Globalisation of Finance: Analysis of the Impact of Exchange Rate Deregulation on Small and Medium Sized Enterprises Development in Nigeria Dr Lawrence Ogechukwu OBOKOH (ACA) Department of Management and Accounting Obafemi Awolowo University, Ile-Ife, Nigeria Email: [email protected] Prof Chris EHIOBUCHE Professor of International Business Berkeley College Garret Mountain Campus 44 Rifle Camp Road. West Paterson, NJ 07424 Email: [email protected] Keywords: Capita Account; Liberalisation; Economic growth; SMEs; Nigeria 1. Introduction This paper examines the impact of exchange rate deregulation on the performance and development of manufacturing small and medium sized enterprises (SMEs) following the liberalisation of trade and financial market that led to the deregulation of the foreign exchange market in Nigeria. The study also set out to ascertain if the policy has any link with the failures or otherwise of manufacturing SMEs in Nigeria due their high sensitivity to exchange rate shock (Van Wijnbergen, 1986; Briggs, 2007). The deregulation policy is one among the many different economic policies implemented by the Nigerian government after independence in 1960 aimed at developing the country and making it economically and politically self-sufficient (Agboli and Ukaegbu, 2006). Notable among these policies are the Import Substitution Industrialisation (ISI) strategy and the Structural Adjustment Programme (SAP), which were also implemented in the 1980s in other countries of Sub-Saharan Africa (SSA) (Adenikinju and Chete, 2002; Mesike, Giroh and Owie, 2008). Broadly, trade and financial market reforms commenced against the backdrop of neo-liberal policy discourse and practices across Africa during the 1980s. Among other outcomes, the policy attempted to excise government from controlling the economy in favour of market forces (Prasad, Rogoff, Wei and Kose, 2003; Zhang, 2006). In the specific instance of the policy, the expectation was that the deregulation of the foreign exchange market will facilitate capital account convertibility and ease the flow of foreign capital into and out of the country (Schneider, 2000). This ultimately, will encourage the mobilisation of investible funds from home and abroad towards vibrant economic opportunities, including towards SMEs. This as argued by proponents of liberalisation is only achievable by the government ceding control of the financial sector-exchange rates to the dictates of market forces (Noorbakhsh and Paloni, 2001; Henry, 2003). The purpose of the deregulation of the foreign exchange market was to depreciate the „over valued‟ Naira to its appropriate value and make the exchange rate of the Naira determined by market forces (Ikhide and Yinusa, 1998). It was also envisaged that this would provide the needed opportunity for SMEs development through the utilisation of local raw materials and intermediate inputs for production. This is because manufacturers (SMEs inclusive) will be discouraged from sourcing raw materials from abroad with the weakened Naira which will make

imports more expensive and less attractive to Nigerians. The action will encourage local production and consumption of Nigerian made products, thereby stimulating cheaper made in Nigeria exports due to the devalued Naira and at the same time improve Nigeria‟s balance of trade (Dawson, 1994; Ajibefun and Daramola, 2003). However, how well the deregulation policy have served and/or undermined SMEs development in Nigeria and elsewhere is still heavily contested because of the mixed results of different empirical studies on the policy; some reported improvement in balance of trade resulting from the development of the domestic manufacturing sector including SME; while others report the contrary (Morley, 1992; Hafeez, 1993; Akinlo, 1996; Olukoshi, 1996; Odusola and Akinlo, 2001; Till, 2006; Duncan, 2008; Obokoh, 2008a). This is in view of the dwindling performance of manufacturing businesses in Nigeria especially SMEs due to the inflationary effects of the policy (Akinlo, 1996; Olukoshi, 1996; Akinlo and Odusola, 2003). The common features of the Nigerian economy after the relaxation of the exchange rate and trade controls are; capital flight, high inflation rates, continuous depreciation of the Naira, excessive high and some distress in businesses (Akinlo, 1996; Ikhide & Alawode, 2001; Akinlo and Odusola, 2003). As a result, most SMEs are struggling to survive due to excessive operational cost. This situation then suggests that the benefits of deregulation where the domestic market is still underdeveloped may have been overstated by proponents of trade and financial market liberalisation who believe that it is the only means to attract economic growth from abroad (Bartolini and Drazen, 1997; Aoki, Benigno and Kiyotaki, 2010). The liberal economic policy reform has been a highly contentious issue in recent times with still no consensus to it consequences because of the difficulties in establishing causality between economic growth and liberalisation in each country that implemented the policy (Winters, 2004; Hübler, Menkhoff and Suwanaporn, 2008). This is in view of the recent global financial crisis and the call for more regulation of the financial system by some world leaders and financial analysts (Emeseh, et al, 2010) In view of the fact that the outcomes of exchange rate deregulation are peculiar to a country‟s economic circumstance before implementation, necessitates a re-visit and the need to take a more critical look at how exchange rate deregulation is affecting manufacturing SMEs development and performance. A further reason why the impact of exchange rate deregulation on SMEs is of research interest is that it impinges, quite significantly, on SMEs „grassroots‟ participation in the informal manufacturing sector- a space where in many African countries, including Nigeria, past and present public policies have not been clearly and sufficiently articulated. In the light of these backgrounds, therefore, how might we understand the diverse implications of exchange deregulation in relation to trade liberation policy in Nigeria, and elsewhere across Africa? How has deregulated exchange rate affected, for good or bad, SMEs and the informal sector performance generally? If indeed exchange rate in relation to the liberalized trade policy portends adverse effects for SMEs, as witnessed, for instance, in their poor performances and high mortality rates, how is this affecting socio-economic accumulation from below? How is this, in turn, responsible for some of the challenges facing the manufacturing sector, especially in terms of exports of domestic manufactures? What are the alternative futures for the 2

manufacturing sector especially SMEs in the context of its inability to maximise whatever benefits are derivable from the policy? What new and innovative policy shifts are needed to reenergise SMEs and the informal sector, and by extension, the economic viability of the manufacturing sector in Nigeria? This study applied return on investment (ROI) on the micro level data of manufacturing SMEs and statistical analysis on macro level data from the Central Bank of Nigeria (CBN) to explore the impact of exchange rate deregulation on SMEs in order to provide answers to the above questions and also demonstrate that the policy to a large extent is responsible for and why SMEs in Nigeria still struggle to survive and their inability to fully exploit the gains of international market. The study covers the period 1980 to 2009 and focuses on manufacturing SMEs in Lagos State. The remaining part of the study is organised into five sections commencing with the exploratory literature review and theoretical framework, the second section provides a brief background of economic reforms in Nigeria. The third section gives the methodology of data collection of the study. The results and discussions are provided in fourth section while the concluding remarks and recommendation of the policy are contained in the last section. 2. Exploratory Literature Review and Theoretical Framework Devaluation is a decline in the value of a country‟s currency in relation to other major international currencies, usually brought about by the actions of monetary authority (Duncan, 2008). Devaluation describes any significant drop in a currency's international exchange rate, while the decline caused by the effects of market forces without the monetary authority/government intervention is termed depreciation (Reinhart, 1995). The economic logic behind the use of exchange rate devaluation as a means of improving trade balance is that a decline in the value of the nation‟s currency would make exportables to be cheaper relative to other countries exports; it was also envisaged that it would help increase the volume of Nigeria‟s exports. On the other hand, the devalued currency would make imported goods more expensive thereby decreasing imports into Nigeria which would then help in correcting the trade imbalance with other countries (Akinlo, 1996; Duncan, 2008). It has been argued that the demand for a country‟s products in the international market depends on its price and the nature of the demand. The common view is that devaluation of the currency help tradables to attract additional demand in the world market because they appear cheaper compared to similar or substitute products (Hafeez, 1993; Reinhart, 1995). In recent times, a lot of theoretical thought has been given to the idea that devaluation improves the level of investment, improves output levels, improves exports and decreases imports in the devaluing country (Pham and Nguyen, 1999; Nguyen and Seiichi, 2007). At the same time others report the opposite in the sense that devaluation is contractionary in nature, it worsens the terms of trade and serves as the means through which resources are transferred from the Southdeveloping countries to the North-developed countries (Van Wijnbergen, 1986; Lizondo and Monteil, 1989; Ould-Mey, 2003). Nguyen and Seiichi (2007) report that the reform process in Vietnam saw the official exchange rate considerably devalued and the unification of official and market exchange rates in 1989 met 3

