EGR3101: Engineer in Society II

Engr. ABBA IBRAHIM MNIAE

Department of Agricultural Engineering
Bayero University, Kano.
[email protected]
 Overview

• Course description
• Learning outcomes
• Topics
• Assessment
 Course Description
1.Basic Economics—Business organization, industrial
combinations, public utilities and finance, industrial
concentration and Government control.
2.The location of West African industry and trade.
3.The background of the West African economy, planning
of development, financing of development.
4.The banking system, Money and Capital markets,
inflation, cost benefit analysis.
 COURSE CONTENT

Module 1.
• Meaning and Basic Concept of Economics: Meaning of
Economics, Nature and Scope of Economics. Concept of
Scarcity. Concept of Choice.. Opportunity Cost. Scale of
Preference. Why we study Economics.
• Basic Economics Problems and Goals of Society; Basic
economic problems of society. What to produce, how to
produce, for whom to produce, efficiency of resource use,
instability and unemployment. Economic Goals of society.
Module 2.
• Demand, Supply and Price Determination; Demand. Supply.
Price determination under supply and demand conditions.
• The Theory of Costs; Fixed Cost, Variable Cost and Total Cost.
Average Cost, Average Fixed Cost and Average Variable Cost.
Marginal Cost.
Module 3.
• Business Organizations; Meaning of business organization.
• Types of business organization. Sources of finance available
to business organization. Problems of business enterprises.
Module 4.
• Money and Inflation.
• Financial institutions; Money and Capital Markets

Module 5.
• Meaning and Types of Industries
• Location and Localization of Industries.
• Role of Industrialization in Economic Development.
• Industrialization in West Africa
• Nigeria’s case study and ways forward
Reading Materials for further Studies

1. Grant, E. L. , Ireson, W. G., and Leavenworth, R. S. Principles of

Engineering Economy, 8th Edition, Wiley, New York, 1990
2. DeGarmo, E. B. and Sullivan, W. G., Engineering Economics,
Macmillan Publishing Company, New York, 1979
3. Riggs, J. L. Engineering Economics, McGraw-Hills Inc. U. S. A.
1977
4. Any Good Economics Textbook (For the basics)
5. Online relevant materials
 Assessment

Course work 30%

Assignments & Attendance 20%
General Test 10%

Final Exam 70%

Total 100%
Introduction: Engineering & Economics

• Engineering: a profession in which the knowledge of

mathematics and natural science acquired by study,
experience and practice is applied/use to develop goods and
services for the benefit of mankind in an economical way(s).
• Economics: a social science which studies human behaviours
in relationship between ends and scarce means, which have
alternative uses (choices). – Prof. Lord Robbins
• Economics consists of any attempt by an individual, private
or public agencies, etc to maximize satisfaction from limited
resources.
• WHY DO WE STUDY ENGINEERING????

• WHY DO WE STUDY ECONOMICS?

 It enables us to think while spending to avoid unnecessary spending.
 To understand the decision process behind allocating the currently
available resources, the needs are always unlimited but resources are
being limited.
 It enables the individual to make right decisions on the spending of his
money.
Basic concept of Economics
1. Want/Need - desire or wish to own goods and services (basic need of a human are food,
shelter and cloth).
2. Scarcity - means limitedness of existing available resources used to satisfy needs.
3. Scale of Preference - means arrangement/list of wants/needs in order of their importance
or priority.
4. Choice - means selection from a group of alternatives or the distribution of
resources. Due to scarcity, choices must be made. Every choice has a cost (a
trade-off).
5. Opportunity Cost - means the value of the best alternative forgone/rejected in in making
any choice.
6. Money Illusion/Purchasing Power
Questions: Identify the elements of scarcity, choice, and opportunity cost in each of
the following:
1. The Environmental Protection Agency is considering an order that a 500-acre area
on the outskirts of a large city be preserved in its natural state, because the area is
home to a rodent that is considered an endangered species. Developers had planned
to build a housing development on the land.
2. The manager of an automobile assembly plant is considering whether to produce
cars or sport utility vehicles (SUVs) next month. Assume that the quantities of labor
and other materials required would be the same for either type of production.
3. A young man who went to work as a nurses’ aide after graduating from high school
leaves his job to go to college, where he will obtain training as a registered nurse.
Discussions
1. The 500-acre area is scarce because it has alternative uses: preservation in
its natural state or a site for homes. A choice must be made between these
uses. The opportunity cost of preserving the land in its natural state is the
forgone value of the land as a housing development. The opportunity cost
of using the land as a housing development is the forgone value of
preserving the land.
2. The scarce resources are the plant and the labour at the plant. The
manager must choose between producing cars and producing SUVs. The
opportunity cost of producing cars is the profit that could be earned from
producing SUVs; the opportunity cost of producing SUVs is the profit
that could be earned from producing cars.
3. The man can devote his time to his current career or to an education; his
time is a scarce resource. He must choose between these alternatives. The
opportunity cost of continuing as a nurses’ aide is the forgone benefit he
expects from training as a registered nurse; the opportunity cost of going
to college is the forgone income he could have earned working full-time
as a nurses’ aide.
 Basic Economic Problems
Economic Problems arise because of the scarcity of resources to satisfy human wants for
goods and services.
The Engineer may lack the resources to develop all that he feels necessary for the society
1. What Should be Produce? - Using the economy’s scarce resources to produce
one thing requires giving up another.
2. How Should Goods and Services be produced? -Should a firm employ
a few skilled or a lot of unskilled workers?, Should manufacturing firms use new or recycled
raw materials to make their products? etc
3. For whom Should Goods and Services be Produced? If a good or
service is produced, a decision must be made about who will get/use it.
4. Resource Use Efficiency – Efficient use of available resources (land,
capital, labour) to maximize output of goods and services
 Module2:
• Demand, Supply and Price Determination; Demand. Supply. Price determination
under supply and demand conditions.
• The Theory of Costs; Fixed Cost, Variable Cost and Total Cost. Average Cost,
Average Fixed Cost and Average Variable Cost. Marginal Cost.
 THEORY OF DEMAND, SUPPLY AND PRICE
DETERMINATION

