THE EFFECT OF ECONOMIC RECESSION IN NIGERIA
An economic recession is typically defined as a decline in gross domestic product (GDP) for two or more consecutive quarters. GDP is the market value of all goods and services produced within a country in a given period of time. Economic recession comes with sone forces such as, reduction in per capita income, inflation, unemployment and being crowned with poverty.
Going down to the memory lane, Nigeria had been one of the nations in the world who had economic boom at some periods, but so foolish to save for the rainy season, ever since the discovery of oil few years to our independence, Nigeria shifted her economic proceeds from agriculture majorly to crude oil, making Nigeria to be a mono-economy nation, for many decades Nigeria major economy breath is crude oil.
How ever the sudden drop in international crude oil price fron 100-145 dollar per barrel which had been the ruling prices for many years to 45-50dollars per barrel is a great disaster to Nigeria, Nigeria revenue from crude oil has fallen drastically, however the sudden economic recession surfaced early this year, reasons being attributed to the introduction restriction of dollars to only major and necessary transactions, a way to discourage importations, however the policy lost its way with out proper exporr promotion strategy in place, export promotion strategies like, 'working on the means to improve our electricity, proper farming incentives, like provison of grant for farmers, subsidising agricultural produce, a way to ensure that agricultural products are properly stored, etc.
How ever, the scarcity of dollars left those dealing in forex(importers), to seek for help in the black market, where as in the black market, dollars are scarce therefore exchange rate started rising from #197-#200 the last administration left it to #412 as at today, ofcourse, scarcity will bring about in increment in price.
Further more, the effect of this started surfacing in the prices if goods and services, since we don't have any tangible export promotion strategies on ground to reduce the effect, Nigerians still had no choice but to depend on importations, heading to a year now, no government policies are on ground to boost the exportation this is obvious as Nigeria GDP has dropped drastically from what it used to be. Inflation gradually set into the economy, to make the matter worse there is few money in circulation to merge up the inflation rate.
Two variables that determine money circulation into the economy are astaked in Nigeri,
1. Recurrent expenditure- like payment of salaries which has been astaked in Nigeria close to a year
2. Capital expenditure- like execution of capital project, so far no tangible project can be pointed out ever since the implementation of 2016 budget.
The implications of this is that, poverty level has increased in Nigeria, as many Nigerians now moved from the category of relative poverty they were before to abject poverty, with the forces of inflation complimented with low purchasing power of currencies. My fear is, there may be total eradication of middle class( average income earners in Nigeria).
Mathematical explanation of the effect economic recession on individuals and households-
Individuals income which makes up households income has reduced, income is represented by (Y), income could be spent into 3 ways either on consumption, investment and savings.
Therefore, (Y)= C+S or (Y)= C+I........eq1
Which means C+S=C+I ..............eq11
Therefore, S=I.........eq111
Equation one shows that income can either be spent on consumption and at the same time save, or income should be spent on investment at the same time on consumption, however, with the current economic situation, complimented by inflation, income has reduced with increase in the price consumption, which has made many to exhaust their income on consumptions with little or nothing left to save or invest with therefore making the economy to collapse, mathematically this is what we obtain in Nigeria- Y-1= C-1 + S-1 or Y-1=C-1 + 0 as savings equal zero, the equations above show that income has reduced which tends towards 0 which has reduced consumption with little or no savings.
To redeem this- there must be a change in income which will bring about change in savings and consumption, therefore improves investment, mathematically written as:
^Y = ^S+^C.......eq1
Therefore: ^Y/^Y= ^S/^Y+^C/^Y .....eq11
Therefore: 1= MPS + MPC....eq111
The mathematics above shows that for Nigerians to migrate from this abject poverty there must be ^Y(change) in income to bring about change in savings and consumption and therefore arrive at Marginal propensity to save and consumption which will boost investment and set in multiplier effect.
Spending multiplier= 1/1-MPC= 1/MPS.
Nigeria must wise up or else, I pray the economy won't collapse. Thanks.
