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“I Musakatiza Banda do hereby declare that this submission is my own and that, to the best of
my understanding, it contains no material earlier published by any other person, nor material
which has been accepted for the award of any other Undergraduate degree of the University,
except where due acknowledgement has been made in the text. I further declare, to the best of
my knowledge, that this work has not been presented in part or in whole for any academic
purposes”.
Signed ………………………………….
Date ………………………………….
Signed ………………………………….
Date ………………………………….
ii
DEDICATION
This research work is dedicated to and all my family that have sponsored me during the
course of my study, the lectures at Cavendish University that took time to enable me with
knowledge and most importantly to the Almighty God.
iii
ACKNOWLEDGEMENT
“First and foremost, I would like to thank the Almighty God for His guidance, protection and
wisdom throughout this dissertation. My acknowledgement would be incomplete without
recognizing the efforts and contributions of my supervisor Mr Taonga Simwaka’s guidance,
leadership, advice and mentorship during the course of this research he was constantly there
advising me and made time for me in his demanding schedule”.
iv
TABLE OF CONTENT
DECLARATION ........................................................................................................................ ii
DEDICATION ........................................................................................................................... iii
ACKNOWLEDGEMENT ......................................................................................................... iv
ABSTRACT............................................................................................................................... vi
CHAPTER ONE…………………………………………………………………………………………………………………………………..8
2.1 AN OVERVIEW………………………………………………………………………………………………………………………15
ABSTRACT
The research aimed at examining the effect inflation rate has on local businesses in Zambia.
Date was collected from both primary and secondary data covering a period of 2010 – first
vi
half of 2020. The population of the study only includes Trade kings Zambia ltd. The findings
of the research are that there is a significant effect of inflation on local businesses in Zambia
(Trade Kings) but it is not the only macro-economic variable things such as interest rates,
exchange rates and newly introduced policies all have an effect on local businesses in the
country. The study recommends that Trade kings needs to review and enhance its cash flows.
Policy makers should manage inflation very well in order to improve the performance of
local businesses in the country.
vii
CHAPTER ONE
1.0 OVERVIEW
This chapter will focus on the, background of the study, problem identification,
purpose, rationale, objectives identification and stating the significance of the study.
In addition, the research will outline the conceptual framework showing the
relationship between the research variables (independent and dependent).
Globally, inflation makes it harder for businesses to plan for the future. It is very
difficult to decide how much to produce, because businesses cannot predict the
demand for their products at the higher prices, they will have to charge in order to
cover their costs (Boyd 2001). High inflation not only disrupts the operation of a
nation's financial institutions and markets; it also discourages their integration with
the rest of the world’s markets. Inflation causes uncertainty about future prices,
interest rates, and exchange rates, and this in turn increases the risks among potential
trade partners, discouraging trade (Wamucii 2010).
Economists generally agree that high rates of inflation and hyperinflation are caused
by an excessive growth of the money supply. Views on which factors determine low
to moderate rates of inflation are more varied. Low or moderate inflation may be
attributed to fluctuations in real demand for goods and services, or changes in
available supplies such as during scarcities, as well as to growth in the money supply.
However, the consensus view is that a long-sustained period of inflation is caused by
money supply growing faster than the rate of economic growth (Dwivedi, 2005).
Today, most mainstream economists favour a low steady rate of inflation. Low (as
opposed to zero or negative) inflation may reduce the severity of economic recessions
by enabling the labor market to adjust more quickly in a downturn, and reduce the risk
that a liquidity trap prevents monetary policy from stabilizing the economy. The task
of keeping the rate of inflation low and stable is usually given to monetary authorities.
Generally, these monetary authorities are the central banks that control the size of the
money supply through the setting of interest rates, through open market operations,
and through the setting of banking reserve requirements (Lipsey, 2004).
9
depends on interest rates. If high inflation leads to high-interest rates, then firms with
debt will see rising interest rate costs (Pettinger 2016).
