1

CHRIST THE KING COLLEGE GWAGWALADA ABUJA

SS I SECOND(PART) AND THIRD TERM ECONOMICS NOTE

BY

NWAKPU CHIOMA AGNES (MISS)

LABOUR MARKET

This can be defined as a market where labour is bought and sold at a given or existing wage

rate and where other conditions of employment are negotiated

LABOUR FORCE/WORK FORCE

This refers to the working population that are employed and those actively seeking

employment in the labour market. They are usually people between the ages of 18 – 60(the

official school leaving age and official retirement age) years as allowed by law in some

countries

FACTORS AFFECTING OR INFLUENCING SIZE OF LABOUR/WORKING POPULATION

i. THE SIZE OF POPULATION: If the size of a country’s total population is high, there is

possibility that labour supply will be high and vice versa

ii. MIGRATION: While immigration will increase labour supply, emigration will decrease it

iii. AGE DISTRIBUTION OF POPULATION: When a large number of people fall within the

working age group, the supply of labour will be high and vice versa

iv. CERTAIN BELIEFS/PRACTICES: In societies where there are gender discrimination in jobs, the

supply of labour will be low and vice versa

v. DEATH RATE ACCORDING TO AGE: If there is an increase in death rate of labour force, the

supply of labour will be low and vice versa

vi. THE SCHOOL ENTRY AND LEAVING AGE: Where the school entry and leaving age are lower,

labour force will increase and vice versa

vii. THE OFFICIAL RETIREMENT AGE: If this is raised, supply of labour will be high and vice versa

viii. LEVEL OF WAGES: The higher the level of wages, the more the people that will offer

themselves for employment and vice versa

EFFICIENCY OF LABOUR

This is defined as the ability of labour to produce the best quality and quantity of output with a

given minimum resources. It is the ability of labour to increase best quality of output without

increasing the quality of labour

FACTORS AFFECTING EFFICIENCY OF LABOUR

i. EDUCATION AND TRAINING: Formal education and on-the job training will make labour

efficient than unskilled labour

2

ii. WORKING ENVIRONMENT: Good ventilation, good furnishing etc will make labour efficient

than when the working environment is not conducive

iii. MANAGEMENT: A good management style encourages workers to be more efficient than an

inefficient management

iv. AVAILABILITY OF CO-OPERANT FACTORS: Availability and quality of other factors such as

land, equipment etc will make labour more efficient than when unavailable or inadequate for

production process

v. OTHER CONDITIONS OF SERVICE: Houses, transport, bonuses, scholarship for children,

insurance coverage etc will make labour more efficient than when not given to workers

vi. DEGREE OF SPECIALIZATION: The more a worker specialises in production process, the

more efficient he becomes and vice versa

vii. WAGE RATE: Higher wages and salaries serves to motivate the workers to work than when

they are low

MOBILITY OF LABOUR

This is the ease at which labour can move from one place to another or from one occupation

to another

TYPES OF MOBILITY OF LABOUR

a. Geographical b. Occupational

1. GEOGRAPHICAL: This is the ease with which labour moves from one geographical area or

location to another in pursuit of the same occupation or another one over a given period

FACTORS AFFECTING GEOGRAPHICAL MOBILITY OF LABOUR

i. High cost of transportation

ii. Family size

iii. Social and economic infrastructure

iv. Government policies

v. Climate change

vi. Accommodation problems

vii. Discrimination, language barrier, social unrest etc

2. OCCUPATIONAL: This is the ease with which labour moves from one occupation to another

in pursuit of better life. It is horizontal when labour moves to another occupation on the same

grade level in that organisation or a different one. E.g when a gardener in a company moves to

another company as a gardener while it is vertical when labour moves to another occupation

on a different (high or low) grade level in that organisation or a different one. E.g a teacher

moves to another school as a principal in that organisation or another organisation

3

FACTORS AFFECTING OCCUPATIONAL MOBILITY OF LABOUR

i. COST OF TRAINING: When this is high it will discourage mobility than when low

ii. DURATION OF TRAINING: When training takes a long period, it discourages mobility than

when short

iii. TRADE UNION OR PROFESSION ASSOCIATION: They may encourage or discourage such

movement

iv. DIFFERENCE IN WAGE RATE: It may either encourage or discourage such movement

v. NATURAL ABILITIES: These required in certain jobs may prevent or allow mobility of labour

vi. DISCRIMINATION ON SEX OR RACE: In account of these in some areas may prevent or allow

mobility of labour

vii. INFORMATION ABOUT WAGE RATE AND OPPORTUNITIES: Adequate or inadequate

information about wage rate and related opportunities can either encourage or discourage

mobility of labour

viii. AVAILABILITY OF LABOUR TO ACQUIRE SKILLS: If labour is too old to learn new skill, it will

prevent mobility of labour and vice versa

REASONS FOR THE DIFFERENCES IN EARNINGS AMONG WORKERS

i. Working conditions, safety, convenience etc

ii. Government policies

iii. Differences in productivity among workers

iv. Immobility of labour and cost of movement

v. Ignorance of job opportunities

vi. Man-made barriers e.g trade union policies, licensing etc

vii. Supply and demand conditions for skills. Skills that are relatively scarce relative to demand

attracts high earnings

viii. Cost and length of training

ix. Discriminatory practice, gender and race discrimination

x. Natural talent e.g singers, comedians etc

THE NATURE OF THE NIGERIAN ECONOMY

Nigeria is derived from the word ‘Niger’ the name of the ‘river’ that constitutes the most

remarkable geographical features of the country. She attained independence from Britain in

1960 and became a Republic in 1963. Nigerian economy was predominantly agriculture up to

1970 producing agricultural produce such as cocoa, groundnut, hides and skin, oil palm etc for

export and various tubers and other crops for domestic consumption.

4

With the discovery of crude oil at commercial scale in early 70’s, economic activities changed in

favour of crude exportation, drilling combined with exploration and mining due to their

profitable outlook. Consequently, oil sector has been the main source of revenue and growth

of the Nigerian economy. Though, the present Nigerian government is making efforts to

diversify the economic activities, nonetheless agricultural activities continue to remain the

major economic activity of the country particularly in terms of employment to the greater

proportion of the country’s labour force and contributions to the Gross Domestic Product

(GDP). From Calabar to Lagos as the capital, Nigeria now has Abuja as the Federal Capital

Territory since 1991. Nigeria is currently made up of 36 states and the FCT Abuja which are

grouped into six geopolitical zones. They are;

1. SOUTH SOUTH ZONE: Delta, Edo, Rivers, Akwa-Ibom, Cross River and Bayelsa state

AGRICULTURAL ACTIVITIES: Cash crops are rubber, oil palm, cashew nuts while food crops

include sweet potato, plantain, cassava etc. Fishing is a major occupation

MINING ACTIVITIES: Crude oil and limestone are majorly mined in this zone

NORTH CENTRAL ZONE: FCT Abuja, Benue, Plateau, Kogi, Niger, Kwara and Nassarawa state

AGRICULTURAL ACTIVITIES: Cash crops such as beniseed, sugar cane, rubber etc as well as

foodcrops like maize, sorghum, rice, sweet potatoes etc. Fishing is as included

MINING ACTIVITIES: (Tin and columbite) in Jos, Gold and Iron-ore (Kogi) and limestone in

