Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.8, No.24, 2017 71 Foreign Exchange and Industrial Sector Growth in Nigeria (1981- 2015) Prof. P.N. Nnamocha A Professor of Economics and Director for Development Studies, Imo State University, Nigeria Asso. Prof. Benneth K. Obioma Associate Professor of Economics, Imo State University, Nigeria Asso. Prof. Andrew A. Igwemma Associate Professor of Economics, Imo State University, Nigeria Isaiah A. Nwoko* Staff, First Bank of Nigeria Ltd and a Doctoral Student at Imo State University, Nigeria Abstract The study is on foreign exchange and industrial sector growth in Nigeria. Secondary data on industrial output, foreign exchange disbursement, foreign exchange rate and Nigeria foreign reserves 1981 -2015 were collected from the Central Bank of Nigeria Statistical Bulletin, 2015 edition. The E-view version 9 Econometric program was used to run a regression on the data collected. Foreign exchange availability (proxied by foreign exchange disbursement) was found to have no significant but positive influence on the Nigeria industrial sector growth. While foreign exchange rate and Nigeria foreign reserves were found to have positive and significant influence on the growth of Nigeria’s industrial sector. It is recommended that the Nigerian government should take urgent steps to tackle the foreign exchange crisis and maintain a sustainable exchange rate. The government should also ensure that foreign exchange available to importers of industrial inputs and at the same time grow the country’s foreign exchange reserves. Keywords: Foreign Exchange, Industrial Sector, Exchange Rate, Foreign Reserves, Industrial inputs. 1. Introduction The Nigerian industrial sector has always been in the front burners in every discourse aimed at seeking solutions to the monocultural state of the national economy. Every successive government in Nigeria has pursued at one time or the other economic growth and development through various policy formulations (implemented and non- implemented) and huge investments in the various sectors of the economy. However, and very unfortunately, the results from all these efforts have never at any time been commensurate with the resources committed. The “sickness” of single product economy has proved incurable over the years as the industrial (manufacturing) sector has continued to suffer structural defects. The product outputs of many Nigerian industries face unfavourable competitions from similar products imported from abroad due mainly to the many distortions traceable to unavailability of foreign exchange and unfavourable exchange rate of the Naira against the Dollar and other international currencies. Nigeria is heavily dependent on importation of raw materials, machineries, spare parts and other direct inputs (including refined petroleum products) used for industrial production. Due to foreign exchange crisis, many Nigerian industries (manufacturing companies) are faced with high production cost and thus are edged out by competition from abroad. Over the years Nigeria has from time to time adopted different foreign exchange systems (see section two). These foreign exchange systems have their unique benefits and challenges. The Central bank of Nigeria has claimed that the switch in method is determined mainly by the perceived efficiency of such method and the availability of foreign exchange. But since the introduction of the free floating foreign exchange policy by the CBN in June, 2016 – which freed the Naira from a band of N197 –N199 to the dollar, the naira has been in a free fall against other international currencies. From about N281 to the dollar at the beginning of the policy in June 2016, naira crashed to about N465 to a dollar on October 11, 2016 and still going down. The former Nigerian Finance Minister- Okonjo-Iweala in an interview captured by Premium Times (2016) has warned that if you don’t pay attention to the fundamentals of having a stable and good exchange rate policy, inflation under control, manageable fiscal deficit and debts, there will continue to be trouble in the economy. Nigeria as an import dependent economy, the relationship between foreign exchange availability, foreign exchange rate and foreign reserves and industrial sector growth is one that needs to be investigated. The intuition behind the choice of this approach is developed in subsequent sections. The study is divided into five sections.