Strong economic growth usually results in at least a moderate inflation rate. For
example, suppose inflation is very low 0.5% this is probably associated with low
economic growth. A stimulus to demand will see higher inflation and higher
economic growth. In this case, rising inflation can lead to an increase in profitability
for firms. Moderate inflation makes it easier to change relative prices and relative
wages. For example, if you have inflation of 0%, it is hard to cut nominal wages for
unproductive workers. But, if inflation is 2%, it is easier to have pay freezes and
effective real wage cuts for unproductive workers (Maimunah and Patmawati 2018).
Firms generally prefer inflation to be low and stable. If inflation rises above 3 or 4%,
firms may see a rise in costs and uncertainty. Inflation can also cause firms problems
of rising costs, falling profitability, and a decline in international competitiveness.
However, inflation is not necessarily damaging for a firm, especially, if they can
increase prices to consumers more than their costs of production rises (Pettinger
2016). Some of the cost of inflation for business include:
Menu costs. These are the costs of changing price lists. If inflation is high, then firms
will have to update prices more regularly. There are costs involved in this. For firms
like Pound / Dollar shops, this high inflation could be particularly damaging because
it becomes harder to find goods which can be sold for a Pound. However modern
technology makes changing prices much easier than before. These days, there is no
need to change prices manually but can update barcodes and this is less time-
consuming.
Wage Inflation. Unexpected inflation may lead to the necessity of renegotiating wage
deals with workers. However, these wage rises may be expensive for the firm because
they cannot afford them (Adu 2016).
Uncertainty and confusion. If inflation is higher than expected, then the costs of
investing will be changing frequently. This makes firms less willing to invest because
they are uncertain over future costs, wages and future demand. This is particularly a
10
problem with unexpected cost-push inflation raising the price of raw material costs.
This is perhaps the biggest cost of inflation for firms, high inflation creates
uncertainty and can lead to lower growth.
11
1.5 Overall OBJECTIVE
To assess the effect of inflation on local business in Zambia with a focus on Trade
Kings Ltd.
The purpose of the study is to clearly assess and establish how inflation affects local
businesses like Trade Kings. In this assessment, the research will look at what effect
inflation has on business operations, profitability and performance. It will also
determine measures that can be put in place to cushion the impact of inflation on local
businesses in Zambia.
Trade Kings Management and other local business, will use the study to understand
how inflation affects the business operations and set up strategies in handling its
effects. The study will also provide an understanding with regards to the causes and
effects of inflation and positively manage the consequences for better business
performance. The government and its agencies will be assisted by this study to
understand the ideal level of inflation that will have maximum stimulation of the best
12
business growth and performance that will in turn stimulate economic growth. The
study will enable researchers and scholars to get more information about the
relationship between inflation and business performance. Furthermore, the research is
also a benefit to the researcher as it is a partial fulfilment for the award of Bachelor’s
degree in Economics by Cavendish University Zambia.
1.9 RATIONALE
Local businesses such as Trade kings remains key to the economic development of
Zambia. This is because such business entities contribute to economic development
through employment creation, increased personal and national income and ultimately
poverty reduction. However, the effect of inflation among businesses be it locally or
internationally is inevitable and without proper mitigation measures in place pose
serious challenge for a country’s business environment. This in itself defeats the
economic viability of local businesses and eventually. It can be maintained that with
the effect that inflation has on a business, it is important that a research of this nature
is undertaken so as to come up with key measures that can be put in place for
businesses to survive and remain competitive amidst inflation.
1.10 HYPOTHESIS
: Inflation does not have a significant effect on local business and that Interest
rates do not have a significant an effect on local business
: Inflation has a significant effect on local business and Interest rates have a
significant effect on local business
13
1.11CONCEPTUAL FRAMEWORK
An independent variable (Usually denoted as x) is a variable whose variation does not depend
on that of another. While a dependent variable (Usually denoted as y) is a variable whose
value depends on another.
In this study the independent variable is inflation (IF) while the dependent variable is local
business (Trade Kings).
14
CHAPTER TWO
LITERATURE REVIEW
2.1 OVERVIEW
This chapter will provide a detailed review of the existing theories and studies done
on the similar topic supporting this research. The literature will also be reviewed in
line with the research objectives.