Benue state. Hydro-electric power is also found in this region e.g Kanji dam

2. SOUTH EAST ZONE: Imo, Abia, Anambra, Enugu and Ebonyi state

AGRICULTURAL ACTIVITIES: Cash crops are oil palm, cashew nut while food crops are rice,

yam, cassava etc

MINING ACTIVITIES: Coal and limestone are major mining activities

NORTH EAST ZONE: Yobe, Gombe, Bauchi, Taraba, Borno and Adamawa state

AGRICULTURAL ACTIVITES: Cash crops are cotton, sugar cane while food crops are cowpea,

maize, millet, sorghum, beans etc. They also engage in fishing activities and rear animals to

produce hides and skin etc

MININIG ACTIVITIES:No significant mining activities in this region

3. SOUTH WEST ZONE: Lagos, Ogun, Oyo, Ondo, Osun and Ekiti state

AGRICULTURAL ACTIVITIES: Cash crops are cocoa, kolanut, oil palm while food crops are

cassava, yam, rice, potato, maize etc. Fishing, hunting and pig farming is also a major

occupation

MINING ACTIVITIES: Limestone is majorly mined in this zone

4. NORTH WEST ZONE: Kaduna, Kastina, Kano, Kebbi, Zamfara, Jigawa and Sokoto state

5

AGRICULTURAL ACTIVITIES: Cash crops are cotton, groundnut, sugar cane while food crops are

cowpea, millet, sorghum, tomatoes, maize etc. Rearing of animals is also a major occupation

MINING ACTIVITIES: Limestone is the major mineral deposit in this zone

5. NORTH EAST ZONE: Yobe, Gombe, Bauchi, Taraba, Borno and Adamawa state

AGRICULTURAL ACTIVITES: Cash crops are cotton, sugar cane while food crops are cowpea,

maize, millet, sorghum, beans etc. They also engage in fishing activities and rear animals to

produce hides and skin etc

MININIG ACTIVITIES:No significant mining activities in this region

6. NORTH CENTRAL ZONE: FCT Abuja, Benue, Plateau, Kogi, Niger, Kwara and Nassarawa state

AGRICULTURAL ACTIVITIES: Cash crops such as beniseed, sugar cane, rubber etc as well as

foodcrops like maize, sorghum, rice, sweet potatoes etc. Fishing is as included

MINING ACTIVITIES: (Tin and columbite) in Jos, Gold and Iron-ore (Kogi) and limestone in

Benue state. Hydro-electric power is also found in this region e.g Kanji dam

CONTRIBUTIONS OF PRIMARY, SECONDARY AND TERTIARY SECTOR TO THE NIGERIAN

ECONOMY

The industries are classified into primary, secondary and tertiary sectors/industries

a. PRIMARY SECTOR/INDUSTRY (EXTRACTIVE INDUSTRY): This is concerned with the

extraction of raw materials in their natural forms provided by nature. Their outputs are basic

inputs for the secondary sector. This sector has the largest Nigerian labour force and mining of

crude oil is the main source of the Nigerian economy. This sector remains the predominant

sector of the economy.

b. SECONDARY SECTOR (MANUFACTURING AND CONSTRUCTION INDUSTRIES): This is

concerned with the transformation or conversion of raw materials from the primary sector into

finished products as well as assembling of different components into finished products e.g

Building, ship building, car assembling, chemical industries etc. The contributions of this sector

is relatively low in relation to primary sector

c. TERTIARY SECTOR: This sector is concerned with the rendering of professional and

commercial services in the distribution of goods and services which can be direct e.g driving,

banking, teaching etc or indirect services like public and civil servants rendering services on

behalf of the government. This sector has the least contribution to the country’s Gross

Domestic Product (GDP)

AGRICULTURE

This refers to the production of crops and rearing of animals for man’s use and consumption. It

is one of the most important sectors of the economy of many West African countries. It

employs about 60 – 70 percent of the population at subsistence level

6

COMPONENTS OF AGRICULTURE

i. Crop production/farming

ii. Livestock farming/production

iii. Forestry

iv. Fish farming/fishery

a. CROP PRODUCTION: This is the branch of agriculture that is the cultivation of both food

crops (such as plantain, potatoes etc) and cash crops (cocoa, oil palm etc) for domestic and

foreign consumption. While food crops are cultivated mainly for food consumption and for

reproduction, cash crops are cultivated mainly for industrial use and export to earn income or

foreign exchange for the economy

b. LIVESTOCK PRODUCTION: This involves rearing of animals either for consumption or for sale

(domestically and internationally) e.g cattle, goat, snail etc. They are reared for their meat,

eggs, milk, sport, transport, cash etc

c. FORESTRY: This is the act of planting, tending and managing forests including the utilization

of their products. Most of the trees found in forest are either growing naturally or planted for

specific purposes. E.g Iroko, Oboche, Mahogany. Forest is important for the provision of food,

fuel, medicinal herbs, employment, wild life, foreign exchange

d. FISHERY: This is the act of rearing selected species of fish under scientifically controlled

conditions in enclosed bodies of water such as ponds, streams, rivers, oceans etc where they

feed, grow, breed and are harvested for consumption or for sale. It provides food,

employment, income and foreign exchange

CONTRIBUTIONS OF FOREST RESOURCES TO THE ECONOMIC DEVELOPMENT OF NIGERIA

i. Forest resources such as timber products provide raw materials for the local industries e.g

furniture industry

ii. It provides herbs for pharmaceutical and herbal industries and clinics. They contribute

positively to the health of the people

iii. Exportation of forest resources provide government with foreign exchange e.g export of

timber

iv. It helps various levels of government to generate revenue from taxes imposed on products

and firms involved in the exportation of forest resources

v. Grass land provides food for livestock which serves as food for man

vi. They provide habitation for wildlife and also help to promote tourism e.g Yankari game

reserve in Nigeria

vii. They serve as source of food for people

viii. They provide employment and income for farmers, hunters etc

7

ix. They serve as a source of energy e.g charcoal and firewood

SYSTEMS OF AGRICULTURE

i. Peasant farming

ii. Subsistence farming

iii. Mechanised farming

iv. State farming

v. Plantation farming

vi. Cooperative farming

a. PEASANT FARMING: This is practised by peasant farmers on small farm holdings. This is a

system of farming in which crops and livestock are raised for both consumption (subsistence)

and for sale. It is a small scale farm, it uses crude implements, the output is usually low and the

labour is supplied by the farmer and his family members. The produce are eggs from poultry,

rice, maize etc

b. SUBSISTENCE FARMING: This is a system of farming in which crops and livestock are raised

i.e cultivated and reared for the farmer’s family consumption (subsistence) and not for sale. It

involves the use of crude implements and the labour is mostly supplied by the farmer’s family.

