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Nigeria’s Economy Amidst the 2007 Financial Crisis

This essay assesses the impact of the 2007 global financial crisis on Nigeria by closely analyzing the basic macroeconomic indicators such as inflation, government revenue, imports, exports etc. Through the study, P. Samuel Goweh aims to investigate the direct (financial transmission) and the indirect (transmission through real economy) impact of the crisis on Nigeria as the financial market was integrating with the rest of the world. Did Nigeria’s strong support on primary commodities export, especially oil, served as conduit for contagion? Read on.
Although the Sub-Sahara Africa(SSA) indirectly felt the effect of the 2007 global financial crisis,with fall-outs such as decline in exports and export price,negative terms of trade, FDI, remittances and aid, the cases of Nigeria and other emerging economies were slightly different. 
Source: Photo by Dan Kitwood/Getty Images
Source: Photo by Dan Kitwood/Getty Images

Emerging economies in SSA were hit first, leading to the collapse of equity markets, capital flow reversal and pressure on exchange rates. Ghana and Kenya had to postpone planned borrowing and in South Africa and Nigeria, external financing for corporations and banks became scarce[1]. In January 2009, foreign portfolio investors withdrew about $15 billion from the Nigerian capital markets, causing stock market capitalization to fall almost by half, and the ‘all share index lost a total share of 67 per cent from March 2008 to March 2009’. Stock markets in other countries like Ghana, Kenya, Uganda and Benin lost more than 20 per cent in the last year of the crisis[2]. This strongly suggests that emerging economies in SSA, where financial markets were somewhat integrated, suffered direct transmission of the crisis and spread the negative spillover to the neighboring countries.

