discovery of oil (Adeola, 2005). However, Ogbu (2012) argues that the country’s oil industry is not a major source of employment, and its benefit to the other sectors in the economy is limited since the government has not adequately developed the capacity to pursue the more value-added activities of the petrochemical value chain. As a result, the oil industry does not allow for any agglomeration or technological spillover effects, Ogbu (2012) stresses. From a modest 4.8% in 1960, manufacturing contribution to GDP increased to 7.2% in 1970 and to 7.4% in 1975. In 1980 it declined to 5.4%, but then surged to a record high of 10.7% in 1985. By 1990, the share of manufacturing in GDP stood at 8.1% but fell to 7.9% in 1992; 6.7% in 1995 and fell further to 6.3% in 1997. As at 2001 the share of manufacturing in GDP dropped to 3.4% from 6.2% in 2000. However, it increased to 4.16% in 2011 which is less than what it was in 1960. Currently, Nigeria’s manufacturing sector’s share in the Gross Domestic Product (GDP) remains minuscule (CBN, 2011). Compare that to the strong manufacturing sectors in other emerging economies, where structural change has already occurred and where millions have been lifted out of poverty as a result: manufacturing contributes 20 percent of GDP in Brazil, 34 percent in China, 30 percent in Malaysia, 35 percent in Thailand and 28 percent in Indonesia (Ogbu, 2012). The more recent experiences of the East and Southeast Asian economic transformations demonstrate that diversification into manufacturing and industrial production facilitated by what Arthur Lewis calls the “intelligent governments” are critical to poverty reduction. However, Nigeria has no effective industrial policy that promotes manufacturing; at least not in the sense of policy which provides practical solutions to the difficulties encountered by incipient entrepreneurs or emerging manufacturing firms. It is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector in the Nigerian economy.

         Although industrialization (with special emphasis on manufacturing) is vital in the process of economic development, its performance in Nigeria has not been quite impressive. Two main strategies have been put in place to correct this anomaly. The first is the import substitution strategy while the second is the export promotion strategy. The second strategy, which has been in vogue since the adoption of the SAP in Nigeria in mid – 1986, emphasizes the promotion of value – added non-oil exports, especially manufactures, and did not actually achieved significant results (Uniamikogbo, 1996). Generally, the manufacturing sector which plays a catalytic role in a modern economy has many dynamic benefits crucial for economic transformation is a leading sector in many aspects (Oguma, 1995) says it creates investment capital at a faster rate than any other sector of the economy. Available evidence showed that the share of manufacturing value in the Gross Domestic Product (GDP) was 3.2% in 1960. In 1977, its share of GDP increased to 5.4% and in 1992 grew to 13%. The share of the manufacturing in GDP fell to 6.2 in 1993, while overall manufacturing capacity utilization rate fluctuated downwards to 2.4% in 1998 (Chete and Adewuyi, 2004). It is to this regard that the researcher desired to examine government expenditure on industrialization and industrial sector outputs in Nigeria 1993-2017.

1.3 AIM AND OBJECTIVES OF THE STUDY

The main aim of the research work is to examine government expenditure on industrialization and industrial sector outputs in Nigeria 1993-2017. Other specific objectives of the study are:

1.  to determine the relationship between government expenditure on industrialization and the industrial sector outputs in Nigeria from 1993 to 2017

2.  to determine the extent to which government expenditure on industrialization has influence the outputs of the industrial sector in Nigeria

3.  to investigate on the factors affecting the industrial sector outputs in Nigeria from 1993 to 2017

4.  to proffer solution to the above problem

1.4 RESEARCH QUESTIONS

The study came up with research questions so as to ascertain the above stated objectives of the study. The research questions for the study are:

1.  What is the relationship between government expenditure on industrialization and the industrial sector outputs in Nigeria from 1993 to 2017?

2.  To what extent has government expenditure on industrialization influenced the outputs of the industrial sector in Nigeria?

