Sustainable Industrial Growth And Economic Development In Nigeria (1990 -2015)

Project and Seminar Material for Economics

Sustainable Industrial Growth And Economic Development In Nigeria (1990 -2015)


Abstract


The study was anchored on the general notion that sustainable industrial growth is very vital to economic growth and development. Nigeria has transited from different industrial phases and development stages without meaningful contribution to growth and development in Nigeria. The contributions of the sector, growth and employment is generally very low. It is a fact that the sustainable transformation and industrial growth are inextricably intertwined. Investigations by scholars have shown that very clearly that higher productivity is a sure means boosting sustainable economic growth and raising the standard of living in Nigeria. Formulating effective scheme have undoubtedly many economics to pulled out of global recession and set on course of sustainable growth.

According to statistics recently the industrial sector of the economy which is made of crude petroleum and natural gas, solid minerals and manufacturing, contributed an average of 40% to the national gross and domestic product between 2007 and 2011. Manufacturing which should ordinarily form the birth rock of industrialization contributed less to the while crude oil and gas contributed 95%. The above is a glaring indication that the industrial sector of Nigeria is still in state of gross underdevelopment despite various reforms being implemented by the Federal Government. Although infrastructural problem must be acknowledge as a big challenge to industrial growth I believes there are more critical issues stifling the sustainable growth and development in the industrial sector. However the situational in the industrial sector is not all together gloomy.

Specifically, Manufacturers Association of Nigeria (Man) reported that most of the variable that measured performance of the real sector have on the upward swing. Albeit marginal capacity utilization of the sector is now about 49% compared to the 47.5% average in 2011, indicating that more companies in the country are putting more resources to sued in there factoring than they did in previous years. The value of industrial production has also increase, although marginal from N130 billion to almost N350 billion at the end 2012.


Chapter One


Introduction

1.1 Background to the Study

The structure of the Nigerian economy is typically of an underdeveloped country. Over half of the Gross Domestic Product (GDP) is accounted for by the sector with agriculture continuing to play an important role. The oil and gas sector in particular continues to be a major driver of the economy, accounting for over 95% of export earnings and about 85% of government revenue between 2011 and 2012. The sector contributed 14.81 and 13.8% to GDP in 2011 and 2012, respectively. It also recorded an increase in reserves from 37.119 billion barrels (bbs) in 2012 from 36.042 bbs in 2011 (Chete et al, 2013).

In contrast, the industrial sector in Nigeria (comprising manufacturing, mining and utilities) accounts for a tiny portion of economic activity (6%) while the manufacturing sector contributed only 4% to GDP in 2011. This is despite policy efforts, over the last 5 decades, and, in particular, more recently, that have attempted to facilitate the industrialization process. Despite substantial adjustments during the past years, Nigeria’s industrial policy adopted since independence in 1960 was dominated by goals and instruments of the 1970s. The policy has been one emphasizing Import Substitution (IS) strategy, which was necessary and inevitable for Nigeria having regard to her colonial experience in the area of economics and trade. In the 80s, it was felt that the strategy ought to have advanced to the stage of import displacement; that is producing locally made goods which are different from at least similar to former inputs, but which are based on locally available inputs and technology and on real needs (as distinct from imported consumption patterns) of the economy. Such a strategy of import displacement was meant to significantly replace the erstwhile strategy of simple import substitution, which involved the importation of inputs for the local production of goods identical with the former exports.

An import displacement strategy was considered to be a most effective avenue for significantly enhancing local value added, stimulating the development of home grown and modified of adapted technology and minimizing the offshore cost of manufacturing. The government also agreed that import substitution and displacement ought to be complemented by the stimulation of export oriented industrial enterprise (Imevbore, 2012). Put concretely, one philosophy, which was utilized with the hope to promote economic development in the 1970s, was the Indigenization Decree of 1972 and 1977.

The idea behind the indigenization decree was to give Nigerian’s greater opportunities compared to preceding years to participate in the productive sectors of the economy. The decrees sought also to limit the sections of the economy in which foreign companies could operate. The overall aim was to push foreign capital into higher technology areas thereby creating opportunities for Nigerian in other areas. The indigenization policy was only partly successful in that, it did not shift control to Nigerians and it reduced the extent of Foreign Direct Investment (FDI), which came into the country (Dayo, 1999).

