CHAPTER ONE
INTRODUCTION
1.1
INTRODUCTION
The
issue of
global
economic meltdown
has
generated much controversy
in modern literature. However, it is imperative to review how the issue took most economic watchers by surprise. The global economies round the world have experienced the most traumatic moments in many decades. The crisis itself has been described as perhaps the worst financial crisis since the great depression of the 1930s (Akingbola,
2009). The world economy has witnessed
stagnation or minimal
growth
since more than seven decades. At the root of the recent financial crisis was practically a search for better
yield by financial institutions and investors.
It was also established through research
that the increase of financial markets
and
stability in advanced countries brought on by moderate inflation, high saving ratio, stable exchange rate, growing private sector employment, etc led investors to begin to search for profitable investment opportunities
(Akingbola, 2009). This resulted to
over
optimism, speculation, and leverage. Banks began to
massively exceed credit given out to borrowers in the mortgage market. Individuals
began to take advantage of this leverage and borrowed money from banks to speculate on asset prices and because of
the need to gain market share and competitive position: banks also loosened their credit standards and did not
monitor the credit worthiness of
borrowers. Also commercial banks changed the business models in which
they initiated loans to borrowers and subsequently
packaged and sold these loans as securities to investors in search of higher yields. The financial meltdown inevitably back leashed on consumer market and on the process of investment in the production of goods and services.
Nigeria has indeed,
experienced the effect of global financial meltdown and the effect still continue due to the inability
to respond appropriately to global economic impacts.
The capital market
which is hitherto widely regarded as the barometer for gauging
the economic and financial performance of
the nation’s private and public sector was in disarray and has been finding it difficult to recover. The total market capitalization was about N15 trillion in May 2008. A year later it crashed
to N4 trillion, a colossal decline
of over 73 per cent. The withdrawal of overseas funds from the money market has impacted negatively on
lending to the real sectors of
the
Nigerian economy. Sustainable economic growth and development cannot strive under these circumstances.
1.2
BACKGROUND OF THE STUDY
The current global crisis started as a financial
crisis but it now has a global
reach. The crisis is unprecedented
in the severity of
credit contraction (credit crunch and capital
crunch). The roots are in banking rather than in the securities market or foreign
exchange. The Crisis started in the U.S (due
to certain
laxities in the US financial system)
then spread to Europe then developing
countries and it has now become global.
Even countries
not affected by the financial crisis are now affected by second-round effects as
the crisis has now become
attached to economic issues. The
financial crisis started
in the U.S in August 2007 as a
result of a number of factors
that
include in the main: (a) the collapse of the
housing market in the United States, (b) the lax financial regulatory conditions, and (c) the
lack of implementation
of strict corporate governance conditions in the United States and most of the developed economies (Krugman, 2008).
Avgouleas,
(2008). Wikipedia, 2008 enumerated the
causes of the crisis as: breakdown in underwriting standards for subprime mortgages; flaws in credit rating agencies? assessments of subprime
Residential Mortgage Backed Securities (RMBS)
and other complex structured credit products especially Collaterized Debt Obligations
(CDOs) and other Asset-Backed Securities
(ABS); risk management weaknesses
at some large at US and European financial institutions; and
regulatory policies,
including capital and
disclosure
requirements that failed to mitigate
risk management weaknesses. This combined to induce a sub-prime mortgage crisis as households faced difficulties in making higher payments on adjustable mortgages, by the first quarter of 2008; there was widespread credit
contraction, as financial institutions in
the US tightened their credit standard in light of deteriorating
balance sheets (Kindleberger
and
Aliber, 2005; Laeven and
Valencia, 2008). In the
fourth quarter of 2008,
increased delinquency rates
affected
not
only sub-prime loans but also spilled over
into real sectors and
other credits (Avery
and
Zemsky, 1998,
Chari and Kehoe,
2004, Cipriani and Guarino,
2008).
In Nigeria the policy
makers’ response to the likely effects
of this crisis was meek initially; they
either did not understand the crises or they grossly underestimated its
magnitude. In general, they thought of the crisis as a financial issue that
could be solved shortly
without leading to economic
crisis; however the effects on the
oil sector cannot be
under estimated. A decline
in the price of oil, which
accounts for about 90 percent of the
country’s revenue added to the global credit
crunch are among the country’s predicaments. The crash in the oil
market has caused grave
concern for Nigeria’s fiscal policy and the outlook for income earned from exports of crude
oil.
The global financial crisis has led to a
slowdown of growth across
the world’s economies, resulting
in a
lower demand for commodities,
especially oil. The transmission of the impact can be
traced through several stages of the Nigerian economy especially through the impact on: (a) earnings and
revenue
of governments,
(b) the balance of payments through a narrowing
of the current account balance, as
well as (c) the widening of the deficit on the
capital account through the
reduction of capital flows because of
a re-appraisal of planned
investment or
the complete stoppage of previously committed
investment programs, and (d) contraction of the scope of fiscal policy
(Ajakaiye and
Fakiyesi 2009). While
speculative behavior and investment activities had helped
to buoy up crude oil prices internationally, the reality of the global recession is beginning
to be fully appreciated across the globe. The
adverse impact of the crisis is more direct and more evident on the international price of oil.
