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EFFECT OF NAIRA DEVALUATION ON IMPORTATION IN NIGERIA

  • Type:Project
  • Chapters:5
  • Pages:107
  • Methodology:Survey method
  • Reference:YES
  • Format:Microsoft Word
(Business Administration and Management Project Topics & Materials)
EFFECT OF NAIRA DEVALUATION ON IMPORTATION IN NIGERIA
(A STUDY OF STERLING BANK NIGERIAN PLC)
ABSTRACT
This study examined the effect of naira devaluation on importation in Nigeria. The objectives of the study included to: ascertain the extent of relationship between Naira devaluation and importation of goods in Nigeria, determine the effect of increase in interest rate on Naira devaluing as it affects importation of goods in Nigeria, evaluate the relationship between increasing money supply as a method of devaluing the currency and importation of goods in Nigeria and assess the effect of reduction in import controls on importation of goods in Nigeria. The population of the study was 181 while the sample size of 125 was determined by using the Taro Yamane’s formula. The sources of data were both primary and secondary sources. The hypotheses were tested by using the chi-square statistical tool. The findings included that naira devaluation has a significant relationship with importation of goods in Nigeria, increasing the interest rate has a positive effect on naira devaluation as it affects importation of goods in Nigeria, increasing money supply as a method of devaluing the currency has a significant relationship with importation of goods in Nigeria and reduction in import controls has a positive effect on importation of goods in Nigeria. The researcher concluded that naira devaluation has a negative effect on importation in Nigeria. The study recommended that naira devaluation has to go with strict measures to have an impact on importation of goods in Nigeria, interest rate should only be increased if it has a positive effect on the economy, money supply should only be increased if it has a positive effect on the economy and import controls should be encouraged by the government.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1     Background of the Study                        
1.2     Statement of the Problem                        
1.3     Objectives of the Study                         
1.4     Research Questions                            
1.5     Statement of Hypotheses                         
1.6     Significance of the Study                        
1.7    Scope of the Study                             
1.8    Limitations of the Study                        
1.9    Operational Definition of Terms                    
1.10    Profile of Sterling Bank Nigeria Plc                
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1    Conceptual Framework                        
2.1.1 Concept of Devaluation                        
2.1.2 Types of Devaluation Packages                
2.1.3 Apprehensions Expressed About the Consequences of
 Devaluation                                
2.1.4 General Effects of Devaluation                    
2.1.5 Devaluation and Trade Balance                    
2.1.6     Devaluation and Inflation                        
2.1.7 Reasons for Currency Devaluation                
2.1.8 Concept of Importation                        
2.1.9 Process of Importing Goods into Nigeria            
2.1.10 Import Control                                
2.1.11 The Role of the Import and Export Control Unit        
2.1.12 Products Subject to Import Control                 
2.1.13 Interest Rate                                
2.1.14 Application of Interest Rates                    
2.1.15 Impact of Interest Rates on Economic Growth        
2.1.16 Money Supply                                
2.1.17 Importance of Money Supply                    
2.1.18 Money Supply and its Measurement                 
2.1.19 Components of Money Supply                    
2.1.20 Measures of Money Supply                        
2.1.21 Determinants of Money Supply                    
2.2     Theoretical Framework                        
2.2.1 The Theory of Monetary Approach to Devaluation        
2.2.2 The Theory of the Three Approaches of Devaluation    
2.3    Empirical Review                              
2.3.1 Extent of the Relationship between Naira devaluation and
Importation of Goods                            
2.3.2 Effect of Increase in Interest rate on Naira devaluation
as it affects importation of goods in Nigeria            
2.3.3 Relationship between Money supply and Importation of
goods in Nigeria                                
2.3.4    Effects of Reduction in Importation Controls on
Importation of Goods in Nigeria                    
2.4 Summary of the Review of Related Literature             
2.5     Gap in the Review of Related Literature             
CHAPTER THREE: METHODOLOGY
3.1    Research Design                                
3.2    Sources of Data                                
3.2.1    Primary Sources                                
3.2.2 Secondary Sources                            
3.3    Area of the Study                            