Another theory of inflation is called the rational expectations theory. This theory says
that inflation has to be looked at as a long-term projection and not just due to the here
and now. Although it is a lot like monetarism the rational expectations theory believes
that the monetarism theory reacts too quickly to what is occurring now and that what
happens down the road is more important. One reason that the rational expectations
theory wants to avoid reacting too quickly to slight changes in inflation is that when
15
people react too quickly, they often cause drastic changes in inflation simply by trying
to avoid them. The Austrian theory of economics says that as people will spend more
money as they get more money to spend. The lifestyle and spending habits of people
are equal to their disposable income (Wamucii 2010). This theory is different from the
others because it doesn't believe that the production of goods will increase in order to
meet an increase in demand. This theory believes that these kinds of changes in the
economy don't happen as quickly as some of the other theories believe they do. And
this theory also believes that the distribution of goods and money will not always seek
to achieve some sort of balance.
The Marxist theory of economics indicates that the value of money is determined by
the relationship between those that produce the goods and those that buy the goods.
This theory says that it is the value of the labor required to produce the goods and not
the price of the goods themselves that determines the real cost of the goods. This
theory also says that the only important factor in the cost of goods is how the cost of
labor goes up and down compared to the demand for the product (Hamman 2012).
Classical Theory of Inflation says that money is the asset which is utilized by people
to purchase goods and services on a regular basis. Money is the mode of exchange in
every economy at the present day. Inflation occurs in an economy when the overall
price level increases and the demand of goods and service increases. The classical
theory of inflation owes its genesis to certain factors. Inflation is determined by the
quantity theory of money. This theory which is contained in the classical theory of
inflation is employed to explain the most important and long run determinants of
inflation rate and price level. Inflation is a phenomenon which takes the whole
economy into its grasp. It spreads across the whole of the economy. It is such a
phenomenon which impacts the whole of the economy and is concerned about the
value of the mode of exchange in an economy that is, it concerns itself with money
(Wamucii, 2010).
With the rise in the supply of money the price rate rises and the value of money falls
that is devaluation of money takes place. The supply of money is controlled by the
government through a policy of open market. Open market is a powerful tool of
controlling the supply of money. The demand of money actually depends on a lot of
factors (Keynes, 1923). These factors include interest rates, average level of prices in
16
the economy. Every economy endeavour to reach equilibrium where the demand and
supply of the money becomes equal. Marx defined inflation in terms of its cause; as
depreciation of the currency: high prices caused by an over-issue of inconvertible
paper money (Ibid).
According to Kennon (2012), a major effect of inflation is the damage it can do to the
pocketbooks of average workers. Wages and salaries can lag, cost of living increases,
making families struggle to keep up as the price of everything from cornflakes to
tuition increases faster than the take-home pay, they receive from employers.
Walter (2013), contended that to thrive and grow, businesses generally need benign
economic conditions, including low and stable inflation. This is because businesses
plan their activities and investments, such as in new machinery and manufacturing
plants, for some years ahead. Indeed, for large companies, investment planning can
cover decades into the future. It brings huge uncertainties into business planning if
inflation is high or expected to be so, as the changing value of money means that
companies cannot be sure of their future costs or revenues. In response, they become
much more cautious.
High inflation or high inflation expectations can cause business costs to rise faster
than productivity gains and lead entrepreneurs to become risk-averse, less willing to
invest in the future, thereby reducing competitiveness (Henderson 1969). This has a
negative impact on economic growth and employment. The strategy implications of
inflation are these: True profit margins will be squeezed in spite of higher reported
profits. Cash requirements will be increased and so will the cost of money. These
forces, of course, also lead to a concentration of industry (Hamman 2012).
According to Walter (2013), a low inflation rate is beneficial to a country and zero or
negative inflation is considered as bad. Also, a high inflation is harmful to an
economy and it affects an economy in many ways:
17
● Rising inflation redistributes the income of people. The fixed income earners and
those lacking bargaining power will become relatively worse off as their purchasing
power falls.
