Вы находитесь на странице: 1из 17

ECONOMIC RECESSION IN NIGERIA: ITS IMPACT AND

CHALLENGES
Introduction
It is no exaggeration to say that this workshop and the topic of
discussion are not only timely but also critical, given the enormity
of the challenges that confront our country Nigeria at this period
in time. In 2008, the world economy was severely jolted by a
major economic meltdown which affected several sectors. It
started as an essentially American recession which was the
definite result of decades of economic mismanagement in both
public and private sectors, it quickly attained the status of a
global meltdown. Economies in all the continents and espousing
different ideologies and institutional organizations were quickly
caught in the inevitable web of multifarious networks which are
the hallmark of globalization.
Every market economy goes through a business cycle. A
dependent

capitalist

economy

like

Nigeria,

cannot

escape

recession or depression, because it is a recurring decimal in


economies. If nothing else, Nigerias economy would experience
recession as a client based on dependent and periphery nature of
its system. The economy experienced recession in the 1970s,
1980s and 1990s. The global economic crisis of 2007/2008
affected Nigeria. If any known market economy would have
escaped recession, it would be US economy, but, despite prudent
1

management of the US economy,

it experienced periodic

recessions and the last global economic recession was triggered


by the collapse of the sub-mortgage sector.
The Nigerian economy has demonstrated particular vulnerability
to the emergent global economic crisis. Driven by crude oil and
gas, the nations economy is anchored on the petroleum sector,
which accounts for 80 percent of governments annual revenue
and foreign exchange earnings. The petroleum sector also
contributes about 50 percent of Nigerias annual gross domestic
product. But the story today is different; the impact has been so
much felt that 'recession' has now become a household name. the
question then is, to what extent are we affected by this situation?
What measures are needed to cushion the impact on the
economy and the people? And what

measures has the

government as well as the people taken to fight off this economic


crisis? These and others will be the focus of our discussion today.

Conceptual Clarification
Productivity: A measure of economic efficiency that shows how
effectively

economic

inputs

are

converted

into

output. Productivity is measured by comparing the


amount of goods and services produced with the
inputs that were used in production.

Slowdown: An effort, typically organized by a union, in which


employees decrease productivity in order to bring
pressure upon management. Generally a slowdown is
used as an alternative to a strike and is seen as less
disruptive.
Recession:

Recession is defined as "a significant decline in


economic activity spread across the economy, lasting
more than a few months, normally visible in real
Gross

Domestic

Product (GDP), real

income,

employment, industrial production and wholesaleretail sales". More specifically, recession is defined as
when

businesses

cease

to

expand,

the

GDP

diminishes for two consecutive quarters, the rate of


unemployment rises and housing prices decline. So
in essence, a recession is a general downturn in any
economy and is associated with high unemployment,
slowing gross domestic product, and high inflation.
Gross Domestic Product (GDP): The Gross Domestic Product
or GDP is a measure of all of goods and services
produced in a country over a specific period,
classically a year. This measure considers the market
value of goods and services to arrive at a number
which is used to judge the growth rate of the
economy and the overall economic health of the
nation concerned.

Though GDP is usually calculated on an annual basis, it can be


calculated on a quarterly basis as well which is an indices for
measuring

recession.

consumption,

GDP

includes

government

all

private

outlays,

and

public

investments

and exports minus imports that occur within a defined territory.


Put simply, GDP is a broad measurement of a nations overall
economic activity.

Causes of Recession
A recession is when the economy declines significantly for at least
six months. The factors responsible for any economy falling into a
recession include the following:
i.

High Interest Rates: - High interest rates are a cause of


recession because they limit liquidity, or the amount of money
available to invest.
ii.

Inflation: - but the major cause is inflation. Inflation refers


to a continuous and sustained rise in the general price level
of goods and services over a period of time. The higher the
rate of inflation, the smaller the percentage of goods and
services that can be purchased with the same amount of
money. Inflation can happen for reasons as varied as
increased production costs, higher energy costs and national
debt

iii.

