ABSTRACT
This research work
examined the impact of commercial bank credit (CBC) on Non-oil export trade in
Nigeria. Four variables were used in the study. This study adopted the
econometric time series analysis from 1992-2015 and the data were sourced from
Central Bank of Nigeria statistical bulletin. The empirical analysis that were
carried out to achieve the objectives include unit root, co-integration, the
long run regression model and short run error correction model. The Augmented
Dickey Fuller was employed in conducting the test of unit root and the
variables became stationary at first difference. The co-integration test result
reveals the existence of long-run relationship among the variables. Then long
run regression and short-run error model was conducted and it discovered that
CBC has a direct and positive significant impact on non-oil export, it also
reveals that there exist a positive and significant relationship between real
exchange rate and non-oil export and significant relationship among real
interest rate and non-oil export. Further,
the Central Bank of Nigeria should as an operational guideline, impose on commercial
banks to set aside a certain amount of money from their yearly profit
for financing of non-oil export as it is the case for small and medium scale
equity scheme.
CHAPTER
ONE
1.0 INTRODUCTION
1.1 Background to the study
The growth of any
economy is a function of the quality and quantity of goods and services it
produces. There is always a tendency to produce and market to earn a living. In
the wider society, the quality of life enjoyed very much depends on the quality
of goods and services available to the citizenry. There is the development
aspect of growth that enables equitable distribution. This entails getting
products from one part to the other (Nzotta, 2004).
Production in one
country could be transported to another to enhance quality of life. Developing
nations have the tendency to import greater part of their goods and services
from developed nations. To square up with the developed nations, they have to
increase production of exportable goods (Gbosi,1994).
Nigerian economy has
depended predominantly on crude oil since the discovering of crude oil in the
early fifties. Prior to this, cash crops like cocoa, palm produce, cotton,
groundnut and cassava has been the mainstay of the economy. These cash crops
earned so much foreign reserve of the economy.
Nigerian Bauxite is the
best in the world and are sought for globally. (Soludo, 2009).
One would have expected
a balance of payment that tilts to the favor of local production. This,
however, is not the case with Nigeria as imports far outweigh exports. Export
financing is a means of helping local producers process their products for a
better market abroad. It is designed to make funds available for local producers
to seek for market abroad. The essence of every productive business is to sell
to a wider range of customers to reduce cost and continue in business.
Oftentimes, it is propelled by the desire to increase the market share, and
thus, the clientele. According to Nigerian Export Promotion Council (2009:12),
export financing makes fund available for exporters to process their goods for
export. It notes that in Nigeria, there are many opportunities to explore for
exports created by government, noting that there could be logistics that may
hinder continuity. Nigerian Export –Import Bank (NEXIM, 2008) notes that a lot
of exporters do not want to take the risk of assessing funds from NEXIM due
probably to high interest rate. But it states that the risk involved in export
financing is such as to secure the financier’s investment while monetizing the
exporter.
The roles of commercial
banks in our modern economy cannot be over emphasized; Commercial banks in
Nigeria as a financial institution helps in financing the exporting sector of
the economy, by lending out short-term loans to those into manufacturing,
exporting, trading and industries.
Lack of bank credit
(loan and advances) in our economy has brought about low rate of economic
growth and diversification of most industries in Nigeria. The availability of
bank credits to those in trade determines what is produced and how much of that
product is produced. Therefore, commercial banks perform their important role
of financial assistance by rendering important services such as granting (loans
and advances) to various sectors of the Nigerian economy. Commercial banks
support the economy by serving the credit needs of their customers and
providing a safe place for their cash balance. Of individual credit activities
on the export sector of the Nigerian economy, there are general statements
which guide or channel actions in decision making about the export sector
advance and investment of commercial bank.
The importance of
export trade to economic growth cannot be overemphasized, this trade goes
beyond the national boundaries of moving goods from a country to another in
order to earn foreign exchange. Export are the goods and services which a
country sends to other countries abroad in return for some payment made in
foreign exchange.
According to Chartered
Institute of Bankers of Nigeria – CIBN(2008), export financing enables
businesses to take their products all over the world, by enabling the exporter
get to many places round the globe to market his products. There are a lot of
benefits to a business selling overseas, but there can be a lot of financial
risks involved as well. It is important to understand the risks and government
regulations before selling overseas. According to International Monetary Fund
(2007), export credit scheme aids export financing and boosts a country’s
Balance of Payment. It notes that if done right, it can be profitable and can
sometimes bring a business more profit than selling within the country. Export
financing, notes Soludo (2009) is loan meant for shipping of products outside a
country or region. If you have a product that is good, appealing to another
country, and has great potential to sell, you could also consider a venture
capitalist to help bring your business where it needs be. “CBN greatly
encourages venture capital as export finance. There are also some creative
methods of export financing. One of such methods is utilizing a factoring house
overseas. Basically the factoring house will purchase the exported products at
a discount below invoice value. The factor sells the products at a higher
margin. This ensures that the exporter receives his money upfront, which
reduces the risk greatly” (McJones, 2010).