with a lot of success in improving the economy and terms of trade. The study revealed that the main source of variance in output and price levels are “own shocks” while innovations in the real exchange rate accounted for a higher proportion of the variation in output than the price level. They argued that the real devaluation of the currency had a positive impact on both output and inflation, because the devaluation shock affected inflation and growth in output by raising the money supply and improving the trade balance. However, the real exchange rate devaluation did not have significant effect on output in the long run. Other studies conducted in Vietnam on the impact of the exchange rate on economic activities, limited their research to the possible impact of devaluation on the trade balance by simply checking the Marshall-Lerner condition1 (Le and Tran, 1995; Pham and Nguyen, 1999). Vo, et al., (2000) used a simple single equation to examine the impact of real devaluation on output. They found that the devaluation of the real exchange rate increases output in both the short and long run. Nguyen and Kalirajan (2006) employed vector auto-regression approach to investigate the impact of the nominal effect of the exchange rate on inflation in Vietnam and found that the impact of nominal devaluation on inflation was positive but insignificant. However, Thirlwall and Gibson (1992) believed that whatever framework that was used in the analysis of the effect of trade liberalization on the trade balance and current account of the balance of payments is theoretically ambiguous. The effect of trade liberalization in the partial equilibrium framework of the elasticity approach depends on the extent to which import and export duties change and on the price elasticities of imports and exports. When measured using foreign currency, export earnings will increase if the price elasticity of demand is greater than unity, while the import payments will increase if the price elasticity is greater than zero. The aspects of trade liberalization that do not involve price changes are not easily handled within the elasticities framework. This implies that devaluation is likely to be ineffective in achieving its main goals of reducing trade imbalances and stimulating export growth, because of the absence of linear relationship between trade and its determinants (Reinhart, 1995). McKinnon (1963) argues that the devaluation of a country‟s currency increases price of tradables (both exportable and importable) given the high ratio of tradable to non-tradables. The domestic price-level would increase when there is a high ratio of tradables to non-tradables in an economy. He went further to state that in an open economy like Nigeria, a flexible exchange rate is a less effective instrument to improve trade balance and the only way trade balance can improve, is by the government lowering domestic expenditure. Caballero, Calegar and Cappi (2000) assert that the fear of inflationary process of devaluation often deters monetary authorities from devaluing their country‟s currency in the face of creeping domestic inflation, notwithstanding the assumed positive effect on trade balance. Nigeria witnessed a decline in output levels due to the rise in the

1

This condition says that, for a currency devaluation to have a positive impact in trade balance, the sum of price elasticity of exports and imports (in absolute value) must be greater than 1. The principle was named after the renowned economists Alfred Marshall and Abba Lerner.

4

cost of production and general rise in prices after the liberalization of the foreign exchange market (Dawson, 1994; Akinlo and Odusola, 2003). Tille (2006) believes that the impact of exchange rate shifts is highly heterogeneous across sectors. While depreciation leads to a substantial competitiveness and welfare gain for agents with a high exposure to foreign competition, but agents with only domestic exposure or competition are adversely affected. He drew from the Mundell-Fleming model of „beggar-thyneighbour‟ effect, which suggests that a country can only benefit from the depreciation of its currency through competitive gain at the expense of its neighbours. Obstfeld and Rogoff (1995) observed that the movements in competitiveness stemming from exchange rate fluctuations do not necessarily imply that one country gains at the expense of another country‟s loss. But Corsetti and Pesenti (2000) and Tille (2001), while focusing on the substitutability between home and foreign goods, demonstrated that a country that depreciates its currency can experience an adverse effect through the worsening of its terms-of-trade when domestically produced goods are poor substitutes for imported goods. This situation clearly depicts the situation in Nigeria that is import dependent on almost everything including production equipment and raw materials for the manufacturing sector (Akinlo and Odusola, 2003; Awokuse, 2008). Akinlo and Odusola (2003) argued that contrary to the traditional views, a positive exchange-rate shock generates decline in aggregate real activity and increased price level at the same time contractionary. They stated that a positive exchange rate shock through its increasing effect on prices will generate negative real balance effects and that this would lower aggregate demand and output under certain circumstances. Furthermore, the redistribution of income from a group with a low marginal propensity to save, to another group with a high marginal propensity to save, can be generated by positive exchange-rate shocks, which can result in a decline in aggregate demand and output. In addition, positive exchange-rate shock may worsen trade balance expressed in domestic currency of a country if the price elasticity of imports and exports are low and can lead to recession. It has been suggested that devaluation results in stagflationary outcomes that would exert contractionary effects on demand if there were large deficits over time in less developed countries (LDCs). It will be disastrous to assume that the presence of imported inputs necessarily undermine the effectiveness of devaluation because much depends on the nature of the technology available to the country. For separable production functions, where labour and imported inputs are gross substitutes, the orthodox view that devaluation will be expansionary and improve the payments balance remains valid. However, for non separable production functions, where labour and capital are not close substitutes contractionary and perverse outcomes are possible and consistent with instability for plausible sets of parameters (Buffie, 1986). Akinlo and Odusola (2003) demonstrated the relevance of van Wijnbergen (1986) assertion to Nigeria‟s situation and other less developed countries (LDCs), in view of the high dependence of the economy on imported inputs. They found that a very high percentage of all the raw materials and components that local industry used in Nigeria in 1984 were imported. The positive exchange-rate shock only precipitated increases in the cost of raw materials and imported capital 5