• You may not realize it, but every time you purchase something,
you are participating in a market for that good. Some people
supply it, and some people—you!—demand it.
• Markets include all potential buyers and sellers
Behaviour of buyers is represented by
“demand”

Behaviour of sellers is represented by

“supply”
 Demand

Schedule of the quantities of a goods/services that

buyers are willing and able to purchase at each
possible price during a period of time.
 Supply

• Schedule of quantities of a goods/services that

will be produced and offered for sale at a
schedule of price during a given time.
• Demand is quite different from want/need/desire,
because human beings want/need/desire are
many/unlimited that their financial resources cannot
carter for at the same time or which may or not be
attained because of resource constraints.
Demand is classified into:
 Effective demand – this is backed up by the ability
(money) or willingness to pay for the goods and
services at a particular price and time.
Ineffective demand – this is mere want/need/desire
without ability to pay/buy for the goods and services
at a particular price and time.
 Laws of Demand

 First Law:
• It states that the higher the price of a commodity (goods and
services), the lower the quantity demanded and the lower
the price, the higher the quantity demanded.
• This is also called normal demand.
 Second Law:
• It states that the higher the price of a commodity
(goods and services), the higher the quantity
demanded and the lower the price, the lower the
quantity demanded.
• This is also called abnormal or exceptional demand.
 Demand Function

Is the functional relationship between the price of

the good or service and the quantity of that good or
service purchased in a given time period, income,
other prices and preferences being held constant.
A change in income, prices of other goods/services
or preferences will alter [‘shift’] the demand
function.
 Demand Schedule and Demand Curve
 The demand curve is the graphical representation of the
economic entity's willingness to pay for goods or services. It
is derived from a demand schedule, which is the table view
of the price and quantity pairs that comprise the demand
curve.
 The demand schedule, in economics, is a table of the
quantity demanded of a good/service at different price
levels.
 Thus, given the price level, it is easy to determine the
expected quantity demanded.
Example of the demand schedule and curve “Demand curve slopes downward”!
Price (P)

13
12
11
10
Price Quantity demanded
9
8
per month(Qd)
7
13 400
12 450
11 500 Demand
10 550
9 600
8 650
7 700

400 450 500 550 600 650 700

Quantity demanded (Qd)

Changes in Demand (shift in entire demand curve)
& Changes in Quantity Demanded
Do not confuse a “change in the quantity demanded” with a “change in demand”!

What is a change in the quantity demanded?

A change in quantity demanded means move along the same curve
(Example movement from point A to point B along same demand curve)
As result of change in the price of a good or service.

