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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).

1.3   OBJECTIVES OF THE STUDY

The main objective of this study is to empirically assess the impact of industrialization on economic growth and development in Nigeria. The specific objectives of the study are as follows:

To assess the contribution of industrial sector on economic development in Nigeria.

To examine factors that as hinder industrialization in Nigeria economy

To evaluate ways in which industrial sector in Nigeria can be made to play a better role towards high productivity for economic growth and development.

1.4   RESEARCH QUESTION

The research questions which would guide this study, are as follows:

(i)  Is there significant relationship between industrialization and economic development?

(ii)   Has industrialization increased economic development over time?

(iii) What are the factors that has hindered the growth of industrialization in  Nigeria?

1.5   RESEARCH HYPOTHESIS

The hypothesis that will guide through this research is:

H0: Industrialization has no significant relationship with economic growth in Nigeria.

H1: Industrialization has significant relationship with economic growth in Nigeria.

H0:Macro economic variables has no significant relationship with industrialization in Nigeria.

H1: Macro economic variables has significant relationship with industrialization in Nigeria.

1.6   SIGNIFICANCE OF THE STUDY

The quality of research work lies on the relevance to the society being studied.  The importance is the ability to draw a relationship between industrialization and economic development in Nigeria. whether industrialization has significant impact on Nigeria’s economic growth and development. Again, this research will be of immense value to the different sectors of the economy (both public and private) most especially the government. In conclusion, the study would be of immense help to the government, fiscal authority, monetary authority, individuals, economists, students, planners, financial analysts, stock brokers and others who might be interested in researching into the field in the future, by shedding more light into the widely held view about the relationship between industrialization and economic development.

1.7   RESEARCH METHODOLOGY

The analysis that will be made in this study shall be based on macroeconomic data in Nigeria economy. Due to the linearity nature of the model formulation, Ordinary Least Square (OLS) estimation method would be employed in obtaining the numerical estimates of the coefficients in the model using Eviews. Two multiple regression models shall be used in the estimation. The first model shall seek to investigate the effect of industrialization on economic growth in Nigeria, while the second model shall seek to investigate the effect of macro economic variables on industrialization in Nigerian economy. This is a follow up on the objectives and hypothesis of study stated earlier.

1.8   SCOPE OF THE STUDY

The economy is a large component with lot of diverse and sometimes complex parts; this research work will only look at a particular part of the economy (macro). This work cannot cover all the facets that make up the macro sector, but will look at industrialization as a tool for the stabilization, and attaining of economic growth hence development. The empirical analysis and estimation covers the period between 1981 and 2016. This restriction is unavoidable because of the non-availability of some data. The data for this study would be obtained mainly from secondary sources; particularly from Central Bank of Nigeria (CBN) publications such as the CBN Statistical Bulletin, CBN Annual Reports and Statements of Accounts, and National Bureau of Statistics publications.

1.9      LIMITATIONS OF THE STUDY

Finance is a key factor that to writing a good research. However financial constraint created difficulties but did not hinder the research work. The main limitation of this study is time constraint. The time allotted for the completion of this research is not adequate based on recent and contemporary happening with respect to the impact of industrialization on the growth and development of the Nigerian economy.

1.10  ORGANIZATION OF THE STUDY

This study shall be divided into five chapters. The first chapter provides the background of the subject matter justifying the need for the study. Chapter two presents related literature concerning industrialization and economic development. The research methodology, which includes, sources of data, model formulation, estimation techniques etc, are stated in chapter three while data presentation, analysis and interpretation  of regression result were made in chapter four. Concluding comments in chapter five reflects on the summary, conclusion, recommendations and suggestion for further studies based on the findings of the study.

1.11 DEFINITION OF TERMS

Industrialization: Industrialization is the process by which an economy is transformed from primarily agricultural to one based on the manufacturing of goods. Individual manual labor is often replaced by mechanized mass production, and craftsmen are replaced by assembly lines.

Gross Domestic Product (GDP): Refers to the money value of goods and services produced in an economy during a period of time irrespective of the people.

Economic Growth: This refers to the increased over time of an economy’s capacity to produce those goods and services needed to improve the well-being of the citizens in increasing number and diversity. It is the study of the process by which productive capacity of the economy is increased over time to bring about rising level in national income.

Economic Development: This is a multi dimensional process involving the provision of basic needs, acceleration of economic development, reduction of inequality and unemployment, eradication of poverty as well as changes in attitude, constitution and structure in the economy.

REFERENCES

Adeola, F. A. (2005) Productivity performance in developing

countries: Case study of Nigeria. United Nations Industrial Development Organization (UNIDO) Report.

Ayodele, A.I & Falokun, G. (2003). The Nigerian Economy:

Structure and Pattern of Development, JODAD  Publishers.

Central Bank of Nigeria. (2013). Central Bank of Nigeria Statistical Bulletin, Vol. 24.

Chete, L. N. and Adewuyi, A. O. (2004): “NISER, Survey of Business Conditions, Experience and Expectations in the Manufacturing Sector”, Nigerian Institute of Social and Economic Research (NISER).

Fashola, M. A. (2004): “A Scheme for Nigeria’s Optimal Industrial Development in Industrialization, Urbanization and  Development in Nigeria (1950-1999), ed: M. O. A. Adejugbe, Concept Publications Limited.

Ogbu, O. (2012) Toward Inclusive Growth in Nigeria. The Brookings Institution’s Global Economy and Development Policy Paper. No. 2012-03, June.

Tamuno, S.O. & Edoumiekumo, S.G. (2012). Industrialization and trade globalization: What hope for Nigeria? International Journal of Academic Research in Business and Social  Sciences, 2(6), 157-170.

The World Bank (2012) World Bank Development Indicators.

Washington D.C. United Nations Development Programme (2011) Human Development Reports. New York: Palgrave Macmillan.

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