[1]
LETTER OF TRANSMITTAL
Abuja, Nigeria, September 11, 2011
Asha Mutluru Ministry of Finance, Subordinate Nigeria. [email protected]
To, Ngozi Okonjo-Iweala,
Minister of Finance, Nigeria.
Dear Sir, Enclosed is the copy of the Global Financial Crisis and the current Nigerian Economy. This report is the summary of my findings. It will aid in the future to help in the development of the Nigerian economy. The report includes information on the Financial Depression, its impact on the Nigerian Economy and the current status of Nigeria’s economic structure. This report also outlines my recommendations for the long term monitoring of the economy. If you have any questions and/or comments regarding the interpretation of this report please feel free to contact me. Thank you.
[2]
GFC AND THE CURRENT NIGERIAN ECONOMY
LECTURER NAME DATE OF SUBMISSION STUDENT NAME STUDENT ID : : : : MR. CHUA CHON HOCK 12/09/2011 MUTLURU ASHA LATA 12643287
[3]
ABSTRACT
The global financial crisis, which was triggered within the US sub-prime mortgage market by the credit crunch, continued to spread in several countries. The Great Depression was the most severe financial crisis faced by the world economy since the last century. Its impact in the performance of the financial system and the Nigeria Stock Exchange on Nigeria was evident. The crude oil price declined sharply from US$147 per barrel in July 2008 to $47 per barrel in January 2009, leading to a decline in revenue and external reserves. The debt profile was also increasing. Foreign portfolio investors have withdrawn over $15 billion. Government included reduction of the monetary policy rate (MPR) from 10.25-9.75% in responses to the crisis. The crisis may offer an opportunity to look at sectors that have been yawning to allow them to act as pillars for growth and development of the economy. The risk of global recession has heightened the instability of commodity prices, which is the mainstay of most developing countries like Nigeria, has increased further. Prior to the crisis, the Nigerian government has been stable in its economy following
[4]
few prescribed measures. This report examines the influence on Nigerian Economy of the Global Financial Crisis and its performance today.
TABLE OF CONTENTS
INTRODUCTION…………………………………………………………………………………… …...... 5 GLOBAL FINANCIAL CRISIS……………………………………………………………………........ 5 GLOBAL ECONOMIC MELTDOWN AND NIGERIA……………………............................ 6 • CAUSES OF GLOBAL ECONOMIC MELTDOWN………………………................. 6
NIGERIA ECONOMIC PROFILE, 2011……………………………………………………………. 7 • • • • • SOCIAL DEMOGRAPHIC SECTOR……………………………………………………… 7 AGRICULTURE SECTOR…………………………………………………………………… 8 ECUCATION SECTOR……………………………………………………………………...... 9 FINANCIAL SECTOR………………………………………………………………………… 9 UNEMPLOYMENT AND POVERTY………………………………………………….... 9
[5] • • • INFLATION RATE/INTEREST RATE………………………………………………… 10 PUBLIC DEBT STOCK……………………………………………………………………… 11 OIL AND GAS SECTOR……………………………………………………………………… 12
CONCLUSION AND RECOMMENDATION……………………………………………………… 13 REFERENCES……………………………………………………………………………………… ………. 15
INTRODUCTION
The term financial crisis is broadly applied to an array of situations where there is an abrupt loss in a large part of the value in some financial institutions or assets. Financial crises like banking panics, and many more recessions that coincided with these panics were related in the 19th
[6]
and the early 2oth centuries. Stock Market crashes, outburst of other financial bubbles, currency collapse and sovereign defaults are some of the other situations that are called financial crisis. (Kindleberger and Aliber, 2005, Laeven and Valencia, 2008)
GLOBAL FINANCIAL CRISIS
There was a credit crunch when there was a failure by US investors in the value of sub-prime mortgages that led to the liquidity crisis which in turn also led the US Federal Bank inserting a large amount of capital into financial markets which began the global financial crisis in July2007. It became highly unstable by September 2008, as the stock markets crashed around the globe and it spread rapidly to the other developing countries. Prior to the crisis there was consequent loose loan policy of financial institutions and easy credit accessibility which was not accompanied by severe credit risk management and control. Since there was no back up by cash flow from mortgages large volumes of financial securities were created. However, the capital base of these institutions was exposed, with the subsequent unpleasant development. Indeed, such exposures came in sight with the burst of the housing market bubble. Interest rates surged and credit dried up. Subsequently, hedge funds were withdrawn where the financial institution s had their investments in. Off-shore investments and resources from sister companies started to dwindle; ‘the ripple effect’ further led to the crash of the stock markets first in the United States and Europe, the share values dropped and it later spreading to stock markets around the world including Nigeria.
