EFFECTS OF FOREIGN EXCHANGE RATE ON THE AVIATION INDUSTRY IN NIGERIA

Abstract

A major challenge facing policy makers in Nigeria and elsewhere is what should be the nature of Nigeria’s exchange rate. This challenge directly or indirectly affects the operations of aviation industry in the country since the fluctuation of foreign exchange rate often contribute to the frequency at which passengers patronize aviation industry services in the country. Therefore, the aim of this study is to examine the effects of foreign exchange rates on the aviation industry in Nigeria. The study is limited to examining currency exchange rates of the naira, aviation industry contribution to Nigeria Gross Domestic Product and aviation industry traffic flow, examining the traffic flow in Nigeria aviation industry overtime. It describes the trend of foreign exchange rate and the contribution of aviation sector to Nigeria Gross Domestic Product, estimate the relationship between foreign exchange rate and the aviation industry in Nigeria, and investigate the effect of foreign exchange rate fluctuations on Nigeria aviation industry. The study made use of time series data sourced from Federal Airports Authority of Nigeria (FAAN) for airports in Nigeria from 2000-2016. The regression analysis of the effect of foreign exchange rate on aviation industry contribution to Nigeria GDP revealed that the variable of Foreign Exchange Rate (FER) has a positive effect on aviation industry contribution to Nigeria GDP. The regression analysis of the effect of FER on aviation industry traffic flow shows that the variable of foreign exchange rate (FER) has a positive effect on aviation industry traffic flow. Based on these findings, the study suggested that, Government need to regulate goods that are imported into the country, especially luxury goods and other items that can otherwise be produced locally in order to avoid wastage of the foreign reserves which could have been directed towards importation of industrial goods to help create more jobs and boost economic growth. Nigeria aviation industry which is characterized by airline operations in her respective airports seems to be largely dominated by foreign airliners on international flight routes. This has however increased the demand of foreign currency thereby putting pressure on demand for foreign exchange rate. There is therefore, the need for Nigeria government to encourage national carriers’ existence in order to minimize occurrence as this will also in-turn create more jobs in the aviation industry.