3.  What are the factors affecting the industrial sector outputs in Nigeria from 1993 to 2017?

4.  What is the way forward to the problem facing the industrial sector in Nigeria

1.5 STATEMENT OF RESEARCH HYPOTHESIS

H0: there is no significant relationship between government expenditure on industrialization and the industrial sector outputs in Nigeria from 1993 to 2017

H1: there is significant relationship between government expenditure on industrialization and the industrial sector outputs in Nigeria from 1993 to 2017

1.6 SIGNIFICANT OF THE STUDY

The study on government expenditure on industrialization and industrial sector outputs in Nigeria 1993-2017 will be of immense benefit to the entire industrial sector, and the federal government of Nigeria in the sense that the study will determine the government expenditure and industrial sector outputs nexus and the factors affecting the industrial sector outputs in Nigeria from 1993 to 2017. The study will serve as a repository of information to other researchers that desire to carry out similar research on the above topic. Finally the study will contribute to the body of the existing literature on government expenditure on industrialization and industrial sector outputs in Nigeria 1993-2017.

1.7 SCOPE OF THE STUDY

The study will be limited the public sector only and will cover on government expenditure on industrialization and industrial sector outputs in Nigeria from1993 to 2017

1.8 LIMITATIONS OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

1.9 DEFINITION OF TERMS

Capital expenditure: Refers to spending on fixed assets such as roads, schools, hospitals, building, plant and machinery etc, the benefits of which are durable and lasting for several years.

Capital stock: Means the total value of the fiscal capital of an economy; including inventories as well as equipments.

Capital: Human made resources (machinery and equipment) used to produce goods and services.

Classical economics: The macroeconomic generalizations accepted by most economists before the 1930s which led to the conclusion that a capitalistic economy would employ its resources fully.

Current expenditure: Refers to spending on wages and salaries, supplies and services, rent, pension, interest payment, social security payment. These are broadly considered as consumable items, the benefits of which are consumed within each financial year. 

Dependent variable: A variable in which changes as a con sequence of a change in some other (independent) variables.

Direct relationship: The relationship between variables which change in the same direction.

Economic growth: Increase in real output or in real output per capita.

Economic growth: Means increase in an economic variable, normally persisting over successive periods. The variable concerned may be real or nominal GDP.

Economic model: A simplified picture of reality representing an economic situation.

Economic policy: Course of action intended to correct or avoid a problem.

Economic resources: Land, labour, capital and entrepreneur which are used in the production of goods and services.

Expanding economy: An economy in which the net domestic investment is greater than zero.

Fiscal policy: The use of taxation and government spending to influence the economy.

Government expenditure: Refers to the expenses that government incurs for its maintenance, for the society and the economy as a whole.

Government expenditure: Spending by government at any level. It consists of spending on real goods, and services purchased from outside suppliers; spending on employment in state services such as administration, defense and education; spending on transfer payment to pensioners; spending on community services; spending on economic services.

Gross Domestic Product (GDP): Refers to the money value of goods and services produced in an economy during a period of time irrespective of the people.

Growth model: It is a simplified system used to stimulate some aspects of the real economy.

Growth rate: The proportional or percentage rate of increase of any economic variable over a unit period, normally a year.

Independent variable: The variable causing a change in another variable.

Industrially Advanced Countries (IACs):Countries such as the US, Canada, Germany, Japan and Nations of Western Europe which have developed market economies based on large stocks of technologically advanced capital goods and skilled labour force.

International Monetary Fund (IMF): The international association of nations which was formed after the World War II to make loans of foreign monies to nations with temporary payment deficits and to administer adjustable pegs.

Investment: Spending for capital goods and addition to inventories.

Keynesian economics: The macroeconomic generalization which lead to the conclusion that a capitalistic economy does not always employ resources fully.

Labour productivity: Total output divided by the quantity of labour employed to produce the output.

Market failure: Refers to a label for the view that the market does not provide panacea for all economic problems.

Market forces: The forces of supply and demand, which determine equilibrium quantity and price in market.

Monetarism: An alternative to Keynesianism; the macroeconomic view that the main cause of changes in aggregate output and the price level fluctuations is the money supply.

Neo-classical economics: The theory that, although unanticipated price level changes may create macroeconomic instability in the short-run, the economy is stable at the full employment level of domestic output in the long-run because of price and wages flexibility.

Nominal GDP: Means GDP at current basic prices less indirect taxes net of subsidies.

Price level: The weighted average of prices paid for the final goods and services produced in an economy.

Rate of interest:Prices paid for the use of money of for the use of capital.

Transfer expenditures: refer to expenditures on pension, subsidies, debt interest, disaster relief packages, etc. transfers are seen as redistribution of resources between individuals in the society, with the resources flowing through public sector as intermediary.

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