Exchange Rate Fluctuations and Manufacturing Sector Performance in Nigeria: Issues and Implication for Economic Recovery

Nigeria’s manufacturing sector which is reliant on imports for materials and machinery faces cost and competitiveness challenges due to fluctuating exchange rates. This study therefore examined the impact of the exchange rate on the manufacturing sector in Nigeria covering a period of twenty-five years from 1996 to 2022. The study examined the exchange rate’s relationship with the Nigerian manufacturing sector, both in the long run and short run. Manufacturing output as a percentage of GDP, exchange rates, government spending, capacity utilization, import tariffs, and export taxes were used as proxies for the manufacturing sector. The data was sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, the World Bank’s World Development Indicators (WDI), and the International Monetary Fund (IMF). The study utilized the Autoregressive Distributive Lag (ARDL) model and E-views 10.0 for regression analysis. Findings revealed a negative and insignificant impact of exchange rate and export tax on Nigeria’s manufacturing sector in the long run; while government expenditure has a positive impact on the manufacturing sector in the long run in Nigeria. Thus, the study concluded that the exchange rate has a negative relationship in the long run and the short run which has an insignificant impact on Nigeria’s manufacturing sector’s output level. Based on the findings, the study concluded and recommended the implementation of export promotion, import substitution, capacity utilization building, and effective exchange rate management policies to enhance the productivity of Nigeria’s manufacturing sector and drive economic growth.