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Impact Of Manufacturing Sector On Economic Growth

 Format: MS WORD   Chapters: 1-5

 Pages: 68   Attributes: COMPREHENSIVE RESEARCH

 Amount: 3,000

 Feb 19, 2020 |  10:55 pm |  1234

CHAPTER ONE

INTRODUCTION

1.1    Background of the Study

Historically no country of the world ever experienced economic growth and development by engaging in substantial agriculture that is by exporting only raw materials without having an industrial sector, and in modern terms an advanced service sector, industrialization acts as a catalyst that accelerate the pace of structural transformation and diversification of economy and also enable a country to fully utilize its factor endowment and to depend less on foreign supply  of finished goods or exporting of only raw materials for its economic growth, development and sustainability. Industrialization should be seen as a single global process, in which individual countries follow different paths depending on their initial conditions and moment of their entry into the race (Pollard, 1990). Manufacturing is the core mover of industrialization and it plays a key role in the global economy. The emergence of modern manufacturing had led to the dramatic changes in the structure of the world economy and to sustain increase in the growth of labor productivity and economic welfare (Madison, 2001 & 2007).

Throughout the years 1990’s and 2000’s Nigeria’s over reliance on crude oil export made production from the manufacturing sector to drop significantly. Most of our manufacturing firms were not export oriented and they lacked competitive efficiency, causing the competitive companies to relocate their factories abroad. A few key industries such as beverages, textiles, cement and tobacco kept the sector afloat but even those companies were operating at half of their capacity. To this day production is mainly located in Lagos and its periphery, and to a lesser extent some other commercial towns such as Kano and Kaduna. Data obtained from the Manufacturers Association of Nigeria {MAN} showed that total manufacturing output in the formal sector in Nigeria was N68.4 trillion in 2010. It increased over the following two years by N1.3 trillion or 19.37 per cent in 2011 to reach 8.17 trillion and by 1.65 trillion or 20.22 per cent in 2012 to reach a total of N9.82 trillion. In all three years, the formal manufacturing sector was dominated by output from the Food, Beverages and Tobacco Activity, with N4.93 trillion or 72 percent of output contributed in 2010. Despite the activity’s growth of N488billion or 9.91 percent in 2011 and N712.7billion or 13.15 percent in 2012, this total output share decline to 66.32 percent and 62.42 percent in 2011 and 2012 respectively.

The second largest contributor to manufacturing output was the Textile, Apparel and Footwear Activity, which at N792.69billion in 2010 represented 11.58percent total output with growth of N398billion or 50.21 percent in 2011, the total output of N1.19trillion represented 14.57 percent of total output. This share increased further in 2012 with output of N1.65trillion representing 16.82 percent of the total, due to output growth of N462billion or 38.81 percent.

Manufacturing and nonmetallic products were the third and fourth greatest contributors to manufacturing output, representing N392billion or 11.58 percent of the total and N187billion or 5.73 percent of the total in 2010. Between 2000 and 2008, Nigeria experienced its worst situation manufacturing as 820 companies shut down or suspended production. Worst hit was the textile and garment sub-sector. At its peak, the textile industry alone employed nearly 700,000 people (making it the second largest employer of labor in Nigeria after the government) and had a turnover of $8.95billion. The industry witnessed catastrophic collapse from 175 firms in the mid-1980 to ten factories in stable condition in 2004, while employment in the industry plunged from 350,000 to 40,000.

In another study Rankin et al observed that when there was a boom in oil prices during the 1970’s, the country committed the serious mistake of neglecting other sectors like agriculture, mining and micro small and medium manufacturing. At that time the country was earning enough from crude oil exports that could have been used to develop other sectors; and yet this other sectors were ignored because of dependence on this very income. There were also other factors precipitated the decline of particular sectors. For example, from 1970 to 2005, many foreign countries expressed interest in the manufacturing business in Nigeria such as steel, wood, food, electronics, chemicals and vehicles sub-sectors among others. But due to regulation and other restrictions, need for capital and expertise, only a few companies were able to establish a significant presence in those sectors. However, a number of those foreign companies that were able to establish joint ventures with Nigerian companies were substantially large. As such, some sectors such as fuel refineries, electronics, chemical and vehicles have seen a substantial foreign ownership and product output growth over the years while those of others decline, such as textile, wood and plastic. The main difference in the interest of foreign firms in the industry came from legislation and restriction to enter the market.

