This research work examines econometrically the impact of manufacturing sector on economic growth in Nigeria, from 1981 to 2010. It assesses the effect of manufacturing output (mangdp), investment (inv), government expenditure (govexp) and money supply (m2) on log of real gross domestic product (lrgdp). Appropriate multiple regression model is specified with parameters, which are estimated using the ordinary least square (OLS) technique. Test of hypothesis is carried out and the result shows a positive and significant relationship between manufacturing output and economic growth in Nigeria within the period under investigation. Among other recommendations the study opines that manufacturing outfits should be encouraged by the government through policy packages such as tax holiday and other helpful concessions in order to enhance manufacturing output in the country
1.1 Background of the study
Prolonged economic recession occasioned by the collapse of the world oil market from the early 1980’s and the attendant sharp fall in foreign exchange earnings have adversely affected economic growth and development in Nigeria. Other problems of the economy 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 sector, among others (Ku et al, 2010; Adesina, 1992). These have resulted in fallen incomes and devalued standards of living amongst Nigerians. Although the structural adjustment programme (SAP) was introduced in 1986 to address these problems, no notable improvement took place. From a middle income nation in the 1970’s and early 1980’s, Nigeria is today among the 30 poorest nations in the world. Putting the country back on the path of recovery and growth will require urgently rebuilding deteriorated infrastructure and making more goods and services available to the citizenry at affordable prices. This would imply a quantum leap in output of goods and services.
It has been argued that the fastest 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. For instance, despite its poor natural resources and the hurdles it faced since 1920s chronic inflation, Germany has effectively exploited the manufacturing sector and rose to become the largest economy in Europe and the fourth largest in the world (Kayode, et al, 1977). In the modern world, manufacturing sector is regarded as a basis for determining a nation’s economic efficiency (Amakom, 2012). However, after the discovery of crude oil in Nigeria in the late 1950s, the nation has shifted from its preeminent developing industrial production base to crude oil production (Englama, et al. 2010); It not only has jeopardized its economic activities but also aggravated the nation’s level of unemployment. Nigeria as a giant of Africa has for long been regarded as a nation blessed with abundant human and material resources; however, the underutilization of these potentials has amplified widespread poverty, low standard of living at individual level and rising unemployment in the country because of incessant mono-economic practice and drastic neglect of other sectors of the economy such as agriculture, tourism, mining and the manufacturing industry. Manufacturing is a subset of the industrial sector (processing, quarrying, craft and mining). Manufacturing thus involves the conversion of raw materials into finished consumer goods or intermediate or producer goods. Manufacturing like other industrial activities creates avenue for employment, helps to boost agriculture and helps to diversify the economy while helping the nation to increase its foreign exchange and local labour to acquire skills. It minimizes the risk of over dependence on foreign trade and leads to fullest utilization of available resources. The degree of manufacturing is a measure of the extent to which the other components of the industrial sector are effectively utilized (Kaldor, 1967). As the nation grapples with severe economic crisis, President Muhammadu Buhari’s administration in Nigeria is convinced that the key to its quest for economic diversification and therefore survival lies in agriculture and the manufacturing sector. A strong manufacturing sector will create more jobs and wealth for its people. It will usher in sustainable economic prosperity because the country will produce what it consumes as a nation and generate foreign exchange by exporting any surplus. The manufacturing sector is now well-positioned to be a major driver of Nigeria’s economic growth because of its immense natural resources and the entrepreneurial spirit of Nigerians (Nwabughiogu, 2016). Therefore, the government is now focused on implementing necessary policies and strategies aimed at unleashing the full potentials of manufacturing in Nigeria. However, this paper attempts to quantitatively analyse the effect of manufacturing sector on the economic growth of Nigeria during the period 1981 to 2015. The manufacturing sector during this period under review was not isolated from the challenges of the harsh economic environment. Some of the challenges that led to the harsh economic environment are: acute state of infrastructure deficiency especially energy, general insecurity and perceived threat to political and economic stability, smuggling and dumping of cheap and substandard goods which usually suffocated local manufactured products, and high cost of funds and inadequacy of long-term loan windows to support long-gestation investments; multiple taxation which is threatening the survival and growth of business in the country, and weak demand as a result of low purchasing power among others (Sherif, 2012). Due to the diverse nature of manufacturing sector, workers can be exposed to several hazards that can result in serious injuries, occupational illness or even death. The paper also examined the effect of hazards in Nigerian manufacturing sector
The path to economic recovery and growth may require increasing production inputs – land, labour, capital and technology – and or increasing their productivity (Kayode and Teriba, 1977). Increasing productivity should be the focus because many other countries that have found themselves in the same predicaments have resolved them through productivity enhancement schemes. For instance, Japan from the end of the World War II and the United States of America from the 1970s have made high productivity the centre point of their economic planning and the results have been resounding. Also, middle income countries like Hong Kong, South Korea, Singapore and India have embraced boosting productivity schemes as an integral part of their national planning and today they have made significant in-roads into the world industrial markets.