This study
tends to look at the performance of the oil sector before
the recession and during
the
recession, and its effects on
economic growth
in Nigeria.
1.3
STATEMENT OF THE PROBLEM
The global economic recession has several
far-reaching implications on the whole global economies. These implications are
not just limited to financial markets alone; the real economies at both
national and international levels together with its various institutions and
human capital are having serious challenges. Academics believe that the major
hurdle that is currently faced is to establish the impact of the global
economic recession on human capital skills development in Nigeria. The
challenge is in knowing the key factors that will enhance human capital growth
in Nigeria (Adamu, 2009).
The global economic recession aside, the issue of
the growing rate of unemployment is alarming, and this raises the question of
how the global recession affects human capital development in Nigeria. A number of studies have been carried out on the global economic
meltdown. Few of these, if any, have really attempted to explore the effect
of global economic meltdown on human capital development in a
developing nation. This proposed research intends to fill that strategic intellectual gap.
1.4
OBJECTIVES OF THE STUDY
The objectives
of this research work are:
1.
To
determine the impact of the global economic recession on human capital skills development in Nigeria.
2.
To analyse the effect of
the global economic recession
on the Nigerian human capital training & development.
3.
To
determine if there exists any significant relationship between
the global economic recession and motivation of human capital development in Nigeria.
4.
To understand what enhances human capital growth in Nigeria.
1.5
RESEARCH QUESTIONS
The objectives
of this research work are:
1.
What is
the impact of the global economic recession on human capital
skills development in Nigeria?
2.
How far spread is effect of
the global economic recession
on the Nigerian human capital training & development?
3.
Is
there any significant relationship between
the global economic recession and motivation of human capital development in Nigeria?
4.
What enhances
human capital growth in Nigeria?
1.6
RESEARCH HYPOTHESES
The following hypotheses were
developed:
Ho: Global economic recession
has had no impact on the development of skills of human capital in Nigeria.
H1: Global economic recession
has an impact on the development of skills of human capital in Nigeria.
Ho: There is no relationship between global economic recession
and training & development of human capital
in Nigeria.
H1: There is a relationship between global economic recession
and training & development of human capital
in Nigeria.
1.7
SIGNIFICANCE OF THE STUDY
This study is important for the following reasons:
1.
This study will be of immense
benefit to individuals willing to know more about this current economic
recession; its causes, implications and the way out.
2.
It will be also beneficial to business
owners, as it will better equip them with thorough knowledge relevant to them.
3.
Also business researchers, academics, and the
government
will find it very useful in carrying
out their research work and in implementing and formulating fiscal policies to
help steer the nation out of the recession.
4.
It will also be
useful as a basis for further study.
1.8
SCOPE OF THE STUDY
This study seeks to establish how economic recession
affects human capital development in Nigeria. The study shall cover the
Nigerian economy with secondary data drawn from libraries and statistical data.
A cross section of the Nigerian populace, made up of academicians will be used
for primary data gathering.
1.9
DEFINITION OF TERMS
ECONOMY: An economy
is a system of organizations and institutions that either facilitate or play a
role in the production and distribution of goods and services in a society.
Economies determine how resources are distributed among members of a society;
they determine the value of goods or services; and they even determine what
sorts of things can be traded or bartered for those services and goods.
RECESSION: A recession is a general downturn in any
economy. A recession is associated with high unemployment, slowing gross domestic
product, and high inflation.
ECONOMIC RECESSION: Economic recession is a period of general economic decline and is
typically accompanied by a drop in the stock market, an increase in
unemployment, and a decline in the housing market. Generally, a recession is
less severe than a depression. The blame for a recession generally falls on the
federal leadership, often either the president himself, the head of the Federal
Reserve, or the entire administration.
HUMAN CAPITAL: Economist Theodore Schultz invented the term "human
capital" in the 1960s to reflect the value of human capacities. human capital is a collection of
resources—all the knowledge, talents, skills, abilities, experience,
intelligence, training, judgment, and wisdom possessed individually and collectively
by individuals in a population. These resources are the total capacity of the
people that represents a form of wealth which can be directed to accomplish the
goals of the nation or state or a portion thereof.
DEVELOPMENT:
a specified state of growth or advancement; a new and advanced product or idea;
an event constituting a new stage in a changing situation
HUMAN CAPITAL DEVELOPMENT: Human Capital is asserted to be the
most important element of success in business today. Developing human capital requires creating and cultivating
environments in which human
beings can rapidly learn and apply new ideas, competencies, skills, behaviors
and attitudes.