Synopsis of Nigerian Economy and the Growth of Ponzi Schemes

Ikenna E. Asogwa This study was conducted to examine the effect of Ponzi scheme on Nigerian Economy. Available researches explored N...

Global Journal of Management and Business Research

Ikenna E. Asogwa

This study was conducted to examine the effect of Ponzi scheme on Nigerian Economy. Available researches explored Nigerian economy in terms of its history, structure and growth with no literature on the economy and the growth of Ponzi in the face of the present recession. Nigerian economy is beset with myriads of economic problems ranging from unemployment to bad leadership and structure of governance that has climaxed into economic recession. Ponzi schemes became an alternative to the harsh economic realities in the country and this research investigated the effect of this in the economy. The result shows that there is a strong negative relationship between Nigerian economy and the growth of Ponzi. It created illusive picture of the economy in terms of peoples’ living standard and income levels. http://onlinelibrary.wiley.com/doi/10.1111/jftr.12182/full
Keywords: economy, recession, ponzi schemes, growth, Nigeria.
GJMBR-B Classification: JEL Code: H00

Introduction Since Nigeria’s independence in 1960, many unprecedented political and economic changes have shaped the country. These changes have in one way or the other affected the development and growth of the economy either favourably or adversely. The Nigerian economy itself has gone through ups and downs, however, the history of gloomy days seem to outweigh the history of rainy days for the economy in the long run. According to the African Development Bank (ADB) Group, Nigeria has had sluggish economic growth since the end of 2015 with the rate dropping to an estimated 3% in December 2015, leading the government to adopt expansionary budgetary system in 2016 with the aim of stimulating the economy. This sluggish growth is mainly attributed to a slowdown in economic activities which has been adversely impacted by inadequate supply of foreign exchange. These foreign exchange restrictions has resulted in cuts in production and labour loss in manufacturing and banking sectors of the economy that lead to a high unemployment rate and reduction in business activities thus limiting the flow of funds in the economy. In addition, liquidity crises hit the economy, this was exacerbated by the implementation of Treasury Single Account (TSA) [4] by the government in a bid to fight corruption. TSA was aimed at ensuring that government and its agencies maintained a single account for its transactions with the Central Bank of Nigeria (CBN). This moped up liquidity in the banking system. As the liquidity crises continued, it systemically affected other business sectors in the economy and they started crippling into liquidity crises; banks could barely guarantee loans to various sectors of the economy like the oil and gas, construction, manufacturing and aviation industries. Many businesses closed down (perhaps relocate to neighbouring countries) as they could no longer access funds from the banks at ease, interest rate skyrocketed to a point that CBN issued a warning that seven Nigerian banks may need to merge, or require bail out from their foreign counterparts or brace up for a regional banking over the worsening liquidity problem while other banks recapitalised to mitigate the effect of the crises [8]. Systemically, Nigerian economy slid in to a serious economic crisis affecting mostly youths and households as disposable income crashed due to an unbearable inflation coupled with job losses that resulted thereof. Nigeria degenerated into recession in the second quarter of 2016 after two successive quarters of negative growth [15]. This was consequently confirmed by the National Bureau of Statistics (NBS) and the Ministry of Finance grudgingly yielded to it after several undeniable economic indices alluding to the fact (Fig. 1). These economic peculiarities Nigerians faced(decline in crude oil prices and earning to Nigeria, reduction in Gross Domestic Product (GDP), high rate of inflation, increase in exchange rate, widespread unemployment and loss of job) forced the people to seek alternative means of survival. Oil is unarguably the mainstay of Nigeria’s economy and since the fall in global oil prices, it has been grappling hard with the economic realities it found itself. Money at the disposal of both the government and household lost its value in terms of purchasing power, dollar rate to naira skyrocketed and so on. This exacerbated unemployment rate and led to job loss, massive hunger and starvation in the economy. Ponzi schemes became a ready easy succour for poor living standard of Nigerians. It provided an easy alternative to survival with its promise of a high rate of returns on investment. A number of these ‘easy money making’ ventures in the form of Ponzi sprang up. These stimulated the economy, people especially the youths even borrowed money to invest in the scheme as it seemed good. Based on this, the first hypotheses was developed to check if there is a relationship between Nigeria’s economy and the growth of Ponzi schemes. As more people turned to this ‘quick fix’ systems to cushion the effect of the harsh economy resulting primarily from poor living standard caused by skyrocketing inflation, the economy was a little bit reflated. People generally had money to spend through the returns from the Ponzi and the banks were busy with customer either withdrawing their matured investment or initiating new ones through their deposits and transfers. The first set of people who went into the scheme benefited quite tremendously and was able to attract new members. Some of them built houses, bought cars and started many more business bearing little or no risk. As a result people became more liquid, they could easily augment for poor/irregular salary, high cost of living occasioned by the bad economy coupled with the economic recession currently ravaging the country. Based on this, the second hypotheses was developed to test the effect of Ponzi schemes on Nigerian economy. The following research questions are formulated below to guide the conduct of the research;

