This work is intended to critically examine the effect of the
current exchange rate policy on the manufacturing sector. Anammco Manufacturing
Company was used as the case study. The exchange rate regime is a very
crucial monetary tool for shaping the thrust and direction of a national’s
economy. In 1995 a dual exchange rate policy was introduced and this policy was
still maintained in 1996-2003.
Review of related literature highlighted the evolution of exchange rate and the
various mechanisms and institutions that have come to be referred to as part of
the international monetary system (IMS). It also pointed to the fact that
various exchange control measure had been used before the SAP. And how the
current exchange rate policy have affected the manufacturing sector.
The research method adopted was the survey method and the sample company was
Anammco, Manufacturing Company.
Questionnaire was used to collect data while percentages were calculated for
the responses given to the questionnaire. The study found out that the current
exchange rate policy was an important factor in increasing the unit cost of
production. It also discovered that it encouraged local sourcing of
hitherto imported inputs and findings alternative inputs locally and that low
capacity utilisation during this period of the current exchange rate was caused
by the inadequacy of supply of forex to the manufacturing sector.
Finally, it recommended that government should correct the perceived
deficiencies of the programme, adequate incentives should be provided to the
local manufacturing firms that are engaged in the production of import- substitutes
of industrial inputs. It also recommended that banks and other financial
institutions should be encouraged to give more financial assistance to the
manufacturing sector, and the publics, and private sector should step up
financial allocation to research and development activities.
TABLE OF CONTENTS
1.1 GENERAL BACKGROUND TO THE SUBJECT
1.2 PROBLEMS ASSOCIATED WITH THE
1.3 PROBLEMS THAT THE STUDY WILL BE CONCERNED
1.4 THE IMPORTANCE OF STUDYING THE
1.5 DEFINITION OF IMPORTANT
1.6 (CHAPTER) REFERENCE (USING APA
2.1 THE ORIGIN OF THOUGHT WITHIN THE
2.2 SCHOOL OF THOUGHT RELEVANT TO THE PROBLEM OF
2.3 DIFFERENT METHODS OF STUDYING THE PROBLEM
3.1 DATA PRESENTATION (HIGHLIGHTS OF THE STUDY)
3.2 ANALYSIS OF THE
GENERAL BACKGROUND TO THE SUBJECT MATTER:
Exchange rate is the price of domestic currency in terms of foreign currency.
There exist various forms of exchange rate; i.e those determined by the market
forces of demand and supply.
No matter the type of exchange rate adopted by a country, it has an effect on
the manufacturing sector of that particular country and in this research an
attempt is made to examine the current exchange rate policies adopted by the
Nigeria government and its effect on the manufacturing sector, this
effects may be positive or Negative.
Since independence, the Nigerian government has been engaged in activities to
boast the performance of its manufacturing sector because the manufacturing
sector it inherited from the colonialist government of great Britain was
virtually non existent. This was because the colonialist encouraged product of
primary products such as cocoa, rubber, groundnut, palm kernel and other cash
crops for export to their mother country and for use as imports in their
industries instead of using them in Nigeria’s industries and the finished
products are exported back to Nigeria for sale to thee citizens.
Foreign exchange is an important aspect of the development of the manufacturing
sector. This is because foreign exchange is needed to source for import
from abroad, such import take the source for import from abroad, such imports
take the from of capital goods (like heavy machinery and equipment) and raw
materials that are needed in order for production of manufactured goods to
commence with this in mind the government introduced sectorial location whereby
foreign exchange would be accessible to different sectors of the economy
especially the manufacturing at rate at which the cost of production would not
be too high as to push prices of finished goods above the reach of average
citizens. The manufacturers were encouraged to produce goods above the reach of
average citizens. The manufactures were encouraged to produce goods especially
those that could be exported in order for them to source their own foreign
The government adopted foreign exchange policies, this project looks into them
and see how they have affected the manufacturing sector taking particular
reference to Anammco manufacturing company. By the 1970’s Nigeria became an oil
rich country with etro-dollar flowing into the coffers of the nation, this led
to a neglect of the agricultural sector and manufacturing sector and Nigeria a
former net exporter of food became a net exporter of food and essential
commodities. This led to an over dependent oil export for our foreign exchange
earning and therefore subsequent fluctuations in the price of oil in the early
1980’s and then a fall in oil price from N40 per barrel to about N22 led to a
fall in our earning of foreign exchanged and this affected our economy. In the
face of a dividing in the foreign exchange reserve of our country, the nation
was faced with a balance of payment deficit as we were importing more goods
than exporting the government had to change its exchange rate policy as
well as source for foreign exchange from exchange from other sectors like the
manufacturing sector and agricultural sector, therefore this sector were
encouraged and given incentives. The economic stabilization measure of
stringent foreign exchange control was therefore introduced in April 1982 with
various modifications. In 1984 when this measure failed to revamp the
economy, the structural adjustment programme was introduced in September 1986
and its philosophy was the introduction of a floated exchange rate that would
determined by the market forces of demand and supply.
