Assessment of Exchange Rate on the Performance of Small Scale Businesses in Asaba Urban

Assessment of Exchange Rate on the Performance of Small Scale Businesses in Asaba Urban

ABSTRACT

This study assessed exchange rate on the performance of small scale businesses in Asaba Urban.

Three research questions guided the study.  A descriptive survey design was adopted for the study. The population of the study comprised of three hundred and eighteen (318) small-scale business owners in Asaba Urban, Delta State. The sample of the study was sixty (60) small-scale business owners in Asaba Urban, Delta State drawn through simple random sampling technique. The instrument for data collection is a structured questionnaire titled, “Assessment of Exchange Rate on the Performance of Small Scale Businesses in Asaba Urban”. Copies of the instrument was sent to a lecturer in Business Secondary Education (Business) a lecturer in Educational Measurement and Evaluation for face and content validation. Reliability of the instrument was determined using split-half method which yielded a correlation coefficient of 0.67 which means that the instrument is reliable. Sixty (60) copies of the validated instrument were administered to the small scale business managers and 56 copies were retrieved and analyzed using frequency count and mean statistics.

Findings of the study revealed that exchange rate has negative effect the availability of goods of small scale businesses, sale and patronage and the production and distribution services of small scale businesses in Asaba Urban. It was recommended that government should provide loan facilities for small scale businesses so as to help them acquire the needed good for effective operation.

  CHAPTER ONE

INTRODUCTION

Background to the Study

In recent years, Asaba Urban has experienced significant economic growth, marked by a proliferation of small-scale businesses across various sectors. These businesses, ranging from retail to services, play a crucial role in the local economy, contributing to employment generation and overall economic development. However, amidst this economic vibrancy, small-scale businesses face a multitude of challenges, with one of the most critical factors being the volatility of exchange rates.

One of the most challenging problems in the third world countries such as Nigeria is the exchange rate management, that is, ‘getting the exchange rate right’ especially in the context of exchange rate determination and major factors responsible for the exchange rate fluctuations (Williamson, 2018 & Abdelbeky, 2019). In particular, the exchange rate has been recognized to be an important link between the internal economy of a country and the international economy as such an important variable which must be gotten right at all time. According to Eichengreen (2019), given the very limited flexibility of internal prices, the nominal exchange rate is the key to the determination of the real exchange rate in the short and long term. Real exchange rates are in turn of key importance in determining macroeconomic stability and the incentive to engage in trade. As a result of this, much professional attention has been devoted to analysing what actually determines exchange rates and how a government that wants to ensure a sustainable growth rate should approach the issue of exchange rate determination. Moreover, the country has been facing greater challenges in terms of exchange depreciation since the inception of the last democratic elected government, consequent from the down fall of crude oil price at international market.

Exchange rate refers to the value of one currency (the domestic currency) in relationship of another (foreign currency). It can also be defined as the prise at which one unit of a country’s domestic currency exchanges for any other country in the world. Osiegbu and Onuorah (2020) posit that exchange rate plays a key role in international economic transactions because no nation can remain in isolation due to varying factor endowment. Movements in the exchange rate have ripple effects on other economic variables such as interest rate, inflation rate, import, export, output, etc. These facts underscore the importance of exchange rate to the economic well-being of every country that opens its doors to international trade in goods and services. The importance of exchange rate derives from the fact that it connects the price systems of two different countries making it possible for international trade to make direct comparison of traded goods. In other words, it links domestic prices with international prices. Through its effects on the volume of imports and exports, exchange rate exerts a powerful influence on a country’s balance of payments position. Exchange rate is the price of one country’s currency expressed in terms of some other currency. It determines the relative prices of domestic and foreign goods, as well as the strength of external sector participation in the international trade (Adeniran, 2019). According to Jhingan (2019) foreign exchange rate or exchange rate is the rate at which one currency is exchanged for another. Exchange rate is among one of the macroeconomics indicators that has effect on the range of other macroeconomics aggregates, the most important being the GDP, inflation rate, money supply and interest rate. The Naira exchange rate has witnessed some period of relative stability since the implementation of the Structural Adjustment Programme (SAP) in 1986, its continued depreciation, however, mars the economic performance of the country. The challenge of the combined effect of increase in oil prices and exchange rate instabilities on macroeconomic stability and economic growth for oil producing nations like Nigeria is really enormous (Osiegbu & Onuorah, 2020).

The exchange seems to affects the effective operation of small scale businesses due to the fact that they rely majorly on imported goods for their production and sales.

There is no single criterion for classifying business industries as small or medium scale globally. However, evidence from literature shows that in defining small- scale industries, reference is usually made to some quantifiable measures such as:  number of people employed by the industries, investment outlay, the annual turnover (sales) and the asset value of the enterprise or a combination of these measures (Justin, 2019). According to Ajiebefun (2021), small –scale business fall within the of industries if the enterprise has a capital outlay of between N1.5million and N50million including working capital but excluding cost of land and or workforce of between 11-100 employees.

