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THE ROLE OF MANUFACTURING SECTOR ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

The manufacturing sector plays a significant role in economic development. Industrialization acts as a catalyst that accelerates the pace of structural transformation and diversification of economic, enable a country to fully utilize its factor endowment and to depend less on foreign supply of finished goods or raw materials for its economic growth, development and sustainability. Industrialization which is a deliberate and sustained application and combination of an appropriate technology, infrastructure managerial expertise and other important resources has attracted considerable interest in development economies in recent times. (Okafor, 2005) Exchange rate in Nigeria witnessed a radical change from the long operated fixed system between the 1960s and the first half of the 1980s. It shifted dramatically from the second half of 1986 to a flexible regime when the structural adjustment programmes (SAP) began. Since the move to liberalized system, the economy witnessed series of changes that have substantially affected the trend and stability of the rate.

In other words, in Nigeria, it has always been realized that economic development requires growth with structural change. In considering the Nigerian economic development experiences therefore, it is instrumental to examine the growth and structural change in certain major aspects of the economy (Ajakaye, 2002). Productivity is higher in the manufacturing sector than in the agricultural sector. The transfer of resources from agriculture to manufacturing provides a structural change bonus. We have examined sectoral productivity levels in 19 Latin American and Asian economies and found that between 1950 and 2005, value added in manufacturing was consistently much higher than in agriculture (Szirmai, 2008). A puzzling finding was that in postwar Latin America, value added per worker in services was higher than in manufacturing. This suggests that the structural change bonus for services might have been even higher than that manufacturing exceeded those in services. The structural change bonus argument focuses on the dynamics of sectors. Manufacturing is assumed to be more dynamic than other sectors. A transfer of productive resources to more dynamic sectors contributes to growth. Here the evidence turned out to be somewhat mixed (Szirmai, 2008). Between 1950 and 1973, productivity growth in manufacturing was indeed much higher than in agriculture. But after 1973, this was reversed. As in the advanced economies, productivity growth in agriculture in developing countries tends to be higher than in manufacturing. In terms of output growth, manufacturing continues to outperform agriculture in both advanced and developing economies, because the share of manufacturing in the total economy is shrinking everywhere.

The macro and micro studies on manufacturing enterprises were carried out to establish the consequences of trade liberalization for the industrial sector in African countries. Contemporary economies are largely characterized by inter—border trade. This is made possible by differences in the factor endowment of each economy as postulated by the popular theories of comparative analysis and absolute advantages. When industrialization is compared to agriculture, the argument runs that the manufacturing sector offered special opportunities for capital accumulation. Capital accumulation can be more easily realized in spatially concentrated manufacturing than in spatially dispersed agriculture. This is one of the reasons why the emergence of manufacturing has been so important in growth and development. Sectoral capital stock estimates for developing countries are still scarce, but what data there are indicate that after 1950 manufacturing is indeed far more capital intensive than other sectors (Szirmai, 2008).

1.2   Statement of the Problem

The Nigerian manufacturing sector is sick. The productive sector is in a crisis as its average contribution to the nation’s Gross Domestic Product over the past few years has not gone beyond 5%. Many years of neglect and maladministration on the part of successive military and civilian governments, coupled with corruption and indiscriminate policy reversals have all conspired to render the manufacturing sector ineffective in terms of productivity. Governments after governments have failed to pursue policies that could create a vibrant real sector with the result that the impact of the manufacturing sector has steadily declined over the years and its contribution to national growth and development has been disappointingly low (Banmijoko, 2001). Some of the factors that exert profound negative influence on manufacturing sector include; institutional framework and management strategies; inflation rate, trends and outcomes of exchange rate management strategies, poor or inadequate infrastructural facilities especially electricity power supply and thus have significant effect on the growth and development of Nigeria, which led to problem of economic diversification to other sector of the economy.

1.3   The Objectives of the Study

The major objective of this study is to examine the role of manufacturing sector on economic growth and development in Nigeria.

Other objectives of the study include:

1)  To investigate the impact of the manufacturing sector on the economic growth and development of Nigeria.

2)  To assess the level of productivity in the Nigerian manufacturing sector.

3) To identify the major constraints confronting the Nigerian Manufacturing sector.

4) To find out the various policy measures available to the government that can be used to redress the persistent decline in the manufacturing production.

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