IMPACT OF GLOBALIZATION ON NIGERIA

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IMPACT OF GLOBALIZATION ON NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The purpose of this study was to examine whether poverty, unemployment, and inequalities in Nigeria can be attributed to globalization, still one of the most debatable issues in the world of trade, politics, inequalities, unemployment, and poverty. Despite the increasing growth in technology, coupled with the world’s changing economic growth and development, poverty still persisted at an alarming level. As the Human Development Report (1995) stated, “In developing countries, one person in three lives in poverty, even basic social services—primary health care, basic education, safe drinking water, and adequate nutrition—are not available to more than one billion people” (p. 8). Nigeria, one of 16 countries that comprise the West African continent, has experienced little progress in reducing poverty, unemployment, and inequalities compared with the other countries in the region. The United Nations Development Program (1995) estimated that 1.3 billion people in the developing countries currently lived on less than $1 a day. These countries were especially vulnerable to all kinds of diseases, starvation, drug trafficking, and commercial sex trades, as well as regional and ethnic poverty wars, all of which often have had origins and consequences for developed countries. The disparities between rich and poor were increasing daily in Nigeria. Since the Nigerian civil war, the country has experienced food insecurity and child malnutrition. Based upon the current conditions in Nigeria, these issues cannot be resolved without intervention on the part of government and other institutional bodies, who must look for sustainable ways to eradicate poverty and social inequalities in Nigeria. Shah (2005) argued that developing countries’ poverty and social inequalities are complicated issues, claiming, “It is not simple enough to say that the poor are poor due to their own (or other governments) bad governance and management” (p. 1). In addition, Shah wrote, “You could quite easily conclude that the poor are poor because the rich are rich and have the power to enforce unequal trade agreements that favor their interests more than the poor” (p. 1). These words were echoed at the 2006 Conference on Population and Development in Nigeria, where poverty was considered a major obstacle to solving population problems. The conference consensus was that the problem of globalization and the structural adjustment of policies initiated by the International Monetary Fund (IMF) and the World Bank contributed to the cause of poverty in developing countries such as Nigeria. The policies of the lending nations that cut life necessities or an educational need of the borrowing country in order to qualify for loans or repayment of loans inevitably increased the burdens on the borrowing country’s economic prosperity. The problem of globalization was not only an economic issue, but also had an impact on politics because people were hungry, not because of overpopulation or a lack of food, but because they were too poor to afford basic foods. The causes of malnutrition in parts of Nigeria today were complex and included both the agro-ecological system and the socioeconomic and demographic characteristics of different areas of the country. Some areas were dry and infertile, and many people were leaving farms and moving to urban areas for industrial jobs. Ironically, the issues of politics and economic conditions in Nigeria have led to some of the problems of poverty and dependency, which often reflected the attitudes of individuals in other developing countries. To address world hunger implied addressing the world’s poverty at the same time (Whelan, 2004). This notion was based upon the fact that providing food to the needy in Nigeria cannot solve the problems of poverty unless the government can find a concrete solution for dealing with the country’s underlying issues of poverty and inequality. As the president of Brazil described at the World Hunger Summit 2004, Terrorism cannot be fought exclusively by military means; we have to develop strategies combining solidarity and firmness that are rigidly within the rule of law; in fact, peace will never rise from poverty and hunger, and the most destructive weapon of mass destruction in the world is poverty (as cited in Whelan, 2004, p. 5).

Despite the argument against globalization, some of the current literature dealing with economics stressed the efficient allocation of society’s scarce resources, but harsh social realities can negate any benefit (Whelan, 2004). Globalization has caused massive plant closings in some parts of Nigeria, while small- and medium-sized enterprises that could not survive as a result of globalization were driven into bankruptcy or reorganization. Professional workers and civil servants were laid off, and human and physical capital stood idle in the name of efficiency or global trade. Generally, globalization can be viewed as the integration of national economics through trade, capital flows and the accompanying convergence of economic policies. It is the process whereby political, social, economic and cultural relations increasingly take on a global scale and which has a profound consequence for individual’s local experience and everyday lives (Bilton, 1997). The definition above implies that globalization operates both at global and local levels and therefore impacts on the economy and politics of a country as well as the culture and well being of the citizens.

