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Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 GLOBAL RECESSION, OIL SECTOR AND ECONOMIC GROWTH IN NIGERIA. BY S. O. OLADIPO (M.sc) Department of Economics and Accounting Bells University of Technology, Ota. E-mail address: [email protected] AND PROF. J. O. FABAYO Department of Economics, Obafemi Awolowo University, Ile-Ife ABSTRACT This study investigates global recession and the oil sector, based on its effects on economic growth in Nigeria. No doubt the global economy has been experiencing some disturbances. Major economies of the world have been affected and so has the major sectors of these economies especially the ones that has a direct bearing with international trade been affected. The oil sector particularly has been one of the hit. For a country like Nigeria whose international trade is majorly in oil, the effect has become an issue. Empirical analysis using the Ordinary Least Square (OLS) reveals that there was a negative relationship between GDP and oil produced (domestic consumption and export) which is significant at 5% lever of significance i.e. (P < 0.05). The result also showed that there exists decline in the oil sector due to the global recession despite all measures given by government to curb it effects. It was Jan 2012 recommended that the federal government needs to deregulate the sector for efficient performance, and also come up with more rigorous policies that will reduce this effects on the real sector most especially the oil sector whose contribute the largest portion of income in the Nigerian economy. Keywords: Gross Domestic Product (GDP), Oil Price, Oil Export and Domestic Consumption. Introduction Current Global Crisis started as a financial crisis but now a Global Economic Crisis. The crisis is unprecedented in severity of credit contraction (credit crunch & capital crunch). The roots are in banking rather than in securities market or foreign exchange. The Crisis started in the U.S (due to certain laxities in the US financial system), spread to Europe, Developing countries and has become global. Even countries not affected by the financial crisis are now affected by second-round effects as the crisis now ATBAS-30107064©Asian-Transactions 29 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 becomes economic issues. The financial crisis started in the U.S in August 2007 with sub-prime mortgage crisis as households faced difficulties in making higher payments on adjustable mortgages, by the first quarter of 2008; there was widespread credit contraction, as financial institutions in the US tightened their credit standard in light of deteriorating balance sheets (Kindleberger and Aliber, 2005, Laeven and Valencia, 2008). In the fourth quarter of 2008, increased delinquency rates affected not only sub-prime loans but also spilled over into real sectors and other credits (Avery and Zemsky, 1998, Chari and Kehoe, 2004, Cipriani and Guarino, 2008). Although, policy makers are still sorting through the wreckage following the financial crisis that roiled the world in 2008 and the ensuing global recession, the deepest in generations. In Nigeria the policy maker respond to the likely effects of this crisis was meek initially, either they did not understand the crises or underestimated its magnitude. In general, they thought of the crisis as a financial issue that could be solved shortly without leading to economic crisis; however the effects on the oil sector cannot be under estimated. The world economy is estimated to almost come to a halt in 2009. Its annual growth of 0.5 percent will rely on the growth in the developing world, which, in turn, has been gravely hit by the global economic downturn. For example, the economic growth forecast for Africa in 2009 is expected to be only 2.8 percent, barely half of the 5.7 percent expected before the crisis. According to the forecasts made in the African Economic Outlook (AEO) 2009, Jan 2012 growth is anticipated to rebound to 4.2 percent in 2010. Growth in oil-exporting countries is expected to fall to 2.4 percent in 2009 compared to 3.3 percent of the net oil importers. The IMF has projected a growth rate of 2.9 percent for Nigeria in 2009 and 2.6 percent in 2010, indicating a major decline from last year‟s growth of 5.3 percent. A decline in the price of oil, which accounts for about 90 percent of the country‟s revenue, and the global credit crunch are some of the reasons adduced for the country‟s predicament. For instance, the crash in the oil market has caused grave concern for Nigeria‟s fiscal policy and the outlook for income earned from exports of crude