Factors Affecting Capacity Utilization Decisions in Nigeria: A Time Series Analysis

J N Mojekwu,I I Iwuji

doi:10.5539/ibr.v5n1p157

Abstract

This study examined the impact of some macroeconomic variables and power supply on the performance of the Nigerian manufacturing sector, using ex-post facto research design. Secondary data were sourced from Central Bank of Nigeria (CBN) statistical bulletin (2009) and other publications. The main findings of the study were that power supply had positive and significant impact on capacity utilization while inflation rate and interest rate had negative impact on capacity utilization. However, the impact of interest rate was significant at 5% level while lending rate was insignificant. Time series data were analysed with the aid of e-views 5.0 econometric computer package using least square multiple regression technique. The regression model explained 88.54% of the variation in capacity utilization, after correcting for linearity, normality, auto-correlation and heteroscedascity. The study recommended that the ongoing privatisation of Power Holding Company of Nigeria should be pursued with vigour and that the policy thrust of single digit inflation and lending rates by CBN should be sustained. The government should also put in place monetary and fiscal policies to create an enabling environment for the manufacturing sector, thereby giving a boost to the economy as a whole.

Highlights

The problem of the Nigerian Manufacturing sector started in 1970s which corresponded with sharp increase in the international oil price
Following the fall in oil prices in late 1970s and early 1980s the economy went into rapid decline
structural adjustment programme (SAP) brought with it escalation in exchange rate resulting in high cost of raw materials and spare parts

Summary

Introduction

The problem of the Nigerian Manufacturing sector started in 1970s which corresponded with sharp increase in the international oil price. To avert catastrophic collapse of the economy, the government introduced tough budgetary and fiscal measures, involving deregulation of foreign exchange market, abolition of import licenses, and devaluation of the naira. The effect of these policy measures were nothing to cheer about as the economy took further steps backward, with its attendant miseries on the populace. The harsh economic situation triggered a chain reaction, such as high cost of production, scarcity of raw materials and spare parts and huge inventory of unsold goods due to low purchasing power. All these factors impacted negatively on capacity utilisation. All these factors impacted negatively on capacity utilisation. (Banjoko, 2002)

Objectives

Findings

Discussion

Conclusion