● Trade unions may demand for higher wages at times of high inflation. If the claims
are accepted by the employers, it may give rise to a wage-price spiral which may
aggravate the inflation problem.
● During a rising inflation period, wide fluctuations in the inflation rate make it difficult
for business organizations to predict the future and accurately calculate prices and
returns from investments. Therefore, it can undermine business confidence.
● When inflation in a country is more than that in a competitive country, the exports
from former country will be less attractive compared to the other country. This means
there will be less sales for that country’s goods both at home and abroad and that will
create a larger trade deficit. At the same time, high inflation in a country weakens its
competitive position in the international market (Hamman, 2012).
18
such as capacity utilization (CU), Inflation rate (INF), Lending rate (LR) both shows a
positive but insignificant shock on the manufacturing performance of Nigeria for the
period of 2005Q1 – 2006Q4 and 2007Q1 to 2008Q4. Chaudhry, and Ayyoub and
Imran (2013) study established significant negative effect of inflation on the
manufacturing sector of Pakistan for the period 1972 to 2010. The findings 2 are in
support of that of Siyakiya (2014) study that reported that hyperinflation negatively
reduces manufacturing sector output in Zimbabwe for the period 2000-2009 since the
economy is highly monetised and has depreciating assets. These findings are not in
support of that of Adaora (2013) study for Nigeria. Adaora (2013) reported of
significant positive effect of inflation on the manufacturing sector for the period 1981
to 2011. Adaora (2013) study is in line with that of Loto (2012). Osinowo (2015)
reported that the manufacturing sector has a positive relationship with all the
determinant variables, while inflation rate has negatively influenced output growth of
the various sectors with an exception of manufacturing sector
Featured Paper Ugochukwu Stanley Chukwudi the research studied the effect of
inflation on construction material prices from the period 1998 to 2007, using Lago as
the study area.
Inflation pose a serious problem to contractors. Oyediran (2006) observed that the rate
of inflation can cause serious problems in the economic accruals or rate of return to
contractors for works undertaken, thus resulting in a loss of profits.
19
The purpose of their study was to establish a relationship between inflation and
construction materials, so as to develop a model for forecasting the effect of inflation
on construction materials.
The finding of this research where that prices of construction materials did not move
uniformly. The prices of various construction material under the study had changed at
various degrees over the ten-year period. It was thus inferred that inflation did not
affect construction materials uniformly.
Furthermore, inflation was not the only macro- economic variable that affected prices
of construction materials; other variables such as importation, interest rates, Gross
Domestic Product (GDP) have been observed to have a significant effect. Various
political- economic regimes had also affected the trend in price movement.
Another study was done in Ghana by Bans-Akutey, Mawufemor, Yaw Deh, Isaac and
Mohammed, Faisal (2016). The paper was based on a time series model. The
dependent variable was manufacturing sector productivity (MPS), whereas the
independent variable was Inflation. Their paper was based on the time series data
covering the periods 1968 to 2013 for Ghana. Data was obtained from World
Development Indicators (WDI)
The study showed that inflation and manufacturing sector output are linked in the
long run. Changes in the manufacturing sector productivity are explained by changes
in the inflation in the long run. The findings from the OLS results indicate that there is
a negative effect of inflation on the manufacturing sector productivity. The findings
supported previous studies by researchers such as Chaundry et al. (2013); Siyakiya
(2014) and Osinowo (2015). However, the findings are not in line with that of Adaora
(2013) and Loto (2012). The results of the study suggest inflation during the period
under consideration has led to a decrease in the manufacturing sector productivity.
20
2.5 Studies done in Zambia
High inflation can interfere with the price signaling mechanism, resulting in
a misallocation of resources (Hodge, 2006). Inflation can reduce a country’s
international competiveness by making exports expensive, hence impacting
the balance of payment (Gokal and Hanif, 2004).
The study opted to estimate an inflation threshold for Zambian data by using
data within Hansen’s (2000) framework because Hansen’s threshold
autoregressive (TRA) specification tends to be applied to panel data sets, this
framework also takes into account problems accosted with the estimation of
unknown threshold estimates. Something that Sarel’s (1996) fails to take into
account.