Article by- Akinlabi Ololade ( poet )
Graduate of Obafemi Awolowo
University. B.sc Estate Management
An economic recession is typically defined as a decline in gross domestic product (GDP) for two or more consecutive quarters. GDP is the market value of all goods and services produced within a country in a given period of time. Economic recession comes with sone forces such as, reduction in per capita income, inflation, unemployment and being crowned with poverty.
Going down to the memory lane, Nigeria had been one of the nations in the world who had economic boom at some periods, but so foolish to save for the rainy season, ever since the discovery of oil few years to our independence, Nigeria shifted her economic proceeds from agriculture majorly to crude oil, making Nigeria to be a mono-economy nation, for many decades Nigeria major economy breath is crude oil.
How ever the sudden drop in international crude oil price fron 100-145 dollar per barrel which had been the ruling prices for many years to 45-50dollars per barrel is a great disaster to Nigeria, Nigeria revenue from crude oil has fallen drastically, however the sudden economic recession surfaced early this year, reasons being attributed to the introduction restriction of dollars to only major and necessary transactions, a way to discourage importations, however the policy lost its way with out proper exporr promotion strategy in place, export promotion strategies like, 'working on the means to improve our electricity, proper farming incentives, like provison of grant for farmers, subsidising agricultural produce, a way to ensure that agricultural products are properly stored, etc.
How ever, the scarcity of dollars left those dealing in forex(importers), to seek for help in the black market, where as in the black market, dollars are scarce therefore exchange rate started rising from #197-#200 the last administration left it to #412 as at today, ofcourse, scarcity will bring about in increment in price.
Further more, the effect of this started surfacing in the prices if goods and services, since we don't have any tangible export promotion strategies on ground to reduce the effect, Nigerians still had no choice but to depend on importations, heading to a year now, no government policies are on ground to boost the exportation this is obvious as Nigeria GDP has dropped drastically from what it used to be. Inflation gradually set into the economy, to make the matter worse there is few money in circulation to merge up the inflation rate.
Two variables that determine money circulation into the economy are astaked in Nigeri,
1. Recurrent expenditure- like payment of salaries which has been astaked in Nigeria close to a year
2. Capital expenditure- like execution of capital project, so far no tangible project can be pointed out ever since the implementation of 2016 budget.
The implications of this is that, poverty level has increased in Nigeria, as many Nigerians now moved from the category of relative poverty they were before to abject poverty, with the forces of inflation complimented with low purchasing power of currencies. My fear is, there may be total eradication of middle class( average income earners in Nigeria).
Mathematical explanation of the effect economic recession on individuals and households-
Individuals income which makes up households income has reduced, income is represented by (Y), income could be spent into 3 ways either on consumption, investment and savings.
Therefore, (Y)= C+S or (Y)= C+I........eq1
Which means C+S=C+I ..............eq11
Therefore, S=I.........eq111
Equation one shows that income can either be spent on consumption and at the same time save, or income should be spent on investment at the same time on consumption, however, with the current economic situation, complimented by inflation, income has reduced with increase in the price consumption, which has made many to exhaust their income on consumptions with little or nothing left to save or invest with therefore making the economy to collapse, mathematically this is what we obtain in Nigeria- Y-1= C-1 + S-1 or Y-1=C-1 + 0 as savings equal zero, the equations above show that income has reduced which tends towards 0 which has reduced consumption with little or no savings.
To redeem this- there must be a change in income which will bring about change in savings and consumption, therefore improves investment, mathematically written as:
^Y = ^S+^C.......eq1
Therefore: ^Y/^Y= ^S/^Y+^C/^Y .....eq11
Therefore: 1= MPS + MPC....eq111
The mathematics above shows that for Nigerians to migrate from this abject poverty there must be ^Y(change) in income to bring about change in savings and consumption and therefore arrive at Marginal propensity to save and consumption which will boost investment and set in multiplier effect.
Spending multiplier= 1/1-MPC= 1/MPS.
Nigeria must wise up or else, I pray the economy won't collapse. Thanks.
Article by- Akinlabi Ololade ( poet )
Graduate of Obafemi Awolowo
University. B.sc Estate Management
Hello, my name is Jack Sparrow. I'm a 50 year old self-employed Pirate from the Caribbean.
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