ABSTRACT
This research work examined the impact of commercial bank credit (CBC) on Non-oil export trade in Nigeria. Four variables were used in the study. This study adopted the econometric time series analysis from 1992-2015 and the data were sourced from Central Bank of Nigeria statistical bulletin. The empirical analysis that were carried out to achieve the objectives include unit root, co-integration, the long run regression model and short run error correction model. The Augmented Dickey Fuller was employed in conducting the test of unit root and the variables became stationary at first difference. The co-integration test result reveals the existence of long-run relationship among the variables. Then long run regression and short-run error model was conducted and it discovered that CBC has a direct and positive significant impact on non-oil export, it also reveals that there exist a positive and significant relationship between real exchange rate and non-oil export and significant relationship among real interest rate and non-oil export. Further, the Central Bank of Nigeria should as an operational guideline, impose on commercial banks to set aside a certain amount of money from their yearly profit for financing of non-oil export as it is the case for small and medium scale equity scheme.
TABLE OF CONTENTS
Title page ……………………………………………………………… i
Certification ………………………………………………………….. ii
Approval ……………………………………………………………. iii
Dedication …………………………………………………………… iv
Acknowledgements ………………………………………………….. v
Abstract ………………………………………………………………. vi
List of Tables ………………………………………………………… vii
Chapter One: INTRODUCTION
Chapter Two: REVIEW OF RELATED LITERATURE
2.1 Conceptual Literature …………………………………………….. 8
2.2 Theoretical Review………………………………………………… 13
2.3 Empirical Literature…………………………………………………… 16
2.4 Gap in Literature ……………………………………………….. 18
Chapter Three: METHODOLOGY
3.1 Theoretical Framework………………………………………….. 19
3.2 Model Specification………………………………………………. 20
3.3 Model of Evaluation…………………………………………….. 21
3.4 Data Required and Sources……………………………………… 24
Chapter Four: PRESENTATION AND ANALYSIS OF RESULT
4.1 Empirical Result………………………………………………… ….. 25
4.2 Interpretation of short run ECM result………………………………. 27
4.3 Evaluation of the Hypothesis………………………… ……………. 27
4.4 Evaluation Based On Statistical Criteria (First Order)…………… …. 28
4.5 Econometrics Test (Diagnostic Checking) ………………………… 29
Chapter Five: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings…………………………………………….. 32
5.2 Conclusion……………………………………………………….. 32
5.3 Recommendations………………………………………………… 33
Appendix ……………………………………………………………. 35
References ………………………………………………………………… 45
LIST OF TABLES
1: Table 4.1: Unit root on variables and residuals of all the regression… 25
2. Table 4.2: ADF Co-integration Result………………………………… 26
3. Table 4.3: The results of the parsimonious error correction of this
Research are revealed……………………………………… 26
4. Table 4.4: Diagnostic checking- summary Statistics…………………. 30
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background to the study
The growth of any economy is a function of the quality and quantity of goods and services it produces. There is always a tendency to produce and market to earn a living. In the wider society, the quality of life enjoyed very much depends on the quality of goods and services available to the citizenry. There is the development aspect of growth that enables equitable distribution. This entails getting products from one part to the other (Nzotta, 2004).
Production in one country could be transported to another to enhance quality of life. Developing nations have the tendency to import greater part of their goods and services from developed nations. To square up with the developed nations, they have to increase production of exportable goods (Gbosi,1994).
Nigerian economy has depended predominantly on crude oil since the discovering of crude oil in the early fifties. Prior to this, cash crops like cocoa, palm produce, cotton, groundnut and cassava has been the mainstay of the economy. These cash crops earned so much foreign reserve of the economy.
Nigerian Bauxite is the best in the world and are sought for globally. (Soludo, 2009).
One would have expected a balance of payment that tilts to the favor of local production. This, however, is not the case with Nigeria as imports far outweigh exports. Export financing is a means of helping local producers process their products for a better market abroad. It is designed to make funds available for local producers to seek for market abroad. The essence of every productive business is to sell to a wider range of customers to reduce cost and continue in business. Oftentimes, it is propelled by the desire to increase the market share, and thus, the clientele. According to Nigerian Export Promotion Council (2009:12), export financing makes fund available for exporters to process their goods for export. It notes that in Nigeria, there are many opportunities to explore for exports created by government, noting that there could be logistics that may hinder continuity. Nigerian Export –Import Bank (NEXIM, 2008) notes that a lot of exporters do not want to take the risk of assessing funds from NEXIM due probably to high interest rate. But it states that the risk involved in export financing is such as to secure the financier’s investment while monetizing the exporter.
The roles of commercial banks in our modern economy cannot be over emphasized; Commercial banks in Nigeria as a financial institution helps in financing the exporting sector of the economy, by lending out short-term loans to those into manufacturing, exporting, trading and industries.
Lack of bank credit (loan and advances) in our economy has brought about low rate of economic growth and diversification of most industries in Nigeria. The availability of bank credits to those in trade determines what is produced and how much of that product is produced. Therefore, commercial banks perform their important role of financial assistance by rendering important services such as granting (loans and advances) to various sectors of the Nigerian economy. Commercial banks support the economy by serving the credit needs of their customers and providing a safe place for their cash balance. Of individual credit activities on the export sector of the Nigerian economy, there are general statements which guide or channel actions in decision making about the export sector advance and investment of commercial bank.
