SOURCING AND FINANCING LOCAL RAW MATERIALS IN THE NIGERIAN BEVERAGE INDUSTRY
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
In this chapter, the researcher will review the works done by other scholars in the related area of study. This will help the researcher understand the direction of research by these scholars in this line of thought. The review of empirical studies will be presented in subheadings for a better understanding of the work.
2.1 Theoretical Framework
Entrepreneurship theory is adopted for this research work. The choice is because SMEs are off-shoot of entrepreneurs.
2.1.1 Economic Entrepreneurship Theory
The economic entrepreneurship theory has deep roots in the classical and neoclassical theories of Economics and the Austrian Market Process (AMP). These theories explore the economic factors that enhance entrepreneurial behaviour.
2.1.1a Classical Theory
The classical theory extolled the virtues of free trade, specialization, and competition (Ricardo, 1817). The theory was the result of Britain’s industrial revolution which took place in the mid 1700 and lasted until the 1830s.The classical movement described the directing role of the entrepreneur in the context of production and distribution of goods in a competitive marketplace (Say, 1803). Classical theorists articulated three modes of production: land; capital; and labour. There have been objections to the classical theory. These theorists failed to explain the dynamic upheaval generated by entrepreneurs of the industrial age.
2.1.1b Neo-classical Theory
The neo-classical model emerged from the criticisms of the classical model and indicated that economic phenomena could be relegated to instances of pure exchange, reflect an optimal ratio, and transpire in an economic system that was basically closed. The economic system consisted of exchange participants, exchange occurrences, and the impact of results of the exchange on other market actors. The importance of exchange coupled with diminishing marginal utility created enough impetus for entrepreneurship in the neoclassical movement. Some criticisms were raised against the neo-classical conjectures. The first is that aggregate demand ignores the uniqueness of individual-level entrepreneurial activity. Furthermore, neither use nor exchange value reflects the future value of innovation outcomes. Thirdly, rational resource allocation does not capture the complexity of market-based systems. The fourth point raised was that, efficiency- based performance does not subsume innovation and non-uniform outputs; known means/ends and perfect or semi-perfect knowledge does not describe uncertainty. In addition, perfect competition does not allow innovation and entrepreneurial activity. The fifth point is that, it is impossible to trace all inputs and outputs in a market system. Finally, entrepreneurial activity is destructive to the order of an economic system.
2.1.1c Austrian Market Process (AMP)
These unanswered questions of the neo-classical movement led to a new movement which became known as the Austrian Market Process (AMP). The AMP, a model influenced by Joseph Aloi Schumpeter (1934) concentrated on human action in the context of an economy of knowledge. Schumpeter (1934) described entrepreneurship as a driver of market-based systems. In other words, an important function of an enterprise was to create something new which resulted in processes that served as impulses for the motion of market economy.
The contention here is that the movement offered a logic dynamic reality. In explaining this, it was point to the fact that knowledge is communicated throughout a market system (e.g. via price information), innovation transpires, entrepreneurs satisfy market needs, and system-level change occurs. If an entrepreneur knows how to create new goods or services, or knows a better way to do so, benefits can be reaped through this knowledge. Entrepreneurs effectuate knowledge when they believe it will procure some individually-defined benefits.
The earlier neoclassical framework did not explain such activity; it assumed perfect competition, carried closed-system assumptions, traced observable fact data, and inferred repeatable observation-based principles. By contrast, AMP denied assumptions that circumstances are repeatable, always leading to the same outcomes in an economic system. Rather, it held entrepreneurs are incentivized to use episodic knowledge (that is, possibly never seen before and never to be seen again), to generate value.