Furthermore, in 1986, a technology policy formulated to complement the industrial policy whose major strategy was import substitution. The technology policy relied in transfer of foreign technology as well as endogenous technology development as vehicles for achieving the nation’s industrial goal. These policies gave rise to the promotion of large and medium scale light consumer goods industries, through Foreign Direct Investment (FDI) and joint ventures; large scale public core projects in the area of steel, cement, pulp and paper, fertilizer, petrochemicals, sugar, machine, food and the likes using the same mechanism for private small and medium enterprises and employing considerable labour. Conspicuously, absent from the Nigerian industrial landscape were the new generation of SMEs with relatively high technology intensity called New Technology Based Firms (NTBFs). A great deal of major technological innovations now and in the future are expected from this “new entrepreneurial technology based small firms” which had more impressive growth in the United States, Germany and United Kingdom (Ajakaiye&Akinbinu, 2000).

In 1989, the trade and financial liberalization policy was enacted. A key aim was to stimulate competition among domestic firms and between domestic import competing firms and foreign firms with the objective of promoting efficiency. The aim was to achieve this through a reduction in both tariff and non-tariff barriers, scrapping commodity-marketing boards and marketing boards and marketing determination of the exchange rate as well as the degradation of interest rate as well as the financial efficiency and industrial productivity. The National Economic Reconstruction Fund (NERFUND) was set up in the same year as a competent to industrial policy. The objective of the industrial policy was to reverse some of the provisions of the Nigerian indigenization policy, and open up the economy for foreign investors. NERFUND sought to address the medium and long term financial constraints experienced by small and medium scale entrepreneurs, provide the required financial resources, to participate merchant and commercial banks to lend to small and medium scale firms and provide naira or foreign denominated loans to participating firms for a period of five to ten years with a grace period to one to three years (Chete et al, 2011).

Subsequently, in 1990, the need to link the science, engineering and technology sectors to fit within industrial and economic development endeavors became a key issue among the science and technology community in Nigeria. As would be expected, the undue pampering of the manufacturing sector in the import substitution era through liberal and anti-competitive policies in the form of low interest rates, low wages, tariffs on imported inputs, an overvalued exchange rate and high tariffs on imported substitutes; led to the sector’s inability to evolve a consistentgrowth dynamic of chart an autonomous growth trajectory in such a way as to rival the industrialization rate of some other developing countries. The science and technology policy document was consequently revised in 1992 and incorporated the brand objective of vigorously pursuing a science and Technology infrastructure development programme targeted at accelerating the emergence of endogenous capacity.

The role of science and technology and it’s translation to ‘innovation’ as an engine of development started to feature prominently in the economic reform agenda between 1990 and 2007 especially within the rubric of the National Economic Empowerment and Development strategy(NEEDS). The NEEDS frame word-identified science, technology and Innovation as a crosscutting issue that should be promoted in order to achieve economic development objectives (NPC, 2007). Similarly, the current economic policy blueprint- Nigeria vision 20:2020 embrace the elements of science, technology and innovation aimed at addressing challenges in critical areas such as biotechnology, nanotechnology, institutional linkages, capacity building, renewable energy, venture capital, space research, small – and medium –scale industry targeted research, knowledge- intensive new and advanced materials, science, technology and innovation (STI) information management, information and communication technology, intellectual property rights, traditional medicine and indigenous knowledge.

Besides, the bank of industry (BOI) established in 2000 was introduced as a development institution to accelerate industrial development. Through the provision of long-term loans, equity finances and technical assistance industrial enterprises. The bank combined the following institutions; the Nigerian Bank for commerce and industry, industrial and insurance Brokers, and the leasing company of Nigeria limited. The objectives of this bank included providing long-term loans, assisting in employment generation and promoting industrial dispersal of indigenous entrepreneurship. As a complement to the BOI, Small and Medium Industries equity Investment Scheme (SMIEIS) was also set up in 2000. The objective was to assists in the co-ordination of the scheme with a guideline that 60% of the SMEs fund should go to the core real sector (Chete et al,).

Therefore, it is a respect that this study seeks to explore the correlation between sustainable industrial growth and economic development in Nigeria and the necessary measures that will be sought to promote industrial growth as a way of consolidating economic growth in Nigeria.


1.2 Statement of the Research Problem

Before the advent of oil fortunes in Nigeria, the industrial sector was the backbone of the Nigerian Economy. The industrial sector is an important sector in all spheres of development. It can provide massive employment, generate revenue and foreign exchange for the country from its inception immediately after independence, the Nigerian industrial performance measured in terms of capacity Utilization was highly impressive. This has however declined drastically in the last few decades owing to the discovery of oil and the consequent neglect of the sector by successive government policies.