Research Questions:
i. What is the relationship between Nigerian economy and participation in Ponzi scheme?
ii. How does Ponzi scheme growth affect Nigerian economy?
iii. What is the effect of Ponzi scheme on Nigerian Economy?
iv. What group of people engaged in Ponzi schemes?

Conclusion and Recommendations: This survey was conducted to examine the economic system in Nigeria and the growth of Ponzi. The Nigerian economy was estimated based on the general welfare of Nigerians, the living standard, spending power and financial buoyancy. This was examined along the participation of people in Ponzi and its attendant growth in order to investigate the current economic crises bedevilling Nigeria in the name of recession. The findings obtained through the descriptive analysis suggest that 83.5% of the respondents comprised of school leavers (SSCE holders), undergraduates, BSc/HND holders, MBA, MSc, PhD and so on. These groups of people constitute the knowledgeable group to make the findings of the study reliable. The correlation matrix shows that there is a strong negative and significant relationship (table 4.7) between the growth of Ponzi scheme and the Nigerian economy. In addition, the OLS table leads us to the rejection of the two hypothesis raised for the study based on the significant relationship and the negative effect of Ponzi scheme on the economy found between the growth of Ponzi and the Nigerian economy. Ponzi scheme has quite played a major role in the lives of average Nigerians by helping to earn ‘quick money’ without a legal productive means. This improved the disposable income of people (in the short term) and increased their spending power. However, the long term effect on both the individual and the economy is catastrophe. It has affected the banking sector, education sector, employment opportunities/creativity among youths, increased debt and so on. It affected the banking system through deposit withdrawals to invest in Ponzi thereby making the banks less liquid and discouraging savings [17]. The education sector made up of youths took speculative risk to invest their fees in Ponzi in order to raise pocket money and cushion the effect of hardship but ended up losing the investment resulting to school dropout and suspension of studies. It also resulted to loss of creativity and jobs as many Nigerian resorted to the easy or easier way of making money rather than being creative to productive ventures. Ponzi schemes also led many into wanton accumulation of debt as they are paid at the initial stage of the scheme, they could confidently borrow to invest more in it, only to wake up and find that it has crashed midway to their ‘anticipated financial freedom’. Generally Ponzi scheme has helped to distribute more poverty in Nigeria than wealth, its effect is systemic and hydra headed. Economic hardship witnessed in Nigeria particularly mid-2015 to date encouraged and continue to encourage the scheme. The immediate cause of Ponzi in Nigeria is unemployment/underemployment and fear of poverty while the remote cause is bad leadership. The hope of an average Nigerian youth about the future appears gloomy. Indeed the future of Nigeria as a whole appears bleak and unsustainable under the current fiscal structure and the only workable antidote to this fear is to restructure its leadership and political structure to open the economy and make it more viable. Restructuring of Nigerian economy into six geopolitical regions to enable resource control and give rise to regional comparative advantage and economies of scale through competition and mass production as well as massive investment in agriculture through industrial farming will rejig the economy and lift it out from its present conundrum. Nigeria is beset with agitations and protests of marginalisation from the regions each calling for a break away. Restructuring will foster accountability and transparency to governance when power and responsibility are devolved closer to the people. This will ultimately enhance leadership quality in the regions and bring competitive development. A six zone structure will assuage the heightened agitation for secession, heal the wound of marginalisation and quest for resource control, create jobs, foster competition, industrialisation, increase accountability and also bring economies of scale in terms of the ability of the regional governments to mobilise adequate tax revenues and channel them to regional development. These measures will open up the economy and give hope to the younger generation of a secured future through massive employment complemented with proportionate investment in education and skill acquisition.

Other Research Works

Research article:
https://journalofbusiness.org/index.php/GJMBR/article/view/2260
https://globaljournals.org/GJMBR_Volume17/6-Synopsis-of-Nigerian-Economy.pdf

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