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AN INVESTIGATION OF THE NEGATIVE EFFECT OF ECONOMIC RECESSION ON LOW INCOME HOUSEHOLD IN NIGERIA: EVIDENCE FROM PRESIDENT TINUBU ADMINISTRATION
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Access to a variety of cost-effective, secure, and dependable financial services, such as credit, savings, investments, insurance, and transfer services, plays a crucial role in facilitating economic growth and can help alleviate poverty in Nigeria (Babatunde et al., 2019). Accessible and cheap formal savings services can effectively mitigate the impact of family tragedies or emergencies that often push impoverished individuals into long-term poverty or push those on the brink into poverty. A low income household is defined as a home with an average monthly income ranging from N5,000 to N40,000. The primary concerns for individuals in low income households are securing food, shelter, and clothing (Offor et al., 2018). Low-income households, specifically, frequently endure the full impact of economic recessions, with intensified financial difficulties and diminished quality of life (Isang et al., 2023).
An economic recession is characterised by a sustained decline in economic activity for two consecutive quarters. During a recession, there is typically a decrease in specific macroeconomic variables such as GDP, employment, investment spending, capacity utilisation, household income, company income, and inflation, resulting in a corresponding rise in the unemployment rate. (Source: CBN, 2017). Strictly speaking, an economy is considered to be in a state of recession when it has two consecutive quarters of negative growth in real GDP. Gross Domestic Product (GDP) refers to the total value of all officially recognised final goods and services produced within a country during a specific time period, often one year (Isang et al., 2023). When economic activities decline significantly in a country, it is referred to as a slump or a prolonged recession. The majority of macroeconomic indices exhibited persistent negativity for an extended duration, typically exceeding two years. Regardless of the circumstances, recession is detrimental and easily spread, hence necessitating immediate policy intervention whenever it arises (Isang et al., 2023).
According to the Central Bank of Nigeria (CBN, 2017), economic recession can be linked to two primary sources: internal (endogenous) and international (exogenous) influences. The former is commonly caused by divergent perspectives, incorrect implementation of economic principles, and regulatory negligence or policy incongruity. Exogenous elements that contribute to a recession are external to the economy and beyond the control of policy makers. These elements encompass occurrences such as natural disasters, climate change, revolutions, and conflicts. The ongoing economic crisis in Nigeria can be ascribed to a range of issues, encompassing historical influences, policy deliberations, and political and security apprehensions (Paul et al., 2024).
An economic downturn has a widespread impact on individuals, households, and other facets of national life, including businesses, financial markets, jobs, social life, and politics. During an economic recession, when household earnings are reduced, individuals decrease their demand for goods and services. Due to decreased demand from families, firms decrease their output of these goods and services in order to save costs, resulting in a drop in profits (Isang et al., 2023). Due to a decline in output, there would be layoffs of staff, a halt in the purchase of new equipment, a lack of money for research and development, no new product releases, and a general decrease in business operations. Recession has several specific implications for enterprises, including a decline in stock prices and reduced dividends, loan defaults and insolvency, and compromised product quality (CBN 2017). Akande (2017) states that during a recession, low-income households are disproportionately affected by layoffs. This is due to the fact that they are typically hired without sufficient qualifications.
Nigeria, as the largest economy in Africa, has encountered numerous economic difficulties throughout the years. The variability in worldwide oil prices, political instability, and domestic security concerns have all had a role in the unpredictability of the economy (Isang et al., 2023). The Bola Ahmed Tinubu administration, which commenced in May 2023, faced a difficult economic situation marked by inflation, elevated unemployment rates, and substantial state debt. It is essential to comprehend the precise consequences of economic recessions on low-income households in this situation in order to develop efficient policy solutions. Therefore, the necessity for this investigation arises.
1.2 Statement of the Problem
Economic recessions are characterised by a broad-based economic downturn, usually resulting in decreased consumer expenditure, elevated levels of unemployment, and financial instability (CBN 2017). The impact of these times is particularly harsh for low-income households, as they have limited resources to mitigate financial shocks, which poses considerable issues for all economic strata (Udeme et al., 2022). In Nigeria, the economic environment has experienced instability as a result of multiple reasons, including as variations in global oil prices, political unrest, and internal security concerns (Ahmed et al., 2022). These difficulties have been exacerbated by the economic policies and conditions during President Bola Ahmed Tinubu's government, which commenced in May 2023.
A significant worry in Nigeria is the government's hesitancy to increase the minimum wage for its citizens, despite the inflationary consequences of many projects (Obi, 2024). High inflation rates can lead to a decline in the overall standard of living, as individuals struggle to maintain their previous levels of spending and lifestyle (Sunny, 2021). Rising costs in food, housing, healthcare, and education force households to make difficult financial decisions, often leading to reduced savings and limited investment opportunities. Economic recessions typically cause a decline in customers' purchasing power, leading to a fall in demand for goods and services provided by businesses (Akabueze, 2023). Introducing additional measures, such as increasing the minimum wage, could have been a viable strategy to alleviate the impact of inflation on the Nigerian population.
