The Effect Of Exchange Rate Fluctuation On Imported Goods In Nigeria

THE EFFECT OF EXCHANGE RATE FLUCTUATION ON IMPORTED GOODS IN NIGERIA (A CASE STUDY OF

ABSTRACT

The major aim of this research work is to know the effects of exchange rate fluctuation on imported goods in Nigeria. It is also aimed at ascertaining the level of relationship between the depreciation value of Naira and the pricing of imported goods in Nigeria. The fluctuating nature of exchange rate appears to be responsible for the exploitative pricing of imported goods in Nigeria. The objective of researcher is to address the following to know the reason of this upward movement of the pricing of goods in Nigeria. To discover only Nigeria dependable on importation to X – ray why then is steady rise in the price of imported goods these issues were addressed through theoretical and empirical approach within help of secondary and primary data collection method, related literature were reviewed to ascertain what various authors have to say on the topic. The primary data was collected through questionnaire administered on the financial institutions importers and retailers of various imported goods in Lagos metropolis. The question is upward movement of the pricing of goods in Nigeria due to the exchange rate fluctuation. The researcher found out that the upward movement of the pricing of goods in Nigeria is due to exchange rate fluctuation. The researcher made the following recommendation, government should work tirelessly with its monetary agencies to fix the rate of Naira, for no country of the world leaves its currency afloat to the pros and cons of forces of demand and supply.

THE EFFECT OF EXCHANGE RATE FLUCTUATION ON IMPORTED GOODS IN NIGERIA (A CASE STUDY OF

TOYOTA NIGERIA LIMITED, LAGOS)

BY

OMOBA ANTHONIA OMOTEKORO

FPO/HND/MKT/014/036

DEPARTMENT OF MARKETING, SCHOOL OF BUSINESS STUDIES  FEDERAL POLYTECHNIC, OKO.

NOVEMBER, 2016

 CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

        The Nigeria economy has witnessed a great degree of instability ever since the end of Civil War. From 2.48824 to 1.24414 grains of fine gold following the exchange of the Nigerian Pound to Naira in 1973, fixed exchange rates were establish for both Pound sterling and the US Dollar at £0.5833 and US 1.5200 respectively to N1.00 this has caused havoc to the Nigerian economy in that exchange rate the Naira to both Dollar and Pound sterling has been observed that the economy has it also been witnessed the highest degree of inflation. The result is that Nigeria as a country has last it’s financial credibility in the outside world at the home front because the exchange rate is net to our favour the country has witnessed the greatest degree of brain drain.

        The exchange rate fluctuations has effected most our industries that import whole or part of their raw materials and the result is that production is below capacity utilization, resulting in unemployment. Again, because of the exchange rate, most local home made goods are expensive thereby pricing themselves out of the market.

        The rate at which Naira exchange for Dollar determines the rate at which goods are sold in the market. Therefore, the exchange rate fluctuation effects the prices of imported goods upwards or downwards as the case may be.

        At the same time, it affects the price of locally produced goods that most of the raw materials and machines are imported and prices at which the currency of exchange are secured effect the price positively or negatively.

        The control of exchange rate fluctuation in the money market has posed problems to both the government and individuals corporate and individual firms.

        This has lead to the continued search for a viable economic order for the country which has to the introduction of FEM were:

a. Determination of realistic exchange rate of the Naira.

b. Using the topic mechanism to channel resources to the most deserving sector of the economy. 

        The exchange rate influence importation positively. When exchange rate is high, importation of goods will decrease except for necessities, which have a negligible reaction to exchange rate.

        Exchange rate has a direct influence on price of imported goods positively. However, in practice, imports respond more quickly to change in domestic income than to change in the real exchange rate. Again, if sustained, a change in the real exchange rate will eventually have significant effect on the level of imports as well as export in contrast, imports have been on the increase since 1985. When there is depreciation of the Naira, the exchange rate fluctuates downwards and this makes import very costly, conversely, when the Naira appreciates, it favour imports.

        Adverse fluctuation rate make for losses or lower profit due to increases in the prices of input used in production process  Nigeria is highly dependent on imported input and raw materials to keep the numerous manufacturing industries going. Consequently, with every depreciation of the Naira, the price of imported inputs soar in terms of Naira and this is transmitted to the whole economy in the form of higher price of goods and services and intolerable inflation since a fall in the international value of Naira makes Nigeria goods cheaper in foreign currencies and foreign goods more expensive in Naira this change in the Naira exchange rate tends to increase the quality of goods Nigeria export and reduce the quality of goods imported to Nigeria. During the period under review, 2000 – 2012 Nigeria had the highest inflation rate than most of its trading partners. Whether Nigeria goods became more or less competitive in the world market depends on whether the increase in Nigeria competitiveness as justified by real events in the economy such as technological progress, changes in external terms, change in taxation etc.

        Adverse changes in exchange rate gives producer distinct advantage in cost competitiveness. The major negative effect of the fall in exchange rate of Naira is that, it make planning very difficult.

        Near accurate plans cannot be made because exchange rate continues tumbling thereby making business projections inaccurate marketing experts and mangers are therefore faced with the problem of setting accurate strategies marketing plans and operations. 

1.2      STATEMENT OF THE PROBLEM

        The fluctuation of exchange rate and its attendant effects on price of imported goods in Nigeria has posed a big challenge to financial institution importance of various goods and Nigeria institutions, importance of various goods and Nigerian populace in general.

        It is on this backed up that the researcher was prompted to engage in further exploration with a view to ascertain, the effect which exchange rate fluctuation have on imported goods in Nigeria. Hence this study focuses on the imported goods in Nigeria.