Nigerian Stock Exchange And The Global Financial Crises (Case Study Of Stock Exchange, Uyo Branch)
Nigerian Stock Exchange And The Global Financial Crises (Case Study Of Stock Exchange, Uyo Branch)
Abstract
The study examines the Nigerian stock exchange and the global financial crises using case study of Nigerian Stock Exchange, Uyo Branch. The objectives set for the study are; to ascertain the challenges of the global financial crisis in Nigerian Stock Exchange, Uyo Branch; to determine the causes of the global financial crisis in Nigerian Stock Exchange, Uyo Branch; to ascertain the effects of the global financial crisis to Nigerian Stock Exchange, Uyo Branch; and to suggest measures that would be taken to manage the impact of global financial crisis in Nigerian Stock Exchange, Uyo Branch. Primary and secondary data were used, the population of the study was staff from Nigerian Stock Exchange, Uyo Branch. The research instruments used were questionnaire and oral interview. The reliability of the research instruments were tested using Pearson Product moment correlation coefficient; the result gave a reliability index of 0.98 indicating a high degree of consistency. Chi-square and correlation analysis were the statistical tools used. The findings from the study reveals that, decline in oil prices and revenue, increase government expenditure and decline in market indices are the challenges posed by financial crisis in Nigeria; consumption-based economy, poor savings, high credit culture and huge financial outflow are the causes of the global financial crisis in Nigeria; reduction in direct foreign investment and oversea development assistance are the effects of global financial crisis to Nigeria and finally, diversification of the economy, robust regulatory policies and professional supervision of financial crisis in Nigeria. Based on the findings, the researcher made the following recommendation: Nigeria should adopt tough policy measures as effective strategies towards a comprehensive strengthening of the financial service sector, government should ensure that policy recommendations are implemented in order to reposition the Nigerian economy against the impact of global financial crisis, government should create enabling environment to attract foreign investors in order to boost economic activities in the country. Finally, government needs to sincerely focus on developing/strengthening the economy and provide alternative sources of revenue on a sustained basis.
Table of Content
Preliminary Page(s)
- Title Page
- Declaration
- Approval
- Dedication
- Acknowledgement
- Abstract
- Table of Content
Chapter One
1.0 Introduction
- 1.1 Background of Study
- 1.2 Statement of the Problem
- 1.3 Objectives of the Study
- 1.4 Research Questions
- 1.5 Research Hypotheses
- 1.6 Significance of the Study
- 1.7 Definition of Terms
- 1.8 Organization of Study
Chapter Two
2.0 Literature Review
- 2.1 Origin of Global Financial Crisis
- 2.2 Nature and Types of Global Financial Crisis
- 2.2.1 Banking Crisis
- 2.2.2 Bursting of a Bubble
- 2.2.3 Currency Crisis
- 2.2.4 Sovereign Default
- 2.2.5 Wider Economic Crisis
- 2.3 Major Causes of Global Financial Crisis
- 2.3.1 Immediate Causes of the Global Financial Crisis
- 2.3.2 Remote Causes of the Global Financial Crisis
- 2.4 Transmission of the Crisis to Nigeria
- 2.4.1 Contagion Effects
- 2.4.2 Second-Round Effects
- 2.5 The Nigerian Stock Exchange Market and the Financial Crisis
- 2.6 Challenges of Global Financial Crisis To Nigeria
- 2.7 Consequences of the Global Financial Crisis
- 2.7.1 Oil Prices Glut and Decline GDP
- 2.7.2 Collapse Of The Capital Market
- 2.7.3 Reduction in Oversea Development Assistance and Foreign Direct Investment (FDI)
- 2.7.4 Rising Tide of Corruption and Social Vices
- 2.7.5 Devaluation of Naira and Rise in Inflation
- 2.8 Steps Taken to Control the Crisis And it Responses
- 2.9 Solutions to the Impact of Global Financial Crisis in Nigeria
Chapter Three
3.0 Methodology
- 3.1 Research Design
- 3.2 Area of the Study
- 3.3 Sources Of Data
- 3.4 Description of Research Instruments
- 3.5 Validity of the Research Instrument
- 3.6 Reliability of the Research Instrument
- 3.7 Method of Data Analysis
Chapter Four
4.0 Results and Discussion
- 4.1 Results
Chapter Five
5.0 Results and Conclusion
- 5.1 Conclusion
- 5.2 Recommendations
- References
- Appendix
Chapter One
1.0 Introduction
1.1 Background of Study
The financial crisis ravaging the global economy has generated a very serious concern by all stakeholders. The world has been threatened by several cycles and periods of economic crisis in the past, but the current economic crisis has been described as “a tsunami” (Chossudovsky, 2009). Perhaps, the use of such a strong „catastrophic‟ phrase is to properly convey the circumstances and realities of the crisis which ispeculiar in terms of its origin, evolution, nature, pace, magnitude, and distressing realities.