The importance of export trade to economic growth cannot be overemphasized, this trade goes beyond the national boundaries of moving goods from a country to another in order to earn foreign exchange. Export are the goods and services which a country sends to other countries abroad in return for some payment made in foreign exchange.
According to Chartered Institute of Bankers of Nigeria – CIBN(2008), export financing enables businesses to take their products all over the world, by enabling the exporter get to many places round the globe to market his products. There are a lot of benefits to a business selling overseas, but there can be a lot of financial risks involved as well. It is important to understand the risks and government regulations before selling overseas. According to International Monetary Fund (2007), export credit scheme aids export financing and boosts a country’s Balance of Payment. It notes that if done right, it can be profitable and can sometimes bring a business more profit than selling within the country. Export financing, notes Soludo (2009) is loan meant for shipping of products outside a country or region. If you have a product that is good, appealing to another country, and has great potential to sell, you could also consider a venture capitalist to help bring your business where it needs be. “CBN greatly encourages venture capital as export finance. There are also some creative methods of export financing. One of such methods is utilizing a factoring house overseas. Basically the factoring house will purchase the exported products at a discount below invoice value. The factor sells the products at a higher margin. This ensures that the exporter receives his money upfront, which reduces the risk greatly” (McJones, 2010).
According to International Development Agency (2010), funds are provided to developing countries to help them purchase United States goods and services. Mc Jones (2010) observes that IDA services are no longer highly operational in Nigeria, but there are Export Assistance Centers, EAC, that offer technical assistance to exporters of which the Nigerian Version is Export Processing Zone (EPZ). This research work looks at the impact of bank credit on export trade in Nigeria.
1.2 Statement of problem
Export financing through bank credit is the prime mover of the economy of industrialized nations. Goods are produced for consumption both locally and internationally. Export financing is, therefore, a key factor in any successful international trade. Exporters naturally would want to get paid as quickly as possible, while importers usually prefer to delay payment until they have received or sold the goods. Because of the intense competition for export markets, being able to offer attractive payment terms customary in trade is often necessary to make a sale. In many cases, bank credit in export financing for small and medium scale business are not easily accessed by exporters themselves. It is either that the conditions given to exporters are too high for them from various finance sources or they are not willing to take risk associated with the finance sources. Therefore, the unavailability or the lack of commercial bank credit to exporters poses a great threat to the growth of non oil export in Nigeria which this work tends to solve.
1.3 Research Questions
i. What is the impact of Commercial bank credit on Non-oil export trade in Nigeria?
ii. To what extent does exchange rate have effect on Non-oil export trade in Nigeria?
iii. What impact does interest rate have on Non-oil export trade in Nigeria?
1.4 Objectives of the study
The main objective of this research is to investigate the relationship impact of commercial bank credit on non-oil export trade in Nigeria. To achieve this, the following specific objectives were formulated as follows:
(i) To examine the impact of commercial bank credit on non-oil export trade in Nigeria
(ii) To what extent does Interest rate have effect on Non-oil export in Nigeria
(iii)To examine the impact of exchange rate on non oil export trade in Nigeria.
1.5 Hypothesis of the study
Based on the objectives of the study, the following research hypothesis are formulated:
H0: Bank credit has no significant impact on export trade in Nigeria.
H1: Bank Credit has significant impact on export in Nigeria.
H0: Interest rate has no significant impact on export in Nigeria.
H1: Interest rate has significant impact on export in Nigeria.
H0: Exchange rate has no significant impact on Nigeria’s export trade
H1: Exchange rate has significant impact on Nigeria’s export trade
1.6 Significance of the study
The study is significant in a number of ways as follows:
1. To policy makers and regulators of the export financing, it will present a scheme, through its analysis that could assist them in enunciating policies and reforms that will positively impact on the performance in the light of globalization.
2. To economic watchers and the interested public, it will provide some insight into the performance of export business.
3. To investors in general, it will expose the relationship existing between relevant variable used in the study.
4. To students, the research will assist those who wish to take a career in economics banking and finance to advance their understanding of the concept and mechanism of export financing and it’s inter-relationship with the financial markets of nations of the world.
5. Finally, the research work will serve as a reference material for future researchers on similar topic by providing them with some index of and the Nigerian sources of business finance, export finance.
1.7 Scope and Limitations of the study
The scope of this study covers the Nigerian economy and will only review the impact of Bank Credit on Nigerian export trade. This study covers the quarterly data for the period of 1992-2015.
1.8 Definition of Terms
BANK CREDIT: Bank credit is aggregate amount of credit available to a person or business from a banking institution. It is also the total amount of funds financial institutions provide to an individual or business.
EXPORT TRADE: Export Trade is a function of international trade whereby goods produced in a country are shipped to another country for future sale or trade. This is also the exchange of capital, goods and services across international borders or territories or among nations of the world.
EXCHANGE RATE: This is the rate at which one currency trades against another on the foreign exchange market. Currencies are being continuously traded on the foreign exchange markets, with the prices constantly changing as dealers adjust to changes in supply and demand.
INTEREST RATE: According to Fuller (1990), Interest rate is the factor reward or earning of capital. Fuller opined that this source of finance will only be available if other people are willing to forgo current consumption and provide a pool of financial resources from which loans can be advanced.
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