THE ROLE OF MERCHANT BANKS IN FINANCING AND PROMOTING NON OIL EXPORT IN NIGERIA

THE ROLE OF MERCHANT BANKS IN FINANCING AND PROMOTING NON OIL EXPORT IN NIGERIA

ABSTRACT

The economic situation in Nigeria have lead to shift in emphasis on nonoil export as a way of boosting foreign exchange earnings as well as the diversification of the Nigeria economy. This have become important because of the deficiency in foreign exchange caused by fluctuations in oil prices and the Niger Delta issues which have led to drop in government revenue. Unfortunately, Merchant banks whose primary role is the provision of credit have been found wanting as regards granting of credit to the non-oil export sector. This limited availability of fund by Merchant banks to these non-oil export sectors have slowed down that sectors’ contribution to Nigeria’s Gross National Product. Therefore, this research intends to examine the contribution of Merchant Banks to financing the non-oil export sector; to determine whether Merchants’ loans and advances to the non-oil exports sector has positive impact on Nigeria’s Gross National Product as well as ascertaining the proportion of Merchant Bank’ total deposit mobilized to loan and advances to the non-oil sector. The research adopted the descriptive survey approach and a sample of six Merchant Banks was randomly selected. Questionnaires were distributed to targeted respondents and the data collated was analysed using the Pearson Moment Correlations and the t-test was employed in testing the significance that existed between the variable under study. The result as revealed by the tested hypotheses shows that Merchant banks are not playing encouraging role through the grant of loan and advances to the non-oil export sector; there was a positive correlation between loan and advances and Nigeria’s Gross National Product and the proportion of total deposit to non-oil export sector loans and advance is poor. The impact of merchant bank contributions through grant of loan and advances cannot be overemphasized as attested to by this research granted to the non-oil export sector as that sector has the potential to increase Nigeria’s foreign exchange as well as stimulating growth of the economy.

CHAPTER ONE

1.0       INTRODUCTION

1.1       BACKGROUND

A buoyant economy is largely on its transaction. This transaction is what most undeveloped countries depend on for foreign exchange earnings.

Nigeria’s non-oil export in the 60s (sixties) constituted the major source of foreign exchange earnings the ‘oil boom’ of the 70s changed the major source of foreign exchange earnings to crude oil. According to Oke, (1990:23) by 1980 the oil sector accounted for 22 percent of Government revenue and over 96 percent of export earning. This crude oil become the single dominating export product which resulted in the partial neglect of the non-oil export. The economic downturn in the early 80’s resulted in a drastic reduction in earnings from oil export and recent developments, especially the dwindling revenue from this sector, there has been a rekindled interest in the preferred sector agriculture and manufacturing are prominent.

In other words diversifying into non-oil export will be a veritable approach. In line with this view, Oshopitan, (1989:11) contents that “The vagaries of fortunes has resulted in a very significant decline of external receipts from about U.S$26 billion in 1980 to about U.S12 billion in each of 1980 and 1985 and 1985 and further to only about U.S$65 billion in each of 1987 and 1988. Indeed the emphasis now is on value added non-oil export so as to maximize foreign exchange therefore”.

Owing to this fact, the need to reduce the dependence of the economy on oil has become inevitable. To revive the weak base, the government introduced and provided general incentives to boost the non-oil sector of the economy which is the basis for growth and development. These measures were mainly trade export stimulation, incentives e.g. the establishment of Nigeria Export Promotion Council (1976) charged with the responsibility of identifying the country’s export potentials and the collection and dissemination of information on a continuous basis Gbosi, (1995:21). Similarly, in a bid to effect diversification the structural adjustment programme (SAP) was introduced in 1986. The primary objectives of SAP include the following: To reduce the excessive dependence of the economy on crude petroleum as a major foreign exchange earner. To enhance self reliance: to reduce the excessive dependence of the economy on crude petroleum as a major foreign exchange earner. Okigbo (1981:13).

Undoubtedly, one of the topical issues of our economic management experience is the apparent failure of the policy package to push the non-oil export sector in right direction. To improve the situation, various decrees were promulgated export incentives a package in incentives which may help the non-oil sector to earn reasonable foreign exchange for the country.

These decrees were designed to assist merchant banks and some other financial institution in providing finance for the stimulation of domestic production for export. It also gave legal backing for refinancing and rediscounting facilities crated by the Central Bank of Nigeria to provide pre-shipment and post finance in respect of non-oil export.