oil. The global financial crisis has led to a slowdown of growth across the world‟s economies, resulting in a lower demand for commodities, especially oil. The transmission of the impact can be traced through several stages of the Nigerian economy especially through the impact on: (a) earnings and revenue of governments, (b) the balance of payments through a narrowing of the current account balance, as well as (c) the widening of the deficit on the capital account through the reduction of capital flows because of a re-appraisal of planned investment or the complete stoppage of previously committed investment programs, and (d) contraction of the scope of fiscal policy (Ajakaiye and Fakiyesi 2009). While speculative behavior and investment activities had helped to buoy up crude oil prices internationally, the reality of the global recession is beginning to be fully appreciated across the globe. The adverse impact of the crisis is more direct and more evident on the international price ATBAS-30107064©Asian-Transactions 30 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 of oil. The recent movement of the oil price is apparent in its unprecedented decline from record highs of about USD 147 per barrel in July 2008 to about USD 50 per barrel in January 2009 before a marginal increase to about USD 72 per barrel in August 2009.The declines in oil prices and export volumes have led to a decrease in export revenue. With exports falling faster than imports, the trade balance has worsened in Nigeria. The expected merchandise exports prior to the crisis were USD 89.1 billion and USD 99.5 billion in 2009 and 2010, respectively, but now revised to USD 50.4 billion and USD 55.3 billion. The current account balance is also expected to dip into deficit in the amount of 9.05 percent of GDP in 2009, from a small surplus of 0.61 percent of GDP before the crisis The current global financial crisis is as a result of a number of factors that include in the main: (a) the collapse of the housing market in the United States, (b) the lax financial regulatory conditions, and (c) the lack of implementation of strict corporate governance conditions in the United States and most of the developed economies (Krugman, 2008). Avgouleas (2008), (wikipedia, 2008) enumerated the causes of the crisis as: breakdown in underwriting standards for subprime mortgages; flaws in credit rating agencies‟ assessments of subprime Residential Mortgage Backed Securities (RMBS) and other complex structured credit products especially Collaterized Debt Obligations (CDOs) and other Asset-Backed Securities (ABS); risk management weaknesses at some large at US and European financial institutions; and regulatory policies, Jan 2012 including capital and disclosure requirements that failed to mitigate risk management weaknesses. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults (Kindleberger and Aliber, 2005, Laeven and Valencia, 2008). Some economic theories that explained financial crises includes the World systems theory which explained the dangers and perils, which leading industrial nations will be facing (and are now facing) at the end of the long economic cycle, which began after the oil crisis of 1973. While Coordination games, a mathematical approach to modeling financial crises have emphasized that there is often positive feedback between market participants' decisions (Krugman, 2008). Positive feedback implies that there may be dramatic changes in asset values in response to small changes in economic fundamentals, Minsky‟s theorised that financial fragility is a typical feature of any capitalist economy and financial fragility levels move together with the business cycle, but the Herding and Learning models explained that asset purchases by a few agents encourage others to buy too, not because the true value of the asset increases when many buy (which is called "strategic complementarity"), but because investors come to believe the true asset value is high when they observe others buying (Avery and Zemsky, 1998, Chari and Kehoe, 2004, Cipriani and Guarino, 2008. ATBAS-30107064©Asian-Transactions 31 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 This study tends to look at the performance of the oil sector before the recession and during the recession, and its effects on economic growth in Nigeria. The paper is structured as follows; session two discusses the history of Nigeria oil sector. Section three considers the quarterly trend of the oil sector during the recession. While section four gives the methodology and empirical findings. Section five conclude and gives recommendations. 