The Impact Of Industrial Sector On Economic Growth Of Nigeria

Project and Seminar Material for Economics

Abstract

The industrial sector remains a strong sector of any economy, be it developed or developing. The developed countries are noted for their high industrial performance. The effect of the industrial activities on the economy of underdeveloped or developing nation si still under contention. It’s a fact that the economy will not grow without its industrial activities. These activities include: agriculture, manufacturing, mining and mineral processing and export opportunities for manufacturers. This study specifically analyze the impact of industrialization to economic development. It postulate that inspite of the effort of Nigerian government, Nigeria still show a stunted growth because of some constraints. In order to redress these problems, it was suggested that government should ensure policy consistency by allowing fiscal and monetary policies to work themselves out before a counter policy is introduced, also, industrial policy must be designed, reviewed and implemented in such a way that it will facilitate and not discourage investment in the sector. Based on the above, the prosperity of the nation to a large extent dependents on the development and sustenance of the industrial sector.

Chapter One

Introduction

1.1 Background of the Study

Industrialization is regarded as a central object of economic policy in most developing economies. They see industrialization and agriculture as an integral part of development and structural change. Some economic analyst are of the view that industries play a vital role in the economic growth and development of any country. In this research work, effort is made to analyze the impact of the industrial sector to the economic development of Nigeria.

Generally, the industrial revolution which took place in Britain between the late 18th and 19th centuries has gotten much to do with the present set back on industrial development led to the factory process that metamorphosised into industrial production. Thus, history recorded that the industrial sector performance in Nigeria’s economic growth is as old as the nation itself. It dates back to the amalgamation of the southern parts of the country in 1914 to for the geographical land mass called Nigeria. By a representative of the colonial administration of Britain Lord, Fr. Fredrick Lugard.

As soon as independence was over, the government of Nigeria embarked on import substitution as an industrial strategy in order to reverse the problem of deficit balance of trade and fasten industrialization among other reasons.

Right from the first national development plan (1962-1968) to the fourth national development plan (1981-1985) rapid industrialization received priority in Nigeria’s development objectives. The government sector for instance, the allocation of 16.2 percent of the budget plan to the manufacturing sector during the third national development plan (1975-1980) was the highest. The industrial policies and strategies of development were adoption of import substitution strategy, expansion of indigenous equity participation in foreign owned enterprises, provision of integration, linkages and diversification of industrial increased domestic resources content of industrial product and provision of financial and manpower resources to promote research and adoption of technology to encourage the small and medium scale industries and public sector participation and control of some large industrial products such as iron.

To withstand the rising problems of the sector and economy in general, Nigeria embarked on structural adjustment programme (SAP) in 1986 on the assumption that structural adjustment programme (SAP) would corrects these problems. It has important implication on both the government and industry. It has brought government re-appraised of the regulatory environment, the structure of protection for local industries and the package of incentives available. For the private sector and industrialist in particular, SAP presented a new challenge which reported a more serious effort to control costs, increase production efficiency and remain competitive.

In the spirit of SAP, the second tier foreign exchange market (SFEM) was introduced in 1987 to allow market forces determine the foreign exchange rate, remove price distortions and thereby effect a more efficient allocation of resources.

Because of inability of the existing policies to live up to expectation, government therefore in 1988 adopted a new approach to industrial development, which gave prominence to the role of the private sector. To give effect to this management approach, government, in August 1988, established the national committee on industrial development (NCID). The strategic management of industrial development (SMID) or industrial master plan (IMP) is predicted on the need to organize a network of sectors (referred to as strategic consultative groups) around on industrial activities with the aim of having a comprehensive and perception view of the investment problems in particular line of industrial activity. The (IMP) seeks to minimize the problems of policy and programme consistency in the development of the nations industries.

A number of fiscal and monetary policies together with institutional reform measures have been undertaken by the Olusegun Obasanjo administration since transition in May 1999. With these measures, it is envisioned that Nigeria will be transformed into a major industrialized nation and an economic power.

