GLOBALIZATION AND ITS IMPACT ON THE BEER INDUSTRYS EXPORT PERFORMANCE IN THE NIGERIAN ECONOMY 1985-2015
DOI:10.30825/5.EJPAU.39.2017.20.4

M.A. Loto
Department of Economics, Faculty of Social Sciences, University of Lagos, Nigeria

ABSTRACT

This study analyzed the impact of globalization on the Nigerian beer industry’s export performance between 1985 and 2015. Time series data for the period 1985–2015 which was later adjusted to 1989–2015, was fitted with a Least Square Method Regression model (OLS). The results obtained are not too far away from expectations with the exception of very few. The result shows that when there is an increase in foreign income, all things being equal, there will be an increase in the demand for beer export. Imported technology is positive; it means that efficiency could be earned through imported technology which can bring about efficient production and competitive pricing in the international market. When this happens, it will bring about an opposite movement between export demand and price of export. The coefficient of openness indicates that there is room for beer export to benefit from globalization. This is because there is room for this sub-sector to benefit from globalization. It has the potentials to expand into the world market.

Key words: Globalization, Export, Nigeria, Beer Industry, Error Correction.

INTRODUCTION

The world population is on the increase. The youth constitute a very high percentage of the world population. Beer drinking is allowed from the age of eighteen (18) for youth. In this case, they are regarded as adults. Beer drinking is for adults. As the population of the youths all over the world including Nigeria is increasing, it is expected that the consumption of beer will also be on the increase. The production and consumption of beer are of significant interest. The interest is centered on: What does beer contribute to the growth of an economy? Is there any problem confronting the production of beer? Is there any international market for the consumption of beer produced by another country? Is there any link between the increase in the consumption of beer and globalization? Scherer [14] stressed that the brewing industry constituted a major focus of interest in industrial development after the 2nd world war. The brewery is a beer manufacturing outfit. The Nigerian brewery started in 1946. It is a fast-growing sector in the manufacturing industry. The Nigerian brewery contributes to the value added in manufacturing and also provides employment for the people, both direct and indirect employment.

In the beer market globally, the whole of Africa accounted for just 5% and Nigeria accounted for roughly 1% out of the African 5%. In as much the Nigerian market has a size of almost the size of the whole Africa, the contribution of Nigeria beer market in terms of production, to the global market is still very negligible (<1%) in 2008.

Wilkin [18] pointed out that the brewery industry could be improved upon to bring about good competition in the global market. According to him, to improve the brewery industry will require the up-to-date organizational and technological structures of the production of beer, efficient distribution channels, changes in the assortment, modern capital structure and the company’s image improvement. Wilkin stressed that the restructuring activities, connected with the occurring globalization processes, are influenced by the liberalization of national economies, computer improvements, progress in transport and the growth of the corporations.

The statistics of beer production shows that as at 2002, the greatest producer of beer was the Chinese and U.S.A. came second (See [16]). The two countries have the advantage because; they are able to penetrate the international market. To actually know the importance of a particular sector in the economy, the level of the value added may be taken as a factor. That is the sector’s contribution to the economy’s GDP. There are different ways by which the brewing industry can add value to the economy. These include:

1. Employment generation
2. Excise duties
3. Value-added
4. Income tax.

The beer industry has been identified by players in the advanced economy as a significant contributor to the economy. African countries are regarded as having a small share in terms of the industry’s contribution globally. The focus of this study then is to look at the Nigerian economy in the field of beer production and distribution in the globalization era, in order to identify the impact of globalization on the sector in the Nigerian economy.

In 2009, beer consumption was about 185 billion liters, which constitute the highest and largest market in terms of alcoholic drinks globally (See [12]). It has been pointed out by them that Africa as a whole accounted for only 5% of global beer production while Nigeria accounted for less than 1%, South Africa alone accounted for 32% of Africa’s beer market and is the largest beer market in Africa. Nigeria is the second largest beer market in Africa (15%).

The paper is organized as follows:

Following from the introduction section, section 2 reviews the literature, while section 3 discussed the theoretical framework. Section 4 discussed the analytical framework and section 5, the methodology, section 6 analyzed and discussed the findings, and finally section 7 concludes by stressing the summary, conclusion, and recommendation.

LITERATURE REVIEW

Globalization has no friends and most especially for African countries. The essence of globalization essentially is to prevent countries from just looking inward but to look outward for larger markets and also as a source of earning foreign currencies. Globalization emerges from the breakthrough in the world of global information technology (IT). The globalization agenda is to make a country to be more efficient and effective in the world market. The market of every country must be competitive, market-driven liberalized and with enough institutional frameworks that support the economy. Globalization says no country will be alone or closed.