2. History of Nigerian oil Nigeria became politically independent in October 1960, agriculture was the dominant sector of the economy, contributing about 70% of the Gross Domestic Product (GDP), employing about the same percentage of the working population, and accounting for about 90% of foreign earnings and Federal Government revenue. The early period of postindependence up until mid-1970s saw a rapid growth of industrial capacity and output, as the contribution of the manufacturing sector to GDP rose from 4.8% to 8.2%. This pattern changed when oil suddenly became of strategic importance to the world economy through its supplyprice nexus, Crude oil was first discovered in commercial quantities in Nigeria in 1956, while actual production started in 1958. It became the dominant resource in the mid1970s. On-shore oil exploration accounts for about 65% of total production and it is found mainly in the swampy areas of the Niger Delta, while the remaining 35% represents offshore production and involves drilling for oil in the deep waters of the continental shelf. Nigeria has proven reserves of about Jan 2012 32 billion barrels of predominantly low sulphur light crude, which at current rate of exploitation could last other years. The intention is to expand the reserves to 40 billion barrels and production capacity to 4 million barrels per day (mbd). The massive increase in oil revenue as an aftermath of the Middle-East war of 1973 created unprecedented, unexpected and unplanned wealth for Nigeria, and then began the dramatic shift of policies from a holistic approach to benchmarking them against the state of the oil sector. Now, in order to make the business environment conducive for new investments, the government began investing the newfound wealth in socioeconomic infrastructure across the country, especially in the urban areas. As well, the services sector grew. The relative attractiveness of the urban centre‟s made many able-bodied Nigerians to migrate from the hinterland, abandoning their farmlands for the cities and hoping to partake in the growing and prosperous (oil-driven) urban economy. This created social problems of congestion, pollution, unemployment and crimes. The national currency, Naira, strengthened as foreign exchange inflows outweighed outflows, and foreign reserves were built up. Up until 1985, the Naira was stronger than the US Dollar; this encouraged import-oriented consumption habit that soon turned Nigeria into a perennial net importer, which became a major problem when oil earnings decreased with lower international oil prices. External reserves collapsed, fiscal deficits mounted and external borrowing ensued with the “jumbo loans” taken in 1979. Most of Nigeria‟s macro-economic indices became unstable and worrisome. ATBAS-30107064©Asian-Transactions 32 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 Several policy initiatives to address the defective structure and inefficiencies were taken, but poorly implemented and sometimes contradictory (with cases of selfinterest motivated reversals). These created new distortions and further weakened the inchoate institutions for policy implementation. The average Nigerian therefore, became so sensitive to petroleum oil and all the variables surrounding it, to the extent that any development in the international oil markets invites an almost instantaneous reaction from domestic economic agents and policy makers alike. The Nigerian oil sector can be categorized into three main sub-sectors, namely, upstream, downstream and gas. The most problematic over the years has been the downstream sector, which is the distribution arm and connection with final consumers of refined petroleum products in the domestic economy. The incessant crisis in supply of products culminated in the decision by Government in 2003 to deregulate the downstream sub-sector. However, the manner of its implementation has been controversial because it ignores the economic realities in Nigeria Oil is a major source of energy in Nigeria and the world in general. Oil being the mainstay of the Nigerian economy plays a vital role in shaping the economic and political destiny of the country. Although Nigeria‟s oil industry was founded at the beginning of the century, it was not until the end of the Nigeria civil war (1967 - 1970) that the oil industry began to play a prominent role in the economic life of the country. Crude oil discovery has had certain impacts on the Nigeria economy both positively and adversely. On the negative side, this can be considered with respect to the surrounding communities within which the oil wells are exploited. Some of these communities still suffer environmental degradation, which leads to deprivation of means of livelihood and other economic and social factors. While on the positive side it gives about 90% of the total revenue of the country, create employment opportunities and increase the foreign exchange reserves; and the supply of energy to industry and commerce. Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977; a state owned and controlled company which is a major player in both the upstream and downstream sectors Blair (1976). Following the discovery of crude oil by Shell D‟Arcy Petroleum, pioneer production began in 1958 from the company‟s oil field in Oloibiri in the Eastern Niger Delta. By the late sixties and early seventies, Nigeria had attained a production level of over 2 million barrels of crude oil a day, although production dropped in the eighties due to economic slump. Despite the NNPC utilizes maximum installed capacity in the face of recent government efforts to make for adequate supply and distribution of petroleum products in the country, it is still doubtful if the product would be effectively and adequately distributed even if they are released largely into the market in the faces of effective allocation /distribution even if the products are locally available. Theoretically, price mechanism is adjudged Jan 2012 ATBAS-30107064©Asian-Transactions 33 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 to be the most efficient means of distributing/allocating scarce resources in the community. Given this adjudgement, the distortions that existed in the Nigerian pricing system, probably created by the dissolved subsidization policy of the 1970s to 1980s, gave rise to misallocation of scarce resources with its attendant economic inefficiency, particularly in the Public Enterprises (PEs) sectors (Ayodele and Falokun 2003). In fact, the Structural Adjustment Programme (SAP) introduced in July 1986, was among others, aimed at redressing such distortions. One of the spinoffs of SAP is the privatization and commercialization of the PEs. Currently, the Nigerian National Petroleum resources in Nigeria, is one of the several PEs being considered for privatization. During 2003–2007 Nigeria has attempted to implement an economic reform program called the National Economic Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to raise the country‟s standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalization, privatization, transparency, and accountability. NEEDS addresses basic deficiencies, such as the lack of freshwater for household use and irrigation, unreliable power supplies, decaying infrastructure, impediments to private enterprise, and corruption. The government hope that NEEDS will create 7 million new jobs, diversify the economy, boost non-energy exports, increase industrial capacity utilization, and improve agricultural productivity. A related initiative on the state level is the State Economic Empowerment Development Strategy (SEEDS). 3. Empirical Findings and Result Ordinary Least Square (OLS) was used to analysis the effect of oil activities on gross domestic product between 1990-2006, data were sourced from the CBN Statistical Bulletin. For robustness of the work a unit root was conducted and a quarterly trend analysis was captured for the effect of global recession on oil sector between 2008-2009. For the successful examination of the relative impact of crude oil on the Nigerian economy, with regards to the work of Milbourne, Otto and Voss (2003), which is based on studies by Mankiw, Romer, Weil (1992), we specify our model in an attempt to determine the impact of crude oil production ultimately on economic growth in Nigeria. Assuming linearity among our variables, the model to be used can be explicitly specified as follows: GDP= α + β1domc + β2price + β3expo + µ Where GDP is the gross domestic product Domc= Domestic consumption Price= Oil price Expo= Oil export α = constant β= coefficient (slope) µ = error term 3.1 Time Series Properties of the Data Jan 2012 ATBAS-30107064©Asian-Transactions 34 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 Table 1.1 below presents the estimates of the Augmented Dickey Fuller (ADF) test. Evidence from the results shown in the table, confirmed that, all the variables (domestic consumption, oil export, oil produced and gross domestic product) were not stationary at level. However they became stationary after first difference since the series were integrated of order one i.e. I (1) at five percent level of significance. It should be noted, that all the variables are in log form. Table 1.1: ADF Statistics for Testing Unit Roots in the Variables Variables Series At Levels At First