21
The data utilized in the study were obtained from the World Bank database
as well as from various publication from the Bank of Zambia annual reports
and comprises of quarterly data for the periods ranging from 1998 to 2000.
In the findings it was noted that an inflation threshold estimates of 22.5% is estimated
for the data set and is relatively higher than those obtained for developing countries in
previous panel data studies. The results implied that inflation may not be harmful
towards economic growth in Zambia and supports the notion that monetary policy
efforts should be more directed towards credit and exchange rate developments
instead of actively targeting a predetermined inflation level.
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CHAPTER THREE
3.1. AN OVERVIEW
This chapter will look at the methodology of the Study. It will look at the research approach,
design, strategy and sources of data collection. The other components that will be covered are
sampling frame, sample size, sampling techniques, data collection techniques, ethical
considerations and the limitations of the study.
Research design is a plan of how and where data are to be collected and analysed. To assess
the impact of inflation on local business performance, a descriptive research design was
employed. Hale (2018) defines descriptive research design as describing characteristics of a
sample taken from the population and generalize their conclusions to be those of the entire
population. This study will use survey method of descriptive research design as participants
were meant to provide answers from questionnaires and interviews which were later analysed
by the researcher. The descriptive research design is appropriate for this study as it will help
in collecting data that will describe occasions thereafter, arranges, tabulates, portrays, and
defines the data in responding to research questions.
A case study will be used as a research strategy for this research as the methodology studies
the sampling of individual units from a population and the associated survey data collection
techniques, such as questionnaire construction and methods for improving the number and
accuracy of responses to surveys.
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3.4 RESEARCH CHOICE
The research used a mixed method approach for data collection. This method makes use of
both qualitative and quantitative tools in collecting data for the research.
This research targeted population will be 200 Trade Kings workers from different
departments believed to be reliable for the study at the company’s head offices.
A sample is a small fraction of a population selected for observations and analysis. Through
observing the features of the sample, certain conclusions can be made about the
characteristics of the population. A sample size of 20 Trade Kings employees will be selected
for interviews for this study. This is 10% representation of the total sampling frame of 200
potential respondents.
A sampling technique is the process by which the units of the sample have been selected. It is
used when researchers want to find informants who would provide the relevant information
(Bryman, 2008). The study will employ simple random sampling and purposive sampling.
Purposive sampling technique will be based on the position of top management respondents.
Respondents will be chosen based on the researcher’s judgment that they have desirable
characteristics and can provide the required information. For middle management, the
research will make use of simple random sampling.
This research targeted population will be 200 Trade Kings workers from different
departments believed to be reliable for the study at the company’s head offices.
24
A sample is a small fraction of a population selected for observations and analysis. Through
observing the features of the sample, certain conclusions can be made about the
characteristics of the population. A sample size of 20 Trade Kings employees will be selected
for interviews for this study. This is 10% representation of the total sampling frame of 200
potential respondents.
A sampling technique is the process by which the units of the sample have been selected. It is
used when researchers want to find informants who would provide the relevant information
(Bryman, 2008). The study will employ simple random sampling and purposive sampling.
Purposive sampling technique will be based on the position of top management respondents.
Respondents will be chosen based on the researcher’s judgment that they have desirable
characteristics and can provide the required information. For middle management, the
research will make use of simple random sampling.
The research will use primary and secondary data sources so as to collect as much data as
possible in order to fully acquire all relevant data for the study thereby allowing for informed
decisions making.
The research primary data will be collected through survey method with the help of
questionnaires where respondents provided answers. Furthermore, respondents will provide
written feedback where appropriate in spaces in the questionnaire. The questionnaires will be
distributed to respondents and prior arrangements will be made.
The secondary data of the study will be collected from different journals, magazines,
newspapers, articles, books and websites regarding inflation and business performance.
Furthermore, the research will make reference to past similar studies conducted elsewhere.
25
3.11 TOOLS OF DATA COLLECTION
The study will employ standard questionnaire and an interview guide to collect the data. The
questionnaire will consist of both structured and unstructured questions. The questionnaire
will be designed and compiled in such a way that it would gather information relevant to
answer research glitches. Hence it will only consist of important questions aimed at bringing
out necessary information to answer the study questions.
