Impact of Rising Interest Rate on the Performances of the Nigerian Manufacturing Sector

Abstract

The dismal performance of the Nigerian manufacturing sector could be attributed to inadequacy of financial support for the manufacturing sector, which ultimately has contributed to the reduction in capacity utilization of the manufacturing sector in the country. The insignificant contribution of the sector to gross domestic product could be as a results of continued deterioration in infrastructural facility as well as lack of access to cheap finance characterized by rising lending rate. This study therefore examines the effect of rising interest rates on the performances of the Nigerian manufacturing sector. Data for the study spans thirty five (35) years covering 1981 to 2015. The models were analyzed using the ordinary least squares. Findings from the study shows that rising interest rate in Nigeria has a negative effect on the contribution of the manufacturing sector to GDP as well as on the average capacity utilization of the Nigerian manufacturing sector. This implies that the rising interest rate in Nigeria impedes the activities and the performances of the Nigerian manufacturing sector. Given these findings, the study recommends that aside from trying to manage interest rate for enhanced economic growth, the Nigerian Government should strive to provide infrastructural facilities particularly power and transportation to reduce the high cost of production.

Keywords: Interest Rate; Capacity Utilization; Manufacturing Sector; GDP.