Thus, the AMP was based on three main conceptualizations (Kirzner, 1973). The first was the arbitraging market in which opportunities emerge for given market actors as others overlook certain opportunities or undertake suboptimal activity. The second was alertness to profit-making opportunities, which entrepreneurs discover and entrepreneurial advantage. The third conceptualization, following Schumpeter (1934), was that ownership is distinct from entrepreneurship. In other words, entrepreneurship does not require ownership of resources, an idea that adds context to uncertainty and risk (Knight, 1921). These conceptualizations show that every opportunity is unique and therefore previous activity cannot be used to predict outcomes reliably. The AMP model is not without criticisms. The first of the criticisms is that market systems are not purely competitive but can involve antagonist cooperation. The second is that resource monopolies can hinder competition and entrepreneurship. The third is that fraud /deception and taxes/controls also contribute to market system activity. The fourth is that private and state firms are different but both can be entrepreneurial and fifth, entrepreneurship can occur in non-market social situations without competition. Empirical studies by Acs and Audretsch (1988) have rejected the Schumpeterian argument that economies of scale are required for innovation. The criticisms of the AMP have given impetus to recent explanations economies from psychology, sociology, anthropology, and management.
2.1.2 Psychological Entrepreneurship Theories
The level of analysis in psychological theories is the individual. These theories emphasize personal characteristics that define entrepreneurship. Personality traits need for achievement and locus of control are reviewed and empirical evidence presented for three other new characteristics that have been found to be associated with entrepreneurial inclination. These are risk taking, innovativeness, and tolerance for ambiguity.
2.1.3 Personality Traits theory
Personality traits can defined as “stable qualities that a person shows in most situations”. To the trait theorists, there are enduring inborn qualities or potentials of the individual that naturally make him an entrepreneur. The obvious or logical question on your mind may be “What are the exact traits/inborn qualities?” The answer is not a straight forward one since we cannot point at particular traits. However, this model gives some insight into these traits or inborn qualities by identifying the characteristics associated with the entrepreneur. The characteristics give us a clue or an understanding of these traits or inborn potentials. In fact, explaining personality traits means making inference from behaviour. Some of the characteristics or behaviours associated with entrepreneurs are that they tend to be more opportunity driven (they nose around), demonstrate high level of creativity and innovation, and show high level of management skills and business know-how. They have also been found to be optimistic, (they see the cup as half full than as half empty), emotionally resilient and have mental energy, they are hard workers, show intense commitment and perseverance, thrive on competitive desire to excel and win, tend to be dissatisfied with the status quo and desire improvement, entrepreneurs are also transformational in nature, who are lifelong learners and use failure as a tool and springboard. They also believe that they can personally make a difference, are individuals of integrity and above all visionary. The trait model is still not supported by research evidence. The only way to explain or claim that it exists is to look through the lenses of one’s characteristics/behaviours and conclude that one has the inborn quality to become an entrepreneur.
2.1.3a Locus of Control
Locus of control is an important aspect of personality. The concept was first introduced by Julian Rotter in the 1950s. Locus of Control as an individual’s perception about the underlying main causes of events in his/her life. In other words, a locus of control orientation is a belief about whether the outcomes of our actions are contingent on what we do (internal control orientation) or on events outside our personal control (external control orientation).
In this context the entrepreneur’s success comes from his/her own abilities and also support from outside. The former is referred to as internal locus of control and the latter is referred to as external locus of control. While individuals with an internal locus of control believe that they are able to control life events, individuals with an external locus of control believe that life's events are the result of external factors, such as chance, luck or fate. Empirical findings that internal locus of control is an entrepreneurial characteristic have been reported in the literature (Koh, 1996). In a student sample, internal locus of control was found to be positively associated with the desire to become an entrepreneur. Rauch and Frese (2000) also found that business owners have a slightly higher internal locus of control than other beliefs as well as risk taking.
