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This study examine the effect of commercial bank credit on manufacturing sector output in Nigeria from 1990-2016 with the object of finding out the impact of bank loan 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 Augumented 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 conclude that commercial bank loan have 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 system.
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 under performing 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 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 capital 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 capital 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 largely 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) at 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 1970’s and early 1980’s, 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 output of goods and services.
The path to economic recovery and growth may require increasing production inputs of land, labour, 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 centre 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 in- roads 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 policy makers 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 which otherwise could lower costs and lead to higher investments. The banking system plays the important role of promoting economic growth and development through the process of financial intermediation. Many economists have acknowledge that the financial system, with banks as its major component provide linkages for the different sectors of the economy and encourage 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, 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 Nigeria economy with particular attentions 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 bank loan. This has impacted negatively on its growth and development of Nigerian Economy.
The most prominent that may lead to going concern problem is lack of capital to finance its activities.
Nigeria history of productive manufacturing sector with Lagos, Kano,Ibadan, Kaduna, Warri and Port Harcourt being the major hubs 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 believe that poor quality of our manufactured goods is not the problem but the lack of funding.
Table 1.2.1 The performance of the manufacturing sector in Nigeria
The performance of the manufacturing sector in Nigeria is shown in table 1 and figure1
Manufacturing sector output growth rate in Nigeria
Table one showed manufacturing sector output in Nigeria from 1980-2015 while figure .1 revealed the growth. It is evidence from figure. 1 that, apart from 1985 which marks the eve of structural adjustment progmamme the manufacturing sector output has never increase above 20%. This epileptic growth rate in-spite of the several government efforts is encouraging.
As a result of the above, this study is set to investigate the impact of bank loans on the manufacturing sector of the Nigeria economy.
1.3 RESEARCH QUESTIONS
In a bid to address the issues raised in the research problem, the following question will provide a guide.
1.4 OBJECTIVES OF THE STUDY
Generally this study examines the relationship between bank loans and the manufacturing sector in Nigeria.
Specifically the study seek to:
1.5 RESEARCH HYPOTHESES
In view of the forgoing study, with respect to bank loans and manufacturing sector in Nigeria, the following null hypothesis will be tested:
Ho: Bank loans have no impact on the manufacturing sector of the Nigerian economy.
Ho: there is no long run relationship between bank loans and Nigeria GDP.
1.6 SIGNIFICANCE OF THE STUDY
The study would help the government and financial institutions toascertain the source of solution to the problem of industrialdevelopment due to lack of capital. The study will also enableindustries operating in the country to avail themselves of thefinancing opportunities available, so that the failure ofindustries will minimized.
The study will provide useful information that will help in policy formation regarding industries financing in Nigeria.
Finally, it provides information, which those wishing to embark on similar studies can make use of it in their work.
1.7 LIMITATIONS OF STUDY
in the course of the investigation the study is likely to encounter several constraints, prominent among these obstacles are highlighted below: As a result of lack of fund, the researcher is likely to find it difficult to carryout a much more thorough investigation, i.e. unable to tour round the country in order to get the relevant data that the researcher was looking for. Time constraint: The previous study was also constrained by the time usually allowed in student’s research of this work.
However, these constraints are not so fundamental, material and pervasive to render the work useless.
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