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This study has investigated the effect of industrial sector on economic growth in Nigeria for a period of 37 years (1980 to 2016). The study adopted a linear multiple regression model and the OLS estimation technique. The study used GDP as the dependent variable while industrial sector, FDI, total savings and inflation were used as the explanatory variables. From the results gotten, industrial output has a positive relationship with economic growth and it is statistically significant.FDI was revealed to have a positive relationship with the gross domestic product in Nigeria. Thus, policies geared towards the attracting FDI, will have a positive effect on it and thereby resulting to an increase in the gross domestic product. Total savings from the result also have a positive relationship with economic growth in Nigeria and it is significant. And also inflation rate from the model has a negative relationship with economic growth and it is statistically insignificant.It is recommended that policy geared towards industrial sector development should be pursued such as giving incentives as tax holidays and providing cheap and easily accessible loans for this industries to tap into to further grow. It is thus concluded that industrial sector is a significant determinate of economic growth in Nigeria and such should be given high priority in government developmental policies.
The impact of manufacturing 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.
1.1 Background of Study
The oil boom of the 1970s made Nigeria neglected its agricultural and light manufacturing bases in favour of an unhealthy dependence on crude oil. In 2000, oil and gas export accounted for more than 98% of export earning and about 83% of federal government revenue. New oil wealth, the concurrent decline of other economic model fuelled massive migration to the cities and led to increasingly wide spread poverty especially in rural areas. A collapse of basic infrastructures and social services since the early 1980s accompanied this trend, (CIA, 2010).
By 2000, Nigeria’s per capita income had plunged to about one quarter of its mid-1970s high, below the level at independence. Along with the endemic malaise of Nigeria’s non-oil sector, the economy continues to witness massive growth of informal sector’s economic activities estimated by some to be as high as 75% of the total economy. The U.S United State remains Nigeria’s customer for crude oil accounting for 40% of the country’s total oil export, Nigeria provides about 10% of overall U.S oil import and ranks as the fifth-largest source for U.S imported oil and ranked 44th worldwide and third in Africa in factor output (Adeolu B Anyawale, 1997).
Nigeria economy is struggling to leverage the country’s vast wealth in fossil fuels in other to displace the crushing poverty that affects about 57% of its population since the amalgamation of the different protectorates till date. 80% of Nigeria’s revenue flow to the government, 16% covers operational cost and the remaining 4% goes to investors. World Bank has estimated that as a result of corruption, 80% of energy revenues, benefit only 1% of the population (Econspapers, hosted by Swedish Business School Orebro University).
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.
In 2003, the manufacturing sector accounted for 4% of the Gross Domestic Product (GDP) (Ojo, 1987). 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.
1.2 Statement of 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.
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).
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. (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 underutilization and this has posed a threat to the economic growth and development of the country. (Adewale, 2002).
That industrialization of a truth is the catalyst of economic growth for many nations in the twentieth century can no longer be disputed. It has been a much emphasised development strategy in Nigeria as in many other countries even see industrialization as providing the basic means of overcoming their economic backwardness. While the exact relationship between industrialization and economic development has been a controversial issue in the economic literature, not many economists doubt the capacity of industry for rapid growth and in turning sharply the table of economic progress. The high level of industrialization and rapid economic growth of the advanced countries taken account of and are making frantic efforts towards attaining it too, through several industrial policies aimed at encouraging both individuals and the public/government to establish industries. However, the greatest obstacle to rapid industrial development in Nigeria has been identified to be; inadequate finance.
1.3 Objectives of the Study
The overall objective of this study is to examine the impact of industrial output on economic growth of Nigeria. Specifically, the sub-objectives of the study include:
1.4 Research Questions
The study would also explore the following question:
1.5 Research Hypotheses
The hypothesis tested in the course of the analysis is stated below:
Ho1: Industrial development does not contribute significantly to Nigerian economy growth.
H02: Industrial savings has no significant impact on economic growth of Nigeria.
1.6 Significance of the Study
The significance of this study lies in the fact that the work will expose the extent at which industrial output has contributed to economic growth in Nigeria thereby highlighting some obstacles hindering increase in industrial output and proffer possible solutions to them. This work will be relevant to the government policies and entrepreneurs directing them on industrial development plan. It adds to the already existing literature on industrial output in Nigeria. Furthermore, the work will assist researchers, potential industrialist, economist, investors and other related users of this veritable material in this field of study, it is interesting to know that industrial output is the shortest route to economic development.
1.7 Scope of the Study
The researcher intends to find out the impact of industrial output on Nigeria’s economic growth from 1985 to 2016. The study will be focusing more on the impact of industrial output on gross domestic product of Nigeria impact of industrial productivity on foreign direct investment of Nigerian the effect of industrialization on exchange rate of Nigeria and the effect of industrial output on inflation rate of Nigeria.