GLOBAL ECONOMIC MELTDOWN AND NIGERIA
Nigeria accounts more than 70% of foreign income from crude oil. However, it is the agricultural sector that accounts the most in the total GDP (Table 1). The Nigerian Economy was affected by the Global
[7]
Financial Crisis. Since Nigeria is an export-import country, the prices of goods and services were also affected as the Exchange Rate which was N 116/118 per dollar went up to N 160 per dollar (Odikenmelu, 2010). There was a reduction in the economic growth, decrease in international commercial lending, fall of Foreign Direct Investment (FDI). There was also a social impact, where there were high crimes, weak health system and social unrest. The GDP growth rate was 7% in 2007, 6% in 2008 and 2.9% in 2009 (IMF, World Economic Outlook, 2009). Unemployment increased from 12.7% in 2007 to 19.7% in 2009 (NBS, June 2010). Also, there was a decline in the total external reserves from US$65 billion in December 2008 to US$43 billion in June 2009. The Nigerian Stock Exchange was the worst hit. There was a huge loss in the value of shares of the company. The Nigerian Stock Exchange lost about N556 billion.
CAUSES OF GLOBAL ECONOMIC CRISIS IN NIGERIA: •
•
Nigeria is over dependent on oil. Over 70% of Nigeria’s foreign income comes from the sale of crude oil. There was a sharp fall of crude oil prices from $147 per barrel in July 2008 to less than $47 per barrel in January 2009 which highly affected the foreign reserves (Oyesola, 2010). The demand for oil in the international market fell drastically from 7.3 billion in March 2008 to $3 billion in February 2009. Nigeria is heavily indebted to the World Bank and International Monetary Fund(IMF)
[8]
• •
•
A rising population has led in the mismanagement of the Nigerian Economy. There has been an absolute corporate greed shown by many companies and service providers which contributed to the economic situation of the country. The moving of the employment and change in the means of labour have resulted the people migrating to bigger cities which is leading to over population.
NIGERIA ECONOMIC PROFILE – 2011
Nigeria received a $1 billion credit from the IMF and a debt-restricting deal from the Paris Club and, both contingents on economic reforms after following the signing the stand-up agreement in August 2000. Since 2008, the government has started to show that the political sector is willing to implement what IMF is urging to have a market-oriented reforms, such as cutting inflation by blocking unnecessary wage demands, modernizing the banking system, and to resolve regional disputes over the allotment of earnings from the oil industry because of augmented high global crude prices and oil exports in 2010, there has been a strong growth in GDP in 2007-10
•
SOCIAL DEMOGRAPHIC CONTEXT
In the last 10 years, Nigeria has been one of the highest growths in population. Nigeria's total population was 158.9 million in June 2010. (Source: cenbank.org). In Nigeria the average life expectancy at birth for men was 47.3 years and for women 48.3 years respectively in
[9]
2010.(Source: UN, World Bank, World Bank).However the UNDP expects the country’s population growth rate to decline slightly from, 2.8% in between 1975-2005 to 2.2% for the period 2005-2015. The UN projects a population of 210million by 2025 and 289million by 2050, which would make it the 6th most populated country in the world.
•
AGRICULTURAL SECTOR
Before Nigeria gained its independence, agriculture was the most important sector and contributed for the 50% of the economy and more that 75% of the export earnings. Subsequently, with the petroleum
[10]
industry rapidly expanding, the agricultural sector was running into a decline. The federal government has started a moderate force to increase the production and productivity. Agriculture has contributed 40.84% to the GDP in 2010.
