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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

There has been a growing concern on the decline of the output of the manufacturing sector in Nigeria in recent times, despite the fact that the government embarked on several strategies aimed at improving industrial production and capacity utilization of the sector. This worry is understandable in view of the fact that it has been generally acclaimed, through the Kaldor’s first law, that manufacturing sector is regarded as the engine of growth of the economy (Libanio, 2006). The unimpressive performance of the sector in Nigeria is mainly due to massive importation of finished goods and inadequate financial support for the manufacturing sector, which ultimately has contributed to the reduction in capacity utilization of the manufacturing sector in the country 
Enebong (2003) argued that the level of the Nigerian manufacturing organisations’ performance will continue to see a decline because as it is now, the manufacturers will have even more problems in assessing raw materials due to stiff competition from the foreign firms. Even the financial sector reform of the Structural Adjustment Programme (SAP) in 1986, which was meant to correct the structural imbalance in the economy and liberalize the financial systems did not achieve the expected results. As Edirisuriya (2008) reported, financial sector reforms are expected to promote a more efficient allocation of resources and ensure that financial intermediation occurs as efficiently as possible. This also implies that financial sector liberalization brings competition in the financial markets, raises interest rate to encourage savings, thereby making funds available for investment, and hence lead to economic growth (Asamoah, 2008). Therefore, it is logical to assume that financial liberalization enhances funds mobilization and accessibility, which are required for firms’ performance and economic growth. However, this research project has been designed to examine the contributions of financial institutions to the growth of manufacturing industry.
1.2 STATEMENT OF THE PROBLEM
This study was motivated by the challenges pose by the lack of sufficient bank credits to meet the increasing needs in the manufacturing sector of the Nigerian economy. There is no iota of doubt that bank credits is very crucial and essential in revitalizing the manufacturing sector. As important as bank credits is to the sector in spite the continuous policy strategies to attract credits to the sector, most Nigerian enterprises have remained unattractive for bank credits For instance, as indicated in central Bank of Nigeria (CBN) reports, almost throughout the regulatory era, commercial bank’s loans and advances to the manufacturing sector deviated persistently from prescribed minima. Furthermore, the enhanced financial intermediation in the economy following the financial reforms of the 1990s notwithstanding, credits to manufacturing as a proportion of total banking credits has not improved significantly averaging 15.7 percent between 1990 and 1994 and 25.8% between 1995 and 2000. Consequently, many manufacturing firms in the country have continue to rely heavily on internally generated funds, which have tended to limit their scope of operating. The above problems can be summarized as follows; 1. High interest rate on Bank lending to the manufacturing sector. 2. Financial institutions have not played vital role in revitalizing the manufacturing sector. The output of the manufacturing Sector has in Nigeria? 3. The economic impact of the manufacturing industry is not felt has most products are still imported into the country for consumption
1.3 OBJECTIVE OF THE STUDY
The main objective of this study is to examine the contribution of financial institutions in Nigeria to the growth of manufacturing industry. However, other specific objectives include:
1. Examining the impact of interest rate on manufacturing output of the manufacturing sector
2. To assess the impact of bank credit on the output of the manufacturing sector in Nigeria.
3. To assert the relationship between manufacturing output and economic growth of Nigeria
1.4 RESEARCH QUESTIONS
In order to achieve the purpose of this research study, the study will attempt to provide answers to the following research questions.
1. How does interest rate impact the manufacturing output of the manufacturing sector? 2. To what extent does bank credit impact the output of the manufacturing Sector in Nigeria? 3. What is the extent of the relationship between manufacturing output and economic growth of Nigeria
1.5  RESEARCH HYPOTHESES
Hypothesis is a tentative answer to a research question. It is a conjectural statement about the relationship that exist between two or more variables which needs to be tested empirically before they can be accepted or rejected. To provide answer to the research questions arising from this study, the following hypotheses are postulated.
Hypothesis One
Ho : Interest rate does not have significant impact on manufacturing output
H1 : Interest rate does has significant impact on manufacturing output
Hypothesis Two
Ho : Bank credit does not have significant impact on the output of the manufacturing Sector in Nigeria
H1 : Bank credit has significant impact on the output of the manufacturing Sector in Nigeria
Hypothesis Three
Ho : There is no significant relationship between manufacturing output and economic growth of Nigeria
H1 : There is significant relationship between manufacturing output and economic growth of Nigeria
1.6 SIGNIFICANCE OF THE STUDY
This research work tends to examine the contribution of financial institutions to the growth of manufacturing industry. An insights on the empirical relationship between financial sector reforms and manufacturing output, can assist the government in formulating accommodating policies to enhance industrial production and economic growth. The study contributes to knowledge in three ways: First, it reveals the current situation of manufacturing sector in Nigeria. Second, the link between manufacturing output and economic growth will also be established. Finally, the determinants of manufacturing output will be identified. Thus, the appropriate policy towards accelerating growth through manufacturing sector can be formulated and implemented.
1.7 SCOPE OF THE STUDY
This research work is to examine the contribution of financial institutions to the growth of manufacturing industry. The scope of the study is the entire manufacturing sector of Nigeria economy in large. The geographical location of the research in Nigeria. The study covers data for period 2005 – 2014. The organization of the research is Nigeria Breweries Plc. The sample size would be limited to one hundred which will be drawn from the population. The simple sampling technique will be used in drawing the sample.
1.8 LIMITATIONS OF THE STUDY
In the course of conducting this research work it is expected that the following will constitute impediments to the effective conduct of the study Access to Data: inability to access relevant information is a foreseen challenge to the success of this research. The tax authourity may not reveal data or a true information which they which they may choose to keep for themselves. Time Constraint: this study would have choose to cover a larger scope to consider the thirty-six state tax authority which would yield a more reliable result but due to the limited time available, the scope is limited to Lagos State tax authority. High cost of running a large area: Also the financial implication of covering the entire nation could be a predicament to the success of this research. Nevertheless, I believe the above limitations will in no way affect the reliability and validity of the research study.
1.9 OPERATIONALIZATION OF VARIABLES In testing the validity of the already stated hypothesis, this model will be used; manufacturing output is a function of commercial banks and interest rate. Mathematically this can be expressed as:
Moutput = f (COML,IR)
Where
Moutput = manufacturing output
Coml =commercial bank loans
IR =commercial bank interest rate The ordinary least square model is based on the following function.
Moutput = b0 + b1COML + b2 IR + U Moutput = Dependent variable
COML,IR = Independent variables b0 = Regression constant 

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