AN EXAMINATION OF THE CAUSES AND EFFECTS OF ECONOMIC MELTDOWN IN NIGERIA (AN ASSESSMENT OF TINUBU ADMINISTRATION)

CHAPTER ONE

INTRODUCTION

Background of the Study

Economic meltdown, sometimes known as an economic crisis, can be described as a state of economic slowdown where demand decreases, real output declines, and unemployment increases. It is often recognised when there is a consecutive decline in real Gross Domestic Product (GDP) for two quarters in a row (Black, 1997). During such periods, there is a shortage of resources available for investment and consumption is unable to keep up with output. Additionally, there is an increasing cost of production, a decrease in investment and employment, a loss in earnings, and tensions in both the stock market and banking system (Ohale and Onyema, 2001). Also, if the economy in question is the largest in the world, the consequences of its conditions will rebound and affect the rest of the globe as well. The crisis has reached a worldwide scale, which is why it is referred to as a global economic meltdown or crisis.

Over the years, Nigeria has faced numerous structural challenges that have hindered sustainable economic growth. Issues such as poor infrastructure, corruption, political instability, and an over-reliance on oil have created a fragile economic foundation (Egbetokun, Adeniyi, & Siyanbola, 2010). Various administrations have attempted to address these challenges through policy reforms. For instance, the Structural Adjustment Program (SAP) of the 1980s, implemented under the guidance of international financial institutions, aimed to diversify the economy and reduce dependency on oil (Okonjo-Iweala, 2018). Despite these efforts, progress has been inconsistent, with many policies failing to achieve their intended outcomes. In 1983, Nigeria underwent a recession characterised by a significant contraction in its GDP, which declined by -10.93 percent. This contraction, according to Bamidele (2020), stands as the largest in the history of the country's GDP.  Also, in 1986, Nigeria implemented the Structural Adjustment Programme (SAP) as part of its efforts to reverse the declining state of the economy. However the Nigerian economy was negatively impacted by the worldwide economic downturn in 2004, resulting in a decline of Nigeria's GDP by -0.18 percent for the second quarter of that year. Subsequently, after a considerable duration, the Nigerian economy experienced the 2016 recession, followed by a period of recovery in 2017.  The detrimental impact of the covid-19 pandemic resulted in a second recession within a span of less than 4 years. Nigeria's economy plunged into a state of economic meltdown during the second quarter of 2016, widely regarded as the most severe economic crisis the country has experienced in decades. Nevertheless, this is not the inaugural occurrence of the nation's economy descending into a meltdown. Furthermore, there is a wealth of historical documentation documenting numerous instances of economic downturns in Nigeria, some of which were accompanied by severe economic meltdowns. 

While Mohammed, et al (2018) asserted that the economy exhibits a high susceptibility to both internal and external shocks, with a very limited ability to absorb them. Likewise, Alhassan and Kilishi (2016) argue that the susceptibility to shocks in the Nigerian macro economy is attributed to its weak structure, which is characterized by notable features that serve as a significant background framework.  According to Sanusi (2016), the Nigerian economy is mostly focused on consumption and lacks effective policies to enhance the supply side of the economy. This results in a heavy reliance on the oil sector. In addition to the shift in attention towards the oil sector, there is also a significant expense associated with governance. Although political office holders represent a small portion of the population, they appear to receive a disproportionate share of the oil earnings. Additionally, the historical precedent of economic meltdown in Nigeria indicates the presence of a comparable trend. The cycle is initiated by declines in oil prices and the subsequent implementation of inadequate short-term strategies by the government to address the problem. 

While the recent economic meltdown is attributed the is the elimination of fuel subsidies, which aims to lessen the financial strain on the government. However, the decision has elicited a variety of reactions due to its immediate impact on the cost of living (The Guardian Nigeria, 2023). Therefore, a survey will be conducted in order to examine the causes and effects of economic meltdown in Nigeria.

