THE EFFECT OF INFLATION AND EXCHANGE RATE ON THE

MANUFACTURING SECTOR PERFORMANCE IN NIGERIA

 What is your research area?

 What is the proposed title of your research project?

 What are your research questions/objectives?

 What are the key journal articles that you have read that helped you in deciding on

your research topic? How are they relevant to your topic?

 What is your proposed methodology? What data will you need and how will you

collect it?

 What possible ethical concerns might there be?

1.1 Background of the Study

The manufacturing sector has been performing well in recent years and this can be attributed

to government incentive which have made manufactured products cheaper to consumers and

the government has also made foreign products expensive or unavailable through import bans

and discriminatory foreign exchange policies manufacturing, assembling and processing of

goods into finished products for consumer use and also those industries that are either

engaged in the production of new materials or in the addition of value to others products

(Eze, 2014).

This sector is led by the production of food and beverages, cement and building materials,

tobacco, chemicals, wood and textiles. From these subsectors only food and beverages,

cement and textile account for a large percentage of the manufacturing sector output.

According to official data, at 9.3% of GDP, the Nigerian manufacturing sector grew by 3.4%

year-on-year in the first quarter of 2018 which was an improvement from 0.1% in Q 4 and -

2.9% in Q3 of 2017 (Raji, 2018). With the introduction of the Economic Recovery and

Growth Plan (ERGP) the Nigerian government has tried to improve the workings of the

manufacturing sector. For example, the Nigeria Customs Service has banned the importation

of some manufactured products. This has helped Nigerian companies dominate the Nigerian

market: the five local vegetable oil brands that control the market are Sunola Oil, Grand Oil,

Power Oil, Mamador and Devon’s King. The ban has also boosted the local cement

production area, Dangote Cement produces more than 60% of the estimated 33 million metric

tonnes (MMT) of local cement demanded in Nigeria (Raji, 2018).

The pandemic affected the manufacturing sector in different ways. Some globally recognized

companies took drastic hits while small business ventures were ascending. The Head of

Consumer and Industrial Markets at KPMG Nigeria, Obi Goodluck in an interview with

Nairametrics said that manufacturing companies have been forced to source for materials
locally so that they will not be shut down because most companies had formally been

importing a significant amount of their materials from China but the pandemic has disturbed

the supply chain (Okwumbu, 2020).

Macroeconomic policy is a deliberate effort by the government through the economic policy

agencies to check and control macroeconomic variables like foreign exchange policy, fiscal

policy, monetary policy and real gross domestic product and to also achieve set broad

economic objectives (Ilugbsi, 2017).

Fiscal policy's main objective is to provide countries with economic stability by improving

economic conditions and factors in a way that strengthens the country and ensures that

government decisions are appropriate for economic stability (Ndubuisi, 2017).

Yaqub (2011) established that economic growth in Nigeria is very slow compared to other

emerging countries in the world. Economists have argued that macroeconomic policies are

used to leverage the shocks the national economy is constantly subjected to by market forces

as it does not adequately adjust on its own. The Nigerian economy has gone through major

macroeconomic policy problems which is characterized by consistent growth in

unemployment, high inflation, high interest rates, corruption and policy enforcement etc.

Macroeconomic policies such as inflation, money supply, interest rate and exchange rate have

certain implications on diverse sectors of the economy and the manufacturing sector is no

exception. There has been drastic increase in the raw materials and importation used

inproduction process. Similarly, the exchange rate in Nigeria has been in upward line,

standing at about N157 in 2014, N465 in 2016, N480 in 2019 and averagely N1200 in 2024.

A brutal fluctuation in exchange rate increased the cost of production and machinery, it

makes it difficult for investors to come into the sector. The volatility of exchange rate in

Nigeria is one of the main causes of economic instability. Maintaining a stable exchange rate

in Naira is very important given the structure of the economy and the need to reduce
distortions in consumption and production, increase the in-flow of non-oil export receipts and

attract Foreign Direct Investment. There are several macroeconomic factors that can

influence the performance of the manufacturing sector. Stats SA (2016) agrees that the state

of the local and global economy and the exchange rate are some of the factors that are studied

when assessing the performance of manufacturing production.

. Notwithstandin

1.2 Research Objectives

The main objective of this study is to examine the effects of macroeconomic policies on the

manufacturing sector performance in Nigeria. These objectives are:

i. To determine the effects of inflation rate on the manufacturing sector contribution to

GDP in Nigeria.

ii. To ascertain the effects of the exchange rate on the manufacturing sector contribution

to GDP in Nigeria.

NOTE:

Suggestions for further research, limitations and good conclusions. Take out

government expenditure

Global effect like war etc and china’s influence

1.3 Research Questions

The core question this study aims to answer is how does macroeconomic policies affect the

manufacturing sector in Nigeria? The specific questions to be answered are:

i. What is the effect of inflation rate on manufacturing sector contribution to GDP in

Nigeria?

ii. What is the effect of exchange rate on manufacturing sector contribution to GDP in

Nigeria?
1.4 Scope of the Study

The study will cover a wide area looking at the how government microeconomic polices have

been responsible for changes in the manufacturing industry from the 2013 to 2023. How the

industry has either responded or reacted to the objectives of these policies and corresponding

effects on performance on the sector. More interesting for the purpose of this study are the

“triggers” of government policies especially monetary and fiscal policies. This study will

cover the effect of macroeconomic policies on the manufacturing sector performance in

Nigeria. It analyses the manufacturing sector and macroeconomic policies from the period of

2013-2023 thus it is a time framed analysis.

1.7 Methodology

The research methodology will focus on Nigeria with a population of over 218.5 million

(worldbank, 2022). The select variables in this research will be subject to Augmented

Dickey-Fuller (ADF) tests, assessing their individual level of stability before advancing to the

final stages where customized techniques provide answers necessary for this research.

1.8 Time Schedule for Work

This research work is estimated to be concluded within 12 or 13 weeks which is

approximately 3 months. This research and timeline will include chapters such as literature

revie, data analysis and data collection, interpretations of findings and the final report.
REFERENCES

Eze, O. R. (2014). Impact of fiscal policy on the manufacturing sector output in Nigeria: An

error correction analysis. Department of banking and finance, Ebonyi State University,

Nigeria. I (20), 31-54.

Ilugbusi S. (2017). Macroeconomic Policy and Economic Growth in Nigeria. Adekunle

Ajasin University Journal of financial and social issues I(3): 177-190.

Ndubuisi, P. (2017). Dynamic Relationship between Fiscal Policy and Economic

Growth in Nigeria (Long and Short Run Analysis).Journal of Business and Economic

Development 2(4).

Okwumbu R. (2020). Manufacturing sector in Nigeria and The Reality of a “New Normal”

Retrieved from www.nairametrics.com urnal

Raji R. (2018). Manufacturing in Nigeria: Status, Challenges and Opportunities. Retrieved

from www.howwemadeitinafrica.com (http://www.howwemadeitinafrica.com/)

World Bank (2022) World Bank Data https://data.worldbank.org/indicator/SP.POP.TOTL?

locations=NG

Ilugbusi S. (2017). Macroeconomic Policy and Economic Growth in Nigeria. Adekunle Ajasin University Jo

Ilugbusi S. (2017). Macroeconomic Policy and Economic Growth in Nigeria. Adekunle Ajasin University Jo

urnal of financial and social issues I(3): 177-190.

Ilugbusi S. (2017). Macroeconomic Policy and Economic Growth in Nigeria. Adekunle Ajasin University

Journal of financial and social issues I(3): 177-190.