Imports under a foreign exchange constraint : implications for the Nigerian manufacturing sector

Abstract

Two-gap theory emphasizes two constraints to growth and development in developing countries - domestic and foreign resource constraints. This thesis attempts to analyse the implications of the foreign resource constraint for the Nigerian manufacturing sector. The constraint is brought on by the structural dependence of the manufacturing process on imported inputs, machinery, spare parts etc., and the need to pay for these imports with foreign exchange which the sector does not itself adequately generate. The problem has its roots in the distorting trade and exchange rate policies put in place to support the import substitution strategy of industrial development adopted in the 1970s. This has led to the creation of an import dependent, foreign exchange intensive, low value added, export neglecting manufacturing sector which, in the face of uncertain export revenue and a rising foreign debt, has, particularly since the 1980s, found itself critically short of foreign exchange. The net result has been a prolonged crisis of low capacity utilization in the sector as a whole, but more so in the most import dependent sub-sectors. Three hypotheses are explored and validated that capital and intermediate goods imports are dependent on current and past foreign exchange receipts (export revenue and foreign investment); that there is a gap between the desired and actual levels of these imports; and that manufacturing sector performance is import dependent.