TABLE OF CONTENTS PAGE TITLE CERTIFICATION DEDICATION ACKNOWLEDGEMENTS ABSTRACT TABLE OF CONTENTS VIII III IV V I II

CHAPTER ONE INTRODUCTION 1.1 1.2 1.3 1.4 1.5 1.6 Background Information of the Study Statement of the Research Problem Research Questions Objectives of the Study Justification of the Study Limitation of the Study 3 4 5 6 1 3

CHAPTER TWO LITERATURE REVIEW 2.1

2.2 2.3

Introduction Meaning of Exchange Rate Variation Its Impact on the Nigerian Economy 11

8 10

2.4

Domestic Investment on the Nigeria Economy 13

2.5

Capital gains of Domestic Control 15

2.6

Impact of Exchange Rate variation on Nigeria Economic Growth 20

2.7

Factors affecting Domestic Investment On the Economy 21

2.8

The Role of Exchange Rate Variation

II

On domestic investment on the Nigeria economy 22 2.9 25 Challenges of Domestic Investment

CHAPTER THREE RESEARCH METHODOLOGY

3.1

Introduction 32

3.2

Historical background of Cadbury Nigeria Plc 32

3.3 3.4

Methods of Data Collection Population Sample Research Hypothesis Method of Data Analysis Research Instrument Sample Technique 38

37 38

3.5 3.6
3.7

39 41 41 42

3.8 3.9

III

CHAPTER FOUR DATA PRESENTATION AND ANALYSIS 4.1 4.2 4.3 4.4 Introduction Presentation, Interpretation and Analysis of Data Test of Hypothesis Research Findings 43 45 67 74

CHAPTER FIVE SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 5.1 5.2 5.3 5.4 Summary of findings Conclusion Recommendations Area for further study 81 8 76 77 78 79

Bibliography Appendix

IV

CHAPTER ONE INTRODUCTION 1.1 BACKGROUND INFORMATION OF THE STUDY

Policies adopted globally to mitigate climate change (global warming) will have negative implications for specific sectors, such as the coal, oil and gas industries. Nations relying exclusively on any of these sectors will thus be gravely affected by the climate change abatement process. Few countries stand more threatened by this development than the oil-producing Nigeria. Nigeria's economy today remains monocultural and heavily dependent on the oil sector, which accounts for around 80% of government revenues, 90-95% of export revenues, and over 90% of foreign exchange earnings. The extent of this heavy dependence in monetary terms is signified by the fact that the country earned in excess of US$200 billion from oil exports between 1970 and 1990 (Adenikinju, 1998). Currently, the Nigerian government is in the process of lessening this unhealthy dependence on crude oil through its development of the natural gas industry. Nigeria is believed to have an estimated 124 trillion cubic feet (Tcf) of proven natural gas reserves - 9th largest in the world (EIA, 2001). Due to a lack of gas utilization infrastructure, Nigeria currently flares 75% of the gas it produces and re-injects 12% to enhance oil recovery. But the development of the natural gas sector is intended to stem this wastage as well as further expand the governments revenue base. The recent agreement between the government and the oil companies puts the end of all gas flaring in Nigeria at 2004. Despite this diversification attempt, however, Nigerias economy stands to remain dependent on fossil fuels. This is particularly worrying because fossil fuels are the chief

culprit implicated in the environmental issue of climate change phenomenon commonly referred to as global warming. Our analysis will benefit from a review of the connection between fossil fuels and climate change. Human economic activities has, in the last 100 years, contributed to an increase in the concentration of greenhouse gases in the atmosphere leading to the enhanced greenhouse effect (IPCC, 1996, 1998) which in turn is expected to result in climate change, arguably the most important and dangerous, and certainly the most complex, global environmental issue to date (Holdren, 1992; Kandlikar and Sagar, 1999; Hamilton, 1999). It is estimated that extraction and burning of fossil fuels is the source of about 70-90% of anthropogenic carbon dioxide emissions (Strong, 1992; Edge and Tovey, 1996), the most important greenhouse gas. Greenhouse effect is a natural phenomenon. A natural mix of certain greenhouse gases reside in the atmosphere. They allow the short-wave radiation from the sun to penetrate the atmosphere, but absorb the lower wavelength energy which is re-radiated from the Earth's surface (Clayton, 1996; Houghton, 1998). Because these greenhouse gases are good absorbers of heat radiation coming from the Earth's surface, they act like a blanket over the Earth's surface, keeping it warmer than it otherwise would be. Enhanced greenhouse effect, on the other hand, is not natural. It refers to the changes in the earth's radiation balance due to the anthropogenic accumulation in the atmosphere of radioactively active greenhouse gases. In addition to carbon dioxide, other greenhouse gases include, methane, nitrous oxides, troposphere ozone and chlorofluorocarbons. Their effect is to accelerate the warming effect beyond acceptable levels. Models project that, if current trends in anthropogenic GHG emissions continue through 2030, the earth will

