AN ASSESSMENT OF THE IMPACT OF INDUSTRIALIZATION ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA (1981 – 2016) ABSTRACT
The effect of industrial development on the economic growth of Nigeria has over the past decade been a recurring issue for analysis like every economy most especially developing economies. Nigeria has enjoyed a long period of sustained economic growth since 2001 and yet, there is poor contribution from the industrial sector to the country’s GDP. There are various studies that have supported that industrial development is a pathway to sustainable economic growth. Thus, this research investigated the effect of industrial development on the Nigeria’s economic growth. Taking 1981 to 2016 as a period of study. E-Views 7.0 version statistical package was used to analyze the secondary data that was collected from CBN statistical bulletin. GDP was used as the dependent variable, while industrial output, foreign direct investment, interest rate and exchange rate was used as the independent variables. The model explain that the influence of industrial output on economic growth is not statistically significant, though the sign obtained from its àpriori expectation is positively related to (economic growth) GDP but does not hold strong enough. R-squared shows a 99% explained variation. Based on the findings, it is therefore recommended that the government and its agencies should ensure political stability, and also implement strategic policies that will create a fair playing grounds for foreign investors which will also improve the establishment of industries especially the manufacturing industries to encourage industrialization of the Nigerian economy as this will facilitate the strengthening of economic growth (GDP).
CHAPTER ONE
1.1 BACKGROUND TO THE STUDY
The impact of industrialization on economic development has been widely studied. very few countries have been able to grow and accumulate wealth without investing in their manufacturing industries, and a strong and thriving manufacturing sector usually precipitates industrialization. The manufacturing sector is widely considered to be the ideal industry to drive Africa’s development. This is due to the labour intensive, export focused nature of the industry. There is a direct correlation between exportation levels and the economic success of a country. By increasingly adding value to products before they are sold, revenues are boosted, thereby raising average earnings per input. Furthermore, the manufacturing sector is also more sustainable and less vulnerable to external shocks than commodities (KPMG,2014). Industrial development therefore is the application of modern technology, equipments and machineries for the production of goods and services, alleviating human suffering and to ensure continuous improvement in their welfare. Modern manufacturing processes are characterized by high technological innovations, the development of managerial and entrepreneurial talents and improvement in technical skills which normally promote productivity and better living conditions. In recognition of this, successive governments in Nigeria have continued to articulate policy measures and programme to achieve industrial growth and development. This cannot be attained until manufacturing capacity is utilized to a reasonable extent (Fashola, 2004). In Nigeria, as in many other developing countries, the word industry is used essentially as a synonym for manufacturing. This is because manufacturing is the most dynamic component of the industrial sector.
Industrialization has come to be regarded as a crucial and powerful engine in the overall development process. The World Bank has classified Nigeria as inward oriented by trade orientation. Using data for 1963 – 73 and 1973 – 1985, she was deemed moderately inward oriented for the production period 1963 – 1973, but strongly inward oriented for the period 1973 – 1985. Since 2001, Nigeria has enjoyed a long period of sustained expansion of the non-oil economy, with growth occurring across all sectors of the economy and accelerating at about 7%. This growth rate increased to about 8-9% in 2003 despite the financial crisis. This has more than doubled the growth rate in the country prior to 1999. Even in the wake of the global financial crisis in 2009, Nigeria’s growth performance fell only to about 4.5 percent. This, according to Ajakaiye and Fakiyesi (2009) has been attributed to the rapid growth rate in the non-oil export. The development of the non-oil economy was in contrast to that of the oil economy, whose contribution has been declining owing to unrest in the Niger Delta. However, an investigation by the World Bank (2012) has revealed that the pattern of growth in the Nigerian economy has not gained significant input from the industrial sector and development. In spite of the country's vast oil wealth, the World Bank Development Indicators (2012) has shown that majority of Nigerians are poor with 84.5 per cent of the population living on less than two dollar a day. The United Nations Human Development Index (2011) also ranks Nigeria 156 out of 179 countries, which is a significant decrease in its human development ranking of 151 in 2004; and World Bank Development Indicators (2012) have placed Nigeria within the 47 poorest countries of the world. The issue of poverty can be easily traced to mono-economic practice and underutilization of the nation’s endowed resources, especially in manufacturing sector, which could have opened up windows of opportunity in job creation and economic development.
