The Impact Of Macroeconomic Policy On The Growth And Development Of Small Scale Industry In Nigeria

Project and Seminar Material for Economics

The Impact Of Macroeconomic Policy On The Growth And Development Of Small Scale Industry In Nigeria


Abstract


This study empirically investigated the impact of macroeconomic policy on the growth and development of small scale industry in Nigeria. It spanned from 2010 to 2020 and utilized annual time series secondary data extracted from annual reports and financial statements of the selected firms. The ex-post facto research design was adopted while analytical techniques employed were descriptive statistics, fully modified ordinary least squares panel regression and Pearson correlation analysis. Findings revealed that changes in macroeconomic indices play significant roles in the return on assets of small scale industry in Nigeria. Particularly, the result showed that exchange rate, interest rate, external debt and trade openness have a negative effect while inflation rate exerts a positive influence on the return on assets of manufacturing firms in Nigeria. Among the selected macroeconomic variables, the effects of exchange rate and inflation rate were significant. The result implies that an unstable macroeconomy is harmful to the healthy growth of small scale industry in Nigeria. The study, therefore, recommended among other things that the exchange rate should be monitored while economic policy measures aimed at controlling the exchange rate in Nigeria should be established. A high rate of interest should also be regulated and set to a rate favourable to the growth of manufacturing companies in Nigeria. The federal government of Nigeria should work towards reducing their level of borrowing from foreign countries and as well reduce the volume of trade openness for the overall performance of the manufacturing sector in Nigeria.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Model Specification
  • 3.4 Description of Model Variables
  • 3.5 Methods of Data Analysis

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References

Chapter One


Introduction

1.1 Background of the Study

The association between macroeconomic factors and organiza ional performance has piqued the interest of researchers studying this phenomenon. Key macroeconomic variables such as the currency rate, interest rate, inflation, and gross domestic product are usually assumed to have an impact on an organization’s performance. These are external factors that influence how things work on a daily basis.
Macroeconomic factors have a great impact on manufacturing sector of Nigerian Economy and it affects the performance of a firms. Macroeconomic factors exist outside the company and not under the control of management; they include social, environmental, political conditions, suppliers, competitors, government regulations and policies (Adidu & Olanye, 2006) as cited in (Egbunike & Okerekeoti, 2018). Key economic factors include the Consumer Price Index (CPI), unemployment, gross domestic product (GDP), stock market index, inflation rate, exchange rate, corporate tax rate and interest rates and these factors (i.e. macro) can pose a positive or negative threat to the development and performance of manufacturing firms (Egbunike & Okerekeoti, 2018).

This was evidenced from the crises in Latin America, East Asia, Russia and the global financial crisis in 2007 (Issah &Antwi, 2017). And presently, the recession witnessed in Nigeria, which business analysts opined that led to the delisting of some companies, has brought to limelight the implications of macroeconomic factors on corporate performance (Zeitun et al., 2007).

For instance, the monetary policy of a country affects all sectors through the cost of debt and the availability of money/credit, which could affect a firm’s ability to access external sources of fund. Fiscal policies affect a firm’s after tax net cash flow, its cost of capital, and potentially the demand for its products, and survival (Zeitun et al., 2007) as cited in (Egbunike & Okerekeoti, 2018). Also, increases in the nominal interest rate and inflation rate intensify the aggregate rates of failure or default. In most developing countries, for instance Nigeria, macroeconomic factors, such as hyperinflation and increasing exchange rates, are some of the factors affecting the performance of manufacturing firms (Owolabi, 2017).

The vital role of manufacturing sector in the economic growth and development cannot be overemphasized. It is the engine growth of the economy (Libanio, 2006) as cited in (Essays, 2013). According to Adegbemi (2018), the Verdoorn’s (1949) and Kaldor’s (1975) laws however attest to the primal significance of the manufacturing sector to the economy of the developing countries. This position has been confirmed by Onakoya (2014), Szirmai (2009), Amakom (2012), and Arnold, Javorcik & Mattoo (2011) as cited in Adegbemi (2018). The basic inference is that increased labour productivity in manufacturing sector leads to rise in the growth of manufacturing output because of the effect of increased economies of larger production and technical progress.

We can define Macroeconomics as the economy in terms of the total amount of goods and services produced, total income earned the level of employment of productive resources, and the general behaviour of prices.

It is also the study of economics in terms of the whole systems, especially with reference to general levels of output and income and to the interrelations among sectors within the economy.

In the field of economics that studies the behaviour of the aggregate economy, Macroeconomics examines economy wide phenomena such as changes in Unemployment, National Income, Rate of Growth, Gross Domestic Product, Inflation and Price Levels.