It produces meat and eggs from poultry, rice, cassava, cowpea etc

c. MECHANISED/COMMERCIAL FARMING: This is a large scale farm involving the use of

machinery like tractors, harvesters, other engine devices and other forms of capital such as

irrigation, improved seedlings and fertilizers. It is usually capital intensive. Storage and

processing facilities are required. It also requires special skills and technical education or

labour. Production is both for domestic and international markets

d. STATE FARMING: This is a system of agriculture in which the state through its agencies

engages in large scale farming for both local and foreign market. It shares similar features with

mechanised farming

e. PLANTATION FARMING: This system of farming involves the use of large estate land

permanently planted with economic or commercial crops e.g cocoa, tea, cotton etc and other

commercial crops. It can be owned by government, private individual or corporate bodies. It is

capital intensive and large scale farm. Modern equipment and modern inputs are mainly used

f. COOPERATIVE FARMING: This refers to a farming activity where farmers of same agricultural

produce form an association and pool their resources together in order to enjoy certain

incentives form government and produce on large scale. They also provide marketing facilities

for their produce. The output is usually large. They organise market for their products

IMPORTANCE OF AGRICULTURE

i. It provides food for the teeming population

ii. It supplies raw materials to industries, which are processed into industrial output

8

iii. It serves as source of foreign exchange earnings

iv. It provides employment for a large population of labour force in a country

v. It is a source of government revenue i.e investment by farmers on their farms, savings by

farmers in banks etc which contribute to capital accumulation in a country

vi. It is a source of government revenue for export tax (exercise duty) on agricultural produces

vii. It provides market for industrial products

viii. It conserves foreign exchange by producing import substitutes

CONTRIBUTIONS OF AGRICULTURE TO INDUSTRIAL DEVELOPMENT OF NIGERIA

i. Provision of food

ii. Provision of raw materials

iii. Revenue to farmers and government

iv. Earnings of foreign exchange

v. Provision of employment

vi. Provision of market for industrial products

CONTRIBUTIONS OF INDUSTRIAL SECTOR TO AGRICULTURE

i. It provides ready markets for agricultural raw materials such as cotton for textile industry

ii. It provides variety of goods for the farmers to patronise

iii. Industrial sector manufactures agro-chemical fertilizers

iv. Industrial sector manufactures farm implements such as hoes, cutlass etc

v. Industrial sector absorbs excess labour from the agricultural sector

vi. Industrial sector promotes research and training in the use of their produce

PROBLEMS WHY AGRICULTURAL PRODUCTIVITY IS LOW IN WEST AFRICA

i. The use of crude implements does not increase output

ii. Land tenure system and land fragmentation makes availability of land for farming

cumbersome. It does not encourage large scale farming since land is owned communally as a

result does not make provision for outsiders who have the capital and willingness to embark on

large scale farming

iii. Inadequate credit facilities make commercial and large scale farming difficult

iv. Inadequate infrastructure facilities e.g storage and transport, feeder roads

9

v. The weather/climate conditions sometimes reduces the level of outputs e.g during periods of

low rainfalls

vi. Agricultural pricing policy: Unstable prices affect the morals of farmers to increase output

vii. The destructive activities of pest and grazing animals destroys farm lands and owners

productivity

viii. Illiteracy of farmers

ix. Natural disasters

x. Political/social instability

AGRICULTURE

WAYS GOVERNMENT CAN IMPROVE AGRICULTURAL PRODUCTION IN NIGERIA

i. Farmers should have better and stable prices for their products

ii. Provision of economic infrastructure e.g roads and dams in fertile bur poor rainfall areas

iii. Provision of social infrastructure e.g hospitals, good houses, electricity etc in rural areas so

as to stop drift from rural to urban areas of potential agricultural sector areas

iv. Provision of specialised financial institutions in the various agricultural areas to meet the

needs of specific type of agriculture e.g insurance houses specialising in export crop insuring,

banking houses specialising in definite agricultural locations not concentrated in the cities and

towns for commercial businesses – Nigerian Agricultural and Cooperative Banks (NACB)

v. Establishment of agro-based industries in the country to make use of raw materials to

produce farm implements

vi. Improvement of the extensive services to educate farmers and making improved seedlings

available

vii. Establishment and adequate funding of agricultural research institutions

viii. Reformation of land tenure system to encourage large scale farming

ix. Provision of adequate storage facilities

x. Measures to effectively control pests and diseases

ROLES/MEASURES TAKEN BY GOVERNMENT IN AGRICULTURAL DEVELOPMENT

i. Granting easy credit to farmers to expand their farms

ii. Improving the land tenure system and ensuring easy access to land for large scale farming

iii. Provision of adequate infrastructure such as roads and utilities in the farming areas

iv. Expanding agricultural extension services to educate farmers on modern farming

techniques

10

v. Promotion of all year round cultivation through provision of irrigation schemes

vi. Improving agricultural marketing through introduction of guaranteed price

vii. Providing subsidies on agricultural inputs so that farmers can afford them

viii. Measures to minimise insects and pest infestation to reduce post-harvest losses

ix. Provision of storage facilities such as silos and refrigeration equipment

x. Introduction of high yielding and improved seeds through research

xi. Introduction of improved tools and implements through mechanisation and modern

techniques

xii. Organisation of agricultural fairs to make agriculture more attractive

AGRICULTURAL POLICIES IN NIGERIA

Government of various latest African countries have tried to boost agricultural productivity. In

Nigeria, the federal government embarked on certain agricultural policies or programmes in

order to improve the productivity level of agriculture in the country. They are as follows;

1. OPERATION FEED THE NATION (OFN): This was set up by General Olusegun Obasanjo’s

regime between 1970 to 1979

OBJECTIVES

i. To increase food production

ii. To popularise agriculture

iii. To facilitate agricultural development in all parts of Nigeria

iv. To provide food for all Nigerians

2. AGRICULTURAL DEVELOPMENT PROJECT (ADP): This started in 1975 and was co-founded by

the World Bank, Federal and State government

OBJECTIVES

i. To boost agricultural production through the construction of farm service centres for

efficient distribution of agricultural inputs

ii. To increase the level of extension contact with farmers

iii. To source and make available farm inputs to farmers e.g improved seeds, fertilizers and

chemicals

iv. To construct rural infrastructures such as feeder roads and earth dams

v. To bring agricultural services closer to the people (farmers) in rural areas

3. DIRECTORATE OF FOOD, ROADS AND RURAL INFRASTRUCTURE (DFRRI): This was

established in 1986 by the federal government during General Ibrahim Badamosi Babangida.

11

OBJECTIVES

i. To provide rural infrastructure that would facilitate food production

ii. To develop small scale agro-based industries

iii. To provide rural infrastructure that would improve the quality of life for rural dwellers e.g

electricity, water and roads

iv. To provide rural infrastructure that would facilitate food processing

4. FARM SETTLEMEMT SCHEME (FSS): This was established in 1959 by the then western region

of Nigeria

OBJECTIVES

i. To teach settlers better farming practices needed to produce larger farm produce both for

consumption and for sale

ii. To develop rural areas infrastructure thus making rural areas more attractive to live in and

reduce rural-urban drift

iii. To have a multiplier effect as surrounding farmers visit the schemes

iv. To reduce the rate of unemployment among young school leavers and make farming

attractive to the youths

v. To learn new techniques in farming

5. NATIONAL AGRICULTURAL INSURANCE SCHEME: This was also set up by the Federal

Government of Nigeria in 15th November 1987

OBJECTIVES

i. To provide security against risk, uncertainties and hazards in agriculture for farmers

6. GREEN REVOLUTION: This was equally set up between 1979 and 1983 by the federal

government under the second republic government of Shehu Shagari

OBJECTIVES

i. To encourage large scale farming

ii. To establish River Basin Authorities to boost agriculture

iii. To provide abundant food crops for local consumption

iv. To produce cash crops for export purposes

7. AGRICULTURAL LOAN SCHEME: The federal government also established some agencies to

give financial assistance to farmers. They are Nigerian Agricultural and Cooperative Bank

(NACB), Agricultural Credit Guarantee Scheme (ACGS), and National Directorate of

Employment (NDE)

12

OBJECTIVES

i. To give financial assistance to farmers in the form of loan, credit facilities and subsidies

ii. To provide employment in agriculture

8. LAND USE DECREE: This was promulgated on 29th March 1978 which enables farmers to have

access to land for farming purposes

OBJECTIVES

i. To encourage proper productive and efficient use of land

ii. Streamline and simplify the management and ownership of land in the country

iii. To allocate land and create opportunities for enterprising farmers to acquire more land for

large scale farming

iv. To facilitate farming or formulation of programmes for a particular land use

v. To remove unpleasant controversies which land had hitherto generate in Nigeria