The demand curve for a good or service does not shift when the price of
the good or service changes! We simply move from one point on the
curve to another point on the same curve.
What is a change in demand?
A change in demand means that at each price the quantity demanded increases, you want
to purchase a different goods or services at each price than you did previously. The entire
demand curve moves when your demand is affected by something other than the price of
the goods or services. A Change in demand means entire curve moves (Example shift
from demand curve D1 to another demand curve D2)
When demand increases, the curve shifts to the right. When demand
decreases, the curve shifts to the left.
 Factors that can cause a change in demand (a
shift in entire demand curve)
 An increase in income
 Demographic characteristics (increase in
population/number of buyers)
 Change in the price of other goods and services
(complementary/substitutes)(doughnuts and coffee; or tea
and coffee; Samsung mobile phone and Apple IPhones)
 Change in consumers' preferences/tastes (cigarettes
smoking, sugar cane chewing)
 Buyer expectations (future price increase expectations)
 Supply
refers to the quantities of goods and services supplied that sellers/producers are willing and
able to sell at a given price and at a period of time [all other things held constant].
Laws of Supply
 First Law:
 It states that the higher the price of a commodity (good or service), the higher the quantity
supplied and the lower the price, the lower the quantity supplied.
 This is also called normal supply.
 Second Law:
 It states that the higher the price of a commodity (good or service), the lower the quantity
supplied and vise versa.
 This is also called abnormal or exceptional supply.
There is a positive relation between the price of a good or service and the amount of the good
or service that producers are willing to produce and sell.
 Example of the supply schedule and curve “Supply curve slopes
upward”!
Price (P)

13
Price Quantity supplied 12

Supply
per month(Qs) 11
10
13 625 9
8
12 600 7
11 575
10 550
9 525
8 500
7 475

475 500 525 550 575 600 625

Quantity Supplied (Qs)
Changes in Supply & Changes in Quantity Supplied
(shift in entire supply curve)
Do not confuse a change in the quantity supplied with a change
in supply!

What is a change in the quantity supplied?

A change in quantity supplied is a change in the price of a good or service
resulted in a change in the quantity supplied or a movement along the
supply curve

What is a change in supplied? A change in supply means

entire curve moves (Example shift from supply curve S1 to
another supply curve S2)
 Factors that can cause a change in supply (a shift in
entire supply curve)
Cost of production - a change in the price of an input
(such as labour or raw materials)
 A change in technology (technological
advancement make production easy)
 A change in weather (for agricultural products)
 Population/Number of suppliers
 Producers expectations - an expectation of higher
prices in the future
Market Price Determination/Equilibrium Market Price
Price Qd Qs Mkt. condition When the quantity
13 400 < 625 excess supply demanded is equal to the
12 450 < 600 excess supply
quantity supplied, then
equilibrium market
11 500 < 575 excess supply condition do exist.
10 550 = 550 equilibrium
Equilibrium means that
9 600 > 525 excess demand there is no tendency for
8 650 > 500 excess demand things to change. The
7 700 > 475 excess demand
system is in balance.
 Price (P)

Equilibrium
Supply
10
Equilibrium
price
Demand

Quantity demanded (Qd)

550
Equilibrium
Price Qd Qs Mkt. cond. Price pressure
13 400 625 excess supply down
12 450 600 excess supply down
11 500 575 excess supply down
10 550 550 equilibrium none
9 600 525 excess demand up
8 650 500 excess demand up
7 700 475 excess demand up
Assignment 1
 Basic concept of capital investment
What is an Investment:
 According to economists, investment refers to any physical or
tangible asset, for example, a building or machinery and
equipment.
 According to finance professionals, investment refers to the
buying of a financial product or any valued item with an
anticipation that positive returns will be received in the future.
 According to business theories, investment is that activity in
which a manufacturer buys a physical asset, for example, stock or
production equipment, in expectation that this will help the
business to prosper in the long run.

Sunday, October 31, 2021 slide 41

BASIC TERMS
Firm? A firm is a unit that produces and sells commodities. In real
life, firms differ widely in terms of
 Size
 Form of organization,
 Management and so on.
Plant? A plant is a place where a firm carries out its productive
activities. It may also be called a factory. Example: a mini quarry,
Ajaokuta Steel Plant. In a plant, tools and other equipment are
used.
Industry? An industry is the combination of a number of firms
producing broadly similar commodities or services for the same
market.
Example: Textile Industry, Cement Industry, Mining Industry, etc.
 THEORY OF COST
 Profit maximizing requires decision as:
• How much output to produce
• How much of various inputs to use in producing this output
 This is the input in terms of human and material resources in producing a
commodity.
 For goods and services to be produced, all the four factors of production
 Land
 Labour
 Capital and
 Entrepreneurship, must be combined.
 Moreover, the various costs incurred in the application of these factors are
generally referred to as cost of production.
 COST OF PRODUCTION
Cost of production can be classified as:
I. FIXED COST (FC)
• These are costs of resources which do not vary with the level of output in the
short term.
o The more that are produced, the higher the cost.
• No matter the output of products produced with the product range, they
remain the same.
• Example: Cost of: machinery, land, salary, rent, etc.
• FC = TC-VC
II. VARIABLE COST (VC)
o Costs associate with variable inputs and do vary with output.
o Example: Cost of: raw materials, labour, fuel, electricity tariff, etc.
III. TOTAL COST (TC)
• Sum of explicit plus implicit
• In other word, summation of fixed and variable costs
• TC = FC+VC