Small scale business in Nigeria are divided into three sectors: Production sector including agricultural processing, manufacturing, and mining, Service sector and Trading sector including wholesales and retails (Fabayo, 2020). Small-scale industries usually operate in informal and semi-formal sectors. Ajiebefun (2022) defined small scale industries as commercial industries that have ten or fewer employees.  He classified small scale industries as enterprise with capital outlay of between N1.5 million and N50million including working capital but excluding cost of land, and work force from 11employees and above. Small scale businesses are those businesses in which manufacturing, providing services, productions are done on a small scale or micro scale. Small scale businesses play an important role in social and economic development of Nigeria (Fabayo, 2020). These businesses do a one-time investment in machinery, plants, and businesses which could be on an ownership basis, hire purchase or lease basis. The small business sector is recognized as an integral component of economic development and a crucial element in the effort to lift countries out of poverty.  Small- Scale businesses are driving force for economic growth, job creation, and poverty reduction in developing countries. They have been the means through which accelerated economic growth and rapid industrialization have been achieved. Furthermore, small scale business has been recognized as a feeder service to large- scale businesses. A small scale business is one that is independently owned and operated, and in which the owner is the sole decision maker and the overall boss (Onuoha, 2018). In general, a small scale enterprise is a business in which its owner influences the entire decision-making process and the business has relatively small market share and low capital requirement for its operation. Onuoha added that small scale enterprise has also been described as a small business in which the manager personally performs all the functions of management. The Central Bank of Nigeria defines a small-scale business as one that has an annual turnover not exceeding N500, 000.  The World Bank on the other hand says that small scale industry is one with total capital outlay of N100000 to N2 million (Excluding land) (Akabueze, 2021).

Obed (2022) asserted that exchange rate has both positive and negative effects on economic activities in the country. Olaniyi (2020) found that exchange rate negatively influence the country’ economy. Adeniran (2019), is of the opinion that exchange overtime have affected Nigeria’s GDP. Exchange rate tend to affects small scale business’ availability of goods, sales and patronage and productivity.

Small businesses often source raw materials or finished goods from international suppliers. When the local currency weakens against the currency of the exporting country, the cost of importing materials increases. A weaker local currency means that the business needs to spend more in the local currency to purchase the same quantity of materials, making imports more expensive. Increased import costs can raise the overall cost of production for small businesses. This, in turn, may lead to higher prices for the final products or reduced profit margins. Small businesses might face challenges in maintaining competitiveness in the market if their production costs rise due to unfavorable exchange rates. Fluctuating exchange rates can impact profit margins, especially for businesses that cannot easily pass on increased costs to consumers. This can affect the financial health and sustainability of small enterprises. Sudden and significant changes in exchange rates can disrupt the supply chain. Small businesses may face delays or shortages in obtaining materials if they rely heavily on imported goods, especially if they are unable to absorb the increased costs. Small businesses may not have the financial resources or sophistication to engage in hedging strategies to mitigate currency risks. They might be more exposed to the direct impact of currency fluctuations. Exchange rate movements can affect the ability of small businesses to access global markets. If the local currency strengthens, it may make exports more expensive for foreign buyers, potentially reducing market demand for the business’s products.

Sales refer to the exchange of goods or services for a monetary value between a seller and a buyer, representing a fundamental economic transaction in a market (Roy, 2019). Sales represent the primary source of revenue for companies. It is the income generated from selling products or services to customers. Sales involve the process of attracting, convincing, and converting potential customers into actual buyers, often through effective marketing, communication, and persuasion. Sales can be defined as the attainment of predefined sales targets or quotas, reflecting the successful execution of a sales strategy (Philipson, 2018). Beyond transactions, sales can also encompass the establishment and cultivation of long-term relationships between sellers and buyers, emphasizing customer satisfaction and loyalty. Patronage on the other hand refers to the act of consistently choosing and supporting a particular business, brand, or service provider over time, reflecting customer loyalty (Philipson, 2018). It involves the ongoing and repeated selection of a specific business or establishment for goods, services, or support, indicating a sustained relationship. Patronage can extend beyond individual consumers to include the support or sponsorship of businesses, organizations, or events by individuals, groups, or entities. Patronage can also describe the active support and participation of individuals or groups in the local community, including their support for local businesses and community initiatives (Robert, 2019).

On the other hand, production and distribution services are two fundamental components of the supply chain and the broader field of businesses. These services play essential roles in bringing goods and services to the market, ensuring their availability to consumers, and facilitating economic activity (Olayinka, 2017). Production services encompass the activities involved in creating or manufacturing goods and services. This process typically includes various stages such as designing, sourcing raw materials, manufacturing, quality control, and packaging (Dickson, 2020). The goal of production services is to transform inputs into finished products or services that meet specific quality standards and consumer demands. This can involve both physical goods (e.g., automobiles, clothing) and intangible services (e.g., banking, healthcare). The efficiency and effectiveness of production services directly impact the cost, quality, and availability of products in the market.