2.1.3b Need for Achievement theory
While the trait model focuses on enduring inborn qualities and locus of control on the individual's perceptions about the rewards and punishments in his or her life, need for achievement theory explained that human beings have a need to succeed, accomplish, excel or achieve. Entrepreneurs are driven by this need to achieve and excel. While there is no research evidence to support personality traits, there is evidence for the relationship between achievement motivation and entrepreneurship. Achievement motivation may be the only convincing personological factor related to new venture creation. Risk taking and innovativeness, need for achievement, and tolerance for ambiguity had positive and significant influence on entrepreneurial inclination. However, locus of control (LOC) had negative influence on entrepreneurial inclination. The construct locus of control was also found to be highly correlated with variables such as risk taking, need for achievement, and tolerance for ambiguity. The recent finding on risk taking strengthens earlier empirical studies which indicate that aversion to risk declines as wealth rises, that is, one’s net assets and value of future income. In complementing the above observation, it was suggests that success in entrepreneurship, by increasing wealth, can reduce the entrepreneur’s degree of risk aversion, and encourage more venturing. Entrepreneurship may therefore be a self perpetuating process. Further evidence suggests that some entrepreneurs exhibit mildly risk-loving behaviour. These individuals prefer risks and challenges of venturing to the security of stable income.
2.1.4 Sociological Entrepreneurship Theory
The sociological theory is the third of the major entrepreneurship theories. Sociological enterprise focuses on the social context .In other words, in the sociological theories the level of analysis is traditionally the society. Sociologists have identified four social contexts that relates to entrepreneurial opportunity. The first one is social networks. Here, the focus is on building social relationships and bonds that promote trust and not opportunism. In other words, the entrepreneur should not take undue advantage of people to be successful; rather success comes as a result of keeping faith with the people. The second he called the life course stage context which involves analyzing the life situations and characteristic of individuals who have decided to become entrepreneurs. The experiences of people could influence their thought and action so they want to do something meaningful with their lives. The third context is ethnic identification. One’s sociological background is one of the decisive“push”
factors to become an entrepreneur. For example, the social background of a person determines how far he/she can go. Marginalized groups may violate all obstacles and strive for success, spurred on by their disadvantaged background to make life better. The fourth social context is called population ecology. The idea is that environmental factors play an important role in the survival of businesses. The political system, government legislation, customers, employees and competition are some of the environmental factors that may have an impact on survival of new venture or the success of the entrepreneur.
2.1.5 Anthropological Entrepreneurship Theory
The fourth major theory is referred to as the anthropological theory. Anthropology is the study of the origin, development, customs, and beliefs of a community. In other words, the culture of the people in the community .The anthropological theory says that for someone to successfully initiate a venture, the social and cultural contexts should be examined or considered. Here emphasis is on the cultural entrepreneurship model. The model says that new venture is created by the influence of one’s culture. Cultural practices lead to entrepreneurial attitudes such as innovation that also lead to venture creation behavior. Individual ethnicity affects attitude and behavior and culture reflects particular ethnic, social, economic, ecological, and political complexities in individuals. Thus, cultural environments can produce attitude differences as well as entrepreneurial behavior differences.
2.1.6 Opportunity–Based Entrepreneurship Theory
The opportunity-based theory is anchored by names such as Peter Drucker and Howard Stevenson. An opportunity-based approach provides a wide-ranging conceptual framework for entrepreneurship research ( Shane, 2000). Entrepreneurs do not cause change (as claimed by the Schumpeterian or Austrian school) but exploit the opportunities that change (in technology, consumer preferences etc.) creates (Drucker, 1985). He further says, “This defines entrepreneur and entrepreneurship, the entrepreneur always searches for change, responds to it, and exploits it as an opportunity”. What is apparent in Drucker’s opportunity construct is that entrepreneurs have an eye more for possibilities created by change than the problems.
2.1.7 Resource- Based Entrepreneurship Theories
The Resource-based theory of entrepreneurship argues that access to resources by founders is an important predictor of opportunity based entrepreneurship and new venture growth (Alvarez & Busenitz, 2001).This theory stresses the importance of financial, social and human resources. Thus, access to resources enhances the individual’s ability to detect and act upon discovered opportunities. Financial, social and human capital represents three classes of theories under the resource – based entrepreneurship theories.
