CHAPTER ONE1.0. INTRODUCTION1.1. BACKGROUND OF THE STUDYGranting that no country of the world can ever attain an expected level of economic developmentwithout a virile and highly productive manufacturing sector makes it imperative that Nigeria as acountry must pursue policies aimed at stimulating a rapid growth capable of increasing theproductivity of the manufacturing sector and thus, improve national economy. This veryimportant sector transforms our numerous raw materials into marketable finished products thatare required in our daily existence as a people and as a nation.The sector generates foreign exchange through the exportation of its finished products. Realizingthe importance of this sector, Nigerian government had before now, made concerted efforts togive reasonable support and assistance to the realization of the growth of the manufacturingsector in Nigerian economy.It is greatly accepted that the oil boom of the 70’s greatly improved Nigeria’s economy andearned her industries need foreign exchange to import raw materials.Regrettably, thus boom changed drastically in the 80’s with the dwindling oil revenue. The effecthowever saw the folding up of some industries, thus, negatively affecting the manufacturingsector of the economy. The harsh economic situation of the time wholly informed that sectorsshould be opened so as to supplement the poor oil revenue. This unpleasant economic conditiongot worse with military leadership which was considered unstable.Yet, the manufacturing sector remains the most wanted sector to supplement the foreignexchange earnings of the oil sector through exportation of their finished products.2Nevertheless, military regimes are known not to offer enabling environment for effectiveindustrial growth but with the emergence of a democratically elected government in May 1999,the Nigerian nation started the creation of enabling opportunities and environment to promote thegradual development of the manufacturing sector. However we must realize that themanufacturing sector of the economy has been the most unfortunate and hardest hit by the highinterest rates.Odimaya (2000:17) noted that “banks no longer want to lend on long-term it is usually at cutthroatinterest rates”.This situation has continued to affect the manufacturing sector, even in this democraticdispensation with the federal government economic policy of deregulation of the banking sector.This condition according to kazeem (2004:23) has greatly affected the manufacturing sector.This opinion of kazeem is made stronger when he wrote that the banks high interest lending ratescontinue to threaten the agreement reached by the Nigerian government, the central bank ofNigeria (CBN) and the banks that lending rates should not be more than the minimum rediscountrate.The above agreement was to encourage bank lending to industrialists and so, stimulate themanufacturing sector development and improvement of the national economy which wouldguarantee rapid industrialization in line with development objectives.Manufacturing which cannot afford the high bank lending rates hardly survive and they aremostly neglected by government policies and its these small scale industries that respond to thelives and needs of the ordinary citizen.Libanio (2006:22) argues that the manufacturing sector has an important role in the growth andperformance of the economy but the manufacturing output was not enough to generate sizeable3growth in the economy. Regrettably, the performance of the manufacturing sector in Nigeria hasbeen constrained due to inadequate funding culture of the Nigerian banks and even when bankslend, they lend on a high rate of interest on the loan and banks are the primary source of capitalfor manufacturers or industrialists.Goldman Sachs (2008:24) talks about the objective of the approved vision 20-2020 studyprojections that Nigeria will be 20th and 12th largest economy of the world and Africarespectively.This vision is to be realize through the growth of the private sector therefore, overconcentrationand overdependence should be reduced on the oil sector because there have been a growingconcern on the decline of the output of the manufacturing sector in Nigeria which is faced withthe problem of accessibility of funds and high interest rates of banks.1.2. STATEMENT OF THE PROBLEMSThe first problem of the study is the poor capacity utilization of the manufacturing sector.The second problem of the study is the high cost of product pricing of the manufacturing sector.The third problem of the study is lack of profitability of the manufacturing sector.1.3. OBJECTIVES OF THE STUDY1. The first basic objective of the study is to examine the effects of high interest rates onmanufacturing sectors capacity utilization.2. To examine the effects of high interest rates on the product pricing of the manufacturingsector.3. To examine the effects of high interest rates on the profitability of the manufacturing sector.