Globalization is rooted in multinational trading and investments arrangements and the opening up of trade, through liberalization of the financial sector as well as the economy as a whole. The reasoning behind this policy thrust is that the promotion of trade enriches the wealth of nations. For instance, trade liberalization under the Uruguay round of multilateral trade agreement of 1995 was estimated to have provided over 100billion U.S dollars a year in net benefits accruing mainly to those countries that have removed trade barriers (Hausters, Gerd, 2000). Financial integration as a part of globalization therefore envisages the free flow of loanable funds, openness of capital flows when combined with sound domestic policies, allow countries access to be much larger pool of capital. High capital flows leads to enhanced investment and economic growth, particularly when the inflows are in foreign direct investments, as against potentially volatile short term portfolio flows.

Furthermore, Foreign Direct Investment not only complements domestic savings but also enhances the depth and efficiency of the domestic financial markets and the absorption of foreign technologies. However, the monetary and fiscal policy framework of the nation must be appropriate for the economy to benefit financial globalization (Yusuf, 2001).

Globalization is not a new phenomenon, as it has progressed throughout the course of history dating back to the late 19th century. The history, was however, conquered and the speed slowed down until the new era of global integration facilitated by the removal of trade barriers and capital flows as well as the advancement in communications and computer technologies which have made easy the collection and processing of data needed for decision making. Consequently, the world exports of goods and services have more than tripled between 1983 and 2005. These changes have also stimulated demand for cross border finance, against the background of financial liberalization in many countries, promoted a pool of global liquidity to meet such demand.

Globalization have no doubt increased opportunities for accessing capital funds for both domestic and foreign sources more cheaply and on better terms. This is because financial sector liberalization and product innovations have in many countries been helped by technological advances. This in turn enhances financial intermediation and creates a more competitive market environment for financial institutions.

The downside of those benefits is that international capital flows could be very volatile and thereby pass serious threat to financial and macroeconomic stability. On the other hand, reversal of capital flows as witnessed during the Mexican crisis of 1994 to 1995 and the Asian and Russian crisis of 1997 to 1998 could endanger the financial stability of the individual countries particularly where banks are weak and poorly regulated. The contagion effect could as well threaten the stability of the internationally financial system. There is also the risk that during the period of boom and burst, asset prices may overshoot economic fundamentals, thereby saddling banks with non- performing loan backed by collaterals that have lost much of their values.

Globalization influences the financial sector in different and complex ways. Typically, capital flows, exchange rate crisis and inflationary pressures are some of the major avenues through which the impact of globalization can quickly be transmitted into the domestic economy. The implication of globalization for monetary policy can be seen through two channels. First, volatile short term capital flows and exchange rate movement which are associated with globalization can cause an increase in the uncertainties surrounding the outcome of monetary policies. Secondly, globalization forces policy makers to undertake structural adjustments or reform which changes the conditions under which monetary policy targets, strategies and instruments. It is generally believed that the more discretionary monetary and fiscal policies are constrained, the more open an economy becomes.

Globalization also compels government to exercise greater fixed discipline and to ensure sound institutional and political frameworks. In order words, it does act as a force for stability by limiting the scope for countries to pursue policies that are consistent with medium term financial stability. High fiscal deficit and unsound financial policies that lead to inflationary pressures, current account deficits and/or high real interest rate, attracts the attention of international investors and capital market operators. Thus, the room for fiscal rascality or unsustainable policies is much reduced in a globalized world.

Specifically, monetary and exchange rate policies have undergone changes in line with broad economic objectives. From independence up till 1986, the conduct of monetary policies was mainly by direct control, which involved the impositions of ceilings on aggregate bank credit expansion, sectoral allocation of credit, administrative control of interest rate, prescription of cash reserve requirement, exchange rate controls and the mandatory holding for government securities. The financial market during this period was mainly underdeveloped, repressed with a limited money market instruments and fixed and inflexible interest rate. A fully developed economy is that which have passed the various stages of development. This development will be achieved more rapidly if foreign investors have access to the domestic markets.

1.2 STATEMENT OF THE PROBLEM

The research problem addressed in this study was the impact of globalization and macroeconomic policies on employment, gender inequality, and poverty trends in Nigeria. The country’s resources were not being used efficiently when there remained large amounts of unused industrial capacity and millions of unemployed workers in the country, especially graduating students. Modern capitalism appeared totally incapable of mobilizing these untapped human and material resources because the majority of corporations were seeking lower capital wages and high profit margins. Morgan, Weigel, and Debaufre (1998) argued

For a primary connectedness that needs to be preserved in moral development, faith and commitment to justice seem to lie beyond and motivate moral reasoning . . . . We are all motivated by something to reason and act morally in the world. However, it is the same thing that causes us to create ethical systems in our society (p. 18).

