DEVALUATION OF NAIRA: EFFECT ON NIGERIA CONSTRUCTION INDUSTRY
- BACKGROUND OF THE STUDY
Nigeria with abundance of resources like crude oil etc, is deemed blessed. Her vast resources in commercial quantities have placed her on a high pedestal among oil producing nations in the world. Her oil and gas industry which has been widely described as the nation’s financial lifeline has helped to attain this enviable position. There are journals several to this and about its role and significance in the Nigeria of today. This has birthed the segmentation of the key economic segments in Nigeria. Devaluation originally refers to a sharp fall in currency within a fixed exchange rate. In 1960 after independence, Agriculture, which used to be the pivot of the economy, showed greater decline. This came as a result of the discovery of crude oil with its value to the economy of the whole world.
The revenue from crude oil appeared to have helped Nigeria economy with impact towards social and economic development than agriculture. This led to the sudden neglect for agricultural activities. The impact of this thus, the contribution of agriculture to the GDP fall to 39.9 percent between 1971 to 1974 to 18 percent with occasional rise within this period the Nigeria devaluation was very high.
Devaluation is a macro-economic fiscal policy which dwells on deliberate reduction in the value of local currency with the purpose of increasing gain in tradable items, cost of goods and services are cheaper in a nation where there is no currency devaluation . Reduction in prices of goods and services can help stimulate trading activities in a country with overall purpose of enhancing economic growth and development to help alleviate poverty.
The construction industry is generally responsible for the physical development or the transformation of the environment, which makes the built environment very vital to social economic development of a nation. High construction costs have become a major pointer to the malfunction of the construction Industry in Nigeria today (Uwah 1995). This has manifested on low construction activities and abandoned projects with several consequences on the nation’s socio-economic and technological development. Cement production involves a lot of foreign input in the form of machines and spare parts, thus when the nation’s currency suffers a setback at the foreign exchange market, cement manufacturers simply catch cold.
Makoju (1995) observes that the devaluation of the naira in the past few years had negatively impacted investment in the manufacturing of cement. The Babangida led administration’s currency devaluation became popular in Nigeria when in 1986 he came up with the structural adjustment programme. This helps achieve a realistic exchange rate for the naira that was overvalued then. This posed an unhealthy threat in the economic growth and development of our nation Nigeria because overvalued currency then worsens balance of payment problem (Godaro 1989) on the basis of this; the nation was encouraged to embrace the devaluation policy as prerequisite for economic recovery.
1.2 STATEMENT OF THE PROBLEM
- High cost of housing and properties – As a result of the high costs of materials.
- High cost of construction – Nigerian depending on foreign importation.
- Increase in construction project Abandonment – This is the reason many construction projects fail and abandoned in Nigeria.
- OBJECTIVES OF THE STUDY
The main aim of the study is to examine the effect of the devaluation of the naira in the Nigerian Construction Industry. To identify the effect of naira devaluation on the construction industry.
1.4 SCOPE OF WORK
This study considers the exchange rate between January-2012-october 2015 and its effect on the Construction Industry in Nigeria (Naira, Dollar, Pound).
Time constraint- As devaluation spand a long time than, what is being considered, financial constraint.
1.6 DEFINITION OF TERMS
Naira Devaluation: It refers to the deliberate lowering of the value of the naira in relation to other country’s currency within the context of a fixed exchange rate management system.