Effect of Devaluation of Naira on Price Level

Only available on StudyMode
  • Download(s) : 2265
  • Published : June 25, 2010
Open Document
Text Preview
EFFECT OF DEVALUATION OF NAIRA ON PRICE LEVEL
IN NIGERIA

BY

¹MR. IKECHI, PRINCE OBINNA MBA (Marketing), MCIM, MNIMN, Lecturer, Marketing Department; Rivers State College Of Education, St. John’s Campus, Port Harcourt, Nigeria. Email: obinnapikechi@yahoo.com. Tel: +234(0)8033429869;

²HON. TAMUNO, MAUREEN PIRIBONEMI KBVM
MBA (Marketing), FCIM, AMNIM. Member, Rep.: Ogu/Bolo Constituency & Chairman, House Committee on Education Rivers State House of Assembly, Port Harcourt, Nigeria E Mail: maureentamuno@yahoo.com; Tel: +234(0)8055096230

&
³MR. IGONI, MORDECAI JAPHETH M.ED (Business Education), Lecturer, Business Admin. Department; Rivers State College Of Education, St. John’s Campus, Port Harcourt, Nigeria. Email:mordecaijaphethigoni@yahoo.com; Tel: +234(0)8055669179

ABSTRACT
Almost all the countries of the world have devalued their currencies at one time or the other with a view to achieving certain economic objectives. This paper intends to demonstrate the existence of contractionary devaluation in Nigeria by drawing from previous studies. In this study however, we intend to evaluate the effect of devaluation on the general price level in Nigeria; determine the possible way out of the dilemma of price increase in Nigeria in the face of devaluation and evaluate the antecedents of entrepreneurs in the event of devaluation in Nigeria. This study is basically empirical in nature; therefore, the research design used is the desk research. Devaluation pushes up import duties, since duties are computed based on the prevailing exchange rate. This puts pressure on both imported finished goods and production costs. Purchasing power of citizens would reduce with increases in price level and this would worsen the pervasiveness of poverty. Speculative activities in the economy will increase as a result of instability. In the aftermath of the misfortunes of the Naira, manufacturers and importers adjusted the prices of their products upwards causing major distortions to the purchasing ability of the average Nigerian. Continuous devaluation such as we have experienced, has necessitated substantial sacrifice, but provided limited benefits.

INTRODUCTION
Devaluation means officially lowering the value of currency in terms of foreign currencies. There is a difference between devaluation and exchange depreciation. Devaluation is the result of official government action. Depreciation or decline in the rate of exchange of one currency in terms of another is due to market forces. Substantially devaluation and depreciation both refer to the reduction of international Currency in terms of foreign currencies. There could be many motives of the devaluation. It stimulates exports of commodities. It restricts import demand for goods and services. It helps in creating a favorable balance of payments. Almost all the countries of the world have devalued their currencies at one time or the other with a view to achieving certain economic objectives. During the great depression of 1930 devaluation was carried by most countries of the world for the objecting of correcting over-valuation of currencies. Continuous devaluation such as we have experienced, has necessitated substantial sacrifice, but provided limited benefits.

OBJECTIVE OF THE STUDY
The aim of this study is to:
i)Evaluate the effect of devaluation on the general price level in Nigeria. ii)Determine the possible way out of the dilemma of price increase in Nigeria in the face of devaluation iii)Evaluate the antecedents of entrepreneurs in the event of devaluation in Nigeria.

STATEMENT OF PROBLEM
The naira is the Nigerian form of currency. Fifty percent of every naira finds itself abroad. Since 1986 there has been a devaluation of the Nigerian naira. Since the devaluation of the naira there has been an inflow of second-hand goods from abroad such as clothing, foot wear, and vehicles. Because of the depressed economy and decreased purchasing power of the naira, Nigerians...
tracking img