Download complete project materials on The Effect Of Exchange Rate Deregulation On The Nigeria Economy from chapter one to five
ABSTRACT
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The purpose of this work is to critically evaluate and apprise “the Effect of Exchange Rate Deregulation on the Nigeria economy”.
The methodology used is Ordinary Least Square (OLS) regression techniques as well as the Cochrane Orcutt method. Data used were annual time series data covering the period of 1970 – 2011. These data used were obtained from various secondary sources like the Annual Reports and Statistical Bulletin of Central Bank of Nigeria (CBN).
The findings of this research work reveals that the annual growth rate of exchange rate is positively related to balance of payment, inflation rate and interest rate, while it is inversely related to GDP and price level. The implication is that the GDP decreases when the exchange rate activities thrive.
TABLE OF CONTENTS
Title page
Certification
Dedication
Acknowledgement
Table of Contents
Abstract
CHAPTER ONE: INTRODUCTION
Background of the Study
Statement of the Research Problem
Research Question
Objectives of the Study
Hypothesis of the Study
Scope of the Study
Significance of the Study
Limitation of the Study
Definition of Terms
CHAPTER TWO:
LITERATURE REVIEW
2.1 Introduction
2.1.1 The Models of Exchange Rate Determination
2.1.2 Assumptions under Monetary Model
2.2 The Concept of Deregulation
2.3 Theoretical Literature
2.3.1 Benefits Derived from the Deregulation of Exchange Rate in any Economy
2.3.2 Drawbacks of Deregulation
2.3.3 Factors Affecting Exchange Rates
2.3.4 Types of Exchange Rate System
2.3.5 Problems of Economic Development
2.4 Empirical Literature
2.4.1 Pattern of Exchange Rate in Nigeria
2.4.2 Exchange Rate Deregulation in China
2.4.3 Exchange Rate Deregulation in the Gulf Oil Countries
2.4.4 Pattern of Exchange Rates in Kenya
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
3.2 Model Specification…
3.3 A Priori Expectation
3.4 Method of Data Analysis
3.5 Data for Regression
CHAPTER FOUR:
EMPIRICAL ANALYSIS
4.1 Presentation of Regression Result
4.2 Interpretation of Regression Result
4.3 Policy Implication
CHAPTER FIVE:
SUMMARY, RECOMMENDATION AND CONCLUSION
5.1 Summary
5.2 Conclusion
5.3 Recommendations
Bibliography
CHAPTER ONE
Introduction
1.1 Background of the Study
How various individuals, groups, business persons and government have expressed concerns about attitudes of Nigerians towards the deregulation of exchange rate. Basically, the paper shows the relationship between the Nigeria economy and the government recent and past policies to increase the rate of converting Naira to Dollar.
Starting up with the current trends on the deregulation of the Nigeria currency in the foreign exchange market. On Wednesday, 20 January, 2016, an article was published in the Daily Sun Newspaper, as follows; Speaking during the opening of a one-day CBN/NEXIM Non-oil Simulation Conference in Abuja, CBN Governor Mr. Godwin Emefiele, attributed the decline (non-oil revenue by $6.14billion) to the low level of exports loan which he said, caused the decline in non-oil export revenue receipts from $10.53billion in 2014 to $4.39billion in 2015.
He further by saying, it has been observed that while credit to non-oil export is declining and currently at an average of 0.6 per cent of total domestic loans to the private sector in the past five years, domestic credit to the economy has been on the rise.
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Managing Director of Nigeria Export Import Bank (NEXIM) Mr. Robert Orya, said the gathering at the seminar underscored the recurring problem of the volatility in the international oil market which has challenged the Nigeria economy over the years.
He said the recent rebasing of Nigeria’s economy revealed that production base had become much more diversified with the service sectors accounting for about 52 per cent of the Gross Domestic Product in 2014.
Oryaregetted that the revenue profile has remained skewed, with oil and gas sector contributing over 70 per cent and over 90 per cent of government and export earnings respectively, noting that the current episode of the global oil price collapse is expected to be quiet protracted and had manifested in Nigeria in significant revenue decline at all tiers of government with the attendant macroeconomic and external sector challenges. “Non-oil Revenues Decline by $6.14bn say CBN”, (2016).
On page 42 of the same newspaper, has it that Nigeria has comparative advantages over China and most developed countries in the production of tomatoes and many other farm produce, a status attributable to national endowment of the country with better soil types.
Exploring this potential, according to Chief Eric OdinakaUmeofia, the President/CEO of Erisco Foods Limited, an indigenous manufacturing company with over 18 high quality food brands, all produced locally, is sine qua non to the success of President MuhammaduBuhari administration’s economic diversification policy “New Forex Policy ‘ll Lift Manufacturing Sector”, (2016).
