IMPACT OF TRADE OPENNESS AND THE NIGERIA NON-OIL INDUSTRIAL SECTOR

Abstract
The study examined the impact of trade openness on Nigeria’s non-oil industrial sector. The main objective of the study is to investigate critically, how trade openness has impacted on Nigeria’s non-oil industrial sector. The data used in this research is a secondary data. In the process of the study, trade openness, labour, real gross domestic product, real exchange rate and exports were incorporation as the independent variables as regards industrial production index and employed the ordinary least square method (OLS).The results revealed that trade openness and selected macroeconomic variables included in the model have a long run relationship. The study also reveals that trade openness has a significant positive effect on the growth of the Nigeria’s non-oil industrial sector. Furthermore, labour and exports have indirect and significant and direct and non-significant impact on the growth of the Nigeria’s non-oil industrial sector. The study recommended among others an urgent need for the government to liberalize the foreign sector in Nigeria so that all barriers to trade such as arbitrary tariffs; import and export duties and other levies should be reduced so as to encourage investors.

1.1. Background of the study
Towards enhanced and sustainable economic performance, governments are often faced with the challenge of adopting either protectionist measures or liberalizing its operations. The policy debate seeks to resolve the question of whether it is the protectionist or liberalized economic policy that promotes rapid economic growth. Economic liberalization policies have been widely acknowledged in development finance literature as a critical factor in economic performance.

According to Anowor (2013), trade openness or liberalization is the process of reducing or removing restrictions on international trade which may include the reduction or removal of tariffs, abolition or enlargement of import quotas, abolition of multiple exchange rates, and removal of requirements for administrative permits for imports or allocations of foreign exchange. Trade openness is central to the structural adjustment programmes being implemented by most countries in Sub-Saharan Africa including Nigeria (Yusuf, 2013).

To Effiong (2011), the cornerstone of the SAP-induced policy was the opening up of domestic economies to face increased competition in order to ensure efficiency in resource use, removal of wastages, elimination of persistent misalignment in the external and domestic sectors which ensured continuous balance of payments disequilibrium, and a general redirection of the economy to the path of recovery and growth. The policy measures implemented included the elimination of non-tariff barriers to imports, the rationalization and reduction of tariffs, the institution of market determined exchange rates and the removal of fiscal disincentives and regulatory deterrents to exports (Eleanya, 2013).

Basically, liberalization policies can impact economic performance through trade and/or finance flows. A major argument for trade openness or liberalization is enhancement of efficiency and scale economies in the production activity. Tybout (1992) argues that entrepreneurial efforts are better rewarded through increased exposure to international competition. He posits that higher output levels associated with liberalization lower unit costs of production, an indication of efficiency in production.

Trade liberalization, for instance, opens up new markets, beyond national frontiers, thus enabling firms to produce and reap the benefits of large-scale production. Firms seek to be more efficient in their production process in order to compete favourably with their foreign counterparts.

Economic liberalization promotes the establishment of export-oriented industries to enhance the foreign exchange earning capacity of the economy and the inflow of raw materials and capital goods (including technological innovations) needed in production. Hence economic openness could lead to enhancement in technology acquisition. Grossman & Helpman (1991) argue that openness to trade can influence technological change, thereby making production more efficient and in the process enhancing productivity improvements. Adenikinju & Chete (2002) aver that opening up an economy offers immense opportunities to overcome limitations imposed by the shallow domestic markets (particularly in developing economies) which could enhance the inflow of foreign exchange required to finance essential production imports. Economic liberalization promotes the flow of factors of production, like capital (human and physical), technology and finance across national boundaries and thus enhances the scope of economic activity in the importing country. Some academics argue however that major benefits from liberalization may not derive from enhanced capital inflow into the domestic economy but from the attendant operational efficiency arising from reduction of domestic distortions and lock-in reforms (Gourinchas & Jeanne, 2002).

The non-oil industrial sector of an economy is often regarded as the engine of growth and economic development largely due to its pivotal role in broadening the productive base of the economy, enhancing its revenue earning capacity, reducing the growth of unemployment and poverty as well as checking rural-to-urban migration. The non-oil industrial sector, according to the Central Bank of Nigeria (2012), consists of solid minerals (including coal mining, metal ores, quarrying and other mining activities) and manufacturing (including oil refining, cement production, food beverages and tobacco; textiles, apparel and footwear; wood and wood products; pulp, paper and publishing; non-metallic products; domestic/industrial plastic and rubber; electrical and electronics; basic metal, iron and steel; motor vehicle and miscellaneous assembly. The manufacturing sub-sector consists of large, medium, small and micro enterprises.

Inability of large-scale industrialization policy to propel the growth of the industrial sector in Nigeria informed the policy shift to small-scale industrialization policy. Small scale enterprises presently maintain a very strong presence in the economy, playing a leading role in the industrial development of the country (Okafor, 2000). The sub-sector is performing at sub-optimal levels, contributing less than an annual average of 4.0 per cent of the sector’s contribution to GDP over the period 1981-2013 (Central Bank of Nigeria, 2013).For instance, between 1981 and 2012, manufacturing posted its highest contribution of 38.44 per cent to sectoral share of GDP (49.70per cent) in 1983. By 2012, contribution from manufacturing to industrial sector output (39.03 percent) stood at a paltry 1.88 per cent (Central Bank of Nigeria, 2012).

The performance of the solid minerals sub-sector suggests grossly under-exploitation or rather outright neglect. The sub-sector was barely able to contribute just over 1.0 per cent to sectoral output between 1981 and 1984. Between 1985 and
2012, solid minerals contributed less than annual average of 1.0 per cent to non-oil industrial share of national output. The sub-optimal performance of the sub-sector has been a source of concern because of its immense potentials as a major foreign exchange earner for the economy. According to Sanusi (2011), prior to the discovery of oil, sold minerals like coal and tin were major items of export for the country. Overall, between 1981 and 1986, non-oil industrial output stood at an annual average of about 48.58 per cent of the total output of the economy. Over the 28-year period (1986-2013), the performance of the sub-sector rather than be enhanced, dropped to about 45.15 per cent of GDP (Central Bank of Nigeria, 2012). The declining contribution of the non-oil industrial sector, especially the sub-optimal performance of manufacturing and solid minerals, to national output is an issue of serious concern to the authorities in Nigeria and has continued to engage the attention of academics and other stakeholders.
The question at this juncture therefore is, what has been the trend of development in the non-oil industrial sector and to what extent can we link such development to adoption of trade openness measures?