An assessment of the impact of manufacturing sector on economic growth in selected countries in west Africa

Abstract

The study investigated the impact of manufacturing sector on economic growth in Nigeria from 1985 to2020. Autoregressive Distributed Lag (ARDL) model and Granger causality technique were utilized. Data from the Central Bank of Nigeria, statistical bulletin on RGDP, manufacturing capacity utilization (MCU), manufacturing output (LMO), government investment expenditure (GINVEXP), money supply (LM2) and interest rate (INR) were used. Evidence of long-run and short-run relationships among the variables is established. The results showed that MCU has positive influence on RGDP while LMO affects RGDP positively. It also showed that GINVEXP has negative effect on RGDP whereas LM2 influenced RGDP positively. More so, evidence of unidirectional causality is established between RGDP and MCU, LMO and LM2. Therefore, government should intensify efforts to promote socio-economic infrastructural, macroeconomic and institutional framework in Nigeria to provide favourable environment for external and domestic institutions interactions; hence, harnessed mobilized funds effectively towards productive manufacturing sector

Chapter one

Introduction

• Background of the study

Kuznets (1966) described long-term development patterns of countries based on empirical analyses of national accounts and argued that industrialization or increases in the share of manufacturing in GDP is a key feature of modern economic growth, which is markedly different from the much lower growth rates observed in the world before the onset of the industrial revolution. Kaldor examined the relationship between industrial development and economic growth, and based on empirical results, characterized the manufacturing sector as “the main engine of fast growth” (Kaldor, 1967:48).

Manufacturing has generally been described and accepted as an engine of growth and development of any country. In modern economies, industrialization under industrial sector is widely conceived as a critical tool for accelerating economic growth and development. It serves as a channel for the production of goods and services, creation of massive employment opportunities and generation incomes (Olorunfemi, Tomola, Felix &Ogunleye, 2013). According to Adofu, Taiga &Tijani (2015), manufacturing is viewed as the production of merchandise for sale or use through the application of tools, machine, labour, chemical and biological formulation. It involves both handicraft of human activities and high tech through which raw materials are transformed or converted into finished product in large scale.

logical development of productive strategies. This simply implies a transformation of an economy from traditional low production system into modern mass production system, which involves more efficient and automated system through sustained and deliberate combination and application management techniques, suitable technology and other resources that promote high tech production techniques (Ayodele&Falokun, 2003). It has been argued that the fastest channel by which rapid sustainable growth and development is achieved in any economy is via industrial capacity, technological innovation and enterprise development, rather than vast human resources and level of endowed material resources (Olamade, Oyebisi&Olabode, 2014). For example, most developed countries like Germany, rose to become one of the largest economy in the world today despite its poor natural resources and chronic inflation it faced from 1920s, due to its effective exploitation of the manufacturing sector. More so, Bennett, Anyanwu&Kalu (2015) postulated that industrial development deals with the application of modern equipment, machines and technology in the production of goods and services as well as to alleviate human suffering and ensure welfare improvement in a society. Hence, modern manufacturing processes involve the development of managerial and entrepreneurial skills as well as high technological innovations that often promote large scale productivity and improved living conditions

In Nigeria, the history of manufacturing and industrial development reflect how a nation could neglect a vital sector via economic policy inconsistencies and the abandonment of the agricultural sector for oil sector, which was the major economic base of the country due to the discovery of oil in commercial quantity in 1970s (Adeola, 2005). Ogbu (2012) contested that oil industry in Nigeria is not a major determinants of employment; hence, it has limited contributions to other sectors of the economy since the capacity is yet to be developed by the government to vigorously pursue the more value-added activities of the petrochemical value chain. Thus, the oil industry has overtime lacks technological spillover effects. For instance, the contribution of the manufacturing sector to economic growth in Nigeria before 1970s was 10%. Adofu, Taiga &Tijani (2015) expressed that economic growth in Nigeria affected adversely due to prolonged economic recession caused by a fell in the world oil market in the early 1980s alongside the sharp decline in the foreign exchange earnings. Consequently, the economy suffered series of problems ranging from excessive dependence on import for consumption and input materials, socio-economic infrastructure decay, capacity under-utilization in the industrial sector, poor management strategies and institutional framework, and agricultural sector neglect that used to be the economic base of the Nigerian economy, etc. As a result, the economy has remained undiversified with a decreased in incomes and standard of living of the people (Adesina, 1992)

