Infrastructure and Manufacturing Sector Performance in Nigeria

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Infrastructure and Manufacturing Sector Performance in Nigeria

Ihuoma Chikulirim Eke, Felix Awara Eke* and Awara Emeng Edom
Department of Economics, University of Calabar, Calabar, Nigeria
*Correspondence author
Received: 09 June 2023; Revised: 08 July 2023; Accepted: 14 July 2023; Published: 11 August 2023

Abstract: The objective of this study was to investigate the effect of infrastructure (electricity consumption and paved roads) on manufacturing sector performance in Nigeria for the period 1981-2019. The ex post facto research design was adopted for the study, using a combination of the traditional Ordinary Least Squares (OLS) econometric method, and the Augmented Dickey-Fuller unit root test for robust and valid estimation results. The co-integration test showed that the equations in the model were integrated. The study findings revealed that infrastructure, proxy by electricity supply had an adverse but not significant effect on manufacturing sector performance while paved roads had a positive and significant impact on manufacturing performance in Nigeria. The study recommends a total overhaul of the electricity sub-sector and targets increased supply specifically for industrial consumption as well as exploring alternative options to increase the road network such as public-private partnership arrangements given its importance to industrial performance.

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Keywords: Infrastructure, Manufacturing performance, Electricity consumption, Paved Road

JEL Classification: C32; H54; H55; L60

I. Introduction

Infrastructural deficit adversely affects manufacturing output and depletes the contribution of the sector to the Gross Domestic Product of the nation. In 2023, a lack of foreign exchange forced 18 to 20% of manufacturing enterprises to close, resulting in significant unemployment. Also, the price of diesel had risen from N847 to N900 per litre, which has raised the cost of manufacturing astronomically. Other issues confronting the manufacturing sector include multiple taxation, government use of touts to harass enterprises, rising insecurity, failure to tackle concerns raised about the African Continental Free Trade Area (AfCFTA), and repatriation of funds. (MAN, 2023). The organization also identified poor power supply and dilapidated and decaying road infrastructure as among the most debilitating challenges faced by the manufacturers in Nigeria.

The availability of good infrastructural base results in the rapid attainment of sustained industrialization. Ubi, Eke, and Oduneka (2011) noted that an adequate electricity supply ensures optimal use of modern technologies and processes. Manufacturing plants can seldom work without adequate electricity and a human capital base to support them. Transport and electricity infrastructure appear to be very important in view of their linkage effect on all other variables of economic growth. It is sad to note that the low annual budgetary allocations to the transport (road) and power (electricity) sectors and the near-total neglect of road and electricity infrastructure have limited the effectiveness of the manufacturing sector and its contributions to Nigeria’s GDP growth over many years.

Among all the basic infrastructural facilities generally known as essential amenities required for industrial growth, the transport (road) and power (electricity) infrastructure stand out. An efficient transport (road) system has remained an important element of economic growth and development. Omimakinde (2022) pointed out that the road transport sector is the pivot of the economy, the hub upon which the economy revolves, and that the neglect of this sector draws development backward. The importance of transportation to a nation’s manufacturing performance cannot be overemphasized. It aids the distribution of products from the point of production to the appropriate target markets in a timely manner. Vagliasindi and Gorgulu (2023) view infrastructure as the basic physical amenities that can produce multiplier effects that significantly reduce poverty and inequality, and facilitate all other economic activities in the system. Infrastructure can further be classified into two broad categories, softcore infrastructure or social infrastructure, and hard-core infrastructure or physical infrastructure. Softcore infrastructures are made up of the provision of healthcare and educational services, government structure, accountability, and property right. Soft-core infrastructure is unequivocally seen as an essential factor for industrial activity while hard-core infrastructure includes physical structures such as telecommunication, power, transportation, water etc. Hard-core infrastructures are generally seen as the ‘wheels’ of economic activity. This conceptualization of infrastructure strongly suggests that both the softcore and hardcore infrastructure complement industrialization.