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ABSTRACT

In the context of emerging markets, the study sheds light on the dynamics of the interaction between political instability and the banking sector. With the growing number of investors, monitoring the political instability of corporations investing in emerging nations has become increasingly important. It has been highlighted as one of the decisive variables in the banking sector’s profitability. It is used to handle political instability and decision-making processes during the internationalization of firms. In emerging markets, however, just a few empirical research on PIAs have been done. This study contributes to the assessment of political instability by critically analyzing the determinants and indicators in order to examine the impact of political instability’s consequences on the banking sector and to gain a better understanding of the administrative practices associated with managing political instability in Nigeria. The study of the determinants of political instability, its impacts, the variables and indicators used to predict political instability, the consequences of political instability, the exploration of PIA practices in banks, and the identification of strategies used to manage and mitigate political instability in Nigeria have all been identified as six objectives. In order to comprehend the dynamics of the interaction between political instability and the banking sector, four assumptions have been developed in support of these goals.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Political unrest is becoming a more significant risk for emerging market investor growth. “There has been tremendous increase in investment since the turn of the century, but political instability has been a major concern for banks working in the world’s developing countries,” according to a 2013 research on global investment and political instability (WorldBank (2014, p.5). This is due to the fact that political instability raises the transaction costs of investing in these countries, making it one of the deciding considerations for banks.

Recent research have revealed that political instability has evolved throughout the last few decades, and that distinct types of political instability have emerged over that time. Nationalization and expropriation were formerly the key issues. As a result, issues such as license cancellations, tax limits, and investment restrictions have arisen.

Analysis and comprehension have become more challenging when political instability has increased. This has resulted in a number of ramifications that have altered the banking sector’s policies for various countries.

Banks, on the other hand, have several sorts of business ownership, ownership structures, and entry methods. This shows that banks’ perceptions of political instability vary depending on their type of commercial activity and entrance route.

Because different types of political instability have a greater influence on investment than on other types of enterprises, the majority of research on business participation has concentrated on investment. As a result, political instability will continue to have a significant influence in deciding the type of commercial activity and entry methods, and will be one of them. This means that each country has its own set of political instability elements to consider. As a result, investors employ a variety of methods to assess the political environment of each host country in order to manage and reduce the effects of political instability. Political instability has different effects for investors in different countries, as well as in different parts of some developing countries (Brink, 2004). With the increased risk of the repercussions of political instability, the cost of doing business rises, resulting in a variety of situations that multinational firms must seriously examine.

STATEMENT OF PROBLEM

Because of the evolution and dynamism of enterprises in the modern world, the political instability of today can be studied from various perspectives. This is the result of a series of events that occurred in various parts of the world and had an impact on the business environment. National terrorism, the “Arab Spring,” and other types of conflict have all contributed to a rise in political instability in some parts of the world. Even after five decades of independence, Africa’s economic and political systems remained essentially stagnated during this period, particularly in Africa (Tordoff, 2002). There are still a variety of obstacles to overcome, ranging from political to economic issues, as well as insecurity issues (Asiedu, 2002). Studies on the assessment of instability in Nigeria and other African countries that have reported difficulties or political instability have been done. They were generally subjective, shallow, and unsystematic, and offered generic information on political instability analysis studies that had substantial or no due diligence (Brink, 2004, Fitzpatrick, 1983). The majority of these reports are broad, based on a single occurrence in the country, and are based on theoretical or hypothetical evidence from conceptual research rather than empirical or pragmatic research techniques. Due to the inability of some multinational firms to completely comprehend varied political settings, broad strategies have resulted, categorizing some developing countries as safe or precarious (Fitzpatrick 1983: 251). This study tries to address these issues in the context of problems.

OBJECTIVES OF THE STUDY

The purpose of this study is to look into the factors that contribute to political instability in Nigeria.

To look into the risks that political instability poses to Nigeria’s financial system.

To determine the measures employed in Nigeria to control and minimize political instability.

RESEARCH QUESTIONS

What factors contribute to Nigeria’s political unrest?

What threats does Nigeria’s financial sector face as a result of political unrest?

What techniques are being employed in Nigeria to control and alleviate political instability?

RESEARCH HYPOTHESIS

Hypothesis 1: A rise in political unrest will have a detrimental influence on a bank’s revenue.

Hypothesis 2: Political instability will have a detrimental influence on the assets of the bank.

SIGNIFICANCE OF THE STUDY

This study adds to the literature on political instability in developing markets, which is especially important given that Nigeria is one of the world’s fastest expanding emerging market destinations. It is impossible to stress the importance of understanding political changes and other sources of instability in the country. Since then, a country’s political and economic states have been intertwined, with government actions and levels of political stability serving as economic and commercial benchmarks. However, it is important to note that information can only be meaningful if it is intentionally used to the resolution of political, economic, social, and other complex challenges that jeopardize a nation’s progress. Similarly, the expertise of governments and bank managers in most emerging countries would be considerably improved. They would have a greater understanding of the political instabilities that influence investors, which would drive governments to enact measures that would make the economic environment more hospitable. Other organizations intending to do business in the country will also gain a better understanding of management approaches, the effects of political instability on their businesses, and how to design their mitigation tactics to battle instability. It will also aid in understanding how political instability and the unique characteristics of each country influence the process of internationalization, the type of international trade, and the basic techniques that multinational corporations use to generate a profit.

ORGANIZATION OF THE STUDY

The work is broken into five sections. The methodology of the study is also discussed in chapter one, which is an introductory chapter, while chapter two reviews related literature. The process of data gathering and analysis is covered in Chapter 3. The fourth chapter, which displays and analyzes secondary and primary data, also includes a discussion of research findings. The summary of facts, conclusions, and suggestions are the subject of Chapter 5, which is the final chapter.

DEFINITION OF TERMS

Political instability is the likelihood of a government collapsing as a result of internal disagreements or excessive competition among political parties. A change in government also enhances the chance of more changes in the future. Political unrest is a common occurrence.

2. banking sector: a sector of the economy committed to the holding of financial assets for others, the use of those financial assets as leverage to build greater wealth, and government regulation of those activities.

3. danger; to be in a bad condition as a result of an external reason.

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