2.1.7a Financial Capital/Liquidity Theory
Empirical research has shown that the founding of new firms is more common when people have access to financial capital (Evans & Jovanovic, 1989). By implication this theory suggests that people with financial capital are more able to acquire resources to effectively exploit entrepreneurial opportunities, and set up a firm to do so. However, other studies contest this theory as it is demonstrated that most founders start new ventures without much capital, and that financial capital is not significantly related to the probability of being nascent entrepreneurs. This apparent confusion is due to the fact that the line of research connected to the theory ofliquidity constraints generally aims to resolve whether a founder’s access to capital is determined by the amount of capital employed to start a new venture. This does not necessarily rule out the possibility of starting a firm without much capital. Therefore, founders access to capital is an important predictor of new venture growth but not necessarily important for the founding of a new venture. This theory argues that entrepreneurs have individual-specific resources that facilitate the recognition of new opportunities and the assembling of new resources for the emerging firm (Alvarez & Busenitz, 2001). Research shows that some persons are more able to recognize and exploit opportunities than others because they have better access to information and knowledge (Shane 2000, Shane & Venkataraman, 2000).
2.1.7b Social Capital or Social Network Theory
Entrepreneurs are embedded in a larger social network structure that constitutes a significant proportion of their opportunity structure. Shane (2003) says “an individual may have the ability to recognize that a given entrepreneurial opportunity exist, but might lack the social connections to transform the opportunity into a business start up. It is thought that access to a larger social network might help overcome this problem”
In a similar vein, Reynolds (1991) mentioned social network in his four stages in the sociological theory. The literature on this theory shows that stronger social ties to resource providers facilitate the acquisition of resources and enhance the probability of opportunity exploitation. Other researchers have suggested that it is important for nascent founders to have access to entrepreneurs in their social network, as the competence these people have represents a kind of cultural capital that nascent ventures can draw upon in order to detect opportunities
2.1.7c Human Capital Entrepreneurship Theory
Underlying the human capital entrepreneurship theory are two factors, education and experience. The knowledge gained from education and experience represents a resource that is heterogeneously distributed across individuals and in effect central to understanding differences in opportunity identification and exploitation (Shane & Venkataraman, 2000). Empirical studies show that human capital factors are positively related to becoming a nascent entrepreneur increase opportunity recognition and even entrepreneurial success.
In conclusion therefore, the purpose of this section was to examine the theories and research outcomes of entrepreneurship which gave birth to SMEs. From the above discussions, it was observed that the field of entrepreneurship have some interesting theories (ranging from economic, psychological, sociological, anthropological, opportunity-based, to resource based) which are underpinned by empirical research evidence. These theories also reveal both internal and external factors which play major roles in entrepreneurship development and expansion. Such external factors as political climate, government policies, access to finances for start-up and expansion exert commensurate pressure on the entrepreneurs. But not until these external factors are properly addressed, entrepreneurs/SMEs may not actually take its prime position as the catalyst of development and industrialization in Nigeria.
2.3 SIGNIFICANCE OF SMALL-SCALE MANUFACTURING INDUSTRY
The contributions of small-scale manufacturing industry in ? deve-loping economy like ours cannot be over-stated. There have been a lot of research studies on this subject by various scholars and authors.
In a study of the development of the small and medium scale
industry inNigeria, Jegede (1990,p.9) observed that the economic conditions that prevailed in the countryduring the 1970s and 1980s raiseddoubts about the large-scale industryfulfilling the dynamic roles of bringing about rapid growth and development of the Nigerian nation. These roles include substantial contribution of the sector to thegross domestic product ( GDP), employment generation, increasing "backward integration",value added and technological development. By 1985, itbecame clear that the small-scale enterprises which had hitherto been generally neglected could play the aforementioned roles as well, if not better than the large-scale enterprises. Many authors have, in various studies, advanced reasons for the significance of small-scale enterprises development in Nigeria.
