IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIA MANUFACTURING SECTOR
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IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIA MANUFACTURING SECTOR
Chapter one
INTRODUCTION
1.1 Background of the Study
The global financial crisis has slowed economic activity around the world, affecting productivity, business operations, and investments by diminishing domestic and international demand for goods and services.
It has increased unemployment as numerous industries and organisations lay off people, affecting global energy prices, exchange and interest rates, and national income and budgets.
The impact of the global economic crisis was first felt on the Nigerian Stock Market between March and December 2008, wiping out around 40.0% and 45.0% of the market capitalization and value index, respectively.
Between March 2008 and January 2009, the market value dropped from an all-time high of N13.5 trillion to less than N4.6 trillion. The All-Share Index similarly fell from approximately 66,000 basis points to less than 22,000 points within the same time period.
Stock prices witnessed a “free-for-all” downward movement regime, with more than 60% of little more than 300 quoted securities on constant offer (supply exceeding demand) on a consistent basis (Aluko 2008, p.12).
The removal of foreign investors from the market exacerbated the situation, as their departure resulted in share dumping. It also increased the demand pressure on the foreign exchange market caused by divestment and the repatriation of capital and dividend by overseas investors.
Some lines of foreign credit held by Nigerian banks were called in, resulting in a significant demand for scarce foreign cash (Ayeni, 2012, p. 6).
Over the last two decades, Nigeria’s industrial activity has declined significantly, with about 8,708 manufacturing jobs lost as a result of plant closures and relocation. Manufacturing accounts for only about 5% of Nigeria’s GDP, which is low among African countries compared to 20% in South Africa and Mauritius.
As the issues plaguing Nigeria’s manufacturing sector continue, it is not unexpected that the global economic crisis has exacerbated them. The issue of how the country’s industrial companies are faring as the economy struggles to recover from the crisis remains a crucial policy matter.
In the context of the recent global economic recession and its repercussions, there are currently no empirical studies available that demonstrate its implications on Nigerian manufacturing enterprises and their status.
With a goal of joining the top twenty industrialised nations by 2020 and the current global economic crisis, it is critical to assess the state of the manufacturing sector (Ayeni, 2012, p.3).
In general, the manufacturing sector serves as a catalyst in a contemporary economy, providing numerous dynamic benefits that are critical for economic transformation. In every sophisticated or even emerging economy, the manufacturing sector is a leader in many ways.
It is a means of enhancing productivity in terms of import substitution and export expansion, generating foreign exchange earning capacity, expanding employment and per capita income, and resulting in distinctive consumption patterns.
Furthermore, it generates investment capital at a quicker rate than any other sector of the economy, fostering broader and more effective links between sectors. In terms of contribution to GDP, the manufacturing sector is recognised, although it has been surpassed by the services industry in a number of countries, including Nigeria.
Before independence, agriculture dominated Nigeria’s economy and accounted for the majority of its foreign profits. Early manufacturing initiatives were aimed at implementing an import substitution strategy, with erstwhile trade enterprises embarking on light industrial and assembly-related manufacturing operations.
Up until roughly 1970, the private sector was the primary driver of industrial operations, including certain agro-based light manufacturing facilities such as vegetable oil extraction, plants, and tobacco.
The import-dependent industrialization model came to a halt in the late 1970s and early 1980s, when liberal importation policies increased completed goods imports at the expense of domestic output. This resulted in a relative fall in exportable industrial production, with little product and process diversification gained.
The Structural Adjustment Programme (SAP), which was implemented in 1986, was intended to revitalise the industrial sector by shifting emphasis to increasing domestic sourcing of inputs through monetary and fiscal incentives.
Deregulation of the foreign exchange market was also implemented to make non-oil exporters, particularly manufacturers, more competitive, albeit this resulted in a large increase in input prices.
Looking at the manufacturing sector over time, it becomes clear that its contribution to GDP has been quite little. It was approximately 9% in 1970, 10% in 1980, 8% in 1990, 6% in 1998, and 5.9% in 2008.
Despite the fact that manufacturing contributed approximately 7% of GDP in the 1990s, particularly in 1994, the growth rate was negative by 8%. During the same period, overall manufacturing capacity utilisation declined from more than 70% in 1973 to 39% in 1986 and approximately 27% in 1998.
Firm efficiency is required to realise their potential for job creation, boosting technology uptake, assuring equal distribution of economic opportunities, and maintaining macroeconomic stability.
He emphasised that the factors of enterprise success are numerous and intertwined, but they may be classified into three major categories:
influences influencing enterprise behaviour include individual qualities, external/ecological influences, and internal structure arrangements.
Essien (2005, p.17) emphasised in his research that more countries around the world had implemented one sort of economic reform or another at some point in their history.
These reforms’ goals may differ from country to country, but they are always focused on placing their economies on a path of long-term growth and development.
