ECONOMIC RECESSION AND HUMAN CAPITAL DEVELOPMENT IN NIGERIA.
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ECONOMIC RECESSION AND HUMAN CAPITAL DEVELOPMENT IN NIGERIA.
Chapter one
INTRODUCTION
1.1 Introduction.
The idea of global economic breakdown has sparked much debate in contemporary literature. However, it is critical to consider how the issue caught most economic watchers off guard. The global economy around the world have been through the most difficult times in decades.
The crisis has been described as potentially the greatest financial disaster since the Great Depression of the 1930s (Akingbola, 2009). For more than seven decades, the global economy has been stagnant or growing at a low rate. The recent financial crisis was primarily caused by financial institutions and investors seeking higher yields.
It was also discovered through research that the expansion of financial markets and stability in advanced countries, caused by moderate inflation, a high saving ratio, a stable exchange rate, rising private sector employment, and so on, prompted investors to look for profitable investment opportunities (Akingbola, 2009).
This led to over-optimism, speculation, and leverage. Banks began to dramatically exceed loans extended to borrowers in the mortgage sector. Individuals began to take advantage of this leverage and borrowed money from banks to speculate on asset values.
Banks also relaxed their credit requirements and did not check borrowers’ creditworthiness in order to acquire market share and competitive position.
Commercial banks also modified their business models, initiating loans to borrowers and then packaging and selling these loans as securities to investors seeking greater rates. The financial crisis undoubtedly had an impact on the consumer market and the process of investing in the manufacturing of products and services.
Nigeria has indeed felt the effects of the global financial crisis, and the effects remain due to a failure to respond adequately to global economic implications.
The stock market, which has long been seen as a barometer for evaluating the economic and financial success of the nation’s private and public sectors, was in disarray and has struggled to recover.
The overall market capitalization was approximately N15 trillion in May 2008. A year later, it plummeted to N4 trillion, representing a staggering 73% drop.
The withdrawal of outside capital from the money market has had a severe impact on lending to Nigeria’s actual economy. Under these conditions, there can be no long-term economic growth or progress.
1.2. Background of the Study
The current global crisis began as a financial catastrophe, but it has now spread globally. The magnitude of credit shrinkage during the crisis has never been seen before. The roots are in banking, not the stock market or foreign exchange.
The crisis began in the United States (because to particular flaws in the US financial system), expanded to Europe, then underdeveloped countries, and has now gone global.
Even countries that were not directly affected by the financial crisis are now experiencing second-round repercussions, as the crisis has become linked to economic difficulties.
The financial crisis began in the United States in August 2007 as a result of a number of factors, including, in particular:
(a) the collapse of the housing market in the United States,
(b) lax financial regulatory conditions, and
(c) the failure to implement strict corporate governance conditions in the United States and most developed economies (Krugman, 2008). Avgouleas (2008).
According to Wikipedia (2008), the crisis was caused by a breakdown in underwriting standards for subprime mortgages, flaws in credit rating agencies’ assessments of complex credit products such as RMBS and CDOs, risk management weaknesses at large US and European financial institutions, and regulatory policies that included caps.
This combined to cause a subprime mortgage crisis as households struggled to make higher payments on adjustable mortgages by the first quarter of 2008;
there was widespread credit contraction as financial institutions in the United States tightened their credit standards in light of deteriorating balance sheets (Kindleberger and Aliber, 2005; Laeven and Valencia, 2008).
Increased default rates harmed not only subprime loans in the fourth quarter of 2008, but also real estate and other credit (Avery and Zemsky, 1998; Chari and Kehoe, 2004; Cipriani and Guarino, 2008).
In Nigeria, policymakers initially responded meekly to the likely implications of this catastrophe; they either did not understand it or badly misjudged its gravity.
In general, they viewed the situation as a financial issue that could be resolved quickly without causing an economic disaster; nonetheless, the impact on the oil sector cannot be underestimated.
The country’s problems include a drop in oil prices, which account for almost 90% of its revenue, as well as the worldwide credit crunch. The oil market slump has raised serious concerns about Nigeria’s fiscal policies and the future income from crude oil exports.
The global financial crisis has slowed growth in the world’s economy, resulting in decreasing demand for commodities, particularly oil. The transmission of the impact can be traced through several stages of the Nigerian economy, especially through the impact on:
(a) government earnings and revenue
(b) the balance of payments through a narrowing of the current account balance, and
(c) the widening of the deficit on the capital account through the reduction of capital flows due to a re-appraisal of planned investment or the complete stoppage of previously committed investment.
While speculative behaviour and investment activities have contributed to boost crude oil prices around the world, the fact of the global recession is becoming more widely understood. The crisis’s negative influence on the international oil price is more immediate and visible.
This study focuses on the oil sector’s performance prior to and during the recession, as well as its effects on Nigeria’s economic growth.
1.3 Statement of the Problem
The global economic slowdown has far-reaching consequences for the whole global economy. These ramifications extend beyond financial markets; actual economies at both the national and international levels, as well as their numerous institutions and human capital, face significant problems.
Academics say that the most significant contemporary challenge is determining the influence of the global economic slump on human capital skills development in Nigeria. The challenge is to identify the main factors that will boost human capital growth in Nigeria (Adamu, 2009).
Aside from the global economic recession, the increasing unemployment rate is concerning, raising the question of how the global recession affects human capital development in Nigeria.
Several studies have been conducted on the global economic catastrophe. Few, if any, have actually sought to investigate the impact of the global economic crisis on human capital development in a developing country. The suggested research aims to fill such strategic conceptual deficit.
1.4 Objectives of the Study
The goals of this research project are:
To assess the impact of the global economic downturn on human capital skills development in Nigeria.
To examine the impact of the global economic recession on Nigerian human capital training and development.
To assess whether there is a substantial relationship between the global economic slump and the motivation for human capital development in Nigeria.
To better understand what drives human capital growth in Nigeria.
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