These reasons include:-
a. The low level of capital required for establishment of the
industry (Osoba, 1987, pp.98-116).
b. The large number of the establishment and their labour-intensive
modes of operation gurantees employment for a large number of
persons (Adejugbe, 1987,p.73).
c. Inventions, adaptations,and general technological development are
common in these enterprises (Adejugbe, 1987, pp.82-86).
d. A more equitable distribution of income is usually achieved in this
subsector (Oshagbemi and Sanai, 1987, pp.147-155).
e. Industrial diversification and relatively more balanced regional
development is assured (Ige 1987, pp.67-71).
f. General enhancement of the tempo of industrial development is
visible among small and medium scale establishments (Oshagbemi
and Oguntoye,1987, p.156).
g. Tendency among small and medium scale enterprises to become feeders
of the large-scale firms and service productsmade by the latter (Healey and Lutkenhorst, 1989, pp.1-56).
From aglobal point of view, Weaver (1990,p.68) highlighits three reasons that justify the importance of a healthy manufacturing industry. These include : -
To create asuccessful economy depends on successful manufacturing of goods.
ii. Manufacturing industry provideg the best exploiter of technology.
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iii. Manufacturing sector plays vital role in providing internationally
tradeable goods. He observes that industry and commerce provide the means by which mankind at large benefits from invetion and innovation and the means by which the ideas of the few can benefit the many.
In a similar view, Sutton (1990, p.59) observes that in the advance
of a country from a level of low productivity and low income to one of
high productivity and high income, one usually finds that the strategic
role is played by the industrial rather than by the service and other
sectors. According to him, improvements in efficiency in the non-
industrial sectors such as financial and other service sectors or government agencies have not helped to greatly increase the wealth of a nation.
2.4 CONCEPT OF INDUSTRIAL GROWTH
There are so many approaches towards measuring of industrial growth. The qualitative and quantitative approaches are the two major approaches most industries and scholars use. A good number of researchers on growth use either or a combination of the two approaches for the measurement of industrial growth. The most practical approach seems to be the quantitative approach,based on the qualitative factors such as productivity, capacity utilization and profits.
Sutton (1980, pp.60-62) in a study of the many faces of production
agreed with the above view and noted that productivity is accepted as an
index of growth, whether it be applied to a nation, an industry, a company, or just a small group of workers. He sees industrial productivity as serving as a basis of comparison of one sector with another and also
helping to identify areas which are growing at the fastest or slowest rates. According to him, the studies by the Department of Commerce and the Lawrence Livermore Nationational Laboratory indicated that surges in technology (35% to 70%) capital(15% to 30%) and labour factors (10% to 25%). Philips(1963,p.275) in his own study, identified five measures of productive capacity.
In any case,Bennett (1989, p.7) used a combination of qualitative and quantitative parameters for judging the growth of a small firm. These include the size, turnover and profitability, customer base, exporting opportunities, product or service planning, developing
2.8 CONCEPTOF "BACKWARD INTEGRATION" INSOURCING OFRAW MATERIALS IN NIGERIA
Human relationships have existed since the beginning of time.
No nation can be an island unto itself. Thus the concept of self-sufficiency as a national goal is not asking that we produce everything we need.To this,Imoisili (1988, p.9)agreed noting that local sourcing of raw materials represents a national drive to source a substantial proportion of our industrial inputs fromwithin Nigeria - "Backward integration" or self-reliance.
As one of the instruments of the policy of "backward integration" in sourcing of raw materials, theFederal Government of Nigeria enacted a decree establishing the Raw Materials Research and DevelopmentCouncil (RMRDC) with the main objective of identifying, developing and publicising an existing stock of raw materials for various industrial uses in Nigeria.
TheCouncil has been conducting series of technical seminar on raw materials sourcing for the various subsectors of our industrial sector. The proceeding of the technical seminar are briefly reviewed below:-
2.8.1 THE NEED FOR "BACKWARD INTEGRATION" IN SOURCING OF RAW MATERIALS IN NIGERIA
Over the years,what we have referred to as industrial manufacture is a mere assembly of foreign raw materials or a minor transformation of semi-finished goods with. little value added locally.
