1.0 Introduction
1.1 General Overview of the Study
Granting that no counting of the world can ever attain an expected level of economic development without a veril and highly productive manufacturing sector, makes it imperative that Nigeria as a developing nation must pursue policies aimed at stimulating a rapid industrial growth capable of increasing the productivity of the manufacturing sector, and thus improve national economy.
This very important sector transforms our numerous raw materials into marketable finished products that are required in our daily existence as a people, and as a nation.
The sector generates foreign exchange through the exportation of its finished products.
Realizing the importance of this sector, Nigerian government had before now, made concerted efforts to give reasonable support and assistance to the realization of the growth of the manufacturing sector in Nigerian economy.
In this view, one of the foremost efforts was the establishment of investment company of Nigeria (ICON) limited. According. According to Osubor (1984)
“ The company which was established in 1959 to be responsible for executing and managing major industrial schemes and to focus thought and activity on non- government development by brining investment opportunities, capital and management together”.
This investment company of Nigeria Ltd, according to Osubor, operated for abut three years (1959-1962) when the federal government set in motion the machinery for the establishment of a development bank to help the investment company of Nigeria carry out major capital projects.
Based on this, the Nigerian industrial development bank (NIDB) was born in the year, 1964. The principle aim being to help in the fiancé of enterprises to help in the fiancé of enterprises or industries in Nigeria carryout major capital projects. Based on this, the Nigerian industrial development bank (NIDB) was born in the year, 1964. The principle aim being to help in the fiancé of enterprises or industries in Nigeria.
Another Laudable effort towards the promotion of the manufacturing sector was the 1972 indiginization decree under Yakubu Gowon's administration which exclusively reversed some businesses for Nigeria, and increased their participation in the ownership, and management of the enterprises.
However, Oresotu (1991) opined that the indiginization policy was poorly managed especially as some foreigners used Nigerians as fronts to evade necessary regulations.
Towards this end, it is acceptable that the oil boom of early 70s greatly improved Nigerian's economy and earned her industries needed foreign exchange to import raw- materials.
Regrettably, this boom changed drastically in the 80s with the dwindling oil revenue. The effect, however saw the folding up of some industries, thus negatively affecting the manufacturing sector of the economy. The harsh economic situation of the time wholly informed that other sectors should be opened so as the supplement the poor oil revenue. This unpleasant economic condition got worse with military leadership which was considered unstable.
In reaction, Orulade (1984) noted that this led to the introduction of the structural adjustment programme (SAP) by the desperate Babangida'a regime in July, 1986. The aim according to Orulade being to make local industries less dependent on imports, but to rather source raw- materials locally.
Yet, the manufacturing sector remains the most wanted sector to supplement the foreign exchange earnings of the oil sector through exportation of their finished products.
Never-the—less, military regimes are known not to offer enabling environment for effective industrial growth.
But, with emergence of a democratically elected government in May, 1999. The Nigerian nation, started the creation of enabling opportunities and environment to promote the gradual development of the manufacturing sector no wonder Obasnajo (1999) in his inaugural speech at his swearing in ceremony promised to revertilize the manufacturing sector to make it more productive.
However we must realize that the manufacturing sector of the economy has been the most unfortunate and hardest hit by the high interest rates regime. Odimaya (1992) reported that “banks no longer want to lend on long- termswhich is the stock in trade for manufacturing firms. Even when the banks lend on long- terms, it is usually at cut- throat interest rates”.
This situation has continued to effect the manufacturing sector, even in this democratic dispensation. With the federal government economic policy of deregulation of the banking sector. This condition, according to Kazeem (2004) has greatly affected the manufacturing sector.
This opinion of Kazeem is made stronger when he wrote “for the banks the 23 percent lending rates continue to threaten the tripartite agreement reached by the federal government, the CBN and the Banks that lending rates should not be more that four percent above the Minimum rediscount rate”.
The above agreement was to encourage bank- lending to industrial and so, stimulate the manufacturing sector development and improvement of the larger national economy.
