THE IMPACT OF MONETARY POLICY MEASURES AS AN INSTRUMENT OF ECONOMIC STABILIZATION IN NIGERIA (1980 – 2010)

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ABSTRACT
The study examined the impact of monetary policy in stabilizing the Nigeria economy. In the model specified inflation is the regress while cash research requirement, liquidity ratio, money supply, minimum rediscount rate, interest rate are the regressors. The government employs a deliberate manipulation of cost and availability of credit and money to achieve this economic objective. The CBN being the sole regulatory body combines measures designed to regulate the value, supply and cost of money into economic activities. This is what we call monetary policy (CBN Brief 1996/03). It is against this background that the research is carried out to ascertain the effect in the use of monetary policies such as money supply, interest rate, liquidity ratio, minimum rediscount rate, inflation rate and cash reserve requirement to stabilize the Nigeria economy. Also to determine the relationship that exists between the independent variables and dependent variable from the secondary data for the period under study (1980 – 2010). The statistical technique that will be used for this analysis is the ordinary least square technique, with the aid of PC five 8.00 software package. It has been identified that the major problem militating against the poor performance of monetary policy instruments in stabilizing the economic in Nigeria is time – lags which involves policy employed to take many months to achieve its full effects. This research recommends that there should be a reduction in the cost of production and increase the exportation in order to achieve the objectives of naira devaluation in Nigeria and also, central banks should be independent and should be able to achieve its inflation targets and the stabilization of growth rate in money supply.

TABLE OF CONTENTS
Title page – – – – – – – – – – i
Certification page – – – – – – – – ii
Dedication – – – – – – – – – – iii
Acknowledgement – – – – – – – – iv
Abstract – – – – – – – – – – v
Table of contents – – – – – – – – – vi
CHAPTER ONE
1.1 Background of the study – – – – – – 1
1.2 Statement of problem – – – – – – 3
1.3 Statement of objectives – – – – – – 3
1.4 Statement of hypothesis – – – – – – 4
1.5 Significance of the study – – – – – – 5
1.6 Scope and limitation of the study – – – – – 5
1.7 Definition of terms – – – – – – – 6
7
CHAPTER TWO
2.0 Literature Review – – – – – – – 7
2.1.0 Theoretical literature – – – – – – – 7
2.1.1 The Keynesian view on monetary policy – – – – 9
2.1.2 The classical view on monetary – – – – – 14
2.1.3 The monetarist view of monetary policy – – – – 16
2.2.0 Meaning, instruments and objectives of monetary policy – – 21
2.2.1 Instruments of monetary policy – – – – – 25
2.2.2 Open market operation (OMO) – – – – – 25
2.2.3 Reserve requirement ration – – – – – – 26
2.2.4 Discount rate – – – – – – – – 27
2.2.5 Selective credit controls – – – – – – 28
2.2.6 Moral suasion – – – – – – – – 28
2.3.0 Objectives of monetary policy – – – – – – 29
2.4.0 Monetary policy indicators – – – – – – 30
2.5.0 Monetary policy targets and implication to the Nigerian Economy- 31
2.6.0 Factors that have militated against the impact of monetary policy
in Nigeria – – – – – – – – -32
8
2.6.1 Instability of the financial sector – – – – – 32
2.6.2 Poor state of Economic infrastructure – – – – 33
2.6.3 Non-Harmonization of monetary and fiscal policy – – – 33
2.6.4 Increase in government expenditure – – – – 33
2.6.5 Equate rate bank – – – – – – – 34
2.7.0 The impact of monetary policy during the depression Era
of structural adjustment programme (SAP) – – – 34
2.8.0 Debt management as an integrated part of monetary policy – 36
2.9.0 The impact of monetary policy on the economy – – – 38
2.10.0 Economic stabilization – – – – – – 38
2.11.0 Empirical literature review – – – – – – 40
CHAPTER THREE
3.0 Methodology – – – – – – – – 46
3.1 Theoretical framework – – – – – – – 47
3.2 Estimation procedure – – – – – – – 48
3.3 Model specification – – – – – – – 49
3.4 Method of evaluation – – – – – – – 51
9
3.5 Data required and sources – – – – – – 53
3.6 Decision rule – – – – – – – – 53
CHAPTER FOUR
4.0 Presentation of analysis of result – – – – – 55
4.1 Presentation of regression result – – – – – 55
4.2 Result interpretation – – – – – – – 56
4.2.1 Evaluation based on Economic criteria – – – – 56
4.2.2 Statistical test (first order test) – – – – – 57
4.2.3 Econometrics test (second order test) – – – – – 61
CHAPTER FIVE
5.0 Summary, Recommendations and Conclusion – – – 68
5.1 Summary of findings – – – – – – – 68
5.2 Recommendations – – – – – – – 69
5.3 Conclusion – – – – – – – – 70
BILBIOGRAPHY – – – – – – – – 72
APPENDIX
10
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Monetary policy is the process by which monetary authority of a country controls the supply of the money that is monetary stock often targeting a rate of interest for the purpose of promoting economic growth and stability.
Monetary policy measures are monetary management put in place by the government through the central bank. These measures rely on the control of monetary stocks, that is supply of money in order to influence board macro- economic objectives which includes price stability, high level of em*loyment sustainable economic growth and balance of payment equilibrium. These board objectives are achieved through the use of appropriate instrument depending on which objective the policy formulated want to achieved and also on the level of development on the economy.
11
In the application of monetary policy measures as instrument of stabilization, instrument of monetary policy are determined by the nature of the problems to be solved and by this environment in which these problems exist. They are broadly two categories of these instruments VIZ- indirect and direct instruments. INDIRECT INSTRUMENT are usually used in the market based on economic where the quality of money stock can affected through the relationship between supply and resume money as well as the ability of the monetary authority to influence the creation of reserved.
The reserved and hence money supply can be affected through the following ways.
1. Deposit ratio/change in reserve.
2. Change in discount rate.
3. Interest rate change.
4. Engaging in an open market operation.
In an underdeveloped financial institution the instrument of monetary management is largely limited to direct measure which set monetary and credit target at desired levels. The major DIRECT control measure is direct investment
12
regulation however quantitative ceiling on overall credit operation is also used. These instruments of monetary policy are applied in the achievement of varied objectives.
1.2 STATEMENT OF THE PROBLEMS
The Nigeria economy has encountered the problem of disequilibrium, inability to mobilize domestic savings and unsatisfactory expansion of domestic output. These problems have consistently and presently done severe damage to Nigeria economy; but most strikingly these problems have continued to play the economy unabated that is, the economy is becoming less strong. It is against the background that the problem of this study has been identified and they are as follows.
1. Are monetary policy measures effective as instrument of economic stabilization?