goods that resulted in high production costs. This subsequently led to high prices of locally produced goods and services. The effect of this was a fall in demand for locally manufactured goods and the eventual decline in output. Apart from this consideration, certain peculiar characteristics of Nigeria caused positive exchange-rate shock to be contractionary. For instance in Nigeria, the consumption pattern is import oriented and the extravagant lifestyles are more than commensurate with the productivity level. Under these circumstances, the real effect of the positive exchange-rate shock exerts upward pressure on the domestic price level, as the import demand tends to remain insensitive to exchange-rate depreciation in Nigeria and other LDCs with similar consumption pattern (Akinlo, 1996). The persistent decline in the foreign exchange rate of the Naira generated concern over creeping inflation and continuous fall in output level since the introduction of SAP in 1986 (Akinlo and Odusola, 2003). This is consistent with the decline in output level and increase in inflation in Mexico following the real devaluation of the domestic currency (Kamin and Roger, 2000). In recent times, the economy of some East Asian countries witnessed low economic activity following the collapse of their currency due to devaluation by monetary authorities. Zaidi (1995) also found that devaluation pushed up inflation, which was already high in Pakistan, without necessarily improving the balance of trade. He concluded that the real obstacle to higher exports is not the exchange rate, but the chaotic economic and political situation in the country. In another stimulating study, Odusola and Akinlo (2001) argued that the collapse of the exchange rate can result in inflation in two ways. This can be through higher import prices or increase in inflationary expectations that are often accommodated through accelerated wage indexation mechanism. They adopted a vector auto-regression (VAR) analysis with six-variables (official exchange rate, parallel exchange rate, prices, income, money supply, and interest rate) to investigate the impact of exchange rate depreciation on output level in Nigeria. The study reveals a contractionary impact of depreciation on output level in the short-term. Thereafter, the depreciation of the exchange rate generated expansionary impact on the output levels both in the medium and long-term period. The result of the analysis also indicated that the positive shocks of official exchange rate were followed by significant increases in general price level. The results suggest that the adoption of a flexible exchange rate system by a country does not necessarily expand output, especially in the short term. For output to be negatively related to the depreciation of the exchange rate, they proposed fiscal discipline, confidence and credibility on the part of the government to pursue a reform programme. This is because the Nigerian government has been noted for its inability to carry through economic policy programmes to a conclusive end (Ikpeze, et al., 2004). Furthermore, a nation‟s competitive advantage in the international environment ought to be considered before applying devaluation as an export encouraging instrument (Porter, 1990). In the case of Nigeria, it seems that both the IMF/World Bank and the Nigerian government did not take into consideration the state of the industrial sector and its high dependence on imported raw materials for production before the adoption of the devaluation policy (Akinlo and Odusola, 2003). Apart from the state of industrial condition, the price of the major export (petroleum) of Nigeria is determined in the international market without any input from the Nigerian government. The next section gives the background to economic reforms in Nigeria which was also implemented in some SSA countries. 6

3. Backgrounds to Economic Reforms in Nigeria Prior to the decades of economic reforms in Nigeria and other SSA countries, the region adopted the ISI strategy with the hope of graduating from import-substitution industrialisation strategy to export-led industrialisation economies (Agboli and Ukaegbu, 2006). The ISI policy pathway was informed by the works of Prebisch (1950) and Singer (1950), known as the Prebisch-Singer thesis. The results of the study greatly influenced developing countries including Nigeria that were involved in the production of primary products to diversify their economies and lessen their dependence on primary commodity exports through the development of the manufacturing sector. The study stated that the terms of trade2 between primary products and manufactured goods tend to deteriorate over time. A common explanation for the phenomenon from the thesis is that the income elasticity of demand for manufactured goods is greater than that for primary products – especially food. It is believed that as income rises, the demand for manufactured goods also increases and more rapidly than the demand for primary products. Prebisch (1950) argues that the South-developing countries typically export primary products and the Northdeveloped countries export industrial products, which put them ahead in terms of trade and economic development that has resulted in uneven development in both regions. The Singer-Prebisch thesis enjoyed a high degree of popularity in the 1960s and 1970s with neoMarxist developmental Economists and provided the justification for Import Substitution Industrialisation (ISI) policies as a tool for economic development. The ISI policy worked relatively well in SSA, with the manufacturing sector contribution to GDP increasing from 2 to 7 percent in 1957 and 1967 respectively (Utomi, 1998). The modest growth rate continued in SSA until the later part of the 1970s and early 1980s, with Nigeria and most of the SSA countries experiencing investment boom due to the availability of economic resources at that time, coupled with favourable terms of trade for primary products (Akyüz and Gore, 2001; Nwankwo and Richards, 2004). Unfortunately, early in the 1980s, the economies of SSA countries, including Nigeria, started to experience persistent economic decline and stagnation due to the glut in the international primary product market. As result, some economic analysts then believed that the ISI policy achieved very minimal success due to the inability of the manufacturing sector to needed domestic requirements of manufactured products during the economic downturn of the 1980s. The policy was also regarded as anti-competition because of its element of protectionism (Adenikinju and Chete, 2002; Odusola, 2004; Obokoh, 2009). It was also argued that the ISI policy was plagued with problems ranging from policy inconsistencies and lack of commitment on the part of the government and its agencies, to initiate and conclusively implement economic programmes (Ikpeze, et al, 2004; Agboli and Ukaegbu, 2006; Ayadi, Adegbite and Ayadi, 2008). The lack of commitment and inconsistencies were linked to the inability of the government to prudently and judiciously manage the revenue proceeds from the sale of primary products with public governance immediately after 2

The terms of trade measures the rate of exchange of one good or service for another when two countries trade with each other. For international trade to be mutually beneficial for each country, the terms of trade must lay within the opportunity cost ratios for both countries.

7

independence towards sustainable economic development of the country (Akyüz and Gore, 2001). The economic downturn in the 1980s as result of the glut in the international market for primary products led to drastic fail in revenue and the inability of the Nigerian government to meet the cost of her with a subsequent balance of payment crisis for the country (Mosley, 1992; Akinlo, 1996). This led to the series of economic reforms that commenced with the International Monetary Fund (IMF) and the World Bank (WB) supported Structural Adjustment Programme (SAP) in 1987 (Okome, 1999). The SAP was the basis for the complete liberalisation of trade and the financial markets in Nigerian. The ensuing liberalised trade necessitated the deregulation of the foreign exchange market, removal of import and export restrictions in order to encourage competition, improve efficiency in domestic production thereby stimulate exports of locally manufactured goods. All these were aimed at creating a competitive business environment for manufacturing SMEs and Multinational Corporations (MNCs) (Onyeonoru, 2003). It was envisaged that liberalisation of the economy would give SMEs the chance to exploit the domestic market and also explore international market opportunities occasioned by the liberalised business environment (Dawson, 1994; Vachani, 1994). In so doing, SMEs would then have an unhindered opportunity to contribute meaningfully to the economic development of Nigeria and help reduce the reliance on primary products (Agboli and Ukaegbu, 2006; Obokoh, 2008b). How well the policy has helped increase locally manufactured goods and encouraged SMEs to exploit the gains of international market will be revealed in the results and discussion section. 4 Methodology of Data Collection The study is a longitudinal study that utilized primary and secondary data analysed using return on investment (ROI) model and SPSS 16.0 to arrive at its results. The primary data were obtained through the distribution of 500 questionnaires to SMEs and the administration of semistructured interview to 69 out of the 100 initially contacted for the interview from the questionnaire outcome. This study applied ROI model on the survey data (questionnaires and semi-structured interviews) collected from the 500 manufacturing SMEs operating in Lagos State to demonstrate the impacts of exchange deregulation on the performance of SMEs and if it has any link with high mortality rate of manufacturing SMEs in Nigeria; the sector where a larger proportion of the private sector actors in Nigeria operates. A total of 430 questionnaires were returned out of which 369 were valid representing 73.8 percent of the total sample. The 61 questionnaires were invalidated because some of the respondents were in the service sector. As a follow up to the questionnaires, semi-structured interviews were conducted on 69 SMEs out of the 369 respondents that granted the request to be interviewed from the returned questionnaires. Of the 69 participants in the semi-structured interview, only the transaction data of 50 participants were used to arrive at the conclusion because the data were complete and met the two criteria the study set out to explore using ROI.