• EDUCATIONAL SECTOR
For the some of the previous Nigerian Governments education has been their top priority, but the country is far from ready to face the new challenges of the century. Still today, Nigeria lacks the system of education as not all families are capable to send their children to school since there is the downgrade of the living is prior to the global economic crisis. Moreover, there is a still low discipline standard in education. In 2008, the total adult literacy rate was 66%. The literacy rate in 2008 for men was 73.8% and women and 58.1% respectively (Source: euromoneycountryrisk.com/Wiki/Nigeria). In the same phase, the literacy rate of youth for males was 85.6% and females 74.1% respectively. (Source: Nigerian stat)
•
FINANCIAL SECTOR
Nigeria is one of Africa’s most populous nations, biggest oil producer and the biggest receiver of the Foreign Direct Investment (FDI). It was severely impact by the global financial crisis: oil prices fell, the stock market collapsed and bank default rates rose. There have been some significant changes in the financial sector of the country in the last few years. For example, the banks have adopted the International Financial Reporting Standards (IFRS), since 2010. Deposit insurance were launched, bank balance sheets were examined specially by the central bank, which resulted in the intervening of five banks by Central Bank in August 2009 to tackle the liquidity ratios and inadequate capital and nonperforming loan ratios that reached 40%. Funds were injected to prevent insolvency and management was replaced. The GDP growth was 7% in 2009 and increased to 8.4% in 2010.
• UNEMPLOYMENT AND POVERTY
Nigeria is a country set apart with massive human and natural gift: fairly good way in to skills, capital, technology, rich agricultural land, mineral resources and a good geographic locality. Despite the availability, Nigeria has been weak in unemployment and poverty. Less people having the purchasing power and less consumption has lead to decrease in economic growth, lower production and unemployment.
[11]
•
INFLATION RATE/INTEREST RATE
The inflation rate in Nigeria was 1.9% in 2010 and in February 2011 was 0.96%. Amid January 2009 and February 2011, in January 2010 inflation fluctuated and reported a higher rate. The Central Bank of Nigeria has increased its benchmark Monetary Policy Rate (MPR). The benchmark interest rate in Nigeria was last reported at 8.75% as a preventative evaluation to restrained inflationary pressure. Therefore, the pressure is likely to be expected to reveal the concerns of the central banks over the need to sustain exchange rate stability going forward as well as country’s fiscal path.
[12]
•
PUBLIC DEBT STOCK
Nigeria’s total debt stock currently stands at 35.3 billion representing 19% of the country’s Gross Domestic Product (GDP). About N4.5 trillion for domestic debt and $4.7 billion shows for external debt. Few governments over the world increased borrowing to increase spending to oppose the effect of the recession on the economy. The same thing happened in Nigeria which further led the domestic debt to the increase in between 2008 and 2010.
[13]
•
OIL AND GAS SECTOR
Nigeria’s population has over 110 million people and a great quantity of natural resources, especially hydrocarbons. It the most prolific oil producer in SubSaharan Africa, it is the 10th largest oil producer in the world, and the third largest in Africa. The Nigerian economy supplies 95% of its foreign exchange earnings which is largely dependent on its oil sector. The reserves in Nigeria have continued to grow steadily. In the deepwater acreages over 7billionn barrels have been discovered bringing 35billion barrels of the total national
[14] crude oil reserves from about 22billion barrels since 1999. Scope for the growth in reserves still exists. In terms of reserves and daily production, Nigeria is in the 6th position, within the Organisation of Petroleum Exporting Countries (OPEC). The daily average production in Nigeria is over two million barrels and has the capacity to exceed her reserves to 30 billion barrels. The utilisation of gas grew steadily; with the increased activities in the domestic power sector and the beginning/ rapid growth of the Nigeria LNG which resulted in a steady decline of gas flaring with a vision to flare out by 2008.