With the advent of the present economic recession in Nigeria, the most intractable constraint of the manufacturing sector is the shortage ofindustrial raw materials. Consequently, the introduction of the Structural Adjustment Programme (SAP) and the abolition of the import licensing in 1986 have compelled the industralists to learn to survive in a semi-deregulated economy (Imoisili 1988,p.7). It is however, reassuring thatSAP indicates that our goal is self-reliance, that is, increased efforts to achieve optimum utilization of our human and material resources and increased production of food and other raw materials to meet the needs of a growing population and rising industrial production (Ifedi, 1991, p.11).
Stressing the importance of "backward integration" in sourcing of raw materials,Ifedi (1991, p.11) quoted official reports, and stated that many industrial projects which featured in the Fourth Development Plan document could not take off because of lack of agricultural raw materials. Such projects include dairy industry,tomato puree plant, new flour mills and fruit canning factories. Again, Okongwu
(1991,p.38) explained that the manufacturing sector was estimated to have achieved a real growth rate of 7.3percent in1990 contributing a value-added of N 7.3 billion during the year as against N 6.8 billion in 1989. He attributed this achievement mainly to the use of more local raw materials in manufacturing activities of subsectorssuch as sugar, confectionary,cotton, textiles, breweries,foot wear, synthetic fabrics, paints and cement. Consequently,capacity utilization in the sector was estimated to have improved during the year from about 32 percent the previous year to about 37percent in1990.
In like manner,Alhaji (1990, p. 16) observed an impressive, attainment of40 percent capacity utilization in 1989in the textile, plastics weaving apparel, leather products, rubber,pulp and paper products subsectorswhich rely more on backward intengrated raw materials. In contrast, the subsectors, such as basic metal, iron and steel and fabricated metal products, which are heavily dependent on imported inputs recorded only 15 percent capacity utilization. Tracing the need for "backward integration" in sourcing of raw materials to Nigeria's economic crisis before SAP,Osayamehr (1986, p.9) identified foreign sourcing of raw materials as majorfactor responsible for the near-collapse of the economy.
In any case,the continued foreign sourcing of raw materials by our industrial sector is not possible under the current foreign exchange constraints,given the number of subsectorsand the huge import bill it requires. Making a strong case for "backward integration" in sourcing of raw materials, Imoisili (1988) p.5) identified 17 subsectors in the food,
beverage and tobacco industrial sector and argued that a reduced cost is involved in sourcing their materials internally since a great number of the subsector share common raw materials such as maize, sorghum, sugar, cocoa and malted barely and also packaging materials such as tin okastes, bottles,- cartons and crates. He thus suggested a three-prong development strategies for the "backward integration" in sourcing of raw materials to wit:-
a. Short-run strategy that emphasises self-reliance in the production of food staples and the rehabilitation of the traditional export crops like cocoa, rubber,groundnuts, palm-oil.
b. The intermediate-long run which involves industries using the surplus from iwgricultural produce as substitute for imported inputs.
c. "At every stage" strategy which involves establishing small agriculture,extension services by industry and export incentive scheme.
2.8.2 PRESENT STATUS AND EFFECT OF"BACKWARD INTEGRATION" IN SOURCING OF RAW MATERIALS ON MANUFCATURINGENTERPRISES IN NIGERIA
We are all aware of the fact that in our society today that the programmes and actions undertaken bygovernment and individuals have not always been at parity with the various policies, goals and objectives. The implementation stages,especially are always marred by redtapsim, selfish interest, bureaucratic bottlenecks and various structural problems. The policy of Backward integration in sourcing of raw materials,self-reliance or maintenance culture cannot be an exception. For instance, some industrialists prefer continued importation of their inputs to"backward integration"sourcing of raw materials because according to them imported inputs bring about reduced production costs.
