The Roles Of Central Bank Of Nigeria And Merchant Banks In Financial International Trade In Nigeria.



International trade is based on the advantages of geographical specialization. It is reciprocal multinational and mutually advantageous. (O.A Lawal – SUCCESS IN ECONOMIC W.A. EDITION AUO PUBLISHERS 1984 PG 250). Just as within each country, it pays one person to specialize in soap making and another in agriculture and yet another in wheat cultivation and then exchange their resources.

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It is advantageous for each country to devote its industry to these product for which its resources are most suitable, exporting its specialty in exchange for the specially of other countries (T. TERIBA – ECONOMICS FOR HIGHER EDUCATION MACMILLAN PRESS 1984.According to Hollis B Clenery. Sustained economic growth requires a transformation of the structure of production that is computable with both the evolution of domestic demand and opportunities for international trade. International trade comprises export and import of goods and services of one’s country. No doubt, export is an engine of growth, a potent strategy for mutual inter – dependence among world nation and of course an instrument for technological and industrial emancipation. According to Bela Balasea, export oriented policies apart from providing similar incentives to sales in both domestic and in foreign market lends to resources allocation according to comparative advantage allow for greater capacity utilization permit the exploitation of economics of scale, generate technological improvement in response to competition abroad and in labour surplus countries contribute to increased employment.

International trade in Nigeria has contributed a lot to the country’s infrastructure and manpower development. The structure of Nigeria’s external trade comprises its export and services outside the country. The dominant features of Nigeria’s export trade and one that is common to most developing countries is the predominance of primary product and the relative insignificance of manufactured goods. Nigeria’s most single export commodity is crude petroleum which constitutes over 90% of total export earning. Other major export products are: cocoa, palm kernel, rubber whose share of total earning amounted to 2.7, 0.8, 0.6 and 0.4% respectively.

A concomitance of the increase in importance of petroleum among Nigeria export is the fall in the dependence of the country on agricultural products especially in the 1970s.

In terms of import, manufactured goods formed Nigeria’s most important import commodities.

Also Read: The Role of Commercial Banks in Financing Agricultural Projects

In dealing in international trade, an exchange rate must be applied between nations engaging in the business. According to Alhaji G.O. Otiti, the role of exchange rate in foreign transaction and payment cannot be over emphasized for no international trade transaction between one country and another can be settled without applying on exchange rate between the two currencies.

The exchange rate is this a medium of exchange of one currency for the other. In Nigeria the central bank is responsible for the determination of exchange rate policy. The Nigeria exchange rate policy in recent times has been influenced by it’s possible contribution towards anti – inflation effort and the balance of payment needs of the country. (Alahaji Abubaka Ahmed Bello CBN Publication Vol. 2 June Pg. 7).

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In my own opinion, international trade is a trade between nations of the world and it has contributed a lot in the acceleration of political and social economic development of our country. Prior to 1970. Nigeria’s export comprised principally of agricultural product including. Cocoa, cotton, groundnut, palm oil, rubber and timber. At the time of independence in 1960, these and other non-oil export. By 1970 the shore of these product in total export had dropped to only 42% mainly as a result of the development in the petroleum oil sector.

Since 1970, therefore, petroleum began to take the head in Nigeria’s total export as it accounted for about 59% of total export in that year. This dominant position of oil exports contributed to be maintained such that by 1973 it has risen to about 83% and rise further to about 98% of the total export of

N10.5 Billion and N8.6 Billion at the end of 1981 and 1982 respectively.

The over dependence on oil as the country’s major export should not be allowed to continue as a fall in the oil market will keep the economy in standstill. Nigeria should encourage the exportation of non-oil goods like agricultural product. I suggest that government should shift emphasis on the export of non-oil products; they should encourage agriculture to enable the people to produce agricultural products more than they need on the importation, and the government should base their imports on commodities that are essential but not necessarily score.  The country should reduce import and shift emphasis on the promotion of export and less dependence on import to enable them conserve the scarce foreign exchange.