Distribution services on the other hand refer to the activities related to getting finished products or services from the producer or manufacturer to the end consumers (Ronald, 2018). This involves a network of intermediaries and logistics, which may include wholesalers, retailers, transportation companies, storage facilities, and technology systems for tracking and managing inventory. Distribution services ensure that products are available in the right place, at the right time, and in the right quantity to meet consumer demand. Effective distribution is crucial for maintaining supply chains, reducing lead times, and optimizing the delivery of products and services to customers. Production often begins with the design phase, where the concept of a product or service is developed. This phase includes market research, feasibility studies, and the creation of prototypes. Planning involves determining the most efficient processes and resource allocation for production (Roy, 2018). Roy added that distribution services manage these facilities and oversee inventory levels to ensure timely and efficient order fulfillment. Getting products from the manufacturer to the end consumer involves transportation and logistics services. This can encompass various modes of transportation, including road, rail, air, and sea, as well as route optimization, scheduling, and tracking. After the sale, distribution services may continue to interact with customers through customer service and support functions.

Many small scale businesses in Delta state and Asaba Urban in particular have had decrease in patronage over the years. This could be as the result of high prices placed on goods imported. Th high prices could be as the result of exchange rate. Hence the need to assess exchange rate on the performance of small scale businesses in Asaba Urban.

Statement of the Problem

The role of small scale businesses in the job creation, growth development and innovation in Nigeria cannot be overemphasized. This is because they play significant role on the reduction of employment in the country.

However, many small scale businesses in Asaba Urban have been experiencing serious challenges ranging from financial, technological and operational. This has led many of them to run into losses leading to business closedown. The fluctuating nature of the exchange rate seems to have significant effect of the management small scale business in the study area.

The role of exchange rate in the economic activities in the country cannot be overemphasized. This is because most of the goods sold in our markets today are either directly or indirectly imported. Due to the fact that they cost a lot to import goods, small scale business place high price tag on those goods and a result, experienced decline in patronage. The decline in patronage seem to affect the effective operation of these small scale business. The present economic situation of the country is volatile and this has serious economic implication on the small scale businesses  as they rely more heavily on short term funding and this makes them more prone to the volatile economic situation (Uremadu, Ani & Odili, 2022). It is against this backdrop that this study is carried out to assess exchange rate on the performance of small scale businesses in Asaba Urban.

Purpose of the Study

The main purpose of this study is to assess exchange rate on the performance of small scale businesses in Asaba Urban. Specifically, the study seeks to:

1. Examine the influence of exchange rate on the availability of goods of small scale businesses for in Asaba Urban.
2. Determine the sale and patronage of small scale businesses in phase of exchange rate in Asaba Urban.
3. Investigate how exchange rate affect the production and distribution services of small scale businesses in Asaba Urban.

Research Questions

The following research questions were raised to guide the study:

1. How does exchange rate influence the availability of goods for small scale businesses in Asaba Urban?
2. What is the sale and patronage response of small scale businesses in the phase of exchange rate in Asaba Urban?
3. How does exchange rate affect the production and distribution services of mall scale businesses in Asaba Urban?

Significance of the study

Findings of this the study on assessment of exchange rate on the performance of small scale businesses in Asaba Urban shall be of great benefit students, small scale business owners, government policymakers, further researchers, and the broader field of business education.

The study offers business education students in a real-world application of economic principles, particularly in the context of small-scale businesses and their susceptibility to exchange rate fluctuations. Students can gain a deeper understanding of how macroeconomic factors, such as exchange rates.

Small-scale business owners in Asaba Urban can benefit from the study by gaining insights into the potential effects of exchange rate fluctuations on their businesses. This knowledge can aid in strategic planning, risk management, and decision-making. The study may suggest possible adaptation strategies for businesses to mitigate the negative impacts of exchange rate changes.

The findings of the study can inform government policies related to economic stability and support for small-scale businesses. Understanding the link between exchange rates and business performance may lead to the development of targeted policies to aid these businesses in times of economic volatility.        The study can serve as a foundation for further research in the field, encouraging other researchers to explore related aspects or conduct similar studies in different contexts. This contributes to the advancement of knowledge in the field of business, economics, and finance. Researchers can use the study as a basis for comparative analyses across different regions, industries, or time periods, providing a broader understanding of the dynamics between exchange rates and business performance.

The study’s findings can influence the development of business education curricula by incorporating real-world examples and applications. This ensures that students are equipped with relevant and practical knowledge to address contemporary business challenges. Business education programmess can use the study to emphasize the development of analytical skills, critical thinking, and problem-solving abilities among students, preparing them for the complexities of the business environment.

Scope of the Study

This study focused on assessment of exchange rate on the performance of small scale businesses in Asaba Urban. With particular emphasis on availability of goods, sales and patronage, production and distribution services.

Limitation of the Study

The study cannot be used to generalize to the entire nation because it was limited to assessment of exchange rate on the performance of small scale businesses in Asaba Urban. The small sample size of the study and use of only one college of education are sources of limitation to this study.

Pages:  61

Category: Project

Format:  Word & PDF         

Chapters: 1-5                                 

Source: Imsuinfo

Material contains Table of Content, Abstract and References.