The researcher shall obtain an introductory letter from the University. With this document,
the researcher will be able to book appointments with the selected respondents in the target
areas, which will be followed by a pre-visit to those target areas on the respective
appointment dates. The questionnaires will be administered to the relevant respondents. The
researcher will ensure punctuality on the appointment dates, as this will help to reduce
inconveniences to the respondents, hence increasing the response rate.
The researcher will make use simple regression analysis and one sample test analysis with
help of Statistical Package for Social Sciences (SPSS) version 16.0 in order to facilitate with
analysis of feedback. But before entering the questionnaires, the researcher will make sure
that they were amended for completeness and reliability. Descriptive analysis will involve
use of means, frequencies and percentages. Furthermore, responses will be coded by way of
allocating some numerical values to the group responses. It can be noted that doing so will
actually help in reducing numerous responses to a limited category comprising of vital
information which would in-turn be inputted into Statistical package for social sciences
(SPSS) version 16 for further analysis.
26
CHAPTER FOUR
4.1 INTRODUCTION
This chapter discusses the research findings in line with the objectives stated at the beginning
of the research. The research objectives were translated into structured research questions
which constituted the questionnaire. With the relevant data analysis methods adopted was
then systematically presented through graphs, Tables, Charts and explanation of respondents’
views. This Chapter presents the analysis of the collected primary data which shall be
discussed in relation to existing literature as reviewed in chapter 2 of this research.
S/n
Details Frequency Percent Cumulative Percent
1 Male 11 55 55
2 Female 9 45 100
Total 20 100
Source: Field Data (2020)
The research indicated the Gender status of the respondents as follows. From the results, it
was revealed that 55% of the respondents were male whilst 45% were female as shown in
Table 4.2.1. This implies that data was collected from both male and female thereby reducing
the aspect of gender biasness.
27
Table 4.2.2: Level of Education
S/n
Details Frequency Percent Cumulative Percent
1 Secondary - - -
2 College 6 30 30
3 University 14 70 100
Total 20 100
Source: Field Data (2020)
At the time of the research the education level was distributed as follows, the majority (70%)
of the residents had attained University level and (30%) had attained College level of
education as shown in Table 4.2.2.
28
Total 20 100
Source: Field Data (2020)
From Table 4.2.4, the majority (55%) of the respondents strongly indicated that high inflation
reduces does not affect company uniformly and 45% just disagreed. This clearly shows that
indeed inflation has no uniform effect on the company.
Based on the above table we will focus more of the Production department and Sales and
Marketing department; this is because these department are directly affected by the changes
in the inflation rate. These departments are affected directly by inflation in that the company
has no control over the prices of the raw materials that are used in the production and selling
prices which is normally determined by the current demand on the market.
Finance, Distribution and Business development department are not directly affected by the
inflation in that this all cost that incurred by these department are at the discretion of the
company. The company can choose to spend on them or not hence there is no direct
relationship between inflation and these cost
Figure 4.2.5 Effects of inflation on the production department
29
Production cost have not also moved uniformly with inflation in some years based on our
analysis over the five-year period as shown in figures 4.2.5 . It can thus be inferred that
inflation did not affect production prices uniformly.
30
Sales and Marketing have not also moved uniformly with inflation in some years based on
our analysis over the five-year period as shown in figures 4.2.6. It can thus be inferred that
inflation did not affect sales and marketing uniformly.
Furthermore, inflation is not the only macro-economic variable that affects cost of production
and sales; other variables such as importation, interest rate, Gross Domestic Product (GDP)
have been observed to have a significant effect. Various political-economic regimes have also
affected the trend in price movement.
The research revealed that inflation does affect the competitiveness of a business. In view of
this establishment, 85% of the respondents agreed, 35% strongly agreed and 15% disagreed.
The respondents who disagreed apparently did not give reasons as to why they believed so.
