An Assessment of the Impact of Exchange Rates on the Volume of Import in Nigeria (2005-2020)
CHAPTER ONE
OBJECTIVES OF THE STUDY
The main objective of this study is to examine the relationship between exchange rate and the volume of imports to Nigeria.
Specifically, the study aims to:
- (i) To examine the trend of exchange rate of Nigeria over the years;
- (ii) To investigate empirically, the effect of exchange rate fluctuations on Nigeria’s import;
- (iii) To identify the macro-economic factors that influence exchange rate in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 INTRODUCTION
Exchange rate is involved in the flow of goods and services in any nation. In Nigeria there were a lot of policies measure put in place to control excessive demand for foreign exchange due to experiences in the late 1970s and early 1980s. The objectives were to preserve the value of the domestic currency, maintain a favourable external reserves position, and ensure external balance without compromising the need for internal balance and overall goal of macroeconomic stability (CBN, 2015). According to Omojimite and Akpokodje (2010), in 1982 full exchange rate controls were adopted due to the increase in demand for foreign exchange at a time when the supply was reduced, this gave opportunity to develop a flourishing parallel market for foreign exchange. In September, 1986, first and second tier foreign exchange market (SFEM) was implemented and was changed to FEM in 1987. Bureau de change came into existence in 1989 to broadening the scope of FEM. The policy was reversed in 1994 where exchange rate was pegged to the US dollar, there was centralization of foreign exchange in the CBN. There was another policy reversal in 1995, this translated into the establishment of the Autonomous Foreign Exchange Market (AFEM) and this later changed into a daily two-way quote Inter-Bank Foreign Exchange Market (IFEM) in 1999. The Retail Dutch Auction System (RDAS) was used in July 22, 2002 as a result of increase in the demand force in foreign exchange market and the determination in the reduction of the country’s external reserves. In 2006, Wholesale Dutch Auction System (WDAS) was introduced where CBN engaged in active trading with authorized dealers. In the early 2009 there was a policy reversal and there was re-introduction of RDAS. There was another reversal in July, 2009 with the introduction of WDAS. Exchange rates policy in Nigeria kept changing. Trade policy in Nigeria has experienced extreme policy fluctuations since 1960s (Adenikinju, 2005). Tariffs have been used to increase fiscal revenue several times, protect the domestic industries from competition and limit imports to secure foreign exchange. Also, to limit importation of particular items, different forms of non-tariff barriers such as prohibitions, licensing schemes and quotas were used. Trade policy was also used to promote manufactured exports and improve the ties in the domestic economy to increase and stabilize exports revenue and brought down the dependency of the economy on the oil sector (Olaniyi, 2005). Exchange rates have effects on the volume of imports and exports as well as country’s balance of payments position (Hossain, 2002). Azeez, Kolapo & Ajayi (2012), also took note and affirmed that exchange rate is called exchange rates volatility when there is deviation of exchange rates over a period of time from the equilibrium.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought an assessment of the impact of exchange rates on the volume of import in Nigeria (2005-2020)
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain An assessment of the impact of exchange rates on the volume of import in Nigeria (2005-2020). In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing challenges of exchange rates on the volume of import in Nigeria (2005-2020)
Summary
This study was on an assessment of the impact of exchange rates on the volume of import in Nigeria (2005-2020). three objectives were raised which included: To examine the trend of exchange rate of Nigeria over the years, to investigate empirically, the effect of exchange rate fluctuations on Nigeria’s import and to identify the macro-economic factors that influence exchange rate in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN, 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 customer care officer, bank officers, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
It thus suggests that the international trade is the growth engine particularly in the developing countries. However, most of the developing countries are not achieving these benefits of trade as a result of their volatile exchange rates. Effective policy measures to tackle these are of great important for the development of Nigeria given its abundance of resources that it can trade on
Recommendation
. The high level of imports mainly consumer goods can be discouraged by improvement in local production so that they can be competitive with the foreign goods. Only goods with high proportion of necessities e.g. raw material goods should be imported. Policy measures towards the stabilization of the exchange rates are highly recommended so that level of imports can be controlled and exports encouraged. Exports capacity should be enhanced through acquisition of improved technology and means of production; this will in turn further pull down demand for imports. Deliberate policies aimed at diversifying foreign earnings should be introduced. Going by the results of this study, the Central Bank of Nigeria is advised not to devalue the naira due to its insignificant effect/impact on export in Nigeria
References
- Adenikinju, A.F. (2005). African Imperatives in the New World Trade Order: country Case Study of the Manufacturing Sector in Nigeria, in Ogunkola O, E. and Bankole A. (eds) Nigeria’s Imperatives in the New World Trade Order, Africa Economic Research Consortium (Nairobi, Kenya) and the Trade Policy Research and Training Programme (Ibadan, Nigeria).
- Agung, I.G.N. (2009). Time series data analysis using Eviews. John Wiley & Sons.
- Aliyu, S.R.U. (2011). Impact of oil price shock and exchange rates volatility on economic growth in Nigeria: An Empirical Investigation. Research Journal of International Studies, 11(3): 103 – 120.
- Azeez, B.A., Kolapo, K.T. and Ajayi, L.B. (2012). Effect of Exchange Rates Volatility on Macroeconomic Performance in Nigeria. Interdisciplinary Journal of Contemporary Research in Business, 4(1): 149–155.
- Bahmani-Oskooee, M. and Kovyryalova, M. (2008). Impact of exchange rates uncertainty on trade flows: evidence from community trade between the United States and the UK. The World Economy, 31(8), 1097-1128.
- Brooks, C (2008). Introductory Econometrics for Finance (2nd Edition). Cambridge University Press.
- CBN (2015), Exchange Rates Policy. Retrieved www.cenbank.org/IntOps/ExchRatesPolicy.asp
- Godfrey, N. and Cosmas, M. (2014). Impacts of lower exchange rates on exports, imports and national output of Tanzania. ACRN Journal of Finance and Risk Perspectives 3 (2), 1-9
