THE IMPACT OF THE ECONOMIC RECESSION ON NIGERIA IN THE SOCIO-ECONOMIC CONTEXT CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
International experience has become critically important in today’s business world. Global trends have had an impact on the processes and outcomes of business fortunes even in developing countries; and have caused industrial relation actors to think differently about their goals. Every country is affected by business cycle; a situation whereby there is nationwide fluctuations in production, trade and general economic activities over medium-to-long-term in a free market system. The Nigerian economy currently faces the effects of the global economic crises which results to breakdown and decline in economic vigour. It is pertinent to understand the dynamics of the present global economic meltdown with careful study and examination of the issues involved. The Nigerian economy has continued to witness renewed and sustained recession, characterized by galloping inflation, unemployment and declining businesses. The general business cycle of recessions affects human resource management. Such factors as interest rates, inflation, and economic growth help determine the availability of workers and figure into organizational plans and objectives. Economic conditions hinge on overtime, decision on wages and laying off or hiring of workers.
The Nigerian economic situation has been weak due to the negative effects the global economic meltdown has had on the country. Every industry has had its fair share of the troubles and companies are licking their wounds with resultant effects on the masses. Retrenchment and downsizing has been the way forward, there is no sense in making it massive. This contributes to the growth of jobless individuals in the street since there are no jobs to which these individuals will find themselves attached when retrenched in one. This study will examine economic recession and the various challenges to the economic growth of the country. There are many causes of the current economic recession in Nigeria. Globally, there is geopolitical tension around the world, causing global crisis and commodity prices dropping, the drop in crude oil prices, Brexit, crucial American election in 2016, South China Sea issues, Russia-Syria crisis, ISIS, illegal migration and refugee crisis which are remote but important causes of the recession as Nigeria is an integral part of the global economy. This loss of confidence makes businesses and/or consumers stop buying and move into defensive mode. Once a critical mass moves toward the exit sign, panic sets in. That creates a destructive downward spiral. In short order, you get mass layoffs and rising unemployment which create a slowdown in retail sales. Manufacturers cut back in reaction to falling orders, further increasing layoffs. To restore confidence, the Federal government and the central bank must usually step in. However, it should be noted that a decline in the gross domestic product growth is a sign that a recession may be underway, but it is rarely a cause. That's because GDP is only reported on after the quarter is over. By the time gross domestic product has turned negative, the recession may already be underway.
The following are highlighted as the possible causes of recession that we are currently experiencing in Nigeria:
High interest rate: When rates rise, they limit, liquidity, or the amount of money available to invest. Federal Reserve often raised interest rates to protect the value of the dollar. The Fed raised rates to battle, stagflation, causing the 1980 recession. It did the same thing to protect the dollar/gold relationship, worsening the Great Depression.
A stock market crash: The sudden loss of confidence in investing can create a subsequent bear market, draining capital out of businesses. This is how a stock market crash can cause a recession.
Falling housing prices and sales: As homeowners lose equity, it forces a cutback in spending as they can no longer take out second mortgages. Over time, it will cause foreclosures. This served as the genesis cause that brought about the great recession, but for different reasons. Poor economic planning: Poor economic planning and no concrete implementation of her economic planning is the major cause of Nigeria current recession budget delay, exchange rate policy. The Nigerian government proclaimed the usual generalities that every government indulges itself in about; diversifying the economy, improving manufacturing/mining sector, raising agricultural output and encouraging foreign investment.
Increased inflation: Inflation refers to a general rise in the prices of goods and services over a period of time. As inflation increases, the percentage of goods and services that can be purchased with the same amount of money decreases.
In recession, there is usually a decline in certain macroeconomic indicators such as GDP, employment, investment spending, capacity utilization, household income, business income, and inflation, with the attendant increase in the rate of unemployment, (CBN, 2012). Chinguwo and Blewit, (2012) researched that economic recession, financial crisis and climate change problems combined to make life even more difficult for many working people and their families. Mailafia, (2016) n his own findings postulated that economic recession stagnates wage growth and increases the proportion of people on low pay, as well as swelling unemployment and underemployment. In a research conducted by Bauer, (2009), he ascertained that economic recession and the global financial crisis have inter-linkages with poverty incidence in developing countries. Economic recession does not just occur, certain factors trigger recession which include; inflation, loss of consumer confidence, excess supply over demand, excess demand over supply, and global economic crisis.
The current economic recession has negative and also some positive impacts on aggregate economic activities in Nigeria. It causes extreme poverty and suffering of the masses, children’s right to quality education, affordable inclusive healthcare are deprived, there is adverse demand and supply shocks. It has contractionary effects on aggregate demand and supply resulting to volatile shocks in economic activities. There is scarcity of foreign exchange, few money, reduced income, decreased finances available to households and businesses. There is also weak purchasing power, reduced consumer spending and decrease in sales of goods and services. The purchase of goods and services by individuals, households and firms has drastically reduced as a result of the economic recession. Business activities are now at the low ebb, there are jobs losses and increase in unemployment rate. The reduced employment is due to decreased sales of goods and services by business owners, companies, street vendors, farmers, shop owners, retailers and wholesalers. The aggregate spending power has sharply declined.
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