AN EMPIRICAL ANALYSIS OF THE IMPACT OF DEPOSIT MONEY BANK ON THE MANUFACTURING SECTOR IN NIGERIA (1980-2011)
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AN EMPIRICAL ANALYSIS OF THE IMPACT OF DEPOSIT MONEY BANK ON
THE MANUFACTURING SECTOR IN NIGERIA (1980-2011)
ABSTRACT
This research study, by means of a robust statistical
analysis investigates the impact of deposit money bank on the manufacturing
sector in Nigeria. Data from 1980-2011 were examined. The empirical analysis
carried out showed that the lag of exchange and commercial bank credit have a
significant and positive impact on manufacturing sector in Nigeria within the
period under review, and as such the monetary and capital market in Nigeria
should be further developed to meet standards and provide the necessary capital
for the manufacturing sector. Also the government and relevant authorities
should see to the strengthening of the exchange rate.
CHAPTER ONE
BACKGROUND OF THE STUDY
Manufacturing is the capacity to produce goods with labour,
materials and inputs produced by others. Simple forms of manufacturing have
characterized all organised societies but the application of steam power to
production in Britain in the late eighteenth and early nineteenth centuries
significantly increased the capacity for production, and since this first
industrial revolution, economic progress has in many peoples minds been linked
with the capacity to produce and trade in manufactured products.
Manufactures now dominate world trade and typically are
around 80 percent of world exports in any year with developing accounting for
nearly one- third of this. In the bulk of developing countries, outside the
LDCs and the oil rich states, manufacturers account for a majority of export
revenue. In terms of regional distribution, the bulk of developing country
manufactured exports come from East Asia (70 percent in 2005) with
approximately 40 percent of those from china.
Export data are also available by product category gives
developing country and regional shares is manufactured exports by selected
types of product. It shows developing countries as a group taking more than 50
percent of world exports in the labour intensive, simple technology categories
of textiles, footwear and leather
The banking sector in Nigeria in 2006 financial year was
oligopolistic in structure as only ten banks 11.1% of the 90 operation
accounted for 54.5% of total assets, 52.4% of total deposit liabilities and
46.1% of total deposit liabilities of deposit money bank as at 31/12/2006
amounted to #2,705 billion. Whilst aggregate credit to the domestic economy
amounted to #1,302.2 billion. In 2006, sectoral allocation of deposit money
banks credit continued to favour the less productive sector of the economy as
only 40.9% of the total credit went to agriculture, solid minerals, exports and
manufacturing down from 46.2% in 2001.
In the year 2007, the general performance of banks was not
significantly different from what happened in the previous year. Ten banks out
of the 89 in operations accounted for 55.3% of total credit. At 3,047.9
billion, the aggregate assets, the level as at Dec 31 2006.
The manufacturing sector or service enterprise with capital
investment exceeding #950,000 in machinery and equipment. The importance of
manufacturing sector in the promotion of economic development has always been
at the front developing strategies. More so, Nigeria like other developing
nations adopted the use of import substitution policy as a means of
manufacturing. This aims of producing domestic consumer goods in those
industries.
Major functions of Nigeria deposit money banks
1. Acceptance and safe keeping of deposits
2. Granting credit facilities to consumers
3. Transferring funds on the instructions to customers
4. Management of customers investments
5. Acting as executors and trustees of “wills”
6. Providing facilities for safe-keeping of important
documents and other valuables.
7. Providing foreign exchange facilities to travellers
8. Advising customers on insurance matters
9. Project finance
10. Providing financial advisory services to customers
11. Packaging real estate transactions.
Statement of problem
The nation had enunciated import substitution and processing
of raw materials policies in the past. These had made the sector to be
dependent on the industrialised nation of the world for capital equipment and
contributed in no small way to our present economic predicament. The sector is
currently heavily dependent on importation of raw material and spare parts.
This has put pressure on the countries foreign exchange earnings.