experience an average rise in temperature ranging from 34.7o to 40.1o F (1.5o to 4.5o C) (Porter and Brown, 1991). Even higher warming is considered possible because of feedback process (Lashof, 1989). The projected impact of this on environmental stability and life on earth is better imagined than experienced. They include changes in the global climate and the consequent disruption in the temporal and spatial distribution of temperature, precipitation, evaporate-transpiration, clouds and air currents as well as the consequent shift in the vegetation belts; melting of the polar ice-caps; rise in sea level which could adversely affect low-lying areas, and the synergy among these discrete effects. Some or all of the above have implications for fresh water resources, agriculture and food supply, natural ecosystems, biodiversity and human health (Ayres and Walter, 1991; IPCC, 1996). Many scientific uncertainties, however, remain concerning the timing and degree of the enhanced greenhouse-effect. Despite these uncertainties, the balance of opinion suggests that climate change is real and favours early action in tune with the precautionary principle. This has spawn into various abatement measures by the international community. Currently action to stem the emission of greenhouse gases as encapsulated in the Kyoto protocol is restricted to the developed countries or Annex 1 countries. This requires the so-called Annex 1 countries to cut their greenhouse gas emissions by 5% compared to 1990 levels by the period between 2008-2012. Nigeria which belongs to the non-Annex 1 countries is thus not required to take any abatement action now, rather the impact of global warming on Nigeria for which we are concerned in this paper stems from the threat to Nigerias economy posed by the response measures being adopted by the international community. Nigeria stands to suffer income losses

when the global community begins to substitute renewable energy alternatives for fossil fuels. Given the exclusive reliance on fossil fuels for foreign exchange and the predominant focus on further expansion of this sector of the economy by the Nigerian government, the impact of the global shift away from fossil fuels is bound to cripple the Nigerian economy. As it stands, the Kyoto Protocol, if fully implemented, would lead to a dramatic loss of revenue for oilexporting countries, as a result of a heavy reduction in demand for petroleum. Independent studies estimate the loss at tens of billions of US dollars per year for OPEC's members of which Nigeria is one, and up to 25% reduction in the OPECs revenues by 2010. Such a heavy decline in income would strike at the very heart of Nigerias economic and social infrastructures, causing a radical scaling down of development plans and entailing huge cutbacks in such vital services as education and health care. It would also affect its ability to invest in future production capacity. Already developed countries are channelling huge resources into research and development of alternative and renewable energy sources that would enable the transition away from fossil fuels, signalling their resolve to transit away from the fossil fuel economy. Likewise, government policies and regulations are providing incentives to the private sector to expedite this shift. For instance, Denmark put in place an energy tax levies aimed at restructuring the power markets by raising a levy on conventional energy supplies, and refunding it to renewable energy power producers in the private sector (EWEA, 1991). Street and Miles (1996) also reports that prior to 1989, private developers in Denmark received a capital subsidy of up to 30% for each wind turbine erected in place of the conventional fossil fuel-based power generation facility.

Likewise in Netherlands, under the subsidized market introduction programme (IPW) introduced in 1986, investment costs for wind power were subsidized by up to 40% and this translated into an increase in capacity to 120 MW of installed wind power in 1996 (Street and Miles, 1996). In the UK, the non-fossil fuel obligation (NFFO) requires regional electricity companies in England and Wales to secure specified amounts of electricity from renewable energy sources (Street and Miles, 1996). 1.2 STATEMENT OF THE RESEARCH PROBLEM The immediate consequence of the exchange rate variation on domestic investment is that it affects foreign investment on the economy. Therefore, in this study we are going to look at: 1. How effective is the power of exchange rate variation on the domestic investment on the economy? 2. What impact does the exchange rate variation has on growth of an economy? 3. What are the reasons for the adoption of the exchange variation on domestic investment of the economy? 4. What challenges does the exchange rate variation imposed on the economy. 1.3 RESEARCH QUESTIONS

1. To what extent does the exchange rate variation contribute to the development of domestic investment in an economy?

2. To

what

extent

do

government

policies

affect

domestic

investment? 3. How does exchange rate variation affect the investment climate in the economy?
4.

Does domestic investment have social implication on the economy?

5. How does exchange rate variation have significant effect on industrial/manufacturing sector of the economy?

1.4

OBJECTIVES OF THE STUDY The objectives of this study include: 1. To find out how exchange rate variation can influence the domestic investment climate in the economy. 2. To determine possible ways of exchange rate variation to increase domestic and global investment in the economy. 3. To examine the effect of exchange rate variation on domestic investment.

1.5

JUSTIFICATION FOR THE STUDY

The study is expected to make contribution to knowledge in the following areas:

10

1. To highlight the gains that can achieved in the use of

exchange

rate

variation

in

the

promotion

of

domestic

investment on an economy 2. To stipulate the development strategy that will be use in tackling it 3. To show the implication that might be encountered in the study of the research 4. To increase government industry collaboration, a key avenue for the development of domestic investment in the economy. 5. To demonstrate the importance of using the exchange rate variation on the economy.

1.5

LIMITATION OF THE STUDY A restriction has been placed on the extent that can be

researched in the impact of exchange rate variation on domestic investment in Nigeria. The delimitation which is through problems which involves the constraints. In the course of this project research like energy involves monetary involvement, presentation of false information by the respondent e.t.c.

11

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