Impact of Bank Loan on the Manufacturing Sector of the Nigeria Economy (1990 – 2016).
ABSTRACT
This study examines the effect of commercial bank credit on manufacturing sector output in Nigeria from 1990 to 2016 with the object of finding out the impact of bank loans on the manufacturing sector of the Nigerian economy within the period considered.
To identify the stationarity of the data employed in the empirical investigation, various econometric techniques like Augmented Dicky Fuller unit root test, Johansen cointegration test, and error correction mechanism were employed.
The result of the error correction model shows that the independent variables are all significant to impact on the manufacturing sector output in Nigeria.
The study concludes that commercial bank loan has a strong impact on the manufacturing sector in Nigeria for the year under the view.
The study recommended that the financial institutions should have confidence in the manufacturing industry; invest more in this sector so that they can have enough availability of funds to invest in modern technologies and computer-integrated manufacturing systems.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Lending is a vital function in banking operations because of its direct effect on economic growth and business development.
This is being pursued in most countries particularly the developing ones, where banks and their lending activities have been usefully integrated into government policy formulation in the national economic development process.
As far as banks are concerned, their role as lenders is as important as that of deposit-taking considering the interrelationship between deposit and lending (Nwosu 1999). Banking like any other business requires adequate capital to function effectively (Nwankwo 1990).
The economy of Nigeria is a middle income; mixed economy emerging market with well-developed financial legal, Communications, transport, and entertainment sectors.
It is ranked 31st in the world in terms of GDP (PPP) as of 2009, and its emergent, though currently, the underperforming manufacturing sector is the third largest on the African continent, producing a large proportion of goods and services for the West African Region.
Previously hindered by years of mismanagement, economic reforms of the past decade have put Nigeria back on track towards achieving its full economic potential, although the economy entered into recession last year.
Nigeria’s GDP at purchasing power parity more than doubled from $170. Billion in 2005 to $374.3 billion in 2010, although estimates of the size of the informal sector (which is not included in official figures) put the actual numbers closer to $520 billion.
Correspondingly, the GDP per capita doubled from $1200 per person in 2005 to an estimated $2,500 per person in 2009 (again with the inclusion of the informal sector, it is estimated that GDP per capita hovers around $3500 per person).
It is the largest economy in the West African Region, 3rd largest economy in Africa (behind South African and Egypt and on track becoming one of the top 30 economies in the world in the early part of 2011.
The large subsistence agricultural sector has not kept up with rapid population growth, and Nigeria, once a large net exporter of food, now imports some of its food products.
The central bank of Nigeria Annual report and statement of accounts for the year ended 31st December 2009, on the real sector states as follows:
The real Gross Domestic Product (RGDP) in 1990 basic Prices grew by 6.7 percent, compared with 6.0 percent in 2008 and an average annual growth rate of 6.6 percent for the period 2005-2009.
The growth was attributed mainly to the sound monetary and fiscal policies pursued in the course of the year, complemented by the favorable market which enhanced manufacturing output. The robust output growth was driven mainly by the non-oil sector, as reflected in the non-oil GDP growth rate of 8.3 percent.
From a middle-income nation in the 1970s and early 1980s, Nigeria is today among the 30 poorest nations in the world.
Putting the country back on the part of recovery and growth will require urgently rebuilding deteriorated infrastructure and making more goods and services available to the citizenry at affordable prices. This would imply a quantum leap in the output of goods and services.
The path to economic recovery and growth may require increasing production inputs of land, labor, capital, and technology and or increasing their productivity.
Increasing productivity should be the focus because, many other countries that have found themselves in the same predicaments have resolved them through productivity enhancement schemes, For instance, Japan from the end of the world war II and the united states of America from the 1970s have made high productivity the center point of their economic planning and the results have been resounding.
Also, middle-income countries like Hong Kong, South Korea, Singapore, the Philippines, India, Mexico, and Brazil have embraced boosting productivity schemes as an integral part of their national planning and today they have made significant inroads into the world industrial markets.
Giving the importance of high productivity in boosting economic growth and the standards of living of the people, its measurement is of great importance to both policymakers and researchers. Productivity measurement can be used to measure or evaluate the relative efficiency of firms, sub-sectors, and sectors. (Anyanwu, 2008: 124 –125).
Economic development is about enhancing the productive capacity of an economy by using available resources to reduce risk, remove impediments that otherwise could lower costs, and lead to higher investments.
The banking system plays an important role in promoting economic growth and development through the process of financial intermediation.
Many economists have acknowledged that the financial system, with banks as its major component provides linkages for the different sectors of the economy and encourage a high level of specialization, expertise, economies of scale and a conducive environment for the implementation of various economic policies of government intended to achieve non- inflationary growth, exchange rate stability, the balance of payments equilibrium and high level of employment.
Therefore, this research work will analyze banking intermediation and its impact on the development of the Nigerian economy with particular attention paid to the real sector of the economy.
1.2 STATEMENT OF THE PROBLEM
The Nigerian industrial sector is facing a lot of challenges in spite of several bank reform measures that have taken place in the Nigerian Economy by government.
Prominent among the problems is accessibility of the bank loans. This has impacted negatively on its growth and development of the Nigerian Economy.
The most prominent that may lead to going concern problems is the lack of capital to finance its activities.
Nigeria’s history of the productive manufacturing sector with Lagos, Kano, Ibadan, Kaduna, Warri, and Port Harcourt being the major hub of manufacturing activities, however, the fortune of the sector in the last three decades have dwindled.
It is obvious that the growth performance and productivity of Nigeria’s’ manufacturing sector at present has taken the key role it played to propel the economy about three decades ago (Ku, Mustapha, and Goh, 2010).
According to the Manufacturers Association of Nigeria (MAN) in 2009, about 2,850 manufacturing firms either permanently closed shop or temporarily halted production in the last two decades, the conditions of the sector can only be said to have deteriorated given the fact that the much needed enabling environment of economic and social infrastructures have all gotten worse.
Capacity utilization in the sector over the last five years has been anything but encouraging averaging at about 37% just as demand for home manufactured goods has flattered as imported goods which are cheaper and of slightly higher quality are more patronized (corporate Nigeria 2012).
This is believed that the poor quality of our manufactured goods is not the problem but the lack of funding.
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