8

Since the study is a longitudinal study, we conducted a further semi-structured interview in 2010 on the same set of 50 SMEs that we initially interviewed in 2007 for update in view of the global financial crisis. The reason was to ascertain the changes that have taken place between 2007 and 2010 when we conducted the interviews with the 50 SMEs. Questionnaires were used to obtain general information about the entire population, while the semi-structured interviews were used to collect detailed and specific transaction data from the 69 SMEs that volunteered to present their transaction data for the research. The questionnaire and semi-structured interview methods was motivated by the in-depth results of the findings of Akinlo (1996) and Ekpenyong (2002) that used either methods for their independent studies of the effects of SAP on manufacturing businesses in Nigeria. In addition, panel data from the Central Bank of Nigeria (CBN) covering the period 1980 to 2009 were used to complement the primary data obtained through the survey. The initial questionnaire survey and semi-structured interviews took a period of three months, between June and August 2007. But the last transaction data from some of the SMEs that took part in the semi-structured interview were received in December 2007, this brought the total period of data collection for this study to seven months. The follow up interview for update took another three months from December 2010 to February 2011. We initially carried out a pilot survey on 50 manufacturing SMEs in November 2006 in Ibadan Oyo State of Nigeria, prior to the questionnaire survey and structured interviews. This was undertaken to validate and test whether the survey questionnaire designed for the study was properly done to capture the information needed to achieve the objectives of the study. It was at the pilot stage that it was observed that most of SMEs that participated were not comfortable giving out certain information such as sales, profit and cost figures which were vital for attaining the objectives of the study. The data obtained from the questionnaire survey and the structured interviews were complemented with secondary date from the CBN. The presentation and analysis of data was purely descriptive using statistical tables, cross tabulation and graphs for ease of understanding. The study applied ROI on the financial data of the 50 SMEs that participated in the semistructured interview to demonstrate impact of deregulation of exchange rates partly contributed to the demise of some manufacturing SMEs in Nigeria. ROI was applied because it is one of the measures of arriving at investment decisions for future investment with unequal capital outlay and cash inflow by calculating profitability ratios of the investment and also the measure of evaluating the performance of managers in a decentralised organisation (Lucey, 2003). The decision rule for ROI is to accept investment that yield ROI greater that cost of capital (COC) [within the context of this paper, COC is interest rates] and to reject investment that yield ROI less than COC. The method fits this purpose because the 50 SMEs have different capital base and profit levels. In addition, Everett and Watson (1998) suggested that it would have been easier to use ROI to measure factors that contributed to small business failures only if there were formal reporting system to obtain reliable data of failed small businesses. Furthermore, the application of ROI 9

here is in response to Prasad et al. (2003) argument that the causality between faster economic growth through local output and liberalisation cannot be captured in standard regression framework and the need for alternative analytical measure of the impact of liberalisation to economic development (Soludo, 2003). This study limited the survey to manufacturing SMEs operating in Lagos State due to our limited budget. Lagos State was chosen for this study because it is the key industrial hub of Nigeria with the highest concentration of manufacturing establishments and SMEs (Ajayi, 2007). The survey was randomly purposive because it was targeted only to manufacturing SMEs irrespective of their line of products. The study recognises the limitation of using Lagos State as the basis of drawing conclusions for the study considering the fact that there are 36 states in Nigeria. Also the population size of 369 SMEs from the questionnaire and 50 SMEs from the semi-structured interviews. But this limitation does not invalidate the results of the study because Lagos State is the key industrial hub of Nigeria and the problems of SMEs in Lagos State reflect to a large extent the situation of SMEs in other states of Nigeria in view of the fact that SMEs in Lagos state have access to a larger market compared to other states. 5. Results and Discussion This section presents the results of the study analysed with the aid of Statistical Packages for Social Science (SPSS) 16.0. It is divided into two sub-sections, the first present the result of the questionnaire and the semi-structured interview, the analysis of the secondary data from CBN is contained in the second sub-section to ensure simplicity and ease of understanding. The questionnaire used a six point Likert scale which was collapsed into three to find out the perception of the respondents‟ views on the effects of exchange rate deregulation on the performance and survival of manufacturing SMEs. The use of a Likert scale was informed by observed behavior of respondents during the pilot study that almost all the participants either avoided or gave evasive answers about the effects of the exchange rate devaluation on their business. 5.1.1 Presentation of Result of Primary data Table 1, summarises the characteristics of the total population sample. The characteristics of sample and the process of collecting the data were not discussed as part of the results of this study due to space limit.

10

Table 1: Characteristics of Sampled Firm’s Items under consideration Frequency Age of Company (in years) 01-05 06-10 11-15 16-20 21-25 26-30 Above 30 Total Line of Business Manufacturing Retail & Manufacturing Total No. of Employees 1-10 11-100 101-300 Total Asset Base (N millions) 00-.99 01-09 10-99 100-499 Above 500 Missing Total Source: Field survey 2011

Percentage

110 108 60 40 23 19 9 369

29.8 29.3 16.3 10.8 6.2 5.2 2.4 100

171 198 369

46.3 53.7 100

90 151 128 369

24.4 40.9 34.7 100

69 123 112 51 13 1 369

18.7 33.3 30.4 13.8 3.5 0.3 100

The analysis in table 2 indicates that 51.5% of sampled SMEs source most of their raw materials locally as against 6.2% that source theirs internationally. This does not mean that the respondents do not have imported inputs in their production process. Some of the respondents stated that their raw material needs are too small to warrant them to directly source the materials abroad but instead rely on those who have the financial capacity to import what they need. The profits of the respondents were also negatively affected as 78.6% of the respondents reported decrease in their profit level. This was attributed to high cost of production and competition from firms importing finished goods into Nigeria.

11

Table 2: Effects of Liberalisation on Raw Materials and profit of Sampled SMEs Items under consideration Source of Raw Material Local International Local & International Total Change in Profit Increase Decrease No Change Total

No. of Firms

Percentage

190 23 156 369

51.5 6. 2 42.3 100

31 290 48 369

8.4 78.6 13.0 100

Table 3, reveals some interesting findings of this study as 92.14% of respondents (with a mean of 2.90) agreed that the devaluation of the Naira made business operation by manufacturing SMEs unprofitable as against 5.69% (with variance of 0.366) that disagreed with the statement. Only 2.17% were undecided about the effect of devaluation on their business. This was followed by the question whether the devaluation has any link with the failure of some manufacturing SMEs in the manufacturing industry, since the respondents were in a better position to know the true situation of business prospects in the industry. It was quite clear from the respondents‟ perception of the devaluation of the Naira that 88.08% agreed that the devaluation of the Naira led to the failures of some manufacturing SMEs and 10.02% disagreed, while 1.89% remained neutral. The mean of 2.86 and the variance of 0.397 confirm the proper representation of the majority view that devaluation of the Naira partly contributed to the failures of some manufacturing SMEs.

12

Table 3: Analysis of Respondents perception of the effects of devaluation of the Naira on SMEs’ operation Descriptive Percentage and number of Items under consideration (N=369) Statistics Responses Mean Standard Agree % Disagree Not % (n) Deviation (n) Applicable % (n) Depreciation of the Naira made 2.90 0.366 92.14 5.69 2.17 (8) business unprofitable (340) (21) Depreciation of the Naira caused the 2.86 0.379 88.08 10.02 1.89 (7) failure of some manufacturing SMEs (325) (37) Depreciation of the Naira has 2.47 0.526 48.78 49.86 1.35 (5) drastically reduce operational cost of (180) (184) SMEs Depreciation of the Naira makes 2.18 0.469 21.68 (80) 74.80 3.52 (13) importation of raw materials cheap (276) and abundant for SMEs Depreciation of the Naira makes 2.18 0.437 20.05 (74) 77.78 2.17 (8) importation of production equipment (287) cheap Importation of finished goods does 2.26 0.461 27.64 71 (262) 1.36 (5) not reduce SMEs turnover (102) Importation of finished goods does 2.21 0.461 23.58 (87) 74.25 2.17 (8) not reduce the profit making ability (274) of SMEs on turnover Source: Field survey 2011