differences Domestic consumption DOMC -2.41 -4.33 Gross domestic product GDP -2.90 -4.68 Oil price PRICE -2.45 -3.61 Oil export EXPO -2.98 -4.91 Critical Value 1% -3.96 -3.98 5% -3.12 -3.12 Sources: computed from study The results of the unit root test shows that all the variables were random walk processes. It does not however imply that in the long-run the variables could not express long-run convergence i.e. long run equilibrium. Hence the need to subject the residuals generated from their long run Jan 2012 static regression to Dickey – Fuller test or Augmented Dickey – Fuller test to see if they are stationary. The stationarity of the residuals is potent evidence that there is evidence of convergence to long-run equilibrium among the integrated variables ATBAS-30107064©Asian-Transactions 35 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 Table 1.2: THE RESULT OF OLS WITHOUT TIME SERIES PROPERTIES Dependent Variable: LOG(GDP) Method: Least Squares Date: 08/02/10 Time: 14:22 Sample: 1990 2006 Included observations: 17 Variable Coefficient Std. Error t-Statistic Prob. C LOG(DOMC) LOG(PRICE) LOG(EXPO) 12.59171 -0.370550 0.080664 -0.594935 74.34331 -4.145999 1.893870 -5.666855 0.0000 0.0011 0.0807 0.0001 R-squared Adjusted R-squared S.E. of regression Sum squared residue Log likelihood Durbin-Watson stat 0.993443 0.991930 0.094619 0.116386 18.24253 1.136007 The result from table 1.2 is spurious due to the problem of autocorrelation as shown by the Dubin-Waton(1.14) and the coefficient of oil price is statistically insignificant at 5% level. However in table 1.3 below all the coefficients are statistically significant at 5% level and the autocorrelation as been taking care of after first difference as suggested by the Augmented Dickey Fuller (ADF) test as shown in table 1.1. From table 1.2, -0.4 is the partial regression coefficient of domestic consumption which shows that with the influence of export and oil price held constant, as domestic consumption increase, i.e. 1 percentage on average, GDP goes down by 0.2 percent the coefficient Jan 2012 0.169372 0.089375 0.042592 0.104985 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) 15.08211 1.053286 -1.675591 -1.479541 656.5636 0.000000 0.08 shows that holding the influence of domestic consumption and export constant, on average, GDP goes up by about 0.08 percent as oil price increases by one percentage. More also, if the influence of domestic consumption and oil price is held constraint, on average given the coefficient of export to be -0.6, GDP goes down by about 0.6 percent. The intercept value of about 12.5, mechanically interpreted that if the values of all explanatory variables were found at zero, the mean GDP would be about 12.5 percent per 1 percent. The R2 value of about 99 means that, 99 percent of the variation in GDP is explained by domestic consumption of oil, oil produced and oil export. ATBAS-30107064©Asian-Transactions 36 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 Table 1.3 THE RESULT OF OLS WITH TIME SERIES PROPERTIES Dependent Variable: DLOG(GDP) Method: Least Squares Date: 08/02/10 Time: 14:35 Sample(adjusted): 1991 2006 Included observations: 16 after adjusting endpoints Variable Coefficient Std. Error t-Statistic Prob. C DLOG(DOMC) DLOG(PRICE) DLOG(EXPO) 0.046752 -0.525391 0.057512 -0.225412 2.423047 -7.562692 1.942655 -2.847975 0.0321 0.0000 0.0459 0.0147 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat 0.932565 0.915706 0.057466 0.039627 25.30356 1.722019 From table 1.3, -0.5 is the partial regression coefficient of domestic consumption which shows that with the influence of oil export and oil price held constant, as domestic consumption increase, i.e. 1 percentage on average, GDP goes down by 0.05 percent the coefficient 0.06 shows that holding the influence of domestic consumption and export constant, on average, GDP goes up by about 0.05 percent as oil price increases by one percentage. More also, if the influence of domestic consumption and oil price is held constraint, on average given the coefficient of export to be -0.23; GDP goes down by about 0.23 percent. The intercept value of about 0.4, mechanically interpreted that if the values of all explanatory variables were found at zero, the mean GDP would be about 0.4 percent per 1 percent. The R2 value of about 93 means that, 93 percent of the variation in GDP is explained by domestic consumption of oil, oil price and oil export. Jan 2012 0.019295 0.069471 0.029605 0.079148 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) 0.196057 0.197929 -2.662944 -2.469797 55.31614 0.000000 4.0 The impact of the financial crisis on Nigerian oil