CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The global financial crisis has slowed economic activities around the world as it has affected productivity, business operations and investments by way of reducing domestic and international demand for goods and services. It has pushed up unemployment as many industries and organizations are shedding off workers, affected global oil prices, exchange and interest rates, and national income and budgets. The impact of the global economic crisis manifested first in the Nigerian Stock Market from March to December 2008,wiping away about 40.0% and 45.0% of the market capitalization and value index, respectively. Between March 2008 and January 2009, the market capitalization nosedived from an all time high of N13.5tn to less than N4.6tn. The All – share Index also plummeted from about 66,000 basis points to less than 22,000 points in the same period. The stock prices experienced a “free-for-all” downward movement regime with more than 60 per cent of slightly above 300 quoted securities on constant offer (supply exceeding demand) on a continuous basis (Aluko 2008, p.12). The withdrawal of the foreign investors from the market did not also help matters as their departure led to the dumping of shares. It also exacerbated the demand pressure at the foreign exchange market, arising from divestment and the repatriation of capital and dividend by foreign investor. Some lines of foreign credit enjoyed by Nigerian banks were called in, precipitating a high demand on available scarce foreign exchange (Ayeni, 2012, p.6).
Over the last two decades, Nigeria has undergone a significant decline in manufacturing activity losing approximately 8,708 manufacturing jobs due to plant shut-downs and relocations. Nigeria has only some 5 per cent of its GDP coming from manufacturing, which is low among the countries of Africa compared to 20 per cent levels for South Africa and Mauritius. As the problems confronting the manufacturing sector of Nigeria still lingers, it might not be surprising that the global economic situation has compounded the problems. The problem of how the manufacturing companies in the country are faring when the economy is striving to get out of the crisis, nonetheless, is a critical policy question. In the context of recent economic slowdown at global level and its impact, there are no empirical works available as yet revealing its effects on Nigeria’s manufacturing companies and it situation. With a vision to join the top twenty industrialized nations by 2020 and the current global economic crisis, it is important to review the condition of manufacturing sector (Ayeni, 2012, p.3).
Generally speaking, the manufacturing sector plays a catalytic role in a modern economy and has many dynamic benefits crucial for economic transformation. In any advanced economy or even growing economy, the manufacturing sector is a leading sector in many respects. It is an avenue for increasing productivity in relation to import replacement and export expansion, creating foreign exchange earning capacity, rising employment and per capita income, which causes unique consumption patterns. 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 contributing to the Gross Domestic Products, the manufacturing sector is recognized, but it has been overtaken by the services sector in a number of countries, including Nigeria. Before independence, agricultural production dominated Nigeria’s economy and accounted for the major share of its foreign earnings. 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 former trading companies. Up to about 1970 the prime mover in the manufacturing activities was the private sector which established some agro-based light manufacturing units, such as vegetable oil extraction, plants, tobacco etc. The import-dependent industrialization strategy virtually came to a halt in the late 1970s and early 1980s when the liberal importation policy expanded the imports of finished goods to the detriment of domestic production. This led to relative decline in manufacturing production of exportable and thus, little diversification in products and production processes was achieved.
The Structural Adjustment Programme (SAP) introduced in 1986 was partly designed to revitalize the manufacturing sector by shifting emphasis to increased domestic sourcing of inputs through monetary and fiscal incentives. The deregulation of the foreign exchange market was also effected to make non-oil exports especially manufacturers more competitive even though, this also resulted in massive escalation in input costs. Looking at the manufacturing sector over the years shows that the share of the manufacturing in the GDP has been relatively low. In 1970, it was about 9%, 1980, about 10%, 1990, about 8% and 1998 about 6% and 2008 about 5.9% (CBN Annual Report). Even though in the 90’s especially 1994, manufacturing shares in GDP was about 7%, the growth rate was a negative of 8%. Also at that same period, the overall manufacturing capacity utilization fell from over 70% in 1973 to 39% in 1986 and to about 27% in 1998. It is only when firms are efficient that their potential for job creation, for promoting technology adoption, and ensuring equitable distribution of economic opportunities and the macro stability of the economy can be fulfilled. He stressed further that the determinants of the performance of enterprises are many and interwoven but could be grouped under three main headings:
- Individual enterprise characteristics and behavior,
- External/ecological factors and
- Internal structure arrangements of the enterprise.
Essien (2005, p.17) in his studies also stressed the point that more countries of the world have undertaken one form of economic reform or another at a time in their history. The goals of these reforms may differ from country to country; nevertheless, they are all closely aligned towards putting their economies on a path of sustainable growth and development. In developing economies such as Nigeria, such reforms have characterized the development strategy. In recent times and in virtually all cases, structural weaknesses in the economy, high debt service burden, spatial and sectoral unevenness and poor growth performance have been some of the most compelling reasons for their implementation. The recent reform by the Nigeria government is the (NEEDS). In this new reform there is strong emphasis on the manufacturing and agricultural development. The emphasis on these two is predicated on the fact that these two sectors are very important in any economy.
