CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

The Nigerian economy slipped into recession in the second quarter of 2016 which has recorded two consecutive quarters of negative growth rate in Gross Domestic Product. Available data from CBN and NBS report (2016) show that the Nigeria economy contracted by -2.06 percent in the second quarter of 2016, as a result of a contraction of -0.36 percent in the first quarter. By the fourth quarter of 2016, the economy further sank into recession with -2.24 percent and -1.03 percent in the growth rate of GDP. The decline by -2.06 percent in Nigeria Gross Domestic Product (GDP) in the second quarter was 1.70 percent lower than the growth rate of -0.36 percent in the first quarter, and also 4.41 percent lower than the growth rate of 2.35 percent in the second quarter of 2015. This rapid decline in GDP growth rate deepened 2016 recession in Nigeria compared to when the Nigeria economy declined by 0.51 percent and 0.82 percent in two consecutive quarters in 1987 during the regime of Ibrahim Babangida. It is expedient to say that Economic recession is a downturn in the economy which is characterized by such symptoms like exchange rate fluctuations, rising cost of goods and services, inability of government to pay workers’ salaries and other allowances or to meet other financial obligations and poor performance of other macroeconomic variables which define the state of the economy at a given period (Farayibi, 2016). Every economy (country) is affected by the business cycle (or economic cycle). Business cycle refers to economy-wide (nationwide) fluctuations in production, trade and general economic activities over medium-to-long-term in a free market system. The free market economy is one where there is no government intervention in economic activities; rather demand and supply interact to correct disequilibrium (anomalies) in the market. The business cycle is the upward and downward movements of levels of gross domestic product (GDP) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around its long-term growth trend. These fluctuations involve shifts over time between periods of relatively rapid economic growth (boom), and periods of relative stagnation or decline (a contraction or recession). Recession is a business cycle contraction, and it refers to a general slowdown in economic activity for two consecutive quarters. During the 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. Technically, when an economy recorded two consecutive quarters of negative growth in real GDP, it can be said to be in recession. GDP is the market value of all legitimately recognized final goods and services produced in the country in a given period of time, usually one year.

The economic recession is a period of economic slowdown featuring low output, illiquidity, and unemployment. It is characterized by its length, abnormal increases in unemployment, falls in the availability of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations, financial crises and bank failure. Though the failure of the SAP in most African countries is still visible till today, in form of increasing poverty, its free-market doctrine persists in the form of flexible exchange rates; market-determined interest rates in the financial sector and ongoing privatization of hitherto public owned enterprises. For over three years now, the global economy has experienced the most traumatic moments in many decades. Although in some quarters, there seems to be a glimmer of hope, the dimensions in which the crisis manifested itself have made analysts to describe the situation as perhaps the worst economic recession since the Great Depression of the 1930s. Indeed, for the first time, the world economy has witnessed stagnation or minimal growth for more than seven decades. At the root of the recent financial crisis was the ‘’search for yield’’ by financial institutions and investors. The increasing integration of financial markets and the apparent relative stability of advanced economies led investors and financial institutions to begin to search for profitable investment opportunities which resulted in over-optimism, speculation, and leverage.

1.2     STATEMENT OF THE PROBLEM

This study is examining the impact of economic recession on the Nigerian populace. Productivity tends to fall in the early stages of a recession, then rises again as weaker firms close. The variation in profitability between firms rises sharply. Recessions have also provided opportunities for anti-competitive mergers, with a negative impact on the wider economy.

The living standards of people dependent on wages and salaries are not more affected by recessions than those who rely on fixed incomes or welfare benefits. The loss of a job is known to have a negative impact on the stability of families, and individuals' health and well-being. Fixed income benefits receive small cuts which make it tougher to survive. Some of the effects of the recession in Nigeria are highlighted below

·        Manufacturing industries were producing at below 50% capacity utilization

·        There was a horrendous nosedive in stock market prices

·        Many manufacturing industries were closed as a result of the economic recession

·        The shares of the closed manufacturing industries and those running at serious

·        low capacity utilization was delisted at the stock exchange

·        There were low Foreign Direct Investment (FDI) and incredible shrinkage in capital investment

·        Production cost was very high due to high bank interest rate, high naira exchange rate to US dollar and powering of production plant during a power outage

·        There was fall in commodity prices and many multinational companies like Dunlop plc and Michelin Plc relocated to neighboring countries where there is a good economic climate for business

1.3     OBJECTIVE OF THE STUDY

The main objective of this study is to find out the influence of the recession on the economy of Nigeria, specifically the study intends to:

1.     Investigate the causes of recession in Nigeria economy

2.     Investigate the effect of recession on Nigeria economy

3.     Find out the influence of recession on government inability to pay workers salary

4.     Proffer solution to the problem of recession in Nigeria