In my opinion, exchange rate is the price for which one national country is exchanged for another for any transaction to take place, exchange rate must be applied, if this follows that settlement of import bills between the importer and exporter cannot be effect without first of all ascertaining the worth of one currency in terms of settlement comes in, the original contract between the two parties would have been taken into consideration the relationship between the currency of the importer and exporter countries. I suggest that attention should be directed towards exchange rate of Nigeria’s expenditure on imported rates of receipt for export.



The international balance of payment is one of the monetary mechanism involved in international trade it is a comprehensive record of all actual or official transactions with financial and economic between one country and the rest of the world. (Odusanya T.O Balance of payment lecture). According to M.C. Vaish Balance of payment is a statistical record kept in form of balance sheet comprising of all economic transactions between one country and her trading partners over a period of time usually one year.

The I.M.F describes it as a systematic record of all economic transactions during a period between the resident of reporting countries. It may be defined in statistical sense as on itemized account of all transaction involving receipt from foreigners on the one hand and payment made to foreigners on the other hand.


The balance of payment is not only divided into credits and debits, according to the principles of double entry bookkeeping, it is also divided horizontally into two major categories according to the board nature of the transaction concerned and the relationship to the national economy. These categories are the current account and the capital account. The current account consists of all transaction relating to the reporting country’s current expenditure. These include export and imports of goods and services along with unilateral transfers (personal, official or institutional transfers). The current account transaction also include such items as transportation (Transport and merchandise insurance) travel investment income (interest, dividend and profit on securities outside the country). These are called current transactions because they give rise to or are a use of current national income. The current transactions are distinguished from capital transaction, which directly affect wealth and debt, hence national in future period but not national income product or consumed currently.

The measure of surplus or deficit in the balance of payment reflect changes in the net liquidity position of the country thus a deficit appears in the balance of payment when antonymous transaction requiring money payment exceed autonomous transaction involving money receipts. The deficit means that country is loosing liquidity to others; it is running down its liquid foreign assets and or accumulating liquid foreign liabilities. Conversely a surplus exist when autonomous payment are less  than autonomous receipts. Essentially therefore, a deficit or surplus in the balance of payment involved both current and capital transaction.


For a better understanding of the balance of payment, let us review some recent development in the country’s balance of payment. The begin with, it should be mentioned that while the complication of Nigeria is balance of payment is based on the line discussed earlier. Transactions are usually separated into those of the oil sector and non-oil sector. The oil sector comprises the transactions of the crude petroleum producing and exploring companies while the non-oil sector is made up of the rest of the economy including the various government parastatals and enterprises. Thus, oil which is an important phenomenon in Nigeria’s economy is also very crucial as far as Nigeria’s balance of payment is concerned.

The current situation is such that developments is the balance of payment long precariously on the situation in the oil sector before the discovery of oil, the Nigerian economy was fundamentally an agro-based economy, relying mainly on the production from agric sector for her foreign exchange earnings. Agriculture accounted for 82% and other non-oil exports about 15% of total exports value of the country in 1962. by 1970 the share of these products in total export had drooped to only 12%, mainly as a result of the development in the petroleum oil sector.

During this period, the country found itself with massive oil revenue, there was a proliferation of private sector firms which were largely dependent on imported input. Consequently, although the policy of the government was to use the huge oil revenue to diversify the economy and in particular to develop the agricultural sector. Wide spread imbalances and distortions in the Nigerian economy emerged during the oil boom. According to Alhaji Abubakidi Ahmed, in his book “Nigerian Economy and SFEM” Billion CBN publication September 1987 Pg. 12 – the country was transformed from one dependent on oil during the period of oil boom, for example the share of agriculture in Gross domestic product decline from about 40% in the early 1970’s to 20% in 1980. Moreover, by 1980 oil accumulated for about 28% of G.D.P, 81% of government revenue and 96% of export earning. The heavy dependency on oil and imported inputs rendered the economy valuable to external shocks with the collapse of the world oil market in mid 1981. to make matters worse, the country pursued restrictive trade and exchange control policies which in retrospective were counter productive. Within five years of oil boom, Nigeria was able to squander what reserve it has built up and ended up in a chronic deficit in her balance of payment.