MARKETING OF AGRICULTURAL COMMODITIES

A marketing board is charged with the responsibility of marketing agricultural produce. A

marketing board is defined as a public corporation charged with the responsibility of assisting

farmers in purchasing, grading and marketing of various agricultural commodities in the

country

FUNCTIONS OF MARKETING BOARDS

i. The marketing board is responsible for purchase of products from farmers and sales of

produce to either industries or export

ii. They generate revenue through marketing of produce

iii. They stabilise process by fixing minimum process for the crops to enable farmers to keep

producing

iv. They process some of the produce for final export to other countries

v. They ensure the formation and growth of co-operative societies which assist them to

purchase produce from farmers

vi. They help to grade and standardise products with the view to improve their quality

vii. They are responsible for the development of agro-based industries

viii. They are involved in training farmers on modern farming techniques

ix. They provide fund for research purpose e.g improved seedlings etc

PROBLEMS FACED BY MARKETING BOARD

i. Marketing board at times find it difficult to finance their products due to lack of funds

13

ii. They find it difficult to purchase all produce due to over production by farmers

iii. They experience pricing problems due to fluctuation of prices in the world market, hence

find it difficult to market their products

iv. An adverse climate condition can result in poor harvest and this will affect the volume of

produce to be purchased by the board

v. They are subject to bureaucracy and tribalism in the appointment of board of directors

vi. The illiteracy of farmers constitute a big problem for the board

MINING

This is the extraction of minerals and metals from the earth. In Nigeria, rights of ownership of

mineral resources and regulation of mining activities are held by the federal government.

Nigeria mining industries is composed of human resources, material resources and market

i. Human Resources: This comprises all labour-skilled, semi-skilled and unskilled, employed in

the production of goods and services

ii. Material Resources: This comprises capital such as mining equipment and machines, physical

structures and infrastructures like roads, power etc employed in the production of goods and

services

iii. Market: This is an arrangement by which buyers and sellers are brought into close contact

for the purpose of transacting business. This arrangement is facilitated by telephone, postal

communication, telegraph, online and internet, a particular location etc. This is also essential

for continuous mining because mining is carried out in order to generate revenue

MAJOR MINERALS MINED IN NIGERIA

MINERALS TYPES USES LOCATION

Petroleum Mined fuel or energy mineral

Sources of fuel and lubricants for engines

All states in south-south region, Imo, Abia, Ondo, etc

Natural Gas Energy minerals Sources of fuel Same as above

Coal Energy mineral Source of power, fuel in homes and railway (locomotion)

Enugu and Benue state

Iron ore Ferrous and non-ferrous

Iron is used for building and construction

Kogi state

Tin and Columbite Minerals Tin is used for coating contents in the canning industries while columbite is used in the manufacturing of heat resistant steel used in jet

Plateau (Jos)

14

engine

Limestone Industrial metals Manufacturing of cement

Benue, Ebonyi, Enugu, Kogi etc

Natural resources: These are gifts of nature used in the production goods and services. They

are the material and non-material resources provided by nature used in the production of

goods and services

THE CONTRIBUTION OF NATURAL RESOURCES TO THE NIGERIAN ECONOMY

i. Source of food: Food for the teeming population comes from agriculture

ii. Source of foreign exchange earnings: Petroleum and export of agricultural products provide

more than 70% of Nigeria’s foreign exchange with the latter producing more than 10%

iii. Source of raw materials: Raw materials for agro-based industries and pharmaceutical

industries are from agriculture and petroleum as a source of inputs

iv. Source of employment: Both agriculture and mineral resources provide employment for a

very large percentage of Nigeria’s population

v. Source of energy: Nigeria’s main source of energy such as gasoline, kerosene etc come from

petroleum also charcoal, firewood etc

vi. Provide market for industrial products: They provide market for industrial products such as

hoes, machines, fertilizers, insecticides and mining equipment. Fertilizers and machines are

used for agriculture while mining equipment are used for coal, tin and columbite

WAYS IN WHICH MINERAL RESOURCES ARE IMPORTANT TO THE ECONOMY OF A COUNTRY

i. Provision of jobs for the people involved in the exploration and mining activities

ii. Countries involved earn foreign exchange through their export of the resources

iii. There is transfer of technical know-how through imports of personnel and equipment

iv. The mining of mineral resources contribute to the Gross Domestic Product (GDP)

v. It serves as a source of revenue to the government

vi. Mineral resources provide raw materials for some industries

vii. Mining resources attracts developmental infrastructure to such areas

THE NEGETIVE EFFECTS OF EXPLORATION OF MINERAL RESOURCES

i. Neglect of agriculture because of huge foreign exchange earning capacity of the sector which

results in increased food import bills

ii. Environmental pollution caused by oil spillage and other chemicals have endangered the lives

of the people, plants and animals in various ways

15

iii. There is a rural urban drift occasionally by the neglect of agriculture which leads to urban

congestion and social vices associated with it

iv. Huge revenue earning from the sector fuels inflation due to neglect of other productive

activities especially the manufacturing sector

v. There is displacement of communities due to mining activities e.g blasting of rocks

vi. Social and political unrest in the area where mineral exploitation takes place have disrupted

peace, economic activities and affected government

vii. Illegal mining deprives government of the needed revenue for development

viii. Economic recession have been witnessed in many oil producing countries because of oil

glut, falling crude oil prices, lack of savings during oil boom and rising unemployment etc

PROBLEMS FACING EXPLORATION OF SOLID MINERALS

i. Inadequate funds for exploration and exploitation of solid mineral resources

ii. Personnel required for the exploration and mining may not be available

iii. Poor transport facilities make areas of mining inaccessible

iv. Unstable world of prices of mining products may discourage people from going into such

ventures

v. Areas of mining activities do experience environmental pollution and land degradation

vi. Illegal mining leads to smuggling of the proceeds which under estimate the national income

vii. Insufficient information on the quantities and qualities of the distribution of solid minerals

deposit

FINANCIAL INSTITUTION

This refers to all business organisations which hold money for individuals and institutions and

may borrow from them in order to give loans or make other investment. They represent

channels or medium by which fund can flow from lenders to borrowers. It is classified into

three; Traditional, Banking and Non-banking

i. TRADITIONAL FINANCIAL INSTITUTION: These are traditional credit group such as Esusu,

Etio-utu and Etibe in Nigeria whose members contribute a certain amount per period which is

paid to one member at a time until the circle is complete. In another case, members make

regular payments to a collector who refunds their contributions at the end of a period for a

commission

FUNCTIONS OF TRADITIONAL FINANCIAL INSTITUTION

a. It encourages savings

b. . Assists members to borrow

c. It ensures proper management of funds

d. Promotion of investment

16

e. Assistance to members in time of need

ii. NON-BANKING FINANCIAL INSTITUTION: These are financial institution which accepts

deposits from the public in one form or the other but these deposits are not repayable on

demand e.g insurance companies, hire purchase companies, building societies etc

iii. BANKING FINANCIAL INSTITUTION: These are financial institution which receives deposits

from the public and government. The deposits are payable on demand e.g commercial banks,

central bank, specialised bank- Development banks, Mortgage banks, Merchant

banks/Acceptance Houses, savings bank

A bank is a commercial institution which performs various financial activities such as

acceptance of deposits and other valuables from the public for safe keeping and offering credit

facilities like loans and overdrafts, discounting of bills of exchange to its customers for profit