sector The impact of the financial crisis on Nigerian economy has thus far been limited as most commercial banks in the region refrained from investing in the troubled assets from the US and other part of the world. Also the interventions of government to rescue most of the affected banks have really helped the economy as a whole. The Nigerian stock market for instance has been experiencing a continuous downward trend in prices of stocks since the beginning of the crisis. Moreover, expected impact of the financial crisis on oil markets and the anticipated impact of the crisis on oil demand, supply and prices are presented. This was obtained from data prepared by the Economist Intelligence Unit (EIU) in its ATBAS-30107064©Asian-Transactions 37 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 latest report on the Middle East and North Africa region, and the United States Department of Energy. Indeed, current events suggest that EIU estimates appear to be the most plausible. It is still too early to predict the full impact of the crisis on oil prices, but the margin of error of these forecasts should not be negligible. Crude oil prices reached a record high of US$ 147 per barrel (US$/b) in July 2008 on the back of a six-year commodity boom cycle driven mostly by demand from developing countries. However, as of August 2008, oil prices plunged rapidly as demand from the Organization for Economic Co-operation and Development (OECD) countries came to a sudden halt and recession loomed as the financial crisis severely impacted the global economy (IDS, 2008, p. 5). In an attempt to curb falling prices, the Organization of Petroleum Exporting Countries (OPEC) introduced a series of cuts in output. At the time of writing, oil prices have begun to stabilize at levels ranging in the mid US$ 40 per barrel. According to the EIU, world oil demand is falling. It is estimated that demand fell by 0.2 per cent in 2008 and expected to fall by 0.4 per cent in 2009. Plummeting world demand is largely driven by falling consumption in developed countries. Indeed, preliminary estimates point to a decline of 2.9 per cent in oil demand in OECD countries in 2008. A further drop of 1.8 per cent is also forecast in 2009. Reduction in demand in OECD countries is largely due to falling demand in North America, estimated at about 2 per Jan 2012 cent in 2009, and in Europe, estimated at 1.7 per cent. Non-OECD demand for oil is forecast to grow by 1.4 per cent in 2009 and by 2.3 per cent in 2010. Underpinning these estimates is the expected increase in demand in developing countries. However, even if demand is expected to increase, it will not be sheltered from the consequences of the global economic turmoil, as it is forecast to grow at a slower pace over the short-to-medium term. Broadly speaking, growing oil demand in developing countries has recently been driven by two major components, namely increasing demand in both China and India and Arab oil-exporting countries. Hence, the extent to which oil demand in developing countries will be impacted largely depends on the underlying elements in each of the above-mentioned components. The expected slowdown in the demand for oil in emerging countries is greatly dependent on the demand outlook in China and India which is, in turn, related to their growth prospects. Source: The Arab Petroleum Research Center, 2009; EIU, 2008. OPEC countries introduced largescale cuts in output as the sharp fall in oil prices began to bite into the revenues of major oil-exporting countries. These cuts were made in two stages: (a) first, the production target was cut by 1.5 million barrels per day (b/d), effective from November 2008; and (b) a further cut of 2.7 million b/d became effective on January 2009, amounting for a cumulated cut of 4.2 million b/d. Taking into consideration the ATBAS-30107064©Asian-Transactions 38 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 production cuts made in late 2008, the EIU estimates that global crude production has averaged around 86 million b/d in 2008, equivalent to an increase of only 1.2 per cent, when compared to 2007. Also, as shown in table 2, it expects a fall in global output by 1.15 per cent in 2009. The anticipated fall is largely driven by the steep decrease in OPEC production (estimated at 6.2 per cent), whereas non-OPEC production is expected to grow by 2.7 per cent. However, EIU prospects for 2010 are less gloomy as it forecasts an increase of 2.6 per cent in world oil production. Such an increase is likely to result from an expected recovery in worldwide demand by the end of 2009. Nigerian’s crude oil production, including condensates