IV. AVERAGE COST (AC)

• This the cost per unit output
• It is cost of commodity out of all the products produced
• Also is the total cost divided by the total number of units of output
• AC = TC/TQ or (FC+VC)/TQ, where TQ is the total number of units of
output
V. AVERAGE FIXED COST (AFC)
• It is fixed cost divided by the total number of units of output
• AFC = FC/TQ where TQ is the total number of units of output

VI. AVERAGE VARIABLE COST (AVC)

• It is variable cost divided by the total number of units of output
• AVC = VC/TQ where TQ is the total number of units of output
VII. MARGINAL COST (MC)
• Marginal cost of any output is the cost of producing one extra
unit
• It is the increase in total cost resulting from an increase of one
unit
• Example: When N100 is used to produced 6 units of output
and N120 to produced 7 units of output. Therefore the
marginal cost of the 7th item is #20
 Time value of money

When we borrow a certain sum of money (quantity of

money) over a period of time, we agree that we will pay
it back, along with a fee, known as the INTEREST.

Similarly, when we invest a sum of money (quantity of

money) in a savings account, the account earns us
interest.

 This lesson will show you how to calculate a certain

types of interest called simple and compound interest.
Sunday, October 31, 2021 slide 48
 Simple Interest:
Interest paid only on the original amount of money and not on
the interest it has already earned.

Type of interest that is applied to the amount borrowed or

invested for the entire duration of the loan, without taking any
other factors into account, such as past interest (paid or
charged) or any other financial considerations.

Simple interest is generally applied to short-term loans,

usually one year or less, that are administered by financial
companies.
Sunday, October 31, 2021 slide 49
Sunday, October 31, 2021 slide 50
 Simple Interest

If you invested #10,000.00 in an account that

paid simple interest of 4%, find the interest
earned in 2 years.
How long do you need to invest #400,000, at 5%
per annum to earn #120,000 of interest money.

Sunday, October 31, 2021 slide 51

 Compound interest
• Compoud interest is the interest calculated on the initial
principal and also on the accumulated interest of previous
periods of a deposit or loan.
• Is added to the principal of a deposit or loan so that the
added interest also earns interest from then on.
• This addition of interest to the principal is
called compounding.
• A kind of interest in which the bank calculates interest based
on the previous balance plus the last period's interest.

Sunday, October 31, 2021 slide 52

Sunday, October 31, 2021 slide 53
 MODULE 3

Business Organizations
 BUSINESS ORGANIZATION
• Any entity set up for carrying on commercial enterprise,
formed under government laws guiding business of any kind,
is referred to as a business organization.
 Types of Business Organization
Business Organizations are classified into two categories in terms of
ownership pattern:
1. Private enterprises: These are business units owned and managed by
private individuals such as cooperative societies, sole proprietorship,
etc. Example: KEDCO, MTN, GT Bank, Alhaji Sule’s Shop, etc
2. Public enterprises: These are business units owned and managed by
either federal, state or local government of a country, and are said to
belong to the public sector. Example: Nigerian Television Authority
(NTA), Nigerian Port Authority (NPA), Nigerian Railway Corporation
(NRC), etc
Business organizations can also be grouped into three (3) in
respect of size:
I. Sole-proprietorship
II. Partnership
III. Joint-stock Company
 Sole-proprietorship
 This is a one man business firm.
 Organized, owned, finance and controlled by one person with the aim of
making profit.
 The owner receives the profits.
 Success in a sole-proprietorship requires effort, efficiency and attention
to details.
 The owner can withdraws his capital without the consent of anybody.
 These kind of businesses are widespread on the streets, towns and
villages of Nigeria.
 No registration with CAC as necessary with a limited liability company.
 Advantages of Sole-proprietorship

i. It is easy and inexpensive (small capital) to create/start.

ii. The owner has complete authority over all business activities.
iii. It can fit any environment.
iv. Existence of privacy in the business.
v. The money/profit the business makes belongs to the owner.
vi. No legal formalities are involved in forming or dissolving the
business.
 Disadvantages of Sole-proprietorship
i. Raising capital to start the business is always difficult.
ii. The banks are less willing to lend money to one person
for a business venture.
iii. Banks that approve loans may have higher interest rate.
iv. The business end if the owner dies.
v. The owner bears/suffers all losses alone.
vi. The owner also bears all the risk alone.
 II. Partnership
An incorporated business with two or more owners who share the
decisions, assets, liabilities and profits.
 It is formed by two to twenty persons.
 The source of capital is by contribution from the partners.
 Purposely to make profit.
 It has no board of directors, all the managerial functions are
performed by the members/partners.
 It is not a legal entity.
 There are two types of partnership:
 General (ordinary) partner:
A participant in a partnership who has unlimited personal
liability and takes full responsibility for managing the
business.
 Limited (sleeping) partner:
A partner in a business whose liability is limited to his or her
investment; a limited partner cannot be actively involved in
managing the business.
 Advantages of partnership

1) Partnership is inexpensive to create/start.