maximisation

TYPES OF BANK

1. COMMERCIAL BANK: This is a financial institution usually set up as a limited liability company

which accepts deposit and other valuables from the public for safe keeping and grants credit

facilities such as loans and overdraft etc with the sole aim of profit. It usually grants short term

loan. It is a major institution in the Money market e.g Zenith bank

FUNCTIONS

i. Acceptance of deposits: Customers money can be kept in any of the three types of account;

savings, current or demand deposit and time or fixed deposit accounts for safe keeping

ii. Provides credit facilities: They make available loan(short and medium term), overdrafts and

discounts bills of exchange to their customers for investment

iii. Aid foreign trade: They provide facilities for domestic and foreign remittance, such transfer

can be done telegraphically or by cable or by ordinary mail or through travellers cheque to their

customers

iv. Agency services of securities: They act as agents for their customers on the purchase and

sale of securities such as shares, bonds, treasury bills etc

v. Safe keeping of valuables: They safe guard valuables such as jewelleries, wills etc for their

customers

vi. Agents of payments: They serve as agents of payment to the creditors to their customers

through the use of cheques, transfers and other banking facilities

vii. Advisory services: They give advisory services to customers such as technical, financial and

other advice etc

TYPES OF BANK ACCOUNT

a. CURRENT/DEMAND DEPOSIT ACCOUNT: This is the type of account that is usually operated

by businessmen and organisations who make frequent deposits and withdrawals. The

17

customer is given a cheque book to withdraw money. He is not entitled to interest but is

charged commission by the bank. He can obtain loans and overdrafts from the bank. Third

party can withdraw from the holder’s account on his behalf

PROCEDURES FOR OPENING A CURRENT ACCOUNT

i. The customer will collect and fill an application form

ii. He is to submit the prescribed number of passport photograph

iii. Two guarantors or referees must be provided to recommend the applicant

iv. The customer will submit his completed form showing personal details especially when the

account is an individual account but when it is a corporate account, other documents like

certificate of incorporation etc must be provided

v. The bank will issue him with a pay-in slip booklet

vi. He will be issued an account number

vii. He will pay an initial deposit

viii. A cheque book will be given to him

b. SAVINGS ACCOUNT: This is the most common form of account which encourages individuals

(especially low income earners) to develop the habit of savings. It attracts a favourable rate of

interest. The customers are given a passbook. Interest is paid to customers for keeping their

money and if withdrawals are more than twice in a month, it may not attract interest.

Withdrawals can only be made by the holder

c. FIXED DEPOSIT ACCOUNT/TIME DEPOSIT ACCOUNT: This account is usually operated by

individuals and organisations that have excess liquidity or money. They put their excess money

at a fixed period of time (12 months, 6 months etc) in order to earn interest that is higher than

other accounts. Customers can withdraw the deposit subject to seven days’ notice to the bank

2. CENTRAL BANK: This is defined as the apex bank established by an act of parliament and

charged with management and control of the national monetary affairs and the supervision

and co-ordination of banking and financial activities of a country.n It is the government bank

and Bankers’ bank and does not transact any business with private individuals e.g Central Bank

of Nigeria, Federal Reserve (U.S.A) etc.

FUNCTIONS

i. Bankers to the government: It is an agent and banker of the federal government. It performs

financial transactions on behalf of the government

ii. Issue of currency: It issues the currency in a country and protects its gold reserve

iii. Maintenance of monetary stability: It controls the size of money in circulation through

instruments of monetary policy such as open market operation, bank rate, special deposits etc

18

iv. Banker’s bank: It is the banker to the various banks in the country just like commercial banks

are bankers to the public

v. Lender of last resort: It is a lender of last resort in that commercial bank in the country when

in financial difficulties to meet withdrawals and demand for loans turn to the central bank as a

last resort

vi. Manages national debts: It manages the country’s national debts on behalf of the federal

government

vii. Manages foreign exchange and foreign reserve: It has the responsibility of maintaining

external reserves and manages the foreign exchange of the country

HOW CENTRAL BANK CONTROLS COMMERCIAL BANKS/INSTRUMENTS USED BY THE

CENTRAL BANK TO CONTROL CREDIT GIVEN TO COMMERCIAL BANKS

i. OPEN MARKET OPERATION (O.M.O): This is the sale and purchase of government securities

like treasury bills to influence the supply of money. When there is excess liquidity (money) in

the economy, the central bank will sell her treasury bills and vice versa

ii. Liquidity ratio/Cash ratio/Cash reserve ratio: Banks are mandated by law to keep a

percentage of their total deposits in the form of liquid assets in their vaults or with the Central

bank. This percentage can be increased if the central bank wants to reduce money supply and

vice versa

iii. Bank rate/Discount rate: This is the rate at which the central bank lends to commercial bank

and also discount bills of exchange. To increase money supply the central bank will reduce the

bank rate and vice versa

iv. Special deposit: The central bank can mandate banks to make special deposits with it so as

to mop up excess liquidity when the need arises. In order to reduce money supply, the central

bank orders an increase in special deposit and vice versa

v. Selective credit control/Special directives: The central bank can order or instruct other

banks to increase their lending to a particular sector so as to stimulate the sector for all overall

growth of the economy

vi. Moral suasion: Unlike other instruments, this is more of an appeal to other banks to restrict

or expand their loans to a particular sector(s) of the economy

vii. Funding: This refers to the process where short term debts of government are converted to

long term debts to reduce excess liquidity with the commercial bank and vice versa

WAYS BY WHICH COMMERCIAL BANKS CREATE CREDIT OR MONEY CREDIT

Central bank issues currency while Commercial banks create money in an economy. Credit or

money creation refers to the process whereby commercial banks makes it possible for more

deposits to be available in the economy through withdrawals, loans and overdraft and

discounting of bills of exchange. These will increase quantity of money in circulation which in

turn increases the purchasing power of the people.

19

BANK CLEARING HOUSE

This is an institution set up by member banks to simplify exchange and obtaining of payment

for the cheques that are paid into bank branches throughout the country. The clearing system

is used among banks to settle cheques drawn on them. Settlement is effected through the

banks’ account

TYPES OF CLEARING HOUSE

i. Local clearing house

ii. Head office clearing house

iii. Bankers clearing house

SPECIALISED BANKS: Development Bank, Merchant banks/Acceptance houses, Mortgage

banks, Savings bank etc

3. DEVELOPMENT BANK: These are specialised financial institutions which provide long term

credit or loan to other enterprises for capital projects. They provide loans for projects in area of

agriculture, commerce and industry e.g Nigerian Development Bank (N.I.D.B), Nigeria Bank for

Commerce and Industry (N.B.I.C) and Nigerian Agricultural and Co-operative Bank (N.A.C.B)

FUNCTIONS

i. They provide long term loans for capital projects. Capital projects require huge capital which

cannot be easily provided by the money market or individuals

ii. They help in the supervision of development projects

iii. They contribute to manpower development by making funds available to manpower training

institution

iv. They help to implement government policies on industrial, commercial and agricultural

development

v. They also advice the industrialist in the surest or best way to invest

vi. They undertake research to determine viable areas to develop industries

4. MERCHANT BANK/ACCEPTANCE HOUSES: Merchant bank is a financial institution set up to

provide long term loans to group of individuals and government for developmental projects.

They provide financial assistance in high risk, low profit and long gestation period investments

which are unattractive to commercial bank. These are financial institutions which perform

specialised functions such as acceptance of bills of exchange, issuance of loans for foreign

trade transactions, issuance of new shares and provision of medium and long term loans. The

first merchant bank in Nigeria, Nigerian Acceptance Limited (NAL) set up in 1966. Examples of

merchant banks include ABC Merchant Bank, Merchant Banking Corporation, Merchant Bank

of Africa, First City Merchant Bank.