In order to try to avoid major economics shocks, such as the great depression, governments make adjustments through policy changes which hope will succeed in stabilizing the economy.

Government believes that the successes of these adjustments are necessary to maintain stability and continue growth. This economic management is achieved through, two types of strategies monetary fiscal policy.

Macroeconomics policy refers to the instruments by which a government tries to regulate or modify the economic affairs of the count in keeping with certain objectives. In order words, it attempts to assess the behaviour of the economy as a whole and to seek ways in which it aggregate performance might be improved. These are achieved through certain instrument and objectives of macroeconomic policy.
Small scale industries are the most dependable source of growth and sustainers of the National economic development all over the world. The small scale industries are the major employers of labour than the major industries.

The fall scale sector has played a very important role in the socio­economic development of the country during the past 50 years. It has significantly contributed to the overall growth in team of the Gross Domestic Product (GDP), employment generation and exports, The performance of small scale sector, therefore, has a direct impact on the growth of the overall economy.

On realizing the importance of small scale industries, the organized private sector agitates for government promotion of the sector in order to reposition the nation’s economy.

Global efforts has been made by the Central Bank, Federal Ministry of Finance and other financial institutions for the need to promote the small scale Industry in Nigeria as a means of economic growth. But a lot of factors have been a barrier to the growing of the small scale industries in Nigeria.

According to Adegbemi (2018), similar fluctuating trends hold for the growth rates of the macroeconomic factors. There is a manifest challenge of the managing the constituents- macroeconomic factors (inflation rate, interest rate, unemployment rate, exchange rate) and the resultant Gross Domestic Product. The rate of interest rate for example, rose from in Q3 & Q4 from 12% to 15% coupled with an epileptic foreign exchange policy. This resulted from the avowed policy of the Nigerian fiscal authority to ‘spend our way’ out of economic recession by expansionary government expenditure. This further led to up trended inflationary throughout 2016 as evident increase consumer prices from 12.8% in March 2016 through 13.7 % in April and 17.6 % in September. Indeed the core inflation rate in Nigeria increased by 17.85% in January of 2017 over the correspondent period in 2016. As at August 2016, about 4.58 million were unemployed. In ratio terms, the figure rose from 12.1% in quarter 1, through 13.3% in quarter 2 and 14% in quarter 3. As at November 2016, the ratio stood at 17.8% foreign direct investments and portfolio investments dropped by -23.75% and -9.49% respectively. Industrial output which stood at -10.1 in the first quarter of 2016 rose to 0.1% in the second quarter only to crash to – 3.6% and -8.7% in the third and fourth quarters of 2016 respectively (Nigeria Industrial Production, 2007 to 2017.


1.2 Statement of the Problem

Financing, investment, and operational decisions are just a few examples of operational and strategic decisions that are regularly influenced by the macroeconomic environment Owolabi (2017). Internal and external factors impact a company’s profitability; the internal aspect focuses on the company’s ability to increase productivity and reduce expenses, whilst external factors include the exchange rate, GDP, the stat s of the economy, unemployment rate, government regulation, and so on. However, macroeconomic i dices such as the interest rate, gross domestic product, inflation rate, regulatory policies, and the like have a substantial impact on firm financial performance, which is comprehensible.) As a result, the purpose of this study is to examine the impact of macroeconomic policy on the growth and development of small scale industry in Nigeria.


1.3 Objectives of the Study

The primary aim of this study is examine the impact of macroeconomic policy on the growth and development of small scale industry in Nigeria. Specifically, this study seeks to:

  1. Determine whether exchange rate have a significant effect on return on assets of small scale industry in Nigeria.
  2. Determine whether interest rate have a significant effect on return on assets of small scale industry in Nigeria
  3. Determine whether inflation rate have a significant effect on return on assets of small scale industry in Nigeria.
  4. Determine whether external debt have a significant effect on return on assets of small scale industry in Nigeria.
  5. Determine whether trade openness have a significant effect on return on assets of small scale industry in Nigeria.

1.4 Research Question

  1. Does exchange rate have a significant effect on return on assets of small scale industry in Nigeria.
  2. Does interest rate have a significant effect on return on assets of small scale industry in Nigeria
  3. Does inflation rate have a significant effect on return on assets of small scale industry in Nigeria.
  4. Does external debt have a significant effect on return on assets of small scale industry in Nigeria.
  5. Does trade openness have a significant effect on return on assets of small scale industry in Nigeria.

