THE EFFECTS OF GLOBAL FINANCIAL CRISIS ON NIGERIAN ECONOMY
B. Sc. Business Administration (ABU), M. Sc. Management in view (BUK) Graduate Assistant, Department of Business Administration,
Nasarawa State University, Keffi – Nasarawa State.
The world economy is facing the most severe financial crisis since the Great Depression of the last century. The risk of global recession has heightened significantly and volatility of commodity prices, which is the mainstay of most developing countries like Nigeria, has increased further. If this situation continues to deteriorate, developing countries could be in great jeopardy. This study examined the influence of the Global Financial Crisis on Nigerian economy. It was discovered that the financial crisis will cause fall in commodity prices, decline in export, lower portfolio and FDI inflow, fall in equity market, decline in remittance from abroad etc. It was recommended that the federal government should come up with intervention policies that will minimise these effects and jumpstart the economy and that business operator should learn to do things using resources at their disposal to develop and expand at manageable level to stem the tide of the crisis.
The global financial crisis began in the United States of America and the United Kingdom when the global credit market came to a standstill in July 2007 (Avgouleas, 2008). The crisis, brewing for a while, really started to show its effects in the middle of 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. The original root of the current financial mess is in the US- the world’s largest Industrial-Military complex. With an estimated GDP of $14 trillion, the US contributes about 25% of world output. If, as is being forecast, the US economy contracts by just 1%, this will imply a direct output loss of approximately $140 billion- equivalent to the GDP of Pakistan, the 47th largest economy in the world! And the crises are not restricted to the US. Financial markets have tumbled and slumped the world over: from London to Tokyo, Seoul to Sydney, Sao Paulo to Moscow, Bombay to Frankfurt etc. No economy-whether developed, emerging or developing is, so far, insulated from what Greenspan refers to as ‘once-in-a-century credit tsunami’. The initial response of the policy makers in Nigeria was meek. Either they did not understand the crises or underestimated its magnitude. In general, they thought of the crisis as only a ‘storm in a tea cup’, an aberration, a ‘hiccup’. They insisted that the ‘fundamentals of the financial system look impressively strong’ even when the capital market has been bleeding uncontrollably. The Minister of Planning stated, rather insensitively, ‘there is no problem in the Nation’s capital market. What we have presently is just corrections and adjustments….shareholders are getting dividends and bonuses and they are happy…’ this was at a time when market capitalization had dropped from N12 trillion to less than N9 trillion. When they finally accepted there was a crisis, they promised to take some unspecified ‘drastic and unusual action’ to stem the global financial crises from causing havoc in the Nigerian financial system. (DT October 6, quoting the Minister of State, Finance). That initial response was, to put it mildly, naïve. The country’s dependence on the export sector is very significant: 99% of FX and 85% of local revenues are directly derived from activities related to export of a single commodity, which is at the center of the current financial crises, oil. It is estimated that 58.4% of Nigeria’s exports are US bound and up to 25% to the Euro zone. 67% of our non-oil exports go to Western Europe, 20% to Asia while ECOWAS accounted...
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