This drastic decline has brought many economic challenges to the Nigerian economy in terms of the contribution of the industrial sector to national income and output, employment generation, the slow take-off of the country into industrial giant. Thus, the question posed by this study is; why has the Nigerian economy suddenly gone down in terms of industrialization and industrial performance? In addition, what is responsible for this woeful performance and the industrial performance? Why have we not sustained the tempo of industrial growth as it was in some decades ago just before the discovery of crude oil in Nigeria, and to contribute more than just 13.8% to the Nigerian economy as recorded in 2012 and to the highest contribution of 21.3% in 1963.


1.3 Research Questions

With its natural resources, which have engineered industrial growth, and prosperity in other nations of the world, Nigeria is still ravaged by poverty, diseases, and a low standard of living. Besides the primary product dependency, the economy is faced with severe and unique challenges such as skills scarcity, weak infrastructures, and structurally shallow institutions. Other challenges include bad governance, corruption, lack of political will and poor business environment. As noted in the Lagos Plan of Action for the Economic Development of Africa, 1980 – 2010, the industrialization of Nigeria in particular constitutes a fundamental option in the total range of activities aimed at freeing Nigeria from underdevelopment and economic dependency. Years later however, Nigeria is yet to be industrialized, poverty is still prevalent, and level of manufactured consumable imports is on the increase while most exports are raw materials with little or no value added.

To this end, this study attempts to address the following questions:

  1. What is the linkage between industrial growth and economic development in Nigeria?
  2. What is the structure and trend of industries in Nigeria?
  3. What actors influence the level of industrial growth in Nigeria?
  4. What framework should Nigeria adopt to attain the needed pace of industrial growth in a short time?

1.4 Research Objectives

The main objective of the study is to evaluate sustainable industrial growth in Nigeria. The study seeks to achieve the following specific objectives.

  1. To ascertain the contribution of industrial growth on sustainable economic development in Nigeria
  2. To examine the challenges facing industrial growth and sustainable economic development in Nigeria
  3. To explore policy strategies adopted in order to accelerate industrial growth in the Nigerian economy
  4. To know whether industrialization enhances sustainable economic development in Nigeria

1.5 Methodology of the Study and Source of Data

This study relies on secondary sources of data for validity and reliability. Information gathered from available textbooks, journals, newspapers, magazines, internet, and unpublished research materials forms the fulcrum of the secondary sources of data.

In doing this, the multiple linear regression analysis will be employed to examine the relationship between industrial output, industrial capacity utilization, rate of industrialization and inflation rate (which are the independent variables) on HDI (which is the dependent variable) between 1990 – 2015. This is to enable the researcher analyze and interpret the necessary data in an attempt of arriving at a logical conclusion.

The study employs the following model in studying the relationship between economic growth/development and industrial growth in Nigeria.

The research methodology will be depicted in using a model:

HDI = β0 + β1IO + β2ICU + β3IR + β4IFR+ U

Where HDI = Human Development Index (depende3nt variable)

  • IO = Industrial output (independent variable)
  • ICU= Industrial Capacity Utilization (independent variable)
  • IR = Rate of Industrialization (independent variable)
  • IFR=Inflation Rate (independent variable)
  • U= error term

β0, β1,β2, β3 and β4 are intercept and slope of the parameters of the respective variables.

The apriori assumptions of the model are:

The expected sign of the parameter in relation to the dependent variable is:

β0, β1,β2, β3,β4.

We therefore expect a positive and a negative relationship between the dependent and independent variables that is to say, as industrial output and industrial capacity utilization rises significantly and as rate of industrialization increase, there should be a significant decrease in the level of inflation rate in Nigeria, as such, there will be an increase in the level of HDI. On the other hand, if industrial output and industrial capacity utilization decreases and as rate of industrialization reduces, and then we expect a negative effect on the level of inflation rate, as such, there will be a decrease in the level of HDI.


1.6 Significance of the Study

The relevance of this research work arises from the need to examine the role of industrial towards sustainable economic development in Nigeria. Therefore, the study will be significant in the following ways:

  1. It will enable the government who is a major stakeholder in the growth and development al efforts of the country to make relevant policies and policy readjustment in order to enhance industrial activities
  2. The study will equally serve as a source of information to policy makers and other stakeholders in the formulation and implementation of policies and programmes, especially economic policies.
  3. It will be relevant to investors/industrialists in their operation and investment decisions.
  4. As a relevant document, the study will be useful to other researchers who might be taking a similar study
  5. Finally, the study will enrich library material on the role of industrialization on sustainable economic development in Nigeria, especially among scholars and students in relevant fields of study.

1.7 Hypothesis of the Study

For the purpose of this study, the following hypothesis are formulated and tested to serve as a guide to the researcher.