Infact, high lending rates regime of banks have continued to receive unfavourable criticisms from economic experts. In this regard, Kazeem (2004) recorded the reaction of Mr. Clement Olowokande, chairman of the economic policy committee of the manufactures association of Nigeria who said “despite the above policy position, the authorities were yet to articulate a sustainable long- term interest rate regime, which would guarantee rapid industrialization in line with developmental objectives.
Based on this pathetic and highly unfavourable economic climate in which manufacturing/ industrialist operates in Nigeria, prompted my choice of this topic “effect of high Bank lending rate on the manufacturing sector of the Nigeria Economy (1999-2003).
1.2 Statement of the Problem
The major problem of the study is the seemingly under developed state of the manufacturing sector.
Also, it is the problem of the study to address the instability in the lending rates to manufactures
The last concern of the study is the lack of sustainable capital for the manufacturing sector, due to unpredictable high bank lending rates regime.
1.3 Objectives of the study
The study is to ascertain the impact of high banks lending rates on the manufacturing sector.
The study also aims at making recommendations capable of helping the manufacturing sector obtain funds at affordable interest rates to enhance their operations, and so, helping the development of the economy.
1.4 Scope of the Study
This study is designed to cover the activities of banking operations in relations to the industrial sector, via bank lending rates and borrowing by the manufacturing sector.
Again, the study will cover the effects, of high bank rates to the industrial/ manufacturing sector for the period of beginning from 1999 to 2003.
This study is however limited to Owerri Municipal council Area.
1.5 Statement of Hypothesis
This study, for obvious reasons will be carried out based o the following hypothesis.
- There is significant relationship between high lending interest and capacity utilization.
- There is dependable relationship, between high lending rate and product pricing.
- There is significant relationship between high lending rates and manufactures profitability.
1.6 Significance of the Study
This study significance could reflect in a number of ways. in the first place, it could help to appraise the relationship between the banking sector and the manufacturing sector towards the economic development of the nation.
Secondly, the study could make things clearer to workers in both sector to realize their co- operative relationship in the upward movement of the economy.
Thirdly, the study would make the masses realize the relevance of the sectors in the overall development of our national economy.
Fourthly, to the educatinists and researchers, this study could serve as a reference materials.
Finally, to the government, this study could throw more light on how government could effectively utilize the roles of the two sectored in economic development of the nation.
Also, recommendations of the study could make CBN realize how to use policy. Concerning lending rates to strike a good balance between the sectors and so, facilitate national economic development.
1.7 Limitation
This study by implication, focused on the effect of high bank lending rates on the manufacturing sector of the Nigerian economy.
To achieve the above, the researcher had some constraints which included traving to company headquarters for obvious information, sometimes, lack of und inhibited the intended desired moves. The researcher encounter lots of rad risks.
Some library workers were not friendly, hence retrieval of needed information at times proved difficult.
Some respondents were really very reactant to give required data. However, due to gods design the researcher beat the odds, and made the study.
1.8 Definition of Terms
The following terms which formed the key words of the topic and other constantly used in the study are here under defined.
Bank:
According to osubor (1984) “ A bank is a financial house established for the purpose of accepting deposits and other precius commodities from the public for safe keeing as well as acting as intermediary between owners of deposit funds and lenders or users of the funds.
Manufacturing Sectors:
This is the sector of the economy which include all the firms that transform raw- materials into finished goods with the aid of machinery.
Interest Rate:
This refers to the price which the brrower of fund must pay for making use of the borrowed fund.
Bank Lending Rate:
The term can be dfined as the percentage of the borrowed funds, a customer must pay to the bank for use of the borrowed fund. It is equally, the intrest which accrucs to lender (the banker) receives for parting with its money for a specified period of time.
Capacity Utilization:
This means the extent to which installed factory machines are utilized in the production of goods.
Finished Products:
These refers to the goods produced by the manufacturing sector for final consumption. E.g Beverages, Shoes, Drugs, Boxes and furniture's. They are also called consumer goods.
Industrialists:
These refer to owners of industries and companies that make up the manufacturing sector.