CONCLUSION AND RECCOMMENDATION The Government’s response to the global economic crisis was slow (Ajakaye et al, 2009) There was a reduction of the monetary policy rate (MPR) from 10.259.75%. By 2020, Nigeria wishes to become one of the world’s top 20 economies. To achieve this goal, the authorities plan to build a globally competitive economy that is much less dependent on the gas and oil sector to reduce poverty and generate employment. With the implementation of the economic reforms Nigeria is making progress that is resulting in strong economic fundamentals. The government has carefully maintained macroeconomic policies, has strengthened the financial institutions and slowly is undertaking reforms to transform a structural economy. With the reform effect, aided by revenue from high oil prices, it has led to significantly improved strong GDP growth and weaker inflation. Although, the Nigerian economy still remains confronted by structural imbalance, lack of diversification, high youth unemployment, poor infrastructure facilities, with the economy excessively dependant on oil is preventing the domestic economy to develop, and the widespread of lack of confidence are the key challenge that the government should take responsibility for. However, to ensure greater result of efforts, the following areas need to be addressed by the Nigerian government to help design, implement and monitor a viable decent work country programme, and overall development for the nation: The requirements to expand the fiscal space by practical utilization of the surplus foreign reserves and excess crude oil accounts, to lessen the instability of oil revenue. Working on upgrading the agricultural sector in such a way so that the oil dependent economy can be effectively diversified. Removing the infrastructural bottlenecks to have the ability of utilization in the manufacturing sector. There is a need for more employment intensive growth, and employment-friendly strategies. Though, to curb unemployment in Nigeria, the economic growth is not the only solution. Other solutions such as setting up of provisional work agencies, which provide temporary staff to small companies, the training of right skills to the people in such a way which will help them to tackle the problems and lead a more happy and prosperous life should also be given importance. There should be alternative ways of funding education. Education in Nigeria should be globalised in a way so
[15] that it can to be able to compete with other nations of the world. The government must produce good market for the farmers to sell their production and to prevent crop wastage. It should also work on manufacturing inputs like making the fertilisers available for the farmers unrestricted. The farmers also need right inputs, market incentives and appropriate technology. Therefore, also since high inflation restricts economic growth and cuts the peoples’ purchasing power, the government, should focus on improving food production. Also solutions to the peril of inflation involve fixing and building the old refineries and hence introducing genuine competition in the oil sector. The government can increase taxes like VAT, Income tax and cut spending. The Central Bank could also increase the interest rates which could make borrowing more expensive and saving the best alternative in order to curb inflation. In terms of the gas and oil sector the government should encourage more private companies to participate as said earlier that better equipped refineries and the cost of refining crude oil will reduce.
[16] REFERENCES. Canstar, (2009, March); Retrieved fromhttp://www.canstar.com.au/globalfinancial-crisis/ Rudgers (2010, September); Retrieved fromhttp://www.camden.rutgers.edu/federalism/assets/Elaigwu.pdf Africa and Global Financial crisis – Impact of Economic Reform Processes by Reuben Adeolu Alabi, Joy Alemazung, pg.306, ; Maxwell, (2009, December); Retrieved fromhttp://maxwellsci.com/print/crjet/v216-21.pdf United Nations, “Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. World Population Prospects: the 2008 Revision 2009”, Retrieved fromhttp://en.wikipedia.org/wiki/Nigeria Nigerian Stat, (2011, September); Retrieved fromhttp://www.nigerianstat.gov.ng/ Global Finance, (2011, September); Retrieved fromhttp://www.gfmag.com/gdpdata-country-reports/207-nigeria-gdp-country-report.html#axzz1XYBkVxoa Making Finance Work for Africa, (2004-2011); Retrieved fromhttp://www.mfw4a.org/nigeria/nigeria-financial-sector-profile.html Index Mundi, Nigeria Economic Profile, 2011; Retrieved fromhttp://www.indexmundi.com/nigeria/economy_profile.html Bloomberg, (2011, March 22); Retrieved fromhttp://www.bloomberg.com/news/2011-...to7-5-percent-to-ease-inflation-pressure.html ECR; Retrieved fromhttp://www.euromoneycountryrisk.com/Wiki/Nigeria All Africa; Retrieved fromhttp://allafrica.com/stories/201101280806.html African Economic Outlook; Retrieved fromhttp://www.africaneconomicoutlook.org/en/countries/west-africa/nigeria/
doc_873367605.docx
LETTER OF TRANSMITTAL
Abuja, Nigeria, September 11, 2011
Asha Mutluru Ministry of Finance, Subordinate Nigeria. [email protected]
To, Ngozi Okonjo-Iweala,
Minister of Finance, Nigeria.
