THE EFFECT OF FINANCIAL DEREGULATION ON INDUSTRY PRODUCTION IN NIGERIA

ABSTRACT

In the 1980’s and 1990’s most African countries including Nigeria were faced with severe economic crisis resulting in falling per capital incomes and determinations of social conditions, which were faced with both internal and external problem.

Nigeria like other developing countries adopted deregulation as a means of to put the manufacturing sector on the part of sustainable growth. Several elements of liberalization to increase in industrial output.This study examines financial study liberalization with a view to whether it actual leads to economic growth in Nigeria economy. Adopting the ordinary least square estimating techniques the results shows that the targeted liberalization variation had the potential of inducing long run manufacturing output of macroeconomic policies had been properly harnessed and administered.

CHAPTER ONE

INTODUCTION

BACKGROUND TO THE STUDY

Following the collapse of the oil market in 1980’s, Nigeria experiences serious foreign exchange problems, which almost cripple her economic activities in the civilian administration by allowing unrestricted import into the countries, at this point the country’s balance of payment position changes from bad to worse even with the stabilization of policy at work. There were suggestions to transformation of economy following these suggestion Nigeria resolved in 1986 to embark on Structural Adjustment Programme (SAP), the centre price of which financial deregulation.

Economic deregulation according to Oyo (1991) is a deliberate and systematic removal of regulatory control, structural, and operational guidelines in the administration and pricing system in the economy, in order to total revempt the and move to self reliant one. For more than two decodes after independence the Nigeria financial system was expressed as evidence be ceilings on interest rate policies, high reserve requirement and resonation on entry into the banking industry. This situation inhibited the functioning of the fianical system and especially constrained its ability to mobilize savings and facilitate productive investment.

Deregulation on the other hands according to Ojo (1991) is “a systematic removal of regulatory controls, structural and operational guidelines in the administration and pricing system in the economy. The instruction of structural Adjustment Programme (SAP) in 1986 was to eliminate distortion bottleneck in the economy to turn away the tailor of the country to a self- reliant economy through accelerated investment.

In the formal sector of most developing countries, Nigeria inclusive, interest rate is administrative determined with monetary authority usually Central Bank, fixing the rates and commercial banks are expected to Lend to customer’s at these rates and place interest on customers deposits at the stipulated rates. Such rates are kept low, partly to limit the cost of financing government programmes and reduce the cost of borrowing by investos to encourage investment and thereby promoting economic growth (Algnokhan), B.E, 199).

However, since the late 1970’s and early 1980’s many of these countries (Nigeria inclusive) as part of the Structural Adjustment Programme (SAP) deregulated interest administration, following the deregulation, interest rate administration rose to extra-ordinary high level and this led to received effort to understanding interest rate deregulation with respect to investment behavior in Nigeria, to be specification 31st July 1987, the Central Bank of Nigeria (CBN) announced the deregulation of interest rate with effect from August 1st 1987. Hence all administration and Operational control on interest rate e established and the forces of demand and supply (market forces) were allowed to determine the rate of interest in Nigeria and this singular act has been very significant in the determination of investment behavior in Nigeria.

The impact of changes in interest rate on savings, financial and economic growth is a Central Issue in macroeconomics. Theoretically, models predict that financial deregulation which involves the liberalizing of interest rate deregulation of financial better, elimination of credit control will bring about efficient increased savings, lower financial cost, bring efficient allocation of funds, availability of credit and financial deepening. Makinwa (11973) posited the financial deregulation would lead to higher level of investment and output growth.

STATEMENT OF PROBLEMS

The pursuit of an appropriate interest rate policy is expected to improve the efficiency of the financial market, with a consequent effect on savings mobilization, investment and growth.

The deregulation of the interest rate was expected to bring more competitiveness in the backs mobilization of financial resources and on industrial production in Nigeria. The followings are some of the items on journal deregulations:

Deregulation of the downstream sector of the oil industry.

Subsidy removal on petroleum products in Nigeria.

Deregulation and privatization of the upstream and downstream of the oil sectors.

Hereunder, are some of the rural access to funds. These includes;

Set – up a shot and run it

A new open source of credit software called payment view.

Rural grants and funding.

However, the immediate effect of the economic stabilization act of 1982, erected by the Shehu Shangari civilian administration was the shortage of foreign exchange and the scarcity of imported raw materials by a fall in the utilization of installed capacity of most individual industrial enterprises. Olukoshi (1989) records that the capacity utilization ranging between 20 percent to 40 percent in the industrial sector about 101 companies surveyed by the manufacturers association of Nigeria had shutdown for period of between 7 and 12 weeks by July 31st , with 200,00 worker laidoff.

Moreso, attention seems to be focused on managed deregulation as it affect industrial production understanding the design and implementation of financial deregulation policies is very important in response to adverse effect of financial restrictions, many countries have engaged in financial liberation strategies since the mid 1990’s. The aim of financial deregulation is to improve economic performance through increased competitive efficiency within the financial market thereby indirectly benefiting non-financial sectors of the economy.

OBJECTIVES OF THE STUDY

The objectives of this study are centered around on financial deregulation on industrial production in Nigeria as below:

To establish the degree of financial deregulation on the production sector.

To gain an insight into the effectiveness of interest rate deregulation on the Nigeria economy.

STATEMENT OF RESEARCH HYPOTHESIS

A statement of hypothesis has to do with a tentative statement of a relationship that exist between two or more variables.

For the purpose of this research work, the following hypothesis is given for our validity;

H0: Interest rate has no significant impact on the industrial production in Nigeria.

H1: Interest has significant impact on industrial production

H0: There is no significant relationship between interest rate and the drives for savings in Nigeria.

H1: There is a significant relationship between interest rate and the drives for savings in Nigeria.

SIGNIFICANE OF THE STUDY

Anamdi (2006) did similar work. Results obtained showed that there is a different in the effectiveness of fiscal policy in stimulating economic growth during the after regulation period. The impact was marginally higher (only N140 million or 14 contribution to GDP) during deregulation than in the regulation period. He recommend appropriate policy mix, prudent public spending, setting of achievable fiscal policy target and diversification of the nation’s economic base among others. The period of regulation is considered to be between 1970 and 198, while that of deregulation is from 1986 to 2006.

This study intend to till or harmonize the safety of workers at work place, as well as fiscal policy, regulation, deregulation and economic growth.

SCOCPE AND LIMINATIONS OF THE STUDY

The study coves period of deregulation from 1986 – 2011 and focus on the effects of financial deregulation on industrial production in Nigeria. The impact of financial deregulation in relation to enhancing the improvement of financial deregulation through policy guideline shall be examined (1980 – 2011).

They will be done by highlighting the benefits of financial deregulation, also the study, critically appraises the financial deregulation policy and programme in Nigeria and how far it has helped in promoting overall growth and development in the Nigeria economy. As common to most research work, the limitations encountered in the course of the study include;.Time Constrain: It was not an easy task combing the writing of this project with our academic work our to the demanding and time constraining the nature involved in putting up a writing of this magnitude.

Resource Constrain: This process of gathering and sourcing for materials to achieve the desired goal of this project was never an easy task.

Financial Constrain: It was not easy in any small measure or task securing the required finance to execute this project. Due to some logistic problems, limited resources, time and space.