The impacts of globalization have deterred the corporation and society from understanding human dignity and moral obligations. It will be only by individuals validating their own human dignity, through the process of taking their moral development and its causes seriously, that they can hope to achieve a world where individual dignity is universally valued (Morgan et al., 1998). The poor in Nigeria often believed that because they were of a particular neighborhood or ethnic group, or of a particular educational background, they were powerless to climb out of their poverty. Subsequently, answers were needed to the question of whether overpopulation caused poverty or vice versa and whether people were poor because they had too many children, or they had large numbers of children in response to being poor. Although there may have been definitive answers to these social questions, the relationship between poverty and population was obvious. Overpopulation, especially in Nigeria and other developing countries, has doubled, while in developed countries that needed a larger labor force and had adequate resources; increased population has brought prosperity (Morgan et al., 1998). In contrast, the increase in population has strained other developing countries that have not had the capacity and technological know-how to increase productivity. In Nigeria, one thing that characterized absolute poverty was the lack of certain basic resources to ensure a decent life. People needed decent food, shelter, clean water, adequate sanitation, good health care, and good education. Absolute poverty was not a tidy problem, and it did not have simple answers. However, it was a disease that crippled the affected country and other developing countries. Nigeria was facing problems of increasing population growth, inequality, and failure to liberalize trade, all of which were embedded in the increasingly complex multidimensional international framework of globalization. Nigeria’s government should have allowed the domestic businesses to integrate in the world trading economy, lowering tariff levels, simplifying the tariff and eliminating export taxes, and lifting some of the import restrictions. Katz (1993) described the many difficulties faced by developed countries and stated that the majority of developed countries, including the United States, should increase aid donations, coupled with debt wipeout or restructuring, to allow poor countries in Africa and other developing nations to sustain economic freedom and growth. Politics and governance also contributed to the social problems of poverty, especially in African countries where bribery and corruption were rampant. For example, the recent election in Nigeria was marked by corruption and bribery, and those elements eliminated individuals’ democracy and the right to freely elect individuals of their choice. Leaders of developed countries and financial institutions such as the World Bank and the IMF must pressure the leaders of developing countries, especially those in Africa, to use the revenue received from mineral resources to alleviate the needs of their citizens. The significance of this study could provide insight into the history of global impoverishment marked by the collapse of productive systems in the developing world. This global poverty originally started within developing countries and has since extended its grip to every major region of the world (Whelan, 2004). Beams (1998) found “Globalization of production did not play a significant role in enabling the employers to win any of these disputes between the employers and the workers” (p. 5). The changing economic factors throughout the world played a significant role in changing the attitudes of trade unions and workers who are reluctant to demand for better living conditions from fear of losing their jobs. This gave opportunities for their employers to exploit those reluctant workers (Beams). There were two questions: “What is the rationale for companies to globalize their productive means” and “Are there any advantages for the workers or the companies?” Beams (1998) argued

The ideology of globalization has played a role. It has encouraged the idea that multinationals are too powerful to be hit by ‘old fashioned’ forms of workers’ struggles and the abandonment of these forms of struggle has handed victory to the multinationals. (p. 5)

Beams (1998) provided a theoretical explanation relative to Marxist theoretical thought, stating, “The defense of these interests requires a struggle for the political independence of the working class, on an internationalist program, aimed at the conquest of power” (p. 6). Whelan (2004) provided a different perspective of the growth of inequality in society and how the news media cannot cover some of the problems depicted by the UN, arguing that The growing international prevalence of slum communities and neglected human potential they symbolize is a grotesque expression of the failure of a system driven by the profit motive, rather than by the requirement to satisfy elemental human needs. It points to the necessity to replace the anarchy of the capitalist free market with a national system of socialist planning. (p. 5) The issue of domestic and global poverty was too complex to absorb. Regardless of all the technological advances and other revolutionary changes, poverty has remained the pivotal problem facing society today. The situation existed not only in developing countries, but also extended to industrialized countries. However, it has forced some bodies of government, including the United Nations and other international organizations, to start focusing on the problems of poverty and the ways to eradicate global poverty (Wignaraja, 1996). Marx’s theory of a capitalist society offered a better overall framework for understanding the processes of globalization than the theories of Weber and Durkheim. Marx’s conceptualization clearly defined the mode of economic production that present- day societies should adopt because economic production should be “expressed in