THE IMPACT OF AGRICULTURAL DEVELOPMENT ON NIGERIA ECONOMIC GROWTH, 1980– 2007

 

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ABSTRACT

 In recent decades, the potential contribution of agriculture to economic growth has been a subject of much controversy among development economists.  While some contend that agricultural development is a pre-condition for industrialization, others strongly disagree and argue for a different path.

Taking advantage of Ordinary Least Square Method (OLD), the research carried out by means of secondary data and using independent variables: Agricultural Development, Capital Accumulation, Inflation Rate and Interest Rate re-examines the question of whether agriculture could serve as an engine of growth for the Nigerian economy

Results from the empirical analysis shows that the productivity in agricultural sector has not appreciably impacted positively on the economic growth in Nigeria.

 

TABLE OF CONTENTS

Cover Page          ..        ..        ..        ..        ..        ..        ..

Title Page   ..        ..        ..        ..        ..        ..        ..        ..

Certification          ..        ..        ..        ..        ..        ..        ..        ..        i

Dedication  ..        ..        ..        ..        ..        ..        ..        ..        ..        ii

Acknowledgement        ..        ..        ..        ..        ..        ..        ..        iii

Abstract                ..        ..        ..        ..        ..        ..        ..        ..        iv

Table of Contents                    ..        ..        ..        ..        ..        ..        v-vii

CHAPTER ONE

INTRODUCTION          ..        ..        ..        ..        ..        ..

• Background of the Study ..        ..        ..        ..        ..        1
• Statement of Problem ..        ..        ..        ..        ..        ..        12
• Objectives of the Study ..        ..        ..        ..        ..        15
• Statement of Hypothesis …       ..        ..        ..        ..        16
• Significance of the Study ..        ..        ..        ..        16
• Scope and Limitations of the Study .. ..        ..        17

CHAPTER TWO

LITERATURE REVIEW

• Theoretical Literature ..        ..        ..        ..        ..        18

2.1.1  Agriculture As A Passive Contributor to

Economic Development (Classical School

of 1950s and 1960s).    ..        ..        ..        ..        ..        ..        30

 

• Agricultural led Industrialization

(Classical School of 1970s and 1980s)    ..        ..        ..        31

 

• Agricultural Linkages And Growth and

Development       ..        ..        ..        ..        ..        ..        ..        32

 

