GLOBAL ECONOMIC MELTDOWN AND THE NIGERIAN CAPITAL MARKET
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GLOBAL ECONOMIC MELTDOWN AND THE NIGERIAN CAPITAL MARKET
1.1 INTRODUCTION TO CHAPTER ONE OF THE GLOBAL ECONOMIC MELTDOWN AND THE NIGERIAN CAPITAL MARKET
The global financial crisis began in the United States of America and the United Kingdom in July 2007, when the global credit market came to a halt (Avgouleas, 2008). The long-brewing catastrophe finally began to manifest itself in the middle of 2008.
Stock markets around the world have tumbled, huge financial organisations have failed or been bought out, and governments in even the wealthiest countries have had to come up with bailout programmes to save their financial systems.
The original source of the current financial crisis is the United States, which has the world’s largest industrial-military complex. With a GDP of $14 trillion, the United States accounts for around 25% of global output.
If the US economy shrinks by just 1%, as predicted, this will result in a direct production loss of nearly $140 billion–equivalent to the GDP of Pakistan, the world’s 47th largest country!
And the crises are not limited to the United States. Financial markets around the world have fallen and sunk, from London to Tokyo, Seoul to Sydney, Sao Paulo to Moscow, Bombay to Frankfurt, and so on. So far, no economy–developed, emerging, or developing–is immune to what Greenspan refers to as a “once-in-a-century credit tsunami.”
Nigerian policymakers’ initial reaction was muted. They either did not understand the crisis or misjudged its scope. In general, they saw the crisis as a “storm in a tea cup,” an anomaly, a “hiccup.” Even while the stock market was bleeding freely, they argued that the “fundamentals of the financial system look impressively strong.”
‘There is no problem in the Nation’s capital market,’ said the Minister of Planning, quite insensitively. What we have now are fixes and adjustments….shareholders are receiving dividends and bonuses and are pleased…’ At the time, market capitalisation had fallen from N12 trillion to less than N9 trillion.
When they eventually admitted there was a crisis, they promised to take some unnamed ‘drastic and exceptional measure’ to prevent global financial crises from wreaking havoc on the Nigerian financial system (Abubakar, M., 2008).
To put it plainly, their initial reaction was naive. The country is heavily reliant on the export sector: 99% of foreign exchange and 85% of local revenues are directly derived from operations relating to the sale of a single commodity, which is at the heart of the current crisis.
Oil, financial troubles. It is projected that 58.4% of Nigeria’s exports are destined for the United States, with up to 25% going to the European Union. In 2007, 67% of our non-oil exports went to Western Europe, 20% to Asia, and ECOWAS accounted for only 11%.
Our foreign exchange reserves are held in European capitals where financial markets have crashed and banks are in difficulty. How can anyone think we’re safe? International financial crises that disrupt trade and investment flows will inevitably have an influence on the domestic economy.
The recent global financial crisis had a negative influence on the global economy, particularly on the financial systems of the majority of countries, whether developed, emerging market, or developing.
Following the disastrous impacts of the crisis, governments and central banks all over the world implemented a variety of measures, including some unconventional ones, to deal with the crisis.
The effects of the financial crisis are still being felt today, as countries struggle to restore public confidence in their financial institutions and markets, and financial institutions, particularly banks, resume their intermediation role through the resumption of lending activities (Sanusi Lamido Sanusi, 2010).
Because of the openness of the economy and its near entire reliance on crude oil exports for government revenue and foreign exchange gains, Nigeria, like most developing countries, felt the consequences of the financial crisis primarily through trade and capital flows.
The impact of the crisis on the financial sector was not as direct or destructive as in developed and emerging market nations, when the whole financial system was nearly obliterated due to insufficient interconnectedness with global financial markets.
However, as the impact of the crisis permeated Nigeria’s financial system, the system’s soundness and stability were seriously jeopardised, prompting the Central Bank of Nigeria (CBN) to intervene decisively to mitigate the emerging crisis and restore public confidence (Sanusi Lamido Sanusi, 2010).
1.2 STATEMENT OF THE RESEARCH PROBLEM
The global economic recession is staring everyone in the face, and no decent nation or leader will try to avoid the issue by convincing its citizens that everything is fine. This thought prompted the following questions:
i. How has the global economic catastrophe affected the Nigerian economy?
ii. How has the drop in crude oil prices affected the Nigerian economy?
iii. How has the withdrawal of foreign investors affected the Nigerian economy?
1.3 OBJECTIVES OF THE STUDY
i. Determine the impact of the global economic catastrophe on the Nigerian economy.
ii. Determine whether the drop in crude oil prices has had an impact on the Nigerian economy.
iii. To investigate the impact of foreign investor divestment on the Nigerian economy.
1.4 SIGNIFICANCE OF THE STUDY
The global economic collapse, which has affected every nation, is a significant issue that must not be overlooked. This issue will persist until the cause, nature, and mitigation of the lingering effect are fully addressed.
This research is based on the influence of the global economic catastrophe on the Nigerian economy, and the endeavour to shed more light in this area will undoubtedly be an important contribution to previously conducted research in this field.
As a result, the study will attempt to identify the causes and effects of the global economic collapse on the Nigerian economy within the context of the Nigerian economy. The study’s findings will help in the creation and execution of more effective policies that will aid in the recovery of the Nigerian economy.
1.5 RESEARCH HYPOTHESIS STATEMENT
i. Ho: The global economic catastrophe has had no substantial effect on the Nigerian economy.
H1: The global financial crisis has had a substantial impact on the Nigerian economy.
ii. Ho: The drop in crude oil prices has had a negative impact on the Nigerian economy.
H1: The drop in crude oil prices has had little effect on the Nigerian economy.
iii. Ho: Foreign investor withdrawal has little influence on the Nigerian economy.
H1: Foreign investor withdrawal has a significant impact on the Nigerian economy.
1.6 SCOPE OF THE STUDY
This research is being conducted in the context of the Nigerian economy. It will discuss the previous and current effects of the global economic crisis on the Nigerian economy.
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