The global financial crisis which started as tension in the united states financial market which emerged in early 2007. was believed not to affect other economics such as Nigeria’s as they do not operate the same system with the U.S. The crisis which latar transformed into a full-blown global financial crisis in the second quarter of 2008 started having affects on several economics which Nigerian was not exempted from.
The effects the global financial crisis has had on the world as a whole and on Nigeria as part are discussed in detail below;
EFFECTS OF THE CRISIS
- OIL REVENUE: The falling oil prices and dwindling ravens for government which lading to less deposit for banks which depart on the public sector for balk of their deposit liabilities.
The fall in oil price is also said to have affected the rate of accumulation of the external reserves
Consequently, the naira has been under a lot more pressure losing more than 25% of it’s value from last year to first quarter of the year.
- ASTRONOMIC BUSINESS RATES
While the impact on banks is said to be higher operational costs as well as loss of incomes that could have bean earned from facilitating the inflow of capital into the economy.
- CAPITAL ACCUMULATION
Also, the declining capital inflow a into the economy have the effects of worsening the problem of relatively high operating cost occasioned by decaying infrastructure like power and transportation because of the dearth of funds for investment in infrastructural development.
- COLLAPSE OF CERTAIN BUSINESSES
other areas where the economy was adversely affected by the meltdown is the loss of income from strategic business units like the local foreign currency unit, FCU, check in banks due to restrictive foreign exchange policies such as the reduction in Net open positions, etc. enacted to defend the naira) which have virtually strangled the inter bank exchange market and related transaction income.
- LOW CREDIT
There his also been reduction and re-pricing of credit lines from foreign banks and in some to loss of significant incomes usual earned from trade finance business.
- CRISIS IN FINANCIAL MARKETS
The capital market downturn and divestment by foreign investors leading to loss of investor’s confidences and increase in non performing loans from facilities granted to investors in the stock market is said to be most severe effect of the global meltdown.
- DISRUPTION OF FINANCIAL ACTIVITIES
key financial institutions which directly depend on the stock market such as the stock. Broking firms. Rating agencies investment and asset management companies as well as banks that are exposed to these institutions have been experiencing loss of business.
- INTEREST RATES
As a result of the financial meltdown, government at national and sub national level have recently increased it’s borrowing to cover shortfall in revenue and resultant crowding out of the private sector.
- BANKING SECTOR
In spite of the notable achievements recorded in the banking sector such as the consolidation of the banks, growth in the credit system which shows that credit to the private sector grew 435% from n1.52trn in 2003 to n 8.13trn until Feb. 2009, system amongst others, the global economic crisis recent events are beginning to cast doubts on the state of the Nigerian banking sector, especially with effects of the crisis.
Statistics showed that since banks constitute over 65% of market capitalization, the consistent decline in the stock market has affected banking stocks more than any other sector.
- Low F.D.I
However, the effect of this has been loss of confidence evidenced by the exit of foreign players from the market.
- RETARDED GROWTH
Apart form the growth rate of 2009 which indicators have shown to be 2.8 percent which is about half of the growth rate in 2008 as well as the vital sources of deposit when the banks are seen to be losing, there is also serious concern whether Nigerian banks are resilient enough to withstand these impact of the global economic meltdown. Analysis are of the opinion that the Nigeria banking sector will most likely, wax stronger and even improve its performance once the global economy returns to the path of growth with the currants focus on stricter regulations, global reporting standards and enhanced risk management by the new central bank governor, Mallam Sanusi Lamido Sanusi, market watchers are of the view that the Nigerian banking sector will most likely wax stronger.
INVESTMENT AND EMPLOYMENT
Apart from foreign direct investment which has divined local investment and production are suffering. In February, Paterson Zoctionis and Unilever, major manufactures of joy toilet soap and close-up tooth pasts, announced their intention to pack up business operation in Nigeria. The company’s staff strength is over 5,000. Dunlop Nigeria plc, manufacturers of types also closed stop this year due to losses in billions of naira in operations.
Organization are abundantly shedding staff, especially in the financial sector to effectively utilize shareholders funds on Feb 26, Nigeria’s ministers of labour and production Adetokumbo Kayode said that to million Nigeria’s mostly between the age of 18 and 25, are Jobless.
According to the minister the world bank presented the figure to the Nigeria federal government.
THE WAY TO REHABILITATION
According to Mr Charles Mordi Director research department, central bank of Nigeria, C.B.N who presented a paper lilted the global economic crisis and the Nigeria financial system the way forward” at the recently held seminar for finances correspondents and business editors organized by the C.B.N in Makurdi, Benue state, the way forward for the nation’s economy as well as the banking sector in the crisis to ensure access to liquidity for domestic financial institutions.
He also noted that regulation and supervision functions have to be tightened while there is a need for collective action required to reduce overall risk in the banking system.
While he mentioned that there is need for financial institutions to embrace transparency on activities and products, he noted that there is need to also adopt the international financial reporting standard IFRS, the financial experts believe there is also need to review all relevant laws relating to the financial sector to strengthen its regulatory capacity, amongst others.
The global financial crisis is now anon-issue to the central bank of Nigeria governor Charles Chukwuma Soludo even he insisted that the impact of the looming crisis was very little to Nigeria economy. For him, the country’s financial system had stock absorbers to cushion the external stocks. The CBN governor prowled the country’s capital adequacy which is put at 22 parent against 10 percent capital adequacy ratio of foreign banks. An recession set in, presenting itself in low sales, business closures, foreign investment down turns, low stock prices in the nations economy, he set in monetary policy that would allow mores money to accrue and banks would access funds anytime they have the need. Soludo had highlighted that other central banks had pumped in over 3.3 trillion U.S dollars into various economics.
The C.B.N, governor had reduced liquidity ration of banks from 40 parent in August 2008 to 30 parent.
This freed about 1.7 trillion naira (11.4 billion U.S. dollars) for banks use in increasing their liquidity. Bank’s aggregate capital base hit a trillion naira (30.4 billion dollars) toward the end of that year but that measure could not stop the cheapening reassign that had set in. the fall in the price of crude oil which hovers above 30 dollars per barrel and above represent over 70 percent fall from its high peak price by July last year.
SUMMARY OF OUR FINDINGS
The basic problem or negative effect is that of a low standard of living and a deep lying economic crisis that needs serious addressing I have listed in this work the solutions/ recommendation by the CBN towards changing the status quo. The crisis was stated by the advances countries and spread to the third world countries and it is now left for us, the Nigerian’s to look for ways to survive as it is inherent in us to do, defeat the crisis.
Global financial crisi