Impact Of Economic Recession On The Manufacturing Sector Of The Nigeria Economy

Project and Seminar Material for Accountancy / Accounting

Impact Of Economic Recession On The Manufacturing Sector Of The Nigeria Economy


Abstract


The research tends to analyze the linkage between recession rate and manufacturing sector of the Nigerian economy over the years. The study used data sourced from the Central Bank of Nigeria (CBN). The ordinary least square technique was used to specify and examine the relationship between the variables Government expenditure, inflation rate and money supply which are the independent variables and the manufacturing index which is the dependent variable for the first model. The independent variables for the second model are consumer price index, Nominal interest rate and exchange rate while the dependent variable is the manufacturing index. The explanatory power of the models was given by the R2 of 11.799% for the first model and 62.85% for the second model and was subjected to the t-test and f-test to test the significance of the independent variables. The second model based on the result, we found out that it was more significant than the first model. The research revealed that inflation has a positive effect on the manufacturing sector in Nigeria. This goes a long way to say that increase in inflation leads to increase in the manufacturing output and that manufacturers should not to be discouraged by the increase in inflation rate, and depreciating value of Naira.


Chapter One


Introduction

1.1 Background of the Study

Recession has remained a chronic problem for Nigerian economy for some time. Recession is not a new word in the world economy and not out rightly bad, but the case of Nigeria is severe because it has destabilize the entire economic frame work ever since it sets in. This problem has brought about reduction of purchasing power discouragement of real investment balance of payment disequilibrium and unemployment.

Recession in Nigeria can be said to be a direct result of the policies of the country’s government to stimulate a fast rate of economic growth and development since 1951 when it was introduced. Inflation trend since independence shows to distinctive period. Until 1969 we had a single digit inflation and even a negative growth rate in 1963, 1967 and 1968. The year 1975, recorded 33-7 percent indicating the effect of 1974 Udojji salary Awards (Adigun, M.S 1985 “Reviving the Nigeria economy”)

The Nigerian economy seemed to have experience moderate inflation prior to the advent of the structural Adjustment programme (SAP) in 1986. Recession on its own is not bad as studies have shown that there exists a positive relationship between inflation and growth. But the problem lies on a country continuously having high inflation rates. It has been revealed that a close relationship exists between recession and diminishing growth rate across a variety of recession ranges. Average growth rates falls slightly as inflation rate across a variety rates more towards 20-25 percent. The growth rate declined more steeply as recession rates approaches 25-30 percent and growth rates became increasingly negative at a higher rate of inflation (Ogwuma, P.A. 1986; Gains and pains of inflation in the manufacturing sector of the Nigerian economy”

Manufacturing involves the conversion of law materials into finished consumer goods or intermediate or producers goods manufacturing creates avenues for employment, helps to boost agriculture, helps to diversify the economy while helping the nation to increase its foreign exchange earnings and enables local labour to acquire skills. The manufacturing sector in Nigeria has passed through four clear stages of development.

The first was the pre-independence era, when manufacturing was limited to primary processing of simple consumer items by foreign multinational corporations.

The second was the immediate past colonial era of the 1960’s characterized by more vigorous import substitution and the beginning of decline for the export oriented processing of raw materials.

The third stage was the decade of the 1970’s. This was remarkable because of advent of oil and enormous resources it provided for fierce government to investment in manufacturing. This made the government to exercise almost a complete monopoly in the following sub-sectors basic steel production petroleum refining, petrochemicals, liquefied natural gas edible salt machine tools yeast alcohol, fertilizers etc. the period was marked by initiation of the indigenization programme and hence intense economic activity but poor results since governments attempt at diversification into non-traditional products such as steels, petrochemicals, fertilizers and vehicle assembly yielded little success.

The last phase was the decade of the 1980’s here government revenue fall because of serious decline of oil prices in the world market. This led to the adoption of export promotion strategy and the SAP era beginning from July 1986 has even emphasized this strategy especially as it relates to non-oil exports hence the extension of export promotion incentives of various descriptions (Enu, 1993: the Nigeria economy after structural adjustment programme “problems and prospects”)


1.2 Statement of the Problem

Recessionworsens the balance of payment positions. Recession has helped forced up interest rates thus determining investment and so by doing reduces the real values of aggregate consumer wealth such as government debt and money. It has inhibited and distorted consumer spending by rising domestic prices relative to foreign prices, the currency inflation inhibits exports and stimulates imports thus, depleting the nations scarce foreign resources.Due to the inflationary situation savers find out that the value of their savings is eroded hence they are forced to add their current consumption thus hindering capital formation and the nation’s economic growth. Recession militates against long term savings plan of the consumer and hence becomes a function in improving a sub optimal lifetime consumption pattern upon the consumer.Current recession rates in Nigeria have tremendously complicated and continued to complicate the task for makers of government fiscal and monetary policies. Even when they believe that rate of inflation is really the public does not. This recession not only makes it harder for policy makers to diagnose the factors affecting aggregate demand.


