Only the top one per cent of Nigerians enjoyed while the level of inequality increased during the oil boom that predated the recent economic recession in the country, a report has stated.
The Financial Derivatives Company Limited, stated this in its Economic Bulletin for August 2017, obtained recently.
According to the research and financial advisory firm, the opportunity for real economic impact on the average Nigerian was squandered.
It noted that prior to the economic crisis; Nigeria enjoyed the benefits of the oil boom. Crude oil prices were above $100pb, “leaving the foreign reserves bloated and the exchange rate at a reasonable level considering the overdependence on crude oil.”
The country had an influx of foreign direct investment (FDI) and foreign portfolio investment (FPI) which led to increased output levels and employment.
A subsequent stock market boom caused major companies, especially banks, to become public. Furthermore, it stated that the continued crude oil exploration, discovery and extraction led to a strong positive outlook on the Nigerian economy – making it the perceived largest economy in Africa.
“The irony was that Nigeria didn’t enjoy the full benefits of an economic boom due to mismanagement of resources and systemic corruption.
“Typically an economic boom brings higher average incomes, lower government borrowing and improved public services but Nigeria did not experience these.
“Only the top one per cent enjoyed it while the wealth gap increased. The opportunity for real economic impact on the average Nigerian was squandered,” it argued.
The report, which was focused on business cycle, described it as the downward and upward movement of gross domestic product (GDP) within a country’s long term growth trend.
It is the pattern of expansion, contraction and recovery in the economy and can be tracked primarily in terms of GDP and unemployment. Business Cycle describes the fluctuations and oscillations in economic activity that an economy experiences over a period of time.
There are a number of schools of thought on the business cycle theory which offer different reasons for the fluctuations. For instance, the Keynesian view is that governments can alleviate the impact of a recession and shorten its spell by cutting taxes and increasing spending. The same analysis indicates that a government can also prevent an excessive boom by increasing taxes and cutting spending during expansionary periods. Monetarists do not agree with this view and prefer to look at business cycles as irregular and noncyclical fluctuations and believe that changes in the economy are the result of monetary phenomena.
The Schumpeter’s Theory of Innovation emphasises investment and monetary expansion in business cycles and is of the view that innovation and technological advancements are responsible for upward fluctuations.
The four stages of business cycle include: expansion; peak; contraction; and trough
Nigeria slipped into a recession (contraction stage) in 2016, marked by five consecutive quarters of negative GDP growth: 0.36% in first quarter 2016; -2.06% in second quarter; -2.24% in third quarter; -1.3% in fourth quarter and -0.52% in first quarter 2017.
This was primarily due to the fall in the price of crude oil which saw prices drop from about $100 per barrel (pb) in 2014 to a staggering $27pb in early 2016.
The shock to the country’s revenue stream sent it straight to a contraction. The fall in crude prices led to reduced government spending and a foreign exchange crisis. Reserves depleted and exchange rates depreciated to record levels. Unemployment also increased on a steady pace
The stock market was also hit with a crisis as investors lost confidence in the economic prospects of Nigeria.
Currently, the International Monetary Fund and the Governor of Central Bank of Nigeria (CBN) believe that the economy would be out of recession by the third quarter of 2017.
According to the report, a Schumpeterian approach would be of great benefit to the Nigerian economy which is in serious need of innovation and technological advancement.
It noted that the need for greater diversification and the evolution of the oil sector cannot be overemphasised.
Crude oil prices are currently trading below $50pb which spurs the fear of another oil crisis.
“The government has recovered a large amount of misallocated and stolen funds. Despite the fact that there have been no major convictions, it is a right step in the anticorruption agenda.
“It remains critical that the government solves the issues pertaining to corruption, mismanagement and diversification to ensure the pathway to economic expansion,” the report added.