1.2 STATEMENT OF THE PROBLEM
Nigeria would be classified as industrially underdeveloped. Yet a lot of efforts have been put into the industrialization process. Plan after plan, investment policies have been renewed, fine-tuned and at times completely revamped. Resources are abundant and investment opportunities are almost unlimited. Various industrial development policies, perspective plans and medium–term economic plans acknowledged the importance of the manufacturing sector in the economy. For instance, as stated in the nation’s 4th Plan, manufacturing is capable of sustaining a minimum growth rate of 15% per annum, contributing over 7% to gross domestic product, promoting employment and enhancing the value of natural resources, to mention but a few. 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, 2005). However, Ogbu (2012) argues that the country’s oil industry is not a major source of employment, and its benefit to the other sectors in the economy is limited since the government has not adequately developed the capacity to pursue the more value-added activities of the petrochemical value chain. As a result, the oil industry does not allow for any agglomeration or technological spillover effects, Ogbu (2012) stresses. From a modest 4.8% in 1960, manufacturing contribution to GDP increased to 7.2% in 1970 and to 7.4% in 1975. In 1980 it declined to 5.4%, but then surged to a record high of 10.7% in 1985. By 1990, the share of manufacturing in GDP stood at 8.1% but fell to 7.9% in 1992; 6.7% in 1995 and fell further to 6.3% in 1997. As at 2001 the share of manufacturing in GDP dropped to 3.4% from 6.2% in 2000. However, it increased to 4.16% in 2011 which is less than what it was in 1960. Currently, Nigeria’s manufacturing sector’s share in the Gross Domestic Product (GDP) remains minuscule (CBN, 2011). Compare that to the strong manufacturing sectors in other emerging economies, where structural change has already occurred and where millions have been lifted out of poverty as a result: manufacturing contributes 20 percent of GDP in Brazil, 34 percent in China, 30 percent in Malaysia, 35 percent in Thailand and 28 percent in Indonesia (Ogbu, 2012). The more recent experiences of the East and Southeast Asian economic transformations demonstrate that diversification into manufacturing and industrial production facilitated by what Arthur Lewis calls the “intelligent governments” are critical to poverty reduction.
However, Nigeria has no effective industrial policy that promotes manufacturing; at least not in the sense of policy which provides practical solutions to the difficulties encountered by incipient entrepreneurs or emerging manufacturing firms. It is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector in the Nigerian economy. Although industrialization (with special emphasis on manufacturing) is vital in the process of economic development, its performance in Nigeria has not been quite impressive. Two main strategies have been put in place to correct this anomaly. The first is the import substitution strategy while the second is the export promotion strategy. The second strategy, which has been in vogue since the adoption of the SAP in Nigeria in mid – 1986, emphasizes the promotion of value – added non-oil exports, especially manufactures, and did not actually achieved significant results (Uniamikogbo, 1996). Generally, the manufacturing sector which plays a catalytic role in a modern economy has many dynamic benefits crucial for economic transformation is a leading sector in many aspects (Oguma, 1995) says it creates investment capital at a faster rate than any other sector of the economy. Available evidence showed that the share of manufacturing value in the Gross Domestic Product (GDP) was 3.2% in 1960. In 1977, its share of GDP increased to 5.4% and in 1992 grew to 13%. The share of the manufacturing in GDP fell to 6.2 in 1993, while overall manufacturing capacity utilization rate fluctuated downwards to 2.4% in 1998 (Chete and Adewuyi, 2004). In 2003, the manufacturing sector accounted for 4% of the Gross Domestic Product (GDP) (Tamuno & Edoumiekumo, 2012). A country is industrialized when at least one-quarter of this Gross Domestic Product(GDP) is produced in its industrial output arises in the manufacturing section of industrial sectors, and when at least one length of its total population is employed in the industrial sectors of the economy. The manufacturing sector is to be dominant in terms of contribution to the Gross Domestic Product of any economy especially that of Nigeria (Ayodele & Falokun, 2003). An industrial sector that does not contribute at least one-quarter of the country’s GDP is widely viewed as a major challenge enhancing a country’s economic growth. Nigerian manufacturing sector is faced with capacity under utilization and this has posed a threat to the economic growth and development of the country. (Adewale, 2002).
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