Effect Final Goods Importation on the Performance of the Manufacturing Sector of the Economy
CHAPTER ONE
INTRODUCTION
1.1BACKGROUND TOTHE 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, 2018). Productivity is higher in the manufacturing sector than in the agricultural sector. 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. Although the government has developed different policies and programs in the past that are aimed at boosting industrial development in the country, most of these policies though magnificent on paper have failed in the area of implementation while some of them did not see the light of the day, others were abandoned halfway and funds meant for the programs were misappropriated Capital accumulation can be more easily realized in spatially concentrated manufacturing than in spatially dispersed agriculture.
In recent times, some manufacturing industries in Nigeria have been characterized by declining productivity rate, by extension employment generation, which is caused largely by inadequate electricity supply, smuggling of foreign products into the country, trade linearization, globalization, high exchange rate, and low government expenditure. Therefore, the slow performance of manufacturing sector in Nigeria is mainly due to massive importation of finished goods and inadequate financial support, which has resulted in the reduction in capacity utilization and input of the manufacturing sector in the economy (Tomola, Adebisi and Olawale, 2016).
From statistical report, it has been observed that the contribution of manufacturing to GDP has not been encouraging in spite of the several policies put in place to encourage production for export. For instance, the manufacturing output in 1981 was 1558.70 #billion and its contribution to GDP was 10.23 and capacity utilization was 73.3. In 2015, its contribution to GDP was 9.54 and capacity utilization was 59.9 percent (CBN Statistical Bulletin, 2015).
It is evident that manufacturing sub-sector of the Nigerian economy has not reached a desired stable level to perform its function as an engine of growth.
This shows that there is gross underutilization of resources. This might not be unconnected to factors such as poor macroeconomic performance of the economy, lack of adequate finance to purchase factory input , poor infrastructure and weak aggregate demand for manufactured exports, high price of products which is partly caused by high energy cost, inefficient and old equipment and poor infrastructure among others, Adejugbe, (2014) cited in Aregbeyen, (2016).
Effect Final Goods Importation on the Performance of the Manufacturing Sector of the Economy
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, 2018). Hence, manufacturing output growth fell drastically to an annual average of about 2.6 percent during the period 1978-1986 even with the introduction of SAP in 1986 up till 1999, growth in the sector was negative (Anyanwu, 2014).
Endogenous growth models emphasize two important mechanisms through which the participation in international trade can raise the long-term growth rate of countries. First, trade enables the use of better (Aghion and Howitt, 2013) and larger (Romer 2015) variety of intermediate products and capital equipments. Second, trade plays an important role as a transmission channel for knowledge spillovers across countries (e.g., Grossman andHelpman 1991, Coe and Helpman 1995, Coe et al, 1997, Keller 2000, 2004). Countries that use imported intermediate products and capital equipments derive benefits because these products embody foreign knowledge.
Spillovers arise in this process of knowledge diffusion to the extent the imported products cost less than its opportunity costs –including the R&D costs to develop the products. Further, import might facilitate learning about the products (for example, reverse engineering), spurring imitation or innovation of competing products. Also, trade relationships stimulate personal interaction and other channels of communication leading to cross border learning of production methods, product design, organizational methods, and market conditions. Thus, countries import new goods first, then produce them by themselves, and eventually export them (Chuang, 2016).The extent of trade-induced knowledge spillovers, however, crucially depends upon the tangible and intangible knowledge stock of the trading partners and the learning potential of the traded goods.
Acemoglu and Zillibotti (2012) advanced a theoretical explanation. Empirical analysis by Broda, Greenfield and Weinstein (2015) shows that imported varieties account for15% of productivity growth in a typical country in the world, while the effects are larger in the developing countries, for the wide variation in knowledge stocked across countries. They argue that societies accumulate knowledge by repeating certain tasks and that the scarcity of capital restricts the repetition of various activities. Richer societies, therefore, tend to accumulate more knowledge compared to the poorer societies, which provides the former with a comparative advantage in knowledge-intensive/higher productivity products.
Effect Final Goods Importation on the Performance of the Manufacturing Sector of the Economy
1.2 STATEMENT OF THE PROBLEM
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 been large. 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, 2016).
The history of industrial development and manufacturing in Nigeria is a classic illustration of how a nation could neglect a vital sector through policy inconsistencies and distractions attributable to the discovery of oil (Adeola, 2015). The near total neglect of agriculture has denied many manufacturers and industries their primary source of raw materials. The absence of locally sourced inputs has resulted in low industrialization. High interest rates, Unpredictable government policies, on-implementation of existing policies, Lack of effective regulatory agencies, Infrastructural inadequacies, Dumping of cheap produce, Unfair tariff regime, Low patronage are some of the challenges faced by the manufacturing sector in Nigeria. However, all these constraints state above constitute a major which provoked the essence of this study. Thus, it is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector and importation effect in the Nigerian economy.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study is to ascertain the effect final goods importation on the performance of the manufacturing sector of the economy.
The specific objectives are:
- To access the nature of the relationship between final goods import and the manufacturing sector of the economy.
- To examine the impact of final goods import on the manufacturing sector of the economy.
1.4 RESEARCH QUESTIONS
The study would examine the following questions:
- What is the nature of the relationship between final goods import and the manufacturing sector performance?
- What is the impact of final goods importation on manufacturing sector performance?
1.5 RESEARCH HYPOTHESIS
H0: There exists no significant relationship between imports and the manufacturing sector performance.
H1: Imports of goods and services has no effect on the manufacturing sector performance.
Effect Final Goods Importation on the Performance of the Manufacturing Sector of the Economy
Effect Final Goods Importation on the Performance of the Manufacturing Sector of the Economy