There has been a great confusion on the nature of the crisis. According to Sanusi (2009a), “the world economy has been hit by the reperccussion of the financial meltdown that started with the sub-prime mortgage crisis in the United States of America and spread to Europe and other parts of the world”. The growing inability to differentiate the current crisis from either an economic problem, a political quandary or an ideological clash even makes the situation more worisome. The pace at which the crisis is affecting economic activity around the world is staggering.
Most OECD countries are are already in recession, and growth in Asia is arguably slowing more rapidly than at any time since 1990 (Summers, 2006). Predicting and estimating the magnitude of the crisis has shaken the very foundations of international financial markets. The uncontrollable force of globalisation which has torn apart all economic boundaries has not only ravaged all regulatory and protectionist powers of the state, but has actually outspaced and created doubts about the ability of the IMF to contain the crisis (World Bank, 2008). As the world economists independently and jointly reveal their country‟s survival plans, policies and programmes has shown that the continued reign and existence of capitalist ideology is seriously threatened. Unfortunately, the crisis is further complicated by issues of global concern like climatic change, volatile food and energy prices (Commission for Social Development, 2009).
The current financial and economic crisis has had limited direct impact on African economies largely because of its relatively low financial integration, but the crisis has affected the drivers of Africa‟s recent growth performance. Prior to July, 2008, African economies recorded excellent economic growth performance, despite the 2007 sub- prime mortgage crisis in the United States of America (ADB, 2009).
The drivers of the strong economic growth include; macroeconomic reforms; world economic situation that is characterised by high demend for commodities; rising capital inflow; and China‟s strong economic growth (ADB, 2009). All these factors made analysts believe that the continent is on the verge of breaking away from poverty.
However, yesterdays success has eroded with todays realities.
The demand for and prices of African commodities are falling largely because of China‟s slowed growth, capital flight, and promised increased aid has not materialised and might even dissapear depending on how long the crisis lasts (ADB, 2009). The global financial crisis is already causing a considerable slowdown in most developed countries. The demino effect has led to job losses, speculative burbles in stock markets and commodities markets, reduction in manufacturing as consumption and demand continues to fall. Government around the world are striving earnestly to control the crisis.
Market capitalisation is down from its enviable height globally, investment banks are collapsing, rescue packages have been drawn up involving more than twelve trillion US dollars, and interest rates have been cut around the world in what looks like a coordinated response, leading indicators of global economic activities, such as shipping rates, are declining at an alarming rates, while reduction in consumption and demand for manufactured goods have triggered a fall in production and investment in the productive sector (Te Velde, 2008).
Despite the assurance by the Nigerian government and the immediate past governor of Central Bank of Nigeria that the global financial crisis will not affect that Nigerian economy, the Nigerian financial system is currently rocked by the financial crisis. Thus, this study is provoked by the fact that when the crisis hit the Nigerian stock market, the Nigerian government did not make any effort to inject liquidity into the market. However, when Nigerian banks were affected due to excess exposure to the capital market and gas oil sector, the government via CBN was quick to inject six hundred billion naira to enhance bank stability. The CBN has always justified its decision on the important role of bank in economic development, and also to promote banking habit and avoid contagion in the Nigerian banking system. While this line of argument sounds plausible, it seems to suggest that the stock market is a side show, where inefficiencies would merely redistribute wealth between smart investors and noise traders, and would not affect real economic activities.
The financial crisis ravaging the global economy is naturally a serious cause for concern to policy makers. Developed economies like USA, Germany, England among other were injecting liquidity into the stock market to safeguard the financial system from crashing. The former governor of Central Bank of Nigeria Prof. Charles Soludo was busy campaigning that Nigerian investor should not panick, and that the Nigerian financial system is insulated from the global financial crisis. The former governor of Central Bank‟s position deceived most Nigerian and also afforded foreign investors the opportunity to exit the market at its prime.
He argues further that “one country could cause a crisis of this magnitude and many countries with sound fundamentals also plunged into a crisis because of the contagious effect, and then the rich ones bail themselves out because they have the resources to do so, while the least developed countries suffer the long-lasting effects of the crisis, is a market-cum system failure of global proportion”. In his opinion, the analytical tools for understanding and managing the current system are inadequate, and the national and global governance infrastructure for resolving or even preventing a resurgence is at best obsolete. This seems to suggest that the then governor of CBN was confuse and do not know what to do to arrest the situation in Nigeria.