1.3 Objectives of the Study

The major objective of this study is to determine empirically the impact of inflation on the manufacturing sector of the Nigerian economy.

The specific objectives includes

  1. To investigate empirically the relationship between inflation and the manufacturing sector.
  2. To assess the impact of government expenditure on the manufacturing sector
  3. To determine the nature of the relationship between interest rate and manufacturing sector of the Nigerian economy.
  4. To review the past and present anti-inflationary policies of the Nigerian government

1.4 Research Question

The questions we are investigating here are:

  1. What significance does recession have on the manufacturing sector of the Nigerian economy?
  2. What is the effect or impact of recession on the money sector of the Nigerian economy?
  3. Does government expenditure have positive effect on the manufacturing sector of the Nigerian?
  4. Is there any relationship between interest rate and the manufacturing sector of the Nigerian economy?
  5. What is anti-inflationary policies pursued at present and in the past by Nigerian government?

1.5 Research Hypothesis

  1. H0: recession does not have any significant impact on the manufacturing sector of the Nigerian economy
    H1: recession has a significant impact on the manufacturing sector of the Nigerian economy.
  2. H0: interest rate does not have any significant impact on the manufacturing sector of the Nigerian economy.
    H2: interest rate has a significant impact on the manufacturing sector of the Nigerian economy.

1.6 Significance of the Study

This research will enable us to understand the factors responsible for the persistent rise in the price of goods and services produced in the economy by the manufacturing sector. It will provide appropriate recommendation on the ways, of eliminating inflation or reducing it, so as to empower the economy for self-sustained development capable of enhancing the economic wellbeing of a greater number of populations. It will also equip the policy makers with adequate tools in formulating the right policy.


1.7 Scope and Limitation of the Study

The study covers a period oaring from 1981-2016. The period was chosen in order to have serious investigation into the activities of the manufacturing sector. The multiple regression models will be employed in determining the functional relationship between inflation and the research variables.

In carrying out the investigation sources of data posed a problem of its own. It is difficult to lay hands on up to data statistical data for empirical analysis especially in developing countries such as Nigeria. In any case one had to mean the best use of what was available.Resulting from the short time limit couple with the financial constraints, the researcher was limited to primary and secondary sources.Generally the researcher suffers frustration owing to administrative logistics. Below are some of the identifiable limitations.

  1. Unpublished data were rarely made available to researcher by government officers who avoid violation of the official secrecy act.
  2. Secondary data on the subject was stale and scanty in most of the libraries visited including the state library.

1.8 Defeinition of Terms

Recession:

In economics, a recession is a business cycle contraction which results in a general slowdown in economic activity.
Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters

Inflation:

It is a persist tendency for prices and money wages to increase. The dictionary of economics said “inflation is measured by the proportional changes over time in some appropriate price index, commonly a consumer price index or a GDP deflator” inflation occurs when the general price level is rising.

Manufacturing Sector:

Is s sub-set of the industrial sector (others being processing draft and mixing sub-set)Manufacturing involves the conversion of raw materials into finished consumer goods or intermediate or producer goods.

Manufacturing Sector:

Agglomeration of industries engaged in chemical, mechanical, or physical transformation of materials, substances, or components into consumer or industrial goods.

Economy:

An economy is an area of the production, distribution, or trade, and consumption of goods and services by different agents in a given geographical location in various countries. Understood in its broadest sense, ‘The economy is defined as a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources.


1.9 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study.
  2. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five


Summary Conclusion and Recommendation

5.1 Introduction

It is pertinent to note that this research was aimed at finding out the negative impacts of recession on the Nigerian production sector at large “impact of economic recession on the manufacturing sector of the Nigerian economy”.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges associated with recession and the Nigerian manufacturing sector.


5.2 Summary

There are some problems highlighted in the previous chapters of this research which continue to pull down the Nigerian manufacturing sector, which are difficult to address locally; as the sector is facing great challenges due to inflation rate and low turnout in production. Though within the country, issues of human resource management, technology adoptability, cost competitiveness and availability of skilled and qualified labour are some of the common challenges hindering the progress of the manufacturing sector. The Nigerian government appeared initially passive to these challenges because it was only in the past few years that they increased the importance of manufacturing sector.

