IMPACT OF LOCAL MANUFACTURER IN THE ECONOMIC DEVELOPMENT OF NIGERIA
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CHAPTER ONE
INTRODUCTION
1.1Â Â Â Background to the Study
Historically, no country of the world ever experience 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 accelerates the pace of structural transformation and diversification of economy, 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. Industrialisation 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). Local manufacturing is the core mover of industrialization and it plays a key role in the global economy. The emergence of modern local manufacturing had led to the dramatic changes in the structure of the world economy and to sustained increases in the growth of labour productivity and economic welfare (Maddison, 2001, &2007). Local 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 local manufacturing industry, and nearly half of household consumption relies on goods from industrial processes. The demand for local manufactured goods continues to rise as people around the world enter the global consumer class. The local manufacturing sector currently contributes 17 percent of the world’s US$ 70 trillion economy, and accounts for 70 percent of global trade (National Industrial Revolution Plan, 2014). Productivity is higher in the local manufacturing sector than in the agricultural sector and the transfer of resources from agriculture to local manufacturing provides a structural change bonus (Szirmai, 2009). Research shows that as economies mature, the role of local manufacturing evolves and its impact on the economy changes. Poor countries start of by employing 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 services 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). The development of some Asian countries as from the second half of the 20th century was anchored on a virile local manufacturing sector. China is currently the second largest economy in the world and they are also the local manufacturing factory of the whole world, which has significantly improved the standards of living of her people in the last three decades.
In the light of the foregoing, one can infer the importance of the local manufacturing sector, as it serves as prime mover or main engine of economic growth and development. The Nigeria’s local manufacturing landscape is indeed very broad and it is a country that is blessed with both natural and human resource. However, not all sectors have reached the sufficient level of scale to have a significant effect on national economic activity. Although, Nigeria’s Local manufacturing sector produced range of goods such as milled grains, vegetable oil, meat products, dairy products, sugar refined, soft drinks, beer, cigarettes, textiles, footwear, wood, paper products, soap, paint, pharmaceutical goods, ceramics, chemical products, tyres, tubes, plastics, cement, glass, bricks, tiles, metal goods, agricultural machinery, household electrical appliances, radios, motor vehicles, and jewellery and consumer goods such as soft drinks, cement, paints, soap and detergents etcetera (Library of congress country studies; CIA world factbook, 1991).  But over many years, the Nigeria’s local manufacturing sector has failed to undergo the critical structural transformation necessary for it to play a leading role in economic growth and development. The local manufacturing sector is obviously not yet robust enough to be tagged glowingly as Nigeria’s engine of growth and the technological base for local manufacturing is lacking in many sectors. It is untrue that food, cement, and textile sub-sector are all doing remarkably well, although the cement local manufacturing got a significant boost courtesy to Aliko Dangote’s heavy investment in the sub-sector recently, and as well the textile industry in reality, is still gasping, with most of the factories across the country 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).
In recent years, Nigeria’s local manufacturing sector has been operating under very unfavourable environments and contributes little to both the nation’s Gross Domestic Product and foreign exchange earnings, and also the share of employment and government revenue generated have been drastically low.
Figure 1.2 Local manufacturing sector’s contribution to GDP (%) from 1981 – 2013
Source: Anachusi (2015):Â Data from CBN statistical bulletin
Nigeria’s limited local manufacturing sector is striking evident when considering trade flows. Regrettably today, the local manufacturing sector contributes just little to export revenue but accounts more for imports which has caused the country to be used as a dumping ground for all sorts of imported goods from the foreign industrial countries and the Asian tigers (Aluko, Akinola and Fatokun, 2004). And many firms had closed down due to lack of patronage of their products both in Nigeria and outside the country. The country’s trade balance on local manufactured items is therefore causing a severe drag on Nigeria’s balance of payments (National Revolution Plan, 2014). Oil overwhelmingly dominates the nation’s trade at over 90 percent of total exports but drives a very small portion of other industrial activities including refineries (CBN Statistical Bulletin, 2013). However, oil continues to be the mainstay of the economy, but recently uncertainties have increased on the future direction of the global upstream oil industry due to discoveries of large hydrocarbon all over the world which has caused the oil price to dwindle (National Revolution Plan, 2014).