3.4     Population of the Study                        
3.5    Sample Size Determination                         
3.6     Instruments for Data Collection                    
3.7    Validity of the Research Instrument                 
3.8    Reliability of the Research Instrument                
3.9     Methods of Data Presentation and Analysis            
CHAPTER FOUR: PRESENTATION, ANALYSES AND INTERPRETATION OF DATA
4.1    Distribution and Return of Questionnaire             
4.2    Bio-Data                                    
4.3     Data Relating To Research Questions                
4.4    Test of Hypotheses                            
4.4.1 Test of Hypothesis One                        
4.4.2 Test of Hypothesis Two                        
4.4.3 Test of Hypothesis Three                        
4.4.4 Test of Hypothesis Four                        
4.5    Discussion of Findings                         
4.5.1 Discussion of Relationship between naira devaluation
and Importation of goods in Nigeria                
4.5.2: Discussion on effect of increasing the interest rate on
naira devaluation as it affects importation of goods in
Nigeria                                     
4.5.3: Discussion on increasing money supply as a method of devaluing the currency has a significant relationship with importation of goods in Nigeria                     
4.5.4    Discussion on reduction in import controls has a positive effect on importation of goods in Nigeria        
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1    Summary of Findings                             
5.2     Conclusion                                 
5.3     Recommendations                                 
5.4    Contribution to Knowledge                         
5.5     Suggestions for Further Research                    
List of References                             
Appendix                                    
Questionnaire                                
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The history of Nigerian currency devaluation started from 1986, because as at 1981 the Naira was twice more that the value of a dollar but the government continued to devaluate the value of Naira deliberately (Ahmed, 2017). By 71.1% in 1986, by 3.9% in 1989, by 42.1% in 1992, by 74.6% in 1999, by 3.18% in 2001, by 7.73% in 2008, by 13.23 in 2013 and more recently by 14.25% in 2014. It is an established fact that Naira devaluation did not at any time add value to the Nigerian economic life in any guise, instead it contributes to a large possible extent in glooming the major economic sectors in the country.
This is unlike Britain which recovered strongly from its early 1990s doldrums after it devalued the pound against the mark in 1992. Sweden which recovered from its early 1990s banking crisis with an export boom, driven by a devalued kronor. South Korea which roared back from 1997-1998 crisis with an export boom, driven by a depreciated won. Argentina which roared back from its 2002 crisis with an export boom driven by a depreciated peso. The truth is that almost every recovery from financial crisis since World War II was driven by currency depreciation. What then is the problem with the Nigeria Situation?
The present day currencies are usually fiat currencies with variable market value. Certain countries hold floating exchange rates while others maintain flat exchange rate policies against the United States dollar or other major currencies. Afolabi (2012) state that these flat rates enforced capital controls or through government trading of foreign currency reserves to manipulate the money supply. Under fixed exchange rates, persistent capital outflows or trade deficits may lead countries to lower or abandon their fixed rate policy, resulting in devaluation (as persistent surpluses and capital inflows may lead to them towards revaluation).
In an open market, the perception that devaluation is certain and may lead speculators to sell the currency in exchange for the country’s foreign reserves, increasing pressure on the issuing country tomake on actual devaluation. When speculators buy out all of the foreign reserves, a balance of payment crisis occurs. Biodun (2013), opines that devaluation on modern monetary policy is a reduction in the value of a currency with which that currency can be country’s currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency.
Cooper, (2010) state that when government devaluates its currency, it is often because the interaction of market competitions and policy decisions has made the currency’s fixed exchange rate untenable in order to sustain a fixed exchange rate, a country must have sufficient foreign exchange reserves and be willing to spend them, to purchase all offers of its currency at the established exchange rate. When a country is unable or unwilling to do so, the it must devaluate its currency to a level that its is able and willing to support with its foreign exchange reserves.