During this period of scarcity of foreign exchange the manufactures could not
import the raw materials needed, most of their industrial machines were in need
of spare parts and those that a number of industries folding up and declaring
bankrupt but Anammco manufacturing company was able to source it foreign
exchange, it led to prices of their finished products being too expensive.
As a result of the situation in which Nigeria found herself, Nigerians were
forced to look inward and this increased the actuality of the manufacturing
sector and led it to be a high priority sector in terms of credit allocation
under SAP and also the manufacturers were encouraged to source their raw
material locally. Also the government advocated for import substitutes to
the imported ones.
In 1995, a dual exchange rate policy was introduced and which was also retained
in 1996 and 1997, in this policy the autonomous foreign exchange market
(AFEM) was established. In this year’s budget, the government promised that
they would maintain he current dual exchange rate policy with the ultimate aim
of a subsequent major.
1.2 PROBLEMS ASSOCIATED WITH THE SUBJECT MATTER:
The first division of problems is in relation to the current
exchange rate policy, these include the volatility of exchange rate, inadequate
foreign exchange supply, high demand for foreign exchange, operations of the
parallel market as an unsanctioned barometer of market forces, government
intervention in the foreign exchange market through the country’s monetary
authority and there solution of banks to be successful at every bidding
session. A fact that the more volatile an exchange rate is the higher the
cost of risk and speculations which will in a way affect production.
The Nigerians has been subjected to two major exchange rate
policies (ie. The fixed and floated exchange rates) by the government and this
study will examine the effect of the current exchange rate policy (ie. The dual
exchange rate) on the manufacturing sector either positive effect or negative
effect, whether an increase in production or a decrease in production has been
The current exchange rate policy has affected Anammco
manufacturing company in the following ways:
1. The cost of production through the influence of
the price of C.K.D completely knocked down parts).
2. The capacity utilization of the company since
production is limited to available raw materials.
3. The unit price (marginal cost) of the products
due to the constant fluctuation in value of foreign currency Vis-à-vis the
4. The efficiency of production since there is no
assurance that production can always take place.
In this regard this study seeks to examined the current exchange
rates been used in Nigeria and to find out which exchange rate will be best
suited for the country’s economy so as to enhance an increase in production of
the manufacturing section.
1.3 PROBLEMS THAT THE STUDY WILL BE CONCERNED WITH:
In view of the problems stated above the major objective of this
study is to examine the performance of the manufacturing sector under to
current exchange rate policy with special emphasis on Anammco manufacturing
ALSO THE OBJECTIVE OF THIS STUDY INCLUDES:
i. Look into how these exchange rate policies have
influenced the sourcing of imports ie. Either reduction or increase in level of
raw material acquisition.
ii. Look into these exchange rate policy have
influenced the manufacturing sector either positively or negatively. This is in
terms of investment, profit etc.
iii. To examine how the current exchange rate have
affected sectorial allocation of foreign exchange to the manufacturing sector.
iv. To review the performance of the manufacturing
sector under the current exchange rate policy with regard to G.DP.
1.4 THE IMPORTANCE OF STUDYING THE AREA:
This research is carried out with aim of knowing the effect of the
current exchange rate with the aim of knowing the effect of the current
exchange rate policy on the manufacturing sector, this project will also look
into the motive of their establishments, their conduct, structure, problems,
performance and prospects of the sector.
The significance of this research is that it helps to know whether exchange
rate and the level of population in any way affects the production and sales
level of the sector. It will further expose us to the roots of their
ineffectiveness and also prove the causes.
DEFINITION OF IMPORTANT TERMS:
This research work is basically on the effect exchange rate policy
on the manufacturing sector. The study is primarily concerned with the effect
of the current exchange rate policy on ANAMCO MANUFACTURING COMPANY Enugu.
The underlisted terms are used to expanciate the company.
EFFET - The change, or cause; result or the outcome of
current exchange rate policy on the manufacturing sector.
CURRENT EXCHANGE: The present relation in value between the money
in different countries.
POLICY- A plan of action proposed or adopted by a government
concerning exchange rate which affect the manufacturing sector.
RAW MATERIAL ACQUISITION – Acquiring of raw material 9input) is
affected by current exchange rate policy.
INEFFECTIVENESS – This is used to qualify the company that is not
producing the required result.
VOLATILITY – The exchange rate situation is likely to change
suddenly which means that it is not stable.
TERMS AND CONDITIONS APPLY
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