• Problems Associated with Agricultural Development 36
• Empirical Literature ..        ..        ..        ..        ..        ..        45
• Agriculture and Poverty Reduction ..        ..        ..        46
• Agriculture and Nutrition ..        ..        ..        ..        ..        47

CHAPTER THREE

RESEARCH METHODOLOGY

• Methodology ..        ..        ..        ..  ..     . .     ..       51
• Area of Study and Coverage ..        …       ….      ..        52
• Model Specification ..        ..        ..        ..        ..        ..        52
• Data Sources ..        ..        ..        ..        ..        ..        ..        53
• Method of Evaluation ..        ..        ..        ..        ..        54

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF RESULTS

• Unit Root Test ..        ..        ..        ..        ..        ..                  59
• Co-Integration Test ..        ..        ..        ..        ..        ..        61
• Economic Opinion, Interpretation ..        ..        ..        63
• Statistical Criteria of the Result ..        ..        ..        ..        65
• Econometric Criteria of the Result ..        ..        ..        68

CHAPTER FIVE

SUMMARY, RECOMMENDATION AND CONCLUSION

• Summary of Findings ..        ..        ..        ..        ..        67
• Policy Recommendation ..        ..        ..        ..        ..        68
• Conclusion ..        ..        ..        ..        ..        ..        ..        70

Bibliography         ..        ..        ..        ..        ..        ..        ..        ..

Appendix    ..        ..        ..        ..        ..        ..        ..        ..        ..

 

 

 

 

 

INTRODUCTION

• BACKGROUND OF THE STUDY

Agriculture is concerned with the husbandry of crops and animals for food and other purposes.  It is the foundation upon which the development of stable human communities, such as rural and urban communities has depended on in many parts of the world.  The study of economic history provides us with ample evidence that an agricultural revolution is a fundamental pre-condition for economic development.  The agricultural sector has the potentials to be the industrial and economic springboard from which a country’s development can take off.  Indeed, more often than not, agricultural activities are usually concentrated in the less developed rural areas where there is a critical need for rural transformation, redistribution, poverty alleviation and socio-economic development.

The agricultural sector has the potentials to shape the landscape, provide environmental benefits such as conservation, guarantee sustainable management of renewable natural resources, preserve biodiversity and contribute to the viability of rural areas.  Through its spheres of activities at both the macro and micro levels, the agricultural sector is strategically positioned to have a high multiplier and linkage effect on any nation’s quest for socio economic and industrial development.

The growth of the agricultural sector in Nigeria was not smooth.

Anyanwu (1967) held that during the colonial period between 1861 – 1960, attention was given to agricultural research and extension services.  Among the activities that was done, the first was the establishment of a research station in Lagos by Sir Claude McDonald in 1893.  Landmarks of 10.4 km was acquired by the British Cotton Growing Association (BCGA) in 1899 for experimental purposes strictly for cotton and was named Moor Plantation in Ibadan.

In 1912, the Department of Agriculture was established in each of the then Southern and Northern Nigeria, but the activities of the department were virtually suspended between 1912 and 1921 as a result of the First World War and its aftermath.  The period 1929 and 1945 was a difficult one for the agricultural sector of Nigeria.  This was the period of great depression when the world prices on commodities fluctuated.  This affected the agricultural sector negatively because the volume of agricultural produce increased but the value did not increase proportionately.

The period 1945 – 1954 marked the period of export boom, because countries were just recovering from the Second World War and countries that needed to develop their destroyed industrial sector were many.  They depended on primary product for the beginning stage of industrialization.  They needed to revitalize their industrial sector by demanding primary goods.  Prices of primary products rose higher again because there were speculations that there would be a Third World War due to the outbreak of the Korean War.  However, after this period, there came another period of price instability.  This made the reliance on agriculture and its products to fall, leading to the establishment of a market board.  This board bought these products from the local farmers and sold them overseas.

In spite of all the periods, Nigeria made a great revenue from agriculture.  In the pre-Independence era, the agricultural sector contributed most to the GDP of Nigeria.  Helleiner (1966) said that in 1929, export production amounted to 57% of Nigeria’s revenue and in that 57%, agriculture made up about 80% of the export.  On attainment of political independence in 1960, the trend was still very much the same, the Nigerian economy could reasonably be described as an agricultural economy, because agriculture served as the engine of growth of the overall economy (Ogen, 2003: 231-234), from the stand point of occupational distribution and contribution to the GDP.  Nigeria was the world’s second largest producer of cocoa, largest exporter of palm oil.  Nigeria was also a leading exporter of other major commodities such as cotton, groundnut, rubber and hides and skins (Alkali, 1997: 15-16).  Between 1964 – 1965, agriculture accounted for 55% of GDP and employed 70% of the adult workforce (Matton, 1981).  In 1970, agricultural export crops like cocoa, groundnut, cotton, rubber, palm oil, palm kernel, etc. accounted for an average of between 65% – 75% of Nigeria foreign exchange earnings and provided the most important source of revenue for the Federal as well as State governments through export products and sale taxes (Ekundare 1973), despite the reliance of Nigerian peasant farmers on traditional tools and indigenous faming methods, these farmers produced 70% of Nigeria’s exports and 95% of its food needs (Lawal, 1997: 195).