Dear Sir, Enclosed is the copy of the Global Financial Crisis and the current Nigerian Economy. This report is the summary of my findings. It will aid in the future to help in the development of the Nigerian economy. The report includes information on the Financial Depression, its impact on the Nigerian Economy and the current status of Nigeria’s economic structure. This report also outlines my recommendations for the long term monitoring of the economy. If you have any questions and/or comments regarding the interpretation of this report please feel free to contact me. Thank you.
[2]
GFC AND THE CURRENT NIGERIAN ECONOMY
LECTURER NAME DATE OF SUBMISSION STUDENT NAME STUDENT ID : : : : MR. CHUA CHON HOCK 12/09/2011 MUTLURU ASHA LATA 12643287
[3]
ABSTRACT
The global financial crisis, which was triggered within the US sub-prime mortgage market by the credit crunch, continued to spread in several countries. The Great Depression was the most severe financial crisis faced by the world economy since the last century. Its impact in the performance of the financial system and the Nigeria Stock Exchange on Nigeria was evident. The crude oil price declined sharply from US$147 per barrel in July 2008 to $47 per barrel in January 2009, leading to a decline in revenue and external reserves. The debt profile was also increasing. Foreign portfolio investors have withdrawn over $15 billion. Government included reduction of the monetary policy rate (MPR) from 10.25-9.75% in responses to the crisis. The crisis may offer an opportunity to look at sectors that have been yawning to allow them to act as pillars for growth and development of the economy. The risk of global recession has heightened the instability of commodity prices, which is the mainstay of most developing countries like Nigeria, has increased further. Prior to the crisis, the Nigerian government has been stable in its economy following
[4]
few prescribed measures. This report examines the influence on Nigerian Economy of the Global Financial Crisis and its performance today.
TABLE OF CONTENTS
INTRODUCTION…………………………………………………………………………………… …...... 5 GLOBAL FINANCIAL CRISIS……………………………………………………………………........ 5 GLOBAL ECONOMIC MELTDOWN AND NIGERIA……………………............................ 6 • CAUSES OF GLOBAL ECONOMIC MELTDOWN………………………................. 6
NIGERIA ECONOMIC PROFILE, 2011……………………………………………………………. 7 • • • • • SOCIAL DEMOGRAPHIC SECTOR……………………………………………………… 7 AGRICULTURE SECTOR…………………………………………………………………… 8 ECUCATION SECTOR……………………………………………………………………...... 9 FINANCIAL SECTOR………………………………………………………………………… 9 UNEMPLOYMENT AND POVERTY………………………………………………….... 9
[5] • • • INFLATION RATE/INTEREST RATE………………………………………………… 10 PUBLIC DEBT STOCK……………………………………………………………………… 11 OIL AND GAS SECTOR……………………………………………………………………… 12
CONCLUSION AND RECOMMENDATION……………………………………………………… 13 REFERENCES……………………………………………………………………………………… ………. 15
INTRODUCTION
The term financial crisis is broadly applied to an array of situations where there is an abrupt loss in a large part of the value in some financial institutions or assets. Financial crises like banking panics, and many more recessions that coincided with these panics were related in the 19th
[6]
and the early 2oth centuries. Stock Market crashes, outburst of other financial bubbles, currency collapse and sovereign defaults are some of the other situations that are called financial crisis. (Kindleberger and Aliber, 2005, Laeven and Valencia, 2008)
GLOBAL FINANCIAL CRISIS
There was a credit crunch when there was a failure by US investors in the value of sub-prime mortgages that led to the liquidity crisis which in turn also led the US Federal Bank inserting a large amount of capital into financial markets which began the global financial crisis in July2007. It became highly unstable by September 2008, as the stock markets crashed around the globe and it spread rapidly to the other developing countries. Prior to the crisis there was consequent loose loan policy of financial institutions and easy credit accessibility which was not accompanied by severe credit risk management and control. Since there was no back up by cash flow from mortgages large volumes of financial securities were created. However, the capital base of these institutions was exposed, with the subsequent unpleasant development. Indeed, such exposures came in sight with the burst of the housing market bubble. Interest rates surged and credit dried up. Subsequently, hedge funds were withdrawn where the financial institution s had their investments in. Off-shore investments and resources from sister companies started to dwindle; ‘the ripple effect’ further led to the crash of the stock markets first in the United States and Europe, the share values dropped and it later spreading to stock markets around the world including Nigeria.