1.5 Research Hypotheses

The following research null hypotheses will validate this study:

  • H01: Exchange rate does not have a significant effect on return on assets of small scale industry in Nigeria.
  • H02: Interest rate does not have a significant effect on return on assets of small scale industry in Nigeria
  • H03: Inflation rate does not have a significant effect on return on assets of small scale industry in Nigeria
  • H04: External debt does not have a significant effect on return on assets of small scale industry in Nigeria
  • H05: Trade openness does not have a significant effect on return on assets of small scale industry in Nigeria

1.6 Significance of the Study

The purpose of this study is to find out the problems facing the small scale industry in Nigeria, to enable the policy maker and government find the appropriate policy and scheme that will boast small scale industry in order to achieve the macroeconomic objectives.

The need for this study arose from the fact that the situation of small scale industries in Nigeria are not encouraging at all, in the sense that they are neglected and abandoned by the Nigeria government.

The reason for this study is also to examine to which the macroeconomic variables such as, Banking Policy, Monetary Policy, Lending Policy of both Commercial and Central Bank and also the performance of SMIES affect the growth and development of small scale industry.

In understanding this study, it is targeted that it will be to the utmost benefit of not only the small scale industries but to the whole economy, it will also help policy makers to formulate affective policies concerning small and medium scale industry in Nigeria. It is also anticipated that his research study Will provide a basis for further research and investigation..


1.7 Scope of the Study

Generally, this study is focused on examining the impact of macroeconomic policy on the growth and development of small scale industry in Nigeria. Specifically, it is focused on determining whether exchange rate have a significant effect on return on assets of small scale industry in Nigeria, determining whether interest rate have a significant effect on return on assets of small scale industry in Nigeria, determining whether inflation rate have a significant effect on return on assets of small scale industry in Nigeria, determining whether external debt have a significant effect on return on assets of small scale industry in Nigeria and determining whether trade openness have a significant effect on return on assets of small scale industry in Nigeria. The scope of the study covers the period of 2010-2020.


1.8 Limitations of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.


1.5 Definition of Terms

Macro-economic Variables:

Macroeconomic variables are indicators or main signposts signaling the current trends in the economy. Like all experts, the government, in order to do a good job of macro-managing the economy, must study, analyze, and understand the major variables that determine the current behavior of the macro-economy.

Small Scale Industries:

Small scale industries are industries in which manufacturing is done on small scale.


1.10 Organization of the Study

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

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

Chapter Five


Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on the impact of macroeconomic policy on the growth and development of small scale industry in Nigeria. The chapter consists of summary of the study, conclusions, and recommendations.


5.2 Summary of the Study

In this study, our focus was on the impact of macroeconomic policy on the growth and development of small scale industry in Nigeria. The study is was specifically set to determine whether exchange rate, interest rate, inflation rate, external debt, and trade openness have a significant effect on return on assets of small scale industry in Nigeria.

The panel data used in this study were obtained from documentaries of the CBN Statistical Bulletins, monthly journals, financial reviews as well as annual Reports and National Bureau of statistics (NBS). Major findings of the study revealed that;

  1. The exchange rate has a significant negative effect on the profit of manufacturing companies in Nigeria.
  2. The interest rate has a negative and insignificant effect on return on assets of manufacturing companies in Nigeria.
  3. The inflation rate has a significant positive effect on return on assets of small scale industry in Nigeria.
  4. External debt has a negative and insignificant effect on return on assets of small scale industry in Nigeria.
  5. Trade openness has a negative and insignificant effect on return on assets of small scale industry in Nigeria.

5.3 Conclusions

Having explored the nexus between key profit performance indicators and some selected macroeconomic variables in Nigeria with the help of fully modified ordinary least squares panel multiple regression analysis techniques, the big lesson from this study is that macroeconomic indices play significant roles in the profit/financial position of small scale industry in Nigeria.


5.4 Recommendation

With respect to the findings and the aim of this study, the researchers therefore recommend that;

  1. The exchange rate should be monitored while economic policy measures aimed at controlling the exchange rate in Nigeria should be established.
  2. Bank lending rate should be regulated and set to a rate favourable to the growth of manufacturing companies in Nigeria.
  3. Efforts to maintain single-digit inflation should be intensified since it is favourable to the growth of manufacturing firms and the overall growth of the Nigerian economy.
  4. The federal government of Nigeria should work towards reducing their level of borrowing from foreign countries and international bodies since it negatively affects manufacturing firms’ performance in Nigeria.
  5. The volume of trade openness should be minimized to enhance the productivity of small scale industry in Nigeria.

Get Complete Project Material

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 the Account Below

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)

Step Two Purchase

Send the Following Details on WhatsApp ( 08143831497) After Payment

  1. Payment Details

  2. TOPIC: The Impact Of Macroeconomic Policy On The Growth And Development Of Small Scale Industry In Nigeria

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.