However, the 1967 – 1970 Civil War in Nigeria coincided with the ‘Oil Boom’ era, which resulted in extensive exploration and export of petroleum and its products.  This led Nigeria to neglect its strong agriculture in favour of an unhealthy dependence on oil (United States Department of State, 2005).  Ever since then, Nigeria has been witnessing extreme poverty and insufficiency of basic food items.  The agricultural sector contributions now account for less than 5% of Nigeria’s GDP (Olagbaju and Fashola, 1996: 263).  It is against this back drop that we set out to research on the impact of agricultural development on Nigeria economic growth.

As noted earlier, the neglect of the agricultural sector and the dependence of Nigeria on a mono-cultural crude oil based economy had not augured well for the well-being of the Nigerian economy.  In a bid to address this drift, the Nigerian government as from 1975 became directly involved in the commercial production of food and cash crops.

Several large scale agricultural projects specializing in the production of grains, livestock, dairies and animal feeds, to mention but a few, were established (Fasipe, 1990: 129-130).  Sugar factories were also established at Numan, Lafiagi and sunti (Lawal, 1997: 196).

The Nigerian Agricultural and Co-operative Bank (NACB) was established in 1973 as part of government’s effort to invest oil wealth into the agricultural sector through the provision of credit facilities to support agriculture and agro-allied businesses (Olagunju, 2000: 90).  By 1995 the bank had granted the sum of $3,179.6 million as loan to the Private Sector.

• The River Basin Development Authorities (RBDA) were conceived in 1963 and were to cater for the development of land and mineral resources potentials of Nigeria.
• Operation Feed The Nation (OFN) was commissioned in the 1970s with the main objectives of:
• Mobilizing the nation towards self sufficiency and self reliance in food.
• Encouraging the sector of population which relies on buying food to growing its own food.
• Encouraging general pride in agriculture through the realization that a nation which cannot feed itself, cannot be proud etc.

The OFN which was launched in 1976 to generate public awareness of the importance of agriculture to national development, and mobilize both rural and urban dwellers to participate in agriculture, be it in conventional crop farms, fish farms, backyard gardens or poultry did not realize the objectives of reducing or eliminating food imports and achieving self-sufficiency so in 1980 it was replaced with the Green Revolution Programme.

–  The Green Revolution; This was a more deliberate and calculated approach to the food production problem.  The programme was followed by the mounting of food strategies mission for Nigeria by the Federal Ministry of Agriculture, which estimated the level of food production needed to achieve self-sufficiency.  Much of the recommendations of the programme, such as the expansion of the Integrated Agricultural Development Programme (ADP) to cover all States of the Federation, support for artisanal fishers and aquaculture and the establishment of grain storage facilities, among others, are still being implemented.

–   The Directorate of Food, Roads And Rural Infrastructure (DFRI):  This was established by the Federal Military Government in 1986 and was intended to bring development to the rural areas where over 70% of the population reside and work principally as farmers.  The mandate given to DFRI is as follows:

• To improve the quality of life and standard of living of the people in the rural areas.
• To use the enormous resources of the rural areas to lay a solid foundation for the security, socio-economic growth and development activities of the rural areas to those of the Local Government Areas; the States and the Federal Government.
• To ensure a deeply rooted and self-sustaining development process based on effectively mobilized mass participation.

In spite of all these efforts, it is heartrending to note that as from the mid 70s, Nigeria became a net importer of various agricultural products.  In 1982 alone, Nigeria imported 153,000mt tons of palm oil at the cost of 92 million USD and 55,000mt tons of cotton valued at 92 million USD (Alkali, 1997:10).  Between 1973 and 1980, a total of 7.07million tons of wheat, 1.62 million tons of rice and 431,000 tons of maize were imported.

Thus from N47.8 million in the 60s, the cost of food imports in Nigeria rose to N88.2 million in 1970 and N1,027.0 million in 1988 (Alkali, 1997:19-21).  Since the 1990s till the ban of rice importation, Nigeria has been spending an average of 60 million USD on the importation of rice annually.  In 1994, the agricultural sector performed below the projected 7.2 per cent of budgetary output.  (Lawal, 1997:197-198).