GLOBAL ECONOMIC MELTDOWN AND NIGERIA
Nigeria accounts more than 70% of foreign income from crude oil. However, it is the agricultural sector that accounts the most in the total GDP (Table 1). The Nigerian Economy was affected by the Global
[7]
Financial Crisis. Since Nigeria is an export-import country, the prices of goods and services were also affected as the Exchange Rate which was N 116/118 per dollar went up to N 160 per dollar (Odikenmelu, 2010). There was a reduction in the economic growth, decrease in international commercial lending, fall of Foreign Direct Investment (FDI). There was also a social impact, where there were high crimes, weak health system and social unrest. The GDP growth rate was 7% in 2007, 6% in 2008 and 2.9% in 2009 (IMF, World Economic Outlook, 2009). Unemployment increased from 12.7% in 2007 to 19.7% in 2009 (NBS, June 2010). Also, there was a decline in the total external reserves from US$65 billion in December 2008 to US$43 billion in June 2009. The Nigerian Stock Exchange was the worst hit. There was a huge loss in the value of shares of the company. The Nigerian Stock Exchange lost about N556 billion.
CAUSES OF GLOBAL ECONOMIC CRISIS IN NIGERIA: •
•
Nigeria is over dependent on oil. Over 70% of Nigeria’s foreign income comes from the sale of crude oil. There was a sharp fall of crude oil prices from $147 per barrel in July 2008 to less than $47 per barrel in January 2009 which highly affected the foreign reserves (Oyesola, 2010). The demand for oil in the international market fell drastically from 7.3 billion in March 2008 to $3 billion in February 2009. Nigeria is heavily indebted to the World Bank and International Monetary Fund(IMF)
[8]
• •
•
A rising population has led in the mismanagement of the Nigerian Economy. There has been an absolute corporate greed shown by many companies and service providers which contributed to the economic situation of the country. The moving of the employment and change in the means of labour have resulted the people migrating to bigger cities which is leading to over population.
NIGERIA ECONOMIC PROFILE – 2011
Nigeria received a $1 billion credit from the IMF and a debt-restricting deal from the Paris Club and, both contingents on economic reforms after following the signing the stand-up agreement in August 2000. Since 2008, the government has started to show that the political sector is willing to implement what IMF is urging to have a market-oriented reforms, such as cutting inflation by blocking unnecessary wage demands, modernizing the banking system, and to resolve regional disputes over the allotment of earnings from the oil industry because of augmented high global crude prices and oil exports in 2010, there has been a strong growth in GDP in 2007-10
•
SOCIAL DEMOGRAPHIC CONTEXT
In the last 10 years, Nigeria has been one of the highest growths in population. Nigeria's total population was 158.9 million in June 2010. (Source: cenbank.org). In Nigeria the average life expectancy at birth for men was 47.3 years and for women 48.3 years respectively in
[9]
2010.(Source: UN, World Bank, World Bank).However the UNDP expects the country’s population growth rate to decline slightly from, 2.8% in between 1975-2005 to 2.2% for the period 2005-2015. The UN projects a population of 210million by 2025 and 289million by 2050, which would make it the 6th most populated country in the world.
•
AGRICULTURAL SECTOR
Before Nigeria gained its independence, agriculture was the most important sector and contributed for the 50% of the economy and more that 75% of the export earnings. Subsequently, with the petroleum
[10]
industry rapidly expanding, the agricultural sector was running into a decline. The federal government has started a moderate force to increase the production and productivity. Agriculture has contributed 40.84% to the GDP in 2010.