Lipsy (2010), states that a key effect of devaluation is that it makes the domestic currency clear per relative to other currencies. He also noted that there are two implications of devaluation. First, devaluation makes the country’s experts relatively less expensive for foreigners. Second, devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country’s experts and decrease imports and may therefore help to reduce the current account deficit. Biodus, (2013), states that the full ripple effects of the current devaluation of the Naira will eventually be felt throughout the Nigeria economy. Nigeria, as a country, is a new importer of product as opposed to a net exporter, majority of the basic goods (consumables and non-consumable) sold in Nigeria are imported from overseas. Therefore, as the Naira continues to free fall, the wholesalers and retailers of goods will have to adjust the prices of their products upwards to reflect the amount being paid for these goods.
Cooper (2010), note that the problem is that this devaluation will eventually curtail foreign investments in Nigeria. If the current trend continues, it will truly give any investor a pause before investing in Nigeria because it appears that at the current rate of volatility of the Naira there is no investment in Nigeria that will produce a good return on investment. In most of the developed world (united states, Europe), the interest on customer deposits has averaged under 52 for over six years, therefore for most Nigerians in the diasporas, putting their funds in a certificate of deposit in a bank in Nigeria that paid 12% annual interest was a superior alternative. Therefore, some Nigerian borrowed funds against their assets or borrowed from credit cards, invested them in Nigerian where the interest on their deposits was higher than the invest they paid on the borrowed funds. For instance, $10,000 investment in a certificate of deposit in November, 2008 when naira was trading at approximately N116 to $1 Dollar will be worth $6,844 as of March 3, 009, a loss of $3,156 or 31.6%. No investor in their right frame of mind will be encouraged to make future investment on this type of prospect.
1.2 Statement of the Problem
Devaluation of a country’s currency like Naira is suspected to affect the importation of goods in that country to a large extent. Naira devaluation is known to promote export but will make importation of goods into Nigeria to be more expensive.
The effect of decreasing the interest rate by Central Bank of Nigeria as a method of devaluing the currency on importation is that it does not promote the importation of goods into Nigeria. This is because when the interest rate given by CBN decreases, it makes importation of goods into Nigeria to be more expensive.
Furthermore, increasing the money supply as a method of devaluing the currency does not promote importation of goods into Nigeria. This is because increase in money supply brings about inflation in the country.
Another effect of devaluing Naira by not trading the currency in the foreign exchange market could equally affect importation of goods into Nigeria. This will make importation of goods to be more expensive thereby discouraging importers from carrying out their activities             
1.3 Objectives of the Study
The broad objective of the study is to examine the effects of Naira devaluation on importation in Nigeria. However, the specific objectives include to:
1.    Ascertain the extent of relationship between Naira devaluation and importation of goods in Nigeria.
2.    Determine the effect of increase in interest rate on Naira devaluing as it affects importation of goods in Nigeria.
3.    Evaluate the relationship between increasing money supply as a method of devaluing the currency and importation of goods in Nigeria
4.    Assess the effect of reduction in import controls on importation of goods in Nigeria.                  
1.4 Research Questions
Based on the objectives of the study, the following research questions were raised.
1.    To what extent has Naira devaluation related with importation of goods in Nigeria?
2.    What is the effect of increase in interest rate on Naira devaluation as it affects importation of goods in Nigeria?
3.    What is the relationship between increasing money supply as a method of devaluing the currency and importation of goods in Nigeria?
4.    What is the effect of reduction in import controls on importation of goods in Nigeria?      
1.5 Statement of Hypotheses
Based on the research questions, the following hypotheses were formulated
Hypothesis One
H0:    Naira devaluation does not have a significant relationship with importation of goods in Nigeria
H1:    Naira devaluation has a significant relationship with importation of goods in Nigeria.
Hypothesis Two
H0:    Increasing the interest rate does not have a positive effect on Naira devaluation as it affects importation of goods in Nigeria
H1:    Increasing the interest rate has a positive effect on Naira devaluation as it affects importation of goods in Nigeria.
Hypothesis Three
H0:    Increasing money supply as a method of devaluing the currency does not have a significant relationship with importation of goods in Nigeria.
H1:    Increasing money supply as a method of devaluing the currency has a significant relationship with importation of goods in Nigeria.
