By Sanusi Lamido Sanusi

Since the industrial revolution, the manufacturin sector has been seen as a major source of economic growth in any nation. The drive to develop the manufacturing sector stems from the immense benefits that the sector cenfers on the economy .

* Sanusi Lamido Sanusi

The sector is dynamic as it offers opportunities for capital accumulation, employment generation and economies of scale. Growth in the manufacturing sector fuels growth in other sectors, thereby creating jobs and investment due to the strong linkage and spillover effec ) of the manufacturing sector.

For eX2 nple, since 1990, China’s economic growth averaged 9.5 per cent and is among the fastest growing economies in the world today. Thi development has been traceable to the contribution of manufacturing, which contributes over 50 per cent to China’s GDP.

The relevance of the sector to economic development has propelled governments, ‘especially, in the newly industrialised countries of South East Asia; China and India, to intensify efforts to mobilise financial resources to ~uhe sector.

For example, the Chinese government offered loans to targeted industries in other to boost the development of the manufacturing sector, while in Malaysia, several programmes to mobilise credit to the sector suc:~u as the lowering of base lending rate to the sector, and creation of New Investment Fund, among others, were put in place.

Governments in South East Asian region have also put in place measures that made it the most attractive recipient of Foreign Direct Investment (FDI) into the manufacturing sector. For instance, the region received about 47.9 per cent of the total FDI flow to developing economies in 2008 and  50.0 per cent in 2009.

In recognition ~uf the role of manufacturing in economic development, Nigeria has also over the y Jars put in place policies and strategie”, to develop the sector. However, the outcome of these efforts has been less than satisfactory, thereby culminating into the lacked the technical know-how required in manut,acturing activities.

Early manufacturing activities in Nigeria were limited to semi-processing of primary products, and most local entrepreneurs relied on crude technologies for production., The sector has expanded, since independence to include large, medium and small scale firms as well as cottage and handcraft units in the informal sector. It is however, still dominated by consumer goods industries which, account for about 75 per cent of value added and employment in the sector.

The sector is structurally weak and basic industries such as iron, steel and petrochemicals are not fully developed. Also, there is inadequacy of skilled manpower and research and d~uvelopment efforts, which are necessary to guarantee competitive:iess in an increasingly globalizing world. The sector is also largely importdependent and accounted for an average of 54.7 per cent of the total foreign exchange disbursed between 2004 and 2008. Raw materials alone accounted for an average of 55.6 per ce t of total import in the manufacturing sub-sector.

Prior to the privatisation exercise, ownership in tr.e manufacturing sector was between the public and private sectors. The public sector historically has been involved in many joint venture projects in the consumer goods industries, involving domestic and foreign capital, as well as the heavy industries, such as iron and steel, fertiiizer and crude oil refineries. Indigenous private investments remain concentrated in the consumer goods  sector and have grown faster than the intermediate and capital goods industries because
of its relatively simple technology and lower capital investment.

Most of the intermediate and consumer goods manufacturing units were sponsored by large foreign corporations and indigenous firms.
The performance ‘of the manufacturing sector has been dismal given its potentials. The contribution of the sector to Gross Domestic Product (GDP) since independence has been below  7 per cent.

Manufacturing capacity utilisation which was relatively high in the 1970s and early 19805 had remained low since the mid 1980’s and actually been on  the decline since the second quarter of 2008. Recognising. the importance of manufacturing in economic development, various measures have been taken to enhance the performance of the sector since independence.

This included the Import Substitution Industrialisation Strategy implemented between 1960 and 1985, which was meant to encourage the growth of import substitution firms and reduce dependence on foreign goods. Others included the Export Oriented Adjustment Strategy (1986 – 1999) and Private (Foreign) Sector Led Initiative (1999 – Date). However, despite these measures, the manufacturing sector in Nigeria is yet to assume its pride of place in the economy.

Previous Efforts in Channelling Credit to the Sector

The focus of the government shortly a.fter independence was to ensure that indigenous entrepreneurs participate actively in the sector and efforts were made at channelling funds to improve the contribution of small and medium enterprises (SMEs), which were seen as the window where many indigenous entrepreneurs could operate at that time.

The need to direct credit to the manufacturing sector and other priority sectors necessitated the implementation of the somewhat failed policy of selective credit control during the period 1966-1986. Under the policy, certain percentages of the total credit of the commerciai and merchant bank loans were to be channelled to priority sectors such as agriculture, r;nanu,facturing and SMEs, while defaulting banks were penalised with the shortfall of such credit transferred to specialised development banks. The government

also established several other programmes and schemes to make finance available to the manufacturing sector. Some of these include:
(a) The Establishment of the Bank of Industry (Bol) which metamorphosed in 2001 from the combination of the Nigerian Industrial Development Bank and the Nigerian Bank for Commerce and Industry.

(b) The Small Scale industries credit Scheme ,SSICS) Which was established in the Third National Development Plan, of 1975-1980 to provide technical and financial support to the SMEs. The scheme was funded as a matching grant between the Federal and State Governments. However, the”scheme did not have the expected impact on the industrial sector due to lack of manpower to supervise and monitor projects funded by the scheme. As a result many unviable projects were funded leading to massive repayment default.

(c) The Small and Medium Enterprises Equity Investment Scheme (SMEEIS) initiated by the Bankers Committee 2001. Under the scheme, Deposit Money Banks set aside 10 per cent of there respective profit before tax to be channelled into equity investments in small and medium industries (8Mls). Success of this programme has also been limited

Reasons for the Reforms in the Banking Sector
Broadly speaking, we have undertaken banking reforms to ensure that banks are strong, sound and reliable. Banking reforms usually tOllch on issues related to corporate governance, asset quality, solvency and capital adequacy, operational efficiency, . effective supervision, regulation and cost effectiveness. Although from a casual point of view, it mal appear opaque, how these issues are related to credit availability to the real sector, a closer scrutiny would indicate that bank lending is intricately woven around the manner in which the bank as an entity is run.

The ability to deliver credit to the economy depends on the state of banks and the operating environment. The capital base of a bank goes a long way to determine the ability of that bank to make loans to the real sector. This is important because the volume of loans that could be made to an individual or body corporate, by law, is determined by the single obligor limit, which is tied to the capital base of banks. Generally, deposit money banks’ credit to the manufacturing sector has been relatively low. However as we have seen with the recent crisis in the Banking sector, capital is a necessary but not sufficient condition to have’ a vibrant banking industry.

Customer confidence is the corner stone of ba’lking system stability. It is however directly correlated with the strength of the banks. Public perception about the stability of banks has strong implication for investment decisions. First, savers are encouraged to forego current consumption for savings by the assurance of safety of their funds. A sustained flow 9f tbese pooled resources ensures that banks are liquid enough to meet the credit needs of customers, including the manufacturing sector.

The other nexus through which reforms contribute to increase funding for the real sector is the attraction of foreign credit lines.

The larger size of banks is a rough measure of future of the banking industry lies in the growth of the real sector. Binding constraints include powe I critical infrastructure, vocational skills, poor business environment and an inappropriate tariff regime.

I am pleased tc note that the government is taking steps to address these issues and if these are implemented with diligence, then bottlenecks facing manufacturing will be removed .