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CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Output of the Nigerian economy comes from six main sectors namely: agriculture, manufacturing, mining, quarrying, real estate and construction, wholesale and retail trade (general commerce) and service sectors. These sectors relate with one another using the stock of capital and other factors of production within the economy to produce the desired goods and services. During the production process in these sectors, capital which is a factor of production play a very dynamic role? It assists in procurement of necessary inputs required for production and hence, increases production capacities. Therefore, availability and non-availability of capital determines, to a large extent, the growth process and performances in these sectors.

In many developed and developing nations including Nigeria, the manufacturing sector plays a very vital and significant role in the development of economy. The manufacturing sector as a sub sector of the industrial sector refers to a process in which raw material and other production factors such as labor land and capital are combined and utilized in the production of good and services. In advanced economy such as the United States of America, China and most of other Asian countries, the manufacturing sector is a leading sector in many respects. This is understandable in view of the fact that it has been generally acclaimed, through the kaldor’s first law, that the manufacturing sector is the engine of growth of the economy. It is an avenue for increasing productivity related to import replacement and export expansion, creating foreign exchange earning capacity; and raising employment and per capita income which causes a unique consumption pattern. The manufacturing sector also creates investment capital at a fast rate than any other sector of the economy while promoting a wider and more effective linkage among different sectors. (Anyawu, 2010) In terms of contribution to the Gross Domestic Product (GDP), the manufacturing sector is dominant and it has overtaken the services sector in a number of Organizations for Economic Co- operation and Development (OECD) countries.

In recognition of these potential roles of the manufacturing sector, successive governments in Nigeria have continued to articulate policy measures and programs to achieve industrial growth incentive and adequate finance (Orji, 2012). To emphasize the fundamental and critical role the manufacturing industry plays in capital formation, domestic savings and its effect in ensuring sustainable economic growth and development in Nigeria, the federal government at different times introduced a number of schemes such as World Bank SME II Loan Scheme (1987), Small Scale Industries Credit Scheme (1971), established Industrial Development Centre, National Economic Reconstruction Fund (NERFUND), Nigerian Bank for Commerce and Industries, Nigerian Industrial Development Bank all aimed at improving and sustaining the performance of the manufacturing sector.

In 2010, the federal government through the Central Bank of Nigeria made available the sum of 200 billion naira as Manufacturers’ Intervention Fund. “The objectives of the fund include fast-tracking the development of the manufacturing sector of the Nigerian economy by improving access to credit to manufacturers; improving the financial position of the Deposit Money Banks; increasing output; generating employment; diversifying the revenue base, as well as increasing foreign exchange earnings. It is also

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