Statement of the Problem

Nigeria, the largest economy in Africa and the nation with the highest population, has experienced ongoing economic difficulties marked by unpredictable oil prices, corruption, and structural weaknesses. Due to its significant dependence on oil exports, Nigeria's economy is especially susceptible to worldwide fluctuations in oil prices. Notwithstanding having vast natural resources, Nigeria struggles with elevated unemployment rates, inflation, and a substantial informal economy. 

Bola Ahmed Tinubu became the President of Nigeria in May 2023, taking over a troubled economy. The Tinubu administration made a commitment to implement substantial economic reforms with the goal of rejuvenating the economy, decreasing unemployment, and controlling inflation. Although, the key policy initiatives encompassed the diversification of the economy to reduce reliance on oil, the enhancement of infrastructure, the improvement of the business environment, and the addressing of corruption.  However, the economic crisis saw under the Tinubu government can be ascribed to a multitude of interconnected variables. Initially, Nigeria's economic stability was negatively impacted by the global economic environment, which was marked by increasing interest rates and decelerating growth. Due to its reliance on oil, the economy of the country is greatly affected by changes in global oil prices. This has a considerable impact on the national revenue, making fiscal deficits worse and restricting government investment on important sectors (World Bank, 2023).

In addition, domestic elements such as insufficient infrastructure, corruption, and policy inconsistency have impeded economic growth. Despite attempts to increase the variety of industries in the economy, there were ongoing obstacles in important sectors like agriculture and manufacturing that prevented them from making significant contributions to the GDP. Moreover, the presence of corruption and inefficiencies inside public institutions has undermined investor trust and limited the expansion of the private sector (Anidiobu, Okolie, & Oleka, 2023).Beyond that, the economic crisis was worsened by socio-political instability, which included security challenges from rebel groups and ethnic tensions. However, these security difficulties caused significant disruptions to economic activities, namely in the agriculture sector, resulting in food insecurity and elevated inflation rates. The forced relocation of communities and the extensive damage to infrastructure has enduring adverse effects on economic productivity (Benjamin, 2023). 

Nevertheless, the ongoing economic challenges indicates the necessity of implementing efficient economic policies and reforms to stabilise and expand the economy  which can be achieved by tracing the root causes of the meltdown(Idris & Suleiman, 2023). Hence, it is in the light of these that the study seeks to examine the causes and effects of economic meltdown in Nigeria.

 1.3  Objectives of the Study

The main purpose of this study is to examine the causes and effects of economic meltdown in Nigeria.  Specifically, the study will;

Determine the extent to which economic meltdown has affected the cost of living in Nigeria.

Assess the underlying causes of economic meltdown in Nigeria.

Assess the  diverse effect of economic meltdown on Nigerian citizens.

Proffer strategies required to boost the Nigerian economy.

1.4  Research Questions

The following questions have been prepared for the study:

To what extent has the economic meltdown affected the cost of living in Nigeria?

What are the underlying causes of the economic meltdown in Nigeria?

What are the diverse effects of the economic meltdown on Nigerian citizens?

What the strategies required to boost the Nigerian economy.

1.5 Research Hypotheses

H01: There are no significant causes leading to the economic meltdown in Nigeria.

Ha1: There are significant causes leading to the economic meltdown in Nigeria.

H02: The economic meltdown has no significant effects on Nigeria.

Ha2: The economic meltdown has a significant effects on Nigeria.

1.6 Significance of the Study

The study findings will assist the Nigerian government and policymakers in designing effective economic policies and interventions to mitigate the adverse effects of inflation in the country. NGOs and social activists will be able to advocate for policies that protect vulnerable populations from the adverse effects of inflation. Nevertheless, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to the causes and effects of economic meltdown in Nigeria.

1.7 Scope of the study   

The scope of this study is boarded on the causes and effects of economic meltdown in Nigeria. Geographically, the study will be delimited to residents of Lagos state.

1.8 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.9 Definition of Terms

Economic meltdown: refers to a severe and sudden downturn in the economy, characterized by a rapid decline in financial markets and a significant drop in economic activity.

Inflation: the rate at which the general level of prices for goods and services rises, eroding purchasing power.

Economic:  relates to the economy, which is the system of production, distribution, and consumption of goods and services in a particular country or region.