1.2 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. This prompted the need for this study on the Nigerian stock exchange and the global financial crises using case study of Nigerian Stock Exchange, Uyo Branch.
1.3 Objectives of the Study
The main objective of this study is to assess the Nigerian stock exchange and the global financial crises using case study of Nigerian Stock Exchange, Uyo Branch. The specific objectives of the study include the following:
- To ascertain the challenges of the global financial crisis in Nigerian Stock Exchange, Uyo Branch
- To determine the causes of the global financial crisis in Nigerian Stock Exchange, Uyo Branch
- To ascertain the effects of the global financial crisis to Nigerian Stock Exchange, Uyo Branch
- To suggest measures that would be taken to manage the impact of global financial crisis in Nigerian Stock Exchange, Uyo Branch
1.4 Research Questions
- What are the challenges of the global financial crisis in Nigerian Stock Exchange, Uyo Branch?
- What are the causes of the global financial crisis in Nigerian Stock Exchange, Uyo Branch?
- What are the effects of the global financial crisis to Nigerian Stock Exchange, Uyo Branch?
- What are the measures that would be taken to manage the impact of global financial crisis in Nigerian Stock Exchange, Uyo Branch?
1.5 Research Hypotheses
For the purpose of the study the following research hypotheses were formulated:
- HO1: There is no significant influence of the global financial crises on theNigerian Stock Exchange, Uyo Branch
- HA1: There is a significant influence of the global financial crises on th eNigerian Stock Exchange, Uyo Branch
1.6 Significance of the Study
The study determines the implications of the global economic crisis on Nigerian economy. Since Nigeria is part of the global village and what happens in other communities, especially the western world (the US) affects Nigeria, the study will enable Nigerians to think globally but act locally in maximizing the benefits of globalization and mitigating the costs and challenges of globalization. Since this is a pioneer study, the findings will serve as a benchmark for further research.
1.7 Definition of Terms
Financial Crisis:
Financial crisis is a sudden wide-scale drop in the value of financial assets or in the financial institution managing those assets.
Economic Crisis:
This generally refers to a sudden negative turn of events in the economy. It is usually characterized by general slowdown in economic activity over a sustained period of time. This slow down can be regarded as a period of stagnation, recession or depression.
Economic Meltdown:
This is specifically the term used to capture the current slowdown in economic activities that began in US and spread over the whole World in 2008 and 2009. The characteristics of this slow down are such that it can be grouped under recession.
Nigerian Stock Exchange:
Is a leading integrated market infrastructure Group in Africa. The Group services the largest economy in Africa and is strengthening the competitiveness of African economies to achieve global prosperity.
1.8 Organization of Study
The study comprises of 5 chapters. In chapter one, the concepts are introduced and the problem of the study is established with the research objectives and questions. Chapter two presents the literature review while chapter three presents the research methodology. The fourth chapter presents the results and discussion, and the last chapter presents the conclusion and recommendation.
Chapter Five
5.0 Results and Conclusion
5.1 Conclusion
The conclusion drawn on this study is that global financial crisis has had far reaching impact on the Nigerian stock exchange, Uyo chapter. In dealing with the crisis, the Central Bank tried to maintain macroeconomic stability of the economy and ensure the proper functioning of the monetary economy (payments and settlement systems). Nigeria is presently using fiscal policies to ease the pressure of the financial crunch. The CBN has also put in place several measures to enable the country cope. The Nigerians government has made a reasonable effort using differing strategies of which include the drawdown of reserves to finance sudden shortfalls in capital inflows and interest cuts. With depleted or no reserve, financial crisis will continue to deepen. Nigerians may therefore have their budgets strained in the near future, register unprecedented rise in the rates of their inflation, contend with high cost of living and experience severe balance of payment problems.
5.2 Recommendations
Based on the findings of the study, the researcher made the following recommendations:
- Nigeria should adopt tough policy measures as effective strategies towards a comprehensive strengthening of the financial service sector.
- Government should ensure that policy recommendations are implemented in order to reposition the Nigerian economy against the impact of global financial crisis.
- Government should create enabling environment, to attract foreign investors in order to boost economic activities in the country.
- Government needs to sincerely focus on developing/strengthening agriculture, manufacturing and other sectors that can drive the economy and provide alternative sources of revenue on a sustained basis.
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