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. A knowledge of the relative efficiency of industries in relation to economic growth and development could 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.
1.2 STATEMENT OF THE PROBLEM
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.
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 the Nigerian economy.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study is to appraise critically, the role of the manufacturing sector in Nigerian economy.
The specific objectives of the study include:
- to investigate the impact of the manufacturing sector on the economic growth and development of Nigeria.
- to assess the level of productivity in the Nigerian manufacturing sector.
- to identify the major constraints confronting the Nigerian Manufacturing sector.
- 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 study would examine the following questions:
- To what extent has the Nigerian manufacturing sector contributed to the economic growth and development of the country?
- What has been the performance of the Nigerian manufacturing sector?
3. What are the constraints that are confronting the manufacturing sector?
4. What policy measures could be adopted to redress the persistent decline in the manufacturing production?
1.5 STATEMENT OF RESEARCH HYPOTHESIS
The hypothesis tested in the course of the analysis is stated below:
H0: that the manufacturing sector does not contribute significantly
to Nigerian economy.
H1: that the manufacturing sector contributes significantly to
H02: the manufacturing sector does not have any impact on the growth of Nigeria economy
H2: the manufacturing sector does have an impact on the growth of Nigeria economy
1.6 SIGNIFICANCE OF THE STUDY
This study on the impact of manufacturing sector on economic growth in Nigeria is significant in the following ways:
- It will influence various economic units both in the public and private sectors of the Nigerian economy;
- 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 topolicy 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
This study evaluates the role of the Nigerian manufacturing sector in relation to the growth of the economy. The major constraints that confront the sector would be identified in the course of examining the overall development in the sector since the adoption of SAP.
The analysis of the contribution of the manufacturing sector to the economic growth of Nigeria shall be restricted to the period from 1981 to 2010 using only relevant performance indicators such as index of manufacturing, sector’s contribution to the Gross Domestic Product (GDP) and other control variables.
Most of the information and data needed for the study would be gathered from existing literature and from relevant government agencies such as the Central Bank of Nigeria, National Bureau of Statistics (NBS), Manufacturing
Association of Nigeria (MAN) as well as international organizations such as United Nations Industrial Development Organization (UNIDO).
1.8 DEFINITION OF TERMS
(i) Productivity: It has been defined by Economists as the ratio of output to input in a given period of time. In other words, it is the amount of
output produced by each unit of input.
(ii) Economic Development: This is the ability of a nation to expand its output at a rate faster than the growth rate of its population. Economic development viewed in this way has to do with growth of per capita GNP which will also determine the standard of living of the people.
(iii) Trade Liberalization: This is the elimination of non-tariff barriers to imports, the rationalization and reduction of tariffs, the institution of market determined exchange rates and the removal of fiscal disincentives and regulatory deterrents to exports.
(iv) Industrial policy: This is a systematic government involvement, through specifically designed policies in industrial affairs, arising from the inadequacy of macroeconomic policies in regulating the growth of industry.
(v) Economic liberalization: This is a replacement of a state-led economy to private sector dominated economy. It focuses on privatization, deregulation of
foreign investments, trade liberalisation, deregulation of credit policy and the introduction of the Foreign Exchange Market.