The economic structure of Nigeria reflects typically that an under-development nation trait, where more than 50% of the total GDP is being contributed by a single primary sector of the economy. Similarly, statistics showed that capacity utilization of the manufacturing sector has overtime been sluggish and very low compare to other strong economies of the world. For instance, the capacity utilization of the Nigeria’s manufacturing sector in 1990 was 40% and stood at 53.9% in 2008. By 2009, the manufacturing sector capacity utilization was 55.88% and further rose to 60.50% in 2015. Theoretically, economic theory postulated that a rise in manufacturing activities in which manufacturing capacity utilization is the major indicator brings about improved gross domestic product of a nation. However, the trend analysis above showed that even though the manufacturing capacity utilization increases overtime, however this sector’s growth remains infinitesimal compared to the growth rate of manufacturing capacity utilization in the economy. Based on this background the researcher wants to investigate the impact of manufacturing sector on economic growth in selected countries in west Africa. The study will use Nigeria in west Africa

1.2 Statement of the problem

The improving productivity is necessary to increase economic growth and standard of living of citizens. In view of this, it is important to re-evaluate the productivity of manufacturing sector in Nigeria. Adofu et al. (2015) argued that manufacturing is more dynamic compare to other sectors of the economy as transfer of productive resources to more dynamic sectors leads to increase in economic growth. However, the manufacturing sector in Nigeria is currently undergoing several difficulties such as weak technological base as a result of inadequate investment in research and lack of innovation and development in the economy. Consequently, the manufacturers heavily relied on the importation of machinery and other equipments to sustain their industrial production process due to limitation in foreign exchange. As a result, the contribution of the sector to the gross domestic product has remained infinitesimal. However, the trend analysis above showed that even though the manufacturing capacity utilization increases overtime, the growth rate of the contribution of the manufacturing sector to GDP remains infinitesimal compared to the growth rate of manufacturing capacity utilization in the economy. It is against this development, that this study investigates the impact of manufacturing sector on economic growth in Nigeria.

1.3 Objective of the study

The objective of the study is to ascertain the impact of manufacturing sector on growth in Nigeria. The following specific objectives will also assessed;

1. To ascertain the contribution of manufacturing sector on Nigeria economy
2. To determine the impact of manufacturing capacity on the gross domestic product of the nation
3. To ascertain the growth rate of manufacturing capacity utilization on the Nigeria economy

1.4 Research hypotheses

In the course of this study, three main hypotheses are formulated.

Hypothesis One

Ho:   there is no contribution of manufacturing sector on Nigeria economy.

Ha:   there is contribution of manufacturing sector on Nigeria economy.

Hypothesis Two

Ho:   there is no impact of manufacturing capacity on the gross domestic product of the nation

Ha:   there is impact of manufacturing capacity on the gross domestic product of the nation

Hypothesis Three

Ho:   there is no growth rate of manufacturing capacity utilization on the Nigeria economy

Ha:   there is growth rate of manufacturing capacity utilization on the Nigeria economy

1.5 Significance of the study

It is expected that the findings from this study will expose the impact of the manufacturing sector on the Nigerian economy and how they tend to promote economic growth.

It will also show the trend of the manufacturing sector over the years.

It will also show how export supply capacity has improved and dependence on imports by Nigerians has reduced. It will also serve as a guide to the nation economists and policy makers on how to direct and control the economy in a positive direction.

1.6 Scope of the study

The scope of the study covers an assessment of the impact of manufacturing sector on economic growth in Nigeria. The study will use the series of 35 years. From 1985 to 2020.  The information will be gotten from CBN bulletin

1.7 Limitation of the study

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study

1.8 Definition of terms

MANUFACTURING SECTOR: Modern manufacturing includes all intermediate processes required in the production and integration of a product’s components. Some industries, such as semiconductor and steel manufacturers use the term fabrication instead. The manufacturing sector is closely connected with engineering and industrial design.

ECONOMIC DEVELOPMENT: Economic development is the process by which a nation improves the economic, political, and social well-being of its people. The term has been used frequently by economists, politicians, and others in the 20th and 21st centuries. The concept, however, has been in existence in the West for centuries