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Chapter one


1.1 Background of the Study

The Nigerian economy entered recession in the second quarter of 2016, with two consecutive quarters of negative growth in Gross Domestic Product. According to data from CBN and NBS reports (2016), the Nigerian economy contracted by -2.06 percent in the second quarter of 2016, following a contraction of -0.36 percent in the first quarter.

By the fourth quarter of 2016, the economy had entered a deeper recession, with GDP growth rates of -2.24 percent and -1.03 percent, respectively.

Nigeria’s Gross Domestic Product (GDP) fell by -2.06 percent in the second quarter, 1.70 percent lower than the growth rate of -0.36 percent in the first quarter and 4.41 percent lower than the growth rate of 2.35 percent in Q2 2015.

This quick decrease in GDP growth rate exacerbated Nigeria’s 2016 recession compared to 1987, when the Nigerian economy contracted by 0.51 percent and 0.82 percent in two consecutive quarters under Ibrahim Babangida’s administration.

Economic recession is defined as an economic downturn characterised by symptoms such as exchange rate fluctuations, rising costs of goods and services, the government’s inability to pay workers’ salaries and other allowances or meet other financial obligations, and poor performance of other macroeconomic variables that define the state of the economy at a given time (Farayibi, 2016).

The business cycle (or economic cycle) affects all economies (countries). The word “business cycle” refers to oscillations in output, commerce, and general economic activity over the medium to long term under a free market system.

A free market economy is one in which the government does not intervene in economic activities; instead, demand and supply interact to rectify market disequilibrium.

The business cycle is the upward and downward movement of GDP levels, as well as the period of expansions and contractions in the level of economic activity (business fluctuations) around a long-term growth trend.

These changes include swings across time between times of relatively rapid economic development (booms) and periods of relative stagnation or decline (contraction or recessions). A recession is a downturn of the business cycle that occurs when economic activity falls for two consecutive quarters.

During a recession, certain macroeconomic variables such as GDP, employment, investment spending, capacity utilisation, household income, company income, and inflation typically fall, while the unemployment rate rises.

A recession is technically defined as two consecutive quarters of negative real GDP growth. GDP is the market worth of all lawfully recognised final goods and services produced in a country during a specific time period, often one year.

The economic recession is a period of economic slowdown characterised by poor output, illiquidity, and unemployment. It is distinguished by its length, abnormal increases in unemployment, decreased credit availability, declining output and investment, numerous bankruptcies, reduced trade and commerce, and highly volatile relative currency value fluctuations, the majority of which are devaluations, financial crises, and bank failures.

Though the SAP’s failure in most African countries is still visible today in the form of rising poverty, its free-market doctrine remains in the form of flexible exchange rates, market-determined interest rates in the financial sector, and ongoing privatisation of previously public-owned enterprises.

For more than three years, the global economy has been experiencing the most painful events in many decades. Although there appears to be a glimmer of light in certain sectors, the scale of the problem has led analysts to describe the situation as potentially the worst economic slump since the Great Depression of the 1930s.

Indeed, for the first time in over seven decades, the global economy has been stagnant or growing at a low rate. The recent financial crisis was caused by financial institutions and investors’ ”quest for yield”.

The increased interconnection of financial markets, combined with the seeming relative stability of advanced economies, prompted investors and financial institutions to seek out attractive investment opportunities, resulting in over-optimism, speculation, and leverage.

1.2 Statement of the Problem

This study investigates the impact of the economic downturn on the Nigerian people. Productivity typically falls in the early stages of a recession before rising again when weaker enterprises close.

The difference in profitability between enterprises widens dramatically. Recessions have also created possibilities for anti-competitive mergers, which have a negative influence on the whole economy.

People whose living standards are dependent on wages and salaries are no more affected by recessions than those whose incomes are fixed or get government payments. Losing a job is proven to have a detrimental impact on family stability as well as an individual’s health and wellbeing.

Fixed income benefits are reduced in little amounts, making it more difficult to subsist. Some of the consequences of the recession in Nigeria are outlined here.

· Manufacturing industries operated at less than 50% capacity utilisation.

· Stock market prices fell dramatically.

· The economic recession led to the closure of several manufacturing industries.

· The shares of closed manufacturing industries and those operating at serious

· Due to low capacity utilisation, the stock exchange delisted it.

· Low Foreign Direct Investment (FDI) and significant decline in capital investment.

• Production costs were high due to high bank interest rates, a high naira exchange rate to the US currency, and power outages at the factory.

· As commodity prices fell, multinational firms such as Dunlop plc and Michelin plc migrated to neighbouring nations with favourable business climates.

1.3 Object of the Study

The primary goal of this study is to determine the impact of the recession on Nigeria’s economy. More specifically, the study intends to:

1. Investigate the reasons of recession in the Nigerian economy.

2. Investigate the effect of recession on the Nigerian economy.

3. Determine the impact of the recession on the government’s incapacity to pay workers’ salaries.

4. Propose a remedy to Nigeria’s recession

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