• EDUCATIONAL SECTOR
For the some of the previous Nigerian Governments education has been their top priority, but the country is far from ready to face the new challenges of the century. Still today, Nigeria lacks the system of education as not all families are capable to send their children to school since there is the downgrade of the living is prior to the global economic crisis. Moreover, there is a still low discipline standard in education. In 2008, the total adult literacy rate was 66%. The literacy rate in 2008 for men was 73.8% and women and 58.1% respectively (Source: euromoneycountryrisk.com/Wiki/Nigeria). In the same phase, the literacy rate of youth for males was 85.6% and females 74.1% respectively. (Source: Nigerian stat)
•
FINANCIAL SECTOR
Nigeria is one of Africa’s most populous nations, biggest oil producer and the biggest receiver of the Foreign Direct Investment (FDI). It was severely impact by the global financial crisis: oil prices fell, the stock market collapsed and bank default rates rose. There have been some significant changes in the financial sector of the country in the last few years. For example, the banks have adopted the International Financial Reporting Standards (IFRS), since 2010. Deposit insurance were launched, bank balance sheets were examined specially by the central bank, which resulted in the intervening of five banks by Central Bank in August 2009 to tackle the liquidity ratios and inadequate capital and nonperforming loan ratios that reached 40%. Funds were injected to prevent insolvency and management was replaced. The GDP growth was 7% in 2009 and increased to 8.4% in 2010.
• UNEMPLOYMENT AND POVERTY
Nigeria is a country set apart with massive human and natural gift: fairly good way in to skills, capital, technology, rich agricultural land, mineral resources and a good geographic locality. Despite the availability, Nigeria has been weak in unemployment and poverty. Less people having the purchasing power and less consumption has lead to decrease in economic growth, lower production and unemployment.
[11]
•
INFLATION RATE/INTEREST RATE
The inflation rate in Nigeria was 1.9% in 2010 and in February 2011 was 0.96%. Amid January 2009 and February 2011, in January 2010 inflation fluctuated and reported a higher rate. The Central Bank of Nigeria has increased its benchmark Monetary Policy Rate (MPR). The benchmark interest rate in Nigeria was last reported at 8.75% as a preventative evaluation to restrained inflationary pressure. Therefore, the pressure is likely to be expected to reveal the concerns of the central banks over the need to sustain exchange rate stability going forward as well as country’s fiscal path.
[12]
•
PUBLIC DEBT STOCK
Nigeria’s total debt stock currently stands at 35.3 billion representing 19% of the country’s Gross Domestic Product (GDP). About N4.5 trillion for domestic debt and $4.7 billion shows for external debt. Few governments over the world increased borrowing to increase spending to oppose the effect of the recession on the economy. The same thing happened in Nigeria which further led the domestic debt to the increase in between 2008 and 2010.
[13]
•
OIL AND GAS SECTOR
Nigeria’s population has over 110 million people and a great quantity of natural resources, especially hydrocarbons. It the most prolific oil producer in SubSaharan Africa, it is the 10th largest oil producer in the world, and the third largest in Africa. The Nigerian economy supplies 95% of its foreign exchange earnings which is largely dependent on its oil sector. The reserves in Nigeria have continued to grow steadily. In the deepwater acreages over 7billionn barrels have been discovered bringing 35billion barrels of the total national
[14] crude oil reserves from about 22billion barrels since 1999. Scope for the growth in reserves still exists. In terms of reserves and daily production, Nigeria is in the 6th position, within the Organisation of Petroleum Exporting Countries (OPEC). The daily average production in Nigeria is over two million barrels and has the capacity to exceed her reserves to 30 billion barrels. The utilisation of gas grew steadily; with the increased activities in the domestic power sector and the beginning/ rapid growth of the Nigeria LNG which resulted in a steady decline of gas flaring with a vision to flare out by 2008.
