ECONOMIC RECESSION AND HUMAN CAPITAL DEVELOPMENT IN NIGERIA
CHAPTER ONE
INTRODUCTION
The issue of global economic meltdown has generated much controversy in modern literature. However, it is imperative to review how the issue took most economic watchers by surprise. The global economies round the world have experienced the most traumatic moments in many decades. The crisis itself has been described as perhaps the worst financial crisis since the great depression of the 1930s (Akingbola, 2009). The world economy has witnessed stagnation or minimal growth since more than seven decades. At the root of the recent financial crisis was practically a search for better yield by financial institutions and investors.
It was also established through research that the increase of financial markets and stability in advanced countries brought on by moderate inflation, high saving ratio, stable exchange rate, growing private sector employment, etc led investors to begin to search for profitable investment opportunities (Akingbola, 2009). This resulted to over optimism, speculation, and leverage. Banks began to massively exceed credit given out to borrowers in the mortgage market. Individuals began to take advantage of this leverage and borrowed money from banks to speculate on asset prices and because of the need to gain market share and competitive position: banks also loosened their credit standards and did not monitor the credit worthiness of borrowers. Also commercial banks changed the business models in which they initiated loans to borrowers and subsequently packaged and sold these loans as securities to investors in search of higher yields. The financial meltdown inevitably back leashed on consumer market and on the process of investment in the production of goods and services.
Nigeria has indeed, experienced the effect of global financial meltdown and the effect still continue due to the inability to respond appropriately to global economic impacts. The capital market which is hitherto widely regarded as the barometer for gauging the economic and financial performance of the nation’s private and public sector was in disarray and has been finding it difficult to recover. The total market capitalization was about N15 trillion in May 2008. A year later it crashed to N4 trillion, a colossal decline of over 73 per cent. The withdrawal of overseas funds from the money market has impacted negatively on lending to the real sectors of the Nigerian economy. Sustainable economic growth and development cannot strive under these circumstances.
1.2 BACKGROUND TO THE STUDY
The current global crisis started as a financial crisis but it now has a global reach. The crisis is unprecedented in the severity of credit contraction (credit crunch and capital crunch). The roots are in banking rather than in the securities market or foreign exchange. The Crisis started in the U.S (due to certain laxities in the US financial system) then spread to Europe then developing countries and it has now become global. Even countries not affected by the financial crisis are now affected by second-round effects as the crisis has now become attached to economic issues. The financial crisis started in the U.S in August 2007 as a result of a number of factors that include in the main: (a) the collapse of the housing market in the United States, (b) the lax financial regulatory conditions, and (c) the lack of implementation of strict corporate governance conditions in the United States and most of the developed economies (Krugman, 2008). Avgouleas, (2008). Wikipedia, 2008 enumerated the causes of the crisis as: breakdown in underwriting standards for subprime mortgages; flaws in credit rating agencies‟ assessments of subprime Residential Mortgage Backed Securities (RMBS) and other complex structured credit products especially Collaterized Debt Obligations (CDOs) and other Asset-Backed Securities (ABS); risk management weaknesses at some large at US and European financial institutions; and regulatory policies, including capital and disclosure requirements that failed to mitigate risk management weaknesses. This combined to induce a sub-prime mortgage crisis as households faced difficulties in making higher payments on adjustable mortgages, by the first quarter of 2008; there was widespread credit contraction, as financial institutions in the US tightened their credit standard in light of deteriorating balance sheets (Kindleberger and Aliber, 2005; Laeven and Valencia, 2008). In the fourth quarter of 2008, increased delinquency rates affected not only sub-prime loans but also spilled over into real sectors and other credits (Avery and Zemsky, 1998, Chari and Kehoe, 2004, Cipriani and Guarino, 2008).
In Nigeria the policy makers’ response to the likely effects of this crisis was meek initially; they either did not understand the crises or they grossly underestimated its magnitude. In general, they thought of the crisis as a financial issue that could be solved shortly without leading to economic crisis; however the effects on the oil sector cannot be under estimated. A decline in the price of oil, which accounts for about 90 percent of the country’s revenue added to the global credit crunch are among the country’s predicaments. The crash in the oil market has caused grave concern for Nigeria’s fiscal policy and the outlook for income earned from exports of crude oil. The global financial crisis has led to a slowdown of growth across the world’s economies, resulting in a lower demand for commodities, especially oil. The transmission of the impact can be traced through several stages of the Nigerian economy especially through the impact on: (a) earnings and revenue of governments, (b) the balance of payments through a narrowing of the current account balance, as well as (c) the widening of the deficit on the capital account through the reduction of capital flows because of a re-appraisal of planned investment or the complete stoppage of previously committed investment programs, and (d) contraction of the scope of fiscal policy (Ajakaiye and Fakiyesi 2009). While speculative behavior and investment activities had helped to buoy up crude oil prices internationally, the reality of the global recession is beginning to be fully appreciated across the globe. The adverse impact of the crisis is more direct and more evident on the international price of oil. This study tends to look at the performance of the oil sector before the recession and during the recession, and its effects on economic growth in Nigeria.
1.3 STATEMENT OF THE PROBLEM
The global economic recession has several far-reaching implications on the whole global economies. These implications are not just limited to financial markets alone; the real economies at both national and international levels together with its various institutions and human capital are having serious challenges. Academics believe that the major hurdle that is currently faced is to establish the impact of the global economic recession on human capital skills development in Nigeria. The challenge is in knowing the key factors that will enhance human capital growth in Nigeria (Adamu, 2009). The global economic recession aside, the issue of the growing rate of unemployment is alarming, and this raises the question of how the global recession affects human capital development in Nigeria. A number of studies have been carried out on the global economic meltdown. Few of these, if any, have really attempted to explore the effect of global economic meltdown on human capital development in a developing nation. This proposed research intends to fill that strategic intellectual gap.
1.4 OBJECTIVES OF THE STUDY
The objectives of this research work are:
. To determine the impact of the global economic recession on human capital skills development in Nigeria.
. To analyse the effect of the global economic recession on the Nigerian human capital training & development.
. To determine if there exists any significant relationship between the global economic recession and motivation of human capital development in Nigeria.
. To understand what enhances human capital growth in Nigeria.
1.5 RESEARCH QUESTIONS
The objectives of this research work are:
What is the impact of the global economic recession on human capital skills development in Nigeria?
How far spread is effect of the global economic recession on the Nigerian human capital training & development?
Is there any significant relationship between the global economic recession and motivation of human capital development in Nigeria?
What enhances human capital growth in Nigeria?
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