FINANCE CHALLENGES OF MANUFACTURING COMPANIES IN NIGERIA AND THEIR CONTRIBUTIONS TO THE ECONOMIC GROWTH OF NIGERIA
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FINANCE
CHALLENGES OF MANUFACTURING COMPANIES IN NIGERIA AND THEIR CONTRIBUTIONS TO THE
ECONOMIC GROWTH OF NIGERIA
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Manufacturing sector plays a catalytic role in
a modern economy and has many dynamic benefits crucial for economic
transformation. In a typical advanced
Country, the manufacturing sector is a leading sector in many respects. It is an avenue for increasing productivity
related to import replacement and export expansion, creating foreign exchange
earning capacity; and raising employment and per capital income which causes
unique consumption patterns.Â
Furthermore, it creates investment capital at a faster rate than any
other sector of the economy while promoting wider and more effective linkages
among different sectors. In terms of
contribution to the Gross Domestic product, the manufacturing sector is
dominant but it has been overtaken by the services sector in a number of
Organization for Economic Co-operation and Development (OECD) Countries.
Before independence,
agricultural products dominated Nigeria’s economy and accounted for the major
share of its foreign exchange earnings.Â
Initially, inadequate capital investment permitted only modest expansion
of manufacturing activities. Early
efforts in the manufacturing sector were oriented towards the adoption of an
import substitution strategy in which light industry and assembly related
manufacturing ventures were embarked upon by the formal trading
companies. Up to about 1970, the prime
mover in manufacturing activities was the private sector which established some
agro-based light manufacturing units such as vegetable oil extraction plants,
turneries tobacco processing, textiles, beverages and petroleum products. Â The
strategy of light and assemblage manufacturing shifted some what to heavy
Industries from the period of the third National Development plan (1975-1980)
when government intervened to establish care industrial plants to provide basic
imports for the downstream industries.
The import dependent
industrialization strategy virtually came to a halt in the Late 1970s and early
1980s when the liberal impart policy expanded the imports of finished goods to
the detriment of domestic production.
In this
regard, industrialization constitutes a veritable channel of attaining the
lofty and desirable conception and goals of improved quality of life for the
populace. Â Thus, in a supportive mood, Lavis (1967) assumes that in any
economy, one or more sectors serve as a prime mover moving the rest of the
economy forward. This role of engine of growth or leading sector has usually
been played by industrial sector under the industrialization process.
Against this
background, industrialization involves extensive technology based development
of the productive (manufacturing) system of an economy. Thus, the development of the industrial
sector represents the deliberate and sustained application and combination of
suitable technology, management techniques and other resources to move the
economy from the traditional low level of production to a more automated and
efficient system of mass production of goods and services. Arising from the foregoing affirmed
centrality of industrialization as the pivot of economic growth and
development, industrialization process seems to be the main hope of most
developing countries such as Nigeria with large population and large labour
force. In spite of these aspiration
which ought to have favoured effective industrialization process in an
economically conducive manufacturing environment, most of these results as
reflected in the performance of the manufacturing sector remain
socio-economically undesirable. Â Against this back drop, current economic
planning and policy instruments are diverted at the development of the key
productive sectors, particularly manufacturing and commerce for the promotion
of an increasing pace of industrialization in Nigeria.
The major
problem facing the Nigerian manufacturing sector is having adequate finance
resource for investment. Because of the
low level of income of this, saving is very low.
Since the
attainment of independence in 1960, commercial banks in Nigeria have been
playing an important role in development process of a nation. The banks in collaboration with other
financial institutions have been mobilizing the scarce domestic resources for
rapid social, economic and industrial transformation of the country.
Other
services provided by the commercial banks include facilities for safe-keeping
of important documents, provision of advice to customers on insurance and
investment matters and provision of cash for bulk payment of non-customers
salaries and wages, Umole (1985).
In
recognitions of this potential roles of the sector, successive governments in
Nigeria have continued to articulate policy measures and programmes to achieve
industrial growth incentive and adequate finance. The central goal of government policy was to
foster growth in the manufacturing sector.Â
Over the years, and largely in response to some of the previous policy
strategies, the main features of the Nigerian manufacturing sector had emerged.
The role of
bank credits in the growth of manufacturing sector cannot be
over-emphasized. For instance, the
Federal Government’s Appropriation Bill for the year 2005 has as one of its
broad policy objectives to achieve a high economic growth rate (i.e GDP of at
least 5%) through a better mobilization and prudent use of economic
resources. This objective is not
achievable without significant levels of resources from the financial sectors
being mobilized and deployed to finance business expansion and growth. Banks have to be effective intermediaries for
mobilizing and channeling deposits to the productive sectors of the economy
especially, the manufacturing sector.
1.2
STATEMENT OF PROBLEMS
In spite of
continuous policy strategies to attract credits to the manufacturing sector,
most Nigerian manufacturing enterprises have remained unattractive for bank
credits. For instance, as indicated in
central Bank of Nigeria (CBN) reports, almost throughout the regulatory era,
commercial bank’s loans and advances to the manufacturing sector deviated
persistently from prescribed minima.Â
Furthermore, the enhanced financial intermediation in the economy
following the financial reforms of the 1990s not withstanding, credits to
manufacturing as a proportion of total banking credits has not improved significantly
averaging 15.7 percent between 1990 and 1994 and 25.8% between 1995 and
2000. Consequently, many manufacturing
firms in the country have continue to rely heavily on internally generated
funds, which have tended to limit their scope of operating.
In the
process, attempts will be made to provide answers to a series of questions
including;
1. How has
bank credits affected the growth of manufacturing sector in Nigeria?
2.What role
can bank credits play in revitalizing the manufacturing sector?
3. What are
the basic problems of the manufacturing sector in Nigeria?
4. What are the causes of inadequacy of skilled
technical manpower in manufacturing sector in Nigeria?
5. The causes of inadequacy of local technical
support services for manufacturing sector in Nigeria?
1.3 OBJECTIVE OF THE STUDY
The objectives of the study include;
1. Examining
the problems facing the manufacturing sector in attracting bank credits.
2. To review the different sources of finance
available to the manufacturing sector in Nigeria.
3. To review
the policies scheme as well as the developmental financial institutions that
have been up to promote the growth of manufacturing sector in Nigeria.
4. To review the role and performance of this
sector in the economy in facilitating
industrial development in Nigeria.
5. Also to look into the problems that militates
against this sector (manufacturing).Â
Apart from finance in Nigeria and to make recommendation where
necessary.
1.4 HYPOTHESIS OF THE STUDY
The
hypothesis to be tested in this research endeavour are put as follows:
NULL
HYPOTHESIS
Ho; Aggregate
credits to the manufacturing sector has no significant impact on the output of
manufacturing sector.
ALTERNATIVE
HYPOTHESIS
Hi;
Aggregate credits to the manufacturing sector has significant impact on the
output of manufacturing sector.
1.5 RATIONALE FOR THE STUDY
This study
was motivated by the challenges pose by the lack of sufficient bank credits to
meet the increasing needs in the manufacturing sector of the Nigerian economy.
There is no
iota of doubt that bank credits is very crucial and essential in revitalizing
the manufacturing sector. As important
as bank credits is to the sector in spite the continuous policy strategies to
attract credits to the sector, most Nigerian enterprises have remained
unattractive for bank credits. Hence,
this study therefore intends to throw more light on the operations of bank
credits and their resultant effect on the manufacturing sector
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