2) It can withstand competition not like sole-proprietorship.
3) Partners can share ideas (special skills can be pooled
together).
4. The burden of managing and controlling the establishment is
shared by the partners, and this reduce the strain as compare
with one man business.
5. Partnership is also easy to set up.
6. Total control by the partners.
7. This kind of organization allows the pooling of funds by the
partners.
 Disadvantages of partnership

i. Disagreement (personality conflicts) between the

partners may end the business.
ii. Slow in decision and policy making because many
people most be consulted before taken any decision.
iii. Decrease in personal interest.
iv. Partners can be held liable for each others’ actions.
v. Introduction of new partner may end the business.
 III. Joint-stock Company
• A joint-stock company could be a private limited
company or a public limited company.
• A very large number of people can buy shares in the
company.
• It has much wider sources of funds than the other
businesses mentioned earlier.
• The company enjoy limited liability as well as
continuity.
Private Limited Company Public Limited Company
 This is founded by two to fifty persons  This has at least seventy members.
who buy shares in the company.  The members can dispose of their shares
in the company whenever they wish, and
 The management of the company is do so through the stock exchange.
separate from shareholding.  This type of company is allowed to appeal
to the public for funds through public
 The company is a legal entity; it can sue subscription.
and be sued.  The company is a legal entity; it can sue
and be sued.
 It can generate more profits that can be re-  In the event of the death of any
invested in the business. shareholder, the company’s activities
remain unaffected by it.
 SOURCES OF FINANCE AVAILABLE TO
BUSINESS ORGANIZATIONS
1. Personal financial resources
2. Loans from individuals
3. Loans from financial institutions
4. Retained profits (profits made by the company and set aside
for re-investment)
5. Trade credits (inputs to a company for a period of time
without payment)
6. Equity shares
7. Government subsidies or grants
 Problems of Business Organization in Nigeria

i. Inadequate infrastructure
ii. Political instability
iii.Corruption
iv. Inadequate capital
v. Management
vi. Inadequate/lack of technical know how
vii.Market
 INDUSTRIAL COMBINATION
• An industrial combination must be measured by what it is.
• It may be a business organization composed of labor and
capital formed for producing and marketing any given
product, or for the accomplishment of certain industrial ends.
• It may be an organization of workmen formed for furthering
their individual interests.
 Industrial Combination Cont.
• To create an industrial business combination, the first requisite is
individual initiative coupled with ambition and energy, and the
second requirement is capital.
• Then, to make the combination complete and effective labor
must be made a component part.
• With these three elements welded together to form the
combination there must be individual effort to direct its
operation.
• We may say that such a combination consists of brains, capital,
and labor, brains being the directing force, capital the motive
power and labor the machinery.
 Industrial Combination Cont.
Relation to Nation’s Welfare.
With the combination thus formed, we are confronted with the
question,
• what is its relation to the nation's welfare?
Here the question hinges upon the purpose and operation of
the combination, whether it be one composed solely of
individual units or an aggregation of such combinations.
 Industrial Combination Cont.
• If it be monopolistic, and in its operation ignores the rights of
others in the occupancy of any field of competition,
OR
• If it operates in unlawful restraint of trade, the combination
is at once a menace and should not be tolerated, because it
abuses its power and violates an economic law which must
remain inviolate if the fundamental principles of human
rights are to endure.
 Industrial Combination Cont.
On the other hand:
• If the purpose of the combination is to stimulate trade and
increase production,
AND
• If in its operation it refrains from an attempt to interfere by unfair
methods with the freedom of others in the field of industry, or
with the free and unrestricted flow of trade,
THEN
• its tendency is toward the promotion of the nation's welfare, and
it should be encouraged, rather than subjected to abuse and
persecution.
 PUBLIC UTILITIES AND FINANCE
• Public utilities typically provide goods and services using a physical or
virtual network infrastructure under a legal monopoly status.
• These organizations are generally so called because there is structurally
no room for market competition— one firm can “naturally” produce at
lower costs than competitors who are eventually priced out of the
market.
• Thus, natural monopolies tend to be regulated by governments in the
public interest.
• However, being a natural monopoly is not a prerequisite for government
regulation.
• Industries that are not natural monopolies may be regulated for several
reasons, including service reliability, universal access, and national
security.
 Public Utilities and Finance Cont.
• Public utilities can be privately owned, government-owned
and customer-owned
• Products provided by public utilities include electricity,
natural gas, water, sewage treatment, waste disposal, public
transport, telecommunications, cable television and postal
delivery services.
 Public Utilities and Finance Cont.
• The standard economic efficiency argument is that the industry is
natural monopoly, meaning that a single cost-minimizing firm is
the least-cost way to serve the current level of demand.
• However, this logic relies on the implicit assumption that the
single firm will produce in a cost-minimizing manner, which is
unlikely to occur under government ownership or government
regulation.
• Although the current level of demand may be served at least cost
by one cost-minimizing firm, this is unlikely to be that case for all
future levels of demand as the number of customers or their
purchasing power grows.
 Public Utilities and Finance Cont.
• Recognizing that public safety and health concerns argue for
universal access to many of these services and the fact that
the demand is very inelastic with respect to its own price
leads to political economy explanations for this public utility
industry structure.
• As Waterson (1988) notes, a government-owned or -
regulated monopoly may better ensure that all customers
have access to these services at reasonable prices.
 Module 4

