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EFFECT OF
EXCHANGE RATE ON MANUFACTURING INDUSTRIES IN NIGERIA
CHAPETR ONE
INTRODUCTION
1.1 Background of the study
1.2 Statement of problem
1.3 Objective of the study
1.4 Research Hypotheses
1.5 Significance of the study
1.6 Scope and limitation of the study
1.7 Definition of terms
1.8 Organization of the study
CHAPETR TWO
2.0 LITERATURE REVIEW
CHAPETR
THREE
3.0 Research methodology
3.1 sources of data collection
3.3 Population of the study
3.4 Sampling and sampling distribution
3.5 Validation of research instrument
3.6 Method of data analysis
CHAPTER FOUR
DATA
PRESENTATION AND ANALYSIS AND INTERPRETATION
4.1
Introductions
4.2 Data
analysis
CHAPTER FIVE
5.1
Introduction
5.2 Summary
5.3
Conclusion
5.4
Recommendation
Appendix
Abstract
This study
is on the effect of exchange rate fluctuation on the Nigeria manufacturing
sector. The total population for the study is 200 staff of Dangote group of
company, Lagos state. The researcher used questionnaires as the instrument for
the data collection. Descriptive Survey research design was adopted for this
study. A total of 133 respondents made production managers, engineers,
administrative staff and junior staff were used for the study. The data
collected were presented in tables and analyzed using simple percentages and
frequencies
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Following
the fluctuation of the naira in 1986, a policy induced by the structural
adjustment programme (SAP), the subject of exchange rate fluctuation has become
a topical issue in Nigeria. This is because it is the goal of every economy to
have a stable rate of exchange with its trading partners. In Nigeria, this goal
was not reached in spite of the fact that the country embarked on devaluation
to promote export and stabilize the rate of exchange. The failure to realize
this goal subjected the Nigerian manufacturing sector to the challenge of a
constantly fluctuating exchange rate. This was not necessitated by the devaluation
of the naira but the weak and narrow productive base of the sector and the
rising import bills also strengthening it. In order to stem this development
and ensure a stable exchange rate, the monetary authority put in place a number
of exchange rate policies. However, very little achievement was made in
stabilizing the rate of exchange. As a consequence, the problems of exchange
rate fluctuation persisted in macro-economic management, exchange rate policy
as an important tool derives from the fact that changes in the rate of exchange
have significant implications, for a country‟s balance of payment position and
even its income distribution and growth. It is not surprising since its
behaviour is said to determine the behaviour of several other macro-economic
variable (Oyejide, 1985). It is even more so for Nigeria which had embarked on
a course of rapid economic growth with attendant high import dependency. The
manufacturing sector plays a catalytic role in a modern economic and has many
dynamic benefits that are crucial for economic transformation. In an advanced
country, the manufacturing sector is a leading sector in many respects. It is a
quest for increasing productivity in relation to import substitution and export
expansion, creating foreign exchange earnings capacity, raising employment,
promoting the growth of investments of a faster rate than any other sector of
the economy, as well as wider and more efficient linkage among different
sectors (Fakiyesi, 2005). But the Nigerian economy is under-industrializes and
its capacity utilization is also low. This is in spite of the fact that
manufacturing is the fastest growing sector since 1973/74 (Obaden, 1994). The
sector has become increasingly dependent on the external sector for import of
non-labour input (Okigbo, 1973). In the ability to import therefor; can impact
negatively on manufacturing production Oyejide (1985) posited that the
breakdown of the Brelton woods system induce variability in the rate of
exchange worldwide; Nigeria inclusive. Umubanwer (1995) has noted that three
adverse consequence of this on ability to import. Devaluation which further
aggravates the situation has not significantly affected economic performance in
the positive direction in Nigeria (Ojo, 1990). The impact of fluctuation in
exchange rate on manufacturing output had not receives adequate attention. This
paper attempts to give attention to the issue.
1.2
STATEMENT OF THE PROBLEM
This
research work is meant to emphasize on the issue of fluctuating exchange rate
on the Nigeria manufacturing sector. Some of the problems which cause the
fluctuation of exchange rate on the Nigeria manufacturing can be seen below.
