CHAPTER ONE
INTRODUCTION
- Background of the study
Economic recession is a period of economic slowdown featuring low output, illiquidity and unemployment. It is characterized by its length, abnormal increases in unemployment, falls in the availability of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce as well as highly volatile relative currency value fluctuations mostly devaluations, financial crises and bank failure. The World Bank and the International Monetary Fund (IMF) in the 1980s offered the free market doctrine to many African countries through the Structural Adjustment Programmes (SAP) introduced and enforced on these countries. Though the failure of the SAP in most African countries is still visible till today, in form of increasing poverty, its free market doctrine persists in the form of flexible exchange rates; market determined interest rates in the financial sector and ongoing privatization of hitherto public owned enterprises. For over three years now, the global economy has experienced the most traumatic moments in many decades. Although in some quarters, there seems to be a glimmer of hope, the dimensions in which the crisis manifested itself have made analysts to describe the situation as perhaps the worst economic recession since the Great Depression of the 1930s. Indeed for the first time, the world economy has witnessed stagnation or minimal growth since more than seven decades. At the root of the recent financial crisis was the ‘’search for yield’’ by financial institutions and investors. The increasing integration of financial markets and the apparent relative stability of advanced economies, led investors and financial institutions to begin to search for profitable investment opportunities which resulted in over optimism, speculation and leverage. Another major aggravating factor was financial institution; the widespread practice of the securitization. Commercial banks changed their 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 development of complex financial products led to the manufacture of coupon assets and unregulated credit creation. To make matters worse, credit rating agencies were rating many of these securities triple ‘’A’’ and could not foresee the impending disaster. Also, there was the notion of self regulation of markets; the widespread belief that the market self regulates and that the government can only make matters worse. Thus, increasing competition in the banking business pushed banks towards more risky activities. Other factors which aggravated the recession were the fusion of banking and capital markets; technological revolution, contagion and connectedness of institutions and financial markets which made it easy for risks to be transferred among institutions and across countries. Lastly, banks pension funds, and investors all over the world were ‘’shallow’’ and ‘’greedy’’ and did not take the care to investigate how their money was used as everyone was carried away by the glamour of money making. In sum, the recent economic crisis was caused by the interaction of micro and macro elements. The consequences of the global economic downturn are very severe both in term of huge fiscal costs and external imbalances in the terms of trade. Adeogun (2009) notes that the Nigerian situation is blessed with the intervention of the CBN in the banking industry to expose financial institutions that were not measuring up to expectation in depositor’s funds. This intervention carries with it some consequences especially on the human resources aspect of the financial sector. Every industry has had it’s fair share of the troubles and indeed individual companies both blue-chip and other oil companies are licking their sores and the human resources arm is in the receiving end of all this.
Understanding the sources of recessions has been one of the enduring areas of research in economics. There are a variety of reasons recessions take place. Some are associated with sharp changes in the prices of the inputs used in producing goods and services. For example, a sharp increase in oil prices can be a harbinger of a coming recession. As energy becomes expensive, it pushes up the overall price level, leading to a decline in aggregate demand. A recession can also be triggered by a country’s decision to reduce inflation by employing contractionary monetary or fiscal policies. When used excessively such policies can lead to a decline in demand for goods and services, eventually resulting in a recession. Some recessions including the current one are rooted in financial market problems. Sharp increases in asset prices and a speedy expansion of credit often coincide with rapid accumulation of debt. As corporations and households get overextended and face difficulties in meeting their debt obligations, they reduce investment and consumption, which in turn leads to a decrease in economic activity. Not all such credit booms end up in recessions but when they do, these recessions are often more costly than others. Recessions can be the result of a decline in external demand, especially in countries with strong export sectors. Because recessions have many potential causes, it is a challenge to predict them. The behavioral patterns of numerous economic variables including credit volume, asset prices and the unemployment rate around recessions have been documented but although they might be the cause of recessions, they could also be the result of recessions or in economic parlance, endogenous to recessions. Even though economists use a large set of variables to forecast the future behavior of economic activity, none has proven a reliable predictor of whether a recession is going to take place. Changes in some variables such as asset prices, the unemployment rate, certain interest rates and consumer confidence appear to be useful in predicting recessions but economists still fall short of accurately forecasting a significant fraction of recessions, let alone predicting their severity in terms of duration and amplitude.
Every economy (country) is affected by business cycle (or economic cycle). Business cycle refers to economy-wide (nationwide) fluctuations in production, trade and general economic activities over medium-to-long term in a free market system. Free market economy is one where there is no government intervention in economic activities; rather demand and supply interact to correct disequilibrium (anomalies) in the market. The business cycle is the upward and downward movements of levels of gross domestic product (GDP) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around its long-term growth trend. These fluctuations involve shifts over time between periods of relatively rapid economic growth (boom) and periods of relative stagnation or decline (a contraction or recession). Recession is a business cycle contraction and it refers to a general slowdown in economic activity for two consecutive quarters. During recession, there is usually a decline in certain macroeconomic indicators such as GDP, employment, investment spending, capacity utilization, household income, business income, and inflation with the attendant increase in the rate of unemployment. Technically, when an economy recorded two consecutive quarters of negative growth in real GDP, it can be said to be in recession. GDP is the market value of all legitimately recognized final goods and services produced in the country in a given period of time usually one year. During the boom period, there is minimal unemployment; high production and consumption; high standard of living; high inflation and so on. It is a period when most macroeconomic indicators are positive. In a recession period, economic activities slowed considerably.
- Statement of problem
During recession, government finances tend to deteriorate, people pay less taxes because of higher unemployment and they need to spend more on unemployment benefits. This deterioration in government finances can cause markets to be worried about levels of government borrowing leading to higher interest rate costs. This rise in bond yields may put pressure on governments to reduce budget deficits through spending cuts and tax rises.
- Objective of the study
The main objective of the study is to ascertain the role of recession in promoting productivity in Nigeria. However, for the successful completion of the study, the following sub objectives were put forward by the researcher:
(i) To examine the advantages of recession in promoting productivity in Nigeria
(ii) To identify the factors militating against recession as a tool in promoting productivity in Nigeria
(iii) To ascertain the impact of recession as a tool in promoting productivity in Nigeria
(iv) To evaluate the relationship between recession and productivity
- Research question
For the successful completion of the study, the following research questions were formulated:
(i) What are the advantages of recession in promoting productivity in Nigeria?
(ii) What are the factors militating against recession as a tool in promoting productivity in Nigeria?
(iii) How can the impact of recession as a tool in promoting productivity in Nigeria be ascertained?
(iv) What is the relationship between recession and productivity?
- Significance of the study
It is conceived that at the completion of the study, the findings will be of great benefit to the print media in airing the people’s opinion; the study will also be of great benefit to the users of the social media on delivering adequate information to the international scene.
It is conceived that the study will also be of great importance to researcher who are in need of information on similar field. Finally, the study will also be of great importance to lecturers, teacher’s students and the general public.
- Scope and limitation of the study
The scope of the study is the role of recession in promoting productivity in Nigeria. However, the study has some constrained and limitations which are:
- Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study.
- Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
- Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.
- Definition of terms
Role
A role is a set of connected behaviours, rights, obligations, beliefs, and norms as conceptualized by people in a social situation. It is an expected or free or continuously changing behaviour and may have a given individual social status or social position.
Recession
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.
Promoting
To raise (someone) to a higher position or rank.
Productivity
The state or quality of being productive.