Manufacturing plays a unique role because it has strong linkages with all other sectors of the economy and is the fundamental base for the economic health and security of a nation. Interestingly, about a fifth of global income is generated directly from manufacturing industry, and nearly half of household consumption relies on goods and industrial processes. The demand for manufactured goods continues to rise as people around the world enter the global consumer class. The manufacturing sector currently contributes17 percent of the world US$ 70trillion economy, and accounts for 70 percent of global trade (National Industrial Revolution Plan, 2014). Productivity is higher in the manufacturing sector than in the agricultural sector and the transfer of resources from agriculture to manufacturing provides a structural change bonus (Szirmai, 2009). Research shows that as economies mature, the role of manufacturing evolves and its impact on the economy changes, poor countries start of byemploying the bulk of their population in agriculture however for these countries to transition into middle income/developed markets, they must create a robust industrial and service sector, which are the  drivers of mass employment, improved skills and better wages, providing the foundation for long-run sustainable economic growth and advancement (Lewis, 1979).

In the light of the foregoing, one can infer the importance of the manufacturing sector, as it serves as prime mover or main engine of economic growth and development. The Nigeria’s manufacturing landscape is indeed very broad and it is a country that is blessed with both natural and human resources. However, not all sectors have reached the sufficient level of scale to have a significant effect on national economic activity. Although, Nigeria’s manufacturing sector produce range of goods such as milled grains, vegetable oil, meat product, diary product, sugar refined, soft drinks, beer, cigarette, textile, footwear, wood, paper product, soap, paint, pharmaceutical goods, ceramics, chemical products, tires, tubes, plastics, cement, glass, bricks, tiles, metal goods, agricultural machinery, households electrical appliance, radios, motor vehicles, jewelry and consumer goods such as soft drinks, cement, paint, soap and detergents etcetera (Library of congress country studies: CIA world face book, 1991). But over many years the Nigeria manufacturing sector has failed to undergo the critical structural transformation necessary for it to play a leading role in the economic growth and development. The manufacturing sector is obviously not yet robust enough to be tagged glowingly as Nigeria’s engine of growth and the technological base of manufacturing is lacking in many sectors. It is untrue that food, cement and textile sub-sectors are all doing remarkably well, although the cement manufacturing got a significant boost courtesy to Aliko Dangote’s in the sub-sector or recently, and as well the textile industry in reality, is still gasping, with most of the factories across the countries that were once functional yet to be revived from their present moribund state (P.M. News Nigeria).

Pathetically, the skilled manpower necessary to guarantee competitiveness in today’s dynamic and globalized world is insufficient systematic issues mostly related to insufficient power supply, poor transport system, inadequate infrastructure, political instability, insecurity, unavailability of finance and rampant corruption have led to escalating costs and non-competitive operations. Consequently, the sector is unable to attract the necessary investment for economic growth and remains a small player in the economy (National Industrial Revolution Plan, 2014).

The Nigerian economy expanded in the fourth quarter as the real gross domestic product (GDP) grew by 2.4%. This represents an improvement when compared with 2.1% growth recorded in the first quarter of 2017 and 1.8% in the third quarter of 2018. For the full year of 2018, GDP (economic output) grew by 1.9%, performing better than 2017, where growth was 0.8%. In nominal terms, the value of goods and services produced in the economy in 2018 was N129billion (2017:N14.9 billion). As in previous years, the non-oil sector accounted for 91% of total GDP in 2018.

For the full year 2018, several sectors were crucial in influencing the performance of the overall GDP growth, particularly based on their performance and contribution (weight) to overall GDP. The key sectors that contributed that contributed significantly to GDP growth in 2018 are:

Agriculture: The sector expanded by 2.1% in 2018. This is the sectors lowest growth rate in over two decades. Growth in agriculture was led by crop production, which accounted for 88% of agricultural output in 2018. In terms of contribution, agriculture accounted for 25% of real output in the year.