20

FUNCTIONS OF MERCHANT BANK

i. They accept and discount bill of exchange

ii. They loan to foreign traders

iii. Acceptance of large deposit from customers

iv. Provision of long term loan to government and companies abroad for development projects

v. They underwrite new issues of shares

vi. They act as company advisers telling them possible area to invest

vii. They manage take over and merger bids between companies

viii. They assist companies wishing to lease their equipment

ix. They undertake loan syndication by organising a consortium of institutions to finance

business enterprise

x. They provide services such as investment management, advice and guidance on the

management of investment portfolios

5. MORTGAGE BANKS: They are financial institutions that specialise in granting long-term

mortgage loans to individuals and corporate bodies for building purposes. Such loans are

repaid by instalments and can be spread over several years. They accept deposits from the

investing public at a rate of interest and use the fund to lend at a higher rate of interest, to

people who wish to purchase their own houses. The Federal Mortgage Bank is the apex

mortgage bank which works with others state housing corporations and mortgage institutions.

FUNCTIONS OF MORTGAGE BANKS

i. They accept deposits from customers in order to encourage savings towards owning a house

ii. They provide long term loans to people or to estate developers to build houses

iii. They supervise and encourage the development of mortgage institutions

iv. They advise and assist the government on housing matters

v. They are involved in the construction of houses and offer them for sale to the people

NON-BANKING FINANCIAL INSTITUTIONS: Insurance company, Building Society,

6. INSURANCE COMPANY: This is a financial institution that is concerned with insurance.

Insurance may be defined as a contract between an insurer and an insured, promises to

indemnify (compensate) the insured against loss, which he may suffer in future upon the

payment of a premium. Risks insured against are fire, burglary or theft, accident, loss etc.

Things that cannot be insured against are gambling, speculation etc. Examples of Insurance

companies include Lion of Africa Insurance, Industrial and General Insurance (IGI), Custodian

and Allied Insurance Nigeria Limited etc

21

FUNCTIONS OF INSURANCE COMPANY

i. It helps to reduce or control loss or liabilities of individuals and organisation. It spreads the

financial losses of the insured

ii. It provides security to commercial activities. Some small enterprises would have collapsed as

a result of major losses but insurance always takes over of such uncertainty

iii. It provides a means of saving regularly which will help to provide for the future e.g

endowment policy

iv. Life assurance policy can be used as a collateral security to obtain loan from the bank for

business investment

v. Provision for old age and disability: Life assurance can be used as a way of providing for old

age to make provision for permanent disability

vi. It stimulates and facilitates international trade: This is because marine policy for example

provides cover for cargoes and vessels. The export credit guarantee also guarantee credit sales

vii. It makes funds available for investment: A large proportion of these resources are invested

in the capital market where businessmen can obtain loans. This helps in developing the

country’s economy

7. BUILDING SOCIETY: This is a financial institution which specialises in the provision of long

term mortgage loans for building purposes to its members and non members. They accept

deposits from their members at a rate of interest and use the fund to lend at a higher rate of

interest to their members who wish to own their houses. Members of the public can also

deposit in their account and be granted loans. They share similar functions with mortgage

banks

MONEY MARKET

It may be defined as a market for the lending and borrowing of short term loans. This type of

market aids all forms of business transactions. A lot of financial institutions involved here

purchase and sell funds on short term basis

INSTRUMENTS USED IN A MONEY MARKET

1. TREASURY BILLS: These are short term securities issued by the central bank which assist

government for short term borrowing for about 90 days. They carry low interest rates

2. BILL OF EXCHANGE: This is a short term credit facility that is used to finance business

enterprises. This is a negotiable instrument which shows the acknowledgement of

indebtedness by a debtor to the creditor and his intention to pay the debt on demand or at an

agreed time usually 90 days.

3. CALL MONEY FUNDS/MARKET: This is a special arrangement in which the participating

institution invest surplus money for their immediate requirement on an overnight basis with

the interest and withdrawals on demand. It has both an advantage of early returns and it is

22

withdrawable on demand which provides solution to the immediate stock of liquidity pressures

in the money market

INSTITUTIONS INVOLVED IN THE MONEY MARKET

i. Central bank

ii. Commercial banks

iii. Co-operative societies/credit unions

iv. Finance companies

v. Hire purchase companies

vi. Discount houses

vii. Micro-finance banks

ADVANTAGES OF MONEY MARKET

i. Provision of finance: Money market enables investors to raise finance through borrowing to

run their business

ii. Creation of extra income: Interests earned from investing in securities and other instruments

in the money market serves as extra income to the investors

iii. Promotion of economic development: Economic growth and development is enhanced

through borrowing and lending from money market

iv. Ability to recall invested funds: Funds invested in the money market are very easy to recall

v. It enhances savings: Money market provides opportunity to save surplus funds which can be

invested

CAPITAL MARKET

This is a financial market in which funds for medium and long term investments are borrowed

or lent for investment and other purposes

SECURITIES/INSTRUMENTS USED IN THE CAPITAL MARKET

1. SHARES: These are financial instruments utilised in the capital market for long term

investments. A share is the portion of a limited liability company owned by an investor

(shareholder). The holders receive dividend as a reward

2. STOCK: These are financial instrument utilised in the capital market for long term

investment. It is a bundle of shares or mass of capital which can be transferred in fractional

amount which are fully paid for. Holders receive dividend as a reward

3. DEVELOPMENT STOCK/GOVERNMENT STOCK: They are government securities used for long

term borrowing of up to five years and above

23

4. BONDS: This is a long term financial security used to source for funds. It may be issued by

firms, financial institutions or government. Bonds issued by government are generally regarded

as very safe

5. TREASURY CERTIFICATES: These are medium term government financial securities which

mature after a year and a maximum of two years. They are issued by the government through

the central bank to either borrow or lend money in the capital market. They carry higher

interest rates than treasury bills

6. DEBENTURES: These are secured(under company’s seal) long term loans raised by a

company usually with fixed interest and sometimes fixed redemption dates.

INSTITUTIONS INVOLVED IN THE CAPITAL MARKET

i. Central bank

ii. Merchant bank/ Acceptance Houses

iii. Development bank

iv. Savings bank

v. Mortgage bank/Building societies

vi. Insurance companies

vii. Stock exchange market

ADVANTAGES OF CAPITAL MARKET

i. Provision of long term loans to private and public sectors for investments

ii. Mobilisation of funds: Funds are mobilised to various sectors through the capital market

iii. Growth of Merchant bank: The existence of capital market aids the growth and

development of merchant banks

iv. General running of the economy: The capital market encourages the general public to

participate in the running of the economy through both public and private sectors

MONEY

Money may be defined as anything that is generally acceptable in a given commodity as a

medium of exchange or making payments of goods and services, settlement of debts or other

business obligations. Before the invention of money, the type of exchange that took place was

called Trade by Barter

TRADE BY BARTER

This is a form of trading in which goods are exchanged directly for other goods without the use

of money as a medium of exchange e.g. If someone has yams and is in need of vegetables, he

must go in search of someone who has vegetables and is in need of yams.