A competitive country will automatically be an efficient country in terms of production. The beer industry in Nigeria is selected as the focus of the study simply because the industry is the second largest industry in the whole of Africa after South Africa. The beer industry in Nigeria has the potential of benefiting from globalization. The raw materials needed for beer making, a certain percentage could be sourced locally (malt, barley, and sorghum).

The impact of globalization varies from sector to sector. Definitely, the globalization era will surely have an impact on the Brewery industry. Globalization gives room to industry’s up–to–date organizational and technological structures in terms of production especially of beer, efficient distribution routes, addition to the varieties and assortment in beer production. It also gives room for better and modern capital structure which will also give a company a good image. Wilkin [18] stressed that the restructuring activities that are brought about by the globalization exercise are somehow influenced by the liberalization of national economies, computer improvements, progress in transport and other infrastructures.

It was established in the literature according to Sadowski [13] that United State of America and China in the year 2000 were the greatest and the largest beer producer and consumer. This was based on their population numbers. Globalization, in general, has the benefits of creating great opportunities and also challenges.

For third world countries including Nigeria, the experience of globalization in some of the countries differs. While some countries especially Indonesia, India, Thailand, China among others have experienced the good sides of globalization believing that integration into the global world is good and also important for long-run and long-term growth, it can also bring about a reduction in poverty. It was also recognized that the benefits of globalization might not be equal and the distribution of the benefits might be unequal among countries or very skewed. This statement was the World Bank development indicators assertion. Globalization has contributed to the growth of economies simply because theoretical disposition recognizes the link between globalization and economic growth.

The competitive pressure of globalization has in one way or the other accelerated poor economic conditions in export markets for the developing countries. In as much as globalization has been tested on several sectors of the economy, the impact of globalization on the brewery industry export receive less importance.

The distribution and the consumption of beer play a key role in its contribution to the national economy, and its development as compared to other consumer goods industries. Cost of production of beer for export is very enormous. The establishment of a distribution network system abroad is also a great task. Beer export could still be a way out for development. The beer price of export is higher than the ones sold locally. Globalization of beer brands could also tap the economies of scale in the global. To expand beer export will need the following factors:

• Increasing purchasing power of the consumer
• Increase customer’s loyalty
• Unification of consumers’ decisions and standardization of lifestyles (see [7]).

Beer production and expansion of sales is not an easy task all over the world. One of the reasons could be attributable to the high excise tax. Smoluk et al. [16] studied the Polish brewery industry. They stressed that in Poland, according to them, Polish brewery industries were able to increase the production growth due to the successful advertising campaign by promoting beer as an alternative to high-grade drinks such as Vodka. Also, beer producers tend to lower cost of production to gain more customers and also to stimulate the beer demand.

Globalization of the beer industry could bring about the permanent extension of unifying beer products and brands, bring about standardization of tastes and preferences all around the world. There is no reason while Nigeria should not be a partaker. The western lifestyle gets adopted by so doing, the consumers get globalized. Besides, the brewery industry in Nigeria is having a great potential to penetrate the global world. This is because labour is cheap and some of the ingredients needed to produce beer could be sourced locally.

Nigerian brewery sector is increasingly attracting the attention of global majors such as SAB Miller, Carlsberg, and Castel. The interest of global world re-affirms the growth opportunities embedded in the sector and it is expected to generate a positive development for the sector in terms of volume growth and deeper market penetration internally and globally. Export of brewed beer is essential and is having some export advantage even in terms of the local contents and also the packaging.

The composition of beer and the packaging give an advantage in terms of export. The cost is reduced and there is the comparative advantage over other countries especially in Africa. Also, labour is very cheap compared with places like the U.S.A., Germany among others.  In Nigeria not too long ago, the local content strategy received a further boost with the commissioning in Lagos of the first CAN manufacturing plant in West Africa. GZ industry Nigeria Limited that is having Rexam PLC which is a publicly traded company on the London Stock Exchange) as a technical partner. Cans are gaining significance as input component for brewers especially as industry players have over the years deliberately moved away from bottling their product contents to the use of CANS. This is so because CANS are a more efficient means of production distribution for the brewers as it eliminates the logistics challenges of retrieving empty bottles from consumers, as well as aids a deeper penetration of consumer markets with brewed products. The locally sourced cans will surely eliminate gradually, the imported ones, and thereby reduced the overall cost of production of beer. Though, the brewers still depend especially in Nigeria, on imported aluminum coils. The local content of beer production input is very advantageous for the development of the economy. Nigeria is said to be the second largest producer of sorghum input after the United State of America. Sorghum is one of the inputs used by beer producers. The brewery industries in Nigeria happen to be one of the flagship consumer sectors and have rightly become a priority holding for many investors in the Nigerian stock market (see [9]). Nigeria breweries have the capacity to export with a comparative advantage due to so many reasons.

