Manufacturing sector growth implications and challenges in Nigeria and the policy framework for stability.

1. Manufacturing
Sector Performance
and Challenges;
The Role of
Government
Intervention.
By
Babangida J. S.
&
Umar A.

2. Outline
– Introduction
– Preamble
– Meaning of Industrialization and Components of Industrial Sector
– Meaning of Manufacturing
– Concept of Manufacturing/Industrial Policy
– Performance of Manufacturing Sector
– Challenges in Manufacturing Sector in Nigeria
– Role of The State in Developing Manufacturing Sector

3. Introduction
Over the past several decades, manufacturing has experienced significant change
as rapid globalization shifted a significant proportion of manufacturing capacity
from developed to emerging economies and substantial new markets and new
competitors emerged. The globalization of manufacturing was enabled by a
combination of forces coming together simultaneously, including a significant
change in geopolitical relations between nations, the widespread growth of digital
information, physical and financial infrastructure, technologies, and the
proliferation of bilateral and multilateral trade agreements among nations.

4. Industrialization
– An industry can be said to be a particular way of organizing production and
assumes there is a constant process of technical and social change which
continually increases society’s capacity to produce a wide range of goods
(Hewitt et al.1992).
– Investopedia defines Industrialization as 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. Characteristics of
industrialization include economic growth, more efficient division of labor,
and the use of technological innovation to solve problems as opposed to
dependency on conditions outside human control.

5. Components of Typical Industrial
Sector
– Manufacturing
– Mining
– Electricity
– Construction
– Water and Gas Industries
Manufacturing is the processing of raw materials into finished goods through the use of tools
and processes. Manufacturing is a value-add process, allowing businesses to sell finished
products at a premium over the value of raw materials used.
q The manufacturing sector is particularly important in the process of industrialization because
of its multi-dimensional benefits to the development process. Indeed, some authors
define industrialization in terms of an increase in the share of the Gross Domestic Product
contributed by the manufacturing sector (Rajnesh Chandra, 1992)

6. Concept of Industrial
Policy
– Industrial Policy is concerned with promoting industrial growth and efficiency
(OECD, 1975)
– It is an intervention or government policy that attempts to improve the
business environment or to alter the structure of economic activity formed
sectors, technologies or tasks that are expected to offer better prospects for
economic growth or societal welfare than would occur in the absence of
such intervention (Warwick, 2013)
– But industrial policy is still relevant and applicable, given the pervasiveness of
coordination, information failure and high transaction costs in exploring new
markets.

7. Performance of Manufacturing
Sector
– Weak industrial and manufacturing development with declining share of
manufacturing in gross domestic product, since in 1990s.
– Declining share in global manufacturing value added with no significant change
in global share of manufacturing exports.
– Growing share of medium and high technology activities in total manufacturing
value added and manufacturing exports; albeit low.
– Decreasing and limited role for the labour-intensive sectors (fabricated metals,
textiles and apparel), resulting in declining share of low technology
manufacturing exports.
–

8. Performance of Manufacturing
Sector (2)
– High dependence on resource-based manufactures, with high growth rates but
have relatively low value added and high vulnerability to external price
shocks.
– Weak industrial structure with preponderance of informal and small firms,
amidst the fact of high correlation between legal status of a firm and its
production characteristics (UNCTAD, 2013).

9. Implications of Manufacturing
Sector
Hausman and Hidalgo highlighted numerous implications in the context of manufacturing and
the linkage to economic growth.
– The advancement of manufacturing capabilities is directly linked to increasing economic
prosperity for a nation and its citizens. Proper positioning and movement within the
product space determines the ability to accelerate economic development.
– Many emerging economies are primed for rapid growth, enabled by the complex economic
infrastructures they have developed and the manufacturing knowledge and capabilities
accumulated. Emerging nations should focus on directing policy and investing resources
in building capabilities.
– Developed nations must also continue to advance their manufacturing capabilities and
knowledge in order to innovate, create ever more sophisticated economies, and to stay
competitive.

10. Implications of Manufacturing
Sector(2)
– As globalization and economic development make an increasing array of locations
appear attractive and a nation becoming competitive. Therefore, the critical
development of human capital and infrastructure among other factors will be
needed.
– As more countries develop advanced manufacturing capabilities, more
competitors are being created that will someday rise up and challenge today’s
market leaders, requiring ongoing investments in innovation and new
products and new markets to maintain and improve competitiveness.
– While the growth of advanced research and manufacturing hubs in emerging
markets creates new sources for both talent and new products for customers.

11. Challenges of Manufacturing
– Degree of openness of the economy
– Financing
– Operations & Management.
– Lack of trained workers
– Infrastructural Issues
– Unstable macroeconomic environment defined in terms of policy inconsistency
– Limited export diversification
– Weak institutions

12. Policy Recommendations
– State policy intervention, especially in favour of infant industries seems to be
inevitable (Beji et al, 2014, Egbon, 2017).
– Adequate infrastructure, such as electricity, good road network, rail and water
transport facilities, improved communication infrastructure and so on,
should be provided by government. The adequacy of infrastructural facilities
would engender the production and movement of goods (Sheriff, 2016).
– The issue regarding exchange rate policies needs to be seriously considered, if
Nigeria must industrialize. As well as promoting manufacturing by giving tax
holidays, excise duties, favourable interest on loan and subsidy.

13. Policy Recommendation (2)
– Local manufacture of industrial machines should be encouraged by government,
through support for local engineering firms to venture into the manufacturing
of heavy industrial machines imported from abroad.
– In ensuring that industrialization in Nigeria plays its expected role of helping to
diversify exports, energy is needed to power manufacturing plants to drive
energy intensive processes.
– To encourage private investments, particularly FDI inflows, government should
not only have favourable policies in place, it should minimize frequent changes
in government economic policies and ensure political stability/security.
Incessant insurgencies constitute a bane to industrialization in Nigeria.

14. Concluding Remarks
q The relevance of the aforementioned policies in the recalibration of economic
structures of Nigeria that wants to remain competitive is no longer in doubt.
q The issue is no longer whether industrial policies should be put in place, but
rather on how the policies can be effectively utilized. (Ramdoo 2015, Stiglitz
and Lin, 2013, Rodrik, 2010).
q Above all, the existence of a sustained political will, to consistently see through
policies, on the part of political leaders and government officials constitutes
the main challenge of Nigeria’s Industrial Progress.

15. Thank You All