IMPACT OF EXPORT PROMOTION OF ECONOMIC GROWTH IN NIGERIA
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IMPACT OF EXPORT PROMOTION OF ECONOMIC GROWTH IN NIGERIA
INTRODUCTION TO CHAPTER ONE
1.0 BACKGROUND OF THE STUDY
Foreign exchange is a form of payment used in overseas transactions. It is composed of convertible currencies that are commonly used to settle international trade and other external obligations. A market is established, and it functions similarly to any other market, with a supply curve, a demand curve, and an equilibrium price and quantity.
There are some situations that remain constant (creteris paribus). When these conditions alter, the curve shifts and the equilibrium price quantity changes. The currency market is known as the foreign exchange market.
According to the Nigerian Central Bank, the foreign exchange market serves as a channel of contact between sellers and purchasers of foreign exchange. The supply of foreign exchange is made up of sellers, while the demand is made up of buyers.
The supply of foreign exchange is obtained from oil exports, non-oil exports, foreign tourist expenditure in Nigeria, capital repatriation by Nigerians living abroad, and so on.
Foreign exchange demand, on the other hand, includes payments for imports, financial commitments to international organisations, external debt repayment requirements, and so on.
Prior to the establishment of the central bank in 1958 and the passage of the Exchange Control Act in 1962, foreign exchange was earned by the private sector and held in balances overseas by commercial banks acting as agents for local exporters.
Another peculiarity of this time period was that agricultural exports accounted for the majority of foreign exchange receipts. The British pound sterling’s parity with the Nigerian pound sterling, as well as its simple convertibility, slowed the formation of an active foreign exchange market.
However, by 1958, with the establishment of the central bank and subsequent consolidation of foreign exchange control. The requirement for a local foreign currency market is critical in banks. Other variables that contributed to the evolution of Nigeria’s foreign exchange market include:
The shifting pattern of international commerce has resulted in institutional changes in the economy. Changes in production structure, for example.
Following the dramatic rise in prices and demand for crude oil exports, which had now supplanted agricultural exports, the official exchange receipt was increased by the early 1970s.
During this time, the foreign exchange market boomed, necessitating the management of foreign exchange resources. However, effective exchange controls were not implemented until 1982.
The exchange control system failed to develop an appropriate mechanism for allocating foreign exchange. This resulted in the creation of a dual exchange rate system consisting of a first and second tier foreign exchange market, which was implemented in September 1986.
The first tier was managed, whilst the second was left to market forces. Not only has the institutional framework changed from second tier foreign exchange market (SFEM) to foreign exchange market (FEM) to inter bank foreign exchange market (IFEM) to autonomous foreign exchange market (AFEM),
but there have also been frequent changes in operational guidelines and procedures. Various pricing approaches, such as marginal and weighted average exchange rate calculations, as well as the Dutch Auction System (DAS), have also been implemented.
All of these are aimed at ensuring more efficient allocation and utilisation of scarce foreign exchange resources, increasing the flow of capital into the country, stimulating domestic industrial production, promoting export, increasing government revenue, assisting in the rescheduling of our foreign debt at more profitable terms, and so on.
When foreign exchange rates fluctuate, several economic activities are typically impacted, including purchasing power, balance of payment, prices of goods and services, import structure, export earnings, government revenue, and external reserves, among others.
The current exchange rate instability and its effects on many economic variables will be the focus of the research effort.
1.2. STATEMENT OF THE PROBLEM
Since September 1986, when the market-determined exchange rate system was implemented through the second-tier foreign exchange market, the naira exchange rate has exhibited characteristics of persistent depreciation and instability.
This insecurity and ongoing depreciation of the naira in the foreign exchange market has resulted in a reduction in the populace’s standard of living, increasing manufacturing costs, and cost drive inflation.
It has also harmed the international competitiveness of non-oil exports and made economic planning and forecasting difficult at both the local and macro levels.
A large number of small and medium-sized businesses have been suffocated as a result of the low dollar/naira exchange rate, and many additional problems caused by exchange rate swings can also be noted.
Since 1986, the movement of the exchange rate along the path of depreciation has sparked many questions about the impact of exchange rate policy on the Nigerian economy.
1.3 OBJECTIVES OF THE STUDY
The study’s objectives
i. To determine the influence of exchange rate fluctuations on Nigeria’s economic growth.
ii. To investigate the nature of the relationship between exchange rate volatility and Nigerian economic growth.
iii. To make some recommendations based on the findings of the investigation.
1.4 HYPOTHESES METHOD
A set of testable hypotheses based on existing data will be required for relevant results, conclusions, and recommendations. The following hypotheses would be tested during the course of this study project.
Hi: Exchange rate swings have no effect on the Nigerian economy.
Hi: Currency swings have a big impact on the Nigerian economy.
1.5 SIGNIFICANCE OF THE STUDY
The study would evaluate the strengths and weaknesses of exchange rate regulation and management, identify the economic variables most influenced by exchange rate volatility, and raise public understanding about foreign exchange transactions and their impact on the economy.
The numerous conclusions would allow the government and financial authorities to devise, develop, and implement a better foreign currency transaction for the economy.
1.6 TERMS:
1. Currency Exchange
Foreign exchange is a payment method used in overseas commerce. It is made up of other countries’ currencies that are easily accepted in international commerce.
2. Currency exchange market:
This is a means for buyers and sellers of foreign currency to interact in order to negotiate appropriate prices for international transactions.
3. Exchange rate – The price of one currency in relation to another.
SEMI- Second-tier foreign exchange market. The exchange rate is mostly governed by market forces under this system.
5. AFEM stands for autonomous foreign exchange market. Under this system, the currency rate is mostly set by market forces.
IFEM stands for Interbank Foreign Exchange Market.
7. Dutch auction system (DAS) – this is a way of determining exchange rates through action in which bidders pay the final bid rate that clears the market.
8. Dual exchange rate regime– This condition exists when an economy has two exchange rates.
9. Marginal pricing approach: In this method, bid rates are ordered in descending order of magnitude. The applicable exchange rate is the last bid rate at which available foreign exchange is expended (marginal rate).
10. Exchange control – This is a foreign exchange arrangement in which the government purchases all incoming foreign exchange and is the only legal source of foreign exchange.
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