The local sourcing of raw material is a continuous process. Aba Malting Plant is a good example and is said to be the largest in Africa. The local content composition is very encouraging. The brewery industry could serve as a spur to the development of the economy through the export of beer by penetrating the global world.

 The economic situation of most less developed economies has continued to degenerate and often afflicted by poverty, squalor, deprivation, frustration, and insecurity among their citizenry, all of which culminates in political instability. To get out of this mess will require a search for sector or sub-sector that can use local raw material and the brewery industry could be a good choice. The development over the years is a journey and not a destination and that the process may be more important and that to accomplish this effort. A nation must know its peculiarities and the right approach to adopt.

Musa [14] stressed the fact that economic growth is essential for a sustainable development. This is a well-established fact in the literature. It has been ascertained that the best possible way to have a sustainable economic growth and development among nations of the world is for every nation to specialize on those goods where the nation is having absolute or comparative advantages and also import those goods where the nation is having an absolute or comparative disadvantage. A highly debatable issue in this 21st century is how a nation will reap the full-scale benefits of the globalization of the world’s economy. Ricardo et al wrote extensively that industrialization-driven resource utilization process is the key to economic growth.

THEORETICAL FRAMEWORK

Trade as a concept is an interaction between countries for the purpose of profit making. Every nation is endowed with different resources. These resources are put together to trade with other countries. Any country that is endowed will benefit from a comparative relative or absolute advantages. The theory, especially of comparative advantage, is very pertinent here. This theory stipulated that countries should specialize in the exports of goods that could be produced at the lowest cost when compared with other countries. A country must be very competitive when it comes to production cost as compared to other countries.

It is now difficult for a nation to isolate herself. The world is integrating very fast. The world solution to every nation’s problem now is for the nation to be globalized. Nations can actually tailor their development patterns towards international competitiveness. These will have positive effects on the nation’s development. Trade theorists advocated for the importance of trade as a means of growth of nations. Many authors supported the export-led or the growth-led-export hypotheses. The authors that believed in export-led growth include [2, 4, 8, 11]. Other authors that believed in the growth-led-export hypothesis include [5, 6, 10]. Growth and economic liberalization are said to be correlated (see [17]).

The basis for Thirlwall [17] was centered on the fact that liberalization impact positively on economic growth. The bedrock of the assertion is efficiency. This means that a nation must be very efficient. The productive base must be very efficient. Efficient in the sense that there must be an optimal combination of all factors of production. Elimination of waste and slack, that is, X – efficiency. Once the export is being stimulated, the supply and the demand side will also be stimulated.

Even in economic theory, it has been established that the impact of globalization on economic growth especially in developing nations is positive. The export-led hypothesis is very valid for the Nigerian economy.

ANALYTICAL FRAMEWORK AND MODEL SPECIFICATION

Several studies have researched in this area of study. Studies have investigated the relationship between globalization and the growth of exports of the brewery industry. The export-led growth hypothesis is very valid for the Nigerian economy. Ekpo and Egwaikhide [7], Thirlwall [17], Ahmed and Kwan [1], Bhasin [5], all believed in the export-led-hypothesis for the Nigerian economy. To analyze the globalization and the brewery industry’s relationship, export demand equations is applicable and is stated as

BXt = (RP)Kα   (1)

Where:
BXt = value of exports in the brewery industry in time t
RP = Pdt / Pft
Pft = The foreign price in time t
Pdt = The domestic price in time t
Kt = foreign income in time t
α = income elasticity of demand for export.

Taking the log transformation of variables will result in equation (2) as specified below:

   (3)

The capacity of the brewery industry to produce for export is proxied by the GDP emanating from the brewery industry. This variable is regarded as an important variable in the determination of export growth in the brewery industry.