1.2 Statement of the Problem

The industrial sector is known to be the strength of the value added processes in many economies. Nigeria is wanting to industrialize must encounter some problems which are militating against industrialization for the purpose of this study, it is pertinent to survey those problems which are forming obstacles to industrialization.

Industrial sector encountered the problem of low price elasticity of export and lack of comparative advantage. This means that Nigeria share of foreign exchange market cannot appreciate despite the numerous incentives granted to the industrial sector.

The absence of an indigenous entrepreneurship class couple with other problems of multinational corporation affect the structure and influence the nature of utilization of scientific and technological labour for national development.

Realizing that industrialization can indeed have some adverse effect on the economic growth and development of the country, one will logically ask low effective are the industrialization policies in Nigeria?

1.3 Objectives of the Study

It has been observed that most industries in Nigeria have not realized their economic development goal even with the existence of manufacturing industries within the economy. Therefore this work researches the following objectives.

To determine the role of manufacturing industry in the economic development of Nigerian economy.
To examine ways in which industrial sector in Nigeria can be made to play a better role towards high productivity for economic growth of Nigeria.

1.4 Hypothesis of the Study

The following hypotheses are tested on this study:

H0: The industrial sector contribution has no significant impact to economic development of Nigeria.
Hi: The industrial sector contribution has significant impact to the economic development of Nigeria.

1.5 Significance of the Study

The significant of this study lies in the fact that it will expose the extent to which industrialization has contributed to economic development of Nigeria. It will highlight some obstacles hindering increase in industrialization and industrial output in Nigeria.

This work will be relevant to entrepreneurs and government by directing them on the easiest means of embarking on industrial development plan. The relevance of this work also lies in the fact that it adds to the already existing literature on industrial output.

Furthermore, this research work will assist students of economics, government and real potential industrialist, investors and other related coursed. Other researchers will see this work veritable material in their field of study .

Finally, since no knowledge is a waste, readers of this work will find it interesting to know that high industrialization is the shortest route to economic development.

1.6 Scope of the Study

This research work deals on the impact of industrialization on Nigeria’s economic development. The date used is a secondary data, which was obtained from the publication of the central bank of Nigeria statistical bulletin and the amial report of accounts. The analytical tools employed on this research include t-test and regression analysis.

1.7 Limitations of the Study

A study of this nature cannot be done without some problems and as such it was constrained by many factors namely:

Time:

While embarking on this detailed research work, the researcher was having lectures, preparing for examinations, engaging in such activities and domestic work as well. So time was not enough for the researcher to perfect the work.

Finance:

Financial inadequacy was the major limitation of this work. The researcher was financially dependent as a student. The need for materials, trips and logistics needed for this research was not adequately provided.

Data:

The controversial nature of the Nigeria data delayed this work. It took the researcher a lot of time before the harmonization of the data used in this research work.

Chapter Five

Summary of Findings, Conclusion and Recommendation

5.1 Introduction

In the previous chapter, the regression results were analysed and this chapter is for the upshot of the study, conclusion and giving the necessary recommendations.

5.2 Summary of Findings

While carrying out this study, Augmented Dickey Fuller (ADF) unit root test was used to discover if all the variables are stationary, and this serves as a prerequisite for the Johansen Co-integration test. The result of the co-integration test shows that there exists a long run equilibrium relationship between real GDP (RGDP), Index of industrial production (IMP), Gross Fixed Capital Formation (GFCF), Labour Force (LF), Inflation rate (INFL), and Exchange rate (EXRT) within the period under review 1981 – 2013. The Newey-west method was used for Ordinary Least Square (OLS) in order to hedge against the consequences of autocorrelation and heteroskedasticity on the standard errors and t-values.

