THE EFFECTS OF GLOBAL FINANCIAL CRISIS ON JOB INSECURITY IN NIGERIA
The study examined the effects of global financial crisis on job insecurity in Nigeria. The other objectives set for the study are to ascertain the causes and effects of global financial crisis in the Nigeria using a case study of ECOBANK PLC. Primary data relating to the number of workers retrenched, profitability and turnover were collected from the Statistics Department of ECOBANK PLC. Also, the study made use of a well-constructed, validated and reliable questionnaire to collect data from 120 randomly selected employees of the bank. The multiple regression analysis and the chi-squared technique were employed to analyze the collected data. The results indicated that profitability and turnover, which were proxies of global financial crisis, were statistically significant on job insecurity, which was proxied by the number of employees retrenched, in the pre-global financial crisis period and post-global financial crisis period. In furtherance, the study discovered that high credit culture, inadequate regulatory framework for financial institutions, high incidence of fraud, high financial outflow amongst others are the significant causes of global financial crisis in Nigeria. Also, the results unveiled that oil glut, declined GDP, increased rates of poverty and unemployment, declined foreign direct investment amongst others are significant effects of global financial crisis in Nigeria. To this end, the study suggested that employment friendly and employment growth strategies should be formulated to mitigate the pervasiveness of job insecurity in Nigeria.
1.1 BACKGROUND OF THE STUDY
Nigeria is interlinked with the global financial system. The global financial crisis emanated from the economy of the United States in 2007 and later spread to other developed economies of the world in 2008 and subsequently transmitted in that same year to less developing countries, inclusive of the Nigerian economy .The global financial crisis further destabilized the economy of Nigeria, which was initially bedeviled with the challenges of economic instability, inconsistency in government policies, lack of transparency in the financial markets, corruption, political instability, high rates of poverty and unemployment amongst others. Government till date has been facing the effect of global financial crisis on the domestic economy. Nigeria a part of the global economy is bounded to face the micro and macro adverse effects of global financial crisis.
The global financial crisis started as a series of ineptitude in the financial markets, leading to credit and liquidity crises, which resulted into the fall of several giant financial institutions in conjunction with the loss of confidence in the banking sector. The crisis further spread to the real sectors, resulting to decline in the level of aggregate demand, economic retardation and job losses. The pace at which the crisis transmitted to other countries regardless the level of their development has made people to term the menace as “global financial meltdown”, global economic meltdown” global credit crunch” etc.
A financial crisis often featured by credit crunch, which means a disorderly contraction in money supply and wealth creation ((Obadan, 2008). A credit crunch occurs when participants in an economy lose confidence to have loans as well as recall existing loans. The great depression occurred after a dramatic expansion in debt and money supply in 1920’s. Then, a contraction also took place between 1929 and 1933 as debt was defaulted upon further resulted into a huge decline in the supply of money.
The origin of the global financial crisis is traceable to rapid risky debt accumulation. The transmission of the crisis across the globe is due to the fact that the world economy has become increasingly interlinked as a result of the forces of globalization, operating through the network of global economic and social linkages (Onudugo, 2009; Onyukwu, 2009). The domestic economy is connected to the rest of the world economy through three markets: product market, factor market and assets market (money and capital markets). The rest of the world and the domestic economy access the world economy through these three markets.
Although, the global financial crisis is caused by the credit crunch in the United States, it has spread to almost all countries’ economies through trade and financial linkages and the implications such as job insecurity and retrenchment, reduction in foreign development and oversea development assistance, increased impoverishment, declined revenue amongst others, have been found to be uniform in the economies affected by this crisis.
1.2 STATEMENT OF PROBLEMS
The impact of global financial crisis on the Nigerian economy is multisectoral, as it cut across all sectors of the Nigerian economy. The global financial crisis resulted into depreciation of the naira, declining capital inflows, capital market collapse, divestment by foreign investors, decreased profitability and turnover of various firms. These negative impacts weakened the efficiency of the banking sector and gave rise to stock market crash, which undermined the confidence of the banking sector.
The global financial crisis led to a decline in the level of gross domestic product, consumer spending, consumer demand and industrial output. Unemployment rates rose as firms were no longer able to pay salaries. The price of crude oil fell from a peak of $147 per barrel in 2007 to $33 per barrel in December, 2008, given the fact that Nigeria solely depended on oil during that period. The dramatic decline in price of oil resulted into a sharp drop in the revenue generated by the Nigerian government due to the fact that oil contributes over 90% to revenue, over 85% to foreign exchange earnings and about 33% to GDP as at time frame.