Outdated technology cannot improve output nor provide for export. Advanced technology especially the imported technology will boost the expansion of production. By so doing, imported technology will be a booster and a determinant of export expansion and this should serve as a variable in the export demand equation model. Any other variable that might also be seen as important should also be included as a determinant of export of brewery industry such as world income growth index of income and price elasticity, for export and openness as measured by export divided by GDP

Including these variables in the model will result in equation (4)

       (4)

Where:
BX/GDP = The index of openness
y2 = Price elasticity of demand for exports < 0
y3 = Income elasticity of demand for export > 0
y4 = Export response to globalization > 0
y5 = Gross domestic product (GDP) emanating from the brewery industry > 0
y6 = import value of capital goods > 0
U = dummy variable.

Methodology
The focus of the study is to analyze the response of the brewery industry’s export in Nigeria to globalization. The hypotheses to be tested are:

• H0:      Export of the brewery industry in Nigeria does not respond favourably to globalization process.
• H1:      There is the favourable response of brewery industry’s export to globalization process in Nigeria.

Sources of Data
The data used for the study were sourced from the following sources:

1. Central Bank of Nigeria (CBN) Statistical.
2. Central Bank of Nigeria (CBN) annual report and statement of accounts (various issues).
3. Federal Office of Statistics (FOS) Statistical Bulletin.
4. Manufacturing Association of Nigeria Documents (various years).
5. Central Bank of Nigeria (CBN) Industry Survey (various years).
6. World Development Indicators
7. International Financial Institutions (IFS)

Types of Data
BXt = value of export in the brewery industry in time t.
RPt = Pdt / Pft = relative prices i.e. the price elasticity of demand to export
Pft = the foreign price in time t.
Pdt = the domestic price in time t.
Kt = foreign income in time t = income elasticity of demand for export
BX/GDFP = The index of openness (Globalization)
GDP = Gross domestic product emanating from the brewery industry
MC = Import value of capital goods.

OLS regression was used to analyze the variables. The long-run stability of the variables used was tested using the unit root test, the co-integration, and the error correction models.

The Time Series Characteristics of the Variables Used
Using OLS to run a regression is having its own drawbacks too. To guide against those drawbacks will require performing another test, such as the unit root test, co-integration test, and the error correction test.

Testing for stationarity is very important and to do this, the study will make use of the Augmented Dickey-Fuller [19] test. To perform this test, we made use of the following equation:

            α0 + α1 + αt-1 + α2Δ­t-1 + α3        (5)

The test for the unit root in the above equation is the test for αt-1

The Mackinnon critical values give the critical values for the determination of the order of integration. The null hypothesis of the existence of unit root is given as:

            H0: αt-1    (1)

To decide whether to reject or accept the out of the above equation, we need to compare the value of the ADF test statistics with that of the value of the Mackinnon. The decision will be taken as follows:

If the Mackinnon critical value is less than the ADF test statistics, we reject the null hypothesis, which means α contains a unit root. This is to say that, we will accept the alternative hypothesis that says that αt is stationary and vice versa. If the study encounters a situation whereby some or all the variables tested are not stationary at levels, they will be differenced (d) times until stationarity is achieved.

The co-integration among the variables will be tested by making use of the Johansen Co-integration test. Depending on the outcome of this, we then set an error correction test.

EMPIRICAL FINDINGS AND THE DISCUSSION OF RESULTS

The study investigated the impact of globalization on the beer industry in the Nigerian economy.

To analyze the study above, the analysis was based on error correction techniques of analysis. The study tested for unit root for the stationarity of the variables and also the co-integration test.

All these results are depicted in Tables 1–3 below.

Looking at the unit root table and the order of integration of the variables used, it was discovered that the variables are all of order one 1(1). The results show that there is a need for the co-integration test. The co-integration test result is depicted in table 2 below.

To test for cointegration, the study made use of the Johansen cointegration test as shown below.

Looking at the likelihood ratio as compared to the critical values at 5%, the hypothesis of no – co-integration or the existence of at most one co-integrating vector was rejected on the ground that in the equation, there are two co-integrating vectors prompted the setting up of the parsimonious error correction model (ECM). This is shown in Table 3 below.

INTERPRETATION AND DISCUSSION OF RESULTS

This study analyzed the beer industry’s export. The study made use of the time series data. 27 observations after adjustment from 1985–2015. This is to study the impact that the globalization era is having on the beer industry in Nigeria. To carry out the analysis, the export demand equation model was used. The result of the model is as discussed below. The coefficient of the multiple determination stood at 0.65%. The interpretation of this is that the explanatory variables accounted for 65% of the total change in the dependent variable (ΔXt). This is regarded as a good fit econometrically.