According
to International Development Agency (2010), funds are provided to developing
countries to help them purchase United States goods and services. Mc Jones
(2010) observes that IDA services are no longer highly operational in Nigeria,
but there are Export Assistance Centers, EAC, that offer technical assistance
to exporters of which the Nigerian Version is Export Processing Zone (EPZ).
This research work looks at the impact of bank credit on export trade in
Nigeria.
1.2 Statement of
problem
Export
financing through bank credit is the prime mover of the economy of
industrialized nations. Goods are produced for consumption both locally and
internationally. Export financing is, therefore, a key factor in any successful
international trade. Exporters naturally would want to get paid as quickly as
possible, while importers usually prefer to delay payment until they have
received or sold the goods. Because of the intense competition for export
markets, being able to offer attractive payment terms customary in trade is
often necessary to make a sale. In many cases, bank credit in export financing for small and medium scale
business are not easily accessed by exporters themselves. It is either that the
conditions given to exporters are too high for them from various finance sources
or they are not willing to take risk associated with the finance sources.
Therefore, the unavailability or the lack of commercial bank credit to exporters
poses a great threat to the growth of non oil export in Nigeria which this work
tends to solve.
1.3 Research Questions
i. What is the
impact of Commercial bank credit on Non-oil export trade in Nigeria?
ii. To
what extent does exchange rate have effect on Non-oil export trade in Nigeria?
iii. What impact
does interest rate have on Non-oil export trade in Nigeria?
1.4
Objectives of the study
The main objective of
this research is to investigate the relationship impact of commercial bank
credit on non-oil export trade in Nigeria. To achieve this, the following
specific objectives were formulated as follows:
(i) To examine
the impact of commercial bank credit on non-oil export trade in Nigeria
(ii) To what
extent does Interest rate have effect on Non-oil export in Nigeria
(iii)To
examine the impact of exchange rate on non oil export trade in Nigeria.
1.5
Hypothesis of the study
Based on the objectives
of the study, the following research hypothesis are formulated:
H0: Bank credit has no significant impact on
export trade in Nigeria.
H1: Bank Credit has significant impact on export
in Nigeria.
H0: Interest rate
has no significant impact on export in
Nigeria.
H1: Interest rate has
significant impact on export in Nigeria.
H0: Exchange rate has no significant impact on
Nigeria’s export trade
H1: Exchange rate has significant impact on
Nigeria’s export trade
1.6 Significance of the study
The study is
significant in a number of ways as follows:
1. To policy makers and
regulators of the export financing, it will present a scheme, through its
analysis that could assist them in enunciating policies and reforms that will
positively impact on the performance in the light of globalization.
2. To economic watchers
and the interested public, it will provide some insight into the performance of
export business.
3. To investors in
general, it will expose the relationship existing between relevant variable
used in the study.
4. To students, the
research will assist those who wish to take a career in economics banking and
finance to advance their understanding of the concept and mechanism of export
financing and it’s inter-relationship with the financial markets of nations of
the world.
5. Finally, the
research work will serve as a reference material for future researchers on
similar topic by providing them with some index of and the Nigerian sources of
business finance, export finance.
1.7
Scope and Limitations of the study
The scope of this study
covers the Nigerian economy and will only review the impact of Bank Credit on
Nigerian export trade. This study covers the quarterly data for the period of 1992-2015.
1.8 Definition of Terms
BANK
CREDIT: Bank credit is aggregate amount of credit available to a person or
business from a banking institution. It is also the total amount of funds
financial institutions provide to an individual or business.
EXPORT TRADE: Export
Trade is a function of international trade whereby goods produced in a country are
shipped to another country for future sale or trade. This is also the exchange
of capital, goods and services across international borders or territories or
among nations of the world.
EXCHANGE RATE: This is
the rate at which one currency trades against another on the foreign exchange
market. Currencies are being continuously traded on the foreign exchange
markets, with the prices constantly changing as dealers adjust to changes in
supply and demand.
INTEREST RATE:
According to Fuller (1990), Interest rate is the factor reward or earning of capital. Fuller opined that
this source of finance will only be available if other people are willing to
forgo current consumption and provide a pool of financial resources from which
loans can be advanced.
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