Problems associated with Trade by Barter

i. Problem of double coincidence of wants. People who have something to exchange have to

look for someone who has what they have. This made trade difficult and time wasting

24

ii. Problems of indivisibility: Many goods used in barter trade cannot be divided into smaller

units i.e where one party to the exchange has an indivisible item such as sheep

iii. Problem of exchange rate: It was difficult to determine how many of one commodity was to

be exchanged for another commodity because individuals fixed their own exchange rate for

goods and services

iv. Problems of deferred payment: Under barter, there was little or no room for borrowing

and lending because exchange is to meet the immediate needs of the people involved

v. Problems of portability: The bulky nature of goods and the difficulty of carrying them

around was difficult

vi. Discouragement of large scale production: Some goods are perishable and so savings was

difficult, making storage of wealth difficult

vii. Lack of division of labour and specialisation: This is because barter system encourages self

sufficiency

How the introduction of money has solved the problems of Barter System

i. Money has solved the problem of double coincidence of wants i.e with money you can buy all

you want or sell what you have at anytime

ii. With money, payment for a commodity can be deferred to a future date

iii. Money saves time and energy as you no longer have to search for somebody to exchange

your commodity with

iv. With money, it is possible and easier to store wealth making room for division of labour and

specialisation and large scale production

v. Money has solved the problem of bulkiness since modern money can be carried around

easily

vi. Money has created a standard unit of measurement making borrowing and lending easier in

the economy

vii. Money has made determination of exchange rate of commodities easier

viii. Because money has several denominations, it has solved the problem of indivisibility

associated with commodity money e.g cattle

HISTORICAL DEVELOPMENT OF MONEY

Money originated as a result of the various difficulties that arose from trade by barter. In the

older days, different commodities served as money in different countries. Cattle, cowries,

shells, tobacco, salt, beads were used as medium of exchange. Later on precious metals like

silver, gold, bronze etc were used. The amount of metals was weighed out whenever payment

has to be made. Later on, the metals were cut into pieces of definite weights and so coins with

limited face value were issued

25

The use of paper money originated from the use of receipt issued by goldsmith in exchange

for deposits of precious metals. The receipts became bank notes and the goldsmith became

bankers. This happen in Britain.

QUALITIES OR CHARACTERISTICS OF MONEY

i. General acceptability: Money must be acceptable to the people of that country, community

or a certain territorial area

ii. Portability: Money must be something that can be easily carried about from one place to

another. It has to be light in weight

iii. Relative scarcity: Money must be relatively scarce for it to maintain its value. It must not be

too many or too scarce otherwise it will lose its value

iv. Durability: The article that will serve as money must be something that can stand the test of

time (durable) not something that will suffer from wear and tear

v. Homogeneity: The article uses as money must be the same in size and colour in all parts of

the country where it is being accepted as a medium of exchange

vi. Recognisability: The article used as money must be recongnised. It is this quality that makes

people to detect which is the real and the counterfeit money

vii. Stability: Money must be relatively stable. The stability in value of money makes business to

be predictable and encourage lending and borrowing of money

viii. No intrinsic value: The commodity that will serve as money should have little or no value in

itself as opposed to its value as a medium of exchange

ix. Divisibility: It must be capable of being divided into smaller units which facilitates exchange

of goods and services

FUNCTIONS OF MONEY

i. Medium of exchange: Money serves as a medium of exchange of goods and services. It is

used by people as a means of payment of goods and services

ii. Unit of account: It serves as a unit in terms of which the value of all goods and services is

measured and expressed in accounting, record of transaction in bank statements, ledgers,

invoice, receipts etc

iii. Store of value: Money serves as a good store of value because money makes it possible for

individuals to save part of their income or produce for later or future use. This is because goods

may be perishable and services are also intangible. It will be difficult for a teacher or a doctor to

save part of his output in the absence of money

iv. Measure of value: Money serves as a common denominator for measuring the relative

values of goods and services. In other words money is used to express the value of one

commodity in terms of other commodities

26

v. Standard of deferred payment: This means that with the use of money, payments can be

deferred or credits negotiated until a future date

TYPES OF MONEY

i. Commodity money: This is any product that can be used as a means of payment but which is

valuable in its own right e.g beads, gold, silver etc serve as money and jewelleries and other

ornaments. It is an item or commodity that is generally acceptable as a medium of exchange

which must have both money value and intrinsic value

ii. Bank notes/paper money: These are slip of paper or currencies issued by the central bank of

a country as means of payment and settlement of debts. They are in denominations ₦10, ₦20,

₦50 etc

iii. Token money: This is money that has higher face value than the value of the material

(intrinsic) from which it is minted. It has no intrinsic value. It has value only because it is

accepted as a medium of exchange of goods and services. Eg In currency notes, the material

content is worthless

iv. Coins: These are precious metals made of silver which have a defined amount of metallic

content. They also have official stamp of authority placed on them e.g kobo, cents, 50k, 2cents

etc

v. Fiduciary issue: This is described as that part of notes and coins issued that is not backed up

by gold but by government securities

vi. Quasi money/Near money/Partial money: It can be described as money asset that serve

temporarily as money and are convertible into money and can be without loss of value e.g

drafts, bonds, treasury bills, cheques, promissory notes etc

vii. Legal tender: It is money that is compelled by law of a state to be accepted as means of

payment and settlement of debt e.g currency and coins of different countries

viii. Electronic money: These are electronic money in cards from which can be used as payment

and settlement of debts e.g credit cards, debit cards (ATM)

ix. Fiat money: This is any money the government has declared to be legal tender (currency and

coins) but is not backed by reserve. Paper money is fiat money since it can no longer be

redeemed for gold and has no intrinsic value

x. Bank deposits: These are money deposited with financial institutions such as commercial

banks, central bank etc by a customer. It can be in form of current account deposit or demand

deposit etc.

CHANNELS OF DISTRIBUTION

This refers to the routes, links or stages through which goods and services are moved from

production point to the point of consumption or from the producers to the final consumers.

This channel is as follows;

Producer – Wholesaler – Retailer – Consumer (normal chain)

27

Producer – Wholesaler – Consumer

Producer – Retailer – Consumer

Producer – Consumer

The last link in the chain of distribution is the retailer.

The producer is the person or trader who combines the factors of production to produce

goods and services to satisfy human wants

Process of distribution: This involves all human and physical means which aid the smooth

transfer of goods and services from the manufacturer to the final consumers. It comprises

middlemen, transportation, advertisement, warehousing, etc

WHOLESALER

This is a merchant or trader who buys goods and services in bulk or large quantities from the

manufacturers and sells in small quantities to the retailers. He is a middleman essential to the

distribution of goods

FUNCTIONS OF WHOLESALER TO PRODUCERS

i. Large/bulk purchase: By buying goods in large quantity, the wholesaler helps the producers

to pursue relentlessly the principle of mass production

ii. Warehousing: By buying and clearing the goods from the producers’ warehouses and storing

them in his own, the wholesaler makes spaces available for further production

iii. Makes money available: He does this by buying goods in large quantities and paying for

them promptly there by making production to continue

iv. Gives credit facilities to producers: The wholesaler as a wealthy trader is in a position to

perform such function by paying in advance for goods yet to be delivered to him

v. Stabilises the prices of goods: He performs this function by storing the goods in his

warehouse and releasing them according to demand for such goods

vi. Bears the risk of fall in prices: By buying and storing goods in large quantities, the

wholesaler bears the risks of any fall in prices

vii. Relieves the producers of the problem of transportation: He does this by taking the

trouble of the distribution of goods to retailers and others that need them

viii. Involved in advertising: Sometimes the wholesaler performs this function for the

producers through trade exhibitions and trade fairs

ix. Relieves the manufacturers of transportation problem: The wholesalers takes the trouble

of the distribution of the goods to retailers and others that need them

28

FUNCTIONS OF WHOLESALERS TO RETAILERS

i. Provision of variety of goods: The wholesaler enables the retailer to stock variety of goods

which they purchase from different manufacturers

ii. Provides credit facilities: They allow retailers to buy on credit and pay for the goods later.

