AN APPRAISAL OF THE IMPACT OF THE GLOBAL FINANCIAL CRISIS ON THE NIGERIAN ECONOMY
The world economy is facing the most severe financial crisis since the Great Depression of the last century. The risk of global recession has heightened significantly and volatility of commodity prices, which is the mainstay of most developing countries like Nigeria, has increased further. If this situation continues to deteriorate, developing countries could be in great jeopardy.
Time series data relating to the period 1990-2008 were collected and analysed accordingly, using the econometric technique of multiple regression. Statistical tests of significance were also carried out in order to determine the possible impacts of the current global financial crisis on the Nigerian economy. The tests include: Correlation Coefficient (R); Coefficient of Multiple Determination (R2);t-Test; F-statistic and Durbin-Watson test.
The findings of this study revealed that the financial crisis was responsible for the fluctuation in crude oil prices, external reserves, exchange rates, decline in export, lower portfolio and foreign direct investment (FDI) inflow, fall in equity market, decline in remittance from abroad, dwindling economic growth, etc.
It was concluded that the Federal Government should come up with intervention policies that will minimise these effects and jumpstart the economy and that business operators should learn to do things using resources at their disposal to develop and expand at manageable level to stem the tide of the crisis.
BACKGROUND TO THE STUDY
The current global financial crisis, unprecedented in the history of the modern world, has been described as Wall Street’s biggest crisis since the Great Depression in October 1929. From the Wall Street financial headquarters in the United States, across to Europe, Japan and China, the global financial system around which modern free market economy and capitalism is built is crashing like a pack of cards. The financial crisis, which had been brewing for a while, started to show its effects in October 2008. Around the world, stock markets began to crash as billions of mortgage-related investments went bad. Mighty investment banks which once ruled the financial world such as Lehman Brothers and Merrill Lynch have either crumbled or reinvented themselves as humdrum commercial banks.
The roots of the current global financial crisis can be traced back to the fallout of the US subprime mortgage lending, which started in early 2007. Without hesitation, it spread into other markets and economies via a combination of market failures and regulatory weaknesses.
In general, market failed because of poor corporate governance and incompatible executive remuneration structures. Moreover, the lack of transparency in trading procedures, financial instruments, and balance sheet positions of major financial institutions also exacerbated market failures. In regulatory terms, most countries have weak idiosyncratic rules pertaining to the operation of trading instruments and financial conglomerates. Poor capital regulation and accounting rules contributed to excessive risk-taking by banks. In addition, some rating agencies were also not subjected to the jurisdiction of the national regulators.
In turn, this had led to complete breakdown of short-term financial transactions in leading advanced and emerging market economies, and subsequently, meltdown in global securities exchanges. With the freezing of interbank lending and money markets, capital could not be channeled to economic agents operating across the entire production chain.