Before the dominance of the oil sector, particularly between 1960 – 1970, the balance of payment’s behaviour was less erratic. However, the balance of payment had swang at one time or the other from a position of strength o that of weakness.


The discussion above reviews briefly the development of the balance of payment in Nigeria since independence in 1960. it also reveals that the behaviour of the balance of payment in Nigeria was rather erratic particularly since 1970. further more the period since 1970 is one with a number of unprecedented records in terms of both balance of payment surplus and deficit. It is a period marketed with ups and downs in the country’s balance of payment development. In addition, the rather erratic behaviour or our balance of payment position since 1970 has led to the government attending to each balance of payment problem with some short generally relaxed during period of balance or payment surplus and tightened against when the position falls back to that of a deficit. Thus language solutions are not employed to tackle the balance of payment problem.


The fact that countries from international trade is summed up in principle of comparative cost, which states that countries will benefit from international trade by specialization in those commodities in the production of which they have greatest comparative cost advantage over other countries or the least comparative cost disadvantage. Basically this means that countries should concentrate on producing those commodities which they produce more cheaply than other commodities. It may be because of availability of cheaper labour, capital or natural resources.

In my understanding, the idea of comparative advantage can be expressed by the use of an analogy in which the best architect in a particular town also happened to be the best carpenter in the town, it would not make an economic sense for the man to build his own frame because he can earn more money by devoting all his professional energy to his job as an architect, even though he has to employ a carpenter less skillful than himself to build his home. A country like the architect will gain if it concentrate it’s resources on the production of those commodities it can produce relatively more cheaply and most efficiently. A country may require a comparative advantage in any one of number of ways. It also result from the skill of the labour force acquired though the tradition or through the size of the labour force relative to the amount of land or capital. It may also come about because of climate and geography.


A restriction on trade is any measure that interferes with the free movement of flow of goods between countries and thereby prevent resources being used in accordance with comparative cost.

Restriction could be by prohibition, Quatas, Taxes on trade, subsides, Exchange control messages etc. All these are aimed at reading the volume of imports of country. During the period of oil boom in Nigeria, there was a proliferation of private sector firms, which were largely dependent on imported inputs. This resulted in the searcity of our foreign exchange, since that time the government has been applying some restrictive in measure to conserve our meager foreign exchange, this had led the been placed on importation of some commodities that are essential but not necessarily scarce.


Trade has long played a major role in the social and political life of Nigerian communities. In pre-colonial times, the area of present – day Nigeria consisted of thousands of societies and politics ranging from the large scale empire Sudan, through forest kingdoms to the small scale autonomous communities of the south-east. While economic relationship, depending more basically on the relative distribution of units of production and consumption, often cut across social-political boundaries, the political system often provided on internally coherent organizational frame work for meditating the flow of trade between the polities.


Agriculture was the basic economic activity and provided the staple of trade. The pattern of flow of agricultural commodities reflecting ecological and cultural differences, but besides agricultural products there was an active market in raw materials and mineral products as well as craft and manufactures.


In the main, traditional trade was a powerful integrating force, the bulk of trade was localized but a significant proportion was trade over long distances, commodities for long distance trade was mainly strategic goods and luxury items, including; salt, gold, leather, goods, textile, jewelry, horses and slaves, a limitation imposed by high cost of transport with primitive technology.


Direct contact with European traders on the coast brought a new dimension to trade, the restructuring of level massive requirement of European and American markets and profound affected the state of the society and politics.


The trade in slave was directly associated with the rise of militaristic empire kingdoms and principalities. Specialized trading commodities developed along the major routes and coast to mediat the trade between the interior slave producers and the external slave buyers.

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