A STUDY OF THE IMPACTS OF ECONOMIC RECESSION ON THE MANUFACTURING SECTOR UNDER PRESIDENT TINUBU ADMINISTRATION

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The emergence of an economic recession is typically caused by the disregard of fundamental economic policies. The recession exerted significant strain on the diverse sectors of the economy. The manufacturing sector appears to be seeing the most severe impact. The sector is currently confronted with various challenges, including a significant decrease in sales, patronage, and profit margin. Additionally, there are issues related to low production, retrenchment, difficulties in obtaining dollars, increased production costs, factory closures, low power supply, abrupt increases in tariffs, and losses on foreign exchange loans (Ikeke, 2017).

While there is no universally accepted definition of recession, it is widely acknowledged that the phrase describes a period of economic downturn (Bagda et al., 2019). Recessions are not characterised by very brief periods of downturn. A widely accepted operational definition of recession, employed by many commentators and analysts, is the occurrence of two consecutive quarters of negative growth in a nation's real (adjusted for inflation) gross domestic product (GDP), which represents the total value of goods and services produced by a country (Tobi et al., 2018). While this definition serves as a practical guideline, it also has limitations. Exclusively focusing on GDP is limited, and it is sometimes more advantageous to take into account a broader range of indicators of economic activity to ascertain if a country is truly experiencing a recession. Additionally, utilising alternative indicators can offer a more prompt assessment of the economic condition.

The National Bureau of Economic Research (NBER), a private organisation in the United States, maintains a record of when U.S. recessions start and conclude. They employ a comprehensive approach that takes into account several indicators of economic activity to establish the specific dates of recessions. The NBER's Business Cycle Dating Committee defines a recession as a substantial decrease in economic activity that affects the entire economy and lasts for more than a few months. This reduction is typically evident in indicators such as production, employment, real income, and other economic measures (Hall, 2018). A recession commences when the economy reaches its highest level of activity and concludes when the economy reaches its lowest point. In line with this definition, the Committee examines a wide range of indicators, such as GDP, employment, income, sales, and industrial production, to assess the patterns in economic activity (Xavier et al., 2019).

The economic well-being of a country is frequently demonstrated by the strength and liveliness of its manufacturing industry. During periods of economic downturn, the manufacturing industry commonly faces substantial difficulties, such as a decline in demand, a fall in production, and financial instability (Omote, 2019). The economic recession in Nigeria has resulted in a challenging economic environment, as indicated by the elevated energy costs, high bank interest rates, and a significant depreciation of the naira against the dollar, among other factors. The manufacturing industry experienced the most severe impact, with over 80% of its factories being forced to shut down. The majority of industries were operating at a capacity utilisation rate of less than 50% (Nairametrics, 2024). The deteriorating state of the economy has resulted in a highly volatile and significantly elevated exchange rate between the Nigerian naira and the US dollar. The importation of spare parts, equipment, and raw materials for industrial companies presented challenges. In 2023, the Manufacturing Association of Nigeria (MAN, 2024) observed a worrisome pattern in the business. They found that 767 manufacturing enterprises ceased operations, while 335 encountered financial difficulties. GlaxoSmithKline Nigeria and Procter & Gamble (P&G), both international firms, ceased their operations due to the adverse economic conditions (Vanguard, 2024). 

The drastic plunge in stock market prices resulted in a decrease in investment in the manufacturing businesses that produce stocks. A significant number of manufacturing industries were delisted from the stock exchange due to their poor performance, closure, and subsequent lack of investor interest in acquiring their shares (Tolu, 2023). The problem of expansion in manufacturing businesses was further complicated by the combination of low stock prices and the removal of industries from the stock exchange. There was a significant labour turnover, involving layoffs, due to low capacity utilisation and the closure of factories. The recession exerted significant pressure on enterprises, compelling them to constantly strive to both preserve and retain their clients. The inflation has impacted customers' purchasing power, leading to a steady decline in sales volume. Certain customers exhibit a preference for quality, while others prioritise pricing. Overall, companies face an ongoing challenge in retaining their clients (Bala, 2023). Companies vigorously competed to remain viable, employing diverse methods and extensive below-the-line marketing efforts to safeguard their customer base from being poached by rivals (Tolu, 2023).

