CHAPTER ONE

INTRODUCTION

1.0 Background to the study

Over the years, oil and agriculture have been the major sources of Nigerian revenue with greater percentage coming from the oil sector. This increased revenue from oil led to the neglect of other sectors such as the manufacturing sector, information communication sector, and even the agricultural sector that was known to be the next after oil. Oil discovery thus created a puzzle whether is a blessing or a curse to Nigeria.

However, the manufacturing sector plays a catalytic role in a modern economy which has many dynamic benefits crucial for economic transformation. The transformation agenda of President Goodluck Jonathan was aimed at improving capacity utilization in Nigeria’s manufacturing sector and help to increase local content linkages with other sectors of the economy, ensuring global competitiveness for manufactured goods and achieving rapid and sustained economic growth through breeding of the nation’s productive base. This reform has had its positive impact on the manufacturing as Central Bank of Nigeria (CBN) reported that the Nigerian economy had been growing at seven percent rate annually and might double in the next ten years (CBN, 2012).

It is to this vital role expected of the manufacturing sector in an economy that prompted Alao (1995) to posit that manufacturing sector is sine qua non for economic growth. He argued that manufacturing sector creates investment capital at a faster rate than any other sector of the economy while promoting wider and more effective linkages among different sectors. The sector increases productivity in relation to import replacement and export expansion, creating foreign exchange earning capacity, raising employment and per capita income, which causes unique consumption patterns. This sector is less prone to price volatility in the world market and that could be one of the reasons behind nations’ emphases on its tremendous contribution in an economy.

The monolithic state of African economics is widely lamented and condemned as a victory of colonial interests over African interests. The intention of the colonial administration was to make use of the resources in Africa in order to develop their industries at home. In that, Africa was used as markets for her ever increasing manufacturing output. This obnoxious and nonchalant attitude displayed by the colonial administration slowed the take-off stage and the pace of

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manufacturing sector in Nigeria. In modern period, Nigeria has been making effort to push-up the productivity growth of manufacturing sector by carrying out various reforms in the industries and financial institutions. One among the industrial policies is the Nigeria Industrial Revolution Plan (NIRP). The NIRP aims to expand the country’s industrial capacity by pursuing systematic development in agro-allied industries; metals and solid minerals processing; oil and gas industries; light manufacturing; construction and services (Central Bank of Nigeria, 2013).However, despite Nigeria’s immense economic reforms which were all aimed at improving industrial production and capacity utilization of manufacturing sector output, there are still growing concerns on the decline of the output in the sector in recent times (Akpokerere and Ighosewe, 2015).

The key driver of increased productivity is the private sector. Private sector ensures efficiency in the utilization of resources such as funds, raw materials and human resources in production, and their productivity is somewhat dependent among other things on the available funds. This made Rutto, Were and Nzomoi (2012) to argue that access to credit enhances the productive capacity of businesses. They added that businesses and enterprises with adequate financial access have greater potential to grow. A number of studies in developing economies have equally noted that businesses in Africa, especially the small and medium manufacturing firms are credit constrained (Bigsten et al, 2000; Loeningand Soderbom, 2008; soderbom, 2000).

There has been fluctuation in the level of credit accessed by the private sector as there are swings in the manufacturing sector productivity in Nigeria. The amount of credit accessed rises and falls at random while the manufacturing productivity trots in a sluggish manner. Figure 1.1 depicts the amount of credit allocated to the private sector in US dollars and the percentage of manufacturing share of merchandise export in Nigeria. From the figure, it can be seen that in 1985, the total credit to private sector is approximately 15.42 million US dollars while the percentage of the manufacturing sector’s export to the merchandise export was close to zero. In 1998, there was an increase in the percentage of manufacturing output to total merchandise export by 2.47 percent following an increase in private sector credit access from $14,139m to $372,574.1m. However, despite an increase in private sector access to credit in 2003 (by more than 100 percent), the manufacturing export as a percentage of merchandise export dropped to 2.07 percent. This has been the swings in manufacturing export given the fluctuations in private sector credit access in Nigeria.

2

40

35

30

25

20

manufacturing output (%

GDP)

15

PRIVATE SECTOR CREDIT IN

million US$