THE PROBLEM OF FINANCING INTERNATIONAL TRADE IN NIGERIA
This research work tries to give an insight into the issue of the problems of financing international trade in Nigeria from the period (`1990-1995).
This study is aimed at analyzing Nigeria’s foreign transactions during and after (SAP) periods.
The work is organized into chapters to easy comprehension and deduction.
Chapter one deals with the introduction, Background, statement of problems, purpose / objective of the study, significance of the study, limitations of the study and the definition of terms.
Chapter two involves a review of related literature, international cash flow in trade, roles, risk factor in international cash flow in trade, major problems, trade restriction major and cash flow problems.
This chapter also treat, the important of international trade, and some underline issues towards the cash flow problem in Nigeria, through spanning through structural Adjustment programmer (SAP).
Chapter three deals with research design and methodology, source of data, location of data method of data collection.
Chapter four involves summary of finding where I summarize everything in this project.
Chapter five involves recommendation, conclusion and Bibliography.
TITLE PAGE i
APPROVAL PA ii
TABLE OF CONTENT vi
1.0 BACKGROUND OF THE STUDY 13
1.1 PURPOSE / OBJECTIVES OF STUDY 17
1.2 STATEMENT OF THE STUDY 17
1.3 SIGNIFICANCE OF THE STUDY 18
1.4 LIMITATION OF THE STUDY 19
1.5 DEFINITION OF TERMS 20
2.0 REVIEW OF RELATED LITERATURE 24
2.1 INTERNATIONAL CASH FLOW IN TRADE 24
2.2 ROLE OF INTERNATIONAL CASH FLOW IN TRADE 25
2.3 RISK FACTORS IN INTERNATIONAL TRADE 26
2.4 MAJOR PROBLEM OF FINANCIAL INTERNATIONAL TRADE 27
2.5 TRADE RESTRICTION AND GOVERNMENT POLICIES 29
2.6 IMPORTANT OF INTERNATIONAL TRADE 32
3.1 RESEARCH DESIGN AND METHODOLOGY 36
3.2 SOURCE OF DATA 36
3.3 LOCATION OF DATA 36
3.4 METHOD OF DATA COLLECTION 37
4.1 SUMMARY 40
5.1 RECOMMENDATION 44
5.2 CONCLUSION 46
5.3 BIBLIOGRAPHY 49
The Nigeria economy has since the early 1990s been faced with adverse financial constrains especially in its international trade.
This can be traced to the responsible fiscal policies enacted during the oil boom period. The sought increase in the volume and value especially in 1990 / 91 placed the oil sector as the mainstay of the Nigerian economy, not only in terms of foreign exchange earnings but also as the source of government revenue and domestic liquidity.
The huge revenue from oil stimulated a phenomenal increase in government spending spilled into the rest of the economic sector and generated an unsustainable growth in the economic activities.
In particular, the patter of investment shifted mainly to construction and services sectors to the detriment of productive sector that is industrial and Agricultural sector which had been the sole earner and should provide the basis of economic growth.
The stump in oil market from the early to mid “goes”.
This phenomenon, exacerbated the problem already existing from the tuba lance experience in the proceeding decade following the glut in the market, oil price dropped from $40 to $35.5 per barrel and continued to slide thereafter till it reached to wightly $12 per barrel.
Consequently oil export revenue which had accounted for about 96% of Nigeria’s exchange earning dropped sharply.
Moreover, the glut also forced production down by 0.4 million barrel per day, as at the middle of 1991, and dropped further to o.6 million barrel per day, during the first quarter of 1992 the oil glut and the attendant low unit price of oil signed the beginning of economic recession from Nigeria.
As a result of these economic recession, the country ability to meet its trade. Obligations become necessary for trade partners to request new terms of trade and re-negotiation of existing loan and credit, subsequently, the country external payment position was adversely affected.
A good example of this was manifested in the export value which declined from the peak of
N14.2 billion in 1990 t0 N8.6 billion in 1992 but the total import expenditure rose from N 9.1 billion in 1990 and N12.6 billion in 1992.
Secondly, the declining oil earning for the government to resort to alternative means of finance for its numerous projects.
In most cases, both private and public banks at home and abroad were approached to provide such needed funds in the form of loans and advance.
Consequently, Nigeria’s external debt rose to nearly billion in 1993.
Thirdly, the light of mounting foreign debt and with the reluctance of the much needed finance, the government was forced into counter trade arrangements as a means of making payment on goods purchased, several attempt were made to stem the declining economic fortunes of the country.
First, it was the general Ibrahim Babangida’s SAP measure that was signed to restrict imports to a manageable level.
This witnessed the advent of the import license, which rather than curtailing the foreign expenditure, increased it.
A more constructive approach was adopted in 1991 by the Babangida’s administration under the structural adjustment programmer (SAP) and re-aliging aggregate domestic expenditure and production pattern in order to minimize dependence on imports. The objectives of the programmer are this.
1. To restructure and diversity the production base of the economy in order to reduce dependence on the oil sector and import of finished goods.
2. To achieve a viable fiscal balance of payment over the medium term.
3. To lay the basis for a sustainable non-inflationary growth over the medium and long-term by insisting on a workable balance budget.
However, substantial improvement were recorded with these adjustments instance, Nigeria’s balance of payment showed on overall surplus of
N1, 946.3 million in 1993. This continued to decline even to a deficit.
Despite the measure introduced by (SAP), aggregate in flow of foreign exchange continued to decline by 7.1 percent from $ 12,353.9 million in 1992 to & 3,567.1 million in1993.
Total foreign exchange out flow also decline by about 20.8 percent.
More so, as foreign exchange cash flow problem intensified, Nigeria importers found it increasing difficult to secure confirmed lines of creasing difficult to confirmed lines of credit overseas.