Reduced Consumer Confidence: - This is another factor


that can cause a recession. If consumers believe the
economy is bad, they are less likely to spend money.
Consumer confidence is psychological but can have a real
impact on any economy.

iv.

Reduced Real Wages: another factor, refers to wages that


have been adjusted for inflation. Falling real wages means
that a worker's paycheck is not keeping up with inflation. The
worker might be making the same amount of money, but his
purchasing power has been reduced.

In addition to the above, recession in Nigeria has been triggered


by factors which include:
i.

The policy of currency controls which started in December

ii.

2014.
Excessive spending on elections by the immediate past

iii.

administration.
the full implementation of the Treasury Single Account (TSA)
and the movement of trillions of naira from the economy and

iv.
v.

kept in CBN.
Drastic fall in the price of oil at the international market.
the non-payment of salaries by most states of Nigeria, and/

vi.

its downward review by some in the form of percentages.


Vandalisation of oil pipelines, which resulted in massive
revenue decline.

Impact and Challenges of Recession


The impact of a recession can be very damaging not only to
households but to businesses as well. This is because both are
5

sectors in the economic system, and so Recessions will always


come; whether we like it or not. But what will decide if a nation
will fail or survive a recession is how prepared the nation is for it.
During any recession, news stories about unemployment figures
take center stage while households suffer. People work hard just
to stay afloat in hopes that the economy will turn around soon,
but often to no avail.
While many families do their best to carry on as if nothing is
wrong with the world, recessions can have a profound effect on
their day-to-day interactions and the way they live. Families and
businesses may not be able to avoid the effects of the recession,
but they can make changes that can improve their situations and
help them prepare for the future, while they wait for an economic
upswing.
The impact of recession always revolve round the following
variables: real GDP, income, employment, manufacturing, and
retail sales. For the sake of this paper, we shall discuss the
impact of recession as it affects families (common man) and
businesses (mostly small-scale). These include:
1.

Jobs and Employment


Job loss affects the stability of families and individuals. Our
status, self-worth, health, and well-being can be drastically
impacted by the loss of a job. While many who lose their jobs

use the time for growth and exploration, many suffer with
depression, alcoholism, and denial.
The impact of job loss goes well beyond income and
earnings, and can impact ones mental health (see Murphy
and Athanasou (1999) for a review of 16 prior studies). It is
also important to note that how one fares in a recession
depends on a variety of factors. For example, older workers
tend

to

be

over-represented

among

the

long-term

unemployed when compared with other age groups.


With unemployment rates running extremely high during a
recession, individuals and families struggle to find work to
pay the bills each month. The inability to find work can be
frustrating, terrifying, and depressing, and can lead to even
more problems. When a parent is unemployed, things can
seem bleak.
2.

Poverty
Simply put, poverty is not good for the economy. When
children grow up in poverty, they are more likely, later in life,
to have low earnings, commit crimes, and have poor health.
Holtzer et al. (2007) estimate the cumulative costs to the
economy of childhood poverty to be about $500 billion per
year, or about 4% of GDP. There is significant evidence that
poverty

has

educational

lasting

consequences

achievement,

cognitive

emotional and behavioral outcomes.

for

kids,

including

development,

and

As noted above, family income can be expected to impact


educational attainment in various ways, but falling incomes
and higher poverty levels also impact adults opportunities
as well.
3.

Economic Mobility
Poorer families can lead to less opportunity and worse
economic outcomes for their children through a variety of
mechanismsbe

it

through

nutrition,

educational

attainment, or access to wealth.


A range of findings suggest that economic outcomes
especially

ones

position

in

the

income

and

wealth

distributionare often carried over from one to the next


(Solon 1992; Hertz 2006). More directly related to job loss,
Oreopoulos et al. (2005) looks at labor market earnings of
children whose fathers experienced a job loss. Not only did
the job loss lead to a persistent loss in family income, but
the next generation also had earnings 9% lower than similar
children whose father did not experience unemployment.
4.

Family Life
The stress of not finding work, and a loss of income, can lead
to damaging inter-family relationships that can take years to
mend.

Sometimes

families

must

borrow

money

from

relatives or friends, which can result in tense situations.