In spite of the government's endeavours to stabilise the economy, low-income households persistently encounter disproportionate adversities amidst economic recessions. The negative consequences are evident in multiple forms, including elevated unemployment rates, elevated living expenses, reduced availability of crucial services, and heightened financial vulnerability (Kalu et al., 2024). The problems are worsened by inadequate social safety nets and restricted availability of economic possibilities, making low-income households especially susceptible (Chris, 2024). This study seeks to investigate the precise characteristics and magnitude of the adverse impacts of the economic recession on impoverished households in Nigeria during President Tinubu's tenure. It is necessary to conduct a comprehensive analysis in order to comprehend the distinct difficulties encountered by these households, assess the sufficiency of government assistance measures, and evaluate the efficacy of policies taken to alleviate these obstacles. Therefore, the necessity for doing this investigation arises.
Objectives of the study
The primary objective of this study is to critically investigate the negative effect of economic recession on low income household in Nigeria: evidence from President Tinubu administration. Specific objectives of this study are to:
To determine the extent of economic recession affected household income level under President Tinubu administration.
To analyze the economic challenges faced by low-income households as a result of economic recession under Tinubu administration.
To evaluate the effect of economic recession on the financial stability of low income household under President Tinubu administration.
To offer strategic solutions based on the findings to improve support for low-income households during economic recessions.
1.4 Research Questions
The following research questions which are in line with the objectives of this study will be answered in this study:
What is the extent of economic recession affected household income level under President Tinubu administration.
What are the economic challenges faced by low-income households as a result of economic recession under Tinubu administration.
What is the effect of economic recession on the financial stability of low income household under President Tinubu administration.
1.5 Research Hypotheses
To determine the effectiveness of this study, the following research null hypotheses will be formulated to guide the study and it will be tested at 0.05% levels of significance.:
Ho: There is no significant negative effect of economic recession on household income level under President Tinubu administration.
Ha: There is a significant negative effect of economic recession on household income level under President Tinubu administration.
1.6 Significance of the study
The study seeks to examine the adverse impacts of economic recession on impoverished households in Nigeria, specifically during President Tinubu's tenure. This inquiry holds great importance for multiple reasons and will establish a foundation for policymakers, provide empowerment for low-income households, students, and scholars.
This study offers valuable insights for policymakers in Nigeria, namely during President Tinubu's administration, to develop and execute focused policies that might efficiently alleviate the negative impacts of economic recessions on low-income households. Gaining a comprehensive understanding of the particular difficulties encountered by this specific group of people would facilitate the development of more refined and influential policies that directly cater to their requirements. The study emphasises the significance of promoting economic stability and inclusive growth by drawing attention to the vulnerabilities faced by low-income households during economic downturns. It highlights the importance of economic policies that not only focus on achieving overall growth, but also guarantee that the advantages of growth are fairly shared, thus diminishing poverty and strengthening economic resilience among the most susceptible groups.
Furthermore, the study enhances the empowerment of low-income households by bringing attention to their particular difficulties and the ways they employ to overcome them, thereby promoting greater awareness and advocacy for these populations. It has the ability to mobilise assistance from non-governmental organisations, civil society, and international entities to offer extra resources and aid to people who require it. The research is centred on enhancing the social welfare of low-income households, which is vital for the alleviation of poverty. The project aims to enhance existing social safety nets by identifying effective coping techniques and assessing their effects. This will enable adjustments to be made to these programmes, enhancing their resilience and ability to meet the requirements of low-income families during economic challenges.
Furthermore, this research adds to the scholarly discussion on economic downturns and their effects on susceptible groups, specifically within the framework of emerging nations such as Nigeria. This study addresses a gap in the current body of literature by presenting actual facts from the Tinubu administration, providing a modern viewpoint on the topic. The findings can be used as a point of reference for future study and comparative studies in comparable circumstances.
1.7 Scope of the study
Broadly, this study focus is to critically investigate the negative effect of economic recession on low income household in Nigeria: evidence from President Tinubu administration. Specifically, this study seeks to determine the extent of recession in Nigeria under President Tinubu administration and analyze the economic challenges faced by low-income households during the recession.
Geographically, this study will be carried out in Sango Uta, Lagos State.
1.8 Limitations of the study
Like in any human attempt, the researchers encountered several small limits during the investigation. The primary constraint was the scarcity of comprehensive literature on the topic, as there is a paucity of data regarding an investigation of the negative effect of economic recession on low income household in Nigeria: evidence from President Tinubu administration. Therefore, a substantial investment of time and effort was required to find the suitable materials, books, or information and collect data.
Moreover, this study is limited by its limited sample size and restricted geographical reach, namely concentrating just on Nigeria. Hence, the findings of this study cannot be extrapolated, thereby necessitating additional research.
Furthermore, the researcher's limitations were predominantly attributable to budgetary restraints, as they are a student and lack a means of financial support. The research location's transportation charges were difficult to afford due to the exorbitant cost of transportation, which is directly impacted by the current inflation in Nigeria.
In addition, the researcher encountered a time limitation as a result of having to conduct this research while simultaneously meeting the responsibilities of attending lectures and engaging in other educational pursuits.
1.9 Definition of terms
Economic recession: Economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales
Inflation: Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
Low income household: Lower-income earners in Nigeria can be classified as a group of people who on average earn a reasonably small amount of money or in-kind reward for their corresponding labour. Income for these workers falls between 160,500 Naira and 200,000 Naira annually.
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