The manufacturing sector plays a vital role in Nigeria's economy. The term "it" refers to a broad array of sectors, such as food and beverages, textiles, cement, chemicals, and machinery (Sylvanus, 2019). This sector plays a crucial role in generating employment opportunities, driving technical progress, and promoting economic diversity as a whole. Nevertheless, the sector has encountered persistent obstacles throughout its history, including insufficient infrastructure, unreliable power provision, restricted financial accessibility, and regulatory impediments (Joshua et al., 2022). Sphere Ahmed Tinubu became the President of Nigeria on May 29, 2023. The current administration received an economy burdened by challenges including inflation, unemployment, and a significant reliance on oil exports (Gbenga, 2023). Nigeria's economic landscape was further complicated by the global economic situation, which was influenced by issues like as the COVID-19 epidemic, geopolitical tensions, and shifting oil prices. This study aims to investigate the effects of economic recession on the manufacturing sector during President Tinubu's term.

1.2 Statement of the Problem

In recent decades, the challenges faced by Nigeria's manufacturing industry have not been particularly new. The concerns of continuous power deficit, continuing devaluation of a currency that was once at par with the Pound Sterling, and policy somersault on the part of the government are not new. For decades, they have been a major source of frustration for manufacturers. In addition to these challenges, there is now the problem of economic recession.

Based on a research published by The Economy Post in 2023, over the past six years, more than 100 Nigerian enterprises have ceased operations as a result of an unfavourable operating climate that poses challenges to the manufacturing industry. The list of defunct companies comprises Louis Carter Industries, Moak Industries, Freeman Industries, Quick Born Industries, Arabi Industries, Kamdy Industries, Locus Metals, Gorgeous Metal, Mother’s Pride, and Brief Line International. Some more companies are Super Trust Chill Limited, Errand Products, Technoflex Limited, Deli Foods, Champion Foods and Allied Limited, Gornpisco Group, Sky Aluminium, Industrial and Foam Equipment, Mufex Industries, Universal Rubber, and Peak Aluminium, among other others (Ikpoto, 2023). This manufacturing enterprise ceased operations due to the adverse economic conditions resulting from the recession. This has resulted in a decline in work opportunities and a rise in the rate of unemployment inside the nation (Edidiong, 2024).

During economic downturns, the manufacturing industry usually faces decreased customer demand, disruptions in the supply chain, financial limitations, and job losses (Ikpoto, 2023). These effects can impede the industry's capacity to effectively contribute to economic expansion and advancement. There is a lack of empirical study on the precise impact of previous economic downturns under President Tinubu's administration on the manufacturing sector in Nigeria, despite its significance. The main objective of this study is to address the little knowledge on the precise effects of the economic downturn on the manufacturing industry during President Tinubu's term. The lack of understanding in this area impedes the progress of creating efficient policies and measures to alleviate the negative impacts of economic downturns on the industry. Therefore, the necessity for this investigation arises.

Objectives of the study

The primary objective of this study is to critically explore the impact of economic recession on the manufacturing sector under President Tinubu administration. Specific objectives of this study are to:

To analyze the impacts of the recession on production levels in the manufacturing sector.

To assess the effect of the recession on sales within the manufacturing sector.

To assess the impact of the recession on employment within the manufacturing sector

To identify the financial and operational challenges faced by manufacturing firms during the recession.

To evaluate the effectiveness of government policies and measures in supporting the manufacturing sector during the recession

1.4 Research Questions

The following research questions which are in line with the objectives of this study will be answered in this study:

What are the impacts of the recession on production levels in the manufacturing sector?

