THE ROLE OF MANUFACTURING SECTOR ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

THE ROLE OF MANUFACTURING SECTOR ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

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Abstract

Over time, the absence of locally sourced inputs has resulted in low industrialization. This is as a result of the near total neglect of agriculture which has denied many manufacturers their primary source of raw materials. Some constrains faced in this sector among others include; high interest rates, low patronage, unpredictable government policy. The paper thus, empirically examines the role of manufacturing sector in gearing economic growth in Nigeria from 1986-2014. Time series experimental research was adopted. Unit root test was carried out to test the stationarity levels of the variables before conducting the regression analysis to avoid spurious regression results. The co-integration results showed that long-run equilibrium relationship exist among the variables used for the analysis at 5% level of significance. The findings revealed that variations in demand are a significant driving force for variations in capacity utilization. The findings further showed that a percentage change in manufacturing output on average increases GDP by 0.04%. Suggestive from the analysis therefore is that there is need for provision of incentives for productive diversification through information externalities and co-ordination externalities. Also, there should be promotion of regionally integrated value chains and markets to enhance investment in manufacturing and other sectors to enhance industrial competitiveness and regional economic transformation.

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

The manufacturing sector plays a significant role in economic development. Industrialization acts as a catalyst that accelerates the pace of structural transformation and diversification of economic, enable a country to fully utilize its factor endowment and to depend less on foreign supply of finished goods or raw materials for its economic growth, development and sustainability. Industrialization 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) Exchange rate in Nigeria witnessed a radical change from the long operated fixed system between the 1960s and the first half of the 1980s. It shifted dramatically from the second half of 1986 to a flexible regime when the structural adjustment programmes (SAP) began. Since the move to liberalized system, the economy witnessed series of changes that have substantially affected the trend and stability of the rate.

In other words, in Nigeria, it has always been realized that economic development requires growth with structural change. In considering the Nigerian economic development experiences therefore, it is instrumental to examine the growth and structural change in certain major aspects of the economy (Ajakaye, 2002). Productivity is higher in the manufacturing sector than in the agricultural sector. The transfer of resources from agriculture to manufacturing provides a structural change bonus. We have examined sectoral productivity levels in 19 Latin American and Asian economies and found that between 1950 and 2005, value added in manufacturing was consistently much higher than in agriculture (Szirmai, 2008). A puzzling finding was that in postwar Latin America, value added per worker in services was higher than in manufacturing. This suggests that the structural change bonus for services might have been even higher than that manufacturing exceeded those in services. The structural change bonus argument focuses on the dynamics of sectors. Manufacturing is assumed to be more dynamic than other sectors. A transfer of productive resources to more dynamic sectors contributes to growth. Here the evidence turned out to be somewhat mixed (Szirmai, 2008). Between 1950 and 1973, productivity growth in manufacturing was indeed much higher than in agriculture. But after 1973, this was reversed. As in the advanced economies, productivity growth in agriculture in developing countries tends to be higher than in manufacturing. In terms of output growth, manufacturing continues to outperform agriculture in both advanced and developing economies, because the share of manufacturing in the total economy is shrinking everywhere. The macro and micro studies on manufacturing enterprises were carried out to establish the consequences of trade liberalization for the industrial sector in African countries. Contemporary economies are largely characterized by inter—border trade. This is made possible by differences in the factor endowment of each economy as postulated by the popular theories of comparative analysis and absolute advantages. When industrialization is compared to agriculture, the argument runs that the manufacturing sector offered special opportunities for capital accumulation. Capital accumulation can be more easily realized in spatially concentrated manufacturing than in spatially dispersed agriculture. This is one of the reasons why the emergence of manufacturing has been so important in growth and development. Sectoral capital stock estimates for developing countries are still scarce, but what data there are indicate that after 1950 manufacturing is indeed far more capital intensive than other sectors (Szirmai, 2008).

Given the importance of high productivity in boosting economic growth and the standards of living of the people, it is necessary to evaluate the productivity of the Nigerian manufacturing sector. This will be useful in ascertaining the relative efficiency of firms, sub-sectors and sectors. An in-depth knowledge of the relative efficiency of industries in relation to economic growth and development could go a long way to aid government in planning its programmes and policies, especially in deciding on which industries should be accorded priority. In the light of the foregoing, there cannot be a more appropriate time to evaluate the role of the Nigerian manufacturing sector in the economic growth and the development of the country than now.