In this paper, I closely analyze the key economic variables such as real GDP, imports and exports, government revenue and inflation from 2006 to 2012 (before and after the crisis). The analyses indicate that unlike other SSA countries, Nigeria faced direct and indirect brunt in capital markets owing to heavy dependency on primary commodities exports.
Brief Overview of Nigeria’s pre-crisis Economy
The Nigerian economy was well on track before the crisis, especially its non-oil sectors; in 2006, growth in the agriculture sector led by crop production, livestock and fishing stood at 7.4 per cent[3]. The wholesale and retail trade, building and construction and services also recorded growth rates of 15.3, 13.0 and 9.8 per cent respectively during 2006. Growth in Nigeria’s non-oil sector was influenced positively by several Government intervention measures, such as the National Agriculture Project, the National Special Programme for Food Security, zero tariffs on imported agro-chemical, export expansion grants and through tightening of controls on illegal imports of agricultural products[4]. The capital market also enjoyed a decade of unprecedented growth, largely driven by banking sector reform. Market capitalization increased from 2.90 trillion Naira (N) in December 2005 to 12.13 trillion Naira as of March 2008, while the all share index rose from N24,085.8 to N63,016.56 over the same period[5].
Impact of the Crisis on Nigeria
Nigeria’s capital market was the first financial institution to show signs of distress. As is the case with capital markets around the world, investors began to speculate and started selling out their assets in response to the crisis. As the crisis intensified, the all-share Index and market capitalization declined by 67.2 per cent and 61.7 per cent respectively between April 2008 and March 2009.[6]On the other hand, state and federal government faced intense fiscal constrains as revenue and foreign exchange earnings fell significantly due to fall in oil price from $147 per barrel in July 2008 to $50 per barrel in November the same year; this was  below the $58 per barrel benchmark oil price for the 2008 budget[7].
Inflation and GDP growth
As was in the case of other African countries, Nigeria’s high inflation rate too was driven by the rising fuel and food prices. The country’s inflation rate reached two-digits (11 per cent) from the third quarter of 2008 and continued in two-digit till the end of the crisis. It rose to more than 13 per cent in 2010 (Figure 1). A strong and extended downward movement of the exchange rates also influenced the high inflation rate.
Figure 1
GDP Growth and Inflation rate
Source: author’s calculation based on IMF data
Real GDP growth rates started to decline in late 2007 and extended in 2008. As capital flow into the Nigerian economy declined, followed by the foreign portfolio and foreign direct investment capital, withholding became the order of the day. Real GDP growth decline came to become obvious.
Investment and remittance flow
Official Development Assistance (ODA) declined by $666.1 million in 2008 (Table 1)largely due to the huge effect of the crisis on Nigeria’s development partners such as the EU and OECD countries.Personal remittances though remained strong in 2008, however, fell by $837.58 million in 2009 as the crisis intensified. The fall in personal remittances can be attributed to job cuts in Europe and the United States where a good number of Nigerians were residing. The decline of aid had direct negative impact on the country’s health and education sectors since huge chunk of ODA was directed in these sectors.
Although there is no data available for inward foreign direct investment and inward equity investment for the crisis years 2007-08, comparison between 2009 and 2010 data shows that the crisis had significant downward effect on both the indicators. Inward direct investment increased by $43,910.118 million in 2010 while inward equity investment increased by $1,882.048 million over the same period (Table 1). The figure strongly suggests that both equity and direct investment had a southward slope during the financial crisis.
Table 1
Investment and remittance flow (US$ in million)
ODA (Net)
Personal remittance
Inward FDI
Inward equity (net)
Balance of Payment
Nigeria enjoyed a favorable current account balance before the crisis in 2007. Current account as percentage of GDP declined from 9.52 per cent in 2006 to 2.0 percent in 2007 (Figure 2). It managed to increase by 4.2 per cent early 2008 due to increase in oil prices, but again suffered a sharp decline in 2009 as the crisis intensified and crude oil prices fell.
Imports, as percentage of GDP, fell by 6 per cent in 2008. Consumer goods were mainly affected due to high inflation. Export as per cent of GDP fell significantly from 40 per cent in 2008 to 31 per cent in 2009 and even dropped further to 25 per cent in 2010 (Figure 2). The decrease in exports was mainly due to fall in the demand for crude oil which alone generated more than 80 per cent of Nigeria’s foreign earnings. The sale of crude fell from 1.69 million barrels per day to 1.49 barrels per day between 2007 and 2008. Due to fall in price, official flow, private flow, current account and remittances were strongly affected[8].
Figure 2
Balance of payment flow (per cent of GDP)
Source: author’s calculation base on IMF data
Fiscal outlook (per cent of GDP)
Gross national saving
Revenue (Gen. Govt.)
Total expenditure (Gen. Govt.)
Net debt, Gen. Gov.)

Source: IMF database
Gross national saving as percentage of GDP declined by 5.29 per cent in 2008; though it slightly increased by 1.57 per cent in 2009, it again decreased by 5.68 per cent in 2010 (Table 2). The fluctuation in gross national saving can be better explained by taking a keen look at the commodity price before and during the crisis.  Government revenue fell significantly by 9.49 per cent(from 20.80 per cent in 2008 to 11.310 per cent in 2009), however, the Government expenditure remained relatively constant during the crisis and even increased slightly by 0.56 per cent in 2009 (at the end of crisis). On the other hand, net Government debt as percentage of GDP, although fell by 3.49 per cent in 2008, surged by 9.70 per cent in 2009 (Table 2), suggesting that the fear level of Government expenditure during the crisis was backed by Government borrowing.
The 2007 global economic and financial crisis affected Nigeria in two ways. Nigeria, where crude oil constitutes more than 80 per cent of the total Government foreign earnings and more than 70 per cent of exports, the effect of the crisis led to decline in exports and subsequent fall in the Government revenues. The crisis also affected Nigeria’s stock market, remittances and aid. Nigeria all share index declined by 67 per cent in 2009, while market capitalization lost a total of 62 per cent over the same period. Aid, especially personal remittances was severely hit, declining by $837.58 in 2009.High inflation was fallout of the crisis on Nigerian economy as inflation reached two digits during the crisis and remained so even after the crisis.
P. Samuel Goweh is Master’s student of International Affairs at O.P. Jindal Global University), Delhi-NCR, India

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