Readers may ask, what relationship exist between the topic and the sited scenarios above? One of the major purpose of deregulating currency is diversification. More so, encouraging investment in local production rather than consumable import. The policy looks impressive so far in certain sector and also failed miserably in other sector.
The failure is traced to other economic mechanism that ought to be in place before now. According to the CBN Governor Mr. Godwin Emefiele, attributed the decline (non-oil revenue by $6.14billion) to the low level of exports loan.
As it is popularly said that only those that comply with regulations become regulators. The outcome of regulating an economy efficiently and effectively often results to outstanding achievement of that economy. Nigeria is a country that has always involved in different regulation strategies.
Implementation of a new regulation which usually considers changes of previous regulation as a result of failed policies. The economic stabilization measures involving strict exchange and trade controls, introduced in 1983 and 1984 and retained in 1985 accomplished very little, in an instance. When there exists a regulatory failure, this could be due to excessive regulation and or ineffective implementation of regulatory measures. Tola, (2006).
Till date, the introduction of foreign exchange markets in Nigeria was propelled by a number of factors which include the changing pattern of international trade, structural shift in output and institutional changes. Before the advent of central bank and the exchange control act of 1962 was put into law, the private sector earned the foreign exchange and commercial banks abroad held in balance, acted as the agents for local exporters.
Agricultural exports contributed a large part of the foreign exporters at this period. The need to develop a foreign exchange market distinct from those in the major international centres became paramount. Ikpefan, (n.d.).
The Nigeria currency (Pounds) was tied to the British currency (Pounds) with ease of conversion, hindered the development of an effective foreign exchange authority in the bank, it became necessary to develop a foreign exchange market unique from the international market.
In the early 1970’s the agricultural exporters were displaced by crude oil exports as the country’s major foreign exchange revenue. Foreign exchange receipts was enhanced as a result of the sharp rise in petroleum prices. Thus, very significant number of economic agents had to patronize the CBN for foreign exchange market experienced a boom during the period, and to avoid lapses, the management came under more effective focus.
In the Pre-SFEM period (1962-1986) the CBN was the only custodian of foreign exchange (Forex). All receipts of forex meant for the country was channeled through the CBN, and remittance of foreign exchanges were made by the CBN in respect of authorised dealers who carried out the instruction of their customers in respect of all transactions from abroad and invisible trade transactions was vested on the monetary authorities by the exchange control act.
The exchange control act 1962 vested in the monetary authorities the power to approve all applications for foreign exchange in respect of all import transactions and invisible trade transactions. Ikpefan, (n.d).
The structural changes as a result of policies pursed, left the Nigeria economy with fluctuating prices and even more exposed to external shocks. The system became heavily dependent on crude oil. In the early 1980s, crude oil export accounted for 22% of the GDP, 81% of the government revenue and 96% of export earnings before oil boom was worn down by the effect of appreciating local currency, inadequate pricing policy, and rural urban migration. Nigerians became major food importer overtime.
This development had a negative effect on manufacturing output. Manufacturing output helped immensely by the reformed foreign exchange allocation system moved up quite rapidly from the low levels before 1986.
The range of import duties was recorded to be between the range of 10 and 60 per cent, which can be described as irrational tariff structure designed to logically put local industries out of business or cause manufacturers to be unproductive. Ikpefan, (n.d.).
This project work now tends to analysis previous statistical data and project materials to predict what could be the result of the proposed deregulation policy if efficiently executed by the ministries. More so, tends to examine the effect of exchange rate deregulation on foreign and local industrial produce in the past years.
This paper becomes essential in the light of the need to examine the impact of exchange rate policy reversal in the real sector of the economy whether it attracts foreign investment, more job opportunities, and professionalism in delivery of financial services, providing money for economic growth and development and if it thereby create inter-boundaries ties between countries and inter-governmental relationship.
1.2 Statement of the Research Problem
The fundamental problems that will be dealt with in this project work are:
- The significance of exchange rate deregulation on the international market from the Nigeria perspective,
- The snail speed situation of the development of the manufacturing sector,
- Unprecedented fall in capacity utilization rate in industry,
- Neglect of non-oil sector.
The exchange rate has become so volatile, since the adoption of exchange rate deregulation policy in Nigeria. The awareness of the fluctuating exchange rate was between 1962 and 1973 when the Dollar was devalued by 10% and in order to maintain the existing conversion rate to the Dollar, the Naira too was devalued by the same 10%.
Changes in money supply did not constitute major macro-economic problem and the stability of the exchange rate was guaranteed before then.
This was so because the rate was fixed but was being varied by CBN as stated in control act enacted on central bank 1962. The centralization of foreign exchange, rational allocation of foreign exchange and adequate internal and external balances were some of the rationale behind the act.
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