CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The globalization paradigm is basically a development construct for the integration of world markets. The West has presented globalization as a market driven strategy for development. The International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD) particularly described globalization as a principle meant to “rapidly develop and create a dense network of interconnections and interdependencies that characterize modern social life” (Oke, 2003). In essence, globalization is aimed at the reduction of poverty and enhancement of global cooperation for universal economic growth and development.
In the last two decades, economic globalization has been inextricably linked with the inextricable economic policies of the 1980’s and 1990’s manifested in unleashing of marketing forces, deregulation and urbanization; minimizing the role of the state, among others (Obadan, 2002) economic globalization is the on-going process of change towards greater economic integration of economics throughout the world through trade. Financial flows, exchange of technology and information, and movement of people. It has been a powerful force shaping world economics in recent decades. The trend towards more integrated world markets and economic has opened a wide potential for greater growth, and presents unparallel opportunities for developing countries that are prepared to range their standard of living.
Indeed, over the last thirty-years, greater integration into the world economy through trade has allowed a significant number of developing countries to partake in the opportunity and benefits of globalization to develop the comparative advantages and gain access to more appropriate technology, while financial liberation has increased them to international private capital, permitting them to realize much higher rates of economic growth. Globalization, entailing the increasing internationalization and integration of markets for goods, services and capital, has brought noticeable changes to the world economy, which has frequently been described as gravitating towards a global village. According to Kemp (1995) “the globalization of the business world has been prospering over the past several years and continues to grow as the world advances in the age of information technology. The establishment of the International Date Line and world time zones coupled with the near global adoption of the Gregorian Calendar between 1875 and 1925 generated the first consciousness that the world was united and intertwined.
Globalization was facilitated by the activities of multinational corporations, the multilateral monetary and financial institutions especially the Bretton-woods institutions. Companies therefore embraced the concept of globalization of operate as well as produce goods and services in countries other than their home country. The idea was to access preferred but locally scare inputs (Labour and raw materials) and wider markets which the high population of most poor countries offers. The popularity of “globalization” as a concept can be attributed to two major reasons: The first is its scale and speed and the way technology (especially in communications and transportation) is changing the world. Second, it is the latest in economic fad that has become accepted as changing the international environment and turning the whole world into a global villages. Globalization has a wide range of components but the most prominent are the economic, political, social, cultural, environmental, ecological and spiritual dimensions. The economic dimension of globalization will only be addressed in this study. The economic component of globalization revolves around the IMP, and IBRAD’s political economic frameworks consisting of free trade, deregulation and urbanization of the market.
The component also emphasizes the macro-economic indices such as inflation, foreign exchange and interest rates. The political economic framework embodies in its entirely the components of the Structural Adjustment Programme (SAP).From the viewpoint of the IMF, the economic crisis in Nigeria, is a product of structural distortions in the economy due to overvalued exchange rates, import regulation, huge public sector expenditure, poor investment management and low returns on capital, high wage structure and low productivity of workers, import substitution, industrialization and its policy, environment, over-extended inefficient and unproductive public enterprises, and their undue protection by government, and discriminatory credit policies against the private sector (Onyeonory 2003).
The underlying argument by the IMF/World Bank is that economic growth became blocked by the present of in sustainable imbalances in this national economy between aggregate demand and aggregate supply with the result that imbalances caused growing deficits in the balance of payments, high rates of domestic inflation and huge and growing public sector deficits. Solutions to the problems became imperative thus the place of Nigeria in the global economy has become an issue of policy relevance as a result of the rapid integration of the world’s goods, services and financial markets. The trend in globalization has been sustained by the rapid liberalization of trade and capital flows between countries. Since this trend has been established and a reversal is imminent now and in the near future, the window of opportunities that exists in the system are open to those countries that can move along as effective participants. This is the reason why the potentials for Nigeria must be critically examined to define the path towards the realization of the full benefits from the current engine of growth of the world economy. The objective of this study therefore is to examine the impact of globalization mechanism on the growth of manufactured export in Nigeria with particular reference to Lagos Area.
1.2 Statement of the Problem
The Nigerian export market can be broadly divided into two sections: the oil sector and the non-oil sector. The oil sector includes crude oil and its allied products. The non oil sector is a combination of items which were grouped together for ease of analysis. The non-oil sector can further be classified into:
a. Agricultural exports sector
b. Minerals exports sector
c. Manufactured products export sector Before the advent of oil as a main foreign exchange earner for Nigeria, the non-oil exports amounted for about 10 percent of total export earnings for Nigeria.
The oil boom reversed this trend as oil now accounts for not less than 95 percent of the export earnings of the nation: The danger inherent in this situation is obvious. Oil is an unstable product. The present depressed state of the Nigerian economy amongst other things is highly traceable to the incidence of tying the national economic fortunes on oil earnings to the neglect of the non-oil sector. According to Adeyemi and Okunu (2008), A prominent feature of Nigeria’s external sector has remained basically the same since 1960. The sector is characterized by the dominance of a single export commodity. In the decades of the 1960’s ad 1970’s the Nigerian economy was dominated by agricultural commodity exports. Such commodities include cocoa, groundnut, cotton and palm produce. From the mid-1970s crude oil is the most dependable and is highly sought after in the international oil market.