Manufacturing: With growth rate of 2.1% IN 2018, manufacturing recorded positive growth in the four quarter of the year, making it one of the best performing sectors. However, growth within the sectors is largely concentrated on three sub-sectors, which are Cement, Food, Beverages, Tobacco, Textile, Apparel and Footwear. These three sectors accounted for 77% of total manufacturing output in 2018. The remaining 23% is shared among 10 other subsectors, raising the need for diversification within the sectors. Manufacturing sector contributed 9.2% to GDP in the year.

Mining & Quarrying (M&Q): This sector grew marginally by 1.3% in 2018 and recorded three consecutive negative growth rates of -3.8%, -2.8% and -1.2% in the second, third and fourth quarters of the year, respectively. The sectors growth of 14.9% in the first quarter was able to shore up its overall growth to the positive region in the year. Crude Petroleum and Natural Gas accounted for 985% of total M&Q output.

Information and Communication (I&C): The sector recovered significantly from its negative growth of 1% in 2017 to become the second fastest growing sector with a growth rate of 9.7% in 2018. I&C is also the sector with the highest contribution to GDP growth in 2018. Two of the subsectors Telecommunication and Information services and Broadcasting were largely responsible for I &C’s growth and they accounted for 77% and 14% of I&C’s output, respectively.

Trade: Output of this sector declined by 0.6% in 2018. Because of the sector’s significant contribution to overall GDP, this was 16.4% in 2018, its decline weighed on overall GDP growth in the year. On an annual basis, the sector is yet to return to positive growth since achieving 5.1% in 2015.

Education and Health: In terms of economic output, both sectors continued their negative performance, declining by -0.03% (Education) and -0.3% 9 (Health) in 2018. Collectively, they accounted for 2.8% of GDP in 2018.

Real Estate: Real Estate is the worst performing sector, with negative growth of 4.7% IN 2018 (2017: -4.3%). The sector is yet to recover since the economic recession in 2016. It accounts for 6.4% of GDP.

1.2    Statement of the Research 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 distraction 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 reason for their poor performance of the sector was as a result 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 security and perceived threat to political and economic stability, smuggling and dumping of cheap and substandard goodswhich usually suffocate local manufactured products, high cost of funds and inadequacy of long-term loan windows to support long-gestation investment; multiple taxation which is threatening the survival and growth of business in the country, weak demand as a result of low purchasing power, among others.(Manufacturing Association of Nigeria ‘MAN’)

Some other constraints faced in this sector include:

High interest rate

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 view of these challenges that this study seeks to examine the impact of the manufacturing sector in the economy and attempt to evaluate the performance of the manufacturing sector capacity utilization in Nigeria.

1.3    Research Question

The research question or the hypothesis could be defined as a provisional assumption made in order to investigate the logical consequences. It could also be defined as the suggestions put towards starting points for reasoning but with the awaiting validities.

The study will examine the following questions:

I.       To what extent has the manufacturing sector contributed to the economic growth and development in Nigeria.

II.    To find out the relationship between the manufacturing sector and economic performance in Nigeria

III. What measure could be taken to address the issue facing the manufacturing sector

1.4    Objective of the Study

The main objective of the study is to determine the impact of manufacturing sector on the growth of the Nigerian economy.

I.       To investigate the performance of the manufacturing sector on the economic growth and development of Nigeria.

II.    To find out the relationship between then manufacturing sector and economic performance in Nigeria

III. To find out solutions that are available to the government that can be used to address the challenges facing the manufacturing sector

1.5    Statement of Research Hypothesis

The hypothesis tested in the course of this research is stated below:

Ho: That there is no significant relationship between manufacturing sector and economic growth of the Nigerian economy.

Ha: That there is a significant relationship between manufacturing sector and economic growth of the 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:

I.                   It will influence various economic units both in the public and private sectors of the 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

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 1987 to 2018 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 (CBN)Central Bank of Nigeria, (NBS) National bureau of statistics, (MAN) Manufacturing association of Nigeria, as well as international organizations such as(UNIDO) united nation industrial organization.

 

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