Beginning from year 2000, Nigeria import expenditure on both food and live animals rose to N113,489.8 million in the year 2000

 

THE ROLE OF BANK CREDITS ON PROMOTING THE MANUFACTURING SECTOR IN NIGERIA OF 1981-2004

 

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CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY

          Manufacturing sector plays a catalytic role in a modern economy and has many dynamic benefits crucial for economic transformation.  In a typical advanced Country, the manufacturing sector is a leading sector in many respects.  It is an avenue for increasing productivity related to import replacement and export expansion, creating foreign exchange earning capacity; and raising employment and per capital income which causes unique consumption patterns.  Furthermore, it creates investment capital at a faster rate than any other sector of the economy while promoting wider and more effective linkages among different sectors.  In terms of contribution to the Gross Domestic product, the manufacturing sector is dominant but it has been overtaken by the services sector in a number of Organization for Economic Co-operation and Development (OECD) Countries.

Before independence, agricultural products dominated Nigeria’s economy and accounted for the major share of its foreign exchange earnings.  Initially, inadequate capital investment permitted only modest expansion of manufacturing activities.  Early efforts in the manufacturing sector were oriented towards the adoption of an import substitution strategy in which light industry and assembly related manufacturing ventures were embarked upon by the formal trading companies.  Up to about 1970, the prime mover in manufacturing activities was the private sector which established some agro-based light manufacturing units such as vegetable oil extraction plants, turneries tobacco processing, textiles, beverages and petroleum products.  The strategy of light and assemblage manufacturing shifted some what to heavy Industries from the period of the third National Development plan (1975-1980) when government intervened to establish care industrial plants to provide basic imports for the downstream industries.

The import dependent in  dustrialization strategy virtually came to a halt in the Late 1970s and early 1980s when the liberal impart policy expanded the imports of finished goods to the detriment of domestic production.

In this regard, industrialization constitutes a veritable channel of attaining the lofty and desirable conception and goals of improved quality of life for the populace.  Thus, in a supportive mood, Lavis (1967) assumes that in any economy, one or more sectors serve as a prime mover moving the rest of the economy forward. This role of engine of growth or leading sector has usually been played by industrial sector under the industrialization process.

Against this background, industrialization involves extensive technology based development of the productive (manufacturing) system of an economy.  Thus, the development of the industrial sector represents the deliberate and sustained application and combination of suitable technology, management techniques and other resources to move the economy from the traditional low level of production to a more automated and efficient system of mass production of goods and services.  Arising from the foregoing affirmed centrality of industrialization as the pivot of economic growth and development, industrialization process seems to be the main hope of most developing countries such as Nigeria with large population and large labour force.  In spite of these aspiration which ought to have favoured effective industrialization process in an economically conducive manufacturing environment, most of these results as reflected in the performance of the manufacturing sector remain socio-economically undesirable.  Against this back drop, current economic planning and policy instruments are diverted at the development of the key productive sectors, particularly manufacturing and commerce for the promotion of an increasing pace of industrialization in Nigeria.

The major problem facing the Nigerian manufacturing sector is having adequate finance resource for investment.  Because of the low level of income of this, saving is very low.

Since the attainment of independence in 1960, commercial banks in Nigeria have been playing an important role in development process of a nation.  The banks in collaboration with other financial institutions have been mobilizing the scarce domestic resources for rapid social, economic and industrial transformation of the country.

Other services provided by the commercial banks include facilities for safe-keeping of important documents, provision of advice to customers on insurance and investment matters and provision of cash for bulk payment of non-customers salaries and wages, Umole (1985).

In recognitions of this potential roles of the sector, successive governments in Nigeria have continued to articulate policy measures and programmes to achieve industrial growth incentive and adequate finance.  The central goal of government policy was to foster growth in the manufacturing sector.  Over the years, and largely in response to some of the previous policy strategies, the main features of the Nigerian manufacturing sector had emerged.

The role of bank credits in the growth of manufacturing sector cannot be over-emphasized.  For instance, the Federal Government’s Appropriation Bill for the year 2005 has as one of its broad policy objectives to achieve a high economic growth rate (i.e GDP of at least 5%) through a better mobilization and prudent use of economic resources.  This objective is not achievable without significant levels of resources from the financial sectors being mobilized and deployed to finance business expansion and growth.  Banks have to be effective intermediaries for mobilizing and channeling deposits to the productive sectors of the economy especially, the manufacturing sector.

