ECONOMIC RECESSION AND HUMAN CAPITAL DEVELOPMENT IN NIGERIA

CHAPTER ONE

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 TO 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:

. To determine the impact of the global economic recession on human capital skills development in Nigeria.

. To analyse the effect of the global economic recession on the Nigerian human capital training & development.

. To determine if there exists any significant relationship between the global economic recession and motivation of human capital development in Nigeria.

. To understand what enhances human capital growth in Nigeria.

1.5   RESEARCH QUESTIONS

The objectives of this research work are:

What is the impact of the global economic recession on human capital skills development in Nigeria?

How far spread is effect of the global economic recession on the Nigerian human capital training & development?

Is there any significant relationship between the global economic recession and motivation of human capital development in Nigeria?

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: 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. It will be also beneficial to business owners, as it will better equip them with thorough knowledge relevant to them. 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. 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.

REFERENCES

Adamu, A. (2009). The Effects of Global Financial Crisis on Nigerian Economy. Conference Paper, Nasarawa State University.

Ajakaiye  O. and T. Fakiyesi (2009), Global Financial Crisis, ODI Discussion Series Pp 8: Ghana, Overseas Development Institution, London.

Akingbola,  E.  (2009a).  Human  Capital  Development:   Meeting  the  Challenges  of  the  global  economic meltdown, Human Resource Development forum.

Chari, V., and Kehoe, P. (2004), 'Financial crises as herds: overturning the critiques' Journal of Economic Theory

Cipriani, M., and Guarino, A. (2008), ‘Herd Behavior and Contagion in Financial Markets'. The B.E. Journal of Theoretical Economics 8(1) (Contributions), Article 24, pp. 1-54

Kindleberger C. P., and Aliber, R. (2005), Manias, Panics, and Crashes: A History of Financial Crises, 5th ed. Wiley, ISBN 0471467146.

Laeven, L. and Valencia, F. (2008), 'Systemic Banking Crises: A New Database' International Monetary Fund Working Paper 08/224.

What Is Economy?