Manufacturing sector like any other business cannot be
carried on extensively unless funds are available for maintenance and
procurement of equipment and necessary inputs. on the other hand deposit money
banks accused the manufacturer of loan given to them. Thereby not bringing high
degree of loss in their banking activities.
Unfaithful and dishonest to them are being critized sequels
to this manufacturer. moreover the small scale business can hardly be over
stressed, most manufacturer in Nigeria economy have been denied of attention
report assessment or could it be that the deposit money bank are not playing
their role in promoting manufacturing?
Adequate funding is a requirement for running a successful
business and it is certainly one of the major reasons for the poor performance
of most companies in the Nigeria manufacturing sector. This is because banks are
wary of investing their distressed sector that is hemmed in by a hostile
business environment is not encouraging. Sad enough, the evolving scenario
these days, at least before the crash in the capital market, is that the
capitalists and banks prefer to advance facilities to clients to enable them
invest in securities market. Such clients would in turn go to bad” and watch
their investments multiply over night without doing anything rather than too
invest such money in any SME (small and medium scale enterprise) or so called
“risky” business. This thinking of the capitalists and the banks further
weakened the real sector thereby denying the manufacturing sector the
opportunity to generate employment.
OBJECTIVE OF THE STUDY
1. To find out if inadequate credits from the deposit money
banks to the manufacturing sector has contributed to the reduction in the
productivity of the manufacturing sector.
2. To determine how the unwillingness of the deposit money
bank to give loans to the manufacturing sector has affected.
3. Also to look into the problems that militates against the
manufacturing sector apart from finance in Nigeria and the recommendation where
necessary.
HYPOTHESIS OF THE STUDY
The following hypothesis are tested on this study
Ho: The manufacturing sector contribution has no significant
impact to lending in the deposit money bank.
Ho: Deposit money bank interest rate has no significance
effect on manufacturing development in Nigeria.
SIGNIFICANCE OF THE STUDY
The result of the study will provide an insight into the
relationship between deposit money bank credit and the manufacturing sector. It
will provide the basis for which policies should be made by the government
through the monetary authority (the central bank of Nigeria) towards the
prioritizing of credits granted to the manufacturing sector.
Again, it will expose the important role the deposit money
banks play towards the productivity of the manufacturing sector and to
therefore make sure that there is a good working relationship between sectors.
The study makes clear the actual contribution and operations
of deposit money banks in Nigeria. It will also sensitize the society on the
importance of deposit banks in Nigeria.
The study will be important to the policy makers and the
government in order that to adopt and implement policy measures that will boost
the economy through the financial institution.
It will also depict the negative and positive side of the
activities of the negative and positive side of the activities of the general
public and bankers, for some correction and changes in order to boost the
economy.
Also, it is believe that the findings of this research will
lead to further on how deposit money banks and the other manufacturing sector,
which will eventually lead to the development of the economy.
The usefulness of this study is that it will highlight to the
nation as a whole on how best to manipulate deposit money bank loans for
financing in order to improve the state of industrial product in the country.
It will also give the government an overview of constraint of
industrial financing and how best to manage deposit money bank loan in order to
yield output.
It will show deposit money banks how to increase industrial
financing for growth in the economy.
RESEARCH QUESTIONS
These are self guide question used to guide the research in
the course of providing solution to the problem
The following are questions that arise when drawing
references from the study.
a. How does deposit money bank significant to influence on
the manufacturing output.
b. Does manufacturing development depend on the deposit money
bank loan.
c. Do deposit money banks give loan for manufacturing
finance?
d. If so, to what extent has the manufacturing sector growth
since the assistance started.
e. Is there any relationship between deposit money banks
financing and the Nigeria industrial growth?
LIMITATION OF THE STUDY
The main task of the study is to given in full determine the
impact of deposit money banks in fund mobilization for industrial growth and
development but due to insufficient time for industrial growth and development
but due to insufficient time frame for the purpose of simple and articulate
analysis, the study is restricted to deposit money banks specifically. The
study is limited to the period of 2005-2010 which saw the significant impact
played by the financial sector in the Nigerian economy.
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