Furthermore, Nigeria Export Import Bank (NEXIM 1991) was established to help exporter obtain reliable information on the potentials of the market and assist in under-writing export risk.

Nigeria Export Import Bank’s role include bank activities like trade finance, project finance, treasury operations, export advisory services, market information and market risk guarantee Gbosi (1995:23).

However, research has it that irrespective of all these effort, the growth in non-oil export earnings has not been very significant, although there has been remarkable increase in export. This situation is however being redress with the implementation of Structural Adjustment programme which has inspired the participation of many banks and other specialized institutions from private and public sector. At present this role is played by Government, banks and nonbanking institutions. Practically, in order to restore stability to the nation’s economy the non-oil sector need to be activated through adequate funding or credit delivery. In this re-capitalization process, the role of financial institutions such as commercial banks development banks and most importantly the activities of the merchant banks cannot be over emphasized.

Unfortunately, the inadequate contributions of Merchant Banks

Finance (loans and advances) to the non-oil export sector has hindered the increase in volume of non-oil export, similarly the limited availability of funds to Merchant Banks in financing non-oil export and the slow increase in volume of non-oil exports has resulted to a decline in the contribution of the sector to gross domestic product. Another identified problem is the inability to ascertain the proportion of total deposit mobilized by Merchant Banks that is granted as loans and advances to the non-oil sector. The neglect of this sector (non-oil export) has affected foreign exchange earning from the sector and even resulted to a slow growth and development of our economy.

RESEARCH QUESTIONS

This research will attempt to answer the following question in order to enhance the effective realization of the set objectives.

1. To what extent do Merchant Banks’ loans and advance contribute to increase in the volume of non-oil export?
2. Does the volume of non-oil export have any significant impact on the gross domestic product?
3. What proportion of total deposit mobilized by merchant bank is granted as loan and advances to non-oil exports?
4. What is the contribution to non-oil exports to Gross National Product?

1.2 RESEARCH HYPOTHESIS

To carry out this study the following hypotheses are stated:

Ho1: There is no positive and significant relationship between merchant banks loans and advances to the non-oil export in Nigeria.

HA1: There is a positive and significant relationship between merchant banks loans and advances to the non-oil exports and the volume of non-oil export in Nigeria.

Ho11: There is a significant relationship between the gross domestic product (GDP) and volume of non-oil export.

Ho111: There is no significant relationship between total deposit mobilized by merchant banks and loan and advances granted to non-oil export in Nigeria.

HA 111: There is a significant relationship between total deposit mobilized by merchant banks and loan and advances granted to non-oil export in Nigeria.

Ho IV: There is no significant relationship between non-oil export and gross national product.

HA1V: There is a significant relationship between non-oil export and gross national product.

 1.3       PURPOSE OF STUDY

The primary objective of this study is to access the contribution of Merchant banks financing and promotional activities to increase in volume of non-oil exports and the subsequent contribution of this sector to gross domestic product in Nigeria other secondary objective are:

1. To determine whether merchant banks loans and advances too non-oil export has enough positive impact to the volume of non-oil export.
2. To ascertaining a reasonable proportion of total deposit mobilized by merchant bank is granted as loans and advances to non-oil export and finally,
3. To determine the contribution of non-oil export to gross national product.

1.4       SIGNIFICANCE OF THE STUDY

It is hoped that this study would produce useful information for use by Government, Merchant banks in Nigeria and the academic institutions.

First, the knowledge will create awareness of the plight of the exporters of non-oil product in Nigeria. It would enlighten the merchant banks on the services required by these exporters of non-oil products.

The data provided would be used by the government to sustain its efforts by increasing the share of non-oil export in her foreign exchange earnings. She will thus, formulate policies relating to export, based on such information.

The study is also considered significant in Banking/Finance in Nigeria. It will be of great value to practicing bankers, bank inspector, bank scholars and the general public. In all it will contribute to the stock of knowledge in finance in Nigeria.

1.5       SCOPE OF THE STUDY

The study was narrowed down to the role of Merchant Banks in the promotion and financing of non-oil exports. This study was restricted to some Merchant Banks and the Nigeria Export Promotion council in Port Harcourt. The activities of Merchant Banks in the area of non-oil export financing covers the period (1993-1997).

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