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IMPACT OF ECONOMIC
RECESSION ON THE MANUFACTURING SECTOR OF THE NIGERIA ECONOMY 2010-2016
CHAPTER ONE
INTRODUCTION
1.1 Background Of The Study
In economics, a recession is a business cycle contraction
which results in a general slowdown in economic activity. Macroeconomic
indicators such as GDP (gross domestic product), investment spending, capacity
utilization, household income, business profits, and inflation fall, while
bankruptcies and the unemployment rate rise. In the United Kingdom, it is
defined as a negative economic growth for two consecutive quarters.
Recessions generally occur when there is a widespread drop in
spending (an adverse demand shock). This may be triggered by various events,
such as a financial crisis, an external trade shock, an adverse supply shock or
the bursting of an economic bubble. Governments usually respond to recessions
by adopting expansionary macroeconomic policies, such as increasing money
supply, increasing government spending and decreasing taxation.
A vibrant manufacturing sector has been acclaimed as a sure
means of boosting economic growth and raising the standard of living. Nigeria
as the giant of Africa has been regarded as the nation blessed with abundant
resources; human and material. However, the underutilization of these
potentials has amplified negative effects such as poverty, low level of
standard of living etc. on the economy. In the modern world, the manufacturing
sector is described as the basis on which the nation’s economic efficiency is
compared, ranked and determined.
However, with the exploitation of crude oil in Nigeria in the
early 1970s, the nation shifted from agriculture as a base for industrial
development and placed a heavy weight on crude oil production. Not only has
this jeopardized its economic activities, but also aggravated the nation’s
level of unemployment because other sectors such as the manufacturing sector
have been neglected. Nevertheless, the well-known developed economies have over
the years adopted some initial tactical and favourable measures in pursuit of
their economic growth and development through massive diversification of their
resources into the manufacturing sector to enhance their Gross Domestic Product
(GDP) capacity.
Manufacturing activities declined in Nigeria in the 1980s, as
most companies were affected as a result of the global economic meltdown that
further led to the closure of the industries as unfavourable conditions
lingered, particularly for those industries which depend on importation to
survive and had to spend more foreign currency on imported raw materials and
spare-parts, and as a result of this, the sector has been termed a ‘neglected
sector’.
Earliest manufacturing industries in the country were
producers of different types of goods which comprised soap, cotton, steel,
vegetable oil, meat products, dairy products, sugar refined, soft drinks, beer,
cigarettes, textiles, footwear, wood, paper products, soap, paint,
pharmaceutical goods, agricultural machinery, household electrical appliances,
radios, motor vehicles and jewellery. There was an economic recession in the
1980s caused by the fall of the world oil prices on the market and so also in
the foreign exchange rate which affected the economic growth and development of
the country.
2.2 Statement Of The Study
Manufacturing industries were producing at below 50% capacity
utilization
There was horrendous nosedive in stock market prices
Many manufacturing industries were closed as a result of
economic recession
The shares of the closed manufacturing industries and those
running at serious low capacity utilization were delisted at the stock exchange
There were low Foreign Direct Investment (FDI) and incredible
shrinkage in capital investment
Production cost was very high due to high bank interest rate,
high naira exchange rate to US dollar and powering of production plant during
power outage
There was fall in commodity prices and many multinational
companies like Dunlop plc and Michelin Plc relocated to neighboring countries
where there is good economic climate for business
Objective of study:
To research into the effect of Economic recession in
manufacturing sector in Nigeria
To find out the most serious effect of economic recession in
manufacturing sector in Nigeria
To compare the effect of economic recession in Afprint and
Enpee textile manufacturing industries
Research questions:
The study did utilize the following research questions;
Why are some manufacturing industries closed down?
Why are the shares of some manufacturing industries delisted
at the stock exchange?
What are the effects of economic recession in manufacturing
sector?
What effect has economic recession in foreign direct
investments in manufacturing industries?
Statement of hypotheses:
The following hypotheses were also formulated to guide this
study:
H0: Economic recession does not cause low capacity
utilization and factory closure in manufacturing sector in Nigeria
HA: Economic recession cause low capacity utilization and
factory closure in manufacturing sector in Nigeria
H0: Economic recession does not cause horrendous nosedive in
stock market prices in manufacturing sector in Nigeria
HA: Economic recession cause horrendous nosedive in stock
market prices in manufacturing sector in Nigeria
H0: The shares of closed manufacturing industries were not
delisted at the stock exchange as a result of economic recession
HA: The shares of closed manufacturing industries were
delisted at the stock exchange as a result of economic recession
H0: There were no fall in commodity prices and some
multinational companies did not relocate to neighboring countries as a result
of economic recession
HA: There were fall in commodity prices and some
multinational companies relocate to neighboring countries as a result of
economic recession
2.6 Significance of study:
To know the effect of economic recession in manufacturing
sector in Nigeria
To know how to tackle the problem of economic recession
To proffer advice
2.7 Scope of the Study
The scope of this study is centered on impact of economic
recession on the manufacturing sector of the Nigeria economy 2010 – 2016.
2.8 Limitation Of The Study
The main constraints encountered in carrying out this
research work, this includes;
Time Factor
This research work was conducted simultaneously with normal
academic work within a short period of time in which some valuable information
could be obtained.
Financial Difficulty
In an effort to have a sufficient research material to be
able to write extensively on the subject matter, the researcher was faced with
some financial predicament considering high cost of not only education
materials coupled with the high transport fare.
2.8 Definition of Terms
Manufacturing:- is the production of merchandise for use or
sale using labour and machines, tools, chemical and biological processing, or
formulation.
Manufacturing Industries:- Manufacturing industry refers to
those industries which involve in the manufacturing and processing of items and
indulge in either creation of new commodities or in value addition.
Recession:- A period of temporary economic decline during
which trade and industrial activity are reduced, generally identified by a fall
in GDP in two successive quarters.
Horrendous:- Extremely unpleasant, horrifying, or terrible.
Stock market:- A stock market, equity market or share market
is the aggregation of buyers and sellers (a loose network of economic
transactions, not a physical facility or discrete entity) of stocks (also
called shares), which represent ownership claims on businesses; these may
include securities listed on a public stock exchange as well as those only
traded privately.
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