Omanukwue (2005, p.14) pointed out that manufacturing and agriculture have become a complex activity, more so in the light of dynamic changes and innovations that have pervaded the global economy. In a developing economy like Nigeria, this becomes much more challenging given the desire and need to compete both domestically and internationally. Consequently, Government in 2004 launched an economic reform programme, the National Economic Empowerment and Development Strategy (NEEDS). There was a strong concern especially for manufacturing and agriculture and that there need to develop these sectors among others.
1.2 Statement of the Problem
Access to financial continues to be one of the most significant challenges for the creation, survival and growth of manufacturing companies especially innovative ones. The problem is being exacerbated by the most severe financial and economic crises in decades which is the global financial crisis.
It is argued that resource-rich countries like Nigeria are the one who suffered the most from the global financial crisis due to terms of trade deterioration. Indeed, with global demand shrinking, prices of most commodities dropped to significantly lower levels. Exporting countries were therefore losing exports revenues and at the same time losing much needed foreign exchange. This negatively affected manufacturers of the products as their revenue drops.
The consequences of such losses on the economy are huge. Indeed, as the International Monetary Fund (IMF’s) World Economic Outlook Report in April 2008 stated, 1% point slowdown in global growth, which in turn shrinks global demand, can lead to an estimated 0.5 percentage point slowdown in Sub-Saharan African countries. The manufacturing sector is on the verge of collapse with thousands of workers being thrown out of jobs as a result of the global financial crisis.
The manufacturing sectors are facing the serious problem of unfair competition as a result of the unbridled importation of consumer products into the country. Most manufacturing companies are currently shutting down factories or running skeletal schedules because of a glut in the market which they say is caused by a displacement of their product in the market by subsidized imported goods. The situation has done considerable damage to the manufacturing sector .The areas of concern include; smuggling, faking and counterfeiting, influx of substandard products and tax evasion.
It is in view of these challenges triggered by global financial crisis that necessitated this study on the impact of global financial crisis on the Nigeria manufacturing sector.
1.3 Objectives of the Study
The overall objectives of this study are:
- To examine the impact of global financial crisis on the manufacturing sector in Nigeria.
- To identify the roles of the manufacturing sector on the development of Nigerian Economy.
- To determine the need for adequate financing of manufacturing companies.
- To find out the possible ways the government can ameliorate the problems of the global financial crisis so as to boost the growth of manufacturing sector.
1.4 Research Questions
The following research questions were formulated to achieve the objectives of the study:
- What are the impacts of global financial crisis on the manufacturing sector in Nigeria?
- What are the roles of the manufacturing sector on the development of Nigerian Economy?
- What is the need for adequate financing of manufacturing companies?
- What are the possible ways the government can ameliorate the problems of the global financial crisis so as to boost the growth of the manufacturing sector.
1.5 Statement of Hypothesis
Ho: The global financial crisis had no negative impact on the Nigerian manufacturing sector in terms of working capital funds and production in champion breweries plc from 2006 to 2015.
H1: The global financial crisis had negative impact on the Nigerian manufacturing sector in terms of working capital funds and production in champion breweries plc from 2006 to 2015.
1.6 Significance of the Study
The significance of the study is that it will make known how global financial crisis affects manufacturing companies in Nigeria such as Champion breweries. The study will help in identifying the role of manufacturing companies in the development of Nigerian economy and the need for adequate financing of manufacturing companies. The study will also reveal how the problem of global financial crisis can be abated to boost the development and growth of manufacturing companies. Also, the study will serve as a useful reference material for other scholars seeking related information.
1.7 Scope/Limitations of the Study
This study covers the impact of global financial crisis on the Nigeria manufacturing sector a case study of Champion Breweries plc, Uyo.
In the course of carrying out the study, some challenges were encountered by the researcher that stood as limitation to the study and they include:
Financial Factor: Inadequate funds affected researcher had to travel long distances for the distribution of the research questionnaire forms.
Time Factor: This affected the reduction in the size of the sample used for the study because the researcher had only less than two months to complete the study.
Material Factor: Shortage of relevant material for literature review posed.
1.8 Organization of the Study
The study is a format of five chapters:
Chapter One: Deals with introduction, background of the study, statement of the problem, objectives of the study, statement of the hypothesis, research questions, significance of the study, scope and limitations of the study, organization of the study, definition of terms and end notes.
Chapter Two: Review of related literature, introduction,
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