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The study is an attempt to investigate the impact of macroeconomic variables on manufacturing sector output in Nigeria .In particular, the study examined the impact of exchange rate and inflation rate on the manufacturing sector performance in Nigeria. In order to achieve this, the study estimated a multiple linear regression econometric model using annual time series data of manufacturing output, average capacity utilization, credit to the manufacturing sector, inflation rate, exchange rate and interest rate ranging from 1981 to 2015. The result of the study established that in the period under review, inflation rate and exchange rate has a statistically significant negative impact on manufacturing output in Nigeria. The study therefore recommends inflation targeting policies that seeks to keep inflation at its barest minimum while encouraging output growth and the adoption of floating exchange rate regimes that allows for the accommodation of external shocks while maintaining a tight monetary policy to minimize the risk of imported inflation.




  • Background to the Study

The manufacturing sector operates within the internal and external environments of business.  The internal environments are within a firm such that the prevailing factors are most times very subject to the control of the managers.  The external environment has to do with the larger business environments in which the manufacturing sector operates; and the factors therein are not subject to the control of the managers.  The factors in the external environment not subject to the control of a manager generally can be regarded as macro-economic factors or variables.

Since corporate managers cannot control the macro economic variables the government can control them through several policies.  Thus, like all experts, the government in order to do a good job of managing the economy, will have to study, analyze and understand the major variables that affect or determine the current behavior of the macro-economy.  Examples of the macro-economic variables that affect the economy and firms majorly include foreign direct investment, inflation rate, interest rate, money supply, etc.  The management of these variables is usually done through fiscal and monetary policy by the government and her agencies e.g. the Central Bank.

Another macroeconomic variable that may have impact on manufacturing sector performance is exchange rate. Manufacturing sector financials are presented in terms of the home currency.  Exchange rate increases or decreases the value in home currency of revenues and cost incurred in foreign currency.  According to Lars (2003), exchange rate increases or decreases earnings in home currency share of total costs.  In other words, exchange rate increases or decreases earnings in home currency before interest costs.  Against this backdrop, the study examines the impact of macro-economic variables on manufacturing sector output in Nigeria.

1.2       Statement of the Problem

The effect of macroeconomic variables on manufacturing sector output has been a source of great concern to policy makers and researchers alike. This concern stems from the implication of this variables on manufacturing sector outputs and by extension employment and economic growth and development in Nigeria.

Macroeconomics variables such as inflation, interest rate and money supply have profound implication on the various sectors of the economy and the manufacturing sector is no exception. Data from CBN statistical bulletin 2016 shows that inflation has been on the increase. Standing at 7.39 in 1980 consumer price index rose to about 8.56 in 1990, by the year 2000 the index stood at 7.22. However, it rose to about 10.45 in 2014 before finally rising to 12.54 in 2015. This has led to a dramatic increase in the cost of import and raw materials used in production. The implication is that the cost of production will rise thereby reducing overall sectorial output in the manufacturing sector.

Similarly the exchange rate in Nigeria has been on an upward trajectory. Standing of about 157 in 2014, by January 2016 it had doubled to about 400 later rising to about Naira 500 the same year. Violent fluctuation in exchange rate increases the cost of imported raw materials and machines used in production, it creates uncertainty making it difficult for investors to come into the sector and inhibiting planning on the side of those already in the system.

On the other hand, rising lending rate increases the cost of borrowing making it difficult for manufacturing firms to access credit which is aimed at boosting production and output.

Giving the importance of manufacturing sector to economic growth and development in Nigeria a thorough understanding of the impact of these variables on manufacturing sector growth is in order. Since no nation can achieve any meaningful growth and development without paying attention to its industrial and manufacturing subsector a good understanding of the relationship between macro variables is important in formulating meaning full policies that will spin economics growth.

Generally several studies have since carried out the effect of manufacturing sector output on Nigeria with conflicting conclusion. While some of the studies did suggest a statistical significant impact of macroeconomic variables on manufacturing sector output in Nigeria. Other studies carried out by Oxelheim and Wihlborg  are of the opinion that macroeconomic variables  have mixed impact on manufacturing sector output. This study will therefore serve to verify this conflicting claims.

Furthermore given the dwindling oil revenue which had led to violable movements of certain macroeconomic variables with ranging degrees of impact on the manufacturing sector the study will help ascertain the impacts at this crucial time when the nation is seeking to diversify the economy and ensure an inclusive and sustainable growth pattern.

In the light of the above analysis the following research question will guide our study.

1.3       Objectives of the Study

The primary objective of the study is to evaluate the impact of macro-economic variables on manufacturing sector output in Nigeria. However, the specific objectives are stated as follows:

  • To ascertain the effect of inflation rate on manufacturing sector output in Nigeria.
  • To determine if there is a significant relationship between exchange rate and manufacturing sector output in Nigeria.

1.4 Research Questions

  • What is the effect of inflation rate on manufacturing sector output in Nigeria?
  • What is the relationship between exchange rate and manufacturing sector output in Nigeria?

1.5   Hypotheses of the Study

In order to validate the relationship between macro-economic variables and corporate performance in this study, the following alternative hypothesis are specified:

H0:       There is no relationship between inflation rate and manufacturing sector performance.

H01: Exchange rates do not affect manufacturing sector performance in Nigeria.

1.6 Significance of the Study

This study is expected to be relevant to a number of persons and institutions in Nigeria.  First, the Federal Government of Nigeria will find the outcome of this study useful in terms of making decisions relating to the macroeconomic environment; in other words, it will help the government to regulate the interest rate, inflation rate, exchange rate and others with a view to achieving macro-economic stability so as to assist the companies operating in Nigeria.  The Central Bank of Nigeria definitely will find the study very much useful in terms of devising good monetary policy so as to enhance company’s performance and foreign investors into the Nigeria economy.

Similarly, future researchers will find the study useful in terms of reference materials on a similar subject matter as this.

1.7 Scope and Limitation of the Study

This study examines the effects of macro-economic variables on corporate performance in Nigeria. The study covers a period of  years from 1981 to 2015.  In other words, the study is a time series one.  The sample size is sixteen quoted firms which are listed on the floor of the Nigerian Stock Exchange.

The limitations of this study include data constraint, inadequate research materials extensively dealing on the subject matter in Nigeria.  The sample size also limits the study due to time factor and its practicality.  Similarly, there is also the problem of generalizing the outcome of the study to other non-manufacturing firms in Nigeria in terms of how macro-economic variables may have affected their performance.



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