1.2     STATEMENT OF PROBLEMS

In spite of continuous policy strategies to attract credits to the manufacturing sector, most Nigerian manufacturing 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 not withstanding, 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.

In the process, attempts will be made to provide answers to a series of questions including;

1. How has bank credits affected the growth of manufacturing sector in Nigeria?
2. What role can bank credits play in revitalizing the manufacturing sector?
3. What are the basic problems of the manufacturing sector in Nigeria?

4.       What are the causes of inadequacy of skilled technical manpower in

PROBLEMS AND PROSPECTS OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA. A CASE STUDY OF ENUGU EAST SENATORIAL ZONE.

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ABSTRACT

The main purpose of this study is to identify the problems and prospects of small and medium enterprise in Enugu East  Senatorial Zone. To do this, data were collected from both primary and secondary sources. The main instrument of data collection was the questionnaire.

The data were presented in tables as frequency, distribution in the data analysis, the techniques of percentages frequencies were used. The hypothesis were tested with z-test technique at 5% significance level.

Having analysed the data the following were the major findings;

Most of the operators of small and medium enterprise in Enugu East Senatorial Zone make an average daily turnover of N15,000 and profit of about N15,000  daily.

There has been a phenomenal growth in the dimensions and nature of small and medium enterprise in Enugu East Senatorial Zone.

The growth is mainly on account of people’s desire to be self employed.

The problems of establishing and managing small and medium enterprise include lack of capital, lack of managerial skills, lack of business ideas, high cost of operational facilities, scarcity of accommodation, lack of efficient preservation, system and poor environmental and sanitation.

 

TABLE OF CONTENTS

Approval Page                                                                                     i

Dedication                                                                                            ii

Acknowledgement                                                                              iii

Abstract

Table of Contents

CHAPTER ONE

1.1     Background of Study                                                                1

1.2     Statement of the problem                                                         4

1.3     Objective of the Study                                                              6

1.4     Hypothesis                                                                                 6

CHAPTER TWO

2.0     Literature Review                                                                      7

2.1     Conceptual Framework                                                            7

2.2     Theoretical Literature                                                                11

2.2.1  Types of Small and Medium Enterprise                                  15

2.2.2  Roles of Small and Medium Enterprise in Enugu State

Metropolis in Job Creation and Poverty Eradication             16

2.2.3  Importance of Small and Medium Enterprise in Nigeria        18

2.2.4  Problems of Small and Medium Enterprise Enugu East       22

 

2.2.5  Prospect of Small and Medium Enterprise Enugu East

Senatorial Zone                                                                          23

• Challenges in Facing Small and Medium Enterprise in

Enugu East Senatorial Zone                                                    25

• Small and Medium Enterprise Credit Scheme: Case Study

Of Enugu East Senatorial Zone                                               26

2.3     Empirical Framework                                                                30

2.3.1  Ways of Encouraging Small and Medium Enterprise to

Enhance National Development in Enugu East Senatorial

Zone                                                                                                     35

• Government Refund on Small and Medium Scale and

Means of Administration                                                           37

2.3.3  Limitation of the Study                                                              38

CHAPTER THREE

Research Methodology                                                                      40

3.1     Research Design                                                                                40

3.2     Area of Study                                                                             40

3.3     Source of Data                                                                          40

3.4     Sample Size Determination and Sampling Techniques        41

3.5     Instrument                                                                                  41

3.6     Data Collection Procedure                                                       42

3.7     Method of Data Analysis                                                          42

CHAPTER FOUR

Data Presentation of Analysis                                                           44

4.1     Analysis and Interpretation of Data                                         44

4.2     Test Hypothesis                                                                        59

CHAPTER FIVE

Summary, Recommendation and Conclusion                                 63

5.1     Summary of Findings                                                                63

5.2     Conclusion                                                                                 64

5.3     Recommendation                                                                      64

Bibliography                                                                                         66

Questionnaire                                                                                      67

 

 

 

 

 

 

 

LIST OF TABLES

Table 4.1    Administration of Questionnaire                                         44

Table 4.2    Distribution of Respondents                                               45

Table 4.3    Age Distribution of Respondents                                        45

Table 4.4    Marital Distribution of Respondents                                   46

Table 4.5    Educational Qualification of Respondents                        46

Table 4.6    Number of Years in the Business                                       47

Table 4.7    What Extent Does Enugu East Senatorial Zone

Affect the Operation of Small and Medium Enterprise    48

Table 4.8    Factor Responsible or phenomenal growth of

Small and Medium Enterprise                                             49

Table 4.9    Responses of Consumers Feelings                                  50

Table 4.10  Nature of Competition                                                          51