There was an almost balanced opinion as to the notion of whether the devaluation helped in reducing operational costs of manufacturing SMEs. This is because only 48.78% of the respondents said that the devaluation of the Naira reduced the operational costs of SMEs, which is slightly less than 49.86% that disagreed that the devaluation of the Naira did not reduce operational costs, but actually increased the operational costs of manufacturing SMEs. The mean of 2.47 and slightly higher variance of 0.526 compared to the variance of other items under the Likert scale reveals the spread of opinion and perception of the respondents. A closer look at this almost balanced opinion reveals that some of the surveyed SMEs (51.5%) sourced their raw materials locally, while 42.30% of the respondents sourced theirs both locally and internationally. The remaining 6.20% sourced theirs entirely from the international market. When the last two combinations of sources were added, we arrived at 48.70%, which partly explained the reason for the near balance of opinion. Another explanation for the near balance of opinion is the increase in cost of other inputs used for production by SMEs that source their raw materials locally. This indirectly increased their operational costs but they could not link their increased cost to the devaluation of the Naira. In order to maintain absolute neutrality, the Survey Assistants were instructed not to offer explanation as to the link of operational costs to devaluation to the respondents, as this may influence or bias the pattern of response.

13

With regards to respondents‟ perception of the devalued Naira on importation of raw materials, 21.68% agreed that the devaluation of the Naira made the importation of raw materials cheap and abundant for SMEs, while 74.80% disagreed that the devaluation of the Naira made importation of raw materials cheaper and abundant for manufacturing SMEs. The percentage of the respondents that neither agreed nor disagreed with the statement was 3.52%. The mean of 2.18 and the variance of 0.469 clearly represent the respondents‟ perception of the effects of the devalued Naira on the cost and availability of raw material in Nigeria. The devalued Naira actually made imported raw materials more expensive, because the essence of devaluation is to make imports more expensive in order to discourage imports, while at the same time encouraging exports by making the value of the devaluing country‟s exports cheaper in the international market. The policy of the Nigerian government to devalue the Naira failed to take cognisance of the fact that the manufacturing industry in Nigeria depends heavily on imported inputs. Almost the same trend was observed with the respondents‟ perception of whether the depreciation of the Naira made the importation of production equipment cheap. Only 20.05% agreed with the statement, but 77.78% disagreed, while a small percentage of the respondents (2.17%) were neutral. The mean here was 2.18 with a variance of 0.437, which indicates the proper representation of the majority view. The views of the majority of respondents was further confirmed when they said they found it difficult to change their production equipment because of the devalued Naira and were compelled to use their production equipment well over their useful life. In terms of the respondents‟ perception of the effects of the imports of finished goods on the turnover and profitability of manufacturing SMEs, as a result of devaluation of the Naira and the removal of trade restrictions, 71.00% and 74.25% respectively (means of 2.26 and 2.21) agreed that the imports reduced the turnover and the profit making ability of manufacturing SMEs. Also, 27.64% and 23.58% disagreed that the imports adversely affected the turnover and the profit making ability of the manufacturing SMEs. In both statements, 1.36% and 2.17% respectively of the respondents remained neutral about the effects of devaluation and the effects of the removal of trade restriction on turnover and profit making ability of manufacturing SMEs. The perception of respondents‟ on this item clearly revealed that the profit making ability of manufacturing SMEs and the turnover was greatly impaired by the devaluation of the Naira, which goes a long way to confirm one of the reasons for the failure of some SMEs and the reason for the change of business objectives from manufacturing to retailing.

14

Table 4: Aggregate Assets, Profits, Computed ROI of 50 Sampled SMEs, Interest Rates, and Inflation Rates Year

Asset in Naira (N’000)

Profit in Naira (N’000)

Return on Investment (ROI) (in %) of the 50 SMEs

Interest Rate (COC)

(ROI) (COC) =MOS (in %)

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Nil 112292 168438 286345 314665 349628 371945 383449 473394 537948 645537 694755 771951 792011 800619 812788

Nil 20212.6 37056.4 71586.3 61359.7 82512.2 76620.7 71704.9 79056.8 123728.0 116196.7 154930.3 186040.2 190023.4 161727.2 177637.5

Nil 18.0 22.0 25.0 19.5 23.6 20.6 18.7 16.7 23.0 18.0 22.3 24.1 24.0 20.2 21.86

21.00 20.18 19.74 13.54 18.29 21.32 17.98 18.29 20.48 21.16 19.47 20.00 18.70 18.92 21.18 23.91

Nil (2.18) 2.26 11.75 1.21 2.28 2.62 0.41 (3.78) 1.81 (1.47) 2.30 5.40 5.08 (0.98) (2.05)

Inflation ROI of Rate the 25 Debt free SMEs* 57.00 73.10 29.10 8.50 10.00 6.60 6.90 18.90 12.90 14.00 19.40 17.90 12.60 6.6 15.1 12.4

Nil 20 23.5 27 21 24 21.6 20 18.2 25 21 24 26 26 21.17 23

(ROI)(COC) =MOS (in %)

ROI of the 25 indebted SMEs**

(ROI)(COC) =MOS (in %)

Exchange Rates to One Us $

Nil (0.18) 3.76 13.46 2.71 2.68 3.62 1.71 (2.28) 3.84 1.53 4.00 7.3 7.08 (0.01) (0.91)

Nil 15 19.55 24.44 17.15 22.95 18.97 15.46 14.45 19.44 12.67 19.41 20.57 20.1 18.3 19.8

Nil (5.18) (0.74) 7.90 (1.14) 1.63 0.99 (2.83) 6.03 (1.66) (6.80) (0.59) 1.87 1.18 (2.88) (4.11)

21.87 81.02 81.25 81.65 83.81 92.34 100.8 111.7 126.26 134.04 134.73 145.82 148.46 127.41 120.81 161.64

Source: Authors computation from field surveys.

The results of the ROIs of the 50 sampled SMEs (Table 4) reveals negative ROIs for three years (1995, 2002 and 2004) prior to the global financial crisis and negative ROIs for 2008 and 2009 respectively. A critical look at the years when the 50 sampled SMEs‟ ROIs were negative shows high depreciation of the Naira against the US Dollar and other major currencies. The years also coincide with the years when the inflation rates were very high. The phenomenon is consistent with the argument that high import cost breeds inflation going by the depreciation and inflation rates of those periods. When the 50 sampled SMEs were split into debt free and indebted SMEs, the result reveals that the debt free SMEs had negative ROIs in 1995 and 2002 respectively prior to the recession when they also had negative ROIs. While the indebted SMEs had seven negative ROIs out of the twelve years initially considered prior to the recession. If the inflation and interest rate effects are considered together, it shows that the indebted SMEs are worst hit by the two economic variables. The results of the split further reveals that the poor performances of the indebted SMEs were masked by the better performance of the debt free SMEs. This goes a long way to show that the results of cross country analysis on liberalisation where aggregate figures were used to analyse the impact of liberalisation on economic development maybe faulty. This is because some sectors of the economy not favoured by the policy can be masked by the better performances of other sectors that benefits from the policy. 5.2 Presentation of Results from analysis of CBN Data The result of the questionnaire survey greatly reflects the general situation in Nigeria when the macro level data on trade from the CBN is taken into consideration (Table 5, Figures 1 and 2). It clearly reveals a continuous increase in imported finished goods in contrasts to the low export of finished goods in Nigeria. The import situation deteriorated further between 1994 and 1995 after 15