31
Table 4.2.8 Inflation distorts consumer purchasing behaviour
S/n Percent
Details Frequency Cumulative Percent
(%)
1 Strongly Agree 12 60 60
2 Agree 8 40 100
3 Disagree - - -
4 Strongly Disagree - - -
Total 20 100
Source: Field Data (2020)
With regards to consumer purchasing behaviour, 60% of the respondents strongly agreed that
inflation distorts consumer purchasing pattern and 40% just agreed as shown in Table 4.2.8.
32
Figure 1: Scatter graph of Trade Kings profits against year.
Esti 50000
mat
ed 40000
Prof
its
30000
in
milli
20000
ons
10000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Year
Figure 1. above shows the relationship between the profits and years. In the years
2010 to 2019, the profits increased but decreased between years 2011 to 2013.
Thereafter, the profits increased steadily. This depicts a positive growth in the
financial performance of the Trade Kings Manufacturing Company in the said years.
50000
40000
30000
20000
10000
2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0
33
Profits increases as inflation decreases. The graph indicates that Trade Kings profits
decreased as the inflation levels increased. This therefore means that the company’s financial
34
The table above shows the relationship between interest rates and production cost
35
The table below shows the relationship between interest rates and sales costs
CHAPTER FIVE
5.1 OVERVIEW
This chapter presents the discussion of research findings. The research findings as presented
in the preceding Chapter shall be discussed in line with the established research questions
(objectives) and existing literature reviewed.
The research indicated the Gender status of the respondents as follows, 45% were Female and
55% were Male as shown in Table 4.2.1. This shows a relatively fair distribution of the views
from participating respondents. This is important as it validates that the research was not
biased towards a given gender as the target institution has both male and female employees.
36
5.2.2 Education Level of respondents
The research revealed that the majority (70%) of the residents had attained University level
and 30 % had attained College level of education as shown in Table 4.2.2. This indicates that
the respondents were well able to read, understand and provide relevant feedback to help
answer the research objectives and questions. This is important as it helps to validate the
research findings based on the knowledge of the respondents.
The research revealed that the respondents engaged came from different departments which
included; production (20%), Sales & Marketing (15%), Finance (20%), Distribution (30%)
and Business development (15%) as shown in Table 4.2.3. This clearly entails that Trade
Kings was fully represented with respondents coming from different departments.
The research revealed that indeed inflation has an effect of on a business’s profit
maximization, competitiveness of a business, consumer purchasing behaviour and the rate of
investment for business growth. In view of this, the majority of the respondents strongly
agreed with others just agreeing as shown in Tables 4.2.7., 4.2.8 and 4.2.9. This clearly shows
that there is a positive relationship between inflation and business performance.
However, it was noted that inflation does not affect the whole company uniformly.
Production and Sales and Marketing are the two departments that respond to any changes in
inflation.
Tables 4.2.5 shows the relationship of production cost and inflation. As inflation increases so
does the cost of production. In the year 2016 there was an increase in the percentage change
of inflation of 77% which caused the percentage change on production to increase to 19%. In
2017 the percentage change in inflation reduced to 63% this helped production reduced the
percentage change in production costs to 1%. On average an inflation percent increase of
37
38% causes an increase in production precent cost of 12%. This shows a positive correlation
between production cost and inflation.
Furthermore Table 4.2.6 shows the relationship between sales and inflation. As inflation rises
the company’s sales start to reduce. In the year 2016 a 77% increase in inflation caused a
14% reduction in sales. In the following year 2017 inflation reduced by 63% which boosted
up sales to 31%. An average increase in inflation precent of 38% causes a 5% reduction in
sales. This shows a negative correlation between sales and inflation.
Pettinger (2016) argued that firms generally prefer inflation to be low and stable. If inflation
rises above 3 or 4%, firms may see a rise in costs and uncertainty. Inflation can also cause
firms problems of rising costs, falling profitability, and a decline in international
competitiveness. However, inflation is not necessarily damaging for a firm, especially, if they
can increase prices to consumers more than their costs of production rises. According to
Kennon (2012), a major effect of inflation is the damage it can do to the pocketbooks of
average workers. Wages and salaries can lag, cost of living increases making families
struggle to keep up as the price of everything from cornflakes to tuition increases faster than
the take-home pay they receive from employers.