Money and Inflation.

Financial institutions; Money and Capital
Markets
 Money and Inflation
The functions of money:
• Medium of exchange of goods, services.
• Liquid form of store of value.
• A measurement unit for values of goods, and savings and
debts of economic units.
• A discharge of debt, i.e. the final way to repay a loan.
 Definitions of money (CBN)
In Nigeria, the Central Bank defines money supply as comprising narrow
and broad money.
• The definition of narrow money (M1) includes currency in circulation
with non-bank public and demand deposits or current accounts in the
banks.
• The broad money (M2) includes narrow money plus savings and time
deposits, as well as foreign denominated deposits.
• The broad money measures the total volume of money supply in the
economy.
• Thus, excess money supply (or liquidity) may arise in the economy
when the amount of broad money is over and above the level of total
output in the economy.
 Money and capital markets
• Money market:
treats financial assets with maturity less than a year.
• Capital market Treats financial assets with maturity greater
than one year.
• These two ”markets” do not actually exist in the real world,
because financial assets in both markets are traded by the
same financial intermediaries.
• Money market instruments are, for example: Cash, demand
deposits, and Treasury bills.
• Capital market instruments are, for example:
Loans, bonds, and equities.
• Instrument means that financial assets can be
used in changing the risk/return–composition of
a portfolio, because they have different
risk/return-characteristics.
• Portfolio: The collection of assets of an investor.
 Non monetary financial assets
1. Shares of the common stocks of corporations.
2. Government and corporate bonds.
3. Loans.
4. Time deposits in banks.
If Yusuf gives a loan to Bello, Yusuf has a claim on Bello. Yusuf may also
insist a document of the loan.
This document is an asset for Yusuf, and a liability for Bello.
Thus a monetary transaction (money from Yusuf to Bello) creates an asset
for Yusuf and a liability for Bello (loan document from Bello to Yusuf).
These non monetary assets can be transformed to money with different
speed and rate of decrease in value; we call this liquidity.
 Characteristics of financial assets
• Liquidity: How fast and with out value decrease non monetary asset
can be converted to cash.
• Default risk: Risk that the liability partner does not fulfill its
obligations; pay interest of repay the capital.
• Collateral: Property offered by the borrower to the lender to assure
his repayment. Anything of value can serve as collateral if the lender
accepts.
• Mortgage: Debt obligations(loans) secured by pieces of property.
Typically the collateral of a house mortgage is the house.
• Interest rate risk of a fixed interest asset: If the market
interest rate increases, a fixed interest paying asset loses its
relative profitability, and so has interest rate risk even though
it pays a fixed interest rate.
• Yield risk: Shares of the common stock of a corporation give
uncertain dividend yield and capital gains depending on the
profitability of the corporation and its expected future
success.
Principal financial assets
 Banking system
Central Bank:
• Bank of banks: provides banking services for commercial
banks and government.
• Has a unanimous right to issue bank notes and is responsible
for the monetary system and monetary policy of the country
or a monetary union.
 Assignment 3
1. Discuss the differences between Commercial and Central
Banks
2. How does the commercial banks create money?
 Module 5:
Industrialization
• Meaning and Types of Industries
• Localization of Industries.
• Role of Industrialization in Economic Development.
• Industrialization in West Africa
• Nigeria’s case study and ways forward
 Meaning and Types of Industry
• The production side of business activity is referred as industry. It
is a business activity, which is related to the raising, producing,
processing or manufacturing of products.
• The products are consumer's goods as well as producer's goods.
Consumer goods are goods, which are used finally by consumers.
E.g. Food grains, textiles, cosmetics, etc.
• Producer's goods are the goods used by manufacturers for
producing some other goods. E.g. Machinery, tools, equipments,
etc.
• Expansion of trade and commerce depends on industrial growth.
It represents the supply side of market.
 There are various types of industries:
• Primary industry is concerned with production of goods with the help
of nature. It is a nature-oriented industry, which requires very little
human effort. E.g. Agriculture, farming, forestry, fishing, horticulture,
etc.
• Genetic industries are engaged in re-production and multiplication of
certain spices of plants and animals with the object of sale. The main
aim is to earn profit from such sale. E.g. plant nurseries, cattle rearing,
poultry, cattle breeding, etc.
• Extractive industry is concerned with extraction or drawing out goods
from the soil, air or water. Generally products of extractive industries
come in raw form and they are used by manufacturing and
construction industries for producing finished products. E.g. mining
industry, coal mineral, oil industry, iron ore, extraction of timber and
rubber from forests, etc.
• Manufacturing industries are engaged in transforming raw material into
finished product with the help of machines and manpower. The finished
goods can be either consumer goods or producer goods. E.g. textiles,
chemicals, sugar industry, paper industry, etc.
• Construction industries take up the work of construction of buildings,
bridges, roads, dams, canals, etc. This industry is different from all other
types of industry because in case of other industries goods can be
produced at one place and sold at another place. But goods produced
and sold by constructive industry are erected at one place.
• Service industry In modern times service sector plays an important role
in the development of the nation and therefore it is named as service
industry. The main industries, which fall under this category, include
hotel industry, tourism industry, entertainment industry, etc.
 Localization of industries