Some families must change their plans, sell their homes, and
switch schools. In other households, there is even an
unfortunate increase in child abuse cases.
8

5.

Business Opportunities/Entrepreneurial Activities


Entrepreneurs may have a lack of funds available for
borrowing or starting new companies during a recession.
Innovation often comes from the small business segment,
but a lack of funding, coupled with a downturn in spending,
may make small business owners nervous and unwilling to
take big risks.
Recessions can and do lead to decreases in investment
spending and the adoption of new technologies. This is a
result of at least four factors. First, an economic downturn
will lead to a drop in demand for firms products as
customers incomes decline, thus lowering the return to
investments. Second, limited access to credit will limit firms
ability to invest. Third, recessions are periods of increased
uncertainty that may lead firms to retrench toward core
products and production techniques, and therefore they may
be less likely to experiment with new products and
techniques. Finally, we must also consider the interaction
between human and physical capital. Technology is often
embedded in new physical equipment: as production and
employment is reduced, there is less purchasing of newer
equipment. As a result, workers are less able to utilize their
skills, and there is less need to up-skill current employees
or hire additional employees with new skills.

6.

Education
Recessions can impact on educational achievement in a
number of ways. First, a substantial body of literature
addresses the importance of early childhood education (see,
e.g., Heckman (2006, 2007)
Many families cannot afford to send their children to school,
most especially pre-primary and primary education during a
recession. Because education at this level is primarily driven
by parental options and funding, factors that reduce families
resources will impact the level and quality of education
available to their children. For example, Dahl and Lochner
(2008) find a direct effect of family income on math and
reading test scores.

7.

Credit and Debt


During a recession, families must still pay the household
bills, and try to get out of debt. Bankruptcy, judgments, and
late payments can all hurt your credit score.
Your credit history impacts credit card and loan interest
rates, and even job opportunities, as some companies review
applicants credit histories.

Key Areas to Tackle as Solutions to Recession


1) Agriculture and Food Security,

10

2) Energy Sustainability
3) Governance and Institutions
4) Human Capital Development
5) Infrastructure
6) Real Sector
7) Science and Technology
8) SME
9) Financial Inclusion and Financial Markets Trade
10) Investment and Competitiveness.

How Information Officers can Help


1.

Awareness:- Proper enlightenment about the concept of


recession will help in allaying the fears of people, which tend
to have psychological effect on them. Letting them know
that recession is nothing more than a stage in the business
cycle which every market economy is bound to face will help.
If ever we should have fear, it should be over how long it will
last because recession if prolonged, leads to depression, and
with depression comes dire economic consequences. They
should know that their efforts are vital in taking the economy
out of recession.
11

2.

Diversification: - A conscious and significant effort on the


part of the Information Officers is to help in creating the
awareness on the need for people to diversify before the
arrival of government's effort in stimulating and sustaining
diversification of the economy. The most potent alternative
in the move for

diversification at the local level is

agriculture, which prior to now has been the mainstay of


Nigeria's economy.
3.

Information Update: - There is the need for information


officers to up-date the people at the local level, who
constitute the greater proportion of our population, and who
produce the vast majority of our food crops with information,
government policies, programmes, and measures so as to
have the maximum benefit as they come. This information
should be tilted toward the following:

i.

Learning how to prioritize expenses, adapting to a loss of


critical income, and making lifestyle changes will be hard.
Families can cope during this period of adjustment by relying

ii.

on each other, becoming a true support network.


Families should prioritize expenses and pay bills in order of
importance. Some bills can be paid late, but other bills must
be paid on time in order to avoid foreclosure, eviction, or

iii.

property repossession.
Recessions can lead to a reduction in borrowing, and families
may become more fiscally responsible following an economic

12

downturn. Less debt and more responsibility can lead to


iv.

smarter money management, and a stress-free financial life.


For those intending to start new business, this is likely not
the right time to start a new business, and the business idea
may need to be put on hold. Continue to research new ideas,
and look for investors or business partners, but focus efforts

v.

on earning an immediate income to support the family.