What is the effect of the recession on sales within the manufacturing sector?

What is the impact of the recession on employment within the manufacturing sector?

What are the the financial and operational challenges faced by manufacturing firms during the recession?

How effective are government policies and measures in supporting the manufacturing sector during the recession

1.5 Research Hypotheses

To determine the effectiveness of this study, the following research null hypotheses will be formulated to guide the study and it will be tested at 0.05% levels of significance.:

Ho: There are no significant impacts of the recession on production levels of the manufacturing sector.

Ha: There are significant impacts of the recession on production levels of the manufacturing sector.

1.6 Significance of the study

This study is important because its objective is to offer a comprehensive comprehension of the effects of the economic downturn on Nigeria's manufacturing industry under President Tinubu's administration. The results will be significant for promoting long-lasting economic growth and reducing the negative impacts of economic downturns on crucial sectors of the economy. The study will provide a fundamental reference point for manufacturing companies, governments, students, and academics.

The manufacturing sector is an essential element of any economy, making a substantial contribution to employment, GDP, and industrial expansion. Gaining an understanding of how this industry reacts to economic downturns can offer valuable information into its ability to withstand challenges and its susceptibility to harm. Manufacturing companies may employ many techniques during a recession, including implementing cost reduction measures, introducing innovative production methods, or expanding their range of products. Examining these practices can provide insights for enhancing firm resilience in difficult economic circumstances.

Furthermore, the manner in which the government addresses a recession can have an effect on the extent and length of its consequences on the manufacturing industry. This study can provide insights into the sufficiency and efficacy of government interventions and propose opportunities for enhancing policy development and execution. The study also offers a chance to assess the efficacy of economic measures enacted during President Tinubu's tenure in alleviating the repercussions of a recession on the manufacturing industry. These encompass fiscal policies, monetary policies, trade policies, and industrial policies.

Moreover, comprehending the periodic pattern of economic recessions and their effects on certain industries such as manufacturing can provide valuable insights for strategic economic planning in the long run. It aids in formulating proactive plans to improve sectoral growth and resilience against future economic shocks.

 Furthermore, future scholars will utilise it as a thorough examination of the current body of literature. Consequently, other students with an interest in studying this subject will have the opportunity to utilise this work as reliable knowledge that can be comprehensively evaluated. 

1.7 Scope of the study

Broadly, this study focus is to critically explore the impact of economic recession on the manufacturing sector under President Tinubu administration. Specifically, this study seeks to analyze the impacts of the recession on production levels in the manufacturing sector, assess the effect of the recession on sales within the manufacturing sector and assess the impact of the recession on employment within the manufacturing sector.

Further, this study will focus on identifying the financial and operational challenges faced by manufacturing firms during the recession and it also seeks to evaluate the effectiveness of government policies and measures in supporting the manufacturing sector during the recession.

1.8 Limitations of the study

Like in any human attempt, the researchers encountered several small limits during the investigation. The primary constraint was the scarcity of comprehensive literature on the topic, as there is a paucity of data regarding the impact of economic recession on the manufacturing sector under President Tinubu administration. Therefore, a substantial investment of time and effort was required to find the suitable materials, books, or information and collect data. 

Moreover, this study is limited by its limited sample size and restricted geographical reach, namely concentrating just on Nigeria. Hence, the findings of this study cannot be extrapolated, thereby necessitating additional research. 

Furthermore, the researcher's limitations were predominantly attributable to budgetary restraints, as they are a student and lack a means of financial support. The research location's transportation charges were difficult to afford due to the exorbitant cost of transportation, which is directly impacted by the current inflation in Nigeria.

In addition, the researcher encountered a time limitation as a result of having to conduct this research while simultaneously meeting the responsibilities of attending lectures and engaging in other educational pursuits.

1.9 Definition of terms

Economic recession: Economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales

Inflation: Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.