the complete liberalisation of the Nigerian economy. That period mark the beginning of the persistent increase in the importation of oil products. It was the same period that the Naira depreciated against the United States Dollar by about 270%. It is clear from the trade chart (Figure 1 and 2) that if Nigeria was not exporting oil, it would not have been able to meet her import bills of both oil and non-oil goods when the Inflation rates for 1994 and 1995 were 57% and 73.10% respectively. Up to 2009, the export situation has still not improved as the country‟s major export and revenue earner is still crude oil. The line graph of non-oil export still remains the same all through from the year the deregulation policy was implemented which indicate poor non-oil export performance (Figure 1). This situation is contrary to the expectation of the liberalisation policy that envisaged improvement in the export capability of the country and hence improved balance of trade. The country is even now more dependent on import compared to the pre-liberalisation era in that Nigeria now import refined petroleum products. This situation is attributable to the non functional refineries in the country which are traceable to high cost of maintenance and the non interference policy of the government in economic activities in line with liberalisation policy. This cost is in terms of the quantum of Naira that needs to be exchange for the US Dollar to purchase needed maintenance materials for the refineries. Since the deregulation of the exchange rates, the Naira has persistently been on a free fall against the US Dollar and other major international currencies. This has also affected interest rates as the government cannot intervene because the economic factors are determined by the market forces of demand and supply in line with the liberalisation policy. With almost a stable currency and near zero interest rates in advanced countries, it is impossible for manufacturing SMEs in Nigeria to compete in the international market against the products of firms from advanced countries. Most SMEs in Nigeria and other SSA countries lack export competitive ability, in view of their meagre resources resulting from low profits and weak Naira. These greatly hinder them from acquiring modern technical equipment for efficient production. The products of most SMEs in Nigeria are relatively basic because they lack entrepreneurial and managerial skills, which cause them to concentrate on the production of non-tradable goods. The UNIDO study (2008) reveals that very few businesses exported small proportion of their products with scant technological content to the global market and put the total share of SSA export to global trade at below 3%. An earlier study indicated the alarming rates of de-industrialisation, because the export structures of SSA exports were technologically more advanced in the 1990s than what they are presently (UNIDO, 2005). The backward nature of this trend cannot be separated from the devaluation of the currencies of these countries, especially Nigeria, which has made the purchase of modern industrial machine too expensive for SMEs. 6. Concluding Remarks and Recommendation The analysis revealed a very high sensitivity of the performance and cost of operation of SMEs to exchange rate fluctuations. The result further revealed that SMEs efficiency did not improve neither were they able to take advantage of the liberalised trade to export their products. 16

The conventional wisdom which holds that exchange rate deregulation always improves balance of payment through increased export due to cheaper export from the devaluing country may be incorrect. This is because the results of the policy differ for different countries depending on the economic resources and the industry condition of the country. For instance a country dependent on imported inputs for her industrial sector is unlikely to successfully use devaluation/deregulation of her currency to correct balance of payment problems. This is because the costs of the final product already bear the high cost that the devaluation policy initially intended for imported finished products. That is making imports more expensive so as to discourage imports and encourage export. This means that devaluation breeds inflation for developing countries that are still import dependent. It also implies that even if the import elasticity is greater than one in Nigeria, depreciation of the Naira will not lead to improvement in trade balance because an increase in export will be associated with an increase in the importation inputs for export production. Furthermore, the current globalisation of trade and improvement in information technology which enables manufacturers to evaluate cost of products before orders are made does not make devaluation/deregulation a useful tool to correct balance of payment problem. Countries will always seek where they can minimise their cost and source materials where it is cheapest. Nigeria being a primary product exporter (petroleum) that the price is determined at the international market cannot improve the revenue from export beyond the dictates of the international market no matter how much the Naira exchange with the US Dollar. The dependence of the industrial sector on imported manufacturing equipment is due to the absence of indigenous technology/low technological advancement in Nigeria to provide industrial equipment and the inability of the agricultural sector to meet the raw material needs of the manufacturing sector, due to the neglect of the agricultural sector following the discovery of crude oil in commercial quantities in Nigeria. The promise that devaluation of the Naira will transform Nigeria from import dependent country to export oriented country seems to have failed considering the present import dependent level of the country. The situation of the industrial sector prior to the implementation of the deregulation policy was better than what obtains today. Therefore, if Nigeria and other SSA countries are to contribute towards achieving the millennium development goal of eradicating global poverty by 2015, there is need for a paradigm shift in monetary policy that should stabilise the exchange rate of the Naira. For instance the group of Eminent Persons 2011 have noted that the increasing marginalization of the LDCs is creating a future that the global community cannot afford. They advocated adequate, prioritized and better targeted development assistance; duty- and quota-free access for LDCs exports; doubling farm productivity and school enrolment in these countries; and beefing up the developmental and democratic capacities of LDCs Governments. This study therefore advocates that Nigeria should stabilize the exchange rate of the Naira since the deregulated exchange rate policy has not been able to achieve its objective of making Nigeria export oriented country after more than two decades of the implementation. Instead the policy has made Nigeria more import dependent than what the situation was prior to the deregulation policy. 17

References Adenikinju, A.F. and Chete, L.N. (2002), “Productivity, Market Structure and Trade Liberalization in Nigeria”, AERC Research Paper 126, African Economic Research Consortium, Nairobi. Agboli, M. and Ukaegbu, C.C., (2006), “Business Environment and Entrepreneurial Activity in Nigeria: Implications for Industrial Development”, Journal of Modern African Studies, Volume 44, No.1, pp 1–30, Cambridge University Press, United Kingdom. Ajayi, D.D.(2007), “Recent Trends and Patterns in Nigeria‟s Industrial Development”, Council for the Development of Social Science Research in Africa, Africa Development, Volume XXXII, No. 2, 2007, pp. 139–155. Ajibefun, I.A. and Daramola, A.G. (2003), “Efficiency of Microenterprises in Nigerian Economy”, AERC Research Paper 134, African Economic Research Consortium, Nairobi. Akinlo, A.E. (1996), “The Impact of Adjustment Programme on Manufacturing Industries in Nigeria, 1986-1991: A Sample Study”, African Development Review, Volume 16, pp7393. Akinlo, A.E. and Odusola, A.F., (2003), “Assessing the Impact of Nigeria‟s Naira Depreciation on Output and Inflation”, Applied Economics, Volume 35, No. 6, pp 691-703. Akyüz, Y. and Gore C. (2001), “African Economic Development in a Comparative Perspective”, Cambridge Journal of Economics, Volume 25, No. 3, pp 265-288(24). Aoki, Kosuke, Benigno, Gianluca and Kiyotaki, Nobuhiro, (2010), “Adjusting to Capital Account Liberalization” CEPR Discussion Paper No. DP8087. Awokuse, T.O. (2008), “Trade Openness and Economic Growth: Is Growth Export-Led or Import-Led?, Applied Economics, Volume 40, pp 161-173. Ayadi, O.F., Adegbite, E.O. and Ayadi, F.S. (2008), “Structural Adjustment, Financial Sector Development and Economic Prosperity in Nigeria”, International Research Journal of Finance and Economics, Issue 15, pp 319-331. Bartolini, L. and Drazen, A. (1997), “Capital Account Liberalisation as a Signal”, American Economic Review, Volume 87, No.1, pp 138–54. Briggs, I. N. (2007), “Nigeria: Mainstreaming Trade Policy into National Development Strategies”, African Trade Policy Centre (ATPC) Work in Progress No.52, Economic Commission for Africa. Buffie, E. F. (1986), “Devaluation and Imported Inputs: The Large Economy Case”, International Economic Review, Volume 27, No. 1, pp 123-140. Caballero, J.M., Calegar, G. and Cappi C., (2000), “Instrument of Protection and their Economic Impact”, (Eds.) Multilateral Trade Negotiations on Agriculture, A Regional Manual, Food and Agriculture Organization of the United Nation. Corsetti, G. and Pesenti, P., (2000), “Welfare and Macroeconomic Interdependence”, Quarterly Journal of Economics Volume 116, pp 421-446. Dawson, J. (1994), “Responses to Adjustment - the Marginalization of Small Enterprises in Nigeria”, Small Enterprise Development, Volume 5, No. 2, pp 18-24. Ekpenyong, D.B. (2002), “Performance of Small Scale Enterprises in Nigeria during the Structural Adjustment Programme Implementation: Survey Findings”, Journal of Financial Management & Analysis, Volume 15, No.1, pp 38-50. 18