Hypothesis Four
H0:    Reduction in import controls does not have a positive effect on importation of goods in Nigeria    
H1:    Reduction in import controls has a positive effect on importation of goods in Nigeria.    
1.6 Significance of the Study
This research study is very important because it appraises the effects of Naira devaluation on importation of goods in Nigeria. The federal government of Nigeria will benefit from this study because it will help improve the economy. The researcher (student) will benefit from this study as findings from this work will throw more light on the various methods of devaluing a currency and its implication. The researcher will also benefit as the study is a partial requirement for the award of a Bachelor of Science (B.Sc), Degree in Business Administration. The university will benefit from this study as it increases its data bank. Finally, this study will serve as reference material for further research on this study.
1.7 Scope of the Study
This research work covered the extent of relationship between Naira devaluation and importation of goods in Nigeria, the effect of decreasing the interest rate on Naira devaluation as it affects importation of goods in Nigeria, the relationship between increasing money supply as a method of devaluing the currency and importation of goods in Nigeria and the effect of reduction in import controls on importation of goods in Nigeria. The organization covered is Sterling Bank Nigeria Plc while the time scope is between 2013-2017.
1.8 Limitations of the Study
The researcher encountered some impediments in the course of carrying out this research work. Among them were uncooperative attitude of the respondents and lukewarm attitude in getting details
Uncooperative Attitude of the Respondents: the respondents of Sterling Bank had this negative attitude in disclosing information. As a matter of fact, some of these information were considered as classified documents.  
Lukewarm Attitude in Getting Details: The researcher also had a problem of lukewarm attitude in getting details from the respondents  
1.9 Operational Definition of Terms  
Devaluation: A deliberate downward adjustment to the value of a country’s currency, relative to another currency, group of currencies or standard.
Fiat Currency: Fiat money is currency which derives its value from government regulation or law.
Monetary Policy: Monetary policy is the actions of a Central Bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in-turn affects interest rates.
Open Market: An economic system with no barriers to free market activity which is characterized by the absence of tariffs, taxes, licensing requirements, subsidies unionization and any other regulations or practices that interfere with the natural functioning of the free market.  
Inflation: Inflation is the rate at which the general level of prices for goods and services is rising and consequently, the purchasing power of currency is falling.
Foreign Resources: Holding of foreign currency held by a government.
1.10 Profile of Sterling Bank Nigeria Plc
Sterling bank Plc was originally incorporated in 1960 as Nigeria Acceptances Limited (NAL). The bank was licensed as Nigeria’s first merchant bank in 1969. Consequent to the indigenization decree of 1972, the Bank became fully government owned and was managed in partnership with Grindlays Bank Limited, Continental International Finance Company Illinois and American Express Bank Limited between 1974 and 1992. In 1992, the Bank was partly privatized and listed as a public company on the Nigeria Stock Exchange (NSE). Eight years later, in 2000, the federal government sold its residual interest in the bank, effectively making it a fully privatized institution.
In January 2006, as part of the consolidation of the Nigerian banking industry, NAL Bank completed a merger with four other Nigerian Banks namely Magnum Trust Bank, NAM Bank, Trust Bank of Africa and Indo-Nigeria Merchant Bank (INMB) and adopted the name ‘Sterling Bank’ name. The merged entities were successfully integrated and have operated as a consolidated group ever since. In line with the Central Bank of Nigeria’s repeal of universal banking, Sterling Bank now operates as a national commercial bank, disposing of holdings in subsidiaries and affiliate companies. In mid 2011, Sterling Bank Plc acquired the franchise of the erstwhile Equatorial Trust Bank.

EFFECT OF NAIRA DEVALUATION ON IMPORTATION IN NIGERIA

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Details

Type Project
Department Business Administration and Management
Project ID BAM2920
Price ₦3,000 ($20)
Chapters 5 Chapters
No of Pages 107 Pages
Methodology Survey method
Reference YES
Format Microsoft Word

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    Details

    Type Project
    Department Business Administration and Management
    Project ID BAM2920
    Price ₦3,000 ($20)
    Chapters 5 Chapters
    No of Pages 107 Pages
    Methodology Survey method
    Reference YES
    Format Microsoft Word

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