and natural gas liquids was estimated at 1.70m barrels per day (mbd) or 154.70m barrels (mbd) per day during the second quarter of 2009, compared with 1.78mbd or 160.20mbd in the preceding quarter. This represented a decline of 4.5 percent. The development was attributed to the continued disruption in oil production in the Niger- Delta region as a result of militant activities. Crude oil export was estimated at 1.25mbd or 113.75m barrels in the review period, compared with 1.33mbd or 121.03m in the preceding quarter. The development was attributed to the continued attacks on oil export facilities including the Trans –Ramos pipeline facility belonging to the Shell Petroleum Development Company Jan 2012 (SPDC).At an estimated average of US $61.14 per barrel, the price of Nigerian’s reference crude, the bonny light (370API), rose by 32.5 per cent over the level of the preceding quarter. The average prices of other competing crude namely; the west Texas intermediate, the U.K. Brent and the forcados also rose by 45.5, 36.8 and 29.2 percent to US $59.44, US $59.76 and US $60.32 per barrels respectively. The average price of OPEC’s basket of eleven crude streams also, rose by US $15.79 to US $58.25 over the level in the preceding quarter. The increase in the price was attributed to the high expectations of global economic recovery as well as the falling inventories in top oil consuming nations, the united state of America. 5. Conclusion and policy recommendation In spite of the impressive growth performance of the Nigerian economy prior to the global financial crisis, the country is still faced with serious socio-economic challenges at different levels of government (state, local), corporate and financial institutions. High dependence on oil and gas, which are exhaustible, as the major source of government revenue, inadequate pass-through of the benefit of growth to a larger segment of the population, the need to link the growth attained with good economic policies as well as the capacity to implement policies that will translate into poverty reduction and the attainment of Millennium Development Goals (MDGs), continue to remain economic issue. However, government can increase their budget at different level so as to increase the demand side as it was done during the 1930’s depression, it should be noted that this was ATBAS-30107064©Asian-Transactions 39 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 postulated by keyn’s which solved the problem then. Also government should diversify its sources of revenue rather than relining on the oil sector solely since the sector has not been contributing positively to economic growth as shown by the result. This notwithstanding, Medium-term fiscal policy must be guided by considerations of fiscal and external stability and deregulation should be encourage due to many factors like misappropriation of public funds (corruption) and poor administration. REFERENCES [1]Ajakaiye O. and T. Fakiyesi (2009), Global Financial Crisis, ODI Discussion Series Pp 8: Ghana, Overseas Development Institution London. [2]Arab Petroleum Research Centre. 2009. Arab Oil and Gas Bulletin, vol. Xxxviii-No 900,16 March. [3]Avgouleas, E. (2008) „Financial Regulation, Behavior Finance, and the Financial Credit Crisis in Search of a Regulatory Model‟ Retrieved http;//papers.ssrn.com New from [4] Chari, V., and Kehoe, P. (2004), 'Financial crises as herds: overturning the critiques' Journal of Economic Theory 119, pp. 128150. Jan 2012 [5]Cipriani, M., and Guarino, A. (2008) 'Herd Behavior and Contagion in Financial Markets' The B.E. 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ATBAS-30107064©Asian-Transactions 40 Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 [11]Kindleberger.C.P., and Aliber, R. (2005), Manias, Panics, and Crashes: A History of Financial Crises, 5th ed. Wiley, ISBN 0471467146. [12]Laeven, L., and Valencia, F. (2008), 'Systemic banking crises: a new database' International Monetary Fund Working Paper 08/224. [13]Madujibeya, S. A. (1976), “Oil and Nigeria's Economic Development”, African Affairs, Vol. 75, No. 300, pp. 284-316 Massachusetts Amherst Working paper no. 18 September. . Jan 2012 [14]Mtango, E. E. E. (2008) “African Growth, Financial Crisis and Implications for TICAD IV” GRIPS-ODI-JICA joint seminar: African Growth In The Changing Global Economy Paper presented by Ambassador of Tanzania and Dean of the African Diplomatic Corps in Japan retrieved from www.google.com on 2/11/09. [15]Wikipedia (2008) „Subprime Mortgage Crisis‟ retrieved from, http://en.wikipedia.org/wiki/subprimemortga ge.crisis on 2/11/09 ATBAS-30107064©Asian-Transactions 41