The Nigerian economy was bedeviled with series of global financial disasters. The purchasing power of the people was eroded as the prices of commodities sky-rocketed and the living standard of the populace dwindled. Major businesses, firms and companies winded up, inflation and unemployment rates were increasing out of control, food scarcity existed and the prices of stocks defied the predictions of the bookmakers.
The global economy was in recession as the gap between global economic potential growth and the actual performance widens in 2009, especially in the first quarter of that year. Many families were rendered homeless, many people were rendered jobless and peoples’ aspirations were killed. This crisis penetrated among different economic agents across the countries.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to examine the impact of global financial crisis on job insecurity in Nigeria. Other sub- objectives of the study are:
- To examine the causes of global financial crisis in Nigeria.
- To ascertain the effects of global financial crisis in Nigeria.
1.4 RESEARCH QUESTIONS
Based on the objectives stated above, the study attempts to provide satisfactory answers to the following research questions.
- To what extent did global financial crisis impact on job insecurity in Nigeria?
- What are the causes of global financial crisis in Nigeria?
- What are the effects of global financial crisis in Nigeria?
1.5 RESEARCH HYPOTHESES
In accordance with the objectives of the study, the following hypotheses were formulated.
H0: Global financial crisis has no significant impact on job insecurity in Nigeria.
H1: Global financial crisis has significant impact on job insecurity in Nigeria.
H0: Consumption-driven economy, poor savings, high credit culture, huge financial outflow, inadequate regulatory framework for financial institutions, High cases of fraud and corruption are not causes of global financial crisis in Nigeria.
H1: Consumption-driven economy, poor savings, high credit culture, huge financial outflow, inadequate regulatory framework for financial institutions, High cases of fraud and corruption are causes of global financial crisis in Nigeria.
H0: Oil glut, decline GDP, collapse of capital markets, reduced foreign direct investment, decreased living standard, unemployment, increased poverty and inflation are not effects of global financial crisis in Nigeria.
H1: Oil glut, decline GDP, collapse of capital markets, reduced foreign direct investment, decreased living standard, unemployment, increased poverty and inflation are effects of global financial crisis in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The study examined the impact of global financial crisis on job insecurity in Nigeria. Since Nigeria is part of the global village, it therefore necessitates that whatever happens in the Western world especially the developed economies will surely affect the Nigerian economy.
The study through the findings will enable Nigeria to think globally and act domestically to maximize the benefits of globalization and minimize its inherent costs and challenges. It is no doubt the study will be useful individuals, firms, financial sectors, private investors, stakeholders in the Nigerian economy, telecommunication sector, foreign investors, government and many others on how to formulate sound policies that will offset the adverse consequence of prospective domestic, continental and global financial crisis.
1.7 SCOPE OF THE STUDY
The study examined the impact of global financial crisis on job insecurity in Nigeria by prioritizing on ECOBANK PLC as case study.
1.8 LIMITATIONS OF THE STUDY
Three limitations were encountered in the study namely time constraint, financial constraint and disposition of respondents.
The time allocated to conduct the study was relatively short combined with other academic commitments of the researcher.
Due to limited fund, the researcher was unable to increase the coverage of the study by considering other firms in different economic sectors of the Nigeria economy.
The attitude of the respondents, who were employees of ECOBANK, was not remarkable. Few of them were reluctant to participate in the survey. Some of them were diplomatic in answering the questions because they felt they might disclose the secrets of their organization.
For the first research question; two models were developed namely pre-global financial crisis period (2003-2006) and post-financial crisis period (2008-2011). Job insecurity proxied by the number of employees that were retrenched in ECOBANK was adopted as the dependent variable and global financial crisis was proxied by the profitability and turnover of ECOBANK. Plc was taken as the explanatory variables.
Data on these 3 proxy variables were sourced from the Bank at their head office. Regression analysis was employed to estimate the impact of global financial crisis on job insecurity.
For the second and third research questions, well-structured questionnaires were administered to the employees of ECOBANK to seek their opinions on the causes and effects of global financial crisis in Nigeria. The Chi-Squared Technique was then adopted to test the hypothesis on the causes and effects of global financial crisis in Nigeria at 5% level of significance.
1.10 DEFINITIONS OF TERMS
Financial Crisis: This refers to a sudden drop in the value of financial assets or firms managing those financial assets.
Economic Crisis: This refers to the sudden negative downtrend of events in the economy.
Economic Recession: This refers to the decline in the growth of the gross domestic product between two consecutive economic periods. It is characterized by drop in trade and industrial activity in an economy.
Economic Meltdown: This refers the slow-down in economic activities that started in USA and spread all whole over the world between 2008 and 2009.
Job Insecurity: This refers to the condition where employees lack the assurance their jobs will remain stable from day to day, week to week and year to year.