• Localization or location of industries is also described as

Concentration of industries or Geographical division of labor.
• In other words it simply mean the tendency on the part of
industries to be concentrated in regions which are most
suited for their development.
Important factors which influence the localization
of industries
i. Nearness to raw material. One of the very important factor
which affects the birth of an industry in certain areas is the
nearness to sources of raw material .
• The availability of raw material near the location of the
industry helps considerably in reducing the transport cost
and so the total cost of production of the commodity.
• It is due to this reason that most of the industries are
established in regions where the raw material is available in
abundance.
(ii) Availability of source of power. If for instance, electricity is to be carried
over to a long distance where the industry is located or the coal which
serves as raw material is to be transported at a far-off distance from
whereat is extracted, it will not then he economical to set up the industry at
such places which are far away from the sources of power.
(iii) Physical and climate conditions. Physical and climatic conditions have
an important hearing on the growth of industry. If suitable climate and
desirable physical conditions exist for a particular industry, that will he
established and developed in that region then.
(iv) Nearness to market. Industries have a tendency to be localized in those
areas where the market is near at hand. The goods produced can be easily
brought in the market and there can be much saving in the cost of
transportation.
(v) Supply of trained labor.
(vi) Availability of capital. Industries may spring up in those areas where
capital is available at a lower rate.
(vii) Momentum of an early start. Sometimes, it so happens, that an
industry gets itself established and developed in a particularly locality not
due to the reasons discussed above but Just by some chance or other. Later
on, that locality acquires reputation in the production of the commodity and
more industries are set up-there.
 Advantages of Localization:
When an industry gets itself established in a locality, it enjoys the
following advantages.
Firstly, a localized product gains reputation and thus it becomes easy for
a firm to find good market within and outside the country.
On the basis of reputation, it is generally able to charge higher prices
than the products of their counterparts situated elsewhere. For instance,
the sports and leather goods manufactured in Sialkot have acquired very
good commercial reputation and it is easy to sell them at good prices.
Secondly, when an industry is located in a particular region, it is easy to get
skilled labor of the industry, industrial skill passes on from father to son.
The children team ft almost unconsciously.
Thirdly, localization leads to promotion and growth of subsidiary.
Fourthly, it results in the development of specialized research institutions.
Fifthly, it leads to the spread of fast means of communication and
transport.
Sixthly, localization encourages the development of financial facilities.
When banks and other financing cooperation find profitable field for
investment in a locality, they at once open their branches there
Finally, localization provides opportunities both for workers and the
industrialists to understand each other and to form themselves into an
organization in order to safeguard their respective interest.
 Disadvantages of Localization:
(i) Localization is dangerous when the demand for the localized
products declines due to the growth of foreign competition or
due to the changes in the tastes of the people. In that case
there will be mass unemployment in the particular localized
industries.
(ii) Localization results in the economic independence of one
locality on the other or of one country on the other; if the
commodity demanded is one of the basic necessities of life, it
can cause much inconvenience to the depending nations.
(iii) People can learn only one type of work in a localized
industry. If they wish to go to another place, they may face
difficulty in getting employment.
(iv) During war, a localized industry can easily be made a
target for bombardment and the whole industry can be ruined
to ashes. So it is not wise to place all eggs in one basket.
The industry should be decentralized. It should be spread out
in various parts of the country so that it may not become an
easy target for enemy's air attack.
Role of Industrialization in Economic Development.

