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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

In an era when advancements in travel and communication technology have reduced the whole world to what may at best be described as a global village and the barriers that had hither to separated one country from the other appear to have been reduced to the bearest minimum, economic relationships can be established with little or no difficulty amongst nations. Consequently, there is a continuos flow of resources across boarders. The continuity which characterizes the flow of resources makes reckoning imperative balance of payment statement is the means through which the reckoning is performed ad it is a summary of a country’s international transaction. The major components of that activity are the trade balance (Merchandise exports minus merchandise imports), the current account balance (trade, services and transfer) and the capital accounts balance. The net total of these balances must equal zero, since the quantity of naira paid must equal the quantity received. It can also be deduced that the number of possible “balances” in the balance of payment is equal to the number of possible groupings of accounts in that statement. Balance computed on the basis of certain accounts in the balance of payments provide an indication of how given economic sectors contribute to the economic position of the country in international market. For instance, an analysis of a surplus in the merchandise trade account can show the contribution that net export of goods from that country make to the country’s acquisition of external purchasing power. However, the most common reason for computing “a balance” in the balance of payment is to understand the net market pressures that affect the international value and availability of the currency between (1995 – 1999).

Finally, the balance of payment figures report the amount of international flows on a historical basis, after the fact. Thus, when we include the reserves accounts, the supply of exchange equals the demand for exchange, just as “debits equal credit" if we want to use the balance of payment as a tool to measure the pressures in the exchange market; we must look to the future. It is only this sense that we can see imbalance between supply and demand for foreign exchange developing at the going exchange rates. Governments may choose to provide the funds needed to establish balance at the going exchange rate or alternatively, they may let the exchange rate fluctuate to bring the forces of supply and demand into balance. International monetary agreements adjusting imbalances in international flow.

The background of this study is to analyze the recent trends in Nigeria balance of payment with a view to determining whether the country was able to pay her way internationally within periods of 1995 – 1999 and to determine whether the monetary and exchange rate policies pursued were effective. To carryout this study work the main data will be carried out through primary data source, interviewing with Central bank of Nigeria (CBN) and top ranking officials while the secondary data will be collected from an extensive research in CBN as well as other libraries, books, journals and other publications. Further deductive logic will be used to arrive at certain conclusion.

1.2  STATEMENT OF PROBLEM

Considering the importance of balance of payments, statement as a source of information for the managers of the Nigerian economy and indeed other interested users of the balance of payment statement, these is a compelling need to constantly analyze the statement with the view of determining:

1. Whether the nation is paying her wages internationally in other words, is the nation paying for goods, drawing down her foreign reserves accumulating foreign liabilities or through the receipt of gifts and donations.

2. Is the country borrowing or lending money to the international community?

3. How effective are the various policy initiatives I checking international payments imbalances?

1.3 OBJECTIVES OF STUDY

1. With due reference to the questions raised on the proceeding section, this researchers intends to collect, collate and analyze data on Nigerian balance of payment position for the period covering 1995 – 1999 all inclusive.

2. It is also the intention of this researcher to critically examine the statement with a view to determining what recent developments have taken place in Nigerians foreign trade and other transactions with the rest of the world.

3. In particular, this researcher will try to ascertain whether Nigeria has been paying her wages internationally.

Not only that, the question as to whether the various policy packages have been effective or not will be thoroughly investigated.

1.4 RESEARCH QUESTIONS

1. What was the general trend on the balance of payment of Nigeria within the period under study?

2. Were export receipts sufficient to pay for imports and settlement of international obligations within the period?

3. What policy measures were adopted to address balance of payment problems within the period under study and how effective were they?

4. Did exchange rate depreciation through the operations of the foreign exchange market stimulate exports?

5. Did exchange rate depreciation discourage import?

6. Did Nigeria borrow from or lend to the international community within the period under study.

7. Did de-regulation in the economy encourage inflow or outflow of capital?

8. How effective was monetary policy in addressing international payment imbalances within the period under study.

9. Exchange control/import licensing vs. the foreign exchange market as mechanism for foreign exchange allocation, which is a better option for Nigeria?

1.5     RESEARCH HYPOTHESIS

In evaluating this research work, we postulate the following hypothesis in determining the analysis of development in Nigerian balance of payment 1995 – 1999.

Ho: The country in question was not able to pay her wages internationally within periods of 1995 – 1999

Hi: The country was able to pay her wages internationally within the periods of 1995 – 1999.

Ho: The monetary and exchange rate policies pursued were not effective.

Hi: The monetary and exchange rate policies pursued were effective.

1.6    SIGNIFICANCE OF THE STUDY

This research work is significant in that it set out to analyze the recent developments in the balance of payments of Nigeria. This work is extremely important in view of the severe economic problems, which this nation has had to grapple with as a result of adverse balance of payments, coupled within effective policies. The study if fully digested will provide an invaluable information and guide to various groups in difference ways. To the mangers of the economy, a due as to the efficiency or otherwise of the monetary and exchange rate policies in addressing Nigerian balance of payment problems. To the foreign investors, it will provide an insight into the viability of the Nigerian economy. It will provide the citizens of this country a better understanding of how the economy is managed and expectations they should have from the government. In particular, the study will provide the authorities a good insight into the effectiveness of the policies of the past administration which will serve as a guide for future policy initiatives.

1.7 SCOPE AND LIMITATION OF THE STUDY

This study was designed to analyze the recent developments in Nigeria balance of payment from 1995 – 1999.

a. For a study of this nature to be useful to many parties at the same time, there is the need for adequate statistics to measure for instance:

i. The influence of foreign trade and transaction on the national income of the country.

ii. To determine the effect of changes in tax and tariff on foreign trade etc.

In Nigeria, the scarcity of accurate national statistics is a common knowledge. Even when they are available, the quantity, quality and turning of the supply is a major problem. This researcher did not have access to adequate statistics for the type of analysis enunciated above and consequently did not attempt to measure the indexes refereed to above.

b. Another problem encountered while conducting this research was that of differentiating the impact of one-policy measures from that of others. For instance, within the period under study, others policy measures such as income policy, trade as well as fiscal policies were at one time or another targeted at the balance of payments.

The result is that even the most rigorous analytical technique cannot sufficiently disentangle the maze of inter relationships and assign success or failure to each policy measure with a time-space dimension. What this researcher did was to adopt in a global sense a lump sum approach in evaluating the effectiveness of various policy measures on the balance of payments.

c. Another important limitation was the scarcity of books and related literature on the subject matter written with the Nigerian background. As a result of this limitation due reliance was placed on official publications and foreign.

d. A fourth and perhaps the most limiting problem encountered was the un-co-operative attitude of some academic staff of some universities and government officials who were consulted for advice.

In some cases, some of the officials and lecturers displayed amazing ignorance over the subject matter. In other cases, they were not just willing to co-operate and for these reasons, official publications were extensively used.

1.8   DEFINITION OF TERMS

BALANCE OF PAYMENT: A systematic record of economic transaction for a given period between residents of an economy and non-residents. These transactions include the provision and receipts of real resources – goods services and income and changes in claim on and liabilities tot he rest of the world.

MONETARY POLICY: The management of the expansion and contraction of the volume of money in circulation for the specific purpose of achieving certain declared national objectives.

EXCHANGE RATE POLICY: Exchange rate policy involves choosing a foreign exchange management system and determining the particular rate which foreign exchange transactions will take place.

EFFECTIVENESS: It is defined as the attainment of pre-determined goals.