From findings it is certain that low capacity utilization can lead to factory closure if not keep in check. It can lead to layoff aspect of labour turnover. Horrendous nosedive in stock market prices can deter investors from buying shares of the affected companies. It can stall ambition of expanding ones business. Delisting of shares of closed companies can completely stop the ability of the company to source fund for recovery and expansion. Fall in commodity prices will leave a lot of companies with unsold inventories. And no company can survive when its stock of inventories pile in their warehouses without being purchased. Often time, the reasons for unsold inventories are due to competition and smuggling of cheap commodities to outrun the price of the locally produced ones. Some of the multinational companies notably Dunlop and Michelin Plc relocated to neighboring countries because of fall in commodity prices and high cost of production. The tyres these two companies were producing could not compete with cheap imported and used tyres. Textile industries were not left out in the problem. Textile industries could not compete with foreign manufactured textiles and used clothes smuggled across the border. The same problem was faced by Brewery industries; they could not compete with imported can beer that pass through Nigerian borders through ECOWAS trade liberalization policy.


5.3 Conclusion

There are numerous impacts of economic recession in manufacturing sector of Nigeria as shown in the literature review, but the most disastrous effect are those confirmed by the test on hypothesis of this study. The confirmed effects of economic recession in manufacturing industries in Nigeria are low capacity utilization, horrendous nosedive in stock market prices, delisting of shares of closed company at the stock exchange, fall in commodity prices and relocation of multinational companies to neighboring countries.

Findings here has proven that economic recession in Nigeria is caused by both endogenous and exogenous factors. There have been symptoms of a recession in the Nigerian economy, just that it became full-blown under the President MohammaduBuhari’s civilian regime due to certain drastic actions taken to solve perennial domestic economic problems. It is not abnormal for a market economy to go through a business cycle: boom, recession, and recovery. What matters is how long the phase of recession is managed to avoid a depression. The economic recession has serious negative impacts on government revenue, employment, income vulnerability, inflation, human health, infrastructural supply, poverty and natural resource management in Nigeria. Recovery and sustained economic development are desirable, but presently, Nigeria is a dependent capitalist economy. It is also not the first time Nigeria is experiencing economic recession, as the economy experienced recession in the 1970s, 1980s and 1990s. The global economic (financial) crisis of 2007/2008 affected Nigeria as a periphery economy that is dependent on the global trade. Nigeria has unrepentant, unpunished corrupt political class, over relies on the Federal Government revenue, over-depends on crude oil, to a large extent, feeds on imported food, lives on foreign finished household electronics and communication manufactures, military gadgets, transport and electricity, infrastructure inputs, cloth in imported textiles and garments and drives in 100 percent imported cars. These are the root causes of the recession.

It is pertinent to note that the main causes of low capacity utilization which is adjudged as the next foremost effect of economic recession in manufacturing industries is high cost of production. High cost of production is caused by numerous factors such as lack of infrastructure especially powers, high bank interest rate, high naira exchange rate to US dollar, etc.


5.4 Recommendations

Addressing the economic recession requires a shift from a mono-product economy structure, overdependence on imports and diversification of the economy with at least 70 percent local contents.

  1. The researcher recommend an economic reform program that will be people and manufacturers friendly such as providing bailout funds to companies affected by economic recession and ensuring that they access the loan at single digit interest rate
  2. We recommend that Banks should encourage manufacturers by reducing the present high interest rate of 22% to single digit interest rate
  3. Banks should cultivate the attitude and interest of giving manufacturers long term loan as opposed to their usual preference of giving short term loan to importers leaving manufacturers with nothing
  4. The inexplicable credit squeeze by banks which puts the government in competition for available fund against genuine would be investors should be discouraged and stopped
  5. Effort should be made to strengthen further our stock exchange so that investors’ confidence will be restored.
  6. Government should resuscitate the decayed infrastructures all over Nigeria especially power, rail road etc to reduce cost of doing business or manufacturing.

Project Material Download

5,000 5000

The Complete Material Will Be Sent to You in Just 2 Steps

Quick & Simple…


Step One Purchase

Make Payment (Through Transfer) of ₦5,000 to Any of the Account Below

Access Bank PlcAcc No: 0811003731
Samphina Academy
Current Account
Zenith BankAcc No: 1225513212
Samphina Academy
Current Account

Or CLICK HERE To Pay With Debit Card


FOR STUDENTS OUTSIDE NIGERIA
CLICK HERE To Purchase Material ($15)
FOR GHANIAN STUDENTS
Make Payment of 120 GHS to 0553978005 | Douglas Cloud Osabutey | MTN MoMo

Step Two Purchase

Send the Following Details on WhatsApp ( 08143831497) After Payment

  1. Payment Details

  2. TOPIC: Impact Of Economic Recession On The Manufacturing Sector Of The Nigeria Economy

The Complete Material Will Be Sent To You On WhatsApp After Receiving Your Details
T & C Apply


  Contact Our Help Desk


Need a Different Topic? Perform a Quick Search



List of Related Works

Click on Any Topic to Preview the Content

samphina.academy

Samphina Academy

Samphina Academy is an Online Educational Resource Center that is aimed at providing students with quality information and materials to aid them in succeeding in their academic pursuit.