The exchange rate of the naira was relatively stable between 1975 and 1979
during the oil boom or (regulatory require). This was also the situation prior
to 1990 when agricultural products accounted for more than 70% of the nation‟s
gross domestic product (GDP) (Ewa, 2011:78), however, as a result of the
development in the petroleum oil sector in 1970, the share of agriculture in
total export declined significantly while that of oil increased. Furthermore,
more manufacturing companies are faced with the problem, not recognizing the
fact that fluctuation in exchange rate adversely affect output of the
manufacturing sector, this because Nigeria manufacturing sector is highly
dependent on import of input and capital goods, this is in spite of the fact
that manufacturing sector is the fastest growing sector since 1973 (Obadan,
1994), this sector has become increasingly dependent on the external sector for
import of non-labour input. The impact of fluctuation in exchange rate on
manufacturing output has not received adequate attention. Instabilities of
foreign exchange rate is also a problem to manufacturing sector; however,
instability to import therefore can impact negatively on manufacturing
production; furthermore, Jhingen (1997), emphasized that exchange rate
fluctuation cause uncertainty and impede on international trade. Thus
uncertainty in trade transaction post a lot of problems such as inflation,
which determine the internet balance of a country, it has also tended to
undermine the international competitiveness of non-oil export and make planning
and projection difficult at both micro and macro levels of the economy, some
small and medium scale enterprise have been strangled out as a result of low
dollar naira exchange rate.
1.3
OBJECTIVE OF THE STUDY
The
objectives of the study are;
1. To ascertain the impact of exchange rate
fluctuation on the Nigerian manufacturing sector
2. To ascertain the effect of exchange rate
fluctuation on Nigerian import or export and capital goods.
3. To determine if the continuous fluctuation
of exchange rate of naira have an impact on the quality and quantity of output
of manufacturing firms.
1.4 RESEARCH
HYPOTHESES
The
hypothesis of the study includes the null hypothesis denoted as „H0‟ and
alternative hypothesis as „H‟.
H0: Exchange
rate fluctuations have no effect on the importation of input and capital goods.
H1: Exchange
rate fluctuations have effect on the importation of input and capital goods.
H0: Exchange
rate fluctuation has no significant effect on the quality and quantity of goods
manufactured by Nigerian firms.
H1: Exchange
rate fluctuation has a significant effect on the quality and quantity of goods
manufactured by Nigerian firms.
1.5
SIGNIFICANCE OF THE STUDY
The study
would identify the strengths and weakness of exchange rate policy and
management, identify those parts that are mostly affected by instability in
exchange rate provide the general public with adequate information on the
foreign exchange transaction and its impact on the manufacturing sector. In
general, the study benefits the following;
1. The government will benefit as it will
enable them ascertain the extent of the variation of exchange rate affect the
quality of input and capital goods imported into Nigeria by manufacturing
firms, the government can make policies that will help Nigerian manufacturers
prosper in the business.
2. The manufacturers will be much aware of the
impact of the exchange rate fluctuations on their firms.
3. To the students, it will be a work base for
further research.
4. To the public it will be a thorough
understanding of the exchange rate fluctuation and having taken appropriate
measure will lead to a stable economy.
1.6 SCOPE
AND LIMITATION OF THE STUDY
The scope of
the study covers the effect of exchange rate fluctuation on the Nigeria
manufacturing sector. The researcher encounters some constrain which limited
the scope of the study;
a) AVAILABILITY OF RESEARCH MATERIAL: The
research material available to the researcher is insufficient, thereby limiting
the study
b) TIME: The
time frame allocated to the study does not enhance wider coverage as the
researcher has to combine other academic activities and examinations with the
study.
c)
Organizational privacy: Limited Access to the selected auditing firm makes it
difficult to get all the necessary and required information concerning the activities
1.7
DEFINITION OF TERMS
1. Exchange rate: This is the price of one
country's currency in terms of another
2. Foreign
exchange: Foreign exchange is a means of payment for international transaction;
it is made up of currencies of other countries that are freely acceptable in
settling international transactions.
3. Dutch
auction System (DAS): This is a method of exchange rate determination through
auctions where the bidders pay according to their bid rates.
4. Exchange
control: This is a foreign exchange arrangement in which the government
purchase all coming foreign exchange and is the only source from which foreign
exchange can be purchased legally.
1.8 ORGANIZATION OF THE STUDY
This
research work is organized in five chapters, for easy understanding, as follows
Chapter one
is concern with the introduction, which consist of the (overview, of the
study), historical background, statement of problem, objectives of the study,
research hypotheses, significance of the study, scope and limitation of the
study, definition of terms and historical background of the study. Chapter two
highlights the theoretical framework on which the study is based, thus the
review of related literature. Chapter three deals on the research design and
methodology adopted in the study. Chapter four concentrate on the data
collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and
recommendations made of the study
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