Bachelor of Business Administration in Accounting

(Final Year Project in Accounting)

Project Proposal
Project Title: Effect of Exchange Rate Fluctuation On The Growth Of The

Manufacturing Sector In Republic of Benin in the past 10 years (2010-2020).

Prepared by Chekina Gbemotonou

Roll no.
Faculty of Business.
Supervisor

Faculty of Business
Academic City.

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Contents

1. INTRODUCTION.......................................................................................................................3

2. PROBLEM STATEMENT.........................................................................................................3

3. AIMS AND OBJECTIVES.........................................................................................................4

4. SIGNIFICANCE OF THE STUDY............................................................................................4

5. SCOPE AND LIMITATIONS....................................................................................................5

6. METHODOLOGY......................................................................................................................5

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 1. INTRODUCTION

Exchange rates can be defined as ratios that are used across international markets, finance,

which also includes trading, and investment. Businesses, firms, organizations, and investors

adopt the use of exchange rate to compare their currency’s purchasing power with another

country’s (Dictionary, 2020). They also use this to determine the comparative strength of

their domestic currency against foreign currencies (Dictionary, 2020).

An exchange rate can also be defined as the value of a nation's currency against the currency

of another nation or economic zone (Chen, 2020).

As a developing country, Republic of Benin has to pay utmost attention to the changes in

exchange rate and how it might affect the country’s economic growth. Effect. Exchange rate

of a country is important because it is a very important aspect of international economic

transactions because no nation can remain in autarky due to varying factor endowment.

According to Oladipupo & Onotaniyohuwo (2011), movements in the exchange rate can have

an adverse effect on other economic variables which includes interest rate, inflation rate,

unemployment, money supply, etc. These facts show that exchange rate is directly

proportional to the economic well-being of any country that participates in international trade

in goods and services.

The Republic of Benin is known for its major exports such as cotton, cotton cake

and cotton seeds, cashew, shea butter, cooking oil, and lumber (Offices, 2019). These items

are being exported from the country mostly as raw materials. With exchange rate fluctuations

occurring regularly, commodities in the country would be experiencing a hike in price,

whenever the Franc CFA weakens against the dollar, which happens more often than not.

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How does this impact the manufacturing sector of the economy of the Republic of Benin?

Whenever the Franc CFA weakens, it leads to an increase in prices, as mentioned earlier, and

Republic of Benin is a country that is known for being highly dependent on imports, thus the

country does not manufacture most of the goods it consumes. This makes the country heavily

dependent on imports, and it greatly affects its international trading, because in the last 10

years, there has been a steady decline in the demand for one cotton seeds globally (Markets,

2019). The Republic of Benin faces a herculean task of stabilising exchange rate, with it

being heavily dependent on imports, and not being a producer of some of the most sought

after raw materials globally. This would clearly affect its balance of trade, thus affect its

exchange rate in the international market. The impact this has on the manufacturing sector is

that it would leave the manufacturing sector constantly struggling to have an impact on the

country’s economy, especially for a country which is not known for being a major

manufacturer.

Another factor to consider, is the fact that the Republic of Benin uses the West African CFA

as its official currency, which is also the official currency of all the French speaking West

African countries. This makes it difficult for the republic of Benin to develop policies that

would strengthen the currency against the dollar in the international market, because any

policy it developes, would also be dependent on the policies of the other countries that have

the West African CFA as their official legal tender.

2. PROBLEM STATEMENT

Every country needs a stable economy to be able to have progressive economic growth.

Exchange rate fluctuation would always pose a challenge to most developing countries trying

to have a stable economy as well as achieve economic growth (Alagidede & Ibrahim, 2017),

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hence it is important to identify the effects of these fluctuations of exchange rate on the

economy in order to come up with effective solutions to address the issue.

Developing countries such as The Republic of Benin need to formulate policies that would

ensure that changes in exchange rate can be mitigated in such a way that the effect on the

countries economy would be minimal. It would be difficult and highly impossible to stop the

fluctuation in exchange rate, hence it is advisable to come up with policies that would ensure

that its effects are not long term. This proposed study seeks to investigate the effects of

exchange rate fluctuation in the manufacturing sector, in order to help come up with ideas

and policies that would be beneficial to the economy of the country.

3. AIMS AND OBJECTIVES

The aim of this proposed project is to analyse the effect of exchange rate fluctuations on the

growth of the manufacturing sector of The Republic of Benin.

The objectives of the proposed project are:

 To identifybn the effect of the continuous fluctuations of exchange rate on

manufacturing firms in the Republic of Benin.

 To examine the effects of exchange rate fluctuations on The Republic of Benin

exportation of raw materials.

4. SIGNIFICANCE OF THE STUDY

Developing countries need to keep striving to attain economic growth, thus improving the

standard of living across the country. This proposed study is important, because it seeks to

investigate how exchange rate fluctuations can affect the growth of the manufacturing sector

of the economy of the Republic of Benin, which is directly proportional to affecting the

standard of living across the country. The proposed study would seek to identify policies and

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ideas that would mitigate or aid in addressing the problems that arise from fluctuations in

exchange rate, which is important to any country that is involved in international trading, in

this case the Republic of Benin.

The Republic of Benin needs to find ways of rejuvenating its manufacturing industry, by

developing innovative ideas and policies that would enable its manufacturing industry to be

able to produce goods, and products that would be sufficient and marketable to the

international market, in order to be able to boost the country’s economy, as that is one of the

few ways the country would be able to suppress some of the effects of exchange rate

fluctuations. This would not only boost the country’s economy, but it would also have a

positive impact on the manufacturing sector, which can serve as one of the building blocks to

having a sustainable economy, and this is one of the importance of the proposed study.

5. SCOPE AND LIMITATIONS

This research work is designed to cover 10 years’ period from 2010-2020. The scope consists

of the regulatory deregulatory exchange rate period i.e. the fixed exchange rate and floating

rate period. The study is structured to analyse exchange rate as the pilot of economic growth

and development. Thus, this study is therefore limited to effects of exchange rate fluctuations

on manufacturing sector in The Republic of Benin.

6. METHODOLOGY

The proposed study would make use of primary and secondary data as its form of data

collection. For primary data, questionnaires and interviews would be used as the instruments

for data collection.

For secondary data, information would be collected from already existing literatures of

similar topics, international market reports, and from stock exchange reports

References

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Alagidede, P., & Ibrahim, M. (2017). On the causes and effects of exchange rate volatility on

economic growth: Evidence from Ghana. Journal of African Business, 18(2), 169-193.

CHEN, J., 2020. Exchange Rate Definition. [online] Investopedia. Available at:

<https://www.investopedia.com/terms/e/exchangerate.asp> [Accessed 23 September 2020].

Markets, R., 2019. Global Cotton-Seed Oil Market Insights 2007-2019 And Forecast 2020-

2025. [online] GlobeNewswire News Room. Available at:

<https://www.globenewswire.com/news-release/2020/02/25/1989783/0/en/Global-Cotton-

Seed-Oil-Market-Insi ghts-2007-2019-and-Forecast-2020-2025.html> [Accessed 9 October

2020].

Offices, U., 2019. Benin - Market Overview | Export.Gov. [online] Export.gov. Available at:

<https://www.export.gov.> [Accessed 7 October 2020].

Oladipupo, A.O and Onotaniyohuwo, F.O (2011) “Impact of exchange rate on balance of

payment in Nigeria” African research review: An international multidisciplinary Journal,

Ethiopia 5(4): 73 – 88.