CHAPTER ONE INTRODUCTION
1. Background to the Study
Following the devaluation of the naira in 1986, a policy induced by the structural adjustment (SAP), the subject of exchange rate of fluctuation has become a topical issue in Nigeria. This is because it is the goal of every economy to have a stable rate of exchange with its trading partners in Nigeria. This goal was not reached in spite of the fact that the country embarked on devaluation to promote export and stabilize the rate of exchange. The failure to realize this goal subjected the small and medium scale enterprises in Nigeria to the challenge of a constantly devaluation exchange rate. This was not necessitated by the devaluation of the naira but the weak and narrow rising import productive base of the enterprise and the rising import bills also strengthening it. In order to stem this development and ensure a stable exchange rate the monetary authority put in place number of exchange rate policies. However, very little achievement was made in stabilizing the rate of exchange rate fluctuation persisted in macro-economic management, exchange rate policy as an important tools derives from the fact that changes in the rate of exchange have significant implications, for a country’s balance of payment position and even its income distribution and growth. It is not surprising since it behavior is said to determine the behavior of several other macro-economic variable (Oyejide, 1985). It is even more so for Nigeria which had embarked on a course of rapid economic growth attendant high import dependency. The small and medium scale enterprise plays a catalytic role in a modern economic and has many dynamic benefits that are crucial for economic transformation. In an advanced country the scale and medium scale enterprise is a leading sector in many respects. It is a question for increasing productivity in relation to import substitution and export expansion, creating foreign exchange earning capacity, raising employment, promoting the growth of investment of a faster rate than any other sector of the economy, as well as wider and more efficient linkage among different sectors (Fakiyesi, 2005). But the Nigerian economy is under-industralizes and it capacity utilization is also low. This is in spite of fact that small and medium scale enterprise is the fastest growing sector since 1973/1974 (Obadan, 1994). The enterprise has become increasingly dependent on the external sector for import of non-labour input (Okigbo, 1973). In the ability to import, therefore, can impact negative on small and medium scale production Oyegide (1985) posited that the breakdown of the Brelton wood system induce variability in the rate of exchange worldwide; Nigeria inclusive.
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