Emeseh, E., Ako, R., Okonmah, P and Obokoh, L.O. (2010), “Corporations, CSR and Self Regulation: What Lessons from the Global Financial Crisis?” German Law Journal, Vol.11, No. 2, pp 230-258. Everett, J. and Watson, J. (1998), “Small Business Failure and External Risk Factors”, Small Business Economics, Volume 11, pp. 371-390. Hafeez, Q. (1993), “Devaluation or no Devaluation - A Case for Pakistan”, Economic Review, Available at http://findarticles.com/p/articles/ (visited on 5/2/2009). Henry, P. B. (2003). “Capital Account Liberalisation, the Cost of Capital and Economic Growth,” The American Economic Review, Volume 93, No. 2, pp 91-96. Hübler, O., Menkhoff, L. and Suwanaporn, C. (2008), “Financial Liberalisation in Emerging Markets: How Does Bank Lending Change?” The World Economy, pp 393-415. Ikhide, S. I. and Alawode, A.A. (2001), “Financial Sector Reforms, Macroeconomic Instability and the order of Economic Liberalisation: The Evidence from Nigeria,” African Economic Research Consortium, Nairobi, Kenya, African Economic Research Consortium (AERC) Research Paper 112. Ikhide, S.I. and Yinusa, D.O. (1998), The Impact of Financial Liberalisation on the Finance of Small and Medium Scale Enterprises in Nigeria Research report 12, Development Policy Centre, Ibadan. Ikpeze, N.I. , Soludo, C.C. and Elekwa, N.N. (2004), The Political Economy of the Policy Process, Policy choice and Implementation, in Soludo, C.C., Ogbu, O. and Chang, H. (Eds.), The Politics of Trade and Industrial Policy in Africa, Forced Consensus?, African World Press, New Jersey and International Development Research Centre, Canada. Kamin, S. B. and Roger, J. H. (2000) “Output and the real exchange rate in developing countries: an application to Mexico”, Journal of Development Economics, Volume 61, Issue1, pp 85-109. Le, V. D. and Tran, T. H. (1995), “On Devaluation and the Possibility to Devalue the Currency of our Country”, Journal of Economic Studies, Volume 3, No. 205, pp11-29. Lizondo, S. and Montel, P. J. (1989), “Contractionary Devaluation in Developing Countries: An Analytical Overview”, IMF Staff Papers, 36, pp182–227. Lucey, T. (2003), Management Accounting Fifth Edition, Continuum, the Tower Building, 11 York Road, London. Mambula, C. J. (2004), “Relating External Support, Business Growth and Creating Strategies for Survival: A Comparative Case Study Analyses of Small Manufacturing Firms (SMFs) and Entrepreneurs”, Small Business Economics, Volume 22, pp 83-109. McKinnon R.I. (1963), “Optimum Currency Area”, the American Economic Review, Volume 3, No. 4, pp 717- 725. Mesike, C.S., Giroh, D.Y. and Owie, O.E.D. (2008), “Analyzing the Effect of Trade Liberalization Policy in Nigerian Rubber Industry”, Journal of Agriculture and Social Science, Volume 4, pp 132–134. Morley, S. A. (1992), “On the Effect of Devaluation during Stabilization Programs in LDCs”, Review of Economics and Statistics Volume 74, No. 1, pp 21–27. Morley, S. A. (1992), “On the Effect of Devaluation during Stabilization Programs in LDCs”, Review of Economics and Statistics Volume 74, No. 1, pp 21–27. Nguyen, N. T. and Kalirajan, K. (2006) “Can Devaluation be Effective in Improving the Balance of Payment in Vietnam?”, Journal of Policy Modeling, Volume 28, pp 467-476. 19

Nguyen, T.T. and Seiichi, F. (2007), “The Impact of Real Exchange Rate on Output and Inflation in Vietnam: A VAR approach”, Graduate School of International Cooperation Studies, Kobe University, Discussion Paper No.0625. Noorbakhsh, F and Paloni, A. (2001), “Structural Adjustment and Growth in Sub-Saharan Africa: The Importance of Complying with Conditionality”, Economic Development and Cultural Change, Volume 49, No. 3, Pp 479-509. Nwankwo, S and Richards, D. (2004), “Institutional Paradigm and the Management of Transitions: A Sub-Sahara African Perspective” International Journal of Social Economics, Volume 31, No. 1/2, pp 111-130. Obokoh, L.O. (2008a), “Capital Account Liberalisation: Survey of SMEs Experience in Nigeria”, paper presented at the 31st Institute for Small Business and Entrepreneurship Conference, 5th-7th November, 2008, Belfast Northern Ireland. Obokoh, L.O. (2008b), “Small and Medium Sized Enterprises Development under Trade Liberalisation: A Survey of Nigerian Experience" International Journal of Business and Management, Volume 3, No.12, pp 92-101. Obokoh, L.O. (2009), “The Paradoxes of Capital Account Liberalisation in Africa: How the Continuous Collapse of SMEs in Nigeria is Undermining the Public Sphere” International Journal of Business Research, Vol.9, No.4, pp 43-66. Obstfeld, M. and Rogoff, K., (1995), “Exchange Rate Dynamics Redux”, Journal of Political Economy, Volume 103, pp 624-659. Odusola, A. F and Akinlo, A.E., (2001), “Output, Inflation, and Exchange Rate in Developing Countries: An Application to Nigeria”, The Developing Economies, Volume XXXIX-2, pp199-222. Odusola, A.F. (2004), “Understanding Structural Adjustment in Nigeria”, A Draft Report presented at Workshop on understanding Reform, The Taj Palace Hotel, Sardow Patel Marg, Diplomatic Enclave, New Delhi. Okome, M.O. (1999), “State and Civil Society in Nigeria in the Era of Structural Adjustment Program”, 1986-93, West Africa Review: 1, [iuicode: http://www.icaap.org/iuicode?101.1.1.9] Date of access 17/11/2005. Olukoshi, A. (1996), “Economic Crisis, Structural Adjustment and the Coping Strategies of Manufacturers in Kano, Nigeria”, United Nations Research Institute for Social Development Discussion Paper 77. Onyeonoru I. (2003), “Globalisation and Industrial Performance in Nigeria”, Africa Development, Volume XXVIII, Nos.3 & 4, pp 36-66. Ould-Mey, M. (2003), “Currency Devaluation and Resource Transfer from the South to the North”, Annals of the Association of American Geographers, Volume 93, No. 2, pp 463484. Pham, C. Q. and Nguyen, V. C. (1999), “The Impact of Exchange Rate Changes on Balance of Payments in Vietnam Since1989”, Journal of Economics Studies, Volume 12, No.259, pp 3-21. Porter, M. (1990), The Competitive Advantage of Nations, the Free Press, A Division of Macmillian, Inc. New York, NY. Prasad, E., Rogoff, K.,Wei, S., and Kose M. A. (2003), “Effects of Financial Globalization on Developing Countries: Some Empirical Evidence”, Mimeograph, International Monetary Fund. 20