  • H0: Industrial growth has not contributed significantly to economic development in Nigeria
  • H1: Industrial growth has contributed significantly to economic development in Nigeria

1.8 Scope and Limitation of the Study

The study focuses on the impact of industrialization as sustainable development in Nigeria. It revolves around the role of industrialization on sustainable economic development in Nigeria, the policies and strategies being adopted by government and other stakeholders to improve the industrial sector thereby enhancing economic development in Nigeria between 1984 – 2014.

The limitations imposed upon the researcher in the course of this study are time and financial constraints. The limited timer involved in carrying out a research of this nature is quite hectic and difficult. Whereas, high cost of transportation and reference material makes it difficult for an in-depth investigation into the subject matter.

More so, there is general paucity of information and relevant literature on industrialization and sustainable economic development in Nigeria.


1.9 Outline of the Study

In this research work, Chapter one discusses the Introduction of the research proper while chapter two talks about Literature Review and Theoretical Framework. Chapter three gives details as regards the Research Work in details (Industrialization and Sustainable Economic Development in Nigeria). The remaining two chapters i.e. four and five focuses on Data Presentation and Analysis, and Summary, Recommendation, and Conclusion respectively.


Chapter Five


Summary, Recommendations and Conclusion

5.1 Summary

This study is premised on observation that over the years, policies are made to improve the country’s industrial growth yet; the outcome is not commensurate with the resources committed. The study analyzed sustainable industrial growth with the main objective of linking the growth in the industrial sector with the overall economic growth.

To achieve the objective therefore, the researcher built up a mathematical and econometric model involving five variables (HDI, industrial output, industrial capacity utilization, rate of industrialization and inflation rate), using OLS technique to arrive at a logical conclusion. The analysis carried out showed that there is a strong positive correlation between the dependent variable (HDI) and the independent variables. This means that the contribution of the industrial sector to sustainable economic development in Nigeria cannot be over emphasized, but the negative value of the intercept shows that this sector has been neglected for the oil sector. The implication of the neglect of the Nigerian industrial sector cannot be over emphasized due to the huge revenue, income and its contribution to national GDP accrued to Nigeria – besides the unrealistic developmental industrial sector policies and programmes, inadequate basic infrastructures that increase the cost of production and borne by the consumers, export mind-oriented farmers with little or no value addition to the products and income for them.
Hence, when the industrial sector is developed and more attention and fund is invested in the sector, in the longrun, it will have the potential to boost the economy and provide massive employment in Nigeria as a whole. In other words, development will come.


5.2 Conclusion

From the result of the findings, it can be concluded that industrialization is indeed an engine for sustainable economic development in Nigeria, all things being equal. Industrialization have always been perceived as an engine of growth in an economy because it help propel other sectors of the economy to growth as it was in the case of the industrial revolution that occurred in England and a host of other economies.

In view of this pivotal role performed by the industrial sector in the development of the economy, the government has to give this sector of the economy the required attention needed for its growth and development. In terms of the challenges, the researcher concluded that lack of capital or inadequate finance which is worsen by inadequate access to loan schemes couple with the issue of collateral and high interest rate on loan from financial institutions and, lack of managerial competence and the zeal and will to take risks that is venturing into any form of industry, (large or small), lack of raw materials, lack of qualified manpower among others are the major issues that serve as disincentives to industrialization. These tend to deteriorate our problem of underdevelopment in Nigeria.


5.3 Recommendations

On the basis of this research work carried out on industrialization as a tool for Nigeria’s sustainable economic development, the following recommendations were made:

  1. Years passed, industrial capacity utilization has been declining due to the discovery of oil, making the economy to be a mono-cultural economy. The government needs to diversify the economy by using income from the petroleum sector to boost industrialization in Nigeria.
  2. Nigeria as a nation has adopted several industrial policies, but none has been used to achieve its goal to become a self-sustaining nation. Previous industrial policies should be looked into and with the possible option of over-hauling such policies, the reason for the failures of these policies should be dealt with to avoid further occurrences in a bid to curb over dependence and on the petroleum sector and a mono-cultural Nigeria economy
  3. Looking at the Nigerian economy as a whole, the non- oil sector has been neglected, making it impossible for industrialization to strive. Vigorously implement presidential initiatives to increase industrial output and to booster non-oil exports.
  4. Most Nigerians live from hand to mouth, with little or no fund left for investment. The possible introduction of entrepreneurial course in secondary and tertiary institutions to assist in the enhancement of small and medium scale industries in the area of human capital and development in Nigeria, and the promotion of Nigerian-made products in a bid to compete favorably with its foreign counter parts.

If these recommendations are put in practice, it will go a long way in providing succor and development to the Nigerian industrial sector.


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