Table 4.11  Problems of Setting up Small and Medium Enterprise  52

Table 4.12  Problems of Managing Small and Medium Enterprise    54

Table 4.13  Future prospects of Small and Medium Enterprise          56

Table 4.14  Distribution of Daily Turnover                                             57

 

 

 

CHAPTER ONE

• BACKGROUND

In recent years, particularly since the adoption of the economic reform programme in Nigeria in 1986, there has been a decisive switch of emphasis from the grandiose, capital intensive, large scale industrial project based on the philosphy of import substitution to small scale industries with immense potentials for developing domestic linkages for rapid, sustainable industrial development. Apart from their potential for ensuring a self reliant industrialization, in terms of ability to rely largely on local raw materials, small scale enterprises are also in a better position to boost employ raw materials, small and medium enterprise, are also in a better position to boost employment, guarantee a more even distribution of industrial development in the country, including the rural areas, and facilitate the growth of non-oil exports.

In Nigeria, the definition of small and medium enterprises also varies from time to time and according to institutions, for instance, the Central Bank of Nigeria’s (CBN) monetary policy circular No:27 of 1988 define small scale enterprises (excluding general commerce) as enterprises in which total investment (including land and working capital) did not exceed #500,000 and or the annual turn-over did not exceed #5.0 million.

Medium enterprise (excluding general commerce) as enterprises in which total investment and not exceed #1,000,0000 (1 million) and the annual turnover did not exceed #1.2 million. Small scale enterprises is one of the modern strategies underdevelop countries are employing to break into the “league” of developed countries. Fasua (2006:85) categorized business that fall under small scale as follows firewood supply, plantain production, restaurant services, small scale poultry raising, operating a nursery for children, home laundry services and host of others. Business grouped under medium scale according to fasusa are ; soap production, hair/body cream production, chemical production, commercial poultry, profession appractes (law, accountancy, education) food and beverage production among others.

Consequently, both the federal and state governments and recently, local governments, have stepped up efforts to promote the development of small scale enterprises through increased incentive scheme, including enhanced budgetary allocations for technical, assistance programmes. New lending schemes and credits institutions for technical assistance programme New lending schemes and credit institutions such as the National Economic Reconstruction found (NERFOUND), World Bank-assisted small-scale enterprises loan scheme (SMES), Nigeria Export and Import Bank (NEXIM), the people’s Bank of Nigeria (PBN) and the Community Bank have also emerged at both the national and local levels to boost the flow of development finance of small scale enterprises which have so far depended largely on personal funds and credit. From informal sources for both their investments and working capital.

Unfortunately, all these formal credit scheme have not been able to adequately redress the fundamental problems which have constrained small scale enterprises access to credit. The low credit rating of this class  of enterprises, is attributable largely to their weak capital, base, high mortality rate, low productivity and shortage of managerial skills. Indeed, the problem of weak capital base, high mortality rate, low productivity and shortage of managerial skills. Indeed, the problems, of weak capital base, and poor access to finance appear to have developed into some vicious circle, leading to slow growth, stagnation and even rapid demise of the small scale enterprises. The impact of all existing credit scheme interms of providing funds for meaningful and sustained development among the small scale enterprise, had medium enterprise to serve the expected  role of catalyst for rapid industrial development, there is need for a more innovative strategy for improved access to development finance for the small and medium enterprise that would address their inability to provide collateral securities for loans formal credit institutions.

• Statement of the problem

Small and medium enterprise are mostly in managed by owners  and relations. The financing in most cases in normally provided by the owners. The owners fail to realize the importance of external source of capital in order affect expansion in the business. In most cases, the by the owner, members of the family and friends in most cases.

In another development, small and medium enterprise experiences difficulties in raising equity capital from the finance houses or individuals. Even when the finance house agrees to provide  equity  capital, the conditions are always dreadful.  All the result to inadequate capital available to the sector and thus lead to poor financing. This is the bane of most cottage industries in Nigeria. About 80% of small and medium enterprises are stifled because of this problem of poor financing and other problems associated with it (Chukwuemeka, 2006). The problems that emanated from poor financing include:

1. Lack of competent management which is the consequence of inability of owners to employ the services  of experts.

 

THE ROLE OF BANK CREDITS ON PROMOTING THE MANUFACTURING SECTOR IN NIGERIA OF 1981-2004   CHAPTER ONE INTRODUCTION

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1.1     BACKGROUND TO THE STUDY          