Group assignment
INDUSTRIALIZATION IN WEST AFRICA

The demographic boom

 Increasing Population and demand.
• Urbanization in West Africa, coupled with growing demand
for more inclusive growth, are key drivers of economic
transformation in the region.
• Exploitation of natural resources is no longer enough to meet
employment and social inclusion expectations, particularly
amongst youth.
• Governments are compelled to foster economic
diversification centered on job-creating sectors likely to entail
human development.
 The major way forward
Goal 9 of the Sustainable Development Goals adopted by the
United Nations General Assembly in September 2015 outlined that,
industrialization in its manufacturing dimension, is one of the major
ways forward.
• Industrializing West Africa is a significant challenge.
1) Production base of West African countries is globally weak,
characterized by obsolete capital and facilities,
2) The region is one of the least integrated into the global value
chains (GVCs), particularly for processing activities as highlighted
in the 2014 African Economic Outlook.
 Why is this so?
• This situation is a consequence of the industrial crisis
that followed the tariff barriers dismantlement from
the 1980s, and the wars and conflicts that occurred in
several countries in the region.
 Nigeria as a case study.
• The rebasing of Nigerian GDP in 2014 revealed that, the country
was experiencing an industrial renewal. With the new
computations, the share of manufacturing industries in GDP
sharply increased from 2.4% in 2008 to 9% in 2015.
• The developments reflect an increased contribution of non-
extractive industries in the entire region.
• With Nigeria, the share of manufacturing industry in the regional
GDP increased from 5.9% in 2005 to nearly 9% in 2015.
• With Nigeria excluded, that share decreased from 11.2 % to 8.5%
over the same period. In other words, the rest of the region is
experiencing an industrial decline (see chart on next slide).
• With regards to the overall growth of economies, this trend is
more of deindustrialization than an insufficient rapid
industrialization.
• By volume, the share of industrial value-added has been
increasing in the region, from 12 billion in 2005 to nearly 20
billion in 2015 (2000 constant prices).
• With Nigeria excluded, the manufacturing sector in West Africa
recorded an average annual growth of only 2%, compared to
an overall economic growth of 5% of GDP.
• In comparison, the services sector recorded an average annual
growth of 12%, driven mainly by trade, transportation,
telecommunications and financial services.
• Narrowing its trade deficit, industrialization would be
beneficial to the region for several reasons.
• With regards to the overall growth of economies, this
trend is more of deindustrialization than an insufficient
rapid industrialization.
• By volume, the share of industrial value-added has been
increasing in the region, from 12 billion in 2005 to nearly
20 billion in 2015 (2000 constant prices).
• With Nigeria excluded, the manufacturing sector in West
Africa recorded an average annual growth of only 2%,
compared to an overall economic growth of 5% of GDP.
• In comparison, the services sector recorded an average
annual growth of 12%, driven mainly by trade,
transportation, telecommunications and financial services.
• Narrowing its trade deficit, industrialization would be
beneficial to the region for several reasons.
• First, economic diversification would help consolidate the
economies within the region, which remain vulnerable to
commodity price volatility.
• Second, low productive capacities deprive the region of
spill-overs resulting from industrial development, such as
jobs and enterprises creation, increased foreign
investment, transformation of the informal sector,
technology dissemination, and increased exports.
• Lack of manufacturing industries leads to significant losses,
as shown with the case of cocoa:
• West Africa produces and exports 65% of cocoa beans in the
world, but because it does not process it into chocolate and
only garners between 3.5% and 6% of the final price of a
chocolate bar.
 How do we reverse this trend?
• West African countries need to remove the obstacles to
industrialization as well as domestic and international
investments, including:
– lack of transportation and logistics infrastructures,
– Industrial facilities obsolescence,
– Energy shortages,
– Inadequately qualified workforce for industrial jobs,
– Lack of access to finance, and
– Uncompetitive business environment.
• They must build together a productive space and a sizable
regional market through common policies focused on
standard convergence, free circulation of goods and persons,
financial integration, and human capital formation.
• These must be designed to strategically position the region
within the global industrial landscape, which offers numerous
opportunities but is ruled by more and more complex
determinants of competitiveness.
Cost benefit analysis
 End of the course
• Reviews and discussions