Ojo (1988, p.16) confirmed the assertion whenhe reported that local sourcing incur additional cost to the industrialists in terms of higher price for the backward integrated raw materials compared with the imported inputs,higher refining losses of 9-15% comparedwith 3-5% for the imported and higher processing cost because of modified processing technique. He opined that major future challenges would be in the area of boosting local production to remove supply constraints,bottlenecks and guarantee price stability. Also Olorunfemi (1988,p.9) agreed noting that the absence of distinct industries for raw materials processing pose serious threat to "backward integration"policy.
In likemanner, Nzelu (1988,p.25) observed that the impact of local availability of petrochemical productionfacilities would include boosting productivity in most industrial sectors such as the agriculture and food processing/preservation industry, the pharmaceutical industry, the building and general construction industry, household goods, textile and automotive industries. Nzelu further noted that the increased productivity would in turn lead to vastly improved gross domestic product (GDP) and standard of living.
Struck (1989,p.142), writing in another viewpoint, lament the adverse effect of local raw materials sourcing on his auto company Volkswagen of Nigeria Ltd.,reported that most local suppliers/manufacturers are actually importers of pre-assembled raw materials, they only add finishing touchers to what they supply. According to him, high prices, supply gap, inconsistent quality and difficulties in product specifications are common problems.
Iwanuanwu (1989, p.82) in his own opinion, observed that the enlargement of local raw materials base would invariably increase the capacity utilization of our industries thereby increasing the growth rate in the manufacturing sector. Similarly, Omenyi et al (1989, p.36) reported that the realization of the set objectives of local sourcing of raw materials for the development of automotive industry would lead to foreign exchange savings and maintenance of healthy balance of payment, employment generation, true economic and political independence from foreign supplies,rapid development of Nigeria auto industry and consequent increase in the standard of living of Nigerians.
From a global perspective on the status of "backward integration" (local) sourcing of raw materials in Nigeria, Fafowora (1989, p.25) reported that the manufacturing Sector still has a high import content and continues to depend on external sources for its capital, plant and equipment, various industrial raw materials, intermediate products and components. He noted that the continued growth of manufacturing output in Nigeria requires a corresponding expansion in the availability of foreign exchange to aid it.
There are several other reports on the current status of "backward integration" in sourcing of raw materials.
Imoisili (1988, pp.11-14)examined the lbod, Beverage and Tobacco subsector as summarized in tables 2.1and 2.2 below, sectoral rawmaterial requirements over a period of 5 years, details of current efforts and their investment requirements in order to attain self-sufficiency/ reliance.
Table 2.3 showsCBN's index of manufacturing production from 1984 (CBN, 1989, pp.28-30). The report indicates that between 1988 and 1989,the product groups which recorded increases include soft drinks, cotton textile,synthetic fabrics, cement, roofing sheets as well as soaps and detergents. On the other hand, the output of sugar confectionary, refined petroleum, beer and stout, footwear,paints, vehicle assembly, radio and television declined from their levels in 1988. The report attributed the low manufacturing activities to shortages of raw materials, sharpincreases in costs of rawmaterials and high interest rates,rising operational and administrative costs, continueddepreciation of the naira exchange rate,sharp increases in the prices of utilities including fuel and energy. High costs in turn lead to high prices of finished goods, reduced demand and high level of inventories. Consequently the average level of capacity utilization rose only further observed that the subsectors which depend largely on local raw materials, operated above the average rate, namely producers of tyres and tubes (64.4percent), leather products (63.3 percent), beer and stout (59.2percent), textile (53.6percent),sugar confectionary (51.7 percent), basic industrial chemical (48.9percent), plastic products (47.3percent), paper and paper products (47.3 percent),and miscellaneous food preparations (42.9 percent). By contrast, enterprises with high ratio of imported inputs operated at less than one-third of their installed capacities, namely, radio, television and communication equipment assemblies (29.9 percent), structural metal products fabrication (28.8 percent),paints (14.1 percent), flour milling(25.0 percent), and vehicle assembly(18.9 percent).