Families can work together to cope with the changes brought
on by an economic downswing. In fact, a recession may
positively impact a family, as families tend to stay home
together, and spend more time together. Cut down expenses
to the barest minimum by abandoning the accustomed
lifestyle. Look at the experience as an opportunity to spend
more time with the children, and make the most of the time

vi.

spent as a family.
Short-term solutions might include borrowing money from
friends or family, and taking a lower-paying job, or transiting
to a new line of work. Choose new career paths wisely,
based on the job market and the outlooks for great career
fields., moving to a new town for a job can open up new
career opportunities as well.

Conclusion
The global economic crisis and the implications on the Nigerian
economy were discussed. A number of possible initiatives for fast
tracking the economy and the more daunting task of preparing
Nigeria, which has the resources and management capability of
becoming a major player in the global economy should be looked
13

into. An all round national re-orientation is all Nigeria needs to


start moving to the promise Land.
Recommendations
1) Nigerian economy is a mono-economy; any crash on the
price of oil internationally will cripple our economy. So it is a
matter of urgency for the Nigerian economy to divest into
agriculture, manufacturing, information technology etc.
2) Political stability is an important factor that encourages
investment in an economy. So our nascent democracy should
be nurtured.
3) The Central Bank of Nigeria`s propagation of financial
inclusion should be embraced, as it will empower the masses
through

the

availability

of

cheap

funds,

trigger

off

investment, employment and an increase in aggregate


demand.
4) The exchange rate is an important instrument in the
financial market, and as such should be allowed to be
determined by market.
5) While inadequate infrastructure may not be overlooked, the
absence of policies that support job creation is more
profound. Nigerian government needs to do more to create
an enabling environment for Nigerian businesses.
6) Economic stimulus package; increase borrowing, reduce
interest rates, reduce taxes, and grow employment by
embarking on public works on infrastructure development.

14

7) Investments are needed in safety nets, infrastructure and


small and medium-scaled companies to create jobs and to
avoid social and political unrest.
8) It is now opportune for the authorities to set up the proposed
asset management company to excise toxic assets from
banks balance sheets and avoid systemic crisis.
9) The GDP decline consecutively for two quarters, rise in cost
of living and reduced Purchasing Power Parity (PPP), implies
that the way out of the enormous negative impact of a
recession

on

the

Nigerian

economy

is

the

need

for

government to inject funds into the economy.


10) The government also needed to reduce interest rate to
stimulate investment, buy securities (bonds, treasury bills etc.
from the investing public).
11) The government has to be strategic about stabilizing and
properly monitoring the foreign exchange fluctuation. Instability
of the value of our naira could discourage prospective investors
because they wont be able to plan adequately, as well as
make realistic economic forecasts or projections in terms of
Return on Investments (ROI).
12) A conscious and significant effort on the part of the
government to stimulate and sustain diversification of the
economy should be embarked on while reviving productive
sectors of the economy to significantly improve our export
15

capacity where the country has comparative advantage,


beyond exporting crude oil.

References
Arinze, N. & Mattew, O. (2014). Global Financial Crisis and Nigeria
Economy
Global Journal of Management and Business
Research: B Economics and Commerce Volume 14 Issue 4
Version 1.0
Dahl, G., and L. Lochner. (2008). The Impact of Family Income on
Child Achievement: Evidence from the Earned Income Tax
Credit.
National
Bureau
of
Economic
Research,
December. http://www.nber.org/papers/w14599
Ekpo, P. (2016). How Economic Recession may Affect You. An
Interview with Vanguard Newspaper. 26th September, 2016.
Heckman, J. J. (2006). Skill Formation and the Economics of
Investing in Disadvantaged Children. Science. Vol. 312, No.
5782.
Heckman, J. J. and D. V. Masterov. (2007). The Productivity
Argument for Investing in Young Children. National Bureau
of Economic Research, Working Paper No. W13016.
Cambridge, Mass.: NBER.
Murphy, G. C., and James A. A. (1999). The Effect of
Unemployment on Mental Health. Journal of Occupational
and Organizational Psychology. Vol. 72, pp. 8399.
16

17