IMPACT OF EXCHANGE RATE DEVALUATION ON AGRICULTURAL EXPORT IN NIGERIA
The promotion of agricultural export has been identified as an important factor that accelerates the development of a country. This paper presents an anlysis from the exchange rate devaluation parvey with specific attention to the period after the structural adjustment programme (Post SAP). Specifically by employing the ordinary least squares method comprising of Agricultural Exports as dependent variable and Exchange rate (ER), inflation Rate (IFR), Average Rainfall (ARF) and Labour supply in Agriculture (LSA) as explanatory variables. This research found out that over 95 percent of the systematic variation in Agricultural Export is being explained by the explanatory variables in the period of 1986-2008, the effect of the Exchange Rate Exchange rate (ER), Average Rainfall (ARF) and Labour supply in Agriculture (LSA) was significant and positively related to agricultural export while that of Inflation Rate (IFR) was insignificant and negatively related to agricultural exports. Generally the estimated result reveals that there is a significant linear relationship between the explanatory variables and agricultural exports. It is therefore, particularly recommended that the devaluation of exchange rate in Nigeria should be sustained and further efforts be made by the Nigerian policy makers and CBN to make a policy blueprint that will develop the agricultural sector. Taking into account, the nature of Nigerian agriculture and the prevailing economic situation in the country.
1.1 BACKGROUND TO THE STUDY
One of the most dramatic events in Nigeria over the decades was devaluation of the Nigeria’s currency, the naira. structural adjustment programme (SAP) which was adopted in 1986 has a cardinals objective of restructuring of the production base of the economy with a positive bias for the production of Agricultural exports. the foreign exchange reforms that facilitated a cumulative depreciation of the effective exchange rate were expected to increase the domestic prices of Agricultural experts and therefore boost domestic production.
Meanwhile, a persistent trade deficit is one of the commonalities faced by many developing countries including, Nigeria. Nigeria continually importing more than her exports, which leads to a multiplicities of economic problems such as chronic and persistent trade deficit, over reliance on imported goods, unfavourable balance of payment problems, continuous decline in the value of the nations currency, e.t.c. over the years, Nigeria has implemented several policy measures to improve her trade performance.
currency devaluation has been used by many countries to reduce trade deficit. the economic reason behind the use of such policy as a means of improving a country’s trade balance is that a decline in a nations currency causes exportable to be cheaper relative to other countries. thus, its expected to lead to an increase in the volume of exports at the same time, the imported goods, become more expensive as a result, imports should decrease. as a country be an improvement in the country’s trade balance. Nigeria is one of those countries which have devalued her currency with a clear intention of improving its trade balance.
when the process of development started in Nigeria, Agriculture played a dominant role in as the engine of growth. as the leading sector of the economy, it provided employment for about 70 percent of the population and accounted for about 80 percent of the government revenue. Falge (1992:19) pushes that, Nigeria was a major producers of agricultural commodities such as cocoa, cotton, groundnut, timber, rubber, hides and skin, e.t.c. the augmentation and production in the colonial era were made possible with colonial policy measures which led to the commoditization of these agricultural product. without any doubts them, the nations foreign exchange earnings were orderly based in these crops. (Abubakar etal 1985:16).
The emergence of oil sector in the early 1970s as major revenue earner for government coupled with the macro policy pursued during the period timed the terms of trade against the agricultural export.
Another factor which stimulated importation of both consumer and capital goods was exchange rate over valuation. the estimated level’s of naira over valuation in terms of the dollar are shown in the table 1 below.
1.2 STATEMENT OF PROBLEM
over the years, the Nigerian government at various times have adopted different policies to boost her export earnings specially in the non- oil sector with greater emphasis on the agricultural sector probably, due to the fact that, agriculture prior to the advent of oil was the major contributor to the nations export earnings. among the export promotion policies employed were liberalizing the importation of raw materials for export based industries, granting tax concessions to export oriented industries, reducing export duty, providing a subsidy and liberalizing credit for export oriented industries, allowing exporters to retain 25% of the proceeds of foreign exchange earned from exports in their foreign currency accounts with banks within the country, and there devaluation of the naira exchange rate.
The devaluation of the naira exchange commercial in 1986 (prior 60 1986, Nigeria was operating the fizzed exchange rate system). following the setting up of the second- tier foreign exchange market (SFEM)as an integral part of the structural Adjustment Programme (SAP). in the meantime, beside the 1986 the contribution of the oil sector to total export rose from 57.6 percent in 1970 while in 1987, it rose to 75.2 percent. therefore, the principle objective of development absorb the oil translate it to investment in social, physical and economic infrastructure. during this period, there was little incentive to increase domestic resource mobilization because of the oil revenue.
following these occurrence, it was no surprise that the Nigerian economic crises erupted in the early 1980s with the immediate cause being the collapse of price in the international oil market. this led to recession and economic deterioration as manifested by financial and external debt crisis, high rate of unemployment, negative economic growth, persistent current account and budget deficits, a huge backlog of uncompleted projects, large scale retrenchment, acute shortage of essential commodities and galloping inflation from 1970 to 1986, Nigeria Witness a high rate of inflation as compared to the U.S. this according to Osegie (1992:173) meant that a constant base year exchange rate, the naira had a higher real value in the U.S market than in the domestic market. so with foreign exchange available, it was more economical to import goods for domestic sales. Devaluation, the exchange rate of the naira was also devalued in 1992 and 1995 respectively, owing to the prevailing economic circumstances at these periods.
Mordechai Kreinin (1975:98) posited that the immediate impact of exchange rate devaluation is to lower the prices of goods and services produced locally by promoting exports. as such, it is believed that devaluation is a policy that is directed towards enhancing the performance of the export sector of an economy. this greater improvement of the agricultural exports in Nigeria has been hindered and hence accompanying problems state below.
- Persistent unfavourable balance of payment in Nigeria.
- Over dependence on imported goods
iii. Nigeria economy over reliance on the oil sector which leads to mono-economy.
- Neglecting of non oil sector e.g Agricultural sector which happened to be the major contributor in 1960s.
Consequently, upon the highlighted problems above, we can pose questions as follow;
- What is the relationship between exchange rate devaluation on the Nigerian. Agricultural Export?
- What are the obstacles hindering the effectiveness of this policy?
iii. What are the measures to be taken?
The foregoing provides the motivation for this study i.e to examine the impact of foreign exchange devaluation on the Nigerian agricultural exports. meanwhile, it is note worthy too say that the Nigerian currency can be said to be that of devaluation on depreciation. this is because, in between the various devaluation stages, depreciation was been witnessed.
1.3 OBJECTIVES OF THE STUDY
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