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CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Nigeria is interlinked with global financial system. As such global financial crisis which was originated from the year 2007 mainly in U.S.A and spread in the latter part of the year 2008 among developed nations and subsequently shifted to developing nation has impact on the domestic economy of Nigeria. The country is in a difficult situation as it faces, imbalances, lack of transparency in the financial markets and non-applicability of domestic safety net. The government has been facing the impact of global financial crisis on the domestic economy. Nigeria is a part of the global economy, as such she has to face the danger of the global financial crisis, which has both micro and macro impact all over the World. The current global financial and economic crisis started as a series of malfunction in the financial markets, leading to credit and liquidity crises, which led to the collapse of several „big‟ financial institutions, together with the loss of confidence in the banking sector. It further transmitted to the real sectors, leading to decline in aggregate demand and bringing about negative growth and job losses. The scale and speed of transmission of the crisis and its attendant consequences presented huge global challenge such that it has been variously described in such extreme vocabulary as “global financial meltdown”, “global economic meltdown”, “global credit crunch” and so on. A financial crisis is often characterized by credit crunch an disorderly contraction in money supply and wealth creation. A credit crunch occurs when participants in an economy lose confidence in having loans as well as recall existing loans. The great depression occurred after a dramatic expansion in debt and money supply in the 1920‟s. Then, an equally dramatic contraction occurred between 1929 and 1933 as debt was default upon and resulted in a contraction in money supply and wealth. The latest financial crisis, which has metamorphosed into a global economic crisis, similarly has its origin in rapid risky debt accumulation. The spread of the crisis, also now referred to as global financial meltdown, across the globe due to the fact that the world economy has become highly interconnected as a result of the forces of globalization operating through the network of global economic and social linkages. The domestic economy is linked to the rest of the world economy through three markets, namely, goods market, factor market and assets market (money and financial market). The rest of the world influences each of this market and hence the domestic economy. Thus, although the current crisis has derived from a credit crunch in the United States, It has spread to both develop and developing countries through trade and financial linkages. And implications have tended to be the same in the economies affected by the crisis.

1.11 STATEMENT OF THE PROBLEM

The impact of the global financial crisis on the Nigerian economy was multifaceted as it led to a dwindling of government revenues, affected the Nigerian currency, declining capital inflows, capital market down turn, divestment by foreign investors with tightness and possible second round effects on the balance sheet of banks by increasing provisioning for bad debt and decrease in profitability, weakened the banking sector and fueled unmatched stock market crash, undermining confidence in the financial sector. Also, it resulted in a retardation in Gross Domestic Product (GDP), Worldwide, as consumer spending, consumer demand and industrial output declined, while unemployment rose; commodity prices fell sharply including oil sector which fell from a peak of USD 147 per barrel in July 2008 to USD 33 per barrel by December 2008. given the Nigerian economy is heavily dependent on the oil sector, the major problem on Nigeria was the decline in oil prices which led to a dramatic decline in government revenue as oil makes up 80% of budgeted revenues 90% of exports and 33% of GDP. Thus, the study focuses on the effect of global financial crisis on Nigerian economy. Nigeria economy is faced with so many global financial catastrophes. All economic indices, including oil prices are down. The purchasing power of the people is increasingly being eroded and the standard of living on steady decline. Major businesses are collapsing, unemployment and inflation rates are spiraling out of control, stock market indices recently have defied bookmakers‟ prediction and analysis and there is global food scarcity The global economy has been in recession as the gap between the global economic potential growth and the actual growth performance widened over the period of the crisis, particularly since January 2009. Families‟ life dreams had been destroyed as they lost their homes, their jobs and their life savings in various markets in different jurisdictions. The systemic breakdowns brought about by the phenomenon have caused real crisis for all categories of economic agents across societies.

1.3  OBJECTIVE OF THE STUDY

The purpose of this study is to carryout research on the problems in management of recessionary economy of Nigeria the study with three for be guided by the following objectives.

1. To determine the problems of a recessed economy

2. To determine how these problems effect the management of business in a recessed economy.

3. To proffer a solution to solve the problems of management in a recessed economy.

 1.4 SIGNIFICANCE OF THE STUDY

The significance of this research work is for its out come to throw more light on the management of a recessionary economy.  The outcome will hope fully help to recommend solutions to those problems I also hope that this work will be of great relevance to other researchers of the same field.

1.4 DEFINITION OF TERMS

1. Economy:- A given environment of business and other activities.

2. Management:- It is the are of doing things through and with people.

3. Budgeting:- To on how money & other items should be bought & spent.

4. Accounting:-The process of showing how financial obligations were carried out.

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