1.1 BACKGROUND TO THE STUDY
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. 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. 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. 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. 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. 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
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
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. 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. 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
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).
Apart from finance in Nigeria and to make recommendation where
1.4 HYPOTHESIS OF THE STUDY
hypothesis to be tested in this research endeavour are put as follows:
Aggregate credits to the manufacturing sector has no significant impact on the
output of manufacturing sector.
Aggregate credits to the manufacturing sector has significant impact on the
output of manufacturing sector.
1.5 RATIONALE FOR THE STUDY
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
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.