The export of crude oil now constitutes about 9% of total exports. The performance of the non oil export sector in the past two decades leaves title on nothing to be desired. The police concern over the years has therefore been to expand non-oil export in a bid to diversify the nations export base. The diversification of the Nigerian economy is necessary for important reasons. Firstly, the volatility of the international oil market with the attendant volatility of government revenue gives credence to any argument for diversification of exports. Secondly, the fact that crude oil is an exhaustible asset makes it unreliable for sustainable development of the Nigerian economy. There is thus the inevitable need to turn the search light on globalization and all those accompanied it and examine its impact on manufacturing industries development, quality of the locally produced goods and the increased level of nation’s export of non-oil products.
1.3 Objectives of the Study
The general objective of this study is to examine the impact of globalization process on Nigeria non-oil export trade between 2000-2006. In order to achieve the general objective, the specific objectives of the study are to: i. Examine the implication of globalization process on industrial development.
ii. Identify the effect of degree of openness on export of non-oil products.
iii. Examine the impact of exchange rate on export of non-oil products in Nigeria.
iv. Recommend measures for growth of manufacturing industries for the improvement of export of non-oil products.
1.4 Significance of the Study
There is no doubt that manufacturing remains one of the most powerful engines for economic growth. It acts as a catalyst to transform the economic structure of countries, from simple, slow-growing and low- value activities to more productive activities that enjoy greater margins, are driven by technology, and have higher growth prospects. But its potential benefits are even greater today. With rapid technological change, seeping liberalization and the increased defragmentation and internationalization of production, manufacturing has become the main means for developing countries to benefit from globalization and bridge the income gap with the industrialized world. These are some of the many arguments that justify the importance of promoting manufacturing export through globalization in the developing world. This present study would go a long way to show the benefit and advantage of Nigeria adoption of international trade. Also, the study would show policy makers the need to promote export operations in order to increase the balance of payment in Nigeria. The result of the study would provide the basis for Nigeria movement in international and regional trade as a means of developing our economy. The study would also reveal the extent to which globalization has encourage industrial production for export in Nigeria. Finally, it would serve as repositioning of information for other researchers, government officials and corporate organizations interested on benefit of globalization.
1.5 Research Questions
The research will seek to address the following questions.
i. To what extent has the globalization process has any significant impact on industrial growth in Nigeria?
ii. What is the effect of degree of openness on the export of non-oil product?
iii. To what extent does exchange rate affect export of non-oil products in Nigeria?
iv. What are the measures established by the government to promote local industries and encourage export of non-oil products in Nigeria?
1.6 Research Hypothesis
The hypothesis formulated to be tested in the study include:
1. Ho : There is no significant relationship between degree of openness (globalization) and non-oil export products.
Hi : There is significant relationship between degree of openness and non-oil export products.
2. Ho : Exchange rate has no significant effect on export of non-oil products in Nigeria.
Hi : Exchange rate has significant effect on export of non-oil products in Nigeria.
1.7 Scope and Limitation of the Study
Since globalization is a worldwide phenomenon, which means different thing to different people across time and globe which Nigeria is not an exemption. In light of this, the scope of the study covers the period of 1995 – 2005. This period corresponds with the period of economic reform Nigeria. And the research study will limit itself of the examination of how globalization is able to power the export capacity of manufacturing sector through the openness of the, economy, government: policy, foreign exchange capacity and policy.
1.8 Outline of Chapters
This study will be divided into five chapters as follows: Chapter one would be the introductory chapter, which would comprise of background of the study, the statement of the research problem, objective of the study, significance of the study, research questions, research hypothesis, methodology of the study, scope and limitation of the study and outline of chapters. Chapter two dealt with the conceptual and theoretical framework and the literature review. Chapter three focused on research methodology. This will also include research design. Population of study, operationalization of variable, sample and sampling technique, research instrument and method of data analysis. Chapter four involves analysis of data and interpretation of results. Chapter five is the concluding of chapter, continued the summary, findings, recommendation and conclusion. 1.9 Definitions of Terms
Globalization: The network of connections of organizations and people across national, geographic and cultural borders and boundaries.
Economic Development: The process of improving the quality of human life through increasing per capital income, reducing poverty, and enhancing individual economic opportunities.
Export: Shipment or transfer of goods and services from one country to another.
Exchange Rate: The unit of the domestic currency per unit of a foreign currency.
Foreign Exchange: The component of the reserves that is made up of convertible currencies, which are used on a daily basis to settle international transactions and to finance deficits in the balance of payments.
Export Processing Zones (EPZ): Areas dedicated to production for the export market, with special incentives (such as low taxes and tariffs, good infrastructure to attract foreign investors).
Foreign Direct Investment: Purchase of a controlling share in an existing company in a foreign country, or the setting up of new business venture in a foreign country.
Integration: The process of including a national economy within the global economy, especially through trade liberalization, export production and opening-up to foreign investment