This enables retailers to run their business with a small capital

iii. Advise the retailer: He can advise the retailer on the knowledge of the goods. He also

inform him about new development in the market

iv. Transportation: The wholesaler can help to transport or convey goods to the retailer’s shop

v. Grading and packaging of goods: He puts finishing touches to production by grading,

branding or repackaging of products before selling to the retailers

vi. Risk bearing: The wholesaler bears the risk of fall in prices on behalf of the retailer by buying

and storing of products in large quantities

vii. Price stability: The producer carries out this duty for the retailer by storing the goods in his

warehouse and releases them according to the demand of the retailer

viii. Provision of goods in small quantities: Wholesaler carries large stock of goods and divides

it into small quantities in order to sell to the retailer

RETAILER

A retailer may be defined as a trader who buys goods in small quantities from the wholesaler

and sells in bits, units or smaller quantities to the final consumers. He is one of the middlemen

essential in the chain of distribution of goods and he is last link in the channel of distribution

TYPES OF RETAIL TRADE

Small Scale retail trade

i. Hawking/Itinerant trade

ii. Mobile shop

iii. Street or roadside retailing

iv. Market or stall holder retailing

Large Scale retail trade

v. Chain or multiple stores

vi. Departmental stores

vii. Supermarket

viii. Mail order

ix. Discount houses

29

FUNCTIONS OF A RETAILER

i. He sells in small quantities to consumers: The retailer purchases in small quantities from the

wholesaler and breaks the goods down into units for the consumers

ii. He provides after sales services: He provides after sales such as installation, repairs and

servicing to the consumers

iii. Credit facilities to the consumers: The retailer can grant credit facilities to the consumers so

as to enable them enjoy goods without payment immediately

iv. Takes goods and services to convenient points for the consumers

v. Stock variety of goods: The consumers can buy varieties of goods from the retailers hence

they are exposed to a wide range of goods

vi. He supplies information to the wholesalers and manufacturers: The retailers being the last

link gives feedback about the market as well as the needs of the consumers and makes it

available to the wholesaler and manufacturer

vii. He sells at convenient locations and hours: The retailers ensures that goods are brought to

the door step of the consumers or near to their houses

THE MIDDLEMEN

They are the wholesalers and retailers who specialise in performing activities relating to the

purchase and sale of goods in the process of their flow from manufacturer to final consumer

FUNCTIONS OF MIDDLEMEN

i. Help to finance production

ii. Provide aftersales services

iii. Breaking in bulk

iv. Providing varieties of goods

v. Give credit facilities to the retailer

vi. Provide information to the producer

vii. Provide warehousing facilities

viii. Repackaging

ADVANTAGES OR SURVIVAL OF MIDDLEMEN

This is found in their functions

DISADVANTAGES OR ELIMINATION OF MIDDLEMEN

i. Longer channel of distribution: The middlemen make the channel of distribution of goods

longer

30

ii. Creation of artificial scarcity: The middlemen create artificial scarcity of products through

hoarding

iii. Increase in price: The middlemen also cause unnecessary price increase to the dismay of the

final consumer

iv. Misinformation: The middlemen sometimes misinform the consumer

v. Fluctuation of prices: The middlemen can cause price fluctuation especially when too many

of them are involved in distribution of products

REASONS OR CIRCUMSTANCES THAT MAY WARRANT THE BY-PASSING OF MIDDLEMEN BY

PRODUCERS

i. Increase in profits: Producers can increase their profit if they are able to sell their products

directly to the consumers

ii. Ownership of warehouses: Some large retailers have large warehouses and this can make

the producers to by-pass the wholesaler

iii. Cheap products: Consumers are able to buy products at cheaper prices when the activities

of both wholesaler and retailer are cut off

iv. Development of mail order system: There may be no need of middlemen in mail order

system since most of the transactions are done by mail

v. Nature of goods: Middlemen can be eliminated when perishable goods e.g vegetables, bread

etc

vi. Small scale production: The manufacturer will prefer to sell directly to the consumer when

the scale of production of the goods is very small

THE ROLE OF CO-OPERATIVES IN DISTRIBUTIVE TRADE

The producers and consumers co-operative societies do engage in the distribution of products.

The role of co-operative society includes;

i. Stock variety of goods: The consumer co-operative society buy variety of goods from the

producers or wholesaler hence are exposed to a wide range of goods

ii. Sell in small quantity to members: They buy in reasonable quantities from the wholesaler

and sell in bits to the members and non members

iii. Grant credit facilities to members: They can grant credit facilities to members so as to

enable them enjoy goods without payment immediately

iv. Bring products closer to members: They also ensure that products are brought to the door

step of the consumers (members)

v. Elimination of middlemen: They can eliminate the activities of middlemen especially

consumers co-0perative societies by buying their goods directly from manufacturers and

selling them directly to the consumers (members)

31

vi. Marketing of members’ product: They also assist their members in marketing their products

(i.e producer’s co-operative society) by ensuring fair prices for their products

THE ROLE OF GOVERNMENT IN DISTRIBUTIVE TRADE

Government participate in distributive trade through the establishment of distributive agencies

such as;

i. The Nigeria National Supply Company Limited (NNSC) – 1972. It is now moribund

ii. Marketing (commodity) board

iii. The River Basin Authorities

THE ROLE OF GOVERNMENT IN THE DISTRIBUTION OF COMMODITIES

i. Provision of transport system: This helps to move products from where they are produced to

where they are needed by road, mail, air and water

ii. Provision of storage facilities: Government also provide storage facilities to store certain

products when they are in excess

iii. Price stabilisation: The agencies through the distributive activities are able to stabilise prices

in order to check inflation

iv. Prevention of artificial scarcity: When the agencies discover that some middlemen are

hoarding some commodities, they release the products from strategic reserves thereby

preventing artificial scarcity

v. Establishment of communication system: This helps to bring the producers and consumers

together for easy distribution of commodities

vi. Importation of essential commodities: When government agencies discover that certain

commodities are scarce and their prices are going up, they can import such commodities to

prevent scarcity and price increase

PROBLEMS OF DISTRIBUTION OF COMMODITIES IN WEST AFRICA

i. Poor transportation network which result in high cost of transportation

ii. Hoarding of goods create artificial scarcity

iii. Inadequate capital or credit facilities make distributive trade to be mostly on small scale

iv. Inadequate information about existence of market for products

v. Difference in weights and measures make product pricing difficult

vi. Large number of middlemen makes distribution complex. Consumers are made to pay high

prices because of profit mark-up by numerous middlemen

vii. Poor storage facilities make it difficult for distribution to even out supply. This usually leads

to high product prices at certain period

32

SOLUTIONS OR ECONOMIC ACTIVITIES THAN CAN IMPROVE EFFECTIVE DISTRIBUTION AND

MARKETING OF COMMODITIES IN WEST AFRICA

i. Establishment of more market places in rural areas will make commodities easily available for

purchases

ii. Encouragement of co-operative societies: The formation of co-operative societies should be

encouraged as they help to buy commodities in bulk and sell to consumers at cheaper prices

iii. Provision of storage facilities: Provision of adequate storage facilities is necessary to prevent

wastage and ensure that goods produced are not taken to the market at once

iv. Improvement in communication system should be improved in order to provide adequate

information about the market situations to buyers and sellers

v. Provision of good transport network