BANK CREDITS AND MANUFACTURING SECTOR GROWTH IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO THE STUDY
In Nigeria, bank credit has been recognized as an essential tool for promoting manufacturing firms.   Commercial bank credits play a crucial role in the development of an economy. Nzotta (1999) contends that bank credits influence positively the level of economic activities in any country. It influences what is to be produced, who produces it, and how much is to be produced.
The central bank of Nigeria postulates that credit is the money that banks give out as loans and advances with future date of repayment. An important role of banks is to design ways of providing loans to manufacturing firms in Nigeria. The Central Bank of Nigeria (CBN) Prudential Guidelines of 1990 however provides a wider definition of credit, and this includes aggregate of all loans, advances, overdrafts, bills discounted, banks guarantees, banks acceptances, commercial papers, leases and indemnities.
Essang and Olajide(1974)   Identified bank as a monetary institution owned by either government or private businessmen for the purpose of profit making. In pursuit of this profit, the commercial banks perform a number of functions. One of these functions is the acceptance of deposits from the public. These deposits are in turn given as credit to Small and Medium Scale manufacturing Enterprises among other, which led to more production and provision of employment opportunities in the economy.
Manufacturing sector on other hand 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 somewhat 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 industrialization 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 notwithstanding, 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 manufacturing sector in Nigeria?
5.    The causes of inadequacy of local technical support services for manufacturing sector in Nigeria?
6.       what are the roles and performances of banking and manufacturing sector in the economy in facilitating industrial development?
1.3    OBJECTIVE OF THE STUDY
The objectives of the study include;
1.    To examining the impact of bank credit on the growth of manufacturing sector in Nigeria
2.    To find out the role of bank credit in revitalizing the manufacturing in Nigeria.
3.    To illustrate the basic problem facing the manufacturing sector in Nigeria.
4.   To ascertain the causes of inadequate skilled technical manpower in manufacturing sector in Nigeria.
5.   To find out the causes of inadequacy of local technical support services for manufacturing sector in Nigeria.
6.    To review the role and performance of this sector in the economy in facilitating industrial development in Nigeria.
7.    Also to look into the problems that militates against this sector (manufacturing), Apart from finance in Nigeria and to make recommendation where necessary.
1.4      SIGNIFICANCE OF THE STUDY
Bank credit cannot neglect when talking about manufacturing firm growth in Nigeria. Again manufacturing firm growth is a factor to be considered in issue of economic growth and development. Therefore, bank credit and manufacturing firm growth will be very important and significant because of its     role in economic growth and development
1.5    HYPOTHESIS OF THE STUDY
The hypotheses to be tested in this research endeavour are put as follows:
NULL HYPOTHESIS
Ho; Aggregate credits to the manufacturing sector has no significant impact on the output of manufacturing sector.
ALTERNATIVE HYPOTHESIS
Hi; Aggregate credits to the manufacturing sector has significant impact on the output of manufacturing sector.
1.6   SCOPE AND LIMITATION OF THE STUDY
This research will cover the activities of commercial and merchant banks as regards to extension of credits to the manufacturing sector of the Nigerian economy. Emphasis will be laid on all quoted manufacturing firms on the Nigeria stock exchange. This study will also examine the impact of bank credits on the manufacturing sector, covering a period of 11years (2003-2013).
1.7    RATIONALE FOR THE STUDY
This study was motivated by the challenges posed by the lack of sufficient bank credits to meet the increasing needs in the manufacturing sector of the Nigerian economy.
There is no iota of doubt that bank credit is very crucial and essential in revitalizing the manufacturing sector.  As important as bank credits is to the sector in spite the continuous policy strategies to attract credits to the sector, most Nigerian enterprises have remained unattractive for bank credits.  Hence, this study therefore intends to throw more light on the operations of bank credits and their resultant effect on the manufacturing sector.