THE IMPACT OF GLOBAL FINANCIAL CRISIS ON NIGERIAN ECONOMY
The global financial crisis was caused by the banking system of the United Sates liquidity shortfall. It caused the collapse of financial markets, assistance of banks by the government and global recession in stock markets.
Global crisis has considerably and unpredictably worsened the prices of basic commodities which are usually the foundation of most budding countries. It caused declines in remittances, decreases in the price of commodities, drops in the equity market, and deterioration in the equity market. Recession manifested itself through an immense decrease in material prosperity, decrease in productivity and expansion, welfare and employment.
In Nigeria, almost 99% of exports came from oil and gas which supplies the government about 85% of its revenues. The agricultural sector, guided by crop production, livestock and fishing, also contributed to the growth of the Nigerian economy. But oil prices continued to plunge from one-hundred forty dollars per barrel to forty-four dollars which caused the drop in industrial output. Nigeria, which has attained economic growth and stability is threatened by the persistent decline in oil prices.
The Nigerian Economic Summit Group or the NESG insinuates that Nigeria is losing its market competitiveness because its foundation, especially in the vital sectors of the government, is still inadequate. Business transactions with the Nigerian government are still expensive.
The Nigerian Stock Exchange has experienced unparalleled turmoil. It was first evidenced by the fall of stocks controlled by the banking sector which made the regulatory authorities and the money experts restless and on-edge. The slide of the Nigerian market became a dive and investors, both local and foreign, hurriedly looked somewhere. This is the first time Nigeria has experienced a very significant drop in their money market operations.
Reductions of monetary policy rate, the cash reserve requirement, and the liquidity ratio were the government’s responses in dealing with the crisis.
Nigeria’s Securities and Exchanges Commission was concerned about the constriction of liquidity in the market. Its Director General has stated that Nigeria’s economy will suffer if this will continue. He also said that the people’s incapacity to invest was due to the high unemployment rate.
The Governor of the Central Bank of Nigeria said that the reason Nigeria is experiencing an economic crunch is because investors, especially foreign investors, are pulling out of the Nigerian market. When the investors started pulling out, panic from the stakeholders, the banks and participants, ensued. Panic has nowhere else to go but to decline.
Over fifteen billion dollars were withdrawn by foreign investors, while a significant dip in the official development assistance (OBA) and remittances were expected. A decrease in financial provisions to social services further pushed the Nigerians more into poverty.
To combat the effects of the global food crisis and the resulting price increases, the government released 53,610 tonnes of sorghum, maize, and millet grains to the states. A tax holiday for the period May to October 2008 for importers of rice were also approved. Infrastructures were rehabilitated and farmers were provided credit to improve the food problem.
As a result, agricultural products increased by five percent. The rise in the composite food index by one percent was due to the price increase of yams, maize, meat, millet, fruits and vegetables, and other staple foods.
In the manufacturing sector, the manufacturing capacity utilization rate fell. Lower finances contributed to poor facilities and poor electric power supply. Increase in the prices of oil and diesel, and competition from imported products were also attributed to the decline in manufacturing production.
Global financial crisis affected Nigeria in a number of factors. The primary factor was the decline for crude oil requirements evidence by a significant decrease from volume sales and value due to substantial decrease in prices. Other factors that affected Nigeria were the resultant lowering of demand for commodities, and the threatening private capital flows.
Credit:ivythesis.typepad.com
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