Prebisch, P. (1950), “The Economic Development of Latin America and Its Principal Problems”, UN document no. E/CN.12/89/Rev.1. Lake Success, N.Y.: United Nations. Reinhart, C.M. (1995), “Devaluation, Relative Prices, and International Trade Evidence from Developing Countries”, International Monetary Fund, Volume 42, No. 2, pp 290-312. Schneider, B. (2000), “Conference Report on Capital Account Liberalization: A Developing Country Perspective”, Overseas Development Institute London, June 21, 2000. Singer, H. (1950), “The Distribution of Gains Between Investing and Borrowing Countries”, American Economic Review, Volume XL, No. 2, pp 473–85. Soludo, C. (2003), “In Search of Alternative Analytical and Methodological Framework for an African Economic Development Model”, in Mkandawire, T. and Soludo, C. (Eds.) African Voices on Structural Adjustment, A Companion to our Continent, our Future, African World Press, Inc., Nairobi, Kenya. Thirlwall, A.P. and Gibson, G. (1992), Balance of Payments Theory and the United Kingdom Experience, London: Macmillan. Tille, C. (2006), “On the Distributional Effects of Exchange Rate Fluctuations”, Journal of International Money and Finance, Volume 25, issue 8, pp1207-1225. Tille, C. (2006), “On the Distributional Effects of Exchange Rate Fluctuations”, Journal of International Money and Finance, Volume 25, issue 8, pp1207-1225. Tille, C., (2001), “The Role of Consumption Substitutability in the International Transmission of Shocks”, Journal of International Economics, Volume 53, pp 421-444. UNEP (2005), “Integrated Assessment of the Impact of Trade Liberalization- A Country Study on the Nigerian Rice Sector”, United Nations Environment Programme, Geneva Switzerland. UNIDO (2008), “Creating an Enabling Environment for Private Sector Development in SubSaharan Africa” United Nations Industrial Development Organization (UNIDO) and The Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), Vienna. Utomi, P. (1998), Managing Uncertainty, Competition and Strategy in Emerging Economies, Ibadan, Nigeria: Spectrum Books LTD. Vachani S. (1994), “The Impact of Economic Liberalisation on Small Companies‟ Competitiveness”, Small Enterprise Development Volume 5, No 4, pp 41-46. Van Wijnbergen, S. (1986), “Exchange Rate Management and Stabilization Policies in Developing Countries”, Journal of Development Economics, Volume 23, Issue 2, pp 227247. Vo, T. T., Dinh, H. M., Do, X. T., Hoang, V. T., and Phan, C. Q. (2000), “Exchange rate arrangement in Vietnam: information content and policy options”, Individual Research Project, East Asian Development Network (EADN). Winters, L. A. (2004), "Trade Liberalisation and Economic Performance: An Overview,” Economic Journal, Volume 114, F4-F21. Zaidi, S. A. (1995), “Why Devaluation Won't Help” Economic and Political Weekly, Volume 30, No. 44, pp 2789-2790. Zhang, X. (2006), “Financial Market Governance in Developing Countries: Getting Political Underpinnings Right”, Journal of Developing Societies, Volume 22 No. 2, pp 169-196.

21

Appendix Table 5: Nigeria Total Foreign Trade (=N=MILLION) Year/Quarter

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Imports (cif)

Exports and Re-Exports (fob)

Oil

Non-Oil

Total

Oil

Non-Oil

Total

227.4 119.8 225.5 171.6 282.4 51.8 913.9 3,170.10 3,803.10 4,671.60 6,073.10 7,772.20 19,561.50 41,136.10 42,349.60 155,825.90 162,178.70 166,902.50 175,854.20 211,661.80 220,817.70 239,416.30 266,738.20 380,997.80 303,952.80 797,298.94 932,495.66 813,236.83 920,097.48 1,050,196.20

8,868.20 12,719.80 10,545.00 8,732.10 6,895.90 7,010.80 5,069.70 14,691.60 17,642.60 26,189 39,644.80 81,716.00 123,589.70 124,493.30 120,439.20 599,301.80 400,447.90 678,814.10 661,564.50 650,853.90 764,204.70 1,131,992.80 1,190,353.20 1,126,425.00 1,334,400.90 2,003,557.39 2,479,680.89 3,536,439.47 4,071,296.26 3,590,909.17

9,095.60 12,839.60 10,770.50 8,903.70 7,178.30 7,062.60 5,983.60 17,861.70 21,445.70 30,860.20 45,717.90 89,488.20 143,151.20 165,629.40 162,788.80 755,127.70 562,626.60 678,814.10 837,418.70 862,515.70 985,022.40 1,371,409,1 1,457,091.40 1,507,422.80 1,638,353.70 2,800,856.33 3,412,176.55 4,349,676.31 4,991,393.74 4,641,105.37

13,632.30 10,680.50 8,003.20 7,201.20 8,840.60 11,223.70 8,368.50 28,208.60 28,435.40 55,016.80 106,626.50 116,858.10 201,383.90 213,778.80 200,710.20 927,565.30 1,286,215.90 1,212,499.40 717,786.50 1,169,476.90 1,920,900.40 1,973,222.20 1,787,622.00 1,995,398.70 2,963,796.12 7,140,579.24 7,191,073.99 7,950,438.29 9,400,739.83 6,485,273.01

554.4 342.8 203.2 301.3 247.4 497.1 552.1 2152 2,757.40 2,954.40 3,256.60 4,677.30 4,227.80 4,991.30 5,349 23,096.10 23,327.50 29,163.30 34,070.20 19,492.90 24,822.90 28,008.60 95,046.10 95,092.50 113,735.30 105,955.82 133,594.65 169,709.78 94,316.70 286,325.54

14,186.70 11,023.30 8,206.40 7,502.50 9,088.00 11,720.80 8,920.60 30,360.60 31,192.80 57,971.20 109,883.10 121,535.40 205,611.70 218,770.10 206,059.20 950,661.40 1,309,543.40 1,241,662.70 751,856.70 1,188,969.80 1,945,723.30 2,001,230.80 1,882,668.10 2,090,491.24 3,077,531.45 7,246,535.06 7,324,668.64 8,120,148.07 9,495,056.53 6,771,598.55

CIF: cost, insurance & freight FOB: free on board. Sources: Central Bank of Nigeria Statistical Bulletin (2004) and st Central Bank of Nigeria Annual Report & Statement of Accounts for the Year Ended 31 December 2009.

22

Figure 1: Foreign trade: total imports (cif) of oil and non-oil products

CIF: cost, insurance & freight. A graphic representation of total imports (oil and non-oil) derived from Table 5.

Figure 2: Foreign trade: total exports (fob) of oil and non-oil products

Fob: free on board. A graphic representation of total exports (oil and non-oil) derived from Table 5.

23

Figure 3: Rate of Naira depreciation against US dollars

Source: Extracted from the Central Bank of Nigeria Statistical Bulletin (Issue, 2004-2010)

Figure 4: Interest Rates and Inflation Rates graph

Source: Extracted from the Central Bank of Nigeria Statistical Bulletin (Issue, 2004-2010)

24