The Ordinary Least Square results, shows that among the five regressors just three (IMP, LF, EXRT) have significant influence on real Gross Domestic production (proxy for economic growth), while the remaining two (GFCF, INFL) is non-significant meaning that they do not account for significant changes in the real GDP within the period under review. Both the economic, statistics and econometrics criteria were carried out.

5.3 Conclusion

The industrial production has a positive and significant effect on Nigeria’s economic growth but its effect is not high to spur increased economic growth in the country. This study has proven that increased industrail production is a necessary requirement for economic growth, which will as well spur growth and development can be impeded, if the industrial sector is neglected. According to Kaldor (1966), developing countries should engage more in the manufacturing sector than the agricultural sector which will lessen their import of finished products and compete in the international market by increasing their export and eventually this will induce economic growth. This result agree with similar studies by Inakwu (2013), Obasan et al (2010), and Elhiraika (2008) in 36 African countries (1980-2007) including Nigeria. This result also corresponds with the result of analysis carried out in Latin America, Iran, Ethiopia, Kenya (see empirical literature). These results showsindustrial output contributes significantly to economic growth and that increased economic growth is more in countries that have large manufacturing sector.

5.4 Recommendations

The study recommends the following measures in order to improve the productivity of the industrial sector.

Provision of Investment Subsidy

Though, an increase in government spending and income tax cut increases interest rate and reduces investment spending. But government can sometimes subsidize investment through an investment tax credit, whereby a firm’s tax payment is reduced when it increases its investment spending. The government should also provide the needed enabling environment to stimulate and foster the survival and growth of the manufacturing sector. The government should also ensure that there is availability of medium- and long-term loans to the private sector. This will enable the private sector to invest more by building new factories, which bring about an increase in employment, increase in productivity and subsequently economic growth.

Infrastructural Development

Firstly, Nigerian government should ameliorate the power sector in order to reduce cost of production in the country. Most companies in Nigeria spend a lot on powering their generators and this has most of the investors and even some multi-national companies to move their companies to neighbouring countries like Ghana, because of unstable power supply. We know that all entrepreneurs are profit maximizers and wouldn’t like to be in a country where they spend more than they get. Though, the present government is trying their best in terms of power supply, even with the privatization of the distribution part but that is not enough to attract investment and increase manufacturing productivity, constant power supply is still needed in the country.

Secondly, Nigerian government should ensure that good road networks are constructed for smooth movement of raw materials and finished product within the country.

Thirdly, the government should some acquire modern machinery, equipment and appropriate technology, so as to improve the quality of the labour force and the environment.

Adequate Security

Security is one of the major challenges of Nigeria, like the emergence of Boko Haram and incessant kidnapping. Most investors in the northern part of the country are scared of investing into any productive project in that area because of terrorism. Also, kidnapping which is more in the southern part is affecting investors around that area.

This reduces the level of investment and productivity in the country, because no country can strives under uncertainty and violence. The government should take drastic measures to eradicate such problem, so as to attract more investment into the productive sector of the country.

Increase Consumption Spending

Government should pay the workers their salaries in order to increase both consumption and investment spending in the country. when workers are been owed by the government of a country, the level of consumption and investment spending in that country will fall, leading to a decrease in Gross Domestic Product and seriously if the government of that country continues like that, the country will move into recession and possibly depression. The government should endeavour to pay the workers their salary and on time, as well as increasing it when necessary. This is no exception for the private sector.

Application Of Monetary-Fiscal Policy Mix

Increase in the money stock (expansionary monetary policy) will increase investment spending by reducing the interest rate and this will increase the inflation rate. Conversely, increase in tax (expansionary fiscal policy) will reduce investment spending by increasing the rate of interest but reduces inflation. In order to apply the efficient policy that will increase the productivity of the manufacturing sector, both the central bank and ministry of finance should be able to create monetary and fiscal policies. Policy mix will help the country to fight inflation due to expansionary monetary policy and reduce high rate of interest caused by expansionary fiscal policy. There is need for appropriate use of both monetary and fiscal policy in order to maintain a balanced economy.