Effects of high lending rates on the manufacturing sector of the nigerian economy

Project Abstract

<p> The manufacturing sector of the economy is the most important sector and for obvious reasons it<br>is affected by the unprecedented increase of banks high lending rate to borrowers. To appraise<br>the effect of this situation prompted this study so as to provide theoretical and empirical<br>evidence on the effect of high bank lending rate on the manufacturing sector of the Nigerian<br>economy. Also, to determine the manufacturing sectors capacity, product pricing and sectors<br>profitability. Questionnaires were designed and distributed to elicit information from the sample<br>population; also, data were gotten through primary and secondary sources. These data collected<br>were presented and analyzed by means of tables and percentages. The hypothesis adduced was<br>tested using such tools as chi-square. Results have shown that the manufacturing sector has been<br>constrained due to the inadequate funding culture of Nigerian banks and banks no longer want<br>to lend on a long term basis, even when they lend, it is at cut-throat and high interest rates.<br>Therefore, banks who are the ultimate source of bank loan should realize that, manufacturers<br>are quality customers and bank rate should be a dialogue between the two sectors so that the<br>manufacturing sector could survive and interest rates need periodical adjustments so that there<br>would be increase in the level of investment. <br></p>

Project Overview

<p> </p><p>1.0. INTRODUCTION<br>1.1. BACKGROUND OF THE STUDY<br>Granting that no country of the world can ever attain an expected level of economic development<br>without a virile and highly productive manufacturing sector makes it imperative that Nigeria as a<br>country must pursue policies aimed at stimulating a rapid growth capable of increasing the<br>productivity of the manufacturing sector and thus, improve national economy. This very<br>important sector transforms our numerous raw materials into marketable finished products that<br>are required in our daily existence as a people and as a nation.<br>The sector generates foreign exchange through the exportation of its finished products. Realizing<br>the importance of this sector, Nigerian government had before now, made concerted efforts to<br>give reasonable support and assistance to the realization of the growth of the manufacturing<br>sector in Nigerian economy.<br>It is greatly accepted that the oil boom of the 70’s greatly improved Nigeria’s economy and<br>earned her industries need foreign exchange to import raw materials.<br>Regrettably, thus boom changed drastically in the 80’s with the dwindling oil revenue. The effect<br>however saw the folding up of some industries, thus, negatively affecting the manufacturing<br>sector of the economy. The harsh economic situation of the time wholly informed that sectors<br>should be opened so as to supplement the poor oil revenue. This unpleasant economic condition<br>got worse with military leadership which was considered unstable.<br>Yet, the manufacturing sector remains the most wanted sector to supplement the foreign<br>exchange earnings of the oil sector through exportation of their finished products.<br>2<br>Nevertheless, military regimes are known not to offer enabling environment for effective<br>industrial growth but with the emergence of a democratically elected government in May 1999,<br>the Nigerian nation started the creation of enabling opportunities and environment to promote the<br>gradual development of the manufacturing sector. However we must realize that the<br>manufacturing sector of the economy has been the most unfortunate and hardest hit by the high<br>interest rates.<br>Odimaya (2000:17) noted that “banks no longer want to lend on long-term it is usually at cutthroat<br>interest rates”.<br>This situation has continued to affect the manufacturing sector, even in this democratic<br>dispensation with the federal government economic policy of deregulation of the banking sector.<br>This condition according to kazeem (2004:23) has greatly affected the manufacturing sector.<br>This opinion of kazeem is made stronger when he wrote that the banks high interest lending rates<br>continue to threaten the agreement reached by the Nigerian government, the central bank of<br>Nigeria (CBN) and the banks that lending rates should not be more than the minimum rediscount<br>rate.<br>The above agreement was to encourage bank lending to industrialists and so, stimulate the<br>manufacturing sector development and improvement of the national economy which would<br>guarantee rapid industrialization in line with development objectives.<br>Manufacturing which cannot afford the high bank lending rates hardly survive and they are<br>mostly neglected by government policies and its these small scale industries that respond to the<br>lives and needs of the ordinary citizen.<br>Libanio (2006:22) argues that the manufacturing sector has an important role in the growth and<br>performance of the economy but the manufacturing output was not enough to generate sizeable<br>3<br>growth in the economy. Regrettably, the performance of the manufacturing sector in Nigeria has<br>been constrained due to inadequate funding culture of the Nigerian banks and even when banks<br>lend, they lend on a high rate of interest on the loan and banks are the primary source of capital<br>for manufacturers or industrialists.<br>Goldman Sachs (2008:24) talks about the objective of the approved vision 20-2020 study<br>projections that Nigeria will be 20th and 12th largest economy of the world and Africa<br>respectively.<br>This vision is to be realize through the growth of the private sector therefore, overconcentration<br>and overdependence should be reduced on the oil sector because there have been a growing<br>concern on the decline of the output of the manufacturing sector in Nigeria which is faced with<br>the problem of accessibility of funds and high interest rates of banks.<br>1.2. STATEMENT OF THE PROBLEMS<br>The first problem of the study is the poor capacity utilization of the manufacturing sector.<br>The second problem of the study is the high cost of product pricing of the manufacturing sector.<br>The third problem of the study is lack of profitability of the manufacturing sector.<br>1.3. OBJECTIVES OF THE STUDY<br>1. The first basic objective of the study is to examine the effects of high interest rates on<br>manufacturing sectors capacity utilization.<br>2. To examine the effects of high interest rates on the product pricing of the manufacturing<br>sector.<br>3. To examine the effects of high interest rates on the profitability of the manufacturing sector.</p><div><div></div></div><br> <br><p></p>