The significance of the R2 was confirmed by performing F-statistics with a statistical significance at even 1% and 10% levels stood at 36.90. This result shows that the variation in the long-run export volume in the beer industry could be attributable to changes in the independent variables. The test for the presence of auto-correlation was also performed by making use of the Durbin-Watson statistics. The result shows that D-W statistics stood at 2.01, which is regarded as being within the normal bound. The coefficient of the error correction where beer industry’s export is the dependent variable carries the expected correct sign of a negative and it is statistically significant at 5% level of significance with the speed of convergence to equilibrium of 32.30% of the past year's deviation from equilibrium.

The degree of openness conforms to the a priori expectation. It is positive and statistically significant. Though from statistical data collected, it was revealed that the beer export to other countries is very low as compared to another part of the world, especially in Europe. It shows that there is room for expansion in the beer industry’s export production. This means that this sub-sector of the Nigerian economy has potential and could be improved upon to take advantage of globalization. The short-run coefficient of the foreign income was significant and correctly signed and it is positive. The implication of this result shows that when foreign income is increasing, in the short-run, globalization is very likely to lead to an increased demand for the Nigerian beer brand. The reasons could be due to price, taste or preference.

Import value of capital goods in the short-run contributes positively to export growth. The outcome is positive in terms of its contribution to beer industry’s export growth and it is significant too. This outcome is indicative of the fact that globalization may actually contribute to the expansion or improvement in the Nigerian beer export through importation of high technology capital inputs. It could also be that improvement in technology will reduce the cost of production and then give room to international competitiveness. Modern imported technology gives room for efficiency which is a determining factor of competitiveness. The relative price is negative and is also significant. The coefficient stood at -2.11 t value. The outcome shows that as relative prices of export are decreasing; there is every tendency that the demand for export will increase. This increase will be as a result of production efficiency which will bring about a reduction in the unit cost. If the charged price is the competitive price, then, demand will respond to it positively.

SUMMARY, CONCLUSION, AND RECOMMENDATION

This particular study analyzed the impact of globalization on the beer industry’s export performance in Nigerian from 1985 to 2015. The chosen period was strongly dictated by the paucity of data. The results obtained are not too far away from expectations with the exception of very few. For example, those that violated the a priori expectations include:

Economy’s GDP which was negatively correlated with beer export and those that follow the a priori expectation include Imported technology, Openness index and Foreign income which have a positive relationship with beer export while Relative prices showed a negative impact on beer export.

The results showed that when there is an increase in foreign income, all things being equal, there will be an increase in the demand for beer export. The positive sign of imported technology implies that efficiency could be earned through imported technology which can bring about efficient production and competitive pricing in the international market. When this happens, it will bring about an opposite movement between export demand and price of export.

The coefficient of openness indicates that there is room for beer export to benefit from globalization. This is because there is room for this sub-sector to benefit from globalization. It has the potentials to expand into the world market.

CONCLUSION

The study shows that for the period analyzed after adjustment 1989–2015, globalization has shown some degree of positive impact, and this impact is significant. It shows that the beer industry has the potential of benefiting more from globalization. The coefficients of World income and the importation of modern technology are likely to cause a significant expansion in beer industry’s export performance. The assumption here is that high importation of good technology capital for the production of beer can bring about efficiency which will likely bring about a reasonable positive change in the demand for the beer produced in Nigeria.

RECOMMENDATIONS

The outcome of this study is very important either for the Nigerian economy or for investors who might want to invest in the beer industry in Nigeria. One important point is that, if the export of the beer industry could be expanded, it will serve as foreign exchange earnings for the economy. The industry needs to be better equipped in terms of technology for efficiency and for better participation in the international market. The study shows that in the total supply of beer to the world market, the whole of Africa supply a total of 5% and out of this 5%, the South African economy alone supplied 4% while Nigeria as a country supplied less than 1%. This means there is still room for expansion. A good percentage of the inputs could be sourced locally, as a result, the advantages associated with comparative advantage could be enjoyed.

The beer industry in the Nigerian economy can take advantage of globalization. The industry needs to be encouraged even by the government of the day, for it to be efficient and be able to compete effectively and efficiently in the international market. The government can do this in the following areas:

1. In the area of reward for local sourcing of raw materials
2. Reduction in local taxes.

Appendix

REFERENCES

Accepted for print: 30.12.2017

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