In developing economies like Nigeria, such reforms have been central to the development plan. In recent years and in almost all situations, structural deficiencies in the economy, a high debt service load, regional and sectoral disparities, and low economic performance have been among the most compelling grounds for their implementation.
The Nigerian government’s most recent reform is the National Emergency Economic Development System. The new reform places a heavy emphasis on manufacturing and agricultural growth. The emphasis on these two sectors stems from their importance in every economy.
According to Omanukwue (2005, p.14), manufacturing and agriculture have become increasingly complicated activities, particularly in light of the dynamic changes and innovations that have permeated the global economy.
This is much more difficult in a developing economy like Nigeria, where there is a strong desire to compete both domestically and globally. As a result, in 2004, the government started an economic reform initiative known as the National Economic Empowerment and Development Strategy (NEEDS). There was a considerable worry about manufacturing and agriculture, and the need to expand these sectors, among others.
1.2 Statement of the Problem
Access to finance remains one of the most critical hurdles to the formation, survival, and growth of manufacturing enterprises, particularly innovative ones. The global financial crisis is exacerbating the problem.
It is suggested that resource-rich countries, like as Nigeria, suffered the most from the global financial crisis as a result of deteriorating terms of trade. Indeed, as global demand shrank, most commodity prices fell dramatically.
Exporting countries were thereby losing export profits while also losing much-needed foreign exchange. This had a detrimental impact on product makers, as their revenue decreased.
These losses have far-reaching economic effects. Indeed, according to the International Monetary Fund’s (IMF) World Economic Outlook Report from April 2008, a 1% slowdown in global GDP, which reduces worldwide demand, might result in a 0.5 percentage point slowdown in Sub-Saharan African countries. The manufacturing industry is on the edge of collapse, with thousands of workers losing their employment as a result of the global financial crisis.
The manufacturing sector is facing a significant problem of unfair competition as a result of unrestricted entry of consumer goods into the country. Most industrial enterprises are currently closing plants or operating on skeleton crews due to a market oversupply, which they claim is the result of subsidised imported goods displacing their product.
The scenario has caused significant damage to the manufacturing sector.Concerns include smuggling, faking and counterfeiting, the influx of poor items, and tax fraud.
Given the problems posed by the global financial crisis, this study on the impact of the global financial crisis on the Nigerian manufacturing sector is necessary.
1.3 Objectives of the Study
The overall goals of this study are:
Examine the influence of the global financial crisis on Nigeria’s manufacturing industry.
To determine the role of the manufacturing sector in the development of the Nigerian economy.
To assess the demand for adequate finance for industrial enterprises.
To determine how the government might alleviate the effects of the global financial crisis in order to stimulate the growth of the manufacturing sector.
1.4 Research Questions.
The following research questions were established to fulfil the study’s objectives:
What influence does the global financial crisis have on Nigeria’s manufacturing sector?
What functions does the manufacturing sector play in the growth of the Nigerian economy?
What is the necessity for proper funding in manufacturing companies?
What are the feasible solutions that the government may use to alleviate the effects of the global financial crisis and stimulate manufacturing sector growth?
1.5 Statement of Hypothesis
Ho: From 2006 to 2015, the global financial crisis had no detrimental influence on the Nigerian industrial industry in terms of working capital funds or production at Champion Breweries Plc.
H1: Between 2006 and 2015, the global financial crisis had a detrimental influence on the Nigerian industrial industry in terms of working capital funds and production at Champion Breweries Plc.
1.6 Significance of the Study
The study’s significance is that it will reveal how the global financial crisis affects Nigerian industrial enterprises, such as Champion Breweries.
The study will assist in determining the importance of manufacturing firms in the development of the Nigerian economy, as well as the necessity for proper manufacturing company funding.
The study will also highlight how the global financial crisis might be mitigated in order to stimulate the development and growth of manufacturing enterprises. In addition, the study will be beneficial as a resource for other scholars looking for similar information.
1.7 Scope and Limitations of the Study
This study examines the impact of the global financial crisis on Nigeria’s manufacturing sector, using Champion Breweries plc, Uyo as a case study.
During the course of conducting the study, the researcher faced numerous obstacles that served as limitations to the study, which included:
Financial Factor: Due to a lack of funding, researchers were forced to drive vast distances to distribute study questionnaire forms.
Time Factor: Because the researcher had less than two months to finish the study, the sample size was reduced.
Material Factor: A shortage of appropriate material for a literature review has been identified.
1.8 Organisation of the Study
The study consists of five chapters:
Chapter One: Introduction, study background, problem statement, study objectives, hypothesis statement, research questions, significance of the study, scope and limitations of the investigation, study organisation, term definitions, and end notes.
Chapter 2: Review of Related Literature, Introduction,
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