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.

COVER PAGE I

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGEMENT V

ABSTRACT VII

TABLE OF CONTENTS IX

CHAPTER ONE

1. INTRODUCTION 1

1.1 GENERAL BACKGROUND TO THE SUBJECT MATTER 1

1.2 PROBLEMS ASSOCIATED WITH THE

SUBJECT MATTER 5

1.3 PROBLEMS THAT THE STUDY WILL BE CONCERNED WITH. 7

1.4 THE IMPORTANCE OF STUDYING THE AREA 9

1.5 DEFINITION OF IMPORTANT TERMS 9

1.6 (CHAPTER) REFERENCE (USING APA METHOD) 11

CHAPTER TWO

2. LITERATURE REVIEW 12

2.1 THE ORIGIN OF THOUGHT WITHIN THE

SUBJECT AREA 15

2.2 SCHOOL OF THOUGHT RELEVANT TO THE PROBLEM OF STUDY 18

2.3 DIFFERENT METHODS OF STUDYING THE PROBLEM 23

2.4 SUMMARY 25

2.5 REFERENCES 28

CHAPTER THREE

3. CONCLUSION 29

3.1 DATA PRESENTATION (HIGHLIGHTS OF THE STUDY) 29

3.2 ANALYSIS OF THE DATA 30

3.3 RECOMMENDATION 38

3.4 CONCLUSIONS 41

3.5 REFERENCES 42

CHAPTER ONE

1. INTRODUCTION

1.1 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 exchange.

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.