The near total neglect of agriculture has denied many manufacturers and industries their primary source of raw materials. The absence of locally sourced inputs has resulted in low industrialization. Some of the constraints faced in this sector include; High interest rates, unpredictable government policies, Non-implementation of existing policies, lack of effective regulatory agencies, infrastructural inadequacies, dumping of cheap products, unfair tariff regime, low  patronage. It is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector in gearing economic growth in the Nigerian economy. 

The broad objective of this study is to appraise critically, the role of the manufacturing sector in Nigerian economy.

1.2       Statement of the Problem

The Nigerian manufacturing sector is sick. The productive sector is in a crisis as its average contribution to the nation’s Gross Domestic Product over the past few years has not gone beyond 5%. Many years of neglect and maladministration on the part of successive military and civilian governments, coupled with corruption and indiscriminate policy reversals have all conspired to render the manufacturing sector ineffective in terms of productivity. Governments after governments have failed to pursue policies that could create a vibrant real sector with the result that the impact of the manufacturing sector has steadily declined over the years and its contribution to national growth and development has been disappointingly low (Banmijoko, 2001).

Some of the factors that exert profound negative influence on manufacturing sector include; institutional framework and management strategies; inflation rate, trends and outcomes of exchange rate management strategies, poor or inadequate infrastructural facilities especially electricity power supply and thus have significant effect on the growth and development of Nigeria, which led to problem of economic diversification to other sector of the economy.

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). The near total neglect of agriculture has denied many manufacturers and industries their primary source of raw materials. The absence of locally sourced inputs has resulted in low industrialization. The manufacturing sector has faced several challenges which include: High interest rates, unpredictable government policies, non-implementation of existing policies, lack of effective regulatory agencies, infrastructural inadequacies, unfair tariff plan, etc.

It is in the light of the aforementioned problems that this study seeks to evaluate the role of the manufacturing sector in the Nigerian economy and attempted to evaluate the performance of the manufacturing sector capacity utilisation in Nigeria.

1.3       Objectives of the Study

The major objective of this study is to examine the role of manufacturing sector on economic growth and development in Nigeria.

Other objectives of the study include:

1)      To investigate the impact of the manufacturing sector on the economic growth and development of Nigeria.

2)      To assess the level of productivity in the Nigerian manufacturing sector.

3)      To identify the major constraints confronting the Nigerian Manufacturing sector.

4)      To find out the various policy measures available to the government that can be used to redress the persistent decline in the manufacturing production.

1.4   Research questions

The following are the questions that guide the execution of this study

1)      What is the impact of the manufacturing sector on the economic growth and development of Nigeria?

2)      What is the level of productivity in the Nigerian manufacturing sector?

3)      What are the major constraints confronting the Nigerian Manufacturing sector?

4)      What are the various policy measures available to the government that can be used to redress the persistent decline in the manufacturing production?

1.5   Statement of Hypothesis

The hypothesis tested in the course of the analysis is stated below:

H01: Manufacturing sector output has not contributed significantly to growth of the Nigerian economy.

H02: Manufacturing sector capacity utilization and economic growth does not have significant relationship.

1.6   Significance of study

This study which appraises the impact of manufacturing sector on economic growth in Nigeria is significant in the following ways:

i.        It will influence various economic units both in the public and private sectors of the Nigerian economy; 

ii.      The  research  report  will  be  a  veritable  source  of  information  to various  categories  of  students  as  well  as  researchers  wishing  to conduct further research in this area; 

iii.    It  will  be  relevant  to policy  makers  especially  when  making  policy decisions  on  the  choice  of  policy  that  will  suit  the  Nigerian manufacturing sector.

Finally,  the  study  will  be  useful  to  institutions  outside  the  ones mentioned above.

1.7   Scope of the study

The focus of this study will be on the empirical findings on the impact of manufacturing sectors on national economic growth and development. The paper thus, empirically examines the role of manufacturing sector in gearing economic growth in Nigeria from 1986-2014 using only relevant performance indicators such as index of manufacturing, sector’s contribution to the Gross Domestic Product (GDP) and other control variables.

1.8   Organization of the study

This study will be organized into five chapters as follows:

Chapter one is the general introduction which covers the background of the study, statement of problem, objectives of study, significance of study, research questions, scope and limitation of study and the organization of study.

Chapter two, literature review, comprises the theoretical literature review, empirical literature and theoretical framework.

Chapter three which is the methodology, contains the study area, the method and sources of data collection and the method of data analysis.

Yet, chapter four is the data presentation and analysis which will feature data presentation and analysis, interpretation of results and discussion of findings. Finally, chapter five will comprise the summary, conclusion and recommendation based on the findings of the study.      


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