relationships between men which are independent of any particular individual and not subject to individual wills and purposes” (Beams, 1998, p. 40). While Marx and Weber agreed on many aspects of capitalism, they disagreed on its origins. Marx saw capitalism as the last evolutionary step in which owners of production would have the advantage over those who supply the labor needed for production. Weber maintained that capitalism arose from individuals’ desires to measure God’s favor in economic terms, which gave rise to the Protestant work ethic (Beams, 1998). The doctrines of these classical thinkers proved that the economic systems and structures applicable in their time were not far different from what exists today. What has occurred over the decades was actually a continued rise in the underclass in both developed and developing countries: the working poor with impoverished children, new immigrants flooding from one country to another, the aged, single-family heads of households, inner-city decline caused by unemployment and the outsourcing of jobs to other countries, the HIV/AIDS epidemic, commercial sex, and increasing global poverty (Beams, 1998). There are problems associated with the development of the Nigerian economy in her different sectors based on the impact of globalization. These problems may be economic problems based on the rate of instability, policy barriers to capital flows, inappropriate economic policies and political instabilities. There may also be problems like market liquidity. In using liquidity as a measure of stock market development, it seems that the Nigerian capital market is illiquid to an extent and it has contributed very little to the growth of the Nigerian economy (Ibrahim, 2002).

Therefore, this research work shall answer the following questions

Does globalization produce a rapid flow of foreign capital for the Nigerian economy?

Does globalization significantly improve management techniques for firms operating in Nigeria?

To what extent has globalization brought about an advancement of new technologies in the Nigerian economy?

Has globalization resulted in inequality between Nigeria and the western nations?

1.3 OBJECTIVE OF THE STUDY

The primary purpose of this study was to examine whether poverty, unemployment, and inequalities in Nigeria can be attributed to globalization.

1. To verify the impact of globalization on Nigerian economy.

2. To verify the impact of financial integration on Nigerian capital market.

3. To create an appropriate mechanism for capital formation and efficient allocation of resources among competing project.

4. To maintain fair price for securities.

5. To maintain discipline in the capital market.

6. To find out the challenges Nigeria faces in terms of economic, political, social and technological development within the global arena.

7. Also the aims at given a possible recommendations and suggestions for way forward to the Nigerian development in the global economy.

1.4 RESEARCH QUESTION

1. How did social issues affect the economic development of Nigeria?

2. What caused high unemployment, poverty, and inequalities in Nigerian society?

3. Why was Nigeria relatively less integrated in the world trading economy?

1.5 RESEARCH OF HYPOTHESIS

In view of the above mentioned objectives, the hypothesis of this research would be

Ho: Globalization has no significant impact on the Nigerian economy.

H1: Globalization has a significant impact on the Nigerian economy.

Ho: Financial integration has no positive impact on Nigerian GDP.

H1: Financial integration has positive impact on Nigerian GDP.

1.6 SIGNIFICANCE OF THE STUDY

The economic relevance of studying the impact of globalization on the economic growth in Nigeria needs not to be over emphasized. This study is very imperative given the recent efforts by monetary authorities in Nigeria to re-launch the banking sub-sector to glorious heights. Globalization has brought about the rapid change in the Nigerian economy that seeks to increase their share of financial and direct investment in the international market. Globalization has by no doubt increased opportunities by accessing capital funds from both domestic and financial sources. More so, investors can now tailor their portfolio risk to their preferences.

This study is of great importance to

Academic institutions; globalization has played an important role in the improvement of learning techniques. These techniques includes the use of electronic gadgets such as computer, printers, laptops etc. which facilitate learning processes as well as creating basis for understanding new technological processes that will aid student academically.

Firms; through the help of globalization, there has been easy and accessible communication network which facilitate production, distribution of goods and services both domestically and internationally, as well as attracting new investors.

Government; in terms of governance, globalization has improved our system majorly in areas of budget. With the help of globalization, revenue collected and expenditure made are accounted for with little or no errors.

1.7 SCOPE AND LIMITATIONS OF THE STUDY

This study covers the impact of globalization on the growth of the Nigerian economy from the period of 1986-2012.

This research work was limited by:

Insufficient fund.

Limited time to carry out research.

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1.8 DEFINITION OF TERMS

Globalization: Globalization has been variously defined in economic literature. Some defined it as increasing connectivity. Globalization is defined as interconnectedness across national and continental boundaries Globalization is not without a price. It has associated costs and benefits. Globalization is seen by some scholars as one of benefits to the already rich nations and as more of costs to the already poor nations in the sense that the unprecedented surge in wealth creation by globalization occurred at the same time when the gap between the rich and the poor nations grew. Some states in some African countries are experiencing increase in the number of people that lived below the level of poverty (Okoh 2002).

INDUSTRIAL DEVELOPMENT: The increase of industrial expansion of quantity and quality of output in industrial growth process.

STOCK: The ability to mop-up financial capital for investment purpose.

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