The Problem Of Financing International Trade In Nigeria

THE PROBLEM OF FINANCING INTERNATIONAL TRADE IN NIGERIA

ABSTRACT

This research work tries to give an insight into the issue of the problems of financing international trade in Nigeria from the period (`1990-1995).

This study is aimed at analyzing Nigeria’s foreign transactions during and after (SAP) periods.

The work is organized into chapters to easy comprehension and deduction.

Chapter one deals with the introduction, Background, statement of problems, purpose / objective of the study, significance of the study, limitations of the study and the definition of terms.

Chapter two involves a review of related literature, international cash flow in trade, roles, risk factor in international cash flow in trade, major problems, trade restriction major and cash flow problems.

This chapter also treat, the important of international trade, and some underline issues towards the cash flow problem in Nigeria, through spanning through structural Adjustment programmer (SAP).

Chapter three deals with research design and methodology, source of data, location of data method of data collection.

Chapter four involves summary of finding where I summarize everything in this project.

Chapter five involves recommendation, conclusion and Bibliography.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENT

TITLE PAGE                                                                 i

APPROVAL PA                                                             ii

DEDICATION                                                               iii

ACKNOWLEDGEMENT                                               iv

ABSTRACT                                                                      v

TABLE OF CONTENT                                                    vi

CHAPTER ONE

INTRODUCTION                                                                       13

1.0 BACKGROUND OF THE STUDY                              13

1.1 PURPOSE / OBJECTIVES OF STUDY                                  17

1.2 STATEMENT OF THE STUDY                                             17

1.3 SIGNIFICANCE OF THE STUDY                                 18

1.4 LIMITATION OF THE STUDY                                      19

1.5 DEFINITION OF TERMS                                                          20

CHAPTER TWO

2.0 REVIEW OF RELATED LITERATURE                          24

2.1 INTERNATIONAL CASH FLOW IN TRADE                          24

2.2 ROLE OF INTERNATIONAL CASH FLOW IN TRADE                   25

2.3 RISK FACTORS IN INTERNATIONAL TRADE                     26

2.4 MAJOR PROBLEM OF FINANCIAL INTERNATIONAL TRADE 27

2.5 TRADE RESTRICTION AND GOVERNMENT POLICIES         29

2.6 IMPORTANT OF INTERNATIONAL TRADE                              32

CHAPTER THREE

3.1 RESEARCH DESIGN AND METHODOLOGY                              36

3.2 SOURCE OF DATA                                                                                  36

3.3 LOCATION OF DATA                                                                    36

3.4 METHOD OF DATA COLLECTION                                              37

CHAPTER FOUR

4.1 SUMMARY                                                                                      40

CHAPTER FIVE

5.1 RECOMMENDATION                                                                    44

5.2 CONCLUSION                                                                                 46

5.3 BIBLIOGRAPHY                                                                             49

 

 

CHAPTER ONE

1.0  INTRODUCTION

1.1 BACKGROUND

The Nigeria economy has since the early 1990s been faced with adverse financial constrains especially in its international trade.

This can be traced to the responsible fiscal policies enacted during the oil boom period. The sought increase in the volume and value especially in 1990 / 91 placed the oil sector as the mainstay of the Nigerian economy, not only in terms of foreign exchange earnings but also as the source of government revenue and domestic liquidity.

The huge revenue from oil stimulated a phenomenal increase in government spending spilled into the rest of the economic sector and generated an unsustainable growth in the economic activities.

In particular, the patter of investment shifted mainly to construction and services sectors to the detriment of productive sector that is industrial and Agricultural sector which had been the sole earner and should provide the basis of economic growth.

The stump in oil market from the early to mid  “goes”.

This phenomenon, exacerbated the problem already existing from the tuba lance experience in the proceeding decade following the glut in the market, oil price dropped from $40 to $35.5 per barrel and continued to slide thereafter till it reached to wightly $12 per barrel.

Consequently oil export revenue which had accounted for about 96% of Nigeria’s exchange earning dropped sharply.

Moreover, the glut also forced production down by 0.4 million barrel per day, as at the middle of 1991, and dropped further to o.6 million barrel per day, during the first quarter of 1992 the oil glut and the attendant low unit price of oil signed the beginning of economic recession from Nigeria.

As a result of these economic recession, the country ability to meet its trade. Obligations become necessary for trade partners to request new terms of trade and re-negotiation of existing loan and credit, subsequently, the country external payment position was adversely affected.

 A good example of this was manifested in the export value which declined from the peak of N14.2 billion in 1990 t0 N8.6 billion in 1992 but the total import expenditure rose from N 9.1 billion in 1990 and N12.6 billion in 1992.

With a deficit of approximately N 4 billion. The ripples of the oil glut was also fect on the domestic front as was observed on the sharp decline in both state and federal government’s allocation in real monetary terms.

Secondly, the declining oil earning for the government to resort to alternative means of finance for its numerous projects.

In most cases, both private and public banks at home and abroad were approached to provide such needed funds in the form of loans and advance.

Consequently, Nigeria’s external debt rose to nearly billion in 1993.

Thirdly, the light of mounting foreign debt and with the reluctance of the much needed finance, the government was forced into counter trade arrangements as a means of making payment on goods purchased, several attempt were made to stem the declining economic fortunes of the country.

First, it was the general Ibrahim Babangida’s SAP measure that was signed to restrict imports to a manageable level.

This witnessed the advent of the import license, which rather than curtailing the foreign expenditure, increased it.

A more constructive approach was adopted in 1991 by the Babangida’s administration under the structural adjustment programmer (SAP) and re-aliging aggregate domestic expenditure and production pattern in order to minimize dependence on imports. The objectives of the programmer are this.

1. To restructure and diversity the production base of the economy in order to reduce dependence on the oil sector and import of finished goods.

2. To achieve a viable fiscal balance of payment over the medium term.

3. To lay the basis for a sustainable non-inflationary growth over the medium and long-term by insisting on a workable balance budget.

However, substantial improvement were recorded with these adjustments instance, Nigeria’s balance of payment showed on overall surplus of N1, 946.3 million in 1993. This continued to decline even to a deficit.

Despite the measure introduced by (SAP), aggregate in flow of foreign exchange continued to decline by 7.1 percent from $ 12,353.9 million in 1992 to & 3,567.1 million in1993.

Total foreign exchange out flow also decline by about 20.8 percent.

More so, as foreign exchange cash flow problem intensified, Nigeria importers found it increasing difficult to secure confirmed lines of creasing difficult to confirmed lines of credit overseas.