CONCLUSION AND RECCOMMENDATION The Government’s response to the global economic crisis was slow (Ajakaye et al, 2009) There was a reduction of the monetary policy rate (MPR) from 10.259.75%. By 2020, Nigeria wishes to become one of the world’s top 20 economies. To achieve this goal, the authorities plan to build a globally competitive economy that is much less dependent on the gas and oil sector to reduce poverty and generate employment. With the implementation of the economic reforms Nigeria is making progress that is resulting in strong economic fundamentals. The government has carefully maintained macroeconomic policies, has strengthened the financial institutions and slowly is undertaking reforms to transform a structural economy. With the reform effect, aided by revenue from high oil prices, it has led to significantly improved strong GDP growth and weaker inflation. Although, the Nigerian economy still remains confronted by structural imbalance, lack of diversification, high youth unemployment, poor infrastructure facilities, with the economy excessively dependant on oil is preventing the domestic economy to develop, and the widespread of lack of confidence are the key challenge that the government should take responsibility for. However, to ensure greater result of efforts, the following areas need to be addressed by the Nigerian government to help design, implement and monitor a viable decent work country programme, and overall development for the nation: The requirements to expand the fiscal space by practical utilization of the surplus foreign reserves and excess crude oil accounts, to lessen the instability of oil revenue. Working on upgrading the agricultural sector in such a way so that the oil dependent economy can be effectively diversified. Removing the infrastructural bottlenecks to have the ability of utilization in the manufacturing sector. There is a need for more employment intensive growth, and employment-friendly strategies. Though, to curb unemployment in Nigeria, the economic growth is not the only solution. Other solutions such as setting up of provisional work agencies, which provide temporary staff to small companies, the training of right skills to the people in such a way which will help them to tackle the problems and lead a more happy and prosperous life should also be given importance. There should be alternative ways of funding education. Education in Nigeria should be globalised in a way so
[15] that it can to be able to compete with other nations of the world. The government must produce good market for the farmers to sell their production and to prevent crop wastage. It should also work on manufacturing inputs like making the fertilisers available for the farmers unrestricted. The farmers also need right inputs, market incentives and appropriate technology. Therefore, also since high inflation restricts economic growth and cuts the peoples’ purchasing power, the government, should focus on improving food production. Also solutions to the peril of inflation involve fixing and building the old refineries and hence introducing genuine competition in the oil sector. The government can increase taxes like VAT, Income tax and cut spending. The Central Bank could also increase the interest rates which could make borrowing more expensive and saving the best alternative in order to curb inflation. In terms of the gas and oil sector the government should encourage more private companies to participate as said earlier that better equipped refineries and the cost of refining crude oil will reduce.
[16] REFERENCES. Canstar, (2009, March); Retrieved fromhttp://www.canstar.com.au/globalfinancial-crisis/ Rudgers (2010, September); Retrieved fromhttp://www.camden.rutgers.edu/federalism/assets/Elaigwu.pdf Africa and Global Financial crisis – Impact of Economic Reform Processes by Reuben Adeolu Alabi, Joy Alemazung, pg.306, ; Maxwell, (2009, December); Retrieved fromhttp://maxwellsci.com/print/crjet/v216-21.pdf United Nations, “Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. World Population Prospects: the 2008 Revision 2009”, Retrieved fromhttp://en.wikipedia.org/wiki/Nigeria Nigerian Stat, (2011, September); Retrieved fromhttp://www.nigerianstat.gov.ng/ Global Finance, (2011, September); Retrieved fromhttp://www.gfmag.com/gdpdata-country-reports/207-nigeria-gdp-country-report.html#axzz1XYBkVxoa Making Finance Work for Africa, (2004-2011); Retrieved fromhttp://www.mfw4a.org/nigeria/nigeria-financial-sector-profile.html Index Mundi, Nigeria Economic Profile, 2011; Retrieved fromhttp://www.indexmundi.com/nigeria/economy_profile.html Bloomberg, (2011, March 22); Retrieved fromhttp://www.bloomberg.com/news/2011-...to7-5-percent-to-ease-inflation-pressure.html ECR; Retrieved fromhttp://www.euromoneycountryrisk.com/Wiki/Nigeria All Africa; Retrieved fromhttp://allafrica.com/stories/201101280806.html African Economic Outlook; Retrieved fromhttp://www.africaneconomicoutlook.org/en/countries/west-africa/nigeria/
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