Manufacturing sector plays a catalytic role in a modern economy and has many dynamic benefits crucial for economic transformation.  In a typical advanced Country, the manufacturing sector is a leading sector in many respects.  It is an avenue for increasing productivity related to import replacement and export expansion, creating foreign exchange earning capacity; and raising employment and per capital income which causes unique consumption patterns.  Furthermore, it creates investment capital at a faster rate than any other sector of the economy while promoting wider and more effective linkages among different sectors.  In terms of contribution to the Gross Domestic product, the manufacturing sector is dominant but it has been overtaken by the services sector in a number of Organization for Economic Co-operation and Development (OECD) Countries. Before independence, agricultural products dominated Nigeria’s economy and accounted for the major share of its foreign exchange earnings.  Initially, inadequate capital investment permitted only modest expansion of manufacturing activities.  Early efforts in the manufacturing sector were oriented towards the adoption of an import substitution strategy in which light industry and assembly related manufacturing ventures were embarked upon by the formal trading companies.  Up to about 1970, the prime mover in manufacturing activities was the private sector which established some agro-based light manufacturing units such as vegetable oil extraction plants, turneries tobacco processing, textiles, beverages and petroleum products.  The strategy of light and assemblage manufacturing shifted some what to heavy Industries from the period of the third National Development plan (1975-1980) when government intervened to establish care industrial plants to provide basic imports for the downstream industries. The import dependent in  dustrialization strategy virtually came to a halt in the Late 1970s and early 1980s when the liberal impart policy expanded the imports of finished goods to the detriment of domestic production. In this regard, industrialization constitutes a veritable channel of attaining the lofty and desirable conception and goals of improved quality of life for the populace.  Thus, in a supportive mood, Lavis (1967) assumes that in any economy, one or more sectors serve as a prime mover moving the rest of the economy forward. This role of engine of growth or leading sector has usually been played by industrial sector under the industrialization process. Against this background, industrialization involves extensive technology based development of the productive (manufacturing) system of an economy.  Thus, the development of the industrial sector represents the deliberate and sustained application and combination of suitable technology, management techniques and other resources to move the economy from the traditional low level of production to a more automated and efficient system of mass production of goods and services.  Arising from the foregoing affirmed centrality of industrialization as the pivot of economic growth and development, industrialization process seems to be the main hope of most developing countries such as Nigeria with large population and large labour force.  In spite of these aspiration which ought to have favoured effective industrialization process in an economically conducive manufacturing environment, most of these results as reflected in the performance of the manufacturing sector remain socio-economically undesirable.  Against this back drop, current economic planning and policy instruments are diverted at the development of the key productive sectors, particularly manufacturing and commerce for the promotion of an increasing pace of industrialization in Nigeria. The major problem facing the Nigerian manufacturing sector is having adequate finance resource for investment.  Because of the low level of income of this, saving is very low. Since the attainment of independence in 1960, commercial banks in Nigeria have been playing an important role in development process of a nation.  The banks in collaboration with other financial institutions have been mobilizing the scarce domestic resources for rapid social, economic and industrial transformation of the country. Other services provided by the commercial banks include facilities for safe-keeping of important documents, provision of advice to customers on insurance and investment matters and provision of cash for bulk payment of non-customers salaries and wages, Umole (1985). In recognitions of this potential roles of the sector, successive governments in Nigeria have continued to articulate policy measures and programmes to achieve industrial growth incentive and adequate finance.  The central goal of government policy was to foster growth in the manufacturing sector.  Over the years, and largely in response to some of the previous policy strategies, the main features of the Nigerian manufacturing sector had emerged. The role of bank credits in the growth of manufacturing sector cannot be over-emphasized.  For instance, the Federal Government’s Appropriation Bill for the year 2005 has as one of its broad policy objectives to achieve a high economic growth rate (i.e GDP of at least 5%) through a better mobilization and prudent use of economic resources.  This objective is not achievable without significant levels of resources from the financial sectors being mobilized and deployed to finance business expansion and growth.  Banks have to be effective intermediaries for mobilizing and channeling deposits to the productive sectors of the economy especially, the manufacturing sector. 1.2     STATEMENT OF PROBLEMS In spite of continuous policy strategies to attract credits to the manufacturing sector, most Nigerian manufacturing 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 not withstanding, 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. In the process, attempts will be made to provide answers to a series of questions including;

1. How has bank credits affected the growth of manufacturing sector in Nigeria?
2. What role can bank credits play in revitalizing the manufacturing sector?
3. What are the basic problems of the manufacturing sector in Nigeria?

4.       What are the causes of inadequacy of skilled technical manpower in