With regards to the relationship between interest or lending rates and business performance,
Table 4.2.11 shows the relationship between production costs and interest rates. It clearly
shows that when there is an increase in the interest rate it causes an increase in percentage
production costs and when interest rates decrease it causes the percentage change in
production to reduce. In the 2014 – 2016 the largest rise of the interest rate was by 17%
which caused a rise in production by 19%. It was noted that the interest rate reduced during
the periods 2017 – 2019 the largest change being 21%, this caused a reduction in the rate of
production costs to 5%. On average 20% increase in interest rate causes a 14% increase in
production. This shows a positive correlation between interest rates and production.
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Table 4.2.12 shows the percentage rate of change of interest rates and sales. From the table it
is noted that when interest rates increase sales tend to fluctuate. The biggest rate of change
was in the year 2016 which had interest rates increase by 17% which caused sales to reduce
by 14%. In the year 2017 the interest rate reduced by 20% which prompted sales to go up to
31%. On average 20% increase in interest rate causes a 6% reduction in sales. This shows a
This entails that there exists a strong relationship between interest rates and business
performance. In addition, through figure 2, the research indicated that profits increase as
inflation decreases. In view of this it was observed that Trade Kings profits decreased as the
inflation levels increased. This therefore means that the company’s financial performance is
negatively affected by rise in the inflation. Establishing that the alternative hypothesis is valid
Behrendt (1996) contended that an increasing inflation rate leads to an increase in possibility
of shifts in relative prices and to an increase in the volatility of inflation rates. The findings of
empirical works indicate that inflation negatively influence manufacturing sector output. For
example, Loto (2012) study revealed that variables such as capacity utilization (CU),
Inflation rate (INF), Lending rate (LR) both shows a positive but insignificant shock on the
manufacturing performance of Nigeria. In addition, Osinowo (2015) reported that the
manufacturing sector has a positive relationship with all the determinant variables, while
inflation rate has negatively influenced output growth of the various sectors with an
exception of manufacturing sector.
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CHAPTER SIX
5.1 OVERVIEW
Chapter Six presents the conclusion and recommendations of the research based on the data
presentation and discussion. The conclusion highlights the main findings of the research and
the recommendation measures that can be undertaken to enhance local business performance.
5.2 CONCLUSION
The research concludes that there exists a strong relationship between inflation and local
business performance. In addition, it also established that there is also a strong relationship
between interest rates and business performance. In view of this, it was revealed that just like
any other institutions, in the manufacturing and outside the manufacturing industry, Trade
Kings is affected by inflation and interest rates. In view of this, the research established that
manufacturing companies such as Trade Kings are affected by inflation through a number of
ways that include; reduced profit margins, limited competitive advantage, low business
investment opportunities and overall business growth potential. Therefor there is need for
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strategic planning and support for local business to thrive and significantly contribute to
economic development.
5.3 RECOMMENDATIONS
Based on the research findings and conclusion, the research recommends that;
Trade Kings Management should review and enhance its cash flows. This is where the
company needs to find ways of keeping the cash flowing, such as electronic payments
for goods/products supplied, sending out invoices promptly and following up on late
payments from accounts receivables.
Trade Kings should look into adopting more production technologies that will help
reduce the cost of production. This in itself will help boost employee productivity by
allowing production tasks to be completed much more quickly with less room for
human error.
Trade Kings should focus on reviewing its supplier situation. While the amount the
company pays its suppliers may hinge on inflation in some cases, it is still wise to
regularly evaluate supplier situation. In view of this, there is need to keep an eye on
what other competing suppliers are offering and go for better deals.
Trade Kings should also focus on adjusting pricing of products. It is true that raising
prices can be damaging and it is most likely not the first course of action a company
would want to take in the face of inflation, but it does remain an option. The key to
this effect remains that Trade Kings needs to constantly keep an eye on its
competitors pricing and ensure it does not go too far over what they are offering.
Policy makers should manage inflation very well in order to improve the performance
of local businesses.
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