To achieve all these goals, the Nigeria government starting from 1950s before the country got her independence adopted several monetary and fiscal policies together with institutional reform measures which were undertaken to attract local manufacturing growth but a review of the development plans reveals that the same issues that haunt Nigeria’s local manufacturing sector has lingered on for decades. Nigeria being a country that is driven by Vision 20:2020 (To be among the twenty biggest economies of the world in the year 2020), introduced five year plan in 2014 which is called National Industrial revolution Plan (NIRP) with the goal of building Nigeria’s competitive advantage, broadening the scope of industry, and accelerating expansion of the local manufacturing sector. Therefore there is a need for extensive survey research considering the importance of local manufacturing and the recent happenings in the country like the exchange rate volatility, the dwindling oil price (which is the main source of Nigeria’s revenue), increase in interest rate, the failure of the previous industrial policies and the change in government. The research is inspired beyond doubt to explore the effect of the local manufacturing sector on economic growth in Nigeria
1.2Â Â Â Statement of the Research Problem
The inability of Nigeria to stimulate greater investment in local manufacturing despite her substantial endowment in natural resources was mainly the result of lack of coherent and sustained strategies of economic transformation. The local manufacturing sector in Nigeria is in a weak state and its contribution to the country’s economic growth is abysmally low. Terrorism has caused many multi-national local manufacturing industries to move to the neighbouring countries and most small enterprises have closed down, while rationalisation and staff layoffs are being experienced in many medium and large-scale establishment. As depicted in the UNIDO survey, 30% of firms have closed down; only 10% are operating at a sustainable level (UNIDO, 2008).
There have been considerable studies that are carried on the impact of local manufacturing sector on economic growth where scholars used several variables of economy as a units of analysis (see Adugna, 2014; Rioba, 2014; Inakwu, 2013; Obamuyi, Edun, Kayode, 2012; Szirmai and Verspagen, 2011; Awad, 2010; Elhiraika, 2008; Mahdavi and Fatemi, 2007; Libanio, 2006). Although, as revealed by Adugna (2014), Rioba (2014), Inakwu (2013), Szirmai et al (2011), Elhiraika (2008), Mahdavi et al (2007), and Libanio (2006) respectively that local manufacturing has a positive and significant impact on economic growth but only Inakwu (2013) explored the Nigeria’s case. Obamuyi et al (2012) posit that the relationship between local manufacturing and economic growth cannot be establish during the period of the study. The higher growth of the local manufacturing sector can have multiple effect on the national economy (Adugna, 2014). Based on the findings of Awad (2010), Local manufacturing has a significant impact on economic growth in the long-run but has no significant impact on economic growth in the short-run.
The upshot is that the findings of these scholars on this topic is contradictory, confusing and making it difficult to have a conclusion. Also most studies on local manufacturing focuses on challenges and prospects, banking sector reform, its productivity, performance, capacity utilization, fiscal policy, monetary policy, environment and globalisation, while studies on economic growth concentrates on the impact of FDI, deficit and macroeconomic variables, capital stock, capital formation, industrialisation and its determinants. Almost all the literature that explored the effect of local manufacturing on economic growth were used to analyse the Western, Middle East, Asia and African countries as a whole and the few that investigated Nigeria’s case did not capture recent development in the country like Inakwu (2013) analysed periods of 1981 – 2010. Therefore, the analysis needs to be extended in order to cover at least some recent development in the country. However, local manufacturing have valuable significant effect on economic growth in every country of the world but results vary from country to country, but in Nigeria, there is little attention to study the relationship between local manufacturing sector and economic growth. These research gaps are what this study intends to fill by exploring and providing more empirical evidence on the effect of Nigerian local manufacturing sector on her economic growth.
1.3Â Â Â Research Questions
This research work attempts to address the questions;
- What is the relationship between local manufacturing production and Nigeria’s economic growth?
- What is the effect of gross fixed domestic investment on Nigeria’s economic growth?
- Does labour force contribute significantly to economic growth of Nigeria?
- What effect does inflation rate have on growth of Nigeria economy?
- How does exchange rate influence Nigeria’s economic growth?
1.4Â Â Â Objectives of the Study
The broad objective of this study is to explore the effect of local manufacturing sector on economic growth in Nigeria. The study has the following specific objectives:
- To determine the relationship between local manufacturing production and economic growth in Nigeria.
- To ascertain the effect of gross fixed domestic investment on Nigeria’s economic growth.
- To examine the significance of labour force on the growth of Nigeria economy.
- To find out the effect of inflation on economic growth of Nigeria.
- To investigate whether exchange rate has an influence on Nigeria’s economic growth.
